Market Snapshot
| Dow | 41250.50 | +9.98 | (0.02%) | | Nasdaq | 17754.81 | +29.05 | (0.16%) | | SP 500 | 5625.80 | +8.96 | (0.16%) | | 10-yr Note | -1/32 | 3.83 |
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| | NYSE | Adv 1173 | Dec 1569 | Vol 721 mln | | Nasdaq | Adv 1692 | Dec 2479 | Vol 4.3 bln |
Industry Watch
| Strong: Financials, Information Technology, Real Estate, Consumer Staples |
| | Weak: Energy, Utilities, Materials, Consumer Discretionary, Communication Services, Materials |
Moving the Market
-- Not a lot of market-moving news
-- Waiting on NVIDIA (NVDA) earnings report after Wednesday's close
-- Vacation plans ahead of Labor Day
-- Gains in some mega cap names supporting index moves
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Closing Summary
27-Aug-24 16:30 ET
Dow +9.98 at 41250.50, Nasdaq +29.05 at 17754.81, S&P +8.96 at 5625.80
[BRIEFING.COM] The S&P 500 (+0.2%), Nasdaq Composite (+0.2%), and Dow Jones Industrial Average (+0.02%) settled higher than yesterday's closing levels while the Russell 2000 underperformed, dropping 0.7%.
Volume was below-average again, reflecting light participation in front of Labor Day. There was also a lack of market-moving news and a lack of strong buying interest in front of NVIDIA's (NVDA 128.30, +1.84, +1.5%) earnings after Wednesday's close, contributing to the muted action in the market.
Other mega cap and semiconductor-related names outperformed after lagging the broader market yesterday. The PHLX Semiconductor Index (SOX) jumped 1.1%, which leaves this week's loss at 1.4%. The Vanguard Mega Cap Growth ETF (MGK) settled 0.3% higher, leaving it down 0.3% since Friday.
Apple (AAPL 228.03, +0.85, +0.4%) and Eli Lilly (LLY 954.48, +3.95, +0.4%) were among the top performers in the mega cap space. AAPL traded higher after naming Kevan Parekh as its new CFO and LLY traded up on its announcement of a Zepbound savings program for non-covered patients with an on-label prescription that will feature single-dose vials priced at a 50% or greater discount through its self-pay channel.
The performance of the S&P 500 sectors was mixed. The information technology (+0.6%) and financial (+0.5%) sectors, which make up nearly 45% of the index, closed at the top of the leaderboard. Energy (-0.9%) was the worst performing sector amid falling oil prices. WTI crude oil futures slid 2.3% to $75.61/bbl.
The 2-yr note yield fell three basis points to 3.90% and the 10-yr note yield rose one basis point to 3.83%. This price action followed today's $69 billion 2-yr note auction, which met solid demand.
- S&P 500: +18.3% YTD
- Nasdaq Composite: +18.0% YTD
- S&P Midcap 400: +10.6% YTD
- Dow Jones Industrial Average: +9.5% YTD
- Russell 2000: +8.6% YTD
Reviewing today's economic releases:
- The Conference Board's Consumer Confidence Index improved to 103.5 in August (Briefing.com consensus 100.0) from an upwardly revised 101.9 (from 100.3) in July.
- The key takeaway from the report is that consumers are starting to show more concern about labor market conditions, which could eventually translate into lower consumer spending activity if that labor market angst leads to deferred discretionary spending decisions.
Wednesday's economic data is limited to the weekly MBA Mortgage Applications Index at 7:00 ET and the weekly EIA Crude Oil Inventories at 10:30 ET.
Treasuries settle little changed
27-Aug-24 15:35 ET
Dow +4.25 at 41244.77, Nasdaq +31.53 at 17757.29, S&P +8.29 at 5625.13
[BRIEFING.COM] The market continues to flow in a lateral fashion ahead of the close.
Treasuries settled little changed from yesterday. The 2-yr note yield fell three basis points to 3.90% and the 10-yr note yield rose one basis point to 3.83%.
Wednesday's economic data is limited to the weekly MBA Mortgage Applications Index at 7:00 ET and the weekly EIA Crude Oil Inventories at 10:30 ET.
Growth outpacing value
27-Aug-24 15:05 ET
Dow -9.86 at 41230.66, Nasdaq +28.49 at 17754.25, S&P +7.25 at 5624.09
[BRIEFING.COM] The major indices moved in a sideways flow in recent action.
Growth stocks have a slight performance edge over value stocks today. The Russell 3000 Growth Index sports a 0.3% gain and the Russell 3000 Value Index shows a 0.1% decline.
Still, moves in either direction have been limited for many stocks through the entire session. None of the S&P 500 sectors are moving more than 0.6%, except energy, which trades 1.0% lower.
Insulet, Resmed among top gainers in S&P 500 on Tuesday
27-Aug-24 14:30 ET
Dow +0.94 at 41241.46, Nasdaq +44.32 at 17770.08, S&P +10.98 at 5627.82
[BRIEFING.COM] The S&P 500 (+0.20%) is in second place on Tuesday afternoon, up about 11 points.
Elsewhere, S&P 500 constituents Insulet (PODD 195.43, +14.74, +8.16%), Resmed (RMD 239.90, +14.04, +6.22%), and Norwegian Cruise Line (NCLH 18.30, +0.85, +4.87%) dot the top of the standings. PODD gains on earlier-than expected FDA approval for Omnipod 5 for type 2 diabetes, while RMD caught a bullish analyst note related to weight loss drug prospects, with NCLH and its peers higher despite a dearth of corporate news.
Meanwhile, Walgreens Boots Alliance (WBA 9.54, -0.84, -8.09%) is today's top laggard, losses due in part to waning pharmacy sentiment after Pfizer (PFE 28.81, -0.11, -0.38%) launched its pfizerforall.com platform and Eli Lilly (LLY 954.68, +4.15, +0.44%) released DTC Zepbound single-dose vials.
Gold narrowly lower on Tuesday
27-Aug-24 14:00 ET
Dow -15.25 at 41225.27, Nasdaq +57.91 at 17783.67, S&P +13.11 at 5629.95
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.33%) holds a narrow lead among the major averages, having moved mostly sideways over the prior half hour.
Gold futures settled $2.30 lower (-0.1%) to $2,552.90/oz, losses kept at bay as mixed market moves leave investors on the back foot.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $100.63.
Paramount Global forced to stick with Skydance after Mr. Bronfman drops out (PARA)
Paramount Global (PARA -5%) turns lower after ending its "Go-Shop" period, which was extended last week after Edgar Bronfman Jr. and several other investors tossed out a bid to purchase the company. Paramount has been seeking acquirers for some time now, recently signing a definitive agreement with Skydance, which is buying National Amusements, the entity that owns most of the Class A voting shares.
However, Mr. Bronfman, the former Chairman and CEO of Warner Music and current Chairman of Fubo (FUBO), made a competing offer, initially outlining a $4.3 bln proposal, which he raised to $6.0 bln, only to withdraw this bid last night. The withdrawal reportedly followed some of Mr. Bronfman's partners dropping out, keeping him from piecing together the equity to finance the acquisition.
Skydance's and Mr. Bronfman's offers are similar. For example, each will pour $1.5 bln of cash into Paramount and purchase the company through National Amusements. However, there are a few key differences explaining why shares of Paramount slipping today.
- Skydance is offering Paramount Class B shareholders the option to either sell around half of their holdings for $15.00 per share, representing a premium of around 40% when using today's stock price, or hold onto them while the companies merge.
- While the details of Mr. Bronfman's offer are murky, his takeover deal does not appear to involve shareholders being able to offload half their Class B shares at $15.00 per share. Instead, reports show that it offered shareholders the ability to cash a significantly smaller percentage of their holdings at $16.00 per share.
- While Mr. Bronfman's proposal did allow Class B shareholders to sell at a slightly higher price, they would not have been able to sell as much. In the ongoing M&A saga Paramount has been involved in for months, cutting ties with Mr. Bronfman is not the worst-case outcome. The Skydance deal provides Paramount with a much-needed cash injection while also adding a new leadership team that could re-energize the company.
The main takeaway is that today's sell-the-news reaction to Mr. Bronfman pulling out of the battle to acquire Paramount may be overblown. Still, even though the uncertainty surrounding who will take over Paramount has cleared, the company has a formidable uphill climb. Cable is struggling, and streaming comes with significant operating costs. Paramount has plenty on its plate under new leadership, which is expected to step in sometime during 1H25 when the Skydance transaction closes.
HEICO succumbs to sell-the-news reaction, but Q3 results were solid overall (HEI)
Aerospace component and electronics supplier HEICO (HEI) was flying higher ahead of its Q3 earnings report with shares rallying by about 8% over the past few weeks, reflecting the market's lofty expectations. Fueled by robust demand for its commercial aviation and defense products, alongside meaningful contributions from its recent acquisitions, HEI achieved record quarterly operating results in its Flight Support Group (FSG) segment, enabling the company to also surpass Q3 EPS estimates. However, the 37% increase in total revenue only met analysts' high expectations, creating some disappointment and inciting a sell-the-news reaction.
- The resurgence of travel demand within the commercial airline industry and increasing defense budgets are the two primary catalysts that are bolstering aerospace parts and components suppliers. These catalysts were on display when recent IPO Loar Holdings (LOAR) posted an impressive beat-and-raise Q2 report on August 13, which was preceded by GE Aerospace's (GE) upside Q2 results on July 23. In the wake of LOAR's and GE's strong performances, the bar was set even higher for HEI.
- Staying true to recent form, the FSG segment was the star of the show in Q3 as revenue and operating income jumped by 68% and 72%, respectively. On an organic basis, net sales were up 15%, driven by strength in the aftermarket replacement parts product line. Acquisitions played a significant role in HEI's growth, most notably including its $2.05 bln acquisition of Wencor Group (closed 8/4/23). That was the company's largest acquisition to date.
- The addition of Wencor Group further diversified HEI's aftermarket product line, providing it with a portfolio of generic parts such as bearings, seals, and gears. While HEI continues to operate Wencor as a standalone operation, the company says that it has made good progress in serving its customers in a seamless fashion. Overall, HEI says that the performance of Wencor has exceeded its expectations.
- Turning to HEI's Electronic Technologies Group (ETG), revenue dipped by 1.1% to $322.1 mln, mainly due to an expected decrease in electronics and medical products, partially offset by higher aerospace, defense, and space product net sales. Similar to the past few quarters, HEI experienced inventory destocking at some of its customers, but it believes that order trends in these markets have bottomed and it's seeing improved orders from some companies.
Looking ahead, HEI remains quite bullish about its prospects, stating it's optimistic about achieving net sales growth in both segments in FY24. Furthermore, HEI says that its acquisition pipeline is very robust with opportunities in both the FSG and ETG segments.
Trip.com Group benefiting from expanded visa-free entry into China; lifts Q2 numbers (TCOM)
While consumption growth in China has decelerated in recent months, this trend has not stood in Trip.com Group's (TCOM +8%) way, which continues to deliver robust quarterly numbers, including another top- and bottom-line beat in Q2. TCOM, like its US-based counterpart Expedia (EXPE), manages multiple travel platforms such as Ctrip and Skyscanner, catering to both domestic and international users.
The economic situation in China has been gloomy for some time. However, TCOM has capitalized on a decent tailwind over the past several months. Late last year, the Chinese government announced a trial program for six countries -- now expanded to over a dozen -- to visit China without a visa and without needing to have a booking in an outside country. Previously, China would allow leisure stays within its borders if the traveler was passing through (this is still the case for many countries outside the current trial program, including the United States). Now, with its one-year trial for visa-free travel, which the government extended to December 31, 2025, numerous countries, from France to Australia, can stay in China for up to 15 days.
- The Chinese government's action has steadily lifted TCOM's quarterly numbers, with Q2 being no exception. The company delivered 13.5% yr/yr revenue growth in the quarter, supported by growth across all segments. However, transactions on the company's international platform exhibited outsized strength, boasting around 70% revenue growth. Management mentioned that bookings from countries with visa-free entry to China grew at the fastest rate.
- Meanwhile, cross-border travel exhibited notable strength, as international events, including the Euro Cup and the Olympics, attracted many to Europe. Outbound travel remained a meaningful growth driver, with international flight capacity restored to around 75% of pre-pandemic levels. At the same time, outbound hotel and air ticket bookings recovered to 100% of 2019 levels.
- Individuals in China are also booking stays across the region, with consumption holding onto its robust growth following an energetic start to 2024. During Q2, hotel reservations by Chinese travelers spiked by around 20% yr/yr.
- Looking ahead, TCOM did not provide formal guidance but commented on what it has seen so far through Q3. The company's China business has maintained robust momentum as outbound travel sustains its growth, with air and hotel reservations reaching up to 120% of 2019 levels. For the rest of FY24, TCOM noted it has limited visibility due to short booking windows in China. However, it expects travel activities to follow normal seasonal patterns, translating to further growth throughout the remainder of the year.
With sustained travel demand across China combined with the tailwinds from the Chinese government's initiatives to boost tourism into the country, TCOM has been able to maintain solid quarterly numbers. While economic uncertainties linger, explaining TCOM's roughly 25% correction from May highs leading into its Q2 results, consumer preferences shifting toward experiences in light of sticky inflation and other macroeconomic headwinds puts TCOM in an attractive position to potentially mount a broader rally.
American Woodmark under pressure as kitchen/bath remodels slow; waiting for rate cuts (AMWD)
American Woodmark (AMWD -11%) is trading sharply lower following its Q1 (Jul) report this morning. AMWD is one of the nation's largest cabinet manufacturers (kitchen cabinets, bathroom vanities) for the remodeling and new home construction markets. After four consecutive large ($0.27+) EPS beats, AMWD has now reported back-to-back EPS misses. Revenue fell 7.9% yr/yr in Q1 to $459.1 mln, which was also below expectations.
- AMWD said it delivered sales growth in the new construction market, but this was more than offset by weaker than projected demand in the remodel market. Looking ahead, AMWD said that softer demand in the remodel market is expected to continue and it has seen a recent slowdown in new construction single family starts. As such, the company expects FY25 sales to decline in the low single digits whereas analysts were looking for slight positive growth.
- Specifically, the company explained that single family housing starts have slowed over the past three months, which is putting downward pressure on cabinet installations in future quarters. Its home center customers have noted higher interest rates and macroeconomic pressures are leading to weaker spending on projects. This has been more significant for higher priced discretionary projects like kitchens and baths.
- The silver lining is that AMWD believes it's not experiencing a loss of market share. Also, its belief is that as interest rates decline, consumer confidence will increase, existing home sales will increase, and the potential for home projects increases. This should serve as a tailwind in calendar year 2025. Also, AMWD expects continued growth in new construction during the back half of the year.
- Another positive that AMWD described was how operational improvements put into place over the past year have helped it mitigate the volume declines affecting the broader repair and remodel industries. AMWD expects investments in automation will drive future operational efficiencies. Also, it's worth noting that AMWD was fairly aggressive with share buybacks in JulQ, as it repurchased about 1.8% of shares outstanding, which is a large amount for one quarter.
Overall, this was a rough way for AMWD to start FY25. We suspect investors were expecting a difficult quarter on the repair/remodel side with muted guidance given its cautious repair/remodel comments on the Q4 (Apr) call in May. However, what was new for investors was the weakening new construction side of the business. What is boils down to is that AMWD needs interest rates to fall, which should kickstart kitchen/bath remodels on both the new construction side and the remodel side. When rates do fall, AMWD is worth keeping an eye on as a way to play it.
Intel sinks lower again as it reportedly prepares for activist investors to come knocking (INTC)
Coming off one of its worst quarterly performances in recent memory in which it missed top and bottom-line estimates for Q2 and issued very weak Q3 guidance, it seems that beleaguered chip maker Intel (INTC) sees the sharks circling. According to a report from CNBC last Friday night, INTC has hired advisors from Morgan Stanley (MS) and perhaps other firms to help defend itself against possible battles with activist investors.
- At this point, no concrete activist investor activity has materialized, but with shares of INTC plunging by 60% on a year-to-date basis, the company has certainly become an easy target. INTC's issues are both deep and many, but the biggest indictment against its leadership is the massive share losses it has suffered at the hands of Advanced Micro Devices (AMD) and NVIDIA (NVDA).
- From a technology and product standpoint, INTC was simply unprepared to capitalize on the explosion of AI, which has necessitated massive investments in new data center chips -- an area that NVDA and AMD have dominated. To illustrate just how far INTC has fallen behind, in Q2, revenue in its Data Center and AI segment fell by 3%, while AMD's Data Center segment experienced a 115% surge in revenue. NVDA, which is slated to report Q2 earnings after the close on Wednesday, saw its revenue rocket higher by 262% last quarter.
- If an activist investor does home in on INTC, it seems likely that the aim would be to reduce its cost structure and to sharpen its focus on AI and its core businesses. In that brutal Q2 earnings report, INTC also announced a headcount reduction of at least 15% of its workforce, along with a 20% cut to its 2024 capex projection and the suspension of its dividend. However, it wouldn't be surprising if an activist investor pressed INTC to take it a step further by divesting some non-core assets.
- INTC already has an established track record of executing such transactions. In October 2022, the company spun off ADAS technology company Mobileye Global (MBLY), and this past February, it spun off Altera into a new standalone FPGA company. Additionally, in September 2023, it sold a 10% stake in the IMS Nanofabrication business for $4.3 bln to Taiwan Semiconductor Manufacturing (TSM).
- It would be pure speculation to suggest what other assets an activist investor could set its sights on for divestiture -- if any at all -- but INTC needs more capital to fund its "IDM 2.0" strategy, which is the company's strategy of rededicating itself to technology leadership, while also transitioning to a foundry model. For some perspective, INTC's cash flow from operations for the six months ended June 29, 2024 was $1.07 bln. Ten years earlier, the company generated cash flow of nearly $9.0 bln for the six months ended June 208, 2014.
The main takeaway is that INTC and its leadership team is a vulnerable position as the company's turnaround plan falters and as it continues to miss out on one of the most powerful growth catalysts to come through the semiconductor industry in decades. Although INTC has taken some steps to reduce its cost structure, activist investors may be looking for the company to take even more drastic measures.
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