| | | Market Snapshot
| Dow | 40659.76 | +96.70 | (0.24%) | | Nasdaq | 17631.71 | +37.22 | (0.21%) | | SP 500 | 5554.25 | +11.03 | (0.20%) | | 10-yr Note | +2/32 | 3.89 |
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| | NYSE | Adv 1773 | Dec 958 | Vol 872 mln | | Nasdaq | Adv 2545 | Dec 1647 | Vol 5.1 bln |
Industry Watch
| Strong: Utilities, Financials, Information Technology, Communication Services, Consumer Staples, Consumer Discretionary |
| | Weak: Industrials, Energy, Real Estate |
Moving the Market
-- Not a lot of conviction following this week's solid gains
-- Losses in semiconductor space after chip equipment maker Applied Materials (AMAT) reported earnings
-- Treasury yields down after the yen was rebounding against the dollar
-- Disappointing housing starts and building permits report for July acting as limiting factor
| Closing Summary
16-Aug-24 16:25 ET
Dow +96.70 at 40659.76, Nasdaq +37.22 at 17631.71, S&P +11.03 at 5554.25
[BRIEFING.COM] The stock market exhibited lackluster action today. The S&P 500 (+0.2%), Nasdaq Composite (+0.2%), Dow Jones Industrial Average (+0.2%), and Russell 2000 (+0.2%) ultimately settled with modest gains near their best levels of the day.
The limited action followed strong gains this week that brought the market back to levels seen in front of last week's sharp selloff. The market-cap weighted S&P 500 jumped 3.9% since last Friday and the equal-weighted S&P 500 logged a 2.5% gain this week.
A disappointing housing starts and building permits report for July and a negative response to earnings results from chip equipment maker Applied Materials (AMAT 207.90, -3.93, -1.9%) also acted as limiting factors for equities today.
Even at the individual level, movement was relatively muted in stocks. The best -- Dexcom (DXCM 74.65, +2.29, +3.2%) -- and worst -- Amcor (AMCR 10.45, -0.40, -3.7%) -- performing stocks in the S&P 500 moved less than 4.0% in either direction.
None of the S&P 500 sectors moved more than 0.6% in either direction. The financial sector showed relative strength, closing 0.6% higher, and the industrial sector (-0.2%) logged the "biggest" loss.
The 2-yr note yield settled four basis points lower at 4.06% and the 10-yr note yield settled four basis points lower to 3.89%.
- Nasdaq Composite:+17.5% YTD
- S&P 500: +16.5% YTD
- S&P Midcap 400: +8.3% YTD
- Dow Jones Industrial Average: +7.9% YTD
- Russell 2000: +5.7% YTD
Reviewing today's economic data:
- July Building Permits 1.396 mln (Briefing.com consensus 1.440 mln); Prior was revised to 1.454 mln from 1.446 mln, July Housing Starts 1.238 mln (Briefing.com consensus 1.350 mln); Prior was revised to 1.329 mln from 1.353 mln
- There is some chatter that Hurricane Beryl had some influence over the disappointing data, yet that isn't a totally adequate excuse given the decline in single-unit starts and permits in the West where Hurricane Beryl had zero impact. The key takeaway, then, is that conditions in the residential construction market remain soft with higher rates acting as a constraint.
- August Univ. of Michigan Consumer Sentiment - Prelim 67.8 (Briefing.com consensus 66.7); Prior 66.4
- The key takeaway from the report is that sentiment in August was swayed by political developments, yet the take-home point is that inflation is still the top concern among consumers.
Looking ahead, Monday's economic data is limited to the July Leading Indicators Index at 10:00 ET. Influential data next week include the Existing Home Sales report (Thursday) and the New Home Sales report (Friday).
Treasuries settle with gains; Influential data next week
16-Aug-24 15:35 ET
Dow +107.56 at 40670.62, Nasdaq +39.06 at 17633.55, S&P +11.07 at 5554.29
[BRIEFING.COM] The major indices are sitting near session highs ahead of the close.
The 2-yr note yield settled four basis points lower at 4.06% and the 10-yr note yield settled four basis points lower to 3.89%.
Looking ahead, Monday's economic data is limited to the July Leading Indicators Index at 10:00 ET. Influential data next week include the Existing Home Sales report (Thursday) and the New Home Sales report (Friday).
Bath & Body Works, Dexcom rally in S&P 500 into the weekend
16-Aug-24 14:30 ET
Dow +119.11 at 40682.17, Nasdaq +45.38 at 17639.87, S&P +12.48 at 5555.70
[BRIEFING.COM] The S&P 500 (+0.23%) is in last place on Friday afternoon, up now about 12 points.
Elsewhere, S&P 500 constituents Bath & Body Works (BBWI 33.84, +0.93, +2.83%), Dexcom (DXCM 74.51, +2.15, +2.97%), and Take-Two (TTWO 150.27, +3.89, +2.66%) dot the top of the standings. Apparel and luxury goods stocks are higher today, buoying BBWI and select peers, while DXCM and TTWO are the beneficiaries of rising tides lifting all boats.
Meanwhile, GE Vernova (GEV 183.96, -4.86, -2.57%) is near the bottom of the average, cooling from yesterday's all-time highs.
Gold adds to weekly gains on Friday
16-Aug-24 14:00 ET
Dow +115.06 at 40678.12, Nasdaq +64.19 at 17658.68, S&P +14.88 at 5558.10
[BRIEFING.COM] With about two hours left to go on Friday the tech-heavy Nasdaq Composite (+0.28%) holds onto the lead among the major averages, up about 65 points.
Gold futures settled $45.40 higher (+1.8%) to $2,537.80/oz, ending the week +2.6% higher, helped by weaker yields and a softer greenback.
Meanwhile, the U.S. Dollar Index down about -0.4% to $102.55.
DJIA on pace to rebound almost 3%; Cisco, McDonald's aid Friday's gains
16-Aug-24 13:30 ET
Dow +108.55 at 40671.61, Nasdaq +69.86 at 17664.35, S&P +15.24 at 5558.46
[BRIEFING.COM] The Dow Jones Industrial Average (+0.27%) is tied with the S&P 500 for second place among the major averages.
A look inside the DJIA shows that Cisco (CSCO 49.64, +1.11, +2.29%), McDonald's (MCD 278.88, +4.01, +1.46%), and Nike (NKE 83.68, +1.18, +1.43%) hold decent gains.
Meanwhile, Caterpillar (CAT 343.02, -.262, -0.76%) is underperforming.
The DJIA is on pace to end the week +2.97% higher.
Elsewhere, at the top of the hour, Baker Hughes (BKR 35.03, -0.05, -0.14%) announced a weekly U.S. rotary rig count of 586, -2 w/w and -56 yr/yr.
Rivian Automotive loses some charge on production headwinds related to Amazon delivery vans (RIVN)
Rivian Automotive (RIVN -3%) hits a pothole today after Bloomberg reported that the electric vehicle maker paused its Amazon (AMZN) delivery truck production due to part shortages. Today's announcement does not affect the production of its truck and SUV, the R1T and R1S. Also, AMZN reportedly mentioned that the issues should not have much impact. Nevertheless, it comes as another setback in a long line of hurdles RIVN has had to clear throughout its time as a publicly traded company.
- RIVN was coming off a decent quarterly report last week. While earnings estimates were missed, RIVN did reiterate its FY24 guidance, including the production of 57,000 vehicles and low-single-digit delivery growth yr/yr. A constant problem for RIVN, however, has been expenses. The company continues to lose money on every vehicle produced.
- Temporary pauses in production are nothing new at RIVN, which shut down production at its Normal, IL facility in April for a few weeks and plans to halt production again for over a month during 2H25 to upgrade equipment ahead of its 1H26 R2 launch. Still, hiccups in production, including delivery vans to AMZN, can exacerbate the company's margin woes.
- On the plus side, investors still have RIVN's joint venture with Volkswagen (VWAGY) to be excited about. As previously announced, Volkswagen invested $1.0 bln into RIVN, with up to $4.0 bln in planned additional investments. However, to earn the additional funds, RIVN must meet definitive agreements, achieve certain milestones, and receive regulatory approvals. These factors add some uncertainty over whether RIVN will ultimately receive the total $5.0 bln. Production snags only hike this uncertainty.
Shares of RIVN are up nicely from 2024 lows. However, they still trade around 35% lower this year, reflecting an overall bearish sentiment. The company's reiterated FY24 production and delivery guidance is encouraging, as is its confidence in reaching around 25% gross margins and high-teens adjusted EBITDA margins over the long run. We like that the company is focused on cutting expenses and expanding its addressable market with the upcoming launch of its lower-cost R2 model. However, while production interruptions are one thing, the currently unfavorable macroeconomic environment is another. When combining the two, RIVN has a tall hill to climb to realize the total potential investment from Volkswagen and ultimately reach its long-term financial goals.
Globant's solid Q2 results put it on the map as an emerging AI play (GLOB)
Globant (GLOB), a Luxembourg-based software development and cybersecurity company, bucked the challenging IT spending environment in Q2, delivering solid results that included a small EPS beat and healthy revenue growth of 18%. While GLOB's guidance for Q3 and FY24 was generally mixed, the rising momentum behind the company's AI products has investors feeling bullish about its growth prospects overall. On that note, GLOB stated that its AI-related revenue soared by 130% yr/yr to $150 mln in 1H24 and that its pipeline is at a record high.
- Over the past ten years, GLOB has steadily invested in its AI platforms -- including Augoor, MagnifAI, Navigate, and GeneXus -- which will now become the foundation of its own AI agents. On June 27, the company announced the integration of its proprietary AI Agents to the software development cycle.
- These AI agents, which will be supervised by humans, are expected to accelerate each stage of the software development process, including product definition, back-end prototyping, design, and code testing.
- GLOB's investments include a 70% increase in the number of data science and AI engineering specialists at the company over the past year. The investments are paying off as demand for Gen AI capabilities explodes, as reflected by the broad-based strength across GLOB's geographies and verticals.
- The best performing region in Q2 was Europe with revenue growing by nearly 45%. Last quarter, GLOB disclosed that it landed its largest deal in its history in that region. Meanwhile, Latin America was up a healthy 23%, while North America saw a 10% increase.
- Taking a look at GLOB's end markets, Travel & Hospitality was the standout as revenue surged by nearly 60% yr/yr, followed by Consumer, Retail, and Manufacturing at 20% growth.
- Another bullish data point is GLOB's strong performance in large accounts. The company ended Q2 with 19 clients contributing over $20 mln in annualized revenue, and 329 clients with more than $1.0 mln of annualized revenue, up 16% yr/yr. Additionally, GLOB's largest customer, Walt Disney (DIS), increased spending on its platform by 11% yr/yr.
The main takeaway is that GLOB's better-than-expected Q2 results and its upbeat commentary during the earnings call put it on more radar screens as an emerging AI play, as reflected in the stock's sizable gains today.
Applied Materials endures profit-taking despite another quarter of top and bottom-line upside (AMAT)
Applied Materials (AMAT -3%) turns lower today despite registering decent numbers across the board in Q3 (Jul). Mirroring its performance from last quarter, the semiconductor equipment giant surpassed analyst earnings and sales estimates by a healthy margin in Q3 and projected Q4 (Oct) figures in-line with consensus. Management also remained energetic on AI; CEO Gary Dickerson remarked that the technology represents a tectonic shift.
So why are investors reacting negatively today? Expectations climbed rapidly ahead of Q3 results, illuminated by shares of AMAT surging by over +20% from August 5 intraday lows. Meanwhile, AMAT's wide Q4 guidance reflected elevated uncertainty within the macroeconomic environment, projecting adjusted EPS of $2.00-2.36 and revs of $6.53-7.33 bln. The company's revenue forecast also translated to a mild 3.1% bump yr/yr at the midpoint, a deceleration from Q3. While AMAT's quarterly guidance has incorporated a wide degree of outcomes since 2022, investors may be starting to grow hungrier for tighter ranges given the expected ramp-up in wafer fab equipment spending in 2025 touched on by AMAT's peers, including KLA Corp (KLAC) and Lam Research (LRCX).
- AMAT's Q3 report underscored the industry's focus on major inflections, including AI, IoT, robotics, electric and autonomous vehicles, and renewable energy. AI is chief among these trends, with demand driving AMAT's expectation that its advanced packaging product revenue will double in size over the next several years. AI training requires leading-edge logic, DRAM, and high-bandwidth memory (HBM), all of which AMAT commands a sizeable presence.
- Most of these businesses recorded growth in Q3, pushing AMAT's consolidated revenue 5.5% higher yr/yr to $6.78 bln and supporting an 11.6% improvement in adjusted EPS to $2.12. The company saw a noticeable pull connected to AI and data center computing. Additionally, DRAM shipments remained robust despite sales in China declining by 11 pt sequentially. Meanwhile, HBM adoption continued to grow, comprising a larger percentage of AMAT's mix. Leading-edge foundry-logic demand was lower yr/yr but did strengthen sequentially, illuminating a mounting desire for advanced packaging.
- Other businesses also performed well, such as NAND memory sales, which climbed by 10% yr/yr. ICAPS (IoT, Communication, Automotive, Power, and Sensor) demand was decent, with some pockets of weaknesses branching from industrial and automotive, similar to what many others in the semiconductor industry noticed. Applied Global Services expanded by 8% yr/yr, underpinned by growth in customer factory utilization. Lastly, Display ticked 7% higher; management believes OLED technology will require a significant increase in capital investment, supporting sustained growth.
Even though it is not showing up in today's price action, AMAT's Q3 report was sound. AI demand continues to swell, providing an intensifying tailwind as AMAT heads into its final quarter of FY24. However, investors expected more after piling in over the past two weeks, leading to a lackluster response today. Nevertheless, we continue to like AMAT over the long run and view sharp pullbacks as attractive entry points.
H&R Block delivering some nice returns after beat-and-raise report, new share repurchase plan (HRB)
H&R Block (HRB) capped off the 2024 tax season with a bang, delivering a strong beat-and-raise Q4 earnings report while also announcing a new $1.5 bln share repurchase authorization and a 17% increase to its quarterly dividend. The company, which is best known for its assisted tax preparation services, continued to gain momentum on the DIY side, reporting that it gained market share in that business for the second consecutive year. Additionally, HRB's diversification efforts are paying off as its non-tax related businesses performed well and provided a boost to its top-line growth.
- Starting with the bread and butter Assisted Tax Preparation business, revenue increased by 2.5%f to $652.4 mln. During the earnings call, HRB noted that its brand is resonating well with higher value clients, enabling it to grow net average charge (NAC). Small business was another area of strength with revenue up by mid-single digits.
- Turning to DIY tax prep, revenue edged higher by 1.4% to $134.3 mln. Although main competitor Intuit (INTU) generated stronger 9% revenue growth in its Consumer segment (TurboTax, both DIY and Assisted) last quarter, INTU also said that it expects total TurboTax units to decline by 1% in FY24, due to market share losses with lower average revenue per return customers. It seems likely that HRB is picking up many of those lost customers.
- While HRB is best known for its tax prep services, the company has also been expanding into adjacent areas, such as mobile banking and small business services, such as bookkeeping, payroll, and advisory. In June of 2022, HRB launched Spruce, a mobile banking app that includes a debit card and connected savings account. Since the launch, Spruce has accumulated 476,000 sign ups and it's approaching a milestone of $1.0 bln in customer deposits. Encouragingly, nearly half of the deposits came from non-tax sources this year.
- HRB's Financial Services segment, which includes Spruce, achieved revenue growth of 14% to $18.8 mln, mainly driven by interest and fee income.
- Meanwhile, Wave, HRB's small business services segment, posted revenue growth of 9% to $25.8 mln, boosted by the recent launch of a new paid subscription product called Pro-Tier. Importantly, the company also stated that losses continue to shrink for Wave and that it expects these positive trends to continue in FY25.
- On the topic of FY25, HRB provided a rather muted outlook for the tax prep industry overall, forecasting growth of about 1%, in line with historical trends. One disappointment was that the company didn't forecast addition market share gains, stating instead that it assumes that it will maintain market share in the overall tax category. However, HRB does expect to benefit from additional pricing actions, and it expects the Wave and Small Business segment to continue to drive revenue growth.
The main takeaway is that HRB ended the 2024 tax season on a very positive note and the company's shareholder-friendly capital allocation strategy is resonating quite well with investors.
Tapestry closed out FY24 with decent results; given the macro headwinds, investors like Q4 (TPR)
Tapestry (TPR +5%) is making a nice move following its Q4 (Jun) earnings report this morning. We wanted to check in to see how this supplier of luxury accessories is doing in the current macro environment. Its flagship brand is Coach, but it owns several other luxury brands, including Kate Spade, and Stuart Weitzman.
- It reported upside EPS, but with notably smaller upside than the past two quarters. Revenue fell 1.8% yr/yr to $1.59 bln, which was in-line. Tapestry lowered its FY25 EPS guidance, but part of that is from the suspension of share repurchase activity due to the proposed acquisition of Capri Holdings (CPRI) and an estimated currency headwind of approximately $0.20 relative to prior guidance.
- The majority of TPR's sales are in North America at 65% of FY24 revs. However, as you can see above, TPR gets impacted quite a bit by FX given its high percentage of international sales (35% of FY24 revs). Speaking of which, Tapestry would have posted +1% revenue growth on a constant currency basis.
- Sales in Q4 were led by international growth, with gains across key regions, including increases of +26% CC yr/yr in Europe with strength across channels, including higher spend from local consumers and tourists, +12% CC in Other Asia with notable growth in Malaysia, Australia and Korea, and +2% CC in Japan.
- However, the recovery in China has been more gradual than originally expected as Q4 sales declined -10% CC. China is TPR's second largest market (15% of FY24 revs) behind only North America. In Greater China, revenue declined as expected given that TPR was lapping 50% growth in the year ago period. TPR continues to navigate a more challenging consumer backdrop in China. In North America, sales declined 1% amid a challenging consumer backdrop.
- Tapestry gave an update on its previously announced deal to acquire Capri Holdings, which owns Versace, Jimmy Choo and Michael Kors. In April 2024, the FTC filed a lawsuit in an attempt to block the proposed acquisition. The company is working expeditiously to close the transaction in calendar year 2024.
The trading action indicates that investors are pleased with how Tapestry closed out FY24. It was not a blowout quarter, but sales growth was strong if you back out North America and China. Given all the macro headwinds and consumers seeking value, investors are pleased with these results as they could have been worse.
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