Market Snapshot
| Dow | 41335.05 | +243.63 | (0.59%) | | Nasdaq | 17516.42 | -39.60 | (-0.23%) | | SP 500 | 5591.96 | -0.22 | (0.00%) | | 10-yr Note | -2/32 | 3.87 |
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| | NYSE | Adv 1857 | Dec 850 | Vol 731 mln | | Nasdaq | Adv 2551 | Dec 1588 | Vol 5.7 bln |
Industry Watch
| Strong: Energy, Financials, Industrials, Materials |
| | Weak: Information Technology, Consumer Staples, Real Estate, Consumer Staples |
Moving the Market
-- NVIDIA (NVDA) sliding after earnings due to super-high expectations
-- Rollover action in some mega caps and semiconductor shares coinciding with indices moving lower
-- Positive responses to other earnings news
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Closing Summary
29-Aug-24 16:30 ET
Dow +243.63 at 41335.05, Nasdaq -39.60 at 17516.42, S&P -0.22 at 5591.96
[BRIEFING.COM] The stock market had a positive disposition through most of the session. The S&P 500 (flat) and Nasdaq Composite (-0.2%) closed near their lows of the day, though, following a sharp move lower in the afternoon. This price action coincided with NVIDIA (NVDA 117.59, -8.02, -6.4%) extending its post-earnings decline, along with other mega cap names giving back initial gains.
The "rest" of the market also pulled back from early highs, but maintained an overall positive bias. This was the case through the entire session despite the move in NVIDIA shares, which reported above-consensus earnings and guidance, but didn't live up to ultra-high expectations. NVIDIA was sliding under normal consolidation interest after a stellar year so far. Shares are still 137% higher this year including today's decline.
The Vanguard Mega Cap Growth ETF (MGK) settled 0.3% lower and the PHLX Semiconductor Index (SOX) logged a 0.6% decline.
Buying activity elsewhere provided offsetting support. The equal-weighted S&P 500 still logged a 0.4% gain. Advancers led decliners by a 2-to-1 margin at the NYSE and by a 3-to-2 margin at the Nasdaq. Upside moves led the Dow Jones Industrial Average to a fresh record despite a loss in Salesforce (CRM 257.01, -1.89, -0.7%), which initially traded higher in response to its earnings report.
Other names that reported earnings garnered positive responses, contributing to the upside bias. CrowdStrike (CRWD 271.67, +7.47, +2.8%), Affirm Holdings (AFRM 41.66, +10.08, +31.9%), and Best Buy (BBY 100.18, +12.39, +14.1%) were standouts in that respect.
Today's pleasing economic releases didn't upend the soft landing narrative, acted as additional support. Jobless claims remain steady, below recession-like levels, and Q2 GDP was revised up.
The 10-yr note yield settled three basis points higher at 3.87% and the 2-yr note yield settled two basis points higher at 3.89%. On a related note, today's $44 billion 7-yr note sale met soft demand.
- S&P 500: +17.2% YTD
- Nasdaq Composite: +16.7% YTD
- S&P Midcap 400: +10.3% YTD
- Dow Jones Industrial Average: +9.7% YTD
- Russell 2000: +8.7% YTD
Reviewing today's economic data:
- July Adv. Intl. Trade in Goods -$102.7 bln; Prior was revised to -$96.6 bln from -96.8 bln
- July Adv. Retail Inventories 0.8%; Prior was revised to 0.9% from 0.7%
- July Adv. Wholesale Inventories 0.3%; Prior was revised to 0.1% from 0.2%
- Weekly Initial Claims 231K; Prior was revised to 233K from 232K, Weekly Continuing Claims 1.868 mln; Prior was revised to 1.855 mln from 1.863 mln
- The key takeaway from the report is the steady standing of initial jobless claims, which remain well below levels typically associated with an economy in recession.
- Q2 GDP-Second Estimate 3.0%; Prior 2.8%, Q2 GDP Deflator - Second Estimate 2.5%; Prior 2.3%
- The key takeaway from the report is that consumer spending (+2.9%) was solid in the second quarter, exceeding the prior eight quarter average of 2.2%.
- July Pending Home Sales -5.5% (Briefing.com consensus 1.2%); Prior 4.8%
Friday's economic calendar features the Fed's preferred inflation gauge in the form of the PCE Price Indexes. Other data include the final reading for the August University of Michigan Consumer Sentiment survey.
Treasuries settle lower
29-Aug-24 15:30 ET
Dow +316.56 at 41407.98, Nasdaq -18.90 at 17537.12, S&P +7.63 at 5599.81
[BRIEFING.COM] The S&P 500 (+0.2%) is positive again after briefly dipping below its prior closing level.
The 10-yr note yield settled three basis points higher at 3.87% and the 2-yr note yield settled two basis points higher at 3.89%.
Friday's economic calendar features the Fed's preferred inflation gauge in the form of the PCE Price Indexes. Other data include the final reading for the August University of Michigan Consumer Sentiment survey.
Mega caps turn negative, but market remains positive
29-Aug-24 15:05 ET
Dow +249.01 at 41340.43, Nasdaq -33.80 at 17522.22, S&P -1.20 at 5590.98
[BRIEFING.COM] There's still a positive bias in the market, but negative price action in some mega cap names has the S&P 500 (-0.03%) and Nasdaq Composite (-0.2%) trading lower. The equal-weighted S&P 500 trades 0.4% higher and market breadth is positive. Advancers lead decliners by a 5-to-2 margin at the NYSE and by a 2-to-1 margin at the Nasdaq.
Alphabet (GOOG 162.46, -2.04, -1.2%), Broadcom (AVGO 156.48, -1.69, -1.1%), and Eli Lilly (LLY 936.66, -12.27, -1.2%) joined NVIDIA (NVDA 118.21, -7.37, -5.9%) as the market declined.
Other semiconductor stocks also rolled over, leading the PHLX Semiconductor Index (SOX) to trade 0.5% lower.
Cooper among top S&P 500 gainers following earnings; NetApp slides despite beat
29-Aug-24 14:30 ET
Dow +460.06 at 41551.48, Nasdaq +123.41 at 17679.43, S&P +35.59 at 5627.77
[BRIEFING.COM] The S&P 500 (+0.64%) is in last place among the major averages on Thursday afternoon, up about 35 points.
Elsewhere, S&P 500 constituents Cooper (COO 105.81, +11.27, +11.92%), West Pharm (WST 314.89, +17.28, +5.81%), and Albemarle (ALB 92.83, +4.83, +5.49%) dot the top of the standings. COO is higher on earnings, while WST's move is reportedly related to options trades,
Meanwhile, NetApp (NTAP 121.52, -10.39, -7.88%) is near the bottom of the average despite beating earnings expectations; shares were up +49.6% YTD into the report.
Gold higher as markets prepare for rate cut
29-Aug-24 14:00 ET
Dow +468.70 at 41560.12, Nasdaq +165.38 at 17721.40, S&P +44.09 at 5636.27
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.94%) is in second place on Thursday afternoon, up about 165 points.
Gold futures settled $22.50 higher (+0.9%) to $2,560.30/oz, the yellow metal stronger following this morning's pleasing economic data and as markets brace for an all-but guaranteed Fed cut in September.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $101.34.
CrowdStrike takes a hit from outage, but impact is more benign than expected (CRWD)
The big story, of course, heading into CrowdStrike's (CRWD) Q2 earnings report was the massive outage that occurred on July 19 that crashed about 8.5 mln Windows devices, creating major disruptions for its customers, most notably including Delta Air Lines (DAL). With many investors bracing for the worst, as illustrated by the stock's 23% plunge since the incident occurred, CRWD edged past EPS and revenue expectations and provided Q3 and FY25 guidance that was better-than-feared.
- After the close on Tuesday afternoon, competitor SentinelOne (S) issued a solid beat-and-raise Q2 report, fanning the flames surrounding CRWD and generating more concern that the outage is causing some of its customers to migrate to SentinelOne. In fact, according to SentinelOne CEO Tomer Weingarten, some large global companies are now engaging with the company and are making the decision to switch.
- However, CRWD CEO George Kurtz downplayed the purported customer migration, stating that while some deals have been delayed, the vast majority of them are still in play. In fact, CRWD has launched a new "customer commitment package" that's designed to keep its customers on board by offering incentives and discounts. In each of the next two quarters, the package is expected to negatively impact revenue by approximately $30 mln as CRWD chooses to take a short-term hit in hopes that it will retain most of its customers.
- When accounting for these discounts and giveaways, CRWD's Q3 and FY25 revenue guidance doesn't look too bad. At the midpoint of its new FY25 revenue guidance of $3.890-$3.902, CRWD's outlook is only lower by about $95 mln, so it's clear that the company isn't expecting a mass exit of customers.
- CRWD still faces significant litigation risks, though. DAL, which said that the outage caused 7,000 flight cancellations and a corresponding $380 mln revenue hit in its September quarter, is suing CRWD for $500 mln. For its part, CRWD stated that DAL refused its help during the outage and that it's too early to determine what its legal responsibilities will be.
- Outside of the noise related to the outage, CRWD turned in another solid performance in Q2. Annual Recurring Revenue (ARR) increased 32% yr/yr to $3.86 bln, with $217.6 mln derived from new ARR in the quarter. For some context, ARR totaled $3.65 bln last quarter, of which $211.7 mln was net new ARR added in the quarter.
- The company's unified and streamlined platform also continues to resonate with customers. In Q2, deals with eight or more modules jumped by 66% yr/yr and 48% of customers with $100,000 or more in ending ARR adopted at least eight modules.
Overall, while CRWD will take a near-term hit, it appears that the company has averted a disaster in the wake of one of the worst incidents to ever inflict the cybersecurity industry.
HP Inc. roars back after initially slipping on downbeat Q3 earnings and mild guidance (HPQ)
After initially slipping on lower-than-expected adjusted EPS in Q3 (Jul) and mild Q4 (Oct) earnings guidance, shares of HP Inc. (HPQ +3%) have made a full recovery, returning to levels reached before the market-wide correction in early August. The culprit behind HPQ's downbeat earnings and soft guidance was its Printing business, which continued to face soft demand, an unfavorable geographical mix, and an aggressive pricing environment. These issues are expected to persist over the near term, causing HPQ to moderate its expectations for Q4, projecting adjusted EPS of $0.89-0.99, the midpoint of which fell short of analyst expectations.
However, after digesting the information, investors became increasingly more accepting of HPQ's woes, mainly since they were almost wholly on the Printing side of its business, which has been dealing with turbulence for an extended period. Furthermore, HPQ is taking action to address Printing's problems. It sees an immediate opportunity to drive additional cost savings next quarter, which could help boost overall non-GAAP operating margins, which compressed by 70 bps yr/yr to 8.1% in Q3.
Meanwhile, what commanded more of the market's attention was how AI PCs have been performing and how demand is shaping up over the near term. On that note, HPQ had plenty of uplifting news.
- HPQ registered a 2.4% bump in overall revenue yr/yr to $13.52 bln, exceeding analyst expectations and returning to positive yr/yr growth for the first time in nine quarters, entirely due to Personal Systems (PS), which climbed by 5%. The dichotomy between Consumer PS and Commercial PS remained, with consumer reporting a 1% decline in revs while commercial jumped by 8%. Total units shipped edged 1% higher due to Commercial PS, which recorded a 6% improvement compared to a 6% drop in Consumer PS units.
- While Commercial PS is driving the ongoing PC recovery, aided by organizations' need to refresh their aging PC lineups, the decline in Consumer PS sales was nicely improved from -3% last quarter, illustrating signs of stabilization. Supporting Consumer PS's steady recovery has been early demand for AI PCs.
- AI PC shipments are ramping, and HPQ mentioned that initial reactions have thus far been overwhelmingly positive. Over a longer timeframe, HPQ anticipates next-gen AI PCs to represent around 50% of total shipments in 2027. At the same time, these AI PCs are expected to drive an average selling price increase between 5-10%.
Despite being in the initial rollout stage, AI PCs are already positively impacting the broader PC recovery. Lingering headwinds in Consumer PS remain a concern. However, demand may pick up over the next several quarters, particularly as Microsoft (MSFT) begins to release additional AI-related features for Windows 11. As consumer electronics retailer Best Buy (BBY) noted today, it believes the impact of AI is merely in the beginning stages, especially since a critical AI capability from MSFT has yet to be released. Finally, HPQ's energetic tone surrounding AI PCs is a good sign ahead of Dell's (DELL) JulQ report scheduled for today after the close.
Best Buy soars on improved profitability outlook and strengthening sales in computing category (BBY)
For nearly three years now, Best Buy (BBY) has seen its total and comparable sales fall on a yr/yr basis in every quarter as the pull-forward in demand during the pandemic and macroeconomic pressures have taken a toll on the consumer electronics category. However, in Q2, BBY extended another long streak, and this one is much more positive. Specifically, the company surpassed EPS expectations yet again -- a feat it has achieved in every quarter over the past five plus years -- as EPS grew 10% yr/yr to $1.34.
Better yet, BBY also sharply increased its FY25 EPS guidance to a range of $6.10-$6.35, up from its prior outlook of $5.75-$6.20, which essentially amounts to upside EPS guidance for the back half of the year.
- Similar to past recent quarters, BBY relied on solid cost containment and a focus on its higher-margin services and membership businesses to drive earnings growth. The company has implemented some workforce reductions, including reducing its layers of management, which helped push SG&A expenses lower by 3.7% yr/yr. Simultaneously, BBY's improved performance from its services category, including its membership business, nudged domestic gross margin higher by 20 bps yr/yr to 23.5%.
- Although the story on the demand side isn't nearly as positive, there were a couple of encouraging data points in Q2. For instance, comparable sales declined by just 2.3%, ahead of its guidance for a decrease of 3.0%, while representing a marked improvement from last quarter's drop of 6.1%. The primary driver for the improvement was a strengthening of sales for PCs and tablets as the computing category continues to build momentum.
- BBY's management team has been anticipating an upgrade cycle to materialize for the computing and mobile phone categories and it appears that this prediction is beginning to unfold. During the earnings call, CEO Corie Barry stated that BBY continued to expect sales in the computing category and services to show positive growth for the year. New AI features and functionalities, such as Microsoft's (MSFT) co-pilot, are providing a spark and as more AI innovations roll out, the computing category should be poised for a stronger year in 2025.
- On the downside, sales for appliances, TVs, and gaming were weak once again in Q2. As BBY continues to struggle in these categories, concerns are mounting that it's losing market share to competitors such as Costco (COST) and Walmart (WMT). Mainly due to the ongoing weakness in these areas, BBY lowered its FY25 comp guidance to (3.0%) to (1.5%) from its prior guidance of (3.0%) to 0.0%.
The main takeaway is that BBY is executing quite well in a difficult business climate, driving solid earnings growth despite sluggish demand for big-ticket items. Furthermore, momentum is gradually building in the computing category, which has BBY's comps moving in the right direction.
Dollar General falls below $100 for first time since late 2018 on earnings miss (DG)
Dollar General (DG -28%) is sharply lower after reporting an EPS miss in Q2 (Jul) following three beats. Revenue rose 4.2% yr/yr to $10.21 bln, but that also was below expectations. Even more eye-opening was its significant reduction in full year EPS guidance to $5.50-6.20 from $6.80-7.55. That was way more than its Q2 downside, which implies significant downside for Q3-Q4 and it implies weak margins. DG also lowered its full year sales outlook.
- The company said it made important progress on its Back to Basics plan in Q2 and it was able to drive positive traffic growth in Q2. However, the company conceded it was not satisfied with its Q2 results. DG said the softer sales trends are partially attributable to a core customer who feels financially constrained. In response, DG is taking action to further enhance its value and convenience offering.
- Same store comps in Q2 were weak at just +0.5%, which was below internal expectations. It was also down from +2.4% in Q1 (Apr) and +0.7% in Q4 (Jan). Comp growth was driven by an increase in traffic, partially offset by a decrease in average transaction amount. By product category, Q2 comps included growth in consumables, partially offset by declines in seasonal, home, and apparel categories. The company also lowered full year comp guidance to +1.0-1.6% from +2.0-2.7%.
- Comps were strongest in June before turning negative in July. Notably, the three softest comp sales weeks of the quarter were the last week of each of the calendar months. DG says this pattern suggests that customers are less able to stretch their budgets through the end of the month. DG's core customer (60% of sales) comes predominantly from households earning less than $35,000 annually.
- Another issue is shrink (retail theft). On its last call, DG said that shrink has been the most significant headwind in its business. The company has been taking steps to reduce shrink in its supply chain, merchandising, and within its stores. For example, its supply chain teams are focused on ensuring deliveries are on time and in full. Within its stores, DG has been removing high-shrink SKUs and eliminating self-checkout in the vast majority of stores.
Overall, times are tough right now for the dollar stores because their core customer is lower income, and they are feeling the inflation pinch more acutely than other income cohorts. Also, Dollar General said it's seeing increased promotional activity, which has pressured sales and gross margins. DG expects this will likely continue for the duration of the year. We suspect that had a lot to do with the significantly lowered EPS guidance.
On a final note, we are getting close to it being a year since Todd Vasos returned as CEO. DG was able to lure its former CEO out of retirement to take his old job back, effective October 2023. Mr. Vasos was CEO from June 2015 to November 2022 when DG was posting strong results. Mr. Vasos has been making changes, but it's clear that turning Dollar General around will take some time.
NVIDIA encounters moderate profit-taking as upside in Q2 (Jul) lighter than previous quarters (NVDA)
Leading AI chip designer NVIDIA (NVDA -2%) exceeded top and bottom-line estimates in Q2 (Jul), posting another quarter of robust growth as the demand for AI snowballs. NVDA noted that many industries, including advertising, education, healthcare, and robotics, are uncovering use cases for Gen AI. NVDA also announced an additional $50 bln for share buybacks, double what it approved last year.
However, shares are struggling today as lofty expectations spur moderate profit-taking. NVDA's past quarterly reports have been outstanding, blowing estimates out of the water at nearly every turn since May 2023. However, NVDA's Q2 upside was a tad lighter than in the past. Its adjusted EPS of $0.68 surpassed analyst forecasts by a slimmer margin than last quarter, even when compensating for the 10-for-1 split in June. Furthermore, the low end of NVDA's Q3 (Oct) revenue outlook of $31.85-33.15 bln was only mildly higher than consensus, unlike in previous quarters.
That said, NVDA's Q2 report was impressive, containing plenty of highlights pointing to sustained demand for AI.
- Revenue continued to swell, ballooning by 122.4% yr/yr to $30.04 bln despite beginning to lap challenging numbers from the year-ago period. NVDA's Data Center segment remained the notable standout, posting a 154% pop in revs yr/yr, aided by unwavering demand for the company's Hopper GPU platform. Unlike in recent quarters, all other segments also posted yr/yr growth in Q2, with Gaming jumping by 16%, ProV by 20%, and Automotive by 37%.
- New product categories also performed well, with Spectrum-X Ethernet for AI registering double the revenue from Q1 (Apr). Meanwhile, software is projected to approach a $2.0 bln annual run rate this year, supported largely by NVIDIA AI Enterprise.
- Given the export restrictions on chips going to China, concerns have lingered over NVDA's ability to maintain a competitive presence in the region. Management noted that as a percentage of total Data Center revs, sales to China remained below levels before the export curbs. However, revenue in the region did grow sequentially in the quarter and made a significant contribution to overall Data Center revs.
- NVDA also squashed rumors of delays surrounding its upcoming successor to Hopper, with the production of Blackwell scheduled to begin in Q4 (Jan) and continue through FY26. In Q4, the company anticipates shipping several billion dollars in Blackwell revenue as demand remains well above supply, which NVDA projects will trickle into next year. At the same time, NVDA expects Hopper shipments to increase during 2H25, reflecting a complementary role to Blackwell.
NVDA's Q2 results continued to showcase the outsized demand for AI. Many prominent tech firms, from Microsoft (MSFT) to Meta Platforms (META), are pouring billions of dollars into their AI infrastructure, leaning on NVDA's chips. While return on investment is becoming more of a talking point given how much is being spent on AI, NVDA mentioned that its customers are noticing returns immediately. ROI could remain a concern over the near term. However, over the long run, unless AI fails to produce meaningful gains on companies' bottom lines, NVDA's leadership position in AI provides attractive upside potential.
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