Closing Recap

Monday, July 25, 2022

Equity Market Recap

·     The NASDAQ finished off the lows but generally softer, while the S&P was flattish off a strong last week. A combination of recession fear, an uninspiring start to corporate earnings and weak economic data depressed growth names, in particular, and generally kept a lid on any continuation of last week’s strength. The Russell 1000 Growth index finished the day roughly -0.7%, but the Value index managed to finish in the green by about +0.3%

·     From an earnings perspective, as Gordon Johnson highlighted this morning, “Interestingly, with 21% of companies included having reported, S&P 500 earnings are down -0.2% year-over-year (& -6.0% quarter-over-quarter), or on pace for the 1st negative year-over-year growth rate seen since 4Q20.” This week will be meaningful to determining how the season plays out, but expectations have been coming down after recent misses in the early reports.

·     Sector-wise, Energy (XLE +3.4%) led the pack on the back of an up day in both oil and gas, while Utilities (XLU +1.2%) and Financials (+0.5%) also paced advancers. On the downside, Communications (XLC -0.5%), Technology (XLK -0.7%) and Consumer Staples (-0.9%) led decliners in the fear trade.

Economic Data:

·     Chicago National Activity Index Actual -0.19 (Forecast 0, Previous 0.01). Today marked the first back-to-back negative readings since April of 2020.

·     Dallas Fed Mfg. Bus. Index Actual -22.6 (Forecast -22, Previous -17.70). Today’s print was the lowest since May of 2020.

Commodities

·     August gold slipped $8.30 an ounce, or -0.52%, to settle at $1,719.10 after back-to-back gains in prior sessions. Many questions remain ahead of the next Fed meeting but Standard Chartered, for one, believes the gold market is already pricing in a +75bps hike and could see a relief rally unless the Fed surprises with +100bps. Silver also faded but finished off the low, settling -$0.289 an ounce, or -1.55%, to $18.328.

·     NYMEX WTI crude September futures gained $2.00, or 2.11%, to settle at $96.70 a barrel, while Brent crude settled at $105.15, +1.95, or 1.89%.

·     NYMEX natural gas August futures gained $0.43 per MMBtu, or 5.2%, to settle at $8.7270/MMBtu as above-normal temperatures across much of the US pushed demand for power generation. Ongoing concern and uncertainty around Russian gas supply also continued to support prices globally.

Currencies & Treasuries

·     The Dollar continued to see some pressure, with the DXY slipping a bit to about $106.50, but finishing off the low levels of the day.

·     US long Treasury yields gained, with the 30-year climbing about 7bps (back above 3%) and the 20-year gaining about 6bps to 3.28%.

·     The 2’s/10’s inversion widened a bit to about -20bps on the day.

·     Of note, the implied Fed Fund rate for December continues to hover around 3.40%, while the March 2023 level stands at 3.34% and July 2023 stands at 3.07%.

Top Stock Headlines

·     In MedTech, PHG slides after posted a bigger-than-expected drop in Q2 core earnings saying supply shortages and lockdowns in China had dented sales; cut its estimate for full-year sales growth to between 1% and 3%, from 3% to 5%, while forecasting 2H growth of 6% to 9% on a strong order backlog.

·     In Materials, miners: MP to replace SAFM in S&P 400 at open on 7/27; in mining, goldminer NEM reports mixed quarterly results, sliding more than 10% on the day.

·     In leisure; WWE reported late Friday that CEO Vince McMahon retires.

·     In Semi’s; Barclays downgraded LRCX to Equal Weight from Overweight saying they are not buyers of the recent bounce and think Semis are still in for a substantial reset (more Tech Bubble than Financial Crisis).

·     In biotech; gene editing stocks CRSP, NTLA, EDIT active after a study said the CRISPR gene editing may cause permanent damage after researchers at Tel Aviv University said they can damage the genome and might trigger cancer.

·     In financials, TRV enjoyed a lift after RAJA upgraded from Market Perform to Strong Buy with a $185 pt, saying the stock could be positioned to continue its relative outperformance.

·     In industrials, MTZ’s acquisition announcement and uninspiring guidance weighed on the shares, also pressuring DYslipped early but recovered by mid-day.