Closing Recap

Thursday, July 28, 2022

Equity Market Recap

·     After a brief decline this morning, U.S. stocks recovered with the S&P 500 bouncing off the 4,000 level to end near its highs ahead of important earnings reports from Apple, Amazon, and Intel tonight after the close. Stocks started the day on a down note after quarterly GDP contracted for a 2nd straight quarter (down -0.9% vs. expected rise), raising recession fears, but stocks began to climb on hopes the Fed will loosen their aggressive rate hike cycle after yesterday’s 75-bps hike. Stocks were broadly higher this afternoon with only communication services falling behind weak CMCSA and META outlooks/results this morning. Gold prices rose after the dollar and Treasury yields decline. For rate hikes, the Implied rate of 3.40 at Dec but 3.36 by Mar23 and 3.10 for Jul23. Solar, electric vehicles (EVs), alternative energy and other “green” related names rise after Senator Manchin (D-WV) announced an agreement with Schumer for a Healthcare + Energy tax credit reconciliation bill now called Inflation Reduction Act of 2022. The legislation will be worth ~$750B. All eyes on earnings after the bell, with stocks extending yesterday gains.

Economic Data:

·     Gross Domestic Product (GDP) contracted for the second straight quarter from April to June, hitting a widely accepted rule of thumb for a recession (2 straight quarters of contraction). GDP fell 0.9% for the period, following a -1.6% decline in Q1 and was well below the expected gain of +0.3%. GDP Price Index (2Q A) 8.7% vs 8% expected, Core PCE QoQ 4.4% vs 4.4% expected

·     Weekly Jobless Claims fell to 256,000 in latest week from 261,000 and vs. est. 253,000; the 4-week moving average rose to 249,250 from 243,000 prior week; continued claims fell to 1.359M in latest week from 1.384M prior and unemployment rate unchanged at 1.0%.

Commodities, Currencies & Treasuries

·     WTI crude oil prices settle at $96.42 a barrel, down 84 cents or 0.86%, while Brent crude futures settle at $107.14/bbl, up 52 cents, 0.49%. Gold prices rose $31.20 or 1.8% to settle at $1,750.30 an ounce and silver rises $1.27 or 6.8% to settle at $19.868 an ounce

·     Big rebound in crypto continues as Ethereum rises over 8% topping $1,700 and now roughly 70% off the $1,000 lows 2-weeks ago and Bitcoin approaches $24,000, up over 4% today. The U.S. dollar tumbled following the weaker GDP reading results, with a massive move lower against the Japanese yen.

·     Treasury yields extend monthly declines as well (10-yr hits lows of 2.65%) on data and rising expectations the Fed will pare back on their rising interest rate hikes. The U.S. Treasury sold $38 bln in 7-year notes at high yield 2.730 pct, awards 53.12 pct of bids at high and the bid-to-cover ratio 2.60 with directs awarded 18.44% and indirect 70.93%

Sector News Breakdown

Consumer

·     Retailers: BBY now expects FY comparable sales to fall about 11% vs previous outlook of a 3% to 6% decline in another sign of a slowing consumer spending outlook; COLM posted a Q2 EPS beat but lower year outlook (sales $3.44-3.5B vs est. $3.6B and EPS $5.00-5.40 vs est. $5.74); BOOT mixed Q1 results while guides year sales, EPS and comps below views; VSTO rises after earnings and agreed to acquire Simms Fishing Products for $192.5M; OSTK 2Q EPS $0.12 vs est. $0.30 on revs $528Mm vs est. $600.7Mm, qtrly avg order value $247 +16%, qtrly active customers 6.5Mm -29%, qtrly orders per active customer 1.65 -2%; mattress retailer SNBR rises despite weaker results; pool retailers dip after HAYW cuts year EBITDA, sales guidance

·     Auto sector; Ford (F) posted a stronger-than-expected earnings result and reaffirmed full-year targets; auto retailer ORLY posted a top and bottom line miss while cutting year EPS, revs and comp sales below consensus (AZO, AAP movers in reaction); NSANY said it was "cautiously optimistic" after posting a 14% drop in quarterly operating profit and stuck to its full-year operating profit forecast; other earnings results in auto supplier, retail space included VC, SAH; car rental HTZ rises after Q2 earnings beat, while revs missed and announced a $2B share buyback

·     Housing & Building Products; tool maker, SWK slides after 2Q EPS miss of $1.77 vs. est. $2.12 on revs $4.4B vs est. $4.75B and guides FY adj EPS $5.00-6.00, well below the est. $9.66; KBH, LEN, TOL handful of homebuilders rebound early as lower yields and rates helping the sector; MAS posted top and bottom line quarterly miss but said as enter 2H, expect growth to be more modest than the first half and largely driven by pricing actions,

·     Consumer Staples; BUD reported Q2 earnings of $0.75, in-line with ests but down from $0.95 a year earlier while revs beat; HSY 2Q adj EPS $1.80 vs est. $1.69 on net sales $2.37B vs est. $2.22B; sees FY net sales +12-14% vs est. +11.3%; says price elasticities expected to moderate from 2Q but remain favorable to historical levels, sees inflation and fewer gov’t benefits weakening consumers’ buying power; KDP Q2 profit fell amid rising costs while revs of $3.55B topped the $3.38B estimate; PPC reported top and bottom line quarterly beat; BYND slides after saying that 25 restaurant locations that previously carried the faux-meat burger by Beyond Meat Inc. aren’t serving it any more, with some citing poor sales.

·     Restaurants: CAKE Q2 revenue results that came in below expectations on core-Cheesecake comp, total revenues, store-level margin, and EPS; WING reported a Q2 earnings beat while backed its 2022 profit outlook and comp sales view

·     Casinos, Gaming, Lodging & Leisure sector; in leisure space, HOG posted a rise in Q2 profit boosted by a surge in leisure-related activities while also reported a fall in quarterly revenue, hurt by a two-week production shutdown in May that delayed shipments; boat retailers active on earnings as HZO posts mixed Q2 ($3.17/$688.5M vs. est. $3.03/$768.2M) while boosts its FY22 EPS view to $8.05-$8.45 from $7.90-$8.30 (est. $8.21) and BC with a top/bottom line beat and raises year profit view to $10.00-$10.30 from $9.80-$10.30 (est. $10.16) on better rev outlook; in cruise lines, RCL rises initially after posting smaller than expected quarterly loss and says its entire fleet has returned to operations

Energy

·     Energy stock movers: SHEL reported a second consecutive record quarterly profit ($11.5B) as the oil major benefited from soaring global energy prices and a continued rebound in the global economy; said strong demand and higher prices had allowed it to reverse $4.3 billion in impairments it took early in the COVID-19 pandemic; in equipment names, NOV posted a top and bottom line beat with Q2 orders of $670M; HP reports in-line Q2 EPS on better revs; big earnings tomorrow morning with CVX and XOM set to report; in refiners: VLO reports big Q2 beat as EPS $11.36 tops $9.42 estimate on revs $51.64B vs. est. $47.9B saying tightened crude supply amid sanctions on Russia over its war with Ukraine boosted refining margins

·     Utilities & Solar; FSLR, RUN, SEDG, SPWR, NOVA, CSIQ in solar and PLUG, FCEL, BLDP, BE in alt energy advanced on news that Senator Joe Manchin reached an agreement with Senate Majority Leader Chuck Schumer to vote on a package aimed at supporting alternative energy and lowering healthcare costs; utilities among leaders as yields pull back and investors flock to more defensive asset classes; earnings results in utility sector included: CMS, PCG

Financials

·     Bank movers; SCHW authorizes $15 billion stock repurchase, declares 10% increase in quarterly common stock dividend; in asset managers, MC and LAZ with earnings beats; RJF earnings miss as higher revs +$0.21, were offset by higher expenses and higher tax rate

·     Insurance; ACGL beat on a lower core loss ratio, higher-than-expected reserve releases, and higher-than-expected investment income; CINF posted wide EPS miss on a much higher core loss ratio and higher catastrophe; RE with big earnings beat mostly reflecting higher investment income and catastrophe and Russia/Ukraine losses

·     Consumer Finance; MA Q2 adj EPS of $2.56 beats ests by 20c and up from $1.95 in the year-ago quarter while Q2 gross dollar volume of $2.1T vs. $1.9T in Q1 and cross-border volume growth of 58% y/y compares to +53% last qtr; the WSJ published an article suggesting that Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) are preparing to introduce a bill that would give US merchants a choice of networks over which to route to process credit card transactions – promoting increased competition for Visa (V) and Mastercard (MA); TREE slides after reduced its FY2022 revenue guidance to $985M-$1.02B from the $1.15B-$1.19B prior and EBITDA is expected to be $75M-$85M, down from $140M-$150M previously; LC posted quarterly beat and SLM slumps after earnings miss

Healthcare

·     Pharma movers: BHC tumbles after a Delaware federal court judge issued an oral order on patent litigation over Xifaxan. Judge Richard Andrews has directed Bausch subsidiary Salix Pharma to meet with generics manufacturer Norwich Pharma to meet and file a joint final judgment by Aug. 3; Dow components MRK and PFE post earnings: MRK Q2 adjusted EPS $1.87 vs. est. $1.69; Q2 revs $14.6B vs. est. $13.9B; narrows expected fFY2022 worldwide sales range to be between $57.5 billion and $58.5 billion and narrows expected FY 2022 non-Gaap EPS range; PFE Q2 adjusted EPS $2.04 vs. est. $1.80; Q2 revs $27.7B vs. est. $25.74B; raises lower end of 2022 adj EPS guidance by $0.05 to $6.30-$6.45; said current financial guidance does not anticipate any additional share repurchases; MRNS reports U.S. commercial launch of its seizure treatment

·     MedTech Equipment; FMS shares slide as sees FY22 adj revs at the low end of forecast and withdraws 2025 targets due to up headwinds; TMO Q2 adj EPS $5.51 vs. est. $4.99; Q2 revs $10.97B vs. est. $9.97B; qtrly organic revenue growth was 3%; BAX shares slide as cut its adjusted earnings per share guidance for the full year.

·     Healthcare Services: TDOC shares slide after Q2 net loss widens to $3.1B from $133.8M a year ago and sees 2022 revenue and adjusted EBITDA outlooks at the lower end of those ranges; hospital operator CYH tumbled after posting an unexpected Q2 loss on a sharp y/y decline in Ebitda, falling well below estimates; LH to spin off clinical development business; ICLR reported good 2Q results by beating revenue, EBITDA, and EPS estimates. ICLR lowered its revenue guidance due to FX headwinds as we expected but with greater magnitude; ALGN reported weak 2Q results with revenue and EPS of $970M and $2.00 below Street’s $985M and $2.23 and Invisalign volumes also showed ongoing demand pressure, -10% y/y to 599k cases

Industrials & Materials

·     Aerospace & Defense; NOC Q2 adjusted EPS $6.06 vs. est. $6.10; Q2 revenue $8.8B vs. est. $9.07B; backs FY22 transaction-adjusted EPS view $24.50-$25.10 (est. $24.83) and backs FY22 revenue view $36.2B-$36.6B (est. $36.54B); TXT Q2 EPS $1.00 vs. est. $0.88 on revs $3.15B vs. est. $3.22B; reiterated its full year earnings per share expectation of $3.80 to $4.00 vs. est. $4.01 and expects 2022 cash flow from continuing operations of manufacturing group before pension contributions to be in range of $800 – $900 mln; CARR 2Q adj EPS $0.69 vs est. $0.62 on revs $5.2B vs est. $5.17B; guides FY adj EPS $2.25-2.35 vs prior $2.20-2.30 and est. $2.28, sees FY sales including Toshiba Carrier $20.8B vs est. $19.8B

·     Industrial & Machinery; HON Q2 EPS $2.10 vs. est. $2.03; Q2 revs $8.95B vs. est. $8.67B; Q2 orders were up 12% with backlog up 12% to $29.5B; raises FY22 adjusted EPS view to $8.55-$8.80 from $8.50-$8.80 (est. $8.68), while lowers FY22 revenue view; OSK lowers year adjusted EPS to $3.50, well below its prior $5.00-$6.oo view while still sees net sales $8.3B; LII raises FY revenue growth outlook to 10%-15%, from prior 7%-11%; FTV mover on earnings

·     Transports; in airlines, JBLU to acquire SAVE at $33.50 per share in cash or $7.6B enterprise value, including a prepayment of $2.50 per share in cash payable upon Spirit stockholders’ approval; LUV posts Q2 beat but says continues to experience inflationary pressures in Q3, particularly higher cost of labor and benefits, as well as airport costs and that 2022 capacity, or available seat miles, is expected to be down about 4% compared with 2019; in truckers, CHRW 2Q EPS $2.67 vs est. $1.98 on revs $6.8B vs est. $6.8B, adj op margin 45.5%

Technology, Media & Telecom

·     Media, Internet; META shares slide after missing Q2 EPS and revs as revs slowed on a y/y basis ever and guided next quarter revs $26-28.5B below est. $30.5B as competition from TikTok weighs on the industry; ETSY reported generally in-line 2Q consolidated GMS results and better-than-expected revenue / adj. EBITDA margin performance – betterer-than-feared

·     Semiconductors: The Senate and house passed the CHIPS+ bill, which provides $52B for domestic semiconductor manufacturing, tax incentives for new facilities and authorizes federal funding for advanced technology R&D; QCOM Q3 results slightly better to in-line but issues weak guidance of 4Q adj EPS $3.00-3.30 vs est. $3.23, revs $11-11.8B vs est. $11.9B and now expects smartphone sales to fall 5% this year, vs. previous forecast of flat growth; chip equipment maker LRCX reported a strong JunQ and guided SepQ better to $4.9B (cons. $4.6B), with better Foundry/ Logic at 46% of Systems revenue, up 12ppts q/q; ~$2.2B of deferred revenue remain; STM boosted its year revenue outlook after qtr beat; MXL delivered another solid quarter, with 2Q revs ~in-line with expectations; FORM weak guide

·     Hardware, Software movers: NOW reported mixed Q2 results as EPS beat but revs missed estimates and lowered FY22 subscription revenue to grow by 24% versus its previous forecast of 26% growth; PTC delivered strong results despite investor concerns of challenging macros with +15% organic cc ARR growth at $1,610M that was above the $1,588M midpoint of guidance; PEGA slides as reported mixed results, with a notable deceleration across leading indicators, driven by FX and macro and guided year lower; SSNC missed 2Q22 consensus and lowered 2022 EPS guidance; CTSH lowers guidance due to supply issues and FX; PI handily beat Street expectations and provided September quarter guidance well ahead of expectations

·     Telecom movers; CMCSA shares tumble as Q2 adj EPS $1.01 tops consensus $0.92 and revs $30.02B above est. $29.68B as ‍​qtr end, but total broadband customers of 32.2M (same as Q1 – no growth for first time since 2008); ‍​qtr end, peacock paid subscribers stayed relatively flat at 13M; SIRI 2Q EPS $0.07 vs est. $0.08 on revs $2.25B vs est. $2.24B, adj EBITDA $679Mm vs est. $707Mm; reiterates FY guide, expects positive full-year self-pay net subscriber adds; EQIX upgraded to Buy at Oppenheimer; TMUS upgraded to buy at Scotiabank