Market Snapshot
| Dow | 44910.65 | +188.59 | (0.42%) | | Nasdaq | 19216.89 | +157.69 | (0.83%) | | SP 500 | 6032.38 | +33.64 | (0.56%) | | 10-yr Note | +27/32 | 4.197 |
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| | NYSE | Adv 1821 | Dec 908 | Vol 654 mln | | Nasdaq | Adv 2785 | Dec 1455 | Vol 4.0 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Industrials, Real Estate, Health Care, Energy |
| | Weak: -- |
Moving the Market
-- Not a lot of news to drive market action
-- Rebound in semiconductor-related names after losses this week
-- Drop in market rates
| Closing Summary
29-Nov-24 13:25 ET
Dow +188.59 at 44910.65, Nasdaq +157.69 at 19216.89, S&P +33.64 at 6032.38
[BRIEFING.COM] The stock market closed this short session on a positive note. The S&P 500 (+0.6%), Nasdaq Composite (+0.8%), Dow Jones Industrial Average (+0.4%), and Russell 2000 (+0.4%) closed near all time highs. This marked record closing highs for the S&P 500 and Dow Jones Industrial Average.
Rebound activity in chipmakers provided some support to the broader equity market after a Bloomberg report that the Biden administration might temper some of its export restrictions on semiconductor and semiconductor equipment sales to China. The PHLX Semiconductor Index (SOX) jumped 1.5% today, narrowing its loss this week to 0.6%.
A drop in market rates also contributed to the upside bias in equities. The 10-yr yield is down five basis points to 4.19% and the 2-yr yield is down four basis points to 4.17% at the time of this writing. The Treasury market closes at 2:00 p.m. ET today.
Many stocks participated in the broad advance that led nine of the S&P 500 sectors to close higher. The information technology sector was among the top performers, boosted by gains in its semiconductor components, along with gains in Apple (AAPL 237.33, +2.40, +1.0%) and Microsoft (MSFT 423.46, +0.47, +0.1%). MSFT initially traded down as much as 1.2% after a Bloomberg report indicating it might be facing a broad FTC investigation.
The consumer discretionary sector (+1.1%) was another top performer with many retailers logging outsized gains on Black Friday.
There was no US economic data of note today.
- Nasdaq Composite: +28.0%
- S&P 500: +26.5%
- S&P Midcap 400: +21.0%
- Russell 2000: +20.1%
- Dow Jones Industrial Average: +19.2%
Retailers outperform on Black Friday
29-Nov-24 12:30 ET
Dow +322.56 at 45044.62, Nasdaq +155.94 at 19215.14, S&P +41.18 at 6039.92
[BRIEFING.COM] The major indices are holding steady near session highs.
Discretionary-related names are outperforming on Black Friday. The consumer discretionary sector shows a 0.8% gain and the only sector showing a larger gain is information technology (+1.1%).
Retailers Ralph Lauren (RL 230.81, +8.14, +3.7%), Best Buy (BBY 90.74, +2.57, +2.9%), and Ulta (ULTA 385.82, +10.57, +2.8%) are some of the top performers in the discretionary sector.
MSFT recovers from early loss
29-Nov-24 12:05 ET
Dow +307.56 at 45029.62, Nasdaq +153.23 at 19212.43, S&P +39.56 at 6038.30
[BRIEFING.COM] The three major indices hit fresh session highs in recent trading.
Mega cap gains are providing a boost to the broader equity market. Microsoft (MSFT 423.54, +0.59, +0.1%) has joined its peers in positive territory, recovering a 1.2% decline after a Bloomberg report indicating it might be facing a broad FTC investigation.
Many other stocks also moved higher, leading all 11 S&P 500 sectors to trade up.
SOX erases losses for the week
29-Nov-24 11:30 ET
Dow +253.23 at 44975.29, Nasdaq +148.56 at 19207.76, S&P +35.15 at 6033.89
[BRIEFING.COM] There hasn't been much up or down action at the index level over the last half hour.
Chipmakers continue to lead market gains after a Bloomberg report that the Biden administration might temper some of its export restrictions on semiconductor and semiconductor equipment sales to China. The PHLX Semiconductor Index (SOX) shows a 2.4% gain, erasing this week's losses.
Coming into today, the SOX was down 2.1% since last Friday. This price action has contributed to the outperformance of the S&P 500 information technology sector (+1.0%).
Stocks hit highs on light volume
29-Nov-24 11:05 ET
Dow +201.56 at 44923.62, Nasdaq +139.56 at 19198.76, S&P +31.71 at 6030.45
[BRIEFING.COM] Volume is below-average to this point in the session at the NYSE with many participants on vacation following the holiday. The S&P 500 (+0.5%), Nasdaq Composite (+0.7%), and Dow Jones Industrial Average (+0.5%) trade at or near session highs.
Market breadth favor advancers by a 3-to-1 ratio at the NYSE and by a 2-to-1 margin at the Nasdaq.
The equal-weighted S&P 500 trades 0.5% higher.
Brinker has been smashing it even as other restaurant chains have struggled (EAT)
Brinker Intl (EAT) has been bucking the restaurant trend. While other chains have been struggling, this restaurant operator (Chili's, Maggiano's) has been impressive in recent quarters. The stock has been trending higher for much of 2024, but has really taken off since early October, up more than 70% in just the past two months to new all-time highs.
- On October 30, EAT reported a huge EPS beat for Q1 (Sep) with nice upside revs. It also raised FY25 EPS guidance pretty significantly to $5.20-5.50 from $4.35-4.75. To raise guidance so substantially this early in the fiscal year tells us management is confident about the balance of FY25. Oftentimes, management is hesitant to raise full year guidance early in the year in order to leave wiggle room in case subsequent quarters fall short, so that is a great sign.
- The metric that really jumps out at us was its huge consolidated comps of +13.0%, with its flagship Chili's brand posting even higher comps at +14.1%. driven by price of +6.8%, positive mix of +0.8%, and positive traffic of +6.5% with traffic improving sequentially throughout the quarter.
- Chili's has been paring down its menu with a greater focus on value. Over the past 2.5 years, Chili's has removed around a quarter of its menu to focus on core offerings: burgers, crispers, fajitas and margaritas, which now represent 47% of sales. Its 3-for-Me $10.99 bundle has been a hit. It includes an appetizer of unlimited chips and salsa, a 7.5-ounce burger and fries, and a bottomless soft drink. That is tough for competitors to match and Chili's advertising has been very effective.
- EAT says its 3-for-Me offering clearly resonates with guests who are looking for high quality food at a very reasonable price. While other chains have talked about a challenged consumer, Chili's has been seeing big traffic gains driven by its Big Smasher burger and its 3-for-Me offering. Another key driver is the success of its Triple Dipper with Q1 sales up 70% yr/yr. It's popular with younger guests who prefer more variety, customization and experiential flavors.
- Chili's has also been raising prices on several entrees. That includes the phaseout of its $10 lunch special, which included a starter and entrée. Plus if you are a rewards member, you can get a free drink each visit. It is tough to see how they were turning a profit on this deal. However, its lunch prices are now higher and the starter is only chips & salsa. While it's frustrating to lose that good deal, this is a more realistic price point.
Overall, EAT has really been turning itself around. Paring down the menu makes it simpler and makes employees more efficient. Also, we really think EAT has curated its value offering and has gotten it down to a science. We see that in the strong traffic growth despite raising prices in some areas. It seems that consumers in all income cohorts are looking for value these days. Briefing.com has been profiling Brinker for some time and we have wondered why the stock had been a laggard. However, it has been making up for lost time. In fairness, the stock does look overextended in the near term, but it's a name to keep on the radar.
Stellantis accelerates effort to reduce inventory levels with another production halt (STLA)
Stellantis (STLA), the struggling auto maker that owns brands such as Jeep, Chrysler, Ram, Fiat, and Maserati, has been cutting production and reducing headcount as the company continues to grapple with sluggish demand and bloated inventories across its dealer network. Those efforts to better align supply with demand are showing no signs of slowing with STLA temporarily halting production of the Fiat 500, an all-electric vehicle, at its Turin, Italy plant, according to Bloomberg.
- The facility, which is home to some 13,000 workers, will reportedly be idled from December 2 to January 5 due to uncertain market conditions for EVs in Europe, as well as ongoing softness for luxury cars in China and the U.S. While EVs are accounting for an increasing percentage of total auto sales in Europe, they have been on a downward sales trajectory this year. As of late October, EV volumes were down by nearly 6% on a year-to-date basis in the EU.
- This isn't the first production halt that STLA has recently executed. Just last week, Reuters reported that the company was planning to pause production at two other plants in Italy -- Termoli and Cassino -- with some workers also being furloughed during this time. Back in the U.S., STLA also has cut production of Jeep vehicles at its plant in Toledo, Ohio, while also laying off 1,100 employees there.
- Sluggish demand is only half of the problem for STLA. The company has been slow to adjust to softening market conditions, leaving dealers with too much inventory and a substantial backlog of vehicles. This was evident when STLA reported Q3 results on October 31 that included a 27% plunge in revenue to EUR 33.0 bln as every region, with the exception of South America, showed a double-digit decline. Eroding sales and margins also caused 1H24 EPS to plummet by 63% yr/yr to EUR 2.36.
- There is a silver lining, though. Specifically, the company is making good headway in its inventory reduction efforts. In the Q3 earnings report, STLA disclosed that total inventory decreased by 129,000 units to 1.33 mln as of September 30, 2024. Additionally, the company stated that it's on track to meet its goal of reducing U.S. inventory by 100,000 units by the end of November. This gave STLA the confidence to reaffirm its FY24 operating margin guidance of 5.5-7.0% and its industrial free cash flow forecast of EUR 5.0- EUR 10.0 bln.
Overall, the outlook for STLA and the EV market in general is rather murky, especially as new tariffs and the possible elimination of the $7,500 tax credit are introduced as President-elect Donald Trump takes office in January. The prospect of lower interest rates should help to offset some of the headwinds facing the EV market, but it will likely be tough sledding for STLA in FY25 as rising competition and weaker-than-expected demand for EVs provide roadblocks for earnings growth.
Workday shares clocking out with some big losses as slowing growth concerns weigh (WDAY)
Workday (WDAY) exceeded EPS expectations for the tenth consecutive quarter but shares of the HCM and financial cloud software provider are diving lower due to rising growth concerns. Although WDAY is seeing more enterprises and organizations consolidate their HR and finance functions onto its platform, moderating headcount growth and ongoing deal scrutiny continue to weigh on its growth, as illustrated by its downside Q4 and FY26 subscription revenue guidance. The good news is, WDAY's operating margins are expanding as it streamlines its operations and achieves improved efficiencies, which should continue to drive healthy EPS growth.
- Following growth of 18.8% in Q1 and an increase of 17.2% last quarter, subscription revenue growth slowed further to 15.8% in Q3 to 1.959 bln. The downward slide is expected to continue in Q4 with WDAY guiding for subscription revenue of $2.025 bln, equating to yr/yr growth of 15%. Adding to the disappointment, the company's FY26 subscription revenue guidance of $8.80 bln also fell a bit short of expectations.
- During the earnings conference call, WDAY commented that it experienced the same deal scrutiny in EMEA that it discussed last quarter. As such, international revenue growth dipped to 16% from the 18% seen in the prior two quarters. With only 25% of its total revenue coming from overseas, the company believes that it has plenty of runway for growth ahead, but market conditions have not been kind to WDAY.
- One growth catalyst that is beginning to bear fruit is WDAY's investments in AI products and features. In Q3, over 30% of the company's customer expansions involved one or more AI tools, including Talent Optimization, Extend Pro, and Recruiter Agent. With WDAY releasing Illuminate and unveiling four new AI agents in mid-September, the company is poised for even stronger AI-driven growth in the quarters ahead. Illuminate, which is powered by more than 800 bln business transactions processed by WDAY's platform annually, simplifies complex HR and finance processes, including recruiting, expense management, and succession planning.
- Lastly, while the company's subscription revenue guidance disappointed, its FY26 and FY27 non-GAAP operating margin forecasts of 27.5% and 30.0% were notable highlights. For some context, WDAY's non-GAAP operating margin in Q3 was 26.3%.
The main takeaway is that WDAY's growth rates remain on a downhill slide and until they show signs of stabilizing, the stock will likely have trouble sustaining a rally. When the company's growth rates do improve, its earnings will be primed for healthy expansion due to its streamlining efforts.
CrowdStrike gets struck down as cautious guidance sparks profit-taking pullback (CRWD)
Amid a stubbornly choppy IT spending environment, and in the wake of last July's massive outage that crashed about 8.5 mln Windows devices, cybersecurity company CrowdStrike (CRWD) displayed its resiliency once again by beating Q3 EPS and revenue expectations. Following that outage, which sent shares plummeting lower by 36% from July 18 - August 2, concerns mounted that the company would have trouble closing deals while some existing customers also migrate to competitors' platforms. However, with CRWD adding $153.0 mln in net new Annual Recurring Revenue (ARR) in the quarter for a total of $4.02 bln (+27% yr/yr), edging past analysts' estimates, it's evident that the company's efforts to mitigate the damage from the outage were effective.
- Those efforts included a new "customer commitment package" that was designed to keep its customers on board by offering incentives and discounts. While the deal has an estimated $30 mln hit to revenue for this quarter and the next, that seems to be a reasonable price to pay in the long run. That's because once customers sign on with CRWD, many become entrenched in the platform and increase their adoption. On that note, CRWD's model adoption rates grew by 31% for seven or more modules, and by 20% for eight or more modules.
- Still, the macro environment remains challenging, and visibility remains limited as enterprises continue to scrutinize spending, lengthening sales cycles. As a result, CRWD offered a cautious outlook for Q4, guiding EPS and revenue merely in line with expectations. The tepid forecast came as a disappointment, especially since competitor Qualys (QLYS) issued upside Q4 EPS and revenue guidance in early November.
- On the topic of competitors, shares of SentinelOne (S) received an initial boost in the wake of CRWD's earnings report, perhaps reflecting the idea that it managed to claw some business away from CRWD, based on CRWD's lackluster outlook. When SentinelOne reports Q3 earnings on December 4, it will become clearer whether the endpoint protection provider did pick up some market share due to the CRWD outage.
Overall, CRWD delivered another solid quarterly performance given the tough climate, while putting the tech outage in the rearview mirror. With shares surging by over 60% since the beginning of August, CRWD faced a high bar to hurdle, and its conservative guidance for Q4 is providing the impetus for a sell-the-news reaction. From a longer-term perspective, though, the company's technological competitive advantages and the ever-increasing number of threats that are only rising in complexity position it to drive healthy growth for the foreseeable future.
Dell under pressure on Q3 report, guidance weak as large customers watch near term IT spend (DELL)
Dell (DELL -12%) is under pressure today after reporting Q3 (Oct) results last night. Dell reported EPS upside that was smaller than Q2, but still solid. Revenue rose 9.5% yr/yr to $24.37 bln, which was a bit light. The silver lining is that this was Dell's largest yr/yr revenue increase in the past 10 quarters. Growth was driven by continued strength in AI and traditional servers. However, the biggest problem was downside guidance for Q4 (Jan) for both EPS and revs.
- Infrastructure Solutions Group (ISG) revenue jumped 34% yr/yr to $11.37 bln with 13.3% segment op margin vs 12.6% last year. Server and networking revenue jumped 58% yr/yr to a record $7.36 bln. Dell's AI server momentum continued and it saw a substantial expansion in its 5-quarter pipeline. Orders were a record $3.6 bln, up 11% sequentially, primarily driven by Tier 2 cloud service providers with continued growth in enterprise customers.
- Dell shipped $2.9 bln of AI servers in Q3 resulting in an AI server backlog of $4.5 bln. Its 5-quarter pipeline grew more than 50% sequentially, with growth across all customer types. Enterprises increasingly see the disruptive nature and the innovation opportunities with GenAI. Traditional server demand improved double-digits in Q3, driven by growing units and ASPs with denser core counts, memory, and storage per server. Customers are focusing on consolidation and power efficiency by modernizing their data centers with more efficient and dense 16G servers. This frees up valuable floor space and power that will support their AI infrastructure.
- Storage revenue grew 4% yr/yr to $4.00 bln. Dell says the overall demand environment in storage continues to lag that of traditional servers.
- Turning to Client Solutions Group (CSG), segment revenue declined 1% yr/yr to $12.13 bln with 5.7% op margin vs 7.5% last year, due to a more competitive pricing environment primarily in Consumer. Commercial revenue grew 3% to $10.14 bln while Consumer revenue was $1.99 bln, down 18% yr/yr. Dell said its Consumer business was weaker than expected as demand and profitability remained challenged. The PC refresh cycle is pushing into next year.
- Finally, on the downside Q4 guidance, Dell said enterprise and large customers are being more mindful of their PC and storage IT spend in the short-term. Dell expects ISG to be up mid-20s in Q4 and CSG to be up low-single digits. While Dell did not formally guide for FY26, it did say it expects multiple tailwinds going into next year, including more robust AI demand. There's also an aging install base in both PCs and traditional servers that are primed for a refresh.
Overall, investors had high hopes going into this report, but the guidance was a letdown. AI server demand looks great but Dell's comments about enterprise and large customers being more mindful near term on IT spend has spooked investors. Also, its consumer segment was weaker than expected, which was similar to what we heard from HP, Inc. (HPQ) on its earnings call last night. Dell was pretty upbeat on its Q2 call about the PC refresh cycle taking place in Q4, but now Dell says it's getting pushed into next year. Dell should see good demand next year, we just think the stock got ahead of itself in recent months heading into this report.
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