Market Snapshot
| Dow | 40890.49 | +55.52 | (0.14%) | | Nasdaq | 17918.98 | +102.05 | (0.57%) | | SP 500 | 5620.85 | +23.73 | (0.42%) | | 10-yr Note | +1/32 | 3.78 |
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| | NYSE | Adv 2074 | Dec 681 | Vol 749 mln | | Nasdaq | Adv 2963 | Dec 1239 | Vol 4.8 bln |
Industry Watch
| Strong: Utilities, Consumer Discretionary, Materials, Consumer Staples, Industrials, Health Care |
| | Weak: Energy, Financials |
Moving the Market
-- Target (TGT) surging after raising its full-year earnings outlook; TJX (TJX) trading higher after raising its full-year comparable sales guidance
-- Below-average volume at the NYSE and at the Nasdaq due to summer vacation schedules
-- Treasury yields slightly lower
| Closing Summary
21-Aug-24 16:40 ET
Dow +55.52 at 40890.49, Nasdaq +102.05 at 17918.98, S&P +23.73 at 5620.85
[BRIEFING.COM] The stock market was back on a winning track today after modest declines yesterday, which broke an eight-session winning streak for the S&P 500 and Nasdaq Composite. The Russell 2000 outperformed its peers, rising 1.3%. The S&P 500 logged a 0.4% gain and the Nasdaq Composite settled 0.6% higher.
Volume was below-average at the NYSE again today, reflecting an ongoing lack of conviction. Still, advancers had a 3-to-1 lead over decliners at the NYSE and a 5-to-2 lead at the Nasdaq.
Today's release of revisions to nonfarm payrolls for the April 2023-March 2024 period, which ultimately garnered a muted response from equities, showed that there were 818,000 fewer nonfarm payroll positions than previously thought, creating some concern that the labor market has been softening for a longer period than previously thought.
The stock and bond markets also had muted reactions to today's $16 billion 20-yr bond auction, which met good demand, and the release of the minutes from the July 30-31 FOMC meeting. The minutes were highlighted by the Fed's comments that a rate cut was "plausible" at the meeting, suggesting a September cut was all but guaranteed.
The 10-yr note yield settled four basis points lower at 3.78% and the 2-yr note yield declined seven basis points to 3.92%.
The upside bias in the stock market was supported by shares of Target (TGT 159.25, +16.04, +11.2%), which surged after reporting earnings and raising its full-year earnings outlook has contributed to the upside bias. TJX (TJX 120.23, +6.92, +6.1%) also traded higher after reporting earnings and raising its full-year comparable sales guidance.
TGT and TJX were among the top performing stocks in the S&P 500. This price action boosted the consumer staples (+0.6%) and consumer discretionary (+1.2%) sectors.
- Nasdaq Composite: +19.4% YTD
- S&P 500: +17.8% YTD
- S&P Midcap 400: +9.7% YTD
- Dow Jones Industrial Average: +8.5% YTD
- Russell 2000: +7.1% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -10.1%; Prior 16.8%
Thursday's economic lineup features:
- 8:30 ET: Weekly initial (Briefing.com consensus 225,000; prior 227,000) and continuing (prior 1.864 million) jobless claims
- 9:45 ET: August preliminary S&P Global US Manufacturing PMI (prior 49.6) and S&P Global US Services PMI (prior 55.0)
- 10:00 ET: July Existing Home Sales (Briefing.com consensus 3.9 million; prior 3.89 million)
- 10:30 ET: EIA Natural Gas Inventories (prior -6 bcf)
Stocks move mostly sideways ahead of the close
21-Aug-24 15:40 ET
Dow +18.79 at 40853.76, Nasdaq +59.74 at 17876.67, S&P +13.86 at 5610.98
[BRIEFING.COM] The three major indices moved mostly sideways in recent action. The Nasdaq Composite trades 0.3% higher.
Thursday's economic lineup features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 225,000; prior 227,000) and Continuing Claims (prior 1.864 mln)
- 10:00 ET: July Existing Home Sales (Briefing.com consensus 3.90 mln; prior 3.89 mln)
- 10:30 ET: Weekly natural gas inventories (prior -6 bcf)
Treasuries and equities little changed by Fed Minutes
21-Aug-24 15:10 ET
Dow +28.69 at 40863.66, Nasdaq +68.99 at 17885.92, S&P +16.65 at 5613.77
[BRIEFING.COM] The market's response to the Fed Minutes has been muted. The major indices, along with Treasury yields, sit little changed from levels seen in front of the release.
The market-cap weighted S&P 500 trades 0.3% higher and the equal-weighted S&P 500 trades 0.6% higher. Only one S&P 500 sector trades lower -- financials (-0.2%) -- while the consumer discretionary (+1.1%) and materials (+1.1%) sectors trade up more than 1.0%.
Elsewhere, the 10-yr note yield is at 3.78% and the 2-yr note yield sits at 3.93%.
FOMC minutes suggest September cut is likely appropriate if data comes as expected
21-Aug-24 14:30 ET
Dow +30.91 at 40865.88, Nasdaq +100.34 at 17917.27, S&P +23.43 at 5620.55
[BRIEFING.COM] The minutes for the July 30-31 FOMC meeting were highlighted by the Fed's comments that a rate cut was "plausible" at the meeting, suggesting a September cut was all but guaranteed. Recent trading has the S&P 500 (+0.42%) is in second place, having moved mostly sideways over the prior half hour. The minutes showed that financial conditions eased modestly over the intermeeting period, reflecting lower long-term interest rates and higher equity prices. The minutes also noted that the vast majority of participants observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.
Further, all participants supported maintaining the target range for the federal funds rate at 5.25 to 5.50 percent, although several observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision.
A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased. Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration. Many participants noted that reducing policy restraint too late or too little could risk unduly weakening economic activity or employment.
Yields dipped following the minutes, the yield on the benchmark 10-yr treasury note is now down about four basis point at 3.770%.
Gold slips ahead of FOMC minutes
21-Aug-24 13:55 ET
Dow +31.83 at 40866.80, Nasdaq +74.24 at 17891.17, S&P +18.60 at 5615.72
[BRIEFING.COM] With about two hours to go the tech-heavy Nasdaq Composite (+0.42%) is atop the standings; the markets hold modest gains across the board ahead of the release of the Minutes for the July 30-31 FOMC meeting at the top of the hour.
Gold futures settled $3.10 lower (-0.1%) to $2,547.50/oz, lower despite modest losses in the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $101.14.
Toll Brothers feeling right at home in current conditions as it delivers beat-and-raise report (TOL)
Luxury homebuilder Toll Brothers (TOL) constructed strong results once again in Q3, beating EPS and revenue expectations, and the outlook is only getting brighter as mortgage rates continue to drift lower. In fact, mortgage rates are sitting at their lowest levels of the year, providing an already healthy new home construction market with another boost. As such, TOL is seeing solid deposit and traffic activity so far in August, giving it the confidence to raise its FY24 home deliveries and adjusted gross margin on home sales guidance.
- TOL now projects FY24 deliveries of 10,650-10,750 homes, up from its prior forecast of 10,400-10,800 deliveries, and adjusted gross margin on home sales of 28.3% compared to its previous outlook of 28.0%. Comparatively, TOL's gross margin on home sales is higher than most of its peers, which is a function of its more affluent customer base and its higher end homes that have an average price tag around $1.0 mln.
- For instance, D.R. Horton's (DHI) gross profit on home sales in Q3 was 24%, and KB Home's (KBH) was 21.1% last quarter.
- To help ease affordability issues, homebuilders have ramped up incentives, including the practice of paying down mortgage rates. However, given that TOL's customer base typically puts down a larger down payment and is better equipped to handle higher mortgage rates, the company can afford to be less aggressive with its promotions.
- While mortgage rates were higher in Q3 compared to where they sit right now, demand was still quite healthy for TOL. Delivered homes increased by 11% to 2,814, slightly above the midpoint of its guidance of 2,750-2,850 units. As has been the case for the last few years at least, a lack of inventory of homes for sale continues to create a supply and demand imbalance in the housing market, pushing buyers towards new construction.
- The cherry on top is that TOL also increased its expected share repurchase total for FY24 to $600 mln from $500 mln, reflecting its confidence in its business prospects and providing the company with another EPS lever to pull.
The main takeaway is that momentum only seems to be building for TOL as mortgage rates cool off and as the supply/demand dynamics are expected to remain favorable for the new construction market for the foreseeable future.
Macy's struggles to overcome a deteriorating spending environment as revs miss the mark in Q2 (M)
After Macy's (M -12%) rejected an increased takeover bid from Arkhouse Management and Brigade Capital Management last month, investors were frustrated that the department store chain would bet on its "Bold New Chapter" strategy instead of going private. Shares of Macy's gapped lower, sinking to lows on the year. Given the disappointment over Macy's direction, it was pivotal that the company showcase early gains from its strategy. However, Macy's fell short, missing Q2 revenue estimates and posting a -4.0% drop in comparable sales. As a result, the stock is falling towards recent lows on the year.
- For the quarter, revenue fell by 3.8% yr/yr to $4.94 bln. While not an uncommon occurrence, it has been over a year since Macy's came up lighter than expected on its top line. Conversely, EPS toppled consensus, continuing Macy's excellent string of earnings beats.
- Macy's missing sales estimates were not entirely due to internal woes or weak brand recognition. The consumer discretionary environment did not remain as stable as management predicted. As Q2 progressed, the end consumer grew more discriminating, reflecting ongoing macroeconomic uncertainty, i.e., cumulative inflationary pressures, and what Macy's called a complex news cycle -- similar to remarks from Amazon (AMZN) during its JunQ conference call.
- Still, with mass merchants like Walmart (WMT) and Target (TGT), as well as off-price retailer TJX (TJX), delivering outsized performances during JulQ, investors are pinning much of the sales miss on Macy's. These competitors' apparel comps performed well, with TGT boasting a +3% improvement yr/yr and TJX delivering positive apparel sales growth. Given these numbers, we question if consumers are drifting towards mass merchants to consolidate shopping trips and lower-priced firms to find better value amid sticky inflation.
- Looking ahead, conditions are not expected to improve significantly. Macy's anticipates FY25 (Jan) EPS of $2.55-2.90, unchanged from its previous forecast despite the upside delivered in Q2, and revs of $22.1-22.4 bln, slightly lowered from its previous $22.3-22.9 bln outlook. Same-store sales are expected to slip by 0.5-2.0%, trimmed from its prior guidance of down 1.0% to up 1.5%.
There were still some silver linings. Macy's saw green shoots related to its Bold New Chapter strategy, including strength in fragrances and women's ready-to-wear apparel. Customers also responded well to some of the company's private brands, which could prove a revenue and margin boost over time as the current environment continues to trigger value-seeking behavior. Furthermore, Macy's First 50 initiative, where it selected certain stores to test new strategies, achieved its second straight quarter of positive comps, netting +1.0% in the quarter.
Nevertheless, Macy's performance in the quarter was dissatisfactory, especially following its decision to reject an increased takeover offer to go private. We mentioned in July when Arkhouse and Brigade Capital hiked their offer that if Macy's opted to stay public, investors could become impatient if the company's turnaround plan failed to produce material gains over the next couple of quarters. Following a less than stellar Q2 report, there is even more riding on Macy's to deliver meaningful results next quarter.
TJX rings up strong results yet again and emerges as back-to-school shopping season winner (TJX)
Amid a tough business climate for retailers, TJX (TJX) continues to thrive, achieving strong financial results that indicate that the owner of the HomeGoods, TJ Maxx, and Marshall brands continues to gain market share. Earlier this morning, the off-price retailer reported upside 2Q25 results and raised its FY25 guidance, while CEO Ernie Herrman stated that Q3 is off to a strong start. Clearly, the back-to-school shopping season has been a success for TJX as its lower prices and newer/on-trend product assortments resonate with both parents and kids alike.
- The top and bottom-line beat is great, but the metric that really stands out to us is TJX's same store comps. On a blended basis, comps came in at +4%, exceeding TJX's guidance of +2-3% and beating analysts' expectations. Like last quarter, the growth was entirely driven by transactions, illustrating the strength of its brands.
- Marmaxx, which combines TJ Maxx and Marshalls and is the company's largest segment, performed exceptionally well with comps increasing by 5%, despite lapping growth of 8% in the year-earlier period.
- Despite a sluggish demand environment for the home decor category, HomeGoods still posted a positive comp of +2% for the quarter.
- Another notable metric is pretax profit margin, which improved by 500 bps yr/yr to 10.9% and is well above the company's plan. In addition to the solid sales growth, lower freight costs helped drive pretax margin higher.
- If there is any blemish, it's that TJX's Q3 EPS guidance of $1.06-$1.08 fell a bit short of expectations. However, the company has a tendency to guide conservatively, so investors are taking the downside guidance in stride. For instance, last quarter, TJX guided for Q2 EPS of 0.88-$0.94 -- which missed expectations -- but the company ultimately surpassed that outlook as EPS came in at $0.96.
- The Q2 results and guidance aren't the only news items of the day for TJX. In the earnings press release, the company announced that it signed an agreement to make a $360 mln investment in Dubai-based off-price retailer Brands for Less (BFL). The 35% ownership stake is only a minority position, but the investment provides TJX with exposure to the off-price retail market in the Dubai region with minimal risk. Beginning in FY26, the investment in BFL is expected to be slightly accretive to EPS.
The main takeaway is that TJX's brands are really resonating with consumers, including younger shoppers who are seeking higher quality products at affordable prices. A trade-down effect from more expensive retailers is also helping TJX to gain market share. Unless macroeconomic conditions seriously deteriorate, TJX should continue to flourish as consumers continue to tighten their spending budgets.
Target on target with Q2 results; stock surges on big EPS upside, return to positive comps (TGT)
Target (TGT +12%) is surging after reporting impressive Q2 (Jul) results. Last quarter, Target broke its string of five consecutive quarters of reporting huge EPS beats, but it's back on track with a big EPS beat in Q2. Revenue rose 2.7% yr/yr to $25.45 bln, which was better than expected. The guidance was good as Target guided Q3 (Oct) EPS at $2.10-2.40, the mid-point of which was better than expected. Also, TGT raised its full year EPS outlook by a good amount.
- Same store comps for Q2 came in at +2.0% (in-store +0.7%; digital +8.7%), at the high end of +0-2% prior guidance. This marked its first positive comp after four declines. Traffic grew 3% yr/yr, with all six core merchandising categories delivering traffic growth. Same-day services saw double digit growth, led by low teens growth in Drive Up and Target Circle 360 same-day delivery.
- Importantly, TGT saw improving trends across its discretionary categories, most notably in apparel, where Target has incorporated new designs and value. Its All In Motion activewear brand delivered growth in the low-teens. Beauty was another standout with comp growth of +9% in Q2. Also, Food & Beverage and Essentials saw traffic growth as consumers responded to TGT's offerings in an environment where they're focused on value.
- Of note, its comp growth was driven entirely by traffic in stores and digital channels. Recall that in May, Target announced it would lower everyday regular prices on approximately 5,000 frequently shopped items. That helped drive traffic to its stores. Looking ahead, Target guided to Q3 comps of +0-2%. For the full year, the company reaffirmed comps of +0-2% but now believes the increase will more likely be in the lower half of that range.
- Operating margin in Q2 improved quite a bit to 6.4% from 4.8% a year ago and 5.3% in Q1. Margins were aided by merchandising activities, including cost improvements that more than offset higher promotional markdown rates, combined with favorable category mix. TGT is focused on continued margin expansion as it moves back towards and potentially beyond the 6% annual rate it was earning before the pandemic.
- In terms of the consumer, TGT said its view remains largely the same. Consumers have shown remarkable resilience in the face of multiple challenges. They continue to focus on value as they work hard to manage their household budgets. And while they continue to turn out and shop around holidays and other seasonal moments, many are delaying purchases until the moment of need.
Overall, we think investors are reacting to Target's large EPS beat and impressive operating margin expansion. Also, TGT finally returned to positive comps after several negative comps. Another big positive was Target being notably more bullish on consumer discretionary categories. As we have mentioned several times, Target has much higher exposure to discretionary categories than Walmart (WMT). In FY24, roughly 60% of Walmart US sales were groceries while 26% were general merchandise. Contrast that with Target, which is 23% Food & Beverage. On this morning's call, TGT said trends in discretionary categories have improved significantly, which is music to investors' ears.
Analog Devices jumps following sequential growth in JulQ as inventory headwinds begin to fade (ADI)
With the extended inventory rebalancing beginning to potentially fade, Analog Devices (ADI +2%) posted sequential growth for the first time in over a year in Q3 (Jul), exceeding analysts' earnings and sales expectations in the process. The signal processing and power management chip maker also projected Q4 (Oct) EPS and revenue consistent with consensus, with the midpoints translating to another quarter of sequential improvements.
Like many of its peers, such as Texas Instruments (TXN) and On Semi (ON), ADI is growing increasingly confident that the worst of the ongoing inventory digestion is behind it. However, it is hesitant to firmly declare a bottom, acknowledging that economic and geopolitical uncertainty could lead to an uneven recovery.
- The inventory adjustments from ADI's core verticals, automotive and industrial, which comprise over three-quarters of annual revenue, were on full display in Q3. Adjusted EPS slid by 36.5% yr/yr to $1.58 on a 24.8% drop in revenue to $2.31 bln. However, on a qtr/qtr basis, ADI delivered earnings and revenue growth of 12.9% and 6.9%, respectively.
- ADI expects this momentum to trickle into its final quarter of FY24, projecting adjusted EPS of $1.53-1.73 and revs of $2.30-2.50 billion. The low end of these forecasts does build in the possibility that conditions weaken over the near term. However, the midpoints of these targets signal solid sequential growth, further illuminating ADI's confidence that it has finally hit the inventory rebalance trough.
- Customer inventory levels have already started to improve, which supports ADI's optimistic outlook. Meanwhile, order momentum is picking up across most of its markets. AI also remains an underlying growth driver as companies continue to allocate additional resources towards bolstering their AI infrastructure and acquiring more power-efficient components, directly benefiting ADI given its focus on developing power-efficient chips.
- However, ADI expressed some caution given the heightened uncertainty across the global landscape limiting the pace of recovery, similar to the warning its peers outlined recently. For example, STMicroelectronics (STM) commented late last month that over the short term, it is enduring a longer and more pronounced inventory correction across the industrial market than what it anticipated. Additionally, TXN mentioned that while it believes the inventory correction is behind it, pockets of weakness persist across industrial and automotive, with some areas seeing further declines.
Nevertheless, with ADI confident it is through the thick of it regarding a challenging inventory cycle, investors are keeping shares trending positively today, mostly shrugging off the cloudy near future as it is consistent with what most of ADI's peers have already touched on. With AI continuing to provide a powerful tailwind, ADI is poised to continue extracting more upside in the long run.
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