Mid-Morning Look: August 17, 2023

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Mid-Morning Look

Thursday, August 17, 2023

Index

Up/Down

%

Last

 

DJ Industrials

77.10

0.23%

34,844

S&P 500

3.65

0.08%

4,407

Nasdaq

-51.56

0.38%

13,422

Russell 2000

0.82

0.04%

1,872

 

 

U.S. stocks opened higher, looking to rebound after closing at the lows on Thursday as stronger WMT and CSCO earnings helped boost the Dow Jones Industrial Average. But unlike the “buy the dip” over the bulk of 2023 trading, investors/traders have been “selling the rips” in August, as the S&P 500 and Nasdaq are on track to snap their 5-month winning streaks. The Nasdaq opened higher, looking to bounce from 6-week lows, but quickly reversed to the downside as yields climbed. The pullback comes as bonds have resumed command of the stock market of late with the 10-year yield rising to its highest level since the 2008 financial crisis, topping 4.31% earlier on another round of strong economic data. The drop in stocks Wednesday was exacerbated by minutes from the Federal Reserve’s July meeting that suggested the central bank intended to keep raising interest rates to tamp down inflation. Rising yields have had the biggest impact on market-leading technology stocks. In healthcare, CVS shares tumbled after Blue Shield of California said it was droppings to PBM Caremark in a bid to lower costs. Energy (XLE) leading the S&P higher along with Materials and Utilities while Tech and Comms lower.

 

Economic Data

·     Weekly Jobless Claims fell to 239K in latest week from 250K prior week and mostly in-line with the $240K estimate; the 4-week moving avg rose to 234,250 from 231,500 prior week; continued claims rose to 1.716M from 1.684M prior week (est. 1.7M); Insured unemployment rate rose to 1.2% aug 5 week from 1.1% prior week.

·     The Philadelphia Fed factory index +12.0 (first positive number since August 2022 and highest since April of 2022), far better than the expected decline of -10.4 and prior decline -13.5; Philly New Orders: +16.0 vs -15.9 prior; Shipments: +5.7 vs -12.5 prior; prices Paid: 20.8 vs 9.5 prior; prices received 14.1 vs 23.0 prior.

·     July Leading Indicator fall (-0.4%) M/M, in-line with estimates, but down for a 16th straight month.

 

 

Macro

Up/Down

Last

 

WTI Crude

1.28

80.66

Brent

1.21

84.66

Gold

-3.10

1,925.20

EUR/USD

0.0017

1.0891

JPY/USD

-0.30

146.04

10-Year Note

0.046

4.304%

 

 

Sector Movers Today

·     In Pharmacy retail/managed care: CVS shares fall after Blue Shield of California is dropping CVS’s Caremark, its current pharmacy-benefit manager, and replacing it with a selection of other companies, in a new offering that will include at-home drug delivery from Amazon (AMZN). Blue Shield of California said once the multi-year strategy is fully implemented, the health plan expects to save up to $500 mln in annual drug costs. Drug distributors ABC, CAH, MCK also showed signs of weakness early as well as HMOs like CI, UNH).

·     US listed China stocks rebound, looking to snap a 4-day losing streak on hopes of more stimulus measures from the Chinese government that could allay investor fears of a slowing economy. Chinese state media said that China will strengthen the coordination of various policies to boost growth and meet this year’s economic target (seeing early strength in BABA, JD, PDD, BIDU, IQ, WB and others; note BILI up on earnings as well).

·     In retail: WMT posted Q2 EPS $1.84 topping $1.69 est. on better revs $161.6B vs est. $159.76B while Q3 guidance $1.45-$1.50 slightly below $1.50 est. but FY2024 EPS $6.36-$6.46 tops $6.28 est. Q2 U.S. same-store sales rose 6.4%, while FactSet was expecting a 4.1% gain. PLCE raises its profit forecast for back half of 2023, citing easing input and supply chain costs as well as reduced inventory levels as sees adjusted net EPS $5.00-$5.25 vs. est. $5.00 but slightly tightens the upper-end of FY 2023 outlook for revenue and profit. TPR Q4 EPS $0.95 misses est. $0.97 and revs $1.62B below est. $1.65B; sees FY24 EPS $4.10-$4.15, vs. consensus $4.23 and sees FY24 revenue ‘approaching’ $6.9B vs. est. $6.93B; said net sales for Coach rose from a year ago, while Kate Spade and Stuart Weitzman fell.

 

Stock GAINERS

·     AVT +9%; following beat and raise despite a challenging Asia backdrop as the strength was driven by industrial transportation, automotive, and defense sectors. Margins far exceeded expectations supported by continued strong performance in Components.

·     BALL +3%; as BAESY agreed to buy Ball Corp’s aerospace assets for about $5.55B in cash; said the Aerospace unit accounts for 13% of Ball’s consolidated net sales in 2022.

·     CHK +6%; after being added to the S&P MidCap 400 index, replacing MRCY on August 21st.

·     CSCO +4%; reported upside to Oct-qtr results with a print of $15.2B/$1.14 vs street at $15B/$1.06 and provided an FY24 guide that calls for 1% sales growth (modestly below street at 2%) but EPS guide of ~$4.05 was in-line with street expectations.

·     DOLE +2%; mixed earnings results as Q2 EPS $0.51 vs consensus $0.35 and revenue $2.14B vs consensus $2.27B; EBITDA $122.7M vs consensus $109.3M; guides FY EBITDA at least $350M vs prior $350M and consensus $351.3M.

·     PLCE +8%; raises its profit forecast for back half of 2023, citing easing input and supply chain costs as well as reduced inventory levels as sees adjusted net EPS $5.00-$5.25 vs. est. $5.00 but slightly tightens the upper-end of FY 2023 outlook for revenue and profit.

 

Stock LAGGARDS

·     ADYEY -34%; as 1H revenue 5% miss with 21.5% growth in H1, 19% ex FX, despite 2pp eBay tailwind while margins down 15pp YoY on +52% average employees coupled with 21% average wage cost – Bank America notes H1 margin 43% below 47% street.

·     ASUR -13%; 3.3M share Spot Secondary priced at $12.00, sending shares lower.

·     CVS -10%; after Blue Shield of California is dropping CVS’s Caremark, its current pharmacy-benefit manager, and replacing it with a selection of other companies, in a new offering that will include at-home drug delivery from Amazon (AMZN).

·     GFI -11%; said CFO Paul Schmidt intends to retire while the gold miner said it made a 1H net profit of $457.8M, compared with $509.7M a year earlier reflecting lower gold volumes sold and higher operating costs, only partially offset by higher gold prices.

·     HE -14%; adds to recent declines, falling late Wednesday after the WSJ reported the company in talks with restructuring advisory firms to address financial and legal challenges over its potential liabilities in the wake of the Maui wildfires https://tinyurl.com/7ucet25m

·     LITE -2%; issued Q1 guidance below analysts’ estimates as the company anticipates inventory corrections to continue; sees Q1 revs $300M-$325M below prior view $368.5M and EPS $0.20-$0.35 below est. $0.57.

·     LOVE -5%; falls as discloses determination of internal investigation of financial statements – determines certain financial statements should no longer be relied upon; believes FY23 net income overstated by $1.5M-$2.5M.

·     PYCR -8%; shares fell as Q4 profit and revs topped consensus but FY24 guide for revenue growth of ~17% y/y were below consensus.

·     TRMR -23%; cut its earnings guidance for the year as guides Ebitda $85M-$90M below prior $140M-$145M view and logged lower Q2 revenue than expected.

·     WOLF -18%; beat topline expectations but missed GM by 240bps at 27.3% on a GAAP basis due in part to start-up expenses running ahead of expectations and missed EPS by $0.22.

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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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