Market Snapshot
briefing.com
| Dow | 34123.82 | +209.50 | (0.62%) | | Nasdaq | 13072.00 | -56.01 | (-0.43%) | | SP 500 | 4296.72 | -0.49 | (-0.01%) | | 10-yr Note |
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| | NYSE | Adv 1674 | Dec 1441 | Vol 799 mln | | Nasdaq | Adv 1959 | Dec 2527 | Vol 4.9 bln |
Industry Watch
| Strong: Consumer Staples, Materials, Financials, Industrials, Consumer Discretionary |
| | Weak: Information technology, Communication Services, Health Care, Real Estate, Energy |
Moving the Market
-- Feeling the market is due for a pullback after recent rally
-- Earnings reports from leading retailers getting mixed reactions
-- Downside leadership from mega cap
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Closing Summary
16-Aug-22 16:25 ET
Dow +239.57 at 34153.89, Nasdaq -25.50 at 13102.51, S&P +8.06 at 4305.27
[BRIEFING.COM] The stock market opened on a soft note before a midmorning rally recouped early losses. The bounce had limited staying power, as the major indices fell sharply with about an hour left in the session before moving sideways into the close. The late afternoon selling efforts coincided with the S&P 500 testing its 200-day moving average (4,326.11) at its intraday high (4,325.26), where it found resistance and sold off after that.
The midmorning rally was fueled by retailers trading up in solidarity with Dow components Home Depot (HD 327.38, +12.77, +4.1%) and Walmart (WMT 139.37, +6.77, +5.1%) after the companies reported better-than-expected results for Q2. The SPDR S&P Retail ETF (XRT) closed up 4.0% on the day.
The S&P 500 consumer discretionary (+1.1%) and consumer staples (+1.2%) sectors closed at the top of the leaderboard thanks to gains in their aforementioned components.
Also, highly shorted stocks like GameStop (GME 42.19, +2.51, +6.3%), Blue Apron (APRN 5.38, +0.75, +16.2%) and Bed Bath and Beyond (BBBY 20.65, +4.65, +29.1%) made big upside moves today. The size of the moves points to a significant short-covering element in this session's rally.
Weakness today was due to lagging mega caps with the Vanguard Mega Cap Growth ETF (MGK) closing down 0.1% versus a 0.3% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 0.2% gain in the S&P 500.
Semiconductor related stocks were another specific area of weakness with the PHLX Semiconductor Index (SOX) closing down 1.0%. These stocks also brought down the performance of the information technology sector (-0.3%), one of the top laggards today.
The energy sector (-0.3%) was another top laggard amid falling oil prices. WTI fell 3.4% to $86.28/bbl. Unleaded gasoline futures fell 2.1% to $2.89/gal.
Separately, Treasury yields made upside moves today. The 2-yr note yield rose six basis points this session to 3.24% while the 10-yr note yield rose three basis points to 2.82%.
Ahead of tomorrow's open, Lowe's (LOW), Target (TGT), and TJX (TJX) are all set to report earnings.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.2%)
- 8:30 ET: July Retail Sales (Briefing.com consensus 0.2%; prior 1.0%) and Retail Sales ex-auto (Briefing.com consensus 0.1%; prior 1.0%)
- 10:00 ET: June Business Inventories (Briefing.com consensus 1.5%; prior 1.4%)
- 10:30 ET: Weekly crude oil inventories (prior +5.45 mln)
- 14:00 ET: July FOMC Minutes
Reviewing today's data:
- Housing starts in July decreased 9.6% month-over-month to a seasonally adjusted annual rate of 1.446 million (Briefing.com consensus 1.543 million) from June's upwardly revised rate of 1.696 million (from 1.559 million) while building permits -- a leading indicator -- were down 1.3% month-over-month to a seasonally adjusted annual rate of 1.674 million (Briefing.com consensus 1.647 million) from June's upwardly revised rate of 1.696 million (from 1.685 million).
- For the second month in a row, the headline miss has been softened by upward revisions to last month's figures. This is masking the fact that housing starts are now at their lowest level since early 2021 while building permits are also receding from a high that was seen earlier this year.
- Total industrial production increased 0.6% month-over-month in July (Briefing.com consensus 0.3%) after an upwardly revised flat reading in June (from -0.2%). The capacity utilization rate increased to 80.3% (Briefing.com consensus 80.2%) from a downwardly revised 79.9% (from 80.0%) in June.
- The key takeaway from the report is that total production growth was supported by a solid increase in motor vehicle assemblies, which is fueling hopes that the semiconductor shortage is easing its grip on auto production.
Dow Jones Industrial Average: -6.0% YTD
S&P 400: -7.3% YTD
S&P 500: -9.7% YTD
Russell 2000: -10.0% YTD
Nasdaq Composite: -16.3% YTD
Market moves sideways into the close
16-Aug-22 15:25 ET
Dow +212.40 at 34126.72, Nasdaq -45.05 at 13082.96, S&P +4.26 at 4301.47
[BRIEFING.COM] The stock market is moving sideways into the close, well off session highs.
The 2-yr note yield rose six basis points this session to 3.24% while the 10-yr note yield rose three basis points to 2.82%.
Ahead of tomorrow's open, Lowe's (LOW), Target (TGT), and TJX (TJX) are all set to report earnings.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.2%)
- 8:30 ET: July Retail Sales (Briefing.com consensus 0.2%; prior 1.0%) and Retail Sales ex-auto (Briefing.com consensus 0.1%; prior 1.0%)
- 10:00 ET: June Business Inventories (Briefing.com consensus 1.5%; prior 1.4%)
- 10:30 ET: Weekly crude oil inventories (prior +5.45 mln)
- 14:00 ET: July FOMC Minutes
Market gives back intraday gains
16-Aug-22 15:00 ET
Dow +209.50 at 34123.82, Nasdaq -56.01 at 13072.00, S&P -0.49 at 4296.72
[BRIEFING.COM] The major indices have slipped sharply in the last half hour. The S&P 500 dipped into negative territory.
Mid cap stocks are holding up better than the broader market with the S&P Mid Cap 400 (+0.6%) outpacing the major indices.
Meanwhile, growth stocks are sending the market lower with the Russell 3000 Growth Index down 0.2% versus a 0.4% gain in the Russell 3000 Value Index.
Market breadth shows a bias toward declining issues. Decliners lead advancers by an 11-to-10 margin at the NYSE and a 7-to-5 margin at the Nasdaq.
Target outperforms ahead of earnings
16-Aug-22 14:30 ET
Dow +347.41 at 34261.73, Nasdaq +40.47 at 13168.48, S&P +25.22 at 4322.43
[BRIEFING.COM] The benchmark S&P 500 (+0.59%) is firmly in second place on Tuesday afternoon, up now about 25 points.
S&P 500 constituents Take-Two (TTWO 137.09, +9.70, +7.61%), Target (TGT 182.73, +10.42, +6.05%), and Carnival (CCL 11.28, +0.57, +5.32%) pepper the top of the index. TGT is trading ex-dividend today and is scheduled to report earnings tomorrow morning, while the CCL move is tied to news that Carnival Cruise Line booking activity for Monday, Aug. 15 was nearly double the level for the equivalent day in 2019.
Meanwhile, vaccine name Moderna (MRNA 169.85, -6.93, -3.92%) is today's top laggard, underperforming alongside other healthcare and biotech names.
Gold notches back-to-back losses
16-Aug-22 14:00 ET
Dow +313.01 at 34227.33, Nasdaq +17.75 at 13145.76, S&P +20.37 at 4317.58
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.14%) continues to lag, though has moved back into positive territory in the last half hour.
Gold futures settled $8.40 lower (-0.5%) to $1,789.70/oz easing off recent strength and putting the yellow metal in danger of snapping its four-week winning streak.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $106.49.
Walmart investors breathe easier with beat and upside guidance; bodes well for other retailers (WMT)
Walmart (WMT +5%) investors are feeling relieved today after the retail giant bounced back from a rare miss in Q1 (Apr) to report a nice size beat in Q2 (Jul). And just as important, WMT offered good guidance for Q3 (Oct) and made some positive comments on the call. Because Walmart is so large and reports early in the retail reporting cycle, this report should help calm some nerves as we get earnings reports from other retailers over the next two weeks.
- Walmart beat pretty handily on EPS and revs. Also, Walmart US comps (ex-fuel) grew +6.5% vs prior guidance of +6%. It was reassuring to hear on the call that Q2 finished on a stronger note than the company had anticipated. Granted some of this strong comp number was fueled by higher grocery prices driven by inflation, rather than higher unit sales. But it was still better than expected. Sam's Club comps (excl fuel) were strong as well at +9.5%.
- Sales were strong across all segments, particularly in food and consumables. Also, WMT said it is seeing a more pronounced consumer shift in terms of trade down activity. Instead of deli meats, customers are buying more hot dogs and canned tuna or chicken. Also, the private brand growth rate doubled in Q2 compared to Q1. Of note, WMT also said back-to-school season is off to a good start.
- The big problem in Q1 was that consumers were paying more for food and gas, which led to fewer purchases of discretionary items like apparel and consumer electronics. As a result, WMT marked down a lot of items to clear inventory. WMT says it made progress selling through excess inventory in Q2, especially in hard line categories. WMT has cleared most summer seasonal inventory but it is still focused on reducing exposure to electronics, home, and sporting goods. It also canceled billions of dollars in orders to help align inventory levels with expected demand. Inventory is still a little high, but WMT expects to be well-positioned for the holiday season.
- As we said in our preview, we thought that investors had already sort of written off Q2 as a bad quarter. As such, the focus would be on the Q3 guidance, which turned out to be pretty good. The midpoint of the EPS guidance was above analyst expectations and the revenue guidance of +5% was also better than expected. Walmart US comps (excl fuel) are expected to be +3%. We think that is good guidance considering it is lapping a robust +9.2% comp in the year ago period.
The key takeaways here are that Q2 came in above the low expectations set out when WMT guided lower last month. It was encouraging to hear that the quarter ended on a stronger note than expected. And more importantly, the Q3 guidance was pretty solid and not the doomsday some had feared it might be. The consumer is still facing some headwinds, namely inflation, housing concerns, rising rates and general economic unease. However, WMT seems to be managing quite well.
Finally, when you combine this report with a solid beat from Home Depot (HD) this morning, it makes us less nervous as we had into other retail earnings reports this week and next. Target (TGT) is up next with its report tomorrow morning. We would like to see similar numbers from them.
Sea Limited's suspended e-commerce outlook and widening losses in Q2 weigh heavily on shares (SE)
Sea Limited (SE -13%) is experiencing choppiness following its uninspiring Q2 earnings report. The e-commerce giant of Asia Pacific, which also boasts sizeable digital entertainment and financial services businesses, did top adjusted EPS estimates in the quarter. Still, losses widened significantly from the year-ago period. Additionally, revenue growth was lighter than expected. However, what is likely weighing most heavily on shares today was SE suspending its full-year e-commerce revenue guidance, citing a strategic shift toward efficiency and optimization.
- Drilling deeper, SE posted adjusted net losses of $(1.03), slightly better than analysts expected, but a widening of losses from $(0.61) last year and $(0.80) in Q1. Meanwhile, revenue growth of 29.0% yr/yr to $2.94 bln was not good enough to topple estimates and represented a considerable slowdown from the +64.4% growth in Q1 and over +100% growth in each quarter of FY21.
- A 10% dip in Digital Entertainment revs yr/yr to $900.3 mln pressured total growth in the quarter. It was also the first time in SE's five-year history as a public company that Digital Entertainment sales declined yr/yr. Adjusted EBITDA also shrank to $333.6 mln from $740.9 mln in 2Q21.
- Part of the weak Digital Entertainment numbers could be due to SE's most popular game, Free Fire, being free-to-play and on mobile, which is starting to experience softening demand. Take-Two (TTWO), which owns mobile gaming publisher Zygna, touched on the slowdown in mobile gaming last week, stating that given mobile's typical free-to-play model, users are engaged less, leading to weakness in in-app purchases.
- Despite SE's gaming hiccups in Q2, the company remains confident in the long-term structural tailwinds of the segment. Also, although active users fell 14.6% yr/yr in Q2 to 619 mln, it was still a slight jump from 616 mln in Q1, displaying signs of stabilization.
- SE's main E-commerce segment grew sales 51.4% yr/yr to $1.7 bln. Revenue may have soared, but it still represented a meaningful slowdown from the exceptional +85-100% growth seen throughout the past two years.
- A highlight within E-commerce was improving profitability as adjusted EBITDA loss per order reached $(0.33) from $(0.41) in 2Q21.
- On the bright side, SE's Digital Financial Services segment is continuing to fire on all cylinders, seeing revs shoot up 214.4% yr/yr to $279 mln on a 53.3% improvement in quarterly active users. Continued robust growth in this segment is essential as it creates cross-selling opportunities. In Q2, nearly 40% of active buyers on the e-commerce platform Shopee in Southeast Asia used SeaMoney products or services.
Nevertheless, investors are looking past the few positives in Q2, given SE's decision to suspend its FY22 e-commerce guidance. It also does not help that SE's net losses deteriorated in Q2, especially after slightly improving profitability on a qtr/qtr basis in Q1. The decelerating revenue growth across each segment also adds to today's sell-off.
With shares now sliding over 60% on the year and nearly 80% from record highs last year, SE has significant ground to cover. We still like SE's long-term profile as its three segments possess plenty of upside given the untapped markets in which the company operates. However, unless SE reverses the blemishes from Q2, the stock may continue to trade sideways over the short term.
Home Depot nails another earnings beat, but some cracks in the foundation appear (HD)
With an assist from inflation, Home Depot (HD) topped Q2 EPS and revenue expectations, extending its streak of top and bottom-line beats to nine consecutive quarters. The better-than-expected results indicate that the spending spree on home improvement projects hasn't run out of steam just yet, but a couple caution flags are emerging. Most notably, customer transactions continue to trend in the wrong direction, falling by 3.0% this quarter, after posting declines of 8.2% and 3.4% in the prior two quarters.
This plight suggests that HD is relying on inflation-fighting price increases to deliver its upside results. Indeed, the company's average ticket jumped by 9.1% to $90.02, providing a nice sales boost as comparable sales increased by 5.8%. In isolation, there's nothing wrong with capitalizing on a pricing strategy. In fact, HD should be commended for getting ahead of inflation by raising prices enough to protect its margins. In Q2, the company's GAAP gross margin remained steady at 33.1% compared to 33.2% in the year-earlier quarter.
The problem, though, is that inventory levels can build up if transactions continue to decrease quarter after quarter. Unfortunately, that's exactly what's happening for HD as inventories increased by a sizable 35% yr/yr to $26.09 bln.
- Unless this trend reverses course, HD may need to become more promotional to clear its shelves of unwanted inventory. In turn, that scenario could negatively impact merchandise margins, and, ultimately, HD's earnings.
- The growth in average ticket size is also attributable to HD's customer mix, which skews towards professionals (~55% of revenue) over do-it-yourself customers. We surmise that the decline in transactions is mostly due to a drop-off in business from the DIY side. When paint company Sherwin-Williams (SHW) issued a dismal Q2 report on July 27, it stated that the anticipated rebound in North America DIY demand did not come to fruition.
- If that's the case, then Lowe's (LOW) could be in line to post disappointing results when it reports earnings before the open tomorrow morning. Although the company has made good headway in the professional market, nearly 75% of its business is still derived from DIY customers.
- The fact that HD merely reaffirmed its FY23 EPS and revenue guidance, despite topping Q2 estimates, implies that it's feeling a bit cautious about the remainder of the year.
Overall, it was another solid performance for HD, especially in light of a very challenging business climate that's characterized by rising interest rates, high inflation, and a cost-conscious consumer. However, some cracks in its fundamentals have surfaced, including a sharp increase in inventory that has the potential to tarnish its results in the back half of the year.
Poshmark is looking posh after an analyst upgrade; Briefing.com sees favorable dynamics ahead (POSH)
Poshmark (POSH +16%), the e-commerce platform for users to buy and sell secondhand fashion and other goods, looks quite posh today as shares receive a massive boost on an analyst upgrade at Barclays. Today's huge upward swing follows POSH's disappointing Q2 earnings report last week that incited a sell-the-news reaction.
Although POSH has struggled somewhat over the past few quarters as sales growth has decelerated, Briefing.com notes that favorable dynamics are starting to peak through a cloudy macroeconomic backdrop, which may help keep shares trending in a positive direction.
- As inflation lingers, consumers may shift toward less expensive alternatives, including the secondhand market. Last month, Walmart (WMT) lowered its profit outlook for Q2 (Jul) and FY23 as inflationary pressures, notably in food, were damaging consumers' ability to spend on general merchandise categories. As a result, WMT stated that it is implementing markdowns to move through its inventory, particularly apparel.
- On a side note, this could also be good news for off-price department chain TJX (TJX) and discount apparel retailer Ross Stores (ROST), which report JulQ earnings on August 17 and 18, respectively.
- It is also worth pointing out that POSH saw TTM active buyers increase 14% yr/yr in Q2 to a record 8 mln, demonstrating the resilient demand for the products hosted on its site. By contrast, peer eBay (EBAY) saw TTM active users dip 13% yr/yr and 3% sequentially in Q2, marking the fourth consecutive qtr/qtr decline. On a two-year basis, POSH's TTM active buyers expanded by 32%, while EBAY's contracted by 24%.
- POSH is also benefiting from an uptick in travel, seeing luggage and travel bag sales leap 50% yr/yr in Q2. This emulates what we saw from Macy's (M) in AprQ, which saw robust comp growth in its Bloomingdale's brand, powered by solid dresses, suits, and luggage demand. With companies boasting a more discretionary product portfolio, like Wayfair (W) and Weber (WEBR), noticing spending flow from highly discretionary products to travel services, we expect this tailwind to continue.
- Additionally, POSH experienced strong average order value (AOV) growth in Q2, partly due to a higher contribution from premium-priced products. POSH is also optimistic that the secular trend of consumers moving toward premium-priced products will continue. By having a broad selection of price points, POSH can take advantage of consumers trading down as well as those trading up into more premium brands, both of which department chain Kohl's (KSS) noticed taking place in AprQ.
Overall, an analyst upgrade is lighting a fire under the stock today. However, favorable dynamics should provide the kindling needed for POSH to maintain its current momentum. Shares currently trade roughly 20% down on the year but have zoomed over 35% higher since July 26 lows.
Clear Secure reports a surprise profit as it benefits from the rebound in travel (YOU)
Clear Secure (YOU -5%) reported a surprise Q2 profit this morning. Its service, which allows travelers to pay a subscription to use dedicated airport security lanes that rely on biometrics (eyes, face) rather than traditional ID docs, has really been catching on with consumers. And with travel rebounding this summer, Clear Secure is seeing a noticeable pickup in its business. And it is not just airports, YOU has also been expanding at hotels, stadiums, and offices.
- Granted, it was not a large profit with adjusted net income of just $0.5 mln, but for a company with a history of losses, it was an important milestone. This was YOU's first profitable quarter since its IPO in July 2021. Revenue jumped 86.1% yr/yr to $102.7 mln, which also was better than expected. But probably the best metric was Q3 revenue guidance at $111-113 mln, which was well above analyst expectations.
- Its service launched in two new airports in Q2 (Greer, SC and Milwaukee, WI) bringing total CLEAR Plus airports to 45. As the company adds more and more airports, it keeps increasing the value for travelers and boosts subscriber retention, which YOU describes as the lifeblood of a subscription business. Annual CLEAR Plus Net Member Retention in Q2 was 94.3% up 1,370 bp yr/yr, although down slightly (100bp) sequentially.
- YOU says it had been expecting a very busy summer travel season, but it has exceeded its already high expectations. Looking ahead, YOU does not sound too concerned about a recession. It says its business has not experienced any evidence of a travel or economic slowdown. And the robust guidance for Q3 seems to support that. YOU also noted that its recent growth has not just been a COVID rebound, it believes its service is really catching on organically with consumers.
- Looking ahead, YOU sounds pretty excited about the upcoming launch of its TSA PreCheck service, which it expects to roll out in Q4. It is currently gearing up marketing and operations to support that.
Overall, it is clear that YOU is benefitting from a high level of pent-up demand for travel. We are about to get earnings reports from retailers this week, and based on recent guide downs, it could be a rough ride for many. However, that is consistent with the notion that travel is gaining with consumers' share of wallet. People are focusing more on experiences, rather than buying stuff at this point.
Finally, there was a lot of excitement when YOU made its IPO debut just over a year ago. It priced at $31, which was above range and opened at $38.55 and was above $60 by early August. However, some lackluster earnings reports and concerns about when travelers would return have weighed on the stock. Despite the trading action today, we think this report was pretty solid and should get investors to take another look.
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