Market Snapshot
| Dow | 42175.11 | +260.36 | (0.62%) | | Nasdaq | 18190.27 | +108.09 | (0.60%) | | SP 500 | 5745.37 | +23.11 | (0.40%) | | 10-yr Note |
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| | NYSE | Adv 1773 | Dec 1026 | Vol 1.07 bln | | Nasdaq | Adv 2721 | Dec 1522 | Vol 5.67 bln |
Industry Watch
| Strong: Materials, Industrials, Financials, Information Technology |
| | Weak: Energy, Real Estate, Utilities |
Moving the Market
--Micron (MU) reports better than expected earnings and guidance
--China touts possibility of additional policy stimulus
--Initial jobless claims report validates soft landing/no landing view
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Closing Stock Market Summary
26-Sep-24 16:20 ET
Dow +260.36 at 42175.11, Nasdaq +108.09 at 18190.27, S&P +23.11 at 5745.37
[BRIEFING.COM] The S&P 500 set a new record high today, bolstered by leadership from the semiconductor stocks following Micron's (MU 109.88, +14.11, +14.7%) better-than-expected earnings report and guidance, a tease from China that more policy stimulus is likely, and a reassuring initial jobless claims report.
While it was a record day for the S&P 500, it was a winning day all around for the other indices, which were supported by broad-based buying interest grounded in the view that global growth prospects should improve with the Fed, ECB, and People's Bank of China all moving toward more accommodative policy settings.
Other central banks are too, like the Swiss National Bank, which cut its key policy rate by 25 basis points today to 1.00% and suggested more cuts are likely to follow, and Mexico's central bank, which lowered its policy rate by 25 basis points to 10.50%.
The upbeat economic view was reflected today in the outperformance of the materials sector (+2.0%), the 3.6% increase in copper futures prices to $4.65/lb., the 3.5% jump in the Philadelphia Semiconductor Index, and Dow component Caterpillar's (CAT 391.16, +12.91, +3.4%) move to an all-time high. Shares of CAT are up 27.4% from their August 5 low.
Notwithstanding the positive economic vibes, oil prices continued to slide with OPEC+ saying it will proceed with planned oil output increases in December. WTI crude futures declined 3.0% to $67.68/bbl. The weaknkess in oil prices derailed the energy sector (-2.0%), which was today's weakest area.
Caterpillar's move helped underpin the industrials sector (+0.5%), which was also fortified by a big gain in Southwest Airlines (LUV 29.82, +1.43, +5.0%) after the discount carrier raised its Q3 RASM guidance and announced a $2.5 billion share repurchase program.
There was also some notable strength across the consumer discretionary stocks, only it was hard to see at the surface level for the consumer discretionary sector (+0.1%) because Amazon.com (AMZN 191.16, -1.37, -0.7%) and Tesla (TSLA 254.22, -2.80, -1.1%) were influential laggards. CarMax (KMX 78.18, +3.69, +5.0%), for instance, made a nice move after its earnings report.
Treasury yields did not make a nice move after today's economic data. They backed up in response to the understanding that initial jobless claims -- a leading indicator -- are nowhere near recession-like levels. The 2-yr note yield, at 3.53% before the 8:30 a.m. ET releases, settled at 3.62%, up seven basis points from yesterday's settlement. The 10-yr note yield, at 3.75% before the releases, settled at 3.79%, up one basis point from yesterday's settlement.
- Nasdaq Composite: +21.2%
- S&P 500: +20.5%
- S&P Midcap 400: +12.0%
- Dow Jones Industrial Average: +11.9%
- Russell 2000: +9.1%
Reviewing today's economic data:
- Initial jobless claims for the week ending September 21 decreased by 4,000 to 218,000 (Briefing.com consensus 224,000). Continuing jobless claims for the week ending September 14 increased by 13,000 to 1.834 million.
- The key takeaway from the report is the continuing low level of initial jobless claims -- a leading indicator -- that isn't leading the market to think a recession is imminent.
- Durable goods orders were flat month-over-month in August (Briefing.com consensus -2.9%) following an unrevised 9.9% increase in July. Excluding transportation, durable goods orders were up 0.5% month-over-month (Briefing.com consensus 0.1%) following an upwardly revised 0.1% decline (from -0.2%) in July.
- The key takeaway from the report is that new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- increased 0.2% month-over-month, bouncing back from a 0.2% decline in July.
- The third estimate for Q2 GDP remained at 3.0% (Briefing.com consensus 3.0%). Similarly, the third estimate for the Q2 GDP Deflator remained at 2.5% (Briefing.com consensus 2.5%).
- The key takeaway from this backward-looking report (we're just days away from the end of the third quarter) is that personal spending (+2.8%) was nowhere near a recession glide path, having exceeded the prior eight quarter average of 2.2%.
- Pending home sales were up 0.6% in August (Briefing.com consensus 1.0%) versus -5.5% in July.
Looking ahead, Friday's economic calendar features:
- 08:30 ET: August Personal Income (Briefing.com consensus 0.4%; prior 0.3%), Personal Spending (Briefing.com consensus 0.3%; prior 0.5%), PCE Price Index (Briefing.com consensus 0.1%; prior 0.2%), and Core PCE Price Index (Briefing.com consensus 0.2%; prior 0.2%)
- 08:30 ET: August Adv. Intl. Trade in Goods (prior -$102.7 bln), August Adv. Retail Inventories (prior 0.8%), and August Adv. Wholesale Inventories (prior 0.3%)
- 10:00 ET: Final September University of Michigan Consumer Sentiment (Briefing.com consensus 69.0; prior 69.0)
Internals continue to look good
26-Sep-24 15:30 ET
Dow +229.80 at 42144.55, Nasdaq +124.53 at 18206.71, S&P +22.93 at 5745.19
[BRIEFING.COM] The indices continue to respect their tight trading ranges. Those ranges have been set with some nice cushion above yesterday's closing levels and have the S&P 500 on track for a record close.
Internals continue to look good with advancing stocks handily outpacing declining stocks at the NYSE and Nasdaq; and the equal-weighted S&P 500 is up a solid 0.8% along with the Russell 2000.
While Micron (MU 110.82, +15.05, +15.7%) was the key earnings report after yesterday's close, Costco (COST 902.64, -5.78, -0.6%) will slide into that position after today's close.
Meanwhile, the Personal Income and Spending Report for August will be the primary catalyst, among known items, for Friday's trading.
Commodities a focal point
26-Sep-24 15:00 ET
Dow +270.20 at 42184.95, Nasdaq +104.88 at 18187.06, S&P +22.18 at 5744.44
[BRIEFING.COM] The major indices are locked in today, preserving gains in a workmanlike manner that is a byproduct of good economic data and prospects for more policy stimulus.
Those prospects will be the center of attention on Friday when the PCE Price Index for August is released as part of the Personal Income and Spending Report. The PCE Price Index is the Fed's preferred inflation gauge, and if it runs hotter than expected, there will be cries that the Fed moved too much too soon and risks reigniting inflation. Conversely, if it is in-line to weaker than expected, then the Fed will win some praise for cutting rates aggressively to keep the labor market in a good place.
The inflation worries have not fallen by the wayside. Since the Fed's move on September 18, the 10-yr note yield has risen 15 basis points to 3.79%, gold prices have risen 3.9% to $2,699.00/troy oz., and copper prices, goosed by China's own wave of stimulus measures, have popped 8.1% to $4.65/lb. To be fair, there has been some relief in oil and gasoline futures prices since the Fed's rate cut, but with China getting in on the stimulus act with other major central banks, commodity prices will be a focal point for inflation hawks.
Futures prices for metals, agricultural, and livestock futures have all gone up this week. Coincidentally, the S&P 500 materials sector is the best-performing sector this week with a 3.6% gain.
Estee Lauder, United Airlines among top S&P 500 gainers
26-Sep-24 14:30 ET
Dow +281.73 at 42196.48, Nasdaq +102.83 at 18185.01, S&P +23.21 at 5745.47
[BRIEFING.COM] The S&P 500 (+0.41%) is moderately higher from levels half an hour ago, still in last place among the major averages.
Elsewhere, S&P 500 constituents Estee Lauder (EL 100.33, +8.72, +9.52%), United Airlines (UAL 58.90, +4.79, +8.85%), and Wynn Resorts (WYNN 90.89, +6.76, +8.04%) pepper the top of the standings. EL as well as other luxury/beauty retail peers, moves higher in part due to China stimulus headlines and its impact on the group which has a strong presence in the country and has recently reported weak demand for products in the area, with WYNN gaining despite declines in statewide revenue from the Nevada Gaming and Control Board.
Meanwhile, Texas-based oil and natural gas firm Diamondback Energy (FANG 170.30, -10.23, -5.67%) is near the bottom of the average as crude oil prices fall.
Gold honing in on extended winning streak
26-Sep-24 14:00 ET
Dow +243.50 at 42158.25, Nasdaq +63.71 at 18145.89, S&P +15.38 at 5737.64
[BRIEFING.COM] The Nasdaq Composite (+0.35%) is in second place, narrowly higher over the last half hour.
Gold futures settled $10.20 higher (+0.4%) to $2,694.90/oz, adding one more notch in the belt as gains haven't been derailed now for two straight weeks; the yellow metal is now on pace to make it three in a row, up +1.8% since last Friday.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $100.87.
Southwest Air taking off after revealing new turnaround plan and raising Q3 guidance (LUV)
Southwest Airlines (LUV), which is currently embroiled in a proxy fight with activist investment firm Elliott Management, has faced plenty of turbulence this year, but the stock is flying higher today after the budget carrier released its transformational plan and other updates ahead of its Investor Day. The beleaguered airline had positive news to share on both a near-term basis, including upwardly revised Q3 RASM guidance of +2-3%, and a longer-term basis, such as its plan to generate an additional $4.0 bln in EBIT by 2027.
- Due to LUV's lack of international flights and its no-frills service, the company has not been able to fully capitalize on the robust travel demand and the most profitable trends within the commercial airline industry, such as higher-income passengers upgrading to premium cabins. This has put LUV at a major disadvantage relative to competitors like United Airlines (UAL), American Airlines (AAL), and Delta Airlines (DAL).
- However, in Q3, the tables turned a bit in LUV's favor as the CrowdStrike (CRWD) outage in July sent stranded passengers scrambling to find flights on LUV -- which doesn't rely on CRWD's cybersecurity systems. This event, combined with improving demand trends in general, allowed LUV to nudge its Q3 RASM outlook higher to +2-3% from its prior forecast of flat to -2%.
- More importantly, though, the big picture for LUV has brightened after the company revealed a series of actions that it believes will enable it to generate the best-in-class profits that it once was known for. After posting operating margins of 5.5% in Q2, badly lagging behind the 14.7% for DAL and the 13.1% for UAL, the company has some serious ground to make up.
- Perhaps the biggest change is that for the first time in its history LUV will begin selling assigned seats, starting in 2H25. Some of those seats will be premium seats with additional legroom, providing LUV with a new high-margin revenue stream.
- New redeye flights to certain markets will also be added this coming February, providing customers with more flight options, while simultaneously optimizing aircraft utilization.
- On the cost side, LUV intends to minimize hiring over the next couple of years as it also optimizes scheduling efficiency and capitalizes on supply chain opportunities. In total, the company expects to reduce average aircraft capital expenditures to approximately $500 mln through 2027.
As an added bonus, LUV also announced a new $2.5 bln share repurchase program this morning. Whether these efforts are enough to stave off Elliott Management's demand for an overhaul of LUV's Board of Directors remains to be seen -- the activist investor had called for a special shareholder meeting in the coming weeks -- but the company's other shareholders are clearly applauding the moves.
Jabil soars on uplifting Q4 report; buyback and restructuring also provide kindling (JBL)
Several developments from Jabil (JBL +10%) today culminated in a significant push higher. The electronic circuit board maker exceeded top and bottom-line estimates for the second consecutive quarter in Q4 (Aug), issued relatively uplifting FY25 guidance, and authorized up to $1.0 bln, or roughly 7% of its outstanding shares, for buybacks. JBL also approved a restructuring plan, including reducing its headcount. Lastly, JBL announced it would transition its reporting segments in FY25 from DMS and EMS to three new segments: Regulated Industries, Intelligent Infrastructure, and Connected Living & Digital Commerce. The move follows the divestiture of its mobility business for $2.2 bln earlier this year.
- Quarterly numbers were decent. JBL's EPS of $2.30 marked a 6.1% drop yr/yr, dragged down primarily by a 17.7% tumble in revs to $6.96 bln. JBL has posted double-digit percentage declines on its top line for four straight quarters, illuminating the persistent softness across various end markets, including automotive, 5G, renewable energy, and digital print. Still, investors are not fixating on this weak point, especially since sales were still better than the $6.30-6.90 bln JBL predicted.
- By segment, DMS was down around 22% yr/yr, underpinning the mobility divestiture and some weakness in its automotive business. In EMS, revs did tick 13% lower yr/yr. However, management observed growth in its cloud, semi-cap, and warehouse automation markets, pushing core margins 90 bps higher yr/yr to 6.1%.
- Guidance was sound. JBL's FY25 earnings outlook of $8.65 was a hair higher than consensus, while its revenue forecast of $27.0 bln met analyst targets. While JBL touched on numerous end markets and how demand may shape up in the year ahead, a couple items stuck out.
- In its new Intelligent Infrastructure segment, which will include many end markets in EMS, JBL is eyeing around +7-10% growth over the long haul, a solid financial goal given the declines in the last several periods.
- JBL predicted a roughly +2% growth rate in health care in FY25, performing below the overall health care market growth rate of around 3-4%. GLP-1 drugs were the culprit. Management mentioned that these have hurt its medical device segment. This commentary is interesting as it could be a troubling sign ahead for companies with relatively high exposure to this industry, such as Intuitive Surgical (ISRG) and Stryker (SYK).
- JBL's restructuring plan follows a relatively significant divestiture of mobility, which has already helped to balance its geographical footprint. Around a third of revenue stems from each of the three regions: Americas, Europe, and Asia. Management emphasized that no capacity restructuring will occur, reflecting confidence in depressed end markets eventually bouncing back.
JBL's Q4 report and the announcements that followed were mostly good news. A headcount reduction does underscore some challenges ahead. However, becoming a leaner organization should help fortify JBL's already sturdy foundation, supporting its capacity to capture an eventual recovery across the many end markets still stuck in decline.
Micron's strong beat-and-raise earnings report reminds the market that it's a leading AI play (MU)
Following a disappointing 3Q24 earnings report in late June in which it merely guided Q4 revenue in line with analysts' estimates, the sky-high expectations, and the stock price, for memory chip maker Micron (MU) came crashing down. After the close last night, though, MU revealed that it was premature to throw in the towel as robust AI server demand fueled an impressive beat-and-raise Q4 performance that is not only catapulting MU shares sharply higher but is also underpinning strength across the entire semiconductor space.
In the aftermath of that Q3 earnings report, the main narrative surrounding MU was that while its AI-based growth prospects were solid, thanks to the rising momentum in its data center market, the company's exposure to the more sluggish PC and smartphone end markets would hold it back. Inventory levels have been elevated, especially within MU's PC customer base, putting downward pressure on DRAM volumes, and soft consumer spending trends have weighed on the smartphone market.
Although that narrative was partly correct -- the PC and smartphone markets indeed remain in a bit of a lull -- it failed to grasp just how strong the AI business is for MU, as illustrated by the following data points:
- The company's mix of data center revenue reached a record level in 2024 but it's just scratching the surface in terms of potential revenue contribution. MU expects the total addressable market (TAM) for its high-bandwidth memory (HBM) chips to explode to over $25.0 bln in 2025, up from $4.0 bln this year.
- CEO Sanjay Mehrotra reiterated that HBM chips are sold out for calendar 2024 and 2025 and that the company is making good progress on increasing its output capacity. MU is constructing a new fab in Idaho, which is expected to be operational in 2025, and it's also working through the permitting process for another facility in New York.
- In addition to HBM, the company's data center portfolio also includes high-capacity D5 and LP5 products, and SSD solutions. MU expects each of these product categories to generate multiple billions of dollars in revenue in FY25.
- Bolstered by the above factors, the company's 1Q25 revenue guidance of $8.50-$8.90 bln easily beat expectations with the midpoint of the guidance range equating to yr/yr growth of 85%.
The cherry on top is that MU anticipates PC unit growth to accelerate in the back half of CY25 as the PC replacement cycle gains steam with the launch of new AI PCs and the Windows 12 operating system. This, in turn, should lead to healthier inventory levels at PC manufacturers, providing another catalyst for DRAM volumes and pricing. The bottom line, though, is that MU's beat-and-raise report put the company back on the map as a leading AI play.
CarMax kicks into gear after easing concerns over above average loan losses in Q2 (KMX)
After stalling out despite a decent Q2 (Aug) performance today, including topping revenue estimates, CarMax (KMX +6%) is now kicking into gear. Alongside the used car dealer's top-line beat were in-line earnings, decent lifts in retail used unit sales, and comparable store unit sales growth. KMX's attention to margins over volume also kept gross profit per retail used and wholesale unit afloat.
What initially hurt today's sentiment? An increase in the provision for loan losses outweighed growth in receivables and a stable net interest margin in CarMax Auto Finance. Management noted that the estimate of lifetime losses on existing loans jumped by $52.2 mln, higher than a more typical $10-30 mln.
Headlines have crossed this year, announcing decade-high auto loan delinquencies as consumers struggle with the current inflationary environment. However, the industry has yet to express significant concerns. Last month, General Motors (GM) expected cyclicality surrounding its loan portfolio, but not for it to immediately translate into retail softness. Furthermore, America's Car-Mart (CRMT) noted that delinquencies dropped by 90 bps yr/yr during JulQ. On the banking side, the picture is slightly mixed. JPMorgan (JPM) remarked earlier this month that it has yet to see deterioration in auto delinquencies, while Ally Financial (ALLY) commented that credit challenges on its retail auto side intensified during July and August.
Nevertheless, after management expressed cautious optimism over its loan portfolio, investors feel better about shrugging off the rough spots in Q2 and focusing on the longer term, particularly as the Fed embarks on its rate-lowering campaign.
- Decent Q2 numbers are also helping today. KMX expanded EPS by 13% yr/yr to $0.85 despite delivering a 1% drop in total revenue to $7.01 bln. Retail used unit sales rose by 5%, and comps enjoyed a +4% jump. Easing interest rates may have provided some kindling during Q2. However, a nearly 5% drop in average selling prices for used vehicles likely proved to be a bigger boost.
- Retail gross profit per used unit of $2,269 represented a minor bump from $2,251 in the year-ago period. It also reflected KMX's commitment to margins over volume since it could keep its gross profits intact despite the compression of average selling prices. Wholesale vehicle gross profit per vehicle was also mostly unchanged yr/yr at $975.
- KMX does not typically issue formal guidance, so its comments can carry meaningful weight. Management stated that it was pleased with how sales have progressed thus far through Q3 (Nov), with comps sequentially improving. Meanwhile, KMX added that it feels good about the loans on its books following the tightening it has done but will remain cautious going forward.
KMX's loan losses climbing meaningfully above recent averages triggered wariness today. However, during its conference call, the company eased fears, conveying an uplifting tone surrounding its loan portfolio. Improving comp growth was also an added bonus. With the Federal Reserve beginning to slash rates, financing will become cheaper, potentially blanketing the nerves surrounding current and future auto loans and ultimately lifting KMX's future sales figures.
Global Payments' medium-term financial goals continue to drive adverse response today (GPN)
Global Payments' (GPN -5%) updated strategy and financial targets released yesterday continue to invoke a negative response today, pushing shares lower response and pushing shares toward August lows. The payment processor, which focuses more on smaller merchants relative to larger players in the industry, such as Fiserv (FI), has run into several headwinds since hitting one-year highs earlier this year. Part of the problem GPN faces is its relatively high exposure to small merchants, which are more sensitive to macroeconomic volatility compared to larger businesses. Over the past few quarters, this exposure has kept a lid on revenue growth.
With GPN already trading roughly 12% lower YTD ahead of its Investor Conference, investors likely did not have sky-high expectations. However, its outlook was still discouraging even when stacked against a relatively low bar.
- GPN projected adjusted net revenue growth of mid-single-digit growth for FY25. Based on the midpoint of the company's estimated FY24 revenue outlook of $9.17-9.30 bln, its FY25 guidance translates to roughly $9.7 bln, missing analyst expectations. Since GPN does not typically project annual revs below consensus -- not missing the mark since 2021 -- its downbeat revenue guidance came as a shock.
- Similarly, GPN's adjusted EPS growth projection of around +10% in FY25 fell short of analyst expectations when using the midpoint of the company's $11.54-11.70 outlook for FY24. This may not be as frustrating as the mild revenue growth prediction since GPN does not possess a strong track record of exceptional margin growth, targeting just 30 bps of expansion in FY24. Nevertheless, underperforming expectations will not help to change the current bearish sentiment surrounding the stock.
- Additionally, GPN outlined its 2026-2027 revenue growth framework, predicting a mid to high-single-digit percentage lift. While the high end does incorporate modest acceleration, it underscores a relatively sluggish demand landscape for the medium term, far from the double-digit gains GPN was enjoying during 2020 and 2021. On the earnings side, GPN targets low teen percentage growth, which is relatively consistent with what it has registered for the past few years.
- On the strategy front, GPN reiterated a few items, such as aligning brand identity across assets and pursuing dispositions. The company also discussed streamlining operations, an effort it has pursued for some time as it contends with a fluid macroeconomic environment. GPN did announce that it was targeting $7.5 bln in shareholder returns over the next three years, which would likely be achieved through repurchases and dividends.
GPN's strategy updates and financial goals were not very inspiring. The company is staring at gradual growth over the medium term, a development not appreciated by investors who may be growing impatient with GPN's slowing growth. Also not inducing much confidence today is that GPN's dependence on small merchants could spark downward revisions to its already soft financial forecasts if the U.S. enters a recession.
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