Market Snapshot
| Dow | 42141.54 | -91.51 | (-0.22%) | | Nasdaq | 18607.93 | -104.82 | (-0.56%) | | SP 500 | 5813.67 | -19.25 | (-0.33%) | | 10-yr Note | -1/32 | 4.27 |
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| | NYSE | Adv 1385 | Dec 1294 | Vol 944 mln | | Nasdaq | Adv 1698 | Dec 2453 | Vol 6.5 bln |
Industry Watch
| Strong: Communication Services, Real Estate, Financials, Materials, Energy, Consumer Discretionary |
| | Weak: Health Care, Information Technology, Consumer Staples, Utilities |
Moving the Market
-- Alphabet (GOOG) up after impressive quarterly results
-- Semiconductor stocks underperforming after AMD (AMD) earnings and soft Q4 rev. guidance
-- Waiting on more earnings results from mega cap stocks like Microsoft (MSFT) and Meta Platforms (META) after Wednesday's close
-- Digesting some solid economic data
| Closing Summary
30-Oct-24 16:30 ET
Dow -91.51 at 42141.54, Nasdaq -104.82 at 18607.93, S&P -19.25 at 5813.67
[BRIEFING.COM] The stock market had a mixed showing. The market initially moved higher in response to some economic releases and to solid quarterly results from Alphabet (GOOG 176.14, +5.00, +2.9%). The S&P 500 was up as much as 0.3% and the Nasdaq Composite was up as much as 0.4% at the highs of the day.
This morning's data featured ADP's private-sector payroll estimate, which increased by a larger-than-expected 233,000 in October and the September numbers were revised higher. Also, the advance Q3 GDP report reflected solid growth in the economy, boosted by consumer spending.
Early buying enthusiasm faded, though, with no specific catalyst to account for the deterioration. Ultimately, the S&P 500 settled 0.3% lower than yesterday and the Nasdaq Composite declined 0.6%.
Many stocks pulled back from session highs, but downside moves were relatively limited. The equal-weighted S&P 500 declined 0.2% compared to yesterday's close.
Semiconductor stocks extended opening losses in the afternoon trade, adding pressure to the major indices. Chipmakers showed weakness through the entire session after earnings and soft Q4 revenue guidance from Advanced Micro Devices (AMD 148.60, -17.65, -10.6%).
The initial rally in the stock market occurred despite volatile action in the Treasury market today. The 10-yr yield hit 4.20% at its lowest level and settled at 4.27%.
- Nasdaq Composite: +24.0% YTD
- S&P 500: +21.9% YTD
- Dow Jones Industrial Average: +11.8% YTD
- S&P Midcap 400: +12.8% YTD
- Russell 2000: +10.2% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -0.1%; Prior -6.7%
- October ADP Employment Change 233K (Briefing.com consensus 105K); Prior was revised to 159K from 143K
- The key takeaway from the report is that the payroll gains were broad based by sector, region, and establishment size, underscoring the point that economic activity remains solid and not at all consistent with an economy on the cusp of a recession.
- Q3 GDP-Adv. 2.8% (Briefing.com consensus 3.0%); Prior 3.0%, Q3 Chain Deflator-Adv. 1.8% (Briefing.com consensus 2.3%); Prior 2.5%
- The key takeaway from the report is that GDP growth was powered by healthy levels of consumer spending. Personal consumption expenditures increased 3.7%. That was the strongest growth rate since the first quarter of 2023 and well in excess of the prior 10-quarter average of 2.3%. The PCE component contributed 2.46 percentage points to real GDP growth in the third quarter.
- September Pending Home Sales 7.4% (Briefing.com consensus 2.5%); Prior 0.6%
Friday's economic calendar features:
- 8:30 ET: September Personal Income (Briefing.com consensus 0.4%; prior 0.2%), Personal Spending (Briefing.com consensus 0.4%; prior 0.2%), PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), and Core PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), Q3 Employment Cost Index (Briefing.com consensus 1.0%; prior 0.9%), weekly Initial Claims (Briefing.com consensus 229,000; prior 227,000), and Continuing Claims (prior 1.897 mln)
- 9:45 ET: October Chicago PMI (Briefing.com consensus 47.5; prior 46.6)
- 10:30 ET: Weekly natural gas inventories (prior +80 bcf)
Treasuries settle mixed after choppy session
30-Oct-24 15:35 ET
Dow -12.27 at 42220.78, Nasdaq -51.43 at 18661.32, S&P -10.24 at 5822.68
[BRIEFING.COM] The market moved mostly sideways over the last half hour.
The 10-yr yield settled one basis point lower at 4.27% and the 2-yr yield three basis points higher at 4.15% after a choppy session. Treasuries were reacting to a strong ADP Employment Change report for October (233,000; Briefing.com consensus 105,000) while the advance reading of Q3 GDP showed a deceleration in the growth rate to 2.8% (Briefing.com consensus 3.0%) from 3.0% in Q2.
Friday's economic data features:
- 8:30 ET: September Personal Income (Briefing.com consensus 0.4%; prior 0.2%), Personal Spending (Briefing.com consensus 0.4%; prior 0.2%), PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), and Core PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), Q3 Employment Cost Index (Briefing.com consensus 1.0%; prior 0.9%), weekly Initial Claims (Briefing.com consensus 229,000; prior 227,000), and Continuing Claims (prior 1.897 mln)
- 9:45 ET: October Chicago PMI (Briefing.com consensus 47.5; prior 46.6)
- 10:30 ET: Weekly natural gas inventories (prior +80 bcf)
S&P 500, Nasdaq lower in front of busy earnings lineup
30-Oct-24 15:05 ET
Dow -15.81 at 42217.24, Nasdaq -50.64 at 18662.11, S&P -10.89 at 5822.03
[BRIEFING.COM] The S&P 500 (-0.1%) and Nasdaq Composite (-0.2%) trade slightly lower with about 55 minutes left in the session. This afternoon features another huge batch of earnings.
Microsoft (MSFT), Meta Platforms (META), MetLife (MET), Prudential (PRU), Allstate (ALL), Starbucks (SBUX), Amgen (AMGN), Booking Holdings (BKNG), Cognizant Tech (CTSH), C.H. Robinson (CHRW), MGM Resorts (MGM), Carvana (CVNA), KLA Corporation (KLAC), DoorDash (DASH), eBay (EBAY), and Clorox (CLX) are some of the headliners in tonight's busy earnings lineup.
Separately, small cap stocks continue to outperform the broader market, leading the Russell 2000 to trade 0.3% higher.
Garmin, Smurfit Westrock outperform in S&P 500 after earnings
30-Oct-24 14:30 ET
Dow +64.33 at 42297.38, Nasdaq -15.77 at 18696.98, S&P -0.99 at 5831.93
[BRIEFING.COM] The S&P 500 (-0.02%) holds narrow losses in recent trading, placing the average in second place among its counterparts.
Elsewhere, S&P 500 constituents Garmin (GRMN 205.79, +39.52, +23.77%), Smurfit Westrock plc (SW 50.34, +5.63, +12.59%), and Dayforce (DAY 70.85, +5.53, +8.47%) dot the top of today's standings following earnings.
Meanwhile, Super Micro Computer (SMCI 33.37, -15.75, -32.06%) is near 9-month lows after its accounting firm, Ernst & Young, terminated its relationship with SMCI. The company also scheduled a Q1 business update for November 5.
Gold settles above $2,800 on Wednesday
30-Oct-24 14:05 ET
Dow +31.17 at 42264.22, Nasdaq -39.24 at 18673.51, S&P -6.65 at 5826.27
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.21%) is today's top lagging index, falling below flat lines over the prior half hour.
Gold futures settled $19.70 higher (+0.7%) to $2,800.80/oz, amid continued U.S. election uncertainty and Fed rate expectations.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $104.02.
Stryker fades initial gains following Q3 results; mostly unchanged FY24 guidance weighs (SYK)
After an immediate gap higher near all-time highs following top and bottom-line beats in Q3, shares of Stryker (SYK) have started to fade. The medical device maker, specializing in joint replacement, also lifted the lower bounds of its FY24 adjusted EPS and organic net sales growth forecasts.
So why are shares not as lively as they were out of the gate today? SYK trades at a premium valuation with a forward sales and earnings multiple of 5.7x and 27.3x, respectively, significantly higher than one of its key rivals, Zimmer Biomet (ZBH), which trades at half these multiples, as well as Johnson & Johnson (JNJ). Given this, SYK's earnings are placed under a microscope, where minor weaknesses are magnified.
The central blemish, albeit small, is that SYK did not bump its FY24 outlook higher despite delivering meaningful outperformance in Q3. The company's FY24 numbers translate to a minor step-down in Q4. The underlying cause is unfavorable FX impacts, which, if sustained, will slightly impact sales and earnings. SYK still anticipates achieving the higher end of its full-year targets.
- Fueling SYK's confidence was another solid quarter. Adjusted earnings expanded by 17% yr/yr to $2.87 on a 12% jump in revs to $5.49 bln, both representing an acceleration from the yr/yr growth registered last quarter. Organic sales growth was 11.5%, which was on top of a healthy 9.2% lift in 3Q23. SYK mentioned that its pricing initiatives across its U.S. and international markets remained positive, providing a decent boost to its top line in the quarter.
- Every segment delivered double-digit net sales growth. MedSurg and Neurotechnology recorded a nearly 13% increase to $3.2 bln, primarily from higher unit volume. A highlight within this segment was the robust adoption of SYK's 1788 imaging platform, which can display items on a screen invisible to humans, making it critical technology for surgeons. Orthopaedics and Spine net sales improved by nearly 11% to $2.3 bln, again due to higher unit volume. SYK's Mako remains the star, enjoying steady adoption due to continuous knee and hip procedures.
- SYK's latest platform launches are also enjoying success. For instance, its Pangea Plating System, used in orthopaedics, is expected to launch in the U.S. by 2H25. Meanwhile, SYK's LIFEPAK 35 defibrillator and monitor already boasts a strong order book with sales beginning to ramp.
SYK delivered another round of consistent numbers in Q3, underscoring stickiness with its products and an expanding economic moat. Once surgeons become accustomed to certain equipment, it can be difficult for hospital systems to switch to competing technology. Meanwhile, Mako continues to demonstrate its technological advantages as its installed base continues to swell. Given SYK's global presence, particularly in knee, hip, and shoulder surgery, its long-term position remains sturdy.
Qorvo under pressure as it breaks long running streak of double-digit EPS beats (QRVO)
Qorvo (QRVO -27%) is under heavy pressure following its Q2 (Sep) earnings results/guidance last night. Qorvo went into this SepQ report with a streak of 20 consecutive double-digit EPS beats. That streak has been broken following a small beat last night. Revenue fell 5.2% yr/yr to $1.05 bln, but that was generally in-line. What really surprised us was the Q3 (Dec) guidance, which was well below analyst expectations.
- Qorvo supplies mobile components with Apple (AAPL) being its largest customer at 46% of FY24 sales. However, it sounds like the weakness is more on the Android side. Within the Android ecosystem, Qorvo is a major supplier to the flagship, premium and mid-tier 5G smartphones. While the flagship and premium tiers are holding up well, Qorvo said the mix in the mid and entry tiers has shifted towards entry-tier 5G at the expense of mid-tier 5G.
- What's more, Qorvo does not expect this mix shift in Android 5G for the mid-tier to the entry-tier will reverse. These factors are expected to impact Qorvo's revenue and margins in the second half of FY25 and into early fiscal FY26. As a result, Qorvo is taking some pretty big actions, including factory consolidation and operating expense reductions.
- With Qorvo not expecting this shift to reverse, it now wants to focus its product road map primarily on 5G products for its largest customer (Apple) and the flagship and premium tiers of its Android customers.
We have followed Qorvo for a long time and this quarter surprised us. The company typically reports a healthy beat and tends to provide conservative guidance, which helps fuel the large beats. This reliable pattern has been Qorvo's MO for a long time, so this was a shock to the system for investors. And it sounds like Qorvo is responding by making some pretty big structural changes (focusing more on Apple and upper tier Android; consolidating factories etc.)
We think investors should be cautious with Qorvo in the near term as it's making a lot of changes and there could be more warnings in the future. This is not just a one quarter demand issue, we would want to see its results start to stabilize before going value shopping.
Alphabet's AI investments pay dividends and fuel easy Q3 top and bottom-line beat (GOOG)
The emergence of GenAI technology is seen by some as a looming threat for Alphabet's (GOOG) Search business, but the company's strong, upside Q3 results suggest that not only is AI not a threat, but it's actually proving to be a potent growth catalyst. CEO Sundar Pichai proclaimed that the company's AI's investments are now paying off and generating momentum across its entire product portfolio, most notably including the Cloud business, which saw revenue growth accelerate to 35%.
- Rewinding to FY23, GOOG's Cloud business was under the spotlight due to its sliding growth rates and underperformance relative to Microsoft (MSFT) Azure. For instance, in 3Q23, Cloud revenue increased by 22%, down from 27% in 2Q23. While Cloud revenue growth accelerated to 26% in 4Q23, that still lagged behind Azure's Q4 growth of 30%.
- Fast forward to last night's 3Q24 earnings report, and those slowing growth concerns have faded even further into the rearview mirror. In fact, those worries were significantly eased last quarter after Cloud posted a 29% jump in revenue, crossing the $10.0 bln mark for the first time. However, it's now evident that Cloud is riding a new AI-infused growth wave, fueled by new customer wins, larger deals, and deeper product adoption among existing customers.
- New AI offerings are the key factor underlying these bullish trends. Some examples include Gemini Code Assist, which enables faster software development cycles, Security Command Center for cybersecurity and threat intelligence, and BigQuery for data analytics.
- In GOOG's core Search business, which still accounts for roughly 55% of total revenue, the rollout of new AI features is providing the advertising business with a boost. For instance, the company launched AI Overviews in the U.S. this past May, providing conversational summaries above the search results. Mr. Pichai stated that AI Overviews are driving stronger engagement, leading to higher search usage and user satisfaction.
- These positive trends are supporting stronger ROIs for advertisers. In turn, Google Search & Other saw revenue increase by more than 12% to $49.4 bln, edging past expectations and down just a tick from last quarter's growth of 13.8%.
- Meanwhile, healthy demand for YouTube TV, NFL Sunday Ticket, and YouTube Music Premium drove subscription growth for the YouTube Platform. Strength in brand and direct ads pushed YouTube ad revenue higher by 12% yr/yr to $8.9 bln. Also, for the first time in its history, YouTube's combined ad and subscription revenue exceeded $50.0 bln.
- On the cost side of the equation, GOOG stated that it's pleased with the progress it has made with re-engineering its cost structure. Total operating expenses were up a manageable 5% in Q3 to $23.3 bln, helping to facilitate a 4.5 percentage point increase in operating margin to 32%. However, capital expenditures were up by about $5.0 bln on a yr/yr basis to $13.06 bln, reflecting GOOG's rising AI investments.
GOOG has struck the right balance between managing costs in order to support earnings growth and investing in its AI-centric growth initiatives in order to drive top-line growth. As those AI investments begin to pay off in a more substantive way, GOOG is experiencing an upswing in both revenue and earnings growth -- a decisively bullish combination for its stock.
Chipotle lower on weakish sales/comps and perhaps disappointment that a new CEO was not named (CMG)
Chipotle (CMG -7%) is heading lower following its Q3 earnings results last night. The burrito restaurant chain reported modest EPS upside while revenue rose 13% yr/yr to $2.79 bln, which was generally in-line, maybe a bit light. The company also announced a $900 mln share buyback authorization, which is in addition to previously announced repurchase authorizations.
- This quarterly report was notable in that it was the first since Brian Niccol stepped down. He had been CEO since 2018 but he moved on to become CEO of Starbucks (SBUX). COO Scott Boatwright has been standing in as interim CEO, until a permanent CEO gets named. We surmised in our preview that CMG might name a new CEO along with Q3 earnings, but that was not the case. We suspect we will hear about a replacement soon.
- Comps came in at +6.0%, which were generally in-line with street estimates, maybe a bit light. That was down from +11.1% comps in Q2, however, CMG did reaffirm full year comps in the mid to high-single digits. Of note, comps accelerated throughout the quarter with transaction trends strongest in September as the impact from summer seasonality normalized. Also, CMG successfully launched Smoked Brisket, which is off to a "fantastic start."
- Brisket is performing really well, especially compared to carne asada. CMG says it's in that mid-teens area in terms of a percent of entrees. It's driving spend, it's driving additional transactions, comping really well over carne asada. In terms of repeat usage, it's driving new customers to the brand as well as getting people to increase their frequency.
- Looking ahead to Q4, CMG expects comps to modestly accelerate from Q3. Comps should benefit from strong transaction trends continuing thus far in October. However, CMG will be lapping a tougher comparison against carne asada in Q4 last year. CMG expects its transaction comps to modestly accelerate from Q3.
- CMG says its LTOs (limited time offers) continue to surpass expectations. Customers had been craving the return of Smoked Brisket for three years and it's off to a very strong start. CMG expects it will last through Q4. CMG has also been testing Chipotle Honey Chicken, which is adobo chicken seasoned with savory Mexican spices and finished with a touch of pure honey. Similar to Chicken al Pastor, it is simple to execute in its restaurants.
- When asked about the consumer, CMG said it's still seeing strength across all income cohorts even in this competitive environment as the company feels it provides extraordinary value for the consumer. For example, the chicken burrito on average is still under $10, which is still a 15-30% discount to peers. All income cohorts, even low income, are showing positive signs of strength.
There were some positives in Q3, most notably that brisket is performing very well and CMG is not seeing any softness from any income cohorts. However, sales and comps were still a bit on the lighter side. Also, some analysts were questioning the FY25 guidance for new openings at 315-345 as being a bit soft. That may be impacting the stock as well today. We also think investors may be disappointed a new CEO was not named along with earnings. CMG admitted on the call that Niccol's departure took them by surprise. Perhaps that is why naming a replacement is taking some time. Hopefully, we get a replacement named before heading into 2025.
Advanced Micro Devices slides following mild Q4 revenue guidance; AI demand still robust (AMD)
Advanced Micro (AMD -9%) slides today as its Q3 revenue beat was insufficient to overcome another mild quarterly sales outlook. It was another boisterous quarter for AI, with AMD's core Data Center segment more than doubling revenue yr/yr for the second consecutive quarter. The outsized AI-related growth drove AMD to raise its FY24 AI Data Center sales forecast again by $0.5 bln to $5.0 bln.
However, the market was prepared for impressive AI-related growth, particularly after AMD's supplier, Taiwan Semi (TSM), delivered excellent AI-fueled Q3 numbers earlier this month. Meanwhile, outside of steady Client demand, which still decelerated sequentially, AMD endured further yr/yr sales declines across its Gaming and Embedded segments, underscoring stubborn macroeconomic headwinds. As a result, buyers are not springing into action today, keeping shares of AMD range-bound.
- AI remained the headliner in Q3, driving a 122% pop yr/yr in Data Center revenue to $3.5 bln. The back-to-back quarters of over +100% growth have led to the segment now comprising over half of AMD's total revs, up from just a quarter of total revenue two years ago. AMD's EPYC CPU platform, used to power general cloud services, like Office 365 (MSFT) and Netflix (NFLX), had a strong showing. However, the superstar was AMD's MI300X GPU platform, which powers the numerous AI-related instances.
- During the call, management discussed the insatiable appetite for AI, referencing big tech firms like Microsoft and Meta Platforms (META) scooping up AMD's flagship MI300X accelerators.
- Looking ahead, AMD is excited about the competitive advantages of its upcoming platforms. For instance, the company noted that its MI325X, which is seeing high customer interest, delivers up to 20% higher inferencing performance than NVIDIA's (NVDA) H200 chip. Production shipments of the MI325X are scheduled to start in Q4, with widespread availability in 1Q25. Additionally, AMD's next-gen MI350-series is on track for a 2H25 launch, with its MI400 series progressing towards a 2026 launch.
- However, in the interim, AMD's other segments are not garnering as much excitement. Client segment revs, which centers on PCs, climbed 29% yr/yr to $1.9 bln, supported by healthy demand for Zen 5 Ryzen processors despite recent unfavorable customer reviews. Gaming revenue languished in Q3, falling by 69% yr/yr to $462 mln, largely due to a drop-off in semi-custom revs, underscoring poor gaming console demand. Embedded fell by 25% yr/yr as customers continued to adjust inventory levels.
- These weaknesses proved to be a drag on AMD's Q4 outlook, projecting revs of $7.2-7.8 bln, the midpoint of which was merely in-line with consensus. AMD has not issued upbeat quarterly guidance since 2022. Given the unwavering demand for AI, the market sought more buoyant guidance.
Bottom line, while AI remains hot, the tepid temperature of AMD's other segments continues to weigh on quarterly revenue guidance. However, Embedded is gradually recovering while Gaming is predicted to lead to sequential growth in Q4. With the demand for AI expected to remain robust, AMD is well-positioned to rekindle interest in its stock.
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