Market Snapshot
| Dow | 40834.97 | -61.56 | (-0.15%) | | Nasdaq | 17816.93 | -59.83 | (-0.33%) | | SP 500 | 5597.12 | -11.13 | (-0.20%) | | 10-yr Note |
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| | NYSE | Adv 949 | Dec 1820 | Vol 745 mln | | Nasdaq | Adv 1477 | Dec 2709 | Vol 5.31 bln |
Industry Watch
| Strong: Health Care, Consumer Staples, Communication Services, Real Estate |
| | Weak: Energy, Industrials, Financials, Materials, Information Technology |
Moving the Market
-- Wait-and-see mode in front of Wednesday's release of benchmark revisions for nonfarm payrolls and the FOMC Minutes for the July 30-31 meeting
-- Consolidation activity following eight-session win streak for S&P 500 and Nasdaq Composite
| Stock Market Summary
20-Aug-24 16:20 ET
Dow -61.56 at 40834.97, Nasdaq -59.83 at 17816.93, S&P -11.13 at 5597.12
[BRIEFING.COM] The stock market acted today as if it was biding its time in front of some key happenings that should make for more excitable trading action in Wednesday's trade. In terms of today's trade, it featured modest losses for the major indices that broke an eight-session winning streak for the S&P 500 and Nasdaq Composite.
It was effectively a consolidation trade with neither buyers nor sellers showing a great deal of conviction at the index level.
Outsized moves were reserved for individual stocks like Palo Alto Networks (PANW 368.01, +24.65, +7.2%), which impressed with earnings results and guidance, Eli Lilly (LLY 949.97, +28.16, +3.1%), which impressed with news that tirzepatide reduced the risk of developing type 2 diabetes by 94% in adults with pre-diabetes, and Boeing (BA 172.09, -7.55, -4.2%), which got hit by a Bloomberg report indicating the aircraft manufacturer paused test flights of its 777X to investigate cracks in a key part.
Home improvement retailer Lowe's (LOW 240.32, -2.89, -1.2%) was another story stock, losing ground after issuing disappointing FY25 guidance, yet its losses were not material.
From a sector standpoint, the only material move today was made by the energy sector (-2.7%). Losses were registered by every component in what looked like a basket trade to reduce exposure. WTI crude futures were down just 0.8% to $73.17/bbl.
Outside of the energy sector, the biggest moves were made by the consumer staples (+0.5%) and materials (-0.4%) sectors.
Today's lack of conviction was reflected in the relatively light volume totals at the NYSE and Nasdaq; whereas, today's lack of buying interest was reflected in an advance-decline line that favored decliners by a nearly 2-to-1 margin at the NYSE and Nasdaq.
The Treasury market put together a nice day with yields sliding across the curve. Participants engaged the notion that many of the world's leading central banks -- and the Federal Reserve in particular -- are shifting (or soon will be) to a less restrictive policy stance. The 2-yr note yield dropped seven basis points to 4.00% and the 10-yr note yield fell five basis points to 3.82%.
The impending shift for the Fed, which has held rates higher for longer than other central banks, continues to take a toll on the dollar, which lost ground against the euro, the yen, and pound sterling again today. The U.S. Dollar Index was down 0.5% at 101.48, leaving it down 4.2% for the quarter and trading at its lowest level since the start of the year.
There was a pickup in hedging interest today, evidenced by the 8.0% jump in the CBOE Volatility Index ("VIX") to 15.82.
The pickup in the VIX came ahead of Wednesday's main events, which include the earnings reports from Target (TGT 144.44, -0.19, -0.1%), Macy's (M 17.74, -0.08, -0.5%), and TJX Cos. (TJX 113.31, +0.82, +0.7%) before the open, the release of benchmark revisions to nonfarm payrolls for April 2023-March 2024 at 10:00 a.m. ET, the $16 billion 20-yr bond auction at 1:00 p.m. ET, and the release of the Minutes for the July 30-31 FOMC meeting at 2:00 p.m. ET.
There was no U.S. economic data of note today.
- Nasdaq Composite: +18.7% YTD
- S&P 500: +17.3% YTD
- S&P Midcap 400: +8.3% YTD
- Dow Jones Industrial Average: +8.3% YTD
- Russell 2000: +5.7% YTD
Ready for Wednesday
20-Aug-24 15:30 ET
Dow -75.12 at 40821.41, Nasdaq -45.35 at 17831.41, S&P -9.35 at 5598.90
[BRIEFING.COM] The indices are rolling into the final half hour with modest losses in most cases. Altogether there hasn't been a lot of conviction, which is reflected in the relatively light volume totals.
Separately, there has been a pickup in hedging interest today, evidenced by the 6.3% jump in the CBOE Volatility Index ("VIX") to 15.57.
The pickup in the VIX comes ahead of Wednesday's main events, which include the earnings reports from Target (TGT 144.28, -0.35, -0.2%), Macy's (M 17.70, -0.11, -0.7%), and TJX Cos. (TJX 112.97, +0.49, +0.4%) before the open, the release of benchmark revisions to nonfarm payrolls for April 2023-March 2024 at 10:00 a.m. ET, the $16 billion 20-yr bond auction at 1:00 p.m. ET, and the release of the Minutes for the July 30-31 FOMC meeting at 2:00 p.m. ET.
Win streak on the line
20-Aug-24 15:00 ET
Dow -67.66 at 40828.87, Nasdaq -24.16 at 17852.60, S&P -5.50 at 5602.75
[BRIEFING.COM] It is shaping up to be an exciting final hour, if only because it is nip and tuck to see if the eight-session win streak for the S&P 500 and Nasdaq Composite is going to end.
Both are in negative territory now, but neither is down by much to make a positive finish seem out of reach at this point. Recall that yesterday saw a flurry of buying interest in the last 10 minutes of trade.
The energy sector (-2.2%) remains pinned at the bottom of the sector leaderboard; otherwise, there hasn't been much conviction on the part of sellers as losses for seven other sectors range from 0.1% to 0.3%.
The Treasury market has settled the cash session with the yield on the 2-yr note sitting right at 4.00%, down seven basis pints from Monday's settlement level.
The U.S. Dollar Index is down 0.4% at 101.44.
A bit of a pickup
20-Aug-24 14:30 ET
Dow -6.63 at 40889.90, Nasdaq -23.31 at 17853.45, S&P -3.47 at 5604.78
[BRIEFING.COM] There has been some improvement in the stock market over the past 30 minutes that sent the Dow Jones Industrial Average into positive territory for a bit. The catalyst for the improvement was unclear, yet the effort to fight back from losses is not inconsistent with the market's personality of late.
The S&P 500 and Nasdaq Composite started today on an eight-session win streak.
The improvement coincided with a pickup in buying interest among the mega-cap stocks, but it wasn't a super-charged move. To wit: the Vanguard Mega-Cap Growth ETF (MGK) went from being down 0.1% to being up 0.2%.
DJIA is a relative strength leader
20-Aug-24 14:00 ET
Dow -66.07 at 40830.46, Nasdaq -62.66 at 17814.10, S&P -13.48 at 5594.77
[BRIEFING.COM] Mostly sideways action over the last hour or so that has left the indices close to their lows for the session.
The Dow Jones Industrial Average is down 0.2%, which makes it a relative strength leader. The S&P 500 is down 0.3%; the Nasdaq Composite is down 0.4%; the S&P Midcap 400 is down 1.0%; and the Russell 2000 is down 1.3%.
Procter & Gamble (PG 170.21, +1.79, +1.1%) is the Dow's biggest percentage gainer, but the moves in higher-priced UnitedHealth (UNH 582.34, +3.56, +0.6%), Microsoft (MSFT 424.13, +2.60, +0.6%), and Home Depot (HD 365.67, +2.60, +0.7%) are having a bigger impact on the price-weighted average and are helping, along with other components like Walmart (WMT 74.47, +0.75, +1.0%) and Apple (AAPL 226.75, +0.86, +0.4%), to offset the loss in Boeing (BA 172.00, -7.64, -4.3%).
Medtronic heads modestly higher on healthy Q1 results; lifts low end of FY25 guidance (MDT)
Medical device manufacturer Medtronic (MDT +1%) posted a healthy Q1 (Jul) performance, lifting its stock toward 52-week highs today. MDT, which commands an expansive portfolio of medical devices, also nudged the low end of its FY25 (Apr) adjusted EPS and organic revenue growth forecasts modestly higher. Outside of its Medical Surgical segment, which barely slipped into negative yr/yr growth territory in the quarter, MDT enjoyed gains across its portfolio, underscoring solid underlying market demand and the benefits of being at the front end of many new product cycles.
- MDT registered adjusted EPS of $1.23, a 2.5% bump yr/yr, and revs of $7.97 bln, a 3.4% improvement as reported and a 5.3% jump on an organic basis. MDT's ninth consecutive earnings beat was supported by accelerating top-line growth and ongoing progress on underlying margin improvement activities, including pricing and cost-out programs.
- MDT's accelerating revenue growth in Q1 was aided by a 5.5% jump in Cardiovascular sales to $3.01 bln. Several businesses within Cardiovascular enjoyed decent growth, underscoring the key to MDT's steady success: its constant investments in technology, which is vital to keep pace with a rapid shift in the treatment of diseases. Neuroscience and Diabetes similarly enjoyed decent revenue growth, further propped up by continuous investments, such as MDT's Pain Stim, which saw 11% growth in its first quarter since launching in the U.S.
- Lagging slightly in Q4 was Medical Surgical, which fell by 0.4% yr/yr, hindered by an unfavorable yr/yr comparison from back-order fulfillment during the first half of FY23. Meanwhile, the Korean market is experiencing a slowdown from ongoing physician strikes, similar to what Intuitive Surgical (ISRG) endured during Q2 (Jun). However, management expects Surgical to return to more normalized growth during the back half of FY25 once these comparisons ease.
- As a result, MDT did not hike its FY25 guidance but did take some of the sting out of its previous worst-case scenario. The company expects FY25 adjusted EPS of $5.42-5.50, up at the low end by $0.02, and organic revenue growth of +4.5-5.0%, also up at the low end by +0.5 pts.
MDT's Q1 results accelerated from last quarter but still ran into some sticky headwinds, keeping a lid on a possibly improved FY25 outlook. MDT can continue to extract benefits from its continuous R&D efforts, tuck-in acquisitions, and strong market share across several categories, including those within its Cardiovascular and Neuroscience segments. MDT's reliance on Medicare reimbursement rates can keep uncertainty high. However, MDT is optimistic that developments on this front are moving in the right direction.
Overall, while MDT does not typically record explosive yr/yr growth each quarter, results tend to improve steadily over time, reflecting the relative stability of the health care sector. MDT also pays investors a solid 3.2% annual dividend yield, recently increasing its dividend at the end of FY24, a typical occurrence for MDT as it has been raising its annual dividend consistently for multiple decades. As such, MDT is worth keeping on the radar.
Fabrinet leaps to all-time highs on energetic Q4 results and Q1 guidance; benefiting from AI (FN)
Fabrinet (FN +17%) gaps up to record highs today after delivering impressive Q4 (Jun) results and energetic Q1 (Sep) guidance. FN operates in the optical product manufacturing field, delivering advanced optical packaging and electronic manufacturing services or EMS to original equipment manufacturers within several verticals, from automotive to medical and cloud computing. It competes with several other EMS players, including Jabil (JBL), Flex (FLEX), and Sanmina (SANM). With NVIDIA (NVDA) being one of FN's largest customers, comprising around an eighth of total sales last year, FN has been on a steady upward climb this year. While there were some concerns, such as potential cracks in the economy, leading into FN's Q4 report, another round of upbeat numbers was more than sufficient to squash these fears.
- To illustrate FN's consistently uplifting quarterly results, its Q4 adjusted EPS of $2.41, a 30.3% improvement yr/yr, and revenue of $753.26 mln, a 14.8% jump, marked the fourth consecutive quarter in which both top and bottom-lines have reached records. Adjusted earnings continued to grow at a more rapid pace than revenue, illuminating management's constant focus on cost-cutting.
- Demand was uneven during the quarter, as expected. Non-optical Communications revs saw a 2% bump yr/yr, supported by increasing automotive revs. Optical Communications revs climbed by 19% yr/yr, with datacom revenue, a subsegment of optical communications, exploded, surging by 63% yr/yr. The underlying factor here was AI, as evidenced by a 54% increase in revenue for 800 gig and faster products (which are required for AI, with NVDA being a major customer), compared to a 4% increase in revenue for products below 800 gig.
- Conversely, telecom revs, also contained within Optical Communications, contracted by around 1%, which was a smaller decline than FN anticipated due to steady growth from data center interconnect products. Telecom revenue sank by over 20% for the year, reflecting the industry's ongoing inventory digestion. However, FN is optimistic that recent system wins within telecom will begin to make more meaningful revenue contributions during 2H25.
- As a result, FN's Q1 guidance was promising, projecting adjusted EPS of $2.33-2.40 and revs of $760-780 mln, both representing robust yr/yr growth. FN also announced an additional $139 mln for share buybacks, increasing its total authorization to $200 mln, double the size of its repurchase plan at the beginning of FY24.
There was plenty to like from FN in Q4, especially regarding its datacom business, which is benefiting enormously from the healthy demand for all things AI. Also, FN demonstrated its confidence in market demand dynamics over the longer term, announcing that it would break ground on a 2.0 mln square-foot facility at its Chonburi campus during FY25 after its most recent 1.0 mln square-foot facility, which opened two years ago, continues to quickly fill up. FN is also pursuing other customers outside of NVDA to tap further into the unwavering demand for AI. As such, we think FN is worth a look for buy-and-hold investors.
Lowe's Q2 earnings report holds few surprises as home improvement spending remains sluggish (LOW)
It's no secret that consumers have been reining in spending on home improvement projects -- especially for those that are on the pricier side -- so it doesn't come as a major surprise that Lowe's (LOW) fell short of Q2 revenue and comparable sales expectations. Like Home Depot (HD), which issued lackluster Q2 results one week ago, LOW also lowered its FY25 EPS and comparable sales guidance, reflecting weaker-than-expected DIY sales and macroeconomic pressures, including persistently high interest rates that are keeping a lid on the housing market.
- That ongoing weakness in the DIY business, combined with unfavorably warm spring weather, drove a 5.1% decrease in Q2 comps. Additionally, not only are high interest rates making big-ticket projects, like kitchen remodels, more expensive, but they're also keeping homeowners in their current homes. This, in turn, is leading to subdued demand for maintenance, repair, and remodeling projects that typically take place before a house goes on the market.
- Staying true to recent form, the Pro business significantly outperformed DIY again with comps up mid-single-digits. Pro projects tend to be more costly than DIY, but they also can be tied to new home construction, which has remained quite healthy due to the lack of housing supply.
- Another highlight is that LOW comfortably surpassed EPS expectations, extending a winning streak that spans over five years. The company relied on a familiar recipe of tight cost controls and share buybacks to help offset sluggish sales and deliver another earnings beat. Specifically, SG&A expenses were down by 1.5% yr/yr and LOW repurchased approximately $1.0 bln worth of shares during the quarter.
- Despite the Q2 EPS beat, LOW cut its FY25 EPS guidance to $11.70-$11.90 from its prior forecast of $12.00-$12.30. The company didn't stop there as it also lowered its FY25 revenue outlook to $82.7-$83.2 bln from $84.0-$85.0 bln, and its comp guidance to -3.5 to -4.0% from -2.0% to -3.0%.
- The market, though, is taking the gloomy outlook in stride. That's because it was widely anticipated, especially in the wake of HD's guidance cut, and because investors are already setting their sights on next fiscal year when the prospects of lower rates should give the housing market a boost.
The main takeaway is that there were few, if any, surprises in LOW's earnings report. Spending remains slow on home improvement projects and that seems unlikely to change much until interest rates come down and the housing market improves.
Palo Alto Networks makes strong move on earnings as platformization takes hold (PANW)
Palo Alto Networks (PANW +7%) is trading nicely higher after reporting Q4 (Jul) results last night. The cybersecurity giant returned to its pattern of double-digit EPS beats after a rare dip below that level in Q3 (Apr). Revenue rose 12.1% yr/yr to $2.19 bln, which was slightly better than analyst expectations. PANW also approved an additional $500 mln for share repurchases, increasing its remaining authorization to $1 bln.
- A big highlight of the quarter was the guidance. PANW has either guided EPS below or in-line with consensus in each of the past two quarters. As such, it was good to see the company provide good size EPS upside guidance for Q1 (Oct) with slight upside revenue guidance at the mid-point. We also got our first look at FY25 guidance. The mid-point of both EPS and revenue guidance was above analyst expectations. PANW is typically conservative with guidance, so this was encouraging to see.
- In its Supplemental Financials, PANW reported that billings grew 10.8% yr/yr to $3.50 bln, which was above prior guidance of $3.43-3.48 bln. However, with a new fiscal year, PANW made an important change in its reporting of metrics. PANW will no longer focus on billings. With higher rates, more clients are asking to spread payments over multiple years instead of an upfront payment. Also, PANW recently rolled out its platformization strategy. Both have made the billings metric more volatile.
- Going forward, PANW will focus more NGS (Next Generation Security) ARR and RPO. In Q4, NGS ARR grew 43% yr/yr to $4.2 bln while RPO grew 20% yr/yr to $12.7 bln. In terms of geographies, PANW saw revenue growth across all regions, with the Americas growing 11%, EMEA up 14% and JPAC 15%.
- PANW firmly believes that the answer to keep up with security threats is platformization of cybersecurity over time. PANW concedes there was significant consternation around its platformization strategy six months ago. However, now PANW wishes it had started down this path sooner. After a strong addition of 65 new platformizations in Q3, PANW added over 90 in Q4, and now has well over 1,000 total platformizations among its 5,000 largest customers. The important thing here is that as PANW converts customers to platform customers and single platform customers to multi-platform customers, PANW sees an uplift in ARR.
Clearly, investors impressed with how PANW closed out FY24. What stands out to us is the bullish guidance, especially for Q1 but also for FY25. The company talked a lot on the call how its platformization is driving results and boosting ARR. PANW saw an acceleration in 2H driven by demand for platformization, which is broadening and strengthening as it closed FY24. The investor concerns about this shift to platformization seem to be subsiding. Also, management has been notably more bullish on the last two earnings calls after talking about spending fatigue by some customers on its Q2 call.
fuboTV surges after competing platform Venu Sports gets blocked from launching this fall (FUBO)
Sports streaming platform fuboTV (FUBO +19%) soars after winning a preliminary injunction against a joint venture between Walt Disney (DIS), Fox Corp (FOXA), and Warner Bros Discovery (WBD). These cable and streaming titans planned to launch Venu Sports, a live streaming platform, this fall. The court ruling, which was officially announced after the close on Friday, comes as a major win for FUBO.
- The Venu Sports announcement, which at the time in early February had no name, was a devastating hit to FUBO, which revolves around live sports. Venu Sports was also scheduled to launch in the fall, coinciding with the critically important NFL and college football seasons, as well as the MLB playoffs and many other major sporting events.
- The issue FUBO faced with Venu Sports was that the streaming giants behind the platform would include some sports-focused channels that were also on FUBO but now charge the company more to carry them. Furthermore, at a planned price of $42.99/month, Venu Sports significantly undercut FUBO's prices, which start at $79.99/month.
- With its market position threatened, FUBO announced in February that it was suing these corporations for antitrust practices. At the time, the lawsuit did not trigger any reversals in FUBO shares, likely because investors were not confident in a favorable outcome. However, now that FUBO has won a preliminary injunction against the Venu Sports joint venture, which is now blocked from launching, its stock is exploding.
Blocking the joint venture between DIS, FOX, and WBD is a significant victory for FUBO. However, nothing is set in stone. The three cable giants plan to appeal, which could then bring Venu Sports back on the scene, threatening FUBO's live sports streaming market share. Nevertheless, for the time being, FUBO's win comes at a critical time as the fall sports schedule heats up.
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