| | | Market Snapshot
| Dow | 44642.52 | -123.19 | (-0.28%) | | Nasdaq | 19859.31 | +159.05 | (0.81%) | | SP 500 | 6090.27 | +15.16 | (0.25%) | | 10-yr Note |
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| | NYSE | Adv 1261 | Dec 1518 | Vol 915 mln | | Nasdaq | Adv 2615 | Dec 1669 | Vol 6.80 bln |
Industry Watch
| Strong: Consumer Discretionary; Information Technology; Communication Services |
| | Weak: Utilities; Energy; Health Care; Industrials; Materials; Consumer Staples |
Moving the Market
--December rate cut expectations increase noticeably following release of November employment report
--Soft landing/no landing view reinforced by totality of November employment report
--Drop in market rates
--Leadership from mega-cap stocks and small-cap stocks
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Closing Stock Market Summary
06-Dec-24 16:20 ET
Dow -123.19 at 44642.52, Nasdaq +159.05 at 19859.31, S&P +15.16 at 6090.27
[BRIEFING.COM] Today's trading was a tough slog. The major indices held to tight trading ranges, unable to achieve escape velocity in either direction as both buyers and sellers lacked conviction following today's open. Still, there was enough interest in the mega-cap stocks and enough relief surrounding the November employment report to keep the stock market in relatively good form.
There was an initial burst of buying interest when the opening bell rang, aided by a drop in market rates that was a reaction to an employment report that was neither too strong nor too weak. In that regard, it engendered a belief that the economy will continue on a soft landing/no landing track and that the Fed will agree to another 25-basis points rate cut in the target range for the fed funds rate to 4.25-4.50% at the December FOMC meeting.
The fed funds futures market corroborated that belief. The probability of another 25-basis points rate cut went from 70.2% ahead of the employment report to north of 90.0% following its release. The probability stood at 85.1% as of this writing, according to the CME FedWatch Tool.
The 2-yr note yield settled the day down five basis points at 4.10% and the 10-yr note yield dropped three basis points to 4.15%.
Market participants took some solace in the rate-cut outlook, yet they didn't take full advantage of it, largely because so much good news has been priced into the market already that it is contending with valuation concerns and allegations that it is overbought on a short-term basis and due for a pullback.
Be that as it may, there hasn't been any rush to use options to hedge portfolios against downside risk. The CBOE Volatility Index, which closed at 20.49 on Election Day, fell below 13.00 today (12.72, -0.82, -6.1%) to its lowest level since mid-July or just before the S&P 500 suffered a near 10% pullback.
Leadership from the mega-cap stocks, a positive showing from the small-cap stocks, and growth stock enthusiasm following the earnings results and guidance from the likes of lululemon athletica (LULU 399.60, +54.79, +15.9%), DocuSign (DOCU 106.99, +23.31, +27.9%), and Ulta Beauty (ULTA 428.17, +35.30, +9.0%), made the difference for the broader market. The market cap-weighted S&P 500 and the Nasdaq Composite, which closed roughly at its high for the session, finished yet again with new record highs.
The consumer discretionary sector (+2.4%), taking its lead from LULU and ULTA, easily outpaced every other sector today. The next best performer was communication services (+1.4%) followed by information technology (+0.1%). All three of these sectors house mega-cap components. The Vanguard Mega-Cap Growth ETF (MGK) jumped 0.7%.
Market breadth figures and a 0.1% decline for the equal-weighted S&P 500 told the tale of an otherwise mixed market. Decliners led advancers by a 5-to-4 margin at the NYSE while advancers led decliners by a 13-to-8 margin at the Nasdaq.
- Nasdaq Composite: +32.3% YTD
- S&P 500: +27.7% YTD
- S&P Midcap 400: +19.8% YTD
- Russell 2000: +18.9% YTD
- Dow Jones Industrial Average: +18.5% YTD
Reviewing today's economic data:
- November nonfarm payrolls increased by 227,000 (Briefing.com consensus 200,000). November private sector payrolls increased by 194,000 (Briefing.com consensus 200,000). November unemployment rate was 4.2% (Briefing.com consensus 4.2%), versus 4.1% in October. November average hourly earnings were up 0.4% (Briefing.com consensus 0.3%) versus 0.4% in October.
- The key takeaway from the report is that it has satisfied the market's December rate cut curiosity in the sense that it gives the Fed cover, absent what we may see in next week's CPI and PPI reports, to cut the target range for the fed funds rate by another 25 basis points at the December FOMC meeting.
- The preliminary University of Michigan Index of Consumer Sentiment for December increased to 74.0 (Briefing.com consensus 73.5) from the final reading of 71.8 for November. In the same period a year ago, the index stood at 69.7.
- The key takeaway from the report is the understanding that consumers were targeting the purchase of durables now to avoid what they think will be higher prices in the future.
- Consumer credit increased by $19.2 billion in October (Briefing.com consensus $10.5 billion) after increasing a downwardly revised $3.2 billion (from $6.0 billion) in September.
- The key takeaway from the report is that the expansion of consumer credit was driven by revolving credit, showing a propensity by consumers to use credit for their spending activity.
Marking time
06-Dec-24 15:25 ET
Dow -134.41 at 44631.30, Nasdaq +136.34 at 19836.60, S&P +9.49 at 6084.60
[BRIEFING.COM] There hasn't been any shift in the market's temperament, which has shown some favoritism today for mega-cap stocks and small-cap stocks. That has been enough to keep the Nasdaq, S&P 500, and Russell 2000 above their unchanged lines since the start of trading.
The Dow Jones Industrial Average has deviated just a bit from that winning line, but its losses are negligible.
The S&P 500 came within a whisker of 6,100 in the opening portion of today's trading, but any momentum it had going up to that point faded away when it failed to clear that level. Accordingly, the indices have been marking time and distance since then without much excitement to report for their day's work.
Looking to Monday, the October Wholesale Inventories Report (prior -0.2%) is the only item on the economic calendar, which will be highlighted next week by the release of the November Consumer Price Index on Wednesday and the November Producer Price Index on Thursday.
Mega-cap stocks making the difference
06-Dec-24 15:00 ET
Dow -151.60 at 44614.11, Nasdaq +125.49 at 19825.75, S&P +7.56 at 6082.67
[BRIEFING.COM] The major indices are respecting some relatively narrow trading ranges today in a session that has been mixed with neither buyers nor sellers showing much conviction at the index level.
Outsized moves have been reserved for individual stocks, whereas the indices have been stymied by valuation concerns and/or suggestions that they are overbought on a short-term basis and due for a consolidation period.
Notably, of the 11 S&P 500 sectors, eight are down for the week and six -- energy (-4.5%), utilities (-4.0%), materials (-3.0%), real estate (-2.9%), industrials (-2.4%), and health care (-2.1%) -- are down more than 2.0%. That point notwithstanding, the market cap-weighted S&P 500 is up 0.9% for the week, riding the strength of its mega-cap components.
The latter have representation in the consumer discretionary, communication services, and information technology sectors, which are up 5.1%, 3.9%, and 3.4%, respectively, for the week.
Just in, the October Consumer Credit report showed consumer credit expanding by $19.2 billion (Briefing.com consensus $10.5 billion) following a downwardly revised $3.2 billion (from $6.0 billion) in September.
Tech firms lead S&P 500 gainers on Friday; Cooper slides after guidance miss
06-Dec-24 14:30 ET
Dow -157.94 at 44607.77, Nasdaq +119.74 at 19820.00, S&P +6.52 at 6081.63
[BRIEFING.COM] The S&P 500 (+0.11%) is hovering just off session lows, albeit in a winning effort, now up about 7 points.
Elsewhere, S&P 500 constituents Super Micro Computer (SMCI 44.47, +3.33, +8.09%), Palantir Technologies (PLTR 76.46, +4.59, +6.39%), and AutoZone (AZO 3292.00, +101.93, +3.20%) pepper the top of the average. Embattled IT firm Super Micro Computer is higher on Friday alongside general strength in the tech space, while PLTR also generally finds strength in the tech rally alongside news that it inked partnerships with Booz Allen (BAH) and Shield AI, with AZO pushing to all-time highs ahead of next week's earnings.
Meanwhile, California-based medical device firm Cooper (COO 99.10, -4.13, -4.00%) is near the bottom of the standings following last night's guidance miss.
Gold's Friday rally doesn't erase weekly declines
06-Dec-24 14:00 ET
Dow -85.31 at 44680.40, Nasdaq +137.55 at 19837.81, S&P +14.58 at 6089.69
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+0.70%) holds a commanding lead over the next-best performing S&P 500 (+0.24%).
Gold futures settled $11.20 higher (+0.4%) to $2,659.60/oz, ultimately ending down about -0.8% on the week even as yields continued to fade off the mid-November highs and the dollar faded off an early-week rally.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $106.06.
Hewlett Packard Enterprise reaches all-time highs today as AI underpins strong Q4 results (HPE)
Unwavering demand for AI systems pushed Hewlett Packard Enterprise (HPE +10%) past analyst earnings and sales expectations in Q4 (Oct). Even though the server, storage, and networking systems provider projected Q1 numbers only in line with consensus, management expressed bullishness on 2025, commenting that multiple tailwinds should contribute to solid revenue growth. As a result, shares are soaring to a new record high, a roughly +50% move following a sell-off on Q3 (Jul) performance in early September.
- In typical fashion, HPE exceeded bottom-line estimates by a few pennies, delivering adjusted EPS of $0.58, an 11.5% jump yr/yr. Non-GAAP gross margins compressed by 390 bps yr/yr to 30.9% due to a record contribution from AI systems revenue (AI-related server offerings carry lower margins than traditional offerings) and a lower mix of Intelligent Edge sales. However, due to expense reductions, non-GAAP operating margins climbed by 140 bps yr/yr to 11.1%.
- HPE's top line accelerated for the third consecutive quarter, leaping by 15.1% yr/yr to $8.46 bln, cruising past HPE's $8.10-8.40 bln forecast. HPE's Server segment primarily underpinned its strong performance, growing by double-digits yr/yr for the third straight quarter at 31% to $4.7 bln. AI systems and traditional servers both supported the impressive gains. AI systems backlog swelled to over $3.5 bln exiting Q4 while traditional server order growth topped double-digits for the third quarter in a row.
- Hybrid Cloud, which combines on-premises data center and public cloud networking and storage, experienced an 18% pop in revenue yr/yr to $1.6 bln, substantially above HPE's prediction of a slight increase. Private Cloud and the ongoing ramp of Alletra MP contributed to the outperformance in the quarter. Financial Services also gained, inching 2% higher to $893 mln. Financing volumes ballooned by 41% to a new all-time high of $2.1 bln, led by robust demand for more investment capacity to deploy AI and accelerate cloud adoption.
- The laggard in Q4 remained Intelligent Edge, which endured a 20% drop in revs yr/yr to $1.1 bln. However, HPE is still optimistic that this business is on a path to recovery as customers have already mostly digested excess inventories. Furthermore, HPE is noticing more large deals in its pipeline.
- Looking toward next quarter, HPE anticipated some stagnation sequentially, targeting adjusted EPS of $0.47-0.52 and revenue growth in the mid-teens percentage yr/yr. An ongoing recovery in Intelligent Edge primarily contributes to the potentially flatlining growth next quarter. Meanwhile, a greater shift toward AI servers may boost revenue but take a bite out of margins.
After cautious comments surrounding certain clients and geographies last quarter, HPE squashed lingering fears with its Q4 report as numbers indicated further recovery progress. As AI shows no signs of slowing, HPE is capitalizing on a secular tailwind that it anticipates will fuel further growth in 2025. Meanwhile, HPE expects its previously announced acquisition of Juniper Networks (JNPR) to close in early 2025, which is consistent with its previously stated timeframe. Adding JNPR should further enhance HPE's overall portfolio, given the similarities between the two organizations.
lululemon athletica turns to international business to reignite growth amid U.S. slowdown (LULU)
After a steady decline in comparable sales growth over the past year, athleisurewear and yoga pants retailer lululemon athletica (LULU) rebounded in 3Q25, boosted by strong growth across its international markets and a stabilization in the U.S. Importantly, this improved sales performance isn't the result of higher promotional activity -- markdowns were flat yr/yr -- but rather, strengthening momentum in China and early returns from its U.S. turnaround plan were key drivers behind LULU's top and bottom-line beat. The cherry on top is that LULU also announced a $1.0 bln increase to its stock repurchase program.
- Adding to the positive vibes, CEO Calvin McDonald stated during the earnings call that the holiday shopping season is off to a solid start and that he's pleased with the traffic trends seen in both the e-Commerce and store channels over the Thanksgiving weekend. With nearly two-thirds of the holiday season still in front of LULU, and with macro-related headwinds persisting, the company is taking a careful approach in terms of planning.
- As such, LULU's inline Q4 EPS and revenue guidance is likely being viewed as conservative, perhaps setting the stage for another upside performance when it reports Q4 results in early March.
- As has been the case lately, the international business was the standout with comparable sales growing by 22% on constant currency basis. The company achieved growth in each international market, but China led the way with comps jumping by 24% (cc), driven by a direct sales approach that includes hosting wellbeing events and activations.
- In Q3, LULU hosted events in nine Chinese cities, anchored by its activation in Shanghai.
- Meanwhile, the company is making strides in the U.S., where a combination of rising competition, sluggish consumer spending trends, and the lingering effects of some merchandising missteps in the spring have crippled its growth. Revenue was flat on a qtr/qtr basis in the U.S., reflecting a stabilization in demand, and a return to growth may be on the horizon as LULU's turnaround plan gains traction.
- More specifically, the company has implemented a new reporting structure within its product team, leading to better coordination and faster decision making within the merchandising teams.
- Additionally, after introducing a spring product assortment that lacked newness and was understocked in certain colors and sizes, LULU is expanding its assortments by adding updated colors, prints, and patterns, beginning by 1Q25.
- Despite the competitive environment and soft consumer spending trends, LULU has resisted turning to promotions to drive sales growth. As a result, its gross margin expanded by 150 bps to 58.5%.
The main takeaway is that while LULU is a long way from the impressive growth rates seen in 2021-2023, its Q3 earnings report stopped the bleeding, easing concerns that its U.S. business would remain in a deep slump that extended throughout the holiday shopping season. At the same time, the emergence of LULU's international business -- especially mainland China -- is taking the sting out of the slowing Americas market, providing the company with a needed growth catalyst.
Ulta Beauty delivers glowing Q3 report; sees early benefits from actions taken last quarter (ULTA)
Ulta Beauty (ULTA +8%) is gapping nicely higher today following a glowing Q3 (Oct) performance. The beauty retailer exceeded top and bottom-line estimates, a quick reversal from downbeat headline numbers last quarter. Furthermore, the company has already started to see benefits from its actions to strengthen its market position after dismal Q2 (Jul) figures. Meanwhile, given encouraging sales trends over Black Friday and Cyber Monday, ULTA is cautiously optimistic about the holiday season, modestly lifting its previously lowered FY25 (Jan) guidance.
- Comparable sales growth ticked +0.6% higher, driven by a 0.5% uptick in transactions and a 0.1% increase in average ticket. Fragrance led the way, delivering high-single-digit comp growth, while skincare followed closely behind with mid-single-digit comp growth. Makeup and hair care comps fell by low single digits in the quarter, hindered by softness in mass makeup and limited newness. Meanwhile, EPS of $5.14 crushed analyst expectations, supported primarily by robust comp growth as merchandise margins were flat compared to last year.
- ULTA's headline performance reflected early benefits from several initiatives outlined last quarter designed to navigate four primary challenges: normalizing beauty sales, intensifying competition, an ERP transformation, and lackluster interest in promotional activity.
- The normalization of the U.S. beauty category continued in Q3 as consumers remained focused on extracting the most from their lower purchasing power following years of cumulative inflation. However, management noticed improvements in its business due to enhancing its brand portfolio. For instance, during Q3, ULTA launched new makeup brands and expanded its wellness offerings. The company also expressed excitement over its brand launch pipeline, which is planned for Q4 (Jan).
- Competition has not eased, particularly in the prestige market (more expensive cosmetics). However, ULTA expanded its loyalty program again in Q3, boasting a 5% bump yr/yr to 44.4 mln active members. Furthermore, ULTA's focus on its digital experience drove higher traffic and sales, generating double-digit growth in member engagement with the app, which accounted for roughly two-thirds of its e-commerce sales in Q3, a 600 bp jump yr/yr.
- ULTA's new ERP system transformation is already behind it. While adjusting to a new system can create short-lived inefficiencies, the new system should help teams balance inventories and deliver better experiences for shoppers over the longer term.
- As predicted, ULTA's promotional effectiveness improved from the first half of the year. Events during the quarter ultimately drove higher sales and traffic.
- The holiday season is off to a strong start. Several significant holiday sales weeks are still on the horizon, keeping ULTA on its toes. As such, the company only mildly hiked its FY25 outlook, projecting EPS of $23.20-23.75, up from $22.60-23.50, revs of $11.1-11.2 bln, up from $11.0-11.2 bln, and comps of negative 1% to flat, up from negative 2% to flat.
Bottom line, coming off a gloomy Q2 report where ULTA missed on nearly every metric, its swift return to delivering upbeat numbers in Q3 is fueling considerable confidence among investors today.
DocuSign billings and IAM adoption were Q3 highlights; stock trades above $100 (DOCU)
DocuSign (DOCU +23%) is surging today following its Q3 (Oct) report last night. The e-signature/contract creation giant reported a fairly modest EPS beat as margins were quite strong. Revenue rose 7.8% yr/yr to $754.8 mln, which was also better than analyst expectations. DOCU also guided to upside revenue for Q4 (Jan). We think a strong billings number and early success of its Intelligent Agreement Management (IAM) platform is driving the stock today.
- In terms of the key operating metrics, billings is a closely watched number. Billings in Q3 grew 9% yr/yr to $752.3 mln, well above prior guidance of $710-720 mln. Following a fairly downbeat billings number in Q2 (Jul), we think investors were happy to see billings bounce back in Q3. Early renewals drove approximately one-third of the billings outperformance, with the remainder coming from better retention performance, digital growth, and early IAM contributions.
- As a reminder, quarter-to-quarter billings can fluctuate due to the timing of deals. Also, DOCU is known for lowballing billings guidance then reporting nice beats. However, after reporting in-line last quarter, this was a marked improvement in Q3. On margins, non-GAAP operating margin jumped to 29.6% from 26.8% a year ago. This was ahead of 28.5-29.5% prior guidance.
- Turning to IAM, DOCU talked a lot about this on the call. DOCU has described IAM as its most important launch in recent history. The Docusign IAM platform is a significant departure from its past approach of only offering standalone products. This platform combines current products (eSignature, CLM) with new platform services, including Docusign Maestro, its new agreement workflow builder which automates the creation of agreements without using code.
- Following IAM's launch in late Q2, DOCU saw encouraging signs of early traction with growing IAM deal volumes and customer engagement. IAM deal volume grew rapidly from Q2 into Q3 as its sales teams have embraced the opportunity as 80% of its reps closed 3+ deals, and nearly 60% have sold 6+. Also, in Q3, DOCU closed more than 10x as many IAM deals as it did in Q2, with deal volume increasing every month in the quarter.
- Early sales momentum has outpaced expectations. In Q3, DOCU accelerated the rollout of Docusign IAM and gained traction with small and mid-sized customers in the US, Canada, and Australia. DOCU is also seeing strong customer engagement with the IAM platform. Customers are increasing their usage of IAM applications, particularly Navigator, each month they are live on the platform.
DOCU's fairly modest Q3 upside and solid guidance do not seem to warrant such a big move in the stock today. However, DOCU's billings metric seems to matter to investors more than it does for other companies. Also, billings bounced back nicely in Q3, which is a sigh of relief. Finally, its IAM platform is still in the early days after launch in late Q2, but it sounds like it is off to a great start and that is getting investors excited.
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.
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