Stock Market Performance
The stock market registered solid gains in a broad advance. The Dow Jones Industrial Average rose 1.4%, the S&P 500 settled 1.6% higher, the Nasdaq Composite registered a 2.3% gain, and the Russell 2000 climbed 2.4%. The volatile action exhibited thus far in August was precipitated by a July jobs report that stirred concerns about a weakening economic environment and labor market. Today's release of economic data made the market feel good about the economic environment and labor market, inviting strong buying activity.
Economic Data and Market Reaction
Market participants reacted positively to a much better-than-expected Retail Sales Report for July, which bodes well for consumer spending and earnings prospects. A pleasing weekly jobless claims report calmed fears about a weakening labor market.
Company Performance
- Walmart (WMT, Financial) reported solid earnings results and commentary about the consumer, contributing to the upside bias.
- Cisco (CSCO) demonstrated solid fiscal Q4 operating performance.
- Ulta Beauty (ULTA) saw a huge gain after Berkshire Hathaway reported a new position in the stock.
Sector Performance
Just about everything participated in upside moves. Nine of the 11 S&P 500 sectors registered gains, led by consumer discretionary (+3.4%) and information technology (+2.5%). The consumer discretionary sector also benefitted from a significant gain in Ulta Beauty (ULTA). The only sectors that closed lower were the rate-sensitive real estate (-0.3%) and utilities (-0.02%) sectors amid rising market rates.
Bond Market
The 10-year note yield jumped 11 basis points to 3.93%, and the 2-year note yield settled 15 basis points higher at 4.10%, reflecting easing concerns about the economic outlook.
Year-to-Date Performance
- Nasdaq Composite: +17.2% YTD
- S&P 500: +16.2% YTD
- S&P Midcap 400: +8.2% YTD
- Dow Jones Industrial Average: +7.6% YTD
- Russell 2000: +5.4% YTD
Review of Today's Economic Data
- August Philadelphia Fed Index: -7.0; Prior: 13.9
- July Retail Sales: 1.0% (consensus: 0.3%); Prior revised to -0.2% from 0.0%
- July Retail Sales Ex-Auto: 0.4% (consensus: 0.2%); Prior revised to 0.5% from 0.4%
- Weekly Initial Claims: 227K (consensus: 232K); Prior revised to 234K from 233K
- Weekly Continuing Claims: 1.854 million; Prior revised to 1.871 million from 1.875 million
- July Import Prices: 0.1%; Prior: 0.0%
- July Import Prices ex-oil: 0.1%; Prior: 0.2%
- July Export Prices: 0.7%; Prior revised to -0.3% from -0.5%
- July Export Prices ex-ag.: 1.0%; Prior revised to -0.4% from -0.6%
- August NY Fed Empire State Manufacturing: -4.7; Prior: -6.6
- July Capacity Utilization: 77.8% (consensus: 78.6%); Prior revised to 78.4% from 78.8%
- July Industrial Production: -0.6% (consensus: 0.1%); Prior revised to 0.3% from 0.6%
- June Business Inventories: 0.3% (consensus: 0.2%); Prior: 0.5%
- August NAHB Housing Market Index: 39 (consensus: 43); Prior revised to 41 from 42
The key takeaway from the Retail Sales Report is that the increase in retail sales outpaced the rate of inflation in July, driven by increased demand on top of price increases. From the Weekly Initial Claims report, the key takeaway is that initial claims remain well below levels typically associated with recession conditions. The Industrial Production report was depressed by Hurricane Beryl, which reduced industrial production and manufacturing output by an estimated 0.3 percentage points each. Despite this, industrial production wasn't as weak as it seems when taking the effects of the hurricane into account.
Upcoming Economic Events
Friday's economic calendar features July Housing Starts and Building Permits at 8:30 ET, followed by the preliminary August University of Michigan Consumer Sentiment survey at 10:00 ET.
Today's News
Walmart (WMT, Financial) provided a positive outlook that helped alleviate recession concerns, contributing to a rise in major U.S. stock market averages. The retail giant's upbeat comments came after July retail sales increased by 1.0% month-over-month, surpassing the 0.3% consensus estimate. Additionally, initial jobless claims for the week ending August 10 fell by 7,000 to 227,000, below the 236,000 expected, further supporting market sentiment.
Applied Materials (AMAT, Financial) reported strong Q3 results, with non-GAAP EPS of $2.12 beating estimates by $0.10 and revenue of $6.78 billion surpassing expectations by $110 million. The company generated $2.39 billion in cash from operations and returned $1.19 billion to shareholders through share repurchases and dividends. For Q4 fiscal 2024, Applied Materials expects net revenue of approximately $6.93 billion and non-GAAP diluted EPS between $2.00 and $2.36.
Apple (AAPL, Financial) extended its gains for a seventh consecutive session, closing 1.4% higher at $224.72. The tech giant has seen a 15% increase in its stock price this year, outperforming the broader S&P 500 Index. Analysts have mixed ratings on AAPL, with 32 recommending a Buy, 12 a Hold, and 2 a Sell.
Coherent (COHR, Financial) posted Q4 non-GAAP EPS of $0.61, beating estimates by $0.01, and revenue of $1.31 billion, exceeding expectations by $30 million. The company achieved a milestone by shipping over 300 million Datacom transceivers and received its first volume order for Linebeam annealing systems for OLED adoption in tablets and laptops. Coherent expects Q1 fiscal 2025 revenue between $1.27 billion and $1.35 billion.
Deere (DE, Financial) surged 6.8% after beating Q3 earnings estimates and maintaining its full-year profit outlook. Despite a 17% year-over-year decline in revenue to $13.15 billion due to lower shipment volumes, stronger pricing and cost control measures protected margins. Analysts noted that investors were likely expecting worse numbers, contributing to the stock's positive performance.
Kroger (KR, Financial) announced plans to reduce grocery prices by $1 billion if it completes its nearly $25 billion purchase of Albertsons (ACI). This pledge aims to appease regulators as the Federal Trade Commission's trial to block the deal is set to begin on August 26. Both Kroger and Albertsons stocks rose by 1% following the announcement.
Nvidia (NVDA, Financial) continued its rally, closing 3% higher and inching back towards a $3 trillion market valuation. The stock has gained 16% this week, marking one of its most significant one-week increases in over a year. Other semiconductor stocks like Wolfspeed (WOLF), Micron Technology (MU), and ON Semiconductor (ON) also saw substantial gains.
B. Riley Financial (RILY, Financial) stock plummeted as much as 32% before paring losses to 18%, following a report that the SEC is investigating whether the company properly disclosed risks associated with some of its assets. The company expects to take a markdown of up to $370 million related to its investment in Franchise Group, leading to an expected Q2 loss and the suspension of its dividend.
Medtronic (MDT, Financial) shares rose after UBS upgraded the stock to Neutral from Sell, citing a potential turnaround in its diabetes segment. The upgrade follows a recent partnership with Abbott Laboratories (ABT) to integrate continuous glucose monitoring systems with Medtronic's insulin delivery systems. UBS raised its price target on MDT to $90 from $76.
Glenview Capital Management exited its positions in Broadcom (AVGO, Financial) and Meta Platforms (META, Financial) during Q2, while taking new positions in Lyft (LYFT), Match Group (MTCH), and Live Nation Entertainment (LYV). The fund disclosed these moves in its latest 13F filing for the quarter ended June 30, 2024.
Portillo's (PTLO, Financial) shares rose 3% after activist investor Engaged Capital disclosed a nearly 10% stake and pushed for operational improvements. Engaged Capital is in discussions with the company on enhancing operations, margins, and branding as Portillo's expands nationally.
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