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Technology Stocks : Semi Equipment Analysis
SOXX 347.97+0.8%3:59 PM EDT

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From: Return to Sender8/4/2022 4:43:19 PM
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Market Snapshot

briefing.com

Dow 32728.70 -85.68 (-0.26%)
Nasdaq 12720.54 +52.42 (0.41%)
SP 500 4152.01 -3.23 (-0.08%)
10-yr Note



NYSE Adv 1472 Dec 1619 Vol 879 mln
Nasdaq Adv 2559 Dec 1823 Vol 5.3 bln


Industry Watch
Strong: Utilities, Industrials, Materials, Consumer Discretionary, Information Technology, Communication Services

Weak: Energy, Health Care, Consumer Staples, Financials


Moving the Market
-- Assumption that market is due for consolidation after yesterday's rally, ahead of the July employment report

-- Dropping oil prices

-- Huge slew of earnings news since yesterday's close

-- Aggressive rate hikes from England and Brazil's central banks







Closing Summary
04-Aug-22 16:25 ET

Dow -85.68 at 32728.70, Nasdaq +52.42 at 12720.54, S&P -3.23 at 4152.01
[BRIEFING.COM] The stock market was confined to a fairly narrow range today as market participants awaited the July jobs report tomorrow. Also in play was a huge stream of earnings news since yesterday's close, a notion that the July rally was overheated given the weakening economic fundamentals, and a reaction to more aggressive rate hikes from central banks.

Brazil's central bank raised its key policy rate by 50 basis points to 13.75% and the Bank of England raised its key policy rate by 50 basis points to 1.75%. The BOE also forecast a recession in the UK starting in the fourth quarter and continuing for five quarters.

Oil prices were starting to rollover on concerns of demand slowdown before these central bank moves added downside pressure. WTI crude oil futures settled down 2.7% to $88.49/bbl. Natural gas futures settled down 2.1% to $8.13/mmbtu. Unleaded gasoline futures settled down 4.8% to $2.79/gal.

This resulted in the S&P 500 energy sector (-3.6%) lagging by a wide margin.

Aside from energy, the worst performing sector was consumer staples (-0.8%), which was weighed down by Walmart (WMT 125.57, -4.93, -3.8%) and Clorox (CLX 137.76, -6.81, -4.7%). The latter disappointed with quarterly results while the former is reportedly cutting approximately 200 corporate positions in a restructuring effort.

Another factor limiting index performance was the lack of influence from mega cap stocks, which have been an important driver recently. Apple (AAPL 165.81, -0.32, -0.2%) was a notable laggard, closing with a modest loss.

Despite weakness at the index surface level, semiconductor stocks had a strong showing. The PHLX Semiconductor Index closed up 0.9% with most components exhibiting gains after Qorvo (QRVO 108.61, +1.74, +1.6%) reported better-than-expected earnings.

Another bright spot in the market was the consumer discretionary sector (+0.5%). It was boosted by MGM Resorts (MGM 35.45, +1.25, +3.7%), and other casino names trading up in solidarity, after the company reported favorable earnings. Homebuilders were also a pocket of strength, responding to the drop in interest rates.

Also, market breadth painted a mixed picture today. Advancers led decliners by a 7-to-5 margin at the Nasdaq while decliners led advancers by an 11-to-10 margin at the NYSE.

Separately, Treasury yields pulled back today. The 2-yr note yield fell six basis points to 3.04% while the 10-yr note yield fell seven basis points to 2.68%.

Looking ahead to Friday, market participants will receive the employment situation report for July at 8:30 a.m. ET, which includes Nonfarm Payrolls (Briefing.com consensus 250,000; prior 372,000), Nonfarm Private Payrolls (Briefing.com consensus 200,000; prior 381,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 3.6%; prior 3.6%), and Average Workweek (Briefing.com consensus 34.5; prior 34.5).

June Consumer Credit (Briefing.com consensus -$24.7 billion; prior +$22.3 billion) will be released at 3:00 p.m. ET.

Ahead of Friday's open, DraftKings (DKNG), Fluor (FLR), Goodyear Tire (GT), Leslie's (LESL), and Western Digital (WDC) headline earnings reporters.

Reviewing today's economic data:

  • Initial jobless claims for the week ending July 30 increased by 6,000 to 260,000. That was in-line with the Briefing.com consensus estimate. Continuing claims for the week ending July 23 increased by 48,000 to 1.416 million.
    • The key takeaway remains the same in that the initial claims data -- a leading indicator -- point to some softening in the labor market, but nothing yet that would be equated to recession-like levels.
  • The trade deficit narrowed to $79.6 billion (Briefing.com consensus -$81.7 billion) from an upwardly revised $84.9 billion (from $85.5 billion) in May. That narrowing was the result of exports being $4.3 billion more than May exports and imports being $1.0 billion less than May imports.
    • The key takeaway from the report is that it partially captures the effects of supplying Europe with natural gas, evidenced by a $1.6 billion increase in natural gas exports.
  • Weekly EIA Natural Gas Inventories showed a build of 41 bcf versus a build of 15 bcf last week.
Dow Jones Industrial Average: -9.9% YTD
S&P 400: -12.4% YTD
S&P 500: -12.9% YTD
Russell 2000: -15.1% YTD
Nasdaq Composite: -18.7% YTD


Market moving sideways into the close
04-Aug-22 15:35 ET

Dow -54.06 at 32760.32, Nasdaq +51.38 at 12719.50, S&P +0.21 at 4155.45
[BRIEFING.COM] Heading into the close, the market is moving sideways.

Treasury yields pulled back today. The 2-yr note yield fell six basis points to 3.04% while the 10-yr note yield fell seven basis points to 2.68%.

Looking ahead to Friday, market participants will receive the employment situation report for July at 8:30 a.m. ET, which includes Nonfarm Payrolls (Briefing.com consensus 250,000; prior 372,000), Nonfarm Private Payrolls (Briefing.com consensus 200,000; prior 381,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 3.6%; prior 3.6%), and Average Workweek (Briefing.com consensus 34.5; prior 34.5).

June Consumer Credit (Briefing.com consensus -$24.7 billion; prior +$22.3 billion) will be released at 3:00 p.m. ET.

After the close, AMC Entertainment (AMC), Amgen (AMGN), Beyond Meat (BYND), Block (SQ), Carvana (CVNA), Cloudflare (NET), DoorDash (DASH), Dropbox (DBX), Expedia Group (EXPE), Live Nation (LYV), Lyft (LYFT), Monster Beverage (MNST), Motorola Solutions (MSI), Macy's (M), NortonLifeLock (NLOK), Redfin (RDFN), Rocket Companies (RKT), Schrodinger (SDGR), Skyworks (SWKS), Synaptics (SYNA), Teradata (TDC), TripAdvisor (TRIP), Twilio (TWLO), Vertex Pharma (VRTX), Virgin Galactic (SPCE), XPO Logistics (XPO), Yelp (YELP), Warner Bros. Discovery (WBD), and Zillow (ZG) are all set to report earnings.

Ahead of Friday's open, DraftKings (DKNG), Fluor (FLR), Goodyear Tire (GT), Leslie's (LESL), and Western Digital (WDC) headline earnings reporters.


Market is trading in narrow range currently
04-Aug-22 14:50 ET

Dow -80.70 at 32733.68, Nasdaq +35.61 at 12703.73, S&P -2.22 at 4153.02
[BRIEFING.COM] The main indices are little changed in the last half hour. The Nasdaq remains the lone index in positive territory, up 0.3%.

Earlier, Cleveland Fed President Loretta Mester (voting FOMC member) said she sees rates going up above 4%, but she could change her rate outlook at the September meeting. She also said the Fed could pause rates in the second half of 2023 and she doesn't think the US is in a recession, but risks are increasing.

Energy complex futures made big downside moves today. WTI crude oil futures settled down 2.7% to $88.49/bbl. Natural gas futures settled down 2.1% to $8.13/mmbtu. Unleaded gasoline futures settled down 4.8% to $2.79/gal.

The S&P 500 energy sector is buried in last place, down 1.9%.


Earnings movers dominate S&P 500 standings
04-Aug-22 14:30 ET

Dow -74.54 at 32739.84, Nasdaq +30.31 at 12698.43, S&P -2.52 at 4152.72
[BRIEFING.COM] The benchmark S&P 500 (-0.06%) is in second place to this point on Thursday afternoon.

S&P 500 constituents DXC Technology (DXC 25.11, -6.41, -20.34%), Ball Corp (BALL 59.43, -13.38, -18.38%), and Lincoln National (LNC 47.12, -4.67, -9.02%) are some of today's worst laggards, all following earnings.

Meanwhile, Pennsylvania-based IT firm EPAM Systems (EPAM 403.84, +33.81, +9.14%) is today's top performer following earnings.


Gold higher amid dollar, yield declines
04-Aug-22 13:55 ET

Dow -77.74 at 32736.64, Nasdaq +37.74 at 12705.86, S&P -1.60 at 4153.64
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.30%) remains atop the major averages.

Gold futures settled $30.50 higher (+1.7%) to $1,806.90/oz, aided in part by a decline in the dollar and a move lower in treasury yields.

Meanwhile, the U.S. Dollar Index is down approx. -0.7% to $105.83.



YETI's earnings report receives chilly reception as competition and higher costs hit margins (YETI)
Updated: 04-Aug-22 13:46 ET


YETI Holdings (YETI) is ice cold today after missing EPS and revenue expectations for Q2, while also lowering its FY22 EPS and operating margin guidance as the cooler and drinkware maker contends with a few headwinds. Unsurprisingly, rising costs were one of those headwinds, especially on the logistics and distribution side. Despite implementing price increases, YETI's gross margin still contracted by 630 bps yr/yr to 52.2%. The good news is that the company is now seeing forward shipping rates ease, which could turn a headwind into a tailwind later this year and into 2023.

However, the company's troubles extend beyond the cost side of the equation.

  • Perhaps the most concerning revelation from the report is that intensifying competition is pressuring YETI's Direct-to-Consumer (54% of Q2 sales) channel. Growth for DTC came in at an underwhelming 14% as an increasingly competitive digital marketplace weighed on sales at its own e-commerce platform, and at Amazon's (AMZN) network.
    • It's important to note, though, that DTC sales surged by 52% in the year-ago quarter, lessening this concern a bit.
  • Like many other retailers, YETI is contending with a business climate that's much more promotional than earlier in the year. In the wholesale channel, where the company has less control over pricing, YETI's margins are especially at risk.
    • On that note, the company disclosed that the channel shift towards wholesale (46% of Q2 sales) was greater than anticipated with sales increasing by 21% to $195.2 mln.
  • Compounding the problem is that higher margin drinkware sales also cooled off, growing by just 12% compared to 24% last quarter. Strong demand for coolers -- especially for soft coolers -- helped to mitigate the slowdown as that category registered growth of 23%.
    • Similar to the channel mix shift, though, the swing in demand from drinkware to coolers hurt YETI's margins.
Unfortunately, the factors noted above are expected to continue throughout the rest of the year, causing YETI to downwardly revise its guidance. After guiding for FY22 EPS of $2.46-$2.60 and adjusted operating margin of approximately 20%, YETI is now forecasting EPS and adjusted operating margin of $2.34 and 17.0-17.5%, respectively.

On the bright side, YETI has a strong brand name, and the company is consistently launching new, successful products. For instance, recently launched soft coolers, such as Hopper M30 and Hopper M20, expanded into the wholesale channel in Q2 and saw solid demand. That offers little comfort to investors, though, as the remainder of FY22 is shaping up to be quite challenging due to rising competition and a more discriminating consumer.




Wayfair shares amid a comeback despite underwhelming Q2 results as headwinds may be dying down (W)
Updated: 04-Aug-22 11:51 ET


The inflation-ridden environment proved to be quite the opponent for e-commerce-based home furnishing company Wayfair (W -1%), evidenced by its Q2 earnings miss and downbeat Q3 revenue guidance. Nevertheless, the stock quickly turned around today after opening roughly 7% lower.

With shares down roughly 70% on the year leading into today's report, perhaps much of Wayfair's struggles were already baked into the stock price. Additionally, today's movement may result from short squeeze action, given Wayfair's approximately 30% short interest. Investors may also be optimistic about Wayfair's future, especially after hearing management's determined tone on the call, stating that the company is laser-focused on returning to its goal of driving growth and consistent profitability.

  • These two components have suffered since pandemic-induced tailwinds have died out, replaced with unabated inflation and lingering supply chain issues. For instance, after revs fell 14.9% yr/yr in Q2 to $3.28 bln, Wayfair has now seen five-straight quarters of shrinking sales. Meanwhile, with earnings dropping to $(1.94) in Q2 from $1.89 in the year-ago period, Wayfair has now operated three consecutive quarters in the red.
  • On the plus side, supply chain disruptions improved mightily in Q2 compared to the year-ago period.
  • However, inflation continues to pose a massive hurdle for Wayfair. It helps that the company offers products spanning multiple price points. It is also noteworthy that Wayfair's specialty retail and luxury products are proving more resilient, bucking what we saw from RH (RH) in late June. Still, Wayfair is noticing discretionary dollars flow away from goods to services, especially travel, backing up what we have seen with Airbnb (ABNB) and Booking Holdings (BKNG) this week, which reported bookings exceeding pre-pandemic levels.
  • With the inflationary environment not improving meaningfully Q3-to-date, Wayfair expects net revs in Q3 to underperform Q2 levels, likely extending its declining yr/yr revenue streak to another quarter.
Although Q2 was riddled with issues, there were a few highlights. Even though Q3 sales are shaping up to disappoint, Wayfair is confident Q4 revs will build on Q3 levels. The company has also been delivering consistent gross margins, keeping the figure close to its target range of 27-28% for the past few quarters and expecting to trend toward the upper bound in Q3. Part of Wayfair's steady margins is its minimal inventory model, which differentiates it from traditional retailers. Additionally, Wayfair recovered its market share position in 2022 after seeing it fall in 2H21 from persistent supply chain woes. Lastly, management is confident that over the coming quarters and into FY23, the business will turn towards positive adjusted EBIDTA and positive free cash flow.

Bottom line, Wayfair's Q2 results were unimpressive. However, the good news is that the macroeconomic headwinds plaguing Wayfair over the last few quarters may finally be starting to improve, paving the way for the company to achieve its goals in FY23.




Booking Holdings travels lower as growth slows in July, but record Q3 revenue still expected (BKNG)
Updated: 04-Aug-22 11:08 ET


Booking Holdings' (BKNG) strong Q2 results provided further evidence that global travel demand has remained robust this summer, even as macroeconomic headwinds intensified. For the fourth consecutive quarter, the company easily surpassed EPS expectations, but the highlight of the report may be that gross bookings jumped by 57% to $34.5 bln, reaching a new quarterly record. Another notable highlight is that room nights climbed by 56% to 246 mln, surpassing 2019 levels for the first time. However, these accomplishments are failing to spark much enthusiasm from investors due to the company's more cautious outlook for Q3.

During the earnings conference call, CEO Glenn Fogel commented that the pace of growth moderated in July to about 4% for room nights and just over 20% for bookings. The company is facing difficult yr/yr comparisons in Q3, though, with room nights and gross bookings were up by 44% and 77%, respectively, in the year-earlier period. Still, the deceleration does create some apprehension that consumers are starting to dial back a bit on travel spending.

Furthermore, Fogel added that a high percentage of the bookings for Q4 are cancelable, while foreign exchange effects will impact the gross bookings growth rate by approximately 10 percentage points. At the same time that BKNG is contending with these issues, the company plans to bump marketing expense higher to capture demand and to increase awareness during the peak travel season.

It's also worth pointing out that BKNG had rallied by about 18% over the past few weeks, setting the stage for a "sell the news" reaction to its earnings report. Indeed, the news doesn't seem too bad given that BKNG is still expecting to achieve record revenue in Q3 as it continues to experience very strong accommodation ADR (average daily rate) growth.

There were plenty of other positive takeaways from the report, as well.

  • Cancellations rates in Q2 were below 2019 levels and BKNG has seen no evidence that travelers are shortening trip lengths, or, trading down to lower-quality accommodations.
  • BKNG's international business, which accounts for roughly half of its revenue, is recovering at a rapid pace. In fact, international room nights were up mid-single-digits over 2Q19, representing the first quarter of growth for international versus 2019.
    • The improvement was mainly driven by strong travel within Europe, although BKNG also experienced a qtr/qtr improvement in Asia.
  • Over 40% of its room nights were booked through its apps and mobile bookings, overall, accounted for half of total room nights in Q2. The ability to generate more bookings through the apps supports BKNG's connected trip strategy, resulting in higher customer engagement, share spend, and loyalty.
    • As an example, 38% of gross bookings in Q2 were processed through BKNG's payment platform.
Overall, it was another solid quarter for BKNG as the recovery in travel demand continued to accelerate. A slowdown in bookings growth in July and BKNG's acknowledgement that visibility is a little less clear due to a shortening booking window is weighing on the stock. However, the big picture view remains quite positive as the company is very confident in the long-term growth potential of travel.



eBay heads lower despite upside results; a key metric keeps declining (EBAY)
Updated: 04-Aug-22 11:00 ET


eBay (EBAY -6%) is trading lower despite reporting upside for both EPS and revenue and guiding in-line for Q3. In fact, this was eBay's largest EPS beat in the past five years. We think its active buyer metric and cautious comments on the call are perhaps making investors a bit nervous.

  • Let's start with the good stuff. eBay delivered better than expected results, including GMV. Its focus categories, payments and advertising helped offset macro headwinds like the war in Ukraine (eBay has a lot of business in Europe), FX headwinds, rising inflation and weakening consumer discretionary spend. Non-GAAP operating margin did slip yr/yr to 28.7% from 32.8% a year ago, but that is still a good number considering last year benefitted from robust activity as the vaccine was just rolling out and many consumers continued to buy online.
  • eBay continues to make progress in bolstering its focus categories. The company was also excited about its eBay Refurbished platform as it added more trusted sellers and expanded categories in the program (headphones, audio, gaming consoles, smart home devices). Refurbished products are growing faster than new products in the same category.
  • Coming into this report we were nervous about advertising services given the stumbles in some other online ad companies. Despite the macro environment, ad rates and adoption continue to grow due to the high return on ad spend. In Q2, its ads business accelerated faster than volume and delivered revenue that was nearly 1.5% of GMV.
So why is the stock down? We think it may be that its TTM active buyers keeps falling. This metric has dropped sequentially in each of the past four quarters and now stands at 138 mln, down from 142 mln in Q1 and 156 mln in 2Q21. A decline is not surprising as consumers are shopping more at brick-and-mortar. However, this metric has dropped 4-5 mln sequentially in each of the past four quarters. We would have liked to have seen some stabilization by now, but maybe that happens in Q3/Q4.

Also, while eBay did provide in-line Q3 guidance, management sounded a bit cautious on the call. They said the operating environment remains difficult to predict. Plus, the spread of COVID variants, persistent supply chain issues, elevated inflation, and rising interest rates will likely wear on consumer discretionary spend...and the kicker here: "for some time." That is not exactly a ringing endorsement and these problems may persist for a while. On a final note, eBay deserves credit for aggressively buying back $1.3 bln of its shares in Q2, which computes as nearly 5% of shares outstanding in just one quarter, which is a huge amount.

Aiming to stay higher for longer
Led by the mega-cap stocks, the stock market had a good hump day. In fact, it was surprisingly good considering yet another Fed official -- St. Louis Fed President Bullard (2022 FOMC voter) -- suggested the Fed won't be quickly pivoting to a rate-cut cycle once it finishes its rate-hike cycle.

We believe Mr. Bullard's words were "higher for longer" so that the Fed can effectively stamp out inflation pressures. He said as much after conveying his belief that the target range for the fed funds rate should be 3.75-4.00% by the end of 2022. It currently sits at 2.25-2.50%.

Perhaps the stock market took "higher for longer" to mean the latest rally effort that began at the start of July. The stock market certainly had the appearance of wanting to stay "higher for longer," grinding higher throughout the session and quickly combatting any selling effort.

The trading volume wasn't particularly heavy, but, importantly for market psychology, neither was the selling interest. That resiliency presumably attracted some sidelined participants fearful about missing out on more gains, which helped keep a bid in the market.

Today's bidding is more reserved, but, again, there hasn't been any concerted move by sellers to take things down, so the market is on track to stay "higher for longer" when trading begins.

Currently, the S&P 500 futures are up two points and are trading in-line with fair value, the Nasdaq 100 futures are up 15 points and are trading in-line with fair value, and the Dow Jones Industrial Average futures are down nine points and are trading 0.1% above fair value.

There has been a huge stream of earnings news since yesterday's close with observable tributaries of good, mixed, and bad results and/or guidance. It is a lot to sort through and potentially why there isn't any clear-cut conviction in the futures market.

Another causal factor for the lack of conviction is the specter of the July employment report that will be released before Friday's open. That report comes with the S&P 500 closing in on the closely-watched 4,200 level and market participants cognizant that the employment data are going to have some outsized influence on the Fed's policy decision-making process.

Presumably, if the stock market wants to stay higher for longer, it will want to see less robust hiring activity and average hourly earnings growth, as that combination would support the 2023 policy pivot narrative.

That is tomorrow's data. Today's data featured the June Trade Balance Report, which was better than expected, and the Weekly Initial Jobless Claims Report, which was as expected.

Briefly, the trade deficit narrowed to $79.6 billion (Briefing.com consensus -$81.7 billion) from an upwardly revised $84.9 billion (from $85.5 billion) in May. That narrowing was the result of exports being $4.3 billion more than May exports and imports being $1.0 billion less than May imports.

The key takeaway from the report is that it partially captures the effects of supplying Europe with natural gas, evidenced by a $1.6 billion increase in natural gas exports.

Initial jobless claims for the week ending July 30 increased by 6,000 to 260,000. That was in-line with the Briefing.com consensus estimate. Continuing claims for the week ending July 23 increased by 48,000 to 1.416 million.

The key takeaway remains the same in that the initial claims data -- a leading indicator -- point to some softening in the labor market, but nothing yet that would be equated to recession-like levels.

Separately, the Bank of England voted to raise its key policy rate by 50 basis points to 1.75%. That was expected and it was also the largest increase since 1995. What could prove more surprising to some is the BOE's forecast that the UK is apt to face a long recession, starting in the fourth quarter and lasting for five quarters, while dealing with elevated inflation rates that are expected to persist through most of 2023.

The BOE's action came on the heels of Brazil's central bank raising its key policy rate by another 50 basis points to 13.75%. That, too, was expected, but that, too, serves as another reminder that the growth slowdown that is being driven in part by rising interest rates isn't a unique problem to the U.S.

It is a global problem that implies growth will be lower for longer.

The 2-yr note yield is down four basis points to 3.06% and the 10-yr note yield is down seven basis points to 2.68%.

-- Patrick J. O'Hare, Briefing.com



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