Market Review: July 21, 2023

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Closing Recap

Friday, July 21, 2023





DJ Industrials




S&P 500








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U.S. stocks slipped late day, but closed out the week with gains for most major averages as investors await the barrage of earnings (near 1/3 of the SPX reports next week) and central bank meetings. With today’s late day action, the Dow Jones Industrial Average managed to extend its winning streak to 10-days, its longest streak since August 2017. Meanwhile a day after sharp selling in Technology and Consumer Discretionary sectors on NFLX, TSLA, TSM results/guidance, there was a further rotation into defensive sectors today with Utilities, Healthcare, Staples, and lagging Energy on Friday into a big week coming up (FOMC, ECB, BOJ policy meetings). The FOMC is all but certain to hike by 25 basis points at the July 25-26 meeting (Wed.), but the big question is whether this will mark the last hike in this tightening cycle. Meanwhile Stansberry Research noted "The Nasdaq 100 will see an out-of-cycle rebalancing, aimed at reducing the influence of Big Tech stocks and boosting the weight of smaller stocks. JPMorgan Chase analyst Min Moon estimates there will be $60 billion in two-way transactions. The changes are set to take place on Monday and coincide with a flood of expiring options today. The communications sector was the biggest S&P drag on Friday along with Industrials and Financials.


Commodities, Currencies & Treasuries

·     U.S. crude oil futures settle at $77.07/bbl, up $1.42, 1.88% and posted a weekly advance of 2.3% while Brent Crude futures settle at $81.07/bbl, up $1.43, 1.8%. WTI has risen nearly 10% over the past month, as output cuts start to make an impact and counterbalance concern that the sluggish recovery in China will cap demand. Markets have also scaled back tightening expectations for the U.S. and Europe, which has helped to support global growth forecasts. Gold prices fell -$4.30 to settle at $1,966.60 an ounce but managed a tiny gain on the week. Natural gas prices fell by 1.6% to $2.71 per million British thermal units, for a weekly rise of about 6.9%.

·     After posting losses of around 3% last week, the US dollar rebounded with modest gains as at least some market participants seem to believe that the biggest dollar selloff so far this year witnessed last week was overdone. The US labor market remains strong, reducing the risk of a severe recession while markets are widely expected to see a 25bps move next week from the Fed, which could prove to be the last rate hike in the current cycle.

·     Treasury yields slipped as the market corrected after Thursday’s jobless claims data pressed bonds lower. Busy week coming up for bonds with the FOMC meeting as well as $120B supply with 2, 5, and 7-year auctions. Rates are slightly higher on the week.






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10-Year Note





Sector News Breakdown



·     In auto Retail: AN posted better-than-expected Q2 earnings as demand for new vehicles and aftermarket services offset the impact of a decline in used-vehicle sales; Q2 revs rose to $6.890 billion from $6.869 billion a year ago, ahead of the $6.779 billion consensus.

·     In Auto suppliers: ALV Q2 adj EPS $1.93 vs. est. $1.43; Q2 revs $2.64B vs. est. $2.54B; said Q2 profitability improved substantially, positively impacted by price increases, organic growth, and our cost reduction activities; backs FY23 view.

·     In Motorcycles: HOG was upgraded to Buy from Neutral with $47 tgt at Davidson after its most recent checks revealed better than feared 2Q23 U.S. retail, strong progress with MY22 inventory clearance and positive dealer feedback on new product introductions.


Leisure, Gaming & Lodging:

·     In Casinos and Gaming: DKNG tgt raised to $29 at Barclay’s saying they prefer CZR, WYNN, MGM into earnings as sees upside to consensus on Digital, moderate upside on Las Vegas, and a softer 2Q for U.S. regionals (although with lower expectations).

·     In theme parks: Truist lowered estimates and tgts for FUN, SEAS, SIX ahead of 2Q earnings season to reflect softening June/July trends. The firm said weather/environmental factors have likely played a role, which will undoubtedly be cited by management teams in coming weeks; however, this will only amplify concerns around demand/pricing during the critical summer visitation window.



·     In Oil Services: SLB revs rose 20% y/y to $8.1B but missed the estimate of $8.22B as noted they continue to see positive upstream investment momentum in the international and offshore markets but added North America (NA) activity was moderating. Baker Hughes (BKR) US total rig count 669; oil rig count down 7 to 530 and gas rig count down 2 to 131.

·     In Solar: NOVA was downgraded to Market Perform at BMO Capital and lower tgt to $25 after recent outperformance noting the co has been BMO’s preferred idea among residential solar installers and has significantly less exposure than peers to CA NEM 3.0. TD Cowen lowers tgt for ENPH to $313 from $317, SPWR to $11 from $15, and SUNL to $0.75 from $1 saying coming away from recent channel checks and attending InterSolar Europe in mid-June, remains cautious on the demand fundamentals near term for residential solar and see risk to 2024 consensus estimates for ENPH, SEDG, and SPWR.

·     In Utilities: sector was the best performer of the day, with defensive assets jumping (SO, NEE, AES, CMS, DUK among leaders); ED was upgraded to Buy at Bank America as the New York State Department of Public Service (DPS) approved the Joint Proposal (JP) settlement for the electric and gas rate cases of the Con Edison Company of New York (CECONY) at its July 20 open meeting. Mizuho trimmed tgts for ALE, AVA, BKH, IDA, and NWE to reflect current market multiples and headwinds.



Banks, Brokers, Asset Managers:

·     In Banks: ASB beat expectations on fees and expenses but missed NII and credit costs. CMA Q2 EPS $2.01 tops $1,.86 est. and $1.92 y/y as Q2 net interest income (NII) of $621M above $561M y/y but sees a -4% drop in net interest income in Q3 with average loans about flat and average deposits down 1% to 2%. HBAN Q2 EPS $0.35 tops $0.34 est. as net interest income of $1.35B, up 7% y/y. OZK Q2 EPS $1.47 vs. est. $1.43 as fees were better and expenses came in lower. RF Q2 EPS $0.59 was in-line w/ests, set aside $118M in provision for credit losses vs. $60M y/y; NII rose about 25% to $1.38B.


Bitcoin, FinTech, Payments:

·     In consumer finance: AXP shares slide as Q2 revs miss at $15.05B vs. est. $15.36B while EPS $2.89 tops est. $2.81; said Q2 provision for credit losses $1.20B vs. est. $1.12B and guides FY eps $11.00-$11.40, vs. est. $11.06 and still sees FY revs +15% to +17%. DFS was downgraded from Overweight to Neutral at Piper after DFS unveiled a "misclassification" issue with the fees charged to merchants dating back to 2007 and subsequently took a $365M charge in 2Q23.

·     In Payments: GPN named favorite into earnings in payments at Bernstein and said V feel like safe places going into earnings. The firm also said SQ is also interesting saying they like the setup in 2H as the seller business has much easier comps and FX will be a tailwind. Said remains on the sidelines for PYPL and expects FI with a largely in-line quarter.



Biotech & Pharma:

·     EBS said it got FDA approval for its anthrax vaccine. Cowen analyst notes that the approval is an incremental positive as it was largely expected.

·     MRTX shares fell as the European Medicines Agency’s panel declined to back authorization for co’s drug to treat a type of lung cancer as it did not fulfill the requirements for conditional support.

·     RDHL shares slid after entering into definitive agreements with institutional investors for the purchase and sale of 1.3M shares at $1.35 per ADS in a registered direct offering.


Healthcare Services & MedTech movers:

·     In medical services: ISRG reported Q2 revenue in line with estimates, Da Vinci placements above expectations, concerns around slowing bariatric growth drive weakness in stock after hours. Q2 revenue $1.76B vs $1.74B est. Da Vinci Surgical System installed base 8,042 systems, +13% y/y, estimate 8,032. Worldwide procedure growth +22% vs est. +18.2%. Increases operating expenses 12-15% from prior 11-15% y/y. Increases operating expenses 12-15% from prior 11-15% y/y

·     In Life Sciences & Medical Equipment: BIO board approves new share buyback program for as much as $500M. Sartorius drives U.S. peers TMO, DHR, RVTY higher after Q2 2023 results; the German life sciences company posted its Q2 2023 results, indicating a gradual recovery following a post-pandemic contraction in demand.


Industrials & Materials


·     In trucking: KNX slashed its full-year profit outlook and reported Q2 results that missed estimates; Q2 adj EPS $0.49 vs. est. $0.57; Q2 revs fell -20.8% y/y to $1.6B, in-line with consensus $1.6B; cuts FY23 adjusted EPS view to $2.10-$2.30 from $3.35-$3.55 (downgraded at Evercore).

·     In Rails: CSX Q2 revs fell -3% y/y to $3.7B vs est. $3.735B; said the decline in revenue was primarily due to lower fuel recovery, pricing declines in export coal and lower intermodal volume.


Materials, Metals & Mining

·     In Chemicals: KKR confirmed reports from yesterday, saying it will buy CCF in an all-cash deal valued at about $1.3 billion including debt, with holders getting $127.50 apiece. PPG reported 2Q23 EPS of $2.25, compared to the consensus estimate of $2.13.

·     In Industrials: ENVX was downgraded at TDCowen to Market Perform from Outperform owing to valuation, with the stock up 74% YTD and 61% in just the last 18 trading days.

·     In lithium: shares of ALB, LTHM weak; China’s first-ever lithium futures market got off to a rocky start in the first day of trading, as sentiment is weighed by an anticipated surplus for lithium products in 2024, Bloomberg reported Friday. Lithium carbonate on the Guangzhou Futures Exchange fell below the base settlement price of 246K yuan/ton (~$34,263) on Friday, with contracts for January delivery tumbling to as low as 215K yuan before paring losses to trade ~11% lower, and contracts for February to July fell by the 14% first-day limit.



Internet, Media & Telecom

·     In Media: SIRI was downgraded by three analysts (Pivotal, Evercore/ISI, and Deutsche Bank) following a massive (+115% since 6/21) run in SIRI stock, which over the last month has been fueled by a low liquidity rally in many of the most shorted names on Wall Street and further fueled this week by SIRI’s reweighting in the Nasdaq 100. DWAC shares jumped after settling charges of fraud with the U.S. SEC related to "material misrepresentations" made to investors; to pay an $18M penalty if closes a merger transaction. In cable sector, Wells Fargo previews saying they prefers CHTR on a H2 accel, whereas CMCSA may face H2 pressure (NBCU), and is negative on CABO (competition) and avoiding ATUS. DIS ESPN has held preliminary talks with the NFL and NBA about partnerships and investment structures, CNBC reported midday.

·     In Advertising: IPG shares stumbled after lowering its FY organic revenue growth to 1%-2% from prior range of 2%-4% growth; Q2 revs fell -2.5% y/y to $2.7B but topped ests. The results and guidance follow weaker results from OMC this week in ad space.

·     In Data Center REITs: EQIX downgraded to Equal Weight at Wells Fargo saying k data center stock upside is limited into earnings after outperformance YTD and valuations on an interest rate-adjusted basis near all-time highs. Wells is downgrading EQIX to Equal Weight due to valuation, although prefer it to DLR into Q2.


Hardware & Software movers:

·     In software: Citigroup previews application software saying WK, INST (named on positive Catalyst Watch), MNDY and PAYC are their top 4 picks into Q2, saying sees a relatively strong C2Q with most upside likely coming from PAYC and MNDY. Said channel checks noted some stabilization in the deal environment with mid-market relatively stronger than enterprise. Keybanc raised tgt prices for ANET from $172 to $206, APPN to $63 from $50, FIVN from $81 to $104, GLOB to $230 from $201, and RNG to $54 from $45 in the sector.


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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