Market Snapshot
| Dow | 39331.85 | +162.33 | (0.41%) | | Nasdaq | 18028.76 | +149.46 | (0.84%) | | SP 500 | 5509.01 | +33.92 | (0.62%) | | 10-yr Note | +3/32 | 4.432 |
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| | NYSE | Adv 1824 | Dec 949 | Vol 860 mln | | Nasdaq | Adv 2141 | Dec 2090 | Vol 4.5 bln |
Industry Watch
| Strong: Consumer Discretionary, Financials, Utilities, Real Estate, Industrials |
| | Weak: Health Care, Energy |
Moving the Market
-- Reacting to drop in Treasury yields after solid losses in recent days
-- Rebound action in some mega cap names providing some support to index performance
-- Tesla (TSLA) shares up sharply after Q2 deliveries data
| Closing Summary
02-Jul-24 16:30 ET
Dow +162.33 at 39331.85, Nasdaq +149.46 at 18028.76, S&P +33.92 at 5509.01
[BRIEFING.COM] The stock market ended the session on an upbeat note. The major indices all closed near their highs of the day, which had the S&P 500 closing above 5,500 for the first time and had the Nasdaq Composite at a fresh all-time high.
The day started more mixed, however, before an increase in buying activity in the afternoon trade. Market breadth was mixed through most of the session, but advancers had a 2-to-1 lead over decliners at the NYSE and an 11-to-10 lead at the Nasdaq by the close.
Some mega cap names outperformed through the entire session, adding to gains in the afternoon trade. Tesla (TSLA 231.26, +21.40, +10.2%) was a standout in that respect, jumping 10% after it reported better-than-expected Q2 delivery numbers. Apple (AAPL 220.27, +3.52, +1.6%), Amazon.com (AMZN 200.00, +2.80, +1.4%), and Microsoft (MSFT 459.28, +2.55, +0.6%) were also among the influential winners, each hitting a 52-week high today.
Many stocks participated in the afternoon improvement. The equal-weighted S&P 500 logged a 0.5% gain and the market-cap weighted S&P 500 rose 0.6%. Only two of the S&P 500 sectors closed with declines -- health care (-0.4%) and energy (-0.2%) -- while the consumer discretionary sector (+1.8%) was propelled to the top of the lineup by gains in TSLA and AMZN.
The drop in market rates following solid losses in Treasuries in recent days acted as support for equities. The 10-yr note yield dropped four basis points to 4.44% and the 2-yr note yield declined three basis points to 4.74%.
This price action followed comments from Fed Chair Powell at the ECB Forum on Central Banking and a JOLTS - Job Openings Report for May, which showed an increase in openings to 8.140 million from a downwardly revised 7.919 million (from 8.059 million) in April. Mr. Powell reiterated that some significant progress has been made in lowering inflation but that the Fed wants to be more confident inflation is moving down to 2% before loosening its restrictive stance.
- Nasdaq Composite: +20.1% YTD
- S&P 500: +15.5% YTD
- S&P Midcap 400: +4.6% YTD
- Dow Jones Industrial Average: +4.4% YTD
- Russell 2000: +0.3% YTD
There's a slate of economic data tomorrow, including:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.8%)
- 8:15 ET: June ADP Employment Change (Briefing.com consensus 163,000; prior 152,000)
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 235,000; prior 233,000), Continuing Claims (prior 1.839 mln), and May Trade Balance (Briefing.com consensus -$76.0 bln; prior -$74.6 bln)
- 9:45 ET: S&P Global U.S. Services PMI (prior 55.1)
- 10:00 ET: June ISM Non-Manufacturing Index (Briefing.com consensus 52.5%; prior 53.8%) and May Factory Orders (Briefing.com consensus 0.3%; prior 0.7%)
- 10:30 ET: Weekly crude oil inventories (prior +3.59 mln)
- 12:00 ET: Weekly natural gas inventories (prior +52 bcf)
STZ reporting earnings tomorrow; econ data out tomorrow
02-Jul-24 15:40 ET
Dow +123.99 at 39293.51, Nasdaq +127.08 at 18006.38, S&P +26.16 at 5501.25
[BRIEFING.COM] The major indices are at session highs in front of the close. The S&P 500 trades above the 5,500 level.
There's a slate of economic data tomorrow, including:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.8%)
- 8:15 ET: June ADP Employment Change (Briefing.com consensus 163,000; prior 152,000)
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 235,000; prior 233,000), Continuing Claims (prior 1.839 mln), and May Trade Balance (Briefing.com consensus -$76.0 bln; prior -$74.6 bln)
- 9:45 ET: S&P Global U.S. Services PMI (prior 55.1)
- 10:00 ET: June ISM Non-Manufacturing Index (Briefing.com consensus 52.5%; prior 53.8%) and May Factory Orders (Briefing.com consensus 0.3%; prior 0.7%)
- 10:30 ET: Weekly crude oil inventories (prior +3.59 mln)
- 12:00 ET: Weekly natural gas inventories (prior +52 bcf)
Separately, Constellation Brands (STZ 257.34, +1.05, +0.4%) reports earnings in front of the open tomorrow.
Stocks continue to build on gains
02-Jul-24 15:05 ET
Dow +90.50 at 39260.02, Nasdaq +124.56 at 18003.86, S&P +22.65 at 5497.74
[BRIEFING.COM] Stocks continue to build on gains. The market cap weighted S&P 500 is up 0.4% and the equal-weighted S&P 500 sports a 0.2% gain.
Market breadth was mixed earlier, but advancers lead decliners by a nearly 2-to-1 margin at the NYSE and an 11-to-10 margin at the Nasdaq now.
Treasury yields remain steady. The 10-yr note yield is down three basis points to 4.45% and the 2-yr note yield is down four basis points to 4.73%.
ON Semi, Generac helping S&P 500 higher; CF Industries weak in materials space
02-Jul-24 14:30 ET
Dow +95.98 at 39265.50, Nasdaq +124.56 at 18003.86, S&P +23.20 at 5498.29
[BRIEFING.COM] The S&P 500 (+0.42%) is in second place on Tuesday afternoon, up about 23 points.
Elsewhere, S&P 500 constituents ON Semi (ON 72.48, +3.30, +4.77%), Bunge (BG 110.39, +3.07, +2.86%), and Generac (GNRC 136.96, +3.80, 2.85%) pepper the top of the standings. ON is higher in part due to strong options numbers, while GNRC appears to be reacting to the strength of Hurricane Beryl.
Meanwhile, CF Industries (CF 70.53, -2.85, -3.88%) is today's top laggard, slipping alongside general weakness in the S&P 500 materials group (-0.47%).
Gold slips even as dollar, yields dip
02-Jul-24 14:00 ET
Dow +59.09 at 39228.61, Nasdaq +115.14 at 17994.44, S&P +19.56 at 5494.65
[BRIEFING.COM] The major averages have bounced higher in recent trading, the tech-heavy Nasdaq Composite (+0.64%) atop the major averages.
Gold futures settled $5.50 lower (-0.2%) to $2,333.40/oz, even as yields and the greenback hold modest losses.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $105.78.
Six Flags Entertainment continues climbing after completing its merger with Cedar Fair (FUN)
The newly bolstered theme park operator Six Flags (FUN +3%), which completed its merger with Cedar Fair yesterday after the close, is continuing its upward momentum today. First announced in early November, the proposed ~$8 bln combination of the two dominant theme park operators across the United States (with a few in Mexico and Canada) triggered excitement among investors. Shares of FUN (formerly under the ticker "SIX") have soared by over +70% since the merger was announced.
Despite the unwavering buying interest over the past eight months, the newly combined company presents a compelling opportunity to unlock synergies -- Six Flags anticipated around $120 mln in cost savings and $80 mln in incremental EBITDA -- and maintain its current positive momentum.
- With all parks operating under one umbrella, FUN can spur traffic growth by offering season passes that can be used at all parks. Six Flags already boasted strong pass sales through April, with 2024 total pass sales ahead of 2023 by double-digits, with average prices also increasing yr/yr. Add-on sales of All Season Dining and All Season Flash passes have also been tracking ahead of last year. Offering customers even more parks and add-ons could bring a significant yr/yr boost for the 2025 season.
- By removing a competitor, FUN immediately bolsters its pricing power. While rivals still exist, including Walt Disney (DIS) and Universal Studios (CMCSA), Cedar Fair operated 13 parks across North America scattered from the West Coast to the East Coast, giving it a formidable presence. The addition of Cedar Fair's parks further diversifies FUN's revenue stream, placing less dependence on any one park or region and providing more stability.
- With how complementary the two companies' operations have been through the years, cost savings should be evident immediately. Two of FUN's current goals are to recapture attendance and aggressively seize cost savings opportunities to bolster its operating margins and return to pre-pandemic levels. With the one-two combo of pricing power and cost savings opportunities, FUN may be able to return margins into the low 40% range quicker than expected.
While we like the future of a combined Six Flags and Cedar Fair, there are still possible speed bumps down the road. The macroeconomic landscape has been stubbornly challenging. Outdoor lifestyle names from Vail Resorts (MTN), which caters to the skiing community, to camping stocks like Thor Industries (THO) and Winnebago (WGO), and pool suppliers Pool (POOL) and Latham Group (SWIM) have been facing unrelenting headwinds in the wake of elevated inflation and interest rates. FUN's near-term demand could begin enduring a sharp pullback for similar reasons.
Still, over a longer timeframe, FUN is positioned for success. The resilience of the travel industry despite macroeconomic obstacles underscores a deep desire from individuals to prioritize experiences. With such a fortified portfolio of parks across North America, FUN can continue to capitalize on this trend while beginning to unlock meaningful cost savings.
Tesla speeding to multi-month highs as Q2 deliveries exceed expectations (TSLA)
Tesla (TSLA) is speeding to its highest levels since mid-January after reporting better-than-expected Q2 vehicle deliveries of 444,000, easing fears that rising competition in China and tepid demand for EVs took an even worse toll on the company. However, on a yr/yr basis, Q2 deliveries did decline by nearly 5%, after falling by 8.5% last quarter, indicating that these headwinds haven't abated. Furthermore, in order to achieve the upside deliveries number, TSLA had to rely on more price cuts and incentives to help stimulate demand.
- In April, the EV maker lowered its prices on Models Y, X, and S, and it also reduced the price of its full self-driving (FSD) system by 33% to $8,000. TSLA's eroding automotive gross margin metric has been a focal point over the past several quarters and with these latest price cuts, it will be once again when the company reports Q2 earnings in a couple weeks. In Q1, TSLA's automotive gross margin skidded to 16.4% compared to about 19% in the year-earlier quarter, mainly due to lower ASPs.
- The disappointing start for Cybertruck, which currently is only available for sale in its most expensive version, has also weighed on the stock. TSLA didn't break out specific delivery numbers for Cybertruck in this morning's report, but based on recalls announced in June, it appears that TSLA has sold roughly 11,000 Cybertrucks since the official launch on November 30, 2024. That's a relative drop in the bucket still compared to the 422,405 Model 3 and Model Y's that TSLA delivered in Q2 alone.
- TSLA is badly in need of a new vehicle that can help reinvigorate its brand and slow the market share gains that its Chinese competitors have been achieving. On that note, China-based EV makers NIO (NIO), Li Auto (LI), and XPeng (XPEV), reported impressive June deliveries data yesterday. While the strong results showed that demand for EVs in China has strengthened recently, they also suggested that these Chinese competitors are only becoming a more formidable threat to TSLA.
- On the positive side, TSLA confirmed last quarter that its mass-market Model 2 vehicle is still in the works and that its ready to accelerate the launch of new models ahead of its previously communicated start of production in 2H25. A reiteration of that timeline will be critical when TSLA reports Q2 earnings.
The main takeaway is that TSLA's Q2 deliveries were better-than-expected, marking an improvement over Q1's sizable miss, and easing fears that demand has taken a turn for the worse. TSLA is still facing significant hurdles, such as rising competition, and that is also evidenced by the fact that deliveries were again lower on a yr/yr basis.
MSC Industrial reports in-line with recent guidance; near term view sounds cautious (MSM)
MSC Industrial (MSM) is trading slightly lower following its Q3 (May) earnings report this morning. This distributor of metalworking and MRO products reported in-line EPS. Revenue fell 7.1% yr/yr to $979.4 mln, which was also in-line. MSM is a company that Briefing.com keeps an eye on because it provides a glimpse into the industrial economy. Roughly 45% of its sales are metalworking products, and about 70% of its business is sold into manufacturing environments, both light and heavy.
- The company had just provided downside guidance on June 13, so these results were in-line with that guidance. While MSM does provide guidance mid-quarter sometimes, it tends not to guide for EPS/revs when it reports earnings. It does provide some guidance on select metrics. For FY24, MSM lowered its ADS (average daily sales) guidance to (4.7)-(4.3)% from +0-5% and it cut its adjusted operating margin outlook to 10.5-10.7% from 12.0-12.8%.
- ADS is a key metric for MSM, and it declined -7.1% in Q3, driven by non-repeating Public Sector orders in the prior year and softness in manufacturing verticals where MSM has heavy exposure. This ADS decline was an acceleration from -2.7% in Q2 (Feb), but MSM did see sequential improvement. MSM began the second half of its fiscal year with unexpected gross margin pressure following the full rollout of its web price realignment and a slower than expected recovery in ADS, particularly within its Core customer base.
- The company has responded with swift corrective actions to improve gross margins. Part of this was accelerating the rollout of its web enhancements. The good news is that MSM says the corrective actions it took during May are working. This has resulted in gross margin improvement in June vs Q3 lows in April and early May. With these issues resolved, its web price realignment initiative is now performing as planned.
- On the call, MSM was asked when heavy manufacturing might see a bottom. The company said that softness is more acute in core metalworking-related end markets, which includes machinery, equipment, metal fabrication. Also, visibility in the business is generally pretty limited because it is such a short-cycle business. That is also probably why MSM does not guide regularly.
As we suspected, the Q3 results were in-line with the recent guidance, so not a big story there. Investors were likely focusing more on commentary for Q4 (Aug) and perhaps FY25. We did not get specific guidance, but it does sound like its end markets will remain weak in the near term. What would really help would be the Fed lowering rates, which would give its customers more confidence.
On the positive side, it sounds like the online issues are subsiding, which could help restore margins going forward. Also, MSM still feels really good about where it's positioned with North American manufacturing, including macro issues like reshoring trends and the strengthening North American manufacturing footprint. But in the near term, there is more softness and limited visibility. Overall, this report does make us more cautious on industrial/manufacturing names heading into earnings season in a few weeks.
Logitech Int'l SA encounters additional turbulence on news its Chairperson plans to step down (LOGI)
Logitech Int'l SA (LOGI -2%), a Switzerland-based computer peripherals manufacturer, continues to experience mild selling pressure today after Chairperson Wendy Becker informed the board of her decision not to stand for reelection next year. The board is currently focused on finding a successor as part of a planned leadership transition. While not overly troubling, the announcement adds uncertainty to a company already staring at plenty of uncertainties, sparking continued profit-taking today. The stock has pulled back by around 8% since reaching one-year highs last month.
LOGI's over +30% run from lows reached in April following Q1 results to 52-week was triggered by a few positive themes. Management remarked that demand appeared to be stabilizing with some customers, such as Best Buy (BBY) and Walmart (WMT), asking for additional inventory to keep pace with the early innings of a PC refresh.
However, LOGI was still cautious, citing sticky inflation, an uneven global recovery, and geopolitics as underlying factors. Lingering economic issues have forced LOGI to be prudent in its forecasts, guiding to FY25 sales of $4.3-4.4 bln, translating to flat growth yr/yr at the low end. As such, there are reasons to approach LOGI with caution following such an impressive rally over the past several weeks.
- LOGI's product portfolio is diverse; its largest segment, Gaming, comprised just 29% of FY24 (Mar) revenue, with six other segments making up most of the remainder. However, LOGI operates in a fragmented industry, competing against numerous brands and options. Whether selling to organizations or retail customers, the end consumer has plenty of alternatives to consider, especially from China, where prices tend to be some of the most attractive in the industry.
- Competition can not only weigh on top-line growth but frequently take a bite out of margins as LOGI increases volume discounts or markdown activity. LOGI continues to target long-term gross margins of 39-44%. However, the company projected around 41% in FY25, a 250 bp contraction yr/yr. CEO Hanneke Faber noted that the compression in the year ahead is due to maintaining elevated promotional spending to remain competitive.
- LOGI's sales growth depends on healthy demand across its end markets, particularly gaming, which has endured some softness lately, particularly in China, where, again, too many competitors eat into LOGI's market share. At the same time, mobile gaming acts as a headwind for LOGI, given its portfolio of keyboards, pointing devices, and headsets. LOGI admitted last quarter that regarding mobile gaming, it has not yet figured out the exact go-to-market strategy.
The added uncertainty from a planned Chairperson transition keeps investors on their toes today. Even though Logitech is a familiar brand among businesses and consumers, it likely commands little to no economic moat given the plethora of competing products on the market. The barriers to entering each end market LOGI competes in are low, with smaller brands offering consumers minor tweaks that appeal to virtually every taste. With macroeconomic challenges remaining on the horizon, LOGI may endure ongoing selling pressure over the near term.
Li Auto and other Chinese EV auto makers receive a charge as June deliveries impress (LI)
Electric vehicle sales in China are recharging amid a highly competitive market and stiff macroeconomic headwinds, as illustrated by strong June deliveries reports from Li Auto (LI), NIO (NIO), XPeng (XPEV), and others. Each of these stocks have been severely battered over the past two years due to slowing growth concerns, but they're driving higher today on the encouraging deliveries data.
- LI, which focuses on the luxury end of the EV market, saw June deliveries jump by 46.7% to 47,774 vehicles, meeting analysts' expectations. For the quarter, the company delivered 108,581 EVs, good for a 25.5% increase, bolstered by 20,000 deliveries for its recently launched L6 -- a five-seat premium family SUV. In its press release, the company stated that since Q2, it has "reclaimed the top spot in sales among China's emerging new energy auto brands."
- Meanwhile, June deliveries soared by 98% to 21,209 for NIO (NIO), setting a new monthly record for the company, while deliveries grew by 24% in June for XPEV.
- Slumping global consumer spending trends and widening cracks in its domestic real estate market have hurt China's economy, putting a dent in demand for EVs. However, the Chinese government has remained steadfast in its pledge to expand the EV market, aiming for EVs to account for 40% of all vehicles sold by 2030.
- Accordingly, the Chinese government has poured over $230 bln into the country's EV industry over more than ten years, including through hefty subsidies, according to a study conducted by the Center for Strategic and International Studies.
- Those subsidies, which now include an offer of nearly $1,400 to EV buyers who replace their gasoline vehicles, are providing another boost to EV sales. The strengthening EV market isn't only benefitting China-based manufacturers.
- In May, China deliveries for Tesla (TSLA) increased by nearly 17% month/month, following a decrease of 18% in April. It's worth pointing out that TSLA is expected to release its total Q2 deliveries report tomorrow morning with estimates calling for a qtr/qtr increase of about 15%.
The bottom line is that the strong June deliveries reports indicate that EV demand in China is charging up, although government subsidies and incentives are likely playing a significant role in the upswing.
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