| | | Market Snapshot
| Dow | 44296.51 | +426.16 | (0.97%) | | Nasdaq | 19003.68 | +31.23 | (0.16%) | | SP 500 | 5969.35 | +20.63 | (0.35%) | | 10-yr Note | +1/32 | 4.41 |
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| | NYSE | Adv 2027 | Dec 676 | Vol 973 mln | | Nasdaq | Adv 2986 | Dec 1298 | Vol 6.6 bln |
Industry Watch
| Strong: Consumer Discretionary, Consumer Staples, Financials, Industrials, Energy, Materials |
| | Weak: Communication Services, Information Technology, Utilities |
Moving the Market
-- Follow-through buying after yesterday's broad advance
-- Treasury yields moving slightly higher after econ data
-- Mixed action in mega caps limiting Nasdaq again
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Closing Summary
22-Nov-24 16:30 ET
Dow +426.16 at 44296.51, Nasdaq +31.23 at 19003.68, S&P +20.63 at 5969.35
[BRIEFING.COM] The stock market closed higher, building on this week's gains. Equities benefitted from continued momentum that led the major indices to close with gains ranging from 1.7% to 4.5% since last Friday. As was the case yesterday, large-cap stocks underperformed the broader market, with capital rotating into small and mid-cap stocks, along with other sectors that have trailed mega cap performance.
The market-cap weighted S&P 500 settled 0.4% higher and the equal-weighted S&P 500 closed 0.8% higher. Advancers led decliners by a 3-to-1 margin at the NYSE and by a better than 2-to-1 margin at the Nasdaq. The broad buying activity lift 25 of the 30 Dow components, along with eight of the S&P 500 sectors.
The consumer discretionary sector (+1.2%) exhibited strength amid earnings news from the retail space. Ross Stores (ROST 146.09, +3.13, +2.2% and Gap (GAP 24.87, +2.83, +12.8%), which is not a sector component, closed higher after reporting quarterly results.
On the flip side, the communication services sector (-0.7%) was among the worst performers today, clipped by Meta Platforms (META 559.14, -3.95, -0.7%) and Alphabet (GOOG 166.57, -2.67, -1.6%). The latter traded down on a report that Microsoft-backed and ChatGPT owner OpenAI is considering developing its own browser, which would represent a viable competitive threat.
Shares of companies related to Bitcoin also outperformed the broader equity market, seeing gains as crypto market participants await Bitcoin’s potential move to the $100,000 milestone, with the cryptocurrency reaching $99768 at its high. Coinbase (COIN 304.64, +9.41, +3.2%) and MicroStrategy (MSTR 421.88, +24.60, +6.2%) are notable standouts in the space.
Treasuries settled mixed after another batch of solid economic data. The U.S. S&P Global Services PMI for November showed an acceleration in services sector activity. Manufacturing PMI remained in contraction, but at a slower pace than what was seen in October. The final reading of the University of Michigan's Consumer Sentiment for November showed a dip to 71.8 from 73.0 in the preliminary reading, but it was still above October's final reading of 70.5.
The 10-yr yield settled two basis points lower at 4.41% and the 2-yr yield settled two basis points higher at 4.37%.
- Nasdaq Composite: +26.6%
- S&P 500: +25.2%
- S&P Midcap 400: +20.1%
- Russell 2000: +18.7%
- Dow Jones Industrial Average: +17.5%
Reviewing today's economic data:
- November S&P Global US Manufacturing PMI - Prelim 48.8; Prior 48.5
- November S&P Global US Services PMI - Prelim 57.0; Prior 55.0
- November Univ. of Michigan Consumer Sentiment - Final 71.8 (Briefing.com consensus 73.0); Prior 73.0
- The key takeaway from the report is that consumer sentiment held fairly steady in the wake of the election, albeit with offsetting economic expectations that were aligned with partisan positions.
There is no US economic data of note on Monday.
Treasuries settle mixed
22-Nov-24 15:30 ET
Dow +364.56 at 44234.91, Nasdaq +10.46 at 18982.91, S&P +13.42 at 5962.14
[BRIEFING.COM] The three major indices are in sideways flow ahead of the closing bell. The S&P 500 trades 0.2% higher.
Treasuries settled mixed after another batch of solid economic data. The U.S. S&P Global Services PMI for November showed an acceleration in services sector activity. Manufacturing PMI remained in contraction, but at a slower pace than what was seen in October. The final reading of the University of Michigan's Consumer Sentiment for November showed a dip to 71.8 from 73.0 in the preliminary reading, but it was still above October's final reading of 70.5.
The 10-yr yield settled two basis points lower at 4.41% and the 2-yr yield settled two basis points higher at 4.37%.
GOOG, AMZN slide this week
22-Nov-24 15:05 ET
Dow +342.56 at 44212.91, Nasdaq +8.85 at 18981.30, S&P +12.04 at 5960.76
[BRIEFING.COM] There hasn't been much up or down movement at the index level in recent trading. The major indices have extended this week's gains, which range from 1.6% to 4.5%.
Mega cap stocks have underperformed the broader equity market this week. Alphabet (GOOG 166.86, -2.38, -1.4%) is a standout in that respect, down 4.0% after some negative headlines this week. Amazon.com (AMZN 197.07, -1.30, -0.8%) is another loser this week, down 2.7% from last Friday.
Separately, the 10-yr yield is at 4.41%.
Copart higher in S&P 500 after earnings; Palo Alto Networks falls on HSBC downgrade
22-Nov-24 14:30 ET
Dow +355.49 at 44225.84, Nasdaq +13.87 at 18986.32, S&P +14.68 at 5963.40
[BRIEFING.COM] The S&P 500 (+0.25%) is in second place on Friday afternoon, up about 15 points.
Elsewhere, S&P 500 constituents Copart (CPRT 62.03, +5.13, +9.02%), Moderna (MRNA 40.87, +2.62, +6.85%), and Deckers Outdoor (DECK 192.20, +10.29, +5.66%) pepper the top of the standings. CPRT gains after earnings, MRNA moves higher amid a general rebound in vaccine stocks, while DECK caught a premarket initiation to Buy at Needham.
Meanwhile, Palo Alto Networks (PANW 377.61, -20.09, -5.05%) is one of today's top gain getters after HSBC cut their recommendation on the stock to Reduce from Hold this morning.
Geopolitical tensions fuel gold's weekly rally
22-Nov-24 14:00 ET
Dow +336.96 at 44207.31, Nasdaq +18.96 at 18991.41, S&P +18.36 at 5967.08
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+0.10%) holds the shallowest gains.
Gold futures settled $37.30 higher (+1.4%) to $2,712.20/oz, ultimately up +5.5% on the week, aided in part by ongoing geopolitical tensions in the Middle East and in the Russia-Ukraine conflict.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $107.50.
Gap jumps higher following encouraging Q3 report, turnaround making progress (GAP)
Investors are clearly pleased with Gap's (GAP +12%) Q3 (Oct) earnings results. The apparel company, which has been in turnaround mode, also raised full year guidance, which bodes well heading into the holiday season. GAP noted that it grew net sales for the fourth consecutive quarter, expanded gross margin, delivered its highest Q3 operating margin in seven years, and gained market share for the seventh consecutive quarter.
- Total comps were +1%, down a bit from +3% in Q2 (Jul), but still decent. Let's start with Old Navy, its largest brand by far. Old Navy comps were flat, but it notched market share gains despite facing weather-related headwinds. Old Navy had meaningful strength in its important men's and women's businesses while its more weather-sensitive kids and baby business slowed mid-quarter due to unseasonably warm weather after a strong back-to-school.
- As soon as the weather cooled, Old Navy saw a pickup in sales, reinforcing its confidence for the holiday selling season. Gap says its Old Navy brand is presenting its merchandising narratives and style better, and its customers are taking notice. It's providing more clarity around pricing and more compelling marketing, promoting great value. Speaking of the holidays. Old Navy should benefit from enhanced store visuals, holiday shops, and an ad campaign starring Jennifer Hudson.
- Gap brand comps were +3%, marking its fourth consecutive quarter of positive comps and the sixth consecutive quarter of market share gains. Gap says its campaigns and collaborations are attracting a new generation to Gap. For example, in Q3, Gap successfully executed the Get Loose campaign, which was rooted in denim and featured Troye Sivan, opening the door to younger consumers.
- Banana Republic was the only brand with a negative comp in Q3 at -1%. Gap is seeking to reestablish the brand in the premium lifestyle space. In Q3, the men's business remained strong while there is still work to be done in women's. BR is moving to evolve its assortment and improve fit. BR expects to enter this holiday season with improved in-stock plans for key basics. Also, BR is shifting its media mix towards more social and influencer marketing.
- Athleta comps were the best of the bunch at +5% in Q3. Athleta has been working hard to improve its product, marketing, and stores. It still has work to do to increase traffic, but its brand communication is beginning to resonate with customers in a more meaningful way.
Overall, this quarter showed that Gap is making progress on its turnaround and it seems to be heading into the holiday season with momentum in each of its brands. Although it sounds like Banana Republic is going to take a bit more time. The stock popped on Q1 earnings in early June but quickly pulled back and has consolidated in the $20-24 area. But this report is providing an opportunity to test the upper limits of this range.
Elastic's momentum in GenAI underpins bullish outlook and big gains for stock (ESTC)
Elastic (ESTC), an enterprise search, observability, and data analytics platform provider, is stretching sharply higher after reporting much improved quarterly results following a disappointing Q1 earnings report in late August that included downside revenue guidance for Q1 and FY25. Increasing consolidation activity onto ESTC's platform for security and observability, combined with improved sales execution after experiencing some go-to-market strategy missteps in the prior few quarters, helped fuel the top and bottom-line beat. Furthermore, revenue contributions tied to GenAI-related tailwinds are materializing faster-than-anticipated, giving ESTC the confidence to raise its FY25 EPS and revenue guidance.
- A key factor underlying ESTC's turnaround is the upswing in consumption from large enterprise customers. The number of customers with Annual Contract Value (ACV) greater than $100,000 increased by 16% yr/yr to 1,420 as customers continue to displace incumbent legacy products and consolidate onto ESTC's platform.
- ESTC's growing list of AI products and tools, such as its Vector database which powers over 30 chatbot clusters for customers, is drawing more enterprises into its platform. On that note, in Q2, the number of customer commitments with GenAI doubled in dollar volume compared to Q1. Additionally, ESTC now has more than 1,550 customers on Elastic Cloud using the platform for GenAI use cases, with over 240 of those customers spending $100,000 or more annually.
- In the Q2 earnings press release, ESTC also announced that CFO and COO Janesh Moorjani will be stepping down to pursue another opportunity, while Eric Prengel, who currently serves as Group Vice President of Finance, will become interim CFO. This change, which will be effective as of December 13, 2024, appears to be receiving a warm reception from shareholders given that the stock was down by 30% since late February prior to today's gains.
The main takeaway is that customer commitments are rebounding at a stronger and faster rate than anticipated as ESTC recovers from the negative impact associated with the segmentation changes made at the beginning of the year. Simultaneously, momentum is building in the GenAI area as customers turn to ESTC's platform to build and deploy chatbots and other Retrieval Augmented Generation (RAG) applications.
Ross Stores' encouraging outlook for holiday shopping season outweighs rough Q3 results (ROST)
Business slowed for off-price retailer Ross Stores (ROST) in 3Q25, but that didn't stop the company from posting its tenth consecutive EPS beat on a combination of lower costs and share buybacks. The better-than-expected earnings allowed ROST to lift its FY25 EPS guidance higher, providing a boost to a stock that's drifted lower by 7% since it last reported earnings in late August. Still, the company's quarterly results and mixed Q4 outlook reflect a challenging environment for ROST as its low-to-moderate income customers continue to cut back on discretionary spending.
- Comparable store sales grew by just 1%, falling short of ROST's guidance of growth 2-3% and marking a deceleration from last quarter's increase of 1%. This is partly due to the negative impact from Hurricanes Helene and Milton, but some execution issues also played a role. During the earnings call, CEO Barbara Rentler, who will be stepping down from that role on February 2, 2025, stated that the company missed on some volume opportunities in stronger product categories.
- The good news is, Ms. Rentler believes that this is correctable and that the categories where ROST is particularly strong, like cosmetics, accessories and gifting, position the company favorably for the holiday shopping season. Accordingly, the company still expects Q4 comp growth to accelerate to 2-3% in Q4.
- As ROST has seen more higher income consumers frequent its stores, it has expanded its product assortment to include more branded merchandise. This has put some downward pressure on merchandise margin, which slipped by 60 bps in Q3, following an 80 bps drop last quarter. Despite the contraction in merchandise margin, operating margin still improved by 70 bps yr/yr to 11.9%, driven by lower incentive, freight, and distribution costs.
- However, the company is expecting operating margin to contract to 11.2-11.5% in Q4, resulting in downside EPS guidance of $1.57-$1.64. Based on the positive reaction in the stock, it's evident that investors are taking the soft guidance in stride.
A combination of persistent macro-related headwinds and execution issues on merchandising weighed on ROST's results in Q3. The company is confident, though, that this holiday shopping season will be a strong one again as consumers in all income brackets seek out better values. That positive outlook is outweighing the disappointing Q3 results, providing a lift for shares.
Intuit heads lower despite OctQ upside and robust Credit Karma revs (INTU)
Intuit (INTU -5%) is trading lower despite reporting upside for its Q1 (Oct) earnings report last night. INTU focuses on small businesses and consumers (QuickBooks, TurboTax, Credit Karma, Mailchimp). Note: INTU recently shut down its Mint offering and said users should migrate to Credit Karma. INTU beat on EPS, its 11th consecutive double-digit EPS beat. Revenue grew a healthy 10.2% yr/yr to $3.28 bln, which was better than analyst expectations.
- The main problem was the Q2 (Jan) EPS and revenue guidance, both of which were well below analyst expectations. The stock initially dropped on the guidance, but Intuit's explanation on the call seems to have calmed nerves a bit. Basically, it sounds more like a timing issue. Intuit expects a single digit decline in Consumer Group revenue due to some promotional changes in retail channels largely related to its desktop offering. This only impacts revenue timing and does not impact overall unit or revenue expectations. And that was borne out with Intuit reaffirming full year guidance.
- Its largest segment is its Global Business Solutions Group (formerly known as Small Business and Self-Employed Group), which is mostly QuickBooks. GBSG revenue grew 9% yr/yr to $2.54 bln, which is its first sub-18% quarter since the start of FY23. Growth was driven by Online Ecosystem revenue growth of +20% yr/yr, up from +18% yr/yr in Q4. QuickBooks Online Accounting revs grew 21%, driven by customer growth, higher prices and mix shift as INTU focuses more on the mid-market.
- The main problem in GBSG was a -17% yr/yr decline in Desktop Ecosystem revenue, reflecting desktop offering changes made in early FY24. Intuit cautioned about this on the Q4 call, so it was not a big surprise. Another issue was MailChimp. Intuit is seeing good progress serving mid-market customers with Mailchimp, but is also seeing higher churn from smaller customers. In response, Intuit is making product enhancements to improve first-time use and customer retention.
- Its Credit Karma segment was a laggard in FY23, but recovered nicely in FY24 and continues in FY25 with progressively improving yr/yr revenue growth each quarter: -5% in Q1, flat in Q2, +8% in Q3, +14% in Q4, and now +29% in Q1 to $524 mln. Credit Karma saw strength in personal loans, auto insurance, and credit cards. Its vision is to create one consumer platform, with seamless integration between TurboTax and Credit Karma products.
- Consumer Group segment (TurboTax, both DIY and assisted) revenue declined 6% yr/yr to $176 mln while ProTax segment revs declined 7% to $39 mln. Both segments were lapping a year ago period that included an extended tax filing deadline for most California filers. Unfortunately, analysts did not ask Intuit about the election and the possibility of a free tax filing app, but they do expect an improved SMB environment in 2025 due to interest rates, jobs, the regulatory environment.
Overall, this was a decent quarter for Intuit with Credit Karma really turning itself around. The guidance could be explained as more of a timing issue as Intuit reaffirmed its full year outlook. However, that seems to be impacting the stock. Also, a lot of analysts were asking about the MailChimp churn, so that seems to be weighing on shares. Not getting a clear answer on the impact from the election and possible free tax filing app was a letdown as well.
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.
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