| | | Market Snapshot
| Dow | 40000.90 | +247.15 | (0.62%) | | Nasdaq | 18398.45 | +115.04 | (0.63%) | | SP 500 | 5615.35 | +30.81 | (0.55%) | | 10-yr Note | +2/32 | 4.19 |
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| | NYSE | Adv 2085 | Dec 661 | Vol 904 mln | | Nasdaq | Adv 3044 | Dec 1197 | Vol 5.8 bln |
Industry Watch
| Strong: Real Estate, Health Care, Information Technology, Consumer Discretionary, Industrials, Utilities, Materials |
| | Weak: Communication Services |
Moving the Market
-- Ongoing momentum after yesterday's broadening out
-- Calm response in Treasuries following today's PPI data contributing to upside bias in equities
-- Buying activity in the semiconductor space boosting index performance
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Closing Summary
12-Jul-24 16:30 ET
Dow +247.15 at 40000.90, Nasdaq +115.04 at 18398.45, S&P +30.81 at 5615.35
[BRIEFING.COM] The stock market finished the week with gains. The S&P 500 (+0.6%), Dow Jones Industrial Average (+0.6%), Nasdaq Composite (+0.6%), and Russell 2000 (+1.1%) pulled back from session highs before the close, but still logged solid gains.
The upside bias was driven by carryover momentum and strength in the semiconductor space. The PHLX Semiconductor Index (SOX) registered a 1.3% gain today.
Bank stocks were left out of today's rally after quarterly results from JPMorgan Chase (JPM 204.94, -2.51, -1.2%), Citigroup (C 64.52, -1.19, -1.8%), and Wells Fargo (WFC 56.54, -3.62, -6.0%), which garnered negative responses despite beating earnings estimates.
The S&P 500 financial sector eked out a 0.2% gain, closing near the bottom of the lineup among the 11 sectors. The consumer discretionary (+1.0%) and information technology (+0.9%) sectors were among the top performers.
The equity market had a muted response to this morning's hotter-than-expected Producer Price Index for June and upward revisions to the numbers in May. Total PPI was up 0.2% versus an expected 0.1% increase and Core PPI was up 0.4% versus an expected 0.1% increase.
Treasuries also had a muted response to the data. The 10-yr yield settled unchanged at 4.19% and the 2-yr note yield settled down five basis points to 4.46%.
- Nasdaq Composite: +22.6% YTD
- S&P 500: +17.7% YTD
- S&P Midcap 400: +8.6% YTD
- Dow Jones Industrial Average: +6.1% YTD
- Russell 2000: +6.0% YTD
Reviewing today's economic data:
- June PPI 0.2% (Briefing.com consensus 0.1%); Prior was revised to 0.0% from -0.2%; June Core PPI 0.4% (Briefing.com consensus 0.1%); Prior was revised to 0.3% from 0.0%
- The key takeaway from the report is that the year-over-year rate for PPI and core PPI accelerated for the fifth month out of the last six with rising prices of services outweighing falling prices of goods in June.
- July Univ. of Michigan Consumer Sentiment - Prelim 66.0 (Briefing.com consensus 67.5); Prior 68.2
- The key takeaway from the report was that it showed little change relative to June, as many consumers remained burdened by high prices, though inflation expectations dipped slightly.
Looking ahead to Monday, the NY Fed Empire State Manufacturing Index for July will be released at 8:30 ET.
Stocks continue to climb, yields turn slightly lower
12-Jul-24 15:05 ET
Dow +442.90 at 40196.65, Nasdaq +254.59 at 18538.00, S&P +66.12 at 5650.66
[BRIEFING.COM] The major indices continue to build gains, trading at least 1.0% higher.
The improvement has coincided with Treasury yields moving slightly lower. The 10-yr note yield is at 4.19% and the 2-yr note yield is at 4.46%.
Looking ahead to Monday, the NY Fed Empire State Manufacturing Index for July will be released at 8:30 ET.
Enphase Energy higher alongside solar peers, Align Tech slides in S&P 500
12-Jul-24 14:30 ET
Dow +423.43 at 40177.18, Nasdaq +235.01 at 18518.42, S&P +61.67 at 5646.21
[BRIEFING.COM] The S&P 500 (+1.10%) is in second place on Friday afternoon, just off highs of the session.
Elsewhere, S&P 500 constituents Enphase Energy (ENPH 118.77, +7.09, +6.35%), Builders FirstSource (BLDR 154.92, +8.03, +5.47%), and ON Semiconductor (ON 77.66, +3.42, +4.61%) pepper the top of the standings. Solar stocks, including ENPH, display general strength today, while BLDR is benefiting from gains in rate-sensitive stocks, with ON and peers recovering nicely after the PHLX Semiconductor Index (SOX 5851.33, +151.67, +2.66%) lost -3.47% yesterday.
Meanwhile, Align Tech (ALGN 244.76, -11.54, -4.50%) is one of today's top laggards despite a dearth of corporate news; peer Envista (NVST 15.92, -0.82, -4.90%) also displays weakness.
Gold modestly lower on Friday, up nicely on the week to extend streak
12-Jul-24 14:00 ET
Dow +477.23 at 40230.98, Nasdaq +270.38 at 18553.79, S&P +70.42 at 5654.96
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+1.48%) is at HoDs, up about 270 points.
Gold futures settled $1.20 lower (-0.1%) to $2,420.70/oz, finishing up +1% on the week, extending its weekly winning streak to three after this week's economic data served to bolster sentiment that the Fed may cut rates soon.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $104.11.
Intel, IBM aid DJIA's Friday advance
12-Jul-24 13:30 ET
Dow +413.31 at 40167.06, Nasdaq +218.24 at 18501.65, S&P +58.15 at 5642.69
[BRIEFING.COM] The Dow Jones Industrial Average (+1.04%) is at HoDs, tied for second place with the S&P 500.
A look inside the DJIA shows that Intel (INTC 35.25, +1.75, +5.22%), IBM (IBM 183.42, +5.11, +2.87%), and Home Depot (HD 363.13, +9.34, +2.64%) are outperforming.
Meanwhile, Merck (MRK 128.14, -0.83, -0.64%) is today's top laggard.
The DJIA is on pace to add +2.00% this week.
Elsewhere, at the top of the hour, Baker Hughes (BKR 34.62, +0.11, +0.32%) announced a weekly U.S. rotary rig count of 584, -1 w/w and -91 yr/yr.
Fastenal securing some solid gains after delivering better-than-feared Q2 results (FAST)
As a distributor of a huge variety of industrial products, including fasteners, bolts, nuts, screws, and washers, Fastenal's (FAST) financial results are viewed as a gauge for the health of the U.S. manufacturing economy. Under the weight of high interest rates, macroeconomic uncertainties, and geopolitical tensions, manufacturing activity has been sputtering over the past couple of years, creating low expectations ahead of FAST's Q2 earnings report.
- Against that muted backdrop, FAST delivered better-than-feared Q2 results with both EPS and revenue meeting analysts' estimates, sparking a sharp rally higher in a stock that had sold off by 14% since the company last reported earnings on April 10.
- A key factor that helped FAST to navigate through the challenging market was that it signed 107 new Onsite locations during Q2, bringing its total to 1,934 active sites as of June 30, 2024. Altogether, FAST's Onsite locations, which are set up within or nearby a customers' worksite or facility, generated low-single-digit growth in daily sales.
- From a product standpoint, the safety product line was the clear standout with a daily sales rate (DSR) of +7.1%. This outperformance was mainly due to market share gains within the warehousing end market, in addition to favorable product mix and easier yr/yr comparisons.
- The news isn't as upbeat for the core fastener product line. In Q2, the DSR fell by 3.0% for total fasteners, compared to a 4.2% increase for non-fasteners. Relative to safety products or janitorial supplies, fasteners are more sensitive to changes in industrial production activity since they are generally used in the production of final goods. Furthermore, lower transportation costs caused fastener pricing to decelerate at a faster pace than non-fastener products.
- Price declines and unfavorable product mix contributed to a modest 40 bps yr/yr drop in gross margin to 45.1%. Additionally, stronger growth from large customers -- including Onsite customers -- relative to non-national accounts applied some downward pressure on gross margin. The company's EPS, though, remained essentially flat versus the year-earlier period at $0.51 versus $0.52 in 2Q23.
Overall, FAST's results were good enough to surpass investors' lackluster expectations, but its business is far from booming as manufacturing activity in the U.S. remains subdued.
JPMorgan Chase heads lower following earnings; increase in PCL a bit worrisome
JPMorgan Chase (JPM -1%) is trading modestly lower following its Q2 earnings report this morning. The company reported a healthy beat on EPS. Also, revenue rose 22% yr/yr to $50.8 bln, which was better than expected. CEO Jamie Dimon was not on the call this morning due to an overseas travel conflict. As such, we did not get his macro view on the call. However, in the press release, he provided some color.
- JPM reported a consolidated provision for credit losses (PCL) of $3.05 bln, reflecting net charge-offs of $2.2 bln and a net reserve build of $821 mln. Net charge-offs were up $820 mln, predominantly driven by Card Services. The prior-year provision was $2.90 bln, reflecting a net reserve build of $1.5 bln, predominantly associated with First Republic, as well as net chargeoffs of $1.4 bln.
- In its Consumer & Community Banking (CCB) segment, revenue rose 3% yr/yr to $17.70 bln. Banking & Wealth Mgmt revenue was $10.4 bln, down 5%. Home Lending revenue jumped 31% yr/yr to $1.32 bln. Card Services & Auto revenue rose 14% to $6.01 bln, reflecting higher net interest income on higher revolving balances and higher card income on higher sales volume.
- In CCB, the company opened over 450K net new checking accounts. Client investment assets were up 14% to $1.0 trillion, and JPM had a record number of first-time investors. Additionally, Card loans were up 12% on continued robust customer acquisition of 2.4 mln. In the Commercial & Investment Bank (CIB) segment, revenue rose a healthy 9% yr/yr to $17.92 bln. Investment Banking revenue jumped 46% yr/yr to $2.5 bln, albeit off a low base last year. Asset & Wealth Mgmt segment revenue rose 6% yr/yr to $5.25 bn.
- In terms of the macro view, the company said market valuations and credit spreads seem to reflect a rather benign economic outlook. However, JPM continues to be vigilant about potential tail risks. Specifically, the geopolitical situation remains complex and potentially the most dangerous since World War II, although its outcome and effect on the global economy remain unknown.
- JPM noted there has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world. Therefore, the company believes inflation and interest rates may stay higher than the market expects. Also, the full effects of quantitative tightening on this scale are still not known.
Overall, we think the upside EPS/revenue results coupled with robust growth in investment banking and home lending, are being offset somewhat by a large increase in its PCL. The net reserve build of $821 mln was a bit surprising after a net reserve release of $72 mln in Q1. Despite JPM's generally positive comments, this build makes us think JPM also has some near term concerns about the economy. Wells Fargo (WFC -7%) and Citigroup (C -2.8%) are also lower on their earnings this morning. All these earnings reports make us a bit more nervous ahead of several other banks set to report early next week.
Citigroup's recent run opened the door to profit-taking today despite solid Q2 results (C)
Citigroup's (C -2%) Q2 results were solid across the board. The investment and financial services behemoth delivered top- and bottom-line beats, albeit modest compared to last quarter, on firm growth across each of its segments, a pleasant change from Q2, when a few businesses continued to endure yr/yr declines. Citigroup also reiterated its FY24 and medium-term financial goals.
So why are shares lower today? Mirroring what unfolded last quarter, Citigroup's +15% run since April lows incorporated upbeat Q2 numbers. As a result, while there were no obvious red flags, the moderate headline numbers compared to Q1 were enough to trigger profit-taking today.
- Citigroup seldom misses earnings estimates, and Q2 was no exception, registering EPS of $1.52. For the past several quarters, the company has been cutting costs, most recently finishing its latest round of layoffs and divestiture of its India consumer business. As a leaner organization, Citigroup continued to generate positive operating leverage, even though revenue inched just 3.6% higher yr/yr to $20.14 bln.
- Citigroup's modest revenue increase was more than enough to please investors following two straight quarters of yr/yr compression. Although, the previous declines were primarily due to M&A-related impacts.
- Every segment pulled its weight in Q2, a welcome reversal from last quarter when Markets and Wealth revenue edged lower yr/yr. In fact, Markets performed a complete 180, expanding revs by 6% compared to a 7% drop last quarter, lifted by growth across Equity market revenue, which offset lower Fixed Income market revenue, the inverse of what unfolded in Q1.
- Meanwhile, Wealth ticked 2% higher, almost entirely due to non-interest income, as Citigroup welcomed a wave of new client investment assets and benefited from rising market valuations. These tailwinds were partially offset by a 4% drop in NII due to higher mortgage funding costs.
- Banking again shone the brightest in Q2, boasting a 38% jump in revenue supported by investment banking and corporate lending growth. Conversely, after six consecutive quarters of double-digit growth, USPB growth finally cooled off, expanding revs by just 6%. Still, management remains optimistic about the positive momentum across its proprietary and partner card businesses.
- Similarly, Services also slowed, delivering a 3% bump in revs. Argentina remained a drag, largely pushing NII down by 1%. However, strength in Securities Services and momentum in Treasury and Trade Solutions dwarfed this rough patch.
- Looking ahead, Citigroup left its FY24 guidance unchanged, projecting revs of $80-81 bln and expenses of $53.5-53.8 bln, excluding the FDIC special assessment. Citigroup also reiterated its medium-term goals, including a +4-5% revenue CAGR.
Citigroup's Q2 performance reflected a company that is now in the better part of its multi-year transformation plan. The past few quarters were headlined by overall lumpiness as the company was amid cost-cutting and productivity initiatives. As we mentioned at the start of the year, the goal of these moving pieces was stronger profits as FY24 progressed; Q2 results highlight benefits unfolding quicker than perhaps management could have expected. However, a solid run heading into Q2 likely already priced this in.
Wells Fargo deposits an EPS beat, but bank continues to feel the squeeze of high rates (WFC)
For Wells Fargo (WFC) and its banking peers, higher interest rates have been a double-edged sword. On one hand, higher interest rates enable WFC to generate more interest income from its loan portfolio, but on the other hand, they're also causing its customers to migrate towards higher yielding deposit products. Accordingly, WFC's funding costs have increased, causing the company's net interest income (NII) to fall by 9% yr/yr to $11.9 bln, missing analysts' expectations.
- High interest rates also aren't helping WFC's home lending business, which saw revenue drop by 3% yr/yr to $823 mln as home affordability issues have put a lid on mortgage origination activity.
- Although expectations for the Fed to begin cutting rates this year shot higher in the wake of yesterday's cooler-than-expected June CPI report, WFC isn't anticipating a major shift in the business environment for the remainder of 2024, adding to investors' disappointment.
- The company still expects FY24 NII to fall in a range of down 7-9% on a yr/yr basis, although it believes the decline may land in the upper half of that range.
- In WFC's bread and butter Consumer Banking and Lending segment (43% of total Q2 revenue), revenue declined by 5% to $9.0 bln due to the aforementioned movement to higher yielding deposit products, creating a lower deposit base that's available for lending. Additionally, the auto lending business was significantly weaker than home lending, down 25% as consumers continue to shy away from making big-ticket purchases.
- On the positive side, WFC's Investment Banking and Markets businesses performed quite well. Thanks to a much more active IPO market compared to last year, Investment Banking revenue jumped by 38% to $430 mln. Meanwhile, a strong stock market helped fuel a 41% surge in equities trading revenue, pushing total Markets revenue higher by 16% to $1.8 bln.
- That strong stock market also drove a 6% increase in WFC's Wealth and Investment Management segment as the company benefited from higher asset-based fees.
- From a credit quality standpoint, WFC is still in good shape as the provisions for credit losses declined by $477 mln yr/yr to $1.2 bln. However, there are some relatively minor cracks emerging in the company's commercial real estate portfolio.
- WFC's total nonperforming assets grew by 5%, or $410 mln, driven by higher commercial real estate nonaccrual loans. As a percentage of average loans, commercial net loan charge-offs edged up to 0.35% from 0.25%.
Overall, Q2 was a bit of a mixed bag for WFC as the company managed to beat EPS expectations, but the effects from higher interest rates continued to linger, squeezing its margins and putting pressure on its home and auto lending businesses.
Conagra's bright spots in Q4 dwarfed by prudent FY25 guidance; FY25 to be a transition year (CAG)
Conagra's (CAG -2%) Q4 (May) earnings beat and in-line revenue proved too stale today against the company's prudent FY25 guidance. The snack food giant behind many familiar brands like Slim Jim and Vlasic warned that the consumer will likely remain challenged during the upcoming year, adapting to a gradual transition toward a more normalized operating environment. Even though a normal environment sounds like favorable news for CAG, it expects turbulence as consumers adjust their reference prices, implying that the cumulative effects of inflation are here to stay, with prices unlikely to drop anytime soon. As a result, CAG forecasted adjusted EPS of $2.60-2.65 in FY25, alongside organic net sales growth of negative 1.5% to flat.
Management has been nudging consumers toward accepting its new price points and the updated value the products offer, but admitted it is a process that will take time. Even though disinflation has already cropped up, the past several years of inflation have affected virtually every aspect of daily life; incomes can take time to catch up, while the psychological effects do not disappear overnight.
Nevertheless, CAG is optimistic that it has taken the necessary steps to fortify its positioning in the grocery and snacking industry, as evident by the many bright spots from Q4.
- CAG squeaked out another bottom-line beat in Q4, registering adjusted EPS of $0.61. Revenue did contract for the third consecutive quarter, inching 2.3% lower yr/yr to $2.91 bln. The drivers were CAG's Grocery & Snacks and Foodservice segments, which registered net sales declines of 2.1% and 3.9%, respectively. In Grocery & Snacks, relatively high elasticity drove consumers toward reducing their basket sizes or trading down. Meanwhile, softness in restaurant traffic hurt CAG's Foodservice business, with volumes sliding by over 10% yr/yr.
- However, CAG did an impressive job expanding profitability in these two lagging segments, helping offset the bottom-line impacts of lower revenue and volumes. Furthermore, management noted that it gained unit share in snacking categories as it outperformed several of its competitors during the quarter, strengthening its foundation to reignite growth once economic conditions turn around.
- Meanwhile, the company's Refrigerated and Frozen segment enjoyed a modest volume bump of 0.9%, improving from last quarter. Although it did come on a 4.7% drop in prices. Both metrics resulted from the impacts of CAG's brand-building investments, which center around maximizing consumer engagement and recapturing share following a challenging period last year when trade-down intensified. Similarly, International sales increased nicely on a 4.1% jump in volumes, fueled by exceptional strength in CAG's Mexico and global exports businesses.
CAG is well aware of the stress inflation places on consumers. However, it is investing in its brands to support a return to positive volumes without significantly compromising its margins, projecting FY25 adjusted operating margins of 15.6-15.8%, similar to the 16.0% posted in FY24. While a transition year may not accompany meaningful financial gains, it is a step toward recovery, signaling that the worst of CAG's headwinds may be in the rear-view mirror.
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