Market Snapshot
| Dow | 41563.08 | +228.03 | (0.55%) | | Nasdaq | 17713.61 | +197.19 | (1.13%) | | SP 500 | 5648.40 | +56.44 | (1.01%) | | 10-yr Note |
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| | NYSE | Adv 1814 | Dec 956 | Vol 1.65 bln | | Nasdaq | Adv 2515 | Dec 1631 | Vol 5.58 bln |
Industry Watch
| Strong: Consumer Discretionary, Industrials, Information Technology, Materials, Real Estate |
| | Weak: Energy |
Moving the Market
--Pleasing earnings news and/or guidance from tech companies Dell, Autodesk, Marvell, and MongoDB
--Personal income, personal spending, and PCE price data for July feeds market's belief that economy will avoid hard landing and that Fed will cut rates in September
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Closing Stock Market Summary
30-Aug-24 16:30 ET
Dow +228.03 at 41563.08, Nasdaq +197.19 at 17713.61, S&P +56.44 at 5648.40
[BRIEFING.COM] The stock market got off to a good start today, ran into some selling pressure mid-morning, but then regrouped in the afternoon and closed the week on a winning note.
It did so with an eye on the three-day weekend ahead, which detracted some from today's involvement but not necessarily the bullish bias. The Dow Jones Industrial Average went out at its high for the day, setting a new record in the process, with a burst of buying interest in the last ten minutes of trading. That burst also sent the S&P 500 to its highs for the session and to the doorstep of a new closing high of its own.
The market was feeding off positive responses to earnings reports from Dell (DELL 115.54, +4.80, +4.3%), Marvell (MRVL 76.24, +6.40, +9.2%), and MongoDB (MDB 290.79, +45.07, +18.3%), the outperformance of Amazon (AMZN 178.50, +6.38, +3.7%), Tesla (TSLA 214.11, +7.83, +3.8%), and NVIDIA (NVDA 119.37, +1.78, +1.5%), and economic news that left the market oriented toward a soft landing for the economy and a rate cut at the September FOMC meeting.
The key piece of economic data was the Personal Income and Spending Report for July, which showed personal income up 0.3%, personal spending up 0.5%, and the PCE Price Index and core-PCE Price Index both up 0.2%, which kept their year-over-year changes steady at 2.5% and 2.6%, respectively.
This good news tempered the outlook for a 50-basis points rate cut at the September FOMC meeting, but not by much as participants kept their mind on next Friday's release of the August employment report, which many expect to be the key piece of data that will drive the Fed's policy decision.
A 25-basis points rate cut is fully priced in, according to the CME FedWatch Tool, but the probability of a 50-basis points rate cut was trimmed to 30.5% today from 34.0% yesterday.
The Treasury market acted in kind. The 2-yr note yield, which is sensitive to changes in the fed funds rate, increased four basis points to 3.93%. The 10-yr note yield also jumped four basis points to 3.91%.
Those moves did not impede the stock market. All 11 S&P 500 sectors finished higher with gains ranging from 0.3% (energy) to 1.9% (consumer discretionary). The energy sector for its part spent nearly the entirety of today's session in red figures, dealing with reports that OPEC+ is likely to raise output in October, but was pulled out of that losing position with the late buying interest.
Helped by the rebound in NVIDIA and Marvell's earnings report, the Philadelphia Semiconductor Index ("SOX") surged 2.6%. Despite that gain, the SOX still finished the week down 1.3%. Similarly, the Nasdaq Composite jumped 1.1% today, but ended the week 0.9% lower. The S&P 500 eked out a 0.2% gain for the week while the Russell 2000 suffered a fractional loss. The Dow Jones Industrial Average led them all with a 0.9% gain.
- S&P 500: +18.4% YTD
- Nasdaq Composite: +18.0% YTD
- S&P Midcap 400: +11.1% YTD
- Dow Jones Industrial Average: +10.2% YTD
- Russell 2000: +9.4% YTD
Reviewing today's economic data:
- Personal income was up 0.3% month-over-month in July (Briefing.com consensus 0.2%) following an unrevised 0.2% increase in June. Personal spending jumped a healthy 0.5% (Briefing.com consensus 0.5%) following a 0.3% increase in June. The PCE Price Index was up 0.2% (Briefing.com consensus 0.2%), leaving it up 2.5% year-over-year, unchanged from June. The core-PCE Price Index was up 0.2% (Briefing.com consensus 0.2%), leaving it up 2.6% year-over-year, unchanged from June.
- The key takeaway from this report is the recognition that it meshes nicely with the market's prevailing view that the U.S. economy will be able to avoid a hard landing and that the Fed will cut its policy rate because inflation is moving back toward the 2% goal.
- The August Chicago PMI checked in at 46.1 versus 45.3 in July. A number below 50.0 is indicative of a contraction in activity; however, the improvement versus July suggests the pace of contraction slowed in August.
- The final reading for the August University of Michigan Index of Consumer Sentiment crossed at 67.9 (Briefing.com consensus 67.8) versus the preliminary reading of 67.8.
- The key takeaway from the report is that consumers' short-run and long-run economic outlook improved.
An eye on the employment report next week
30-Aug-24 15:30 ET
Dow +44.57 at 41379.62, Nasdaq +124.91 at 17641.33, S&P +32.14 at 5624.10
[BRIEFING.COM] Conviction on both sides of the tape has been lacking in today's market. That is understandable with a three-day weekend calling and today's "main events" off the table as of 10:00 a.m. ET.
Next week's main event will be the August Employment Situation Report. It will be released on Friday, September 6, and every narrative discussing it will be apt to mention it as a data point that will drive the Fed's decision to lower the target range for the fed funds rate by 25 basis points or 50 basis points at the September FOMC meeting.
Following today's economic releases, the probability of a 50-basis points cut at that meeting was reduced to 30.5% from 34.0%, according to the CME FedWatch Tool. A 25-basis points rate cut is fully priced in.
Market breadth shows advancers with a slight edge over decliners at the NYSE while breadth at the Nasdaq is roughly even.
Notably, the consumer discretionary sector (+1.4%) has extended to its highs for the day and is the only sector up more than 1.0%. The next best-performing sectors are information technology, real estate, industrials, and materials, all of which are up 0.6% and performing in-line with the market.
Back to where things began (sort of)
30-Aug-24 14:55 ET
Dow +10.78 at 41345.83, Nasdaq +110.73 at 17627.15, S&P +23.30 at 5615.26
[BRIEFING.COM] The S&P 500 is back in the upper end of today's 50-point trading range. That leaves it in positive territory for the session (+0.42%), but not for the week (-0.34%).
Barring a late meltdown, however, August will go down as a winning month for the S&P 500 (currently +1.68%).
The Nasdaq is fighting to get there. It is up 0.58% today, which leaves it up 0.1% for the month. That bid looks destined to come down to the wire.
With the afternoon uptick, earlier order has been restored. Just like the start of the day, 10 of the 11 S&P 500 sectors are higher. The only one lower is the energy sector (-0.5%), which was also the case at the start of the day.
GE Vernova, Hewlett Packard Enterprise outperforming in S&P 500 to close out the week
30-Aug-24 14:30 ET
Dow -23.36 at 41311.69, Nasdaq +63.99 at 17580.41, S&P +14.92 at 5606.88
[BRIEFING.COM] The S&P 500 (+0.27%) is in second place on Friday afternoon, near afternoon highs on a slight uptick in the last half hour.
Elsewhere, S&P 500 constituents GE Vernova (GEV 197.63, +6.27, +3.28%), Hewlett Packard Enterprise (HPE 19.25, +0.57, +3.05%), and Marathon Petroleum (MPC 175.84, +4.87, +2.85%) pepper the top of the average, outperforming despite a dearth of corporate news. Beaten down thus far this week, HPE and MPC's gains on Friday are good enough to claw the stocks out of what had been weekly declines.
Meanwhile, APA Corp (APA 28.48, -0.86, -2.93%) is near the bottom of the standings, lagging alongside fellow energy stocks.
Friday's losses take gold into the red for the week
30-Aug-24 14:00 ET
Dow -83.98 at 41251.07, Nasdaq +41.39 at 17557.81, S&P +8.95 at 5600.91
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.24%) is atop the standings, albeit near afternoon lows, with about two hours to go on Friday.
Gold futures settled $32.70 lower (-1.3%) to $2,527.60/oz, down about -0.7% on the week, as the dollar and treasury yields hold decent gains after this morning's inflation readings which meshed nicely with the market's prevailing view that the U.S. economy will be able to avoid a hard landing and that the Fed will cut its policy rate because inflation is moving back toward the 2% goal.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $101.74.
Marvell nicely higher on earnings; Data Center shines but other segments finally improving (MRVL)
Marvell (MRVL +9%) is looking pretty "Marvell-ous" to investors after the semiconductor company reported Q2 (Jul) results last night. Marvell reported in-line Q2 results, but the mid-point of its Q3 (Oct) revenue guidance was above range. Given some difficult conditions in several of its markets in recent quarters, investors like what they see with this report.
- Data Center, which is Marvell's largest market at 69% of JulQ sales, segment revenue jumped 92% yr/yr and 8% sequentially to a record $880.9 mln, a bit above prior guidance of mid-single digit growth sequentially. These above-guidance results were driven by strong demand for its electro-optics products, custom silicon beginning its anticipated ramp, as well as growth in its storage and switch revenue.
- Specifically, within its custom silicon business, Marvell noted that, as investment in AI and accelerated computing continues to surge, Tier 1 cloud providers are increasingly focused on using custom silicon to improve their data center TCO and drive differentiation. Cloud customers are partnering with companies like Marvell, who have extensive experience in delivering multiple generations of high-volume, high-complexity chips.
- Marvell is forecasting Data Center revenue growth to accelerate in Q3 into the high teens sequentially with the largest contributor being its AI custom silicon programs as they begin to ramp meaningfully in Q3.
- Turning to its Carrier and Enterprise end markets, revenue fell 54% yr/yr and 1% sequentially to $151 mln. As expected, these end markets had a rough Q2. However, Marvell feels they have reached the bottom in the first half of this fiscal year. Revenue from both end markets collectively was flat sequentially in Q2. Looking ahead, after multiple quarters of inventory digestion, Marvell is starting to see signs of growth in both end markets. On a combined basis, Marvell expects sequential growth of mid-single digits in Q3 with further improvement in Q4.
- Consumer segment revenue fell 47% yr/yr but jumped 112% sequentially to $88.9 mln following the gaming inventory correction. In Q3, Marvell expects Consumer revenue to grow slightly on a sequential basis.
- And finally, Automotive/Industrial segment revenue fell 31% yr/yr and 2% sequentially to $76.2 mln, roughly in-line with guidance for flat sequential growth. In Q3, Marvell expects growth to resume and is projecting revenue to grow sequentially in the mid-single digits.
Overall, investors like what they see with Marvell's Q2 report and particularly the guidance. Data Center has been a monster segment for Marvell in recent quarters, fueled by AI spending. However, it now sounds like its other segments are finally starting to turn the corner after some recent rough quarters. Based on the stock reaction, investors are reacting to the more positive outlook.
lululemon athletica's lack of newness hits sales, but plan in place to fast-track new styles (LULU)
In lululemon athletica's (LULU) own words, the company has not been maximizing its opportunities in the women's business in the U.S., and that poor execution caused it to fall short of Q2 sales and comparable sales expectations. The company, which has seen a reversal of fortunes this year after a banner year in 2023, also issued downside Q3 revenue guidance and lowered its FY25 EPS and revenue forecast. However, the market was already anticipating a rough earnings report, as reflected in the stock's 16% drop since LULU posted Q1 results on June 5, so the focus mostly turned to the company's plan to right the ship.
- The main issue plaguing LULU tracks back this spring when the company introduced a product assortment that lacked newness and was understocked in smaller sizes. In regard to the newness issue, CEO Calvin McDonald clarified during the earnings call that the problem isn't related to LULU's innovation pipeline. Rather, where LULU fell short was with its seasonal updates, which had too narrow of new choices for colors, prints, and silhouettes, especially in the bottoms product category.
- Making matters worse, LULU decided to pull its new "Breezethrough" leggings product off the shelves in late July after receiving a barrage of negative reviews. Although the move didn't impact its Q2 results, it represented another setback and misstep for a company that's trying to convince its shareholder base that its innovation engine is still alive and well.
- On that note, Mr. McDonald looked to reassure investors and analysts last night that a plan is in place to quickly fix this situation. Specifically, he stated that for 2025, LULU is fast-tracking new styles within the performance, shorts, tops, and track suits categories. Additionally, the company has improved its in-stock inventory of smaller sizes through Q2 and its entering Q3 in a better position. As such, LULU is confident that that it will begin to see these initiatives pay dividends over the upcoming quarters as it returns to its historical levels of newness by the spring of 2025.
- One area where LULU isn't currently struggling is in the international business. For the quarter, international revenue jumped by 31% in constant currency, led by a 37% increase in mainland China, driven by its omnichannel strategy. In the Rest of World market, revenue grew by 27% in constant currency with particular strength seen in both EMEA and APAC.
- In contrast, the Americas business struggled again as comparable sales decreased by 3% compared to a 22% increase for international. Overall, comparable sales increased by 2%, missing analysts' expectations by a fair amount.
The main takeaway is that some unforced errors are adding a layer of difficulty to an already challenging business backdrop, but the missteps in LULU's women's business were well known and baked into the stock ahead of the Q2 print. Therefore, the focus now centers on LULU's strategy and ability to resolve the newness issues that have set the company back. Based on LULU's impressive track record of success and brand strength, we believe that the company likely will bounce back sooner rather than later.
Dell trades higher after bouncing back with large PEPS beat, although guidance a bit weak (DELL)
Dell (DELL +1%) is making a move higher after reporting Q2 (Jul) earnings. After a rare in-line EPS result in Q1, Dell got back to its usual double-digit beats in Q2. Revenue rose a healthy 9.1% yr/yr to $25.03 bln, which also was better than expected and was a record for its servers and networking business. And this was despite the headwind from the exit of its VMware Resale business. After six consecutive declines, Dell has now posted back-to-back revenue growth quarters. The only real trouble spot was Dell guiding Q3 (Oct) EPS below consensus, but in-line revs.
- Infrastructure Solutions Group (ISG) segment revenue jumped 38% yr/yr to $11.65 bln with 11.0% segment operating margin vs 12.4% last year. Server and networking revenue jumped 80% yr/yr to a record $7.67 bln. Server demand continues to outpace shipments, with strong growth across traditional and AI servers. Dell shipped $3.1 bln of AI servers in Q2 and its AI server backlog remains healthy at $3.8 bln.
- Dell noted that its AI server pipeline expanded across both tier 2 CSPs and enterprise customers again in Q2, and now has grown to several multiples of its backlog. Dell said that Enterprise remains a significant opportunity as many are still in the early stages of AI adoption. Dell is also excited about its emerging sovereign AI opportunity.
- Storage revenue was down 5% yr/yr to $3.97 bln. Storage saw double-digit demand growth across its core storage portfolio. However, this was offset by headwinds in the partner IP portion of its HCI portfolio.
- Turning to Client Solutions Group (CSG), segment revenue declined 4% yr/yr to $12.41 bln with 6.2% op margin vs 7.5% last year. Commercial revenue was flat at $10.56 bln while Consumer revenue was $1.86 bln, down 22% yr/yr. Dell saw modest commercial PC demand growth in Q2. Dell expects CSG growth in 2H, particularly in Q4 (Jan) as the coming PC refresh cycle and the longer-term impacts of AI will create tailwinds for the PC market.
- In terms of the Q3 guidance, when you see in-line revs but weak EPS that means weak margins. Dell's margins have been impacted by higher input costs due to inflation, a competitive environment, and a higher mix of AI optimized servers. In Q3, Dell expects ISG revs up in the low-30s and CSG flat to up low-single-digits.
Overall, investors were pleased to see Dell return to healthy EPS beats. Also, the stock has pulled back quite a bit since its Q1 report in May. As such, sentiment was not sky high as it was last quarter. That is helping the stock today. Bigger picture, investors are rightly excited about Dell as an AI-play. It AI servers are in huge demand and Dell sees good runway for growth as many enterprises are still early in their AI adoption. However, they are still a relatively small part of Dell's total sales. Also, investors often associate Dell with PCs, but its Consumer business is small for them, so do not get worried about the sales decline in Q2. Also, it seems like there is an attractive PC upgrade cycle on the horizon.
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.
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