Market Snapshot
| Dow | 39737.06 | -610.71 | (-1.51%) | | Nasdaq | 16776.17 | -417.98 | (-2.43%) | | SP 500 | 5346.56 | -100.12 | (-1.84%) | | 10-yr Note | +38/32 | 3.79 |
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| | NYSE | Adv 683 | Dec 2058 | Vol 1.2 bln | | Nasdaq | Adv 764 | Dec 3457 | Vol 6.3 bln |
Industry Watch
| Strong: Consumer Staples, Utilities, Real Estate |
| | Weak: Consumer Discretionary, Information Technology, Industrials, Materials, Communication Services, Financials, Energy |
Moving the Market
-- Weakness in mega-cap space following earnings reports from Apple (AAPL) and Amazon.com (AMZN)
-- Further downside momentum as participants mull possibility of a hard landing and a Fed policy mistake
-- Reacting to the July Employment Situation report, which added fuel to the growth concern related sell off
-- Sharp decline in market rates on growth concerns
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Closing Summary
02-Aug-24 16:30 ET
Dow -610.71 at 39737.06, Nasdaq -417.98 at 16776.17, S&P -100.12 at 5346.56
[BRIEFING.COM] The stock market logged solid declines on the final session of the week. Like yesterday, growth concerns were driving factor of today's price action. The market received more disappointing economic data this morning, adding to the feeling that the economy is headed for a deeper slowdown while the Fed remains on pause.
Nonfarm payrolls increased by just 114,000 (Briefing.com consensus 170,000), the unemployment rate jumped to 4.3% from 4.1%, and average hourly earnings decelerated on a year-over-year basis to 3.6% from 3.8%. A labor market that softens more than anticipated could translate into lower spending, which would impact earnings growth.
Growth concerns also sent Treasury yields sharply lower and increased rate cut expectations. The 10-yr note yield settled 18 basis points lower at 3.79% and the 2-yr note yield settled 29 basis points lower at 3.87%. The CME Fed Watch Tool now shows a 71.5% probability of a 50-basis points rate cut at the September FOMC meeting versus 22.0% a day ago.
Negative responses to some earnings news also contributed to the downside bias in the stock market.
Dow components Amazon.com (AMZN 167.90, -16.17, -8.8%) and Intel (INTC 21.48, -7.57, -26.1%) were standouts in that respect. AMZN shares were reacting to weaker-than-expected Q3 revenue guidance while INTC shares plunged after it disappointed with Q2 earnings, Q3 guidance, and news that it will be suspending its dividend and cutting more than 15% of its workforce.
Fellow Dow component, and the largest stock in the S&P 500, Apple (AAPL 219.86, +1.50, +0.7%) went against the grain, trading higher after reporting quarterly results that featured better than expected earnings and revenue.
Just about everything participated in today's broad retreat. Seven S&P 500 sectors declined at least 1.9% and the A-D line favors decliners by a 3-to-1 margin at the NYSE.
- S&P 500: +12.1% YTD
- Nasdaq Composite:+11.8% YTD
- S&P Midcap 400: +6.0% YTD
- Dow Jones Industrial Average: +5.4% YTD
- Russell 2000: +4.1% YTD
Reviewing today's economic data:
- July Nonfarm Payrolls 114K (Briefing.com consensus 170K); Prior was revised to 179K from 206K, July Nonfarm Private Payrolls 97K (Briefing.com consensus 153K); Prior 136K, July Avg. Hourly Earnings 0.2% (Briefing.com consensus 0.3%); Prior 0.3%, July Unemployment Rate 4.3% (Briefing.com consensus 4.1%); Prior 4.1%, July Average Workweek 34.2 (Briefing.com consensus 34.3); Prior 34.3
- The key takeaway from the report is that it is an economic slowdown signal. How much of a slowdown will avail itself in coming months, but in the context of a market newly worried about a hard landing and the Fed making a policy mistake by keeping rates higher for longer, this report will not assuage those concerns.
- June Factory Orders -3.3% (Briefing.com consensus 0.4%); Prior -0.5%
- The key takeaway from the report is that the weakness in factory orders was not as pronounced as the headline suggests, as the weakness was driven by transportation equipment orders, which are notoriously volatile.
Looking ahead, Monday's economic data is limited to the final July S&P Global U.S. Services PMI (prior 56.0) at 9:45 ET, the July ISM Non-Manufacturing Index (prior 48.8%) at 10:00 ET, and the Senior Loan Officer Survey at 14:00 ET.
Stocks flow sideways in front of closing bell
02-Aug-24 15:25 ET
Dow -724.56 at 39623.21, Nasdaq -447.77 at 16746.38, S&P -113.35 at 5333.33
[BRIEFING.COM] There hasn't been much up or down movement over the last half hour at the index level.
Looking ahead, Monday's economic data is limited to the final July S&P Global U.S. Services PMI (prior 56.0) at 9:45 ET, the July ISM Non-Manufacturing Index (prior 48.8%) at 10:00 ET, and the Senior Loan Officer Survey at 14:00 ET.
Earnings out next week include: Tyson Foods (TSN), Caterpillar (CAT), Uber (UBER), Amgen (AMGN), CVS Health (CVS), Walt Disney (DIS), Eli Lilly (LLY), Paramount Global (PARA), and others.
Stocks stick to session lows
02-Aug-24 15:00 ET
Dow -763.59 at 39584.18, Nasdaq -462.16 at 16731.99, S&P -118.16 at 5328.52
[BRIEFING.COM] The market continues to flow sideways near session lows.
Treasury yields continue to fall. The 10-yr note yield sits at 3.79% and the 2-yr note yield is at 3.87%.
Elsewhere, the CBOE Volatility Index is surging 40% or 7.42 to 26.01 as investors hedge for the possibility of further downside.
Prudential, Microchip fall in S&P 500 after earnings
02-Aug-24 14:30 ET
Dow -808.86 at 39538.91, Nasdaq -454.57 at 16739.58, S&P -120.50 at 5326.18
[BRIEFING.COM] The S&P 500 (-2.21%) is once more in second place among the major averages, down about 120 points on Friday afternoon.
Elsewhere, S&P 500 constituents Prudential (PRU 109.41, -13.08, -10.68%), Microchip (MCHP 76.40, -7.97, -9.45%), and Moderna (MRNA 86.22, -7.95, -8.44%) pepper the bottom of the standings. PRU and MCHP fall following earnings, while MRNA caught some sell side target cuts this morning following yesterday's results.
Meanwhile, GoDaddy (GDDY 151.03, +9.62, +6.80%) is one of today's better performers as the company impressed investors with bookings numbers and guidance.
Gold trims weekly gains on Friday
02-Aug-24 14:00 ET
Dow -877.47 at 39470.30, Nasdaq -479.98 at 16714.17, S&P -131.72 at 5314.96
[BRIEFING.COM] With about two hours to go on the week the tech-heavy Nasdaq Composite (-2.79%) is today's top lagging major average, down about 480 points.
Gold futures settled $11.00 lower (-0.4%) to $2,469.80/oz, ultimately ending up about +1.7% on the week.
Meanwhile, the U.S. Dollar Index id down about -1.1% to $103.24.
Booking Holdings booking sharply lower as slowing travel demand weighs on outlook (BKNG)
Online travel company Booking Holdings (BKNG) is traveling south today despite reporting upside Q2 results with EPS and revenue increasing by 11% and 7%, respectively. The company's beat on the top and bottom lines, though, are being overshadowed by a muted Q3 outlook as the "travel market continues to normalize", in the words of CEO Glenn Fogel. That disappointing outlook is also dragging shares of competitors such as Expedia Group (EXPE), Airbnb (ABNB), and Tripadvisor (TRIP) sharply lower.
- This normalization in travel demand has been in the headlines throughout this earnings season in the wake of disappointing earnings reports from most airlines, including Delta Air Lines (DAL), American Airlines (AAL), and Southwest Airlines (LUV). A combination of slowing domestic leisure travel demand and falling ticket prices due to an oversupply of seats following an industry-wide effort to ramp up capacity has weighed on airlines' results. Now, that supply and demand imbalance is creating a headwind for BKNG.
- During the earnings call, Mr. Fogel noted that decreasing flight prices are cutting into the company's bookings estimates. On that note, BKNG guided for Q3 bookings growth of 2-4%, down from Q2's growth of 4% and well below analysts' expectations.
- Meanwhile, a more cost-conscious consumer is starting to rethink their travel plans as reflected in a booking window that continues to shrink. The bookings window measures the number of days between a booking and the actual arrival to the customer's destination. When the bookings window is longer, it not only indicates that consumers are feeling more confident about their own finances, but it also provides better visibility and stronger occupancy rates for travel companies.
- This shrinking bookings window, which BKNG expects to expand less than in Q3 than it did in Q2, also caused the company to issue soft Q3 room night growth guidance of 3-5%, missing analysts' estimates. This metric has been on a steady decline, going from +14.9% in 3Q23, to +9.2% in 4Q23, to +8.5% last quarter, and finally to +7.1% in Q2.
- The good news is, BNKG continues to keep a tight lid on expenses, helping to drive margins and earnings higher, despite the more challenging environment. For the quarter, operating expenses increased by just 5.6% to $4.0 bln.
The main takeaway is that BKNG's soft Q3 outlook is the latest data point indicating a slowdown in the global travel market. BKNG is the leader in the online travel space, so the company should still perform better than most, but generating solid growth is becoming a much more difficult task.
Apple defies weakness in Nasdaq today, trades higher on solid JunQ results (AAPL)
Apple (AAPL +2%) is trading modestly higher after reporting Q3 (Jun) results last night. The headline numbers were roughly as expected with a nice EPS beat. Revenues rose 4.9% yr/yr to a new JunQ record of $85.78 bln, which was better than expected and a nice bounce back following a revenue decline in Q2. On the call Apple said it expects Q4 (Sep) yr/yr revenue growth to be similar to Q3, which implies slight upside. Looking ahead, Apple is expected to unveil iPhone 16 next month.
- iPhone performed well with revenue being a bit better than street estimates. Revenue declined 1% yr/yr to $39.30 bln vs $38.8 street ests. JunQ is typically a slower quarter for iPhone sales as consumers await the next generation of iPhone, which is usually announced in September. iPhone set JunQ records across several countries and the iPhone active install base grew to a new all-time high in every geographic segment. Looking ahead, iOS 18 will usher in some big changes.
- Mac sales rose 2.4% yr/yr to $7.01 bln. Apple says customers are loving the latest M3-powered 13-inch and 15- inch MacBook Air. Mac saw a particularly strong performance in emerging markets with JunQ records for Mac in Latin America, India and South Asia. With back to school season upon us, Apple sees MacBook Air as the perfect companion for students and small business owners.
- iPad revenue jumped 23.6% yr/yr to $7.16 bln, a nice bounce back following a decline in MarQ. During the quarter, Apple unveiled the all-new 11-inch and 13-inch iPad Air, which performed well. And with the new iPad Pro, Apple says it pushed the boundaries of power efficient performance with the remarkable M4 chip.
- Wearables revenue was down 2.3% yr/yr at $8.10 bln. Watch and AirPods continue to face a difficult compare against prior year launches of the AirPods Pro 2nd generation, the Watch SE and the first Watch Ultra. Apple Watch continues to attract new customers with almost two-thirds of customers purchasing an Apple Watch during the quarter being new to the product, sending the Apple Watch install base to a new all-time high.
- Services revenue rose a healthy 14.1% yr/yr to an all-time record of $24.21 bln with paid subscriptions at an all-time high. Apple achieved revenue records in the majority of its Services categories, including advertising, cloud and payment services. Apple TV+ productions are a hit with audiences on screens large and small.
Overall, this was a solid but not spectacular quarter, partly because Apple was facing FX headwinds. iPhone sales showed nice upside, but JunQ is a seasonally slow quarter ahead of its typical September launch, so it's less important than usual. Services were a bright spot and iPad bounced back in a big way, fueled by new product launches. However, China was weak with Greater China down 6.5% yr/yr (less than -3% CC) with FX being a big headwind. The silver lining is that China improved from 1H. Finally, even with its recent pullback, the stock is still up significantly (+25%) since its MarQ report in early May. As such, we are pleased to see Apple trading higher, especially given the recent weakness in other mega cap tech names.
Intel crashes as dismal Q2 earnings report dashes any hope of near-term turnaround (INTC)
Intel (INTC) is taking the term "kitchen sink quarter" to a whole new level, reporting an EPS and revenue miss for Q2, guiding Q3 EPS and revenue far below expectations, announcing a huge headcount reduction of at least 15% of its workforce, cutting its 2024 capex projections by over 20%, while also suspending its quarterly dividend. There's no way to sugar coat it, this was a disastrous report from INTC and the stock is reacting accordingly, plunging to its lowest levels since the spring of 2013.
It's hard to know where to start, but the return to a yr/yr sales decline and the collapse of INTC's gross margin tells most of the story
- In 4Q23, INTC generated top-line growth of nearly 10%, ending a streak of seven consecutive quarters of yr/yr sales declines. The swing to positive growth, which was mainly fueled be a recovery in the PC market, sparked hopes that INTC's turnaround and overhaul to a foundry business model was finally heading in the right direction. Just two quarters later, though, and those good vibes have completely vanished as Q2 revenue dipped by nearly 1% to $12.8 bln
- It's no secret that INTC has largely missed out on the initial phase of an AI boom that has catapulted NVIDIA's (NVDA) revenue and market cap to meteoric levels, but the degree to which it has fallen behind the competition became even more stark last night. Revenue in INTC's Data Center and AI (DCAI) segment decreased by 3% to $3.0 bln, compared to a 115% yr/yr surge in revenue for Advanced Micro's (AMD) Data Center segment.
- Rewinding to the Q1 earnings call, CEO Pat Gelsinger stated that Q1 looked like a bottom for the traditional data center business, but that clearly wasn't the case. Last night, Mr. Gelsinger commented that the economic outlook has weakened more than the company anticipated. However, the huge divergence in growth relative to AMD and NVDA also indicates that the company has and continues to lose market share at an alarming rate to those rivals.
- Shifting to the PC-centric Client Computing Group (CCG) segment, the demand story is a little brighter with revenue increasing by 9% to $7.4 bln. That growth, though, is being overshadowed by the steep drop in INTC's non-GAAP gross margin to 38.7% from 45.1% last quarter, badly missing its guidance of 43.5%. CFO David Zinsner disclosed during the earnings call that expenses tied to the production of chips for AI-enabled PCs are pressuring the segment's margins. There isn't any relief on the near-term horizon, either, with INTC forecasting that Q3 gross margin will tick slightly lower to 38.0%
- The Foundry segment, which is front-and-center in INTC's "IDM 2.0" strategy, saw revenue edge higher by 4% to $4.3 bln, marking an improvement from last quarter's 10% yr/yr decrease. INTC also noted that 18A, its new process technology that will help launch new CPUs for both PCs and data centers, is on track to be manufacturing-ready by the end of this year with wafer start volumes beginning in 1H25. That thin silver lining isn't enough to convince investors that INTC's foundry business is ready to take a major step forward and become a competitive threat to Taiwan Semiconductor Manufacturing (TSM).
To put it simply, INTC's dismal Q2 earnings report has turned even the most hopeful believers into skeptics as its financials take a major turn for the worse. Its restructuring actions will help to shore up the bottom-line, but that won't help solve the big picture question, which is whether INTC can ever return to its form of being a semiconductor heavyweight.
Amazon under pressure; AWS strong, but 2H infrastructure buildout could weigh on margins (AMZN)
Amazon (AMZN -10%) is under pressure despite reporting a sizeable EPS beat for Q2. Also, Q2 operating income jumped 91% yr/yr to $14.67 bln, ahead of prior guidance of $10-14 bln. However, revenue was a bit light and the mid-point of the Q3 revenue guidance was below analyst expectations. We also think Amazon's comments about spend in 2H is weighing on shares. That was evident in Amazon's lackluster Q3 operating income guide of $11.5-15.0 bln.
- Let's start with the Stores segment. AMZN saw growth of 9% in North America and 10% in the international segment. Amazon said it's seeing lower ASPs right now because customers continue to trade down on price when they can. More discretionary, higher ticket items like computers or electronics or TVs are growing faster than peers, but more slowly than what AMZN would see we see in a more robust economy.
- Amazon said its faster delivery speed is earning more share of everyday essentials. Seller fees were a little lower than expected given the behavior changes. Also, consumers are being careful on price, however, North America unit growth is meaningfully outpacing sales growth as AMZN's work on selection, low prices and delivery is resonating with consumers. While some of these issues compress short-term revenue, AMZN generally likes these trends.
- Turning to AWS, this segment was the real standout in Q2. AWS posted +19% growth in constant currency (CC). This was a notable uptick from +17% CC in Q1, +13% CC in Q4, +12% CC in Q3, +12% CC in Q2. Given Azure's somewhat lackluster result/guidance earlier this week, we were surprised to see AWS accelerate growth despite a larger base.
- Amazon cited three macro trends driving AWS growth. First, companies have completed the significant majority of their cost optimization efforts and are focused again on new efforts. Second, companies are spending to modernize their infrastructure and moving from on premises infrastructure to the cloud. Third, companies of all sizes are excited about leveraging AI. Amazon says its AI business continues to grow dramatically with a multibillion-dollar revenue run rate despite it being such early days.
- Turning to Advertising Services, segment revenue grew +20% CC to $12.77 bln. This was notably lower than recent quarters: +24% CC in Q1, +26% in Q4, +25% CC in Q3, +22% CC in Q2. AMZN was pleased with its growth given its increasingly larger revenue base. AMZN continues to see opportunities that further expand its offering in sponsored products as well as newer areas like Prime video ads.
In addition to the slight Q2 top line miss, we think investors are disappointed in AMZN's Q3 operating income guide of $11.5-15.0 bln, considering it posted $14.67 bln in Q2. Similar to what we heard from Microsoft (MSFT) this week, Amazon expects capital investments to be higher in 2H24, mostly to build out its AWS infrastructure as it continues to see strong demand in both generative AI and non-generative AI workloads. Also impacting Q3 margin is Prime Day and this year was its largest ever. Additionally, in Q3, AMZN begins to ramp up capacity to handle Q4 holiday volumes. AMZN also expects a sequential increase in digital content costs in Q3 from the return of NFL Thursday Night Football.
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.
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