Market Snapshot
| Dow | 43870.35 | +461.88 | (1.06%) | | Nasdaq | 18972.45 | +6.28 | (0.03%) | | SP 500 | 5948.72 | +31.60 | (0.53%) | | 10-yr Note | -2/32 | 4.43 |
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| | NYSE | Adv 2153 | Dec 584 | Vol 953 mln | | Nasdaq | Adv 2817 | Dec 1432 | Vol 7.5 bln |
Industry Watch
| Strong: Industrials, Financials, Energy, Information Technology, Consumer Staples, Real Estate |
| | Weak: Communication Services, Consumer Discretionary |
Moving the Market
-- Responding to NVIDIA (NVDA) earnings, which featured better than expected results; some disappointment that NVIDIA's revenue growth rates are decelerating but the report was solid overall
-- Monitoring activity in Treasuries; yields initially moved lower but turned higher in response to this morning's data
-- Digesting a stronger-than-expected Existing Home Sales report for October and another decrease in weekly jobless claims
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Closing Summary
21-Nov-24 16:15 ET
Dow +461.88 at 43870.35, Nasdaq +6.28 at 18972.45, S&P +31.60 at 5948.72
[BRIEFING.COM] The session started a little shaky, but stocks quickly shifted into rally-mode as investors digested NVIDIA's (NVDA 146.67, +0.78, +0.5%) Q3 earnings report. Shares of NVDA initially traded lower due to profit-taking activity and due to a slight deceleration in its revenue growth rate. The report was solid overall, though, and the company said demand for its Blackwell chip is "staggering."
There was a positive bias under the index surface through the entire session despite the early weakness in NVDA. Other mega caps were weak through the entire session as money rotated away from those names into other areas of the market.
The S&P 500 (+0.5%), Dow Jones Industrial Average (+1.1%), and Russell 2000 (+1.7%) closed near their best levels of the session. The Nasdaq Composite trailed its peers, closing fractionally higher than yesterday.
Broad buying activity left the Invesco S&P 500 Equal Weight ETF (RSP) 1.3% higher today and left nine out of the 11 S&P 500 sectors higher. Five sectors were higher by 1.0% or more, led by utilities (+1.8%), financials (+1.3%), consumer staples (+1.2%), and industrials (+1.2%).
The industrial sector was boosted by an earnings-related gain in Deere & Co. (DE 437.54, +32.58, +8.1%). Meanwhile, the communication services sector was the worst performer by a wide margin, dropping 1.7%, due to a sizable decline in Alphabet (GOOG 169.24, -8.09, -4.6%) after reports that the DOJ is pushing for a forced sale of Chrome and potentially Android.
The Treasury market closed with losses after a stronger-than-expected Existing Home Sales report for October (3.96 mln; Briefing.com consensus 3.90 mln), which followed another decrease in weekly jobless claims (to 213,000 form 219,000), and a disappointing Philadelphia Fed Survey (-5.5; Briefing.com consensus 7.0).
The 10-yr yield settled three basis points higher at 4.43% and the 2-yr yield settled four basis points higher at 4.35%.
- Nasdaq Composite: +26.4%
- S&P 500: +24.7%
- S&P Midcap 400: +18.2%
- Russell 2000: +16.6%
- Dow Jones Industrial Average: +16.4%
Reviewing today's economic data:
- Weekly Initial Claims 213K (Briefing.com consensus 221K); Prior was revised to 219K from 217K, Weekly Continuing Claims 1.908 mln; Prior was revised to 1.872 mln from 1.873 mln
- The key takeaway from the report is that the rising trend for continuing jobless claims connotes a softening labor market whereby it has become more challenging to find a new job after being laid off.
- November Philadelphia Fed Index -5.5 (Briefing.com consensus 7.0); Prior 10.3
- October Existing Home Sales 3.96 mln (Briefing.com consensus 3.90 mln); Prior was revised to 3.83 mln from 3.84 mln
- The key takeaway from the report is that more inventory is becoming available, but with the ongoing increase in the median home price and mortgage rates remaining elevated, affordability constraints will persist, capping total sales potential.
- October Leading Home Sales -0.4% (Briefing.com consensus -0.3%); Prior was revised to -0.3% from -0.5%
Friday's economic lineup features:
- 9:45 ET: Flash November S&P Global U.S. Manufacturing PMI (prior 48.5) and flash November S&P Global U.S. Services PMI (prior 55.0)
- 10:00 ET: Final November University of Michigan Consumer Sentiment (Briefing.com consensus 73.0; prior 73.0)
Treasuries settle lower
21-Nov-24 15:35 ET
Dow +500.54 at 43909.01, Nasdaq +37.56 at 19003.73, S&P +39.55 at 5956.67
[BRIEFING.COM] The stock market remains near session highs with about 25 minutes left of trading.
The Treasury market closed with losses after a stronger-than-expected Existing Home Sales report for October (3.96 mln; Briefing.com consensus 3.90 mln), which followed another decrease in weekly jobless claims (to 213,000 form 219,000), and a disappointing Philadelphia Fed Survey (-5.5; Briefing.com consensus 7.0).
The 10-yr yield settled three basis points higher at 4.43% and the 2-yr yield settled four basis points higher at 4.35%.
NVDA trades up in choppy session
21-Nov-24 15:05 ET
Dow +550.56 at 43959.03, Nasdaq +45.59 at 19011.76, S&P +43.30 at 5960.42
[BRIEFING.COM] The S&P 500 (+0.7%), Dow Jones Industrial Average (+1.3%), and Russell 2000 (+1.9%) remain near session highs.
NVIDIA (NVDA 147.88, +2.02, +1.4%) shares are on track to close higher after a volatile session in response to earnings.
Ross Stores (ROST 142.20, +2.89, +2.1%), Gap (GAP 21.71, +1.09, +5.3%), and Intuit (INTU 679.97, +29.37, +4.5%) are among the names reporting earnings after the close.
Super Micro Computer resumes rally after submitting compliance plan; S&P 500 in second place
21-Nov-24 14:30 ET
Dow +550.48 at 43958.95, Nasdaq +27.57 at 18993.74, S&P +38.90 at 5956.02
[BRIEFING.COM] The S&P 500 (+0.66%) is once again in second place among the major averages.
Elsewhere, S&P 500 constituents Super Micro Computer (SMCI 29.45, +3.65, +14.15%), Amentum Holdings (AMTM 25.11, +2.70, +12.05%), and Vistra Corp. (VST 166.62, +11.99, +7.75%) pepper the top of the standings. SMCI continues to rally after submitting a compliance plan to Nasdaq amid recently delayed SEC filings, AMTM pops today on an Outperform, $30 tgt initiation from Raymond James.
Meanwhile, GE HealthCare (GEHC 82.22, -2.68, -3.16%) is near the bottom of the average following its investor day.
Gold rallies amid geopolitical tensions, weak NVIDIA forecast
21-Nov-24 14:00 ET
Dow +527.69 at 43936.16, Nasdaq +45.53 at 19011.70, S&P +39.50 at 5956.62
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.24%) holds narrow gains.
Gold futures settled $23.20 higher (+0.9%) to $2,674.90/oz, climbing for a fourth day as safe-haven demand soars amid geopolitical tensions and weak Nvidia (NVDA 147.42, +1.53, +1.05%) forecast.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $106.99.
Deere harvesting some nice gains after big EPS beat amid ongoing farming industry downcycle (DE)
Deere (DE) is in the green today after the ag and lawn equipment maker reported 4Q24 earnings that easily surpassed analysts' subdued expectations, even as revenue plunged by nearly 33% yr/yr to $9.28 bln. Tight cost controls and lower production costs due to easing inflationary pressures led to the sizable EPS beat, which came on the heels of downside earnings reports from peers CNH Industrial (CNH) and AGCO Corp. (AGCO) on November 7 and November 5, respectively.
The soft results from CNH and AGCO lowered the bar for DE, but the three earnings reports taken together still paint a rather bleak picture for the U.S. farming industry.
- In each of DE's three business units -- Production & Precision Agriculture, Small Agriculture & Turf, and Construction & Forestry -- revenue declined by significant double-digit rates. For Production & Precision Agriculture, DE's largest business that sells combines and large tractors, revenue dove by 38% yr/yr to $4.3 bln as shipment volumes fell sharply. Falling commodity prices, and the associated drop in farmer incomes, sparked a downcycle for the ag equipment industry that has yet to show signs of breaking.
- DE is banking on a replacement cycle to help reignite its growth. New software and technology within tractors and harvesters drive better yields and improve efficiency, but lower farming incomes and persistently high interest rates have so far stunted demand for this new equipment.
- The company isn't expecting a turnaround to materialize in FY25, either. For the large ag industry, DE is forecasting another 30% decline in FY25, leading to an estimated 15% drop in net sales for Production & Precision Agriculture. For Small Agriculture and Turf, which saw sales dive by 25% in Q3 to $2.3 bln, the news is only slightly better with DE guiding for a 10% decrease in net sales.
- As a result of this downbeat demand outlook for FY25, DE is expecting FY25 net income of $5.0-$5.50 bln, reflecting a yr/yr decline of 26% at the midpoint, and missing analysts' expectations.
- However, if interest rates do turn meaningfully lower in FY25, as anticipated, then that farming equipment replacement cycle could get kick-started, while activity in the housing and construction markets also receive a boost. On that note, we believe that the market may be viewing DE's FY25 guidance as overly conservative, explaining why the stock is rallying in the face of a downbeat outlook.
DE's sizable earnings beat highlights the company's top-tier execution amid a steep downcycle that has shown no signs of reversing any time soon. Once the impact of lower interest rates does trickle through the economy, though, DE stands to be a major beneficiary. The only question is when exactly that will happen as interest rates have stayed stubbornly high, even after two rounds of rate cuts from the Federal Reserve.
BJ's Wholesale jumps to new all-time high on Q3 beat, $1 bln buyback; getting close to $100 (BJ)
BJ's Wholesale Club (BJ +9%) is trading nicely higher to a new all-time high after reporting Q3 (Oct) earnings results this morning. This warehouse club chain beat on EPS, its largest EPS upside in nine quarters. Revenue rose 3.5% yr/yr to $5.10 bln, which was in-line. However, it did report downside adjusted EPS guidance for Q4 (Jan) at $0.78-0.88. BJ expects Q4 comps (ex-fuel) to be +2.5-3.0%. Its board also approved a new $1 bln share repurchase program.
- BJ reported Q3 comps (ex-fuel) at +3.8%, which was a notable improvement from +2.4% in Q2 and +0.6% in Q1 and higher than BJ had anticipated. Its business was once again fueled by robust traffic, unit volumes and market share growth inside its clubs and at the gas pumps.
- Importantly, BJ benefitted from the East coast port strike and two hurricanes in Q3 as members stocked up on items ahead of these events. However, even excluding these events, comps (ex-fuel) still slightly beat expectations. Digitally enabled comps were also a bright spot as it grew +30.0%, reflecting two-year stacked comp growth of 47.0%.
- Traffic accelerated once again in Q3, this was its 11th consecutive quarter of traffic growth. BJ gained grocery market share in both units and dollars in the quarter. Grocery and sundries posted +4% comps with broad based strength across all divisions. Perishables led the way, boosted by a strong showing in dairy, meat and produce.
- Its general merchandise and services comps were approximately flat. BJ says its assortment and presentation in home and apparel categories are improving each quarter. Notably, seasonal GM categories delivered positive comps for the first time in nine quarters. Members have increasingly taken notice of its elevated assortment in areas like toys and books.
- BJ also continues to drive strong membership growth with an 8% increase in membership fee income. BJ hit a milestone of 7.5 mln members in Q3. Since FY18, BJ has grown its member base by 40%. It has also more than doubled the number of members in its premium tiers. BJ also announced its first membership fee increase in seven years. Effective January 1, 2025, its Club membership fee will increase by $5 to $60 a year and its Club+ fee will increase by $10 to $120 a year.
Overall, there is a lot to like in this report, including big EPS upside and strong comp growth. Granted, maybe the port strike and hurricanes pulled sales into Q3 from Q4, but we'll have to see how Q4 goes. BJ has also done a great job improving its grocery assortment and it's gaining share there. And the $1 bln share buyback is a lot for a $12.3 bln market cap company. On a final note, we think it's notable that this report has propelled BJ above its $78-90 multi-month trading range. We always like to see a stock move above a consolidation pattern.
Pinduoduo sells off as Q3 earnings and sales fall short of analyst expectations (PDD)
In a similar fashion to its China e-commerce retail peers, Pinduoduo (PDD -9%), which also owns Temu, gaps considerably lower today after missing earnings and revenue projections in Q3. Rivals JD.com (JD) and Alibaba (BABA) both slid on their SepQ numbers last week, reflecting a souring investor sentiment surrounding the retail landscape in China. The region has already deployed significant stimulus measures, including lowering interest rates and bank reverse ratios to help jolt the economy.
PDD commented that government policies are bringing much-needed support to industries to help stimulate consumer demand. However, due to its operational limitations, PDD could not fully capitalize on these shifts. This is unacceptable to management, who have been stressing the importance of keeping up in a domestic market that is highly fluid, characterized by widely different business models and intensifying competition. PDD plans to keep its foot on the gas surrounding its longer-term investments, which have been and are likely to continue weighing on profitability.
- In Q3, adjusted EPS soared by over 60% yr/yr but still fell considerably short of analyst estimates, marking PDD's widest earnings miss in years. The company has been rolling out several initiatives lately, including a RMB 10 bln fee reduction program in August, which included service fee refunds, reduction for BNPL services, and more. As management warned in previous quarters, these actions will impact short-term earnings performance.
- Unfortunately, PDD's investment strategy is coinciding with a shaky economic environment. Revenue grew just 44.3% yr/yr in Q3, nearly half the pace of growth last quarter and meaningfully below analyst expectations. As economic challenges persist, consumers shift their preferences toward retailers providing the best value. This behavior has brought challenges for PDD, as well as its competitors JD and BABA, all of which have touched on an increasingly competitive landscape.
- PDD is competing for a smaller share of consumers' wallets, making it critical to find ways to differentiate. The company is focused on fee reductions to encourage merchants to innovate to better meet consumer demand for inexpensive products without sacrificing quality. PDD has also been expanding its offerings, bringing more products aligned with consumer tastes across more developed first and second-tier cities, focusing on personalization, a common preference among younger generations.
PDD is operating in a formidable climate as economic and competitive hurdles mount. It does not help that PDD's aggressive investments are failing to produce a sizeable uptick in demand. At the same time, geopolitical tensions add another layer of stress. The U.S. already plans on clamping down on inexpensive Chinese goods, such as those from Temu. The incoming administration could impose further restrictions. While additional stimulus measures from the Chinese government could ignite a rally, other clouds hang over PDD, potentially producing elevated volatility for the near term.
Snowflake melts away slowing growth concerns with strong beat-and-raise earnings report (SNOW)
Coming off a disappointing Q2 earnings report in which it guided for a sharp slowdown in product revenue growth, Snowflake (SNOW) rebounded in a big way last night, delivering a strong beat-and-raise Q3 performance that also shined a spotlight on its AI-based growth catalysts. In addition to its Q3 earnings report, SNOW announced an acquisition of Datavolo and a new partnership with Amazon-backed (AMZN) Anthropic, as the company dives deeper into its AI ambitions.
- In the wake of that Q2 earnings report, concerns surrounding slowing consumption growth due to macroeconomic headwinds and rising competition from Microsoft (MSFT) and privately held Databricks were amplified. As such, the stock couldn't generate any traction and was down 35% on a year-to-date basis heading into the Q3 print. SNOW's results and guidance, though, eased those fears, and confidence that its new AI products and innovations will spark strong growth ahead has risen.
- Product revenue, which is a leading indicator of growth, jumped by 29% yr/yr to $900.3 mln, crushing its guidance of $850-$855 mln. This growth was fueled by a combination of new customer wins, especially in the enterprise category, and increasing usage from existing customers. In Q3, the number of customers with over $1.0 mln in product revenue grew by 25% yr/yr to 542, while SNOW's net revenue retention rate remained firm at an impressive 127%.
- Even as SNOW significantly ramps up its investments in AI and new product innovations -- R&D expenses were up 33% to $442.4 mln in Q3 -- its profitability is improving. Non-GAAP operating margin came in at 6%, comfortably beating its guidance of 3%, driven by operating leverage resulting from the robust top-line growth.
- What's particularly exciting about that growth is that new products are beginning to contribute in a more meaningful way. For instance, Snowpark, which allows customers to use programming languages, such as Python, Java, and Scala, all within SNOW's cloud platform, is on track to account for about 3% of total revenue.
- It's also becoming apparent that SNOW is well-positioned to capitalize on the emergence of AI. The company disclosed that more than 3,200 accounts are now using machine learning and AI features and that AI adoption of its new products, such as Snowflake Intelligence and Unistore, is strong with over 1,000 deployed use cases.
- Furthermore, the new partnership with Anthropic will enable large language models created by Anthropic to be available within SNOW's Cortex AI -- its AI service that provides a suite of GenAI features on Amazon Web Services. This unified platform will allow SNOW's customers to create AI products and apps more efficiently, and at scale, using Antropic's Claude 3.5 model.
The main takeaway is that not only did SNOW melt away investors' concerns about a steady downturn in product revenue growth, but it also put itself back on the map as a major AI play. While the stock is still expensive with a 1-year forward P/S north of 10x, the lofty valuation is more justifiable now that SNOW's growth catalysts are coming into view.
Palo Alto Networks trades flat despite earnings upside and a 2-for-1 stock split (PANW)
Palo Alto Networks (PANW) is trading flat after reporting Q1 (Oct) results last night. The cybersecurity giant posted a solid EPS beat although it was not its usual double-digit beat. PANW has now posted single-digit beats in two of the last three quarters after a long period of double-digit beats. Revenue rose 13.9% yr/yr to $2.14 bln, which was in-line. The company also declared a 2-for-1 stock split. It will begin trading on split-adjusted basis on December 16.
- The Q2 (Jan) EPS and revenue guidance was just in-line, perhaps a bit of a letdown following big upside guidance last quarter. Some key metrics may also be adding to the weakness today. NGS (Next-Generation Security) ARR grew 40% yr/yr to $4.5 bln, which was good but a bit below the 43% growth we saw in Q4 (Jul). In fairness, its Supplemental Financials shows that PANW's yr/yr NGS ARR growth has been trending lower for many quarters as it gets larger: 63%-60-56-53-50-47-43 and now 40%.
- RPO (remaining performance obligation) grew 20% yr/yr to $12.6 bln, the same yr/yr growth as Q4. However, that $12.6 bln was a small sequential decline from Q4's $12.7 bln. The small decline was not earth shattering but a bit of a disappointment, although PANW said on the call that both metrics performed well ahead of internal expectations. Recall that PANW made a reporting change starting in Q1. It will no longer report billings. With higher interest rates, more clients are asking to spread payments over multiple years instead of an upfront payment. Also, PANW recently rolled out its platformization strategy. Both have made the billings metric more volatile.
- PANW says the market for cybersecurity continues to be robust and continues to grow faster than the overall technology market. Despite the acceleration of technology spend due to AI, PANW said that cybersecurity continues to outpace technology spend. The company saw particular strength in its next generation security offerings, notably in Cortex and in NetSec.
- Of note, PANW has been talking about the benefits of simplifying security architectures and consolidating point products into platforms for a while now. PANW wishes it had made the change sooner. More recently, PANW noted that its industry peers have finally been evangelizing the virtues of platformization. PANW said imitation is the highest form of flattery.
- While many competitors are now talking about their platform approach, PANW does not believe they are equipped to deliver it in the same way. Furthermore, PANW feels the cybersecurity industry is embarking into its next phase, where the market will continue to converge towards a fewer set of platformization players over the next 5-10 years. Having started this trend, PANW intends to be one of those few players.
Overall, this was a decent quarter. It was not the blowout we have seen in past quarters and the metrics were maybe a bit soft. However, they were ahead of internal expectations. PANW did not provide metric guidance last quarter, but they did last night, so we will have a better comparison next quarter. We also think the stock split was good to see, however, given its high stock price, we think investors would have preferred a 3-for-1 or 4-for-1.
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