Market Review: July 27, 2023

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Closing Recap

Thursday, July 27, 2023





DJ Industrials




S&P 500








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U.S stock markets closed sharply lower in a major reversal off fresh 52-week highs! U.S. stocks were cruising along this morning, on track for solid gains following another round of better economic data and upbeat earnings reports from some big cap movers (META, CMCSA, LRCX), but the rally stalled following action in Treasury and currency markets early afternoon. The S&P 500 (SPX) topped the 4,600 level, but failed to hold above, turning negative midday while the Dow Jones Industrial Average snapped its 13-day win streak after Treasury yields spiked on a weak auction and upbeat data. The dollar reacted after the Nikkei reported that the Bank of Japan will discuss allowing long-term interest rates to rise above its 0.5% cap by a certain degree on Friday, when it concludes a two-day rate review. The benchmark 10-year yield topped 4% this afternoon in a massive move higher for yields. Stock strength was sapped amid the elevated yields and sharp moves in currency markets. The European Central Bank raised its key rate by a quarter-point to 3.75%, as expected, following the Fed’s 25-bps hike yesterday, but the Bank of Japan meeting tomorrow now holding some interest for broader averages. Interest rate sensitive sectors such as REITs and Utilities were among the biggest drags in the S&P along with profit taking in high growth technology sectors after leading early. Transports (behind airline weakness) and Smallcaps (led mkts higher Wednesday), were among biggest decliners. Economic data very strong this morning as Q2 GDP rose at a 2.4% annual rate, picking up from Q1’s 2% pace and defying views for a slowdown to 1.5%. Consumer spending slowed to a 1.6% annualized rate from 4.2% in Q1. June durable goods orders surged 4.7% in June, crushing views for a 0.5% gain, after May’s upwardly revised 2% advance. Jobless claims fell 7,000 to 221,00 vs. views for a gain to 235,000.



·     Oil climbed by over 1% on Thursday, with WTI crude settling at $80.09/bbl, up $1.31, or 1.66% recouping losses from the previous session, supported by supply tightness owing to OPEC+ production cuts and renewed optimism on the outlook for Chinese demand and global growth. WTI crude settled above the $80 level for the first time since April 19th and is now higher by 25% since its 2023 low of $63.64 per barrel, which was observed back on May 4th. Gold prices stumbled on Thursday, sliding -$24.40 to settle at $1,945.70 an ounce as a strengthening dollar and rising Treasury yields weighed on the precious metal.


Currencies & Treasuries

·     Shake-up in currency markets after The Nikkei reported the Bank of Japan (BoJ) will discuss tweaking its yield curve control policy at its meeting tonight. The proposed change would keep the rate ceiling but allow for moderate rises beyond that level. Under the more flexible policy being considered BOJ would permit gradual increases above 0.5% threshold, but still clamp down on any sudden spikes. Even with a more flexible yield curve control risk remains of rates rising more than BOJ intends, forcing it to step in with big JGB purchases. The USD/JPY fell below 139.20 from 140.70 before the story hit. The euro at 2-week lows down nearly 1% below 1.098.

·     Treasury markets fell as yields jumped across the curve today. Non-stop push higher early as the 10-year yield hit 3.95% and 2-yr 4.94% following a round of strong economic data, raising the possibility the Fed may not be done raising rates to cool a very strong US economy. Yields took another leg higher, with the 10-yr rising as high as 4.02% (up 16-bps) after a softer bond auction. The U.S. Treasury sold $35 bln in 7-year notes at high yield 4.087% vs. 4.074% when issued prior (1.3bps tail) with bid-to-cover ratio 2.48 vs. 2.65 prior auction, as primary dealers take 14.34% of U.S. 7-year notes sale, direct 15.91% and indirect 69.75%.


Economic Data

·     Weekly Jobless Claims fell to 221K from 228 prior week and below ests 235K; the 4-week moving average fell to 233,750 from 237,500 prior week; Continued Claims fell to 1.690M from 1.749M prior week (and est. 1.75M) and insured unemployment rate fell to 1.1% from 1.2% prior.

·     GDP for Q2 rises +2.4% vs. +1.5% expected and +2.0% in Q1; the PCE Price index reported at +2.6% vs. +4.1% in Q1 and core PCE price index +3.8% vs. +4.0% expected and +4.9% in Q1. The personal consumption expenditures (PCE) +1.6% vs. +1.5% expected and +4.2% prior.

·     June Retail Inventories (Advance) rises +0.7% to $783.9B vs. +0.8% prior and on a Y/Y basis, retail inventories rose 5.4% in June; Wholesale Inventories (Advance) for June fell (-0.3%) M/M to $908B vs. +0.1% consensus and -0.1% prior.

·     International Trade in Goods (Advance) for June declined (-4.4%) to $87.8B vs. -$91.8B consensus and -$91.9B in May.

·     June Pending Home sales index rose +0.3% vs. est. (-0.5%); sales (-15.6%) from June 2022.






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10-Year Note





Sector News Breakdown


Retail, Consumer Staples & Restaurants:

·     In Food: HSY shares slipped after results; said high costs for ingredients like cocoa and sugar may result in further price hikes for Hershey; Q2 EPS topped ests, but revs fell short if views; also raised dividend and boosted year profit view.

·     In restaurants: CMG shares fell as Q2 EPS beat but sales shy of consensus and comp sales in-line to slight miss at 7.4% but Q3 outlook implies downside to Street numbers as comp-sales growth is projected to moderate to the LSD-MSD range. Dow component MCD Q2 adj eps $3.17, tops the est. $2.78 on better revs $6.50B (est. $6.27B) as US comp sales +10.3% vs. est. +9.1%

·     In Beverages: BUD laid off hundreds of workers at its U.S. offices after months of slumping sales at Bud Light/said the cuts would affect less than 2% of its roughly 18,000 U.S. workforce; KDP Q2 EPS and sales top views and reaffirmed its EPS growth view but upped its sales outlook to 5%-6%.

·     In Beauty: EL downgraded to Hold at Jefferies citing growing concerns around the recovery of EL’s key drivers (China/TR and skincare) lead them to lower est. to 10%/5% below cons. in FY24/FY25. COTY also downgraded to Hold at Jefferies saying with shares +45% YTD, JEFF sees risk/reward more balanced around: premium fragrance (55% of mix) slowing, headline risk remains around key licenses Gucci), and skincare catalyst will be challenged. LRLCY said first-half sales rose and reported a higher net profit as it confirmed its guidance.

·     In Retail: CROX shares slide as posted beat for Q2 profit and sales, and raised FY outlook for both, though guided Q3 revs $1.01B-$1.03B below est. $1.06B and showed lower growth views for its “Heydude” footwear; in online retail: OSTK jumps after Q2 results topped consensus and CEO said the acquisition of the Bed Bath & Beyond brand is the beginning of a new phase of growth for them. Toy maker MAT jumps on results. COST snaps its 13-day win streak.


Leisure, Gaming & Lodging:

·     In casinos and gaming: CHDN reported EBITDA of $364M for the quarter, below consensus by 3% while increased same-store revenue and EBITDA 2% and 3%, respectively, while 1H23 EBITDA was up 7% (same-store).

·     In cruise lines: RCL rises after upbeat guidance; sees FY adj EPS $6.00-$6.20, saw $4.40-$4.80; strong guidance lifted shares of CCL, NCLH

·     Events/Leisure: EB upgraded to Overweight at Keybanc citing 20%+ growth, a path to 20% margins, and no major competitive threats; IMAX 2Q23 results better than consensus expectations across Revenue and Adjusted EBITDA; revs driven by solid IMAX box office performance (+8% YoY to $268M).



·     E&P CVE reported a 64% fall in Q2, missing ests and lowered its 2023 upstream production outlook to between 775,000 barrels of oil equivalent per day (boepd) and 795,000 boepd, from its earlier forecast of 790,000 boepd and 810,000 boepd as wildfires in Canada’s main oil producing province Alberta forced companies to curtail output.

·     A handful of other earnings with VLO reporting Q2 profit decline of 60% as refining margins fell to $4.22 bln from $8.09 bln a year earlier; in coal, ARCH and BTU shares fell after earnings results. In pipelines, ETRN shares rose after the U.S. Supreme Court overturned a lower-court ruling saying work can continue the long-stalled Mountain Valley Pipeline, and potentially moving the project closer to completion.

·     Utility stocks were among the biggest decliners in the S&P, hurt both by rising Treasury yields (making dividend paying sectors such as Utes less attractive) and after mixed to disappointing earnings/revenue results from AEP, CMS, CNP, XEL today.

·     In Solar & Renewables: NOVA 2Q revenue of $166.4M was below our estimate of $192.7M, while adjusted EBITDA of $28.1M came in below B Riley $46.3M while raised its 2023 customer additions guidance by 10,000 customers for the second straight quarter. TPIC downgraded by several analysts (BTIG, Hallum, Roth) as preannounced 2Q23 results with an expected 2Q23 Adjusted EBITDA loss of $36-41M which was well below consensus of +$8M.



·     Large cap banks dipped initially (C, JPM, WFC, BAC, PNC) after U.S. bank regulators unveil proposal to raise bank capital requirements as proposal would implement international Basel agreement on risk-based capital standards and apply stricter rules to banks with over $100 bln in assets. The proposal would require all banks with over $100 bln in assets to account for unrealized gains and losses on available-for-sale securities.

·     In Brokers: RJF reported F3Q23 adjusted EPS of $1.85, falling short of consensus at $2.16; LAZ reported Q2 EPS and revenue beat; VIRT was downgraded to Neutral from OW after results at JP Morgan

·     In Services: WU reported a sizeable revenue driven beat and raised full year revenue and EPS outlook lifting shares.

·     In Insurance: GSHD Q2 operating EPS of $0.31 beat consensus of $0.28 driven by higher-than-expected renewal commissions for the corporate channel, lower-than-projected general and administrative expenses, and higher renewal royalty fees.

·     In Lending: TREE sees Q3 revenue $155M-$170M below consensus $195.72M, which follows Q2 rev miss of $182.5M vs. est. $193.6M.

·     In Payments: MA posts Q2 EPS and rev beat but shares pulled back on conservative outlook.



Biotech & Pharma:

·     ABBV raises FY adj EPS $10.90 to $11.10, saw $10.57 to $10.97.

·     BHVN tumbles after saying was informed by the FDA they would not review NDA for troriluzole because primary endpoint was not met; co provides preliminary EEG data update for kv7 platform, regulatory update on troriluzole and other corporate updates.

·     BMY lowered the year’s EPS to $7.35-$7.65, from the prior $7.95-$8.25 after missing both top and bottom-line results for Q2.

·     LLY said participants after 12 weeks of intensive lifestyle intervention, achieved an additional 21.1% mean weight loss with Tirzepatide for a total mean weight loss of 26.6% from study entry over 84 weeks.

·     MRSN tumbles after the co announced a broad restructuring following the failure of its lead product candidate in a late-stage study; said study of upifitamab rilsodotin missed its primary endpoint in patients with platinum-resistant ovarian cancer.

·     URGN shares jumped after saying its experimental drug, UGN-102, met the main goals in two late-stage trials. Drug was being studied as a treatment for LG-IR-NMIBC, or low-grade, intermediate-risk non-muscle invasive bladder cancer.

·     VKTX key programs remain on track with initial results from the Phase 1 healthy volunteer study for oral GLP1/GIP dual receptor agonist (RA) VK2735 expected in 4Q23, and topline histology results from the Phase 2b VOYAGE study for THRβ-RA VK2809 in Nash expected in 1H24.


Healthcare Services & MedTech movers:

·     In MedTech: EW reports beat and small raise, on lower end of profit guide, but Q2 TAVR sales grew 9%; constant currency sales grew 10%.

·     In Medical Equipment: ALGN rises as Q2 EPS $2.22 tops $2.03 on better revs and better margin guidance; BIO and QGEN agreed to settle their patent dispute pending in the U.S. District Court of Delaware pursuant to a global settlement and patent cross-licensing agreement relating to digital PCR technology.

·     In Pharma retail: EYE shares fell after the optical retailer said that its contract with WMT won’t be renewed after it ends in February.

·     In Hospitals: HCA reports higher Q2 revs $15.86B, +7% y/y and above ests and raised both profit and sales forecast for the year.


Industrials & Materials


·        CARR raises FY EPS and revenue outlook.

·        ENVX said produced 22.5k units in 2Q23 compared to 12.5k units in 1Q; guided to 36k units in 3Q and said has sampled 121 customers as of 2Q23, +14% from 106 customers in 1Q23 and +55% from 4Q22.

·        HON dips as Q2 profit topped estimates but revs grew 2.2% to $91.5B missing $91.8B estimate as continued strength in aerospace was offset by weakness in safety and productivity.

·        MMM slipped after 22 states and U.S. territories moved to block a proposed $10.3 billion settlement that would resolve claims against 3M Co over water pollution.

·        WAB reports Q2 beat and lifts outlook.

·        In precious metals: gold prices drop over -1% as markets rotate further into riskier assets; while the dollar rises on better economic data; silver down as well – NEM, AEM, GOLD, AUY slipped.



·     In trucking/freight: YELL shares extend yesterday tumble after the Wall Street Journal reported trucking firm preparing to file for bankruptcy as soon as this week, though no decision has been made, Bank America raised price tgts on non-union LTLs XPO, SAIA, ODFL saying they will see near-term benefit from YELL and given the backdrop of accelerating shipper diversions, as it continues to see carriers offering premium service.

·     In airlines: LUV reports Q2 $1.09 vs. est. $1.10 on slightly better revs; said is revamping its 2024 flight schedules to reflect post-pandemic changes to Customer travel patterns; downgraded to Neutral from Buy at Bank America after results.

·     HTZ slides after Q2 revenue fell short of estimates, while EPS of 72c beat the 64c est.


Aerospace & Defense

·     BA upgraded from Neutral to Buy at Bank America and raised tgt to $300 from $225 saying it appears as though the worst may behind the plane maker.

·     NOC and LHX both lagged broader markets after quarterly results.

·     RTX was downgraded from Buy to Neutral at Bank America and cut tgt to $95 on account of amplified headwinds on the GTF program and a slower margin ramp at Raytheon.

·     TXT approves new buyback authorization of up to 35m shares while raises FY EPS to $5.20-$5.30 from prior $5.00-$5.20 after Q2 adj EPS and revenue beat.



Internet, Media & Telecom

·     In social media: META reported strong Q2 results as engagement accelerated, revenue came in 3% above consensus, and EBITDA was 13% ahead of consensus while Q3 revenue guidance calls for 20% growth at the midpoint.

·     In Cable: CMCSA EPS $1.13 tops est. 97c and revs $30.51B beats $310.1B est. noting Peacock streaming rev rose 84.7% and paid subscribers rose by 2 mln sequentially, to 24 mln; better media and theme park revs.

·     In Internet: EBAY beat consensus on the top and bottom line for Q2 while guidance for GMV and revenue were both slightly above expectations for 3Q and full-year, but margins were lower.


Hardware & Software movers:

·     In Software: NOW reported 2Q cRPO growth of ~24% cc above guide of 22.5%, 3Q cRPO guide of 21.5% was slightly below some estimates, but TD Cowen said sees as continued conservatism as 2Q KPIs were clean & mgmt. called out strong demand trends across geos/verticals/products.

·     In Comm Services: IRDM upgraded to OW from EW at Barclays after reset following earnings as now sees an attractive risk/reward.



·     Strong day in semiconductor space (SOX): 1) LRCX lifting equipment names early (AMAT ) after reported Jun Q results & Sep Q guidance above consensus; 2) STM posted higher Q2 sales helped by automotive demand; 3) and Aixtron raised its annual outlook on solid Q2 results.

·     LRCX reported Jun Q results & Sep Q guidance above consensus as strength from China (lagging edge) & HBM (for Gen AI) is helping drive a C2H23 WFE profile better than C1H.

·     Aixtron raised outlook as now sees full year revenues in the range of 600-660 million euros ($666 million-$732 million) and order intake between 620-700 million euros.

·     MXL delivered disappointing 2Q results and guidance following a tumultuous day for shares after initial reports the SIMO deal received SAMR approval only later to announce the transaction was terminated.

·     MBLY beat analyst estimates for Q2 (on a y/y basis, earnings fell 20% while sales declined 1%) and raised op income range to $600M-$631M from $548M-$577M and reit sales view.

·     PI shares slide as guides Q3 EPS loss to (12c)-(6c) vs. est. +$0.38 and revs $63M-$66M, below consensus $88.11M.

·     STX Q4 EPS loss (-$0.18) vs. est. loss (-$0.25); Q2 revs $1.6B vs. est. $1.68B; sees Q1 revs $1.55B, plus/minus $150M vs. est. $1.74B and EPS loss (-$0.16) plus/minus -$0.20 vs. est. $0.07.


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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