Closing Recap

Thursday, August 01, 2024

What goes up must come down, as we saw 100 points up yesterday for the S&P 500 and 100 points down today, while the Nasdaq saw a more than 700-point reversal from highs to lows today ahead of AMZN and AAPL earnings tonight. Just how volatile has Tech been lately? Bespoke Invest tweets: “Today is set to be the Nasdaq 100’s fourth one-day drop of 2%+ since July 11th. Prior to that there had just been one 2%+ drop all year.” After posting the biggest daily gains of the year on Wednesday for major averages, with investors buying any/all dips to close big…today was the complete opposite, with stock selling this morning around 10:00 after a strong open, and investors selling any bounces (if any) as stocks bled lower all day to erase most of yesterday’s gains. The continued unwind of the Japanese yen/US dollar carry trade also still hurting risk assets/tech stocks. Markets are also closely watching the nonfarm payroll report tomorrow morning at 8:30 AM.

Markets ripped the first 30-minutes of trading today on better economic data, follow thru momentum after Fed Chairman Powell comments on rates, and earnings-related pops for likes of META – but a little after 10:00 AM, following the ISM manufacturing data, markets began to pullback and never looked back. The ISM report showed a drop from the prior month (and below ests) along with a rise in inflationary prices paid (above prior month), pushing markets lower. Did it change the outlook for rate cuts by the Fed in September, no, but it was used as a reason to sell following the massive move higher the day prior. It did bring up the question if the Fed should have cut yesterday or get more aggressive this year. With today’s pullback, the S&P 500 (SPX) dropped below its 50dma support of 5,449.

Technology saw the biggest drawdown on Thursday, falling as much as -4% with a the semiconductor SOX index erasing all of the prior day 7% advance, falling as much as -8% to 4,815 before paring losses, along with big losses in Energy (XLE), Consumer Discretionary (XLY), Financials (XLF) and Industrials (XLI), while defensive/interest rate sensitive sectors that tend to benefit the most from lower Treasury yields such as utilities, REITs, Staples and Healthcare saw gains. Treasury yields tumbled to 6-month lows for the 10 and 2-yr, falling to lows of 3.96% and 4.15% respectively. There were several big movers on earnings (see recap below) but now all eyes on two of the biggest companies in world with Apple (AAPL) and Amazon (AMZN) reporting after the close. The Russell 2000 fell over 3% today after a 10% gain in July for the Smallcap index.

• Weekly Jobless Claims climbed to 249,000 in the latest week above consensus 236,000, while the 4-week moving average climbed to 238,000 from 235,500 prior week; continued claims climbed to 1.877M from 1.844M prior week (and above est. 1.856M) while the U.S. insured unemployment rate unchanged at 1.2%.
• ISM U.S. manufacturing activity index 46.8 in July (vs. consensus 48.8) vs 48.5 in June, while the prices paid index 52.9 in July (vs. consensus 51.8) vs 52.1 in June, new orders index 47.4 in July vs 49.3 in June, manufacturing employment index 43.4 in July (consensus 49.0) vs 49.3 in June.
• June construction spending fell -0.3% vs. consensus +0.2% to $2.148 trln, vs May -0.4%; June private construction spending -0.3%, public spending -0.4%.
• U.S. S&P Global July final manufacturing PMI at 49.6 (vs flash 49.5).
• U.S. Challenger job cuts for July actual: 25.885k vs 48.786k previous.

• U.S. WTI crude oil futures dropped -$1.60 or 2.05% to settle at $76.31 per barrel while Brent crude fell -$1.32 or 1.63% to settle at $79.52 per barrel as investors weighed producer group OPEC+’s decision to keep its output policy unchanged against the threat of a wider Middle East conflict after the killing of a Hamas leader in Iran. The most active contracts on both benchmarks jumped about 4% in the previous session (but were down for the month of July).

• In Food: HSY Q2 sales fell -17% y/y to $2.07B below the $2.31B estimate while adj EPS $1.27 misses $1.44 consensus noting N.A. Q2 confectionery net sales $1.58B, -21% y/y; also lowered FY sales view to low end of prior range of 2%-3%. Kellanova (K) reported better-than-expected second-quarter results and raised its 2024 outlook to approximately $3.65 to $3.75, from its prior outlook of approximately $3.55 to $3.65. UTZ swung to Q2 profit as organic sales rose and raised its 2024 outlook.
• In Retail: DG added to conviction Buy list at Goldman Sachs as believes concerns around the low-income consumer, discretionary spend and competition are overdone and view its business as more defensive. CROX shares slumped as guided Q3 EPS $2.95-$3.10 vs. est. $33 and revs to be down -1.5% to up +0.5% vs. est. +3.3% growth. In Home Furnishing: Wayfair (W) shares slide after Q2 revenue and profit trailed analyst estimates, saying that macroeconomic headwinds continue to weigh on consumers; narrowed its Q2 loss but posted an unexpected decline in sales as customers ease their spending on home furnishings; Q2 revs fell to $3.12B from $3.17B y/y.

• In RV/Leisure Products: CWH posted top- and bottom-line misses, delivering a softer quarter, but meaningfully outpacing industry trends. CWH delivered adjusted EBITDA -$20.8M vs. consensus on revenue -$68.9M vs. consensus via softer vehicles (-$50.8M), PS&O (- $16.2M), CS&P (-$0.2M), and F&I (-$3.3M).
• In Autos: RACE Q2 revenue rose 16% on year to EUR1.71B euros topping ests EU1.62B, posted Q2 shipments of 3,484, an increase of 3%, After-tax profit jumped 24% to EUR413M vs. est. EU359M, Net profit rose to EUR412M compared with EUR333M y/y and raised its full-year revenue target to more than EUR6.55B from a minimum of EUR6.4B prior. In used cars, CVNA shares jumped after forecast FY core profit above analysts’ expectations helped by demand for used vehicles, improved inventory management as now expects 2024 adj. EBITDA in the range of $1B-$1.2B, compared with consensus estimates of $890.97M. Hyundai Motor America reports total July sales of 69,202 units, up 4% y/y.
• In Chinese EV monthly auto data: LI said that it delivered 51,000 vehicles in July 2024, setting a new monthly delivery record and representing an increase of 49.4% y/y. This brought the Company’s total deliveries in 2024 to 239,981. NIO delivered 20,498 vehicles in July consisting of 11,964 smart electric SUVs, and 8,534 smart electric sedans. Cumulative deliveries of NIO vehicles reached 557,518 as of July 31. XPEV delivered 11,145 Smart EVs, up 1% y/y and 4% over the prior month. Out of the total July deliveries, 1,459 were Xpeng X9s, bringing X9’s cumulative total to 14,602 units since its launch in January this year

• In Energy: OXY said that Colombian firm Ecopetrol will not acquire a stake in its CrownRock assets. Ecopetrol was in talks to buy a 30% stake in shale oil producer CrownRock from Occidental, according to a filing last month. Last year, Occidental agreed to buy CrownRock in a $12B cash-and-stock deal, including debt. NOG Q2 adj. EPS of $1.46 beat consensus of $1.24 on natural gas realizations and production and updated guidance raising the mid-point of FY24 production from 117.5 MBoed to 122 MBoed and oil production from 71.5 mbd to 74.5 mbd.

• Financial Services: PAYC reported solid Q2 EBITDA and 2024 EBITDA guidance, but revenue for the quarter was only in line with full-year revenue guidance lowered at the midpoint (also announced stock buyback). TRI Q2 results topped estimates as revs rose 6% and now forecasts full year revenue at the high end of projections. FICO reported strong results, with revenue coming in above expectations due to strength in both the Scores and software business but EPS missed due to higher expenses from incentive comp which stems from good execution and stock price outperformance.

• ALL Q2 EPS $1.61 results came in ahead of Street consensus of $0.26 amid better underwriting margins; auto insurance underlying combined ratio (excluding catastrophes and reserve development) of 94.4% was over 100bps better than Bofa forecast, and in homeowners’, the underlying combined ratio of 66.1% was over 250bps better than Bofa view.
• MET Q2 EPS of $2.28 topped Street consensus of $2.12 as principally driving the variance was stronger underwriting results in Group Benefits and modestly higher variable investment income driven by improving private equity returns.
• VOYA downgraded to EW from OW at Morgan Stanley saying while overall results came in above expectations, underperformance in Health Solutions is likely to serve as a headwind for some time. This headwind is likely to depress valuation multiples and introduce additional uncertainty.

• ALXO shares tumbled after data from a mid-stage trial of its combination cancer drugs disappointed.
• BIIB forecasts FY adj EPS $15.75-$16.25, above prior view of $15-$16 per share (est. $15.58) following a big Q2 beat (EPS $5.28/$2.47B in revs vs. $4.02/$2.38B est.) and now expects total revenue to decline by a low-single digit percentage versus 2023 with core pharmaceutical revenue expected to be roughly flat versus 2023.
• BPMC reported a 2Q Ayvakit beat ($114mn vs. est. $101mm) driven by continued launch execution in indolent systemic mastocytosis (ISM); mgmt raised FY24 Ayvakit sales guidance for a second time this year from $390mn-$410mn in 1Q to $435mn-$450mn.
• LLY reported late-stage trial data that showed its weight loss drug Zepbound reduces the risk of hospitalization, death and other outcomes for obese adults with a common type of heart failure. The drug, also known as tirzepatide, reduced the risk of a composite of heart failure urgent visit or hospitalization by 38% vs. a placebo.
• MRNA cut its full-year sales outlook to $3B-$3.5B, below prior view of $4B despite delivering nearly double the sales expected in Q2; guidance comes as Moderna launches its second-ever product, a vaccine for respiratory syncytial virus; reported Q2 net loss of (-$3.33) roughly in-line with estimates.
• REGN reported 2Q revenue ahead of street, with US Eylea, Libtayo and Praluent ahead, while HD Eylea was slightly light of cons. EPS was aided by unrealized gains in equity securities.
• RGNX reported new, positive interim safety and efficacy data in the Phase I/II AFFINITY DUCHENNE(R) trial of RGX-202 in patients with Duchenne muscular dystrophy (Duchenne) ages 1 to 11 years old.

• In Managed Care: CI 2Q revenue of $60.5B (vs. $58.3B cons) and EPS of $6.72 (vs. $6.43 cons), driven by Evernorth while the company reaffirmed its FY24 guidance and long-term targets.
• In Medical Research: EXAS shares jumped on results as Cologuard beat by ~1%, EBITDA beat by 57%, & ’24 guide was reiterated and CEO Conroy expressed confidence in coming EXAS blood data.
• In Medical Equipment: TMDX Q2 print featured a $15.5M revenue beat and 18% sequential growth and marked the first quarter with positive FCF while raised its 2024 revenue guidance to $425M-$445M (+76-85%) from $390M-$400M (+61-66%). BDX Q2 revs of $4.99B below est. $5.1B as organic growth of 5.2% below 6.3% est. and lowered organic growth guide but raising low end of EPS guide. ATEC shares tumbled as posted a slight revenue beat and strong adj. EBITDA expansion, the company increased expectations for FY24 cash burn $25M given higher-than-expected days sales outstanding and inventory needs (posts strong EOS momentum, but some surgical growth hiccups in Q2). GKOS shares fell as Q2 sales beat by $7MM ($96MM versus consensus $89MM) and raised FY24 guidance by $12MM at the midpoint, but an estimated $4.3MM in Q2 iDose sales potentially didn’t meet expectations.

• In E&C: PWR forecasts FY adj EPS $8.32-$8.87, above prior view $8.15-$8.65 and still forecasts FY FCF $1.30B-$1.70Band boosts FY24 revenue view to $23.5B-$24.1B from $22.5B-$23B (est. $23.14B) and raises FY24 adjusted EBITDA view to $2.21B-$2.33B from $2.13B-$2.25B as co says the long-term outlook for Quanta’s business is positive.
• In Machinery: CMI Q2 top and bottom line easily topped consensus ($5/26/$8.8B vs. est. $4.81/$8,34B) and now sees 2024 revenue flat to down 3%, better than prior view of down 2%-5%.
• In Distribution: WCC shares fell as guided FY24 EPS $12-$13 below estimate $14.18 and lowered its sales outlook to down -1.5% to up +0.5% from prior view of up 1%-4% (followed a Q2 EPS/sales miss); GWW lowered its 2024 sales forecast to $17B-$17.3B from prior view $17.2B-$17.7B due to slower-than-expected demand (provides hand tools, power tools and industrial products to home improvement retailers, construction businesses and aerospace manufacturers); shares of FAST, WSO also active in sympathy

• In Lithium sector: ALB posted wider loss vs. profit a year ago as lithium prices have continued to tumble, from an average of $20 per kilogram at the end of last year to a current range of roughly $12 to $15 per kg; maintained its full-year profit outlook, helped in part by results from its catalyst division and cost cuts.

• In social media: META shares jumped after beating on Q2 revenue and earnings but misses on capex while guides Q3 revs above consensus $38.5B-$41B vs. est. $38.3B/Meta increased its minimum spending guidance for 2024, and its capital expenditures surged about 33%.
• In Internet: EBAY reported rev/non-GAAP EPS of $2.57bn/$1.18, above Street at $2.53bn/$1.13. GMV of $18.4bn was 1.8% above Street and grew 1% y/y CC; 3Q outlook largely in line with Street; GMV growth in 4Q. ETSY reported Q2 results ahead of guidance on higher take-rate, weaker Q3 guidance and removal of FY GMS outlook suggests no near-term visibility as was downgraded at Oppenheimer following 16% increase since 7/8.

• CFLT reported a mixed Q2 and 2H guide below as noted slower than expected growth in consumption among some digital native customers undertaking broader IT cost control efforts beginning in June; Q2 total revenue and cloud revenue beat by $5M and 1.3M, respectively.
• DDOG upgraded from Neutral to Buy at BTIG with $143 tgt saying in short, BTIG sees DDOG as the best play in the observability market with a large opportunity to gain share.
• PTC posted a smaller than expected F3Q C.C. ARR beat of ~$2M and lowered the high end of its FY24 C.C. ARR guidance by $20M (now assuming 11-12% growth).

• AMAT was rejected for funding under the Chips act for a research and development center in Silicon Valley, Bloomberg reported on Thursday. Commerce Department officials rejected the chipmaking equipment maker’s bid to gain U.S. funding for a $4B facility in Sunnyvale, California.
• ARM shares tumbled, Q1 revs rose 39% y/y to $939M beating the $905M estimate saying License and other revenue increased 72% to $472M y/y, but only affirmed its year profit and revenue outlook.
• IDCC forecasts FY adj. EBITDA $378M to $416M, above prior forecast $310M to $345M.
• LRCX posted a Q4 EPS beat on in-line revenue, and F1Q25 guidance was in line and indicated 2024 WFE at the mid-$90B level followed by an expected multiyear spending expansion. For 2025 LRCX sees AI driving strong demand for GPUs and HBM, and further out inferencing will drive demand for low power DRAM and NAND.
• MBLY cuts its full-year revenue forecast to $1.60B-$1.68B from prior view $1.83B-$1.96B after reporting a Q2 revenue beat of $439M above consensus $424.8M; said a more significant than anticipated softening of business conditions in China is expected to lead to challenges in the second half.
• QCOM shares jumped overnight on earnings beat, but then reversed after warning of a hit from the U.S. revoking one of its export licenses for sanctioned Chinese telecom firm Huawei saying they will see an impact in Q4 and Q1.
• WDC Q2 revenues were largely in-line with expectations (and better than feared) while gross margins were a standout across both segments (up 780 bps q/q) and guidance incorporates revenues which are slightly below expectations with improving gross margins q/q while EPS brackets consensus.