| | | Market Snapshot
| Dow | 38763.45 | -234.21 | (-0.60%) | | Nasdaq | 16195.81 | -171.05 | (-1.05%) | | SP 500 | 5199.50 | -40.53 | (-0.77%) | | 10-yr Note | -6/32 | 3.97 |
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| | NYSE | Adv 1128 | Dec 1601 | Vol 1.0 bln | | Nasdaq | Adv 1426 | Dec 2795 | Vol 5.9 bln |
Industry Watch
| Strong: Energy, Utilities, Financials, Consumer Staples |
| | Weak: Health Care, Consumer Discretionary, Materials, Information Technology, Real Estate |
Moving the Market
-- Japanese yen weakening against the dollar helped calm worries about further unwinding of carry trades, supporting early positive bias
-- Ongoing worries about growth
-- Some mega caps fell from early highs, weighing down index performance
| Closing Summary
07-Aug-24 16:35 ET
Dow -234.21 at 38763.45, Nasdaq -171.05 at 16195.81, S&P -40.53 at 5199.50
[BRIEFING.COM] The stock market was in solid form at the start of the session, attempting to build on yesterday's rebound. Gains quickly faded and the major indices ultimately settled with declines.
The initial upside bias was driven by momentum following yesterday's session. Also, concerns about further unwinding of carry trade positions dissipated somewhat after the Bank of Japan's Deputy Governor Uchida said the bank will not raise rates during market instability and the yen weakened against the dollar (USD/JPY +1.9% to 147.10).
The subsequent downturn was driven by growth concerns that had been put on the backburner yesterday and earlier today. The afternoon retreat was broad and orderly. The S&P 500, which was trading up as much as 1.7% at its high, closed 0.8% lower. The equal-weighted S&P 500 was trading up 1.5% at its intraday high, but settled with a 0.7% decline.
Dow components Amgen (AMGN 312.50, -16.54, -5.0%) and Walt Disney (DIS 85.96, -4.01, -4.5%) underperformed after reporting earnings. Walt Disney's streaming business generated positive operating income for the first time, but demand is weakening for its theme parks.
Airbnb (ABNB 113.01, -17.46, -13.4%) was another influential laggard after indicating that it is noticing slowing demand from U.S. guests.
Seven of the S&P 500 sectors closed lower and four of them declined more than 1.0%. The consumer discretionary (-1.4%) and information technology (-1.4%) sectors were among the worst performers, clipped by losses in mega cap constituents. Meanwhile, the utilities (+0.6%) and energy (+0.5%) sectors led the pack.
The 10-yr note yield settled eight basis points higher at 3.97% and the 2-yr note yield settled two basis points higher at 4.00%. On a related note, today's $42 billion 10-yr note auction was poorly received.
- S&P 500: +9.0% YTD
- Nasdaq Composite:+7.9% YTD
- S&P Midcap 400: +3.3% YTD
- Dow Jones Industrial Average: +2.9% YTD
- Russell 2000: +0.4% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 6.9%; Prior -3.9%
- Weekly EIA Crude Oil Inventories showed a draw of 3.73 million barrels following last week's draw of 3.44 million barrels
Looking ahead to Thursday, market participants will receive the following data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 242,000; prior 249,000) and Continuing Claims (prior 1.877 mln)
- 10:00 ET: June Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.6%)
- 10:30 ET: Weekly natural gas inventories (prior +18 bcf)
Stocks move sideways near lows
07-Aug-24 15:35 ET
Dow -98.98 at 38898.68, Nasdaq -64.03 at 16302.83, S&P -12.28 at 5227.75
[BRIEFING.COM] The market trades just above session lows heading into the close.
Consumer credit increased by $8.9 billion in June (Briefing.com consensus $10.0 billion) after increasing an upwardly revised $14.0 billion (from $11.3 billion) in May.
The key takeaway from the report is that revolving credit decreased after jumping to a fresh record in May, pointing to some newfound caution among consumers.
Looking ahead to Thursday, market participants will receive the following data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 242,000; prior 249,000) and Continuing Claims (prior 1.877 mln)
- 10:00 ET: June Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.6%)
- 10:30 ET: Weekly natural gas inventories (prior +18 bcf)
FTNT, AXON show outsized gains despite index level move lower
07-Aug-24 15:05 ET
Dow -114.49 at 38883.17, Nasdaq -32.59 at 16334.27, S&P -5.72 at 5234.31
[BRIEFING.COM] The major indices trade at or near session lows. The S&P 500 sports a 0.6% loss and the equal-weighted S&P 500 trades 0.4% loss.
Seven of the S&P 500 sectors are lower and four show losses greater than 1.0%. The consumer discretionary sectors sports the largest decline, down 1.3%. Meanwhile, the energy (+1.0%), utilities (+0.5%), and financials (+0.4%) sectors lead the outperformers.
Some S&P 500 components have maintained big gains despite the index level deterioration. Fortinet (FTNT 71.72, +15.94, +28.6%) and Axon (AXON 344.46, +49.46, +16.8%) lead the index after reporting earnings.
Separately, consumer credit increased by $8.9 billion in June (Briefing.com consensus $10.0 billion) following a $14.0 billion increase in May (from $11.3 billion).
Charles River, Emerson slip among S&P 500 constituents following earnings
07-Aug-24 14:30 ET
Dow -18.45 at 38979.21, Nasdaq -76.93 at 16289.93, S&P -18.70 at 5221.33
[BRIEFING.COM] The S&P 500 (-0.36%) is in second place with the DJIA and Nasdaq Composite tied on losses of -0.47% apiece.
Elsewhere, S&P 500 constituents Charles River (CRL 199.47, -29.33, -12.82%), Dexcom (DXCM 69.78, -5.47, -7.27%), and Emerson (EMR 100.00, -7.78, -7.22%) dot the bottom of the standings. CRL and EMR move lower following earnings, while DXCM mirrors weakness in insulin stocks as Abbott Labs' (ABT 109.97, +0.47, +0.43%) partnership with Medtronic (MDT 81.13, +0.35, +0.43%) regarding insulin delivery devices is having an adverse effect on peers.
Meanwhile, Axon (AXON 347.51, +52.51, +17.80%) is today's top gainer following last night's earnings beat, guidance raise.
Gold ends slightly higher on Wednesday
07-Aug-24 14:00 ET
Dow -67.89 at 38929.77, Nasdaq -44.56 at 16322.30, S&P -5.61 at 5234.42
[BRIEFING.COM] The Nasdaq Composite (-0.27%) is now today's worst-performing major average, all three major averages having slipped into the red in the last half hour.
Gold futures settled $0.80 higher (flat) to $2,432.40/oz, slipping slightly off session highs of +0.6%, pressured by a higher dollar and gains in treasury yields.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $103.20.
Lyft skids sharply lower after issuing soft Q3 outlook, reflecting rideshare slowdown (LYFT)
In the wake of Uber's (UBER) solid Q2 earnings report from yesterday morning, hopes were high that Lyft (LYFT) would follow suit and deliver its own strong Q2 results, further solidifying the notion that the rideshare market isn't feeling the effects of softening travel demand or a slowdown in consumer spending. Like its larger rival, LYFT did surpass EPS and revenue estimates, while also posting its first ever net profit on a GAAP basis. However, the stock is still skidding sharply lower because, unlike UBER, the company missed expectations on another key metric -- namely, Gross Bookings -- and its guidance for Q3 also missed the mark.
- For the quarter, Gross Bookings grew by 17% yr/yr to $4.0 bln, coming in at the low end of its $4.0-$4.1 bln guidance range and slightly missing analysts' expectations. Seemingly a minor blemish, the small Q2 Gross Bookings miss looks more problematic when coupled with its Q3 Gross Bookings forecast of $4.0-$4.1 bln, signaling flat qtr/qtr growth, while also falling short of estimates.
- It's worth point out that the midpoint of UBER's Q3 gross bookings outlook of $40.25-$41.75 bln was also modestly below expectations. Altogether, these data points indicate that the rideshare market isn't completely immune to the intensifying macro-related headwinds.
- Although UBER and LYFT both gave tepid Q3 Gross Bookings forecasts, investors clearly have more confidence that UBER's more diversified business model will better weather a rideshare slowdown. Thanks to UBER's massive scale and multiple revenue streams -- such as food delivery, advertising, and logistics -- its adjusted EBITDA dwarfs that of LYFT's. In Q2, UBER's adjusted EBITDA jumped by 71% to $1.570 bln, compared to $102.9 mln (+151% yr/yr) for LYFT.
- The adjusted EBITDA growth for LYFT is still impressive and has been buoyed by a steady increase in its driver supply, as well as some cost-cutting actions. Driver hours reached an all-time record in Q2, and the company gained the most drivers in any quarter since 2019. As a result, LYFT is able to keep fares down, improve its pick-up times, and reduce driver incentives.
- As the rideshare market decelerates a bit, it appears that LYFT is leaning on lower prices even more to maintain its Active Rider growth (+10% in Q2). This is reflected in the company's Q3 adjusted EBITDA guidance of $90-$95 mln, which missed expectations. In contrast, UBER's Q3 adjusted EBITDA forecast of $1.58-$1.68 bln slightly beat estimates at the midpoint of the range.
Overall, LYFT's Q2 results were fairly solid given the tough macro conditions, but it's disappointing Q3 guidance relative to UBER's outlook is reminding investors that it's much more exposed to a rideshare slowdown due to its singular focus on that market.
CVS Health taking action to help offset rising medical costs that weighed on FY24 guidance (CVS)
With medical costs continuing to bubble, eroding CVS Health's (CVS) previous FY24 EPS outlook, the retail pharmaceutical and health insurance giant is beginning to institute sweeping changes. CEO Karen Lynch is replacing the top executive at Aetna, CVS's insurance arm, after another disappointing quarter. Meanwhile, CVS announced a $2.0 bln cost-cutting plan, leaning on AI to streamline operations.
Like the rest of the retail pharmaceutical industry, CVS is struggling to escape sticky economic challenges. Walgreens Boots Alliance (WBA) announced in June it would shutter around 25% of its U.S. stores. The company is also reviewing its Boots U.K. business. Meanwhile, Rite Aid filed for Chapter 11 bankruptcy in October, closing hundreds of its locations nationwide.
With so many moving parts, investors' reactions are somewhat mixed today. On the one hand, CVS's overhaul could be what offsets stubborn medical cost pressures. However, it could take months before these actions produce any tangible benefits, especially given that the economic picture does not show signs of noticeable improvements.
- CVS's Q2 numbers reflected the sluggish economic landscape, delivering EPS of $1.83 and revs of $91.23 bln, a 17% decline and 2.6% jump yr/yr, respectively. In Health Care Benefits, which includes Aetna, the medical benefit ratio (MBR) -- the lower, the better -- edged 340 bps higher yr/yr to 89.6%, underpinning how quickly costs have jumped. As a result, adjusted operating income plummeted by 39.1% yr/yr. CVS attributed the weakness to the decline in its Medicare Advantage (MA) star ratings for 2024, which stoked concerns when first announced in October 2022.
- In Pharmacy & Consumer Wellness, which includes the retail side, revenue inched 3.7% higher yr/yr, supported by increased prescription volume and drug mix, which were partially offset by continued pharmacy reimbursement pressure, increased generic drugs, and sliding front store volume. CVS did grow its pharmacy market share, an encouraging development that could keep this segment trending higher over subsequent quarters.
- Health Services, CVS's largest segment by revenue as it houses its medical clinics and PBM offerings, contracted by 9% yr/yr. Notable highlights were Signify, which delivered another quarter of record volume, and Oak Street, which boasted a nearly 30% jump in at-risk patients yr/yr. However, these bright spots were overshadowed by the previously announced loss of a large client and ongoing pharmacy client price improvements.
- Looking ahead, with climbing costs eroding adjusted operating income, CVS lowered its FY24 EPS outlook again in Q2, projecting $6.40-6.65, down from at least $7.00 and below its initial outlook of at least $8.50. CVS also hiked its MBR forecast to 90.6-90.8% from 89.8%.
Rising costs will likely remain the main theme at CVS. The MBR tends to pick up during the back half of each year as the summer months unwind and patients begin scheduling more procedures. CVS warned that if MBR trends persist at elevated levels, it may be required to take an in-year 2024 premium deficiency reserve in its Medicare business, which could alter the cadence of EPS between Q3 and Q4. We commented last quarter that too much uncertainty surrounds CVS. We maintain this view and continue to urge caution in playing a rebound in CVS.
Walt Disney completes Cinderella story for DTC Streaming, but theme park business disappoints (DIS)
When the DTC business was bleeding red ink as Walt Disney (DIS) poured billions into Disney+ and its streaming platforms in 2021-2023, it was the more traditional theme park business that came to the rescue, generating robust operating profits as pent-up demand for travel fueled attendance. In 3Q24, though, the tables turned a bit as a moderation in demand at DIS' domestic theme parks weighed on the Experiences segment, while profits for the Entertainment segment soared, partly due to the DTC streaming business generating positive operating income for the first time.
- Buoyed by a few rounds of price hikes for Disney+ and Hulu, as well as a more disciplined approach to spending on content, DTC Streaming finally turned the corner, posting an operating profit of $47 mln compared to a ($512) mln loss in the year-earlier quarter. Entertainment DTC, which includes Disney+ and Hulu but excludes ESPN+, also nearly broke even with an operating loss of ($19) mln as Disney+ subscriber growth came in a little better than expected. Last quarter, DIS stated that it's not expecting to achieve core subscriber Disney+ growth in Q3, but subscribers edged higher by 1% to 118.3 mln.
- For some perspective, two years ago, the DTC business posted an operating loss of ($1.06) bln. To erase those losses and swing the business into profitability is a crowning achievement for DIS and CEO Bob Iger, but DTC wasn't the star of the show in Q3.
- That accolade belongs to the theatrical film business, which struck gold with the June 14 release of "Inside Out 2." The movie became the highest grossing animated film of all time, selling nearly $1.6 bln in tickets. Its huge success also helped to offset another rough quarter for the Linear Networks business as cord-cutting continues to pressure advertising revenue for traditional cable. Although Linear Networks saw operating income decline by 6% to $966 mln, operating income for the overall Entertainment segment (Linear Networks, DTC, Content Sales/Licensing) soared by 194% yr/yr to $1.2 bln.
- DIS has another blockbuster hit on its hands, too, with Marvel's "Deadpool & Wolverine" breaking the box office record for the largest R-rated global opening ever. Since that movie wasn't released until July 26, though, its contributions won't been seen until DIS issues its Q4 results in early November. However, with momentum building in the theatrical film business -- Moana 2 and Mufasa: The Lion King are also set to launch this year -- DIS had the confidence to raise its FY24 EPS growth target to 30% from 25%.
- Unfortunately, these bullish developments in the Entertainment segment are being clouded over by the disappointing results and outlook for Experiences. Given the outsized attention that's given to the streaming business, it may seem surprising that Experiences still produces the bulk of DIS' earnings. While operating income dipped by 3% in Q3 to $2.2 bln, that still represented 52% of the company's total operating income. Therefore, any negative change in the profit outlook for Experiences will have an impact on the stock. On that note, DIS is expecting Q4 operating income for Experiences to decline by mid-single digits yr/yr driven by a moderation in demand for the domestic theme park business, and reduced attendance at Disneyland Paris due to the Olympics.
The main takeaway is that there were plenty of positives in DIS' Q3 report, most notably including the swing to profitability for the DTC Streaming business, but demand is continuing to weaken for domestic theme parks. If that trend continues, then DIS will have an increasingly difficult time making up for the operating income declines in Experiences.
Airbnb hits 52-week lows as shorter lead times and slowing U.S. demand weigh on Q3 guidance (ABNB)
Airbnb (ABNB -12%) drops to 52-week lows after posting a rare earnings miss in Q2 and issuing downbeat Q3 revenue guidance. The alternative accommodations platform was coming off light quarterly guidance, citing a more normalized travel environment in early May. Its peers across the travel industry carried this theme forward over the subsequent months, including Booking Holdings (BKNG), which warned of travel demand continuing to normalize last week, triggering a sell-the-news reaction. Airlines have been equally disrupted by the demand landscape recently. However, even against this backdrop, ABNB's soft Q3 guidance was worse than the market already baked in.
ABNB anticipates Q3 revs of $3.67-3.73 bln, a roughly 9% improvement yr/yr at the midpoint, translating to another quarter of weakening growth. Meanwhile, Nights and Experiences Booked, a crucial metric, is expected to moderate sequentially.
CEO Brian Chesky stated that the primary issue is lead times. During the front half of 2024, lead times were essentially on par with what ABNB witnessed throughout 2023 -- nothing too alarming. However, the tides shifted in July when the company started observing the shrinking of lead times. This means that travelers are not booking months in advance as frequently. At the same time, ABNB commented that it is noticing slowing demand from U.S. guests. The good news is that the growth of shorter lead times remains robust. Therefore, demand has not completely fallen off the map. Instead, customers are hesitant amid an uncertain macroeconomic environment.
- A shaky global economy has been on display for the past few quarters, seeping into Q2 as illuminated by ABNB's EPS of $0.86, falling short of analyst expectations. Meanwhile, despite revenue growth of 10.6% yr/yr to $2.75 bln meeting estimates, it represented a sharp deceleration from the +17.8% posted in Q1.
- Nights and Experiences Booked expanded by 9.0% yr/yr, similar to the +9.5% posted last quarter, tracking in-line with management's forecast. Growth stemmed from all regions, with underpenetrated markets leading the charge. Outside of ABNB's core markets, which include the U.S., U.K., France, Australia, and Canada, gross nights booked significantly outperformed on average, underscoring the success of ABNB's global expansion plans. Bookings also saw relative strength on ABNB's app, jumping by 19% yr/yr and comprising 55% of total bookings, up 5 pts yr/yr.
- While ABNB contends with economic obstacles, it is focusing on a few internal efforts. The company continues cleaning up listings, removing over 200,000 over the past 16 months. Furthermore, ABNB is planning on launching a new host service centered on co-hosting to unlock additional supply.
Concerns were brewing ahead of ABNB's Q2 report that a softening travel market would erode quarterly performance. Unfortunately for ABNB, the situation was worse than the market feared, spurring a considerable sell-off today. Shorter lead times across the globe alongside slowing demand from U.S. guests is a sour combination, one that may not reverse course so easily even if/when interest rates are cut. It also paints a gloomy picture ahead of Expedia Group's (EXPE) Q2 report tomorrow after the close.
Cirrus Logic is cruising higher following huge beat-and-raise; bodes well for iPhone 16 launch(CRUS)
Cirrus Logic (CRUS +10%) is cruising higher following its Q1 (Jun) results last night. CRUS reported a huge EPS beat, its fifth consecutive beat of at least $0.26. Revenue rose a heathy 18% yr/yr to $374 mln, well ahead of analyst expectations due to stronger than expected shipments into smartphones. The Q2 (Sep) revenue guidance was also impressive at $490-550 mln, which was much better than expected.
- CRUS's largest customer by far is Apple (AAPL), which represented 87% of FY24 sales (up from 83% in FY23 and 79% in FY22), so there is a high correlation between the two companies. Last week, Apple reported Q3 (Jun) results that were roughly as expected with a nice EPS beat. iPhone performed well with revenue being a bit better than street estimates.
- As we noted in our preview, JunQ is typically the lowest revenue quarter of the year for CRUS because consumers are waiting for the new iPhone, which usually gets unveiled in September. So, to see this huge was upside a pleasant surprise and bodes well for the next couple of quarters when iPhone 16 debuts. Speaking of SepQ, the revenue guidance was well above range. CRUS said it expects inventory to increase from JunQ in support of new smartphone launches expected this fall.
- Besides earnings, CRUS was pretty excited about some new products in its flagship smartphone audio business. CRUS achieved what it described as a very significant milestone in JunQ. It began ramping production of its next-generation custom boosted amplifier and its first 22-nanometer smart codec ahead of new product launches expected later this year.
- Specifically, CRUS is excited about the performance, efficiency, and system cost improvements that these new components will deliver. Importantly, CRUS expects that both the boosted amplifier and the new smart codec will ship for multiple generations of customer devices following their introduction. As a reference point, over the past six years, the preceding smart codec and boosted amplifier have shipped over 1 bln units and 3.5 bln units, respectively.
- Longer term, its goal is to continue to broaden its content in smartphones beyond audio. With new customer introductions that CRUS expects to see later this year, it should benefit from more favorable content in smartphones, including its third generation camera controller. Also, it believes advanced power and battery-related technologies represent great opportunities. It also has a number of R&D programs related to high-efficiency charging, battery management, and system-side power delivery.
- CRUS says another key part of its strategy is to expand into new applications and markets outside of smartphones. In particular, CRUS is excited about laptops. Today, it has design wins with each of the top six laptop OEMs worldwide and is actively pursuing many future design opportunities. CRUS sees significant customer demand and engagement around its audio codec, boosted amplifier, haptics driver, and power converter products.
Overall, this was an impressive way to start FY25 for Cirrus Logic and provides good momentum heading into the expected iPhone 16 launch next month. Given Apple's in-line results last week, we were expecting a pretty quiet seasonal quarter with most of the focus on the SepQ guidance. However, smartphone demand was stronger than expected and JunQ became the story. Also, we got more color on CRUS's expansion into other areas, which sounds pretty compelling.
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