Market Snapshot
| Dow | 41198.08 | +243.60 | (0.59%) | | Nasdaq | 17996.92 | -512.42 | (-2.77%) | | SP 500 | 5588.27 | -78.93 | (-1.39%) | | 10-yr Note | +1/32 | 4.15 |
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| | NYSE | Adv 1126 | Dec 1600 | Vol 996 mln | | Nasdaq | Adv 1595 | Dec 2623 | Vol 6.0 bln |
Industry Watch
| Strong: Energy, Real Estate, Consumer Staples, Utilities, Health Care, Materials |
| | Weak: Information Technology, Communication Services, Consumer Discretionary, Industrials |
Moving the Market
-- Sharp losses in chipmakers on Bloomberg report Biden Administration is looking to tighten export restrictions to China; former President Trump suggests in interview that Taiwan should pay the U.S. for defending it
-- Mega cap names falling under profit-taking activity again today
-- Signs of some buying activity under the index surface
| Closing Summary
17-Jul-24 16:30 ET
Dow +243.60 at 41198.08, Nasdaq -512.42 at 17996.92, S&P -78.93 at 5588.27
[BRIEFING.COM] The S&P 500 (-1.4%), Russell 2000 (-1.1%), and Nasdaq Composite (-2.8%) exhibited some consolidation today after recent gains. Mega cap stocks and chipmakers, which have been influential winners all year, registered outsized declines today and weighed on the broader market.
NVIDIA (NVDA 117.99, -8.37, -6.6%), Meta Platforms (META 461.99, -27.80, -5.7%), Apple (AAPL 228.88, -5.94, -2.5%), and Broadcom (AVGO 155.98, -13.39, -7.9%) were among the standouts in that respect. The Vanguard Mega Cap Growth ETF (MGK) declined 2.8% and the PHLX Semiconductor Index (SOX) slid 6.8%.
Semiconductor stocks were also reacting to a Bloomberg report that the Biden Administration is discussing tightening export restrictions to China even further.
The price-weighed Dow Jones Industrial Average closed 0.6% higher, boosted by Johnson & Johnson (JNJ 156.58, +5.57, +3.7%) after its Q2 earnings report, and UnitedHealth (UNH 573.28, +24.41, +4.5%), which was upgraded at Jefferies to Buy from Hold after yesterday's sharp earnings-related gain.
Bank stocks also outperformed the rest of the market. The SPDR S&P Regional Bank ETF (KRE) jumped 1.2% and the SPDR S&P Bank ETF (KBE) closed 0.9% higher. The S&P 500 financial sector was among the top performers today, logging a 0.9% gain.
The activity in mega caps and chipmakers led the information technology (-3.7%) and communication services (-2.1%) sectors sharply lower.
The equity and bond markets didn't react much to the Fed's July Beige Book, which showed that economic activity maintained a slight to modest pace of growth in a majority of Districts this reporting cycle. The 2-yr note yield declined one basis point to 4.43% and the 10-yr note yield declined two basis points to 4.15%. This also followed a solid $13 billion 20-yr bond reopening.
- Nasdaq Composite: +19.9% YTD
- S&P 500: +17.2% YTD
- Russell 2000: +10.5% YTD
- S&P Midcap 400: +10.4% YTD
- Dow Jones Industrial Average: +9.3% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 3.9%; Prior -0.2%
- June Housing Starts 1.353 mln (Briefing.com consensus 1.310 mln); Prior was revised to 1.314 mln from 1.277 mln; June Building Permits 1.446 mln (Briefing.com consensus 1.391 mln); Prior was revised to 1.399 mln from 1.386 mln
- The key takeaway from the report is that, while it might have been better than expected relative to consensus estimates, it was not a strong report nor a particularly encouraging report for an inventory-constrained housing market in need of lower-priced, single-family homes.
- June Industrial Production 0.6% (Briefing.com consensus 0.3%); Prior was revised to 0.9% from 0.7%; June Capacity Utilization 78.8% (Briefing.com consensus 78.6%); Prior was revised to 78.3% from 78.2%
- The key takeaway from the report was the continued increase in manufacturing output, whic
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 225,000; prior 222,000), Continuing Claims (prior 1.852 mln), and July Philadelphia Fed survey (Briefing.com consensus 2.9; prior 1.3)
- 10:00 ET: June Leading Indicators (Briefing.com consensus -0.3%; prior -0.5%)
- 10:30 ET: Weekly natural gas inventories (prior +65 bcf)
- 16:00 ET: May Net Long-Term TIC Flows (prior $123.1 bln)
Stocks hold steady ahead of the close
17-Jul-24 15:35 ET
Dow +245.56 at 41200.04, Nasdaq -477.77 at 18031.57, S&P -71.19 at 5596.01
[BRIEFING.COM] The three major indices have traded mostly sideways in recent action.
The 2-yr note yield declined one basis point to 4.43% and the 10-yr note yield declined two basis points to 4.15%.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 225,000; prior 222,000), Continuing Claims (prior 1.852 mln), and July Philadelphia Fed survey (Briefing.com consensus 2.9; prior 1.3)
- 10:00 ET: June Leading Indicators (Briefing.com consensus -0.3%; prior -0.5%)
- 10:30 ET: Weekly natural gas inventories (prior +65 bcf)
- 16:00 ET: May Net Long-Term TIC Flows (prior $123.1 bln)
Market remains near lows
17-Jul-24 15:05 ET
Dow +206.56 at 41161.04, Nasdaq -510.23 at 17999.11, S&P -77.72 at 5589.48
[BRIEFING.COM] The major indices are little changed over the last half hour.
The S&P 500 is trading 1.4% lower and the equal-weighted S&P 500 is down 0.4%.
Elsewhere, the 10-yr note yield is down two basis points to 4.15%.
Beige Book says economy maintained a slight to modest pace of growth
17-Jul-24 14:25 ET
Dow +221.91 at 41176.39, Nasdaq -463.67 at 18045.67, S&P -70.27 at 5596.93
[BRIEFING.COM] The broader market didn't flinch in reaction to the Fed's July Beige Book which showed that economic activity maintained a slight to modest pace of growth in a majority of Districts this reporting cycle. Currently, the S&P 500 (-1.24%) is in second place on Wednesday afternoon, down about 70 points.
Among other notable points from the report, while seven Districts reported some level of increase in activity, five noted flat or declining activity—three more than in the prior reporting period.
On balance, employment rose at a slight pace in the most recent reporting period. Also, wages continued to grow at a modest to moderate pace in most Districts, while prices were generally reported to have risen modestly.
Prices increased at a modest pace overall, with a couple Districts noting only slight increases. Most Districts noted that input costs were beginning to stabilize.
Expectations for the future of the economy were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation.
Gold slips ahead of Beige Book
17-Jul-24 13:55 ET
Dow +202.75 at 41157.23, Nasdaq -499.55 at 18009.79, S&P -76.20 at 5591.00
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-2.70%) holds commanding losses, down about 500 points, ahead of the Fed's Beige Book which is due at the top of the hour.
Gold futures settled $7.90 lower (-0.3%) to $2,459.90/oz, ending lower despite hitting an all-time high at $2,488.40 earlier in the morning.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $103.78.
J.B. Hunt Transport fails to shift gears in Q2; competition and weak demand weigh on results (JBHT)
Operating in a constantly challenging market, plagued by a sour combination of heightened competition and demand softness, J.B. Hunt Transport (JBHT -7%) is finding itself unable to shift gears, delivering another quarter of downbeat headline results in Q2. JBHT has had a string of earnings misses, failing to top consensus for seven straight quarters. Meanwhile, revenue growth has struggled to turn positive since 4Q22, reflecting the stubbornly weak demand environment.
CEO Shelley Simpson, who stepped in on July 1, was candid in her remarks on the state of the economy, noting that the first half of the year has been filled with obstacles. However, she stated that the company's focus has not changed; it will continue to act on its priorities, including scaling its long-term investments, which have introduced some cost pressures over the immediate term.
- What happened in Q2? The quarter was an unfortunate carry-over from Q1, headlined by another decline in Intermodal volumes, which slipped by 1% yr/yr. Volume compression was most pronounced on the East Coast, which endured a 7% drop, offsetting healthy growth across other divisions, such as transcontinental and Southern California. As a result, Intermodal revs fell by 5.0% yr/yr to $1.41 bln.
- On the plus side, JBHT believes that a large amount of freight should eventually be converted from over-the-road to intermodal, given its economic and environmental advantages. The company also saw a more normalized seasonal pattern across its business during the quarter.
- Nevertheless, the impact of a depressed truckload market more than offset this encouraging development. Furthermore, competition remains a problem; JBHT continued observing unsustainable truckload pricing, which shippers took advantage of. The company added that too much supply exists in the trucking industry, sometimes squeezing out JBHT.
- Aside from Final Mile Services, JBHT's second-smallest segment, each of its businesses endured falling revs in Q2, culminating in a 6.5% drop in total revs to $2.93 bln. In Dedicated Contract Services, revs were down 4.0% yr/yr due to a decline in revenue per truck per week. Integrated Capacity Solutions and Truckload each slipped by double-digits, posting a 21% and 12% sales decline yr/yr, respectively.
- Sustained yr/yr revenue declines weighed on margins in the quarter, causing JBHT's adjusted EPS to tumble by 27.0% yr/yr to $1.32. The company's capacity investments only added more problems. However, while capacity is not a top concern in the marketplace at the moment, JBHT is confident that this will change at some point and will need to be ready to take advantage.
Leading into JBHT's Q2 results, investors were growing optimistic that the economy would display encouraging recovery signals, especially as the prospect of additional interest rate cuts becomes more likely this year. However, JBHT's Q2 report appeared largely unchanged from last quarter, which kicked off an aggressive sell-off. With the uncertain timing surrounding the current economic cycle, sellers could remain in control over the near term. Lastly, keep an eye on JBHT's peers, many of which will report earnings over the coming weeks, including KNX, ODFL, XPO, and MRTN.
Johnson & Johnson rides strength in oncology and cardiovascular portfolios to deliver EPS beat (JNJ)
In a role reversal from last quarter, Johnson & Johnson's (JNJ) Innovative Medicine segment (formerly known as Pharma) outperformed the MedTech segment, mainly driven by strength in the oncology portfolio, helping the healthcare giant to surpass Q2 EPS estimates. However, JNJ also cut its FY24 EPS guidance to $9.97-10.07 from $10.57-10.72 to reflect the impact of acquisitions, most notably including its $13.0 bln acquisition of Shockwave Medical on April 5.
- Since the cause for the guidance cut wasn't related to JNJ's expected operational results, participants are mostly looking past the downgraded EPS outlook. Furthermore, similar to the past several quarters, expectations were muted heading into the earnings report, as reflected in the stock's recent lackluster performance.
- Therefore, the fact that JNJ topped EPS expectations while also reaffirming its FY24 revenue guidance of $88.0-$88.4 bln is being viewed as good enough.
Overall, though, JNJ's Q2 results were mixed with the MedTech segment in particular posting disappointing growth.
- On a reported basis, MedTech revenue edged higher by just 2.2% to $7.9 bln, falling short of analysts' expectations. Weighing on the segment was a 4.1% decline in surgical device sales due to ongoing supply chain issues, competitive pressures, and slowing demand for bariatric procedures.
- The emergence and explosive growth of weight loss drugs, such as Eli Lilly's (LLY) Zepbound or Novo Nordisk's (NVO) Wegovy, is hurting demand for these procedures, as also reported by robotic surgery company Intuitive Surgical (ISRG).
- On the plus side, revenue in MedTech's Cardiovascular business jumped by nearly 16% to $1.87 bln, boosted by Abiomed, the maker of heart pump products that JNJ acquired in 2022.
- Turning to the Innovative Medicine segment, revenue increased by 5.5% on a reported basis to $14.5 bln, up from last quarter's growth of just 1%, primarily driven by JNJ's oncology portfolio.
- Blood cancer drug Darzalex was a notable standout as sales climbed by 18% to $2.88 bln, helping to mitigate the impact of slowing sales of psoriasis drug Stelara (+3%), which is set to face strong competition from a host of similar treatments next year.
The main takeaway is that while JNJ certainly didn't knock it out of the park with its Q2 results and guidance, the company is experiencing strength in key areas, such as its oncology and cardiovascular businesses.
Five Below under pressure on more downside guidance; also long time CEO steps down (FIVE)
Five Below (FIVE -22%) is under pressure today after lowering Q2 (Jul) guidance and announcing its CEO has stepped down, effective immediately. Also, a number of analysts downgraded the stock this morning. The value retailer lowered EPS to $0.53-0.56 from $0.57-0.69 and revenue to $820-826 mln from $830-850 mln.
- We did not get a lot of color in last night's press release. However, Five Below has been dealing with weakening sales. Recall that FIVE guided Q2 revs well below consensus when it reported Q1 revs in early June. Then just six weeks later it guides lower again. If you check out our guidance calendar archive, you will see several instance of where FIVE has recently lowered guidance.
- The comps were a trouble spot also. Comps quarter-to-date are down -5%. As such, FIVE now expects Q2 comps to be -7% to -6%, perhaps a slight worsening from prior guidance of a "mid-single digit decrease." On its Q1 call, FIVE said it experienced a meaningful slowdown in sales during the back half of the quarter. Negative comps were driven by a decline in transactions. Also, consumers were more discerning with their dollars, increasingly buying for need and less on discretionary items.
- It seems that trend has continued into Q2. Customers are focused more on consumable categories, such as candy, food and beverage, beauty and less on discretionary items. A silver lining is that FIVE reported positive comps in Q1 from its higher income cohorts, suggesting some trade down of these customers seeking value. However, FIVE saw underperformance in the lower income demographic, which more than offset these results.
- And it is not just the top line, margins have been hurt by rising levels of shrink (retail theft) in recent quarters. FIVE made progress in Q1 with its shrink mitigation efforts by reducing self-checkout lanes and by having employees stand by the front door to discourage shoplifting. It also has been doing receipt-checking at some stores, similar to what you see at Costco. However, last night's downside EPS guidance makes us wonder if trends worsened in Q2.
- In terms of the CEO news, Joel Anderson has stepped down as CEO. We suspect the board was frustrated and had seen enough bad quarters/guidance to warrant a change at the top. The company has begun looking for a permanent replacement.
Overall, we have noted our concerns about FIVE for several quarters. FIVE has some consumable categories (candy, food, beverage, beauty), but the majority of its sales are discretionary in nature. Couple that with high exposure to lower income consumers, which are impacted more by inflation, and it's a recipe for weak results. We think replacing the long time CEO is probably the right move. We think a new perspective would be helpful, and hopefully it's an outsider.
Also, we wonder if FIVE's recent struggles will slow its red hot expansion pace, which we think has been overly aggressive. FIVE now has 1,600+ stores. It added 150 new stores in FY22, 204 in FY23 and has guided to 230 in FY24. Reducing new store buildouts would allow FIVE to conserve cash. The company does not pay a dividend, so that does helps save money, but we think a slowdown in openings in possible, especially when a new CEO takes over and takes a fresh look.
ASML sells off following bearish Q3 guidance and concerns over further export curbs (ASML)
ASML (ASML -9%) turns significantly lower today despite the Dutch-based photolithography machine manufacturer topping sales and earnings forecasts in Q2. In what appears to be a mirror image of last quarter, ASML's upcoming quarterly guidance was bearish, projecting Q3 revs below consensus. However, unlike in Q1, ASML expanded bookings -- its order book, a metric closely watched by investors -- by a healthy 23.7% yr/yr to €5.57 bln. ASML also reiterated its FY24 revenue guidance of €27.56 bln.
Why are investors reacting negatively? There are a few factors. Bloomberg reported that President Biden was mulling additional restrictions on chip exports to China, targeting overseas companies like ASML for giving the country access to its technology. ASML is already dealing with the impact of the Dutch government's export controls on semiconductor equipment. With customers in China accounting for over a quarter of ASML's FY23 sales, further restrictions could have a material impact on future performance.
Meanwhile, shares tacked on nearly +25% since last quarter, moving to all-time highs last week, which increased the risk of profit-taking today, particularly after another disappointing quarterly forecast. ASML's Q3 revenue target of €6.7-7.3 bln, while it marks a snap back to positive yr/yr growth following two straight quarters of declines, was lighter than analysts anticipated. ASML continues to view 2024 as a transition year, which can keep volatility and macroeconomic uncertainty elevated.
- ASML delivered a similar-sized earnings beat as last quarter, clearing analyst estimates by double-digits in Q2. However, the effects of a transition year remain prevalent, with EPS dropping by 18.7% yr/yr to €4.01. Likewise, revenue slid for the second straight quarter, declining by 9.5% yr/yr to €6.24 bln.
- However, the market places more weight on ASML's quarterly bookings figure, which jumped by 54% sequentially. EUV, responsible for creating the most advanced chips, accounted for just under half of the bookings. CEO Christophe Fouquet, who has been in the corner office since April, said that overall semiconductor inventory levels continued to improve during Q2, supporting a strong qtr/qtr leap in bookings.
- Mr. Fouquet also mentioned that the company continues to see robust developments in AI, which has been driving most of the industry's recovery and growth, especially across its memory end market. ASML noted that memory customers may look to upgrade their systems in preparation for an anticipated surge in demand in 2025.
- Alongside AI, the company cited a few other secular growth drivers, including a global energy transition and vehicle electrification. Additionally, ASML is preparing for many new fabs being built globally. As a reminder, ASML dominates the lithography systems market and is engrained in the chip-making process for titans like Intel (INTC), Taiwan Semi (TSM), and Samsung (SSNLF), all of which have been increasing capacity.
While ASML is experiencing a sell-off today, similar to what happened last quarter, this drop could be temporary if the excitement surrounding AI does not subside. Even though sector rotation has started to cause previously beloved AI darlings such as ASML to fall mildly out of favor among investors, ASML remains in a prime position to take full advantage of an expected ramp-up come 2025.
Bank of America banking some nice gains as company sees NII growth resuming in Q4 (BAC)
For the eighth consecutive quarter, Bank of America (BAC) exceeded EPS expectations in Q2, but like most of its banking peers, high interest rates cut into its net interest income (NII) as higher deposit costs offset an increase in asset yields. Furthermore, those high interest rates weighed on demand for loans, including mortgages and auto loans, causing revenue to edge higher by less than 1%. As such, the company's NII and EPS fell by 3% and 6%, respectively.
- In BAC's Consumer Banking segment, stiff competition for deposits amid a high interest rate environment caused deposits to slip by 6% as consumers sought out higher yielding products. In turn, BAC had less capital to lend out, although average loans and leases still grew by 2% to $312 bln due to higher asset yields.
- From an asset quality standpoint, BAC is still on solid footing as net charge-offs remained relatively flat on a qtr/qtr basis at $1.5 bln.
- The Global Markets unit was a standout, which saw revenue increase by 12% to $5.5 bln. Equities trading was strong with revenue jumping by 20% to $1.9 bln, while FICC growth was much more modest, up just 3% due to a weak trading environment in FX and interest rate products.
- Another positive was the investment banking business. Thanks to the ongoing recovery in the IPO market, total investment banking fees shot higher by 29% to $1.6 billion, placing BAC in the #3 spot for investment banking fees across the industry.
- Lastly, the strong stock market and healthy capital inflows helped BAC achieve record client balances of more than $4.0 trillion, up by 10%, in its Global Wealth and Investment Management segment.
Overall, there were few surprises given that most of BAC's largest competitors had already reported earnings. However, the stock is trading with some nice gains in the wake of the earnings report, which is likely tied to its Q4 NII outlook of $14.5 bln, reflecting a 4% yr/yr increase, and its expectation for net charge-offs to be lower in 2H24 compared to 1H24.
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