Closing Recap

Thursday, August 17, 2023

Index	Up/Down	%	Last
DJ Industrials	-291.84	0.84%	34,473
S&P 500	-34.20	0.78%	4,370
Nasdaq	-157.70	1.17%	13,316
Russell 2000	-21.46	1.15%	1,850

 

 

 

 

 

 

 

 

 

U.S. stocks extended weekly declines, as the losses for August continue to pile up given a resurgence in Treasury yields hurting growth related sectors, with the S&P hitting its lowest levels since late June and closing near the lows for a second straight day. Bets are rising that the Fed may need to step up rate hikes given strong economic data and stubbornly high inflation. Markets are also keeping a watchful eye on the Federal Reserve Jackson Hole Symposium which starts next Thursday. After starting the day in the “green” stocks drifted lower in afternoon trading with market volatility near this summer’s most elevated levels as investors weigh signals from the Fed for further policy tightening against continued economic resilience. CSCO helped lift the Dow early after its earnings beat, but WMT failed to rally despite its better results for the quarter. With the Nasdaq down 6.5% Month-to-date, the S&P 500 -4.25%, the Dow -2.5% and the Russell 2000 down -7% MTD, major averages are on track to snap their 5-month winning streak. So far this month it has been “sell the rip” vs. prior 2023 mantra of “buy the dip” which had worked the first of 2023. The 10-year yield rose to 4.32%, its highest level since the 2008 financial crisis, on another round of strong economic data and after minutes from the Federal Reserve’s July meeting that suggested the central bank intended to keep raising interest rates to tamp down inflation. In healthcare, CVS shares tumbled after Blue Shield of California said it was droppings to PBM Caremark in a bid to lower costs. Energy and Materials were the upside movers in the S&P while Staples, Discretionary, Healthcare and Technology declined. Housing stocks and other interest rate sensitive sectors (Utilities, REITs, Towers) saw weakness as mortgage rates rose to the highest levels since 2002, as average 30-year fixed-rate mortgage was 7.09% Freddie Mac said, the first time since last November that rates exceeded 7%.

 

Bespoke invest tweeted: "The S&P’s 4% decline through August’s first 12 trading days was its 8th worst start to August since 1953 and worst start to August since 2011 when the index was down 7.7% MTD on 8/16/11. The index gained 2.2% the rest of August that year and gained 5.4% the rest of the year." @KobeissiLetter tweeted: “On July 27th, the Fed said they are no longer forecasting a recession. Since then, the S&P 500 has lost $1.8 TRILLION in market cap. Then, on August 4th, JP Morgan said they no longer expect a recession. Since then, the S&P 500 has lost $1.3 TRILLION in market cap”.

 

 

Economic Data

·     Weekly Jobless Claims fell to 239K in latest week from 250K prior week and mostly in-line with the $240K estimate; the 4-week moving avg rose to 234,250 from 231,500 prior week; continued claims rose to 1.716M from 1.684M prior week (est. 1.7M); Insured unemployment rate rose to 1.2% aug 5 week from 1.1% prior week.

·     The Philadelphia Fed factory index +12.0 (first positive number since August 2022 and highest since April of 2022), far better than the expected decline of -10.4 and prior decline -13.5; Philly New Orders: +16.0 vs -15.9 prior; Shipments: +5.7 vs -12.5 prior; prices Paid: 20.8 vs 9.5 prior; prices received 14.1 vs 23.0 prior.

 

Commodities, Treasuries and Currencies

·     Oil prices rebounded as WTI crude oil futures settled at $80.39 per barrel, up $1.01, 1.27% while Brent Crude futures settled at $84.12 per barrel, up $0.67, or 0.8%. Priced rose overnight after China’s top leaders pledged to expand domestic consumption without detailing any new stimulus measures, the latest in a series of attempts to boost confidence in the economy.

·     Gold futures slip a 9^th straight session, down -$13.10 or 0.7% to settle at $1,915.20 an ounce (near 5-month lows), marking the longest daily losing streak in more than six years. Prices have been under pressure due rising U.S. bond yields and a strong dollar, as well as concerns about demand from China where the economy is struggling.

·     Bitcoin prices fell over 3.5% below $27,990 earlier while the dollar index (DXY) was little changed at 103.40 after rising this week on better economic data. Treasury yields extend gains, as the 10-year hits 4.32%, the highest level since the financial crisis of 2009 as strong data points raise expectations the Fed will continue to raise rates. The dollar index (DXY) was near a two-month high of 103.59 earlier amid rising rate hike expectations.

 

 

Macro	Up/Down	Last
WTI Crude	1.01	80.39
Brent	0.67	84.12
Gold	-13.10	1,915.20
EUR/USD	-0.0015	1.0859
JPY/USD	-0.62	145.75
10-Year Note	0.049	4.307%

 

 

Sector News Breakdown

Consumer

Staples & Restaurants:

·     In Food: K, CPB, CAG, GIS among food names hitting 52-week lows; DOLE mixed earnings results as Q2 EPS $0.51 vs consensus $0.35 and revenue $2.14B vs consensus $2.27B; EBITDA $122.7M vs consensus $109.3M; guides FY EBITDA at least $350M vs prior $350M and consensus $351.3M. TSN plans to sell its China poultry business, three people with knowledge of the matter said, in the latest case of a multinational firm looking to divest from the country in recent years, Reuters.

·     In Beauty, shares of ELF underperformed, falling as much as 5% earlier ahead of EL earnings results expected tomorrow morning and ULTA next week 8/24. EL shares touched fresh 52-week lows earlier today ahead of results.

·     In Restaurants: WING announces $250M share buyback program.

·     CGC said it agreed to sell its Hershey Drive facility in Smiths Falls, Ontario to HSY for C$53 million ($39.3 million). The company will still own its post-harvest manufacturing facility in Smiths Falls.

 

Retailers:

·     Retail giant WMT posted Q2 EPS $1.84 topping $1.69 est. on better revs $161.6B vs est. $159.76B while Q3 guidance $1.45-$1.50 slightly below $1.50 est. but FY2024 EPS $6.36-$6.46 tops $6.28 est. Q2 U.S. same-store sales rose 6.4%, while FactSet was expecting a 4.1% gain.

·     In apparel: PLCE raises its profit forecast for back half of 2023, citing easing input and supply chain costs as well as reduced inventory levels as sees adjusted net EPS $5.00-$5.25 vs. est. $5.00 but slightly tightens the upper-end of FY 2023 outlook for revenue and profit.

·     In luxury retail: TPR Q4 EPS $0.95 misses est. $0.97 and revs $1.62B below est. $1.65B; sees FY24 EPS $4.10-$4.15, vs. consensus $4.23 and sees FY24 revenue ‘approaching’ $6.9B vs. est. $6.93B; said net sales for Coach rose from a year ago, while Kate Spade and Stuart Weitzman fell.

·     In Home Furnishing: LOVE falls as discloses determination of internal investigation of financial statements – determines certain financial statements should no longer be relied upon; believes FY23 net income overstated by $1.5M-$2.5M.

 

Autos:

·     A consortium of Ford Motor (F) and South Korean companies said they would build a C$1.2 billion ($887 million) plant to produce electric vehicle (EVs) battery materials in Becancour, Quebec, which is seeking to become an EV-supply-chain hub, Canada’s industry ministry said.

·     Electric-vehicle batteries and other car parts are the latest products under scrutiny as part of Washington’s effort to stamp out U.S. links to forced labor in Chinese supply chains, Reuters reported. Until now, enforcement of a year-old U.S. law that bans the import of goods made in Xinjiang, China, has focused mainly on solar panels, tomatoes, and cotton apparel. But now, components that may include lithium-ion batteries, tires and major automobile raw materials aluminum and steel are increasingly subject to detentions at the border.

 

Energy

·     In Utilities: HE adds to recent declines, falling late Wednesday after the WSJ reported the company in talks with restructuring advisory firms to address financial and legal challenges over its potential liabilities in the wake of the Maui wildfires https://tinyurl.com/7ucet25m ; In Texas, power grid asks consumers to voluntarily conserve energy (AEP, CNP top utility providers in TX).

·     In oil names: oil prices on track for biggest weekly loss since May; CHK shares rose after being added to the S&P MidCap 400 index, replacing MRCY on August 21^st.

 

Financials

·     In Business Software/Services: PYCR shares fell as Q4 profit and revs topped consensus but FY24 guide for revenue growth of ~17% y/y were below consensus.

·     In FinTech: ADYEY shares fall as 1H revenue 5% miss with 21.5% growth in H1, 19% ex FX, despite 2pp eBay tailwind while margins down 15pp YoY on +52% average employees coupled with 21% average wage cost – Bank America notes H1 margin 43% below 47% street.

·     In Consumer Services: DFS shares rebound after saying the investigation from the Federal Deposit Insurance Corp on its compliance issues is nearing an end and said it would invest in its compliance and risk management practices.

·     In Bitcoin: shares of cryptocurrency and blockchain-related companies fall as bitcoin hits near 2-month low below $28,000 as crypto exchange COIN dropped along with crypto miners RIOT, MARA and HUT as well as Bitcoin buyer MSTR

 

Insurance & Services:

·     ALL announced estimated catastrophe losses for the month of July of $313 million or $247 million, after-tax. July month catastrophe losses include 18 events estimated at $349 million, primarily related to geographically widespread wind and hail events.

·     PGR positive mention by Raymond James after rising 9% yesterday following July 2023 results reflecting in part underwriting results including favorable PYD and sequential improvements in the underlying loss ratio. The firm said believe PGR could be the leading beneficiary of the dislocations in the personal auto insurance market.

 

Healthcare

Biotech & Pharma and Services:

·     In Pharmacy retail/managed care: CVS shares fall after Blue Shield of California is dropping CVS’s Caremark, its current pharmacy-benefit manager, and replacing it with a selection of other companies, in a new offering that will include at-home drug delivery from Amazon (AMZN). Blue Shield of California said once the multi-year strategy is fully implemented, the health plan expects to save up to $500 mln in annual drug costs. Drug distributors ABC, CAH, MCK also showed signs of weakness early as well as HMOs like CI, UNH). GDRX shares also fell on the news – the co had launched a savings program with Caremark in July to help lower costs.

·     In Medical Instruments: BRKR is buying CELL for $1 a share in an all-cash transaction that values PhenomeX at a total equity value of $108 million.

·     AHCO shares fell after the Co’s hiring of Crispin Teufel as its new CEO hits a potential roadblock, as Teufel’s long-time employer Linde sues the executive.

·     NVCT won FDA orphan-drug designation to NXP800 for the treatment of cholangiocarcinoma.

 

Industrials & Materials

·     In Aerospace & Defense: BAESY agreed to buy BALL aerospace assets for about $5.55B in cash; said the Aerospace unit accounts for 13% of Ball’s consolidated net sales in 2022. Aero parts supplier HXL upgraded from Peer Perform to Outperform at Wolfe Research with $83 tgt on the back of higher confidence (and estimates) in the company’s top-line, bottom-line and FCF growth. LDOS said it was selected by the U.S. Navy to operate and sustain medium unmanned vessels in task order valued at $95M if all options are exercised. SpaceX’s, Elon Musk’s Space business, revenue has doubled in 2022, with its first reported profitable quarter in Q1 2023. They reportedly also cut costs in half as well, per WSJ.

·     Steel stocks active (NUE, X, STLD, CLF) as the US Commerce Dept said it finds that tin mill steel imports from Canada, China, Germany are sold below fair market value. Commerce dept says it will propose preliminary anti-dumping duties of 122.5% on tin mill steel imported from China; 7.02% on German imports, 5.29% on Canadian imports. Negative names like MT.

·     In gold miners: GFI said CFO Paul Schmidt intends to retire while the gold miner said it made a 1H net profit of $457.8M, compared with $509.7M a year earlier reflecting lower gold volumes sold and higher operating costs, only partially offset by higher gold prices.

·     In Homebuilders: shares of KBH, BZH, TOL, LEN, MTH and many others saw broad weakness as Treasury yields hit 13-year highs on rising rate expectations given stronger economic data. The US 30-year mortgage rates jump to 7.09%, the highest since 2002.

 

Technology

Internet, Media & Telecom

·     US listed China stocks rebound, looking to snap a 4-day losing streak on hopes of more stimulus measures from the Chinese government that could allay investor fears of a slowing economy. Chinese state media said that China will strengthen the coordination of various policies to boost growth and meet this year’s economic target (seeing early strength in BABA, JD, PDD, BIDU, IQ, WB and others; note BILI up on earnings as well).

·     In online: CHGG rises as reports increased authorization of buyback by $200M; in online travel, ABNB falls for an 8^th straight day; in advertising TRMR cut its earnings guidance for the year as guides Ebitda $85M-$90M below prior $140M-$145M view and logged lower Q2 revenue than expected; in media: MSGS shares slide after Q4 results earlier.

 

Hardware & Software movers:

·     In Networking: CSCO reported upside to Oct-qtr results with a print of $15.2B/$1.14 vs street at $15B/$1.06 and provided an FY24 guide that calls for 1% sales growth (modestly below street at 2%) but EPS guide of ~$4.05 was in-line with street expectations.

·     In software: ADBE upgraded from Neutral to Buy at Bank America and raised its tgt to $630 from $575 given incremental growth likely to come from AI in FY24. ASUR 3.3M share Spot Secondary priced at $12.00, sending shares lower. RBLX shares fell early after Bear Cave released a new “short” call on the company.

·     Electronic Components: AVT rises following beat and raise despite a challenging Asia backdrop as the strength was driven by industrial transportation, automotive, and defense sectors. Margins far exceeded expectations – supported by continued strong performance in Components.

·     In Electronic Design (EDA): SNPS beat for the Q and a modest raise with AI the big topic on the call here; Q3 revs above the high end of guidance across key metrics.

·     In the Opticals and Photonic sector: LITE issued Q1 guidance below analysts’ estimates as the company anticipates inventory corrections to continue; sees Q1 revs $300M-$325M below prior view $368.5M and EPS $0.20-$0.35 below est. $0.57.

 

Semiconductors:

·     WOLF shares slid amid lower margins, higher spend and losses – WOLF beat topline expectations but missed GM by 240bps at 27.3% on a GAAP basis due in part to start-up expenses running ahead of expectations and missed EPS by $0.22. Revenue guidance for SeptQ23 is light largely in line with expectations but loss for the quarter is expected to be twice ests on start-up expense.