Market Snapshot
| Dow | 39164.06 | +36.26 | (0.09%) | | Nasdaq | 17858.68 | +53.53 | (0.30%) | | SP 500 | 5482.87 | +4.97 | (0.09%) | | 10-yr Note | +3/32 | 4.29 |
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| | NYSE | Adv 1661 | Dec 1093 | Vol 949 mln | | Nasdaq | Adv 2676 | Dec 1544 | Vol 5.4 bln |
Industry Watch
| Strong: Communication Services, Real Estate, Energy, Consumer Discretionary |
| | Weak: Financials, Materials, Consumer Staples, Health Care |
Moving the Market
-- Gains in many mega cap names providing some support to the broader market
-- Losses in semiconductor stocks after Micron (MU) earnings; NVIDIA (NVDA) down in sympathy
-- Digesting this morning's data and wait-and-see stance in front of PCE Price Indexes tomorrow
-- Drop in market rates
| Closing Summary
27-Jun-24 16:25 ET
Dow +36.26 at 39164.06, Nasdaq +53.53 at 17858.68, S&P +4.97 at 5482.87
[BRIEFING.COM] It was a somewhat lackluster session in the stock market. The S&P 500 (+0.1%), Dow Jones Industrial Average (+0.1%), and Nasdaq Composite (+0.3%) settled slightly higher than yesterday while the Russell 2000 outperformed, settling 1.0% higher.
Market breadth was positive, but there wasn't a lot of conviction on either side of the tape. Advancers had a roughly 3-to-2 lead over decliners at the NYSE and at the Nasdaq.
The lack of conviction today stemmed from a wait-and-see stance in front of the May Personal Income and Spending report tomorrow at 8:30 ET, which features the Fed's preferred inflation gauges in the form PCE and core-PCE price indexes.
Ongoing buying interest in the mega cap space played an integral role in index-level performance. Shares of Amazon.com (AMZN 197.85, +4.24, +2.2%) moved further into record territory after crossing $2 trillion in market cap. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.3% gain.
Meanwhile, semiconductor-related names acted as a drag on the broader market after Micron's (MU 132.26, -10.13, -7.1%) earnings report. NVIDIA (NVDA 123.99, -2.41, -1.9%) was an influential standout from the space.
Some bank stocks traded higher the Fed's stress test showed that the 31 large banks subject to the test this year have sufficient capital. The SPDR S&P Bank ETF (KBE) closed 1.0% higher and the SPDR S&P Regional Banking ETF (KRE) showed a 1.1% gain.
Still, the S&P 500 financial sector fell 0.3% today.
Treasury yields settled lower in response to this morning's data and a stellar $44 billion 7-yr note sale. The slate of economic releases today included an upward revision to Q1 GDP, the highest level of continuing jobless claims since November 2021, and better-than-expected durable orders growth for May.
The 10-yr note yield, at 4.33% shortly before 8:30 ET, settled at 4.29%, which is three basis points lower than yesterday. The 2-yr note yield, at 4.76% before 8:30 ET, settled at 4.72%.
- Nasdaq Composite: +19.0% YTD
- S&P 500:+15.0% YTD
- S&P Midcap 400: +5.1% YTD
- Dow Jones Industrial Average: +3.9% YTD
- Russell 2000: +0.6% YTD
Reviewing today's economic data:
- May Adv. Intl. Trade in Goods -$100.6 bln; Prior was revised to -$98.0 bln from -$99.4 bln
- May Adv. Retail Inventories 0.7%; Prior 0.7%
- May Adv. Wholesale Inventories 0.6%; Prior 0.2%
- Weekly Initial Claims 233K (Briefing.com consensus 238K); Prior was revised to 239K from 238K; Weekly Continuing Claims 1.839 mln; Prior was revised to 1.821 mln from 1.828 mln
- The key takeaway from the report is the elevated level of continuing jobless claims, which suggests laid-off workers are facing longer wait times before finding a new job, which would be a symptom of a softening labor market.
- May Durable Orders 0.1% (Briefing.com consensus -1.2%); Prior was revised to 0.2% from 0.7%; May Durable Orders -ex transportation -0.1% (Briefing.com consensus 0.2%); Prior 0.4%
- The key takeaway from the report is that new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- declined 0.6% month-over-month.
- Q1 GDP- Third Estimate 1.4% (Briefing.com consensus 1.3%); Prior 1.3%; Q1 GDP Deflator - Third Estimate 3.1% (Briefing.com consensus 3.1%); Prior 3.0%
- The key takeaway from the report is that it is dated (we're just days away from the end of Q2) so its impact should be limited; however, the slowdown in personal spending is noteworthy in light of more anecdotal evidence in the interim that suggests consumers, in aggregate, are reining in their discretionary spending.
- May Pending Home Sales -2.1% (Briefing.com consensus 2.3%); Prior -7.7%
Friday's economic calendar features the Fed's preferred inflation gauge in the form of PCE Price Indexes in the May Personal Income and Spending report. Other data tomorrow include:
- 9:45 ET: June Chicago PMI (prior 35.4)
- 10:00 ET: Final June University of Michigan Consumer Sentiment (Briefing.com consensus 65.6; prior 65.6)
Treasuries settle with gains in front of PCE Price Indexes
27-Jun-24 15:40 ET
Dow +11.29 at 39139.09, Nasdaq +44.71 at 17849.87, S&P -0.37 at 5477.53
[BRIEFING.COM] The major indices are moving mostly sideways ahead of the close.
The 10-yr note yield settled three basis points lower at 4.29% and the 2-yr note yield settled three basis points lower at 4.72%.
Friday's economic calendar features the Fed's preferred inflation gauge in the form of PCE Price Indexes in the May Personal Income and Spending report. Other data tomorrow include:
- 9:45 ET: June Chicago PMI (prior 35.4)
- 10:00 ET: Final June University of Michigan Consumer Sentiment (Briefing.com consensus 65.6; prior 65.6)
NKE trades flat in front of earnings
27-Jun-24 15:00 ET
Dow -31.56 at 39096.24, Nasdaq +48.78 at 17853.94, S&P -1.97 at 5475.93
[BRIEFING.COM] The market is little changed at the index level in recent trading. The Russell 2000 continues to outperform other major indices, showing a 0.6% gain.
NIKE (NKE 94.05, -0.00, -0.01%) trade flat in front of its earnings report after the close.
The consumer discretionary sector, which houses NKE, sports the largest gain among the 11 sectors, trading up 0.7%.
Chipotle, Cencora among top laggards in S&P 500 on Thursday
27-Jun-24 14:30 ET
Dow -77.73 at 39050.07, Nasdaq +26.04 at 17831.20, S&P -8.47 at 5469.43
[BRIEFING.COM] The S&P 500 (-0.15%) is in second place on Thursday afternoon, falling further into the red compared to the last half hour.
Elsewhere, S&P 500 constituents Chipotle Mexican Grill (CMG 62.15, -3.71, -5.63%), Cencora (COR 226.87, -10.41, -4.39%), and Bath & Body Works (BBWI 38.71, -1.34, -3.35%) pepper the bottom of the standings. CMG is lower despite catching a couple of post-split target raises, while COR's largest customer Walgreens Boots Alliance (WBA 11.71, -3.95, -25.22%) pressures the stock.
Meanwhile, Super Micro Computer (SMCI 890.00, +58.84, +7.08%) is atop the average despite a dearth of corporate news.
Gold snaps losing streak as dollar dips
27-Jun-24 14:00 ET
Dow +73.47 at 39201.27, Nasdaq +58.17 at 17863.33, S&P +3.98 at 5481.88
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.33%) has returned to the top of the standings, up about 58 points.
Gold futures settled $23.40 higher (+1.0%) to $2,336.60/oz, on pace to end higher for just the second time in the last five sessions as the dollar displays relative weakness.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $105.88.
McCormick is spicing it up on strong Q2 upside; says it's energized for grilling season (MKC)
McCormick (MKC +4%) is spicing it up today as investors approve of its Q2 (May) earnings results this morning. This supplier of spices, seasoning mixes, and condiments reported it largest EPS beat in any quarter for the last three years. Revenue dipped 1% yr/yr to $1.64 bln, which was generally in-line. MKC also reaffirmed FY24 EPS and revenue guidance.
- MKC operates two segments: Consumer (56% of 1HFY24 revs) and Flavor Solutions (44%), which caters to food manufacturers and foodservice customers. In Q2, volume growth in its Consumer segment was offset by declines in Flavor Solutions related to softness in some of its QSR and packaged food customers volumes.
- Consumer segment sales decreased 1% yr/yr to $904.5 mln. Volumes improved substantially from Q1. In the Americas, MKC has delivered solid sequential volume improvement for three consecutive quarters. FS segment sales also declined 1% to $738.8 mln where a 1% increase from pricing was offset by a 2% decline in volume and product mix. Although certain parts of its FS business are pressured, MKC expects volume trends to improve in 2H.
- MKC says that consumers continue to exhibit value seeking behavior, especially mid to low income households. Consumers continue to buy just what they need and make more frequent trips to the store. On the positive side, consumers are cooking at home more. As a result, certain categories such as Spices & Seasonings, as well as condiments and sauces are seeing a benefit amid these trends.
- The company says it's energized for grilling season and expects its Flame and Flavor marketing campaign that launched in Q2 will drive incremental consumer demand. MKC also said its Cholula salsas and recipe mixes that launched in 2023 are driving new buyers to the category and continues to exceed expectations since launch. In 2024, MKC is launching nearly 4x more grilling rubs and seasonings compared to 2023. On the FS side, inflation in the foodservice channel is leading to softness in food-away-from-home consumption. That is impacting restaurant traffic particularly with QSRs.
Overall, after some lackluster results in recent quarters, MKC's results in the first half of 2024 were welcome news. We think the robust EPS beat and positive comments on the call are driving shares today. Also, the share price has been lackluster since the Q1 report. As such, we think sentiment was low heading into this report, so the big EPS beat generated some excitement.
BlackBerry pops after Q1 results underscored encouraging trends; may mark a turning point (BB)
Blackberry (BB +13%), a software-focused firm operating an IoT and Cybersecurity division, is enjoying plenty of green today after delivering decent-sized earnings and sales beats in Q1 (May) while keeping its FY25 (Feb) outlook unchanged despite some near-term turbulence. No longer dealing in mobile hardware, BB has embarked on several business overhauls throughout its time as a publicly traded firm. Most recently, BB announced it would separate its IoT and Cybersecurity units into two independently operated entities, pursuing a subsidiary IPO for IoT (launching in 1HFY25). While this plan continues progressing nicely, it has not triggered much investor enthusiasm.
Shares of BB have been on a steady course lower throughout the past several months, tumbling by as much as 60% since September 2023 highs heading into its Q1 report yesterday after the close. The correction has not been entirely the result of internal missteps, as the stock pulled back sharply late last year due to auto union strikes. Still, investors have grown impatient because of BB's inability to translate its formidable presence within the automotive software industry (its software is embedded into hundreds of millions of vehicles globally) into meaningful top or bottom-line growth. The same applies to BB's cybersecurity software, which is used across large governments and prominent financial institutions.
However, BB's Q1 report could mark a turning point.
- Headline results were not overly stunning, as EPS remained red at $(0.03) while revs nosedived by 61.4% yr/yr to $144 mln. However, the sales drop was entirely due to BB's licensing segment, where it sold a substantial chunk of its patents last year. When looking at just BB's IoT and Cybersecurity segments, revenue was flat yr/yr at $138 mln.
- Cybersecurity remains the drag on BB's overall performance, which was no surprise given the current demand environment, which has elongated sales cycles across the industry. Cybersecurity revs slipped by 9% yr/yr to $85 mln, which was still above BB's previous guidance. The company also maintained its FY25 Cybersecurity revenue outlook.
- While the cybersecurity market remains unfavorable, BB did observe encouraging improvements across its ARR and dollar-based net retention rate, which increased for the second and third straight quarters, respectively.
- Conversely, IoT, which houses BB's QNX software used in automobiles, including EVs and internal combustion engines, enjoyed an 18% bump in revs yr/yr to $53 mln, also surpassing the company's prior forecast. Automotive market conditions remain fragile as interest rates suppress consumer demand. Still, BB reiterated its FY25 IoT revenue projection. Management also remained optimistic about longer-term demand, citing mounting interest in QNX and a vehicle landscape becoming progressively more software-defined.
The year ahead for BB may contain plenty of obstacles as the company deals with little appetite for cybersecurity software and an end-consumer not bursting at the seams to buy the latest automobile. However, BB's headwinds may be topping, potentially setting the stage for reaccelerating growth come FY26.
Micron's guidance fails to live up to sky-high expectations, but AI catalysts unfolding (MU)
Fueled by robust demand for its high-bandwidth memory (HBM) chips, which are a key building block for AI data centers, and higher prices for both DRAM and NAND memory chips, Micron (MU) easily topped Q3 EPS and revenue estimates. However, the company has become a victim of its own success as its strong results and upside Q4 guidance failed to live up to investors' sky-high expectations.
- The main source of disappointment is stemming from its Q4 revenue forecast of $7.40-$7.80 bln. While the midpoint of this guidance equates to impressive yr/yr growth of 90% -- MU's highest growth rate in many years -- it also was only barely above analysts' estimates. Rewinding to MU's Q2 earnings report in late March, the company issued Q3 EPS and revenue guidance that blew past forecasts, showing that NVIDIA (NVDA) isn't the only AI game in town.
- With that said, MU's less spectacular performance relative to NVDA -- which crushed Q1 estimates and provided blowout Q2 guidance on May 22 -- offers a reality check that it's not quite in the same league as NVDA in terms of AI. MU still generates most of its revenue from the PC and smartphone end markets, which the company expects to grow by just low-single digits and low-to-mid-single digits in 2024.
- Still, AI is poised to become a significantly larger piece of the pie for MU. With the looming emergence of AI smartphones and PCs, MU is well-positioned to capitalize, especially given that new AI smartphones will utilize about 50% more DRAM content compared to non-AI phones.
- Meanwhile, data center revenue jumped by more than 50% in Q3 to a record high, thanks to the strong demand for HBM. Supply constraints have been the only limiting factor for MU's HBM3E chipset. After launching and ramping production in Q2, MU quickly sold out for the remainder of CY24 and for 2025.
- To meet the insatiable demand for HBM, the company is planning to ramp up spending. More specifically, MU's capex estimate for FY24 is approximately $8 bln and CEO Sanjay Mehrotra commented during the earnings call that MU will ramp up capex materially in FY25. That disclosure may also be weighing on the stock.
The main takeaway is that business is booming for MU as the AI-fueled catalysts gain steam, although that's not being reflected in today's stock action. With the stock up by nearly 70% on a year-to-date basis (prior to today), and with shares trading with a lofty forward P/E of about 20x, there was little room for error and MU's guidance provided the excuse to lock in gains.
Levi Strauss pulls back sharply following Q2 results, guidance a bit of a letdown (LEVI)
Levi Strauss (LEVI -17%) is sharply lower despite reporting nice EPS upside with its Q2 (May) results last night. The denim icon also reported its strongest yr/yr revenue growth in the past eight quarters at 7.8% yr/yr to $1.44 bln. However, that was a slight miss relative to analyst expectations with higher than expected FX playing a key role. LEVI only reaffirmed full year guidance, which we think is being viewed negatively given the nice EPS upside.
- The Americas segment was its strongest performer by far with revs up 17% (+16% CC) with DTC revenue up 16%, driven by double-digit growth in brick-and-mortar and e-commerce. While US wholesale was down mid-single digits, the US market grew low-single digits entirely as a result of DTC growth on an adjusted basis. LEVI also saw meaningful improvements in profitability across both channels.
- In Europe, revenue fell 2% on a reported and CC basis. DTC revenue increased 7%, reflecting growth in mainline, outlet, and e-commerce. However, Wholesale was down 11%. LEVI continues to expect Europe to return to growth in 2H. Asia revenue was flat yr/yr, but +6% CC. DTC revs increased 6% while wholesale was up 5%. China was down 10% as it was lapping 95% growth last year from the COVID reopening.
- Margins were a bright spot with record gross margin of 60.5%, primarily driven by lower product costs, the structural shift to DTC, and faster growth from its women's business. LEVI noted that DTC continues to not only be its fastest-growing business, but is also seeing real improvements in profitability. The strong margins helped to propel the robust EPS upside.
- LEVI expects its yr/yr acceleration in profitability will continue into 2H. It is seeing a strong response to its new product assortment with additional launches set for 2H. LEVI is also focused on full price sales, particularly in its mainline stores in the US. LEVI also continues to see momentum in its DTC business. Also, Europe overall is poised to return to growth in 2H and LEVI is confident in its plans for back-to-school and its holiday product and marketing campaign.
- So, why just a reaffirm for full year? LEVI is making significant changes to logistics strategy. LEVI is moving from a primarily owned/operated network in the US and Europe to one that will be more balanced between its own and third-party logistic providers. As it continues to pivot more toward DTC sales, its distribution network needs investment. That includes upgrading existing capacity with omni-channel capabilities. LEVI will be operating both new and old facilities for the rest of 2024, resulting in inefficiencies. LEVI expects to begin to see a favorable EPS impact in 2026 with larger benefits in 2027 and beyond. Also, FX headwinds have increased.
Overall, we think the biggest reason for today's weakness was LEVI's decision to only reaffirm full year guidance despite the large Q2 EPS beat. LEVI posted a similar size beat in Q1 and then raised FY24 EPS, so to not follow suit this quarter is spooking investors. It sounds like it's not a demand issue, but more related to higher costs and resulting inefficiencies from a distribution change with FX playing a role as well. However, given the move in the stock in recent months, sentiment was running high and the guidance was a letdown.
Walgreens Boots Alliance plunges on weakening profitability in Q3; retail demand still soft (WBA)
The bleeding refuses to stop for Walgreens Boots Alliance (WBA -24%), as shares trade at 25-year lows today after an earnings miss in Q3 (May) coupled with lowered FY24 (Aug) adjusted EPS guidance triggers a substantial sell-off. Shares of the retail pharmaceutical and healthcare services firm have been on a slippery slope for years, sliding by over 75% since January 2022 highs, with the stock slashed in half thus far in 2024.
The crux remains a strained end consumer, hampering the retail demand environment. WBA is not alone in dealing with such a stubborn headwind. CVS Health (CVS) has repeatedly discussed a challenging demand backdrop surrounding front-of-store sales over the past few quarters. Meanwhile, Rite Aid filed for Chapter 11 bankruptcy in October and has been shuttering hundreds of locations nationwide, leaving a void for other retail pharmacies to step in and fill.
However, WBA has no plans to open any new stores to take advantage of any holes left by Rite Aid. Instead, WBA is heading in the opposite direction, noting today that it is finalizing a significant multi-year footprint optimization program, closing roughly a quarter of its U.S. stores. The gaps across the nation regarding retail pharmacies underpin just how dismal the demand landscape is and how value-seeking behavior is nudging consumers to either consolidate their shopping trips by choosing pharmacy options from mass merchants like Walmart (WMT) or shifting toward e-commerce alternatives such as Amazon Pharmacy (AMZN).
- During Q3, WBA's U.S. Retail Pharmacy segment did deliver positive growth, expanding its top line by 2.3% yr/yr to $28.5 bln on comps of +3.5%. However, this was driven entirely by pharmacy, which enjoyed +5.7% comp growth, benefiting from higher branded drug prices and script growth.
- WBA's U.S. Healthcare segment fared much better, recording a 7.6% jump in sales yr/yr to $2.1 bln. The company's substantial investments and acquisitions, including VillageMD and Shields, led the way in Q3, posting a 7% and 24% pop in sales, respectively. Nevertheless, this segment comprises just 6% of WBA's total sales, resulting in tepid overall growth of 2.8% yr/yr to $36.4 bln.
- Meanwhile, adjusted operating income plummeted by over 36% yr/yr in constant currency, with a nearly 50% plunge in U.S. Retail Pharmacy. As a result, WBA's Q3 adjusted EPS was reduced by 37% yr/yr to $0.63.
- WBA does not anticipate the weak demand backdrop to improve anytime soon, lowering its FY24 adjusted EPS outlook to $2.80-2.95 from $3.20-3.35. Through the first month of Q4, the U.S. consumer has demonstrated the same unfavorable behavior as in Q3. However, WBA did keep its FY24 U.S. Healthcare segment adjusted EBITDA breakeven forecast intact. WBA is also continuing to review its Boots U.K. business.
WBA is on shaky ground following its Q3 performance. Shuttering 25% of its stores across the U.S. reflects a seriously problematic retail market that could take an extended period to recover. While the Walgreens brand still holds plenty of weight, providing a firm foundation for WBA to construct its turnaround from, without more favorable demand conditions, the next couple of quarters could resemble the past several quarters, keeping volatility elevated.
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