Mid-Morning Look

Tuesday, August 30, 2022

U.S. stocks jumped overnight, but have quickly reversed lower, with S&P futures breaking its overnight lows (4,023.50), off the overnight highs above 4,072 and moving to lowest levels in about a month around 4,000 (7/28). Volumes remain light, not a surprise ahead of a big vacation week (last trading week of summer ahead of Labor Day) with Monday volumes the 2^nd lightest day of year. After outperforming on Monday, energy stocks are the biggest drags in the S&P 500 index, with oil prices tumbling over $4 a barrel early. U.S. stock indexes opened higher after a brutal 2-day slump as Federal Reserve Chairman Jerome Powell said Friday the central bank must continue raising interest rates and hold them at a higher level until it is confident inflation is under control. This ran contrary to some investors’ prior expectations that the Fed would ease the pace of rate increases due to worsening economic data and easing inflation figures. Futures bets show that traders see a roughly 68.5% probability that the Fed will raise interest rates by another 0.75-bps in September. The S&P 500 trying to hold its 4,000 level, while the Nasdaq 100 and Dow Jones Industrial Averages each break below their technical 50-day moving averages. Longer-dated government bond yields ticked down, but short-dated yields ticked higher. Economic data mixed bag today with confidence rising, home price gains slowing and a further improving job picture. US listed China stocks tumble on US headlines with Taiwan and audit inspection headlines. All 11-S&P sectors currently lower on the day.

Economic Data

·     U.S. Home prices +0.1% in June from May and home prices +16.2% in 12 months through June

·     S&P CaseShiller said U.S. June 20-metro area home prices +18.6% from year ago vs +20.5% in May and home prices in 20 metro areas +0.4% seasonally adj vs revised +1.2% in May

·     Consumer Confidence for August reported at 103.2 vs. est. 98.0 and estimate 97.7; consumer present situation index 145.4 in August vs July revised 139.7, expectations index 75.1 in August vs July revised 65.6 (previous 65.3) and 1-year consumer inflation rate expectations 7.0% in August vs July revised 7.4% (previous 7.6%)

·     JOLTs job openings for July rose to 11.24M from 11.04M and above ests. 10.45M

Sector Movers Today

·     Auto sector; LCID filed for a new mixed shelf offering of up to $8 billion as the luxury electric-vehicle maker looks to bolster working capital; NKLA files prospectus supplement relate to issuance, sale from time to time of shares of common stock of up to $400M as per SEC filing; FREY finalized a deal with Nidec where it will supply 38GWh of lithium-ion (Li-ion) battery cells from 2025-2030, with an option to upsize the volume to 50GWh over the period; TRUE said August sales data suggests the auto industry “may be turning the corner.” Total new vehicle industry sales in August were expected to be up slightly from July and up 9% from a year ago, while used vehicle sales are expected to be up 4% from July but down 17% from last year

·     Aerospace & Defense; The Biden administration is preparing to sell $1.1 billion in missiles and radar support to Taiwan, according to an official familiar with the matter, in what would be the largest such transfer in almost two years, Bloomberg reported; RBC Capital initiates coverage of the defense primes, with an OP rating on LHX (top pick), GD and Sector Perform rating on LMT as model top-line U.S. defense budget growth of ~3% through 2027, with a ~5% increase in investment accounts, and after lowering full-year 2022 expectations, believe 3Q22 results could be a positive catalyst and expect funding for nuclear weapons to remain supported

·     Software & Hardware movers: VMW extends collaboration with MSFT to make it easier for customers to run enterprise workloads in Microsoft azure; earnings results tonight from CRWD in Internet Security; HPQ and HPE earnings on deck after the close: ZEN 2% shareholder Light Street Capital Mgmt said it would vote against the software company’s $10.2 billion deal to go private and instead proposed that it remain a standalone public company and find a new top boss.

Stock GAINERS

·     AVID +12%; will replace POLY in the S&P SmallCap 600 effective prior to the opening of trading on Thursday, September 1

·     BBY +4%; reported a smaller-than-expected drop in quarterly comparable sales, helped by steep discounts and said sees Q3 sales to decline slightly more than 12.1% in Q3

·     BIG +9%; reported a smaller-than-expected Q2 loss on slightly better sales of $1.35B vs. est. $1.34B as sales decline to last year was driven by a comparable sales decrease of (-9.2%)

·     FREY +5%; finalized a deal with Nidec where it will supply 38GWh of lithium-ion (Li-ion) battery cells from 2025-2030, with an option to upsize the volume to 50GWh over the period

·     FSLR +3%; will spend $1.2 billion to expand its solar panel manufacturing operations in the U.S., creating hundreds of jobs including with a new factory in the Southeast

Stock LAGGARDS

·     BABA -2%; after U.S. regulators have selected e-commerce giant Alibaba and other U.S.-listed Chinese companies for audit inspections, Reuters reported (also hit other China names)

·     BIDU -7%; Q2 EPS $2.36 vs. est. $2.28; Q2 revs fell -5% y/y to $4.43B vs. est. $4.45B; Baidu AI Cloud revenues maintained rapid growth momentum of 31% year over year and 10% q/q

·     CONN -8%; as Q2 adj EPS of $0.04 misses the $0.09 estimate and Q2 revs fell -17.1% y/y to $346.6M, below consensus $370.23M while Q2 comp store sales decreased (-22.0%)

·     HAL -4%; as oil & energy names top sector decliners on lower oil prices

·     JNCE -13%; said that a Phase 2 trial evaluating its non-small cell lung cancer treatment vopratelimab did not meet its primary endpoint

·     KIRK -3%; after posts Q2 net loss of $25.7M vs. net income of $0.6M a year ago period and Q2 net sales fell to $102.1M from $114.8M on comp sales loss -8.6%

·     LCID -5%; filed for a new mixed shelf offering of up to $8 billion as the luxury electric-vehicle maker looks to bolster working capital

·     LQDA -31%; after an order in the U.S. District Court for the District of Delaware suit between the co and UTHR issued by the judge in the case – as request to stay decision on ‘793 patent refused

·     PLAB -22%; slides on lower outlook as sees Q4 EPS $0.44-$0.52 on sales $205M-$215M below est. $0.54/$214.3M after beat for Q3 results

·     TWTR -1%; after Tesla CEO Elon Musk filed a second notice to terminate the Twitter deal as he cites comments from whistleblower Mudge Zatko as evidence that Twitter under reported the number of bots