Mid-Morning Look

Friday, September 02, 2022

U.S. stocks open higher as the monthly jobs report gave investors and markets about all they could have asked for, with indexes rising 1%. Sentiment remains low right now, with expectations the Fed will raise interest rates by another 75 bps at the September meeting after two prior 75-bps hikes in June and July and stay the course of aggressive hikes until they can bring inflation down to their 2% target range (currently around 8%). The August jobs report (see details below) showed inline to slightly better job growth, rising unemployment as more people look to join the workforce, and wages rising, but not as aggressive as expected – helping alleviate near-term fears. Stock reaction was positive at first before the brief profit taking into the 3-day holiday weekend but has since rebounded Treasury yields jumped on the data, with the 10-year hitting highs of 3.29% before fading as low as 3.17%, gold prices moved as the dollar eased and energy prices look to rebound. Note the Nasdaq Composite trying to snap its 5-day losing streak (longest since Feb of this year), a day after the S&P snapped its 4-day losing streak. Still, major indexes are on track for a third consecutive week of losses.

Economic Data

·     August Nonfarm Payrolls reported at 315K vs. est. 300K, while Private payrolls were 308K vs. est. 300K and manufacturing payrolls 22K vs. est. 20K. The unemployment rate rises to 3.7% vs. est. 3.5% and average hourly wages rise +0.3% vs. est. for +0.4% increase. The labor force participation rate, adults working or seeking a job, rose to 62.4% in August from 62.1% in July.

·     The change in total nonfarm payroll employment for June was revised down by 105,000, to +293,000, and the change for July was revised down by 2,000, to +526,000. With these revisions, employment in June and July combined is 107,000 lower than previously reported.

·     July factory orders fell (-1.0%) vs. est. +0.2% and vs June +1.8%; July factory orders ex-transportation fell (-1.1%) vs June +1.0% and factory orders ex-defense -0.5% vs June +1.1%; U.S. July inventories/shipments ratio 1.47 months’ worth vs June 1.46 months

Stock MOVERS

·     AVGO +3%; reported in-line JulQ results and guided OctQ to $8.9B (ahead of consensus $8.7B), with adj. EBITDA at ~63% of revs and noted demand remains strong as continues to benefit from secular growth in Cloud/Enterprise/Storage markets as well as iPhone 14 builds in the near term

·     CVGW -14%; shares tumble on earnings results as Q3 adj EPS $0.16 missed est. $0.35 and said saw volatility that negatively affected results in Q3 in Aug

·     HOLI +15%; after Reuters reported a consortium led by China’s Hollysys Automation Technologies management plans to take the co private in a deal that would value the firm at $1.8 billion

·     LULU +11%; reported Q2 sales growing 29% (vs. guidance 22-23%), driven by strong comp growth of +25%, and EPS of $2.20 handily beating guidance of $1.82-$1.87 and raised FY guidance by more than the Q2 beat (inventories at end of Q2 +85% to $1.5B)

·     NCNO +7%; Q3 results that exceeded expectations, with an increased outlook for FY23 despite a challenging macro and increased FX headwinds

·     SMAR +9%; Q2 results were better than expected, with billings returning to >40% growth (+44% vs. +36% in FQ1) and sustained subscription revenue growth >40% (+43%), guidance was mixed

·     TLYS -5%; downgraded from Buy to Neutral at Seaport Global after Q2 results and forecast Q3 sales $165M-$170M, below estimates $172M