Mid-Morning Look

Tuesday, July 12, 2022

U.S. stocks open higher, but fade quickly, failing to hold the gains ahead of the consumer price index (CPI) inflation data tomorrow, which is expected to show another big reading, and bank earnings starting Thursday. Breadth on the NYSE showing advancers leading decliners with energy, healthcare, info technology the main pockets of weakness, while discretionary, industrials, financials, staples, comm services leaders. Lots of choppiness and volatility over the last few weeks as every bounce has been met with greater selling pressure, allowing the S&P to post its 3^rd worst 1H return in its history. The euro inched higher, reversing an earlier decline that took it to the brink of parity with the dollar. The euro fell as low as $1.0005, before edging off that level and now up on the day. Oil slides toward three-month-lows (below $97 per barrel) on dollar strength, as well as demand fears after fresh COVID-19 curbs in top crude importer China this week and ongoing fears of a global economic slowdown. Commodity stocks getting wrecked again, with big declines in energy names on oil tumble, while miners and metals also weak. Note names like FCX -48% off 52-week highs), HAL -33% off 52-week highs and COP -21% off 52-week highs with turmoil in space given demand fears, recession concerns. Crypto pressured as Bitcoin moves back below the $20,000 level. Software names slide on cautious comments in industry.

Sector Movers Today

·     Bank movers; all eyes on sector at end of week, with earnings results due for JPM on Thursday then a slew of banks Friday (BK, BLK, C, PGR, PNC, STT, USB, and WFC; in research, Citigroup upgraded JPM to Buy and downgrading RF to Neutral, launched negative catalyst watches on KEY and PNC largely on our expectations of negative NII revisions – says a lot of uncertainty is priced into the bank stocks, but believe risk/reward is very attractive for the group; SEIC downgraded to UW from EW at Morgan Stanley with a $55 PT on a lack of positive catalysts, exposure to weaker capital markets, pretax margin compression, and valuation

·     Biotech movers; The White House announces strategy to manage BA.5 covid variant saying will continue to recommend vaccine booster shots and to make tests and masks widely available to combat ba.5 variant (MRNA, PFE, NVAX, BNTX); GLSI rises after the FDA removes clinical hold, permitting late-stage trial of co’s experimental breast cancer therapy GLSI-100 to proceed; FULC announces departure of Chief Medical Officer Christopher Morabito after 15 months in the pos; MRNA begins dosing of Nipah virus vaccine mRNA-1215 in early-stage study

·     Casinos, Gaming, Lodging & Leisure sector; in another negative for the travel & leisure space (hotels, cruise, etc.) Heathrow Airport said it would cap the number of departing passengers from the international hub at 100,000 a day until September and has asked airlines to stop selling new tickets from the airport for the summer season, as it and other European airports struggle with staff shortages and surging travel demand; Loop Capital lowers UBER ests for share of US deliveries following Amazon’s partnership with GrubHub announced last week

·     Energy stock movers; HES, OXY among top decliners in the S&P and energy space overall with sharp drop in oil prices on demand fears after fresh COVID-19 curbs in top crude importer China this week and ongoing fears of a global economic slowdown. OPEC today in its monthly report forecasts world oil demand will grow by 2.7M bpd in 2023 while leaves 2022 world oil demand growth forecast unchanged at 3.36M bpd. Also forecasts non-OPEC oil supply will rise by 1.7M bpd in 2023, led by U.S. and OPEC sees global demand for its crude at 30.1 million bpd in 2023, up 900,000 bpd from 2022.

Stock GAINERS

·     AAL +7%; said it expects 2q revenue to be up 12% vs 2q 2019, sees 2q cost of fuel of $4-$4.05 per gallon of jet fuel and said flew 66.2b available seat miles in 2q, down 8.5% from 2q 2019

·     COHU +2%; narrows Q2 revenue view to $216M-$218M from $205M-$221M (est. $213.5M) saying Q2 ending backlog is expected to be approximately $342 million, substantially shipping over the next three quarters

·     GOEV +72%; after saying it has signed a purchase agreement with retailer WMT which will purchase 4,500 of its all-electric delivery vehicles, with the option to purchase up to 10,000 units

·     HLF +3%; upgraded to Buy at Jefferies as see an asymmetrical set-up; $17 downside / $36 upside PT and stock pricing in greater est. downside vs. what they see as likely

·     INMD +9%; raises FY rev guidance from $415M-$425M to $425M-$435M after guiding Q2 results above consensus

·     PEP +1%; beat on higher sales with strong pricing power while expense management offset a gross margins miss due to higher input costs/raised organic sales view

·     PTON +5%; said it plans to exit all owned-manufacturing operations, as the maker of connected fitness equipment works to simplify its supply chain and reduce its cost structure

Stock LAGGARDS

·     FCX -2%; down roughly 50% from 52-week highs while GLD falls an 11^th time in 13-days to 9-month lows as industrial and precious metal prices decline

·     GPS -4%; after CEO departs and sees Q2 net sales to decline in the ~high-single digit range

·     HES -5%; among top decliners in the S&P and energy space overall with sharp drop in oil prices on demand fears after fresh COVID-19 curbs in top crude importer China this week and ongoing fears of a global economic slowdown

·     NEM -1%; as gold miners continue to weaken

·     NOW -10%; after CEO Bill McDermott appeared on CNBC Mad Money during which he mentioned “macro cross winds (are) blowing strong” given rising interest rates, ongoing strengthening of the US Dollar, war in Europe, increasing energy costs, and cyber-security threats, among other items (shares of other software names U, SNOW, MDB, CRM down in sympathy)