Market Snapshot
| Dow | 38183.48 | +367.56 | (0.97%) | | Nasdaq | 15809.41 | +151.59 | (0.97%) | | SP 500 | 5067.88 | +32.19 | (0.64%) | | 10-yr Note |
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| | NYSE | Adv 2055 | Dec 709 | Vol 547 mln | | Nasdaq | Adv 2797 | Dec 1334 | Vol 4.2 bln |
Industry Watch
| Strong: Communication Services, Utilities, Materials, Financials, Real Estat |
| | Weak: Energy, Consumer Staples, Information Technology, Consumer Discretionary |
Moving the Market
-- Reacting to drop in market rates following Treasury's quarterly refunding news and further decline in rates following FOMC decision and press conference
-- Mostly negative responses to latest batch of earnings
-- Reacting to FOMC decision and press conference; Mr. Powell said it was "unlikely" that the next policy rate move will be a hike and he doesn't understand where stagflations calls are coming from
| Stocks trade higher in front of close
01-May-24 15:35 ET
Dow +367.56 at 38183.48, Nasdaq +151.59 at 15809.41, S&P +32.19 at 5067.88
[BRIEFING.COM] The major indices are trading near session highs in front of the close. The S&P 500 is up 0.9% and the Nasdaq Composite is 1.3% higher.
The 2-yr note yield, which is most sensitive to changes in the fed funds rate, declined 11 basis points today to 4.94% and the 10-yr note yield fell nine basis points to 4.60%.
Looking ahead, Thursday's economic data include:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 213,000; prior 207,000), Continuing Claims (prior 1.781 mln), March Trade Balance (Briefing.com consensus -$69.0 bln; prior -$68.9 bln), preliminary Q1 Productivity (Briefing.com consensus 0.8%; prior 3.2%) and Unit Labor Costs (Briefing.com consensus 2.5%; prior 0.4%)
- 10:00 ET: March Factory Orders (Briefing.com consensus 1.6%; prior 1.4%)
- 10:30 ET: Weekly natural gas inventories (prior +92 bcf)
Stocks climb as Powell gives press conference
01-May-24 15:10 ET
Dow +478.56 at 38294.48, Nasdaq +241.84 at 15899.66, S&P +54.65 at 5090.34
[BRIEFING.COM] Stocks are climbing. The major indices all sport gains larger than 1.0% in a broad advance.
A short time ago, Fed Chair Powell said it was "unlikely" that the next policy rate move will be a hike.
Only two S&P 500 sectors are lower -- energy (-1.0%) and consumer staples (-0.03%) -- while seven sectors trade up by more than 1.0%.
Fed leaves rates unchanged, plans to slow pace of balance sheet runoff starting in June
01-May-24 14:30 ET
Dow +181.56 at 37997.48, Nasdaq +6.31 at 15664.13, S&P -1.87 at 5033.82
[BRIEFING.COM] The major averages popped after the Fed unanimously voted to keep rates unchanged at 5.25%-5.50%, as widely expected, as the FOMC noted economic activity has been expanding at a solid pace. The S&P 500 (-0.04%) is now the only major average remaining in the red.
Some key excerpts from the Fed's decision included:
- Job gains have remained strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- In recent months, there has been a lack of further progress toward the Committee's 2 percent inflation objective.
- Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion.
Yields dropped immediately after the decision, but have since regained some composure, the yield on the benchmark 10-yr note is down about five basis points at 4.638%.
Gold grinds higher ahead of FOMC decision
01-May-24 13:55 ET
Dow +117.49 at 37933.41, Nasdaq -32.31 at 15625.51, S&P -11.47 at 5024.22
[BRIEFING.COM] the major average remain split ahead of the FOMC policy decision due out in about 5 minutes at the top of the hour. The tech-heavy Nasdaq Composite (-0.21%) is now in second place.
Gold futures settled $8.10 higher (+0.4%) to $2,311.00/oz, down now about -1.5% week-to-date.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $106.21
Johnson & Johnson, 3M help DJIA higher on Wednesday
01-May-24 13:25 ET
Dow +125.52 at 37941.44, Nasdaq -58.19 at 15599.63, S&P -14.69 at 5021.00
[BRIEFING.COM] The Dow Jones Industrial Average (+0.33%) is up about 125 points on Wednesday afternoon.
A look inside the DJIA shows that Johnson & Johnson (JNJ 150.95, +6.36, +4.40%), 3M (MMM 98.94, +2.43, +2.52%), and Honeywell (HON 194.83, +2.10, +1.09%) hold solid gains.
Meanwhile, Nike (NKE 90.34, -1.92, -2.08%) is underperforming.
The DJIA is down now about -0.78% week-to-date.
Pinterest tacking on some huge gains today following beat-and-raise report (PINS)
Pinterests' (PINS) strong beat-and-raise Q1 earnings report showed that the social media company has carved out its own niche in the digital marketing space, easing concerns that it will be squeezed out by tech giants Google (GOOG) and Meta Platforms (META) as those companies pour billions into AI. That niche is a Gen Z demographic, which now accounts for over 40% of PINS' users, that's seeking out a shoppable social media platform that's more positive and friendlier than other sites.
- While PINS' capex budget pales in comparison to GOOG's or META's, both of which are significantly ramping up their investments this year, PINS is seeing plenty of bang for its buck in terms of its own AI investments. In 2H22, PINS began moving aggressively to integrate large language models and generative AI into its platform. To support this effort, the company transitioned from CPUs to GPUs, enabling it to develop and deploy more complex features that improve relevancy and personalization for users.
- At the same time, PINS has enhanced its eCommerce capabilities, transitioning from a site that was mainly used to generate ideas to one that's more actionable from a shopping standpoint. This has been accomplished through a few key factors, including its AI advancements which are providing users with more relevant products and driving advertisers' ROI higher.
- Furthermore, the company completed its rollout of direct links in Q1, significantly reducing friction and improving actionability since they take users directly to an advertiser's product page. On a yr/yr basis, clicks to advertisers have more than doubled yr/yr, helping to nearly doubled PINS' overall revenue growth rate from Q4 to +23%.
- Finally, PINS continues to scale its business with third party partners such as Amazon (AMZN) and, to a lesser extent, GOOG. In Q1, revenue contributions from third parties accelerated and PINS anticipates that will remain the case for the remainder of FY24.
- The acceleration in revenue and MAU growth (+12% to 518 mln) certainly stands out, but PINS progress on the bottom-line is also very notable. Adjusted EPS more than doubled yr/yr to $0.20, while adjusted EBITDA margin soared by 1,100 bps to 15%. This was driven by PINS revenue outperformance and disciplined spending with non-GAAP operating expenses up 10% compared to revenue growth of 23%.
- Unlike last quarter, when PINS issued downside Q1 revenue guidance, the company's Q3 revenue forecast of $830-$850 mln is comfortably ahead of expectations. The bullish outlook is underpinned by direct links value capture and an increasing contribution from third party partners. Similar to GOOG, the company is seeing continued strength in the retail vertical, and it expects that strength to continue as more sophisticated advertisers turn to its platform.
Overall, this earnings report is a significant improvement over last quarter's performance, bullishly shifting the narrative to PINS' unique competitive advantages.
CVS Health is wilting today after Medicare Advantage headwinds erode FY24 earnings guidance (CVS)
CVS Health (CVS -17%) shares are wilting today, trading close to March 2020 lows after a disastrous Q1 report, including a considerable reduction in the company's FY24 adjusted EPS guidance. The culprit was precisely what investors feared: Cost pressures in Medicare Advantage (MA). The retail pharmaceutical and health insurance giant was severely burdened by utilization pressures in MA, which weighed heavily on its Health Care Benefits segment. As a result, CVS missed Q1 earnings forecasts and cut its FY24 EPS outlook by $1.30 to at least $7.00.
- What happened surrounding MA? When CVS initially outlined its FY24 earnings guidance, which was already below analyst expectations, it assumed normalized MA trends on top of an elevated baseline it already endured in Q4. Unfortunately for CVS, it became evident during Q1 that trends were considerably higher than its normalized forecast.
- Discouragingly, utilization pressure is broad-based. Outpatient services and supplemental benefits stayed elevated during Q1, exceeding management's initial projections. The company also saw additional pressures in the inpatient and Pharmacy categories. However, on a lighter note, CVS expects some of these pressures to be seasonal, citing moderating inpatient admissions during April.
- The result was a sizeable earnings miss in the quarter, CVS's first in over five years, recording adjusted EPS of $1.31, a 40.5% contraction yr/yr. Likewise, sales missed forecasts, rising just 3.7% yr/yr to $88.44 bln, hindered by a 9.7% decline in the company's Health Services segment due to a previously announced loss of a large customer. While CVS's Pharmacy & Consumer Wellness segment enjoyed a 2.9% sales bump, front store volume continued to decrease, underscoring lingering inflationary pressures saddling consumers.
- CVS is not sitting idly by, however. The company is accelerating enterprise productivity initiatives to optimize its operations and better align its costs with the current environment. CVS already announced plans to shutter over 900 stores this year as part of its broader cost-cutting strategy. CVS will also not repurchase any additional shares for the remainder of the year after completing its $3.0 bln accelerated share repurchase plan in the quarter.
Investors express doubt that CVS's challenges will turn anytime soon. Costs are rising quickly -- CVS increased its FY24 medical benefit ratio (MBR) forecast by 210 bps to 89.8% -- elevated utilization trends are not going away, and the consumer demand backdrop remains unfavorable. Shares of CVS were already trending lower in front of its Q1 report, underpinning increasing concerns over potentially higher costs for the company. With the worst-case scenario now unfolding, investors are fleeing. With so much uncertainty surrounding the numerous headwinds plaguing CVS, investors may continue to sit out until the company begins displaying noticeable improvements.
Starbucks getting roasted after lowering guidance as customers rein in spending (SBUX)
Sales trends at Starbucks (SBUX) are in need of an energy boost as revenue and global comparable store sales both fell on a yr/yr basis in Q2, down 1.8% and 4%, respectively, badly missing analysts' expectations. Coming off a disappointing Q1 earnings report in late January, the stock was already mired in slump, but shares are really getting roasted today as SBUX missed Q2 estimates and lowered its FY24 guidance across the board.
- A more cost-conscious consumer is at the heart of SBUX's struggles. Last quarter, the company noted how misconceptions about its stance on the conflict in the Middle East hurt its sales, but now it's evident that the issues are deeper and more widespread. In each of the company's geographic markets, comps declined on a yr/yr basis, including a 3% drop in North America and U.S., and an 11% decrease in China.
- CEO Laxman Narasimhan specifically identified "occasional customers" as a point of weakness, adding that these customers are visiting stores less often. On that note, traffic was down by 7% in North America and U.S., and down by 4% in China, SBUX's second largest market. The declines came even as SBUX ramped up promotions and added new menu items in the U.S., such as Lavender Lattes, further highlighting how challenging the environment has become.
- In China, the economic recovery coming out of the pandemic has been slower than SBUX anticipated. Fierce competition, including from Luckin Coffee, which has over 13,000 stores in China, is adding to the difficulties.
- Unfortunately, these challenges aren't fading away anytime soon, as reflected in SBUX's downgraded outlook for the year. After cutting its FY24 revenue growth guidance lower last quarter to +7-10% from +10-12%, SBUX now expects low-single-digit growth with global and U.S. comps of flat to down low-single-digits. The news isn't much better for EPS, which SBUX anticipates being flat to up low-single-digits, down from its prior forecast for growth of 15-20%.
- The silver lining is that SBUX is confident that it can turn its sluggish sales around. To do so, the company will sharpen its focus on improving its digital order fulfillment during peak hours. Mr. Narasimhan stated that many digital orders are not being completed due to long wait times, so improving operational efficiency will be a point of emphasis. Additionally, SBUX plans to launch more product innovations this summer to draw in more occasional customers and new customers. Simultaneously, more in-app promotions will be offered to its loyalty membership base of nearly 33.0 mln members.
The main takeaway is that persistent inflation has caused many consumers to cut back on discretionary spending, and an easy place to cut back is on those extra drinks that were purchased during the week. This has proven to be a difficult hurdle to overcome, but SBUX has a sound strategy in place to help kickstart its sleepy sales trends.
Advanced Micro's Q2 outlook leaves investors wanting more, especially as AI demand remains hot (AMD)
As the robust demand for AI continues, Advanced Micro's (AMD -8%) in-line Q1 results and Q2 guidance are not cutting it today, resulting in a drop toward three-month lows. There were plenty of bright spots from the quarter for investors to hang their hats on, from accelerating enterprise adoption of AMD's EPYC processors to its raised FY24 data center GPU revenue guidance. However, like last quarter, underwhelming near-term guidance keeps investors wanting more.
- AMD's bottom line was consistent with analyst forecasts for the second consecutive quarter in Q1, registering a 3.3% improvement yr/yr to $0.62 per share. Likewise, revenue growth of 2.2%, a deceleration from the +10.2% jump last quarter to $5.47 bln, came in modestly above AMD's $5.1-5.7 bln guidance and matched analyst estimates.
- As expected, AMD's Gaming and Embedded segments were the notable laggards in the quarter, tumbling by 48% and 46% yr/yr, respectively. Customer inventory rebalancing continued to clip demand in these two segments. Based on current demand signals, management anticipates Gaming will remain weak, projecting a significant double-digit percentage drop sequentially next quarter. Conversely, the demand backdrop for Embedded is improving, leading to AMD's flat sequential revenue growth forecast for Q2.
- Meanwhile, AI stayed hot in the quarter, driving an 80% surge in Data Center segment revs yr/yr to a record $2.3 bln. AMD's MI300X GPU, which competes with rival NVIDIA's (NVDA) flagship Hopper GPU design, led the charge in Q1. At the same time, AMD believes it continued to take market share -- likely from Intel (INTC) -- as it delivered a double-digit percentage increase in server CPU sales, led by enterprise adoption.
- INTC remarked last week that demand for traditional data center chips remained soft in Q1 as enterprises focused on building AI infrastructure. This drove a discouraging 5% sales bump in its data center business, demonstrably underperforming AMD.
- Similarly, AMD's Client segment -- its PC exposure -- soared by 85% yr/yr to $1.4 bln, reflecting healthy demand for its Ryzen processors. AMD remains optimistic that the PC market is on track to return to annual growth this year, driven by the beginning of an enterprise refresh cycle and AI PC adoption, which management views as the most significant inflection point in PC since the Internet.
- Looking ahead, AI is only gaining popularity, leading to AMD hiking its FY24 data center GPU revenue forecast by $0.5 bln to exceed $4.0 bln. However, in the immediate term, AMD expects another quarter of sluggish yr/yr revenue growth, projecting sales of $5.4-6.0 bln, translating to a 6% improvement at the midpoint.
AMD's Q1 report was a dichotomy between short and long-term expectations. Currently, the demand landscape is unfavorable to semiconductors outside of AI -- this was touched on by several chip designers over the past few weeks. However, like AMD's peers, it remains energized over the long-term prospects of AI, which should coincide with a broader market recovery. Still, AMD's long-term outlook has not changed and the market has already been pricing this in. Instead, investors wanted to see more buoyant near-term guidance. Without it, shares are pulling back.
Amazon in Prime position as stock trades higher on Q1 upside; AWS was the standout segment (AMZN)
Amazon (AMZN +2.3%) is in Prime position today as the stock trades higher following Q1 results last night. Amazon reported strong upside for both EPS and revenue. Maybe the best metric was operating income jumping 221% yr/yr to $15.31 bln, well ahead of prior guidance of $8-12 bln. AMZN guided to Q2 operating income of $10-14 bln, which was strong as well.
- Let's start with the Stores segment. AMZN helped customers save with shopping events worldwide, including Amazon's Spring Deal Days in Europe and the first Big Spring Sale in Canada and the US, where customers saved on a wide selection of items. Amazon also announced it will hold its 10th Prime Day event in July.
- Faster delivery times had an important effect. As AMZN gets items shipped faster, customers fulfill their shopping needs more frequently. That was evident in its Everyday Essentials business and the increase in Prime member purchase frequency and total spend. Its regionalization efforts have helped speed deliveries and lower costs. Also, AMZN is focusing more on consolidating more units into fewer boxes to reduce costs. AMZN has seen an increase in the number of units delivered per box.
- Turning to AWS, this segment was the real standout in Q1. AWS posted +17% growth in constant currency (CC). This was a notable uptick from +13% CC in Q4, +12% CC in Q3, +12% CC in Q2. As we noted in our preview, we thought a strong number was possible given peer Azure's impressive result last week. AWS is now a $100 bln annualized revenue business, which is pretty mind boggling from where it was a few years ago.
- During Q1, AWS saw growth in both generative AI and non-generative AI workloads across a diverse group of industries. Companies are shifting their focus towards bringing new workloads to the cloud. The company says its AWS customers are quite excited about leveraging GenAI to change their customer experiences and businesses. AMZN sees considerable momentum on the AI front where it has accumulated a multibillion-dollar revenue run rate already.
- Turning to Advertising Services, segment revenue grew +24% CC to $11.82 bln. Growth has been holding up in the mid-20% range in recent quarters: +26% in Q4, +25% CC in Q3, +22% CC in Q2. Segment growth is primarily driven by sponsored ads. AMZN still sees significant opportunity ahead in sponsored products as well as areas where it's just getting started, like Prime Video ads. It's very early for streaming TV ads, but AMZN is encouraged by the early response.
Overall, this Q1 report was quite impressive all around. It Stores segment performed well, but AWS was surprisingly good and likely most responsible for the move higher today. Companies are really stepping up their AI investments, it's not just talk. Maybe the one problem area was AMZN guiding to Q2 revs below consensus. However, that was partly due to FX, so investors are not punishing them for it.
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