Market Snapshot
briefing.com
| Dow | 34419.67 | +130.79 | (0.38%) | | Nasdaq | 13718.20 | +211.95 | (1.57%) | | SP 500 | 4431.06 | +43.51 | (0.99%) | | 10-yr Note | +32/32 | 4.20 |
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| | NYSE | Adv 2255 | Dec 645 | Vol 862 mln | | Nasdaq | Adv 2894 | Dec 1422 | Vol 4.1 bln |
Industry Watch
| Strong: Communication Services, Real Estate, Health Care, Information Technology |
| | Weak: Energy |
Moving the Market
-- Treasury yields declining overnight in response to soft PMI data out of Europe, then building on gains the stock market opened
-- Strength in the mega caps boosting index performance
-- Digesting mixed earnings results from retailers
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Closing Summary
23-Aug-23 16:25 ET
Dow +184.15 at 34472.90, Nasdaq +215.16 at 13721.41, S&P +48.46 at 4436.01
[BRIEFING.COM] Stocks had a strong showing today, supported by a drop in market rates and strong mega caps. The major indices all closed with gains ranging from 0.5% to 1.6%, although volume was still light at the NYSE. Today's upside moves brought the S&P 500 back above 4,400, which acted an area of resistance yesterday.
Market rates started to move lower overnight in response to a batch of soft August PMI data out of Europe. Treasuries extended their rally following the release of some softening Manufacturing and Services PMI readings for the US after the stock market opened. The 2-yr note yield fell 11 basis points to 4.93% and the 10-yr note yield fell 13 basis points to 4.20%.
NVIDIA (NVDA 471.16, +14.48, +3.2%) was among the top performers from the mega cap space ahead of its earnings report after today's close. Apple (AAPL 181.22, +3.89, +2.2%) and Microsoft (MSFT 327.00, +4.54, +1.4%) also logged sizable gains on no news. Those moves helped to fuel a 1.6% gain in the Vanguard Mega Cap Growth ETF (MGK) and a 1.1% gain in the market-cap weighted S&P 500.
Market internals reflected fairly broad buying interest under the index surface. Advancers outpaced decliners by a 7-to-2 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
Ten of the 11 S&P 500 sectors logged a gain led by information technology (+1.9%), which was boosted by its mega cap components. Communication services (+1.9%) was another top performer, drawing added support from a big gain in Netflix (NFLX 427.55, +14.38, +3.5%) after it garnered some supportive comments from Oppenheimer.
The energy sector (-0.3%) was the lone holdout in negative territory by the close.
Retailers headlined the earnings calendar since yesterday's close. Foot Locker (FL 16.64, -6.56, -28.3%) and Peloton (PTON 5.41, -1.58, -22.6%) sank following their earnings results and/or guidance while Abercrombie & Fitch (ANF 50.86, +9.69, +23.5%) registered an outsized gain after beating earnings estimates and raising guidance.
- Nasdaq Composite: +31.10% YTD
- S&P 500: +15.5% YTD
- S&P Midcap 400: +6.9% YTD
- Russell 2000: +6.2% YTD
- Dow Jones Industrial Average: +4.0% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -4.2%; Prior -0.8%
- August S&P Global US Manufacturing PMI - Prelim 47.0; Prior 49.0
- August S&P Global US Services PMI - Prelim 51.0; Prior 52.3
- July New Home Sales 714K (Briefing.com consensus 701K); Prior was revised to 648K from 697K
- The key takeaway from the report is that new home sales activity, which is measured on signed contracts, was driven by sales of more moderately priced homes as higher building costs crimped the supply of lower-priced homes while higher mortgage rates contributed to affordability pressures across the spectrum.
Thursday's economic calendar will feature:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 240,000; prior 239,000), Continuing Claims (prior 1.716 mln), July Durable Orders (Briefing.com consensus -4.0%; prior 4.7%), and Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.6%)
- 10:30 ET: Weekly natural gas inventories (prior +35 bcf)
Treasuries settle with solid gains
23-Aug-23 15:30 ET
Dow +175.91 at 34288.88, Nasdaq +236.88 at 13743.13, S&P +50.92 at 4438.47
[BRIEFING.COM] The major indices moved sideways in recent action.
Treasuries settled with solid gains. The 2-yr note yield fell 11 basis points to 4.93% and the 10-yr note yield fell 13 basis points to 4.20%.
Energy complex futures settled mixed. WTI crude oil futures fell 0.9% to $78.89/bbl and natural gas futures rose 1.3% to $2.59/mmbtu. On a related note, the S&P 500 energy sector (-0.6%) remains in last place in the lineup.
Thursday's economic calendar will feature:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 240,000; prior 239,000), Continuing Claims (prior 1.716 mln), July Durable Orders (Briefing.com consensus -4.0%; prior 4.7%), and Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.6%)
- 10:30 ET: Weekly natural gas inventories (prior +35 bcf)
Treasury yields continue decline
23-Aug-23 15:05 ET
Dow +130.79 at 34419.67, Nasdaq +211.95 at 13718.20, S&P +43.51 at 4431.06
[BRIEFING.COM] The Dow Jones Industrial Average pulled back somewhat while the S&P 500 and Nasdaq moved mostly sideways over the last half hour.
Treasury yields continue to decline. The 2-yr note yield is down 11 basis points to 4.93% and the 10-yr note yield is down 13 basis points to 4.20%.
Separately, the CBOE Volatility Index is down 4.9% or 0.83 to 16.14.
Carnival, Monolithic Power gaining in S&P 500
23-Aug-23 14:30 ET
Dow +187.91 at 34476.74, Nasdaq +227.80 at 13733.68, S&P +50.08 at 4437.63
[BRIEFING.COM] The S&P 500 (+1.14%) is firmly in second place to this point on Wednesday afternoon.
S&P 500 constituents Carnival (CCL 16.29, +0.63, +4.02%), Monolithic Power (MPWR 521.92, +21.29, +4.25%), and Ross Stores (ROST 122.49, +4.70, +3.99%) pepper the top of the standings. CCL is higher alongside other cruise peers today, MPWR benefits from broader gains in chips/technology stocks, and ROST is up in tandem with consumer disc. peers like ANF +23.1% and WSM +13.1%, both following earnings.
Meanwhile, Pennsylvania oil&gas E&P firm EQT Corp. (EQT 41.96, -1.44, -3.32%) is at the bottom of the S&P after filing to sell 49,599,796 shares of common stock by selling shareholders.
Yield losses allow gold higher on Wednesday
23-Aug-23 14:00 ET
Dow +229.90 at 34518.73, Nasdaq +249.27 at 13755.14, S&P +55.11 at 4442.66
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+1.85%) holds a solid lead on its counterparts, currently standing near HoDs.
Gold futures settled $22.50 higher (+1.2%) to $1,948.10/oz, aided by solid losses in treasury yields and a modest move lower in the greenback.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $103.34.
Page One
Last Updated: 23-Aug-23 08:53 ET | Archive
Getting a line on "the market" and the market
We have arrived at Wednesday - Hump Day - and so far "the market" is up 0.4% for the week, only the market hasn't gotten over the consolidation hump. To wit: the Invesco S&P 500 Equal-Weight ETF (RSP) is down 0.4% for the week and only three S&P 500 sectors -- information technology, consumer discretionary, and communication services -- are up for the week.
You know what the commonality is between those three sectors? They all house mega-cap components, which have been the difference for "the market" this week. The Vanguard Mega-Cap Growth ETF (MGK) is up 1.6% for the week.
After today's close, the mega-cap stocks will either sink or swim based on the response to NVIDIA's (NVDA) earnings report, and what they do -- sink or swim -- will make a key difference for "the market" and the market over the remainder of the week.
Modest gains in the mega-cap space have provided some underlying support for the equity futures market along with a drop in Treasury yields. The 2-yr note yield is down three basis points to 5.01% and the 10-yr note yield is down five basis points to 4.28%.
The catalyst for the drop in yields seen overnight was a batch of preliminary August PMI readings out of the eurozone that was on the soft side and very much in the contraction zone of sub-50.0%. The connection for traders is that this weak data could influence the Fed's decision to remain on hold with its policy rate and compel the ECB to stay put with its lower policy rates.
Accordingly, there is some strength in the U.S. Dollar Index (+0.4% to 103.95) as the euro trades down against the greenback (EUR/USD -0.3% to 1.0804).
The strength in the equity futures market isn't Atlas-like. It's more like the 98-pound weakling.
The S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 31 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 25 points and are trading 0.1% above fair value.
In other words, don't expect much strength in the market at today's open. To be sure, it is not exactly a rally point that Treasury yields have come down because the PMI data out of the eurozone was weak.
Something else that was weak was the weekly mortgage applications index. It declined 4.2% with purchase applications down 5%, hitting their lowest level since 1995, and refinancing applications down 3% with higher mortgage rates and low supply crimping demand.
On a related note, the July New Home Sales Report (Briefing.com consensus 701,000; prior 697,000) will be released at 10:00 a.m. ET.
Homebuilder Toll Brothers (TOL) released better-than-expected quarterly results and raised its full-year delivery guidance after yesterday's close, and is up modestly in pre-market trading. Several retailers also released earnings results that have been met with mixed responses.
The biggest downer was Foot Locker (FL). It met expectations, but cut its FY24 EPS guidance by a large margin in response to softening demand and paused its dividend. Shares of FL are down 30%. That move stands in stark contrast to Abercrombie & Fitch (ANF), which is up 16% after blowing past Q2 consensus estimates and providing better-than-expected revenue guidance for Q3 and FY24.
Kohl's (KSS), Bath & Body Works (BBWI), Peloton (PTON), Urban Outfitters (URBN), and Advance Auto Parts (AAP) are some of the other retailers that released results.
-- Patrick J. O'Hare, Briefing.com
Foot Locker gets trampled after slashing its FY24 outlook again in JulQ, pauses dividend (FL)
Foot Locker (FL -30%) continues to stumble, slashing its FY24 (Jan) guidance for the second straight quarter after consumer demand deteriorated throughout Q2 (Jul). The footwear and apparel retailer also paused its dividend. Although FL did manage to deliver earnings and sales growth in line with analyst forecasts, this minor silver lining did little to prevent a rush of sell orders today.
What happened?
- FL acknowledged that 2023 would be a reset year after outlining its Lace Up plan in March. Unfortunately, the company did not anticipate such weak sales through the year's first half. The current economic environment has particularly hurt FL's lower-end consumers. This dynamic fully crystalized during JulQ, evident by a lackluster start to the back-to-school season.
- Furthermore, store traffic challenges that cropped up in Q1 (Apr) persisted through JulQ, reflecting a cautious end consumer. As a result, FL engaged in higher-than-expected promotional activity to better compete for a share of its customers' wallets and effectively manage its inventories.
- Deteriorating demand conditions have not turned thus far through August, either, leading to a lowered sales and margin outlook for the year.
- On a lighter note, FL is committed to reducing its inventory position, projecting flat to slightly lower inventories yr/yr in FY24, putting the company in a better position for the holiday season and FY25.
As such, headline numbers lagged, and FY24 guidance was weak.
- FL's JulQ EPS was $0.04, its worst quarter since the start of the pandemic. Revenue fell 9.9% yr/yr to $1.86 bln, also matching its lightest sales quarter since 1Q20. Meanwhile, same-store sales growth contracted by -9.4%.
- For the year, FL expects EPS of $1.30-1.50, down from $2.00-2.25, revs to drop 8.0-9.0% yr/yr, worse than its prior forecast of a 6.5-8.0% decline, and comps down 9.0-10.0%, a deterioration from its negative 7.5-9.0% target last quarter.
Still, current developments, particularly FL's store remodels, could drive a future turnaround. The company is undergoing a similar transformation as Dick's Sporting Goods (DKS), revamping its stores to be more conducive to athletes to entice greater foot traffic and defend against e-commerce competitors. Shoes and apparel fit into the try-before-you-buy category, a retail industry subsegment that gives physical retailers a competitive edge.
Bottom line, after two consecutive downbeat quarters, the market is punishing FL, sending shares well below pandemic lows and erasing the past decade of gains. Even though today's reaction seems overblown, FL corrected to keep pace with its FY24 P/E ratio before its guide-down, at around 12x. Longer term, FL's initiatives to drive profitable growth are a step in the right direction. However, it is hard to see the stock conduct a meaningful turnaround until FL's remodeled storefronts fuel a substantial jump in sales and economic conditions stop hurting its lower-end consumers.
Williams-Sonoma improved margin guidance provides comfort as sales soften further (WSM)
Furniture and home decor company Williams-Sonoma (WSM) did not have a comforting start to the week, diving by about 7% ahead of this morning's mixed Q2 earnings report. Market participants were bracing themselves for weak results from the Pottery Barn owner, especially after fellow furniture retailer La-Z-Boy (LZB) guided Q2 revenue below expectations (based on the midpoint of its guidance range) yesterday, while warning that consumer spending trends remain soft.
- As anticipated, soft demand for big-ticket discretionary items did weigh on WSM's performance this quarter as revenue slid by nearly 13% yr/yr to $1.86 bln, missing analysts' estimates. That sales decline, which is WSM's worst drop in several years, came amid an increasingly promotional environment that the company is looking to avoid. According to CEO Laura Alber, WSM focused on regular price selling to protect its brand and margins.
- The strategy had the desired effect as gross margin expanded by 210 bps qtr/qtr to 40.7%, representing a reversal from last quarter when gross margin eroded by 260 bps qtr/qtr to 38.6%.
- As competitor RH (RH) can attest, though, there is a price to pay for not budging on prices. The luxury furniture retailer has seen a steady dive lower in its sales, which plunged by 23% in Q1, preceded by declines of 14% in both Q4 and Q3.
- Following last quarter's dismal performance, RH relented a bit on its promise to avoid price wars, stating that it will increase markdowns in order to clear out discontinued inventory.
- For the time being, WSM seems intent on sticking with a full price strategy, but demand did take a hit this quarter as reflected by the 11.9% decrease in comparable brand revenue. Notably, Pottery Barn experienced a 10.6% decrease in comps, marking a significant shift from the brand's recent strong performance.
- It's worth noting, however, that Pottery Barn did lap an exceptionally strong comp of +21.5% in the year-earlier quarter.
- The same can't be said for the struggling West Elm banner, though, which posted a comp of -20.8% this quarter.
- To mitigate the impact of falling sales, WSM has been keeping a tight lid on costs, particularly as it relates to advertising and employment costs. In Q2, SG&A expenses were lower by about 14% yr/yr to $486 mln, helping WSM to easily surpass EPS estimates.
- Better yet, the company expects operating margins to remain strong, even as sales lag. Despite lowering its FY24 revenue growth guidance from -3% to +3% to -10% to -5%, WSM raised its operating margin outlook to 15-16% from its prior forecast of 14-15%.
Overall, WSM's Q2 results unsurprisingly depicted a challenging business climate, but they also fell in the "better-than-feared" category as it comfortably surpassed earnings expectations. What's really lighting a fire under the stock, though, is the prospects of higher margins in 2H24.
Advance Auto gets a new CEO; struggling AAP should benefit from a fresh perspective (AAP)
Advance Auto Parts (AAP +2%) is trading roughly flat despite a Q2 earnings miss this morning. We think the bigger news today is AAP naming a new CEO. Current CEO Tom Greco previously announced plans to retire and today AAP named Shane O'Kelly as his replacement, effective September 11. Mr. Greco has served as CEO since April 2016.
- Mr. O'Kelly most recently served as CEO of HD Supply, a wholly owned subsidiary of Home Depot (HD). Prior to joining Home Depot, Mr. O'Kelly was the CEO of PetroChoice, the nation's largest distributor of lubricants. In addition, AAP announced CFO Jeff Shepherd has stepped down and a search is on for his replacement. AAP also said it is conducting a comprehensive operational and strategic review.
- Quickly, on the Q2 results, AAP missed pretty handily on EPS but posted a slight beat on revs. AAP also reported comps of -0.6%. AAP also lowered FY23 EPS guidance by quite a bit to $4.50-5.10 from $6.00-6.50. That amount is larger than the Q2 miss, which we interpret as a guide down for 2H. It's probably good to set more realistic expectations before the new CEO takes over.
- There is definitely a divergence in the big 3 automotive part retailers. AZO and ORLY have performed well and their stock prices have been marching higher over the past year. AAP is the clear laggard in the space and needs to do better. We like that the new CEO is an outsider, who hopefully can provide a fresh perspective on how to turn things around. Also, Home Depot is among the gold standard in retail, in our view, so we think investors like that pedigree.
While a strategic review, new CEO and new CFO are all good steps, closing the gap with AZO and ORLY will not be easy. We will look forward to more details about its turnaround plans, but caution probably makes sense in the near term. One quick thing, Briefing.com thinks AAP may consider eliminating the dividend. AZO and ORLY do not pay dividends, we think that money could be better spent.
Toll Brothers looking constructive after another blowout quarterly report (TOL)
In a rising interest rate environment, homebuilders such as Toll Brothers (TOL) may seem like an unlikely beneficiary of the increasing cost of home ownership due to higher mortgage payments. However, that is indeed the case as illustrated by last night's blowout Q3 earnings report from TOL, continuing an impressive run of four consecutive quarters in which the company has crushed EPS and revenue estimates.
- As TOL CEO Douglas Yearley explains, rising mortgage rates "further cement the lock-in effect that has kept resale inventory at historically low levels." In other words, current homeowners with much lower mortgage rates are unwilling to sell their homes because they don't want a new mortgage with a much higher rate when they buy. This situation is exacerbating a housing supply shortage that was already quite severe resulting from years of underproduction of new homes.
- On one end of the spectrum, existing home sales are weak due to these housing market dynamics with sales dropping by 17% yr/yr in July, according to The National Association of Realtors. On the other end of the spectrum, new home sales are strong as prospective buyers turn to homebuilders to fill the housing inventory void.
This favorable demand environment is reflected throughout TOL's earnings report.
- For instance, delivered homes increased by 5% to 2,524, exceeding TOL's guidance of 2,350-2,450 units. Like last quarter, the company also bumped its FY23 home deliveries outlook higher, projecting deliveries of 9,500-9,600 units versus its prior guidance of 8,900-9,500.
- TOL isn't just selling more homes, though. The company is selling those homes at higher prices -- thanks to the tight inventory situation -- and it's building those homes at relatively lower costs compared to a year ago due to falling lumber prices.
- Average price per home in TOL's backlog is up 3.5% yr/yr to $1.08 mln, while adjusted home sales gross margin expanded by 140 bps yr/yr to 29.3%.
- The end result is that TOL's EPS jumped by 59% yr/yr to $3.73.
Lastly, since TOL issues its earnings about 1-2 months after most its competitors, including D.R. Horton (DHI), Lennar (LEN), and KB Home (KBH), its results and outlook provide an up-to-date gauge on the health of the homebuilding industry. While TOL does enjoy the advantage of selling to a more affluent customer base that's more capable of absorbing higher mortgage rates, its beat-and-raise performance clearly paints a bullish picture for almost any homebuilder.
Abercrombie & Fitch back-to-back big upside quarters despite weak discretionary spend (ANF)
Abercrombie & Fitch (ANF +25%) is trading sharply higher today after reporting Q2 (Jul) results this morning. Analysts were expecting a pretty modest profit, but this apparel retailer blew the doors off with EPS of $1.10, which was also quite a turnaround from a $(0.30) loss in the year ago period. Revenue rose 16.2% yr/yr to $935.4 mln, well ahead of the +4-6% prior guidance. ANF also guided revs for Q3 (Oct) and FY24 above analyst expectations.
- ANF's same store comps were impressive as well at +13%. The star of the show was its namesake Abercrombie brand with huge comps of +23%. It Hollister brand was decent at +5%, but clearly Abercrombie is driving the results. By region, Americas is its largest segment by far at 78% of Q2 total sales and comps were strong at +14%. EMEA was weaker but decent with +6% comps while APAC comps were robust at +26%, although that's just 3% of sales.
- A couple of years ago, Abercrombie was the laggard brand in the ANF quiver, but it has been making a turnaround. Abercrombie has now posted 10 consecutive quarters of growth and this was the segment's highest Q2 sales result since 2011. ANF explains that Abercrombie is no longer a jeans and T-shirt brand. It's more of a lifestyle brand today. Pants is a newer business for the brand and it has been doing well. Its dress business continues to perform. Its men's business is also now comping very nicely. Also, the bottoms business is more than just denim. ANF explained that it came out of Q2 last year focused on assortments. The team got to work and there are now lots of things happening from cargo pants to knit bottoms to wider leg jeans.
- Management says its global growth accelerated throughout Q2 and that it continues to see strong customer receptivity of its brands. And while Abercrombie is getting much of the attention, it is notable that Q2 marked Hollister's return to growth. That brand has been in turnaround mode. ANF has been evolving Hollister brands' positioning and assortment. It seems to be paying off with a return to growth with sales up 8% yr/yr.
- Another factor driving results in Q2: "chase" is definitely back. With a functioning supply chain, ANF can once again run the business the way it likes to, by leveraging chase to read and react to fashion trends and react to what is selling. Its inventory in Q2 was down 30% yr/yr. ANF says both brands and all regions are leveraging chase capabilities, which keeps inventory tight and helps reduce markdowns.
- A final metric that stands out is operating margin, which bounced back in a big way to 9.6% from (0.3)% a year ago, which shows the operating leverage from higher sales and tighter inventories. This caused the company to raise full year guidance to 8-9% from 5-6% prior guidance.
Abercrombie & Fitch has now posted back-to-back big upside quarters. We tip our cap to them for successfully turning around the Abercrombie brand a couple of years ago and now it sounds like Hollister is making a comeback as well. Turnarounds are not a given in the apparel space. Just look at Gap (GPS), which seems to be in perpetual turnaround mode, and American Eagle (AEO). We think what makes this turnaround all the more impressive is that ANF is doing this despite pressure on discretionary spend by consumers.
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