Market Snapshot
| Dow | 41175.08 | +462.30 | (1.14%) | | Nasdaq | 17877.79 | +258.44 | (1.47%) | | SP 500 | 5634.61 | +63.97 | (1.15%) | | 10-yr Note | +4/32 | 3.81 |
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| | NYSE | Adv 2447 | Dec 304 | Vol 815 mln | | Nasdaq | Adv 3322 | Dec 904 | Vol 5.4 bln |
Industry Watch
| Strong: Real Estate, Consumer Discretionary, Materials, Energy, Information Technology, Industrials |
| | Weak: Consumer Staples, Communication Services |
Moving the Market
--Focus on Fed Chair Powell speech; saying "the time has come for policy to adjust"
--Leadership from semiconductor shares
-- Buy-the-dip after yesterday's slide
-- Treasury yields sharply lower in response to Fed Chair Powell's comments and a stronger than expected new home sales report for July
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Closing Summary
23-Aug-24 16:30 ET
Dow +462.30 at 41175.08, Nasdaq +258.44 at 17877.79, S&P +63.97 at 5634.61
[BRIEFING.COM] Stocks started the final session of the week on an upbeat note, building on gains after Fed Chair Powell's dovish sounding comments at the Jackson Hole Economic Symposium. Mr. Powell all but confirmed that a rate cut is coming in September, acknowledging that "the time has come for policy to adjust."
The chairman also noted that "downside risks to employment have increased," but the market wasn't bothered and buying activity was robust. There was a mid-session lull that had the major indices trading at intraday lows due to lagging mega cap constituents, but the indices ultimately closed near session highs.
The Dow Jones Industrial Average rose 1.1%, the S&P 500 logged a 1.2% gain, the Nasdaq Composite climbed 1.5%, and the Russell 2000 outperformed, jumping 3.2%.
All 11 S&P 500 sectors closed higher led by real estate (+2.0%), consumer discretionary (+1.7%), information technology (+1.7%), energy (+1.5%), and materials (+1.4%). The consumer staples sector logged the slimmest gain, up 0.2%.
The upside bias was also supported by strength in the semiconductor space and a drop in Treasury yields. The PHLX Semiconductor Index (SOX) logged a 2.8% gain. The 10-yr note yield fell six basis points to 3.81% and the 2-yr note yield, which is most sensitive to changes in the fed funds rate, declined ten basis points to 3.91%.
The price action in Treasuries was also related to a stronger than expected new home sales report for July.
- Nasdaq Composite: +19.1% YTD
- S&P 500: +18.1% YTD
- S&P Midcap 400: +11.3% YTD
- Russell 2000: +9.5% YTD
- Dow Jones Industrial Average: +9.3% YTD
Reviewing today's economic data:
- New home sales surged 10.6% month-over-month in July to a seasonally adjusted annual rate of 739,000 units (Briefing.com consensus 628,000) from an upwardly revised 668,000 (from 617,000) in June. On a year-over-year basis, new home sales were up 5.6%.
- The key takeaway from the report is that new home sales, which are tabulated when contracts are signed, saw an encouraging jump in July that coincided with mortgage rates coming down.
Looking ahead to next week, the report on Durable Goods Orders in July will be released on Monday.
Treasury yields slide
23-Aug-24 15:45 ET
Dow +431.23 at 41144.01, Nasdaq +221.68 at 17841.03, S&P +55.10 at 5625.74
[BRIEFING.COM] Stocks move slightly higher in front of the close.
The 10-yr note yield fell six basis points to 3.81% and the 2-yr note yield declined ten basis points to 3.91%.
Next week's economic lineup features:
- August Consumer Confidence (prior 100.3) on Tuesday
- Q2 GDP -- second estimate (prior 2.8%), Q2 GDP Deflator -- second estimate (prior 2.3%), weekly Initial Claims (prior 232,000), Continuing Claims (prior 1.863 mln) on Thursday
- July Personal Income (prior 0.2%), Personal Spending (prior 0.3%), PCE Prices (prior 0.1%), and Core PCE Prices (prior 0.2%) and final August University of Michigan Consumer Sentiment (prior 67.8)on Friday
Stocks move mostly sideways
23-Aug-24 15:10 ET
Dow +357.56 at 41070.34, Nasdaq +196.05 at 17815.40, S&P +47.23 at 5617.87
[BRIEFING.COM] There hasn't been much up or down movement at the index level in recent action. The Russell 2000 continues to outperform, trading 3.0% higher.
The S&P 500 trades 0.8% higher today, bringing its gain this week to 1.1%.
Looking ahead to next week, the report on Durable Goods Orders in July will be released on Monday.
Builders FirstSource, Enphase Energy top S&P 500 on Friday
23-Aug-24 14:30 ET
Dow +352.69 at 41065.47, Nasdaq +213.41 at 17832.76, S&P +48.47 at 5619.11
[BRIEFING.COM] The S&P 500 is tied with the Dow Jones Industrial Average in second place, each up about +0.87% apiece.
Elsewhere, S&P 500 constituents Builders FirstSource (BLDR 180.10, +12.55, +7.49%), Enphase Energy (ENPH 123.56, +8.07, +6.99%), and Norwegian Cruise Line (NCLH 17.41, +1.17, +7.20%) pepper the top of today's standings. BLDR is higher today given the prospect of lower mortgage rates as well as the New Home Sales report for July, which beat expectations by a sizable margin, while ENPH and NCLH post nice gains despite a dearth of corporate news.
Meanwhile, GE Vernova (GEV 181.33, -4.67, -2.51%) is near the bottom of the average after reports of a blade failure at an offshore wind farm in the UK.
Gold jumps on Friday, notches weekly gains
23-Aug-24 14:00 ET
Dow +330.96 at 41043.74, Nasdaq +195.09 at 17814.44, S&P +42.96 at 5613.60
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+1.11%) continues to hold a lead among the major averages, trading at about the middle of today's range.
Gold futures settled $29.60 higher (+1.2%) to $2,546.30/oz, ultimately ending +0.3% on the week as the market digested Fed Chair Powell's comments which served to support sentiment that a rate cut is imminent.
Meanwhile, the U.S. Dollar Index is down about -0.8% to $100.68.
Bill.com's new strategic investment plan rejected today as it erodes FY25 EPS guidance (BILL)
After immediately heading higher on solid top and bottom-line upside in Q4 (Jun), Bill.com (BILL -6%) quickly encountered turbulence, resulting in its shares being sent markedly lower today. The initial jump stemmed from a relatively sound overall performance in Q4, which included a new $300 mln repurchase authorization. However, when peeling back some of the layers, investors uncovered a few weaknesses that erased the initial enthusiasm, primarily BILL's soft FY25 EPS guidance, which emerged due to the company's new planned investments for the year. A rating downgrade at Goldman Sachs is also adding to today's selling pressure.
- Starting with the highlights, BILL's adjusted EPS contracted by less than analysts anticipated at -3.4% yr/yr to $0.57, translating to another bottom-line beat, a common occurrence for the financial automation software provider. Revenue grew by 16.1% to $343.67 mln, exceeding analysts' and BILL's forecasts easily. The company added 4,600 net new customers in its direct and accounting channels, as well as 6,700 new customers in its financial institution channel. Meanwhile, total payment volume climbed 10% higher y/yr to $76 bln.
- These bright spots reflected excellent progress on key initiatives BILL implemented during FY24 to better fight against cyclical headwinds that were moderating B2B spending and shifting payment method preferences. BILL made it its mission to adapt its go-to-market actions, improve product experiences, and work better with its partners. Management noted that these moves enabled improved customer acquisition and stabilized payment monetization throughout the year.
- With signs of stabilization unfolding across BILL's business, the company believes now is the best time to begin investing more aggressively. Management touched on four specific areas where it will allocate resources: expanding its value proposition, such as bolstering card usage and international payments; having dedicated teams talk to suppliers; deepening account relationships; and fortifying its ecosystem. In connection with these investments, BILL is beginning to hire additional workers across its R&D and go-to-market teams.
- As a result, BILL's FY25 adjusted EPS guidance fell well short of analyst forecasts, projecting $1.36-1.61, or a 35% drop yr/yr at the midpoint. The company's FY25 revenue guidance was also a tad light, targeting $1.415-1.450 bln, the midpoint of which missed analyst estimates.
In an economic environment still ripe with uncertainty, investors are not warming up to BILL allocating additional capital toward its new strategic priorities. The company is confident that its investments will position it to deliver core revenue growth of +20% or more in FY26, with profitability expanding during that time. However, this is a long way out, and the market may need some proof that +20% is attainable before sharing BILL's confidence that investing now is the proper move. Until then, shares could continue struggling to mount a comeback.
Workday's enhanced medium-term margin outlook takes sting out of subdued FY25 guidance (WDAY)
Workday (WDAY), a provider of human capital management and financial cloud software products, is rocketing higher after issuing 2Q25 results and updating its FY25 guidance, but the main catalyst for the surge is tied to something else. During the earnings call last night, CEO Carl Eschenbach commented that WDAY intends to sharpen its focus on profitability by keeping a lid on headcount growth and by leveraging its partner channel. Accordingly, Mr. Eschenbach said that he expects operating margin to improve to 30% by FY27, up from the current figure of about 25%.
- Adding to the bullish storyline, WDAY also announced a new $1.0 bln stock repurchase plan, providing another driver for EPS growth. On the topic of earnings growth, EPS grew 22% yr/yr to $1.75, beating expectations for the ninth consecutive quarter. The upside was driven by improved efficiencies across the company, which drove non-GAAP operating margin higher by 130 bps yr/yr to 24.9%.
- The news on the demand side isn't quite as upbeat. Subscription revenue came in at $1.903 bln, up 17% yr/yr, down from last quarter's growth of 18.8%. Mr. Eschenbach stated that the company continues to experience deal scrutiny and moderated headcount growth within its customer base. However, he added that WDAY's win rates remain high, helping it to offset the broad-based softness in IT spending.
- After lowering its FY25 subscription revenue guidance last quarter, WDAY reaffirmed its forecast last night, guiding for subscription revenue of $7.700-$7.725 bln, representing growth of approximately 17%. WDAY's medium-term outlook, though, was ratcheted a bit lower with the company expecting annual subscription revenue growth of about 15% for FY26 and FY27. Along with the challenging demand backdrop, CFO Zane Rowe stated that the company is becoming increasingly targeted in its growth investments as it looks to enhance ROI across the portfolio.
The main takeaway is that the business climate remains difficult for WDAY as enterprises continue to rein in costs, but the company's decision to take a more targeted approach with hiring and drive more efficiency, including through using more AI in its call centers, should push margins and earnings growth higher.
Intuit heads lower as upside/guidance was not as impressive as recent quarters (INTU)
Intuit (INTU -7%) is lower despite reporting upside for its Q4 (Jul) report. INTU focuses on small businesses and consumers (QuickBooks, TurboTax, Credit Karma, Mailchimp). Note: INTU recently shut down its Mint offering and said users should migrate to Credit Karma. INTU beat on EPS, its tenth consecutive double-digit EPS beat although its Q4 upside was notably smaller than recent quarters. The Board approved a new $3 bln share repurchase authorization.
- Revenue grew a healthy 17.4% yr/yr to $3.18 bln, which was better than analyst expectations. Q4 tends to be seasonally slower quarter for Intuit. It follows Q3, which includes tax season and is huge for Intuit. The Q1 (Oct) guidance was more subdued with downside EPS and revs. However, its full year guidance showed upside for EPS and revs. Non-GAAP operating margin dipped slightly to 22.9% in Q4 vs 23.1% a year ago.
- The star of the show was again its Small Business and Self-Employed Group (SBSE), which is mostly QuickBooks and is by far Intuit's largest segment. SBSE revenue grew 20% yr/yr to $2.56 bln. Intuit said this momentum demonstrates the power of a small and mid-market business platform. Online Ecosystem revs grew 18%, driven by customers with more complex needs. As a housekeeping note, Intuit is changing the name of this segment to Global Business Solutions Group (GBSG) in Q1.
- Its three key goals for SBSE are: grow the core, connect the ecosystem, and expand globally. In terms of the core, QuickBooks Online accounting revenue grew 17% in Q4, driven by customer growth, higher prices and mix shift. INTU is focusing more on customers with more complex needs. In terms of the ecosystem, online services revenue grew 19% in Q4 driven by payments, payroll, capital, and Mailchimp. Intuit says it continues to make progress expanding globally by executing its refreshed international strategy. Total international Online Ecosystem revenue grew 11% CC in Q4.
- Its Credit Karma segment was a laggard in FY23, but recovered nicely in FY24 with progressively improving yr/yr revenue growth each quarter: -5% in Q1, flat in Q2, +8% in Q3 and now +14% growth in Q4 to $485 mln. For all of FY24, segment revs grew 5% to $1.71 bln, following a -9% decline in FY23. Auto insurance accounted for 6 points of growth in Q4, personal loans for 5 points, and credit cards for 2 points. Intuit benefitted from a redesigned Credit Karma app and it launched Intuit Assist.
- Consumer Group segment (TurboTax, both DIY and assisted) revenue declined 12% yr/yr to $113 mln. Not surprisingly, this segment sees a boom in sales in Q3 around tax season, so its Q4 period is not as meaningful.
Overall, this was a decent quarter for Intuit. However, its upside results for Q4 were not as impressive as recent quarters. Also, its downside Q1 guidance was a letdown. The silver lining is that the impressive FY25 guidance implies strong upside relative to analyst expectations for Q2-Q4. Another factor appears to be that sentiment was running high heading into this report given the +11% move since early August. As such, investors are using the smaller upside and guidance as reasons to book some profits.
Ross Stores' upbeat Q2 numbers further showcase strong demand for off-price retail (ROST)
Ross Stores (ROST) delivers a lively Q2 (Jul) performance, surpassing top and bottom lines, growing same-store sales above its forecast, and hiking its FY25 (Jan) EPS outlook. Peer TJX (TJX) showcased just how robust demand is within off-price retail with its upbeat JulQ results earlier this week. Its performance pushed ROST to new record highs before the stock retreated mildly. With ROST further illuminating sustained value-seeking behavior amid ongoing economic headwinds, investors are quickly piling back into the stock, sending it to fresh all-time highs today. Similarly, peer Burlington Stores (BURL), which reports JulQ results next week, is also gapping up to new highs today.
- ROST continued its solid streak of earnings upside in Q2, delivering EPS of $1.59 on revenue of $5.29 bln, a 7.1% improvement yr/yr. Comps were a point higher than ROST's best-case scenario outlined last quarter, delivering +4% in Q2. Geographically, strength was broad based, while categorically, cosmetics and children's led the charge.
- Merchandise margins did continue to compress, edging 80 bps lower yr/yr, consistent with management's remarks that this metric would endure pressure throughout FY25 as it brings more branded merchandise into its assortment to better cater to the uptick in higher-income shoppers it has seen during the sticky inflationary environment. However, ROST still managed to improve its profitability, boasting a 115 bp jump in operating margins yr/yr to 12.5% as it benefited from better-than-expected top-line growth and lower distribution costs.
- While Q2 numbers were sound, the spending climate remains challenging. ROST commented that its low-to-moderate income customers continued encountering high costs for necessities, squeezing their discretionary spending capacity. This backdrop, combined with the fact that ROST is beginning to lap less favorable yr/yr results during the back half of FY25, led to its unchanged comp guidance. ROST expects comps to be +2-3% in Q3 (Oct) and Q4 (Jan), up from +5% and +7% in the year-ago period, respectively.
- However, ROST is anticipating achieving additional efficiencies over the next two quarters, offsetting the added pressure from lower merchandise margins. As a result, it raised its FY25 EPS outlook to $6.00-6.13 from $5.79-5.98, which was already raised from $5.64-5.89 last quarter.
ROST highlighted how attractive the off-price retail space continues to be with its impressive performance in Q2. Like Walmart (WMT) mentioned last week, customers of all incomes are hunting for value. As long as this trend continues, ROST is well-positioned to benefit. At the same time, even if disinflation takes hold more aggressively and incomes climb, ROST's moves to hold onto the gains it has already made keep it on solid ground to accelerate growth.
Bottom line, the economic environment may not be fitting like a glove, but ROST is extracting the most benefit from it as it brings more branded merchandise to its stores to hold onto its increasing higher-income demographic while maintaining a healthy assortment of value offerings to support lower-income shoppers while their budgets remain squeezed.
Williams-Sonoma falls after lowering its FY25 guidance amid challenging economic conditions (WSM)
While topping Q2 (Jul) earnings estimates was a positive development, Williams-Sonoma's (WSM -7%) weaker-than-expected revs in the quarter combined with its lowered FY25 guidance is making investors feel uncomfortable today, driving a sell-the-news reaction as shares slip back to previous lows reached on August 5. The home furnishings retailer's quarterly report followed a concerning performance from peer La-Z-Boy (LZB), which issued soft Q2 (Oct) revenue guidance due to a persistently challenging consumer spending environment. This economic backdrop proved the culprit for WSM, as high interest rates, low housing turnover, and sticky inflation eroded demand during Q2 and weighed on FY25 revenue guidance.
- After dishing out back-to-back positive comp growth in Q1 (Apr) and 4Q24 (Jan), WSM slipped back into negative comp territory, registering -3.3% in Q2. It was not a complete surprise that comps turned negative, given WSM's previous remarks that demand will not pick up meaningfully until the back half of FY25. However, investors did not anticipate comps deteriorating to such a degree so quickly, underscoring just how volatile the economic landscape continues to be.
- This rapid weakening led WSM to concede that it will likely not see the second half acceleration it anticipated, driving its decision to lower its FY25 comp outlook. WSM now expects comps of -5.5% to -3.0% instead of -4.5% to +1.5%, removing any possibility of positive comp growth. The company also lowered its FY25 revenue growth guidance to -4.0% to -1.5% from -3.0% to +3.0%.
- WSM is sticking to its core strategy amid the tumultuous economy, focusing on its three key priorities: returning to growth, improving customer service, and enhancing its margins. On that last note, WSM has performed well, delivering a 550 bp expansion in gross margins yr/yr to 46.2%, supported by higher merchandise margins and supply chain efficiencies. WSM also lifted its FY25 operating margin forecast by 40 bps to 17.4-17.8% despite the headwind from a lower revenue forecast.
- Part of WSM's higher margins is because it prioritizes market share capture without deploying extensive marketing campaigns. Given its banners, such as Pottery Barn, WSM commands meaningful premium name recognition, which allows it to limit markdowns.
- Diving deeper into WSM's initiatives, a few elements underlying its expected return to growth revolve around product innovation and channel experiences. More specifically, WSM is committed to bringing more newness across its assortments and expanding its breadth of online content, including launching new online design tools allowing for 3D rendering.
WSM's lowered FY25 guidance was disappointing given the company's relatively uplifting remarks last quarter. While management is actively engaged in rekindling demand, whether its actions will be sufficient to drive growth despite soft discretionary spending and a suppressed housing market is unclear. WSM has proven to be a formidable opponent fighting against numerous economic headwinds, typically registering decent growth while its peers struggle. Given this context, it is hard to discount WSM and its initiatives. If interest rates begin to drop, WSM is well-positioned, especially against its competition, to reignite growth.
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