Market Snapshot
| Dow | 39853.67 | -504.22 | (-1.25%) | | Nasdaq | 17342.41 | -654.94 | (-3.64%) | | SP 500 | 5427.13 | -128.61 | (-2.31%) | | 10-yr Note | -3/32 | 4.29 |
|
| | NYSE | Adv 471 | Dec 2263 | Vol 976 mln | | Nasdaq | Adv 1059 | Dec 3161 | Vol 6.7 bln |
Industry Watch
| Strong: Energy, Utilities, Health Care, Real Estate |
| | Weak: Communication Services, Consumer Discretionary, Information Technology, Industrials, Consumer Staples, Financials |
Moving the Market
-- TSLA, GOOG down after earnings news
-- Other mega cap stocks trading lower, weighing on index performance
-- Growth concerns after Visa (V) mentioned a slowdown in spending by lower-income consumers
-- Digesting slate of earnings news
-- Buyer hesitation after solid run
|
Closing Summary
24-Jul-24 16:30 ET
Dow -504.22 at 39853.67, Nasdaq -654.94 at 17342.41, S&P -128.61 at 5427.13
[BRIEFING.COM] The market fell under selling pressure today. The Dow Jones Industrial Average (-1.3%), Russell 2000 (-2.1%), S&P 500 (-2.3%), and Nasdaq Composite (-3.6%) all registered solid losses. Many stocks participated in the broad retreat, but losses in mega cap stocks, semiconductor shares, and growth stocks had an outsized impact on index performance.
This price action followed quarterly results and guidance from Alphabet (GOOG 174.37, -9.23, -5.0%) and Tesla (TSLA 215.99, -30.39, -12.3%) that did not live up to high expectations. The Vanguard Mega Cap Growth ETF (MGK) declined 3.8%, the PHLX Semiconductor Index (SOX) logged a 5.4% decline, and the Russell 3000 Growth Index fell 3.7%.
Dow component Visa (V 254.17, -10.62, -4.0%) and Lam Weston (LW 56.42, -22.20, -28.2%) were also among the influential laggards today, stirring concerns about economic growth prospects after the former mentioned a slowdown in spending by lower-income consumers and the latter issued an FY25 earnings warning that was linked to a slowdown in global restaurant traffic.
With today's strong losses, the major indices are still up nicely for the year with gains ranging from 5.7% to 15.5%. So, some of the selling interest was linked to normal consolidation activity as earnings season ramps up. The Invesco S&P 500 Equal Weight ETF (RSP) registered a 1.2% decline.
The heavily-weighed information technology (-4.1%), consumer discretionary (-3.9%), and communication services (-3.8%) closed with the largest declines due to their mega cap components. The remaining four sectors that closed in negative territory registered losses greater than 1.0%.
Treasuries settled in mixed fashion. The 10-yr note yield rose five basis points to 4.29% and the 2-yr note yield fell six basis points to 4.42%. This price action was in response to a disappointing New Home Sales report for June, a poorly received 5-yr note sale, and preliminary July PMI data out of the eurozone and U.S. that was mostly lower than the previous month.
- Nasdaq Composite:+15.5% YTD
- S&P 500: +13.8% YTD
- Russell 2000: +8.3% YTD
- S&P Midcap 400: +7.8% YTD
- Dow Jones Industrial Average: +5.7% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -2.2%; Prior -3.9%
- June Adv. Intl. Trade in Goods -$96.8 bln; Prior was revised to -$99.4 bln from -$100.6 bln
- June Adv. Retail Inventories 0.7%; Prior was revised to 0.6% from 0.7%
- June Adv. Wholesale Inventories 0.2%; Prior 0.6%
- July S&P Global US Manufacturing PMI - Prelim 49.5; Prior 51.6
- July S&P Global Services PMI - Prelim 56.0; Prior 55.3
- June New Home Sales 617K (Briefing.com consensus 640K); Prior was revised to 621K from 619K
- The key takeaway from the report is that new home sales activity remained soft in June, pressured by a lack of lower-priced homes and affordability pressures stemming from the persistence of high mortgage rates and higher selling prices.
Thursday's economic lineup features:
- 8:30 ET: Advance Q2 GDP (Briefing.com consensus 1.9%; prior 1.4%), Advance Q2 GDP Deflator (Briefing.com consensus 2.6%; prior 3.1%), weekly Initial Claims (Briefing.com consensus 240,000; prior 243,000), Continuing Claims (prior 1.867 mln), June Durable Orders (Briefing.com consensus 0.4%; prior 0.1%), and Durable Orders ex-transport (Briefing.com consensus 0.2%; prior -0.1%)
- 10:30 ET: Weekly natural gas inventories (prior +10 bcf)
Tomorrow's calendar also includes results from the $44 bln 7-yr Treasury note auction at 1:00 ET.
Headline earnings after the close; Tomorrow's calendar
24-Jul-24 15:30 ET
Dow -444.53 at 39913.36, Nasdaq -653.56 at 17343.79, S&P -121.59 at 5434.15
[BRIEFING.COM] The market remains near session lows ahead of the close.
Looking ahead, Ford (F), IBM (IBM), Molina Healthcare (MOH), Waste Mgmt (WM), O'Reilly Auto (ORLY), and others headline the earnings reports after today's close.
Thursday's economic lineup features:
- 8:30 ET: Advance Q2 GDP (Briefing.com consensus 1.9%; prior 1.4%), Advance Q2 GDP Deflator (Briefing.com consensus 2.6%; prior 3.1%), weekly Initial Claims (Briefing.com consensus 240,000; prior 243,000), Continuing Claims (prior 1.867 mln), June Durable Orders (Briefing.com consensus 0.4%; prior 0.1%), and Durable Orders ex-transport (Briefing.com consensus 0.2%; prior -0.1%)
- 10:30 ET: Weekly natural gas inventories (prior +10 bcf)
Tomorrow's calendar also includes results from the $44 bln 7-yr Treasury note auction at 1:00 ET.
Value stocks outperform relative to growth
24-Jul-24 15:00 ET
Dow -416.56 at 39941.33, Nasdaq -617.65 at 17379.70, S&P -117.59 at 5438.15
[BRIEFING.COM] The major indices hit fresh session lows in recent action, extending their sizable losses. The S&P 500 shows a 2.1% decline and the Invesco S&P 500 Equal Weight ETF (RSP) shows a 0.8% decline.
Value stocks are holding up better than growth stocks in today's broad retreat. The Russell 3000 Value Index shows a 0.4% decline and the Russell 3000 Growth Index trades 3.3% lower.
Treasuries remain near intraday high yields following relatively weak demand at today's 5-yr note auction. The 2-yr note yield was at 4.39% before the auction and sits at 4.42% now, which is six basis points lower than yesterday. The 10-yr note yield was at 4.23% before the auction, but sits at 4.29% now, which is five basis points higher than yesterday's settlement.
Earnings losers dominate S&P 500 on Wednesday
24-Jul-24 14:25 ET
Dow -364.62 at 39993.27, Nasdaq -558.70 at 17438.65, S&P -105.82 at 5449.92
[BRIEFING.COM] The S&P 500 (-1.90%) is at lows of the day, down about 105 points.
Elsewhere, S&P 500 constituents Roper (ROP 527.21, -47.06, -8.19%), Otis Worldwide (OTIS 91.79, -6.59, -6.70%), and Wabtec (WAB 158.01, -10.10, -6.01%) pepper the bottom of the standings following earnings.
Meanwhile, CoStar Group (CSGP 78.74, +3.90, +5.21%) is one of today's top performers after Q2 upside results.
Gold higher once more as dollar, bonds weaker
24-Jul-24 14:00 ET
Dow -336.97 at 40020.92, Nasdaq -523.27 at 17474.08, S&P -98.36 at 5457.38
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-2.91%) is getting smacked, down more than 520 points.
Gold futures settled $8.60 higher (+0.4%) to $2,415.90/oz, owing in part to a weaker dollar and mixed moves in treasury yields (shorter tenors are lower).
Meanwhile, the U.S. Dollar Index is down about -0.2% to $104.26.
Visa getting declined as softening discretionary spending trends weigh on topline (V)
Visa (V) is getting declined today after the credit card and payment processing company posted Q3 results that were mostly in line with analysts' expectations. The problem, though, is that investors have become accustomed to the company comfortably exceeding EPS and revenue estimates, making Visa's performance in Q3 seem like a step in the wrong direction. Indeed, payment volume growth did slow a bit to 7% from 8% last quarter, reflecting the persistent macroeconomic headwinds in the U.S. and China.
- On July 19, competitor American Express (AXP) also reported disappointing quarterly results, falling short of revenue expectations, providing a red flag ahead of Visa's results. The top-line miss was especially notable since AXP caters to a more affluent customer base, making it less vulnerable to softening consumer spending trends.
- As such, it's not overly surprising that Visa also slightly missed revenue estimates, nor that rival Mastercard (MA) is selling off in sympathy today with Visa as its earnings report approaches on July 31.
- Perhaps more so that the small top-line miss, Visa's update on current business trends is likely weighing more heavily on the stock. During the earnings call, the company disclosed that U.S. payments volume was up by just 4% so far in July (through July 21) with the slight deceleration driven by weather, the timing of promotional shopping events, and the technology outage.
- Furthermore, cross-border volume growth also slowed to 13% compared to 14% in Q3 with travel-related volume growth tapering off. In particular, outbound travel in the Asia Pacific region has weakened recently.
- Despite the more challenging environment, Visa did reaffirm its FY24 net revenue guidance for low-double-digit growth. To achieve that outlook, Visa will need to achieve its Q4 forecast of low-double-digit growth, which would mark an improvement from Q3's growth of 9.6%.
- Given the deceleration in payment volume growth trends, there is likely some uncertainty surrounding whether Visa will meet its forecasts, as illustrated by the stock's selloff.
The main takeaway is that while Visa's results were generally stable, they didn't quite stack up to the company's recent performances as sluggish discretionary spending took a toll.
Tesla skidding lower as eroding margins lead to fourth consecutive earnings miss (TSLA)
Tesla (TSLA) is driving in reverse today after missing EPS expectations for the fourth consecutive quarter as the EV maker's price cuts continue to chip away at its margins and earnings. Although TSLA reported better-than-expected Q2 deliveries of 443,956 on July 2, deliveries were still down by 5% yr/yr, despite the company's aggressive price cutting strategy. With demand for TSLA's vehicles losing some of their charge, partly due to rising competition in China, the focal point has turned to the company's next wave of growth catalysts. Unfortunately for TSLA shareholders, the company had some disappointing news to share in that regard, too.
- Specifically, CEO Elon Musk confirmed earlier reports that TSLA won't unveil its robotaxi until October after initially setting August as its target. Of course, pushing back launch timelines is nothing new for TSLA -- the company initially planned to produce Cybertruck in 2021 -- but given its vanishing growth rates, there's a greater sense of urgency among investors for these future growth drivers to unfold.
- Speaking of TSLA's vanishing growth, its EPS plunged by 43% yr/yr to $0.52 as automotive gross margin continued its downward trajectory, sliding by 180 bps yr/yr to 14.6%. For some perspective, TSLA automotive gross margin in 2Q22 was 27.9% on a GAAP basis.
- Musk has been willing to sacrifice margins for volume growth since he believes that the company's future success rests on deploying software, like full self-driving technology, to an expanding fleet of vehicles.
- Until software becomes a much larger contributor to TSLA's revenue, or until TSLA's market share losses abate, this strategy will continue to weigh on its margins.
- One bright spot was the Energy Generation and Storage business, which saw revenue double yr/yr to $3.0 bln on record energy storage deployment of 9.4 GWh. The strong growth in this business allowed TSLA to avoid posting back-to-back quarterly revenue declines for the first time ever as total revenue edged higher by 2.3% to $25.5 bln.
- Additionally, TSLA registered $890 mln in sales of regulatory credits to other automakers, which help its competitors to meet emissions requirements.
- These are small wins, though, that don't erase the overarching concern that TSLA is losing ground to Chinese competitors such as BYD Company (BYDDY), NIO (NIO), Li Auto (LI), and XPeng (XPEV). Adding to those concerns, TSLA acknowledged that its vehicle growth rate in 2024 may be notably lower than the 38% delivery growth achieved in 2023.
The company did reaffirm its expectation to begin production on its new mass market Model 2 vehicle in 1H25, while also reiterating that it plans to ramp up investments in AI initiatives, but the road looks bumpy over the next few quarters. Further complicating matters is the upcoming presidential election in November, which caused Musk to pause plans on constructing a new factory in Mexico due to Donald Trump's vow to implement tariffs on products made in Mexico should he win the election.
Alphabet pulls back despite Q2 upside; ads revenue not quite as robust as in Q1 (GOOG)
Alphabet (GOOG -4%) is heading lower following its Q2 results last night. The search giant reported its sixth consecutive EPS beat although it was much smaller upside than Q1. Revenue rose 13.6% yr/yr to $84.74 bln, which was modestly better than analyst expectations. Operating margin improved to 32% from 29% in the year ago period.
- Starting with its Google Advertising segment, revenue rose 11.1% yr/yr to $64.62 bln. There have been investor concerns that the emergence of generative AI will hurt its bread-and-butter search business. There was a bit of slippage from Q1's robust 13% yr/yr growth but it is unclear how much impact AI had. Within the GA segment, Google Search revs were +13.8% yr/yr to $48.51 bln; YouTube ads revs +13% to $8.66 bln, which were a bit light of street estimates; Google Network -5.2% to $7.44 bln.
- YouTube had healthy watch time growth, it continued to close the monetization gap in Shorts, and had continued momentum in connected TV with its brand benefiting in part from an ongoing shift in budgets from linear television to digital. However, there was a sequential decline in the year-on-year growth rate for YouTube subscriptions as it anniversaried the impact of a price increase for YouTubeTV in Q2 of last year. The impact will persist through the balance of the year.
- The company talked a lot about its own AI enhancements, namely that it's delivering better responses on more types of Search queries and introducing new ways to Search. GOOG is seeing positive trends from its testing as it rolls out AI overviews. People who are looking for help with complex topics are engaging more. And it is seeing even higher engagement from younger users aged 18 to 24 when they use Search with AI overview. Also, more than 1.5 mln developers are now using its Gemini AI platform.
- Google Cloud was a bright spot with revenue jumping 28.8% yr/yr to $10.35 bln, a slight acceleration from the 28.4% growth seen in Q1. Notably, quarterly revenue crossed the $10 bln mark for the first time and passed the $1 bln mark in quarterly operating profit. Google Cloud continues to see strong customer interest, winning major brands like Hitachi, Motorola Mobility, and KPMG. GOOG says its deep partnership with Oracle significantly expanded its joint offerings to their large customer base.
- Head count declined sequentially in Q2, which reflects actions taken by the company and a much slower pace of hiring. Looking ahead, GOOG expects a slight increase in head count in Q3 as it invests in top engineering and technical talent, particularly in Cloud and technical infrastructure. As such, GOOG believes Q3 operating margin will be impacted by the new hires and a pull forward of hardware launches into Q3.
Overall, we think the stock is lower due to a combination of slower growth in advertising relative to Q1, a bit of a shortfall from YouTube and sentiment was running pretty high heading into this report given its strong uptrend since early March. The stock has run from the low $130's in early March to around $184 at yesterday's close. As such, any worries about search revenue and the impact of AI competitors was going to cause some pullback.
Texas Instruments up mildly today after Q3 outlook marks another quarter of sequential growth (TXN)
Texas Instruments (TXN) stayed calculated in Q2, meeting its previous earnings and sales forecasts, which translated to its first quarter of sequential improvements following several periods of deteriorating demand. The analog chip and embedded processor manufacturer also projected Q3 numbers in-line with consensus, representing another quarter of sequential growth. While TXN may not have had enough signals to call a bottom within its two primary end markets, industrial and automotive, which combine for three-quarters of its total revenue, other end markets are picking up the slack. After the company achieved its Q2 targets, investors are confident that TXN can do it again in Q3, capitalizing on gradually rebounding demand.
- The macroeconomic climate does remain asynchronous, reflected by sequential declines across TXN's industrial and automotive markets, which fell by low single and mid-single digits, respectively, in Q2. However, personal electronics snapped back to growth, growing by mid-teens from Q1. Similarly, communications equipment and enterprise systems enjoyed healthy growth, jumping by mid-single digits and around 20%, respectively.
- As a result, TXN expanded its adjusted EPS by $0.07 sequentially to $1.17, landing around the midpoint of its $1.05-1.25 outlook, and grew revs by 4% from Q1 to $3.82 bln, just over the midpoint of its $3.65-3.95 bln prediction.
- Topping these highlights was TXN's Q3 guidance, projecting adjusted EPS of $1.24-1.48 and revs of $3.94-4.26 bln, both firmly representing an improvement over Q2. TXN does not typically provide much color surrounding its quarterly forecasts, so it is unclear to what extent each end market supports TXN's outlook. However, while industrial and automotive demand is recovering, TXN remarked that parts of these sectors are still experiencing declines, making it more likely that these two markets will register another quarter of relative weakness in Q3.
- Instead, management noted that personal electronics, which typically exhibit favorable dynamics in Q3 as customers begin preparing their end equipment for the holiday season, is mostly where the expected sequential revenue lift stems from. It would also not be surprising to find communications equipment and enterprise systems maintain their strong momentum.
- However, because TXN held back from firmly calling a bottom in its two dominant end markets, today's reaction is somewhat muted. Secular growth drivers are still ahead, especially across the industrial and automotive landscapes, from automation to electrification. Additionally, geopolitical tensions may prompt customers to better diversify their supply chains, moving from Taiwan to the U.S., where all TXN's fabs are located. Still, after shares hit all-time highs last week, having more insight into a firm bottom was likely needed to reenergize the stock.
TXN's Q2 report was solid, and its Q3 guidance was encouraging. Following record highs last week, TXN needed to provide uplifting Q3 guidance. Even though the company delivered on this front, its hesitation to call out bottoms in its two primary end markets leaves something to be desired today. It will be interesting to see if its peers follow suit with their upcoming earnings reports, including STMicroelectronics (STM) tomorrow before the open, Microchip (MCHP) on August 1, and Analog Devices (ADI) next month.
UPS delivers a rare EPS miss as customers trade down to lower margin services (UPS)
UPS (UPS -13%) did not deliver as hoped. The delivery giant missed badly on EPS, its first miss since 1Q20. Revenue dipped 1.1% yr/yr to $21.82 bln, which was modestly below analyst expectations. While its FY24 revenue guidance of $93 bln is generally in-line with prior guidance of $92.0-94.5 bln, it does not tell the important part of the story. The bigger problem is that UPS reduced its FY24 operating margin outlook pretty significantly to 9.4% from 10.0-10.6%.
- Let's start with some good news. Q2 marked an important turning point for the business because US average daily volume (ADV) increased 0.7% yr/yr. This marked a return to positive volume growth for the first time since 4Q21. And sequentially, ADV grew 390 bps. Growth was led by B2C with volume up 4.8% yr/yr and it made up 58.5% of total volume. This growth was driven in large part by several new e-commerce customers that entered the UPS network. B2B ADV fell 4.6%.
- While it was good to see volume growth, there was a catch -- customers traded down to lower cost services. Specifically, UPS saw customers shift from air to ground and from ground to SurePost. Within ground, SurePost ADV grew 25% yr/yr, driven by new shippers product choices, product trade downs and easier comparisons. This trade down hurt margins and helps explain the large EPS miss. Also impacting margins yr/yr was high labor costs from its new Teamsters contract.
- In terms of its outlook, volume characteristics are expected to have a weaker mix with lower margin services making up a larger part of total sales. That is why UPS lowered its FY24 operating margin guidance. UPS expects US ADV in 2H to grow by mid-single-digits. However, product mix is expected to continue to pressure revenue per piece. Despite all of this, UPS expects to exit the year with a US operating margin of 10%.
- Quickly, in addition to earnings, UPS announced it will acquire Estafeta, a Mexican express delivery company. UPS noted that global supply chains are shifting and Mexico's role in global trade is growing. Also, Mexican SMB and manufacturing sectors are looking for reliable access to the US market. As the shift to nearshoring continues, UPS believes its combined business will give customers in Mexico unprecedented access to global markets.
Overall, this report from UPS was a letdown for investors. The large EPS miss was pretty shocking, given its rarity at UPS but also because FedEx (FDX) traded sharply higher in late June after reporting a nice EPS beat for Q4 (May). However, it does explain our bewilderment at the time for why UPS did not join in FDX's move last month. Clearly, investors were nervous about UPS's Q2 report and those concerns were borne out. It seems customers are trading down and that is hurting UPS's margins.
|
