| | | Market Snapshot
| Dow | 38997.66 | +294.39 | (0.76%) | | Nasdaq | 16366.86 | +166.77 | (1.03%) | | SP 500 | 5240.03 | +53.70 | (1.04%) | | 10-yr Note | -29/32 | 3.89 |
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| | NYSE | Adv 2005 | Dec 682 | Vol 1.1 bln | | Nasdaq | Adv 2779 | Dec 1477 | Vol 5.9 bln |
Industry Watch
| Strong: Real Estate, Industrials, Consumer Staples, Utilities, Financials, Energy, Health Care |
| | Weak: -- |
Moving the Market
-- Buying on weakness after recent declines
-- Sentiment boost with Japan's Nikkei soaring 10.2% in the wake of Monday's 12.4% decline
-- Well-received earnings results from Caterpillar (CAT) and Uber (UBER)
-- Reversal in the bond market
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Closing Summary
06-Aug-24 16:30 ET
Dow +294.39 at 38997.66, Nasdaq +166.77 at 16366.86, S&P +53.70 at 5240.03
[BRIEFING.COM] Stocks staged a recovery after yesterday's sharp declines. The major indices turned slightly lower ahead of the close, but still logged gains ranging from 0.8% to 1.2%. These gains are relatively muted compared to the declines registered yesterday.
The Dow Jones Industrial Average slumped more than 1,000 points yesterday and won back nearly 300 points today. The S&P 500 settled today's session nearly 100 points lower than Friday's close.
Yesterday's retreat in equities was partially due to the yen's rapid strengthening against the dollar, which precipitated the plunge in Japan's Nikkei. The yen weakened slightly against the dollar today, acting as support for US equities and helping drive a 10% move higher in the Nikkei. The USD/JPY pair trade is +0.3% to 144.72.
Also, the CBOE Volatility Index, which spiked above 65.00 yesterday before returning to the 35.00 area, pulled back to 27.71 today.
Positive responses to earnings news from Uber (UBER 64.87, +6.39, +10.9%), Caterpillar (CAT 326.44, +9.64, +3.0%), and others aided the upside bias, along with the observation from San Francisco Fed President Daly (FOMC voter) that policy adjustments will be necessary in the coming quarter.
Treasuries retreated after the recent drop in market rates, which acted as additional support for equities, despite today's $58 billion 3-yr note auction meeting solid demand. The 10-yr note yield jumped ten basis points to 3.89% and the 2-yr note yield settled ten basis points higher at 3.98%.
With today's action, the 10-yr yield is 25 basis points lower than last Tuesday's settlement. The 2-yr yield is 38 basis points lower than its level one week ago.
- S&P 500: +9.9% YTD
- Nasdaq Composite:+9.0% YTD
- S&P Midcap 400: +4.2% YTD
- Dow Jones Industrial Average: +3.5% YTD
- Russell 2000: +1.8% YTD
Reviewing today's economic data:
- June Trade Balance -$73.1 bln (Briefing.com consensus -$72.8 bln); Prior was revised to -$75.0 bln from -$75.1 bln
- The key takeaway from the report, though, is that both exports and imports increased in June, which is a constructive trade dynamic for the global economy.
Market participants receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -3.9%)
- 10:30 ET: Weekly crude oil inventories (prior -3.44 mln)
- 15:00 ET: June Consumer Credit (Briefing.com consensus $10.0 bln; prior $11.3 bln)
Stocks slide sideways ahead of the close
06-Aug-24 15:35 ET
Dow +549.56 at 39252.83, Nasdaq +301.26 at 16501.35, S&P +95.93 at 5282.26
[BRIEFING.COM] The stock market moved mostly sideways at the index level in recent action.
Treasuries retreated after the recent drop in market rates. The 10-yr note yield jumped ten basis points to 3.89% and the 2-yr note yield settled ten basis points higher at 3.98%. With today's action, the 10-yr yield is 25 basis points lower than last Tuesday's settlement. The 2-yr yield is 38 basis points lower than its level one week ago.
Market participants receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -3.9%)
- 10:30 ET: Weekly crude oil inventories (prior -3.44 mln)
- 15:00 ET: June Consumer Credit (Briefing.com consensus $10.0 bln; prior $11.3 bln)
Notable earnings after close, ahead of Wednesday's open
06-Aug-24 15:10 ET
Dow +442.56 at 39145.83, Nasdaq +252.65 at 16452.74, S&P +80.60 at 5266.93
[BRIEFING.COM] The market turned slightly lower, but gains in the major indices still range from 1.2% to 1.6%.
Looking ahead, Amgen (AMGN), Coupang (CPNG), Super Micro Computer (SMCI), Devon energy (DVN), Lumen Technologies (LUMN), DaVita (DVA), Airbnb (ABNB), V.F. Corp (VFC), Wynn Resorts (WYNN), Fortinet (FTNT), Rivian Automotive (RIVN), TripAdvisor (TRIP), and others report earnings after the close.
CVS Health (CVS), Walt Disney (DIS), Hilton (HLT), Shopify (SHOP), and Lyft (LYFT) are among the notable names reporting earnings ahead of Wednesday's open.
Broad buying continues
06-Aug-24 14:40 ET
Dow +740.84 at 39444.11, Nasdaq +409.73 at 16609.82, S&P +123.85 at 5310.18
[BRIEFING.COM] The S&P 500 tipped back above the 5,300 level, sporting a 2.3% gain.
Mega cap stocks and semiconductor shares are building up strength. The Vanguard Mega Cap Growth ETF (MGK) is 2.7% higher and the PHLX Semiconductor Index shows a 3.6% gain.
Still, buying remains robust elsewhere. The equal-weighted S&P 500 shows a 2.3% gain.
Stocks sit near highs
06-Aug-24 14:05 ET
Dow +563.23 at 39266.50, Nasdaq +346.56 at 16546.65, S&P +103.31 at 5289.64
[BRIEFING.COM] The market moved mostly sideways in recent action.
All 11 S&P 500 sectors trade at least 1.0% higher now led by real estate (+2.7%) and information technology (+2.4%). The energy sector shows the slimmest gain, up 1.0%, amid rising commodity prices.
WTI crude oil futures are up 0.9% to $73.58.bbl and natural gas futures are up 4.3% to $2.03/mmbtu.
CSX chugs along nicely today following improving dynamics in Q2; intermodal remains cloudy (CSX)
CSX (CSX +3%) is chugging along nicely today, rebounding off 2024 lows, following a mild Q2 earnings beat and in-line revenue growth. Volumes inched 2% higher yr/yr, somewhat decelerating from the +3% bump last quarter. However, given the slowdown within the intermodal industry alongside general sluggishness across the broader economy, CSX's numbers were sufficient to alleviate fears.
- Total revenue was flat yr/yr at $3.7 bln in Q2, a modest improvement over the (0.8)% decline last quarter. The 2% jump in volumes was supported by a 5% volume improvement in CSX's intermodal business, similar to Q1, when intermodal volumes jumped by 7% despite lackluster numbers posted by several intermodal trucking companies, like J.B. Hunt (JBHT) and Knight-Swift (KNX). Still, intermodal volumes remain muted due to the weakness across the trucking industry.
- Breaking down volumes by category, merchandise volumes ticked 1% higher yr/yr, helped by ramping business wins as well as positive market trends across certain industries, including chemicals, forest products, and agriculture. CSX anticipates these positive trends to persist throughout the year, with ag and food volumes accelerating over the next two quarters.
- In coal, volumes slipped by 3% yr/yr, a deterioration from last quarter. Export coal volumes stood out, while domestic coal was tempered by low natural gas prices, shifting demand. However, CSX is optimistic coal is gaining support from increasing power consumption.
- Encouragingly, rail velocity increased yr/yr, reversing last quarter's minor drop. Not as uplifting, dwell time, a standard metric across the railroad industry as it measures the time a train is stopped to pick up cargo, increased compared to last quarter. Management noted that deploying tactics to reduce dwell was not positively impacting the customer and wasting engine resources. As such, CSX eliminated these handlings even though it caused dwell to pick up. Currently, CSX is exploring reducing dwell time without lowering the customer experience.
- Looking ahead, CSX expects total volumes to edge higher by a low to mid-single-digit percentage, aiding positive revenue growth during the back half of the year. Management anticipates profitability to continue as it maintains attractive pricing while benefiting from lower cost inflation.
CSX touched on several improving dynamics in Q2, setting up for a brighter second half of the year. Still, that does not mean that headwinds will not be pushing back. Intermodal volumes remain relatively subdued, and like its trucking counterparts, CSX is unsure when conditions will turn. However, the company was confident that international intermodal volumes were stabilizing while domestic intermodal volumes showed potential for improvement. While uncertainty may keep shares from experiencing a more robust recovery, CSX has, and continues to do plenty to ensure it is positioned to withstand a sluggish economy and pounce on reaccelerating economic growth through improved network service levels, a more precise railroad schedule, and ongoing efficiency enhancements.
Uber's Q2 report eases concern about slowing rideshare growth amid rising macro headwinds (UBER)
The resiliency of Uber's (UBER) business was on display this morning when the rideshare and delivery company reported better-than-expected Q2 results as it swung back to profitability while revenue growth also accelerated a bit to 16% from 15% last quarter.
- Rewinding to UBER's Q1 earnings report, the company posted a surprise loss of $0.32/share, driven by unrealized losses on equity investments and litigation costs, but the slight miss on Mobility Gross Bookings was more concerning since it related to the demand environment for the company's largest business. In the wake of a disappointing Q2 earnings season for the airline industry, which is experiencing a slowdown in domestic leisure travel activity, those demand and macro-related concerns from Q1 grew stronger ahead of UBER's earnings report.
- However, UBER's business remained quite strong in Q2 despite softening consumer spending trends, supported by a higher-income customer base that is still in great shape, according to CEO Dara Khosrowshahi. This characterization is supported by a variety of metrics, including total Gross Bookings growth of 21% on a constant currency basis, matching Q1's growth.
- The Mobility segment was especially impressive, achieving Gross Bookings of $20.6 bln, up 27% yr/yr on a constant currency basis, compared to 26% growth in Q1. Additionally, for the sixth consecutive quarter, trip growth remained north of 20%, coming in at 21% for the quarter. Mr. Khosrowshahi stated that growth was steady across use cases and that the international business was strong, particularly in Latin America, Brazil, Australia, and India.
- Turning to Delivery, Gross Bookings growth was solid at +17% (constant currency) to $18.1 bln, reflecting the stickiness of that business amid tough macroeconomic conditions. Ordering meals from restaurants for delivery has clearly become habitual for many, while UBER's expansion into the grocery vertical has augmented the business' growth. UBER disclosed that about 15% of its Uber Eats customers are now using grocery, up 200 bps yr/yr, and that customer retention for grocery is also improving.
- Advertising, a high margin business, is also becoming a more meaningful contributor for Delivery. In fact, ad spend on grocery and retail more than tripled yr/yr, helping adjusted EBITDA surge by 79% yr/yr to $588 mln for that segment.
- Overall, UBER's adjusted EBITDA jumped by 71% to $1.570 bln -- a quarterly record -- exceeding its guidance of $1.45-$1.53 bln. Looking ahead, the company expects its profitability to continue to improve, forecasting Q3 adjusted EBITDA of $1.58-$1.68 bln, slightly beating expectations at the midpoint of the range.
The main takeaway is that UBER's diversified business model and more affluent customer base is helping to insulate the company from mounting macroeconomic headwinds. A more severe economic downturn would undoubtedly hurt its business, but at this point, UBER's "growth engine is continuing to hum," as Khosrowshahi put it.
Caterpillar seeing a nice gain following large EPS beat; saw good results from energy segment (CAT)
Caterpillar (CAT +4%) is trading higher after reporting Q2 results this morning. The company reported a hefty EPS beat, its sixth consecutive beat by $0.40 or more. Revenue declined yr/yr as expected, but it was a bit more than expected. Revenue declined 3.6% yr/yr to $16.69 bln, a bit below analyst expectations. However, it was not entirely surprising, we saw a similar pattern of a large EPS beat with a slight top line miss in Q1.
- The revenue decline was primarily due to lower sales volume, partially offset by favorable price realization. Sales volume declined slightly more than CAT had expected, while price realization, including geographic mix, was better than anticipated. Dealer inventory also declined in Q2 yr/yr. Dealers inventory decreased more during 2Q24 than during 2Q23. That means dealers are holding leaner inventories, which impacts sales.
- By segment, Construction Industries (infrastructure and building construction) sales fell 7% yr/yr to $6.68 bln, primarily due to lower sales volume, partially offset by favorable price realization. The decrease in sales volume was mainly driven by the impact from changes in dealer inventories. Government related infrastructure projects remained healthy. Sales in North America were about flat, although sales increased in Latin America.
- In fairness to CAT, it has been lapping a record level of CI sales in 2023. Sales to users in 2H are now expected to decline slightly yr/yr. For North America, CAT now anticipates slightly lower construction industry sales to users for FY24, primarily due to weaker than expected rental fleet. In Asia Pacific outside of China, CAT still expects soft economic conditions. Demand in China is expected to remain low. CAT also expects weak economic conditions in Europe will continue.
- Its Resource Industries (mining, heavy construction, quarry, aggregates) segment saw the biggest decline, with sales down 10% yr/yr to $3.21 bln, also primarily due to lower sales volume, partially offset by favorable price realization.
- The one segment that grew was Energy & Transportation (oil & gas, power generation), where sales rose 2% yr/yr to $7.34 bln. Sales increased across all applications except Industrial. The increase in sales was primarily due to favorable price realization, partially offset by lower sales volume. Power Generation was a notable bright spot with sales jumping 15% to $1.89 bln, fueled by large reciprocating engines, primarily data center applications. Turbines and turbine-related services increased as well.
- Despite the revenue decline, CAT was still able to increase adjusted operating margin to 22.4% vs 21.3% a year ago. It's rare to see a company increase margins when they post a sales decline. Margins were better than expected, mainly due to favorable manufacturing costs and product mix. Also, price was slightly better than CAT had anticipated, driven by its E&T segment.
Overall, investors seem pretty pleased with CAT's Q2 report. Revenue declined yr/yr and that will continue in 2H. However, CAT is lapping a strong year in 2023 when sales jumped 14%. Also, it's impressive that CAT has been able to expand margins even on lower sales. Furthermore, Power Generation was a notable bright spot as it's benefitting from the AI data center infrastructure buildout. CAT is not usually thought of as a beneficiary, but it's a nice business for them.
Palantir Technologies delivers beat-and-raise in Q2 as AI demand persists (PLTR)
By registering another impressive report in Q2, Palantir Technologies' (PLTR +10%) recent dip proved brief as shares snap back to life today. Initially a CIA-funded startup over 20 years ago, the AI software developer posted healthy top and bottom-line upside in Q2, leading to its raised FY24 revenue forecast. Unlike last quarter, when adjusted EPS met analyst expectations, PLTR squeaked out a beat in Q2. Furthermore, PLTR was coming off a roughly 20% correction from peak to trough over the past week, allowing upbeat results to provide a huge sigh of relief. Also, it helps that amid a broader market pullback, PLTR results demonstrated that the demand for AI remains robust.
The central theme in Q2 was that PLTR is currently capitalizing on its experience transitioning an organization or government agency from AI prototyping to production. Management repeated that the market is bottlenecked regarding the current transition, discovering the challenges associated with moving from creating an AI prototype, which PLTR characterized as making a PowerPoint presentation, to getting it into production, which produces material benefits.
- PLTR's competitive edge stood out in Q2. The company maintained its accelerating top-line growth, posting a 27.2% jump yr/yr to $678.13 mln, up from +20.8% in Q1 and +19.6% in 4Q23. The numbers came on expanding adjusted operating margins, supporting an 80% pop in adjusted EPS yr/yr to $0.09. On a GAAP basis, PLTR delivered its seventh straight quarter of profitability.
- Consistent with PLTR's forecasts, government revenue continued to ramp, climbing by 23% yr/yr and 11% sequentially to $371 mln. PLTR was selected for several significant U.S. awards during the quarter, leading its best U.S. government bookings quarter since 2022.
- Meanwhile, commercial revenue continued to grow briskly, moving 33% higher yr/yr and 3% sequentially to $307 mln. When excluding the adverse impact of strategic commercial contracts, the segment recorded 40% yr/yr revenue growth, the same as last quarter. Customer count increased by 41% yr/yr and 7% sequentially to 593; trailing 12-month revenue from PLTR's top-20 customers expanded by 9% yr/yr to $57 mln per customer.
- Headwinds in Europe persisted in Q2, keeping international commercial revenue growth at just 15% yr/yr to $148 mln. However, to help offset this problem, PLTR continues to pounce on targeted growth zones across Asia and the Middle East.
- Similar to last quarter, PLTR hiked its FY24 revenue outlook despite dealing with issues in Europe, projecting $2.742-2.750 bln from $2.677-2.689 bln. The company also maintained its expectation of delivering positive GAAP operating and net income in each quarter of FY24.
PLTR's Q2 report was a breath of fresh air investors needed after a quick correction over the past few trading sessions. We mentioned that the pullback after Q1 results in May offered a compelling entry point for buy-and-hold investors. Following an uplifting Q2 performance, we continue to like PLTR as a standout AI play. The company has proven its differentiation in a sea of AI stocks, particularly with its ties to the U.S. government but also by constantly expanding its portfolio of private companies.
Sonic Automotive speeding higher on better-than-feared results, led by its EchoPark segment (SAH)
New and used car retailer Sonic Automotive (SAH) is driving sharply higher after reporting mixed Q2 results that included a few extraordinary items, such as a $0.64/share hit to its GAAP earnings resulting from the CDK software outage in June. Charges related to storm and hail damage and a real estate impairment charge further impaired the results, but on an adjusted basis, SAH generated adjusted EPS of $1.47, beating expectations, with record adjusted EBITDA of $7.2 mln in its EchoPark segment.
- The EchoPark segment, which operates through an eCommerce channel and focuses on the 1-4 year old pre-owned vehicle market, reported a 14% decrease in revenue to $517.3 mln. However, on a same store basis, EchoPark retail unit sales volumes jumped by 23% in Q2, while revenue and gross profit increased by 10% and 81%, respectively.
- In 1Q23, the company began reducing its store footprint, allowing it to spread out inventory more effectively across the platform. This, in turn, drove higher unit sales volume, better variable gross profit per unit (GPU), and the second consecutive quarter of positive adjusted EBITDA for EchoPark.
In the Franchised Dealership segment, the news isn't quite as upbeat.
- Same store revenue dipped by 3% and same store gross profit fell by 9%. During the earnings call, SAH stated that new vehicle inventory levels are continuing to rise due to a slower sales rate in the last twelve days of the quarter. The company ended Q2 with a 59-day supply of inventory compared to 50 days of inventory at the end of Q1.
- Furthermore, as new vehicle prices continue to slide amid a high-interest rate environment that's creating affordability issues, SAH expects GPU to continue to decline in 2024, exiting Q4 in the low $3,000 range. For some context, GPU dove by 29% in Q2 to $3,590.
- Despite these headwinds, SAH still reaffirmed its limited guidance for FY24. Specifically, the company expects improved results in the EchoPark segment, including returning to positive adjusted EBITDA for the full year, to partially offset lower franchise dealership segment earnings.
- It's also worth noting that the CDK outage negatively impacted the company's adjusted results due to the limited functionality of CDK's lead generation platform and inventory management applications, but SAH's access to these systems has been restored.
The main takeaway is that while the business is far from firing on all cylinders, SAH delivered better-than-feared results, bolstered by accelerating momentum for its EchoPark segment.
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