Market Overview
The market had a mixed showing today. The Nasdaq Composite (+0.3%) settled slightly higher, boosted by gains in some mega-cap constituents. In contrast, the S&P 500 settled 0.3% lower, below its 50-day moving average (5,506).Mixed action persisted throughout the session due to a lack of conviction ahead of the August Employment Situation Report tomorrow at 8:30 ET. The market's recent focus has been on labor market conditions, but today's data didn't elicit significant responses from equities or bonds.Economic Data Review
- August ADP Employment Change: 99K (consensus 150K); Prior revised to 111K from 122K
- Weekly Initial Claims: 227K (consensus 236K); Prior revised to 232K from 231K
- Weekly Continuing Claims: 1.838 million; Prior revised to 1.860 million from 1.868 million
The key takeaway is that layoff activity remains relatively tame, but hiring activity is also subdued, as evidenced by the elevated stickiness of continuing jobless claims.
- Q2 Productivity-Rev.: 2.5% (consensus 2.3%); Prior 2.3%
- Q2 Unit Labor Costs-Rev.: 0.4% (consensus 0.9%); Prior 0.9%
The key takeaway is the friendly inflation view embedded in the softening unit labor costs, which were up just 0.3% over the last four quarters, the lowest rate since Q4 2013.
- August S&P Global US Services PMI - Final: 55.7; Prior 55.0
- August ISM Non-Manufacturing Index: 51.5% (consensus 51.0%); Prior 51.4%
The key takeaway is that overall activity in the largest sector of the U.S. economy remains in expansion mode, which is reassuring for a market concerned about a possible hard landing. Slow to moderate growth was noted across many industries.
Bond Market
The 10-year note yield settled four basis points lower at 3.73%, and the 2-year note yield settled two basis points lower at 3.75%.
Sector Performance
Today's lackluster action was also due to the understanding that the market has experienced significant consolidation this week. The S&P 500 is 2.6% lower than Friday's close, the Nasdaq Composite is down 3.3%, and the Russell 2000 is down 3.9% from last week.
Eight of the 11 S&P 500 sectors settled with declines led by health care (-1.4%), industrials (-1.2%), and financials (-1.0%). The consumer discretionary (+1.4%), communication services (+0.5%), and information technology (+0.1%) sectors were the only ones in positive territory at the close, reflecting mega-cap leadership.
Stock Highlight
Tesla (TSLA 230.17, +10.76, +4.9%) was a standout performer after a Bloomberg report suggested it could introduce full self-driving technology in China and Europe, pending necessary approvals, in the first quarter of 2025.
Today's News
Broadcom (AVGO, Financial) shares fell 3% in extended trading on Thursday after the semiconductor and software giant offered a weaker-than-expected forecast for the fourth quarter. The company expects revenue to be $14B, below the $14.13B estimate. Adjusted EBITDA is anticipated to be around 64% of total revenue. For the third quarter ending August 4, Broadcom earned an adjusted $1.24 per share as revenue rose 47% year-over-year to $13.07B. Excluding VMware, revenue rose 4% year-over-year. Semiconductor solutions revenue was $7.27B for the period, while infrastructure revenue was $5.8B.
McKesson (MCK, Financial) shares fell sharply on Thursday after the medical distributor set its Q2 outlook for fiscal 2025 below expectations. Presenting at the Wells Fargo Healthcare Conference, CFO Britt Vitalone said a higher-than-expected tax rate is expected to weigh on its Q2 bottom line. The company's tax rate is projected to reach 21%–22%, with adjusted earnings per share set to stand at $6.70 - $7.00 compared to $7.39 in the consensus. However, McKesson reiterated the full-year outlook for a tax rate at 17% -19% and reaffirmed the projection for adjusted earnings per share it gave with its Q1 FY25 financials in August.
Salesforce (CRM, Financial) is in advanced discussions to buy privately-held startup Own for about $2 billion. Formerly known as OwnBackup, the company is a well-known provider of SaaS data protection and activation and has collaborated with other large SaaS ecosystems like Salesforce, ServiceNow, and Microsoft Dynamics 365. Salesforce and Own were not immediately available for comment.
DocuSign (DOCU, Financial) exceeded consensus estimates when it released its second quarter fiscal 2025 financial results on Thursday after the market closed. For the quarter ended July 31, DocuSign reported adjusted earnings per share of $0.97, which was much more than the consensus estimate of $0.81. Revenue for the quarter totaled $736M, which was also more than the estimate of $727.8M. However, shares slipped 2% during early post-market trading. For the quarter in progress, DocuSign forecasts revenue ranging from $743M to $747M, well above the estimate of $739M.
Smartsheet (SMAR, Financial) rose 4% after a Reuters report that an investor consortium including private equity firm Vista Equity and Blackstone (BX) are in talks to acquire the company. A Wells Fargo analyst suggested that $60 a share would be a "reasonable" price for Smartsheet in a takeover. Should a deal come to fruition in the coming weeks, other parties may show interest during a likely "go-shop" period.
Shares of ChargePoint Holdings (CHPT, Financial) continue to drift lower and last traded at a 3-month low with a revenue warning and planned job cuts shaving more than 18% off the stock’s value. Despite the revenue guidance cut and a worsening balance sheet, Wall Street analysts believe the company's future is not as bleak as the stock performance suggests. Cost-cutting measures and operational efficiencies are expected to prop up margins.
Intel (INTC, Financial) is facing issues with its manufacturing or foundry business, which has become a red mark against the Pat Gelsinger-led company as it attempts to turn itself around. Citi believes Intel should exit the foundry business in the best interest of shareholders. Intel CFO David Zinsner said the company is skipping its 20A manufacturing technology in favor of the more advanced 18A manufacturing process, which will save Intel another $500M in costs.
Genetic Leap announced a research collaboration worth up to $409M with Eli Lilly (LLY, Financial) to develop gene-based therapeutics. The partnership will leverage Genetic Leap's RNA-targeted AI platform to develop oligonucleotide drugs for targets selected by Lilly. Genetic Leap is set to receive up to $409M in upfront and milestone payments, in addition to tiered royalties.
Samsara (IOT, Financial) reported Q2 Non-GAAP EPS of $0.05, beating by $0.04. Revenue of $300.2M grew 36.9% year-over-year, beating by $10.66M. For the third quarter, Samsara expects total revenue between $309 million and $311 million, and for FY 2025, total revenue is expected to be between $1.224 billion and $1.228 billion.
Guidewire Software (GWRE, Financial) reported Q2 Non-GAAP EPS of $0.62, beating by $0.08. Revenue of $291.5M grew 8.0% year-over-year, beating by $7.63M. The company issued a business outlook for FY 2025, expecting total revenue between $1.135 billion and $1.149 billion.
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