Mid-Morning Look

Friday, August 26, 2022

Stocks currently at the lows of the day after yesterday’s mass outperformance, following a quick (and volatile) dip and rip for U.S. stocks as Fed chairman Powell said in his (brief) comments at the Jackson Hole symposium this morning that the Fed must continue raising interest rates and hold them at a higher level until it is confident inflation is under control, a process that is likely to weaken the job market and cause some pain for households and businesses. Powell was “hawkish,” and markets are now reacting to that. While the central bank’s steps to slow the rate of investment, spending, and hiring “will bring down inflation, they will also bring some pain to households and businesses,” Mr. Powell said. Fed officials raised their benchmark federal-funds rate by 0.75 bps at each of their last two meetings, most recently in July, to a range between 2.25% and 2.5%, while several Fed speakers have expressed the tgt of 3.5%-3.75% by end of year. The next Fed meeting is in September where 50-bps and 75-bps hike is up for discussion. Outside of Powell, inflation data this morning showed improvement in both the core PCE data for July and University of Michigan confidence inflation expectations for 1 and 5-year. Earnings moving names in the tech and retail sector, but Powell the big story today.

Economic Data

·     July Personal Income rose +0.2% M/M vs. +0.6% expected and +0.7% prior while July Personal Spending rose +0.1% M/M vs. +0.4% expected and +1.0% prior (weaker on both counts). July personal saving rate 5.0% vs June 5.0%

·     July PCE Price Index: -0.1% M/M vs. +0.1% expected and +1.0% prior while on a Y/Y basis, rose +6.3% vs. +6.3% expected and +6.8% prior (so in-line).

·     July Core PCE Price Index rises +0.1% M/M vs. +0.3% expected and +0.6% prior, while on a Y/Y basis rise +4.6% Y/Y vs. +4.7% expected and +4.8% prior (slightly better)

·     Advance July goods trade balance a deficit -$89.06 B dollars, better than the expected deficit around -$98B (in March of this year was -$125B the all-time highs); U.S. Advance July wholesale inventories +0.8% and U.S. Advance July retail inventories excluding autos +0.4%

·     University of Michigan surveys of consumers sentiment final Aug 58.2 vs. est. 55.2, preliminary aug 55.1 and final July 51.5; current conditions index final aug 58.6 vs prelim aug 55.5 and final July 58.1; expectations index final aug 58.0 vs prelim aug 54.9 and final July 47.3

·     University of Michigan surveys of consumers 1-year inflation outlook final August 4.8% vs prelim 5.0% and final July 5.2% (improvement) and the 5-year inflation outlook final August 2.9% vs prelim 3.0% and final July 2.9% (also better)

Sector Movers Today

·     Software earnings: WDAY delivered a strong F2Q23 print that beat top-line expectations with better-than-expected profitability as the company closed two of the largest 1Q slipped deals; ESTC said it doubled its loss in latest quarter, widening to $69.6M from $34.5M y/y but adj was better than estimates and revs rose to $250.1M topping the $246M estimate; SUMO 2Q adj EPS ($0.10) vs est. ($0.14) on revs $74.1Mm vs est. $71.5Mm; sees 3Q adj EPS ($0.15) vs est. ($0.16) and revs $73.5-74.5Mm vs est. $73Mm; DOMO reported disappointing F2Q23 results, with non-GAAP EPS of ($0.26) (est. ($0.33)) on total revenue of $75.5M (est. $76.4M), up 20% y/y, down from 24% last quarter, billings of $72.3M, (est. $71.9M), up 21% down from 25% last quarter

·     Healthcare Services: in managed care, California announced the long-awaited Medi-Cal intent to award contracts, with MOH, CNC and ELV securing contracts, though MOH the largest net winner, adding 1.36M members, while CNC would lose the most at 1.23M (takes effect Jan 1, 2024). Other plans, including CVS, UNH and Blue Shield of California, were not selected but have minimal legacy share. Elevance is expected to lose ~109k, CVS/Aetna is expected to lose 46k, and UNH is expected to lose ~30k. (according to Credit Suisse and Opco)

·     Media, Internet; META CEO Mark Zuckerberg reveals Co’s new virtual reality headset will be launched in October; the highly anticipated headset, code-named Project Cambria, is centerpiece of Co’s plans for metaverse; BABA, BIDU, PDD, JD and other US listed China stocks rise a second day after the US and China reach prelim agreement on audit inspections (which was source of strength yesterday). Chinese regulator said the next step is for both sides to conduct inspections and investigations of relevant accounting firms, and make objective assessment

Stock GAINERS

·     BABA +2%; and other US listed China stocks rise (BIDU, PDD, JD) a second day after the US and China reach prelim agreement on audit inspections

·     EA +4%; shares had been higher by over 15% pre mkt after reports by USA Today’s “For the Win” portal, citing GLHF sources that AMZN was expected to make a bid; shares pared gains after CNBC’s David Faber said AMZN is not expected to make a bid for EA https://bit.ly/3RetCHS

·     ETNB +5%; said its Phase 2 proof-of-concept ENTRIGUE trial of pegozafermin in severe hypertriglyceridemia patients met its primary endpoint

·     EVBG +12%; after Bloomberg reported the Co is exploring strategic options including a sale; said potential buyers could include industrial companies and private equity firms, though Co could choose to stay independent, according to the report https://bloom.bg/3RdXeFg

·     FTCH +32%; posted a Q2 rev and EBITDA beat, FY guide lowered slightly due to FX, but break-even EBITDA this year intact

·     MOH +5%; California announced the long-awaited Medi-Cal intent to award contracts, with MOH, CNC and ELV securing contracts, though MOH the largest net winner, adding 1.36M members, while CNC would lose the most at 1.23M

·     ULTA +3%; posted a strong quarterly beat, and raised guidance as sees FY op margin 14.6%-14.8%, vs. prior 14.1%-14.4% and raises FY comp view to +9.5% to +10.5% from +6% to +8% while Q2 comps rose a strong +14.4%

·     WDAY +11%; delivered a strong F2Q23 print that beat top-line expectations with better-than-expected profitability as the company closed two of the largest 1Q slipped deals

Stock LAGGARDS

·     AFRM -17%; better Q4 revenues, driven by GMV growth, but op expense rose $53M Q/Q to $461M, the driver for the comprehensive loss of $201M said Jefferies – co sees Q1 revs $345M-$365M below est. $386M and lower year revs as well

·     BNTX -2%; MRNA said it is suing PFE and BNTX for patent infringement in development of COVID-19 saying they copied MRNA technology

·     CNC -5%; California announced the long-awaited Medi-Cal intent to award contracts, with MOH, CNC and ELV securing contracts, though MOH the largest net winner, adding 1.36M members, while CNC would lose the most at 1.23M

·     DELL -8%; posted its slowest revenue growth in six quarters, hurt by a rising dollar/impact in China, on in-line revs as consumer revenue fell 9%, but comm’l revenue rose by 15% to $12.1B

·     DOMO -28%; 2Q billings growth of ~20.5% was slightly above Street at ~20% but down from 24% last quarter while FY guide was lowered from 22% to 13%

·     OTEX -12%; after saying late Thursday it would acquire British software firm Micro Focus International Plc in a $6-billion deal, including debt.

·     SGEN -7%; shares slipped after Bloomberg reported MRK’s talks to buy the company have stalled for now, having failed to agree on a price