Market Snapshot
| Dow | 44765.71 | -248.33 | (-0.55%) | | Nasdaq | 19700.26 | -34.86 | (-0.18%) | | SP 500 | 6075.11 | -11.38 | (-0.19%) | | 10-yr Note | 0/32 | 4.18 |
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| | NYSE | Adv 1103 | Dec 1601 | Vol 986 mln | | Nasdaq | Adv 1475 | Dec 2829 | Vol 7.2 bln |
Industry Watch
| Strong: Consumer Discretionary, Consumer Staples, Energy, Financials, Utilities |
| | Weak: Materials, Industrials, Health Care, Real Estate, Communication Services |
Moving the Market
-- Lacking conviction after record highs
-- Losses in chipmakers weighing down broader equity market
-- Mixed action in mega caps acting as limiting factor for major indices
-- Bitcoin moving above $100,000, indicating some speculative buying interest
| Closing Summary
05-Dec-24 16:25 ET
Dow -248.33 at 44765.71, Nasdaq -34.86 at 19700.26, S&P -11.38 at 6075.11
[BRIEFING.COM] Today's market activity was relatively subdued after yesterday's record highs for the major indices. The S&P 500 (-0.2%), Nasdaq Composite (-0.2%), and Dow Jones Industrial Average (-0.6%) fluctuated around their prior closing levels, with the Russell 2000 trailing behind, closing 1.3% lower.
There was little urgency among sellers, but equally, buyer enthusiasm was muted, resulting in lackluster price action at the index level. In contrast, the cryptocurrency market showed notable strength, with Bitcoin surging above $100,000.
The semiconductor space was also in focus as the PHLX Semiconductor Index (SOX) dropped 1.9% with no specific catalyst driving the selling. The price action here reflected normal profit-taking activity after a solid showing so far this week. The SOX is still 2.0% higher than last Friday. Nearly all the SOX components closed lower, including NVIDIA (NVDA 145.06, -0.07, -0.1%) and Broadcom (AVGO 170.47, -0.09, -0.1%).
In the mega-cap space, stocks traded in mixed fashion, contributing to the overall tepid market sentiment. Tesla (TSLA 369.49, +11.56, +3.2%) and Amazon.com (AMZN 220.55, +2.39, +1.1%) closed with gains, helping to drive the move higher in the S&P 500 consumer discretionary sector (+1.0%).
Retailer components showed relative weakness in the consumer discretionary sector as earnings reports from the space roll in this week. The SPDR S&P Retailer ETF (XRT) dropped 1.6%. Although they're not sector components, American Eagle Outfitters (AEO 17.61, -2.93, -14.3%), Dollar General (DG 79.60, +0.10, +0.1%), and Five Below (FIVE 115.97, +11.00, +10.5%) were among the standouts in the retail space after reporting earnings results.
Treasury yields retreated from earlier highs, settling slightly mixed. The 10-year yield, which briefly surpassed 4.22%, settled unchanged for the day at 4.18%. The 2-year yield has eased from 4.17% to 4.15%, three basis points higher than yesterday.
In other news, OPEC+ agreed to extend the additional voluntary adjustments of 2.2 million barrels per day announced in November 2023 until the end of March 2025. WTI crude oil futures settled 0.4% lower at $68.30/bbl.
- Nasdaq Composite: +31.2%
- S&P 500: +27.4%
- S&P Midcap 400: +19.7%
- Russell 2000: +18.2%
- Dow Jones Industrial Average: +18.8%
Reviewing today's economic data:
- Weekly Initial Claims 224K (Briefing.com consensus 213K); Prior was revised to 215K from 213K, Weekly Continuing Claims 1.871 mln; Prior was revised to 1.896 mln from 1.907 mln
- The key takeaway from the report is that the totality of the report isn't signaling any major changes with respect to labor market trends, which have connoted some softening but no real breakage on the employment front.
- October Trade Balance -$73.8 bln (Briefing.com consensus -$75.1 bln); Prior was revised to -$83.8 bln from -$84.4 bln
- The key takeaway from the report is that it reflects overall weakness in global trade activity in October.
Treasuries settle mixed
05-Dec-24 15:35 ET
Dow -208.77 at 44805.27, Nasdaq -21.30 at 19713.82, S&P -5.51 at 6080.98
[BRIEFING.COM] The major indices are in a holding pattern in front of the close.
Treasuries settled mixed. The 10-yr yield settled unchanged at 4.18% and the 2-yr yield settled three basis points higher at 4.15%.
Other data out tomorrow in addition to the jobs report include: Preliminary December University of Michigan Consumer Sentiment (Briefing.com consensus 73.5; prior 71.8) at 10:00 ET and October Consumer Credit (Briefing.com consensus $10.5 bln; prior $6.0 bln) at 3:00 ET.
Earnings after the close
05-Dec-24 15:05 ET
Dow -186.56 at 44827.48, Nasdaq +4.66 at 19739.78, S&P -3.46 at 6083.03
[BRIEFING.COM] The major indices moved mostly sideways in recent action.
Hewlett Packard Enterprise (HPE), Ulta Beauty (ULTA), lululemon athletica (LULU), Petco Health and Wellness (WOOF), Victoria's Secret (VSCO), and others report earnings after the close.
Looking ahead, market participants receive the November Employment Situation report at 8:30 ET on Friday.
Uber falls on Waymo One's Miami expansion, Brown-Forman higher in S&P 500 on earnings beat
05-Dec-24 14:30 ET
Dow -150.32 at 44863.72, Nasdaq +9.42 at 19744.54, S&P -1.29 at 6085.20
[BRIEFING.COM] The major averages are back to split on Thursday afternoon, the S&P 500 (-0.02%) down now less than 2 points.
Elsewhere, S&P 500 constituents Uber (UBER 65.50, -6.66, -9.23%), Ball Corp (BALL 56.69, -4.37, -7.16%), and Cadence Design (CDNS 304.96, -19.58, -6.03%) are some of today's top laggards. UBER slips after Waymo One announced expansion into Miami, while CDNS falls in sympathy to peer Synopsys' (SNPS 515.30, -72.70, -12.36%) results.
Meanwhile, Brown-Forman (BF.B 45.10, +4.10, +10.00%) is today's top performer after beating top and bottom lines for Q2.
Gold slips as yields rise
05-Dec-24 14:00 ET
Dow -152.41 at 44861.63, Nasdaq -28.15 at 19706.97, S&P -6.08 at 6080.41
[BRIEFING.COM] The Nasdaq Composite (-0.14%) is in second place on Thursday afternoon, down now about 28 points.
Gold futures settled $27.80 lower (-1.0%) to $2,648.40/oz, slipping when taken against rising treasury yields.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $105.91.
Synopsys sells off on mild FY25 guidance; China remains a headwind (SNPS)
Shares of the electronic design automation software supplier Synopsys (SNPS -12%) slide today despite a decent-sized Q4 (Oct) earnings beat and a continuously robust AI-related landscape. Today's setback stems from SNPS's bearish Q1 (Jan) guidance and mild FY25 outlook. The company guided for the year pragmatically due to unevenness across end-market and geographical demand.
Management characterized its current backdrop as a tale of two markets. Customers serving the AI infrastructure buildout have been doing incredibly well, benefiting SNPS significantly. However, the rest of the semiconductor market, including customers serving mobile, PC, automotive, and industrial, is still amid a refresh cycle. Since SNPS is still tied to these customers' R&D, it is surviving but not registering growth levels similar to those of the other AI-centric customer cohort. Meanwhile, China remains a headwind as SNPS deals with expanding trade restrictions while the economy decelerates.
These factors contributed to a balanced view of FY25. SNPS targeted adjusted EPS of $14.88-14.96, the midpoint exceeding consensus, and revenue growth of +10.1-11.1% yr/yr or $6.745-6.805 bln, falling short of consensus. It is worth pointing out that if not for the impact of an extra week and calendar year change, SNPS projected +11.5-12.5% yr/yr revenue growth for FY25, the high-end meeting analyst expectations.
- Demand unevenness was prevalent in Q4. SNPS topped earnings expectations for back-to-back quarters but saw revenue growth continue to slow, expanding by just 2.3% yr/yr to $1.64 bln compared to jumps of +12.7%, +15.2%, and +21.1% over the previous three quarters.
- Leading growth in Q4 was SNPS's Design Automation business, with revs up 17% yr/yr, showcasing the strong appetite for AI. SNPS has constantly added AI optimization engines to its products, helping customers extract improvements in hardware utilization and turnaround times. Meanwhile, multi-die designs are opening a new frontier in chip architecture. SNPS stated that 90% of high-performance computing designs and 70% of PC designs will be multi-die within two years.
- Furthermore, on multi-die, SNPS stated that a design environment combining design automation and multi-physics simulation will be the real game-changer and a key component of the value proposition for its pending acquisition of Ansys (ANSS), which is scheduled to close during 1H25.
- SNPS's Design IP business pulled down overall revenue, delivering roughly flat yr/yr growth in the quarter. Most of the company's IP business stems from customers designing on chips produced by Taiwan Semi (TSM), which includes numerous verticals, from manufacturing to automotive to smartphones. These end markets are still in recovery mode, keeping revenue suppressed. IP will remain lumpy heading into Q1, causing SNPS's outlook for the quarter, including adjusted EPS of $2.77-2.82 and revs of $1.435-1.465 bln to fall short of analyst expectations.
Disappointing FY25 guidance branching from a combination of gradually recovering end markets and uncertainty surrounding China sparked considerable selling pressure today. While these variables may continue to cast a cloud on future results, SNPS remains bullish on AI, remarking that the technology is merely at its beginning stage and will become an essential component of everything the company does.
Dollar General not looking like a great bargain as margins and profits continue to shrink (DG)
Elevated cost of living expenses continued to drive sales of consumables and essentials higher for Dollar General (DG) in Q3, enabling the budget retailer to edge past revenue expectations, but rising costs and contracting margins are squeezing its bottom-line. In addition to the familiar challenges of a cash-strapped lower-income customer, and a highly promotional retail climate, two major hurricanes (Helene and Milton) added to the degree of difficulty for DG in Q3. More specifically, the company incurred $32.7 mln in hurricane-related expenses, mainly from property and store inventory losses, contributing to its shortfall on EPS, which fell by 29% yr/yr to $0.89.
- Those costs have trickled into Q4 with DG estimating another $10.0 mln hit in the quarter, negatively impacting its FY25 EPS guidance. After slashing its EPS outlook to $5.50-$6.20 from its previous forecast of $6.80-$7.55 last quarter, DG reduced the high end of its guidance last night, projecting EPS of $5.50-$5.90. However, the downwardly revised guidance can't be completely chalked up to hurricanes.
- Intensifying competition, especially from Walmart (WMT), which has been thriving under these difficult macroeconomic conditions, has fostered a highly promotional retail landscape. As such, DG's gross margin has come under pressure, sinking by 120 bps qtr/qtr to 28.8%. The company doesn't see conditions improving any time soon, either, commenting that it anticipates the heightened promotional environment to persist at least through the duration of the year.
- Still, DG isn't planning to sit idle, waiting for optimal conditions to materialize before executing an ambitious growth strategy that's centered on remodeling thousands of stores. In Q3, same store sales growth improved to +1.3% from +0.5% last quarter and CEO Todd Vasos believes the slight upswing is partly due to remodeling efforts that have made DG's stores cleaner and more convenient. With that in mind, the company also announced plans to fully remodel approximately 2,000 stores in FY26, while remodeling about 2,250 stores through its Project Elevate initiative.
- Project Elevate will focus on a mature store base that's not yet old enough to be included in the full remodel pipeline but will still undergo a significant revamp that includes assortment updates, the addition of produce, updated adjacencies, and planogram optimizations. The goal is to enhance the shopping experience and to drive incremental sales growth, although this will be an expensive endeavor. For some context, DG reiterated its FY25 capex guidance of $1.3-$1.4 bln, which supports 2,435 real estate projects. In total, the company is targeting 4,885 real estate projects in FY26.
Overall, DG delivered a mixed Q3 earnings report that showed some stabilization on the top-line, but that modest improvement isn't enough to positively alter the big picture for the stock. The company continues to face margin pressures and rising costs are now becoming more of a concern as it embarks on an aggressive store remodeling plan.
Southwest Air and American Airlines lift Q4 guidance on strengthening travel demand (LUV)
JetBlue Airways (JBLU), which raised its Q4 revenue outlook yesterday morning, set off a chain reaction in the commercial airline space that has sent stocks in that industry flying higher. Following in JBLU's footsteps, Southwest Air (LUV) and American Airlines (AAL) both raised their Q4 outlooks earlier this morning, reflecting robust travel demand and a stronger pricing environment as capacity across the industry moderates.
- While travel demand has remained quite resilient -- especially for international destinations -- LUV and AAL have contended with some company-specific issues that have enabled rivals Delta Air Lines (DAL) and United Airlines (UAL) to fly ahead. For LUV, the company's antiquated no-frills business model and lack of international flights prevented it from capitalizing on some of the strongest and most profitable trends within the airline industry, such as rising interest in premium seats and products.
- Consequently, its margins have lagged behind its peers. For instance, in Q3, LUV's operating margin was just 0.5%, compared to 8.9% for DAL. With LUV beginning to sell assigned seats in 2H25, including premium seats with more legroom, it will attain a new high-margin revenue stream.
- The company's slow response in adapting to post-pandemic changes within the industry drew the attention of activist investment firm Elliott Investment Management, which forged an agreement with LUV in late October, enabling Elliott to place six hand-picked candidates on LUV's Board of Directors. A key objective of the rearranged Board will be to improve the airline's efficiency by taking out costs and optimizing its network, including through improved aircraft utilization and the elimination of unprofitable routes.
- LUV has some work to do in this regard as CASX-ex increased by 11.6% in Q3, while the company also guided for an increase of 11-13% for Q4. In this morning's filing, LUV reaffirmed its CASM-ex guidance.
- Meanwhile, AAL is recovering from a faulty sales strategy that reduced its sales force and relied more on existing corporate contracts to drive sales, while also prioritizing passenger load rather than more profitable parts of the business, like premium products. CEO Robert Isam began taking steps to reverse this failed strategy this past summer and those efforts are beginning to pay off.
- AAL significantly raised its Q4 EPS guidance to $0.55-$0.75 from its prior forecast of $0.25-$0.30 as the company is better positioned to benefit from a stronger-than-anticipated pricing and revenue environment.
Despite the ongoing macroeconomic headwinds, travel demand is strengthening, and the holiday season is shaping up to be a very strong one for LUV, AAL, and others. While costs remain elevated, LUV and AAL should be poised to drive stronger profits as pricing power improves due to lower industry-wide capacity, and as both airlines focus on higher-margin revenue opportunities, like premium seats.
Five Below heats up on robust Q3 comps, big EPS beat; holiday season off to a solid start (FIVE)
Five Below (FIVE +12%) heats up today after crushing Q3 (Oct) earnings estimates on impressive revenue and same-store sales growth. The discount retailer, which primarily offers items priced at $5 and lower, was coming off a string of disappointing earnings results, culminating in a turnaround strategy outlined last quarter. Encouragingly, the strategy has already produced tangible benefits. At the same time, FIVE named a new CEO, appointing the former CEO of Forever 21 Winnie Park to lead the company through its ongoing turnaround initiatives, clearing a hanging uncertainty since FIVE's former CEO Joel Anderson stepped down over the summer.
- FIVE rang up robust comp growth of +0.6% in Q3, significantly outperforming its mid-single-digit decline forecast. Comparable ticket inched 1.2% higher yr/yr while transactions slipped by 0.6%. Management noted that sales improved across a broader group of "worlds" (what the company calls categories) versus Q2 (Jul), with tech, seasonal, style, and candy worlds, which combined comprised over half of all sales in Q3, leading the charge.
- The results stemmed largely from FIVE's past initiatives to add newness to its product assortment. Additionally, the company pointed to having its teams return to the office as another underlying driver, as it has enhanced collaboration and communication, producing greater innovation and speed. These characteristics are what helps to differentiate FIVE from its retail peers as it can better pounce on rapidly changing consumer trends.
- Management remarked it will also continue to improve its SKU rationalization across worlds, anticipating much of the impact from these changes to occur during 2Q26 (Apr).
- Adjusted EPS ballooned by 61.5% yr/yr to $0.42, cruising past the company's prior $0.10-0.22 guidance. Adjusted gross margins swelled by around 290 bps yr/yr to 33.2%, helped tremendously by lapping significant shrink from the year-ago period as well as some benefits from timing and freight efficiencies.
- FIVE mentioned that the holiday season was already off to a solid start, with the Black Friday weekend meeting internal expectations. However, the economy remains dynamic. As such, FIVE projected Q4 (Jan) numbered in-line with consensus, expecting adjusted EPS of $3.23-3.41 and comps of negative 3-5%. The considerable drop in comps sequentially is due to a unique holiday season, as the calendar includes five fewer shopping days between Thanksgiving and Christmas.
FIVE's Q3 report underpinned early benefits from its recent turnaround initiatives. With these actions already bearing fruit, the incoming CEO will likely stay on the current trajectory, a development we anticipated last quarter after FIVE outlined its turnaround strategy before naming a permanent CEO. There are still possible headwinds on the horizon, primarily revolving around tariffs. However, FIVE has experience with tariffs from 2018 and 2019, commenting that it now has a playbook to deploy in the event of new tariffs. FIVE also cited additional attributes it possesses since the previous tariffs to help offset impacts, including its Five Beyond product assortment, where items are priced above $5, and its India Global Sourcing Office, helping optimize its overseas vendor base.
Okta's new products helping to offset seat declines, leading to beat-and-raise Q3 report (OKTA)
Lower seat counts, sluggish upsell rates, and the lingering impact from a major security breach in October 2023 have pressured Okta's (OKTA) financial results, sending shares lower by 11% on a year-to-date basis prior to today's gains. Alongside OKTA's disappointing financial and stock performance came more muted expectations heading into last night's Q3 results, which is working in its favor today after the company delivered an encouraging beat-and-raise earnings report.
- Echoing a similar message as other cybersecurity companies such as Palo Alto Networks (PANW), Qualys (QLYS), and Zscaler (ZS), CFO Brett Tighe commented during OKTA's Q3 earnings call that organizations are still scrutinizing budgets and rationalizing their software spend. At the same time, the security incident from last year also likely had some impact on OKTA's results, adding another headwind to seat growth and MAUs. However, cRPO growth of 13% did exceed the company's guidance of 9%, which was deemed a major disappointment last quarter.
- Although OKTA continues to experience seat declines in its workforce identity business, the company is having success with cross selling more products into both new and existing customers. In particular, the company's new products, such as Okta privileged access, device access, fine grained authorization, and identity threat protection, are seeing robust adoption. In fact, in Q3, new products accounted for 15% of total bookings.
- This strong interest in OKTA's new products is creating significant cross-selling opportunities. As the company sells more products into its installed customer base, an increasing number of customers are crossing the $1.0 mln annual contract value (ACV) mark. In fact, the $1.0+ mln ACV cohort is OKTA's fastest-growing cohort and represents approximately $1.0 bln in ACV.
- Another source of strength is OKTA's partner ecosystem, as reflected by the fact that all of its top ten deals in Q3 involved partners, with each of those deals worth over $1.0 mln in ACV.
- Turning to OKTA's guidance, the company's EPS and revenue outlook for Q4 comfortably exceeded expectations, but its cRPO forecast calls for growth to slow to just 9% to $2.130-$2.135 bln. Furthermore, the company provided an initial outlook for FY26 during the earnings call, estimating revenue growth of only 7%. Although it's not formal guidance, the mediocre growth for FY26 isn't overly inspiring, although OKTA noted that it's "maintaining an appropriate level of conservatism" in regard to its guidance.
Overall, OKTA's results and outlook help to ease concerns surrounding its seat declines and with the impact from the security breach now in the rearview mirror, the company will be dealing with one less headwind. Strong growth for new products is providing a needed top-line boost, but it remains a mixed picture for OKTA as seat and MAU headwinds continue.
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