Closing Recap

Tuesday, August 15, 2023

Equity Market Recap

·     US equity futures slipped overnight on European stock declines and concerns over China economic issues. China’s urban unemployment rate rose to 5.3% in July, the first increase since February, but was missing data for the 16-to-24 age group which had hit a record 21.3% in June. Yesterday, Treasury’s Yellen had mentioned spillovers from China as a risk factor for the US economy. Today’s domestic economic reports drove stocks even lower, as core retail sales climbed 1.0% mo/mo versus expectations of +0.4%. Treasury yields popped and stocks dropped as the “higher for longer” rates verbiage begins to get a fresh look while investors acknowledge the Fed’s attempts to kill demand have only modestly slowed consumers. Mid-morning breadth was almost 4:1 favoring decliners with no S&P sector groups in the green.

·     On the data side today, @NeilRetail digs into today’s data, pointing out while people are spending (over the same period pre-pandemic), the 2.5% headline year/year figure translates to a 0.4% decline in volumes ex. inflation. @RBAdvisors also weighed in on retail sales noting core retail sales joins the list of data appearing to reaccelerate while consensus remains an economic soft landing. Lastly, @DataTrekMB weighs in on S&P 500 sector correlations to the index, noting they are running well below average and the past five times this has occurred to such magnitude, the S&P slipped by an average 1.5% over the following 50 days (though two of the drawdowns were 5-10% each). Bottom line, they remain longer-term bullish, but expect choppiness.

·     Heading into the final hour of trading, US equity indices remained weak, but off their lows. Breadth improved to a little better than 7:2 in favor of decliners, while all S&P industry groups remained in the red. Healthcare was the “leader,” with XLV down just 0.2% versus the laggards: Energy (XLE, -1.9%), Financials (XLF, -1.7%) and Materials (XLB, -1.5%). Both growth and value mirrored the indices’ weakness, with the Russell 1000 Growth -0.70%, outperforming its Value counterpart at about -1.2%.

Economic Data:

·     US Core Retail Sales mo/mo +1.0% versus forecast +0.4% and previous +0.2%.

·     US NAHB Housing Market Index 50 versus forecast 56 and previous 56. This marks the first decline in seven months and lowest level since May. Both the current single-family sales and sales over the next six months components were lower for the period.

·     NY Fed Manufacturing -19 versus forecast -1.0 and previous +1.1.

·     US Import Prices mo/mo +0.4% versus forecast +0.2% and previous -0.2%.

·     US Export Prices mo/mo +0.7% versus forecast +0.2% and previous -0.9%.

Commodities

·     December gold slipped $8.80/oz, or -0.45%, to settle at $1,935.20 after this morning’s Retail Sales data came in hotter than expected. The resulting pop in US Treasury yields to the highest intraday level on the ten-year since November once again pressured gold futures to their lowest levels in over a month.

·     WTI September crude slid $1.52/bbl, or -1.84%, to settle at $80.99. Weak economic data and interest rate cuts out of China prompted incremental demand concerns and weighed on crude despite recent production cuts from Saudi Arabia. Brent crude similarly slid $1.32/bbl, or -1.53%, to $84.89. Tomorrow’s action will likely be driven by EIA inventory data in the morning.

Sector News Breakdown

Consumer

·     In Retailing Tech: PE firm Silver Lake announced it intends to explore a sale of their majority-owned GB, whose shares rose +11%.

·     In Autos: TSLA shares continued their downward drift after the EV maker rolled out new base Model S and X for $10,000 less with lower battery mileage.

·     In Autos: The UAW is to vote on whether to authorize strike in preparation for Sept. 14th deadline for contract negotiations with GM, F and STLA.

Homebuilders, Building Products, Home Furnishing

·     Homebuilders DHI, LEN and NVR traded higher in the aftermath of yesterday’s filing that showed that Warren Buffett’s Berkshire Hathaway had begun buying the companies.

Energy, Industrials & Materials

·     In Offshore Drilling: The stock of SDRL moved higher following last night’s 13F by activist Elliot Management started accumulating the shares. Elliot also bought shares of ETF XOP, NRG, PSX, NS, all in the energy sector.

·     Utilities and Power: HE shares continued their slide, off by -23% after the company’s credit was downgraded to bb- by S&P and placed on creditwatch negative on higher wildfire risk.

Financials

·     In Brokerages: Hindenburg Research published a negative report on FRHC in the pre-market, claiming the Kazakhstan company exhibits “Hallmarks Of Fabricated Revenue and Risky Bets with Commingled Customer Funds.” FRHC shares were off by -3% as the market closed.

·     In Credit Cards: DFS shares fell precipitously after announcing that CEO Roger Hochschild was stepping down.

·     In Alternative Lenders: AAMC shares lost 2/3 of their value following the company’s late Thursday earnings and news of a potential EV investment which investors seemingly viewed as abhorrent.

·     In Banks: Major lenders such as $WFC $JPM $GS $C $BAC all traded lower after an analyst at Fitch said they may be forced to downgrade multiple banks.

Healthcare

Biotech & Pharma

·     DCTH shares more than doubled at times in today’s session after the oncology company announced FDA approval of Hepzato, the liver-tumor tx device for patients w/ advanced melanoma of the eye.

·     MNK shares fell sharply after the company announced it is in actively engaged in advanced discussions with various stakeholders as the BoD continues to actively evaluate company’s financial situation and consider options.

Technology, Media & Telecom

·     In Media: Shares of GRND gained after Thursday night’s earnings beat and raised guidance.

·     In Internet: SE shares fell by almost a third despite an earnings beat on Thursday night as investors fear weakness in the Asian company’s Shopee ecommerce unit. Shares of AI-chip maker NVDA reversed an early loss and a down prior 5-trading days with a +6% rally, a Morgan Stanley note reiterated the company as one of their top picks because of AI demand.

·     NVDA shares continued yesterday’s ascent from last week’s selloff; hedge fund Appaloosa Management’s 13F filing showed they had begun a new position in the AI-chipmaker.