Market Snapshot
| Dow | 45014.04 | +308.51 | (0.69%) | | Nasdaq | 19735.12 | +254.21 | (1.30%) | | SP 500 | 6086.49 | +36.61 | (0.61%) | | 10-yr Note | +4/32 | 4.182 |
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| | NYSE | Adv 1379 | Dec 1327 | Vol 949 mln | | Nasdaq | Adv 2427 | Dec 1838 | Vol 7.9 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services, Industrials |
| | Weak: Energy, Financials, Materials, Consumer Staples, Real Estate |
Moving the Market
-- Big gain in Salesforce (CRM) following earnings news; gains in other tech names like Okta (OKTA) and Marvell (MRVL)
-- Gains in mega caps and semiconductor shares boosting broader market
-- Drop in market rates in response to economic releases
| Closing Summary
04-Dec-24 16:35 ET
Dow +308.51 at 45014.04, Nasdaq +254.21 at 19735.12, S&P +36.61 at 6086.49
[BRIEFING.COM] The S&P 500 advanced 36 points to a fresh record high, the Nasdaq Composite jumped 1.3% to a new all-time high, and the Dow Jones Industrial Average closed above 45,000 for the first time. The solid showing followed strong earnings results from Dow component Salesforce (CRM 367.87, +36.44, +11.0%) and upbeat comments about its Agentforce AI system for enterprises, which reignited enthusiasm in the AI sector.
Mega-cap stocks and semiconductor-related shares led the charge today. These stocks benefitted from the renewed AI optimism, as well as the continuation of positive momentum after a strong week. The Vanguard Mega Cap Growth ETF (MGK) closed 1.6% higher today and has gained 3.1% this week. The PHLX Semiconductor Index (SOX) was up 1.7% for the session and has surged 4.0% since last Friday.
Earnings results and guidance from other companies like Marvell (MRVL 118.15, +22.24, +23.2%), Okta (OKTA 86.11, +4.40, +5.4%), Pure Storage (PSTG 65.35, +11.81, +22.1%), and Dollar Tree Stores (DLTR 73.83, +1.35, +1.9%) garnered positive responses from investors, providing added support to the broader equity market.
A drop in market rates also contributed to the upside bias in stocks. The 10-yr yield dropped four basis points to 4.18% and the 2-yr yield dropped five basis points to 4.12%. The move in Treasuries followed weaker-than-expected economic data, including the ADP Employment Change and the ISM Service PMI for November. These reinforced the market’s expectation that the Federal Reserve will cut rates by 25 basis points at its December 17-18 meeting.
Strength in some of the aforementioned stocks propelled the S&P 500 information technology sector (+1.8%) to the top of the leaderboard among the 11 sectors. On the flip side, the energy sector registered the largest decline by a wide margin, dropping 2.5% amid falling oil prices ($68.60/bbl, -1.37, -2.0%).
Market participants received the Fed's November Beige Book and comments from Fed Chair Jerome Powell at the NYT DealBook Conference, but stocks didn't react much.
During his remarks, Chair Powell expressed confidence in the U.S. economy, pointing to its strong performance, low unemployment, and progress on inflation. He emphasized the Fed's cautious approach to monetary policy, seeking to balance inflation control with labor market stability. Powell also reiterated the Fed's independence and affirmed the continuity of its relationship with the Treasury under the new administration. Turning to the Beige Book, the report indicated a slight rise in economic activity across most Federal Reserve Districts.
- Nasdaq Composite: +31.5%
- S&P 500: +27.6%
- S&P Midcap 400: +20.7%
- Russell 2000: +19.7%
- Dow Jones Industrial Average: +19.4%
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 2.8% vs Briefing.com consensus of ; Prior was revised to 6.3% from
- November ADP Employment Change 146K (Briefing.com consensus 170K); Prior was revised to 184K from 233K
- November S&P Global US Services PMI - Final 56.1; Prior 55.0
- November ISM Non-Manufacturing Index 52.1% (Briefing.com consensus 55.5%); Prior 56.0%
- The key takeaway from the report is that tariff concerns were mentioned often among respondents considering their outlooks.
- October Factory Orders 0.2%; Prior was revised to -0.2% from -0.5%
- The key takeaway from the report is that factory orders picked up following declines in the previous two months.
Looking ahead, Thursday's economic data includes:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 213,000; prior 213,000), Continuing Claims (prior 1.907 mln), and October Trade Balance (Briefing.com consensus -$75.1 bln; prior -$84.4 bln)
- 10:00 ET: October Factory Orders (prior -0.5%)
- 10:30 ET: Weekly natural gas inventories (prior -2 bcf)
Treasuries settle with gains
04-Dec-24 15:35 ET
Dow +292.91 at 44998.44, Nasdaq +236.60 at 19717.51, S&P +33.30 at 6083.18
[BRIEFING.COM] The three major indices are in a holding pattern ahead of the close.
Treasuries settled with gains, supporting the positive bias in equities. The 10-yr yield dropped four basis points to 4.18% and the 2-yr yield dropped five basis points to 4.12%.
Looking ahead, Thursday's economic data includes:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 213,000; prior 213,000), Continuing Claims (prior 1.907 mln), and October Trade Balance (Briefing.com consensus -$75.1 bln; prior -$84.4 bln)
- 10:00 ET: October Factory Orders (prior -0.5%)
- 10:30 ET: Weekly natural gas inventories (prior -2 bcf)
Stocks hold near highs
04-Dec-24 15:05 ET
Dow +292.56 at 44998.09, Nasdaq +230.85 at 19711.76, S&P +32.70 at 6082.58
[BRIEFING.COM] The S&P 500 trades about 30 points higher and the Nasdaq Composite shows a roughly 230 point gain with about one hour left in the session.
Small and mid cap stocks are lagging larger peers. The Russell 2000 shows a 0.1% gain and the S&P Mid Cap 400 trades flat.
Separately, the French Prime Minister lost a no-confidence vote and is expected to resign soon; Marine Le Pen’s far-right party joined with a leftist coalition to oust the government, according to The New York Times. The US equity market didn't react to this political uncertainty overseas.
Muted response as Powell highlights economic strength, Beige Book reveals mixed growth signals
04-Dec-24 14:30 ET
Dow +233.88 at 44939.41, Nasdaq +209.11 at 19690.02, S&P +26.77 at 6076.65
[BRIEFING.COM] The broader market is seeing a muted reaction to the release of the Fed's November Beige Book as well as comments from Fed Chair Jerome Powell at the NYT DealBook Conference.
Fed Chair Powell expressed confidence in the U.S. economy, highlighting its strong performance, low unemployment, and progress on inflation, while emphasizing a cautious approach to monetary policy aimed at balancing inflation control and labor market stability. He also reaffirmed the Fed's independence and continuity in its institutional relationship with the Treasury under the new administration.
Changing gears a bit, the Beige Book revealed that economic activity saw a rose slightly in most Discricts, with modest or moderate growth in some regions offsetting flat or slightly declining activity in others. Consumer spending remained stable, though businesses noted increased price and quality sensitivity among consumers. Mortgage demand was low, and commercial real estate lending was subdued, though financing remained available.
What's more, employment levels remained flat or grew slightly, with subdued hiring activity and low worker turnover. Wage growth softened overall, except for robust growth in entry-level and skilled trades positions, which is expected to continue.
Prices rose modestly, with businesses struggling to pass on higher input costs, leading to shrinking profit margins. While some raw material costs declined, insurance prices remained a significant burden, and tariffs were highlighted as a potential inflationary risk.
Gold rises with Beige Book on tap
04-Dec-24 13:55 ET
Dow +200.77 at 44906.30, Nasdaq +202.75 at 19683.66, S&P +25.48 at 6075.36
[BRIEFING.COM] The Nasdaq Composite (+1.04%) is atop the major averages with about two hours to go on Wednesday; ahead, the Fed's November Beige Book is due at the top of the hour.
Gold futures settled $8.30 higher (+0.3%) to $2,676.20/oz, as haven demand rose a bit following this morning's ADP employment data.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $106.18.
Okta's new products helping to offset seat declines, leading to beat-and-raise Q3 report (OKTA)
Lower seat counts, sluggish upsell rates, and the lingering impact from a major security breach in October 2023 have pressured Okta's (OKTA) financial results, sending shares lower by 11% on a year-to-date basis prior to today's gains. Alongside OKTA's disappointing financial and stock performance came more muted expectations heading into last night's Q3 results, which is working in its favor today after the company delivered an encouraging beat-and-raise earnings report.
- Echoing a similar message as other cybersecurity companies such as Palo Alto Networks (PANW), Qualys (QLYS), and Zscaler (ZS), CFO Brett Tighe commented during OKTA's Q3 earnings call that organizations are still scrutinizing budgets and rationalizing their software spend. At the same time, the security incident from last year also likely had some impact on OKTA's results, adding another headwind to seat growth and MAUs. However, cRPO growth of 13% did exceed the company's guidance of 9%, which was deemed a major disappointment last quarter.
- Although OKTA continues to experience seat declines in its workforce identity business, the company is having success with cross selling more products into both new and existing customers. In particular, the company's new products, such as Okta privileged access, device access, fine grained authorization, and identity threat protection, are seeing robust adoption. In fact, in Q3, new products accounted for 15% of total bookings.
- This strong interest in OKTA's new products is creating significant cross-selling opportunities. As the company sells more products into its installed customer base, an increasing number of customers are crossing the $1.0 mln annual contract value (ACV) mark. In fact, the $1.0+ mln ACV cohort is OKTA's fastest-growing cohort and represents approximately $1.0 bln in ACV.
- Another source of strength is OKTA's partner ecosystem, as reflected by the fact that all of its top ten deals in Q3 involved partners, with each of those deals worth over $1.0 mln in ACV.
- Turning to OKTA's guidance, the company's EPS and revenue outlook for Q4 comfortably exceeded expectations, but its cRPO forecast calls for growth to slow to just 9% to $2.130-$2.135 bln. Furthermore, the company provided an initial outlook for FY26 during the earnings call, estimating revenue growth of only 7%. Although it's not formal guidance, the mediocre growth for FY26 isn't overly inspiring, although OKTA noted that it's "maintaining an appropriate level of conservatism" in regard to its guidance.
Overall, OKTA's results and outlook help to ease concerns surrounding its seat declines and with the impact from the security breach now in the rearview mirror, the company will be dealing with one less headwind. Strong growth for new products is providing a needed top-line boost, but it remains a mixed picture for OKTA as seat and MAU headwinds continue.
Dollar Tree bounces back with solid comps, but possible tariffs remain a concern (DLTR)
Dollar Tree (DLTR +3%) is trading higher following its Q3 (Oct) report this morning. Following EPS misses in three of its past four quarters, this dollar store chain posted its first EPS beat in several quarters. In Q1, DLTR reported in-line, so this was its first beat in a while. Revenue rose 3.5% yr/yr to $7.57 bln, which also was better than expected. This was its first upside following four narrow misses. The in-line guidance for Q4 (Jan) was also good to see after recent downside guidance.
- Enterprise comps in Q3 increased +1.8%, up from +0.7% in Q2 (Jul). Enterprise comps were driven by a +1.6% increase in traffic and a +0.2% increase in average ticket. DLTR says customers continue to seek value and many are focused on buying for need and buying closer to the time of that need. DLTR continues to see evidence of belt tightening, particularly among lower-income customers and, to a lesser extent, among middle and higher income families with young children.
- While this dynamic remains a discretionary headwind, it does create some opportunities with consumables. Lower middle income households are increasingly shifting more of their spending toward food at home. A customer that walks in to a typical Dollar Tree store will find 90+% of products in the store priced at $1.25, which places DLTR in a good position.
- Dollar Tree segment comps were +1.8% vs +1.3% in Q2. Comps were driven by a +1.5% increase in traffic and a +0.3% increase in average ticket. This was Dollar Tree's first positive ticket comp since 4Q22. Dollar Tree's consumable comp was +6.2% despite lapping a tough +11.1% comp last year. Snacks, beverages, and candy were the best-performing categories. Discretionary comp declined -1.8%, reflecting consumers' ongoing focus on needs-based purchases.
- Family Dollar segment comps rose +1.9% vs -0.1% in Q2. The comp increase was almost entirely by traffic. Average ticket was flat after three consecutive quarters of declines. Consumables comp increased +1.3%, which was lapping a strong +6.2% comp last year. Discretionary comp increased +3.7%, a 540 bps sequential improvement. More importantly, Q3 was Family Dollar's first positive discretionary comp since 4Q22. FD has been adjusting its pricing strategy with more emphasis on value and higher frequency purchase items.
- The company addressed concerns about tariffs given that the bulk of its merchandise comes from overseas. Back in 2018 and 2019, when it last dealt with this issue, DLTR was able to mitigate the majority of the potential impact by negotiating lower costs with suppliers, changing product specs or pack sizes or dropping non-economical items. Also, it now has detailed plans to shift supply sources for most products to alternate countries.
Overall, this was a nice bounce back quarter with solid upside and good comps. Of note, we had thought DLTR might name its new CEO today, but the search continues. In a surprise, it did announce today that CFO Jeff Davis would step down, so the company is looking for a new CEO and CFO. Also, its previously announced review of strategic alternatives for the Family Dollar segment continues. The process is moving forward as planned and there is no set deadline.
Marvell steals the spotlight from NVIDIA (NVDA) as Data Center business shines in Q3 (MRVL)
Fueled by robust demand for its custom AI chips and some strengthening in its non-data center markets, Marvell (MRVL) turned in a marvelous beat-and-raise Q3 earnings report that has shares rocketing higher. In fact, the company's impressive results and bullish outlook, which prompted CEO Matthew Murphy to declare that MRVL is now entering a "new era of growth", is providing a lift to several other semiconductor stocks such as Broadcom (AVGO), Qualcomm (QCOM), and NVIDIA (NVDA).
- Prior to this quarter, MRVL's revenue had declined on a yr/yr basis in five of the past six quarters with the only growth being a miniscule 0.6% increase in 4Q24 (reported on 3/7/24). In addition to high interest rates and persistent inflationary pressures, a glut of inventory across MRVL's Consumer, Automotive, and Carrier and Enterprise end markets had weighed on demand. However, in 3Q25, revenue growth accelerated to nearly 7% and the midpoint of MRVL's Q4 revenue guidance of $1.71-$1.89 bln equates to much stronger yr/yr growth of 25%.
- Not only have those inventory-related headwinds abated, but MRVL is also experiencing explosive growth in its data center market. After surging by 92% last quarter, Data Center revenue nearly doubled yr/yr to a record $1.10 bln, accounting for 73% of total revenue compared to about 40% in the year-earlier quarter. Like last quarter, MRVL saw robust demand from cloud hyperscalers such as Amazon Web Services (AMZN), Google (GOOG), and Microsoft (MSFT) for its custom AI chips that help run large language models and AI programs.
- There's no slowdown in sight, either, for Data Center with MRVL forecasting low-to-mid 20% sequential growth for Q4, driven by the ramp-up of its four custom AI chips: Trainium, Axion, Inferentia, and Maia-2. MRVL's AI chips have also become an alternative to NVDA's pricey GPUs.
- Meanwhile, revenue for non-data center products fell by 51% yr/yr to $415 mln, but the arrow is pointing higher across each of MRVL's end markets. For instance, in Enterprise Networking and Carrier, combined revenue grew by 4% sequentially and MRVL expects the pace of recovery to accelerate in Q4, forecasting mid-teens growth on a sequential basis.
- For both the Consumer and Automotive/Industrial end markets, revenue edged higher by 9% qtr/qtr with low-to-mid-single digit growth expected in Q4 for auto. Due to seasonality factors in gaming, MRVL anticipates Consumer to decline by a mid-teens rate on a qtr/qtr basis, before strengthening again in Q2.
The main takeaway is that MRVL is making a strong case that it deserves to be included in the conversation when it comes to top AI plays in the semiconductor space, alongside NVDA and AMD. Demand for its custom AI silicon is skyrocketing, and the company believes that it's only in the early innings of its growth curve as it targets $2.5 bln in AI network and custom processor chip revenue next year.
Salesforce rallies despite rare EPS miss; investors focus more on huge potential for Agentforce
Salesforce (CRM +9%) is making a big move today despite reporting its first EPS miss in the past five years with its Q3 (Oct) results last night. The silver lining is that revenue grew 8.3% yr/yr to $9.44 bln, which was above expectations, reversing a miss we saw in Q2. Unfortunately, the Q4 (Jan) EPS guidance was also below expectations with in-line revenue guidance. Investors seem unbothered as they are focusing more on the successful rollout of CRM's new AI-powered chatbot platform, called Agentforce.
- CRM said that Q3 revenue growth was driven by resilience in its core clouds. Subscription and support revenue grew 9%, led by another quarter of double-digit growth in both Sales and Service clouds. This was driven by strong ARPU growth, but, as expected, this was partially offset by deceleration in its license revenue growth in MuleSoft and Tableau due to tough prior year comparisons.
- Americas revenue grew 6% in nominal and constant currency, EMEA grew 12% (+9% CC) and APAC grew 16% (+14% CC). CRM saw strong new business growth in LatAm, Canada and Australia, while the US and parts of EMEA remained constrained. From an industry perspective, health & life sciences, manufacturing & automotive and energy all performed well. Both retail and consumer goods were more measured. Its multi-cloud momentum continues with its top 25 deals averaging 5+ clouds.
- Current Remaining Performance Obligation (cRPO) is a metric that investors watch closely. It grew 10% yr/yr to $26.4 bln, which was above the +9% prior guidance. The outperformance was driven by early renewal favorability and strong new bookings. Of note, over the past couple of quarters, CRM has seen stabilization in its transactional businesses, most notably, create and close and SMB. CRM guided to Q4 cRPO growth of approx. 9%.
- As we predicted in our preview, much of the call was focused on the recent launch of Agentforce. The company was very bullish on the call. It delivered 200 deals with thousands more in the pipeline. CRM said it was not like anything it has seen before. The company said Agentforce represents this next evolution of Salesforce with AI agents working alongside humans in a digital workforce with unrivaled speed.
- CRM noted that Agentforce is not just grounded in Salesforce data and metadata, it's also grounded in each customer's data, their purchases, returns etc. CRM believes this 200-300 petabytes of Salesforce data gives it an almost unfair advantage. Agentforce can instantly reason over this vast amount of data, deliver precise personalized answers with citations in seconds, and Agentforce can seamlessly hand off to support engineers. This is not some fantasy land, future idea. This is a reality today. CRM contrasted this with other companies doing enterprise AI. CRM said Microsoft's Copilot is just repackaged ChatGPT in many ways.
Overall, it is clear that investors are not worried about the rare EPS miss and downside EPS guidance. We think they are focusing more on the upside revenue and cRPO. Also, we think investors are excited about the potential for Agentforce, which had a successful launch in Q3 with a lot more deals in the pipeline. Management describes Agentforce as the next evolution of Salesforce and it is getting people excited.
Honeywell's guidance cut keeps shares grounded despite signing huge deal with Bombardier (HON)
One of the main megatrends that Honeywell (HON) has identified as a focal point under its new simplified business structure is the future of aviation and the industrial company took a big step in acting on that secular trend today. Specifically, HON announced a new deal with business jet manufacturer Bombardier (BDRBF) in which the two companies will develop advanced technology that will facilitate upgrades for existing and future Bombardier jets, while they also work together to certify HON's JetWave X high-speed in-flight connectivity product.
- The partnership should be quite lucrative for HON in the long-run -- the company estimates the deal to be worth $17.0 bln over its lifespan -- but not before some initial turbulence shakes its financials. Investments in research & development will be required as HON develops new products for avionics, propulsion, and satellite communications, negatively impacting sales, margins, EPS, and free cash flow.
- For Q4, the company expects to take a $400 mln hit on the top-line, while adjusted EPS is reduced by $0.47. HON's FY24 free cash flow guidance was also cut by $500 mln to $4.6-$4.9 bln.
- This guidance cut comes on the heels of HON's mixed FY24 guidance in its Q3 earnings report back on October 24. While HON raised its EPS outlook, it lowered its sales forecast to reflect a slower recovery in industrial automation, as well as more tempered expectations surrounding the aerospace and energy markets in Q4.
- HON's struggles and underperforming stock (shares are by just 7% year-to-date) have caught the attention of activist investment firm Elliott Investment Management, which has amassed a $5.0 bln stake in the company. On November 12, Elliott sent a letter to HON's Board of Directors, pushing the company to pursue a separation of its Aerospace and Automation businesses, taking a page out of General Electric's playbook
- Since separating its Aerospace and Defense business from its Energy and Power businesses on April 2, 2024, GE Aerospace (GE) has jumped by 32%, while GE Vernova (GEV) has soared by 135%. While a similar outcome for HON is not guaranteed, there's certainly an argument to be made that a split would be well received by the market.
- For its part, HON has been working to simplify and streamline its business. On November 22, the company announced the divestiture of its Personal Protective Equipment (PPE) business for $1.325 bln, which was preceded by an October 8 announcement to spin-off its Advanced Materials business into a new publicly traded company in 2025 or early 2026. The Advanced Materials unit, which is part of HON's Energy and Sustainability Solutions segment, manufactures additives and polymers that are used in a wide variety of products, such as plastics, paints, and asphalt.
The main takeaway is that the new partnership with Bombardier represents a meaningful growth catalyst in the long-term, but another downward revision to HON's FY24 outlook is clouding over the positive aspects of the deal.
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