Market Snapshot
briefing.com
| Dow | 33944.06 | -344.49 | (-1.00%) | | Nasdaq | 13686.70 | -105.33 | (-0.76%) | | SP 500 | 4415.66 | -32.43 | (-0.73%) | | 10-yr Note | -30/32 | 4.04 |
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| | NYSE | Adv 433 | Dec 2454 | Vol 900 mln | | Nasdaq | Adv 1020 | Dec 3383 | Vol 6.1 bln |
Industry Watch
| Strong: -- |
| | Weak: Real Estate, Consumer Discretionary, Financials, Materials, Utilities |
Moving the Market
-- Rising market rates; the 10-yr note yield climbing past 4.00% and the 2-yr note yield surpassing 5.00%
-- Lingering sense the market is due for a pullback following the strong first half of the year
-- Rethinking the Fed's rate hike path in the wake of strong labor data this morning
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Closing Summary
06-Jul-23 16:25 ET
Dow -366.38 at 33922.17, Nasdaq -112.61 at 13679.42, S&P -35.23 at 4412.86
[BRIEFING.COM] The major indices all registered losses on this downbeat session, yet they were able to rebound from intraday lows around mid-morning with no specific news to account for the move, although the rebound coincided with market rates sliding back from peak intraday levels. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average had been down as much as 1.4%, 1.6%, and 1.5%, respectively. By the close, their losses ranged from 0.8% to 1.1%.
Even the Russell 2000, which lagged its larger peers with a 1.6% decline, bounced back from an earlier loss of 2.6%.
Rising market rates, the biggest factor driving today's retreat, created a reason to take more money off the table following the market's strong start to the year. The 2-yr note yield rose seven basis points to 5.01% and the 10-yr note yield rose 10 basis points to 4.04%. Those moves were in response to this morning's strong labor data and the stronger-than-expected ISM Non-Manufacturing Index for June.
Briefly, ADP estimated that 497,000 jobs were added to private sector payrolls in June (Briefing.com consensus 245,000). That news preceded a report that weekly initial jobless claims for the week ending July 1 were 248,000 (Briefing.com consensus 250,000), which is well below recession-like levels. The Employment Situation Report for June will be released before the open on Friday.
The bump in rates stoked valuation concerns in the stock market as participants considered the possibility of the Fed being more aggressive than expected with its tightening action. A 25 basis points rate hike in July has been solidified while expectations for rate hikes at future meetings increased.
According to the CME FedWatch Tool, the probability of a second rate hike in September jumped to 27.7% from 18.1% yesterday; however, the probability of a rate hike in November jumped to 46.7% from 35.9%.
All 11 S&P 500 sectors and 28 of the 30 Dow components closed with losses. Apple (AAPL 191.81, +0.48, +0.3%) and Microsoft (MSFT 341.27, +3.12, +0.9%) were the lone outperformers to close with a gain from the DJIA. Those stocks also offered some support to the information technology sector (-0.2%), which saw the slimmest decline today.
Other sectors that outperformed the broader market included consumer staples (-0.3%) and real estate (-0.6%). Meanwhile, the energy (-2.5%) and consumer discretionary (-1.7%) sectors logged the largest declines.
- Nasdaq Composite: +30.7% YTD
- S&P 500: +14.9% YTD
- S&P Midcap 400: +6.1% YTD
- Russell 2000: +4.6% YTD
- Dow Jones Industrial Average: +2.3% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index fell 4.4% with purchase applications dropping 5.0% and refinance applications falling 4.0%.
- According to ADP, private sector hiring increased by 497,000 in June (Briefing.com consensus 245,000) following a downwardly revised 267,000 (from 278,000) in May. Jobs in the goods-producing sector increased by 124,000 while jobs in the service-providing sector surged by 373,000. Small and medium businesses led the hiring, registering gains of 299,000 and 183,000, respectively, versus a decline of 8,000 positions at large establishments.
- Separately, initial jobless claims for the week ending July 1 increased by 12,000 to 248,000 (Briefing.com consensus 245,000). Continuing jobless claims for the week ending June 24 decreased by 13,000 to 1.720 million.
- The key takeaway from the report is much the same: initial jobless claims -- a leading indicator -- continue to run well below recession-like levels.
- The May Trade Balance Report showed a narrowing in the trade deficit to $69.0 billion (Briefing.com consensus -$69.0 billion) from an upwardly revised $74.4 billion (from -$74.6 billion) in April. The deficit moved in a positive direction, but not because of any overwhelming strength in exports. On the contrary, exports were $2.1 billion less than April exports. The swing factor was that imports were $7.5 billion less than April imports.
- The key takeaway from the report is that the decline in exports and imports is emblematic of a softening in global demand that one would expect to see in an environment where many of the world's leading central banks are raising rates.
- The final IHS Markit Services PMI reading for June fell to 54.4 from 54.9.
- JOLTS - Job Openings totaled 9.824 million in May following a revised count of 10.320 million in April (from 10.103 million).
- The ISM Non-Manufacturing Index for June checked in at 53.9% (Briefing.com consensus 51.1%), increasing from 50.3% in May. The dividing line between expansion and contraction is 50.0%. The increase from May suggests activity in the services sector picked up steam in June.
- The key takeaway from the report is the understanding that services sector activity expanded at a faster pace in June, a trend that will temper hard-landing concerns and presumably contribute to the Fed's inclination to implement additional tightening.
- Weekly EIA Crude Oil Inventories showed a draw of 1.51 million barrels after last week's draw of 9.60 million barrels.
Market participants will receive the June Employment Report tomorrow at 8:30 a.m. ET that will include:
- Nonfarm Payrolls (Briefing.com consensus 220,000; prior 339,000)
- Nonfarm Private Payrolls (Briefing.com consensus 210,000; prior 283,000)
- Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%)
- Unemployment Rate (Briefing.com consensus 3.6%; prior 3.7%)
- Average Workweek (Briefing.com consensus 34.3; prior 34.3)
Weekly EIA Natural Gas Inventories (prior +76 bcf) will be released at 10:30 a.m. ET.
Econ data tomorrow; LEVI reporting earnings after the close
06-Jul-23 15:35 ET
Dow -359.56 at 33928.99, Nasdaq -115.95 at 13676.08, S&P -35.44 at 4412.65
[BRIEFING.COM] The major indices moved mostly sideways over the last half hour.
Market participants will receive the June Employment Report tomorrow at 8:30 a.m. ET that will include:
- Nonfarm Payrolls (Briefing.com consensus 220,000; prior 339,000)
- Nonfarm Private Payrolls (Briefing.com consensus 210,000; prior 283,000)
- Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%)
- Unemployment Rate (Briefing.com consensus 3.6%; prior 3.7%)
- Average Workweek (Briefing.com consensus 34.3; prior 34.3)
Weekly EIA Natural Gas Inventories (prior +76 bcf) will be released at 10:30 a.m. ET.
Levi Strauss (LEVI) will report earnings after the close.
Energy complex futures settle mixed; Treasury yields pullback somewhat
06-Jul-23 15:05 ET
Dow -344.49 at 33944.06, Nasdaq -105.33 at 13686.70, S&P -32.43 at 4415.66
[BRIEFING.COM] The major indices continue to climb.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 0.01% to $71.83/bbl and natural gas futures fell 1.4% to $2.60/mmbtu.
Treasury yields have been pulling back from their session highs. The 2-yr note yield, at 5.08% a short time ago, is up eight basis points to 5.01%. The 10-yr note yield, at 4.06% a short time ago, is up 11 basis points to 4.04%.
Gold and copper futures settle lower; U.S. Dollar Index declines
06-Jul-23 14:35 ET
Dow -362.62 at 33925.93, Nasdaq -124.57 at 13667.46, S&P -36.85 at 4411.24
[BRIEFING.COM] The S&P 500 and Nasdaq have settled into narrow ranges near their best levels of the day, albeit still sporting losses, while the Dow Jones Industrial Average lags.
Gold futures fell 0.6% this session to $1,915.70/oz while copper futures dipped 0.9% to $3.74/lb.
Meanwhile, the U.S. Dollar Index is down 0.2% to 103.18.
AAPL briefly tips into the green
06-Jul-23 14:05 ET
Dow -368.59 at 33919.96, Nasdaq -123.56 at 13668.47, S&P -37.23 at 4410.86
[BRIEFING.COM] The major indices continue to climb off session lows.
Apple (AAPL 191.34, +0.01, +0.02%) joined Microsoft (MSFT 342.29, +4.14, +1.2%) in positive territory, offering a measure of support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) is down 0.6% now while the Invesco S&P 500 Equal Weight ETF (RSP) is down 0.9%.
Separately, WTI crude oil futures tipped into the green, up 0.1% to $71.84/bbl.
Strong labor data stirs rate-hike angst
With the big move the stock market made in June and the first half of the year, it is reasonable to think that any weakness seen in the near term is largely a byproduct of the belief that the market is due for a period of consolidation.
In other words, one can point to headline catalysts here and there to explain any weakness, but it really just might be a case of profit taking -- and nothing more than that -- after a big run.
Frankly, we're in that middle ground right now where it is difficult to determine the true driver of the market action.
Growth concerns continue to linger, but then again so does the notion that growth is holding up better than many expected. There are earnings worries, but at the same time an eye has been cast on the stronger earnings growth prospects embedded in consensus forecasts for 2024. The Fed is telling us that it will likely raise rates again -- maybe multiple times -- but the fed funds futures market still thinks it is one and done for the Fed.
If today's labor data are any indication, the fed funds futures market may soon have to re-think its view.
According to ADP, private sector hiring increased by 497,000 in June (Briefing.com consensus 245,000) following a downwardly revised 267,000 (from 278,000) in May. Jobs in the goods-producing sector increased by 124,000 while jobs in the service-providing sector surged by 373,000. Small and medium businesses led the hiring, registering gains of 299,000 and 183,000, respectively, versus a decline of 8,000 positions at large establishments.
Separately, initial jobless claims for the week ending July 1 increased by 12,000 to 248,000 (Briefing.com consensus 245,000). Continuing jobless claims for the week ending June 24 decreased by 13,000 to 1.720 million.
The key takeaway from the report is much the same: initial jobless claims -- a leading indicator -- continue to run well below recession-like levels.
The Treasury market has been attentive to this morning's labor data. The 2-yr note yield, at 4.96% just ahead of the ADP release at 8:15 a.m. ET, is up 14 basis points to 5.08%, and the 10-yr note yield, at 3.97% before the ADP number, is up nine basis points to 4.04%.
The labor data have overshadowed the May Trade Balance Report, which showed a narrowing in the trade deficit to $69.0 billion (Briefing.com consensus -$69.0 billion) from an upwardly revised $74.4 billion (from -$74.6 billion) in April. The deficit moved in a positive direction, but not because of any overwhelming strength in exports. On the contrary, exports were $2.1 billion less than April exports. The swing factor was that imports were $7.5 billion less than April imports.
The key takeaway from the report is that the decline in exports and imports is emblematic of a softening in global demand that one would expect to see in an environment where many of the world's leading central banks are raising rates.
This bump in market rates is creating a headwind for the stock market in its attempt to keep plowing ahead in the second half of the year, running interference for stocks sporting premium valuations.
It is certainly factoring into this morning's trading in the futures market. Currently, the S&P 500 futures are down 38 points and are trading 0.9% below fair value, the Nasdaq 100 futures are down 172 points and are trading 1.1% below fair value, and the Dow Jones Industrial Average futures are down 265 points and are trading 0.8% below fair value.
There is more data yet to come today, too, including the May JOLTS - Job Openings Report and the June ISM Non-Manufacturing Index at 10:00 a.m. ET. These reports will hold some market-moving sway.
In the meantime, the stock market will be looking up at yesterday's closing levels when the opening bell rings, forced to contemplate the specter of the Fed being more aggressive than expected, largely because the labor market is staying a lot stronger than expected.
To that point, New York Fed President Williams (FOMC voter) said late yesterday that recent data suggest the Fed has more work to do, and this morning Dallas Fed President Logan (FOMC voter) said the FOMC needs to make policy more restrictive.
The fed funds futures market knows a 25-basis points rate hike is coming later this month, pricing in a 96.1% probability of such a move. Notable today is that the probability of another 25-basis points rate hike in September has pushed up to 30.8% from 18.1% yesterday, according to the CME FedWatch Tool.
-- Patrick J. O'Hare, Briefing.com
Meta Platforms' new Twitter-like Thread app a more cost-effective way to boost growth (META)
Mark Zuckerberg's "year of efficiency" has been a rousing success as far as investors are concerned with Meta Platform (META) skyrocketing by over 230% since last November's lows. Now, instead of implementing massive cost-cutting measures that include more than 21,000 layoffs, Mr. Zuckerberg is hoping that the launch of a new Twitter-like app can provide a top-line catalyst that boosts its ad revenue while providing more steam to this rally.
- Last night, META officially introduced Threads, an app for posting text updates that was created by the Instagram team. Similar to Twitter, Threads has a character limit -- posts can be up to 500 characters long -- and can include photos, links, and videos.
- A key factor in META's mission to become a major competitive threat to Twitter is that it can draw directly from Instagram's pool of over 2.3 bln users. Simply by having an Instagram account, users can access and post on Thread, helping to explain how the app already has 10.0 mln sign ups in just seven hours, according to Mr. Zuckerberg.
It's no secret that Twitter is also in a vulnerable position. To say that it's been a tumultuous time since Elon Musk closed on his $44 bln acquisition of Twitter in October 2022 would be an understatement.
- Users and advertisers have fled the social media platform due to both technical issues on the platform and Musk's contentious personality and controversial views on certain matters.
- To put these problems into perspective, Musk reported in March that Twitter's advertising revenue had plunged by about 50%.
There's no guarantee that Threads will become profitable, even if it does significantly cut into Twitter's market share. However, unlike the company's metaverse ambitions, META already has most of the infrastructure and workforce in place to roll out Threads to millions of users.
- This is reflected by the fact that META lowered its FY23 expense guidance to $86-$90 bln from $86-$92 bln, while keeping its capex forecast unchanged at $30-$33 bln, when it reported Q1 earnings in late April.
- It's worth noting, though, that Threads is launching without ads since the priority at this time is to build critical mass. Like Reels -- META's short format video app -- it could take some time before Thread's monetization efficiency is at a solid place. META's investments in AI should help to speed up that process.
- Last quarter, META reported that AI powered a 24% increase in time spend on Instagram.
The main takeaway is that META is taking a big swing at Twitter and thanks to the company's huge built-in user base it has a legitimate shot at grabbing significant market share. Furthermore, unlike META's very costly metaverse plans, the development, launch, and expansion of Threads shouldn't substantially weigh on profits.
Perion Network makes a nice move following upside revenue guidance for Q2 (PERI)
Perion Network (PERI +7.5%) is moving nicely higher today following upside Q2 guidance this morning. PERI is an Israel-based provider of a digital advertising platform. It generates revenue primarily from Display/Social Advertising; and Search Advertising.
- The company expects Q2 revenue to grow 20% yr/yr to $176 mln, which was nicely above analyst expectations. It also expects a nice boost to adjusted EBITDA margin at 23% vs 19% a year ago. PERI cited continued momentum in its business. It's also seeing what it describes as "recent positive market indications, resulting in improved margins and market share gains."
- This guidance follows nice upside with its Q1 report in early May. In fact, the +20% yr/yr revenue growth is an acceleration from its +15.9% growth in Q1. Despite a difficult macro environment where companies are pulling back on spending, PERI seems to be holding up quite well.
- Part of that is because PERI continues to expand into the fast-growing CTV space as advertising dollars continue to migrate to streaming video. Video revenue overall increased by 26% yr/yr in Q1, representing 44% of display advertising revenue compared with 41% in 1Q22. Also, search numbers were boosted by a significant increase of 29% in the number of publishers in Q1. That seems to have helped growth in Q2.
- We were also a bit surprised to see a small AdTech company post pretty robust margins. On its Q1 call, PERI explained that its margins are high because it is able to capture and analyze data signals from all channels and from both sides of the open web into its central hub.
- While the numbers have been good lately, PERI does have its doubters. Spruce Point Capital issued a negative report on PERI in late May, a link to which can be found in our InPlay archive. Perhaps some short covering is adding to today's move.
Overall, investors are happy to see this guidance from PERI, especially given the macro headwinds the ad industry is facing. PERI is a small company, so we do not want to read too much into this guidance. However, we think this guidance is an incremental positive for other AdTech names as we head into earnings season in the next few weeks.
Pegasystems jumps to 52-week highs today following an upgrade at Exane BNP Paribas (PEGA)
Pegasystems (PEGA +15%) broke out of its long sideways pattern today following an upgrade to "Outperform" from "Neutral" at Exane BNP Paribas. Today's upgrade marks the second this year from analysts Briefing.com covers, a positive reversal from the string of downgrades PEGA faced throughout 2022.
Briefing.com notes that after gapping above prior resistance following a massive Q4 earnings beat in mid-February, shares of PEGA consolidated, struggling to break above the $52 mark. However, after today's upgrade, the stock surged to 52-week highs. Even though Q1 earnings in late April were underwhelming, missing top and bottom line estimates by wide margins, PEGA is amid an AI-powered tailwind.
- PEGA is a low-code platform for workflow automation, helping organizations accelerate their digital transformations. Low-code automation tends to have components built into the modules, allowing users with little coding knowledge to automate workflows, develop applications, and speed up processes.
- Lately, automation has been attached to AI, and PEGA already has a few offerings to capitalize on generative AI trends. Its Customer Decision Hub is a real-time AI-powered decision engine that predicts customers' behaviors and recommends the best action. PEGA also has an AI chatbot that functions similarly to ChatGPT, being able to draft notes for prospects or helping customer service agents craft a proper response to customers.
However, the ongoing AI boom has not shown up in PEGA's recent financial performance.
- Alongside a top and bottom line miss in Q1, PEGA saw stagnant annual contract value (ACV) growth, what it refers to as its most crucial metric to measure its success. ACV grew 15% yr/yr, excluding FX impacts in Q1, similar to the 16% growth delivered in 4Q22 and 3Q22 and a minor deceleration from the 19% jump in 2Q22.
- Meanwhile, Pega Cloud ACV grew just 24% in constant currency, a considerable slowdown from the 60% spike in 4Q22 and 39% increase in 3Q22. With PEGA emphasizing the transition to the cloud, the meaningful deceleration in ACV growth within this business in Q1 is concerning.
- PEGA is also amid litigation with Appian (APPN), appealing a September 2022 court decision ruling that the company must pay a settlement north of $2.0 bln. This lawsuit has been a cloud hanging over the stock. If PEGA is unsuccessful in its appeal, the $2.0 bln judgment could have meaningful adverse impacts on the company's financials.
PEGA may be enjoying a solid breakout today on an analyst upgrade. Still, it may be better to remain on the sidelines. PEGA has some exciting developments in the pike, namely those surrounding generative AI. However, these offerings have not translated to meaningful ACV growth recently. Although investors may be more forgiving due to the unfavorable macroenvironment, unless PEGA begins to show solid gains, particularly with its upcoming Q2 earnings report later this month, its shares could endure a quick pullback.
Netflix on radar ahead of pivotal Q2 report, password sharing crackdown (NFLX)
Netflix (NFLX) is trading flat after Goldman upgraded its rating on the streaming giant to Neutral from Sell. The firm also increased it price target to $400 from $230. Goldman has been at a Sell rating since June 2022. Investors are happy to see the firm at least move up from its Sell rating, although Neutral is still not a ringing endorsement. However, the firm did get a bit more positive. The target price is still below where NFLX is currently trading, but at least it has moved higher.
Briefing.com wanted to provide some of its own analysis on NFLX ahead of earnings in a couple of weeks:
- Netflix is set to report Q2 results on July 19 after the close. We are keeping a close eye ahead of what should be a pivotal quarter. Following five double digit EPS beats, NFLX reported a miss in Q4 and only slight EPS upside in Q1.
- This will be an important quarter because NFLX started its long-awaited crackdown on password sharing in the US in Q2. It was originally going to start in late Q1, but NFLX bumped the start into Q2. That explains the downside Q2 guidance when NFLX reported Q1 results in April. We think investors should brace for a couple of volatile quarters especially for net adds as subscribers decide how to respond to NFLX cracking down on password sharing.
- We think investors should focus less on the net sub add metric in Q2 because it could be volatile. There may be an initial jump in cancellations before smoothing out. Or it may come in just fine. The focus should be more on the commentary from Netflix in terms of how US customers are reacting to the account changes.
- The password sharing crackdown is not the only big recent change. Recall that Netflix also rolled out its ad-supported tier in November 2022. Now that we are a few months in, we should get some clarity on how customers are responding to it. On its Q1 call, NFLX said engagement was above initial expectations and, as expected, NFLX has seen very little switching from its standard and premium plans. It's only a couple of quarters in, but the goal is to build a highly lucrative high-margin business.
- Overall, the stock has been making a strong move lately, up around 33% since early May. Tech stocks in general have been strong, but we also think part of the move is because investors are betting on a good Q2 report. The stock action also tells us investors are not expecting a huge push back from US customers on the password sharing changes. This should be an interesting quarter for Netflix.
Rivian runs out of range after charging higher on its first EDV rollout for AMZN in Europe (RIVN)
Rivian Automotive (RIVN +1%) tried overtaking February highs today before investors quickly faded the move following the company rolling out the first of its electric delivery vans (EDVs) for e-commerce mammoth Amazon (AMZN) in Europe on Monday, hours after the close. The first fleet will roll out in Germany, with over 300 vans hitting major cities in the country over the next few weeks, joining an existing fleet of electric vans from other OEMs used by Amazon. Rivian's rollout in Europe is part of Amazon's 2019 order of 100,000 electric delivery vehicles by 2030. Rivian also received upgrades from DA Davidson and Needham today.
The announcement initially provided another jolt to Rivian's shares before pulling back. The EV manufacturer, with an emphasis on adventure vehicles, gapped significantly higher on Monday after releasing upbeat Q2 production and delivery figures, tacking on nearly 10% on the day. However, zooming out, the stock remains in a downward trend, slipping around 50% from 52-week highs and over 80% from 2021 highs.
Still, with Rivian's commercial vans rolling out in Europe after deploying around 3,000 across over 500 U.S. cities since last year and management confident meeting its 50,000 annual production guidance, the company is showcasing encouraging developments that could continue powering its decent +14% rally YTD.
- Comprising roughly 20% of FY22 revs, Amazon is a crucial partner for Rivian, which derives revenue from the sale of its EDVs and related software and services. Although Rivian experienced criticisms for the relatively low range of its EDVs, with a full range typically around 150 miles, Amazon has noted that it is more than enough to complete a daily route.
- As Amazon continues building out charging infrastructure to support the utilization of its EDV fleet, to be carbon neutral by 2030, Rivian may continue to be a significant component of Amazon's future growth.
- Although Rivian is purely focused on its Amazon partnership regarding its commercial vehicle production, it remarked earlier this month that it sees plenty of interest and demand as it thinks about commercial customers over the long haul. Other major package delivery organizations, such as the United States Postal Service and UPS (UPS), are electrifying their fleets, tapping Oshkosh (OSK) and U.K. startup Arrival, respectively, to help reach specific targets.
- With nations seeking to reduce the number of gas-powered vehicles on the road over the next several years, companies like Rivian could be tasked by prominent companies in and around package delivery to meet EV targets.
Since its 2021 IPO, Rivian has struggled, going public at an unfavorable time as rising interest rates increased financing costs while supply chain shortages hurt production. However, the company may finally have turned a corner. Production is on track to reach management's 50,000 forecast. Meanwhile, Rivian's commercial fleet has now rolled out overseas. Although consumer demand could still take a hit if economic conditions worsen, especially given Rivian's consumer fleet costs upward of $70,000, its metrics continue to move in the right direction, a positive ahead of its Q2 earnings report on August 8.
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