Market Snapshot
| Dow | 38778.10 | +188.94 | (0.49%) | | Nasdaq | 17857.02 | +168.14 | (0.95%) | | SP 500 | 5473.23 | +41.63 | (0.77%) | | 10-yr Note | -26/32 | 4.28 |
|
| | NYSE | Adv 2345 | Dec 3145 | Vol 833 mln | | Nasdaq | Adv 3439 | Dec 5101 | Vol 5.8 bln |
Industry Watch
| Strong: Industrials, Consumer Staples, Consumer Discretionary, Information Technology, Energy, Financials |
| | Weak: Real Estate, Utilities, Health Care |
Moving the Market
-- Consolidation activity after record highs last week for major indices
-- Rising market rates
-- Gains in the mega cap space providing support to broader market
|
Closing Summary
17-Jun-24 16:30 ET
Dow +188.94 at 38778.10, Nasdaq +168.14 at 17857.02, S&P +41.63 at 5473.23
[BRIEFING.COM] Today's trade was somewhat mixed despite a solid showing at the index-level. The market-cap S&P 500 extended its record high, climbing 0.8%, and the equal-weighted S&P 500 registered a 0.7% gain. Decliners had a slim lead over advancers, though, at both the NYSE and at the Nasdaq.
The underlying negative bias, driven by consolidation activity, was not enough to offset buying activity in some mega cap stocks.
Outsized gains in Apple (AAPL 216.67, +4.18, +2.0%) and Microsoft (MSFT 448.37, +5.80, +1.3%), which are two of the three stocks with a market cap above $3 trillion, provided some support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) was up 0.9%.
Broadcom (AVGO 1828.87, +93.83, +5.4%) was another top performer today, along with other semiconductor-related names. The PHLX Semiconductor Index (SOX) jumped 1.6%.
Strength in the mega cap and semiconductor spaces also boosted the S&P 500 information technology (+1.2%) and consumer discretionary (+1.4%) sectors to the top of the leaderboard today. These sectors combined comprise 43% of the index.
The rate-sensitive real estate (-0.8%) and utilities (-0.5%) sectors were the top laggard, clipped by a jump in yields.
The 10-yr note yield closed seven basis points higher at 4.28% and the 2-yr note yield settled eight basis points higher at 4.76%.
Today's economic data was limited to the NY Fed Empire State Manufacturing Index, which rose to -6.0 in June (Briefing.com consensus -13.0) from -15.6 in May.
- Nasdaq Composite: +19.0% YTD
- S&P 500:+14.8% YTD
- S&P Midcap 400: +5.0% YTD
- Dow Jones Industrial Average: +2.9% YTD
- Russell 2000: -0.3% YTD
Stocks sit near session highs ahead of close
17-Jun-24 15:35 ET
Dow +227.56 at 38816.72, Nasdaq +218.93 at 17907.81, S&P +52.87 at 5484.47
[BRIEFING.COM] The major indices are trading near session highs ahead of close.
Looking ahead, Tuesday's economic calendar features the May Retail Sales report at 8:30 ET. Other data include:
- 9:15 ET: May Industrial Production (Briefing.com consensus 0.4%; prior 0.0%) and Capacity Utilization (Briefing.com consensus 78.5%; prior 78.4%)
- 10:00 ET: April Business Inventories (Briefing.com consensus 0.3%; prior -0.1%)
- 16:00 ET: April net Long-Term TIC Flows (prior $100.5 bln)
Mega caps, growth stocks, and semiconductor stocks
17-Jun-24 15:05 ET
Dow +173.53 at 38762.69, Nasdaq +210.95 at 17899.83, S&P +47.88 at 5479.48
[BRIEFING.COM] Stocks continue to climb. The S&P 500 is up 0.9% and the Nasdaq Composite is up 1.2%.
Mega caps, growth stocks, and semiconductor stocks are leading upside moves. The PHLX Semiconductor Index (SOX) sports a 1.5% gain, the Vanguard Mega Cap Growth ETF (MGK) is up 1.2%, and the Russell 3000 Growth Index shows a 1.2% gain.
Treasury yields remain near intraday highs. The 10-yr note yield is up seven basis points to 4.28%.
GE, Corning ride analyst comments to top of S&P 500 on Monday
17-Jun-24 14:30 ET
Dow +235.29 at 38824.45, Nasdaq +219.52 at 17908.40, S&P +53.61 at 5485.21
[BRIEFING.COM] The S&P 500 (+0.99%) is up about 53 points on Monday afternoon.
Elsewhere, S&P 500 constituents Super Micro Computer (SMCI 911.09, +66.55, +7.88%), GE Aerospace (GE 163.87, +7.99, +5.13%), and Corning (GLW 38.78, +1.53, +4.11%) dot the top of the standings. GE caught some positive analyst comments from Deutsche Bank this morning, while GLW was mentioned positively at Barron's in addition to being upgraded to Overweight at Fox Advisors.
Meanwhile, Vistra Energy (VST 83.97, -3.62, -4.13%) is today's top laggard in part due to options activity.
Gold pressured by yields to start the week
17-Jun-24 14:00 ET
Dow +155.39 at 38744.55, Nasdaq +212.67 at 17901.55, S&P +47.49 at 5479.09
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.20%) is at HoDs in recent action, up north of 210 points and holding a commanding lead among the major averages.
Gold futures settled $20.10 lower (-0.9%) to $2,329.00/oz, pressured by rising bond yields.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $105.41.
Ollie’s Bargain Outlet marches to multi-year highs following an upgrade at JP Morgan today (OLLI)
Ollie's Bargain Outlet (OLLI +7%) marches to multi-year highs today after JP Morgan upgraded the discount retailer to "Overweight" from "Neutral," as it sees accelerating growth over the near term. Following a sharp pullback in April, shortly after OLLI issued underwhelming FY25 (Jan) earnings and revenue guidance, shares have moved over +35% higher, reaching levels not achieved since July 2021.
Briefing.com notes that buying in at multi-year highs adds risk as scrutiny becomes heightened and profit-taking jitters begin creeping in. However, OLLI's previous quarterly results showcase its impressive ability to stand out among its peers, likely driving additional market share capture as it capitalizes on a broad trade-down effect amid a cumulative inflationary environment.
- After OLLI's Q1 (Apr) comps, revs, and margins all topped expectations, it raised its FY25 outlook, projecting adjusted EPS of $3.18-3.28, revs of $2.257-2.277 bln, and comps of +1.5-2.3%, up from +1.0-2.0%. Management reiterated that the current economy is generating a strong closeout market -- allowing OLLI to snatch up goods at favorable prices -- and a strained end-consumer -- nudging them toward discount retailers more frequently.
- OLLI is not alone in the discount retail market. One of its closest rivals, Big Lots (BIG), operates similarly, snatching up goods from companies with excess inventory and selling them at its locations at attractive prices. However, BIG has struggled extensively despite selling into an environment similar to OLLI. The key difference is that BIG offers significantly more highly discretionary products, such as furniture, which comprises a quarter of its annual revs. Meanwhile, OLLI focuses on consumables, better shielding it from the continued weakness in discretionary spending.
- By offering a more favorable mix of products, OLLI is attracting BIG shoppers into its doors, taking advantage of prices 20-70% below the stores the products originated. This dynamic is expected to persist over the near term. OLLI mentioned earlier this month that large retailers supplied by prominent manufacturers are constantly introducing new products and packaging, leading to a noticeable uptick in the closeout industry. OLLI remains the largest buyer of closeout products, putting further distance between it and its next-closest competitor.
OLLI has been firing on all cylinders. After a brief hiccup sparked by concerning FY25 guidance, investors have been piling into the stock. The consistent uptrend is not without good reason as OLLI continues to demonstrate its competitive edge in the discount retail market. Lastly, it is worth noting that OLLI is amid a leadership transition, announcing that CEO John Swygert will move to executive chairman early next year. He will be succeeded by Eric van der Valk, OLLI's prior COO. Given OLLI's success over the past few years, the incoming CEO may not implement any sweeping changes. However, the transition could generate volatility.
Steel Dynamics higher despite guidance, perhaps not as bad as feared (STLD)
We have been getting a lot of guidance from steelmakers in recent days. Steel Dynamics (STLD) is trading modestly lower after guiding Q2 EPS at just $2.64-2.68, which was below analyst expectations. The reaction is fairly muted because it was not surprising. Nucor (NUE) and STLD tend to both provide EPS guidance around the middle of the last month each quarter.
- On Friday, we got downside guidance from Nucor, which we think prepared investors for a guide down from Steel Dynamics today. If that were not enough, US Steel (X) also provided guidance today. After guide downs from NUE and STLD, we were a bit surprised to see US Steel guide Q1 EPS in-line. However, it did lower Q2 adjusted EBITDA guidance to approx $425 mln from $425-475 mln prior guidance.
- Nucor did not provide a lot of color with its guidance on Friday, but Steel Dynamics did provide a bit more context. Basically, STLD expects Q2 EPS to be lower both yr/yr and sequentially. In particular, Q2 profitability from its steel operations are expected to be meaningfully lower than Q1 as lower pricing is offsetting steady shipments. The silver lining is that STLD sees underlying domestic steel demand remaining intact. The automotive, non-residential construction, energy, and industrial sectors continue to lead demand. However, steel buying hesitancy has resulted from a weakening scrap price environment.
- Briefing.com notes that, for mini-mills in particular, scrap prices matter a lot. Because scrap is a major input material, especially for mini-mills, oftentimes steel buyers will monitor scrap prices. If they drop, buyers will often wait out steel producers, knowing that they will likely need to follow suit with lower selling prices for steel. That seems to be happening right now and it's impacting Q2 results.
- Turning to US Steel, the company said its Adjusted EBITDA guidance reduction reflects stable domestic flat-rolled steel end-use demand despite a "dynamic" spot steel pricing environment. In Europe, X recently restarted its temporarily idled blast furnace in response to improving customer demand. However, as expected, challenging market conditions are negatively impacting the Tubular segment. Regarding its pending deal to be acquired by Nippon Steel, X says it's "make progress."
Overall, we are seeing a muted reaction in both STLD and X today despite weak guidance and a sluggish pricing environment. We think Nucor's weak guidance on Friday prepared investors for this, and maybe STLD guidance was not as bad as feared. Also, it seems both steelmakers' positive comments on end customer demand is helping prop up shares of both companies. Regardless, it seems Q2 industry dynamics will pressure steel earnings this earnings season.
Taiwan Semiconductor Manufacturing heads back to record highs on reports of price hikes (TSM)
The gains continue to mount for Taiwan Semiconductor (TSM +1%), which is stepping back up toward last week's record highs today following a TrendForce report that the world's largest chip manufacturer is planning to raise the price of its 3-nanometer products. TSM manufactures several nanometer chips, with its 5nm chip accounting for the bulk of its latest quarterly wafer revenue. Simply, the smaller the chip, the more space it frees up, allowing for more transistors to be packed on the same chip, which can increase its power output.
While price hikes can garner positive responses as the action can boost revenue and margins, TSM's announcement is being particularly well-received for a few reasons.
- TSM anticipated its overall business to grow stronger beginning in Q2, accelerating to form a more robust second half of the year compared to the first. Its 3nm products were to play a meaningful role in its uplifting view. AI was the primary driver, as chip designers from NVIDIA (NVDA) to Advanced Micro (AMD) continue to jump at the opportunity to pull ahead in the AI race. While the technology accounted for only 9% of wafer revs in Q1, TSM expected revenue contribution to ramp starting next quarter.
- However, gross margins were compressing as revenue contribution from 3nm technologies increased. TSM projected a 3-4 pt hit to gross margins due to the uptick in 3nm revs, 1 pt worse than the dilution to Q1 gross margins. At the same time, to support 3nm capacity, TSM would be converting some 5nm tools, further diluting gross margins by an additional 1-2 pts during the back half of the year.
- As a result, TSM targeted gross margins of 51-53% for Q2, a 2 pt drop at the low end from the 53.1% delivered in Q1. TSM did not issue FY24 margin guidance. Instead, management reiterated its long-term target of at least 53%, excluding FX impacts. The company also discussed how it would work diligently to control internal costs.
Given this context, TSM's reportedly planned price hikes for 3nm products are being applauded by the market today. As NVDA and others boast massive leaps in revenue, supported by a seemingly inextinguishable demand for AI, investors may have questioned whether TSM was charging enough given its need to manage costs to maintain its long-term gross margin goals. TSM commented in April that it was working on pricing as demand for its chips continued to swell. For comparison purposes, NVDA's adjusted gross margins reached 78.9% in Q1 (May), up over 12 pts yr/yr and 2 pts sequentially. NVDA's impressive margins can explain why it is reportedly open to TSM raising its prices -- this would likely have little impact on NVDA's profitability while helping squeeze out some of its smaller competitors.
Bottom line, reports that TSM will hike the price of its most powerful chip for AI are spurring outsized enthusiasm today, as it could help offset projected margin dilution and push shares back toward all-time highs.
Twilio slips to its lowest level this year following an analyst downgrade today (TWLO)
Twilio (TWLO -3%) moves to its lowest level of the year after Morgan Stanley downgraded the stock to "Equal-Weight" from "Overweight" today, citing near-term troubles. Shares of the communication platform as a service (CPaaS), offering real-time communications within software applications, have trended sideways since underwhelming Q4 results triggered a rush of selling in mid-February.
Briefing.com notes that even with the stock quickly gapping toward one-year lows reached in October, further downside risk remains. A possible further breakdown in discretionary spending could materially hinder near-term growth for TWLO, which has steadily seen a deceleration in yr/yr revenue growth every quarter since 2Q21; its Q2 revenue guidance projects further weakening. At the same time, TWLO is unprofitable on a GAAP basis despite continuous efforts via leadership changes, a new go-to-market strategy, and headcount reductions.
- TWLO's software can be found across numerous consumer-facing companies, from Intuit (INTU) to DoorDash (DASH). Its technology tends to be used to send SMS notifications to customers, whether to tell them their food is ready or to verify user identity. However, TWLO's services mostly rely on robust consumer demand. While volumes across the board have been relatively stable, they have not inflected, hindering a few growth dynamics. Unless demand conditions turn more meaningfully, top-line growth could remain a struggle.
- One of TWLO's central focuses is personalized communications, which it believes Generative AI will accelerate. While AI's current strength revolves around language, perfect for a CPaaS company like TWLO, it has yet to generate significant growth. TWLO mentioned last quarter that it continues embedding AI capabilities into its products, so it could take time. However, thus far, the technology has not accompanied tangible benefits.
- Competition in the CPaaS space could heat up over the near term, prompting TWLO to implement pricing actions that would weigh on margins and push it off track to achieve its profitability target. While management noted last quarter that it is not seeing any changes in the competitive landscape, noting that customers emphasize working with a company that ensures no fraud, it is something to keep an eye on.
There are still positives to focus on, especially given how far TWLO has sold off. Last month, CEO Khozema Shipchandler mentioned that the company is running entirely differently than it was six months ago, operating with more discipline and focus, as it remains committed to improving profitability and cash flow. TWLO reiterated its expectation of achieving non-GAAP operating profitability by 2Q25 last month. The company has also noticed healthy progress surrounding bookings, which may take time to ultimately show up in revenue.
Nevertheless, shares may endure continued selling pressure unless TWLO begins delivering more substantial progress toward its profitability and cash flow goals. It does not help that revenue continues to slow despite continuously lapping more favorable yr/yr numbers. Even though the company is still signing notable deals, revenue may not pick up until consumer spending turns around more aggressively.
MSC Industrial in need of repair work as shares dive to 52-week lows after weak Q3 results (MSM)
Business conditions for MSC Industrial (MSM), a distributor of metalworking and MRO products like cutting tools, measuring instruments, and fasteners, haven't improved since it reported lackluster Q2 results back in late March. As such, the company issued downside preliminary Q3 results, missing EPS and revenue expectations, and lowered its FY24 average daily sales (ADS) and adjusted operating margin guidance.
- Similar to competitors Grainger (GWW) and Applied Industrial Technologies (AIT) -- each of which are trading lower in sympathy with MSM today -- MSM's financial performance carries a little extra weight because of its exposure to the economically sensitive manufacturing industry. This connection makes MSM a good barometer for the health of the industrial economy and based on its weak Q3 results, it's evident that high interest rates, inflation, and geopolitical factors are still weighing on the macro environment.
- MSM CEO Erik Gershwind acknowledged as much, citing ongoing heavy manufacturing softness and a slower than anticipated ramp in its core customers as key causes behind the company's disappointing results.
However, it's not only external macro-related issues that are plaguing MSM.
- Mr. Gershwind also stated that unexpected dilution from its web price realignment, combined with customer mix headwinds, drove gross margin approximately 60 bps below its expectations. During the earnings call this morning, MSM stated that the web pricing realignment was a highly complex project and that during the testing phase some pricing anomalies didn't surface, creating some negative surprises.
- Because of these web pricing setbacks, MSM is holding off on steering new customers to its website until the web improvements are settled. That's a main reason why the company lowered its FY24 ADS guidance to (4.7)%-(5.3)% from its prior outlook of 0-5%.
- While the company still expects some of these improvements to be rolled out this year, most won't be in place until early FY25. The good news, though, is that MSM is already starting to see some improvement in gross margin trends as pricing adjustments are made.
- Although the macro-related pressures are out of MSM's control, there are some actions that the company can take to mitigate the negative impact. For instance, MSM is focusing on the stronger areas of its business, including its high-touch solutions and the public sector, where budgets are starting to loosen, and its OEM fastener business.
The main takeaway is that MSM is battling a mix of macro and company-specific headwinds, setting the stage for a difficult 2H24. However, once its web improvement issues are fixed, and if the Fed begins to lower interest rates, then MSM could be poised for a turnaround in FY25.
|
