Market Snapshot
| Dow | 40936.93 | -626.15 | (-1.51%) | | Nasdaq | 17136.28 | -577.33 | (-3.26%) | | SP 500 | 5528.93 | -119.47 | (-2.12%) | | 10-yr Note | +28/32 | 3.84 |
|
| | NYSE | Adv 771 | Dec 1991 | Vol 990 mln | | Nasdaq | Adv 1001 | Dec 3317 | Vol 5.8 bln |
Industry Watch
| Strong: Consumer Staples, Real Estate, Utilities |
| | Weak: Energy, Materials, Information Technology, Industrials, Utilities, Communication Services |
Moving the Market
-- Consolidation activity after solid run in stocks
-- Fears about economic growth prospects after China's Manufacturing PMI for August and the ISM Manufacturing Index for August
-- Losses in mega caps contributing to downside bias
-- Pullback in market rates related to growth worries
|
Closing Summary
03-Sep-24 16:30 ET
Dow -626.15 at 40936.93, Nasdaq -577.33 at 17136.28, S&P -119.47 at 5528.93
[BRIEFING.COM] The stock market started the new month sharply lower. The major indices tumbled out of the gate before briefly plateauing around mid-day. Selling picked up again in the afternoon trade, leading the Dow Jones Industrial Average to settle more than 600 points lower. The Nasdaq Composite closed nearly 600 points lower, the S&P 500 declined more than 100 points, and the Russell 2000 shed 3.1%.
Volume increased today after running below-average in recent weeks. The downside bias was related to normal consolidation activity, sparked by growth worries after China's Manufacturing PMI for August showed a deepening contraction. This morning's release of the ISM Manufacturing Index for August showed improvement, but not as much as expected, piling onto the emerging concerns.
Treasury yields settled lower in response to the growth concerns and soft economic data. The 10-yr note yield fell seven basis points to 3.84% and the 2-yr note yield settled four basis points lower at 3.89%. Also, the CBOE Volatility Index was up 37%, or 5.55, to 20.55 with participants hedging for the possibility of further downside.
Just about everything came along for the downside ride. The equal-weighted S&P 500 settled 1.3% lower and nine of the 11 S&P 500 sectors registered losses. The information technology sector (-4.4%) logged the biggest loss due to weakness in its mega cap and semiconductor components.
The PHLX Semiconductor (SOX) sank 7.8%. NVIDIA (NVDA 108.00, -11.37, -9.5%) was an influential loser in the space, falling under profit-taking interest.
The energy sector (-2.4%) was another laggard, dropping alongside oil prices in another manifestation of growth worries. WTI crude oil futures fell 4.3% to $70.37/bbl.
- S&P 500: +15.9% YTD
- Nasdaq Composite: +14.2% YTD
- Dow Jones Industrial Average: +8.6% YTD
- S&P Midcap 400: +8.3% YTD
- Russell 2000: +6.0% YTD
Reviewing today's economic data:
- August S&P Global US Manufacturing PMI - Final 47.9; Prior 48.0
- August ISM Manufacturing Index 47.2% (Briefing.com consensus 47.5%); Prior 46.8%
- The key takeaway from the report is that it has reinforced the understanding that conditions in the U.S. manufacturing sector are weak.
- July Construction Spending -0.3% (Briefing.com consensus 0.2%); Prior was revised to 0.0% from -0.3%
- The key takeaway from the report is that new single-family construction was weak in July.
Wednesday's economic lineup features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.5%)
- 8:30 ET: July Trade Balance (Briefing.com consensus -$78.5 bln; prior -$73.1 bln)
- 10:00 ET: July Factory Orders (Briefing.com consensus 4.5%; prior -3.3%) and July job openings (prior 8.184 mln)
Stocks decline in front of close; Treasuries settle higher on growth fears
03-Sep-24 15:35 ET
Dow -660.80 at 40902.28, Nasdaq -587.89 at 17125.72, S&P -123.00 at 5525.40
[BRIEFING.COM] Stocks continue to slide, sending the major indices to fresh lows in front of the close.
Treasuries settled higher due to renewed concerns about growth after China's Manufacturing PMI for August, which was released on Friday night, showed a deepening contraction. This morning's release of the ISM Manufacturing Index for August showed improvement, but not as much as expected, adding to the market's growth worries. The 10-yr note yield fell seven basis points to 3.84% and the 2-yr note yield settled four basis points lower at 3.89%.
Wednesday's economic lineup features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.5%)
- 8:30 ET: July Trade Balance (Briefing.com consensus -$78.5 bln; prior -$73.1 bln)
- 10:00 ET: July Factory Orders (Briefing.com consensus 4.5%; prior -3.3%) and July job openings (prior 8.184 mln)
TSLA, LLY decline after initial gains
03-Sep-24 15:05 ET
Dow -626.56 at 40936.52, Nasdaq -539.45 at 17174.16, S&P -113.30 at 5535.10
[BRIEFING.COM] Selling has picked up in the afternoon trade, leading the major indices to trade at fresh session lows. The S&P 500 trades down 2.0% and the Russell 2000 sports a 3.0% decline.
Some mega cap stocks that were trading higher earlier have rolled over. Tesla (TSLA 210.81, -3.30, -1.6%) traded up as much as 2.7% and Eli Lilly (LLY 954.13, -4.89, -0.5%) traded up as much as 1.0%.
Some stocks are still higher, though, leading the consumer staples (+0.7%), real estate (+0.4%), and utilities (+0.2%) sectors to trade above prior closing levels.
Dexcom bucks broader S&P 500 trend lower after positive Barron's mention
03-Sep-24 14:30 ET
Dow -561.60 at 41001.48, Nasdaq -558.64 at 17154.97, S&P -109.56 at 5538.84
[BRIEFING.COM] The S&P 500 (-1.94%) is in second place on Tuesday afternoon.
Elsewhere, S&P 500 constituents Vistra Corp. (VST 76.89, -8.54, -10.00%), ON Semiconductor (ON 70.18, -7.69, -9.88%), and Amphenol (APH 62.27, -5.18, -7.68%) dot the bottom of the standings despite a dearth of corporate news.
Meanwhile, Dexcom (DXCM 72.48, +3.14, +4.53%) is outperforming following a positive mention at Barron's.
Gold lower amid stronger dollar
03-Sep-24 14:00 ET
Dow -474.35 at 41088.73, Nasdaq -468.72 at 17244.89, S&P -91.48 at 5556.92
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-2.65%) remains the top lagging major average, continuing to slump modestly and now at session lows over the prior half hour.
Gold futures settled $4.60 lower (-0.2%) to $2,523.00/oz, continuing to peel off recent all-time highs as the dollar applies some pressure ahead of some key economic data later in the week -- JOLTS, unemployment claims, and payroll data.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $101.86.
Hello Group's initiatives weigh on results for longer than expected following weak Q3 outlook (MOMO)
China-based social media, dating, and live-streaming company Hello Group (MOMO -2%) left something to be desired in its Q2 report today. MOMO may have exceeded EPS estimates on decent revenue upside. However, the midpoint of its Q3 sales outlook fell short of analyst expectations. Economic issues in China have been prevalent for several quarters, which has created sales pressure among many Chinese companies requiring healthy discretionary spending, including MOMO. However, outside of economic strife, some of the weaknesses from the quarter were MOMO's own doing.
- MOMO operates three primary businesses: Momo, its core social media app; Tantan, its dating app; and new endeavors, which include several standalone apps. While these standalone apps generated positive yr/yr growth in Q2, Momo and Tantan struggled, delivering a 13% and 27% drop in revenue, respectively, culminating in a 14% decrease in consolidated revenue to RMB 2.69 bln.
- Spending softness amid a deflated economy was one underlying cause, a headwind restricting revenue growth for numerous quarters. The other problems arose from MOMO's operational adjustments, which it has been implementing since the end of 2023 to maintain a healthy ecosystem.
- MOMO set a few primary goals to improve its Momo app, including enhancing the female user experience by adjusting advertising materials and proactively reducing large-scale competition events on the live-streaming side. These actions resulted in short-term turbulence.
- Shifting its advertising materials around did not produce meaningful paying user gains as the metric fell by 9% yr/yr to 7.2 mln and only ticked 0.1 mln higher sequentially.
- Meanwhile, live streaming revenue plummeted by 50% yr/yr as large-scale competition events tend to generate sizeable revenue gains. To address this problem, MOMO enacted a moderate uptick in incentives for non-events operations.
- Tantan's goals were to improve the core dating experience while improving profitability. Over the past two years, cost reduction strategies have pushed Tantan to profitability. However, a continued reduction in channel investments as a part of the cost-reduction measures continued pressuring Tantan's user base, leading to monthly active users (MAUs) decreasing by 6% sequentially to 12.9 mln.
- Looking ahead, MOMO expects near-term pressures to persist, projecting Q3 revs of RMB 2.58-2.68 bln, translating to a 14% drop yr/yr at the midpoint, similar to the decline in Q2. As far as 2025 is concerned, management noted it was still too early to tell, citing macroeconomic and regulatory headwinds as the deciding factors over how next year plays out.
Taking further steps to improve the long-term growth of its core apps resulted in another relatively soft quarter. Investors may have been willing to forgive this if not for the fact that the initiatives MOMO is undergoing are hurting results for longer than expected, as illuminated by bearish Q3 guidance. Unless MOMO's actions result in meaningful benefits soon, investors could become increasingly impatient, triggering a more substantial correction.
Tesla's sales in China receive a needed jolt, while Robotaxi unveiling goes Hollywood (TSLA)
Intensifying competition and macroeconomic headwinds have created a speedbump for Tesla's (TSLA) sales in China, but the EV maker received a jolt in August as deliveries in the country jumped by 37% from July, according to Reuters. Price cuts and new incentives, such as interest-free loans, are helping to provide a spark for TSLA, while government subsidies for EV purchases continue to support the market as a whole.
- Market share losses at the hands of other Chinese EV makers have been a prominent concern for TSLA shareholders, but it appears that the company made up some ground on some competitors in August. For instance, Li Auto (LI) reported that August deliveries fell by 5.6% month/month to 48,122 vehicles, while deliveries dipped by 1.6% month/month to 20,176 for NIO (NIO).
- On the other hand, EV powerhouse BYD Company (BYDDY) reported that its vehicle sales surged by 35% to a record monthly high of 370,854.
- Coming off a rough Q2 in which TSLA missed EPS estimates as deliveries skidded lower by 5%, some positive news on the demand side is a welcomed development for a stock that's down by about 20% on a yr/yr basis.
- One concern that remains, however, is the issue of TSLA's eroding margins. In Q2, automotive gross margin slid by 180 bps yr/yr to 14.6% due to declining ASPs as TSLA ramps up incentives and price cuts. For some perspective, TSLA automotive gross margin in 2Q22 was 27.9% on a GAAP basis.
The acceleration in sales in China isn't the only news to hit over the weekend. Bloomberg reported that it will unveil the Robotaxi at a Warner Brothers Discovery (WBD) studio in California, rather than at one of its giga factories.
- Originally slated for August 8, TSLA pushed the unveiling back to October 10 in order to make some design changes and to build more prototypes. With the setting taking place at a movie studio, the expectation is that TSLA will try to simulate an actual rider pickup and drop-off in a staged downtown area.
- While there is certain to be plenty of pomp and circumstance surrounding the event, TSLA's Robotaxi isn't likely to move the fundamental needle for many quarters, if not years. TSLA has been pouring billions of dollars into its self-driving technology -- operating expenses increased by 39% in Q2 to nearly $3.0 bln -- but true autonomous driving capabilities aren't right around the corner.
Lastly, Reuters also reported that TSLA is planning to launch a new six-seat version of its Model Y vehicle in China sometime in late 2025. Currently, the company only sells a five-seat model in China. The addition of a new six-seater could provide TSLA with a growth catalyst in China, especially since the Model Y is one of the most popular vehicles in China. Overall, this flurry of developments for TSLA are bullish, but the main challenges of rising competition and eroding margins still remain.
US Steel heads lower following VP Harris decision to oppose takeover, investors remain skeptical (X)
US Steel (X -3%) is pulling back today following comments from Vice President Harris at a rally over Labor Day weekend that she does not support the pending takeover of this major steel producer. Recall that in December 2023, US Steel agreed to be acquired by Nippon Steel, Japan's largest steelmaker and one of the world's largest steel manufacturers.
- The $55 per share all-cash deal price was quite attractive to US Steel investors. It represented a 40% premium at the time and far surpassed Cleveland-Cliffs' (CLF) August 2023 offer in the $35 range, which was a combination of cash and stock. It was smart of X to hold out for a better deal. The problem, of course, was whether Pittsburgh-based US Steel could navigate the politics of a foreign company buying such an iconic manufacturing name in a swing state in a US election year.
- That Harris opposes the deal is not surprising. President Biden promised to block the deal in April. Former President Trump and his running mate JD Vance have also spoke out against the deal. The acquisition is not popular in Pennsylvania and is opposed by the Unites Steelworkers union. Despite pledges from Nippon to invest in the facilities and avoid layoffs, there is a lot of skepticism among union employees.
- The acquisition is currently undergoing an antitrust review by the Department of Justice. There is also a national-security review by CFIUS, which can make recommendations. US Steel has not held an earnings call since the deal was announced but did say in its August 1 earnings releases that it continued to make progress on the US regulatory processes with a closing anticipated later this year.
- Also, Nippon weighed in last week when it announced additional project investments to be made at Mon Valley Works and Gary Works to make their blast furnace facilities more productive. These investments are in addition to prior investment promises of $1.4 bln. Nippon said these additional investments will extend the production life of two of US Steel's critical integrated assets.
- It sounds like Nippon wants to ease concerns about closing the plants. If its goal was to shutter these facilities, it would not be spending so much on upgrades. In terms of the timing of closing the deal, Nippon said last week that it expects the transaction to close in 2H24, subject to US regulatory approvals.
When this deal was announced, one of our first thoughts was the bad timing. For a foreign company to buy an iconic US manufacturing company in a swing state during an election year, that was going to be a heavy lift. However, we suspect CLF making an offer for US Steel that summer perhaps spurred Nippon into action, that it could not wait for the perfect time. It is not clear that this deal gets approved and investors are clearly skeptical with shares trading well below the $55 offering price. Perhaps a way for Nippon and US Steel to thread the needle would be a regulatory approval after the election but before the inauguration. The review is supposed to be independent of political influence, but we shall see.
Intel erasing last week's gains after cost-cutting plan reportedly excludes Foundry spin-off (INTC)
There has been no shortage of headlines involving Intel (INTC -6%) following the chip maker's discouraging Q2 earnings report last month. Since the dismal performance, which included a top and bottom-line miss, gloomy Q3 guidance, and a massive restructuring plan, including a 15% reduction of its workforce, reports have surfaced involving potential activist pressures and the possibility that INTC could seek a buyer for its Foundry business.
Over the weekend, the New York Post reported that INTC's CEO Pat Gelsinger will present the company's cost-cutting plan to the board later this month. The plan does not include INTC divesting its Foundry operations, reports of which ignited buying interest last week. As such, investors are expressing disappointment today. However, like we mentioned last week, it would be surprising to see INTC sell off its Foundry business despite it recording a $2.8 bln operating loss in Q2, given how much time and money has been poured into this segment, let alone the unit's differentiating factor from pure chip designers like Advanced Micro (AMD) and NVIDIA (NVDA), which rely on Taiwan Semi (TSM) to produce their chips.
Instead, the cost-cutting plan reportedly surrounds other actions to better survive the hardships that have stunted revenue growth and produced hefty losses, from high failure rates of 13th and 14th-generation CPUs to competitive disadvantages within the AI space.
- To avoid selling its Foundry business, INTC could sell its many non-core assets. Its more cyclical businesses of NEX, which includes Network Platforms, IoT, and Connectivity, Altera, and Mobileye, have struggled lately, dampening margins in Q2 and underperforming initial forecasts heading into Q3. Altera is already on track for full operational separation by the end of the year. INTC is also working on a path to an IPO over the coming years, making it more likely that this business could be on the chopping block.
- Throttling factory expansion efforts is another option to reign in spending. Earlier this year, INTC's Ohio plants were delayed by an additional two years, extending production until no earlier than 2027. INTC has plans to invest over $28 bln in its Ohio plants over the course of construction. Meanwhile, INTC announced an over €30 bln investment to construct fabs in Europe, with new locations in Germany -- which has also been delayed -- and Poland. Pausing these plans, particularly since they have already been extended, is becoming more likely.
Given the high costs associated with INTC's several moving pieces, from expanding production capacity to R&D efforts to better catch the sizeable lead AMD has already established in AI, INTC must act swiftly to avoid worst-case scenarios, such as having no other option other than to offload its Foundry business or an activist investor stepping in and enacting sweeping changes. While a rapid turnaround seems unlikely at this point, INTC is not entirely out of the AI race, nor has it lost the ability to re-establish itself as a chip-making behemoth worthy of lucrative orders from big tech firms. Still, any setbacks at this point could lead to further deterioration in INTC's quarterly numbers.
|
