Market Snapshot
briefing.com
| Dow | 34722.92 | -114.79 | (-0.33%) | | Nasdaq | 14047.71 | +15.89 | (0.11%) | | SP 500 | 4506.42 | -9.35 | (-0.21%) | | 10-yr Note | -28/32 | 4.26 |
|
| | NYSE | Adv 601 | Dec 2289 | Vol 835 mln | | Nasdaq | Adv 1345 | Dec 3030 | Vol 4.3 bln |
Industry Watch
| Strong: Energy, Information Technology, Communication Services |
| | Weak: Utilities, Industrials, Materials, Real Estate, Financials |
Moving the Market
-- Some mega caps recovering from early weakness has boosted index performance
-- Rising market rates
-- Oil prices sharply higher after Saudi Arabia said it will extend the voluntary cut of one million barrels per day for three months to include October until the end of December 2023
-- Global growth concerns stoked by a batch of disappointing PMI readings from overseas
|
Closing Summary
05-Sep-23 16:20 ET
Dow -195.74 at 34641.97, Nasdaq -10.86 at 14020.96, S&P -18.94 at 4496.83
[BRIEFING.COM] This holiday-shortened week got started on a softer note following last week's big gains. The Russell 2000 paced index losses, declining 2.1%, while the Nasdaq settled with a 0.1% loss. The S&P 500 maintained a position above 4,500 for most of the session until a sharp move lower in the late afternoon led the index to close just a whisker shy of that level.
Relative strength in mega cap stocks, which reflected an overall risk-off vibe in the market, helped limit losses for the major indices. Tesla (TSLA 256.49, +11.48, +4.7%) was a standout in that regard, jumping almost 5.0%.
Today's selling was fueled by a jump in market rates, along with global growth concerns that were stoked by a batch of disappointing PMI readings from overseas and rising oil prices. The 2-yr note yield rose eight basis points to 4.96% and the 10-yr note yield rose ten basis points to 4.27%.
The sharp increase in oil prices contributed to today's lackluster showing, prompting worries about inflation expectations and consumer spending pressures. WTI crude oil futures rose 1.2% to $86.55/bbl following news that Saudi Arabia and Russia are planning to extend their voluntary oil production cuts of 1 million barrels per day and 300,000 barrels per day, respectively, through the end of 2023.
The move in oil prices propelled the S&P 500 energy sector (+0.5%) to the top of the leaderboard followed by information technology (+0.4%). Nine of the 11 S&P 500 sectors logged a decline, led by materials (-1.8%) and industrials (-1.7%).
Homebuilder stocks were also noticeably weak, reacting to concerns about rising mortgage rates. The SPDR S&P Homebuilder ETF (XHB) fell 3.9% and the iShares U.S. Home Construction ETF (ITB) fell 4.6%. Toll Brothers (TOL 79.22, -4.61, -5.5%) and Pulte Group (PHM 77.89, -4.74, -5.7%) were among the top laggards from the space.
Market participants digested some positive news today, too. Specifically, Goldman Sachs said it now sees only a 15% chance of the U.S. experiencing a recession versus 20% previously and Fed Governor Waller (FOMC voter) said there was nothing in the data last week that meant the Fed needs to do something anytime soon, meaning the Fed can sit tight with its current policy rate.
- Nasdaq Composite: +34.0% YTD
- S&P 500: +17.1% YTD
- S&P Midcap 400: +7.4% YTD
- Russell 2000: +6.8% YTD
- Dow Jones Industrial Average: +4.5% YTD
Today's economic data was limited to factory orders for July, which declined 2.1% month-over-month (Briefing.com consensus -2.4%) following an unrevised 2.3% increase in June. Excluding transportation, factory orders increased 0.8% month-over-month on the heels of a 0.3% increase in June. Shipments of manufactured goods rose 0.5% month-over-month after increasing 0.2% in June.
- The key takeaway from the report is that factory orders were better than they appeared in July given the strength seen in orders excluding the volatile transportation component.
Wednesday's economic calendar includes:
- 7:00 ET: Weekly MBA Mortgage Index (prior 2.3%)
- 8:30 ET: July Trade Balance (Briefing.com consensus -$68.0 bln; prior -$65.5 bln)
- 9:45 ET: Final August S&P Global US Services PMI (prior 51.0)
- 10:00 ET: August ISM Non-Manufacturing Index (Briefing.com consensus 52.4%; prior 52.7%)
- 14:00 ET: September Fed Beige Book
Treasury yields settle higher; econ data out tomorrow
05-Sep-23 15:35 ET
Dow -142.11 at 34695.60, Nasdaq +6.09 at 14037.91, S&P -12.27 at 4503.50
[BRIEFING.COM] The S&P 500 is again testing support at the 4,500 level.
The 2-yr note yield rose eight basis points to 4.96% and the 10-yr note yield rose ten basis points to 4.27%. The U.S. Dollar Index rose 0.7% to 104.80.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 2.3%)
- 8:30 ET: July Trade Balance (Briefing.com consensus -$68.0 bln; prior -$65.5 bln)
- 9:45 ET: Final August S&P Global US Services PMI (prior 51.0)
- 10:00 ET: August ISM Non-Manufacturing Index (Briefing.com consensus 52.4%; prior 52.7%)
- 14:00 ET: September Fed Beige Book
Oil prices jump, nat gas futures sink
05-Sep-23 15:05 ET
Dow -114.79 at 34722.92, Nasdaq +15.89 at 14047.71, S&P -9.35 at 4506.42
[BRIEFING.COM] The three major indices have been slowly moving higher after the S&P 500 found support on a retest of the 4,500 level.
Energy complex futures settled the session mixed. WTI crude oil futures rose 1.2% to $86.55/bbl. Natural gas futures fell 6.9% to $2.58/mmbtu.
On a related note, the S&P 500 energy sector (+0.8%) remains at the top of the leaderboard following news that Saudi Arabia and Russia that they are planning to extend their voluntary oil production cuts of 1 million barrels per day and 300,000 barrels per day, respectively, through the end of 2023.
Tesla, NetApp outperforming in S&P 500 on Tuesday
05-Sep-23 14:30 ET
Dow -109.57 at 34728.14, Nasdaq +15.44 at 14047.26, S&P -9.83 at 4505.94
[BRIEFING.COM] The Nasdaq Composite (+0.11%) has returned to modest gains on the day, while the S&P 500 (-0.22%) remains in second place.
S&P 500 constituents Tesla (TSLA 256.92, +11.91, +4.86%), CF Industries (CF 82.49, +3.28, +4.14%), and NetApp (NTAP 79.48, +1.88, +2.42%) dot the top of the standings. TSLA gains on reports of strong August sales in China, CF bucks the trend lower in materials stocks, while NTAP finds gains on the back of a Susquehanna upgrade to Positive.
Meanwhile, PulteGroup (PHM 78.13, -4.50, -5.45%) is today's top laggard, underperforming alongside peers as gains in yields and the dollar have pushed mortgage rates higher.
Gold slips to start shortened week
05-Sep-23 14:00 ET
Dow -113.47 at 34724.24, Nasdaq -1.25 at 14030.57, S&P -12.94 at 4502.83
[BRIEFING.COM] With about two hours remaining on Tuesday the tech-heavy Nasdaq Composite (-0.01%) has once more returned in meagre losses, hovering still around Friday's close in a bid to trim this morning's opening declines.
Gold futures settled $13.30 lower (-0.7%) at $1,952.60/oz, pressured in part by strength in treasury yields and the greenback.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $104.75.
Page One
Last Updated: 05-Sep-23 09:00 ET | Archive
Slow return from Labor Day weekend
One bit of good news coming off the extended Labor Day weekend is that Goldman Sachs has lowered its probability of the U.S. suffering a recession to just 15% from 20%. The bad news so to speak is that this good news is contributing to an uptick in market rates.
The 2-yr note yield is unchanged at 4.88% (after hitting 4.93% earlier) but the 10-yr note yield is up four basis points to 4.21%. Those moves have generated some modest headwinds for the equity market, which traded with the wind at its back for most of last week.
Another holdback component has been the weaker-than-expected Caixin Services PMI report out of China. That number checked in at 51.8, which was weaker than expected and down from 54.1 in July. A number above 50.0 is indicative of expansion, but the pullback from July also signifies a deceleration in activity for China's services sector.
The S&P 500 futures are down five points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 34 points and are trading 0.3% below fair value, and the Dow Jones Industrial Average futures are up 20 points and are trading fractionally above fair value.
Overall, there isn't much conviction in the futures trade, so things could get better after the open just as readily as they could get worse.
The hesitation now is partly a function of last week's solid returns, which came on light volume, and some assumptions that the market might have a little cooling off period.
Hong Kong's Hang Seng Index was downright frigid in Tuesday's trading. It declined 2.1%, driven by losses in property issues and the soft Caixin number.
The only U.S. economic release on today's calendar is the July Factory Orders Report. That's won't be a market-moving report, but Wednesday's lineup, which features the August ISM Non-Manufacturing Index, could be.
The main drivers this morning have a mostly company-specific angle. For instance, Airbnb (ABNB) is up 5.8% and Blackstone (BX) is up 3.7% following the news after Friday's close that they will be added to the S&P 500 effective prior to the open on Monday, September 18.
In turn, Oracle (ORCL) is up 2.0% after being upgraded to Overweight from Equal Weight at Barclays and Dow component American Express (AXP) is up 0.8% after being upgraded to Outperform from Sector Perform at RBC Capital Markets.
-- Patrick J. O'Hare, Briefing.com
Stryker gaps up an upgrade at BofA Securities today; boasts several positives ahead of 2024 (SYK)
Stryker (SYK) is inching higher today following an upgrade at BofA Securities to "Buy" from "Neutral," citing a buying opportunity given the current negative sentiment toward medical device suppliers. Per analysts we follow, today's upgrade marked the first in nine months, showcasing an extended period of bearishness toward the medical technology field. To illustrate further, the iShares DJ US Medical Devices ETF (IHI) is roughly flat YTD, similar to the healthcare sector, significantly underperforming most other sectors this year.
Briefing.com notes that SYK has exceeded its peer group nicely this year, with shares appreciating over +10% YTD. At the same time, SYK has established itself as a necessity within the medtech space, carving out a sizeable economic moat through its technological and early-mover advantages. Given the defensive nature of the healthcare industry, SYK offers plenty of positives if economic uncertainty intensifies.
- Procedural volumes, a central component of SYK's annual sales performance, have largely recovered to pre-pandemic levels across most countries as of Q2. SYK commented last month that coinciding with robust volumes were elevated patient backlogs, providing demand visibility heading into 2024. Meanwhile, hospital staffing issues and supply chain constraints, meaningful headwinds over the past two years, continue to gradually resolve, resulting in a sustained moderate tailwind as SYK moves into 2024.
- SYK's remarks echoed those of several of its peers. For example, Johnson & Johnson (JNJ) stated in July that its MedTech business will likely continue seeing stable procedure volumes and improving healthcare staffing levels. Likewise, Zimmer Biomet (ZBH) mentioned last month that the procedure recovery continued during Q2 as staffing challenges and supply constraints continue to ease, and it expects to sustain these benefits into 2024 and beyond.
- SYK's acquisitions are paying off, especially its $1.65 bln MAKO purchase nearly a decade ago. By acquiring MAKO, SYK moved aggressively into robotic joint replacement, boasting a leg-up on its competition. Robotic surgeries continue to see increased utilization, with the percentage of MAKO procedures completed continuing to rise. Also, MAKO is picking up steam overseas since the pandemic, particularly in Asia-Pacific, a leading indicator of solid growth in subsequent quarters.
- Elective procedures can be deferred during economic downturns, adding a layer of risk if the global economy begins to turn. However, unlike 15 years ago, SYK has added multiple income streams to better defend against a weakening Orthopedics market, such as its hips and knee replacement business, which SYK believes will continue to grow going forward.
Alongside the healthcare sector, the medical device market has struggled thus far through 2023. However, SYK has managed to buck the broader trend, tacking on decent gains this year as procedure volumes continue to pick up momentum. With an aging population, lifted COVID restrictions, and easing staffing and supply issues, SYK is beginning to look quite striking ahead of the new year.
Arm Holdings' proposed valuation gets a haircut, but deal could turn ailing IPO market around (ARM)
Arm Holdings (ARM), the UK-based semiconductor company that powers most of the world's smartphones, is on the cusp of launching one of the most highly anticipated IPOs in recent years. However, the proposed valuation isn't nearly as high as many market participants had anticipated, reflecting the cold conditions in the IPO market and investors' apprehension regarding the economy, especially in China. Based on the $47-$51 projected IPO price range, ARM could be valued at as much as $54.5 bln, well shy of the $65 bln valuation that its Japan-based owner Softbank was reportedly targeting.
- Softbank is also pursuing a significantly smaller deal than originally planned. Specifically, ARM is offering 95.5 mln ADSs, which would equate to total gross proceeds of $4.87 bln if the IPO prices at the high end of the range. It had been reported that Softbank was looking to raise $8-$10 bln in proceeds.
- The smaller deal size -- which will still be the largest IPO of the year -- is due to Softbank's recent decision to buy back the 25% stake in ARM held by its Vision Fund affiliate. That move should be supportive for the IPO because not only does it improve the supply/demand dynamics by lowering the share float, but it also removes the possibility of Vision Fund selling its stake on the open market sometime down the road.
- Also working in the IPO's favor is that Softbank has assembled an impressive lineup of investors that includes many of ARM's largest customers. Earlier, Bloomberg reported that NVIDIA (NVDA), Intel (INTC), Apple (AAPL), Google (GOOG), and Advanced Micro Devices (AMD), among others, are set to purchase as much as $735 mln worth of ARM shares in the deal. It's likely that Softbank could sell even more ARM stock to this group, but the company is looking to retain a 90% interest in ARM following the IPO.
- From an investor sentiment standpoint, seeing prominent companies such as these place a large bet on ARM provides its IPO with a shot in the ARM.
- ARM's enormous reach within the semiconductor and consumer electronics industries is what makes its IPO so alluring and unique. According to its prospectus, the company's CPUs power more than 99% of the world's smartphones. A main concern ahead of the IPO, though, is that investors will be asked to pay a very lofty price to get in on the stock.
- With Softbank knocking the proposed valuation down, that concern has lessened a bit. At the high end of the proposed valuation, ARM would have a trailing P/S of about 20x, compared to the anticipated P/S of about 25x.
- Although interest and enthusiasm will be sky-high, ARM's IPO is not without risk. Of particular concern is ARM's exposure to China, which is contending with strengthening macroeconomic headwinds. For context, ARM generated nearly a quarter of its revenue from China.
- Relatedly, global demand for consumer electronics, including for smartphones, has been soft. This is reflected in ARM's recent financials as revenue dipped by about 1% in FY23 (ending March) to $2.68 bln.
The main takeaway, though, is that ARM's upcoming IPO -- which could come as soon as next week -- has the potential to provide both the broader stock market and the IPO market with a boost. Expectations have cooled off after Softbank lowered the proposed valuation for ARM, but we still anticipate plenty of fireworks when the world's largest chip designer goes public.
Warner Bros. Discovery trades higher despite lowering guidance due to strikes (WBD)
Warner Bros. Discovery (WBD +2.3%) is trading higher despite lowering guidance due to the WGA and SAG-AFTRA strikes. WBD is one of the largest makers and sellers of content in the world, so the strikes are having a pretty big impact on them. CEO David Zaslav will be participating at an investor conference tomorrow. Investors should tune into that if they want to get an in-depth take on the impact of the strikes. However, the company did release some guidance today.
- WBD had provided FY23 guidance in early August, but that assumed the strikes would be resolved by early September. That clearly has not happened. While WBD is hopeful these strikes will be resolved soon, it cannot predict when they will ultimately end. With both guilds still on strike, the company now assumes the financial impact to WBD of these strikes will persist through the end of 2023.
- As a result, WBD is lowering its FY23 adjusted EBITDA guidance to $10.5-11.0 bln. The company expects the strikes will have a $300-500 mln impact. The silver lining is that WBD is raising its FY23 free cash flow expectations to at least $5 bln, including more than $1.7 bln in FCF in Q3. The Q3 guidance was helped by the strong performance of Barbie. WBD is maintaining its expectation of achieving net leverage below 4.0x by the end of 2023.
- So what does this mean? We suspect other streaming companies will provide weak guidance as the strikes linger on longer than expected. Netflix (NFLX) addressed the strikes on its Q2 call, but did not provide a financial impact. We suspect that may change when NFLX reports Q3 results next month. The good thing for Netflix is that it generates a lot of content outside the US, which would allow it to plug some content holes if needed in 2H23. Other streaming companies to watch include DIS, PARA, AMZN, ROKU.
- In terms of the stock reaction, we think the stock trading higher is because investors were fearing even worse guidance. The strikes have been front and center in the news for weeks, so we think investors had already priced in an estimate reduction. Also, WBD, and several other streaming services, sold off on Friday on reports from a contract dispute between DIS and CHTR. As such, a good bit of negativity was priced in already.
Overall, this lowered guidance from WBD makes us a bit more cautious on streaming services heading into earnings season next month. However, the upside trading reaction in WBD today tells us investors were likely bracing for worse guidance. Finally, we think these stocks could see a nice bump if the strikes do get resolved soon.
Trip.com Group stumbles despite upbeat travel demand in China as economic worries linger (TCOM)
Trip.com (TCOM -7%), a China-based travel services platform similar to Expedia Group (EXPE), is heading downhill today despite delivering a decent Q2 report, including beats on its top and bottom lines. In fact, TCOM set record highs across multiple metrics, posting figures significantly above pre-pandemic levels, underscoring a sustained recovery since steadily easing COVID restrictions.
So why are shares not reflecting TCOM's healthy Q2 results? China's near-term outlook is cloudy. Today, China's Services PMI fell to its lowest level of the year and rivaled the reading from December when COVID cases were peaking, not a very encouraging sign of economic activity in the region. Sentiment has also remained somewhat bearish as numerous organizations operating in China have expressed concerns over a slower-than-anticipated recovery. TRIP touched on this, acknowledging that weakening consumer spending may trigger adverse spillover effects on travel demand, particularly business travel, which is more closely tied to economic activity; TRIP stated that the economy may create hurdles for business travel spending in the near term.
The market may have also priced in TCOM's upbeat Q2 numbers. For instance, travel agencies across other countries have been enjoying exceptional demand as domestic and international travel rebounds. A couple Emerging Growth stocks Briefing.com highlighted over the past month come to mind, including Despegar.com (DESP), a Latin America-based online travel agency, and MakeMyTrip (MMYT), an online travel company based in India. Meanwhile, shares of TCOM have climbed around 7% for the two weeks leading up to its Q2 report, adding a layer of profit-taking risk.
Still, TCOM is holding above August lows, potentially illustrating that its Q2 performance should not be discounted so quickly.
- Revenue accelerated from last quarter, surging 180% yr/yr, exceeding 2019 levels by 29%. Domestic hotel bookings continue to add distance from pre-pandemic levels, surpassing them by 60% in Q2. Meanwhile, outbound bookings climbed to over 60% of pre-COVID levels, despite international air passenger volume only recovering to about 37% of 2019 levels.
- TCOM's corporate travel business also still demonstrated relative resilience to macroeconomic trends. Although the company was wary of how a slowdown in general economic growth would clip this business, it mentioned how a recent survey conducted in the country found around a third of companies anticipate raising their travel budgets this year.
- Looking toward Q3, TCOM was optimistic that the strong momentum from Q2 would continue, primarily driven by leisure travel demand. The company pointed to industry passenger volume trends in China being 10-15% higher than in 2019 through July, while international passenger volume recovered to over 50% of pre-pandemic levels.
Bottom line, TCOM's Q2 report contained plenty of bright spots worthy of praise. However, economic conditions in China are becoming increasingly worrisome, a formidable obstacle for TCOM to overcome. Even though Q3 figures look quite healthy, it does not change the fact that China's broader near-term economic outlook could quickly evaporate current travel demand.
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.
|
