Market Snapshot
briefing.com
| Dow | 31613.94 | +466.68 | (1.50%) | | Nasdaq | 11787.27 | +242.39 | (2.10%) | | SP 500 | 3979.32 | +71.06 | (1.82%) | | 10-yr Note |
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| | NYSE | Adv 2325 | Dec 729 | Vol 849 mln | | Nasdaq | Adv 2981 | Dec 1311 | Vol 4.3 bln |
Industry Watch
| Strong: Utilities, Consumer Discretionary, Communication Services, Information Technology |
| | Weak: Energy |
Moving the Market
-- Buying into a short-term oversold situation
-- Strength in mega cap stocks
-- Slight moderation in dollar strength
-- Falling Treasury yields and oil prices
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Closing Summary
07-Sep-22 16:30 ET
Dow +435.98 at 31583.24, Nasdaq +246.99 at 11791.87, S&P +71.68 at 3979.94
[BRIEFING.COM] Today's trade had a general positive disposition thanks to a feeling that the market was due for a bounce from a short-term oversold condition. This narrative found support from cooling market rates and falling oil prices, as well as a welcome moderation in the dollar after its recent run. The S&P 500 held its ground at the psychologically important 3,900 level yesterday, which added to the positive sentiment. The Nasdaq broke its seven-session losing streak as the major indices all closed just off session highs.
The Wall Street Journal reported this morning that the Fed is likely to raise the fed funds rate by 75 basis points at its September 20-21 FOMC meeting. Buyers were not deterred by the report, and that resilience acted as another upside catalyst for the market on the basis that the rate hike had already been priced in.
There was also some hawkish comments from Fed officials for participants to digest today, which the market took in stride. Fed Vice Chair Brainard (FOMC voter) indicating that the policy rate will need to rise further while Cleveland Fed President Mester (FOMC voter) reiterated her previous view that rates will need to be taken to a restrictive level and that she does not anticipate a rate cut in 2023.
The slight moderation in the US Dollar Index, which fell 0.6% to 109.58 today, helped the buying effort. The USD/JPY, up 1.5% at its peak today, was up 0.7% to 143.83. The EUR/USD was up 1.1% to 1.0010.
Buying was broad based as advancers outpaced decliners by a 3-to-1 margin at the NYSE and a greater than 2-to-1 margin at the Nasdaq.
The broad nature was also reflected by S&P 500 sector performance. Ten of the 11 sector closed with gains that ranged from 1.6% (information technology) to 3.1% (utilities). The lone laggard in the red was energy (-1.2%) amid falling oil prices.
WTI crude oil futures fell 5.9% to $81.84/bbl. Natural gas futures fell 4.4% to $7.83/mmbtu.
Treasury yields were also down today. The 2-yr note yield fell six basis points to 3.45% while the 10-yr note yield fell eight basis points to 3.27%.
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index showed a 0.8% decline compared to last week's 3.7% decline
- The trade deficit narrowed to $70.6 billion (Briefing.com consensus -$70.2 billion) in July from a downwardly revised deficit of $80.9 billion (from -$79.6 billion) in June. The improvement was the result of July imports being $9.7 billion less than June imports and July exports being $0.5 billion more than June exports.
- The key takeaway from the report is that it conveyed ongoing supply chain and logistics problems, as imports from the EU and China were down $4.0 billion and $3.0 billion, respectively, from June.
Dow Jones Industrial Average: -13.1% YTD
S&P 400: -14.4% YTD
S&P 500: -16.5% YTD
Russell 2000: -18.4% YTD
Nasdaq Composite: -24.6% YTD
Market near session highs ahead of the close
07-Sep-22 15:25 ET
Dow +465.78 at 31613.04, Nasdaq +236.52 at 11781.40, S&P +76.19 at 3984.45
[BRIEFING.COM] The stock market continues to push higher ahead of the close.
While the market moves higher, the US Dollar Index continues to fall, down 0.5% to 109.67.
Looking ahead to Thursday, marking participants will receive weekly initial jobless claims (Briefing.com consensus 246,000; prior 232,000) and continuing claims (prior 1.438 million) at 8:30 a.m. ET, weekly EIA Natural Gas Inventories (prior +61 bcf) at 10:30 a.m. ET, weekly EIA Crude Oil Inventories (prior -3.33 million) at 11:00 a.m. ET, and July Consumer Credit (prior $40.1 billion) at 3:00 p.m. ET.
Energy complex futures settle lower
07-Sep-22 15:00 ET
Dow +466.68 at 31613.94, Nasdaq +242.39 at 11787.27, S&P +71.06 at 3979.32
[BRIEFING.COM] The major indices continued to climb in the last half hour, sitting at or near session highs.
Energy complex futures made sizable downside moves on the day. WTI crude oil futures fell 5.9% to $81.84/bbl. Natural gas futures fell 4.4% to $7.83/mmbtu.
On a related note, the S&P 500 energy sector (-1.4%) remains the lone laggard in negative territory.
Treasury yields are near session lows with the 2-yr note yield down five basis points to 3.45% while the 10-yr note yield is down seven basis points to 3.27%.
Beige Book shows economic activity largely unchanged, outlook for future growth still generally weak
07-Sep-22 14:25 ET
Dow +379.75 at 31527.01, Nasdaq +188.31 at 11733.19, S&P +58.06 at 3966.32
[BRIEFING.COM] The major averages moved to session highs in the last half hour following the release of the Fed's September Beige Book; in short, the report showed that economic activity was unchanged, on balance, since early July, with five Districts reporting slight to modest growth in activity and five others reporting slight to modest softening.
Other key excerpts from the report included that price levels remained highly elevated, but nine Districts reported some degree of moderation in their rate of increase. Substantial price increases were reported across all Districts, particularly for food, rent, utilities, and hospitality services.
Additionally, overall labor market conditions remained tight, although nearly all Districts highlighted some improvement in labor availability, particularly among manufacturing, construction, and financial services contacts. Moreover, employers noted improved worker retention, on balance.
The report also showed that the outlook for future economic growth remained generally weak, with contacts noting expectations for further softening of demand over the next six to twelve months.
In other news, we'd also mention that Apple (AAPL 155.33, +0.80, +0.52%) is announcing updates to its product line.
Gold recoups week-opening losses on Wednesday
07-Sep-22 14:00 ET
Dow +392.88 at 31540.14, Nasdaq +180.97 at 11725.85, S&P +57.81 at 3966.07
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+1.57%) is atop the standings; at the top of the hour the Fed's Sept. Beige Book is due out.
Gold futures settled $14.90 higher (+0.9%) to $1,727.80/oz, aided in part by a modest dip in the greenback and losses in yields.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $109.67.
GitLab develops remarkable quarterly results once again, helping to justify lofty valuation (GTLB)
GitLab (GTLB) is trading sharply higher after delivering an impressive beat-and-raise 2Q23 earnings report that featured robust revenue growth of 74%. Considering the strength of its report, we believe the stock could be trading even higher if it weren't for GTLB's rich valuation. Currently, shares are trading with a forward P/S of about 12.5x.
GTLB, which provides a DevSecOps platform for creating software, shares this pricey trait with a few other cloud software stocks that were clobbered last week following their earnings reports. However, unlike those names -- including MongoDB (MDB), Veeva Systems (VEEV), and Okta (OKTA) -- GTLB struck a very bullish tone regarding the current business climate and its outlook.
Specifically, CFO Brian Robins commented that GTLB is not experiencing any negative impact from the volatility in the macroeconomic environment. In fact, he stated that buying cycles have actually sped up and that the company continues to achieve strong win rates. There are a few key factors working in GTLB's favor that set it apart from other cloud software companies.
- Developing modernized software is imperative for virtually any enterprise as the massive secular trends of digital transformation and cloud migration continue to unfold. This premise holds true even during uncertain economic times.
- Companies are looking to consolidate and simplify their software development processes in order to save time and money. Launching revenue-generating applications faster is another top priority for CIOs and CTOs. GTLB's One DevOps platform combines every aspect of software development into a single application, including building, securing, deploying, and monitoring the software. This allows companies to reduce the number of vendors they do business with, while simultaneously reducing the amount of time it takes to integrate disparate platforms and applications.
- With the entire software development process residing on one application, security is enhanced since it's easier to identify threats and to fix/redeploy vulnerable code.
A few key metrics illustrate the mission-critical nature of its platform, and the strong ROI that its customers are generating through its platform.
- The company added the largest number of base customers ever for a single quarter. It ended Q2 with over 5,800 customers with ARR of at least $5,000, up 61% yr/yr. GTLB is also having plenty of success in the large customer category as customers with $100,000 or more in ARR grew by 55% yr/yr to 593.
- Dollar-based Net Retention Rate remained steady from last quarter, coming in at a remarkable 130%. This speaks to the effectiveness of its land-and-expand model. GTLB offers a free version of is platform, which then becomes entrenched within a company's software development team. At that point, many companies choose to upgrade to its Premium or Ultimate paid tiers. The Ultimate continues to be GTLB's fastest growing tier, accounting for 39% of ARR in Q2 compared to 29% in the year-earlier quarter.
The main takeaway is that GTLB is firing on all cylinders and that demand for its platform is less sensitive to macroeconomic headwinds than other cloud software names. Its rich valuation remains the only impediment for the stock at this point, although that's a significant issue in this current market.
Academy Sports + Outdoors' beat-and-raise JulQ affirms that sports goods demand is holding up (ASO)
Academy Sports + Outdoors (ASO +14%) affirmed that demand for sporting goods is holding up better than other discretionary categories by posting a double-digit earnings beat and in-line sales growth in Q2 (Jul). ASO also raised its FY23 earnings outlook. The company's solid figures emulated those from rivals Dick's Sporting Goods (DKS) and Hibbett (HIBB) last month, further bucking the trend of waning discretionary spending seen by retail giants Walmart (WMT) and Target (TGT).
That is not to say that demand is not still slowing. Revs slid 5.9% yr/yr to $1.69 bln, while comparable store sales also dropped by -6% in the quarter, fueled by falling transactions compared to the year-ago period. Each of ASO's four merchandise divisions experienced declining sales growth yr/yr.
Nevertheless, ASO's growth shined compared to pre-pandemic numbers, with over 20% growth in each product category. Additionally, ASO delivered many other highlights in the quarter.
- Merchandise margins expanded 20 bps yr/yr in Q2, mirroring growth from Q1 (Apr). The slight margin improvement is a win given the elevated shipping and freight costs relative to the year-ago period.
- Like DKS, ASO also effectively managed its inventory in the quarter, stocking the appropriate assortment with the best value. This is illuminated by ASO delivering a 36% jump in sales versus 2019 on inventory dollars growing just 8% and units declining 12%.
- Echoing comments made by DKS, ASO is confident in its inventory position to capitalize on encouraging back-to-school trends going forward. The company has also made significant in-roads in securing enough product for the fall and holiday seasons. As a result, ASO upped its adjusted EPS guidance for FY23 to $6.75-7.50 from $6.55-7.25.
- Although ASO increased its guidance by roughly the size of its Q2 outperformance, it expects a more promotional second half, which will weigh on its bottom line.
- ASO's raised FY23 earnings outlook is somewhat tempered by only reaffirming its prior FY23 revenue and comp guidance of $6.34-6.63 bln and negative 6% to negative 3%, respectively. Still, ASO's reiterated comp forecast stacks up well against DKS, which only improved the low-end of its FY23 same-store sales outlook to negative 6% to negative 2%.
Bottom line, after ASO's impressive Q2 numbers, it is clear that although demand is cooling off in the sporting goods space, it is still holding up relatively well. Even though transactions may continue to slide in subsequent quarters as inflation weighs on consumers' spending power, ASO has a line of defense with its exposure to team sports and outdoor recreation, which has held up well even after the pandemic.
Coupa Software up more than a "coupa" points as guidance eases recession concerns (COUP)
Coupa Software (COUP +10%) is up more than a "coupa" points today as this provider of cloud-based business spend management (BSM) software surprised investors with a surprisingly strong Q2 (Jul) earnings report last night. It reported nice upside with EPS nearly doubling analyst expectations and nice revenue upside.
- One of the biggest clouds over COUP's share price has understandably been fears of a recession. Its business is highly correlated with businesses spending money, so any pullback or caution by its clients will have a big impact on tis results. As such, we think its guidance was probably more important than the Q2 upside. COUP guided Q3 (Oct) and FY23 EPS above expectations although Q3 revenue guidance was a bit light. COUP tends to be conservative on guidance, so we are not worried about that.
- We commend COUP for directly addressing the recession elephant in the room on the call last night. Management is monitoring for signs but does not seem overly concerned. They used the example of significant increases in airfare prices. Despite higher prices, demand has actually increased as businesses progress towards returning to pre-pandemic levels of travel. Business travel is a very important category for COUP, so we were happy to hear this.
- The company stressed that even if the US were to fall into a recession and clients pull back on IT spending, COUP would respond by moderating its own investments to focus more on profitability. In more extreme cases, COUP says it will significantly decrease spend if necessary.
- However, we are not there yet. In fact, COUP saw a very strong Q2 performance in the North America enterprise market. North America represents about 60% of total sales, so we are glad to see it holding up well. Also, gross renewal rates and net retention rates remain consistent with historical ranges of 94-96% and 110-112%, respectively.
- It is not all good news. Most notably, COUP continues to see a softer demand environment in Europe with lengthening sales cycles. The good news is that the company has factored this into its guidance. We will have to monitor Europe in the coming quarters, but we think the guidance is pretty solid overall.
The key takeaway here is that investor fears were perhaps a bit overblown. COUP eased those fears with its guidance and with its generally reassuring commentary on the call. That is not to say COUP is in the clear. Its high correlation to business spend makes this stock particularly vulnerable if we fall into a recession and clients pull back on spend to conserve cash. However, management did ease concerns about the near term outlook.
United Airlines gaining some altitude after nudging Q3 guidance higher (UAL)
With a frenetic peak travel season winding down, it appears that the incessant demand for air travel is not tapering off, based on United Airlines (UAL) updated 3Q22 guidance. After initially guiding for revenue and TRASM (Total Revenue Per Available Seat Mile) growth of 11% and 24-26%, respectively, UAL is now forecasting increases of 12% and 25%. The bump higher in UAL's revenue guidance is modest, but it eases concerns that the macroeconomic headwinds that have pressured many retailers will start hurting travel demand this fall.
However, the main story that emerged from a disappointing earnings season for the airline industry revolved around rising costs and capacity limitations, not demand. Recall that UAL badly missed Q2 EPS expectations, despite achieving its highest Q2 revenue in its history at $12.1 bln. Staffing shortages within UAL, and across various airports, restricted the company's ability to add flights. Consequently, UAL's capacity in Q2 declined by 15% compared to 2Q19. With fewer available seats to spread its costs across, UAL's CASM-ex (cost per available seat mile, excluding fuel) increased by 17% versus 2Q19.
Encouragingly, UAL is now experiencing improved operational reliability, while costs are "inline to slightly better" than its prior expectations. This suggests that staffing levels are starting to more closely align with demand, enabling UAL to avoid more costly cancellations. Still, the improvements are pretty marginal at this point, as reflected in the revised Q3 outlook.
- Capacity is now expected to be down by 10-11% versus 3Q19, compared to the prior guidance of down 11%. There was no change to UAL's capacity guidance for FY22 or FY23, which calls for a decrease of 13%, and an increase of "no more than 8%", respectively.
- Due to the slightly enhanced capacity forecast for Q3, UAL now anticipates CASM-ex to be up around 16% versus its previous guidance of up 16-17%. Although UAL didn't provide CASM (including fuel) guidance, it did disclose that average aircraft fuel price/gallon is trending roughly in line with its expectations at $3.83.
- As a result of the above, adjusted operating margin guidance was nudged higher to 10.5% from 10.0%, putting UAL on track to be profitable in FY22.
Although the revisions to UAL's Q3 guidance are rather slight, the update brings a sense of relief that business conditions haven't further deteriorated since UAL and its peers' reported earnings in late July. In UAL's Q2 earnings press release, CEO Scott Kirby struck a cautious tone, warning that the economy may slow -- and potentially enter into a recession -- in the near-to-medium term. He also highlighted the industry-wide operational challenges that were constraining capacity, and the record high fuel costs, as key risks that could derail UAL's recovery. While those risks have not dissipated, the brightening outlook for Q3 shows that conditions have become a little smoother, rather than more turbulent.
UiPath sinks to all-time lows on reduced FY23 guidance due to FX and macroeconomic headwinds (PATH)
Sinking to all-time lows, shares of UiPath (PATH -14%) are struggling today after the robotic process automation (RPA) software provider issued weak guidance as macro headwinds continue to cause disruptions. After guiding FY23 (Jan) revs above consensus in Q1 (Apr) and reiterating that outlook less than a month later, worsening FX impacts and macro uncertainty led PATH to reduce its prior forecast despite upbeat Q2 (Jul) numbers. The company now sees FY23 sales growth of just 12.6% yr/yr at the midpoint of its updated range of $1.002-1.007 bln, down from its prior forecast of +21.9% growth.
Over half of PATH's business operates outside the U.S., and the company prices in local currency. As such, the strengthening U.S. dollar has a material effect on PATH's financials. After achieving non-GAAP profitability in FY22, its first year as a public company, profitability has become unlikely in FY23, primarily due to FX headwinds. PATH expects adjusted operating losses of approximately $15 mln for the year. However, when backing out FX impacts, the number jumps to a positive $25 mln. The silver lining is that the company still expects profitability in FY24.
The euro's parity with the dollar is not the only challenge facing PATH. The macroeconomic environment is spurring more measured buying amongst companies, taking a bite out of sales growth. PATH's regional bias is again the issue, as many European countries are experiencing hotter inflation than in the U.S. A possible energy crisis overseas is also not helping business sentiment.
These headwinds are frustrating, especially given the numerous highlights PATH delivered in Q2.
- Although adjusted EPS contracted to $(0.02) from $0.01 in the year-ago period and sales growth decelerated to 23.9% yr/yr from over 40% last year, both metrics still topped estimates.
- Customer growth remained strong, especially in the over $1 mln in annualized recurring revenue (ARR) category, which soared 60% yr/yr to 190, similar to the growth seen in Q1. Meanwhile, customers accounting for at least $100K in ARR grew over 30% to 1,660.
- The solid customer gains helped PATH exceed its ARR guidance, expanding the figure 44% yr/yr to $1.043 bln, crossing the $1.0 bln mark for the first time.
- Margins also remained sound, boasting gross margins of 84%, in-line with PATH's ongoing target of over 80% margins.
Nevertheless, guidance was soft, and the challenging macro picture combined with FX headwinds set a negative tone for the short term. PATH acknowledged that given its slowing sales growth, it needs to evolve how it manages its business, outlining four strategic objectives to reposition the company to increase velocity and productivity.
Bottom line, we like the RPA market, as the technology takes advantage of global digitalization trends and improves organizations' efficiency. However, given the level of macro uncertainty and strong FX headwinds, we continue to think PATH's short-term future will be rife with challenges, leading to ongoing selling pressure.
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