| | | Market Snapshot
| Dow | 40211.72 | +210.82 | (0.53%) | | Nasdaq | 18472.57 | +74.12 | (0.40%) | | SP 500 | 5631.22 | +15.87 | (0.28%) | | 10-yr Note | -3/32 | 4.23 |
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| | NYSE | Adv 1573 | Dec 1158 | Vol 874 mln | | Nasdaq | Adv 2575 | Dec 1690 | Vol 5.4 bln |
Industry Watch
| Strong: Financials, Energy, Industrials, Information Technology |
| | Weak: Utilities, Consumer Staples, Health Care, Consumer Discretionary |
Moving the Market
-- Buying activity in mega cap stocks boosting index performance
-- Treasury yields declining from overnight highs
-- Belief that assassination attempt on former President Trump has boosted his re-election chances contributing to positive bias
-- Digesting some earnings news
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Closing Summary
15-Jul-24 16:30 ET
Dow +210.82 at 40211.72, Nasdaq +74.12 at 18472.57, S&P +15.87 at 5631.22
[BRIEFING.COM] The stock market had a solid showing, leading the Dow Jones Industrial Average (+0.5%) to close at a fresh all-time high. The Russell 2000 continued its recent outperformance, jumping 1.8%, while the S&P 500 and Nasdaq Composite gained 0.3% and 0.4%, respectively.
Advancers led decliners by a 3-to-2 margin at both the NYSE and at the Nasdaq.
Outperforming bank stocks contributed to the upside bias today amid ongoing earnings news from the space. Goldman Sachs (GS 492.23, +12.35, +2.6%) was a winning standout after reporting earnings this morning. The SPDR S&P Bank ETF (KBE) closed 2.7% higher and the SPDR S&P Regional Banking ETF (KRE) jumped 2.9%.
The S&P 500 financial sector was a top performer, closing 1.4% higher. The only sector to close with a larger gain was energy, which jumped 1.6%. Meanwhile, the utilities sector was the worst performer by a wide margin, falling 2.4%.
The positive bias today was also related to the notion that this weekend's assassination attempt on former President Trump has increased his chances of winning the election in November. Mr. Trump is deemed by many to be a more market-friendly candidate due in part to his aim of deregulation and lower corporate tax rates.
An early rise in market rates was also attributed to the belief that former President Trump is likely to win in November, but Treasuries settled below their high yields. The 10-yr note yield settled four basis higher points to 4.23% after hitting 4.45% and the 2-yr note yield dropped one basis point to 4.45% after hitting 4.47%.
- Nasdaq Composite: +23.1% YTD
- S&P 500: +18.1% YTD
- S&P Midcap 400: +9.3% YTD
- Russell 2000: +7.9% YTD
- Dow Jones Industrial Average: +6.7% YTD
Reviewing today's economic data:
- July NY Fed Empire State Manufacturing -6.6 (Briefing.com consensus -6.0); Prior -6.0
Looking ahead to Tuesday:
- 8:30 ET: June Retail Sales (Briefing.com consensus -0.1%; prior 0.1%), Retail Sales ex-auto (Briefing.com consensus 0.2%; prior -0.1%), June Import Prices (prior -0.4%), Import Prices ex-oil (prior -0.3%), Export Prices (prior -0.6%), and Export Prices ex-agriculture (prior -0.8%)
- 10:00 ET: May Business Inventories (Briefing.com consensus 0.3%; prior 0.3%) and July NAHB Housing Market Index (Briefing.com consensus 44; prior 43)
Treasuries settle mixed
15-Jul-24 15:35 ET
Dow +278.56 at 40279.46, Nasdaq +86.62 at 18485.07, S&P +21.55 at 5636.90
[BRIEFING.COM] The major indices moved slightly higher over the last half hour.
The 10-yr note yield settled four basis points to 4.23% and the 2-yr note yield dropped one basis point to 4.45%.
Looking ahead to Tuesday:
- 8:30 ET: June Retail Sales (Briefing.com consensus -0.1%; prior 0.1%), Retail Sales ex-auto (Briefing.com consensus 0.2%; prior -0.1%), June Import Prices (prior -0.4%), Import Prices ex-oil (prior -0.3%), Export Prices (prior -0.6%), and Export Prices ex-agriculture (prior -0.8%)
- 10:00 ET: May Business Inventories (Briefing.com consensus 0.3%; prior 0.3%) and July NAHB Housing Market Index (Briefing.com consensus 44; prior 43)
Small cap index continues outperformance
15-Jul-24 15:00 ET
Dow +290.56 at 40291.46, Nasdaq +89.00 at 18487.45, S&P +24.65 at 5640.00
[BRIEFING.COM] The Russell 2000 continues to outperform other major indices, showing a 2.0% gain. Meanwhile, the S&P 500 is 0.4% higher.
The small cap index is higher by 7.0% this month versus a 3.3% gain in the S&P 500 and a 4.3% gain in the Nasdaq Composite so far in July.
Growth stocks have a slight performance edge over value stocks. The Russell 3000 Growth Index is 0.6% higher versus a 0.4% gain in the Russell 3000 Value Index.
APA Corp., Tesla up in S&P 500 on Trump read-throughs
15-Jul-24 14:30 ET
Dow +232.57 at 40233.47, Nasdaq +75.20 at 18473.65, S&P +21.07 at 5636.42
[BRIEFING.COM] The S&P 500 (+0.38%) is in last place on Monday afternoon among the major averages, adding about 21 points to Friday's close.
Elsewhere, S&P 500 constituents APA Corp. (APA 31.53, +1.56, +5.21%), Tesla (TSLA 259.71, +11.48, +4.62%), and Discover Financial (DFS 136.57, +5.29, +4.03%) pepper the top of the standings. APA benefits from pro-Trump sentiment in the Presidential race, while reports confirmed over the weekend that E. Musk said he "fully endorses" former President Trump, with general strength in credit card stocks helps DFS.
Meanwhile, Virginia-based energy firm AES (AES 17.15, -1.74, -9.21%) is today's top laggard despite a dearth of corporate news.
Gold higher as markets gauge rate cut sentiment
15-Jul-24 14:00 ET
Dow +166.52 at 40167.42, Nasdaq +60.92 at 18459.37, S&P +15.87 at 5631.22
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.33%) has snuck into second place.
Gold futures settled $8.20 higher (+0.3%) to $2,428.90/oz, aided by a weaker-than expected Q2 GDP report from China.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $104.26.
Apple remains crisp, reaching new all-time highs following several uplifting developments (AAPL)
Shares of Apple (AAPL +2%) remain crisp today, spiking to fresh all-time highs after Bloomberg reported the iPhone maker reached sales of $8.0 bln in India. Apple also received an upgrade to "Buy" from "Hold" at Loop Capital, citing a significant opportunity to solidify itself as the leader in Gen AI-focused consumer tech. A third piece of news may also be lifting Apple today after the International Data Corporation's preliminary data showed that the global smartphone market grew by 6.5% yr/yr in Q2, the fourth straight quarter of shipment growth, underpinning a continued recovery in demand.
Apple has sprinted around +40% higher since Q2 (Mar) results, as investors signal their excitement over the possible sales boost incorporating AI into the iPhone and iPad may bring. Even though the company's newest operating system has yet to be released, the market is betting that it spurs a resurgence in demand after a few periods of underwhelming yr/yr growth. This may not manifest in Q3 (Jun) numbers, which are set to be released on August 1. Instead, with the retail release of iOS 18 launching later this year, possibly in the fall, any impact of Apple's newest AI-centered operating system may not appear until Q4 (Sep) or even 1Q25 (Dec) figures.
- However, in the interim, reports of outsized growth across other key initiatives can keep the underlying optimism alive. By registering a reported +33% jump in revenue across India over the trailing twelve months through March, investors have a clearer understanding of just how well Apple is performing in one of its best markets.
- During its past few quarters, India has been a highlight, boasting double-digit growth in Q1 and Q2, reaching record quarterly sales each time. CEO Tim Cook remarked that India was an exciting market and a major focus in May. Emerging markets as a whole have been providing a boost to Apple's quarterly revs, with several regions across Latin America and the Middle East enjoying solid demand dynamics.
- Apple is not just interested in selling its products in India but also in producing them there as a way to diversify its supply chain after the pandemic caused significant disruptions in China. Mr. Cook also mentioned that production in India is critical to becoming competitive in the region.
- Unlike in China, Apple's smartphone market share in India is tiny as less expensive Android (GOOG) OEMs dominate the consumer market, from Samsung (SSNLF) to Xiaomi. However, in China, Apple started at the bottom, only to slowly chip away at leaders' market share before it became one of the dominant forces in the region. With demographics similar to China's, India offers a market from which Apple can extract considerable revenue.
As Apple continues to carve out fresh all-time highs, it heads into its Q3 results facing lofty expectations. However, suppose emerging markets like India sustain their past growth characteristic while developed nations, like the U.S., enjoy a broader recovery. In that case, particularly as the thrill of AI mounts, Apple will be in good shape to maintain its upward momentum.
Alphabet looks to close the gap on Microsoft and Amazon with potential acquisition of Wiz (GOOG)
Google's (GOOG) advertising business, at nearly 80% of its total revenue, is still the company's bread and butter business, but expanding its cloud computing segment has been central to its growth strategy for many years. Now, GOOG is greatly upping the ante in its pursuit to gain ground on cloud computing giants Microsoft (MSFT) and Amazon (AMZN) as it reportedly considers acquiring cybersecurity company Wiz for $23 bln. According to the Wall Street Journal, GOOG and Wiz, which provides a platform that identifies security threats within data stored in cloud infrastructure, have entered discussions for a deal that could materialize soon.
- Making a huge splash in the M&A market hasn't typically been GOOG's calling card, but it has turned to acquisitions in the past to bolster its Cloud segment. Most notably, In September 2022, GOOG completed a $5.4 bln acquisition of Mandiant, expanding its cyber defense, threat intelligence, and incident response capabilities.
- During GOOG's Q1 earnings call in late April, CEO Sundar Pichai proclaimed that the company's Cloud business is now widely regarded as the leader in cybersecurity.
- He added that enterprises are combining GOOG's AI technology, such as Gemini, with its cybersecurity tools, creating a more effective and quicker threat detection system.
- With an acquisition of Wiz, which was founded in Israel but is headquartered in New York City, GOOG would be adding a leading unified cloud security platform provider that syncs up with Amazon Web Services and Microsoft Azure. It looks like a natural fit for GOOG as the company aims to capitalize on soaring demand for cloud storage and an associated surge in demand for tools that protect that data as AI continues to emerge.
- The reported price tag, though, is quite stunning. Wiz is generating about $500 mln in annual recurring revenue, so at the $23 bln valuation, GOOG would be paying roughly 45x recurring revenue. Additionally, according to the Wall Street Journal, Wiz raised $1.0 bln at a valuation of $12.0 bln just earlier this year. WIZ is growing quickly -- annual recuring revenue is up by 43% since the end of 2023 -- but the valuation metrics are still hard to swallow.
- Of course, there are also significant regulatory concerns attached to this potential transaction. GOOG's search and advertising businesses are already facing antitrust lawsuits from the U.S. Justice Department. Therefore, it's hard to imagine that regulators would be thrilled about GOOG making a massive acquisition that could help it achieve a dominant position in its Cloud segment too.
The main takeaway is that acquiring Wiz would instantly help GOOG to close the gap on Azure and AWS, while providing it with a significant growth catalyst, but the regulatory uncertainties and very rich price tag could also provide an overhang on the stock.
Goldman Sachs inches higher as decent Q2 results mostly priced in (GS)
Goldman Sachs (GS +1%) experiences a relatively muted response today to its solid top and bottom-line upside in Q2, alongside a 9% bump in its quarterly dividend. Shares of the investment banking giant trended roughly +24% higher since last quarter, putting Q2 results under a microscope. As such, GS was prone to higher scrutiny, making a slimmer earnings beat compared to Q1, slowing revenue growth across many divisions, and general uncertainty over near-term economic conditions enough to keep investors from reacting more enthusiastically today.
- That is not to say that Q2 results were not still impressive. GS delivered double-digit growth across its two primary divisions -- Global Banking & Markets (GBM) and Asset & Wealth Management (AWM) -- following the sale of its consumer business, GreenSky, this past March, supporting a 16.8% jump in total revenue yr/yr to $12.73 bln, a mild acceleration from the +16.1% delivered in Q1. Adjusted EPS surged by 180% yr/yr to $8.62 as GS lapped dismal results due to GreenSky and lackluster investment banking and trading activity.
- GBM continued to expand by double-digits in the quarter, increasing by 14% yr/yr to $8.18 bln. Sequentially, revenue contracted by 16%, underpinning a moderate deceleration in Investment banking fees and Equities revenue. Still, activity in Debt and Equity underwriting remained robust. CEO David Solomon was optimistic that the economy is amid the early innings of a recovery in M&A, which would provide a tremendous lift to GBM revs.
- Like last quarter, AWM's growth rate outpaced GBM, delivering a 27% bump in revs yr/yr and 2% sequentially, underscoring a healthy market as Equity investments, primarily real estate, boasted substantial gains compared to net losses in 2Q23, which coincided with the regional banking crisis. An energetic market also lifted AWM's Management and other fees as GS benefited from an uptick in average assets under supervision.
- Since GS does not typically issue formal guidance, its remarks on the operating environment carry meaningful weight. Mr. Solomon touched on similar headwinds from the past couple of quarters, such as a high level of geopolitical instability. Additionally, inflation has proven stickier than initially thought. However, Mr. Solomon was upbeat on the U.S., which he stated remained relatively constructive, with markets continuing to price in a soft landing as the economic growth trajectory improves.
- GS also briefly discussed AI, stating that the proliferation of the technology across the corporate world should bring considerable financing needs, fueling demand for GS's services.
The main takeaway is that GS's Q2 results carried over much of last quarter's upward momentum, but not at the same clip. When considering the impressive rally shares of GS embarked on over the past three months, today's muted reaction is not overly surprising. Still, after letting go of its consumer business with the sale of GreenSky, GS can concentrate on what separates it from other financial institutions while reducing its risk to the consumer side of banking, which endured some turbulence in Q2, putting it in a healthier position to keep revenue growth sprightly even as the near-term future remains hazy.
Cleveland-Cliffs bulks up its flat-rolled segment with deal to acquire Stelco (CLF)
There was some pretty big M&A news in the steel space over the weekend with Cleveland-Cliffs (CLF) announcing it will acquire Canadian steelmaker Stelco. It is a cash-and-stock deal comprised of C$60 in cash plus C$10 (0.454 shares of CLF) for each share of Stelco, which does not trade in the US but does trade on the Toronto Stock Exchange. Upon completion, CLF shareholders will own 95% of the combined company and Stelco shareholders will own 5%.
- The transaction implies a total enterprise value of approximately $2.5 bln (or C$3.4 bln) for Stelco and represents an acquisition multiple of 4.8x LTM Adjusted EBITDA with synergies. Cliffs estimates the deal will achieve approximately $120 mln of annual cost savings with no impact to union jobs. CLF expects the acquisition will be immediately accretive to 2024 and 2025 EPS.
- Stelco is an integrated steelmaker consisting of two operational sites, both located in Ontario: Lake Erie Works, which is says is the newest and lowest-cost integrated steelmaking facility in North America; and Hamilton Works, a downstream finishing and cokemaking facility. Stelco ships approximately 2.6 mln net tons of flat-rolled steel annually, primarily hot-rolled steel to service center customers.
- Cleveland-Cliffs is already the largest flat-rolled steel producer in North America. This deal doubles Cliffs' exposure to the flat-rolled spot market, with cost advantages in raw materials, energy, healthcare, and currency. CLF also notes that Stelco adds capabilities that complement Cliffs' existing operations and product portfolio, while diversifying its customer base across the construction and industrial sectors.
- CLF has been active on the M&A front. In March 2020, CLF acquired AK Steel for $1.1 bln. Then, in December 2020, it acquired the US assets of ArcelorMittal (MT) for $1.4 bln. As a result, CLF became the largest flat-rolled steel producer in North America and the largest iron ore pellet producer in North America. Also, recall that CLF tried to buy US Steel (X) last year, but was rebuffed. US Steel later agreed to be acquired by Japan's Nippon Steel.
- CLF said on the call that, in recent years, Stelco has transformed from an underperforming steel company under previous ownership into one of the highest margin steel companies in North America. As such, CLF sees Stelco as a plug and play asset. Unlike the ArcelorMittal USA assets that needed massive investments/repairs, this asset will be low capital intensity. Stelco will be the lowest cost and highest EBITDA margin flat rolled asset in CLF's entire footprint.
Overall, we think this is a nice pick up for CLF as it solidifies its dominant position in the flat-rolled space. The valuation seems fair and Stelco has made significant strides in its turnaround. On the flip side, manufacturing activity remains weak and Stelco uses higher-cost union labor. However, we think the timing of this deal could work out well if the Fed cuts rates soon, as expected. That could give a jolt to the manufacturing space just as this deal is expected to close in Q4.
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.
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