Market Review: July 19, 2022

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Closing Recap

Tuesday, July 19, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks surged all afternoon, with the Nasdaq rising over 3% and the S&P 500 topped its 50-day moving average (MA) resistance (3,922 on futures) as a handful of companies reported better-than-expected earnings, helping offset inflation fears. Energy stocks rose behind a bounce in oil and better earnings from services provider HAL, while financials extend gains despite mixed results the past week. In tech, all eyes on NFLX after the close, with shares rising the last 3-days into results (but remains down -66% YTD), while IBM fell on weaker margins and cash flow guidance. Dow component JNJ reported profit and sales that exceeded expectations but cut its earnings outlook for the year due to a soaring U.S. currency. Market attention has turned to earnings after weeks of rising interest rate fears burdened sentiment. The U.S. dollar slipped from 20-year highs, Treasury yields rose, and gold was little changed. Boosting the major indexes, Apple Inc gained 2%, recovering almost all its declines from the previous session, when a report said the company planned on slowing hiring and spending growth next year. All 11-S&P 500 sector indexes gained, with at least eight of them adding more than 2% each. European markets finished higher (and euro higher), with a late day jump after Reuters reported that Russian gas flows from Nord Stream 1 were expected to restart on schedule on Thursday, albeit at reduced rates. The German Dax jumped 2.7% with Europe’s industrial heartland most at risk from a complete switch off from Russian gas. Europe’s Stoxx 600 up 1.4%, at 5-week highs. Semiconductor chip names pared gains slightly late after Senator McConnell says he won’t vote to proceed to the chips bill unless he knows what he’s proceeding to.


Economic Data:

·     Housing Starts for June fell -2.0% to 1.559M, below consensus of +1.4% (or 1.58M) and vs May -11.9%; June single-family starts -8.1% to 982,000-unit rate; multifamily +10.3% to 577,000-unit rate; housing building permits fell -0.6% to 1.685M unit rate, above est. 1.650M vs. May 1.695 mln unit rate; single-family permits -8.0% to 967,000-unit rate; multifamily +11.5% to 718,000

·     China’s portfolio of government debt in May dropped to $980.8 billion, first time below the $1 trln mark since May 2010. Japan is now the leading holder of U.S. debt with $1.2 trillion.


Commodities, Currencies & Treasuries

·     Oil prices rise, with WTI crude $1.62 or 1/58% to settle at $104.22 per barrel ahead of weekly inventory data tonight and tomorrow and getting a boost on the dollar pullback. After weeks of outperformance on rising interest rate expectations, the US dollar cooled off on Tuesday, falling vs rival counterparts as the euro rallied back above the 1.02 level (after trading below parity last week), on news that the European Central Bank would discuss this week whether to raise rates faster than expected. Euro zone government bond yields also shot higher. The dollar’s retreat follows last week’s two-decade peak ahead of next week’s FOMC meeting.

·     Gold prices finish little changed, up 50c to $1,710.70 an ounce with no bounce despite a drop in the dollar on day. Crypto related assets rallying with broader stock market as well, with Bitcoin topping $23,300 to 1-month highs and Ethereum $1,550.

·     Treasury yields quietly edging higher in recent days, as the 10-yr moves back above 3%, while remains inverted by about 20 bps against the 2-yr at 3.21$ (3-yr also 3.21%). Economic data quiet this week outside of a handful of housing data points which thus far have missed expectations and point to a weaker housing market going forward.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers: toy retailer HAS tops Wall Street estimates for Q2 profit saying price increases and demand for its "Magic: The Gathering" trading card game helped it offset higher freight costs, however revs of $1.34B missed the $1.37B estimate; SKX received a negative short call from SprucePoint Capital, issuing a strong sell opinion with 30-50% downside risk; CROX was downgraded to mixed from positive by boutique firm

·     Restaurants & Consumer Staples; HNST launches at WMT to expand U.S. distribution as begins rollout on with in-store presence to follow; CLX rose on speculation that the company may be targeted by an activist investor

·     Casinos, Gaming, Lodging & Leisure sector; CNK upgraded to Overweight at Morgan Stanley with $22 tgt assuming the N. American box office rebounds to ~85% of 2019 levels in ’23 (or ~80% of attendance) and that it can maintain an ~14% market share, which assumes it gives back some of the market share gains; in gaming, Stifel slashes ests and tgt on CZR to $63 from $113 amid fears around the consumer mounting and a balance sheet that many believe is over levered; in ride haling space, BTIG cut LYFT estimates & PT ($60 to $20) with their tracking showing deceleration in 2Q and a growing Gap to UBER which they cut tgt as well; overall leisure and discretionary names outperformed on day – online travel, gaming, cruise (BKNG, WYNN, CCL)



·     Energy stock movers: Gas Prices down for a 34th straight day, the national average is $4.490 per gallon. 35 states have at least one station at $3.99 or less. 2 states (SC, TX) have averages under $4, will be joined by Georgia and maybe Mississippi today, according to industry data. Markets also setting up for weekly inventory data tonight and tomorrow

·     E&P and Majors; HAL gives oil services a boost after Q2 adj EPS $0.49 vs. est. $0.44; Q2 revs $5.1B vs. est. $4.7B and better guidance; APA sees Q2 international adjusted production is forecast to be 105 Mboe/d, compared to guidance of 107 Mboe/d; OXY disclosed that its major shareholder Berkshire Hathaway bought another 1.9M shares of common stock in a total transaction size of $112.1M on July 1; XOM was upgraded to overweight from neutral at Piper saying that the setup for US energy stocks heading into 2Q earnings is looking increasingly attractive; Bank America downgraded PXD, CRC, DEN downgraded to Underperform from Neutral saying the risk/reward for the US oils has been reset by the market’s recognition of inflation and an oil curve that has largely retraced levels prior to the Ukraine crisis and upgraded SWN, CNQ, EOG, COP, OVV to Buy

·     Utilities & Solar; in solar, Piper said within this uncertain economic environment, they are biased toward balance sheet strength, companies with potential for favorable LT earnings revisions, and/or FCF generation (Favs: FSLR, ENPH, SEDG) – but downgrade RUN, NOVA to Neutral from OW as have lower confidence surrounding their levered cash generation trajectory and struggle with catalysts capable of propelling the stocks meaningfully higher within a risk-off environment; upgrade FTCI to Neutral following President Biden’s executive order on solar tariffs/duties



·     Bank movers: JEF said it is spinning off oil-and-gas company Vitesse Energy to shareholders. Vitesse Energy will ultimately be listed on the NYSE. In addition, Jefferies is selling its Idaho Timber business, in two separate transactions, for $239M; in earnings, TFC slight EPS beat as NII & PPNR beat with higher core fees & EOP loan growth, and lower provisions; CFG with EPS beat on higher NII, higher Fee Income, better NIM, and lower provisions & expenses and added $1B to the buyback; MTB board authorized a new $3B repurchase authorization; FBK posts Q2 EPS miss of $0.64 vs. est. $0.78 on a higher provision, lower fees, higher expenses and higher taxes

·     FinTech & Payments; SQ was downgraded from Outperform to Neutral and slash tgt to $64 from $140 saying the longer-term outlook intact but forecasting short-term pressure from consensus EBITDA downgrades

·     Consumer Finance: ALLY shares fell after Q2 EPS of $1.76 missed the $1.86 estimate and was down from $2.03 last year on light revs ($2.08B vs. est. $2.19B) as net income attributable to common shareholders fell nearly 28% to $454M

·     Bitcoin news: Bitcoin added to yesterday gains early moving back above $22K, and Ethereum +5.4% to $1,550 (note coming into today, Bitcoin has lost $774 Billion in Market Cap since its peak on Nov. 8th); in earnings, cryptocurrency bank SI qtrly results surpass expectations at $1.13, up from 80c y/y and topping the $0.84 est. on better revs of $78M saying its network handled $191.3B of U.S. dollar transfers in Q2 2022, a 34% increase from Q1, but down 20% q/q; SBNY beat top and bottom but falls on pre-tax pre provision revs miss, and expenses were up too

·     Financial Services: NCR rises after the WSJ reported it is in exclusive talks to be sold to private-equity firm Veritas Capital, according to people familiar with the matter (notes NCR has a mkt cap of roughly $4B) ; in investment managers, APO and STEP downgraded to equal-weight from overweight at Morgan Stanley, taking a more cautious near-term view on alternative asset managers as see risks of recessions potentially raising concerns around credit quality and balance sheet exposure that could weigh on earnings and limit multiple expansion; in exchanges, Morgan Stanley upgraded CBOE to Overweight from underweight and up tgt to $140 saying its transaction-heavy business model (70% of revenues) offers potential for growth and the greatest chance for upward estimate revisions amongst the exchanges



·     Pharma movers; JNJ posts Q2 EPS and sales beat but cuts year sales view to $93.3B-$94.3B from prior $94.8B-$95.8B saying the stronger dollar impacted results; NVS reported Q2 core EPS beat on lower sales $12.78B vs. est. $12.83B; TAK was upgraded to Outperform at Cowen and raise tgt to $24 from $21 on what they believe is a very well-protected value; ACAD submits new drug application to the U.S. FDA for trofinetide for the treatment of Rett syndrome; APLS announces FDA acceptance and priority review of the NDA for pegcetacoplan for the treatment of geographic atrophy; STIM received FDA clearance for NeuroStar to treat anxious depression; VKTX said FDA lifts hold on metabolic disorder drug study

·     Biotech movers; RARE drops after giving an interim Phase 1/2 update on GTX-102 in the genetic disorder Angelman syndrome as Wedbush noted the absence of drug-induced lower extremity weakness while Truist said that while the efficacy signal was "noisy," the trend from the UK and Canada, in addition to previously reported US data, is an incremental positive; INCY won FDA approval for expanded use of its Opzelura cream for patients 12 years of age and older with a chronic skin condition after a 4-month delay; NVAX signs production deal with SK bioscience for Omicron vaccine; INO said it plans to reduce its full-time workforce by 18% and its contractor workforce by 86% in an effort to extend its cash runway.

·     MedTech Equipment; NVTA slides after the company lowered its revenue guidance for Q2 to about $136M (est. $142M) and said it would be shuffling its management amid a corporate restructuring; IRTC pre-released 2Q volumes "slightly ahead" of expectations and company also announced that CCO Dave Vort is leaving the company effective 7/25, with DXCM’s Chad Patterson stepping into the role


Industrials & Materials

·     Aerospace & Defense; defense stocks weaker after LMT with a top and bottom line miss and lower guidance as Q2 EPS $6.32 missed the $6.39 est. and revs $15.4B short of $16.05B consensus while cuts FY22 EPS view to $21.55 from $26.70 (est. $26.85) on lower revs saying Q2 revenue affected by supply chain impacts (shares of RTX, GD, LHX slip early in sympathy); BA said Private equity firm 777 Partners plans to buy up to 66 more BA 737 MAX jets; BA sold five more 787 Dreamliners to aircraft leasing company AerCap Holdings N.V., its largest buyer for the jet

·     Transports, Industrial, & Machinery; FWRD raises Q2 EPS view to $1.98-$2.10 from $1.59-$1.63 and above consensus $1.66 while sees Q2 revenue approximately $515M, a slight increase above the high end of prior guidance, consensus $500.33M; MRTN 2Q EPS $0.39 vs est. $0.32 on revs $329.6Mm vs est. $286.6Mm

·     Metals & Materials; FM was upgraded to EW at Barclays and HBM to Overweight while reduce valuation multiples across all names, and downgrade FNV to Underweight (remain OW AEM, ERO, GOLD, KGC, and UW FCX) saying copper equities are reflecting better value at these levels; still see headwinds on both macro and fundamental levels, but are becoming less negative; STLD board of directors authorized the company to construct and operate a 650,000-ton low-carbon, recycled aluminum flat rolled mill, with two supporting satellite recycled aluminum slab centers

·     Forest and Timber space: Reuters reported CVC, Kronospan in joint bid for West Fraser Timber (WFG) – WFG has roughly $8.2 bln market cap, per Refinitiv data ; other timber names active: RYAM, CFX(WFG later in the day refuted the Reuters report saying although the Company has previously met with Kronospan, an existing shareholder, and CVC Capital Partners, the Company has not received a proposal and there are no ongoing discussions.

Technology, Media & Telecom

·     Media & Internet; NFLX first to report earnings in the Internet/streaming sector tonight; SHOP partners with GOOGL’s YouTube to scale the creator economy as Shopify merchants can sell full range of products through live streams, videos, store tab; GOOGL said it will from Tuesday cut fees to 12%, from 15%, for non-gaming app developers on its Google Play App Store which switch to rival payment systems, as it moves to comply with new EU tech rules; VMEO slips after June growth has now declined 14 months in a row, from 46% to 11%. Same with subscriber growth, going from 21% to 3%. In that same time frame, ARPU growth has dropped from 19% to 7%; Delaware judge says will rule at 12:25 pm et on TWTR request for september trial over Elon Musk’s $44 bln merger – Delaware judge sets October trial over Musk’s bid to walk away from $44 bln twitter acquisition

·     Semiconductors: Bernstein lowered forecasts from semiconductor equipment names (ASML, AMAT, LRCX) on more conservative memory spend – and lower wafer fab equipment (WFE) model as believe memory and mature-node logic customers will likely cut CAPEX – trim projections for ASML, Tokyo Electron, Applied Materials, and Lam Research; for AMD, Wells Fargo reduced ests/PT to $130 from $140 as think a more cautious stance is warranted

·     Software movers: ASAN downgraded from Sector Perform to Underperform at RBC Capital and cut tgt to $13 from $21 saying company’s software is discretionary and therefore recession-prone; DCT cut to Sector Perform from Outperform at RBC saying SaaS ARR growth has missed expectations for multiple quarters and significantly decelerated and believe competitive positioning has worsened; CRM said last night it will increase prices for its Slack platform, the workplace messaging app’s first price hike since its 2014 launch

·     Hardware, Components & Services; IBM guides weak cash flow which hit shares and mixed quarter as Q2 revenue and EPS exceeded expectations as most of the upside was generated from the company’s Infrastructure/hardware segment (posting 25.4% C/C YoY growth vs. 0.3% in the prior quarter), offsetting growth moderation (ex-KD) in the Software segment (6.7% ex-KD vs. 7.4% last quarter), Red Hat 17% vs. 21%), while Services/Consulting growth was in-line with expectations; VIAV downgraded from Buy to Hold at Needham saying it has a larger than average exposure to increasingly risky conditions in EMEA and Internationally broadly and expectations for Apple iPhone sales are under pressure adding to the risk; ANET upgraded from Hold to Buy at Needham calling it one of the most insulated from macro pressures in the sector, as they see it


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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