Market Snapshot
| Dow | 41096.77 | +235.06 | (0.58%) | | Nasdaq | 17569.66 | +174.15 | (1.00%) | | SP 500 | 5595.76 | +41.63 | (0.75%) | | 10-yr Note | -1/32 | 3.68 |
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| | NYSE | Adv 2100 | Dec 624 | Vol 862 mln | | Nasdaq | Adv 2608 | Dec 1549 | Vol 5.0 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Energy, Information Technology |
| | Weak: -- |
Moving the Market
-- Carryover momentum following solid run this week
-- Ongoing buying in some mega cap names providing some support to the broader market
-- Digesting weekly jobless claims, which remain relatively steady, and August PPI, which showed moderating inflation
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Closing Summary
12-Sep-24 16:30 ET
Dow +235.06 at 41096.77, Nasdaq +174.15 at 17569.66, S&P +41.63 at 5595.76
[BRIEFING.COM] The stock market continued this winning week with another solid move higher. The S&P 500 (+0.8%), Nasdaq Composite (+1.0%), Dow Jones Industrial Average (+0.6%), and Russell 2000 (+1.1%) settled near their best levels of the session.
Upside momentum was a support factor in today's trade, along with ongoing buying in NVIDIA (NVDA 119.14, +2.24, +1.9%), which is nearly 16% higher than Friday's close.
Many stocks participated in today's climb. 23 of the 30 Dow components settled higher and all 11 S&P 500 sectors registered gains. The communication services (+2.0%) and consumer discretionary (+1.2%) sectors were the top performers, boosted by gains in their mega cap constituents.
The energy sector was the next best performer, responding to rising commodity prices. WTI crude oil futures rose 2.5% to $68.97/bbl and natural gas futures settled 4.0% higher at $2.36/mmbtu.
The rate-sensitive real estate sector (+0.1%) logged the slimmest gain as market rates moved up slightly. The 10-yr note yield settled three basis points higher at 3.68% and the 2-yr note yield was unchanged for the day at 3.65%. On a related note, today's $22 billion 30-yr bond sale was met with soft demand.
Today's economic releases didn't garner a big reaction from stocks or bonds. Initial jobless claims were little changed and remain below recession-like levels at 230,000 and the August Producer Price Index reflected moderating inflation at the wholesale level.
- S&P 500: +17.3% YTD
- Nasdaq Composite: +17.0% YTD
- Dow Jones Industrial Average: +9.0% YTD
- S&P Midcap 400: +7.3% YTD
- Russell 2000: +5.1% YTD
Reviewing today's economic data:
- Weekly Initial Claims 230K (Briefing.com consensus of 229K); Prior was revised to 228K from 227K, Weekly Continuing Claims 1.850 mln; Prior was revised to 1.845 mln from 1.838 mln
- The key takeaway from the report is that initial jobless claims remained fairly steady, underscoring the point that the labor market isn't suffering a material and rapid erosion that would challenge the soft landing view.
- August PPI 0.2% (Briefing.com consensus of 0.2%); Prior was revised to 0.0% from 0.1%, August Core PPI 0.3% (Briefing.com consensus 0.2%); Prior was revised to -0.2% from 0.0%
- The key takeaway from the report is the recognition that inflation at the wholesale level is moderating, which lessens concerns about heightened pass-through pressures to the consumer.
- August Treasury Budget -$380.1 bln; Prior -$243.7 bln
- The key takeaway from the report is that the U.S. government continues to run large budget deficits, which necessitates a large amount of Treasury issuance for government funding.
Friday's calendar includes:
- 8:30 ET: August Import Prices (prior 0.1%), Import Prices ex-oil (prior 0.1%), Export Prices (prior 0.7%), and Export Prices ex-agriculture (prior 1.0%)
- 10:00 ET: Final September University of Michigan Consumer Sentiment (prior 67.9)
Friday's economic calendar
12-Sep-24 15:35 ET
Dow +212.56 at 41074.27, Nasdaq +180.46 at 17575.97, S&P +42.36 at 5596.49
[BRIEFING.COM] The three major indices move in a sideways flow near session highs.
The rate-sensitive S&P 500 real estate sector (-0.1%) is alone in negative territory while four sectors trade up more than 0.8%.
Friday's calendar includes:
- 8:30 ET: August Import Prices (prior 0.1%), Import Prices ex-oil (prior 0.1%), Export Prices (prior 0.7%), and Export Prices ex-agriculture (prior 1.0%)
- 10:00 ET: Final September University of Michigan Consumer Sentiment (prior 67.9)
RH, ADBE trade up ahead of earnings
12-Sep-24 15:05 ET
Dow +137.56 at 40999.27, Nasdaq +183.23 at 17578.74, S&P +37.56 at 5591.69
[BRIEFING.COM] The stock market trades on an upbeat note with one hour left in the session. The equal-weighted S&P 500 trades 0.4% higher and nine S&P 500 sectors trade up.
Adobe (ADBE 582.77, +2.39, +0.4%) and RH (RH 256.24, +9.22, +3.7%) both trade higher in front of their earnings reports this afternoon.
Separately, Treasury yields moved lower. The 10-yr yield moved from 3.70% to 3.67% and the 2-yr yield moved from 3.70% to 3.65%.
Kroger rides EPS beat to top of S&P 500, Wells Fargo dented by OCC enforcement action
12-Sep-24 14:25 ET
Dow +180.55 at 41042.26, Nasdaq +199.82 at 17595.33, S&P +43.63 at 5597.76
[BRIEFING.COM] The S&P 500 (+0.79%) is in second place on Thursday afternoon, up about 43 points.
Elsewhere, S&P 500 constituents Warner Bros. Discovery (WBD 7.56, +0.62, +8.93%), Kroger (KR 54.59, +3.09, +6.00%), and Axon (AXON 380.68, +18.97, +5.24%) pepper the top of today's standings. WBD is higher after announcing a multi-year distribution partnership with Charter (CHTR 337.30, +9.88, +3.02%), KR beat Q2 EPS expectations this morning, and AXON caught a tgt bump to $430 at JMP Securities this morning.
Meanwhile, Wells Fargo (WFC 51.35, -2.38, -4.43%) has recently dropped in the standings after the OCC released an enforcement action against the firm.
Gold gets boost from inflation data
12-Sep-24 14:00 ET
Dow +218.72 at 41080.43, Nasdaq +199.58 at 17595.09, S&P +45.35 at 5599.48
[BRIEFING.COM] The markets have climbed to HoDs, the tech-heavy Nasdaq Composite (+1.15%) leading the way on gains of about 200 points.
Gold futures settled $38.20 higher (+1.5%) to $2,580.60/oz, demand getting a boost from this morning's hotter than expected PPI reading.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $101.52.
NETGEAR shifts into a higher gear following a settlement agreement and raised guidance (NTGR)
NETGEAR (NTGR +30%) explodes higher today after entering into a settlement agreement with TP-Link Systems, a whole home mesh Wi-Fi system manufacturer. NTGR and TP-Link were in a dispute over patent infringement and breached contracts. The two parties agreed to settle, awarding NTGR a $135 mln payment. Meanwhile, NTGR announced an earlier-than-anticipated launch of its next-gen 5G mobile hotspot, rolling it out in Q3 instead of Q4. As a result of the two favorable developments, NTGR raised its Q3 revenue guidance to $170-180 mln, up from $160-175 mln.
NTGR is a global provider of consumer networking products. The company operates two segments: Connected Home and NETGEAR for Business, splitting out its sales to consumers versus small and medium-sized businesses. Its primary offerings are Wi-Fi devices, including mesh systems, routers, and 4G/5G mobile products.
Prior to last night's settlement agreement and raised guidance, shares of NTGR have been languishing. Since 2021 highs, the stock tumbled by over 70%, bottoming in late 2023 before making a mild recovery throughout 2024. The usual suspects, i.e., inflation, interest rates, and dampened consumer sentiment, have been hard at work creating intense headwinds for NTGR, which has not delivered a quarter of positive yr/yr sales growth since 2Q21. Earlier this year, the company observed more destocking than expected across its consumer and business segments, with the cost of carrying excess inventory swelling. To counter these headwinds, NTGR has been taking steps to place itself in a better position to reenergize growth.
- To contend with excess channel inventories, NTGR changed its game plan. Instead of destocking throughout the year so its channel partners could exit 2024 with normalized inventory levels, given the costs associated with taking it slow, NTGR decided to accelerate its way through Q2, which took a chunk out of its revenue, illuminated by a 17% drop yr/yr. While Q2 suffered, NTGR made excellent progress in lowering its inventory position, reducing it by more than initially targeted.
- Looking ahead, NTGR exited Q2 with nearly $300 mln of cash on hand, anticipating additional cash generation during the back half of the year, which has already been aided by the settlement payment. With subscriber counts remaining robust, expanding by 19% yr/yr to 958K in Q2, supporting an over 30% jump in recurring sub revs, NTGR has some wind at its back.
- Management also introduced changes to its business line, hiring a new leader and reorganizing its global sales team. Meanwhile, its business division won a few large projects during Q2, reflecting an uptick in enterprise-scale customers.
The two surprising developments announced yesterday after the close may have been the spark NTGR needed to shift into a permanently higher gear. Still, given the extent of its past woes, it is worth treading lightly. Another sour quarter could send NTGR right back to where it was before today's explosive move.
Signet Jewelers shining brightly as sales trends improve and cost-cutting efforts accelerate (SIG)
Signet Jewelers (SIG) is shining brightly after the world's largest retailer of diamond jewelry beat Q2 EPS expectations, continuing a winning streak versus EPS estimates that extends beyond five years, while also reaffirming its FY25 guidance across the board. A combination of macroeconomic and company-specific issues, such as digital banner integration missteps, have afflicted SIG, as reflected in the stock's 27% decline this year. However, based on SIG's Q2 earnings report, it's evident that business trends are improving in both the fashion and engagement categories.
- Perhaps the best indicator of the positive momentum underlying SIG's business is the upward trajectory in same store stores. After declining by 9.6% in Q4 and then by 8.9% in Q1, same store sales were down by just 3.4% this quarter. Better yet, SIG believes that comps could turn positive in Q3, guiding for comps of -1% to +1.5%.
- Although the rebound in engagements has been slower than SIG had anticipated -- the company estimated a 5-10% increase in engagements in FY25 in Q4, but now sees an increase of 5% -- the engagement business is experiencing a slow-but-steady improvement. On a Q3-to-date basis, engagement units are now in positive territory.
- The middle-income consumer has been shying away from making big-ticket purchases, and that has included jewelry. Once again, SIG saw a lower number of transactions in Q2, but the good news is, the higher-income customer is still showing up, as illustrated by a 1.6% increase in average transaction value in North America.
- Relatedly, recent trends on the fashion side have brightened and SIG is expecting more robust fashion sales in the back half of FY25. Stronger fashion sales also generated merchandise margin improvements in Q2, which helped to offset a deleveraging of fixed costs, leading to a modest 10 bps gain in gross margin to 38.0%.
- Meanwhile, SIG continues to keep a tight lid on costs as SG&A expenses decreased by 2.5% yr/yr to $498.4 mln. Even as business conditions strengthen, SIG intends to keep tightening the screws on spending. In fact, the company is now targeting up to $200 mln in cost savings in FY25, up from its prior guidance of $150-$180 mln, as it leverages technology such as AI and implements sourcing efficiencies.
The main takeaway is that expectations were muted ahead of SIG's earnings report, mainly due to sluggish consumer spending on big-ticket items, but its results and outlook show that trends are moving in the right direction. Along with a more positive demand picture, SIG's commitment to reducing expenses should enable SIG to return to positive EPS growth soon.
Oxford Industries shows that even higher income brands are being hurt by macro pressures (OXM)
Oxford Industries (OXM -2%) is lower following disappointing Q2 (Jul) earnings results/guidance last night. This apparel company, which owns Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, Beaufort Bonnet and Duck Head focuses on the laid-back vacation vibe. OXM has now missed on EPS in three consecutive earnings, but this miss was notably larger than the prior two. Q2 comps were -1%, which was below guidance of mid-single-digit positive comps.
- Even more concerning was OXM guiding Q3 (Oct) EPS and revenue well below analyst expectations. OXM also lowered full year guidance pretty substantially. OXM now expects negative comps in the low to mid-single-digits for the remainder of the year vs previous expectations from June that assumed mid-single-digit positive comps for the remainder of the year.
- With a generally higher income core customer base, it would be natural to think OXM would be less impacted by macro issues like inflation. However, OXM cited a continued pullback from the consumer. Perhaps even more troubling is that the pullback worsened sequentially as the quarter progressed and continued into August. OXM said the cumulative effect of several years of inflation may be catching up with the consumer.
- OXM also said that its more affluent consumers tend to be more headline and market-sensitive, so that may be impacting purchases. OXM also cited its significant exposure to Florida, which accounts for over a third of its brick-and-mortar business. This channel grew at an exceptional pace coming out of the pandemic but has slowed down as the new post-pandemic world settles in. OXM did accept some blame, it's not all macro issues. OXM conceded that it made some merchandising missteps, including assortment misses and some poor timing of promotional events.
- The silver lining is that traffic has remained strong, which indicates that consumers remain interested in its brands. However, OXM is seeing reduced conversion as consumers have become cautious when making purchase decisions. OXM saw strong full price response to fashion while interest in core styles was more muted. Customers responded to value via promotional events and its outlet stores saw higher sales, which impacted margins.
- Despite the cautious consumer, OXM sounds excited about some new collections such as its Tommy Bahama, Indigo Palms collection of denim and denim-friendly products, which launched early in Q3. OXM said initial reception has been strong. Also, this assortment enhances OXM's ability to be relevant in the cooler months, particularly in the western part of the country, the Midwest, the Mid-Atlantic and the Northeast.
Given the big Q2 miss and surprisingly weak Q3 guidance, we were expecting the stock to be down even more. However, the share price had been pulling back aggressively since early August (-20% before this report), which tells us investors had concerns already and a bad result was likely priced in to some extent. It seems even a higher income brand is not immune from macro issues. We also suspect that consumers are travelling less and OXM's brands focus on vacation vibes, so that is playing a role as well.
Kroger tacks on decent gains today as comps accelerate in Q2; inflation still shifting behavior (KR)
Kroger (KR +5%) is adding decent gains today after squeezing out a bottom-line beat in Q2 (Jul) on another quarter of nearly flat yr/yr revenue growth. The pure grocery chain operator, currently in a court battle over its proposed $25 bln takeover of Albertsons (ACI), may not have delivered a blowout report. However, KR rang up many uplifting trends during the quarter, reflecting improving consumer sentiment as inflation slows.
- KR's headline earnings and sales numbers were adequate, delivering adjusted EPS of $0.93, a minor dip from $0.96 in the year-ago period, and revs of $33.91 bln, a 0.2% bump yr/yr. More importantly, identical sales without fuel climbed by +1.2% in Q2, a decent uptick from the +0.5% posted in Q1 (Apr).
- Management mentioned last quarter that as inflation moderates, customer sentiment should improve. Monthly CPI reports throughout Q2 showed food at home prices ticking up by just 0.1% at the most, slower than highs of +0.4% in food away from home prices. After the August CPI report displayed a 0.0% jump in at-home food prices, Q3 (Oct) may be off to a positive start.
- Almost no change in food at home prices throughout Q2 and into August does not mean that KR's inflation-related headwinds have cleared. Budget-conscious households continue to throttle spending as the quarter progresses. Meanwhile, other customer segments are shifting habits, reducing basket sizes and focusing on essentials.
- At the same time, this value-seeking behavior may be spurring increased traffic into stores of KR's competitors. Prominent merchants like Walmart (WMT) and Costco (COST) are notching healthy gains across their grocery categories. COST's recent August comp data revealed mid-single-digit gains in food and sundries and high-single-digit growth in fresh food. Last week, Walmart mentioned that more customers are buying groceries, among other household items, showcasing its ability to help shoppers consolidate trips that can stretch their dollars.
- Still, KR stated that it is winning households. Its private label brands are helping differentiate itself from other grocers while boosting margins, with FIFO gross margins expanding by 42 bps yr/yr in Q2. Following accelerating comp growth through two quarters, KR felt confident lifting the low end of its FY25 (Jan) comp guidance to +0.75-1.75% from +0.25-1.75%. Also, despite continuing to operate through elevated economic uncertainty, KR reiterated its FY25 adjusted EPS forecast of $4.30-4.50.
- Regarding the pending merger with ACI, closing arguments are expected over the next few days. KR commented that it remains committed to closing the merger.
KR's improved performance in Q2 showcased its structurally sound position within the grocery industry, maintaining competitive pricing and offerings versus its larger counterparts. As KR nears the close of the FTC's preliminary injunction hearing, the ACI merger overhang may finally have clarity, allowing KR to maintain its upward momentum today. Still, dynamic trends among shoppers keep concerns relatively high for at least the short term and can lead to increased volatility quarter-to-quarter.
Canadian Nat'l Rail moves lower after clipping its FY24 EPS outlook following work stoppage (CNI)
Canadian Nat'l Rail (CNI) is in reverse today after lowering its EPS growth outlook for the year after finally restoring operations following several months of labor uncertainty and a resulting total shutdown of its Canadian rail network. CNI and its Canada-based counterpart, Canadian Pacific Kansas City (CP), were dealing with a labor dispute that could have led to significant disruptions across North America. Late last month, both railroad companies' Canadian networks were shut down after implementing a worker lockout. The shutdown was short-lived after the Canadian government swooped in almost immediately, ordering binding arbitration to end the dispute.
Today, CNI announced that its operations fully recovered, albeit not without damage to its near term outlook. CNI reduced its FY24 EPS growth outlook to low single digits from its previous target of mid to high single digits, which was already down from its initial outlook of approximately 10%. It is also well below CP's recently updated FY24 adjusted EPS growth forecast of a double-digit percentage.
- When concerns of a work stoppage started to brew in late May, companies began shifting volume away from CNI. During its Q2 earnings call in late July, CNI remarked that volume destined for the U.S. through its rail network shifted to U.S. ports, causing lighter volumes at its Rupert port. Meanwhile, even though CNI enjoyed heavy grain flows in its Vancouver corridor, it moved record volumes inefficiently, illuminated by velocity issues, which have since returned to normal.
- At the same time, the ongoing economic recovery is advancing slower than CNI initially anticipated. Due to current commodity prices, the company adjusted its outlook for lumber, now expecting a 2025 recovery instead of a gradual rebound this year. Additionally, overall industrial production remains mildly positive but tepid, partly due to persistent inflation and elevated interest rates.
- The headwinds in the global economy are eroding CNI's 2024-2026 guidance, projecting a compounded annual adjusted EPS growth rate in the high single digits, down from the company's +10-15% guidance reaffirmed less than two months ago. The reduction underscores just how much slower the pace of an economic recovery is compared to how it was trending in late July.
CNI is still confident that an economic rebound will eventually unfold, even if it takes slightly longer than it thought. It helps that the labor issue has been cleared up, removing a nasty overhang. However, while one cloud has cleared, economic conditions present several additional headwinds. Last week, LTL trucking companies Old Dominion (ODFL) and XPO, Inc. (XPO) issued gloomy Q3 updates, underpinning softness across the U.S. Canadian-based TFI International (TFII) noted in late July that the challenges associated with the U.S. and Canada market will lead to a problematic back half of 2024. These economic variables keep uncertainty relatively high, creating further obstacles for CNI to clear.
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