Market Snapshot
| Dow | 40712.78 | -177.71 | (-0.43%) | | Nasdaq | 17619.35 | -299.63 | (-1.67%) | | SP 500 | 5570.64 | -50.21 | (-0.89%) | | 10-yr Note | -4/32 | 4.86 |
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| | NYSE | Adv 932 | Dec 1805 | Vol 737 mln | | Nasdaq | Adv 1363 | Dec 2849 | Vol 5.0 bln |
Industry Watch
| Strong: Financials, Real Estate, Energy |
| | Weak: Consumer Discretionary, Materials, Information Technology, Utilities, Communication Services, Health Care |
Moving the Market
-- Normal consolidation activity after solid run that had S&P 500 near its all-time high
-- Below-average volume reflecting light participation
-- Feeling good about Fed rate cut in September, limiting declines in many stocks
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Closing Summary
22-Aug-24 16:30 ET
Dow -177.71 at 40712.78, Nasdaq -299.63 at 17619.35, S&P -50.21 at 5570.64
[BRIEFING.COM] There was a negative bias in today's session. The S&P 500 (-0.9%), Nasdaq Composite (-1.7%), Dow Jones Industrial Average (-0.4%), and Russell 2000 (-1.0%) closed near their lows of the day.
The selling activity was driven by some normal consolidation interest after a solid run for the major indices. Downside moves were not that extreme, though, leaving the S&P 500 1.7% off its all-time high. Also, the equal-weighted S&P 500 declined only 0.3% today.
Losses in mega caps and semiconductor-related shares had an outsized impact on index moves. The PHLX Semiconductor Index (SOX) registered a 3.4% loss and the Vanguard Mega Cap Growth ETF (MGK) fell 1.5%.
This price action led the heavily-weighted information technology sector (-2.1%) to log the biggest decline among the S&P 500 sectors. The next worst performing sector was consumer discretionary (-1.9%). The only sectors to close higher were the real estate (+0.6%), financials (+0.5%), energy (+0.3%) sectors.
Today's economic data didn't garner a big response from stocks. The lineup featured some slightly worse than expected initial jobless claims, some weaker than expected preliminary manufacturing PMI data for August, some stronger than expected preliminary Services PMI data for August, and some better than expected existing home sales for July, which were up 1.3% month-over-month but still down 2.5% year-over-year.
Friday's economic lineup is limited to the July New Home Sales report at 10:00 ET. Tomorrow's headline event is Fed Chair Powell's speech at the Jackson Hole Symposium.
The 10-yr note yield settled eight basis points higher at 3.86%.
- Nasdaq Composite: +17.4% YTD
- S&P 500: +16.8% YTD
- S&P Midcap 400: +8.9% YTD
- Dow Jones Industrial Average: +8.0% YTD
- Russell 2000: +6.1% YTD
S&P 500 sticks near all-time high
22-Aug-24 15:30 ET
Dow -199.17 at 40691.32, Nasdaq -293.00 at 17625.98, S&P -49.00 at 5571.85
[BRIEFING.COM] Stocks remain near intraday lows. Still, the S&P 500 trades 1.7% below its all-time high.
Ross Stores (ROST), Intuit (INTU), Workday (WDAY), Bill.com (BILL), CAVA Group (CAVA) report earnings after the close. Buckle (BKE) reports earnings ahead of Friday's open.
Friday's economic lineup is limited to the July New Home Sales report at 10:00 ET. Tomorrow's headline event is Fed Chair Powell's speech at the Jackson Hole Symposium.
Mega caps weigh down info tech sector
22-Aug-24 15:05 ET
Dow -187.82 at 40702.67, Nasdaq -225.20 at 17693.78, S&P -40.20 at 5580.65
[BRIEFING.COM] The major indices moved mostly sideways near session lows over the last half hour.
Only three S&P 500 sectors remain in positive territory -- energy (+0.4%), financials (+0.4%), and real estate (+0.2%) -- while the information technology sector, which comprises more than 30% of the index, sports a 1.7% decline.
Solid declines in NVIDIA (NVDA 124.72, -3.77, -3.0%), Microsoft (MSFT 416.24, -7.89, -1.9%), Apple (AAPL 224.88, -1.52, -0.7%), and Broadcom (AVGO 164.74, -1.05, -0.6%) have weigh down the info tech sector.
Moderna, Tesla drop in S&P 500 on Thursday
22-Aug-24 14:30 ET
Dow -199.18 at 40691.31, Nasdaq -243.13 at 17675.85, S&P -42.89 at 5577.96
[BRIEFING.COM] The S&P 500 (-0.76%) is in second place on Thursday afternoon, having sunk briefly to lows in the last half hour.
Elsewhere, S&P 500 constituents Moderna (MRNA 82.11, -4.54, -5.24%), Tesla (TSLA 213.85, -9.42, -4.22%), and Advanced Micro (AMD 151.92, -5.89, -3.73%) are among today's top decliners. This afternoon, Moderna confirmed FDA approval of an updated COVID-19 vaccine, while news of Finance VP S. Venkataratnam leaving TSLA has put a drag on shares, and AMD slides alongside general weakness in tech/semis.
Meanwhile, Franklin Resources (BEN 20.44, +0.66, +3.34%) is outperforming despite a dearth of corporate news.
Gold slips to lowest levels in a week as dollar, yields rebound
22-Aug-24 13:55 ET
Dow -237.34 at 40653.15, Nasdaq -227.26 at 17691.72, S&P -44.22 at 5576.63
[BRIEFING.COM] The Nasdaq Composite (-1.27%) is today's worst-performing major average with about two hours to go on Thursday.
Gold futures settled $30.80 lower (-1.2%) to $2,516.70/oz, pressured by a rise in the dollar and bond yields in reaction to yesterday's FOMC minutes.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $101.58.
Williams-Sonoma falls after lowering its FY25 guidance amid challenging economic conditions (WSM)
While topping Q2 (Jul) earnings estimates was a positive development, Williams-Sonoma's (WSM -7%) weaker-than-expected revs in the quarter combined with its lowered FY25 guidance is making investors feel uncomfortable today, driving a sell-the-news reaction as shares slip back to previous lows reached on August 5. The home furnishings retailer's quarterly report followed a concerning performance from peer La-Z-Boy (LZB), which issued soft Q2 (Oct) revenue guidance due to a persistently challenging consumer spending environment. This economic backdrop proved the culprit for WSM, as high interest rates, low housing turnover, and sticky inflation eroded demand during Q2 and weighed on FY25 revenue guidance.
- After dishing out back-to-back positive comp growth in Q1 (Apr) and 4Q24 (Jan), WSM slipped back into negative comp territory, registering -3.3% in Q2. It was not a complete surprise that comps turned negative, given WSM's previous remarks that demand will not pick up meaningfully until the back half of FY25. However, investors did not anticipate comps deteriorating to such a degree so quickly, underscoring just how volatile the economic landscape continues to be.
- This rapid weakening led WSM to concede that it will likely not see the second half acceleration it anticipated, driving its decision to lower its FY25 comp outlook. WSM now expects comps of -5.5% to -3.0% instead of -4.5% to +1.5%, removing any possibility of positive comp growth. The company also lowered its FY25 revenue growth guidance to -4.0% to -1.5% from -3.0% to +3.0%.
- WSM is sticking to its core strategy amid the tumultuous economy, focusing on its three key priorities: returning to growth, improving customer service, and enhancing its margins. On that last note, WSM has performed well, delivering a 550 bp expansion in gross margins yr/yr to 46.2%, supported by higher merchandise margins and supply chain efficiencies. WSM also lifted its FY25 operating margin forecast by 40 bps to 17.4-17.8% despite the headwind from a lower revenue forecast.
- Part of WSM's higher margins is because it prioritizes market share capture without deploying extensive marketing campaigns. Given its banners, such as Pottery Barn, WSM commands meaningful premium name recognition, which allows it to limit markdowns.
- Diving deeper into WSM's initiatives, a few elements underlying its expected return to growth revolve around product innovation and channel experiences. More specifically, WSM is committed to bringing more newness across its assortments and expanding its breadth of online content, including launching new online design tools allowing for 3D rendering.
WSM's lowered FY25 guidance was disappointing given the company's relatively uplifting remarks last quarter. While management is actively engaged in rekindling demand, whether its actions will be sufficient to drive growth despite soft discretionary spending and a suppressed housing market is unclear. WSM has proven to be a formidable opponent fighting against numerous economic headwinds, typically registering decent growth while its peers struggle. Given this context, it is hard to discount WSM and its initiatives. If interest rates begin to drop, WSM is well-positioned, especially against its competition, to reignite growth.
Snowflake melting down as slowing growth, rising costs, and steep valuation hit shares (SNOW)
Data analysis platform provider Snowflake (SNOW) exceeded Q2 EPS and revenue expectations while also increasing its share repurchase authorization by $2.5 bln, but the stock is selling off sharply despite those positive headlines. The primary issue is that the company's guidance is being perceived as underwhelming, especially in light of the stock's rich valuation with a 1-year forward P/S of about 10.5x.
- For Q3, SNOW guided for product revenue of $850-$855 mln, which was only slightly ahead of expectations at the midpoint. More problematic, though, is that the midpoint of that guidance range equates to yr/yr growth of 22%, down materially from Q2's growth of 30%.
- Although SNOW nudged its FY25 product revenue guidance higher by $56 mln to $3.356 bln, the increase failed to impressive investors, particularly since its Q2 product revenue came in about $20 mln ahead of estimates. Further adding to the disappointment, SNOW merely reaffirmed its non-GAAP operating margin guidance of 3%, even though its Q2 non-GAAP operating margin of 5% came in ahead of its guidance of 3%.
- Slowing growth and a pricey valuation can be a toxic combination, but adding rising expenses to the mix is just too much for the stock to overcome. As SNOW disclosed last quarter, the company is ramping up GPU-related investments in order to support the growth of new products, such as Cortex and Snowpark.
- In Q2, R&D costs jumped by 39% to 437.7 mln, putting downward pressure on margins and non-GAAP EPS, which decreased by 18% yr/yr to $0.18.
- On a brighter note, SNOW is excited about the momentum it's seeing on the new AI product front. Cortex Search and Cortex Analyst are expected to be generally available in Q3, and Snowpark is already beginning to contribute to the top-line. Snowpark allows customers to use programming languages, such as Python, Java, and Scala, within SNOW's cloud platform, eliminating the need to move data outside the platform for processing. This makes it easier, safer, and more efficient to deploy AI and machine learning models.
- SNOW's FY25 product revenue guidance of $3.356 bln includes contributions from Snowpark, which the company estimates at approximately $100 mln for the year.
The main takeaway is that business is still quite healthy for SNOW -- net revenue retention rate was 127% as of July 31, 2024, and remaining performance obligations grew by 48% yr/yr -- but the stock's rich valuation is hard to justify amid slowing product revenue growth and eroding operating margins.
Zoom Video's Q2 results lifted by several encouraging trends; pushes shares nicely higher (ZM)
Zoom Video (ZM +12%) crushes its earnings forecast in Q2 (Jul), registers revenue growth above its guidance, and raises its FY25 (Jan) financial targets, culminating in a decent move higher today. The video conferencing platform was in the midst of a solid rebound effort after sinking to new lows earlier this month, bouncing by around +10% ahead of Q2 numbers. Following its beat-and-raise in the quarter, enough investors are nodding their heads in approval today, keeping ZM trending in a positive direction.
- In Q2, adjusted EPS expanded by 3.7% yr/yr to $1.39, coming in well ahead of ZM's $1.20-1.21 estimate, which translated to a yr/yr decline. Non-GAAP gross margins did contract by 170 bps yr/yr to 78.6% as ZM stepped up its AI investments and upgraded its data center. However, management predicts margins will improve toward the company's long-term target of 80% after hovering around 79% for the rest of FY25.
- Revenue inched 2.1% higher yr/yr to $1.16 bln, led by Enterprise growth of 4%. Also, ZM's attention to the up market provided a revenue boost, ending the quarter with 3,933 customers contributing over $100K in TTM revenue, a 7% improvement yr/yr. Geographically, Americas revs increased by 3% while EMEA was flat and APAC compressed by 2%.
- Categorically, ZM attributed its revenue growth to the broadening of Zoom Workplace, moving up market with Contact Center, and improving AI capabilities. Zoom Workplace, which was launched in April, is the company's AI-powered platform that can be deployed across an organization, containing Zoom Meetings, Team Chat, and Phone, while embedding its AI companion (launched in September 2023), which has been enabled on over 1.2 mln accounts. Meanwhile, Contact Center surpassed 1,100 customers, more than double the number from last year.
- Following upbeat Q2 numbers, ZM hiked its FY25 guidance, projecting adjusted EPS of $5.29-5.32, up from $4.99-5.02, and revs of $4.63-4.64 bln, up from $4.61-4.62 bln. The Americas will likely continue to lift ZM's numbers as management expects softness to persist overseas, particularly in EMEA, which has been impacted by ongoing wars.
Even following a nice run ahead of Q2 results, ZM's Q2 report shone brightly enough to help it break to its best levels since March, potentially signaling the beginning of a broader recovery. There are still some lingering concerns, including the fact that while profitability continues to improve, yr/yr revenue growth remains nearly flat. ZM has not recorded double-digit top-line growth since 2022, highlighting the company's struggles in a post-pandemic environment.
It may take more than a consistently lethargic growth rate to keep today's wave of buying alive over a longer timeframe. AI could be this catalyst. However, its feature set thus far is limited to a few moderately helpful tasks, such as summarizing meetings, providing real-time transcripts and translations, and generating responses, all likely not enough to spark a major customer boost. Perhaps, further enhancements could be a key difference maker.
BJ's Wholesale lower despite upside EPS/revs; investments in new stores to clip earnings (BJ)
BJ's Wholesale Club (BJ -7%) is trading lower after reporting Q2 (Jul) earnings results this morning. This warehouse club chain beat on EPS, its largest EPS upside in five quarters. Revenue rose 4.9% yr/yr to $5.21 bln, which also was better than expected. It also reaffirmed full year EPS at $3.75-4.00.
- However, with its investments for the long term, BJ says this could possibly drive EPS toward the low end of that range. Specifically, BJ says its real estate pipeline is growing faster than it has in years. These investments are heavy today, but in the years ahead, the company believes it will be thrilled that it made them.
- BJ reported Q2 comps (ex-fuel) at +2.4%, which was an improvement from +0.6% in Q1 (Apr) and higher than BJ had anticipated. BJ says Q2 benefitted from robust membership, accelerating traffic and unit growth, and a fast-tracking digital business. Notably, this was BJ's tenth consecutive quarter of traffic growth. BJ grew market share inside its clubs and at the gas pumps.
- Its perishables, grocery, and sundries division delivered close to +3% comps in Q2 as more members rely on BJ for household essentials and more often too. Its general merchandise business improved sequentially from Q1 with +1% comps in Q2. However, members remain discerning in their purchasing behavior, which was evident in big ticket seasonal categories, such as patio sets and structures. Apparel, consumer electronics, and home categories all performed well with positive comps.
- While BJ reaffirmed full year comps (ex-fuel) at +1-2%, the language in the press release was a bit more bullish. BJ says its strong perishables business will likely drive comps to the higher end of the range. BJ believes it offers good value, which helps members stretch their dollars. BJ added that it's doing right by customers on this front as BJ expects full year merchandise gross margins to remain approximately flat yr/yr.
- Membership revenue rose a healthy 9.1% yr/yr to $113.1 mln, which BJ believes is perhaps the greatest marker of long-term progress. Growth was driven by the largest member count growth in a quarter since the pandemic. The company also saw great growth in premium tier memberships and strong renewal rates. BJ is driving healthy membership expansion across both existing and new clubs.
Overall, we think investors are pleased with the solid EPS, revenue and comp numbers. However, we think the stock is down because BJ described the investments its making in new locations. That makes sense for the long term, but is going to pinch EPS in the near term and BJ is now guiding to the low end of its EPS guidance range. We also think BJ's decision to keep prices attractive is good for members, but perhaps investors are less thrilled that full year merchandise gross margins will be flat.
Toll Brothers feeling right at home in current conditions as it delivers beat-and-raise report (TOL)
Luxury homebuilder Toll Brothers (TOL) constructed strong results once again in Q3, beating EPS and revenue expectations, and the outlook is only getting brighter as mortgage rates continue to drift lower. In fact, mortgage rates are sitting at their lowest levels of the year, providing an already healthy new home construction market with another boost. As such, TOL is seeing solid deposit and traffic activity so far in August, giving it the confidence to raise its FY24 home deliveries and adjusted gross margin on home sales guidance.
- TOL now projects FY24 deliveries of 10,650-10,750 homes, up from its prior forecast of 10,400-10,800 deliveries, and adjusted gross margin on home sales of 28.3% compared to its previous outlook of 28.0%. Comparatively, TOL's gross margin on home sales is higher than most of its peers, which is a function of its more affluent customer base and its higher end homes that have an average price tag around $1.0 mln.
- For instance, D.R. Horton's (DHI) gross profit on home sales in Q3 was 24%, and KB Home's (KBH) was 21.1% last quarter.
- To help ease affordability issues, homebuilders have ramped up incentives, including the practice of paying down mortgage rates. However, given that TOL's customer base typically puts down a larger down payment and is better equipped to handle higher mortgage rates, the company can afford to be less aggressive with its promotions.
- While mortgage rates were higher in Q3 compared to where they sit right now, demand was still quite healthy for TOL. Delivered homes increased by 11% to 2,814, slightly above the midpoint of its guidance of 2,750-2,850 units. As has been the case for the last few years at least, a lack of inventory of homes for sale continues to create a supply and demand imbalance in the housing market, pushing buyers towards new construction.
- The cherry on top is that TOL also increased its expected share repurchase total for FY24 to $600 mln from $500 mln, reflecting its confidence in its business prospects and providing the company with another EPS lever to pull.
The main takeaway is that momentum only seems to be building for TOL as mortgage rates cool off and as the supply/demand dynamics are expected to remain favorable for the new construction market for the foreseeable future.
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