Market Snapshot
briefing.com
| Dow | 34411.21 | +311.87 | (0.91%) | | Nasdaq | 13602.89 | +138.54 | (1.03%) | | SP 500 | 4413.93 | +37.62 | (0.86%) | | 10-yr Note | 0/32 | 4.24 |
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| | NYSE | Adv 1716 | Dec 1131 | Vol 750 mln | | Nasdaq | Adv 2321 | Dec 1916 | Vol 3.98 bln |
Industry Watch
| Strong: Utilities, Energy, Industrials, Consumer Discretionary, Information Technology |
| | Weak: -- |
Moving the Market
--Speech from Fed Chair Powell at Jackson Hole Symposium
--Mega-cap stocks rebound
--Gyrating market rates
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Closing Stock Market Summary
25-Aug-23 16:20 ET
Dow +247.48 at 34346.82, Nasdaq +126.67 at 13591.02, S&P +29.40 at 4405.71
[BRIEFING.COM] The stock market had its ups and downs today, but ultimately, it finished the day in an upbeat manner that saw the major indices settle near their best levels of the session. The positive session, which came on another day of low volume, was in question shortly after Fed Chair Powell gave his much anticipated speech at the Jackson Hole Symposium. There were some efforts to spin that speech as being more hawkish than expected as the market retreated into negative territory, yet the speech didn't contain any surprising revelations.
The Fed Chair stuck by the Fed's 2.0% inflation target; he reiterated that the process of getting inflation back down to 2.0% still has a long way to go; and he acknowledged that the Fed will raise rates again if it is appropriate. These are all things he said following the last FOMC meeting.
His concluding remark that the Fed "...will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data" was a bit of a sticking point for the market, not because of what it revealed, but because of what it did not say. Specifically, there was no mention here, or anywhere in the speech, that the Fed is thinking about cutting rates.
Again, though, following the July 25-26 FOMC meeting the Fed Chair said it is unlikely that the Fed would cut rates this year, so the omission of any rate-cut possibility in today's speech should not have been regarded as a truly hawkish omission.
Seemingly resigned to accept what it heard in the speech at its unsurprising face value, the stock market regrouped and got back on a winning track. It did so with the help of renewed buying interest in the mega-cap stocks and some generally broad-based buying interest that left all 11 S&P 500 sectors in positive territory by the closing bell.
The Invesco S&P 500 Equal-Weight ETF (RSP) increased 0.5%; the Russell 3000 Value Index added 0.5%; and the Russell 3000 Growth Index rose 0.7%.
The best-performing sectors were consumer discretionary (+1.1%), energy (+1.1%), industrials (+0.9%), information technology (+0.8%), and utilities (+0.8%). Gains for the other sectors ranged from 0.2-0.6%.
The communication services sector (+0.2%) was a relative laggard but deserves some praise for rebounding from a 1.7% loss at its worst levels of the day.
Boeing (BA 223.42, +6.11, +2.8%) was the best-performing component in the Dow Jones Industrial Average one day after being the worst performing component in the Dow Jones Industrial Average. Today's turnaround was helped by a Bloomberg report that Boeing is getting ready to resume deliveries of its 737 MAX to China. 25 of the 30 Dow Jones Industrial Average components finished higher.
Away from the stock market, the Treasury market endured its own gyrations. The 2-yr note yield went as high as 5.10% before settling at 5.05%, up four basis points from yesterday's settlement. The 10-yr note yield touched 4.27% soon after Fed Chair Powell's speech but settled the day unchanged at 4.24%.
Strikingly, the low for the S&P 500 today coincided roughly with the 10-yr note yield hitting its high for the day.
- Nasdaq Composite: +29.8% YTD
- S&P 500: +14.7% YTD
- S&P Midcap 400: +6.1% YTD
- Russell 2000: +5.2% YTD
- Dow Jones Industrial Average: +3.6% YTD
Reviewing today's economic data:
- The final reading of the University of Michigan Consumer Sentiment Index for August came in at 69.5 (Briefing.com consensus 71.2) versus the preliminary reading of 71.2. The final reading for July was 71.6, which marked the highest level since October 2021. In the same period a year ago, the index was at 58.2.
- The key takeaway from the report is that it consumers think the rapid improvements seen in the economy in the past three months have moderated, making them more tentative about the outlook.
There is no economic data of note on Monday.
Set for a winning week
25-Aug-23 15:30 ET
Dow +315.55 at 34414.89, Nasdaq +163.93 at 13628.28, S&P +41.66 at 4417.97
[BRIEFING.COM] Barring a late meltdown, the Nasdaq and S&P 500 will end up with winning weeks this week, having navigated the existing and new home sales reports for July, NVIDIA's (NVDA) earnings report, and Fed Chair Powell's speech at the Jackson Hole Symposium.
They also navigated a week where trading volume was below average most days (like today so far).
Next week will feature earnings reports from Best Buy (BBY), Hewlett-Packard Enterprise (HPE), Five Below (FIVE), Salesforce (CRM), Dollar General (DG), Campbell Soup (CPB), Broadcom (AVGO), Dell (DELL), and lululemon athletica (LULU). In addition, the economic calendar will feature the August Consumer Confidence, July JOLTS - Job Openings, August ADP Employment Change, the July Personal Income and Spending Report, the August ISM Manufacturing Index, and the August Employment Situation Report.
In other words, there will be ample trading catalysts in the week ahead, which will ultimately give way to a three-day holiday for Labor Day weekend. Trading volume, therefore, could remain on the ligter side as many participants opt to stay on vacation from the market mentally and/or physically.
Testing session highs
25-Aug-23 15:00 ET
Dow +311.87 at 34411.21, Nasdaq +138.54 at 13602.89, S&P +37.62 at 4413.93
[BRIEFING.COM] What was lost in the short aftermath of Fed Chair Powell's speech has been found again. The major indices are either challenging this morning highs (Nasdaq and S&P 500) or have set new session highs (DJIA and Russell 2000) in the afternoon trade.
There hasn't been a news catalyst to account for the recovery effort, but it likely proved uplifting from a technical standpoint that the sell-off this morning didn't violate the low of 4,335 on the S&P 500 (seen August 18) for the consolidation trade that has taken root this month.
Today's low was 4,356, but the S&P 500 is back above 4,400 with this afternoon's rebound push. Leadership is looking better now, which shouldn't come as much of a surprise given the standing of the major indices. Notably, the Vanguard Mega-Cap Growth ETF (MGK) is back on track, up 0.9%, and the Invesco S&P 500 Equal-Weight ETF (RSP), up 0.8%, is testing its best levels of the session.
All 11 S&P 500 sectors are in positive territory with gains ranging from 0.1% to 1.4%. The communication services sector is the 0.1% sector, but that is worth noting given that it was down as much as 1.7% earlier.
Instacart files for IPO; Hasbro outperforming after positive Stifel note
25-Aug-23 14:30 ET
Dow +297.22 at 34396.56, Nasdaq +122.10 at 13586.45, S&P +31.92 at 4408.23
[BRIEFING.COM] The S&P 500 (+0.73%) is near HoDs in recent trading, the major average all having moved modestly higher over the prior half hour. Also in the last half hour, Instacart's parent company Maplebear filed an S-1 to begin the IPO process; the company plans to list in the NasdaqGS under the ticker "CART".
S&P 500 constituents Hasbro (HAS 69.70, +3.75, +5.69%), Valero Energy (VLO 135.34, +5.88, +4.54%), and Intuit (INTU 518.25, +19.75, +3.96%) pepper the top of today's standings. HAS stands out after being added to Stifel's Select List earlier in the day, while INTU beat Q4 expectations last night.
Meanwhile, North Carolina-based auto parts retailer Advance Auto (AAP 63.93, -3.98, -5.86%) is today's top laggard, continuing post-earnings losses from earlier in the week. We'd also highlight that the stock was moved to the S&P SmallCap 600 from the S&P 500 today.
Gold snaps weekly losing streak
25-Aug-23 14:00 ET
Dow +172.61 at 34271.95, Nasdaq +40.63 at 13504.98, S&P +13.08 at 4389.39
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.30%) is tied with the S&P 500 to this point on Friday, little changed over the prior half hour.
Gold futures settled $7.20 lower (-0.4%) to $1,939.90/oz, though managed to hold onto a +1.2% gain this week, snapping a three week losing streak.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $104.20.
Page One
Last Updated: 25-Aug-23 08:58 ET | Archive
Powell speech in focus
NVIDIA (NVDA) gave the stock market everything it needed to rally on Thursday. It did... for all of about 30 minutes and then it promptly rolled over as bids fell by the wayside. A promising day ultimately turned into a disappointing day, which in itself became a catalyst for the selling interest.
The stock market did not act the way many participants had expected it to act and that caught them off guard, particularly those participants who got bulled up so to speak by Wednesday's price action.
Naturally, the selling Thursday got blamed primarily on nervousness that Fed Chair Powell might sound more hawkish than expected in his 10:05 a.m. ET speech today at the Jackson Hole Symposium. We found that explanation to be wanting, however, considering that the prevailing view captured in previews of the speech before yesterday was that Mr. Powell will likely take a middle-of-the-road approach.
Where was the purported angst on Wednesday when the 2-yr note yield fell 11 points to 4.93% and the S&P 500 increased 1.1%?
In our estimation, nervousness before Mr. Powell's speech was the ostensible factor for Thursday's weakness, whereas the disappointing price action after NVIDIA's blowout report and guidance was the principal factor.
Strikingly, the equity futures market doesn't appear too nervous this morning about what it might hear in Mr. Powell's speech. The S&P 500 futures are up 18 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 43 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 162 points and are trading 0.5% above fair value.
There is some modest strength in many of the mega-cap stocks in pre-market trading that is helping to boost the futures market. Otherwise, there isn't much news out there to account for the broad market movement.
There are several individual news items pertaining to earnings results. Ulta Beauty (ULTA), Marvell Technology (MRVL), Affirm Holdings (AFRM), Intuit (INTU), Workday (WDAY), Nordstrom (JWN), and Gap, Inc. (GPS) are headliners in that respect. The reactions to those reports has been mixed, so they can't be considered as drivers of the bullish bias in the equity futures market this morning.
Similarly, there are reports that China is encouraging financial institutions to increase their stock investments in Chinese markets and that the stamp duty on stock trading will be reduced by up to 50%; however, that falls short as a positive catalyst this morning knowing that the Shanghai Composite and Hang Seng Index declined 0.6% and 1.4%, respectively, in Friday's trading.
What we have this morning is a buy-the-dip bid and, ironically, a bid based on speculation that Mr. Powell won't sound as hawkish as feared.
Everyone will know soon enough what he says and how he sounds saying it, and that will be today's market driver after 10:05 a.m. ET.
-- Patrick J. O'Hare, Briefing.com
Marvell heads lower despite decent Q2 results; each large segment has an area of weakness (MRVL)
Marvell (MRVL -6%) is not looking so "Marvell-ous" today after the semiconductor company reported Q2 (Jul) results last night. Marvell reported its usual modest Q2 upside while its Q3 (Oct) guidance was in-line.
- Data Center, which is Marvell's largest market at 34% of JulQ sales, segment revenue fell 29% yr/yr but rose 6% sequentially to $459.8 mln, well above prior guidance of flat sequential growth. The upside was driven by accelerating demand for its optical products to meet the continuing expansion of cloud AI deployments. As expected, revenue from the enterprise on-premise portion of its data center end market declined significantly.
- MRVL reported sequential storage data center revenue growth in Q2 and expects modest sequential growth in Q3. However, storage end market demand remains significantly depressed and customer inventory remains high. As a result, the industry's expectations for a data center storage recovery have pushed out meaningfully.
- Turning to carrier infrastructure (21% of revs), revenue declined 3% yr/yr and 5% sequentially to $276 mln, in-line with prior guidance. The decline was driven entirely by the wired portion of its carrier end market, reflecting ongoing demand weakness and inventory digestion at wired customers. In contrast, its wireless revenue continued to grow with more growth expected in Q3. However, MRVL cautioned that a number of regions are completing their initial phase of 5G deployments and are taking a pause in a challenging macro environment before they upgrade the balance of their networks. As a result, MRVL is expecting a significant sequential reduction in wireless revenue in Q4 (Jan).
- Enterprise networking (24% of revs) revenue declined 4% yr/yr and 10% sequentially to $328 mln. MRVL continues to see inventory corrections impact demand. MRVL expects this inventory renormalization to take a few quarters to resolve as customer balance sheets get worked down over time.
- The two segments showing the most growth, unfortunately are MRVL's smallest segments. Consumer (13% of revs) revenue grew 2% yr/yr but 18% rose sequentially to $168 mln. Automotive/Industrial (8%) posted the strongest growth up 32% yr/yr and 23% sequentially to $110 mln, led by its automotive business, which continued to benefit from the growing adoption of Ethernet in cars.
Overall, investors are not happy with Marvell's Q2 results/guidance. While there are pockets of strength especially its AI data center business, but each of its three largest segments had weak areas as well and some inventory corrections. Even MRVL's strong wireless unit is expected to slow by Q4. Also, the data center storage recovery timeline was pushed about meaningfully. After a good quarter in Q1, we think investors were looking for a more upbeat outlook for 2H23 but there are several pockets of weakness.
Affirm receives major approval as beat-and-raise report highlights its resiliency (AFRM)
To say that buy now, pay later company Affirm (AFRM) had fallen out of favor in this rising interest rate environment would be an understatement, but the company's much better-than-expected 4Q23 results and upside 1Q24 revenue guidance has investors taking notice.
There's no shortage of skeptics in AFRM, as illustrated by the high short interest with about 18% of the float residing on the short side. Today's launch higher is being amplified by a potent short squeeze as bears reassess how severely rising interest rates are impacting the company.
Without question, higher rates are indeed hurting AFRM's business in a few different ways. However, AFRM is also benefitting from a couple different factors that are helping to mitigate that headwind, resulting in stronger than anticipated financials.
- On the demand side, GMV growth has slowed significantly compared to a year ago as the decline in discretionary spending has resulted in consumers taking out fewer loans. In Q4, GMV grew by 25% yr/yr to $5.5 bln, compared to growth of 89% (ex-Peloton) in the year-earlier quarter.
- The good news, though, is that GMV growth accelerated on a qtr/qtr basis from Q3's increase of 18%. Furthermore, its 1Q24 GMV guidance of $5.3-$5.4 bln indicates that growth will remain stable at 23% (at the midpoint).
- Similar to credit card companies Visa (V), Mastercard (MA), and American Express (AXP), AFRM is capitalizing on robust demand in the travel and entertainment categories. The company's strategy to forge new partnerships in the travel industry, including with Booking Holdings (BKNG) and Royal Caribbean (RCL), is paying dividends.
- The success of its direct-to-consumer segment is also helping the cause. More specifically, the Affirm Card -- which is a physical card that acts more like a typical credit card -- contributed roughly $130 mln in GMV in Q4 compared to less than $20 mln in Q3. Encouragingly, AFRM only began scaling the Affirm Card in 2H23 and it expects the product to become a meaningful contributor to growth in FY24.
- Rising interest rates have dented AFRM's RLTC (revenue less transaction costs) growth, which declined by 1% in Q4 to $182 mln. Higher rates means that AFRM's funding costs increase, cutting into the amount of revenue that's leftover after paying its borrowing costs.
- Like GMV, this metric came in better-than-expected due to strong revenue at a "large enterprise platform partner" that's likely Amazon (AMZN). Looking ahead, AFRM expects RLTC to stabilize as a percentage of GMV in 2Q24 as the impact of its pricing initiatives offset the impact of higher funding costs
- Lastly, concerns that rising interest rates would push delinquencies higher have proven to be unfounded -- at least up to this point. In Q4, the 30+ day delinquency rate improved by 30 bps qtr/qtr to just 2.3%, reflecting the resiliency of the consumer and AFRM's underwriting capabilities.
The bottom line is that AFRM is navigating this challenging high interest rate environment better than many market participants had anticipated. Plenty of risks remain for this BNPL leader, but the company deserves credit for finding ways to mitigate the impact of rising rates, such as through expanding its focus and partnerships within the strong travel and entertainment categories.
Nordstrom sinks as 2H23 headwinds keep FY24 guidance unchanged despite Q2 outperformance (JWN)
Nordstrom (JWN -8%) exceeded headline forecasts in Q2 (Jul) and reaffirmed its FY24 (Jan) projections, yet investors are unimpressed. With several prominent retail apparel firms already reporting JulQ earnings, it has been well-documented that the current demand landscape is challenging. Nordstrom could not avoid this backdrop in Q2, registering a 7.9% sales decline yr/yr to $3.77 bln. However, this drop was much better than analysts anticipated. In fact, if not for the wind-down of Canadian operations and timing related to its anniversary sale, revenue would have fallen only 4%. Meanwhile, at $0.81, Nordstrom delivered its widest EPS beat since 3Q20, reflecting healthy progress toward improving profitability.
So why are shares sinking today?
- Management continued seeing a cautious consumer and could not formulate how shoppers would respond to stubborn inflation, elevated interest rates, and the resumption of student loans in the back half of the year. Furthermore, thus far through Q3 (Oct), Nordstrom is noticing decelerating sales trends across both its core Nordstrom banner and its off-price Nordstrom Rack banner.
- At the same time, delinquencies are gradually ticking higher within the company's credit card business, potentially resulting in higher credit losses in the second half of the year and into 2024. This disturbing trend is cropping up amongst many retailers lately. Macy's (M) stated earlier this week that it experienced higher delinquencies across all stages of aged balances during JulQ. Kohl's (KSS) noticed a similar shift in JulQ, noting that credit losses increased, albeit in line with expectations. This headwind is worth watching, especially with student loans set to resume in Q3.
- As a result of the uneasiness surrounding the near future, Nordstrom remained conservative in its FY24 guidance, reiterating its EPS of $1.80-2.20 despite the massive beat in Q2 and continuing to predict a 4-6% revenue decline yr/yr. The market can be unforgiving of a company keeping its full-year outlook unchanged after it topped quarterly estimates so handily.
Overall, retail apparel may have performed relatively well during the front half of the year, but it is becoming increasingly clear that the back-to-school and holiday seasons may not result in sustained momentum in the back half of the year. Meanwhile, it does not help that Nordstrom is witnessing historically high losses from theft -- the recent incident in Los Angeles highlights this discouraging development -- at the same time credit card delinquencies are rising. On a lighter note, like TJX (TJX), Nordstrom Rack benefits from consumers trading down as they hunt for better value. Brands like HOKA (DECK), On (ONON), and NIKE (NKE) are also seeing positive responses from shoppers. Still, we think it is better to wait on the sidelines until some of the headwinds pressing against Nordstrom begin to turn.
Workday's beat-and-raise report show's that it's getting the job done in a difficult climate (WDAY)
The business climate for Workday (WDAY) remains far from optimal as the HCM software company continues to contend with spending scrutiny, but it still delivered a solid beat-and-raise performance in Q2 amid the tough conditions. In particular, WDAY experienced healthy demand for its financial management platform with the company touting the "mission critical nature" of its offerings as a key factor.
- According to CEO Carl Eschenbach, the relevance of WDAY's HCM for Finance platform has never been greater. Given that many companies are looking to increase productivity and efficiency while strictly managing their expenses and budgets, it's understandable that interest in the company's financial management tools would be on the rise.
- Although WDAY's growth isn't necessarily "booming", it does reflect healthy demand for its offerings. Subscription revenue increased by nearly 19% yr/yr to $1.62 bln, edging past the company's guidance of $1.611-$1.613 bln. Encouragingly, that growth rate is essentially on par with last quarter's increase of 20%, demonstrating that customers' spending patterns haven't changed for the worse.
- In fact, during the earnings call, WDAY stated that it's seeing longer contract duration for both new deals and renewals, causing its total backlog growth to substantially outpace growth in the 24-month backlog. Furthermore, early renewals exceeded the company's expectations, adding about 1.5% of growth to the 24-month backlog.
Beyond the better-than-expected results and improved FY24 subscription revenue guidance -- which was bumped to $6.57-$6.59 bln from $6.550-$6.575 bln -- WDAY's bullish commentary on its AI-related prospects also caught market participants' attention.
- Specifically, the company stated that it's ramping up its investments surrounding the usage and application of large language models. WDAY is building product capabilities that incorporate generative AI for a variety of tasks, including content search, content summarization, and document understanding.
- Most of these AI-powered features will be included as part of current subscriptions, but WDAY also expects to deploy new AI capabilities with direct monetization.
Last but not least, WDAY's margins and profitability continue to move in the right direction.
- In Q2, non-GAAP operating margin came in at 23.6%, up sharply from 19.6% in the year-earlier quarter, mainly due to revenue outperformance and the timing of certain expenses.
- The company also nudged its FY24 operating margin guidance higher to 23.5% from 23% as it maintains a disciplined approach with its spending and expenses.
Overall, WDAY is executing very well in a difficult macro environment, which speaks to the strong value proposition of its HCM platform and its leadership position in the industry.
Intuit wraps up FY23 on a good note; stock back above $500 following earnings (INTU)
Intuit (INTU +2.4%) is trading modestly higher following its Q4 (Jul) earnings report last night. INTU focuses on small businesses and consumers (TurboTax, QuickBooks, Mint, Credit Karma, Mailchimp). INTU beat handily on EPS, while its revenue upside was more modest. The Q1 (Oct) guidance was mixed with downside EPS but in-line revs.
- The star of the show was again its Small Business and Self-Employed Group (SBSE), which saw revenue grow 21% yr/yr to $2.1 bln. QuickBooks Online accounting revenue grew 22%, driven mainly by customer growth, higher effective prices and mix shift. Online services grew 20% in Q4 driven by payroll, Mailchimp, payments, capital and time tracking.
- Credit Karma has been a laggard in recent quarters. In Q4, revenue fell 11% yr/yr but grew 3% sequentially to $424 mln. The yr/yr decline was driven primarily by macro headwinds in personal loans, auto insurance, home loans and auto loans, partially offset by growth in credit cards and Credit Karma Money. The good news here is that Credit Karma is seeing continued stability, which led to yr/yr improvement in Q4 vs Q3.
- INTU's vision when it bought Credit Karma was to create one consumer platform where a consumer could manage their financial life, manage their money, and get their taxes done in one place. After several years of rapid experimentation, INTU says it had a massive breakthrough this past year. The number of Credit Karma members that became TurboTax customers was up 5x, which gives INTU a lot of confidence going into next year and beyond.
- When it's not tax season, its Consumer and ProTax Groups segment is small and that was the case in Q4, with revs falling 12% yr/yr to $128 mln. TurboTax units declined 5% for the year, driven by taxpayers who filed in order to receive pandemic-era stimulus and tax credits during the past several years but did not file taxes this season.
- With FY23 wrapped up, we got our first look at FY24 guidance and it was pretty good with upside EPS and in-line revs. By segment, SBSE is forecast to grow 16-17%, Consumer 7-8% and Credit Karma at -3% to +3%.
Overall, this was a decent way to wrap up FY23. The Q4 upside was impressive. We think two things are keeping the stock in check: the somewhat modest Q1 guidance and the fact that the stock had run a good amount over the past 6-8 weeks. However, we think the FY24 guidance was quite good. INTU could have taken a more cautious view on FY24 given the macro headwinds, so that was good to see. Its SBSE segment continues to perform well, while Credit Karma seems to be stabilizing.
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