Market Snapshot
briefing.com
| Dow | 34794.52 | +72.61 | (0.21%) | | Nasdaq | 14007.65 | -27.32 | (-0.19%) | | SP 500 | 4509.13 | +1.47 | (0.03%) | | 10-yr Note | -27/32 | 4.17 |
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| | NYSE | Adv 1791 | Dec 1038 | Vol 781 mln | | Nasdaq | Adv 2693 | Dec 1589 | Vol 4.0 bln |
Industry Watch
| Strong: Energy, Materials, Financials, Industrials, Information Technology |
| | Weak: Consumer Staples, Consumer Discretionary, Communication Services |
Moving the Market
-- Sharp increase in oil prices
-- Digesting the August Employment Situation Report that featured a softening in nonfarm payrolls after accounting for revisions, a jump in the unemployment rate to 3.8%, and a moderation in average hourly earnings growth
-- Rising Treasury yields
-- Mega caps somewhat soft, limiting index gains
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Closing Summary
01-Sep-23 16:25 ET
Dow +115.80 at 34837.71, Nasdaq -3.15 at 14031.82, S&P +8.11 at 4515.77
[BRIEFING.COM] Stocks closed out this first day of September on a mixed note. The three main indices closed with only modest gains or losses while the Russell 2000 (+1.1%) outperformed. The S&P 500 maintained a position above 4,500 today, reaching 4,501 at its low.
A jump in market rates, a view from Cleveland Fed President Mester (2024 FOMC voter) that inflation remains too high, and a sharp increase in oil prices ($85.55/bbl, +1.92, +2.3%) acted as headwinds for the stock market.
Treasuries saw some improvement immediately after the release of the August Employment Situation Report, which showed a softening in nonfarm payrolls after accounting for revisions, a jump in the unemployment rate to 3.8% from 3.5%, and a moderation in average hourly earnings growth to 4.3% year-over-year from 4.4%. Separately, the ISM Manufacturing Index for August was stronger than expected at 47.6% (Briefing.com consensus 46.7%), but remained below 50.0%, which is the dividing line between expansion and contraction, for the tenth consecutive month.
The 2-yr note yield fell to 4.78% and the 10-yr note yield hit 4.05% after the jobs report before an increase in selling activity took yields higher. To be fair, yields had already dropped sharply this week in the wake of some other soft data, so today's weakness was partly driven by a sell-the-news response.
The 2-yr note yield rose two basis points today, and fell 17 basis points this week, to 4.88%. The 10-yr note yield rose eight basis points today, and fell seven this week, to 4.17%.
Mega caps and growth stocks were relatively soft, reacting to the bump in rates and cooling off from a stronger showing earlier in the week. The Vanguard Mega Cap Growth closed flat while the Invesco S&P 500 Equal Weight ETF (RSP) logged a 0.4% gain and the market-cap weighted S&P 500 rose 0.2%. The Russell 3000 Value Index rose 0.6% versus a 0.1% gain in the Russell 3000 Growth Index.
On the earnings front, Elastic (ESTC 74.27, +12.39, +20.0%), MongoDB (MDB 392.88, +11.58, +3.0%), lululemon athletica (LULU 404.19, +22.93, +6.0%), and Dell (DELL 68.19, +11.95, +21.3%) were winning standouts following some pleasing earnings results and/or outlooks. Broadcom (AVGO 872.52, -50.37, -5.5%), meanwhile, sold off after its earnings report.
Roughly half of the 11 S&P 500 sectors closed in the green. The energy sector (+2.1%) saw the largest gain, rising alongside oil prices, while the consumer staples sector (-0.8%) registered the biggest decline.
As a reminder, equity and bond markets will be closed on Monday for Labor Day.
- Nasdaq Composite: +34.1% YTD
- S&P 500: +17.6% YTD
- S&P Midcap 400: +9.9% YTD
- Russell 2000: +9.1% YTD
- Dow Jones Industrial Average: +5.1% YTD
Reviewing today's economic data:
- August Nonfarm Payrolls 187K vs Briefing.com consensus of 175K; July was revised to 157K from 187K
- August Nonfarm Private Payrolls 179K vs Briefing.com consensus of 160K; July was revised to 155K from 172K
- August Avg. Hourly Earnings 0.2% vs Briefing.com consensus of 0.3%; July was 0.4%
- August Unemployment Rate 3.8% vs Briefing.com consensus of 3.6%; July was 3.5%
- August Average Workweek 34.4 vs Briefing.com consensus of 34.3; July was 34.3
- Altogether the key takeaway from the report is that it was a Goldilocks report as it pertains to the market's thinking that the Fed won't be raising rates again.
- August S&P Global US Manufacturing PMI - Final 47.9 (July was 47.0).
- July Construction Spending 0.7% vs Briefing.com consensus of 0.6%; June was revised to 0.6% from 0.5% "
- The key takeaway from the report is that residential spending continues to be powered by new single family construction to meet demand that cannot be satisfied through the existing home market.
- August ISM Manufacturing Index 47.6% vs Briefing.com consensus of 46.7%; July was 46.4%"
- The key takeaway from the report is that manufacturing demand remains soft, yet conditions in the manufacturing sector, slow they may be, appear to be stabilizing.
Treasuries settle with losses; markets closed Monday for Labor Day
01-Sep-23 15:30 ET
Dow +121.97 at 34843.88, Nasdaq -7.33 at 14027.64, S&P +8.22 at 4515.88
[BRIEFING.COM] Things are little changed at the index level over the last half hour. The Nasdaq Composite remains just its flat line.
Treasuries settled with losses. The 2-yr note yield rose two basis points to 4.88% and the 10-yr note yield rose eight basis points to 4.17%.
As a reminder, equity and bond markets will be closed for Labor Day on Monday.
Energy outperforms
01-Sep-23 15:05 ET
Dow +72.61 at 34794.52, Nasdaq -27.32 at 14007.65, S&P +1.47 at 4509.13
[BRIEFING.COM] The Russell 2000 continues to outperform while the Nasdaq remains in negative territory.
Oil prices continue to climb, up 2.6% to $85.78/bbl. The S&P 500 energy sector (+2.1%) sports the largest gain by a decent margin.
On the flip side, the consumer discretionary sector (-0.9%) trades at the bottom of the pack.
Dollar General near bottom of S&P 500 on Friday, smacked by sell side downgrades
01-Sep-23 14:30 ET
Dow +46.93 at 34768.84, Nasdaq -41.58 at 13993.39, S&P -2.42 at 4505.24
[BRIEFING.COM] The S&P 500 (-0.05%) has snuck back into the red in the last half hour, leaving only the Dow Jones Industrial Average (+0.14%) in positive territory.
S&P 500 constituents Hewlett Packard Enterprise (HPE 17.81, +0.82, +4.83%), Freeport-McMoRan (FCX 41.61, +1.70, +4.26%), and Advanced Micro (AMD 109.31, +3.59, +3.40%) dot the top of the standings. FCX gains in strength in copper, while AMD follows broader strength in tech as well as gains out of Intel (INTC 36.68, +1.54, +4.38%) following yesterday's comments from CEO Gelsinger relating to the company's outlook.
Meanwhile, Dollar General (DG 129.87, -8.63, -6.23%) is near the bottom of the S&P after a plethora of sell side downgrades in reaction to yesterday morning's Q2 miss.
Gold moderately higher on Friday, up +1.4% on the week
01-Sep-23 14:00 ET
Dow +61.03 at 34782.94, Nasdaq -21.53 at 14013.44, S&P +2.20 at 4509.86
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.15%) is the sole lagging index, just off session lows.
Gold futures settled $1.20 higher (+0.1%) to $1,967.10/oz, even though both the dollar and treasury yields are higher today; the yellow metal added +1.4% this week.
Meanwhile, the U.S. Dollar Index is up about +0.6% to $104.19.
Page One
Last Updated: 01-Sep-23 08:57 ET | Archive
Softening employment situation in August just what Fed wants to see
For the Friday before Labor Day weekend, there is actually a good bit of news for the market to chew on. What remains to be seen is just how many participants will take a seat at the table. The participation in this week's gains hasn't exactly been robust; nonetheless, this week has been defined by a lack of selling interest amid declining market rates.
We are seeing more of the same this morning, too. There was a lack of selling interest before the release of the August Employment Situation Report and there has been an increase in buying interest after its release.
Currently, the S&P 500 futures are up 25 points and are trading 0.6% above fair value, the Nasdaq 100 futures are up 86 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 147 points and are trading 0.5% above fair value. The 2-yr note yield, which is more sensitive to changes in the fed funds rate, is down four basis points to 4.82% after sliding to 4.78% immediately after the release of the employment report. The 10-yr note yield is unchanged at 4.09% after dropping to 4.05%.
The focal points for the futures market were the softening in nonfarm payrolls after accounting for revisions, the jump in the unemployment rate to 3.8%, and the moderation in average hourly earnings growth.
Altogether the key takeaway from the report is that it was a Goldilocks report as it pertains to the market's thinking that the Fed won't be raising rates again.
There are clear signs of softening in the employment situation, including a decline in temporary positions, an uptick in the percentage of workers unemployed for 27 weeks or more, and a pickup in the U6 unemployment rate, which accounts for underemployed workers. That softening is exactly what the Fed has been expecting to see -- and hoping to see -- in response to its campaign to get inflation back down to its 2.0% target.
Yesterday's core-PCE Price Index for July suggests there is more ground to cover in getting the inflation rate down, yet today's August employment report should provide the Fed some cover to be patient with its current policy stance.
Notable headlines from the August Employment Situation Report:
- August nonfarm payrolls increased by 187,000 (Briefing.com consensus 175,000). The 3-month average for total nonfarm payrolls fell to 150,000 from 181,000. July nonfarm payrolls revised to 157,000 from 187,000. June nonfarm payrolls revised to 105,000 from 185,000.
- August private sector payrolls increased by 179,000 (Briefing.com consensus 160,000). July private sector payrolls revised to 155,000 from 172,000. June private sector payrolls revised to 86,000 from 128,000.
- August unemployment rate was 3.8% (Briefing.com consensus 3.6%), versus 3.5% in July. Persons unemployed for 27 weeks or more accounted for 20.3% of the unemployed versus 19.9% in July. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.1% versus 6.7% in July.
- August average hourly earnings were up 0.2% (Briefing.com consensus 0.3%) versus 0.4% in July. Over the last 12 months, average hourly earnings have risen 4.3%, versus 4.4% for the 12 months ending in July.
- The average workweek in August was 34.4 hours (Briefing.com consensus 34.3), versus 34.3 hours in July. Manufacturing workweek was 40.1 hours for the fifth straight month. Factory overtime dipped 0.1 hour to 3.0 hours.
- The labor force participation rate was 62.8% versus 62.6% in July.
- The employment-population ratio held steady at 60.4%.
In the other news of note, lululemon athletica (LULU), Dell (DELL), MongoDB (MDB), Elastic (ESTC), and Nutanix (NTNX) are all trading higher after their latest earnings results, whereas Broadcom (AVGO) is on the defensive, reportedly because its in-line fiscal Q4 revenue guidance underwhelmed investors' higher expectations.
Separately, Dow component Walgreens Boots Alliance (WBA) is making a splash this morning, having announced that CEO, Rosalind Brewer, eh hum, stepped down from her position as CEO and member of the Board as of August 31. Walgreens also said it expects its FY23 EPS to be at or near the low end of $4.00-4.05 and that it has appointed Ginger Graham, the current lead independent director, to be interim CEO.
On the international front, the August Caixin Manufacturing PMI out of China was stronger than expected at 51.0; and the PBOC said it will lower the foreign exchange reserve requirement ratio to 4.00% from 6.00%, effective September 15, in an effort to support the yuan. Manufacturing PMI readings out of the eurozone, Japan, Australia, and South Korea, meanwhile, remained in contraction territory (i.e., sub-50.0).
The August ISM Manufacturing Index for the U.S. will be released at 10:00 a.m. ET.
-- Patrick J. O'Hare, Briefing.com
MongoDB looks to re-test 52-week highs following a massive beat-and-raise in JulQ (MDB)
MongoDB (MDB +4%) is dancing its way back toward 52-week highs following a massive beat-and-raise in Q2 (Jul). The database management software provider maintained its upbeat momentum from the previous quarter despite macroeconomic headwinds, topping earnings by a wider margin than in Q1 (Apr), accelerating sales growth, and lifting its FY24 targets.
- Adjusted EPS spiked to $0.93, obliterating MDB's $0.43-0.46 forecast, on top-line growth of 39.6% yr/yr to $423.8 mln, crushing the high end of MDB's $388-392 prediction.
- MDB boasted a healthy quarter of new and existing business expansion, somewhat bucking the trend from other software-based B2B firms lately, like Okta (OKTA), which mentioned how attracting new customers proved much more challenging than growing existing relationships. MDB grew its customer base by 4.4% sequentially to over 45,000. Larger customers with at least $100K in annualized recurring revenue were up 5.3% from last quarter.
- MDB Atlas, the company's core cloud offering, expanded sales by 38% yr/yr in Q2, comprising 63% of total revenue, down from 65% last quarter. The minor decline was attributed to the impressive performance of MDB's legacy Enterprise Advanced (EA) segment, reflecting solid demand regardless of where customers are in their digital transformations. Atlas revenue is also recognized on a consumption basis, which, as we saw from Snowflake (SNOW), can fluctuate more often than a static subscription, particularly during challenging economic conditions, such as what MDB endured during Q2.
- Atlas consumption growth will likely remain adversely affected by the current environment throughout FY24 (Jan). However, after such a tremendous Q2 report, MDB was confident in raising its FY24 targets, expecting FY24 adjusted earnings of $2.27-2.35, up huge from $1.42-1.56, and revs of $1.596-1.608 bln, up from $1.522-1.542.
In the past, this kind of performance has coincided with extensive jumps in MDB's share price. So why does today's response, albeit quite positive, pale compared to previous reactions, such as last quarter's over +28% move? MDB enjoyed a bit of a one-off quarter, fueled primarily by EA, which is not billed based on consumption but through subscriptions and licensing. Because of a significant intake in licensing revenue in Q2, which did not add much additional costs, EA's exceptional performance largely drove MDB's 500 bp improvement yr/yr in non-GAAP gross margins to 78%, assisting MDB's huge bottom-line beat. Management does not expect to repeat this performance in subsequent quarters.
Still, we continue to like MDB over the long term, especially as AI gains popularity. As a database management software developer, AI fits snuggly into MDB's core business. For example, document models' flexibility and versatility makes them a natural fit for AI application. Also, AI requires the ability to scale data processing on an expanding database, a critical attribute of MDB's offering. AI is merely in its early stages, and although it could experience growing pains over the near term if companies do not realize meaningful productivity gains, it has the potential to add considerable upside to MDB over the long haul.
lululemon's results didn't sour in a tough climate as market share gains fuel upside results (LULU)
The althleisure wear and sporting goods market hasn't been spared from a slowdown in discretionary spending, as illustrated by the recent disappointing quarterly reports from Dick's Sporting Goods (DKS), Foot Locker (FL), and NIKE (NKE). However, lululemon athletica (LULU) has withstood the tough business conditions better than its competitors and it continues to deliver impressive results, including last night's beat-and-raise Q2 earnings report.
That's not to say that the company hasn't been impacted at all by the macroeconomic headwinds. In fact, LULU's Q2 revenue growth rate of about 18% is its lowest yr/yr growth since the pandemic-impacted quarter of 2Q21 (reported on September 8, 2020). Furthermore, the company's total comparable sales increase of 11% was down from last quarter's growth of 14% and missed analysts' expectations.
A slowdown in this environment, though, is both expected and forgivable. What really matters is that LULU has emerged as a clear winner in the retail space with its strong brand name, more affluent customer base, and market share gains under the spotlight.
- Sales in North America held up well, increasing by 11%, driven by market share gains in the U.S. and healthy demand for newer products like performance sneakers. China, an important piece of LULU's growth strategy that accounts for over 10% of sales, experienced robust growth of 61%. The lifting of pandemic-related restrictions provided a boost there.
- One of most impressive facets of LULU's performance is that gross margin continues to expand despite the highly promotional retail environment. In Q2, gross margin improved by 230 bps yr/yr to 58.8%, which is also up from last quarter's gross margin of 57.5%. The expanding gross margin is a testament to LULU's strong brand name and a more affluent customer base that's better able to afford full prices.
- If we were to nit-pick, one minor blemish is that inventories increased by 14% yr/yr to $1.7 bln. However, there's even a silver lining regarding this item since the increase is less than the 20% jump that LULU had forecasted back in June.
- Perhaps the biggest question heading into LULU's earnings report was whether demand was starting to weaken more significantly as consumers continue to tighten their budgets. Market participants received good news on that end as well with the company raising its FY24 EPS and revenue guidance to $12.10-$12.17 and $9.510-$9.570 bln, respectively, from $11.74-$11.94 and $9.44-$9.51 bln. CEO Calvin McDonald added to the positive vibes by stating that "we are seeing strong momentum continue into Q3."
The main takeaway is that LULU continues to defy a very challenging retail landscape as it steadily takes market share and capitalizes on resilient demand for its popular yoga wear, jogging apparel, and accessories.
Dell surprises investors with big upside results as demand was better than expected (DELL)
Dell (DELL +24%) is trading nicely higher following a huge EPS beat with its Q2 (Jul) earnings report last night. This was Dell's fourth consecutive large EPS beat. Dell also reported impressive revenue upside. In addition, the mid-point of Dell's Q3 (Oct) EPS guidance and its revenue guidance were both well above analyst expectations. Dell also raised full year EPS guidance to $6.10-6.50 from $5.25-5.75. While revenue declined yr/yr, Dell cited a better demand environment for its strong Q2 results.
- Breaking it down by segment, Infrastructure Solutions Group (ISG) saw revenue decline 11% yr/yr, but rose 11% sequentially to $8.5 bln with 12.4% operating margin vs 11.0% last year. Storage revenue declined 3% yr/yr but rose 11% sequentially to $4.19 bln, with continued demand growth in PowerStore, its midrange storage array, and PowerFlex. Servers and networking revenue fell 18% yr/yr but rose 11% sequentially to $4.27 bln, with continued demand growth in AI-optimized servers.
- Client Solutions Group (CSG) revs fell 16% yr/yr but rose 8% sequentially to $12.9 bln with 7.5% operating margin vs 6.3% last year. Commercial client revenue fell 13% yr/yr but rose 7% sequentially to $10.55 bln, with demand growth in workstations. Consumer revenue fell 29% yr/yr but rose 13% sequentially to $2.4 bln. Commercial continues to fare better than Consumer. As such, Dell remains focused on commercial and the high end consumer sales.
- Commercial PC demand improved sequentially and as Dell moved through the quarter. Attach rates were strong, particularly in software. ASPs continue to expand across AI servers, traditional servers and commercial PCs. Dell did see increased pricing pressure in Q2, but Dell was selective on deals.
- Dell said it was encouraged with the macro environment as it moves into the second half of the fiscal year. Dell saw better underlying demand in the US market and EMEA was better than anticipated. Dell also saw demand growth in government and SMB and its transactional demand improved through the quarter. However, Dell also said that most of its largest global customers remain careful with their spending levels.
- Besides the impressive headline numbers, the key takeaway here is that the demand environment improved more quickly than Dell had expected, particularly in June and July. That was evident in the sequential growth numbers. Dell also performed well operationally with expense controls, pricing discipline and lower input costs. Dell sharpened its focus on pricing and was selective on deals.
Overall, investors are rightly impressed with Dell's Q2 results/guidance. Whereas HPQ's report was pretty sour, Dell was quite upbeat about the demand environment being better than expected. Also what jumped out at us was both of Dell's segments showed margin expansion despite a big drop in yr/yr sales. That tells us that Dell performed well operationally and that stronger demand translated into better pricing power.
Broadcom's mild JulQ results and OctQ sales estimate struggle to keep shares at 52-week highs (AVGO)
By reaching 52-week highs yesterday ahead of its Q3 (Jul) earnings report, the market was pricing in high expectations for Broadcom (AVGO -5%). As a result, even though the semiconductor giant, whose largest customer is Apple (AAPL), did not post any obvious blemishes, its relatively narrow earnings beat, in-line revenue growth, and Q4 (Oct) revenue guidance merely meeting analyst expectations is not proving sufficient to keep the wind at its back today. Additionally, although hyperscale continued to expand by double-digit yr/yr in the quarter, AVGO observed moderating enterprise and telecommunication spending.
- This moderation shows up in AVGO's decelerating top-line growth in Q3, climbing just 4.5% yr/yr to $8.85 bln, down compared to the +7.8% in Q2 (Apr) and +15.7% in Q1 (Jan). However, there is seasonality to consider quarter-to-quarter. Meanwhile, EPS of $10.54 did translate to a double-digit beat, but it was meaningfully less than AVGO's Q2 (Apr) beat.
- AVGO's core Semiconductor segment improved sales by 5% yr/yr to approximately $7.0 bln, with end-market growth mostly matching the company's prior forecasts. Likewise, Software sales of $1.9 bln also represented a 5% increase yr/yr, reaching AVGO's low-single-digit growth projection.
- A notable standout in the quarter was wireless. Although the flat yr/yr growth and 4% uptick sequentially met expectations, in light of Apple's weak JunQ iPhone growth and mild SepQ outlook, AVGO's wireless business is holding up relatively well.
- With NVIDIA (NVDA) showcasing the accelerating demand for AI last week with its second-straight blowout quarter, AI was the central focus for AVGO in Q3. Perhaps unsurprisingly, AI demand remained buoyant for AVGO, primarily driving its overall sales growth. In fact, without AI, AVGO's Semiconductor revenue has stayed around $6.0 bln throughout FY23 (Oct). Furthermore, at over $1.0 bln, generative AI represented virtually all the growth in AVGO's infrastructure business in the quarter.
- AI is also keeping sales from staying flat yr/yr to end FY23, projecting Q4 revs of $9.27 bln, a 3.8% gain yr/yr. AVGO noted that its product portfolio is influencing the gives and takes across its revenue streams within all its end markets outside of networking (40% of Semiconductor sales), which was the star in Q3, expanding sales by 20% yr/yr, and will likely remain the star in Q4, sustaining its +20% growth. Again, AI is to thank, as the bulk of AI-related demand is within AVGO's networking business.
The main takeaway is that although AI is keeping AVGO from remaining stagnant, it is not translating to meaningful outperformance, keeping AVGO's relatively overheated shares in check today. Heading into FY23, CEO Hock Tan stated that the year would likely see a soft landing. Given that AVGO is keeping sales stable, excluding AI-related demand, this prediction is materializing. With AVGO still confident in an October 30 closing on its VMware (VMW) deal and FY23 potentially being the trough regarding demand outside AI, the company is staring at plenty of upside in the year ahead. However, current prices may have already baked in much of AVGO's future upside.
Five Below heads lower following another of quarter that includes downside guidance (FIVE)
Five Below (FIVE -5%) is heading lower after reporting Q2 (Jul) results last night. As we said in our preview, we were pretty nervous heading into this report. Dollar Tree (DLTR) sold off on earnings, citing an industry shift in consumer purchasing behaviors to consumables and away from discretionary items. Dollar General (DG) is down big today on earnings. On the other hand, ROST and TJX had good quarters.
- FIVE focuses on discretionary items, so that was a concern as consumers shift spend to food/consumables. FIVE beat slightly on EPS with in-line revenue. The bigger problem was pretty sharp downside guidance for Q3 (Oct). FIVE has now guided EPS below consensus in each of the past three quarters.
- Same store comps of +2.7% were decent. They were in-line with +2-3% prior guidance, and at the higher end. However, FIVE guided to Q3 comps of just +0-2%. The silver lining was that FIVE reaffirmed full year comp guidance at +1-3%. The company is pleased with its current inventory levels, which reflect an improved supply chain. FIVE expects to be well positioned for the holiday season.
- FIVE says it was able to tap into the popular Taylor Swift trend with stylish clothing, jewelry, such as friendship bracelets, and beauty products. Licenses began to grow again, as new movie releases like The Super Mario Bros. in April and Barbie in late July drove customers into theaters and Five Below stores. In anticipation of the Barbie movie, FIVE's buyers were able to source several Barbie-related items, all selling for only $5.
Overall, it seems the weak Q3 guidance, both for EPS and comps, is the main reason for the stock being down today. Q3 is an important quarter for FIVE, given that it includes back-to-school and Halloween. With three consecutive quarters of downside EPS guidance, we think investors are nervous about the upcoming all-important holiday season for Five Below.
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