Market Snapshot
| Dow | 41393.78 | +297.01 | (0.72%) | | Nasdaq | 17683.96 | +114.30 | (0.65%) | | SP 500 | 5626.02 | +30.26 | (0.54%) | | 10-yr Note | +2/32 | 3.65 |
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| | NYSE | Adv 2337 | Dec 426 | Vol 821 mln | | Nasdaq | Adv 3234 | Dec 1002 | Vol 4.8 bln |
Industry Watch
| Strong: Materials, Energy, Industrials, Consumer Discretionary, Financial, Communication Services |
| | Weak: -- |
Moving the Market
-- Ongoing momentum following solid run this week
-- Mixed action in mega cap space limited index performance somewhat
-- Falling market rates and repricing rate cut expectations
| Closing Summary
13-Sep-24 16:30 ET
Dow +297.01 at 41393.78, Nasdaq +114.30 at 17683.96, S&P +30.26 at 5626.02
[BRIEFING.COM] The winning week for equities ended on a strong note. The three major indices logged gains ranging from 0.5% to 0.7% and the Russell 2000 outperformed, jumping 2.5%. Upside momentum acted as its own buying catalyst, along with the belief that the economy is headed for a soft landing.
This morning's release of the preliminary University of Michigan Consumer Sentiment survey for September corroborated that view, showing that year-ahead expectations for personal finances and the economy both improved.
The market was already repricing rate cut expectations in front of the release, signaling optimism that the Fed may cut rates 50 basis points next week. The probability of a 25 basis points rate cut dropped to 53.0% from 72.0% yesterday, according to the CME FedWatch Tool.
Losses in some mega cap names limited gains in the S&P 500 (+0.5%) and Nasdaq Composite (+0.7%) while the Invesco S&P 500 Equal Weight ETF (RSP) closed 1.0% higher. NVIDIA (NVDA 119.10, -0.04, -0.03%), Apple (AAPL 222.50, -0.27, -0.1%), and Amazon.com (AMZN 186.49, -0.51, -0.3%) were standouts in that respect.
A solid decline in shares of Boeing (BA 156.77, -6.00, -3.7%) acted as a limiting factor for the Dow Jones Industrial Average (+0.7%) after news that its machinists union voted by 96% in favor of striking, which prompted warnings about a downgrade risk from Fitch ratings and Moody's ratings.
Still, many other stocks exhibited positive price action. All 11 S&P 500 sectors closed higher led by utilities (+1.4%) and communication services (+1.0%).
The 10-yr note yield settled three basis points lower today, and six basis points lower this week, to 3.65%. The 2-yr note yield settled seven basis points lower today, and this week, to 3.58%.
- S&P 500: +18.0% YTD
- Nasdaq Composite: +17.8% YTD
- Dow Jones Industrial Average: +9.8% YTD
- S&P Midcap 400: +9.1% YTD
- Russell 2000: +7.7% YTD
Reviewing today's economic data:
- August Export Prices -0.7%; Prior was revised to 0.5% from 0.7%
- August Export Prices ex-ag. -0.6%; Prior was revised to 0.8% from 1.0%
- August Import Prices -0.3%; Prior 0.1%
- August Import Prices ex-oil -0.1%; Prior 0.1%
- September Univ. of Michigan Consumer Sentiment - Prelim 69.0 (Briefing.com consensus 68.1); Prior 67.9
- The key takeaway from the report is that year-ahead expectations for personal finances and the economy both improved despite substantial uncertainty surrounding the election.
Looking ahead, Monday's economic lineup is limited to the September Empire State Manufacturing survey at 8:30 ET. Tuesday's economic releases include August Retail Sales at 8:30 ET and August Industrial Production and Capacity Utilization at 9:15 ET. Wednesday's calendar features August Housing Starts and Building Permits at 8:30 ET, along with the September policy decision by the FOMC at 2:00 ET. Thursday's lineup includes weekly jobless claims at 8:30 ET.
Next week's economic lineup
13-Sep-24 15:35 ET
Dow +295.56 at 41392.33, Nasdaq +112.49 at 17682.15, S&P +29.11 at 5624.87
[BRIEFING.COM] The three major indices trade in tight ranges in front of the close.
The 10-yr note yield settled three basis points lower today, and six basis points lower this week, to 3.65%. The 2-yr note yield settled seven basis points lower today, and this week, to 3.58%.
Looking ahead, Monday's economic lineup is limited to the September Empire State Manufacturing survey at 8:30 ET. Tuesday's economic releases include August Retail Sales at 8:30 ET and August Industrial Production and Capacity Utilization at 9:15 ET. Wednesday's calendar features August Housing Starts and Building Permits at 8:30 ET, along with the September policy decision by the FOMC at 2:00 ET. Thursday's lineup includes weekly jobless claims at 8:30 ET.
Mega caps continue to limit indices
13-Sep-24 15:00 ET
Dow +254.70 at 41351.47, Nasdaq +86.74 at 17656.40, S&P +23.32 at 5619.08
[BRIEFING.COM] The market moved mostly sideways at the index level in recent action.
Losses in the mega cap space continue to limit index moves. The Vanguard Mega Cap Growth ETF (MGK) sports a 0.2% gain.
Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) shows a 0.8% gain and the market-cap weighted S&P 500 trades 0.4% higher.
Etsy higher in S&P 500 after White House de minimis exemption, Garmin dips on Barclays downgrade
13-Sep-24 14:30 ET
Dow +270.99 at 41367.76, Nasdaq +99.35 at 17669.01, S&P +25.16 at 5620.92
[BRIEFING.COM] The S&P 500 (+0.45%) is in last place on Friday afternoon, albeit up about 25 points, currently falling to afternoon lows.
Elsewhere, S&P 500 constituents Warner Bros. Discovery (WBD 8.44, +0.78, +10.18%), Etsy (ETSY 55.32, +3.58, +6.92%), and Uber (UBER 71.89, +3.80, +5.58%) dot the top of the standings. WBD posts solid gains for back-to-back sessions, piggybacking off bullish analyst comment related to the Spectrum deal, ETSY climbs after the Biden administration announced new actions against de minimis shipments, with UBER hosting decent gains after announcing an expanded deal with Waymo.
Meanwhile, Garmin (GRMN 171.75, -10.26, -5.64%) is near the bottom of the average, sliding below its 50-day MA (173.33) after Barclays downgraded the stock to Underweight this morning.
Gold adds to weekly gains on Friday
13-Sep-24 14:00 ET
Dow +352.52 at 41449.29, Nasdaq +144.43 at 17714.09, S&P +39.23 at 5634.99
[BRIEFING.COM] With about two hours left to go on Friday the tech-heavy Nasdaq Composite (+0.82%) is in second place, up about 144 points.
Gold futures settled $30.10 higher (+1.2%) to $2,610.70/oz, ending +3.4% higher on the week, pushed higher on Friday amid a dip in the dollar accompanied by declines in yields ahead of next week's highly-anticipated FOMC policy meeting.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $101.08.
GlobalFoundries up mildly following long-term growth target; many trends working in its favor (GFS)
GlobalFoundries (GFS) inches higher today after releasing its long-term revenue growth target in its Investor Presentation yesterday after the closing bell. GFS projected +8-12% annualized growth over the long term, a substantial rebound from the 9% drop experienced in FY23 but not quite the return to the +23% and +36% pops the company enjoyed in FY22 and FY21, respectively.
What does GFS do? It manufactures semiconductors similar to Taiwan Semi (TSM) but with one colossal difference. GFS does not produce high-end, technologically superior chips used in AI applications. Instead, the company, which was a former arm of Advanced Micro (AMD), hunkered down on manufacturing chips that are less cutting-edge and more essential to power everyday devices, including household appliances like refrigerators and dishwashers. GFS's chips are also found in smartphones -- aiding power management -- vehicles, and numerous other electronic devices.
Without massive exposure to the AI space, like NVIDIA (NVDA) and AMD, GFS has not benefited strongly from the unwavering AI frenzy. Shares are down roughly 30% YTD and have mostly flatlined over the past five years. However, GFS touts a few other advantages that make it worth keeping on the radar for a potentially meaningful recovery down the road.
- Following a sequential bump in revenue in Q2, GFS reiterated last month that it believed Q1 marked the low point for sales this year, expecting further improvement in Q3. The company commented last week that while a recovery in China could be uneven, interest rates easing in the Western Hemisphere should facilitate more robust consumer demand across numerous applications.
- Opportunities in power management remain compelling. Management stated in Q2 that its customers are looking to build the next generation of power management technologies in the U.S. as the need to communicate data continues to translate into new requirements for more efficient power management. On Semi (ON) remarked in late July that as power consumed by AI data center racks increases by threefold, its addressable content is expected to surge by nearly fourfold.
- As a result, GFS purchased Tagore Technology's gallium nitride power business, which included an extensive IP portfolio. With Tagore, GFS expects its serviceable addressable market to soar by around $1.6 bln by 2030.
- With the relationship between the U.S. and China tense, companies may be looking to reduce their dependence on TSM and China-based foundries. GFS is based in New York, with production occurring across the U.S., Singapore, and parts of Europe. Also, geopolitical tensions are likely keeping existing customers from allocating orders to China. GFS stated last week that it is not witnessing much customer migration toward China despite many new foundries being constructed in the region.
GFS's long-term targets issued last night might not have rekindled much interest in the stock today. However, the company has gears in motion, laying the groundwork for a potential turnaround. A broader economic recovery, an uptick in power management chip demand, and a U.S.-based presence are all items working in GFS's favor.
Oracle's surge continues as its cloud and AI growth prospects are put under the spotlight (ORCL)
A very good week for Oracle (ORCL) has turned into an even better one after Bloomberg reported that the database and cloud software company raised its FY26 revenue guidance to at least $66.0 bln during a Financial Analyst meeting yesterday. The bullish outlook, which largely hinges on the robust demand within ORCL's cloud infrastructure business (OCI), comes on the heels of a solid Q1 earnings report that featured an EPS beat and impressive Remaining Performance Obligations (RPO) growth of 53%. Fueled by these two catalysts, shares of ORCL have surged by 20% this week.
- Looking further out on the horizon, ORCL said that $104 bln in revenue in FY29 is an attainable goal as it expands its cloud infrastructure business and as it capitalizes on an ever-increasing amount of AI use cases. When thinking about major cloud providers, the three hyperscalers -- Microsoft (MSFT), Google (GOOG), and Amazon Web Services (AMZN) -- immediately come to mind, but ORCL is becoming a very formidable player in the space.
- As an alternative to the big three hyperscalers, OCI provides customers with virtual machines and servers to run complex workloads, and it provides them with a variety of storage offerings that can manage massive volumes of data. Additionally, OCI has been launching new AI tools, such as OCI Vision and Oracle Machine Learning, that help businesses leverage data analytics and automation. Lastly, OCI also houses the company's cloud application products, including its Human Capital Management (HCM) and Enterprise Resource Planning (ERP) products.
- When ORCL issued Q1 results on Monday night, it reported that cloud infrastructure revenue surged by 45% yr/yr to $2.2 bln, bolstered by a 56% increase in OCI consumption revenue. In fact, growth would have been even stronger if ORCL had greater capacity. On that note, the company is planning to double its capex in FY25 compared to FY24 in support of its buildout of 77 more cloud regions. For some context, ORCL currently has 85 operational cloud regions.
- MSFT, GOOG, and AMZN aren't just competitors of ORCL, but they're also customers as they run ORCL's database software on their cloud platforms. In addition to its Q1 results and guidance, ORCL also announced a new deal with Amazon Web Services (AWS), allowing AWS customers to access Oracle Autonomous Database on dedicated infrastructure and Oracle Exadata Database Service within AWS.
The long journey from an on-premise database software developer to a cloud software and infrastructure company has been a difficult one at times for ORCL and its shareholders, but its transition is in full swing now and stronger growth is finally a reality.
Adobe heads lower despite earnings upside; Q4 guidance was a bit soft (ADBE)
Adobe (ADBE -9%) is heading a good bit lower following its Q3 (Aug) earnings report last night. This digital document giant did return to its double-digit EPS upside pattern after a smaller beat in Q2 (May). Revenue rose 10.6% yr/yr to a record $5.41 bln, which also was better than expected with strength across all three clouds. Net new Digital Media ARR was $504 mln, above prior guidance of approx $460 mln.
- However, the Q4 (Nov) revenue guidance was light of analyst expectations. This was a letdown following upside guidance when Adobe reported Q2 results. Also, during the Q&A, analysts seemed disappointed with Adobe's Q4 guidance for net new Digital Media ARR at approximately $550 mln. The Q4 outlook seems to be the main reason why shares are lower today.
- Its Digital Media segment performed well with revenue rising 11% yr/yr (+12% CC) to $4.00 bln, which was above prior guidance of $3.95-3.98 bln. DM is by far Adobe's larger segment, so people watch it closely. Adobe's other major segment is Digital Experience, which allows businesses to manage/track customer experiences using analytics. DE segment revenue grew 10% yr/yr (+10% CC) to $1.35 bln, which was above its $1.325-1.345 bln prior guidance, with strong subscription revenue growth.
- Within its DM segment, Document Cloud revenue drove overall segment growth at $807 mln, up 18% yr/yr or +18% CC. Link sharing and what Adobe has done with reader distribution across mobile, web and desktop continues to drive this business. Adobe is also seeing good usage and MAU growth across Adobe Reader and Acrobat. Adobe also saw good demand for Acrobat desktop and mobile subscriptions.
- Creative revenue grew to $3.19 bln, up 10% yr/yr or +11% CC. Creative Cloud growth drivers included new subscriptions across customer segments, including Teams, Enterprise, and Education with back-to-school demand; strength across Acrobat Pro, Illustrator, Lightroom and Photoshop. Adobe is also seeing growing demand for its AI-first Adobe Express offerings and early monetization of its new Firefly Services in the enterprise segment.
- Turning to the weak guidance for both revenue and net new Digital Media ARR, Adobe argues that Q3-Q4 in the aggregate is playing out as expected. Specifically, Q3 was a little stronger than expected because a few deals that would have historically closed in Q4 closed earlier than expected. Another factor is that typically Black Friday and Cyber Monday are in the same quarter. However, this year, Cyber Monday is in Q1.
Overall, Adobe reported solid upside in Q3. However, while Adobe offered a reasonable explanation for the tepid Q4 guidance, investors seem nervous about Adobe's outlook to close out FY24. Recall that Adobe guided higher last quarter, so downside guidance this time was a letdown. Another factor is that sentiment was likely pretty positive heading into this report following the gap higher last quarter, so the guidance provides a reason to book profits.
RH brings better-than-feared Q2 (Jul) report to the table; ignites huge push higher (RH)
RH (RH +23%), a luxury home furnishing retailer, is sitting pretty today after returning to delivering earnings upside in Q2 (Jul), snapping a string of misses. Tight monetary policy and a formidable housing market bottlenecked demand, leading to seven consecutive quarters of declining yr/yr revenue. Compounding the issue was RH's decision to invest aggressively, weighing on margins.
However, demand trends inflected positive last quarter, and RH rode this momentum through Q2, pushing sales growth back into positive territory. Importantly, the accelerating demand growth in Q2 has not budged thus far through Q3 (Oct), underscoring signs that perhaps RH has endured the worst of the current economic cycle.
- Relatively soft headline Q2 numbers reflected the hurdles associated with the current economic landscape, which CEO Gary Friedman described as the most challenging housing market in 30 years. Adjusted EPS contracted by 57% yr/yr to $1.69 on a sluggish 4% bump in revs to $829.66 mln. Demand grew below RH's +8-10% prediction, edging +7% higher. However, demand finished up +10% by July, gaining strength in August. RH anticipates a +12-14% improvement in demand next quarter.
- RH's decision to invest aggressively despite operating in a downturn led to an over 10 pt contraction in adjusted operating margins yr/yr to 11.7%. However, Mr. Friedman continued to stand by the investments, reiterating that it has positioned RH to capitalize on long-term opportunities.
- Opening new galleries underpins much of RH's investment plans. The company is looking to launch a Waterworks Showroom in California by Q4 while also developing a Sourcebook with test mailing planned for 2025. RH believes Waterworks, which it acquired in 2016, has the potential to grow to a billion-dollar brand, five times its current annual revenue. RH is also expanding in Europe, launching in Paris and Milan over the next two years. Additionally, elevating its online experience is a focus for RH, planning upgrades throughout 2H24.
- Ongoing expansion and other investment initiatives are expected to continue weighing on margins over the near term; RH projects 11-12% adjusted operating margins for FY25 (Jan), down 3.5 pts from its prior forecast.
- The demand climate remains challenging, and RH does not expect this to shift until interest rates ease. Still, the company assumes demand trends maintain momentum, accelerating through the rest of FY25 and into FY26. Nevertheless, revenue will lag demand as RH reacts to new collections and reduces backorders. As a result, the company lowered its FY25 revenue growth outlook to +5-7% from +8-10%. However, analysts anticipated this, already resetting their models lower ahead of RH's guidance.
Leading into Q2 results, RH's peers sounded a few alarms. Wayfair (W) observed a continuation of cautious consumer spending in JunQ, Williams-Sonoma (WSM) reduced its FY25 (Jan) comp and revenue guidance in light of stubborn economic headwinds, and La-Z-Boy (LZB) issued bearish OctQ guidance. By delivering upbeat numbers and anticipating upward trends to persist, RH did more than enough to alleviate investor fears and support its surging stock price today.
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.
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