| | | Market Snapshot
| Dow | 39934.87 | +81.20 | (0.20%) | | Nasdaq | 17181.72 | -160.69 | (-0.93%) | | SP 500 | 5399.22 | -27.91 | (-0.51%) | | 10-yr Note | +3/32 | 4.26 |
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| | NYSE | Adv 1797 | Dec 922 | Vol 1.1 bln | | Nasdaq | Adv 2473 | Dec 1731 | Vol 6.1 bln |
Industry Watch
| Strong: Energy, Industrials, Materials, Financials |
| | Weak: Utilities, Communication Services, Real Estate, Health Care, Information Technology |
Moving the Market
-- Digesting this morning's economic releases, which were relatively good
-- Reacting to earnings results, which were mixed and haven't changed sentiment much
-- Choppy action from mega cap stocks, ultimately settling lower and weighing on index performance
-- Positive bias under index surface after yesterday's sharp sell off
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Closing Summary
25-Jul-24 16:30 ET
Dow +81.20 at 39934.87, Nasdaq -160.69 at 17181.72, S&P -27.91 at 5399.22
[BRIEFING.COM] The stock market exhibited mixed action at the index level today, but the vibe under the surface was positive through the entire session. Advancers led decliners by a 2-to-1 margin at the NYSE and by a 3-to-2 margin at the Nasdaq.
The S&P 500 (-0.5%) and Nasdaq Composite (-0.9%) traded above and below their prior closing levels, following the fickle price action in mega cap shares. Meanwhile, the Dow Jones Industrial Average (+0.2%) and Russell 2000 (+1.3%) were either mostly or entirely positive today.
The fickle nature of mega cap stocks was evident in the performance of the Vanguard Mega Cap Growth ETF (MGK), which traded up as much as 0.9% at its high and down as much as 2.1% at its low. The equal-weighted S&P 500, however, settled with a 0.1% gain amid rebound action elsewhere.
The upside bias stemmed from buy-the-dip interest after yesterday's solid sell off.
Outsized moves in either direction were reserved for names with specific catalysts. Honeywell (HON 202.45, -11.20, -5.2%) and Ford Motor (F 11.16, -2.51, -18.4%) were losing standouts after reporting earnings news. Meanwhile, IBM (IBM 191.98, +7.96, +4.3%) and ServiceNow (NOW 848.79, +97.92, +13.4%) were winning standouts after reporting earnings.
The 10-yr note yield declined three basis points to 4.26% and the 2-yr note yield rose two basis points to 4.44%. Treasuries were reacting to the this morning's economic releases, which were in-line with the market's soft landing expectation and also acted as support for equities. Also, today's $44 billion 7-yr note auction met strong demand.
- Nasdaq Composite:+14.5% YTD
- S&P 500: +13.2% YTD
- Russell 2000: +9.7% YTD
- S&P Midcap 400: +8.8% YTD
- Dow Jones Industrial Average: +6.0% YTD
Reviewing today's economic data:
- Q2 GDP-Adv. 2.8% (Briefing.com consensus 1.9%); Prior 1.4%; Q2 Chain Deflator-Adv. 2.3% (Briefing.com consensus 2.6%); Prior 3.1%
- The key takeaway from the report is that it didn't show any breakdown in consumer spending. In fact, consumer spending growth accelerated, increasing 2.3% on the heels of a 1.5% increase in the first quarter.
- Weekly Initial Claims 235K (Briefing.com consensus 240K); Prior was revised to 245K from 243K; Weekly Continuing Claims 1.851 mln; Prior was revised to 1.860 mln from 1.867 mln
- The key takeaway from the report is that there hasn't been an alarming jump in initial claims -- a leading indicator -- to even higher levels; therefore, a conclusion will be drawn that the labor market is seeing some normal slowing as opposed to a rapid deterioration.
- June Durable Orders -6.6% (Briefing.com consensus 0.4%); Prior 0.1%; June Durable Goods -ex transportation 0.5% (Briefing.com consensus 0.2%); Prior -0.1%
- The key takeaway from the report is that the weakness was driven by a large drop in nondefense aircraft and parts orders, which are volatile. An added takeaway is that business spending in June was quite solid, evidenced by the 1.0% increase in new orders for nondefense capital goods excluding aircraft.
Friday's economic calendar features:
- 8:30 ET: June Personal Income (Briefing.com consensus 0.4%; prior 0.5%), Personal Spending (Briefing.com consensus 0.3%; prior 0.2%), PCE Prices (Briefing.com consensus 0.1%; prior 0.0%), and core PCE Prices (Briefing.com consensus 0.2%; prior 0.1%)
- 10:00 ET: Final July University of Michigan Consumer Sentiment (Briefing.com consensus 66.0; prior 66.0)
Stocks rise in front of close
25-Jul-24 15:35 ET
Dow +326.56 at 40180.23, Nasdaq +22.99 at 17365.40, S&P +17.08 at 5444.21
[BRIEFING.COM] The major indices moved slightly higher in recent action. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are all back in positive territory.
The 10-yr note yield declined three basis points to 4.26% and the 2-yr note yield rose two basis points to 4.44%.
Friday's economic calendar features the Fed's preferred gauge on inflation in the form of the PCE Price Indexes at 8:30 ET.
Stocks decline in front of another heavy earnings flow
25-Jul-24 15:05 ET
Dow +208.15 at 40061.82, Nasdaq -25.16 at 17317.25, S&P +0.17 at 5427.30
[BRIEFING.COM] Stocks moved lower over the last half hour, leading the Nasdaq Composite and S&P 500 to slide back below prior closing levels.
Looking ahead, Baker Hughes (BKR), L3Harris (LHX), Norfolk Southern (NSC), Mohawk (MHK), Eastman Chemical (EMN), and others report earnings after the close. 3M (MMM), Colgate-Palmolive (CL), Aon (AON), Centene (CNC), Bristol-Myers (BMY), Booz Allen Hamilton (BAH), and others report earnings ahead of Friday's open.
The 10-yr note yield is at 4.26% and the 2-yr note yield is at 4.46%.
Molina Healthcare, CBRE among top S&P 500 post-earnings gainers
25-Jul-24 14:30 ET
Dow +340.15 at 40193.82, Nasdaq +30.07 at 17372.48, S&P +16.10 at 5443.23
[BRIEFING.COM] The S&P 500 (+0.30%) is in second place on Thursday afternoon, trading about the middle of today's range.
Elsewhere, S&P 500 constituents Molina Healthcare (MOH 330.17, +41.45, +14.36%), CBRE Group (CBRE 110.10, +11.80, +12.00%), and Universal Health (UHS 205.18, +19.21, +10.33%) dot the top of today's standings following earnings reports.
Meanwhile, Edwards Lifesciences (EW 61.11, -25.84, -29.72%) is the worst performer in the average, lower after disappointing results from its core TAVR business, prompting no less than five sell side downgrades.
Gold sinks to multi-week lows
25-Jul-24 14:00 ET
Dow +363.63 at 40217.30, Nasdaq +98.92 at 17441.33, S&P +32.79 at 5459.92
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.57%) is in last place among the major averages, up about 99 points.
Gold futures settled $62.20 lower (-2.6%) to $2,353.50/oz, sinking to levels not seen since early July, as investors eye tomorrow's PCE reading for indications on a possible Fed interest rate cut.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.28.
KLA Corporation moves modestly higher on mostly upbeat SepQ guidance; remains bullish on AI (KLAC)
KLA Corporation (KLAC +2%) is up mildly today after clearing its Q4 (Jun) earnings and revenue estimates, marking a long-awaited return to sequential and yr/yr growth. The semiconductor equipment supplier also issued mostly uplifting Q1 (Sep) guidance, with the midpoints of its adjusted EPS and sales targets above consensus. While KLAC tends to forecast quarterly numbers in-line with consensus, plenty of eyes were on its Q1 outlook after peers ASML (ASML) and NXP Semi (NXPI) raised a few red flags over the past few weeks, issuing bearish quarterly revenue forecasts due to pockets of weakness across certain end markets.
So why are shares of KLAC not moving significantly higher today? Aside from broader weakness across the market, KLAC ran up to all-time highs weeks before its Q4 report, surging by as much as +43% from April lows. This buying frenzy priced in much of the strength exhibited by KLAC in Q2.
However, it would not be shocking to find KLAC eventually moving back toward record highs. KLAC's recent sell-off was largely due to being caught in the crosshairs of risk-off activity triggered by sector rotation earlier this month rather than alarming cracks in end-market demand. Meanwhile, Q4 results and management's commentary illuminated that AI demand is only accelerating; KLAC hiked its CY24 annualized AI-related revenue estimate to over $500 mln from approximately $400 mln.
- KLAC's adjusted EPS beat was wider in Q4 compared to Q3 (Mar), supported by a return to positive yr/yr revenue growth of 9.1% to $2.57 bln. The company continued observing signs of a strengthening market environment. In foundry/logic, the ongoing incorporation of new technologies and the gradual acceleration of capital intensity remained a tailwind. Likewise, in memory, investments in AI and an improving supply/demand environment supported KLAC's solid Q4 numbers.
- Furthermore, on AI, KLAC did not waver from its excitement over the technology, noting that AI adoption is driving higher volume wafer manufacturing, more complex designs, and growing advanced packaging demands. Also, AI is aiding further differentiation among KLAC's product portfolio. Management anticipates the AI-induced tailwind alongside a broader recovery in end markets to only intensify from here, culminating in a significant growth year in 2025.
- While these tailwinds pick up momentum, the near-term market backdrop is still transitioning from stabilization. As such, KLAC kept its wafer fab equipment (WFE) outlook mostly unchanged, hovering in the mid-$90 bln range, with the back half of 2024 stronger than the front. The company also projected relatively conservative Q1 numbers, expecting adjusted EPS of $6.40-7.60 and revs of $2.60-2.90 bln.
The main takeaway from Q2 was that KLAC did not alter its upbeat tone over an eventual recovery come 2025. Even after alarms went off following quarterly results from ASML and NXPI, shares of KLAC held up decently, underpinning general optimism that KLAC was heading into greener pastures. While today's response is relatively muted, we see plenty of upside remaining for KLAC as long as no cracks form in AI.
American Airlines gains altitude as investors set sights on turnaround, brighter conditions (AAL)
A turbulent earnings season for the airline industry became even bumpier this morning after American Airlines (AAL) slashed its FY24 EPS guidance to $0.70-$1.30 from $2.25-$3.25 as the beleaguered carrier contends with a mix of macroeconomic, industry-wide, and company-specific headwinds. Like competitors such as Delta Air Lines (DAL), which issued downside Q3 EPS guidance on July 11, AAL is feeling the effects of a supply and demand imbalance following years of capacity increases across the industry. However, AAL's own sales strategy has compounded the problem, leading to even steeper declines in its margins and profits.
- Rather than focusing on more profitable parts of the business, including premium products and international fares, AAL has prioritized passenger load. In its efforts to fill seats, the company has offered discounted prices, as illustrated by the 6.3% decrease in yield and 5.6% drop in TRASM.
- Furthermore, AAL has reduced its sales force while relying more on existing corporate contracts to drive sales. Although this plan helped to keep a tight lid on costs -- CASM-ex dipped by 0.1% in Q2 -- it has also had a profound negative impact on the top-line and margins.
- For Q2, revenue increased by a pedestrian 2% yr/yr (compared to 5.4% for DAL and 5.7% for UAL), non-GAAP operating margin dove by 570 bps yr/yr to 9.7%, leading to a 43% plunge in EPS to $1.09. The business climate isn't looking any better for Q3, either, with AAL predicting a breakeven quarter -- well below what analysts were expecting.
- That said, with shares already down by about 25% since AAL cut its Q2 guidance on May 28, much of this bad news was already priced into the stock. Therefore, participants are looking further out on the horizon and AAL had some encouraging news to share in that regard. Specifically, CEO Robert Isom stated that AAL is reversing its failed sales and distribution strategy while also echoing UAL CEO's Scott Kirby recent commentary that the industry-wide overcapacity issues will soon be corrected.
Overall, it was another rough quarter for AAL and Q3 is shaping up to be even worse, but investors are setting their sights on clearer skies in late 2024 and beyond.
Whirlpool's price hikes lead to qtr/qtr gains in North America in Q2; housing rebound sluggish (WHR)
Whirlpool's (WHR +1%) in-line Q2 results and lowered FY24 adjusted EPS outlook may not be making much of a splash today. However, with so much on the household appliance manufacturer's plate, from sticky headwinds like inflation and interest rates to structural changes like divesting its EMEA business, investors feared worse.
A depressed housing market, with existing homeowners hesitant to move and potential homebuyers priced out, combined with tightened budgets and expensive financing terms, has created a whirlwind of issues for WHR over the past several quarters. These conditions have created a heightened promotional environment, one that WHR has been selective about. In fact, with WHR lapping peak promotional activity, it introduced a price hike of 5% last quarter to better offset inflationary pressures and boost its top line.
- On a yr/yr basis, its price hikes have yet to result in a meaningful lift to quarterly numbers. WHR posted adjusted EPS of $2.39 in Q2, a 43.2% plunge, on $3.99 bln in revs, a 16.8% drop. MDA North America, WHR's largest market, continued to see losses, posting a 5.7% decrease in net sales and a 380 bp decline in EBIT margins.
- However, on a sequential basis, the pricing program displayed some success. WHR posted a 70 bp bump in EBIT margins to 6.3%, alongside a 5.7% improvement in net sales in its MDA North America segment. This bright spot was encouraging enough to give investors confidence that there are still levers WHR can pull to spur growth despite such a challenging market.
- Meanwhile, every other segment delivered yr/yr and sequential improvements in net sales, including MDA Latin America, which registered an 11.3% increase yr/yr, sustaining its outsized strength. At the same time, MDA Asia bounced back to positive growth following a 2.4% decline last quarter, recording a 19.7% leap yr/yr in Q2. Management noted that it continued to take market share across key countries in Latin America and Asia. Finally, SDA Global (WHR's small appliances segment) experienced an 11.3% uptick in net sales.
- The pricing actions WHR implemented, alongside exceptional international growth, supported its reiterated FY24 revenue outlook of $16.9 bln. However, macroeconomic headwinds proved too intense for WHR to maintain its previous FY24 adjusted EPS forecast of $13.00-15.00. Instead, WHR lowered its ongoing EBIT margins to 6.0% from 6.8%, leading to its updated FY24 adjusted earnings estimate of approximately $12.00.
- Still, WHR's cost takeout actions, working toward $300-400 mln in FY24, are positioning it strongly to end the year on a high note, projecting EBIT margins of 7.5%. This is a promising development, as it could provide the upward momentum needed to reenergize growth in 2025.
It has been a rough past couple of years for WHR. Its strong ties to the housing market, specifically the builder channel, disproportionately affect its quarterly results. However, by the same token, WHR can experience pronounced gains once the housing market rebounds. While the timing of interest rate cuts remains a significant variable, we believe the bulk of WHR's headwinds are likely behind it, especially after delivering sequential improvements in Q2.
IBM makes a nice move following large EPS upside; IT spend remains robust, especially for AI (IBM)
IBM (IBM +3%) is trading higher after reporting a huge EPS beat in Q2, its largest upside since 4Q20. Revenue rose a pretty modest 1.9% yr/yr to $15.77 bln, but that was better than expected. Another positive was IBM raising its FY24 free cash flow guidance to now be above its $12 bln prior guidance. It also reaffirmed FY24 constant currency (CC) revenue growth consistent with its mid-single digit model. IBM posted strong results in Software and Infrastructure while Consulting was a bit soft.
- Software growth accelerated by 8.4% CC to $6.7 bln, with growth across both Hybrid Platform & Solutions (+6% CC) and Transaction Processing (+13% CC) as clients leverage the capabilities of IBM's AI and hybrid cloud platforms. IBM said that this performance reflects investments it has been making, both organically and via acquisitions. Red Hat annual bookings growth accelerated to over 20% in Q2, including OpenShift annual bookings up over 40%.
- Infrastructure also had a strong performance with CC revenue up 2.7% yr/yr to $3.6 bln. IBM is capitalizing on strong and broad-based demand for its hardware platforms, especially IBM Z. The company noted that it's now more than two years into the z16 cycle and the revenue performance continues to outperform prior cycles. Clients are facing increasing demands for workloads and IBM Z addresses these needs.
- Consulting revenue was a bit weak, up just 1.8% CC to $5.2 bln, but down 0.9% in actual dollars. IBM saw a pullback on discretionary projects as clients prioritized spending. Higher rates and inflation impacted timing of decision-making and discretionary spend in Consulting. A silver lining is that IBM's book of business in generative AI inception to date is greater than $2 bln, and about three-quarters of that represents Consulting signings with strong quarter-over-quarter momentum in Q2.
- Speaking of AI, it has been a year since IBM introduced Watsonx and its generative AI strategy to the market. IBM has infused AI across the business, from the tools clients use to manage their hybrid cloud environments to its platform products across .ai, .data, and .gov, to Infrastructure and Consulting. In Software, IBM noted that its automation products like Apptio and watsonx Orchestrate are leveraging AI. IBM expects to do the same with HashiCorp once that acquisition closes. In Infrastructure, IBM Z is equipped with real-time AI inferencing capabilities, and in Consulting, IBM said its experts are helping clients design and implement AI strategies.
After a gap down following its Q1 report in April, IBM bounced back with a huge EPS beat in Q2 and that was despite its Consulting segment being soft. Technology spending remains robust and that was evident with IBM's huge quarter from its Software segment. Unfortunately, higher rates and inflation are causing some clients to rein in some Consulting spend. Nevertheless, we think this report, particularly IBM's take on AI spending, and IBM's raised FCF guidance bode well for other tech names as we get into the heart of earnings season.
Visa getting declined as softening discretionary spending trends weigh on topline (V)
Visa (V) is getting declined today after the credit card and payment processing company posted Q3 results that were mostly in line with analysts' expectations. The problem, though, is that investors have become accustomed to the company comfortably exceeding EPS and revenue estimates, making Visa's performance in Q3 seem like a step in the wrong direction. Indeed, payment volume growth did slow a bit to 7% from 8% last quarter, reflecting the persistent macroeconomic headwinds in the U.S. and China.
- On July 19, competitor American Express (AXP) also reported disappointing quarterly results, falling short of revenue expectations, providing a red flag ahead of Visa's results. The top-line miss was especially notable since AXP caters to a more affluent customer base, making it less vulnerable to softening consumer spending trends.
- As such, it's not overly surprising that Visa also slightly missed revenue estimates, nor that rival Mastercard (MA) is selling off in sympathy today with Visa as its earnings report approaches on July 31.
- Perhaps more so that the small top-line miss, Visa's update on current business trends is likely weighing more heavily on the stock. During the earnings call, the company disclosed that U.S. payments volume was up by just 4% so far in July (through July 21) with the slight deceleration driven by weather, the timing of promotional shopping events, and the technology outage.
- Furthermore, cross-border volume growth also slowed to 13% compared to 14% in Q3 with travel-related volume growth tapering off. In particular, outbound travel in the Asia Pacific region has weakened recently.
- Despite the more challenging environment, Visa did reaffirm its FY24 net revenue guidance for low-double-digit growth. To achieve that outlook, Visa will need to achieve its Q4 forecast of low-double-digit growth, which would mark an improvement from Q3's growth of 9.6%.
- Given the deceleration in payment volume growth trends, there is likely some uncertainty surrounding whether Visa will meet its forecasts, as illustrated by the stock's selloff.
The main takeaway is that while Visa's results were generally stable, they didn't quite stack up to the company's recent performances as sluggish discretionary spending took a toll.
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