Closing Recap

Thursday, August 11, 2022

Equity Market Recap

·     Stocks opened sharply higher, rallying on signs of further inflation easing after the producer price index (PPI) data came in below expectations (still historically very high), mirroring the results of the CPI report on Wednesday that sent markets soaring. The inflation reports still showed several pockets of rising prices but was offset by slowing energy prices in July. The S&P 500 was trading at its highest level in more than three months, extending a rally from the previous session before losing steam late morning that carried into the afternoon, as Treasury yields on the long end of the curve began spiking. Weekly jobless claims showed the number of Americans filing new claims for unemployment benefits rose for the second straight week, indicating further softening in the labor market. Traders are now pricing in a more than 63.5% chance that the Fed will hike interest rate by 50 basis points with others still looking at a possible more aggressive 75-bps hike. Big bounce for big tech early as the Nasdaq has now risen more than 20% off its June lows before sliding late day (NASDAQ 100 is having its best quarter (so far) since 2Q2020, after having its worst since 4Q2008). The Russell 2000 index approached its 200-day MA resistance this morning before sliding, while the S&P 500 dipped back to its 4,200 level (the June high that was topped yesterday), before bouncing (earlier hit highs around 4,260).

Economic Data:

·     Inflation data well below: July Producer Prices (PPI) Final Demand falls (-0.5%) well below the expected rise of +0.2% M/M and headline PPI Y/Y rises +9.8%, below estimate of +10.4% (and prior month +11.3%). On a core basis, PPI (ex food & energy) M/M rises a smaller +0.2% vs est. +0.4% and on a Y/Y basis rises and in-line +7.6% (prior month +8.25)

·     Weekly Jobless Claims rose to 262K from 248K in prior week (est. 263k) as the 4-week moving average rose to 252K from 247,500; continued claims rose to 1.428M from 1.420M and the US insured unemployment rate unchanged at 1.0%

·     The 30-year fixed-rate mortgage averaged 5.22% as of August 11, according to data released by Freddie Mac — up 23 basis points from the previous week. The average rate on the 15-year fixed-rate mortgage rose 33 basis points over the past week to 4.59%.

·     The WSJ reported the median asking rent in all boroughs other than Staten Island hit records in June, according to data from StreetEasy. Manhattan’s rose to $4,100 a month.

Commodities

·     Oil prices advance, with WTI crude +2.41 or 2.62% to settle at $94.34 per barrel (lows $91.24 and highs $95.05); Gasoline September futures settle at $3.0715 a gallon; Natural Gas September futures settle at $8.8740/MMBtu up 8%. Oil prices finish at their highest level in more than a week, as rising demand for oil in Europe is expected to offset some of a drop in US gasoline demand. The IEA says global demand for crude could top 100M bpd by next year.

·     Gold prices slip -$6.50 or 0.4% to settle at $1,807.20 an ounce, falling for the first time in about a week as stocks rallied in the wake of cooler U.S. inflation data. Gas pump prices in the US move back below 4.00/gallon (national average) for the first time since early March, $1.03 lower than their all-time high in mid-June.

·     Commodity prices still high: as per Charlie Bilello, commodity price changes over the last year (coming into the day): Natural Gas: +100%, Heating Oil: +64%, Brent Crude +37%, WTI Crude: +35%, Nickel: +24%, Gasoline: +23%, Coffee: +21%, Lumber: +19%, Corn: +12%, Wheat: +10%, Cotton: +9%, US CPI: +8.5%, Soybeans: +7%, Gold: +5%, Sugar: -7%, Silver: -11%, Copper: -16%

Currencies & Treasuries

·     The U.S. dollar opened lower following another softer inflation report (PPI after CPI the day prior) but worked its way higher to pare losses. Bitcoin trades at 2-month highs around the $25,000 level before paring gains along with broader stock markets; Ethereum shares topped $1,900 – (recall hit lows of $880.36 on June 18th).

·     Treasury yields rebound despite the dovish PPI reading which came in below consensus views and prior month figures; Yields on Long end of curve higher as the 10-yr yield jumped 12-bps above 2.9% (off yesterday lows of 2.67% after the dovish CPI report) and 30-yr rose 14-bps to 3.19%; 2-yr up slightly at 3.24%. The U.S. Treasury sold $21B of 30-yr notes at a yield of 3.106% vs. 3.095% when issued prior, with bid-to-cover ratio 2.31, primary dealers take 10.84% of U.S. 30-year bond sale, direct 18.51% and indirect 70.65%.

Sector News Breakdown

Consumer

·     Retailers; HBI slides after Q2 sales and profit misses estimates, guides Q3 revs/ESP below views and cuts year revs view to $6.45B-$6.55B from $7B-$7.15B and EPS as well; GOOS Q1 revenue rises nearly 14% to C$69.9M topping estimates of C$62.6M while the midpoint of its Q2 revenue forecast range above estimates; COOK slides after reported disappointing Q2 results and a significant guide-down for 2H; DDS strong Q2 beat as EPS of $9.30 crushes ests and above y/y $8.81 figure on better revs $1.59B, though margins slipped; in mattress retailers (TPX, SNBR, PRPL), KeyBanc notes mattress industry data for 2Q22 was released by industry association ISPA and showed Q2 overall sales decreased 14.4% y/y (following an increase of 4.9% in 1Q22); FOSL shares slipped early after cutting its FY net sales forecast; WRBY rises on results

·     Housing & Building Products; LOW was downgraded to Neutral at Citigroup saying the concerns for home retail continue to grow — wallet share shift to services and travel, inflation tightening consumer budgets for big-ticket, higher rates, home prices starting to decline, and recession risk negatively affecting the employment picture – said "contrarian" Buys remain FND and RH; note LOW and HD among top earnings results expected next week

·     Restaurants & Consumer Staples; UTZ raises 2022 sales outlook to grow 13%-15%, up from prior guidance for growth of 10%-13% and said organic sales are expected to rise 10%-12%, up from a prior range of 8%-10%; USFD Q2 sales topped Wall Street’s estimates, but guided FY22 adjusted EPS $1.95-$2.25 vs. est. $2.26; RRGB reported disappointing 2Q22 results that were negatively impacted by the late quarter slowdown in consumer traffic trends seen across the industry, and higher than expected commodity inflation and cuts FY22 adjusted EBITDA view to at least $65M from $80M-$90M; BROS reported 2Q earnings mixed as beat estimates on a top line basis, but missed on the bottom line and FY22 SSS/adj EBITDA guide reiterated

·     Casinos, Gaming, Lodging & Leisure sector; in theme parks, SIX shares slide after Q2 EPS $0.53 misses the $1.02 estimate on light revs falling -5.3% y/y to $435M vs. est. $529.75M; Attendance dropped 21.2% to 6.7 million, well below the FactSet consensus of 8.2 million; in lodging, VCSA shares soar after boosts FY revenue view to $1.17B-$1.19B from $1.125B-$1.175B with an improved Ebitda outlook following Q2 as posts profit of $10M, compared to a loss of $20M

Energy

·     Energy stock movers: OPEC cut its forecast for growth in world oil demand in 2022 for a third time since April, citing the economic impact of Russia’s invasion of Ukraine, high inflation, and ongoing efforts to contain the coronavirus pandemic. OPEC said in its monthly report it expects oil demand to rise by 3.1M barrels per day, or 3.2%, in 2022, down 260K bpd from prior view. OPEC cuts 2022 global economic growth forecast to 3.1% (prev. 3.5%), trims 2023 view to 3.1% and says significant downside risk prevails.

·     Utilities & Solar; FSLR was upgraded from Sector Weight to Overweight at KeyBanc with $145 tgt saying the introduction of the manufacturing tax credit for domestically produced solar panels makes FSLR the most direct immediate beneficiary of the policy in their coverage.

Financials

·     Bitcoin, FinTech & Payments; MQ reports disappointing guidance and slowing demand – after beating on top and bottom line, management left FY22 top-and-bottom-line guidance largely unchanged, with high-30%’s revenue growth and negative HSD adj. EBITDA margins; FISV upgraded from In Line to Outperform at ISI Evercore and up tgt to $149 from $101 saying it stands in the first- of a nine-inning transformation into a higher growth company driven by differentiated merchant payment solutions such as Clover for SMB and Carat for large enterprises; RXT both downgraded to Sector Perform from Outperform at RBC Capital and lowers tgt for both names; COIN slipped after the U.S. Supreme Court declined to block a pair of lawsuits from some of COIN’s customers, the Wall Street Journal reports

·     REITs; STAR agreed to combine with SAFE where each iSTAR share will have an implied value of $18.39, or 7.7% above Wednesday’s closing price of $17.08 and would value iSTAR at about $1.57B, which compares with Safehold’s market capitalization of $2.69B; in research, SMBC Nikko upgraded HR and downgraded WELL in as see the senior housing tides turning from the hyper-enthusiasm for near-term occupancy gains, to a more methodical recovery over an extended period that often faces unannounced COVID waves that are difficult to predict

Healthcare

·     Pharma movers: shares of GSK, SNY, PFE among those sliding the last 2-days amid growing concerns about U.S. litigation over heartburn drug Zantac, which was pulled from market in 2020 for containing a probable carcinogen. Zantac has been sold by several companies: marketed by GSK between 1995 and 1998, by PFE from 2000 to 2006, by JNJ from 2006 to 2017, and by SNY between 2017 and 2019, Redburn analysts noted. Haleon (HLN), GSK’s recently spun off consumer health unit, is not a party to U.S. litigation focused on the heartburn medicine Zantac, a spokesperson told Reuters today; ASND reported strong 2Q results, driven by Skytrofa sales of €4.4M, exceeding the FactSet consensus of €3.9M; CYCC said its oral cancer drug fadraciclib showed good tolerability in early-stage study with continuous dosing and Co expects to enter mid-stage trial in H2; CTKB posted a clean quarter with product revenues ahead of consensus

·     Healthcare Services: CAH said CEO Mike Kaufman to step down and exit board and names CFO Jason Hollar as the new CEO and reported Q4 adj EPS miss of $1.05 below consensus of $1.18 citing inflation-driven weakness in its medical equipment distribution business

Industrials & Materials

·     Industrial & Machinery; ISI Evercore downgraded PCAR to Neutral/In-Line from Buy/Outperform and upgraded DE to Buy/Outperform from Neutral/In-Line), while also downgrading GTES to Neutral/In-Line from Buy/Outperform; BLBD posts larger than expected Q3 EPS loss and lowers year outlook to $750M-$800M from prior $800M-$900M view, citing supply constraints and semiconductor parts shortage; ENS reported in-line F1Q23 results and record 1Q orders, while guiding F2Q adj. EPS midpoint below consensus on view to FX/supply chain headwinds

·     Transports: After surging on Thursday on better CPI, transports still outperform in a mixed market today, holding above the 15,000 level; The Baltic Exchange’s main sea freight index slipped to a six-month trough on Thursday pressured by losses across vessel segments. Overall index, which factors in rates for Capesize, Panamax, and Supramax shipping vessels, fell 36 points, or 2.3%, to 1,556 points, its lowest since Feb. 8. Capesize index lost 84 points, or 5.2%, to 1,538 points, worst day in a week.

Technology, Media & Telecom

·     Media, Internet; Dow component DIS results were strong relative to consensus, driven by Linear Networks and Parks, while DTC subscribers were ahead of expectation – Q2 adj EPS $1.09 vs est. $0.96 on revs $21.5B vs est. $20.96B; total paid Disney+ subs 152.1Mm and said will raise the price of its ad-free Disney+ tier by nearly 40% to $10.99; BMBL cuts FY revenue forecast, pressuring shares early as sees Q3 revs $236M-$240M vs. est. $244.9M and lowers year revs to $920M-$930M from $934M-$944M as exit from Russia hit revs; SHOP was upgraded to Overweight from Neutral at Atlantic Equities.

·     Software & Hardware, Service movers; MTTR rises as reported Q2 results which missed the Street’s top-line expectations but was largely overshadowed by a raise in revenue guidance for 3Q and FY22 revenue and FY22 EPS; SONO slumps as 3Q sales of $371.8M missed est. of $423M due to softer demand in the month of June and disappointing sales of its new Ray low-end soundbar and guided year adj Ebitda, EPS below consensus; AVT shares slipped after results; VZIO 2Q device shipments were in-line, but Platform+ beat estimates by ~2% and 3Q Platform guide was 5% above Street; ENVX better results and narrowed the revenue range for 2022.