Market Snapshot
| Dow | 43828.06 | -86.06 | (-0.20%) | | Nasdaq | 19926.72 | +23.88 | (0.12%) | | SP 500 | 6051.09 | -0.16 | (0.00%) | | 10-yr Note | -27/32 | 4.40 |
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| | NYSE | Adv 885 | Dec 1864 | Vol 882 mln | | Nasdaq | Adv 1714 | Dec 2753 | Vol 6.0 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Utilities |
| | Weak: Materials, Energy, Communication Services, Real Estate, Financials |
Moving the Market
-- Strength in semiconductor space after Broadcom (AVGO) earnings
-- Gains in some mega caps boosting major indices
-- Rising market rates keeping buying in check in other areas of the equity market
| Closing Summary
13-Dec-24 16:35 ET
Dow -86.06 at 43828.06, Nasdaq +23.88 at 19926.72, S&P -0.16 at 6051.09
[BRIEFING.COM] The S&P 500 (flat), Nasdaq Composite (+0.1%), and Dow Jones Industrial Average (-0.2%) closed within 0.2% of their prior closing levels while the Russell 2000 underperformed, dropping 0.6%. The S&P 500 and Nasdaq Composite initially moved higher, driven by strong earnings and guidance from Broadcom (AVGO 224.80, +44.14, +24.4%) that buoyed sentiment in the semiconductor sector.
Rising market rates kept buying efforts in check in the rest of the equity market. The 10-yr yield jumped eight basis points to 4.40% and the 2-yr yield settled five basis points higher at 4.24% ahead of next week's expected rate cut. The 10-yr yield is 25 basis points higher than last Friday and the 2-yr yield is 14 basis points higher for the week.
This movement followed disappointing inflation data, including weaker-than-expected November CPI and PPI reports, along with signs of softening in the labor market.
While the semiconductor sector remained a bright spot amid an otherwise sluggish session, some key chipmakers, including NVIDIA (NVDA 134.25, -3.09, -2.8%), reversed earlier gains. Shares initially rallied 1.6%, but NVIDIA closed with sizable decline. The PHLX Semiconductor Index (SOX) still logged a 3.4% gain.
In the energy sector, WTI crude oil futures rose 1.7% to $71.29 per barrel after the International Energy Agency (IEA) forecasted an acceleration in global oil demand growth, from 840,000 barrels per day in 2024 to 1.1 million barrels per day in 2025. Oil prices have struggled to maintain levels above $70 per barrel since September.
- Nasdaq Composite: +32.7% YTD
- S&P 500: +26.9% YTD
- S&P Midcap 400: +17.8% YTD
- Russell 2000: +15.8% YTD
- Dow Jones Industrial Average: +16.3% YTD
Reviewing today's economic data:
- November Export Prices 0.0%; Prior was revised to 1.0% from 0.8%
- November Export Prices ex-ag. 0.1%; Prior was revised to 0.8% from 0.6%
- November Import Prices 0.1%; Prior was revised to 0.1% from 0.3%
- November Import Prices ex-oil 0.0%; Prior 0.2%
Looking ahead, Monday's economic calendar features: December Empire State Manufacturing Survey (prior 31.2) at 8:30 ET; flash December S&P Global U.S. Manufacturing PMI (prior 49.7) and flash December S&P Global U.S. Services PMI (prior 56.1) at 9:45 ET
Treasury jump settle higher
13-Dec-24 15:35 ET
Dow -84.40 at 43829.72, Nasdaq +3.41 at 19906.25, S&P -3.40 at 6047.85
[BRIEFING.COM] The major indices trade roughly flat ahead of the close.
The 10-yr yield jumped eight basis points to 4.40% and the 2-yr yield settled five basis points higher at 4.24% ahead of next week's expected rate cut.
Looking ahead, Monday's economic calendar features: December Empire State Manufacturing Survey (prior 31.2) at 8:30 ET; flash December S&P Global U.S. Manufacturing PMI (prior 49.7) and flash December S&P Global U.S. Services PMI (prior 56.1) at 9:45 ET
Semiconductor stocks continue to lead
13-Dec-24 15:10 ET
Dow -51.21 at 43862.91, Nasdaq +17.56 at 19920.40, S&P +0.45 at 6051.70
[BRIEFING.COM] The S&P 500 and Nasdaq Composite trade slightly higher than prior closing levels while the Dow Jones Industrial Average trades 0.1% lower.
Semiconductor stocks remain in a leadership role. The PHLX Semiconductor Index (SOX) shows a 3.5% gain and the S&P 500 information technology sector shows a 0.5% gain.
The consumer discretionary (+0.4%), health care (+0.3%), and utilities (+0.1%) sectors are also showing some strength.
Progressive leads S&P 500 gains as Super Micro, Generac, and Nucor slip
13-Dec-24 14:30 ET
Dow -76.26 at 43837.86, Nasdaq +26.36 at 19929.20, S&P +0.01 at 6051.26
[BRIEFING.COM] The S&P 500 (+0.01%) is narrowly higher this afternoon, in second place among the major averages.
Elsewhere, S&P 500 constituents Super Micro Computer (SMCI 36.05, -1.88, -4.96%), Generac (GNRC 165.68, -7.94, -4.57%), and Nucor (NUE 125.45, -5.96, -4.54%) slip in the standings despite a dearth of corporate news.
Meanwhile, Progressive (PGR 253.84, +11.08, +4.56%) is one of today's top performers as November results showed strong growth in premiums, income, and policies.
Gold trims weekly advance on Friday ahead of next week's Fed rate decision
13-Dec-24 14:00 ET
Dow -56.19 at 43857.93, Nasdaq -2.98 at 19899.86, S&P -3.73 at 6047.52
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.01%) is on the doorstep of a red-to-green move.
Gold futures settled $33.60 lower (-1.2%) to $2,675.80/oz, ultimately up +0.6% on the week, as gains from earlier in the week were enough to withstand a declines from Thursday and Friday.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $106.98.
Under Armour gets sacked as turnaround plan fails to inspire confidence in FY25 prospects (UAA)
Athletic apparel, footwear, and equipment maker Under Armour (UAA) can't protect itself against a steep selloff in the wake of yesterday's Investor Meeting that was meant to inspire confidence in the company's ongoing turnaround plan. Instead, uncertainty regarding the timing and effectiveness of UAA's strategy only seemed to increase, prompting a nasty 14% drop over the past two sessions. While the company reaffirmed its FY25 EPS guidance of $0.24-$0.27, participants were left wanting for more, looking for concrete evidence that its new plan will yield stronger results in the coming quarters.
- There are several pieces to that plan, but the primary mission is to strengthen the product, brand, and commercial strategies, making UAA more competitive and improving its ability to deliver strong value creation for shareholders. While UAA's brand already lagged behind larger rival NIKE (NKE) -- which is dealing with its own innovation-related setbacks -- rising competition in the footwear category from brands like On Holdings (ONON) and Skechers (SKX) have only added to the challenges.
- Reinvigorating its product lineup and shifting more towards the premium side are key pillars of its strategy to reset and strengthen the brand, especially in the core North America market where UAA continues to struggle. In Q2, North American revenue fell by 13% yr/yr to $863 mln, compared to a decrease of just 5% for international in constant currency.
- It won't be a quick fix, though, as UAA's new product lineup won't launch until the fall of 2025, with a ramp up of those products not occurring until 2026. When the company reported Q1 results in early November, it guided for a 14-16% revenue decline in North America, which still appears to be the expectation after UAA reaffirmed its FY25 guidance yesterday.
- On a more positive note, UAA has reined in promotional and discounting activities, and it has kept a tight lid on expenses. As a result, gross margin expanded by 200 bps to 49.8% in Q2, while SG&A expenses decreased by 13% to $530 mln, leading to a 63% yr/yr surge in EPS to $0.39. Maintaining this pricing and cost discipline are also key components of UAA's turnaround plan, as reflected in its expectation for gross margin to improve by 125-150 bps in FY25.
Overall, UAA offered a detailed view of its strategy to turn its struggling business around, but the lack of progress that's expected for the remainder of FY25 is creating disappointment. Furthermore, without many details surrounding its new product lineup for the fall of 2025, there's still plenty of uncertainty regarding whether UAA's turnaround plan will even bear fruit next year.
RH surges today on upbeat Q4 outlook, demand remains brisk despite weak housing market (RH)
RH (RH +14%) is surging today following its Q3 (Oct) earnings report last night. What is surprising is that the stock for this luxury home furnishings company is sharply higher despite missing on EPS while revenue was generally in-line. It seems investors are focusing more on the significant upside revenue guidance for Q4 (Jan), the impressive demand guidance and some upbeat comments made on the call last night.
- Total Demand in Q3 grew 13%, in-line with its +12-14% prior guidance, despite operating in the worst housing market in 30 years. Unlike most companies, RH uses "demand" as an operating metric. Basically, it's the dollar value of orders placed (orders convert to net revenue upon a customer obtaining control of the merchandise) and excludes exchanges and shipping fees.
- What really stands out is RH's Q4 Total Demand growth guidance of +20-22%, which explains the big upside guidance for revenue. November Total Demand growth accelerated to +18% with RH Brand Demand Growth up 24%. The strong demand growth is impressive considering the cautious state of the consumer.
- RH is also pretty excited about its Waterworks line of luxury bath and kitchen products (faucets, tubs, tile, hardware, lighting). RH talked a lot about how it will begin to introduce the Waterworks brand across the RH platform starting this week. Its interior designers around the world will now be able to specify Waterworks in their design projects, and customers will be able to purchase Waterworks on the RH website in the next few weeks.
- RH also plans to test the Waterworks Sourcebook in 2H25. Like most luxury brands in the home space, Waterworks generates the vast majority of its revenue from the trade market, selling to architects, designers, developers and builders. RH sees a significant opportunity to amplify the Waterworks business on the RH platform by exposing the brand to a much larger consumer audience. Waterworks today is just shy of a $200 mln business but RH sees potential for it to become a $1 bln global brand.
- RH addressed investor concerns about higher tariffs. RH has been proactively moving sourcing away from China over the past several years with the expectation of fully exiting the country by the end of Q2. RH is also transitioning products manufactured in Mexico. RH believes it can successfully reposition sourcing with no disruption to the supply chain.
Overall, it seems investors are giving RH a pass on the Q3 EPS miss and focusing more on the Q4 revenue and demand guidance, which is pretty impressive given the macro headwinds. Even higher income consumers are being cautious as we saw with Oxford Ind (OXM) earlier this week. RH talked about the disruptive nature of its brand and how it has moved into more of an attack mode over the past couple of years. RH sees itself disrupting the market from a design and quality point of view. RH has now posted back-to-back impressive quarters, so it seems to be turning a corner.
Costco's steady results continue in 1Q25, setting company up for successful holiday season (COST)
In a business climate in which value and quality are more important to the customer than in any other time in recent history, according to Costco (COST) CFO Gary Millerchip, the membership warehouse retailer delivered solid 1Q25 results. While an unfavorable calendar shift due to the later Thanksgiving holiday and lower gas prices weighed on sales a bit, which fell just short of expectations, adjusted EPS still grew by nearly 10% yr/yr to $3.82, edging past analysts' estimates. However, with shares hovering around all-time highs and with shares trading at a hefty 54x FY25 earnings, the company faced a high bar to hurdle, explaining the muted reaction the stock today.
- After stripping out the impact from changes in gas prices and FX, comparable sales increased by a healthy 7.1%, representing a slight uptick from Q4's growth of 6.9%. Similar to last quarter, the comp growth was mostly driven by traffic as shopping frequency increased by 5.1% worldwide. Unsurprisingly, the food and sundries category was solid, up mid-single-digits, illustrating that emphasis on value that Mr. Millerchip spoke of.
- Despite contending with a much choosier customer and the unfavorable calendar shift, COST still saw healthy demand in non-food categories such as jewelry, home furnishings, sporting goods, gift cards, and gold bars. All told, non-food was up high-single digits, helping to push e-Commerce comps higher by 13.2%. A key initiative for COST has been to improve its digital capabilities and those efforts are paying off, as reflected in yr/yr increases in e-Commerce traffic, conversion rates, and average order value.
- If there is one blemish, it's that COST's worldwide membership renewal rate slipped to 90.4% from 92.8% in the year-earlier period. The decrease is likely partly attributable to the membership fee increase that was announced on September 1, but a mix shift towards more new members renewing through the digital channel is also having an effect. While underlying renewal rates remain strong, this shift is expected to have an impact on COST's renewal rate for the remainder of FY25.
The main takeaway is that COST's solid Q1 results reinforced the bullish narrative that has propelled the stock higher by more than 50% on a year-to-date basis. Once again, the company is poised to emerge as a holiday season winner in the retail space as consumers seek out value by purchasing items in bulk while also shopping for gifts.
Broadcom surges to new all-time high on Q4 beat and bullish AI comments (AVGO)
Broadcom (AVGO +19%) is surging to a new all-time high following its Q4 (Oct) results/guidance last night. The semiconductor giant reported fairly modest EPS upside. Revenue grew 51.2% yr/yr, or +11% excluding its VMWare acquisition, to $14.05 bln, which was generally in-line. The company also guided to Q1 (Jan) revs of approximately $14.6 bln, which was slight upside. For good measure, Broadcom also boosted its quarterly dividend by 11% $0.59/sh.
- Chip segment revenue in Q4 grew a healthy 12% yr/yr and 13% sequentially to $8.2 bln. Not surprisingly, the AI side of its chip business is booming with AI revenue up 150% yr/yr to $3.7 bln. On the other hand, its non-AI semiconductor revenue declined by 23% yr/yr to $4.5 bln. The silver lining here is that the non-AI side is recovering, it's up 10% from the bottom six months ago and should improve to down mid-teens in Q1.
- Breaking it down by end market, Q4 Networking revenue grew 45% yr/yr to $4.5 bln with AI networking revs jumping 158% yr/yr and accounting for 76% of networking revs. This was driven by a doubling of its AI XPU shipments to three hyperscale customers and 4x growth in AI connectivity revenue. Looking ahead, its next generation XPUs are in 3 nanometers and will be the first of its kind. Broadcom is on track for volume shipments at hyperscale customers in 2HFY25.
- Its next biggest chip segment is Wireless. A seasonal launch by a North American customer (presumably Apple) drove Q4 wireless revenue to $2.2 bln, up 30% sequentially due to higher content. Perhaps in response to recent news reports of Apple (AAPL) seeking to replace Broadcom with its own chips, Broadcom said on the call that it continues to be very engaged with this customer in multi-year road maps across various technologies, including RF, Wi-Fi, Bluetooth, sensing and touch. There have also been recent news reports the two are working together on AI chips.
- Turning on to server storage, its business has recovered 20% from its bottom six months ago to reach $992 mln in Q4. Broadband reached a bottom at $465 mln, down 51% yr/yr. Broadcom has seen significant broadband orders across multiple service providers and now expects Broadband to show recovery beginning in Q1. Finally, Industrial accounts for just 1% of revs, Broadcom expects a recovery in the second half 2025.
- What really stood out were comments in terms of how it sees its semiconductor business evolving over the next three years. Broadcom sees its opportunity in AI is "massive." Broadcom currently has three hyperscale customers who have developed their own multigenerational AI XPU road map. In 2027, Broadcom believes each of them plans to deploy 1 mln XPU clusters across a single fabric. This represents an AI revenue serviceable addressable market for XPUs and network in the range of $60-90 bln in FY27 alone. Broadcom sees itself as very well positioned to achieve a leading market share in this opportunity.
Overall, the Q4 results and guidance were decent. Investors also probably liked the dividend hike. But we think Broadcom's comments about its AI segment and especially its roadmap over the next three years is what it really driving the shares higher today. Basically, Broadcom sees its opportunity in AI as massive. We also think the positive comments about working together with a major wireless company, presumably Apple, are helping the stock as well.
Oxford Ind pulls back on earnings miss; even higher income consumers feeling inflation pinch (OXM)
Oxford Industries (OXM -7%) is sharply lower following disappointing Q3 (Oct) earnings results/guidance last night. This apparel company, which owns Tommy Bahama, Lilly Pulitzer, Johnny Was and some emerging brands, focuses on the laid-back vacation vibe. OXM cited several macro headwinds, most notably, the continued challenging consumer environment. Distractions due to the election and hurricanes also impacted the Southeastern US.
- OXM has now missed on EPS in four consecutive earnings reports and the last two misses have been quite large. What's more, analysts were expecting a profit in Q3, but OXM posted a loss. Sales declined 5.2% yr/yr to $308 mln with declines among all core brands. The Q4 (Jan) guidance was not great either with downside EPS and the mid-point of revenue guidance was slightly below analyst expectations.
- On the last call, OXM had warned of a relatively soft Q3. OXM said it was on track to finish within the forecast, but then the impact of two hurricanes pushed it below the bottom of the range for both EPS and sales. OXM explained that its customer tends to be older and headline-sensitive, so the election was a distraction. Also, the Southeastern US is OXM's most important region, with Florida alone representing a third of its DTC (direct-to-consumer) business.
- These issues were exacerbated by a consumer that already felt the cumulative effects of several years of high inflation. Also, OXM owns a portfolio of premium brands that sell primarily at full price with very limited exposure to off-price and outlet channels. OXM sees its full price premium strategy as a long-term competitive strength, but in the current environment, it is a headwind.
- A silver lining is that customer traffic has remained healthy, but reduced purchase conversion is hurting results. OXM says this indicates that its customer remains interested in its brands, but continues to be cautious when making purchase decisions. Despite short-term headwinds, OXM has not backed off investing in the business with new stores, Marlin Bars, a new distribution center and technology, all of which are adding expense at a time when the top line is weak. That hurts EPS.
- Looking ahead to Q4, November started on a similar trajectory as Q3, but since the election, business has begun to improve. OXM saw a strong finish to November with a very solid Thanksgiving weekend. The holiday season is more condensed this year due to the late Thanksgiving but OXM believes in its holiday assortment and marketing plans. Indigo Palms was a rare bright spot in Q3 and it performed extremely well during November.
With a generally higher income core customer base, it would be natural to think OXM would be less impacted by macro issues. However, even higher income people are cautious these days and are focusing more on value, which hurts OXM. Looking ahead to next year, OXM's #1 priority is stabilizing and expanding operating margin. OXM is encouraged by recent sales trends and by forward wholesale bookings. On a final note, Briefing.com notes that the stock has come under pressure in recent months, but today's strong reaction makes us nervous that a bottom has yet to be reached.
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