Market Snapshot
briefing.com
| Dow | 34442.58 | +320.25 | (0.94%) | | Nasdaq | 13797.20 | +205.49 | (1.51%) | | SP 500 | 4455.02 | +57.31 | (1.30%) | | 10-yr Note | +2/32 | 3.82 |
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| | NYSE | Adv 2129 | Dec 837 | Vol 1.02 bln | | Nasdaq | Adv 2585 | Dec 1743 | Vol 4.68 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Utilities, Communication Services, Materials, Industrials, Financials, Consumer Staples |
| | Weak: -- |
Moving the Market
-- Apple passes $3 trln market capitalization after Citigroup begins coverage with a Buy rating and $240 price target
-- May Personal Income and Spending Report shows moderation in inflation, although core inflation remains on the high side at 4.6% yr/yr
-- Optimism that economy can avoid a recession
-- Leadership from mega-cap stocks
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Closing Stock Market Summary
30-Jun-23 16:15 ET
Dow +285.18 at 34407.51, Nasdaq +196.59 at 13788.30, S&P +53.94 at 4451.65
[BRIEFING.COM] The last day of the second quarter ended with a punctuation point on what marked the best first half of the year for the Nasdaq Composite (+31.7%) since 1983! Mega-cap stocks took the lead at the open, held it throughout the day, and joined with a host of other stocks to finish the week and the quarter on a winning note.
The tone for today's winning session was set early when Citigroup started coverage of Apple (AAPL 193.97, +4.38, +2.3%) with a Buy rating and $240 price target. Apple surpassed a $3 trillion market capitalization today. Not to be outdone, Daiwa Securities upgraded NVIDIA (NVDA 423.02, +14.80, +3.6%) to Outperform from Neutral. Those research calls put a bid in the mega-cap stocks that strengthened following the release of the Personal Income and Spending Report for May.
That report played into the optimistic view that the U.S. economy could in fact avoid a recession. It wasn't because the report was undeniably strong; rather, it was more because it wasn't decidedly weak. Personal income increased 0.4%, personal spending jumped 0.1%, the PCE Price Index rose 0.1%, and the core-PCE Price Index, which excludes food and energy, advanced 0.3%.
Importantly, the year-over-year increase for the PCE Price Index moderated to 3.8% from 4.3% and the year-over-year rate for the core-PCE Price Index moderated to 4.6% from 4.7%. The core rate is still too high for the Fed's liking, yet the recognition that the core rate dipped from April was enough to quiet concerns for now about the Fed possibly raising rates at its next two FOMC meetings.
The CME FedWatch Tool shows an 84.3% probability of a 25-basis points rate hike in July, but only a 20.2% probability for a second rate hike at the September FOMC meeting.
The Treasury market looked placated by what it saw in the data. Yields came down immediately after the report was released at 8:30 a.m. ET. The 2-yr note yield went from 4.92% to 4.84% and settled the session unchanged at 4.88%. The 10-yr note yield dropped from 3.88% to 3.82% where it settled for the week.
The Dow, Nasdaq, and S&P 500 all closed near their highs for the session. The Russell 2000, which outperformed on Thursday, trailed the action on Friday but still logged a tidy 0.4% gain.
Today's action might have been led by the mega-cap stocks but they had plenty of company. Advancers led decliners by a better than 2-to-1 margin at the NYSE and by a roughly 13-to-9 margin at the Nasdaq. All 11 S&P 500 sectors ended the day higher, including the real estate sector (+0.5%), which enjoyed a burst of buying interest in the last half hour of trading that ferried it out of negative territory. 25 of the 30 Dow components closed higher.
The information technology (+1.8%) and consumer discretionary (+1.4%) sectors were the best performers today, led by their mega-cap constituents. The consumer discretionary sector overcame a weak showing from Nike (NKE 110.35, -3.02, -2.7%), which disappointed with its fiscal Q4 results. Altogether there were five sectors that gained at least 1.0%.
The Vanguard Mega-Cap Growth ETF (MGK) jumped 1.5% today, leaving it up 15.1% for the quarter and 36.8% for the year. The Invesco S&P 500 Equal-Weight ETF (RSP) increased 0.9%, leaving it up 3.5% for the quarter and 6.0% for the year.
- Nasdaq Composite: +31.7% YTD
- S&P 500: +15.9% YTD
- S&P Midcap 400: +7.9% YTD
- Russell 2000: +7.2% YTD
- Dow Jones Industrial Average: +3.8% YTD
Reviewing today's economic data:
- Personal income increased 0.4% month-over-month in May (Briefing.com consensus 0.4%; prior revised to 0.3% from 0.4%), personal spending rose 0.1% (Briefing.com consensus 0.3%; prior revised to 0.6% from 0.8%), the PCE Price Index advanced 0.1% (Briefing.com consensus 0.1%; prior 0.4%), and the Core-PCE Price Index, which excludes food and energy, increased 0.3% (Briefing.com consensus 0.3%; prior 0.4%). On a year-over-year basis, the PCE Price Index was up 3.8% versus 4.3% in April. The core-PCE Price Index was up 4.6% year-over-year versus 4.7% in April.
- The key takeaway from the report is the understanding that the core-PCE Price Index moderated in May; however, it didn't move much, demonstrating some stickiness in this key inflation gauge for the Fed.
- The final reading for the June University of Michigan Consumer Sentiment Index checked in at 64.4 (Briefing.com consensus 63.9) versus the preliminary reading of 63.9. In the same period a year ago, the index stood at 50.0.
- The key takeaway from the report is that consumers' attitude about the economic outlook has improved with an easing in inflation expectations.
- The June Chicago PMI was 41.5, up from 40.4 in May but still well below the 50.0 level that is the line between expansion and contraction.
Looking ahead to Monday, market participants will receive the following economic data:
- 9:45 a.m. ET: June IHS Markit Manufacturing PMI - Final (Prior 48.4)
- 10:00 ET: May Construction Spending (Briefing.com consensus 0.4%; Prior 1.2%)
- 10:00 ET: June ISM Manufacturing Index (Briefing.com consensus 47.1; Prior 46.9)
Some flat squeezes written on today's rally effort
30-Jun-23 15:30 ET
Dow +330.86 at 34453.19, Nasdaq +214.07 at 13805.78, S&P +59.53 at 4457.24
[BRIEFING.COM] The indices are stuck in a range-bound trade that will be perfectly acceptable for anyone with a bullish bias, because today's trading ranges are elevated. The major indices are up between 0.7% and 1.6%.
In turn, 10 out of 11 S&P 500 sectors are up at least 0.9%. The only laggard -- and true underperformer today -- is real estate (-0.7%). There are only two sectors though -- information technology (+1.9%) and consumer discretionary (+1.6%) -- that are actually outperforming the S&P 500 (+1.3%).
With so many sectors doing well, today's trade strikes us as a trade with some flat squeezes written on it, which is to say the resilience and outperformance of the stock market is driving some investors to put sidelined cash back to work in equities.
As a reminder, the stock market will close at 1:00 p.m. ET on Monday ahead of the July 4th holiday. Markets are closed on Tuesday. For many, it will be a four-day weekend that is getting started today with some fireworks.
Rallying on fear
30-Jun-23 14:55 ET
Dow +320.25 at 34442.58, Nasdaq +205.49 at 13797.20, S&P +57.31 at 4455.02
[BRIEFING.COM] The S&P 500 has been pressing its way to new highs for the session in the afternoon trade, maintaining the same bullish bias that persisted at the open.
The move today, not only above 4,400 but also 4,450, is presumably driving some fear-based trading oriented around the fear of missing out on further gains. That fear, though, isn't unique to today. It has been constant through much of the second quarter.
The Nasdaq Composite is up 12.9% for the quarter and up 31.9% for the year. It has been the best first half for the Nasdaq since 1983, which is truly remarkable given that it has occurred in the midst of an aggressive tightening cycle, a string of 14 straight monthly declines in the Leading Economic Index, and a recession in the manufacturing sector.
In the same vein, the Russell 2000 and Invesco S&P 500 Equal-Weight ETF (RSP) have perked up mightily this month and have outperformed the Nasdaq (+6.7%) and S&P 500 (+6.6%) with gains of 8.4% and 7.4%, respectively.
Carnival, Enphase enjoy gains after sell side upgrades
30-Jun-23 14:30 ET
Dow +309.95 at 34432.28, Nasdaq +207.32 at 13799.03, S&P +56.82 at 4454.53
[BRIEFING.COM] The S&P 500 (+1.29%) is mirroring broader market gains in recent trading, gathering near highs of the day.
S&P 500 constituents Carnival (CCL 18.74, +1.58, +9.21%), Enphase Energy (ENPH 168.28, +9.51, +5.99%), and GE HealthCare (GEHC 80.94, +2.26, +2.87%) dot the top of the standings. CCL advances on a Jefferies upgrade; and ENPH caught an upgrade at B. Riley Securities this morning.
Meanwhile, Georgia-based household product firm Newell Brands (NWL 8.63, -0.33, -3.68%) is today's top laggard.
Gold's Friday gains trim weekly losses
30-Jun-23 14:00 ET
Dow +302.31 at 34424.64, Nasdaq +210.34 at 13802.05, S&P +56.35 at 4454.06
[BRIEFING.COM] With about two hours remaining on Friday the tech-heavy Nasdaq Composite (+1.55%) is atop the standings, up more than 210 points.
Gold futures settled $11.50 higher (+0.6%) to $1,929.40, down less than $1 on the week, pressured this week by a modest rise in yields and a flattish dollar.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $102.90.
Market likes what it sees in Apple and PCE price data on last day of second quarter
The second quarter has been kind to many stocks, none more so than the mega-cap stocks, yet the quarter is coming to an end with a broadening of the participation in the stock market's advance.
To wit: the market-cap weighted S&P 500 is up 5.2% in June but the Invesco S&P 500 Equal Weight ETF (RSP) is up 6.3%. Both, however, are expected to add to their gains when trading begins.
Currently, the S&P 500 futures are up 28 points and are trading 0.7% above fair value, the Nasdaq 100 futures are up 133 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up 163 points and are trading 0.5% above fair value.
The equity futures market had shown a positive bias ahead of the 8:30 a.m. ET release of the May Personal Income and Spending Report. A move higher in Apple (AAPL) after Citigroup began coverage of the stock with a Buy rating and $240 price target had a lot to do with that, as did gains in other mega-cap stocks that more than offset the weakness in Nike (NKE) following its weaker-than-expected fiscal Q4 report.
For the record, Apple will be sporting a market cap north of $3 trillion when it opens today.
The equity futures market took another leg higher following the release of the aforementioned economic report, which was seemingly "just right" for the market in that income was up in May while spending and PCE inflation both moderated.
Personal income increased 0.4% month-over-month (Briefing.com consensus 0.4%; prior revised to 0.3% from 0.4%), personal spending rose 0.1% (Briefing.com consensus 0.3%; prior revised to 0.6% from 0.8%), the PCE Price Index advanced 0.1% (Briefing.com consensus 0.1%; prior 0.4%), and the Core-PCE Price Index, which excludes food and energy, increased 0.3% (Briefing.com consensus 0.3%; prior 0.4%).
On a year-over-year basis, the PCE Price Index was up 3.8% versus 4.3% in April. The core-PCE Price Index was up 4.6% year-over-year versus 4.7% in April.
The key takeaway from the report is the understanding that the core-PCE Price Index moderated in May; however, it didn't move much, demonstrating some stickiness in this key inflation gauge for the Fed.
The latter point notwithstanding, the 2-yr note yield improved following the release, coming down from 4.92% to 4.84%, and the 10-yr note yield also improved, falling from 3.88% to 3.82%. The inference, we suppose, is that this data point might not persuade the Fed from raising rates in July, but the disinflation trend could put a clamp on the willingness to raise rates again in September.
Notably, the CME FedWatch Tool shows an 84.3% probability of a 25-basis points rate hike in July to 5.25-5.50%, versus 89.3% yesterday, and only a 20.8% probability of a rate hike to 5.50-5.75% in September versus 26.8% yesterday.
-- Patrick J. O'Hare, Briefing.com
Progress Software advances higher as beat-and-raise report highlights its resiliency (PRGS)
Progress Software (PRGS), a DevOps and business applications company, delivered a strong beat-and-raise Q2 earnings report driven by better-than-expected revenue across its product portfolio. While IT departments have become more judicious in their spending, PRGS continued to see healthy demand, which the company attributes to the mission-critical nature of its applications. More specifically, the digitization trend has necessitated the modernization of business applications and the development of software that boosts revenue and/or removes costs through greater operating efficiencies.
- Strength was broad based, but the OpenEdge, LoadMaster, Chef, and MarkLogic offerings were standouts in Q2. OpenEdge, an application development platform for running business-critical applications, saw an upswing in customer win-backs, while DevOps product Chef benefited from a combination of new customer wins and expansions. This is reflected in PRGS's net retention rate, which remained above 100%.
- Acquisitions are a key component of PRGS's growth strategy and in Q2, the company's active M&A approach played an important role in its upside performance. This past February, PRGS completed its acquisition of MarkLogic, adding new capabilities to its product portfolio, including NoSQL and semantic metadata management. During the earnings call last night, PRGS stated that MarkLogic provided a meaningful impact on ARR, which grew by 19% to $569 mln.
- Furthermore, the company continues to expect that it will achieve all of its MarkLogic synergy targets by the end of the fiscal year. When PRGS announced the acquisition last January, it stated that MarkLogic should add more than $100 mln in annual revenue, contribute strong cash flows, and be accretive to earnings in FY24.
- Looking ahead, PRGS believes that the M&A market will remain in its favor, providing compelling acquisition opportunities. This positive view is based on the scarce amount of capital in the private market and the difficult economic conditions that are prevailing, causing companies to look for exit strategies.
Overall, this was an impressive quarterly report for PRGS, illustrating that demand for its business application software remains resilient amid a cautious IT spending environment.
SMART Global lights up on a sizeable EPS beat and explosive AI-related revenue in MayQ (SGH)
SMART Global (SGH +9%), a semiconductor and application-optimized LED supplier, is being lit up with buy orders today after registering its widest earnings beat in six quarters in Q3 (May). Revs did fall at their quickest pace in over three years. However, it was still better than analysts anticipated. Meanwhile, SGH projected Q4 (Aug) earnings and sales figures in line with consensus.
- SGH's adjusted EPS of $0.66, albeit a 24% contraction yr/yr, was a notable bright spot in Q3. SGH expanding its non-GAAP gross margins 230 bps yr/yr to 28%, assisted by cost containment initiatives and lower bonus accruals, played a significant role in its sizeable earnings beat.
- AI was a recurring theme throughout SGH's conference call, with good reason. The company's Intelligent Platform Solutions (IPS) segment, which comprised 45% of Q3 revs, is amid secular tailwinds in AI, machine learning (ML), and data analytics. For example, SGH's Penguin Computing arm of IPS deploys high-performance computing (HPC) systems, such as managing over 50,000 NVIDIA GPUs for AI training. With the AI boom remaining alive and well, IPS sales exploded by nearly 80% yr/yr to $170.85 mln.
- On the flip side, SGH's other segments, Memory Solutions and LED Solutions, did not fare as well, with sales tumbling by 44% and 37%, respectively, dragging down overall growth by 17.1% to $383.33 mln. The considerable declines across SGH's non-AI businesses highlight the depressed macroeconomic environment. For instance, even though Micron (MU) stated earlier this week that it likely already endured a bottom regarding memory demand, it still forecasted a significant reduction in wafer fab equipment spending yr/yr in 2023.
- Nevertheless, like MU, SGH was optimistic about improving demand trends. The company commented that while customers continue working down inventory levels, it noticed improving customer design activity, which tends to be a precursor to improving demand. Additionally, within its LED Solutions segment, SGH acknowledged that although it is still in the early days of a cyclical recovery of the LED market, it is bullish that the business will enjoy a more robust FY24.
- SGH anticipates decent positive momentum to cap off FY23, projecting adjusted EPS of $0.30-0.60, a fairly wide range but common with past quarterly forecasts, and revs of $350-400 mln.
Overall, Q3 results were impressive and showcased how AI continues positively impacting organizations focused on the technology. AI will also be SGH's core focus going forward. As previously announced, SGH is exiting its SMART Modular Brazil business, which made up most of its Memory Solutions segment, agreeing to sell 81% of the division for ~$138 mln in cash, making its IPS segment represent the bulk of future revs.
AI may very well end up being a significantly disruptive technology. However, given that it is still in the early stages of growth, AI may generate turbulence for SGH over the near term. The company acknowledged AI's relative immaturity, anticipating IPS sales to be lumpy over the next several quarters. Still, SGH is confident that it will capitalize on the emerging trends within the AI industry over the long term.
NIKE scores points with inventory correction, but soft outlook takes some air out of stock (NKE)
NIKE (NKE) entered 4Q23 with a lingering high inventory situation, placing the company in a difficult position as it ramped up promotional activities to sell off stockpiles of older merchandise. Making matters worse, consumers have also been pulling back on discretionary spending, cutting into demand for athletic shoes, athleisure wear, and sports equipment. While facing this challenging backdrop, NKE's gross margin slid by 140 bps yr/yr to 43.6%, causing the company to come up just short of Q4 EPS estimates.
The good news is that one of those issues has been significantly resolved.
- Inventories were flat on a yr/yr basis and lower by about $400 mln on a sequential basis to $8.5 bln. With NKE's inventory returning to more normalized levels, the company can rein in markdowns and move towards a full price strategy.
- On that note, NKE stated that it's aiming for low-single digit price increases in FY24, supporting a 140-160 bps expansion for gross margin.
However, the macroeconomic related headwinds haven't dissipated, causing NKE to take a cautious approach with its 1Q24 revenue outlook.
- Specifically, the company guided for Q1 revenue to be flat-to-up low single-digits, missing analysts' expectations for about mid-single-digit growth.
- The soft outlook is primarily due to weakness in the wholesale channel, which experienced a 2% drop in revenue in Q4 following an 18% increase last quarter.
- CEO John Donahoe commented that the environment will remain promotional in FY24, putting pressure on NKE's wholesale partners through 1H24. Relatedly, Dick's Sporting Goods (DKS) and Foot Locker (FL) -- two of NKE's largest wholesale partners -- are trading lower today.
There are some key positives, though.
- Greater China, which has been a sore spot for NKE over the past few quarters, rebounded nicely in Q4 with revenue growing by 25% in constant currency to $1.8 bln. That represents a major improvement over last quarter's 1% increase.
- During the earnings call, Mr. Donahoe struck a very bullish tone regarding NKE's opportunity in China, stating that the company's strategy there is going very well and that an active and engaged Gen Z demographic and growing middle class are supporting its brand.
- While the sluggish wholesale channel weighed on the North America market, which saw revenue growth slow to 5% from 27% last quarter, NIKE Direct still performed well as revenue climbed by 18% in constant currency to $5.5 bln.
- This is mainly a function of the investments that NKE has made in its digital channel over the past several years. In FY23, the digital share of NKE's total business reached 26% compared to 10% in FY19.
The main takeaway is that while NKE essentially corrected its high inventory situation, it's still contending with a promotional retail climate. NKE is still a best-in-class brand and its long-term outlook is bright with momentum building for its Jordan brand (mid-30% growth in Q4), but macro headwinds seem likely to persist at least through 1H24.
Constellation Brands faces profit-taking today as reiterated FY24 outlook proves underwhelming (STZ)
Constellation Brands (STZ), a prominent alcoholic beverage distributor, looks rather lethargic today despite delivering beats on its top and bottom lines in Q1 (May) and reiterating its FY24 (Feb) guidance. After controversy clipped sales from competitor Anheuser-Busch InBev (BUD) early last month, STZ's Modelo banner quickly hopped to the number one beer brand in the U.S., igniting an impressive rally, with shares climbing around 11% from May 4 lows. As a result, even though STZ's Q1 numbers were solid, investors expected more, triggering profit-taking today.
- Beer remained STZ's growth driver during Q1, registering 5.5% depletions growth yr/yr, led by the company's Mexican portfolio, including Modelo (which saw around 40% depletions growth alone) Corona, and Pacifico, driving an 11% jump in net sales to $2.1 bln.
- Conversely, Wine and Spirits remained a weak spot, with depletions volume tumbling by 6.3% yr/yr, fueling a 10.0% dip in net sales to $416.3 mln. As has been the case over the past several quarters, the soft Wine and Spirits performance primarily stemmed from lower-end brands, which STZ has been working to unwind. Meanwhile, premium brands outpaced the higher-end wine market, leading to market share gains in the quarter.
- The robust Beer volumes and sustained demand within the higher-end wine and spirits category resulted in overall sales growth of 6.4% yr/yr to $2.51 bln. Also, despite operating margins contracting across both of STZ's segments, slipping by 220 bps in Beer to 38.0% and 60 bps in Wine and Spirits to 19.0% due to inflationary costs and fewer benefits from favorable pricing, the company still managed to keep adjusted EPS relatively stable yr/yr at $2.91.
- Guidance was somewhat underwhelming, particularly in light of Modelo's quick ascension to the throne within the beer market. STZ reiterated its FY24 EPS forecast of $11.70-12.00. The company also continued to project +7-9% net sales growth in Beer and a negative 0.5% to positive 0.5% jump in organic net sales within Wine and Spirits. Furthermore, STZ left its FY24 operating and free cash flow targets of $2.4-2.6 bln and $1.2-1.3 bln, respectively, unchanged.
It might be expected that during an environment where sticky inflation holds back consumer spending, STZ's Q1 numbers and reaffirmed guidance should keep its recent momentum active. However, after unseating its primary competitor last month as the best-selling beer brand in America, investors had raised expectations ahead of STZ's Q1 report, namely, that the company would hike its FY24 outlook.
Perhaps STZ is waiting until its AugQ numbers before feeling more confident in outperformance toward the back half of the year, keeping an eye on whether commanding the top spot in the beer category will result in sustained financial gains. Until then, management remains relatively conservative, as the current macroeconomic situation could still regress.
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