Early Look

Monday, June 27, 2022

Futures	Up/Down	%	Last
Dow	55.00	0.17%	31,542
S&P 500	10.25	0.26%	3,926
Nasdaq	46.50	0.38%	12,187

 

 

U.S. futures are higher, building on last Friday and last week’s upward momentum and trading at its highest levels since June 10^th as rising inflation expectations ease. Stocks surged last Friday (closed at highs) and on the week as the S&P 500 snapped its 3-week losing streak, rallying 6.4% on expectations the Fed may dial back interest rate hikes after lower inflation data and energy prices eased. Consumer Discretionary, Healthcare and Communication Services were among Friday’s top gainers along with Financials led by banks after the biggest banks cleared the Fed’s annual “stress test.” Still, heading to the half-way point of the year, Energy remains the top sector leader YTD up 29%, while Utilities are next down the least at -3.5% YTD, Staples -5.7% YTD and Healthcare down -8.3%. The top decliners are Discretionary -28.4%, Comm Services -26.5% and technology -23.7%. In Asian markets, The Nikkei Index jumps 1.43% or 379 points to 26,871, the Shanghai Index gains 29 points to 3,379 and the Hang Seng Index advances 2.35% or 510 points to 22,229. In Europe, the German DAX is up +0.95% to 13,242, while the FTSE 100 rises +0.6% to 7,250.

Market Closing Prices Yesterday

·     The S&P 500 Index jumped 116.01 points, or 3.06%, to 3,911.74

·     The Dow Jones Industrial Average rose 823.32 points, or 3.12%, to 39,315.46

·     The Nasdaq Composite surged 375.43 points, or 3.34%, to 11,607.62

·     The Russell 2000 Index advanced 54.06 points, or 3.16% to 1,765.74

 

Economic Calendar for Today

·     8:30 AM ET        Durable Goods Orders for May

·     8:30 AM ET        Durable Goods Orders Ex Transportation for May

·     10:00 AM ET      Pending Home Sales M/M for May

·     10:30 AM ET      Dallas Fed Manufacturing for June

·     1:00 PM ET         U.S. Treasury will sell $47B in 5-year notes

·     1:00 PM ET         U.S. Treasury will sell $46B in 2-year notes

 

Earnings Calendar:

·     Earnings Before the Open: none

·     Earnings After the Close: CIDM, CNXC, JEF, NKE

 

 

Macro	Up/Down	Last
Nymex	0.26	107.88
Brent	0.51	113.63
Gold	8.80	1,839.10
EUR/USD	0.0029	1.0583
JPY/USD	0.04	135.21
10-Year Note	+0.057	3.181%

 

 

World News

·     Russia failed to pay interest on time on its foreign-denominated debt for the first time since 1918. The Russian government was unable to compensate creditors on about $100 million of interest denominated in dollars and euros after a 30-day grace period following the May 27 deadline expired.

·     The U.S. economy is likely to slow in 2022 and 2023 but will “narrowly avoid a recession” as the Federal Reserve implements its rate-tightening plan to curb inflation, the International Monetary Fund said

·     Officials from Turkey, Sweden and Finland are set to hold talks in Brussels on Monday on the two Nordic countries’ application to join the North Atlantic Treaty Organization, a request that is currently opposed by the Turkish government

·     The Group of Seven rich democracies will commit on Tuesday to a new package of coordinated actions meant to raise pressure on Russia over its war in Ukraine, and will finalize plans for a price cap on Russian oil, a senior U.S. official said on Monday – Reuters

·     Citigroup lowered its single point year end S&P 500 target to 4200 from a previous 4700. The implication is for low double-digit upside during 2H. Earnings resiliency is a key differentiator to our view. Fed hawkishness and the rising real rate impact on valuations has been a defining feature of the 1H drawdown, as stubborn inflation has persisted. That is mostly priced into the current index level and multiple. Better than feared earnings and signs of peaking rates, combined with bearish investor positioning, support a positive 2H risk/reward set up

 

Sector News Breakdown

Consumer

·     Spirit Airlines Inc (SAVE) said late Friday that Frontier Group Holdings (ULCC) had raised its cash offer by $2 per share to buy the airline, according to a regulatory filing

·     Homebuilders are among some of the cheapest stocks, according to Barron’s as Wedbush analyst recommended D.R. Horton Inc. (DHI), which generated a 34% return on equity in the year that ended in March and trades for four times earnings and favors small-cap builder Tri Pointe Homes Inc. (TPH) and luxury leader Toll Brothers Inc. (TOL).

·     Kellogg (K) mentioned cautiously in Barron’s saying the company said this past week that it will split into three parts by the end of next year: Global Snacking Co, North American Cereal Co, and Plant Co. However, investors should be favoring food stocks with strong cash flows, pricing power and products that hold up well when the economy slows, Bofa analyst said, adding that he likes Mondelez International Inc. (MDLZ), Hershey Co. (HSY) and Lamb Weston Holdings Inc. (LW)

·     AutoZone (AZO) upgraded to Buy from Neutral at Goldman Sachs

·     Ollie’s Bargain Outlet (OLLI) upgraded to Neutral from Sell at Goldman Sachs

·     Floor & Decor (FND) downgraded to Neutral from Buy at Goldman Sachs

 

Energy

·     Portland General Electric (POR) to replace Digital Turbine (APPS) in S&P MidCap 400 June 29^th as APPS to move to S&P SmallCap 600, replacing Tivity Health (TVTY) which is being sold

·     Gasoline pump prices were down to $4.88/gal with gas prices down for the second straight week

·     FTC Solar (FTCI) files $250M mixed securities shelf; to sell 35.7M shares of common stock for holders

·     WEC Energy Group (WEC) upgraded to Overweight at KeyBanc Capital citing valuation dislocations triggered by the recent industry volatility.

 

Financials

·     Coinbase (COIN) shares fall 4%; downgraded to sell from neutral at Goldman Sachs with price target of $45 citing the continued downdraft in crypto prices and drop in industry activity levels

·     Robinhood (HOOD) upgraded to Neutral from Sell at Goldman Sachs but lower tgt to $9.50 from $11.50 saying fundamentals are still very weak as continued declines in retail trading risk appetite have weighed on active users and margin balances. Notes HOOD shares are now trading at a $6.5B market cap versus its cash position of $6.2B and tangible book value of $7B

·     Goldman Sachs (GS) is said to be looking to raise $2 billion from investors to purchase distressed assets from crypto lender Celsius Network. The potential purchase would allow Goldman to buy Celsius assets at a huge discount in the event of a bankruptcy filing – CoinDesk report

 

Healthcare

·     Arrowhead Pharma’s (ARWR) RNA treatment reduced toxic protein levels. An experimental RNA-based treatment sharply reduced levels of a toxic, mutated protein that causes liver damage in patients with an inherited disease called alpha-1 antitrypsin deficiency, or AATD, according to results from a mid-stage clinical trial presented Saturday – STAT News reports

·     AstraZeneca PLC (AZN) said that its Enhertu drug has been recommended for approval in the European Union for patients with breast cancer; said Enhertu has been recommended by the EU’s Committee for Medicinal Products for Human Use as a monotherapy for the treatment of adults with unresectable or metastatic HER2-positive breast cancer who have received one or more prior anti-HER2-based regimens.

·     Epizyme Inc. (EPZM) rises 60%; agreed to be acquired by France’s Ipsen for an initial $247 million; Ipsen is paying $1.45 a share in cash for Epizyme, a roughly 52% premium to Friday’s close

 

Industrials & Materials

·     Steel is an industry that offers cheap stocks according to Barron’s noting that shares have been hammered on recession fears. But the demand outlook is good, and names like United States Steel Corp. (X), Cleveland-Cliffs Inc. (CLF) and Nucor Corp. (NUE) could offer good value.

 

Technology, Media & Telecom

·     Digital World (DWAC) became aware that a federal grand jury sitting in the Southern District of New York has issued subpoenas to each member of Digital World’s board of directors, according to the company’s 8K

·     Disney (DIS) – WSJ reports Shanghai Disneyland remains closed amid prospect of further lockdowns, sources say; Shanghai Disneyland officials fear a positive covid test could disrupt operations; representative says company is in talks with Shanghai’s government

·     Etsy (ETSY) downgraded to Neutral from Buy at DA Davidson

·     Atlassian (TEAM) upgraded to Buy from Neutral at Goldman Sachs