Closing Recap

Wednesday, July 26, 2023

Index	Up/Down	%	Last
DJ Industrials	84.16	0.24%	35,522
S&P 500	-0.51	0.01%	4,566
Nasdaq	-17.27	0.12%	14,127
Russell 2000	13.98	0.71%	1,980

 

 

 

 

 

 

 

 

 

U.S. stocks were down most of the morning awaiting results and commentary from the FOMC policy meeting on interest rates. This afternoon, the Federal Reserve boosted rates by a quarter of a percentage point (as expected), marking the 11th hike in the U.S. central bank’s past 12 policy meetings. Market prices stayed stable until Fed Chairman Powell’s at 2:30 PM. His comments on rates, inflation, and outlook eased markets at first, making new highs before stocks did an about face and fell to afternoon lows just as quickly. There wasn’t much new too what the Fed has been saying for weeks and markets saw a little profit taking before a rebound took stocks back to flat. The Dow Jones Industrial Average extended its winning streak to 13 straight days as strength in Boeing (BA) offset weakness in Microsoft (MSFT) after earnings results from each, while Smallcap Russell was big winner. Treasury yields fell after the Fed, as did the US dollar. Communications, Industrials and Financials were biggest advancers while Technology fell the most followed by Utilities which erased morning gains.

 

FOMC Meeting Headlines

·     The Federal Reserve raised interest rates by 25-bps citing still elevated inflation as a rationale for highest U.S. Central bank policy rate in 16 years. The rate hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range, and the accompanying policy statement left the door open to another increase. "The FOMC will continue to assess additional information and its implications for monetary policy," the Fed said in language that was little changed from its June statement and left the Central bank’s policy options open as it searches for a stopping point to the current tightening cycle.

·     In his press conference, Fed Chairman Powell opened his post-meeting press conference by saying the central bank will take a "data-dependent approach" to future rate moves. "The process of getting inflation down to 2% still has a long way to go." Fed’s Powell said they believe monetary policy is restrictive and noted the Fed has 8 weeks to September meeting and looking at all the data until then. He said overall resilience of the economy, fact we’ve achieved disinflation so far without harm to economy, is a good thing. Powell said "can afford to be a little patient" as we watch this unfold. The Fed is no longer forecasting a recession.

 

Economic Data

·     Single-family new home sales for June fell -2.5% to 697K unit annual rate, below consensus 725K and down from May 715K rate; new home supply 7.4 months’ worth at current pace vs May 7.2 months; median sale price $415,400, -4.0% from June 2022 ($432,700).

 

Commodities, Currencies & Treasuries

·     Gold prices rose $6.40 to settle at $1,970.10 an ounce ahead of the FOMC policy decision. Oil prices dropped, snapping a 4-day win streak as U.S. crude oil futures settle at $78.78 per barrel, down -$0.85 or 1.07%, while Brent Crude futures settle at $82.92 per barrel, down 72 cents, 0.86%. The retreat was partly due to profit-taking, but a weekly EIA report was also slightly bearish as it showed another week of relatively low demand for gasoline. Treasury yields tumbled after the Fed meeting/Powell press conference as did the US dollar.

 

 

Macro	Up/Down	Last
WTI Crude	-0.85	78.78
Brent	-0.72	82.92
Gold	6.40	1,970.10
EUR/USD	0.0037	1.1089
JPY/USD	-0.76	140.15
10-Year Note	-0.061	3.85%

 

 

Sector News Breakdown

Consumer

Autos:

·     In auto dealers: LAD reported top and bottom line Q2 beat ($10.91/$8.11B vs. est. $9.26/$7.92B) as New and used unit growth was 22% and (-1%), respectively. MNRO missed Q2 EPS at $0.31 vs. est. $0.37 and revs $326.9M vs. est. $333.3M as Q1 comparable sales increased 0.5%. PAG better Q2 results with EPS $4.41 vs. est. $4.19 and revs $7.47B vs. $7.13B.

·     XPEV shares jump after Volkswagen AG said it plans to invest $700 million in Xpeng Inc. and jointly develop electric vehicles in China as VW fights to halt a sales slide in its most important market. VW will eventually hold a 4.99% stake in Xpeng via a capital increase.

·     In EV charging sector: WSJ reported that BMW, General Motors, Honda Motor, Hyundai Motor, Kia, Mercedes-Benz, and Jeep maker Stellantis — plan to collectively invest at least $1 billion in a joint-venture company that will build out charging stations.

 

Consumer Staples & Restaurants:

·     In Beverages: KO Q2 adj EPS $0.78 tops est. $0.65 and revs $12B above est. $10.56; sees FY adj. Organic rev. +8% to +9%, above prior 7%-8% view and expects full-year core EPS to rise between 5% and 6% vs. prior 4%-5% view; Q2 N.A. unit case volume -1%.

·     In Food: CALM Q4 EPS $2.27 vs. est. $2.15; Q4 revs $688.7M vs. est. $605.4M; cuts dividend to $0.76; said Q4 conventional egg net average selling price per dozen was $2.038 vs. $2.108 y/y and $2.739 for FY23.

Retailers:

·     AMZN slipped early after Politico reported the US Federal Trade Commission is finalizing an antitrust lawsuit against Amazon.

·     Richard Dickson, the President, and COO at toymaker MAT left to take over as GPS’s next chief executive, ending a yearlong search for a new leader.

·     TGT was downgraded from Strong Buy to Market Perform at Raymond James ahead of Target’s F2Q23 earnings slated for August 16^th as believe that QTD sales & traffic trends have remained soft after taking a step down early in the quarter and suggest Target is losing topline momentum.

 

Homebuilders, Building Products, Home Furnishing:

·     For Housing: 3 years ago, the average 30-year mortgage rate was 2.98%, per Charlie Bilello. The median existing home price in the US was $294,000. Currently, the 30-year mortgage rate is 6.78% and the median home price is $410,000.

·     Weekly US Mortgage Bankers Assoc data shows: US mortgage market index -1.8% in week ended July 21, purchase index falls -2.5%, and refinance index falls -0.4% while the average 30-year mortgage rate unchanged at 6.87% in July 21 week.

·     In Builders: TMHC posted F2Q23 EPS of $2.12 versus consensus estimate of $1.67 as total sales of $2.1B was in-line with consensus; Q2 closings were 3% higher versus Wedbush -11% forecast; the additional volumes and pricing produced a 24.2% F2Q23 gross margin.

·     In Roofing/Flooring: OC Q2 EPS $4.22 tops $3.23 estimate on in-line $2.56B revs saying that roofing net sales increased 10% to $1.1B on higher volumes related to storm activity.

 

Energy

·     EQT beat consensus driven by better NGL pricing and operating expenses which were partially offset by lower production; maintained FY23 production and capex guidance, while increasing guidance on ethane recovery.

·     HES posts better than expected Q2 adj EPS and disclosed a new oil discovery in the Gulf of Mexico; said Q2 net income tumbled to $119M, or $0.39/share, from $667M, or $2.15/share, in the year-earlier quarter, including E&P net income of $155M compared with $723M in Q2 2022.

·     MTDR Q2 Production, capex and FCF beat this quarter. 4Q production guidance is unchanged, however, which may be disappointing given the 2% production beat this quarter. D&C capex is guided lower by $90m this year.

·     In Solar: SPWR shares tumbled after lowers FY adj. EBITDA view to $55M-$75M from prior $125M-$155M; Q2 revs $464M missed the $485M estimate; sees Q2 GAAP net loss $30M; Adjusted EBITDA ($3M); Q2 customer growth of 20,400 new customers (shares of FSLR, ARRY, CSIQ, SEDG, ENPH, RUN and other solar names moved in reaction).

 

Financials

Banks, Brokers, Asset Managers:

·     In banks: CMA among leaders in the strong regional sector, but broad-based strength with FHN, KEY, ZION among S&P leaders; WFC announced plans to repurchase as much as $30B of its shares and boosted its dividend.

·     PACW rises as announced a merger with BANC & $400M equity raise from Warburg Pincus & Centerbridge; PacWest holders will receive 0.6569 of a share of BANC stock for each share of PACW common stock, which values PACW at $9.60 per share. https://tinyurl.com/5x4up696 

 

Bitcoin, FinTech, Payments:

·     Visa (V) reported stronger than expected Q3/FY23 results, as weakening US trends continue to be more offset by stronger volume trends in Europe and LatAm as well as robust VAS growth.

·     PYPL shares active after announced MSFT’s integration of PayPal’s Pay Later solution in the U.S., U.K., Australia, Germany, France, Spain, and Italy

 

Insurance & Services:

·     CB reported operating EPS of $4.92 per share, beating consensus of $4.41 with stronger favorable prior-period reserve development ($200 mln vs. $81 mln est.; $0.23 beat), lower catastrophe losses ($400 mln vs. $480 mln est.; $0.15 beat), Record EPS with beat on PPD and cats; strong premium & EPS growth likely to continue.

·     FI raises 2023 organic revenue growth outlook to 9% to 11% and adjusted EPS outlook to $7.40 to $7.50 after Q2 earnings results.

·     In brokers/trading: VIRT reports a 16.2% drop in Q2 revenue to $506.90M from a year earlier as net trading income fell -22.7% to $306.2M and adj EPS $0.37 vs. $0.73 y/y.

 

Healthcare

Biotech & Pharma:

·     ABBV said SKYRIZI® (Risankizumab) achieved superiority versus apremilast for co-primary endpoints among adult patients with moderate plaque psoriasis in phase 4 head-to-head study.

·     MRNA and MRK said they have launched a Phase 3 trial of Moderna’s V940 in combination with Merck’s Keytruda as a treatment for patients with high-risk, or Stage IIB-IV melanoma. The trial is the first Phase 3 study of a planned comprehensive clinical development program being initiated following positive data from a Phase 2 trial that was reported at two cancer conferences.

·     NVO Reuters reported the Medicines and Healthcare products Regulatory Agency (MHRA) said in a statement to Reuters late on Tuesday it was reviewing safety data on a class of drugs known as GLP-1 receptor agonists. This includes Novo’s Ozempic, which contains the active ingredient semaglutide and is approved to treat Type 2 diabetes.

·     TLRY shares bounced in cannabis sector after Q2 results.

 

Healthcare Services & MedTech movers:

·     DGX with Q2 EPS and revenue beat while narrowed guidance outlook for year.

·     UHS shares fell in the hospital sector despite Q2 EPS beat and raised the low end of its FY EPS outlook to $9.85 to $10.50 per share compared with the previous guidance of $9.50 to $10.50 per share.

·     TDOC reported a top- and bottom-line beat driven by solid BetterHelp results, adjusted EBITDA margins of ~11% came in stronger than expected, driven by strong BetterHelp margins (11.7%) and the 3Q outlook came in essentially in line with consensus.

·     TMO posted top and bottom-line miss and cuts FY23 adjusted EPS view to $22.28-$22.72 from $23.70 and lowers FY23 revenue view to $43.4B-$44B from $45.3B, consensus $45.21B.

 

Industrials & Materials

·     In Rails: UNP shares jump as 2q adj. operating ratio 63% vs. est. 60.4%, while EPS and revs were down y/y for the quarter and mixed, but announced CEO to step down, lifting shares. CNI Q2/23 results were slightly below consensus as wildfires and a tough demand environment weighed on volumes and co revised guidance lower amid this backdrop and as expectations for a recovery are pushed out to F2024. GATX downgraded to MP at TD Cowen saying now expects three key metrics to peak late this year: absolute lease rates, secondary market valuations, and earnings.

·     In truckers: ODFL announces a new $3B share repurchase program after slight Q2 EPS beat, while revs fell -15% y/y to $1.41B vs. est. $1.44B as Operating ratio 72.3% vs. 69.5% y/y, and est. 73%. Ryder (R) Q2 revs $2.88B vs. est. $3.03B. Late day, Freight Waves reported YELL senior vice President of sales informed her staff on Wednesday that their last day would be Friday and the less-than-truckload carrier will file bankruptcy on Monday. https://tinyurl.com/2tuk8ava

·     In Infrastructure: DY downgraded from Buy to Neutral at B Riley on weakening visibility near-term for fiber demand and corresponding contractor activity.

·     In the Waste Sector: WM reported 2Q23 adj EBITDA of $1.467B, missing ests around $1.5B amid softer revenue and a 10-bps margin miss (+60 bps y/y); also lowered 2023 adjusted EBITDA guidance by $75M (or ~1%) at the midpoint.

·     In Metals: RIO said profits sank 34% to $3.53 per share in 1H’23 while revs dropped more than 10% to $26.67B; sales from iron ore decreased 11% to $15.6B and aluminum revs sank 18% to $6.26B; and cut its dividend.

·     In packaging and containers: SLGN shares tumbled after revised its estimate of adjusted net income per diluted share for the full year of 2023 from a range of $3.95 to $4.15 to a range of $3.40 to $3.60, following Q2 miss and lower Q3 guide as well.

 

Aerospace & Defense

·     Dow component BA Q2 revs $19.75B vs. est. $18.53B with core EPS loss of (-$0.82) vs. est. loss (-$0.84); Commercial Airplanes revenue $8.84B (better), Defense, Space & Security revenue $6.17B (in-line) and Global Services revenue $4.75B (better); said plans to ramp up production of 737 MAX narrow-body jets to 38 from 31 per month, indicating recovery in supply chain.

·     GD Q2 EPS and revs topped views amid a record backlog and strong cash flow; revenue grew 10.5% to $10.15B vs. est. $0.46B and backlog increased 4.3% to $91.4B, while free cash flow improved to $519M from $435M.

·     RTX downgraded from Overweight to Equal Weight w/ $95 PT (from $110) at Morgan Stanley.

 

Technology

Internet, Media & Telecom

·     In Internet: GOOGL Q2 EPS of $1.44 topped estimates by $0.10 on better revs $74.6B vs. est. $72.82B as Cloud segment revenue in Q2 grows 28% to $8.03B from $6.28B a year earlier; Search and YouTube revenue growth is reaccelerating. Overall, Internet search accelerated, and cloud gained share, while capital expenditures went down.

·     In social media: SNAP shares tumble as forecast Q3 revenue between $1.07B-$1.13B vs. est. $1.13B and said expects Q3 daily active users (DAUs) 405M-406M vs. est. 406.2M; Q3 revenue guidance calls for a 2.5% Y/Y decline in revenue while Snap meaningfully ramps its AI compute investments as the midpoint of 3Q23 EBITDA guidance was -$75M, below consensus of -$1M.

·     In Telecom: AT Q2 adj EPS $0.63 vs. est. $0.60; Q2 revs $29.98 vs. est. $30.01B; Q2 adj EBITDA $11.1B, vs. est. $10.71B; Q2 mobility revenue $20.3B, wireless postpaid net adds +464,000, vs. est. +560,193; Q2 free cash flow $4.28 and still sees FY free cash flow at least $168. DISH shares active after Bloomberg News reported late Tuesday that the company said it will start selling its premium wireless service on AMZN later this week.

 

Hardware & Software movers:

·     MSFT delivered a beat across the board for Q2 highlighted by an Azure cloud beat and strong enterprise deal flow that remains rock solid. Wedbush said the AI commentary was bullish as the MSFT currently has 11k enterprises on Azure OpenAI Service.

·     CHKP reported a higher-than-expected Q2 profit and said it was stepping up the use of artificial intelligence (AI) to protect against a growing number of AI-related cyber-attacks.

·     PRO reported solid 2Q revs and an EBITDA beat on strength in B2B and higher services GM; highlighted increased momentum in B2B w/strength in new logos/improvements in sales cycle.

·     TENB reported Q2 results of $195mn and $0.22 compared to Street expectations for $190mn and $0.13 as a key positive metric was calculated current billings (CCB) of 200.2M, up 15% YoY and raised its outlook for FY23 to $783-791mn from $775-785mn previously.

 

Semiconductors:

·     TXN posted strong 2Q results and guided 3Q lower. 2Q results reflect weakness across all end-market segments except for auto, and likely limited signs of a recovery in China. 3Q revenue is expected to be flat q/q, below consensus and normal seasonality of +6% q/q. 2Q GM of 64.2% was below consensus of 64.4%

·     SIMO surged initially after earlier reports that China approved MXL’s plan to acquire the company, with conditions attached https://tinyurl.com/42sch72e . But later, the company released a press release saying the deal was terminated. MaxLinear, Inc. (MXL) said that it has exercised its contractual rights to terminate its May 5, 2022 merger agreement with Silicon Motion (SIMO). https://tinyurl.com/4cfa582b . The report reversed moves in SIMO and MXL.

·     SLAB Q2 revs mostly in-line with consensus but guides Q3 PES $0.45-$0.73 on revs $190M-$210M, well below consensus $1.08/$253.3M, citing weak demand and excess inventory among its home-and-life unit’s customers.

·     TSEM topped second-quarter revenue estimates on the back of solid demand from the automotive industry.