The stock market confirmed its rally attempt Tuesday, then continued to show momentum as economic data pointed to a near-Goldilocks mix of decent economic growth and cooling inflation. The major indexes moved above their 50-day moving averages, while leading stocks flashed buy signals or set up. Walmart, Monday.com, Sea Limited and Nu Holdings were among the earnings winners. Starbucks jumped as it poached the highly regarded CEO of Chipotle.
Stock Market Gains Momentum
The stock market staged a follow-through day on Tuesday, confirming the new uptrend, then kept building momentum. The major indexes rose sharply for the week with a large number of stocks breaking out or triggering early entries. Treasury yields were little changed after big daily swings as recession fears ease but Fed rate-cut expectations remain intact.
Goldilocks Economic Data?
Producer prices were surprisingly tame, while overall and core consumer inflation continued to trend lower. Meanwhile, July retail sales jumped 1%, or 0.4% excluding food and energy. New jobless claims fell for a second week. Various manufacturing reports signaled weakness, but the overall picture was of a U.S. economy growing modestly, putting to rest recession fears from earlier this month. The data further cemented expectations that Fed rate cuts will start in September, but markets are largely pricing out hopes for a half-point cut and favoring a quarter-point cut.
Walmart Earnings Strong
The Dow Jones retail giant reported a 10% EPS gain with revenue up nearly 5%, both beating views though slowing from the prior quarter. E-commerce growth remained strong. Walmart guided higher for the year due to Q1-Q2 strength, though management remains cautious for the latter half of 2024. That's due to the November elections, global conflict and other factors. For now, Walmart signaled stable consumer health. Walmart stock gapped up from the 50-day line on earnings, offering a buying opportunity.
Starbucks Poaches Chipotle CEO
Starbucks posted its best-ever daily gain Tuesday after poaching Chipotle's CEO to lead the coffee giant. Starbucks announced Brian Niccol will serve as chairman and CEO starting Sept. 9. Laxman Narasimhan stepped down Tuesday, after being named CEO in March 2023. CFO Rachel Ruggeri will serve as interim executive until Niccol takes over. Niccol, Chipotle CEO since 2018, has seen the fast-casual chain's revenue nearly double, profits spike sevenfold and the stock price soar 800%. A week earlier, activist fund Starboard Value purchased a stake in Starbucks. SBUX rocketed 24.5% Tuesday. CMG stock tumbled, but later pared losses.
Sea Soars On E-Commerce Growth
Singapore-based internet services company Sea Limited continued a strong performance in 2024 with its second quarter results. EPS of 14 cents ended three quarters of losses but missed estimates. However, revenue grew 23% to $3.8 billion, ahead of expectations. E-commerce sales from Sea's Shopee business grew 31.5%, signaling it can handle competition from Temu, TikTok and Alibaba. Sea stock skyrocketed for the week, clearing a base to a 52-week high.
China E-Commerce Giants Diverge
Alibaba reported June-quarter adjusted earnings that declined 5% in local currency while revenue increased 4% to 243.4 billion yuan, or $33.5 billion. Earnings beat while sales came in light, amid weaker consumer spending in China and competition from PDD Holdings. Alibaba stock was little changed. Meanwhile, competitor JD.com reported adjusted earnings per share of 9.36 yuan, up a stronger-than-expected 73% from a year earlier. Sales grew 1.2% to 291.4 billion yuan, or $40.7 billion, edging past consensus. JD stock rose solidly.
Tencent reported a Q2 EPS increase of 54% to 6 yuan per share, exceeding views. The messaging and gaming giant's revenue rose a better-than-expected 8% to 160.8 billion yuan, helped by strong game sales.
Home Depot Sees Near-Term Pressures
The home improvement retail giant reported fiscal Q2 EPS fell a fraction, the sixth straight year-over-year decline, but beating views. Revenue rose 1% to $43.17 billion, snapping a five-quarter slide and also topping. But same-store sales fell 3.3%, missing views. CEO Ted Decker said higher interest rates and greater macroeconomic uncertainty pressured consumer demand, but long-term fundamentals still support home improvement demand. Home Depot guided slightly lower on full-year earnings but raised sales targets. Shares rose.
Monday.com Earnings, Stock Soar
The work-management software maker reported a 129% adjusted EPS gain after Q1's 336% surge. Revenue rose 34% for a second straight quarter. Both beat views, with Monday.com also guiding higher. Shares gapped up on earnings to a two-year high.
DOJ Mulling Google Breakup?
The Justice Department reportedly is mulling a breakup of Google-parent Alphabet. A federal judge on Aug. 5 ruled that Google violated antitrust laws by engaging in unfair business tactics to dominate the internet search advertising market. A second phase of the trial must now take place to determine what remedies the federal court will order. Google will likely appeal. If the DOJ aims for a breakup, it would probably seek to carve off the Android mobile operating system and Google's Chrome web browser. Shares fell modestly.
Cisco Jumps On Earnings
Cisco Systems reported earnings and revenue that fell vs. a year earlier for a third straight quarter, but topped Wall Street estimates as trends improved for its core computer networking unit. Fiscal Q4 EPS fell 24% while revenue declined 10% to $13.6 billion, with recently acquired software maker Splunk included. Cisco guided fractionally higher for Q1 revenue and announced plans to cut 7% of staff. Shares jumped after hitting a 21-month low earlier in the week.
News In Brief
Nu Holdings reported Q2 EPS surged 115% while revenue leapt 52% to $2.85 billion, both beating views. The Brazilian digital bank added 5.2 million customers. NU stock surged to a record high.
Kellanova, spun off from Kellogg in 2023, accepted a takeover by candy giant Mars for $83.50 a share. The deal, including assumed debt, is worth $35.9 billion. Kellanova, whose brands include Pringles, Cheez-It, Pop-Tarts, Eggo waffles and others, jumped after already surging earlier this month on takeover reports.
On Holding jumped within a base as revenue leapt 29% to $653.8 million, beating expectations and ending a five-quarter string of slowing growth. The Swiss shoemaker maintained its full-year forecast of at least 30% sales growth on a currency neutral basis, with a gross profit margin of around 60%. Earnings spiked 248% vs. a year earlier, though that missed views.
Applied Materials beat estimates for its fiscal third quarter and guided slightly higher for the current quarter. The chip gear maker's Q3 EPS rose 12% with sales up 5% to $6.78 billion. Shares fell on results but rose for the week.
