| | | Market Snapshot
| Dow | 40415.44 | +127.91 | (0.32%) | | Nasdaq | 18007.57 | +280.63 | (1.58%) | | SP 500 | 5564.41 | +59.41 | (1.08%) | | 10-yr Note | -23/32 | 4.260 |
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| | NYSE | Adv 2013 | Dec 705 | Vol 861 mln | | Nasdaq | Adv 3022 | Dec 1267 | Vol 5.1 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Consumer Discretionary, Utilities, Health Care, Real Estate, Industrials, Financials |
| | Weak: Energy, Consumer Staples |
Moving the Market
-- Rebound activity in mega caps and semiconductor stocks after last week's slide
-- Muted reaction to political developments after President Biden drops out of 2024 presidential race and endorses Kamala Harris for president
-- Treasury yields little changed, acting as support for equities
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Closing Summary
22-Jul-24 16:30 ET
Dow +127.91 at 40415.44, Nasdaq +280.63 at 18007.57, S&P +59.41 at 5564.41
[BRIEFING.COM] The stock market exhibited rebound action today after last week's declines. Mega cap stocks and semiconductor shares led the upside action after underperforming last week, but many stocks came along for the rally. The S&P 500 settled 1.1% higher and the Invesco S&P 500 Equal Weight ETF (RSP) settled 0.8% higher.
NVIDIA (NVDA 123.54, +5.61, +4.7%), Meta Platforms (META 487.40, +10.61, +2.2%), and Microsoft (MSFT 442.94, +5.83, +1.3%) were among the influential winners today on some buy-the-dip interest. With today's action, NVDA shares are flat so far in July, META shares are down 3.3% in July, and MSFT is 0.9% lower in July.
Many other stocks also logged gains, leaving nine of the 11 S&P 500 sectors higher. The information technology (+2.0%) and communication services (+1.2%) sectors led the pack thanks to the aforementioned names. The industrial (+1.1%) and real estate (+1.0%) sectors also jumped at least 1.0%.
Meanwhile, the energy sector logged the biggest decline amid falling oil prices ($78.43/bbl, -0.26, -0.3%).
Market participants are also digesting news that President Biden exited the 2024 presidential race and endorsed Kamala Harris for the candidacy. The news garnered muted responses in the equity and bond markets. The 10-yr note yield settled two basis points higher at 4.26% and the 2-yr note yield settled one basis point higher at 4.52%.
There was no US economic data of note today.
Looking ahead, Tuesday's economic data is limited to the June Existing Home Sales report at 10:00 ET. General Motors (GM), UPS (UPS), Albertsons (ACI), Lockheed Martin (LMT), Coca-Cola (KO), Philip Morris International (PM), and others report earnings ahead of Tuesday's open.
- Nasdaq Composite:+20.0% YTD
- S&P 500: +16.7% YTD
- S&P Midcap 400: +9.7% YTD
- Russell 2000: +9.6% YTD
- Dow Jones Industrial Average: +7.2% YTD
Stocks hold steady in front of the close
22-Jul-24 15:35 ET
Dow +159.71 at 40447.24, Nasdaq +290.09 at 18017.03, S&P +61.08 at 5566.08
[BRIEFING.COM] There hasn't been much up or down movement over the last half hour.
The 10-yr note yield rose two basis points to 4.26% and the 2-yr note yield settled one basis point higher at 4.52%.
Looking ahead, Tuesday's economic data is limited to the June Existing Home Sales report at 10:00 ET. General Motors (GM), UPS (UPS), Albertsons (ACI), Lockheed Martin (LMT), Coca-Cola (KO), Philip Morris International (PM), and others report earnings ahead of Tuesday's open.
IQVIA higher in S&P 500 after earnings, Air Products dips after COO resignation news
22-Jul-24 14:30 ET
Dow +91.36 at 40378.89, Nasdaq +310.91 at 18037.85, S&P +62.34 at 5567.34
[BRIEFING.COM] The S&P 500 (+1.13%) is in second place on Monday afternoon, up about 62 points.
Elsewhere, S&P 500 constituents IQVIA (IQV 240.11, +15.54, +6.92%), Lam Research (LRCX 969.60, +52.49, +5.72%), and Amphenol (APH 66.50, +2.15, +3.34%) pepper the top of the standings. IQV is higher after earnings/guidance, while APH continues its recent seesaw action, higher today ahead of Wednesday's earnings report.
Meanwhile, Air Products (APD 250.74, -12.17, -4.63%) is near the bottom of the average after announcing the resignation of COO S. Serhan.
Gold lower for third day in a row
22-Jul-24 14:00 ET
Dow +105.23 at 40392.76, Nasdaq +278.62 at 18005.56, S&P +57.89 at 5562.89
[BRIEFING.COM] With about two hours to go the tech-heavy Nasdaq Composite (+1.57%) is today's top-performing major average.
Gold futures settled $4.40 lower (-0.2%) to $2,394.70/oz, ending lower for a third session in a row as equities and yields rebounded to start the week.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.32.
DJIA bringing up the rear on Monday afternoon
22-Jul-24 13:30 ET
Dow +112.83 at 40400.36, Nasdaq +259.82 at 17986.76, S&P +55.67 at 5560.67
[BRIEFING.COM] The Dow Jones Industrial Average (+0.28%) is in last place today, more aggressive gains had elsewhere.
A look inside the DJIA shows that Nike (NKE 75.22, +2.52, +3.47%), Salesforce (CRM 254.15, +6.52, +2.63%), and Microsoft (MSFT 442.75, +5.64, +1.29%) are among today's top gain getters.
Meanwhile, Verizon (VZ 39.15, -2.47, -5.93%) is underperforming.
The DJIA is now up about +3.28% month-to-date.
Terex's $2.0 bln purchase of Dover's Environmental Solutions Group met with a standing ovation (TEX)
Terex (TEX +9%), an aerial work platform and materials processing machine manufacturer, is surging today after agreeing to purchase Dover's (DOV -1%) Environmental Solutions Group, or ESG, for $2.0 bln in cash. On the flip side, DOV is not faring as strongly today, as investors express modest disappointment in the deal. Although shares of DOV just reached all-time highs last week, profit-taking is not overly surprising.
At the price TEX agreed to and including expected synergies of approximately $25 mln by 2026, the company paid around 8.4x FY24 EBITDA for ESG, a reasonable valuation as it is relatively in line with TEX's consolidated multiple. The transaction is expected to close during the back half of this year.
Even though TEX shares are up significantly today, meaningful upside potential remains, especially after the addition of ESG.
- As of last quarter, the Environmental Solutions Group was on track to generate pro forma LTM revenues of $1.4 bln, considerably strengthening TEX's overall business, which produced sales of roughly $5.2 bln in FY23. ESG also generates this revenue profitability; TEX anticipates ESG's EBTIDA margins, including run-rate synergies, to add 130 bps of margin accretion.
- ESG is part of DOV's Engineered Products segment, which provides a vast range of products and services to numerous customers globally. However, ESG primarily serves North America, boasting a leadership position in refuse collection vehicles and waste compaction equipment. This market is precisely what TEX has been looking to fortify, commenting last quarter that it was focused on expanding into new geographies and products. The addition of ESG would push TEX's North American revenue exposure to 65% and broaden its TAM to $40 bln.
- TEX was also bullish on waste recycling, forecasting increasing demand throughout FY24, making it critical to act now to bolster its presence in this industry. Waste recycling is also relatively non-cyclical, as the need persists no matter the economic climate.
- With so many similarities between TEX's existing environmental business and ESG, integrating the purchase should not bring too many integration-related pains. This is why TEX expects significant financial advantages so quickly, targeting its adjusted EPS to be double-digit percentage accretive in 2025 and grow meaningfully thereafter.
In 2024, the story of TEX has been filled with ups and downs. Over the past two quarterly reports, investors quickly locked in their profits, only for the selling to stabilize and ultimately reverse course. TEX reports Q2 results next week, on July 30, which could encounter a similar reaction. With backlogs continuing to moderate and the economic environment remaining subdued, TEX's near-term results could remain somewhat sluggish. However, last quarter, management reiterated that customer demand continues to be healthy across most of its businesses, which led to its raised FY24 outlook. By only strengthening its market position with ESG, even if results lag over the next couple of quarters, TEX is positioning itself nicely for long-term success.
Verizon pulls back after multiple rough patches overshadow a few bright spots in Q2 (VZ)
Verizon's (VZ -6%) Q2 numbers were relatively healthy across the board, delivering adjusted EPS in line with consensus, topping retail postpaid phone sub estimates, and reiterating its FY24 guidance. The telecom giant's total wireless business (including Consumer and Business wireless) was solid overall, registering a decent 3.5% jump in revenue yr/yr. Management also reiterated that most pricing churn is in the past, leaving its FY24 consumer postpaid phone churn outlook unchanged at flat to slightly better yr/yr.
Given this context, why is Verizon's reception so poor today?
- At $1.15 per share, Verizon reported no earnings upside in Q2. While the company is not known for its huge beats, not having topped estimates by over $0.07 in five years, the market may have been anticipating a slightly better result after coming off a $0.03 beat in Q1.
- Meanwhile, revenue growth of 0.6% yr/yr to $32.8 bln was a sliver lighter than analysts forecasted. Like with earnings, Verizon's top-line upside is usually small. Furthermore, Q2 tends to be a seasonally soft quarter. As such, light revenue growth should not be too surprising. However, the issue is what dragged down overall revenue growth.
- In Consumer, wireless equipment revenue fell, partially offsetting solid gains in the segment. Several chip makers and handset OEMs have touched on persistently sluggish smartphone demand as discretionary spending remains suppressed. This environment has equally affected Verizon, which posted a nearly 13% decline in wireless upgrades in Q2 on top of a 21% decline in the same period last year.
- Another factor was Verizon shedding 624,000 wireless prepaid customers due to the shutdown of the Affordable Connectivity Program (ACP), which also minimally affected postpaid revs and put some pressure on Verizon Fios.
- Likewise, in Business, total revenue moved 2.4% lower yr/yr as weak wireline revenue continued to overpower increases in wireless service revs. Unlike in Consumer, where wireline revenue, i.e., Fios (offered in only a few markets in the U.S.), was flat yr/yr, supported by 24,000 net adds, Business wireline demand has encountered a few setbacks. Last quarter, management predicted around 400 net adds quarter by quarter. The company added that the broadband market started off slow this year but has been picking up gradually.
There was still plenty to hang your hat on in Q2, especially Verizon's postpaid phone net additions of 148,000, a swift return to growth and easily surpassing street estimates. At the same time, fixed wireless is gaining momentum and is on track to reach 4.0-5.0 mln customers within the next few months. The company also continues to project total wireless service sales growth of +2.0-3.5%, adjusted EPS of $4.50-4.70, and CapEx of $17.0-17.5 bln in FY24.
Nevertheless, too many blemishes from Q2 were enough to trigger a sharp pullback today. Concerns about a shaky economic environment that has constantly hindered wireless upgrades and could spur heightened competitive pressures as consumers continue to seek out value may keep Verizon trending sideways in the near term.
PPG Industries' volumes comes up short in Q2 as global industrial activity remains subdued (PPG)
A frustrating demand environment in Europe combined with lighter-than-expected global auto OEM production painted PPG Industries (PPG -3%) into a corner in Q2, leading the paints and coating supplier to fall short of its volume growth projections. Despite a lackluster Q1 report in mid-April, PPG was optimistic about volumes finally turning positive in Q2. Several reasons underpinned its confidence, from improving demand characteristics across multiple regions to starting peak buying season. However, while these trends did unfold in Q2, they did not meet PPG's initial expectations, resulting in flat sales volume growth yr/yr and triggering a significant gap-down today.
- The European market has gradually recovered each quarter. Still, PPG was a tad too confident that the market's near-term rebound would be linear. Demand stayed uneven in terms of country and end-use. While yr/yr volume growth did continue to improve sequentially in Q2, it was still negative, ultimately pulling down overall volumes in the quarter.
- Sluggish global auto OEM production directly reflects the current macroeconomic picture. Elevated inflationary pressures and interest rates create an awful environment for automakers. PPG added that it was surprised by the extension of assembly plant downtime. However, when asked if this could be an early recessionary sign, CEO Tim Knavish remarked that it likely is more of a temporary adjustment given how some vehicles are selling under expectations.
- It was not all bad news. Volumes, albeit disappointing, did mark a notable improvement from the past couple of quarters, including negative 3% and 1% growth in Q1 and 4Q22, respectively. For perspective, PPG has not posted positive yr/yr volume growth since before 2022. Given this context, investors' patience may be wearing thin.
- Meanwhile, PPG drove further margin enhancement in the quarter, marking its seventh consecutive quarter of yr/yr segment margin expansion. Gross margins ticked 180 bps higher yr/yr to 43%, supported by record Performance Coatings margins and a healthy jump in Industrial Coatings margins.
- Furthermore, while PPG's bearish Q3 guidance and reduced FY24 outlook, projecting adjusted EPS of $8.15-8.30 from $8.34-8.59 and organic sales growth of flat to up low single digits from just up low single digits was concerning, PPG remained confident in activity picking up over the next two quarters. The company anticipates sustained growth in Mexico, recovery in demand in China, and modest improvements in Europe.
Even though PPG reiterated its FY24 outlook last quarter, its bearish Q2 outlook gave mixed signals. We were concerned that a bumpy quarter ahead made PPG's FY24 guidance flimsy, possibly resulting in a downward revision. Unfortunately for the company, this ultimately materialized. Given the recent events, we have doubts that the second half of the year will be as bright as PPG expects. Today's adverse reaction reflects investors' similar skepticism. It is also spurring some selling pressure across PPG's peer group, including Sherwin-Williams (SHW), Axalta Coating Systems (AXTA), and RPM Inc (RPM).
Netflix trades flat on Q2 results; EPS and margins were good but Q3 rev guidance light (NFLX)
Netflix (NFLX +1%) is trading slightly higher today following its Q2 earnings report. The stock initially traded sharply lower following the report but recovered during the call. NFLX reported a nice double-digit EPS beat with modest revenue upside. The Q3 guidance was mixed with upside EPS but revenue was a bit light. Netflix did tweak its FY24 revenue guidance slightly higher to +14-15% from +13-15%.
- Let's dig into it. Global streaming paid net adds in Q2 were a healthy +8.05 mln, which was above street estimates. A dip was expected from Q1's +9.33 mln. Netflix no longer provides specific net add guidance, but did say 3Q24 will be lower than 3Q23's +8.76 mln, which benefitted from being the first full quarter with paid sharing. In simple terms, Netflix started cracking down on password sharing last summer and that boosted net adds.
- Netflix had a wide variety of hit series in Q2, including Bridgerton S3, Baby Reindeer, Queen of Tears along with popular films like Under Paris, Atlas and Hit Man and The Roast of Tom Brady, which attracted its largest live audience yet. Of note, Netflix began testing a new, simpler and more intuitive TV homepage in June, which it believes will significantly improve the discovery experience on Netflix.
- Advertising was a bright spot in Q2. Netflix says it's making steady progress scaling its ads business. Ads tier membership grew 34% sequentially. Also, NFLX is building an in-house ad tech platform that it will test in Canada in 2024 and launch more broadly in 2025. NFLX says this will give advertisers new ways to buy, insights to leverage and ways to measure impact.
- NFLX says its ad revenue is becoming a more meaningful contributor to its business. However, building a business from scratch takes time. The company conceded that a near term challenge is that it's scaling faster than its ability to monetize its growing ad inventory. It is adding more sales and operations people to help.
- Another metric that stands out is operating margin, which we think will become a more important measuring stick as NFLX phases out reporting its net add metric in 1Q25. In Q2, it came in at 27.2% vs 26.6% prior guidance. It also raised its FY24 forecast to 26% from 25% and guided for Q3 at 28.1%. However, NFLX cautioned that margins could bounce around in any given year with FX and content spend, and other investment opportunities.
Overall, Netflix's Q2 report had some cross currents. It posted nice EPS and operating margin upside. Also, net adds were quite good. We had been bracing for some headwinds given that Q2 marked the third full quarter of cracking down on password sharing. The positive effect wears off over time. On the negative side, Q3 revenue guidance was a bit light and NFLX's comments about monetizing the ads business were a bit worrisome. Hence, the stock is trading roughly flat.
Intuitive Surgical's healthy progress on system placements in Q2 sends shares to new highs (ISRG)
Intuitive Surgical's (ISRG +6%) Q2 report was a cut above the rest, delivering its widest earnings beat since 2021 on sustained double-digit revenue growth. The robotic surgical equipment maker also accelerated global procedure growth in the quarter, which tracked at the high end of its FY24 guidance. Speaking of which, ISRG narrowed its FY24 procedure growth outlook, bumping up the low end while keeping the best-case scenario on the table. Rounding off the quarter was healthy progress on system placement, a development that has hit a few snags in recent months.
- The rollout of ISRG's da Vinci 5 system made considerable progress from Q1. ISRG placed 70 of these systems during Q2 versus a measly 8 last quarter, reflecting significantly improved supply constraints. Nevertheless, ISRG warned that supply will remain a headwind through at least 1H25.
- The challenges associated with da Vinci 5 are leaking into other areas of ISRG's business. Given the numerous enhancements the new system boasts, potential customers are continuing to moderately hold back on purchasing any da Vinci systems, reflected by a bump of 21 additional placements yr/yr in Q2 to 341. However, this mightily improved from just 1 additional placement last quarter.
- Despite the headwinds connected to da Vinci 5, ISRG still managed to deliver impressive headline results in Q2, including a return to double-digit bottom-line upside and a 14.5% jump in total revs yr/yr to $1.97 bln. Procedures grew nearly 17% yr/yr, a 1 pt jump from last quarter, despite lapping an uptick in patients following the pandemic.
- In the U.S., general surgery supported a 14% jump in procedures. In contrast, bariatric procedures turned negative, falling by mid-single digits yr/yr. The surging popularity of weight-loss drugs has moderated bariatric procedures for ISRG since last year. However, as has been the case throughout much of this period, other procedures more than made up for it.
- Overseas procedure volume continued to outpace the U.S., expanding by 22% yr/yr on top of a +28% jump in 2Q23, led by non-urology procedures. Europe was a highlight, as was Japan and India. Conversely, growth in China was stressed as ISRG battled emerging domestic robotic systems, which adversely impacted capital placements and, thus, procedure growth.
- Looking ahead to FY24, ISRG remained bullish, narrowing its previous +14.0-17.0% procedure growth outlook to +15.5%-17.0%. The low end assumes continued moderation in bariatric procedures with intensifying headwinds in Asia, albeit to a lesser degree than forecasted three months ago.
The overarching theme from ISRG's Q2 report was that sequential improvements squashed many lingering fears. Shares were slipping in recent trading only for Q2 numbers to reenergize the stock. There are still cracks worth keeping an eye on, such as ISRG's da Vinci 5 timeline encountering delays, competition in China heating up, and GLP-1 weight-loss drugs taking additional bariatric business. However, the market potential for further robotic surgery opportunities remains bright. Meanwhile, ISRG's da Vinci 5 rollout is progressing as planned. As such, ISRG may continue tacking on record highs.
Market in rebound mode amid electric political scene
Last weekend the nation, and the world, was engrossed with the news that there was an assassination attempt on former President Trump. This past weekend, President Biden shocked the nation, and the world, with an announcement that he is dropping out of the 2024 presidential race and endorsing Kamala Harris for president.
The political scene right now is electric. What that ultimately means for the electorate in November remains to be seen, but the respective campaigning between now and then promises to be engaging.
To be clear, Kamala Harris still has to win her party's nomination, which is to say she is not yet the official Democratic candidate for president. Reports indicate that she is the frontrunner, but the element of surprise on the nomination front has not been removed at this juncture.
That uncertainty has not permeated the marketplace, at least not in an adverse way. The equity futures market is operating in a rebound gear and the Treasury market isn't reacting much.
Currently, the S&P 500 futures are up 34 points and are trading 0.7% above fair value, the Nasdaq 100 futures are up 200 points and are trading 1.1% above fair value, and the Dow Jones Industrial Average futures are up 73 points and are trading 0.2% above fair value. The 2-yr note yield is up one basis point to 4.52% and the 10-yr note yield is down two basis points to 4.22%.
The outperformance of the Nasdaq 100 futures could be interpreted by some as a nod toward the political uncertainty since it is being driven by the mega-cap stocks, which are regarded by many to be defensive plays because of their industry-leading positions, balance sheet strength, and generally dependable earnings growth.
That point aside, the Vanguard Mega-Cap Growth ETF (MGK), which we'll characterize as a proxy for the group, has dropped 5.8% from its high on July 10, so it is unclear if the bid this morning is forged in the political uncertainty or simply a buy-the-dip bid.
It is fair to say that it is probably a little of both, but in either case it spells good things for index performance at the start of today's trading.
The interesting things to watch today will be whether this rebound trade at the open persists, whether it proves to be only a mega-cap rebound effort, or whether the broader market also comes along for the rebound ride. Recall that just about everything fell prone to consolidation interest at the end of last week.
There isn't much corporate news of note to get things going today and there isn't any U.S. economic data of note on today's calendar. Tomorrow will feature the June Existing Home Sales Report, but the June Personal Income and Spending Report on Friday will be this week's headliner because it includes the PCE Price Index and Core-PCE Price Index, which are the Fed's preferred inflation gauges.
-- Patrick J. O'Hare, Briefing.com |
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