Wall Street Rebel Recap: August 9, 2024

Dow Jones Industrial Average

As of Friday, August 9, 2024
Closing: 39,497.55
Week-over-Week Change: (0.73%)

The Dow closed out the week with some mixed signals. Friday's trading session ended with an indecision candle, indicating uncertainty in the market. The index closed right at its 50-day simple moving average (SMA), showing a critical point for traders to watch. However, it's trading below its 9-day SMA and 21-day exponential moving averages (EMA), with the 9 SMA crossing below the 21 EMA, signaling a potential downward trend. Despite these bearish signs, the Dow remains above its 200-day SMA, indicating longer-term strength.

Volume in the DIA Spider ETF was 3.38 million, below the average volume of 4.15 million, suggesting lower market participation.

NASDAQ

As of Friday, August 9, 2024
Closing: 18,513.10
Week-over-Week Change: (0.15%)

The NASDAQ also had a challenging week, closing right at its 9-day SMA. The 50-day SMA and 21-day EMA are still above the 9-day SMA, hinting at a possible short-term consolidation before any further movement. It remains above its 200-day SMA, a good sign for long-term investors. However, the index is in a bearish zone based on recent market trends.

Volume for the QQQ ETF was 33.57 million, which is notably below the average of 47.52 million. This drop in volume could indicate caution among investors.

S&P 500

As of Friday, August 9, 2024
Closing: 5,344.15
Week-over-Week Change: (0.51%)

The S&P 500 is currently in a delicate position, closing the week at its 9-day SMA but below both the 50-day SMA and 21-day EMA. The index remains above its 200-day SMA, providing some relief for long-term investors. Like the NASDAQ and Dow, the S&P 500 is trading in a bearish zone, with recent trends suggesting potential challenges ahead.

SPY ETF volume was 45.62 million, below the average of 62.25 million, mirroring the reduced trading activity seen across other indices.

VIX (Volatility Index)

As of Friday, August 9, 2024
Closing: 20.44

The VIX, often referred to as the “fear gauge,” is showing some interesting activity. It ended the week at its 21-day EMA, trading below its 9-day SMA but above both the 50-day and 200-day SMAs. Notably, the 50-day SMA recently crossed above the 200-day SMA, a bullish sign that indicates increasing market volatility.

Economic Indicators

ISM Services PMI

The ISM Services PMI for July 2024 showed a moderate rebound in U.S. services activity, rising to 51.4 from 48.8 in June. This exceeded market expectations and indicated a recovery, with new orders and business activity both seeing improvements. However, rising costs in several sectors, including public administration and healthcare, pushed the price gauge higher, sparking some inflation concerns.

Consumer Debt

Consumer debt in the U.S. hit a new high of $17.80 trillion in Q2 2024, with increases across mortgages, auto loans, and credit card borrowing. Despite the rise in debt, delinquency rates remained steady at 3.2%, suggesting that consumers are still managing their debts well.

Mortgage Rates & Applications

Mortgage rates dropped to 6.55% for 30-year fixed-rate loans, the lowest since May 2023. This decline followed a drop in Treasury yields and hints from the Fed that interest rate cuts might be on the horizon. Mortgage applications surged by 6.9%, the biggest jump in nearly two months, indicating renewed interest in home buying.

Jobless Claims

Jobless claims fell by 17,000 to 230,000 in the week ending August 3rd, below market expectations. However, the 4-week moving average of claims rose, reflecting a slight softening in the labor market.

Earnings Highlights

Airbnb (ABNB)

Airbnb (ABNB) recently reported its Q2 2024 earnings, with mixed results that led to some notable movements in its stock price. Here's a summary of the key data and analyst reactions:

Key Earnings Data:

• Revenue: Airbnb reported $2.75 billion in revenue for Q2 2024, reflecting an 11% year-over-year increase. This slightly exceeded analyst expectations of $2.74 billion.

• Earnings per Share (EPS): The company reported an EPS of $0.86, which was below the consensus estimate of $0.92. This represented a year-over-year decline, as the company had reported $0.98 EPS in the same quarter last year.

• Net Income: Airbnb achieved a net income of $555 million, with a net income margin of 20%.

• Free Cash Flow: The company generated $1 billion in free cash flow for the quarter, with $4.3 billion in trailing twelve months, marking a record high for the company.

Analyst Reactions:

• Positive Aspects:

  • Revenue Growth: Analysts were generally positive about Airbnb’s revenue growth and the increase in active listings, which surpassed 8 million globally. The company's efforts to improve listing quality by removing over 200,000 low-quality listings were also well-received.

  • Strong Free Cash Flow: The record free cash flow was seen as a significant positive, showcasing the company's robust cash generation capabilities.

• Negative Aspects:

  • Earnings Miss: The miss on EPS was a major concern for analysts, contributing to the stock hitting a new 52-week low.

  • Shorter Booking Lead Times: There was worry about the shorter booking lead times, particularly in North America, which could impact future revenue. This trend was seen as a potential sign of weakening demand.

  • Regulatory Headwinds: Regulatory changes, especially in California, were noted as headwinds that could negatively affect Airbnb's performance in one of its key markets.

  • Concerns About ADR Growth: Analysts also expressed concerns about the sustainability of growth in the Average Daily Rate (ADR), especially as the company expands into regions with lower ADR, such as Latin America and Asia-Pacific.

Overall, while Airbnb showed strong revenue growth and cash flow generation, the earnings miss and potential signs of slowing demand raised concerns among analysts.

Super Micro Computer, Inc. (SMCI)

Earnings Report:

• Revenue: Super Micro Computer reported Q4 2024 revenue of $5.31 billion, a significant 143% increase from $2.18 billion in the same quarter the previous year. However, this was slightly below analyst expectations of $5.32 billion.

• Earnings per Share (EPS): The company posted an adjusted EPS of $6.25, which missed the consensus estimate of $7.63. This was despite the EPS growing from $3.43 in Q4 2023 to $5.51 in Q4 2024.

• Net Income: The net income for the quarter was $352.73 million, up from $193.57 million in the prior year's quarter.

Analyst Reactions:

• Positive Aspects:

  • The substantial year-over-year revenue growth was seen as a positive indicator of Super Micro Computer's strong market presence, particularly in the AI, cloud, and 5G infrastructure sectors.

  • The company's ability to scale its operations significantly, reflected in the impressive revenue figures, was praised.

• Negative Aspects:

  • The earnings miss was a major concern for analysts, leading to a decline in stock price. The EPS miss, despite the overall revenue growth, raised concerns about the company’s cost management and operational efficiency.

  • Some analysts also noted potential headwinds due to the competitive nature of the IT solutions market and the pressure on profit margins as the company scales.

Future Outlook:

• Super Micro Computer has provided guidance for Q1 2025, with expected revenues between $6.0 billion and $7.0 billion and an EPS range of $5.97 to $7.66. Analysts will be closely watching how the company navigates these targets, particularly in light of the recent earnings miss.

This mixed performance, particularly the revenue growth alongside an EPS miss, underscores both the opportunities and challenges facing Super Micro Computer as it continues to expand in the competitive IT solutions market.

Disney (DIS)

Earnings Report:

• Revenue: Disney reported Q3 2024 revenue of $23.20 billion, slightly exceeding analyst expectations of $23.08 billion. This represents a 3.9% increase from the previous year.

• Earnings per Share (EPS): The company posted an EPS of $1.39, beating the consensus estimate of $1.20 by $0.19.

• Operating Income: Total segment operating income was $4.23 billion, up 19% from $3.56 billion in Q3 2023.

Analyst Reactions:

• Positive Aspects:

  • Strong Direct-to-Consumer (DTC) Performance: Analysts highlighted the significant improvement in Disney’s Direct-to-Consumer segment, which saw a 96% reduction in operating losses compared to the previous year. This was driven by subscription revenue growth and higher advertising revenue across platforms like Disney+ and Hulu.

  • Content Success: Disney's robust content slate, including successes in television and film, has been a key driver of its streaming growth. Notable upcoming releases like "Moana," "Mufasa," and new Marvel and Star Wars titles are expected to continue bolstering the streaming service's value and engagement.

• Negative Aspects:

  • Concerns Over Linear Networks: The linear networks segment saw a decline in both revenue and operating income, with a 7% drop in revenue attributed to lower advertising revenue and fewer subscribers. This reflects ongoing challenges as the company transitions away from traditional TV models.

  • Flattish Park Revenue Outlook: While Disney’s parks have been a strong revenue driver, the company guided for flattish revenue growth in the upcoming quarter, raising concerns about the near-term potential for this segment, particularly given the increasing pre-opening costs of new cruise ships and other capital-intensive projects.

Disney remains focused on expanding its streaming services and leveraging its extensive content library to drive future growth. However, the company faces challenges in balancing its legacy media operations with new digital ventures.

Upcoming Earnings & Economic Data

• Home Depot (HD) - Tuesday

  • Revenue Estimate: $42.58B

  • EPS Estimate: $4.54

• Core PPI Data - Tuesday

  • Monthly Forecast: 0.2%

  • YoY Forecast: 3%

• CPI Data - Wednesday

  • Monthly Forecast: 0.3%

  • YoY Forecast: 3.3%

• Walmart (WMT) - Thursday

  • Revenue Estimate: $168.53B

  • EPS Estimate: $0.645

• Alibaba (BABA) - Thursday

  • Revenue Estimate: $34.18B

  • EPS Estimate: $2.06

• Deere & Company (DE) - Thursday

  • Revenue Estimate: $10.95B

  • EPS Estimate: $5.73

• Retail Sales - Thursday

  • Monthly Forecast: 0.2%

• Jobless Claims - Thursday

  • Estimate: 239.0K

Sources:

• ISM Services PMI: ISM

• Consumer Debt: Federal Reserve Bank of New York

• Mortgage Rates & Applications: Mortgage Bankers Association

• Jobless Claims: Department of Labor

• Earnings Reports: MarketBeat, Business Wire, Seeking Alpha