Market Snapshot
| Dow | 40842.59 | +99.46 | (0.24%) | | Nasdaq | 17599.40 | +451.98 | (2.64%) | | SP 500 | 5522.30 | +85.86 | (1.58%) | | 10-yr Note | +24/32 | 4.11 |
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| | NYSE | Adv 1704 | Dec 1022 | Vol 1.2 bln | | Nasdaq | Adv 2641 | Dec 1575 | Vol 6.3 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services, Energy, Utilities, Industrials |
| | Weak: Health Care, Real Estate, Consumer Staples, Financials |
Moving the Market
-- Big gains in semiconductor space following results from Adv. Micro Devices (AMD), MSFT's solid capex budget, and talk that some foreign companies could be exempt from export restrictions to China
-- Microsoft (MSFT) lower following earnings report, but other mega caps show solid gains; NVDA up 10% after AMD results
-- Reacting to FOMC decision to leave rates unchanged, as expected, and Fed Chair Powell press conference
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Closing Summary
31-Jul-24 16:35 ET
Dow +99.46 at 40842.59, Nasdaq +451.98 at 17599.40, S&P +85.86 at 5522.30
[BRIEFING.COM] The S&P 500 jumped 1.6% and the Nasdaq Composite logged a 2.6% gain while the Dow Jones Industrial Average (+0.2%) and Russell 2000 (+0.5%) settled with smaller gains.
The FOMC decision and Fed Chair Powell's press conference initially drew in additional buying interest in the stock market, but gains faded slightly ahead of the close. The major indices settled with solid gains, little changed from levels seen before the 2:00 p.m. ET policy directive and 2:30 p.m. ET press conference.
The FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%, as expected. The Fed is looking at things in more balanced manner, though, compared to prior meetings. That is, it is not overweighting the inflation side of its mandate like it had been. That is a nuanced transition that is in-line with the comments heard from various Fed officials leading up to today's decision.
Fed Chair Powell's press conference was also largely what the market expected to hear. He didn't pre-commit the FOMC to cutting rates at the September meeting, although he suggested more than once that the discussion of a rate cut would be on the table if the Fed gets the data it hopes it will get.
Treasuries had a somewhat muted response. The 10-yr note yield fell three basis to 4.11% and the 2-yr note yield declined two basis points to 4.34%.
The positive bias today was driven by strength in the semiconductor space and mega cap stocks through the entire session. NVIDIA (NVDA 117.02, +13.29, +12.8%) was a top performer from the space. The PHLX Semiconductor Index (SOX) jumped 7.0%. This price action overshadowed an earnings-related loss in Microsoft (MSFT 418.35, -4.57, -1.1%).
The strength in semiconductor shares was in response to earnings news from AMD (AMD 144.48, +6.04, +4.4%), Microsoft's robust capex budget, and talk that some foreign companies could be exempt from export restrictions to China.
Dow component Boeing (BA 190.60, +3.74, +2.0%) was another standout after reporting earnings.
- Nasdaq Composite:+17.2% YTD
- S&P 500: +15.8% YTD
- Russell 2000: +11.2% YTD
- S&P Midcap 400: +11.4% YTD
- Dow Jones Industrial Average: +8.4% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -3.9%; Prior -2.2%
- July ADP Employment Change 122K (Briefing.com consensus 160K); Prior was revised to 155K from 150K
- Q2 Employment Cost Index 0.9% (Briefing.com consensus 1.0%); Prior 1.2%
- The key takeaway is that there was a year-over-year moderation in wages and salaries and benefit costs that, again, trended in the right manner to suggest the Fed might be convinced to cut rates in September.
- June Pending Home Sales 4.8% (Briefing.com consensus 1.5%); Prior was revised to -1.9% from -2.1%
- July Chicago PMI 45.3; Prior 47.4
Looking ahead, Thursday's economic lineup features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 233,000; prior 235,000), Continuing Claims (prior 1.851 mln), preliminary Q2 Productivity (Briefing.com consensus 1.6%; prior 0.2%), and preliminary Q2 Unit Labor Costs (Briefing.com consensus 1.7%; prior 4.0%)
- 10:00 ET: June Construction Spending (Briefing.com consensus 0.1%; prior -0.1%) and July ISM Manufacturing (Briefing.com consensus 48.5%; prior 48.5%)
- 10:30 ET: Weekly natural gas inventories (prior +22 bcf)
Mega caps continue to lead on final July session
31-Jul-24 15:30 ET
Dow +80.16 at 40823.29, Nasdaq +418.56 at 17565.98, S&P +78.54 at 5514.98
[BRIEFING.COM] The major indices have pulled back from their post-FOMC decision highs, but still maintain solid gains. The S&P 500 is 1.4% higher and the Nasdaq Composite sports a 2.3% gain.
Mega cap stocks are poised to close the final session in July with a performance edge over the "rest" of the market, but that hasn't been the case so far this month. The Vanguard Mega Cap Growth ETF (MGK) is down 2.6% in July and the Nasdaq Composite sports a 1.0% decline, but the equal-weighted S&P 500 shows a 4.5% gain this month.
Treasuries settled the final session in July on a higher note, registered large gains for the month. The 10-yr note yield fell three basis points today, and 23 basis points this month, to 4.11%. The 2-yr note yield fell two basis points today, and 38 basis points in July, to 4.34%.
Stocks climb as Powell gives press conference
31-Jul-24 15:05 ET
Dow +408.00 at 41151.13, Nasdaq +513.49 at 17660.91, S&P +105.65 at 5542.09
[BRIEFING.COM] The major indices have moved higher as Fed Chair Powell began his press conference. The Nasdaq Composite is 3.1% higher and the S&P 500 is up more than 100 points.
Mr. Powell has reiterated that the committee will continue to make decisions meeting-by-meeting while acknowledging the improvement on inflation and softening in the labor market, as expected. He said in part "we're balancing the risk of going too soon versus too late. There's no guarantee in this. It is a very difficult judgment call."
The 2-yr note yield, which is most sensitive to changes in the fed funds rate, moved lower in recent action. The 2-yr yield was at 4.36% before the policy directive, jumped to 4.38% in response, and sits at 4.33% now.
Fed holds rates unchanged, as expected
31-Jul-24 14:25 ET
Dow +303.01 at 41046.14, Nasdaq +422.28 at 17569.70, S&P +91.19 at 5527.63
[BRIEFING.COM] The FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%, as expected. The context around that decision was a little different than what the directive suggested at the time of June 11-12 FOMC meeting.
It clear that the Fed is looking at things in more balanced manner. That is, it is not overweighting the inflation side of its mandate like it had been. That is a nuanced transition that is in-line with the comments heard from various Fed officials leading up to today's decision.
We also consider it a nuanced transition to opening the door for a rate cut in September, provided the inflation data continue to point to ongoing disinflation.
Fed Chair Powell will begin his press conference at 2:30 p.m. ET. We expect that he will emphasize that the Fed isn't going to pre-commit to any policy position and that decisions will be made on a meeting-by-meeting basis while at the same time pointing out that inflation trends have improved and that labor market trends have softened.
The word "balance" is apt to be used quite a bit, which gives the Fed flexibility to act as necessary, but in reality gives the Fed some cover to remove some policy restraint in September as it is a step away from being fixated on the inflation risk. It is a step the Fed will likely take if the coming inflation reports keep stepping in the fed's preferred direction.
Gold higher ahead of policy decision
31-Jul-24 13:55 ET
Dow +246.45 at 40989.58, Nasdaq +399.53 at 17546.95, S&P +82.88 at 5519.32
[BRIEFING.COM] The market holds onto its gains ahead of the Fed's policy decision, wherein the market isn't expecting a move on rates; currently, the tech-heavy Nasdaq Composite (+2.33%) holds a commanding lead among its counterparts.
Gold futures settled $21.10 higher (+0.9%) to $2,473.00/oz, climbing higher as the dollar and yields wane into the Fed's policy decision.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $104.28.
Arista Networks' upbeat Q2 report reflects sustained benefits from AI infrastructure spending (ANET)
As prominent tech firms keep spending on AI infrastructure, Arista Networks (ANET +9%) continues to reap the benefits, delivering another quarter of healthy top and bottom-line upside in Q2. ANET is a cloud networking systems provider for large data centers, campuses, and routing environments. Its two largest customers are Meta Platforms (META) and Microsoft (MSFT), which comprised around 39% of its FY23 revs. As more companies equip GPUs for AI workloads, ANET has been gaining steam. To take full advantage of AI, firms require high-speed switching; any slowdown in the network can keep organizations from realizing AI's full potential.
While ANET was amid a roughly 15% correction from July highs ahead of its Q2 results, it had little to do with AI. In fact, numerous companies that reported earnings during that time mentioned how robust the AI landscape is, with major chip companies, like Taiwan Semi (TSM), only increasing their AI-related revenue forecasts for the year. Given the ongoing AI frenzy, ANET remains poised to benefit tremendously, especially if META and MSFT continue to grow their CapEx at elevated rates to build their AI infrastructure.
- In Q2, ANET posted adjusted EPS of $2.10, topping estimates by double-digits, on revs of $1.69 bln, a 15.9% jump yr/yr, exceeding the company's +11-13% forecast. Growth stemmed from all three sectors: cloud, enterprise, and providers. Most of ANET's strength came from the Americas at 81%, with International comprising the rest. Management remarked that its APJ region exhibited some relative weakness.
- Customers are responding positively to ANET's product suite. The company discussed several notable customer wins during its Q2 call, such as a Tier 2 cloud provider, e.g., IBM, Oracle, etc., aggressively investing in AI GPUs. ANET was chosen due to its ability to solve performance and scale problems this customer was having with their AI applications. Examples like this highlight ANET's long-term ability to only accelerate revenue as customers turn to network providers to squeeze as much out of AI as possible.
- Additionally, as NVIDIA's (NVDA) newest Blackwell platform rolls out, more of ANET's 800-gig products will be necessary, adding another tailwind heading into 2025.
- As usual, ANET delivered strong Q2 numbers without sacrificing margins. The company expanded its gross margins by 410 bps yr/yr and 120 bps sequentially to 65.4%, above its 64.0% prediction.
- Looking ahead, ANET did guide somewhat conservatively, projecting Q3 revs of $1.72-1.75 bln, or roughly +15% growth yr/yr at the midpoint, marking a further deceleration from the past several quarters. For the year, ANET expects revs to climb by at least +14%, slightly below analyst forecasts. Investors are not too concerned, however. ANET tends to guide prudently. Plus, the management expressed confidence that 2025 will be a huge growth year.
Aside from conservative guidance, ANET's Q2 report was airtight. The spending on AI infrastructure remains robust, keeping a powerful wind at ANET's back, which is expected to intensify by 2025.
Starbucks brews up better-than-feared Q3 results, providing shares with needed jolt (SBUX)
Starbucks' (SBUX) financial results are still in need of a strong dose of caffeine as the coffee chain's global same store sales slipped by 3% in Q3, but business seems to be stabilizing, if not modestly improving, which is good enough to provide the stock with a jolt today. After lowering its FY24 revenue and comp guidance in both Q1 and Q2, SBUX reaffirmed all of its financial targets during last night's earnings call, offering a sense of relief for a battered shareholder base that had seen the stock dive by 22% year-to-date prior to today's gains.
- The company still expects FY24 revenue growth in the low-single digit range, global and U.S. comps down low-single digits to flat, and operating margin also approximately flat. Encouragingly, CEO Laxman Narasimhan commented that key indicators are trending in the right direction as the company's three-part turnaround plan takes hold.
- That plan includes improving throughput and speed of service, launching new menu items to improve foot traffic, which fell by 6% in Q3, and providing more value, including through offering more digital promotions to its membership base.
- However, given the stiff headwinds that SBUX is facing, a quick and substantial turnaround shouldn't be expected. In the U.S., where comps decreased by 2% on a 6% drop in transactions, SBUX is still seeing sluggish demand from non-rewards members.
- More broadly, cost conscious consumers are cutting out discretionary purchases and are choosing to make more meals and brew more coffee at home. This is evidenced by an upswing in sales for SBUX's ready-to-drink offerings.
- In China, the company's second largest market with just over 7,300 stores, conditions are even more challenging. Comps dove by a worse-than-expected 14% there due to macro-related headwinds and intensifying competition that has led to a margin-eroding price war. On that note, the average check size fell by 7% in China.
- Despite the tough environment, SBUX still plans to expand its store count in China to 9,000 units by 2025.
- A relatively stronger area of the business was its loyalty program. U.S. Starbucks rewards members grew by 7% yr/yr to 33.8 mln and active members increased their store visit frequency in Q3. SBUX believes that recently launched menu innovations, like iced energy drinks, and new limited-time promotions provided a boost to membership growth.
The main takeaway is that you have to look very closely to find any meaningful improvement from last quarter. The company's performance and outlook, though, were better-than-feared, sparking some hope that the worst is now in the rearview mirror for SBUX.
Microsoft heads lower after wrapping up FY24; Azure solid but not blowout seen in MarQ (MSFT)
Microsoft (MSFT -1.3%) is trading modestly lower after reporting Q4 (Jun) results last night. The software giant broke its string of five consecutive double-digit EPS beats with a very modest EPS beat this time. Also, revenue rose 15.2% yr/yr to $64.73 bln, which was slightly above analyst expectations. The Q1 (Sep) revenue guidance was a bit light of expectations.
- Let's start with Azure, which performed well but was not the blowout result we saw in Q3 (Mar). Azure grew +30% CC (constant currency), which was at the low end of prior guidance of +30-31% CC due to some softness in a few European geographies on non-AI consumption. That followed Q3's huge upside at +31% CC vs +28% CC prior guidance. So the number was decent, just not what we saw in Q3. The Q1 (Sep) guidance was a bit of a letdown but not bad at +28-29% CC.
- What was impressive is that Microsoft said it now has over 60,000 Azure AI customers, up nearly 60% yr/yr and average spend per customer continues to grow. Also, commercial bookings were significantly ahead of expectations, +19% CC. This record commitment quarter was driven by growth in the number of $10+ mln and $100+ mln contracts for both Azure and Microsoft 365. Commercial RPO increased +20% and +21% CC to $269 bln.
- On the consumer side, the PC market was as expected with Windows OEM revenue increasing 4% yr/yr. LinkedIn was a standout with accelerated member growth and record engagement. LinkedIn Premium sign-ups increased 51% yr/yr. Also, Search, Advertising, and News revs ex-TAC rose a healthy 19% as Microsoft again took share across Bing and Edge. MSFT continues to apply generative AI to how people search and browse. MSFT now has 500+ mln monthly gaming active users across platforms and devices.
- By segment, revenue from Productivity and Business Processes was $20.3 bln, +12% CC, slightly ahead of expectations, driven by better-than-expected results across all business units. Intelligent Cloud segment revenue was $28.5 bln, increasing +20% CC, in line with expectations. More Personal Computing revenue was $15.9 bln, increasing +15% CC, which was above expectations, driven by Windows Commercial and Search.
- Looking ahead to FY25, we know MSFT does not guide beyond the next quarter. However, it did say it continues to expect FY25 double-digit revenue and operating income growth. On the cost side, MSFT plans to increase cap-ex spend in FY25 relative to FY24 to meet the growing demand for its AI and cloud products. MSFT plans to scale its infrastructure investments, including building/leasing data centers and buying servers to serve customers. This could impact margins in FY25.
Overall, this quarter was not as impressive as Q3, but still pretty good with all segments showing upside or being in-line. We would not be overly concerned about Azure. A lack of demand is not the problem, it sounds like it's more due to capacity constraints, particularly on AI at Azure. That was the case in Q4 and MSFT expects that to continue into 1HFY25. However, Azure will benefit in 2HFY25 as its step up in cap-ex spend comes online. Also, the stock has been pulling back in recent weeks, so maybe an imperfect quarter was priced in already.
Advanced Micro soars on accelerating growth in Q2 supported by robust AI demand (AMD)
Advanced Micro (AMD +5%) leaps today after edging past analyst earnings estimates in Q2 on a decent-sized revenue beat and in-line Q3 guidance. The CPU and GPU designer was amid a roughly 25% sell-off over the past few weeks, getting swept up by a broader market correction that took a particular toll on tech stocks. However, AMD's Q2 results underscored accelerating demand for AI, more than enough to reinvigorate the stock and help push its competitors, including NVIDIA (NVDA), Intel (INTC), and Arm Holdings plc (ARM), nicely higher today.
- AMD posted adjusted EPS of $0.69 in Q2 on revenue growth of 8.9% yr/yr to $5.84 bln, returning to delivering solid top-line upside following last quarter's in-line performance.
- AMD's Data Center segment delivered exceptional revenue growth in Q2, climbing by 115% yr/yr and 21% sequentially to $2.8 bln. The company's flagship GPU, the MI300, exceeded $1.0 bln in revs for the first time, aided by expanded use from Microsoft (MSFT). The MI300 has been enjoying such strong demand that AMD lifted its FY24 Data Center GPU revenue forecast to $4.5 bln from $4.0 bln. After this year, MI300's successor, the MI325X, is expected to ramp, possibly helping maintain Data Center's upward momentum.
- AMD's Client segment also delivered healthy growth, registering a 49% bump in revs yr/yr and 9% sequentially to $1.5 bln, bolstered by healthy PC demand. With AI PCs launching just this past month, AMD does not anticipate the category to significantly impact revs until more products are added that serve multiple price points, possibly during 2025. Still, AMD is heading into the seasonally strong PC months as back-to-school ramps.
- Gaming and Embedded segments were the usual laggards in Q2, declining by 59% and 41% yr/yr, respectively. In Gaming, semi-custom demand remained soft as gaming consoles entered their fifth year. AMD anticipates sales to be lower in 2H24 relative to 1H24. In Embedded, AMD reiterated that Q1 marked a bottom, noticing signs of order patterns improving during Q2, leading to a gradual recovery during 2H24.
- With Data Center and Client leading the charge, AMD anticipates another quarter of accelerating growth in Q3. The company projected revs of $6.4-7.0 bln, a 15% improvement yr/yr and sequentially at the midpoint.
AMD's Q2 results were noticeably better than last quarter, enough to reenergize its stock today. The company's lifted FY24 Data Center GPU revenue target also bodes well for NVDA, which reports JulQ numbers late next month. There is still an issue over AI monetization. Given the capital being poured into AI, customers must eventually see a healthy ROI. For this to unfold, end-consumer prices will likely need to rise but stay below the current cost of performing a certain task without AI.
Still, as AMD remarked during its Q2 call, the overall view on AI is that investing is a must; the potential is too massive to sit on the sidelines. Thus far, demand for AI has not shown any signs of slowing down. Unless this begins, AMD remains poised to rebound from its recent correction.
PayPal befriended by many today following a solid beat-and-raise in Q2 (PYPL)
PayPal (PYPL +8%) is starting to find many pals in the market following its impressive beat-and-raise in Q2. The payment processing giant exceeded top and bottom-line estimates, projected Q3 EPS above consensus, which fueled its increased FY24 EPS outlook, and raised its repurchase program guidance by $1.0 bln. This performance reflects early success from PYPL's transformation, prioritizing high-quality, profitable growth. While the investments connected to this transformation still have a way to go and are expected to result in lower volume and revenue growth as PYPL moves through the back half of 2024, the numbers these actions have produced thus far are encouraging.
- During the quarter, total payment volume (TPV) jumped by 11% yr/yr, supporting a 9% increase in currency-neutral revenue growth to $7.88 bln. Transaction margin dollars, i.e., PYPL's payment processing profitability, expanded by 8%, marking the company's best performance since 2021. This healthy development led to PYPL's double-digit earnings beat, reversing a rare miss last quarter.
- PYPL has plenty to juggle, from improving its branded checkout, bolstering its small and medium-sized business (SMB) offerings, and enticing more users to its Venmo platform. However, the company noticed early wins across these focus areas during the quarter.
- Management mentioned that branded checkout grew profitability in Q2 after ramping several tech innovations to its checkout flows. For instance, PYPL launched a redesigned payment page, which drove a conversion lift of 75-110 bps.
- PayPal Complete Payments Platform, or PPCP, a service PYPL launched last year to bring its Braintree business, which caters toward larger organizations to SMBs, has been progressing nicely. SMB volume on PPCP maintained its positive trend in Q2, resulting in a 40% climb thus far through 1H24.
- Venmo's TPV climbed by 8% yr/yr, with monthly active users inching 5% higher to nearly 62 mln. Digging deeper, Venmo Debit Card and Pay With Venmo grew monthly actives by around 30%.
- Competition has been a thorn in PYPL's side for some time as big tech firms like Alphabet (GOOG) and Apple (AAPL) bolster their payment offerings. However, PYPL commented that despite the multiple entrants into its market, it has not seen any degradation in its share over the past four years. Management added that payment buttons, whether they move from PayPal to Apple Pay, are not material to its business.
With momentum behind it, PYPL anticipates solid numbers next quarter, targeting EPS growth in the high single digits and revenue growth in the mid-single digits. Additionally, PYPL hiked its FY24 earnings forecast, projecting low to mid-teens growth yr/yr. Thus far, PYPL's transition year is advancing rather well. CEO Alex Chriss, who has been steering the ship since just September, has made the right moves to reinvigorate PYPL. While turbulence during a transition year is expected, especially since it coincides with a relatively weak macroeconomic environment, hindering online spending and overall transactions across merchants, PYPL's progress thus far, despite the economic backdrop, is inspiring and could be the start of a much more meaningful comeback.
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