Market Snapshot
| Dow | 41606.18 | -15.90 | (-0.04%) | | Nasdaq | 17628.04 | +35.93 | (0.20%) | | SP 500 | 5634.58 | +1.49 | (0.03%) | | 10-yr Note | -24/32 | 3.643 |
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| | NYSE | Adv 1669 | Dec 1049 | Vol 818 mln | | Nasdaq | Adv 2350 | Dec 1819 | Vol 4.9 bln |
Industry Watch
| Strong: Consumer Discretionary, Energy, Communication Services, Information Technology, Financials, Industrials |
| | Weak: Health Care, Consumer Staples, Real Estate |
Moving the Market
-- Ongoing momentum following solid gains last week
-- Economic data this morning didn't change the market's view on a soft landing or Fed rate cuts
-- Optimism that the FOMC will decrease rates by 50 bps tomorrow
-- Solid gain in MSFT after a 10% increase to its quarterly dividend and a share buyback authorization up to $60 billion boosting broader market
| Closing Summary
17-Sep-24 16:35 ET
Dow -15.90 at 41606.18, Nasdaq +35.93 at 17628.04, S&P +1.49 at 5634.58
[BRIEFING.COM] Today's session started on an upbeat note, leading the S&P 500 and Dow Jones Industrial Average to new all-time intraday highs. Stocks faded from session highs, though, leaving the S&P 500 and DJIA near their flat lines at the close.
Market participants were digesting some relatively pleasing economic data, which supported the soft landing narrative and didn't change the market's rate cut expectations that much. Retail sales and industrial production were both stronger than expected in August, and the likelihood of a 50 basis points rate cut tomorrow sits at 63.0% from 34.0% one week ago, according to the CME FedWatch Tool.
The market's optimistic view on the economy and rate cuts contributed to an overall positive bias, and to the outperformance of small cap stocks and cyclical sectors. The Russell 2000 climbed 0.7% and the S&P 500 energy (+1.4%), industrials (+0.5%), financial (+0.5%), and consumer discretionary (+0.6%) sectors showed relative strength.
Countercyclical sectors underperformed the index. The health care (-1.0%) and consumer staples (-0.9%) sectors were the worst performers today.
Positive price action in Microsoft (MSFT 435.15, +3.81, +0.9%) also provided some support to the broader market after news of a 10% increase to its quarterly dividend and a share buyback authorization up to $60 billion.
The 10-yr yield settled two basis points higher at 3.64% and the 2-yr yield settled three basis points higher at 3.59%.
- S&P 500: +18.1% YTD
- Nasdaq Composite: +17.4% YTD
- Dow Jones Industrial Average: +10.4% YTD
- S&P Midcap 400: +10.4% YTD
- Russell 2000: +8.8% YTD
Reviewing today's economic data:
- August Retail Sales 0.1% (Briefing.com consensus -0.2%); Prior was revised to 1.1% from 1.0%, August Retail Sales ex-auto 0.1% (Briefing.com consensus 0.2%); Prior 0.4%
- The key takeaway from the report is that control group sales -- the component that factors into GDP -- were up a sturdy 0.3% following an upwardly revised 0.4% increase (from 0.3%) in July and 0.9% increase in June. There is no hard landing in those numbers.
- August Industrial Production 0.8% (Briefing.com consensus 0.1%); Prior was revised to -0.9% from -0.6%, August Capacity Utilization 78.0% (Briefing.com consensus 77.9%); Prior was revised to 77.4% from 77.8%
- The key takeaway from the report is that industrial production snapped back in August, led by manufacturing output and a near 10% increase in the index of motor vehicles and parts, after being depressed by Hurricane Beryl in July.
- July Business Inventories 0.4% (Briefing.com consensus 0.4%); Prior 0.3%
- September NAHB Housing Market Index 41 (Briefing.com consensus 41); Prior 39
Wednesday's economic lineup features:
- 7:00 ET: Weekly MBA Mortgage Applications Index
- 8:30 ET: August Housing Starts and Building Permits
- 10:30 ET: Weekly EIA Crude Oil Inventories
The headline event tomorrow is the Fed policy decision at 2:00 ET.
Stocks stick to narrow ranges ahead of the close
17-Sep-24 15:35 ET
Dow -78.60 at 41543.48, Nasdaq +3.41 at 17595.52, S&P -8.78 at 5624.31
[BRIEFING.COM] The market is moving mostly sideways ahead of the close.
The 10-yr yield settled two basis points higher at 3.64% and the 2-yr yield settled three basis points higher at 3.59%.
Going into tomorrow, the fed funds futures market sees a 63.0% implied likelihood of a 50-bps rate cut, up from 34.0% a week ago, according to the CME FedWatch Tool.
Wednesday's economic lineup
17-Sep-24 15:10 ET
Dow -75.49 at 41546.59, Nasdaq +5.46 at 17597.57, S&P -8.63 at 5624.46
[BRIEFING.COM] The major indices trade near session lows.
General Mills (GIS) reports earnings ahead of the open tomorrow.
Wednesday's economic lineup features:
- 7:00 ET: Weekly MBA Mortgage Applications Index
- 8:30 ET: August Housing Starts and Building Permits
- 10:30 ET: Weekly EIA Crude Oil Inventories
The headline event tomorrow is the Fed policy decision at 2:00 ET.
Hewlett Packard Enterprise, Airbnb atop S&P 500 on Tuesday
17-Sep-24 14:30 ET
Dow +12.64 at 41634.72, Nasdaq +31.33 at 17623.44, S&P +1.49 at 5634.58
[BRIEFING.COM] The S&P 500 is tied with the Dow Jones Industrial Average in recent trading with gains of +0.03% apiece, all three major average now holding modest gains.
Elsewhere, S&P 500 constituents Hewlett Packard Enterprise (HPE 18.04, +0.81, +4.70%), Airbnb (ABNB 122.15, +4.60, +3.91%), and Moderna (MRNA 71.51, +2.34, +3.38%) pepper the top of the standings. BofA upgraded HPE to Buy this morning, Bernstein commented on ABNB suggesting NT pessimism creates an entry point with estimates and valuation de-risked, while MRNA announced earlier that Health Canada approved its updated COVID-19 vaccine.
Meanwhile, Accenture (ACN 338.74, -15.38, -4.34%) is today's top laggard after a story out this morning suggesting the company was delaying staff promotions amid a slump in the IT consulting space.
Gold lower on Tuesday as dollar, yields post gains
17-Sep-24 14:00 ET
Dow +4.04 at 41626.12, Nasdaq +24.14 at 17616.25, S&P -0.51 at 5632.58
[BRIEFING.COM] All three major averages seesawed in the last half hour, now showing a split tape with the tech-heavy Nasdaq Composite (+0.14%) up about 24 points when at one point it was down 47 points about 15 minutes ago.
Gold futures settled $16.50 lower (-0.6%) to $2,592.40/oz, pressured by modest gains in yields and the dollar ahead of the Fed's rate decision tomorrow afternoon.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $100.98.
Accenture slides following reports of delayed staff promotions amid slump in IT consulting (ACN)
IT consulting giant Accenture (ACN -4%) is encountering selling pressure today after Bloomberg reported that the company would delay staff promotions by six months due to an extended slump within the consultancy industry. The news is sending a shockwave across the consultancy landscape as several of ACN's peers tick lower in sympathy, including DAVA -5%, EPAM -2%, GLOB -2%, and IBM -1%.
Since reporting Q3 (May) results in late June, ACN has been mounting an impressive comeback, soaring by over +20%. Artificial intelligence kept shares of ACN afloat after delivering a rather underwhelming Q3 performance. Management was allocating significant resources to its AI division, boasting around 55,000 skilled data and AI practitioners as it heads toward its target of roughly 80,000 by the end of FY26, reflecting outsized enthusiasm for a surge in AI-related demand. Excitement was further kicked into gear after ACN posted a nearly sevenfold increase in Gen AI bookings YTD compared to all of FY23.
Against this backdrop, today's Bloomberg story is creating some uneasiness among investors, spurring profit-taking.
- Still, today's report should not be too surprising. Even though shares of ACN gapped higher, its Q3 (May) report in late June showed some cracks. The company missed earnings expectations on a 0.6% drop in revs yr/yr. Meanwhile, management lowered its FY24 (Aug) EPS guidance while narrowing its revenue growth forecast to +1.5-2.5% from +1.0-3.0%.
- Client spending developed differently than ACN anticipated at the start of FY24. Customers continue prioritizing large-scale transformations, which convert to revenue more slowly. At the same time, customers are limiting their discretionary spending, especially on smaller projects, while also delaying decisions, all adding to a sluggish pace of spending. These structural headwinds were not offset by the explosive AI-related revenue, largely because $2.0 bln in bookings is a drop in the bucket compared to ACN's $21.1 bln in total bookings last quarter.
- ACN was confident it was positioned to capture an eventual uptick in discretionary spending. However, the timeline is hazy. EPAM noted last month that there are conversations surrounding significant modernization among customers. Still, it had not turned into anything tangible. Nevertheless, ACN repeatedly cited AI as the catalyst that will ramp overall spending.
Today's reaction illuminates how volatile the macroeconomic backdrop remains. While Gen AI has been spurring significant demand, it has not propped up the rest of ACN's business. Meanwhile, the road ahead remains uncertain. Perhaps management will provide FY25 commentary when it reports Q4 earnings on September 26. Lastly, keep an eye on DAVA as it reports Q4 results on September 19 before the open.
Intel turns gloom-and-doom for Foundry unit into some hope after flurry of announcements (INTC)
Intel (INTC) and its much-maligned Foundry business may not be out of the woods just yet, but for the first time in a long time, there is reason to feel hopeful that the company can succeed in its quest to become a leading manufacturer of chips in the U.S. After securing a new $3.0 bln award with the U.S. government to produce advanced chips for the Department of Defense (DoD), INTC announced even better news after the close yesterday, disclosing a major win with Amazon (AMZN) Web Services in a deal that has the two companies working together to develop a new AI chip using INTC's 18A process.
The "multi-year, multi-billion-dollar framework" of the deal, as described by CEO Pat Gelsinger, has the potential to move the needle and to inject some confidence into the struggling Foundry unit, but there's more to the story. Over the past two weeks, speculation has been swirling around INTC's plans for its Foundry business and whether it may consider selling it off, but last night, CNBC reported that the company may turn Foundry into an independent unit.
- By transitioning the Foundry business into a separate subsidiary, that has its own operating board and directors, INTC would potentially be removing a significant roadblock to winning new customers. Since INTC is also a competitor to the chip companies that it's seeking to sign on as Foundry customers, there may be some hesitancy among those chip companies to help build INTC's Foundry business by becoming customers. However, if there's a separation between INTC's Foundry and Products businesses, then these chip companies may feel more comfortable with the idea of farming out their manufacturing to INTC.
- Ultimately, INTC may still decide to spin-off Foundry into an IPO, which should help to create shareholder value as both businesses would be free to implement their own distinct operating plans and growth strategies. Furthermore, INTC would be able to participate in Foundry's growth by retaining an ownership stake after the IPO.
- With the new DoD and AMZN contracts in hand, Foundry's backlog does continue to grow -- albeit, not as quickly as many stakeholders would like. Back in April, INTC disclosed that it signed a meaningful customer for 18A, bringing its total to six, and expanding its expected lifetime deal value with external customers to more than $15 bln. As was the case back then, INTC's goal remains becoming the world's second largest foundry by 2030.
- Lastly, Bloomberg reported last night that INTC is pausing plans to construct new fab facilities in Poland and Germany for two years, while Mr. Gelsinger also issued a message to employees, stating that about half of the workforce reduction initiatives have been completed. Recall that when INTC reported Q2 results on August 1, it also announced a $10.0 bln cost reduction plan that included the elimination of about 15,000 jobs.
The main takeaway is that while INTC hasn't yet resolved the competitive issues that have set it far behind rivals like Advanced Micro Devices (AMD) and NVIDIA (NVDA), the developments over the past few days do represent meaningful steps forward for the Foundry business.
Steel Dynamics and Nucor trade higher despite downside guidance; rate cut would be a positive (STLD)
Steel Dynamics (STLD +4%) and Nucor (NUE +0.7%) tend to both provide EPS guidance around the middle of the last month each quarter. And that was the case again this quarter as the two steelmakers provided downside Q3 EPS guidance with Steel Dynamics guiding lower last night and Nucor guiding lower this morning.
- Steel Dynamics expects Q3 EPS of just $1.94-1.98 whereas analysts had been expecting EPS to be north of $2.00 per share. Its largest segment is its steel operations and here STLD expects earnings to be meaningfully lower than Q2 results. The main culprit is lower average realized pricing within the flat rolled operations as generally 80% of this business is contractually based and tied to lagging pricing indices.
- The silver lining is that STLD said underlying steel demand remains steady. Also, flat rolled steel prices stabilized in Q3 and have even improved. While STLD did not guide beyond Q3, it did say that current order activity is steady with expectations for improved volumes in 2025 as interest rates decline. Also, the US infrastructure program and onshoring are expected to positively impact demand for not only steel joist and deck products, but also for flat rolled and long product steels.
- Steel Dynamics did not break it down by market segment, but on its Q2 call it said North America automotive production estimates for 2024 were revised to a strong 16 mln units, with continued growth expected in 2025 and 2026 as demand remains resilient and supply chain constraints continue to dissipate. It also said nonresidential construction remains stable, with slowdowns across some building types due to hesitancy around higher interest rates.
- Turning to Nucor, the steel giant expects Q3 adjusted EPS of $1.30-1.40. Nucor's downside guidance was more pronounced that Steel Dynamics. Unfortunately, Nucor did not provide a lot of color in its press release but that is not unusual for them. It did say that its steel mills segment is seeing lower average selling prices.
What is interesting is that shares of both companies are trading higher despite the downside guidance with STLD doing much better than NUE. We suspect investors are interpreting the guidance as not as bad as feared, especially for Steel Dynamics. Investors already knew that steel prices would be weak. STLD's comments on prices stabilizing also was a positive. Also, we think there is some anticipation and excitement ahead of the expected Fed rate cut tomorrow. What the steel industry really needs are lower rates. This will spur cautious customers to get off the sideline and start greenlighting construction projects. Also, industrial and manufacturing customers will be more willing to start spending.
Ferguson plc up mildly following mixed Q4 results; investors focus on easing monetary policy (FERG)
Building product distributor Ferguson plc (FERG +2%), which supplies plumbing, HVAC, waterworks, lighting, etc., to the residential and non-residential North American construction, repair, and remodel market, is giving investors something to write home about following its mixed Q4 (Jul) report. FERG toppled Q4 earnings estimates but came up shy of analysts' revenue prediction. Meanwhile, FERG's initial FY25 revenue guidance was mild, projecting low single-digit growth yr/yr. Even though this is a decent reversal from the 0.3% drop posted in FY24, it was still modestly below consensus.
By operating in the residential and commercial housing market, there has been no shortage of obstacles in FERG's path over the past few years. Throughout much of 2023 and seeping into 2024, the repair and remodel (R&R) industry has softened. Louisiana-Pacific (LPX), the world's largest producer of oriented strand board panels, commented last month that R&R spending remains constrained in light of elevated interest rates and economic uncertainty. At the same time, new residential housing starts have been muted for similar reasons, weakening during Q4. Even the silver lining for FERG, non-residential construction, has been sluggish, expanding sales by just 3% yr/yr in Q4.
However, investors are beginning to see the light at the end of the tunnel as the Federal Reserve changes course on its monetary policy, potentially cutting interest rates by up to 100 bps by year's end. An easing monetary policy lowers the cost of financing and may compel existing homeowners to begin upgrading, setting a more favorable housing market in motion.
- In the interim, market conditions are still uneasy. FERG delivered a 1.4% sales bump yr/yr to $7.95 bln, marking a minor deceleration from the +2.4% posted last quarter. Adjusted EPS of $2.98 represented a 7.6% expansion yr/yr, supported by a 40 bp improvement in adjusted operating margins to 10.8%.
- Residential end markets, which include R&R, were flat yr/yr in Q4 due to weak new construction and softer R&R activity. Conversely, FERG noticed healthy levels of non-residential bidding activity, which aided its minor sales growth in the segment and ultimately pulled overall revenue positive.
- Over a longer timeframe, FERG consistently delivers above-market growth, largely due to M&A. FERG constantly consolidates its fragmented markets through bolt-on and capability deals. The company gobbled up ten companies during FY24, closing four during Q4 alone. Management remarked that it continued to capture market share during Q4 across its residential and non-residential end markets.
FERG has many trends working in its favor, including an undersupply of homes, aging housing, and healthy non-residential large capital projects. As such, the market is less focused on FERG's relatively weak FY25 guidance and more focused on the potential for growth to begin accelerating throughout the next several quarters. However, after shares of FERG rocketed over +40% higher from November to April on the prospect of lower rates, these tailwinds may already be priced in, possibly keeping a lid on more significant appreciation over the near term.
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.
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