Market Snapshot
| Dow | 40232.03 | -610.56 | (-1.49%) | | Nasdaq | 17154.20 | -445.20 | (-2.53%) | | SP 500 | 5433.74 | -88.56 | (-1.60%) | | 10-yr Note | +27/32 | 3.977 |
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| | NYSE | Adv 884 | Dec 1903 | Vol 546 mln | | Nasdaq | Adv 973 | Dec 2379 | Vol 5.5 bln |
Industry Watch
| Strong: Communication Services, Real Estate, Utilities, Materials, Health Care, Consumer Staples |
| | Weak: Energy, Industrials, Consumer Discretionary , Information Technology, Financials |
Moving the Market
-- Meta Platforms (META) up nicely after earnings; other mega caps trading sharply lower
-- Worries about the Fed waiting too long to cut rates and economic activity weakening
-- Stocks sliding after this morning's data, which sent Treasury yields lower; 10-yr yield below 4.00%
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AAPL, AMZN, INTC lag ahead of earnings after the close
01-Aug-24 15:35 ET
Dow -610.56 at 40232.03, Nasdaq -445.20 at 17154.20, S&P -88.56 at 5433.74
[BRIEFING.COM] The market remains near session lows in front of some influential earnings news after the close.
Apple (AAPL 217.78, -4.29, -1.9%) and Amazon.com (AMZN 183.91, -3.07, -1.6%) are standouts in that respect, both down more than 1.0% in front of their earnings reports. Intel (INTC 29.21, -1.52, -5.0%) is another standout loser in front of its earnings report, sliding alongside other semiconductor names.
Looking ahead to Friday, the July Employment Situation report will be released at 8:30 ET. Other data include June Factory Orders at 10:00 ET.
Trend-down day
01-Aug-24 15:00 ET
Dow -701.94 at 40140.65, Nasdaq -540.84 at 17058.56, S&P -109.30 at 5413.00
[BRIEFING.COM] A positive start to the session has evolved into a trend-down day for the major indices, which are at, or near, their lows for the day heading into the final hour of trading.
The small-cap Russell 2000 (-3.6%) is the biggest loser, giving back a decent-sized portion of the 10.1% gain it registered in July.
Today's losses are rooted in growth concerns that were piqued by a batch of disappointing economic data this morning that included an ISM Manufacturing Index for July that fell deeper into contraction territory. That report took the opening steam out of the stock market and transferred it to the Treasury market, which is settling today's session near its best levels in terms of price and lows in term of yield.
The 2-yr note yield is down 16 basis points from yesterday's settlement to 4.18% and the 10-yr note yield is down 13 basis points from yesterday's settlement to 3.98% (the first foray below 4.00% since February).
The drop in yields has fostered some relative strength in the rate-sensitive utilities (+1.4%) and real estate (+0.6%) sectors; however, regional banks are decidedly weak as the growth concerns are fueling some worries about credit quality and catalyzing some selling interest after a huge 27% gain in the SPDR S&P Regional Banking ETF (KRE 55.47, -2.81, -4.8%) from its low in mid-June.
Moderna, MGM Resorts among top S&P 500 laggards post earnings
01-Aug-24 14:30 ET
Dow -660.64 at 40181.95, Nasdaq -486.48 at 17112.92, S&P -98.13 at 5424.17
[BRIEFING.COM] The S&P 500 (-1.78%) is in second place on Thursday afternoon, down about 98 points.
Elsewhere, S&P 500 constituents Moderna (MRNA 94.49, -24.73, -20.74%), MGM Resorts (MGM 36.89, -6.08, -14.15%), and Ingersoll-Rand (IR 90.88, -9.52, -9.48%) dot the bottom of the standings, all weaker following earnings.
Meanwhile, FMC Corp (FMC 64.25, +5.89, +10.09%) is one of today's top gain getters, higher after last night's Q2 beat.
Gold higher on Thursday
01-Aug-24 14:00 ET
Dow -637.55 at 40205.04, Nasdaq -465.59 at 17133.81, S&P -93.38 at 5428.92
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-2.65%) is firmly lower, down about 465 points.
Gold futures settled $7.80 higher (+0.3%) to $2,480.80/oz, holding near all-time highs as investors await tomorrow's payroll readings.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $104.38.
DJIA slips on Thursday, Boeing & Intel apply pressure
01-Aug-24 13:30 ET
Dow -604.36 at 40238.23, Nasdaq -430.96 at 17168.44, S&P -86.22 at 5436.08
[BRIEFING.COM] The Dow Jones Industrial Average (-1.48%) is at session lows, like its counterparts, slipping as recent economic data didn't stoke confidence.
A look inside the DJIA shows that Boeing (BA 178.38, -12.22, -6.41%), Intel (INTC 29.23, -1.51, -4.91%), and Caterpillar (CAT 330.72, -15.48, -4.47%) hold solid losses.
Meanwhile, Procter & Gamble (PG 165.26, +4.50, +2.80%) is today's top performer.
The DJIA is now -2.75% lower off the mid-July highs.
Wendy's heads lower following Q2 results as it lowered its FY24 sales/comp outlook (WEN)
Wendy's (WEN) is trading modestly lower after reporting Q2 results this morning. The burger chain missed slightly on EPS and a bit moreso on revenue. Even though it reaffirmed FY24 EPS, the guidance was disappointing.
- WEN lowered FY24 guidance for global systemwide sales to +3-5% from +5-6% (important: this is NOT comparable to consensus revenue which is total revenue). Also, WEN guides for global comps on the call. This morning, it lowered its FY24 outlook to +1-3% from +3-4%. WEN also lowered FY24 FCF guidance.
- Of note, this was the first full quarter for new CEO Kirk Tanner, who took the helm on February 5. He was a long time PepsiCo (PEP) executive and most recently served as CEO of North American Beverages at PepsiCo.
- Probably the key metric was same-restaurant comps. Global comps were +0.8% and US comps were +0.6%, roughly the same as Q1: +0.9%/+0.6%. International comps performed better at +2.5%, although WEN is much more US-centric than peers like McDonald's (MCD). Its international exposure is quite limited, although it has exposure to Canada and has its sights set on Europe. It re-entered the UK in 2021 and recently announced expansion plans in Ireland and Romania. WEN's goal is to develop hundreds of restaurants across Europe over the next decade, beginning in 2025.
- WEN said its Q2 performance was competitive in the US, with dollar and traffic share holding steady within the QSR burger category. This performance was driven by sales growth in the breakfast and late-night day parts. WEN said that consumers continue to seek value. Wendy's is the original when it comes to bundle value meal deals in QSR. In terms of MCD's recent $5 value meal, WEN says its Biggie Bag has long had traction, but it's a concern among franchisees.
- Speaking of breakfast, WEN stressed that this remains an incredibly important day part. It is highly profitable, and WEN has not yet reached its potential. However, it has now optimized the level of its investment in 2024 to allow it to extend breakfast advertising beyond 2025. WEN continues to expect that breakfast sales growth will outpace rest of day at Wendy's.
Overall, WEN did not talk about the consumer as much as MCD did on its call. However, investors were disappointed with the Q2 results and especially the guidance. Lowering full year comp guidance was probably the most troubling aspect. The good news is that WEN will be lapping easier comps in 2H24. Also, WEN expects the category to improve later in the year and it sees breakfast as a tailwind. Finally, WEN reiterated is commitment to its $0.25/sh dividend. That computes to a yield nearing 6%, which seems high to us. We actually think investors would respond favorably to a dividend cut to deploy that capital elsewhere.
Qualcomm dives lower as muted handset growth outlook clouds solid Q3 results (QCOM)
Fueled by robust growth in its Automotive business and sturdy sales in its core handset business, Qualcomm (QCOM) surpassed Q3 EPS and revenue estimates and provided a solid Q4 outlook with its forecast for EPS and revenue both coming in ahead of expectations at the midpoint of the guidance ranges. Yet, the stock is still down sharply, extending a steep selloff that has seen shares plunge by 27% since mid-June.
- Initially, the stock popped higher after QCOM's results and guidance were released. Indeed, there was good reason to feel bullish with Automotive revenue soaring by 87% yr/yr to $811 mln and Handset revenue climbing higher by 12% to $5.9 bln.
- Increasing adoption and a steady stream of design wins for QCOM's Snapdragon Chassis, including more than ten in Q3, is driving Automotive's impressive growth, while the emergence of AI-powered smartphones is providing the Handset business with a boost.
Those initial positive vibes, though, faded during the earnings call and the stock went into reverse.
- One issue is that QCOM provided a muted outlook for the handset market this year, indicating that the recovery is struggling to gain momentum. CEO Cristiano Amon stated that global handset units are expected to be flat to slightly up yr/yr, merely reaffirming QCOM's forecast from Q2.
- Relatedly, Arm Holdings (ARM) issued disappointing guidance for Q2 and FY25, adding to the souring sentiment around semiconductor stocks.
- Another factor that pulled shares lower was Mr. Amon's disclosure that its license to export products to China-based Huawei was revoked on May 7. That license wasn't set to expire until late CY24, so the removal of Huawei-related revenue is coming a litter sooner than anticipated. Consequently, this change will impact QCOM's revenue in Q4 -- which was incorporated into its guidance -- and its revenue in 1Q25.
The main takeaway, though, is that the anticipated AI-based growth catalyst for QCOM isn't materializing quite as quickly or powerfully as investors had hoped for. Currently, AI smartphones account for less than a quarter of the total market, and the non-AI smartphone market is still stagnant, as illustrated by QCOM's FY24 handset growth outlook. Along with its rapidly expanding Automotive business, the emergence of new AI smartphones will eventually become a significant growth driver, but it will take some time before that catalyst fully materializes.
eBay finds bids at 52-week highs on solid Q2 results; GMV growth finally turns positive (EBAY)
On the heels of downbeat quarterly guidance, eBay's (EBAY +3%) in-line Q3 projections were refreshing. Combining this with another quarter of decent top and bottom-line upside in Q2 and a quicker-than-expected return to positive Gross Merchandise Volume (GMV) growth was enough to push the stock to 52-week highs today.
- Headline numbers are important, making EBAY's Q2 adjusted EPS of $1.18 and revs of $2.57 bln, a 1.3% bump yr/yr positive developments. However, what took the cake was GMV growth of +1% to $18.4 bln, above EBAY's $17.8-18.2 bln forecast and finally representing a rebound to positive territory on an FX-neutral basis, quicker than management's Q3 or Q4 prediction.
- Reflecting EBAY's competitive advantage in the e-commerce space, focus categories, i.e., watches, collectables, auto parts, refurbished items, etc., touted 4% GMV growth, outpacing the rest of the marketplace by around 5 pts. Auto parts and collectables were the top two contributors, an encouraging sign given EBAY's attention on these products.
- For instance, EBAY has been expanding its relationship with PSA, a collectables authentication company, making its platform a go-to choice for buying authenticated collectables. Meanwhile, the company has been adding DIY guides on its motors page.
- AI commands much of EBAY's focus, investing in the technology to drive more sellers and advertisers to its platform. Its AI-driven autofill generates a description based on pictures of whatever the seller is listing. Meanwhile, EBAY is doing trend-based suggested campaigns driven by AI. These tools seem relatively modest; thus far, they have not significantly boosted overall financial results. However, AI is still in its early stages and could become a difference-maker over the long haul.
- Of course, EBAY is nothing without buyers. On that front, active and enthusiast buyers remained stable yr/yr and sequentially at around 132 mln and 16 mln, respectively. Encouragingly, management mentioned that total active buyer growth was fractionally positive yr/yr for the first time since 2021. At the same time, retention continued to improve gradually. Stability is expected to remain the general theme over the near term.
- EBAY projected Q3 adjusted EPS of $1.15-1.20 and revs of $2.50-2.56 bln, both translating to similar yr/yr growth at their respective midpoints as in Q2. Likewise, Q3 GMV growth is projected to hover between $17.8-18.2 bln, flat yr/yr at the midpoint. For the year, EBAY's worst-case scenario for GMV growth is flat, while its best-case scenario called for a +4% improvement.
After some up-and-down movement immediately following EBAY's Q2 report, investors have grown more convinced that EBAY may finally be turning a corner. Stagnant active buyer growth may be the norm over the next few quarters, but a continuously stable environment is promising given the challenging demand backdrop.
Meta Platforms strikes a balance between driving earnings growth and ramping AI investments (META)
In its pursuit to stay ahead of the AI curve, Meta Platforms (META) raised its FY24 capex guidance again in its Q2 earnings report, but unlike last quarter, shareholders are taking the news in stride. In fact, based on the stock's bullish reaction to the earnings report, it seems that investors are coming around to Mark Zuckerberg's ambitious spending plans. Unlike when the company was pouring billions of dollars into the highly unprofitable metaverse in 2022 -- a year in which the stock crated by 65% -- investors are already seeing a tangible return on META's AI investments.
- In Q2, revenue jumped by 22% to $39.1 bln, beating expectations, on the strength of its advertising business. Powered by its Llama 3 large language model, META's AI functionalities are helping to improve advertisers ROI by identifying users across META's platforms that are most likely to become customers. During the earnings call, CFO Susan Li provided some context surrounding the positive impact of META's new AI tools, noting that return on ad spending increased by 22% in the U.S.
- In addition to this improved efficiency, META's social media apps continue to expand, with Mr. Zuckerberg highlighting the growth of WhatsApp, which now has over 100 mln monthly active users in the U.S. In total, Daily Active People (DAP) increased by 7% yr/yr across all META platforms for a total of 3.27 bln.
- This user growth, combined with the new AI capabilities, led to a 10% increase in both ad impressions delivered and average price per ad.
- There was also some concern ahead of META's earnings report that advertising spending was softening. On Tuesday night, Pinterest (PINS) issued downside Q3 revenue guidance, and one week earlier, Alphabet (GOOG) reported that Q2 advertising revenue growth slowed a bit to 11% from 13% in Q1.
- META eased those worries, though, by edging past Q2 revenue estimates while providing Q3 revenue guidance of $38.5-41.0 bln, slightly topping expectations at the midpoint of the range.
- The solid top-line performance and outlook reinforces the notion that META's AI investments are paying off as advertisers shift over to its platforms.
- Speaking of those AI investments, META raised the low end of its FY24 capex guidance, forecasting capex of $37-$40 bln, compared to its prior outlook of $35-$40. Furthermore, Mr. Zuckerberg made it clear that there are no plans to slow the pace of investments.
- To the contrary, he stated that capex is expected to grow significantly in 2025 and will likely continue to grow substantially over a multi-year timeline. In his view, there is a greater risk of underinvesting in AI capacity rather than in over-building due to the massive role that AI is going to play over the next 10-15 years.
If it weren't for META's strong Q2 results, including a 73% yr/yr surge in EPS to $5.16, the aggressive spending plans would likely be weighing on the stock today. What META's impressive Q2 report shows, however, is that it has found a good balance between generating earnings growth and investing for future growth.
Western Digital lower despite EPS upside; guidance did not measure up to STX guidance (WDC)
Western Digital (WDC -11%) is heading lower today despite reporting big EPS upside for Q4 (Jun) last night. Revenue jumped 40.9% yr/yr to $3.76 bln, which was in-line. We think the main problem was the Q1 (Sep) guidance as the mid-point of EPS guidance was below analyst expectations. Perhaps more troubling was the revenue guidance of $4.00-4.20 bln, which was below expectations.
- As a quick housekeeping matter, WDC has previously announced it is separating its flash and HDD businesses. WDC expects to complete the separation at the end of calendar year 2024. As part of the ongoing preparation for the separation, WDC expects it will begin to incur separation dis-synergy costs in the second half of the calendar year.
- WDC talked about how the AI Data Cycle is increasing the need for storage and creating new demand drivers across both flash and HDD. AI systems process and analyze existing data, generate new data and require substantial data storage. Data storage systems must deliver the capacity and performance necessary to support the computational demands of large sophisticated models. WDC believes the AI Data Cycle will be a significant incremental growth driver for the storage industry.
- In terms of its business segments, starting with flash, growth was driven by the recovery in cloud and a shift of client mix to gaming and mobile, partially offset by a decline in consumer. Throughout JunQ, its products mix was dynamic as WDC proactively mixed bits between end markets in response to softness in more transactional markets such as consumer and channel. The goal was to identify the most profitable approach to allocating bits.
- Turning to HDD, WDC said that revenue growth was driven by strength in nearline demand and improved pricing. WDC also surpassed its target gross margin range, underscoring its commitment to improve profitability. WDC noted that its HDD business has undergone a remarkable transformation in recent quarters. Its HDD business has increased profitability meaningfully by restructuring its manufacturing footprint and optimizing its cost structure.
Overall, we are a bit surprised to see such a negative reaction. Granted, the guidance was disappointing following upside guidance with its last earnings report. However, it sounds like the company is focusing on more profitable sales and HDD margins were quite strong. We suspect the imminent separation of its flash and HDD units might cause some disruptions. WDC may have factored that into guidance. It did say it expects separation dis-synergy costs in SepQ and DecQ.
Furthermore, the stock had already pulled back from around $80 in early July to $67 at yesterday's close. Our sense is that investors are also disappointed that WDC did not measure up to peer Seagate's (STX) results last week, which had much better guidance.
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