Market Snapshot
| Dow | 41622.08 | +228.30 | (0.55%) | | Nasdaq | 17592.11 | -91.85 | (-0.52%) | | SP 500 | 5633.09 | +7.07 | (0.13%) | | 10-yr Note | +25/32 | 3.62 |
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| | NYSE | Adv 1947 | Dec 809 | Vol 797 mln | | Nasdaq | Adv 2265 | Dec 1978 | Vol 4.6 bln |
Industry Watch
| Strong: Energy, Financials, Materials, Health Care, Industrials, |
| | Weak: Information Technology, Consumer Discretionary |
Moving the Market
-- Rising expectations for a 50 bps cut by the FOMC on Wednesday contributing to underlying positive bias in equities
-- Weakness in some mega cap names
-- Growth concerns stirred by disappointing data out of China
| Closing Summary
16-Sep-24 16:25 ET
Dow +228.30 at 41622.08, Nasdaq -91.85 at 17592.11, S&P +7.07 at 5633.09
[BRIEFING.COM] The Dow Jones Industrial Average jumped more than 200 points, settling at a fresh record high, and the S&P 500 rose 0.1%, closing 0.6% below its all-time high. The Nasdaq Composite, meanwhile, registered a 0.5% decline.
Mega cap names and semiconductor shares, which outperformed last week, trailed the broader market and clipped the Nasdaq's performance. Apple (AAPL 216.32, -6.18, -2.8%) was a standout amid speculation that iPhone16 Pro demand has been weaker than expected. NVIDIA (NVDA 116.78, -2.32, -2.0%), Amazon.com (AMZN 184.89, -1.60, -0.9%), and Broadcom (AVGO 164.02, -3.67, -2.2%) were also among the influential decliners.
The S&P 500 information technology sector (-1.0%) had a weak showing due losses in the aforementioned names. Consumer discretionary was the only other sector to log a decline, settling 0.3% lower.
Broad buying activity elsewhere left nine sectors higher than Friday. The financial sector, which comprises 13.0% of the index, was the top performer with a 1.22% gain. The energy sector was the next best performer, jumping 1.2% amid rising oil prices. WTI crude oil futures settled 2.2%, or $1.54, higher at $70.22/mmbtu.
The Invesco S&P 500 Equal Weight ETF (RSP) closed 0.7% higher and advancers had a 2-to-1 lead over decliners at the NYSE.
Increased expectations of a 50 basis points rate cut at this week's FOMC meeting supported the underlying positive bias in equities through the session. This view followed a weekend article from The Wall Street Journal's Greg Ip arguing for a larger cut and a Bloomberg column penned by former FOMC Vice Chair Dudley calling for a 50 basis points decrease to the fed funds rate.
The fed funds futures market now sees a 65.0% probability of a 50 basis points cut on Wednesday, up from 50.0% yesterday and 30.0% one week ago, according to the CME FedWatch Tool. The Treasury market and US dollar also reacted to this development.
The 10-yr yield settled three basis points lower at 3.62% and the 2-yr yield settled two basis points lower at 3.56%. The U.S. Dollar Index fell 0.4% to 100.76.
- S&P 500: +18.1% YTD
- Nasdaq Composite: +17.2% YTD
- Dow Jones Industrial Average: +10.4% YTD
- S&P Midcap 400: +9.8% YTD
- Russell 2000: +8.0% YTD
Reviewing today's economic data:
- September NY Fed Empire State Manufacturing 11.5 (Briefing.com consensus -4.1); Prior -4.7
Looking ahead to Tuesday, market participants receive the August Retail Sales report at 8:30 ET. Other data include:
- 9:15 ET: August Industrial Production (Briefing.com consensus 0.1%; prior -0.6%) and Capacity Utilization (Briefing.com consensus 77.9%; prior 77.8%)
- 10:00 ET: July Business Inventories (Briefing.com consensus 0.4%; prior 0.3%) and September NAHB Housing Market Index (Briefing.com consensus 41; prior 39)
Major indices move sideways ahead of the close
16-Sep-24 15:25 ET
Dow +196.99 at 41590.77, Nasdaq -112.81 at 17571.15, S&P +0.98 at 5627.00
[BRIEFING.COM] The three major indices trade move mostly sideways ahead of the close.
The 10-yr yield settled three basis points lower at 3.62% and the 2-yr yield settled two basis points lower at 3.56%.
Looking ahead to Tuesday, market participants receive the August Retail Sales report at 8:30 ET. Other data include:
- 9:15 ET: August Industrial Production (Briefing.com consensus 0.1%; prior -0.6%) and Capacity Utilization (Briefing.com consensus 77.9%; prior 77.8%)
- 10:00 ET: July Business Inventories (Briefing.com consensus 0.4%; prior 0.3%) and September NAHB Housing Market Index (Briefing.com consensus 41; prior 39)
Oracle gets bump from Melius upgrade, Qorvo dips in S&P 500 on Apple weakness
16-Sep-24 14:30 ET
Dow +188.04 at 41581.82, Nasdaq -98.22 at 17585.74, S&P +3.20 at 5629.22
[BRIEFING.COM] The S&P 500 (+0.06%) is up about 3 points and trying to consolidate after highs.
Elsewhere, S&P 500 constituents Bath & Body Works (BBWI 28.82, +1.61, +5.92%), Oracle (ORCL 170.07, +8.04, +4.96%), and Vistra Corp. (VST 89.17, +3.62, +4.23%) pepper the top of the standings. Melius upgraded ORCL to Buy citing accelerating revenue growth.
Meanwhile, North Carolina-based Qorvo (QRVO 100.00, -7.65, -7.11%) is today's top laggard, underperforming alongside broader weakness in Apple (AAPL 216.30, -6.20, -2.79%) suppliers after reports that iPhone 16 pre-order sales lower yr/yr compared to iPhone 15.
Gold retreats off ATHs
16-Sep-24 14:00 ET
Dow +190.80 at 41584.58, Nasdaq -98.81 at 17585.15, S&P +3.39 at 5629.41
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.56%) is now the only major average in the red, down about 99 points, and a bit off levels from half an hour ago.
Gold futures settled $1.80 lower (-0.1%) to $2,608.90/oz, retreating off all-time highs from earlier in the session above the $2,617 level.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $100.79.
Merck, Cisco lift DJIA to start the week
16-Sep-24 13:30 ET
Dow +135.82 at 41529.60, Nasdaq -133.26 at 17550.70, S&P -5.35 at 5620.67
[BRIEFING.COM] The Dow Jones Industrial Average (+0.34%) is hovering just above session lows, up now about 136 points.
A look inside the DJIA shows that Merck (MRK 117.88, +2.79, +2.42%), Cisco (CSCO 50.68, +0.88, +1.77%), and JPMorgan Chase (JPM 207.18, +2.86, +1.40%) are some of today's top gain getters.
Meanwhile, Apple (AAPL 215.95, -6.55, -2.94%) is underperforming.
The DJIA is now up about +3.84% off last Wednesday's lows (9/11).
Apple slumps as estimated iPhone preorders come up lighter than expected (AAPL)
Apple (AAPL -3%) is exhibiting weakness today after estimated preorders for the newest iPhone reflect softer-than-anticipated demand. Apple unveiled its latest iPhone models last week, including the iPhone 16, iPhone 16 Pro, and iPhone 16 Pro Max. As the market has expected from the tech giant, design changes were minimal. Apple also revealed its latest Apple Watch and AirPods, products housed in the company's Wearables segment.
Apple's annual events, including its Worldwide Developers Conference, tend to accompany a sell-the-news reaction. However, often, the stock picks right back up where it left off. For example, shares slipped in June after iOS 18 was unveiled, only for the AI features to ultimately ignite excitement and send the stock to all-time highs.
However, this time around, things are shaping up slightly differently.
- Many of Apple's AI, or Apple Intelligence, features embedded in iOS 18 are only available on the current iPhone 15 Pro models and the upcoming iPhone 16 lineup. Given this exclusivity, investors and Apple suppliers were excited over the potential resurgence of demand the newest iPhones would bring as consumers flock to the latest phones purely to take advantage of an array of AI-related features.
- For instance, Skyworks (SWKS), a prominent Apple supplier, stated in late July that it believed Gen AI would drive significant smartphone replacement. Similarly, Broadcom (AVGO) targeted a 20% jump in wireless revenue sequentially in OctQ, lifted by iPhone demand.
- However, some conservativism was still expressed across the smartphone landscape regarding Apple's latest iPhones. Qorvo (QRVO), whose largest customer is Apple, did not model a massive jump in smartphone replacements into its guidance in late July. Additionally, Verizon (VZ) noted that many of its customers are already on later versions of the iPhone, potentially fueling sluggish upgrades this year. AT&T (T) shared similar thoughts, stating that it has not seen anything in AI devices that would cause customers to declare world-changing.
- An uneven view of how the new iPhones would play out this year is partly due to competition. Samsung (SSNLF) has featured AI in its handsets for over a year, offering many of the features Apple took until June to debut, let alone release (many AI features in iOS 18 are not slated until October). Meanwhile, China-based Huawei, among other Android-powered devices, including those from Samsung, offer a more diverse set of smartphone designs, including folding phones.
When mixing these ingredients with unfavorable economic conditions as inflationary pressures produce upgrade hesitation among consumers, Apple's newest iPhones are underperforming expectations. That does not mean that in time, demand will accelerate. However, at the moment, investors are growing wary over whether Apple Intelligence is enough to nudge consumers toward the latest iPhones.
Intel receives some much-needed good news as it reportedly wins new military contract (INTC)
Badly in need of a win amid a dreadful 2024 that has seen its stock plummet by about 60%, some positive news has finally emerged for beleaguered chip company Intel (INTC). Last Friday night, Bloomberg reported that INTC is in line to secure up to $3.5 bln in federal grants through The Pentagon's "Secure Enclave" initiative, which was created to help lessen the military's dependence on foreign chip manufacturers. By no means is this a game-changer for INTC that wipes the slate clean of all its troubles, but the new military contract is still a welcomed development that should provide its top-line and cash flow with a much-needed boost.
- In terms of selecting a domestic chip maker for the Secret Enclave program, the government's options are quite limited. Up to 90% of the world's advanced semiconductors are manufactured in Taiwan -- the bulk of which are produced by Taiwan Semi Manufacturing (TSM) -- and INTC is one of the few, if not the only, chip manufacturer with the scale to meet the government's needs.
- This positioning has significantly benefitted INTC as the company has already racked up $8.5 bln in federal grants and $11.0 bln in loans through the CHIPS Act in support of its foundry expansion plans. However, INTC still faces a massive funding deficit given that it will need over $100.0 bln in capital over the coming decade to help construct new factories in Arizona, Ohio, New Mexico, Oregon, and abroad.
- Considering INTC's deep struggles and data center market share losses at the hands of NVIDIA (NVDA) and Advanced Micro Devices (AMD), there is an even greater sense of urgency for the company to shore up its financials. To put INTC's downfall into perspective, the company's cash flow from operations for the six-months ended July 1, 2024, was $1.07 bln compared to $6.7 bln for the same six-month period ended in 2022.
- On that note, a couple weeks ago Bloomberg reported that INTC is considering splitting its Product and Foundry segments in a shock move meant to help stop the bleeding. In Q2, the Foundry segment, which is core to INTC's "IDM 2.0 strategy", posted an operating loss of more than $(2.8) bln -- more than $1.0 bln worse than the year-ago period. Those mounting losses, combined with deteriorating sales, especially in the Data Center and AI (DCAI) segment (-3% in Q2), prompted INTC to initiate a huge headcount reduction plan of at least 15% of its workforce, which it also suspended its dividend.
- Whether INTC takes such drastic measures as splitting off the Foundry business remains to be seen, but selling off other non-core assets seems like a very plausible possibility. In fact, in another Bloomberg report from last week, it was reported that INTC is considering selling part of its Mobileye (MBLY) stake. After INTC spun MBLY off in an IPO in October 2022, it retained an 88% ownership stake in the chip maker for autonomous driving technology.
After a barrage of negative headlines over the past few months, there are few companies more in need of a narrative shift than INTC. This new military contract does offer a reprieve, although it doesn't resolve the underlying competitive issues that have engulfed INTC.
Zillow getting a fresh look from investors as a play on expected Fed rate cuts (ZG)
Zillow (ZG) seems to be getting back on investors' radar screens as it trades to a new 52-week high today. With the Fed poised to lower rates this week by at least 25 basis points and possibly 50 bps, investors seem to be betting that lower rates will rejuvenate what has been a moribund housing market. And especially by next spring's key selling season, rates are likely to be lower and this should benefit Zillow.
- Home prices have been rising despite rising rates because there has been little supply on the market. Homeowners with 3% mortgage rates have not wanted to give up those low rates to move into a new home with a higher rate. As a result, many people have decided to stay put in their current home and make due. However, with rates on the decline, it is reasonable to believe that many homeowners will finally decide to move and that is great news for Zillow.
- Zillow has not performed well in recent years. Its share price fell in the 2021-22 time period. We think the company overstepped when it got into the business of buying and renovating homes then selling them. At the time, Briefing.com made the joke that Zillow was becoming a REIT. We have always seen Zillow's core competency as an online marketplace for homes and that is where is business should stay. Also, buying and renovating homes threw off its financials because the entire sale price was then included in revenue. As a result, its Homes segment dwarfed its other segments, which became obscured. To Zillow's credit, it exited the Homes business fairly quickly.
- Also, Zillow has been focusing on improving its core areas. Its Residential segment, which focuses on partnering with realtors and listing homes for sale, has benefited from investments in top- and mid-funnel experiences that are driving improvements in overall connection rates. Zillow has also been integrating its touring technology into its buyer flow process and it has been a hit with customers. Zillow says touring is meaningfully improving its ability to identify high-intent customers.
- While Residential is by far Zillow's largest segment, the company has leaned hard into adjacent areas like rentals and purchase mortgage opportunities. Zillow's Rentals segment now represents 20% of total revenue and is growing rapidly. In Q2, Rentals revenue grew 29% yr/yr to $117 mln, primarily driven by multifamily revenue, which grew 44% yr/yr.
Overall, we think Zillow is a name to keep on the radar. With rates likely to be lower by next spring, that could spur movement in the housing space. There also is likely some pent up demand from people who have wanted to move in recent years, but rates get them locked in their homes. But now the calculus is changing and they may make a move. Also, the rental market has been a strong area for Zillow. Plus, Zillow has a new CEO with Jeremy Wacksman recently being promoted from COO to CEO. All in all, investors are taking a fresh look at Zillow.
EchoStar at 52-week highs today following reports of a potential DISH and DirecTV merger (SATS)
EchoStar (SATS +4%) is over the moon today as shares reach fresh 52-week highs following a Bloomberg report that AT&T (T) and its joint-venture partner TPG (TPG) are discussing a combination between DirecTV and DISH Network. SATS is the holding company that owns DISH Network and its various assets, including Boost Mobile, Sling TV, and HughesNet, following the merger between the two firms late last year. AT&T completed its acquisition of DirecTV almost a decade ago for over $67.0 bln.
Thus far, no company spokesperson has confirmed the rumors. If the deal were to go through, it would form a titan in the pay-TV industry. Last year, DirecTV had an estimated 11 mln subscribers, while DISH commanded around 6 mln at the end of its most recent quarter.
- The combined subscriber count is significant but well below where it was during each company's peak. For perspective, DirecTV shed an estimated 2 mln subs just this past year. In FY13, the year before AT&T opened up its wallet to purchase DirecTV, it boasted over 20 mln subscribers. Over 14 mln customers were subscribed to DISH's pay-TV service that same year.
- A potential merger between the two satellite TV giants has been in the news before. In 2002, regulators blocked a merger, citing antitrust concerns as the combined company would have controlled a considerable chunk of the overall pay-TV market.
- However, today, the environment has changed drastically. The rise of streaming has accelerated cord-cutting, slowly decaying subscriber counts. Consumers constantly turn to streaming services, like YouTube TV (GOOG) and FuboTV (FUBO). In fact, SATS's own Sling streaming service added subs in Q2, acquiring 78,000 new users to reach around 2 mln total subscribers. Sling is also profitable, a milestone yet to be reached by FUBO, among other streaming companies.
- With AT&T already forming a joint venture with TPG in 2021, moving DirecTV to the JV, and taking a $15.5 bln impairment charge as it wrote down the asset's value, it may be craving a merger. Similarly, SATS has been betting heavily on wireless, its Boost Mobile brand, pouring tens of billions into building the infrastructure over the past decade and may want to hunker down on wireless.
Against the current TV landscape, where Netflix (NFLX) and Hulu (DIS) continue peeling eyes away from traditional pay-TV while other streaming companies like FUBO and GOOG offer competitive live TV packages, a merger between DirecTV and DISH Network becomes more likely. Antitrust concerns were hurdles the two satellite TV companies endured in the past. However, as both shed subscribers year after year, less red tape stands in their way. With both SATS and AT&T shares climbing to one-year highs today, investors are growing confident that the two companies can finally pull off a merger this time if reports turn out to be true.
GlobalFoundries up mildly following long-term growth target; many trends working in its favor (GFS)
GlobalFoundries (GFS) inches higher today after releasing its long-term revenue growth target in its Investor Presentation yesterday after the closing bell. GFS projected +8-12% annualized growth over the long term, a substantial rebound from the 9% drop experienced in FY23 but not quite the return to the +23% and +36% pops the company enjoyed in FY22 and FY21, respectively.
What does GFS do? It manufactures semiconductors similar to Taiwan Semi (TSM) but with one colossal difference. GFS does not produce high-end, technologically superior chips used in AI applications. Instead, the company, which was a former arm of Advanced Micro (AMD), hunkered down on manufacturing chips that are less cutting-edge and more essential to power everyday devices, including household appliances like refrigerators and dishwashers. GFS's chips are also found in smartphones -- aiding power management -- vehicles, and numerous other electronic devices.
Without massive exposure to the AI space, like NVIDIA (NVDA) and AMD, GFS has not benefited strongly from the unwavering AI frenzy. Shares are down roughly 30% YTD and have mostly flatlined over the past five years. However, GFS touts a few other advantages that make it worth keeping on the radar for a potentially meaningful recovery down the road.
- Following a sequential bump in revenue in Q2, GFS reiterated last month that it believed Q1 marked the low point for sales this year, expecting further improvement in Q3. The company commented last week that while a recovery in China could be uneven, interest rates easing in the Western Hemisphere should facilitate more robust consumer demand across numerous applications.
- Opportunities in power management remain compelling. Management stated in Q2 that its customers are looking to build the next generation of power management technologies in the U.S. as the need to communicate data continues to translate into new requirements for more efficient power management. On Semi (ON) remarked in late July that as power consumed by AI data center racks increases by threefold, its addressable content is expected to surge by nearly fourfold.
- As a result, GFS purchased Tagore Technology's gallium nitride power business, which included an extensive IP portfolio. With Tagore, GFS expects its serviceable addressable market to soar by around $1.6 bln by 2030.
- With the relationship between the U.S. and China tense, companies may be looking to reduce their dependence on TSM and China-based foundries. GFS is based in New York, with production occurring across the U.S., Singapore, and parts of Europe. Also, geopolitical tensions are likely keeping existing customers from allocating orders to China. GFS stated last week that it is not witnessing much customer migration toward China despite many new foundries being constructed in the region.
GFS's long-term targets issued last night might not have rekindled much interest in the stock today. However, the company has gears in motion, laying the groundwork for a potential turnaround. A broader economic recovery, an uptick in power management chip demand, and a U.S.-based presence are all items working in GFS's favor.
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