Closing Recap

Monday, August 08, 2022

Equity Market Recap

·     U.S. stock markets failed to hold early market gains, fading throughout the trading day as another big revenue warning in the semiconductor sector hit technology, and as investors position ahead of this week’s key inflation report. Chip stocks tanked after one of the top chipmakers in the industry, Nvidia (NVDA), guided this qtr revs below consensus citing weak demand for its videogame graphics processors (follows recent warnings from AMD, INTC). Meanwhile, a big week coming up for inflation data as the July consumer price data (CPI) is due Wednesday, with investors expecting some cooling in the pace of headline price rises to 8.7% YoY for July vs 9.1% previous. However, core CPI is expected to tick higher to 6.1% YoY vs 5.9% previous. Geopolitical tensions remain high as China extended its military drill around Taiwan over the weekend after House Chair Pelosi last week visited Taiwan leaders. The White House Climate Bill passed the Senate this weekend, a bill that will also allow for Medicare to negotiate on drug pricing, push through a 15% corporate minimum tax for corporations that generate $1B+, and direct an approximate $370B to the likes of renewables, EVs, clean energy equipment, and home efficiency technology (which boosted shares of several sectors today). Outside of chip stocks and “green”” sectors, shares of old Wall Street Bets “meme” stocks such as AMB, BBBY, GM rallied in recent days along with spikes in high “short interest” names (BYND, CVNA) despite recent disappointing quarters and outlooks.

Economic Data:

·     Generally, very quiet day, though U.S. consumers inflation outlooks drop sharply, NY Fed survey shows as U.S. Consumers’ median 1-year inflation expectation falls to 6.2% in July from 6.8% in June; 3-year view declines to 3.2% from 3.6% and U.S. Consumers’ median 5-year inflation outlook declined to 2.3% from 2.8% in June.

Commodities, Currencies and Treasuries

·     Oil prices rise $1.75 or 1.97% to settle at $90.76 per barrel, near the best levels of the session (off lows $87.22) and off 6-month lows, while Brent crude rises $1.73 or 1.82% to settle at $96.65 per barrel. The Average gas pump prices are down for the 54th straight day, falling to $4.015/gal this morning according to industry data (hasn’t been blow $4.00 since March).

·     Gold prices rose $14.00 or 0.8% to settle at $1,805.20 an ounce following a pullback in the dollar and U.S. Treasury yields, while investor await U.S. inflation data on Wednesday (CPI) for clues on the Federal Reserve’s rate hike plan. The U.S. dollar index (DXY) slipped -0.3% to around 106.25, while U.S. Treasury yields also dip (10-yr ends near lows around 2.76%). Gold fell on Friday after robust U.S. job growth reinforced expectations that the Fed will continue to raise rates in the next few meetings to slow inflation.

Sector News Breakdown

Consumer

·     Retailers: WHR to pay $3B in cash for EMR’s waste-disposal arm, InSinkErator that MSCO notes had trailing twelve-month revenue, as of 31-Mar-22, of $595M; LESL downgraded from Outperform to Market Perform at Telsey and cut tgt to $16 from $28 citing operational miscues including lack of preparation in the distribution network and persistent supply chain challenges; PRTY Q2 net sales fell 1.5% and cuts year sales outlook for the year; AKA was downgraded at Cowen to MP from OP citing slow brand awareness in the US and slower-than-expected recovery in Australia, while cuts tgt to $2.20 from $10

·     Auto sector: Electric vehicle names and charging companies outperform after the Senate passes the White House “Inflation Reduction Act” which included details including new incentives for clean energy; TSLA signs contract to buy Indonesia’s nickel products worth 5 billion USD; CVNA downgraded to Underweight from Neutral at JPMorgan with shares screening as expensive in comparison to other e-commerce names (follows 40% squeeze higher Friday post quarterly miss)

·     Housing & Building Products; homebuilders TOL, PHM, LEN, KBH, outperformed early with dip in rates (general mkt strength as well); AZEK downgraded to Neutral at Wedbush after the co missed estimates and reduced guidance for the second quarter in a row in F3Q22.

·     Consumer Staples: in food, TSN mixed as EPS at $1.94 misses estimates of $1.98 amid higher input and supply-chain costs across its divisions including beef and chicken while sales beat but lowers pork segment’s FY adj op margin to 3%-5% from 5%-7% prior; THS posts smaller-than-expected Q2 EPS loss of (-$0.04) vs. est. loss (-$0.14) while sales rose more than 19% to $1.2B, above the $1.11B estimate and now expects full-year 2022 net sales growth of mid-to-high teens, compared to previous forecast of a growth of about 11%; APRN surges on mixed results as loss narrows and revenue rises but miss expectations as orders fell, full-year outlook was cut; STZ shares tumbled after Bloomberg reported Mexico’s drought-plagued north of country can’t sustain beer production, the world’s largest beer exporter, and President said they should stop making the drink in the north of the country as the region faces severe water shortages

Energy

·     Energy stock movers; oil prices recovered off multi-month lows as lingering worries about demand weakening on the back of a softer economic outlooks was overshadowed by some positive economic data from China (exports) and the United States. Brent bounced off lowest levels since February, tumbling 13% since and posting their largest weekly drop since April 2020, while WTI lost 9.7%, as concerns about a recession hitting oil demand weighed on prices.

·     E&P and Majors; CVE agreed to acquire BP’s 50% interest in the BP-Husky Toledo Refinery in Ohio for $300M and will assume operatorship from BP upon closing of the deal. CVE has owned the other 50% of the refinery since its combination with Husky Energy in 2021.

·     Utilities & Solar; in solar, several stocks open high initially after the Senate narrowly passed President Joe Biden’s Inflation Reduction Act, boosting climate-change spending; FSLR was upgraded by two analysts (JPM and Guggenheim, $126 tgt and $135 respectively) as believe FSLR appears positioned to benefit the most from the provisions of the Inflation Reduction Act that passed the Senate yesterday; seeing strength in EV stocks LCID, QS, TSLA, RIVN, BLNK, CHPT on bill as well as solar, RUN, SEDG, ARRY. CEG shares new record highs, rising for the 10th time in last 11-days in utility sector following recent earnings results; also general rebound in utility sector (XLU) given heatwave across the country this summer.

Financials

·     Bank movers; in regional banks (KRE), the WSJ reported the Fed and OCC are discussing requiring regional lenders to hold more long-term debt that can help absorb losses in a crisis https://on.wsj.com/3QaecEt ; CG shares slide after saying said CEO Kewsong Lee, 56, has stepped down with immediate effect months before the scheduled end of his five-year contract (no reasons disclosed); TFC to acquire BenefitMall, a benefits wholesale general agency from Carlyle Group to expand benefits offerings

·     Bitcoin, FinTech & Payments; in crypto space, Hodlnaut, a cryptocurrency lender operating in Asia, says it has halted withdrawals making it the latest company in the digital-assets sector affected by a series of defaults; BTOG said it has mined 15.46 Bitcoins, representing a total revenue of US$375,915 for the three months from May to July 2022; GPN files automatic mixed securities shelf; PYPL positive mention in Barron’s this weekend saying the company could be poised for big gains as the company refocuses on financial discipline and its core businesses

Healthcare

·     Pharma movers: PFE agreed to acquire GBT for $68.50 per share in deal valued at $5.4B to enhance presence in rare hematology, confirming multiple reports released last week in media (potential to address the full spectrum of critical needs in the underserved sickle cell community); KRTX surged after announced that its late-stage trial for experimental schizophrenia therapy KarXT met the primary endpoint; Over the weekend, Senate Democrats passed The Inflation Reduction Act of 2022, which importantly includes the provision that has been most in focus for investors to lower prescription drug prices via Medicare negotiations for the first time; QURE shares fall after Q2 results fell well short of consensus and reported Q2 loss of (-$39.1M), down from profit of $399.5M y/y; CINC said its experimental drug, baxdrostat, for treatment-resistant hypertension or high blood pressure meets main goal in mid-stage trial

·     Biotech movers: BNTX shares slid -5% after Q2 profit and revenue that fell below expectations but affirmed its full-year COVID-19 revenue outlook; Q2 net income dropped to EUR1.67 billion ($1.70 bln), or EUR6.45 a share, from EUR10.77 a share y/y vs. est. EUR7.08; Q2 revs fell to EUR3.20 billion ($3.26 billion) from EUR5.31 billion y/y and vs. est. EUR3.88 billion; KOD rises as announced that it has completed enrollment in its GLOW Phase 3 clinical trial of Tarcocimab Tedromer, in patients with Non-Proliferative Diabetic Retinopathy w/o diabetic macular edema; AMGNs new Lumakras (sotorasib) data over the weekend was underwhelming according to Stifel, and in-line with their expectations, and they add to their conviction that Lumakras won’t be competitive in 1L lung (firm says AMGN data best case scenario for MRTX); RYTM upgraded to Buy at Goldman Sachs as believe outlook for Imcivree was transformed by initial Phase 2 data in Hypothalamic Obesity patients, pointing to high probability of clinical success in this indication

·     Healthcare Services: WSJ reported this weekend that CVS is seeking to buy SGFY, according to people familiar with the matter. Others also are in the mix, they said, and CVS could face competition from others https://on.wsj.com/3BMivS4

Industrials & Materials

·     Industrials, Metals & Materials; GOLD Q2 net income rose to $488M, or $0.27 from $411M, or $0.23 y/y, while revenues were little changed at $2.86B vs. est. $2.98B; Q2 gold production was roughly flat at 1.04M oz and Q2 copper production jumped 25% Y/Y to 120M lbs; CYBE shares jump after agreeing to be acquired by NDSN for $54 per share https://bit.ly/3df7yOP ; lithium producers LTHM, ALB saw outperformance, benefitting from the Senate passing climate bill, a positive for EV stocks which use lithium; BA got a midday boost after Reuters reported the FAA says it expect Boeing 787 deliveries to resume in the coming days/says Boeing has made necessary changes to ensure that 787 Dreamliner meets all certification standards

Technology, Media & Telecom

·     Media, Internet; TWTR shares active after Elon Musk on Saturday challenged Twitter Inc CEO Parag Agrawal to a public debate about the percentage of bots on the social media platform. "Let him prove to the public that Twitter has <5% fake or spam daily users; ROKU downgraded to Sell from Hold at Pivotal Research with $60 tgt after a recent stock rally following a significant stock price plunge post frankly awful 2Q results/3Q guidance; Axios has agreed to sell itself to private media name Cox Enterprises in a $525M deal, The New York Times reported

·     Semiconductors: NVDA slides after guiding Q2 revenues Q2 $6.7B, well below consensus $8.1B, down -19% sequentially and up 3% y/y saying gaming revs of $2.04B, down 44% sequentially and down 33% y/y while Data Center revenue was $3.81B, up 1% sequentially and up 61% y/y (follows recent softness from AMD, INTC); LSCC expands stock repurchase program with new $150M authorization; WDC downgraded from Buy to Hold at Benchmark after posted upside June results, but the September quarter guidance was well below expectations and said a sharp inventory correction is underway in the client segment impacting both HDDs and flash; GFS shares jumped after QCOM agreed to buy an additional $4.2 billion in semiconductor chips from their New York factory, bringing its total commitment to $7.4 billion in purchases through 2028

·     Software movers; PLTR cuts Q3 revenue view to range $474M-$475M below the est. of $506.9M while forecasts full-year revenue between $1.9B-$1.902B vs. estimate of $1.96B saying forecast cut due to uncertain timing of large government contracts this year; AVLR to be acquired by Vista Equity Partners in an all-cash deal the companies valued at $8.4 billion, including Avalara’s debt, with holders to receive $93.50 a share for Avalara, a 27% premium over the company’s valuation as of July 6, the last trading day before media reports emerged of a potential deal; MNDY shares jumped following earnings results; TWLO confirmed it had been hacked, with some employees handing over corporate login information