| | | Market Snapshot
| Dow | 40589.14 | +654.27 | (1.64%) | | Nasdaq | 17357.88 | +176.16 | (1.03%) | | SP 500 | 5459.10 | +59.88 | (1.11%) | | 10-yr Note | +4/32 | 4.196 |
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| | NYSE | Adv 2217 | Dec 521 | Vol 890 mln | | Nasdaq | Adv 3104 | Dec 1137 | Vol 5.3 bln |
Industry Watch
| Strong: Industrials, Materials, Financials, Health Care, Real Estate |
| | Weak: -- |
Moving the Market
-- Reacting to the June Personal Income and Spending report, which supported the market's belief that the Fed will cut rates in September
-- Positive responses to earnings news since yesterday's close
-- Buying in some mega caps and semiconductor stocks contributing to upside bias
-- Lower Treasury yields
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Closing Summary
26-Jul-24 16:30 ET
Dow +654.27 at 40589.14, Nasdaq +176.16 at 17357.88, S&P +59.88 at 5459.10
[BRIEFING.COM] Stocks had a solid showing today. The major indices exhibited some choppiness, but maintained gains through the session. The S&P 500 (+1.1%), the Nasdaq Composite (+1.0%), the Dow Jones Industrial Average (+1.6%), and the Russell 2000 (+1.7%) ultimately closed more than 1.0% higher in a broad advance.
Advancers led decliners by a better than 4-to-1 margin at the NYSE and by a nearly 3-to-1 margin at the Nasdaq.
The upside bias was driven by positive responses to earnings news, a drop in market rates, and some pleasing economic data. The June Personal Income and Spending Report showed some fairly steady behavior in the PCE and core-PCE price indexes on a year-over-year basis and supported the market's belief that the Fed will cut rates in September.
The 10-yr note yield settled six basis points lower today, and four basis points this week, at 4.20%. The 2-yr note yield settled five basis points lower today, and 13 basis points lower this week, at 4.39%.
In earnings news, 3M (MMM 127.16, +23.77, +23.0%), Mohawk (MHK 160.71, +26.21, +19.5%), Charter Comm (CHTR 367.62, +52.39, +16.6%), and Norfolk Southern (NSC 247.22, +24.32, +10.9%) were among the winning standouts. Meanwhile, Dexcom (DXCM 64.00, -43.85, -40.7%) logged the largest decline in the S&P 500 by a big margin after disappointing FY24 revenue guidance.
Today's broad buying activity led all 11 S&P 500 sectors to close higher. The industrial (+1.7%) and materials (+1.7%) sectors led the pack while the energy sector logged the slimmest gain, up 0.4%.
- Nasdaq Composite:+15.6% YTD
- S&P 500: +14.5% YTD
- Russell 2000: +11.5% YTD
- S&P Midcap 400: +10.6% YTD
- Dow Jones Industrial Average: +7.7% YTD
Reviewing today's economic data:
- June Personal Income 0.2% (Briefing.com consensus 0.4%); Prior was revised to 0.4% from 0.5%
- June Personal Spending 0.3% (Briefing.com consensus 0.3%); Prior was revised to 0.4% from 0.2%
- June PCE Prices 0.1% (Briefing.com consensus 0.1%); Prior 0.0%, June PCE Prices - Core 0.2% (Briefing.com consensus 0.2%); Prior 0.1%
- The key takeaway from the report is that the price indexes didn't worsen on a year-over-year basis (i.e., move higher relative to the prior month). Consequently, they didn't give the market any reason to think the Fed will not cut rates at its September FOMC meeting considering comments from Fed officials, who knew where the May PCE price readings stood, have been teeing up that possibility.
- July Univ. of Michigan Consumer Sentiment - Final 66.4 (Briefing.com consensus 66.0); Prior 66.0
- The key takeaway from the report is that there weren't any real notable changes in consumer sentiment, which has been rightfully described as guarded as consumers continue to deal with inflation, election uncertainty, higher interest rates, and some softening in the labor market.
Monday's calendar does not feature notable economic data.
Stocks pullback slightly in front of close
26-Jul-24 15:35 ET
Dow +625.31 at 40560.18, Nasdaq +128.10 at 17309.82, S&P +51.25 at 5450.47
[BRIEFING.COM] Like yesterday, the market rally is starting to fade in front of the close.
The 10-yr note yield settled six basis points lower today, and four basis points this week, at 4.20% and the 2-yr note yield settled five basis points lower today, and 13 basis points lower this week, at 4.39%.
Monday's calendar does not feature notable economic data.
Big tech earnings ahead next week
26-Jul-24 15:05 ET
Dow +613.26 at 40548.13, Nasdaq +126.54 at 17308.26, S&P +50.58 at 5449.80
[BRIEFING.COM] The major indices are drifting slightly lower, but still maintain decent gains.
All 11 S&P 500 sectors remain in positive territory and 25 of the 30 Dow components are trading higher.
Looking ahead to next week, Microsoft (MSFT) reports earnings after Tuesday's close, Meta Platforms (META) reports earnings after Wednesday's close, Amazon (AMZN) and Apple (AAPL) report after Thursday's close.
Bristol-Myers, Centene gain in S&P 500 after earnings
26-Jul-24 14:30 ET
Dow +698.97 at 40633.84, Nasdaq +190.43 at 17372.15, S&P +67.16 at 5466.38
[BRIEFING.COM] The S&P 500 (+1.24%) is in second place on Friday afternoon, up about 67 points.
Elsewhere, S&P 500 constituents Bristol-Myers (BMY 50.29, +5.02, +11.09%), Centene (CNC 74.30, +6.90, +10.24%), and GE Vernova (GEV 172.32, 12.32, +7.70%) pepper the top of today's standings. BMY and CNC move higher after earnings, while GEV recoups some of this week's earnings-related losses.
Meanwhile, Massachusetts-based biotechnology company Biogen (BIIB 211.00, -16.44, -7.23%) is underperforming after the CHMP issued a negative opinion on Leqembi (lecanemab) MAA.
Gold cuts weekly declines on Friday
26-Jul-24 14:00 ET
Dow +666.66 at 40601.53, Nasdaq +183.79 at 17365.51, S&P +65.72 at 5464.94
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.07%) is today's shallowest advancing major average with about two hours to go on Friday
Gold futures settled $27.50 higher (+1.2%) to $2,353.50/oz, down -0.8% on the week, helped today by a modest dip in yields and a slightly weaker greenback.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $104.32.
3M soars to two-year highs following early success from its new CEO in Q2 (MMM)
After an encouraging end to 3M's (MMM +19%) former CEO Mike Roman's tenure last quarter, investors were hopeful the global conglomerate would continue its upward momentum under new leadership. 3M appointed William Brown as its CEO in March, officially stepping into the office on May 1. Mr. Brown took control of a leaner organization after 3M spun off its healthcare business in April, which trades under the name Solventum (SOLV).
Mr. Brown did what investors were hungry for in Q2, delivering another double-digit earnings beat on sustained organic growth. This led to 3M reiterating its FY24 organic sales growth outlook of flat to +2% yr/yr, while raising the low end of its adjusted EPS forecast, expecting $7.00-7.30 from $6.80-7.30. As a result, the stock is soaring today, reaching levels not seen in almost two years.
- With its healthcare business gone, 3M's reported sales figure is less important than its adjusted organic sales growth, which removes the impact of M&A. In Q2, organic revenue resembled that in Q1, expanding by 1.2% yr/yr. Adjusted EPS from continuing operations zoomed 39% higher to $1.93.
- Streamlining operations has also included significant restructuring efforts, including shifting to a global business unit structure and centralizing global supply chains under one leader. These actions have already had a positive influence on 3M's immediate quarterly results, which is a promising development going forward.
- Growth in Q2 emanated from Electronics, mirroring the trends from Q1. 3M's Transportation & Electronics segment posted 3.3% organic growth in the quarter, with Electronics outperforming the market, boasting a low-double-digit jump organically, underscoring improving demand across the consumer electronics industry. Meanwhile, 3M's auto OEM business jumped nearly 5%, sustaining the positive momentum from last quarter. For the year's first half, 3M's auto OEM business climbed by 9% organically.
- While not as buoyant, Safety & Industrial also experienced organic growth, edging 1.1% higher yr/yr. Several end-markets pulled the segment higher, like adhesives and the automotive aftermarket. However, 3M noticed a low-single-digit decline in abrasives and industrial specialties. Management remarked that the end consumer remains cautious, echoing the sentiment of several of its peers exposed to the industrial sector.
- Relative strength across these two segments offset persistent weakness in Consumer, which endured a 1.4% organic sales decline in Q2, reflecting continuously weak discretionary spending. 3M anticipates the consumer retail environment to remain muted for the rest of the year.
There was plenty to like from the newly slimmed-down version of 3M in Q2. Despite operating in a wobbly global economy, organic revenue growth was solid across most of the company's end markets. Meanwhile, 3M continues to make inroads in its broad restructuring plans. There are still some clouds ahead, including uneasy end-market demand as well as a $10.3 bln settlement related to PFAS levels. However, we like the direction in which 3M is heading, especially after its early success under new leadership.
Dexcom sees a big drop on first downside revenue guidance in two years (DXCM)
DexCom (DXCM -42%), which is a major supplier of continuous glucose monitoring (CGM) systems for diabetes, is trading sharply lower today following earnings last night. The company beat on Q2 EPS but revenue was a bit light. However, the outlook was more troubling with downside Q3 revenue and a big drop in FY24 revenue guidance to $4.00-4.05 bln from $4.20-4.35 bln.
While overall category demand remained strong and awareness of the value of CGM continued to accelerate, DexCom cited three near-term trends that drove results/guidance below expectations:
- As DexCom has worked through a sales force realignment expansion, it has seen its share of new customers fall short of expectations, despite still strong absolute customer additions.
- Its US revenue per customer has stepped down faster than expected based on two primary drivers: rebate eligibility and channel mix.
- With its G7 sensor coverage emerging faster than expected, DexCom realized greater rebate eligibility relative to initial expectations and compared to 2023 levels. This enhanced G7 coverage has helped with new customer starts but the quick pace of these starts did not allow DexCom to offset the temporary impact from this rebate eligibility. DexCom expects the impact of this rebate eligibility dynamic will reach its peak in Q3.
- On the mix side, growth in its DME channel has trailed internal expectations. DexcCom concedes it needs to refocus on those DME relationships.
- Finally, its international performance was also lighter than expectations in Q2. While it delivered a strong performance in some of its core markets (UK and France), DexCom saw category growth soften in certain geographies
The company has been performing well with eight consecutive quarters of EPS upside and typically strong revenue upside in recent quarters. However, given the size of today's drop in the share price, it's clear that the guidance was a shock for investors. The company usually provides upside or in-line guidance. This was DexCom's first guide down in two years. Peers Tandem Diabetes (TNDM -2%) and Insulet (PODD +1%) were lower in sympathy but have recovered from their lows. What is interesting is that PODD guided Q2 revs above consensus this morning. It likely wanted to get its numbers out following the DexCom news.
Deckers up big on earnings upside; eased concerns following Nike's recent guidance (DECK)
Deckers Brands (DECK +8%) is stepping higher with a big gain today after reporting Q1 (Jun) results last night. The footwear company reported a huge EPS beat while revenue rose a robust 22.1% yr/yr to $825.3 mln, nicely ahead of analyst expectations. Of note, this was the last quarter for CEO Dave Powers, who is retiring August 1. Stefano Caroti, the company's Chief Commercial Officer, will take the helm.
- We had concerns going into this report given Nike's (NKE) recent revenue miss and lowered outlook for FY25. Even though Q1 is historically DECK's smallest revenue quarter of the year, it was important for the company to show that it's not suffering from the same problems as Nike. And we think they accomplished that with flying colors.
- The knock on DECK has been a one trick pony, with just the Ugg brand. However, Hoka (running shoes) has been emerging as that long-awaited second star in DECK's arsenal and helps smooth out DECK's seasonality (Ugg in winter, HOKA in summer). It is now DECK's second largest brand and its fastest grower. Growth at its other brands has been more modest: Teva (sandals, boots), Sanuk (sandals) and Koolaburra (sheepskin footwear).
- HOKA was the main revenue growth driver in Q1, with sales up 30% yr/yr to a quarterly record $545 mln. HOKA says it benefitted from a compelling product assortment, including new launches, which experienced strong demand. Top styles like the Clifton and Bondi continued to experience healthy growth while emerging franchises like the Mach, Transport and Kawana drove outsized gains. New styles like the Skyward X, Cielo X1 and Skyflow brought incremental volume and attention.
- UGG sales rose a respectable 14% yr/yr to $223 mln. DECK was encouraged by the consumer demand for UGG in Q1 as it reflects continued progress in creating year-round excitement for the brand. This was most evident by the continued year-round adoption of the Tasman franchise (sheepskin slippers) as well as growth from an expanded Golden Collection.
- Gross margin also stood out. It jumped to 56.9% from 51.3% a year ago. Margins benefited from favorable brand/product mix, higher levels of full-price selling, particularly with the UGG brand which was more promotional last year, and lower freight rates.
Overall, we think investors are breathing a sigh of relief. Many footwear stocks have pulled back recently following Nike's brutal results/guidance. However, DECK's results seem to indicate it's not seeing the same issues. Also, HOKA keeps on impressing us with a record quarter and even Ugg showed respectable growth outside of winter. DECK is making progress in terms of Ugg becoming a year-round brand. With the new CEO being an insider, we are not expecting big changes. Finally, recall that DECK recently announced a 6-for-1 stock split. It will begin trading on a split-adjusted basis on September 17, assuming shareholders approve.
Boston Beer Co runs into familiar headwinds in Q2, clipping FY24 depletions guidance (SAM)
In his first quarter as Boston Beer Co (SAM +3%) CEO, Michael Spillane dealt with a familiar headwind-filled quarter in Q2. The prominent alcoholic beverage producer felt good last quarter that depletions bottomed in April, setting the stage for a healthy recovery. While May and June's depletions did improve from April, they still contracted yr/yr. As a result, SAM fell short of its Q2 earnings and sales estimates and reduced the high end of its depletions and shipments growth forecast for the year.
- In Q2, depletions -- cases sold to retailers by distributors -- fell by 4.0% yr/yr while shipments ticked 6.4% lower, representing a reversal from the flat depletions growth and 0.9% shipments bump in Q1, underpinning just how quickly the category slumped in April and has since struggled to recover. This performance culminated in weak headline numbers, including EPS of $4.39 and revs of $579.1 mln, a 4% drop yr/yr.
- Truly Hard Seltzer remained a laggard in Q2. The main issue here is competition; too many brands exist in the channel, making it hard for Truly to stand out, resulting in a 22.8% drop in volumes in measured off-premise channels, worse than the industry decline of 14.9%. Mr. Spillane is staying the course to revitalize Truly sales, focusing on lighter flavors and higher ABV options.
- Perhaps more concerningly, the typical star, Twisted Tea, endured slowing growth in measured channels. Again, competition is an issue. SAM was also lapping unfavorable yr/yr comparisons. Still, Twisted Tea did enjoy positive growth, boasting a 15.1% uptick in dollar sales and around a 30% increase in shelf space yr/yr, bolstering its presence, which should help stave off intensifying competition.
- Hard Mountain Dew is a relatively new brand in SAM's portfolio. SAM noted that it is nearly finished with the brand's transition to its wholesaler network. Management is confident Hard Mountain Dew will positively impact its 2025 results as it begins launching in more population-dense states in 1Q25.
- Margins have been an encouraging attribute lately. In Q2, SAM expanded margins by 60 bps yr/yr, totaling 260 bps of improvement YTD. SAM has been working on line efficiency to improve brewery performance. Management admitted that it is not where it wants to be yet, but it is optimistic that it has the capital in place to drive margin expansion over the next few years.
- In the interim, SAM is traversing a challenging economic environment. Due to the slower-than-expected pace of recovery in depletions, the company trimmed part of its FY24 guidance, reiterating its EPS forecast of $7.00-11.00 but lowering its depletions and shipments percentage change to down low single digits to flat yr/yr compared to its previous outlook of down low single digits to up low single digits.
Bottom line, SAM's brands are facing numerous headwinds, from a gloomy economic picture to increasing competition. While investors are beginning to view SAM with a glass-half-full mentality today, without some of these clouds clearing over the next few months, the stock could struggle to mount a meaningful comeback.
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.
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