Market Snapshot
briefing.com
| Dow | 35087.24 | -128.56 | (-0.37%) | | Nasdaq | 13925.52 | -34.59 | (-0.25%) | | SP 500 | 4483.01 | -20.15 | (-0.45%) | | 10-yr Note | +31/32 | 4.06 |
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| | NYSE | Adv 1538 | Dec 1306 | Vol 887 mln | | Nasdaq | Adv 1963 | Dec 2385 | Vol 5.3 bln |
Industry Watch
| Strong: Consumer Discretionary, Energy |
| | Weak: Information Technology, Utilities, Consumer Staples |
Moving the Market
-- Ongoing profit-taking activity
-- Digesting the jobs report for July, which reflected an ongoing tight labor market
-- Mixed reactions to earnings from Apple (AAPL), which sports a decent loss, and Amazon (AMZN), which is up big
-- Most mega caps trade up, boosting the broader market
-- Drop in Treasury yields in response to the data
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Closing Summary
04-Aug-23 16:30 ET
Dow -150.27 at 35065.53, Nasdaq -50.48 at 13909.63, S&P -23.86 at 4479.30
[BRIEFING.COM] The major indices saw somewhat choppy action today as participants digested a slate of factors. Market participants were reacting to the earnings results from Apple (AAPL 181.99, -9.18, -4.8%) and Amazon (AMZN 139.57, +10.66, +8.3%), the July Employment Situation Report, and falling Treasury yields.
The pullback in market rates was in response to the jobs report, which showed a slowdown in nonfarm payroll growth that has the market considering the idea that it may be enough to keep the Fed on hold. The 2-yr note yield fell 12 basis points to 4.78% and the 10-yr note yield fell 13 basis points to 4.06%.
Those moves were a welcome development after longer-dated Treasury yields jumped over the last few sessions, keeping pressure on equities. The 10-yr note yield still rose nine basis points on the week.
Stocks found some upside momentum shortly after the open when the S&P 500 bounced off the 4,500 level. The major indices were trading up until selling increased in the afternoon trade. There was no specific catalyst to fuel the afternoon selling, but profit-taking activity was likely a driving factor. Ultimately, the major indices closed near their lows of the day, which had the S&P 500 below 4,500.
Shortly after the open, advancers led decliners by a 5-to-2 margin at the NYSE and a 3-to-2 margin at the Nasdaq. By the close, advancers had an 11-to-10 lead over decliners at the NYSE while decliners had the same lead over advancers at the Nasdaq.
Only two of the S&P 500 sectors closed with gains -- consumer discretionary (+1.9%) and energy (+0.03%) -- while the information technology sector logged the biggest decline.
- Nasdaq Composite: +32.9% YTD
- S&P 500: +16.6% YTD
- Russell 2000: +11.1% YTD
- S&P Midcap 400: +10.3% YTD
- Dow Jones Industrial Average: +5.8% YTD
Reviewing today's economic data:
- Nonfarm payrolls rose by 187,000 in July (Briefing.com consensus 200,000) following a revised increase of 185,000 in June (from 209,000).
- Nonfarm private payrolls rose by 172,000 in July (Briefing.com consensus 175,000) following a revised increase of 128,000 in June (from 149,000).
- Average hourly earnings rose by 0.4% in July (Briefing.com consensus 0.3%) following a 0.4% increase in June.
- The unemployment rate fell to 3.5% (Briefing.com consensus 3.6%) from 3.6% in June.
- The average workweek fell to 34.3 hours (Briefing.com consensus 34.4%) from 34.4.
- The key takeaway from the report is that labor supply continues to be tight, which could make it difficult to achieve a more Fed-pleasing moderation in wage growth. That might not translate into another increase in the target range for the fed funds rate, but it does fit the notion that the Fed will be inclined to keep the policy rate higher for longer.
Notable economic data on Monday is limited to the June Consumer Credit report (Briefing.com consensus $13.0B; prior $7.3B) at 3:00 p.m. ET.
Treasury yields settle sharply lower
04-Aug-23 15:35 ET
Dow -141.59 at 35074.21, Nasdaq -37.59 at 13922.52, S&P -21.60 at 4481.56
[BRIEFING.COM] The major indices are moving sideways ahead of the close.
The 2-yr note yield fell 12 basis points to 4.78% and the 10-yr note yield fell 13 basis points to 4.06%.
Notable economic data on Monday is limited to the June Consumer Credit report (Briefing.com consensus $13.0B; prior $7.3B) at 3:00 p.m. ET.
Market pullback continues
04-Aug-23 14:55 ET
Dow -128.56 at 35087.24, Nasdaq -34.59 at 13925.52, S&P -20.15 at 4483.01
[BRIEFING.COM] Things are little changed over the last half hour. The major indices trade near their worst levels of the session.
There hasn't been any news to account for the move lower, which is likely being driven by profit taking activity in a market that many feel is still due for a pullback.
Notably, market breadth is still positive despite the index level declines. Advancers lead decliners by a 3-to-2 margin at the NYSE and an 11-to-10 margin at the Nasdaq.
Markets selloff; Earnings movers populate opposite ends of S&P 500
04-Aug-23 14:30 ET
Dow -18.75 at 35197.05, Nasdaq +26.90 at 13987.01, S&P -3.91 at 4499.25
[BRIEFING.COM] The broader market took a tumble in the last half hour, the S&P 500 (-0.09%) now 4 points lower.
S&P 500 constituents Warner Bros. Discovery (WBD 13.89, +1.00, +7.76%), DaVita (DVA), and Gilead Sciences (GILD 79.23, +3.70, +4.90%) pepper the top of the standings. WBD reported yesterday morning, while DVA and GILD move higher after results.
Meanwhile, San Diego medical equipment firm ResMed (RMD 180.70, -39.25, -17.84%) slips after last night's Q4 miss.
Gold trims weekly losses on Friday
04-Aug-23 14:00 ET
Dow +187.41 at 35403.21, Nasdaq +117.83 at 14077.94, S&P +21.40 at 4524.56
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+0.84%) is atop the standings.
Gold futures settled $7.30 higher (+0.4%) to $1,976.10/oz, ultimately down -1.2% this week, helped by a slip in yields and the greenback.
Meanwhile, the U.S. Dollar Index is down about -0.7% to $101.81.
July employment report is mostly crowd pleasing
It has been a huge week of earnings in terms of the volume of reports. It has not been a huge week for the stock market -- at least not in terms of big returns. On the contrary, it has been a big week of losses thus far, predominately because we have seen a big jump in long-term rates. Entering today, the Nasdaq Composite is down 2.5% and the S&P 500 is down 1.8%.
The move in rates was precipitated by the much larger-than-expected increase in ADP private-sector payrolls on Wednesday, although the Fitch Ratings downgrade of U.S. credit to AA+ from AAA has stolen the show as a talking point when it comes to discussing the move in rates. The 10-yr note yield is up 19 basis points this week to 4.16% while the 30-yr bond yield is up 24 basis points to 4.27%.
Strikingly, the 2-yr note yield has climbed only two basis points this week to 4.89%, so the visual is a curve-steepening trade that one would typically associate with a more positive view of economic conditions. That view, as we all know, is the subject of much debate, yet the prevailing view in the stock market's price action is that the proverbial glass is half full and not half empty.
The July Employment Situation Report isn't likely to change that perspective. Granted nonfarm payroll growth is slowing, checking in below 200,000 for the second straight month after revisions, but the unemployment rate, which fell to 3.5% in July, is in the realm of a 50-year low and is a beacon of full employment that will keep consumers spending along with the increase in real earnings.
The key takeaway from the report is that labor supply continues to be tight, which could make it difficult to achieve a more Fed-pleasing moderation in wage growth. That might not translate into another increase in the target range for the fed funds rate, but it does fit the notion that the Fed will be inclined to keep the policy rate higher for longer.
Notable headlines from the July Employment Situation Report:
- July nonfarm payrolls increased by 187,000 (Briefing.com consensus 200,000). The 3-month average for total nonfarm payrolls slipped to 218,000 from 228,000. June nonfarm payrolls revised to 185,000 from 209,000. May nonfarm payrolls revised to 281,000 from 306,000.
- July private sector payrolls increased by 172,000 (Briefing.com consensus 175,000). June private sector payrolls revised to 128,000 from 149,000. May private sector payrolls revised to 255,000 from 259,000.
- July unemployment rate was 3.5% (Briefing.com consensus 3.6%), versus 3.6% in June. Persons unemployed for 27 weeks or more accounted for 19.9% of the unemployed versus 18.5% in June. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 6.7% versus 6.9% in June.
- July average hourly earnings were up 0.4% (Briefing.com consensus 0.3%) versus 0.4% in June. Over the last 12 months, average hourly earnings have risen 4.4%, versus 4.4% for the 12 months ending in June.
- The average workweek in July was 34.3 hours (Briefing.com consensus 34.4), versus 34.4 hours in June. Manufacturing workweek was unchanged at 40.1 hours. Factory overtime was unchanged at 3.0 hours.
- The labor force participation rate held steady at 62.6% for the fifth consecutive month.
- The employment-population ratio increased to 60.4% from 60.3% in June.
The equity futures market found the July employment report pleasing on balance and moved modestly higher in its wake. Currently, the S&P 500 futures are up 14 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 73 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 47 points and are trading 0.2% above fair value.
It had been more mixed prior to the release, driven by a wait-and-see mentality in front of the data and a mixed response to the earnings reports from Apple (AAPL), which is down 2.6%, and Amazon.com (AMZN), which is up 9.7%. The improvement, in turn, was aided by an improvement in the Treasury market after the data.
The 2-yr note yield, at 4.93% just before the report, is now at 4.89%, down one basis point from yesterday's settlement, and the 10-yr note yield, at 4.20% just before the report, is now at 4.16%, down three basis points.
-- Patrick J. O'Hare, Briefing.com
Airbnb rallies from earlier losses as investors digest decent Q2 results (ABNB)
Shares of Airbnb (ABNB) have journeyed from down over -2% at open today to as high as +3% before retreating from their 20-day moving average (144.93) and settling in just above their flatline. The market did not initially take ABNB's Q2 earnings report well, despite the alternative accommodations firm delivering beats on its top and bottom lines. Nights and Experiences Booked also grew to the highest-ever reading for Q2 at 115.1 mln, an 11% improvement yr/yr. However, this just missed street estimates. ABNB's Q3 outlook was not overly exciting either, predicting revenue in line with consensus and bookings growth to see a modest sequential yr/yr increase but remain outpaced by overall revenue growth.
Nevertheless, after Expedia Group (EXPE) raised some red flags with its Q2 report earlier this week, keeping the selling pressure on ABNB active, its Q2 results alleviated fears of a broader slowdown in travel demand. Also helping keep shares afloat today was Booking Holdings' (BKNG) upbeat Q2 report, which underscored a healthy demand for international travel and alternative accommodations.
- ABNB's EPS soared 75% yr/yr to $0.98, sufficient for a double-digit beat, on sales growth of 18.1% to $2.48 bln. Solid demand emanated from across all regions, with Asia Pacific leading the pack, resembling what hotel giant Marriott (MAR) stated earlier this week, with inbound travel surging 80% yr/yr. Meanwhile, in North America, cross-border nights booked climbed by 20%.
- On a side note, unlike BKNG, which boasts a commanding presence in Europe, ABNB is underpenetrated in many markets beyond the U.K. and France, keeping it from capturing much of the double-digit bookings growth BKNG enjoyed.
- Extended stays continue to serve as a tailwind for ABNB, with long-term stays remaining at 18% of total nights booked in Q2, underpinning sustained tailwinds from the pandemic. Also, CEO Brian Chesky pointed out that people extended their typical weekend stays by an extra night or two, further illuminating the increased flexibility individuals have gained since the pandemic.
- With hotels being able to offer competitive rates, affordability is a critical component of ABNB's long-term success. On that front, ABNB has continuously rolled out new pricing options for Hosts, making offering promotions and setting competitive pricing easier. Furthermore, ABNB launched Airbnb Rooms, where travelers can rent rooms similar to a hotel at significantly lower prices than booking an entire house.
Bottom line, ABNB's quarterly report was decent. Nothing special stood out positively or negatively. There were relatively high expectations ahead of ABNB's results despite EXPE's lackluster quarter as the market priced in robust travel demand, particularly as consumers shift priorities toward experiences and services from discretionary goods. Against this backdrop, with ABNB still up nearly +40% from May lows and over +65% on the year, shares are holding up reasonably well today.
Redfin shares slide deep into the red as company reins in profitability expectations (RDFN)
Online real estate brokerage company Redfin (RDFN) is trading deeply in the red today after issuing a disappointing Q2 earnings report that included a 55% plunge in revenue and its first market share loss since going public in 2017. That market share loss, combined with weaker-than-expected close rates on home sales, factored into RDFN's downside Q3 revenue guidance and its decision to rein in its profitability forecast for FY23.
- Previously, RDFN projected that it would break even on an adjusted EBITDA basis in 2023. Now, however, the company expects to achieve positive adjusted EBITDA status on a trailing 12-month basis in 1H24.
The headwinds that RDFN is facing are both company-specific and macroeconomic in nature.
- On the former point, agent layoffs and the closure of RedfinNow -- the company's business that purchased homes directly from sellers -- caused the company to lose eight basis points of market share.
- Following the layoffs, RDFN had to reassign about a third of its active customers to different agents, slowing the closing process. With the closure of RedfinNow, the company lost about 12% of its listing demand.
- On the latter point, higher mortgage rates and very low existing home inventory levels compounded the problem. CEO Glenn Kelman succinctly summed up the situation, commenting that "sales volumes are near rock bottom" with July's yr/yr drop in active listings representing the largest drop in nearly 18 months.
It's not all doom and gloom for RDFN, though.
- As customers become more comfortable with higher mortgage rates and as RDFN ramps up its recruiting and retains more productive agents, Mr. Kelman expects that the company's close rates will return to historical norms.
- For some context, from 2017-2022, between 6.3% and 7.2% of customers who contracted with RDFN or its partner agents had closed on their sale by this point in the year. In 2023, that figure has slipped to 5.5%.
- Additionally, while its disappointing that RDFN scratched its expectation of reaching positive adjusted EBITDA this year, the company is still forecasting a significant improvement in profitability. Specifically, RDFN guided for adjusted EBITDA of ($45) mln compared to ($185) in 2022 with similar gains anticipated in the coming years.
Overall, though, it was a discouraging and surprisingly weak earnings report for RDFN as the company's competitive standing took a hit in a challenging real estate market.
Booking Holdings traveling higher as robust international travel demand provides a boost (BKNG)
Yesterday morning, Expedia Group (EXPE) issued a disappointing Q2 earnings report, missing gross bookings estimates and providing a softer-than-expected outlook for Q3, creating some angst about how Booking Holdings (BKNG) quarterly results would shake out. As it turns out, those concerns were unfounded because BKNG crushed Q2 EPS and revenue estimates as gross bookings grew 15% to nearly $40 bln, reaching a record quarterly high for the company.
- The impressive results were fueled by relentless demand for leisure travel, along with better-than-expected marketing efficiency. Those two factors drove adjusted EBITDA higher by 64% to $1.8 bln, easily exceeding BKNG's expectation for growth of about 35%.
- Unlike EXPE, the company's outlook was unambiguously bullish with CEO Glenn Fogel predicting a new all-time high for the Q3 summer travel period as momentum strengthened into July. More specifically, July room nights increased by about 20% yr/yr compared to growth of 9% in Q2.
- Due to the robust Q2 results and improving bookings trends so far in Q3, BKNG raised its FY23 gross bookings guidance, forecasting growth of slightly over 20% compared to its prior forecast for low-teens growth. Additionally, BKNG sees full year room night growth reaching the mid-teens range.
The obvious question, then, is this: How is BKNG still knocking it out of the park, while EXPE is experiencing a slowdown?
- To answer that question, we turn to the companies' geographic breakdown of revenue. Even though BKNG is headquartered in the U.S., the bulk of its revenue -- approximately 80% -- is derived in Europe.
- That factor is working in its favor because international travel demand is on the upswing, while the rise in domestic travel demand has slowed a bit. This is reflected in BKNG's room night growth metrics for July with Asia up 45%, Europe up mid-teens, and the U.S. up just mid-single digits. It's also notable that for the first time since the onset of the pandemic, BKNG's international room nights were fully recovered to 2019 levels.
Furthermore, BKNG is benefiting from a couple company-specific items that are bolstering its results.
- For instance, the mix of customers that are booking directly through the company's platforms continues to increase, providing it with more opportunities to engage directly with customers and upsell additional travel products to them. In Q2, approximately 48% of BKNG's room nights were booked through its mobile apps, up from 42% in the year-ago quarter.
- BKNG is also gaining ground in the alternative accommodations market, especially in the U.S. With room nights increasing by 11% yr/yr in Q2, alternative accommodations grew faster than BKNG's traditional hotel category. Overall, alternative accommodations represented about 34% of the company's total room nights, up from 32% in 2Q22.
The main takeaway is that BKNG's impressive beat-and-raise Q2 report shows that the company's ideally positioned to continue benefitting from the robust leisure travel demand, particularly in overseas markets.
Amazon looking in Prime position following upbeat Q2 report; AWS commentary stood out to us (AMZN)
Amazon (AMZN +11%) is in Prime position today as the stock is sharply higher following Q2 results last night. Both the numbers were good and the commentary, especially with respect to AWS. Amazon reported strong upside for both EPS and revenue. Maybe the best metric was operating income jumping 131% yr/yr to $7.68 bln, well ahead of prior guidance of $2.0-5.5 bln. The Q3 revenue ($138-143 bln) and operating income ($5.5-8.5 bln) guidance were above expectations.
- Let's start with the Stores segment. Amazon said it continues to see healthy demand across everyday essentials and in categories like beauty and health and personal care. There has also been a positive response to improvements in personalization and enhancements to its website/app. Importantly, AMZN also saw improvements in macro indicators but continues to see customers trading down and seeking value in their purchases.
- A topic that probably deserves more attention is Amazon's success in regionalizing its fulfillment network over the last several quarters. AMZN has gone from one national network in the US to a series of eight separate regions serving smaller geographic areas. AMZN keeps a broad selection of inventory in each region, making it faster and less expensive to get those products to customers.
- Regionalization delivered a 20% reduction in number of touches and a 19% reduction in miles traveled. Not only has this cut operating costs and likely helped propel the upside operating income, but customers care a lot about faster delivery and it leads to meaningfully higher repeat purchases. Also, AMZN is planning to double its number of same-day fulfillment facilities.
- Turning to AWS, we had some concerns going in although good numbers from its main rival Azure last week gave us hope. The AWS segment posted +12% growth in constant currency (CC), which continued its downward trend from +16% CC in Q1, +20% CC in Q4, +28% CC in Q3, +33% CC in Q2 and +37% CC in Q1. However, the commentary from Amazon really piqued our interest. Specifically, AMZN said its AWS growth "stabilized" as more customers started shifting from "cost optimization" to new workload deployment. That is a huge step up from comments on the Q1 call when AMZN said clients were being "cautious in their spending."
- Turning to Advertising Services, segment revenue grew +22% CC, only a notch below +23% CC in Q1 and Q4. This segment tends to be more up and down, but it is holding up better than we would have expected. Performance-based advertising offerings continue to be the largest contributor to growth. Also, third-party unit mix increased to a record 60% in Q2.
Overall, this Q2 report was markedly more positive than Q1, especially the much more upbeat tone on the call. AMZN sounded more positive on its Stores segment, but the noticeably more upbeat language regarding the AWS segment was the main takeaway and what investors should focus on. It sounds like AWS are solely getting back to spending and that is a big deal. This has propelled the stock its highest level since August 2022.
Apple's lighter-than-expected iPhone growth and Q3 guidance takes a bite out of shares today (AAPL)
The unfavorable macroeconomic climate took a bite out of Apple (AAPL -3%) in Q3 (Jun). The iPhone maker did register decent earnings upside and in-line revs in the quarter. However, iPhone sales came up short of analyst expectations. Other products, including iPad and wearables, also took a hit as challenging yr/yr comparisons and FX headwinds added further obstacles. Discouragingly, Apple expects similar sales performance to the 1.4% decline from JunQ in Q4 (Sep), below what analysts forecasted.
- iPhone revenue slipped by 2% yr/yr in JunQ to $39.7 bln. However, on a constant currency basis, iPhone saw positive growth in the quarter, setting JunQ records in several emerging markets, such as India, which Apple has noted is at a tipping point, and Mexico. iPhone also overcame a difficult demand environment in parts of Europe, setting records across France, the Netherlands, and Austria.
- Unlike last quarter, Mac revenue of $6.8 bln, a 7% dip, topped estimates in JunQ. Apple's transition to running its entire Mac lineup on its in-house silicon likely helped boost Mac sales, given the enormous jump in processing power over previous Intel (INTC) chips.
- Conversely, iPad sales continued to underperform, tumbling 20% yr/yr to $5.8 bln. The lackluster growth stemmed partly from an unfavorable yr/yr comparison when Apple launched the revamped iPad Air. Although iPad comprises the smallest chunk of total revenue, it tends to be the device that attracts first-time customers into the Apple ecosystem, given the poor selection of competing tablets and frustrating Android (GOOG) support. With iPad more discretionary than a phone or computer, the demand backdrop could hinder new customer growth over the near term.
- However, wearables, including the Apple Watch, which, albeit missed sales estimates, could fill this void. CFO Luca Maestri mentioned that roughly two-thirds of customers purchasing an Apple Watch were new to the product. When considering one of the best smartwatches to own, the Apple Watch typically tops the leaderboards. Since the best experience on an Apple Watch requires an iPhone, a potential Apple Watch buyer must also consider purchasing an iPhone.
- While product revenue was down 4% yr/yr, Services revenue growth accelerated to +8%, up from the +5% posted in MarQ, reflecting the strength of Apple's ecosystem. As Apple bolsters its global presence, more users are exposed to the numerous services offered through Apple products, including Apple Arcade, Apple TV, and Apple Card, which is required to set up a high-yield savings account that has seen over $10 bln in deposits since its Spring launch.
Apple's JunQ report was mostly upbeat, containing several highlights from emerging market strength to accelerating Services growth. However, alongside weak iPhone sales, SepQ guidance translates to a possible fourth-straight quarter of declining revenue, a concerning development. Prominent suppliers Taiwan Semi (TSM) and Qualcomm (QCOM) have also warned about lingering global demand weakness for the remainder of the year, setting up for a potentially challenging 1Q24 (Dec) for Apple as well. Still, over the longer term, Apple is cementing itself as a leader in consumer tech, with the capacity to expand sales considerably with the upcoming launch of Apple Vision Pro early next year.
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