Market Snapshot
| Dow | 40954.48 | +742.76 | (1.85%) | | Nasdaq | 18509.34 | +36.77 | (0.20%) | | SP 500 | 5667.20 | +35.98 | (0.64%) | | 10-yr Note | +5/32 | 4.17 |
|
| | NYSE | Adv 2202 | Dec 533 | Vol 957 mln | | Nasdaq | Adv 3273 | Dec 947 | Vol 5.8 bln |
Industry Watch
| Strong: Industrials, Health Care, Utilities, Consumer Discretionary, Materials, Financials |
| | Weak: Information Technology, Communication Services |
Moving the Market
-- Upside momentum following strong start to July
-- Losses in some mega cap names limiting index performance
-- Buying activity under the index surface as money rotates to areas of the market that have been left out of recent gains
-- Solid gains in bank stocks amid earnings news from the space
|
Closing Summary
16-Jul-24 16:25 ET
Dow +742.76 at 40954.48, Nasdaq +36.77 at 18509.34, S&P +35.98 at 5667.20
[BRIEFING.COM] The Dow Jones Industrial Average (+1.9%) surged more than 700 points, moving further into record territory. The S&P 500 (+0.6%) had another record high close today, too. Meanwhile, the Russell 2000 jumped 3.5%, continuing its recent outperformance.
With today's gain, the Russell 2000 is 10.6% higher since the start of July. The S&P 500 and Nasdaq Composite are up 3.8% and 4.4%, respectively, over the same time.
Today's trade was a continuation of the broadening out exhibited in recent sessions, driven by momentum and a drop in market rates. The 10-yr note yield settled at 4.17%, down six basis points from yesterday, and the 2-yr note yield settled at 4.44%, down one basis point from yesterday.
Losses in the mega cap space acted as a limiting factor for the major indices. NVIDIA (NVDA 126.36, -2.08, -1.6%), Meta Platforms (META 489.79, -6.37, -1.3%), and Microsoft (MSFT 449.52, -4.44, -1.0%) were among the influential losers.
Buying activity was fairly robust elsewhere. The equal-weighted S&P 500 registered a 1.7% gain. Advancers had a 4-to-1 lead over decliners at the NYSE and a 7-to-2 lead at the Nasdaq.
The upside bias today was also supported by positive responses to some earnings news. Dow component UnitedHealth (UNH 548.87, +33.50, +6.5%) logged a sharp gain after its earnings report.
Bank of America (BAC 44.13, +2.24, +5.4%) and PNC Financials (PNC 176.98, +7.96, +4.7%) were top performers in the S&P 500 financial sector (+1.2%) following pleasing earnings news. Morgan Stanley (MS 106.22, +0.96, +0.9%) also logged an earnings-related gain.
Six other sectors in addition to the financial sector jumped at least 1.0% today. The industrial sector (+2.5%) registered the largest gain by a decent margin followed by materials (+2.0%). The heavily-weighted information technology (-0.4%) and communication services (-0.6%) sectors were alone in negative territory by the close.
- Nasdaq Composite: +23.3% YTD
- S&P 500: +18.8% YTD
- S&P Midcap 400: +12.0% YTD
- Russell 2000: +11.7% YTD
- Dow Jones Industrial Average: +8.7% YTD
Reviewing today's economic data:
- June Retail Sales 0.0% (Briefing.com consensus -0.1%); Prior was revised to 0.3% from 0.1%; June Retail Sales ex-auto 0.4% (Briefing.com consensus 0.2%); Prior was revised to 0.1% from -0.1%
- The key takeaway from the report is that it conveyed some rather solid levels of discretionary spending on goods in June that belies any hard landing tracking for the economy.
- June Import Prices 0.0%; Prior was revised to -0.3% from -0.4%
- June Import Prices ex-oil 0.2%; Prior -0.3%
- June Export Prices -0.5%; Prior was revised to -0.7% from -0.6%
- June Export Prices ex-ag. -0.6%; Prior -0.8%
- May Business Inventories 0.5% (Briefing.com consensus 0.3%); Prior 0.3%
- July NAHB Housing Market Index 42 (Briefing.com consensus 44); Prior 43
Tomorrow's economic lineup features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.2%)
- 8:30 ET: June Housing Starts (Briefing.com consensus 1.310 mln; prior 1.277 mln) and Building Permits (Briefing.com consensus 1.391 mln; prior 1.386 mln)
- 9:15 ET: June Industrial Production (Briefing.com consensus 0.3%; prior 0.9%) and Capacity Utilization (Briefing.com consensus 78.6%; prior 78.7%)
- 10:30 ET: Weekly crude oil inventories (prior -3.44 mln)
Tomorrow's economic lineup
16-Jul-24 15:35 ET
Dow +728.56 at 40940.28, Nasdaq +19.47 at 18492.04, S&P +31.71 at 5662.93
[BRIEFING.COM] The Russell 2000 continues to add gain ahead of the close, trading 3.4% higher. The S&P 500 (+0.6%) and Dow Jones Industrial Average (+1.8%) are moving sideways near session highs.
Omnicom (OMC), J.B. Hunt Transport (JBHT), and others report earnings after today's close. Looking ahead, Elevance Health (ELV), Johnson & Johnson (JNJ), U.S. Bancorp (USB), ASML (ASML), Synchrony Financial (SYF), Ally Financial (ALLY), and others report earnings ahead of tomorrow's open.
Tomorrow's economic lineup features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.2%)
- 8:30 ET: June Housing Starts (Briefing.com consensus 1.310 mln; prior 1.277 mln) and Building Permits (Briefing.com consensus 1.391 mln; prior 1.386 mln)
- 9:15 ET: June Industrial Production (Briefing.com consensus 0.3%; prior 0.9%) and Capacity Utilization (Briefing.com consensus 78.6%; prior 78.7%)
- 10:30 ET: Weekly crude oil inventories (prior -3.44 mln)
Stocks move higher as yields decline
16-Jul-24 15:05 ET
Dow +718.56 at 40930.28, Nasdaq +14.36 at 18486.93, S&P +30.09 at 5661.31
[BRIEFING.COM] The major indices moved higher over the last half hour. The S&P 500 sports a 0.6% gain, trading near its session high.
Upside moves coincided with Treasury yields moving lower. The 10-yr note yield is at 4.17%, down six basis points from yesterday, and the 2-yr note yield is at 4.44%, down one basis point from yesterday.
Mega cap stocks continue to lag index performance. The Vanguard Mega Cap Growth ETF (MGK) shows a 0.3% decline.
Match, Etsy ride analyst ratings to top of S&P 500, Raymond James dips on Schwab sympathy
16-Jul-24 14:30 ET
Dow +658.07 at 40869.79, Nasdaq -20.30 at 18452.27, S&P +21.40 at 5652.62
[BRIEFING.COM] The S&P 500 (+0.38%) is in second place on Tuesday afternoon, consolidating afternoon gains near the 5,650 level.
Elsewhere, S&P 500 constituents Match (MTCH 34.55, +2.53, +7.90%), Etsy (ETSY 65.86, +4.29, +6.97%), and Warner Bros. Discovery (WBD 7.88, +0.46, +6.20%) pepper the top of today's trading. MTCH was initiated with an Outperform at Wolfe this morning in addition to a letter from activist Starboard, Wolfe also initiated coverage on ETSY with a Peer Perform and named it a Tactical Call, while WBD was the subject of some analyst target moves.
Meanwhile, Raymond James (RJF 115.63, -5.48, -4.52%) is near the bottom of the standings, lagging in sympathy to Schwab's (SCHW 68.35, -6.72, -8.95%) post-earnings move lower.
Gold higher amid growing rate cut sentiment
16-Jul-24 14:00 ET
Dow +619.37 at 40831.09, Nasdaq -36.12 at 18436.45, S&P +18.19 at 5649.41
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-0.20%) is the sole decliner among the major averages, weaker as investors rotate further out of tech stocks.
Gold futures settled $38.90 higher (+1.6%) to $2,467.80/oz, hitting an all-time high earlier in the session at $2,470.20 as sentiment brewed about a rate cut soon.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $104.33.
Bank of America banking some nice gains as company sees NII growth resuming in Q4 (BAC)
For the eighth consecutive quarter, Bank of America (BAC) exceeded EPS expectations in Q2, but like most of its banking peers, high interest rates cut into its net interest income (NII) as higher deposit costs offset an increase in asset yields. Furthermore, those high interest rates weighed on demand for loans, including mortgages and auto loans, causing revenue to edge higher by less than 1%. As such, the company's NII and EPS fell by 3% and 6%, respectively.
- In BAC's Consumer Banking segment, stiff competition for deposits amid a high interest rate environment caused deposits to slip by 6% as consumers sought out higher yielding products. In turn, BAC had less capital to lend out, although average loans and leases still grew by 2% to $312 bln due to higher asset yields.
- From an asset quality standpoint, BAC is still on solid footing as net charge-offs remained relatively flat on a qtr/qtr basis at $1.5 bln.
- The Global Markets unit was a standout, which saw revenue increase by 12% to $5.5 bln. Equities trading was strong with revenue jumping by 20% to $1.9 bln, while FICC growth was much more modest, up just 3% due to a weak trading environment in FX and interest rate products.
- Another positive was the investment banking business. Thanks to the ongoing recovery in the IPO market, total investment banking fees shot higher by 29% to $1.6 billion, placing BAC in the #3 spot for investment banking fees across the industry.
- Lastly, the strong stock market and healthy capital inflows helped BAC achieve record client balances of more than $4.0 trillion, up by 10%, in its Global Wealth and Investment Management segment.
Overall, there were few surprises given that most of BAC's largest competitors had already reported earnings. However, the stock is trading with some nice gains in the wake of the earnings report, which is likely tied to its Q4 NII outlook of $14.5 bln, reflecting a 4% yr/yr increase, and its expectation for net charge-offs to be lower in 2H24 compared to 1H24.
Match Group may have found its better half as Starboard's active stake reengages buyers (MTCH)
Match Group (MTCH +7%) gaps up to its best level in three months today after Starboard Value disclosed a 6.6% active stake in the company and sent a letter to the Board imploring them to look into alternative value creation opportunities. Starboard is a hedge fund seeking undervalued companies with which it can actively engage to identify untapped opportunities.
With Starboard jumping on board to turn MTCH around, the question is whether MTCH can seize enough opportunities to reverse course and possibly return to pandemic-style growth.
- MTCH's latest Q1 report did not exactly paint a rosy picture of the online dating app world. Payers declined by 6% yr/yr to 14.9 mln, with MTCH's largest app, Tinder, seeing an even broader decline at 9% to just under 10 mln. The discretionary spending environment remains suppressed, a troubling trend for a company that started out offering many of its apps for free with most features included. Transitioning toward hiding additional features behind a paywall has negatively impacted the app's recent growth trends.
- MTCH has not been alone in the challenges the current macroeconomic environment poses. Rival Bumble (BMBL) delivered a similarly underwhelming quarter, headlined by a 6% drop in its primary Bumble app's average revenue per paying user (ARPPU). However, it should be noted that BMBL saw positive paid user growth yr/yr in Q1, possibly underpinning market share capture.
- However, management was confident it could satisfy its user base, noting that it is doubling down on improving its current features while introducing new offerings at affordable prices. MTCH anticipates the fruit of its labor will culminate in higher a la carte revenue, which it refers to as ALC revs, during the back half of FY24.
- While Tinder has not performed up to par, MTCH's other popular app, Hinge, has enjoyed solid growth, boasting a 31% jump in payers yr/yr in Q1 to 1.4 mln while revenue per payer climbed by 14%. Hinge has proven popular at home and abroad, growing by 20% globally in Q1. Hinge remains a core aspect of MTCH's long-term focus. It seeks to grow the brand into a $1.0 bln revenue business, more than double what it delivered in FY23. Hinge was likely a compelling feature to Starboard, which may look to accelerate its monetization efforts.
Starboard's active stake is a vote of confidence in MTCH's ability to take advantage of its meaningful brand recognition across the U.S. and in other Western European markets. However, past quarterly results were disappointing, especially compared to some of its competitors. While today's jump could be the start of a more significant rally, it may be better to wait and see how MTCH performs over the next two to three quarters to see if the macroeconomic landscape begins to turn more favorably and MTCH can reverse its string of declining paying users.
UnitedHealth overcomes several headwinds in Q2; reaffirms FY24 EPS and MCR forecasts (UNH)
Health insurance giant and Dow component UnitedHealth (UNH +5%) may have encountered rising costs in Q2, experienced decelerating top-line growth, and increased the estimated impact a previously disclosed cyberattack will have on earnings. However, by still delivering a double-digit EPS beat while reiterating its FY24 adjusted earnings outlook, investors are signaling relief over a quarter that could have been much worse, especially with many cost-related headwinds swirling about.
The cyberattack on Change Healthcare took a $0.92 per share bite out of Q2 earnings -- most of which is related to UNH's direct response, affecting GAAP EPS -- and will now clip FY24 earnings by $1.90-2.05 per share compared to $1.30-1.35 predicted last quarter. Meanwhile, medical costs continue to rise, illuminated by a 190 bp jump yr/yr in UNH's medical care ratio (MCR) -- the percent of premiums used to cover costs -- to 85.1% in Q2, above its previous 83.5-84.5% forecast. UNH is also working through the decision by the Centers for Medicare & Medicaid Services (CMS) to leave its 2025 Medicare Advantage (MA) rate unchanged.
Nevertheless, UNH remains confident in its positioning to enjoy positive growth this year and into 2025, supported by resilient demand characteristics across several facets of its organization.
- Revenue growth may have slowed to 6.4% in Q2 from +8.6% in Q1 but was still mildly ahead of consensus at $98.86 bln. Underpinning UNH's consistent quarterly sales growth was a strong expansion in the number of people served at Optum and UnitedHealthcare. The standout remained Optum Health, which boasted a 13% bump in revs yr/yr. Partially offsetting this strength was the cyberattack, which caused some revenue loss.
- When excluding the cyberattack direct response and South American impacts, including the sale of UNH's Brazilian business, adjusted EPS increased by 10.7% yr/yr to $6.80. While UNH's MCR edged higher yr/yr, around 40 bps of the 190 bp jump was attributed to suspending some care management activities following the cyber attack. Most of the remaining impact stemmed from member mix within MA, which has seen unusual competitive configurations and a timing mismatch related to Medicaid members that UNH anticipates will realign in the coming months.
- Despite these issues, UNH reaffirmed its MCR forecast of 83.5-84.5%, albeit at the upper end. It also left its FY24 adjusted EPS guidance unchanged at $27.50-28.00. Meanwhile, management was unperturbed by the CMS's decision earlier this year, commenting that it is navigating the funding reduction well. While UNH touched on a couple areas of margin pressure, it stated that they will primarily work their way through the pricing cycle, making the problems mostly transitory.
Coming into Q2, fears lingered over how UNH would juggle numerous cost-related problems, reflected by the stock consolidating throughout June and July. By delivering a report that looked strikingly similar to last quarter, which kicked off a solid rally, investors feel relieved today, pushing the stock toward 2024 highs. While UNH could be an outlier in its handling of current headwinds, its results still bode well ahead of its peers Q2 numbers, including Elevance Health (ELV) on July 17, Molina Healthcare (MOH) on July 24, Centene (CNC) on July 26, and Humana (HUM) on July 31.
Morgan Stanley trades modestly higher following healthy Q2 beat; IB revs bounced back (MS)
Morgan Stanley (MS +2.4%) is trading higher after reporting healthy EPS upside with its Q2 report this morning. The beat was not as large as Q1, but MS has reported back-to-back double-digit EPS beats for the first time since Q2-Q3 of 2021. Revenue grew a robust 11.6% yr/yr to $15.02 bln, which also was better than expected. This was Morgan Stanley's first double-digit yr/yr revenue growth quarter since 3Q21, led by strength in equity and a notable pickup in investment banking.
- What really drove the quarter was its Institutional Securities segment as revenue grew an impressive 23.5% yr/yr to $6.98 bln, reflecting strong performance across the franchise, with notable strength in Equity, driven by higher client activity, and in investment banking (IB) on robust debt underwriting results. Equity subsegment revenue rose 18% yr/yr to $3.02 bln, reflecting strong performance across business lines and regions, particularly in Asia.
- The star of the show as IB revenue jumping 51% yr/yr to $1.62 bln, a notable improvement from 16% growth in Q1. Advisory revenue was boosted by a higher number of completed M&A transactions. Also, equity underwriting revenue was driven by private placements, IPOs and convertible offerings. Fixed income underwriting revenue increased significantly yr/yr primarily driven by higher non-investment grade issuances.
- A bit less impressive was its Wealth Management segment, where revenue rose just 2% yr/yr to $6.79 bln. This followed 5% growth in Q1. In fairness to MS, a big reason for the tepid growth was consumers shifting funds into accounts that offer higher interest rates. As a result, WM segment net interest fell 17% yr/yr to $1.8 bln. Its Asset Mgmt subsegment actually posted a record quarter with revenue growing 16% yr/yr to $3.99 bln.
- Its final segment is Investment Management, but it's the company's smallest by far. IM segment revenue grew 8% yr/yr to $1.39 bln. Asset management fees increased on higher average AUM driven by higher market levels.
Overall, this was a good quarter for Morgan Stanley. The headline numbers were quite good, especially the top line growth. MS said that the resilience of the US economy, and a more stable near term outlook on rates supported conviction amongst clients. What really jumped out was the huge growth in investment banking revs as more M&A takes place and IPOs picked up.
Finally, the stock has been slowly trending higher since late October, when the Fed started signaling possible timeframes for rate cuts. The stock has traded above the $100 level in recent months as investors appear bullish on the company's prospects and the overall rate environment. This Q2 report continues the recent share price action of slowly trending higher.
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.
|
