Early Look

Tuesday, October 11, 2022

Stocks looking lower yet again, with S&P futures falling another 1% below 3,600 as the stock market pain continues, hitting lows of 3,584.25 ahead of key inflation data later this week (reminder Oct 3 low was 3,571.75). Stocks declined on Monday with the Nasdaq falling to the lowest level since September 2020 as tech shares continue to be the hardest hit because of spiking interest rates slowing growth. The Philadelphia semi-index (SOX) is now down over 40% YTD after yesterday’s slide as the Nasdaq dropped over 1%. All three major indexes fell for the fourth straight session heading into several high profile, potentially market moving catalysts later this week. We get the release of minutes from the Federal Reserve’s September meeting, a report on inflation in September (PPI on 10/12 and CPI on 10/13), and the start of the third-quarter earnings season (big banks JPM, WFC, MS, Citi all expected to report Friday morning). The Bank of England intervenes in bond markets again, saying “dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” the Bank of England warned. The move marks the second expansion of the central bank’s extraordinary rescue package in as many days, after it increased the limit for its daily gilt purchases on Monday. Asian chip-related stocks slide on the Biden administration’s move to put fresh curbs on China’s access to US semiconductor technology. In Asian markets, The Nikkei Index plunges -714 points or .26% to 26,401, the Shanghai Index edges higher 5 points to 2,979, and the Hang Seng Index fell -384 points or 2.23% to 16,832. In Europe, the German DAX is down -110 points to 12,160, while the FTSE 100 declines -75 points or over 1% to 6,888. Oil prices are down over 2%, falling for a second day after WTI crude surged 16% last week. Treasury yields reopen higher, and the dollar is flat.

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -27.22 points, or 0.75%, to 3,612.44

·     The Dow Jones Industrial Average fell -93.85 points, or 0.32%, to 29.202.94

·     The Nasdaq Composite tumbled -110.30 points, or 1.04%, to 10,542.10

·     The Russell 2000 Index declined -10.23 points, or 0.60% to 1,691.92

Economic Calendar for Today

·     6:00 AM Et          NFIB Small Business Optimism for September

·     7:45 AM ET          ICSC Weekly Retail Sales

·     8:55 AM ET          Johnson/Redbook Weekly Sales

·     12:00 PM ET        Fed’s Mester Speaks to Economics Club of New York

·     1:00 PM ET          US Treasury to sell $40B in 3-year notes

·     4:30 PM ET          API Weekly Inventory Data

Earnings Calendar:

·     Earnings Before the Open: AZZ

·     Earnings After the Close: APLD ETWO VOXX

World News

·     U.S. small-business confidence improved in September as labor shortages eased slightly but concerns about inflation remained as the National Federation of Independent Business (NFIB) said its Small Business Optimism Index increased 0.3 points to 92.1 this month, the second straight month of gains following a deterioration in the first half of this year.

·     A flood of fuel exports from China may provide some relief to a tight global diesel market before Russian oil sanctions. French Finance Minister Bruno Le Maire called on TotalEnergies and unions to bring an end urgently to refinery strikes – Bloomberg

Sector News Breakdown

Consumer

·     Leggett & Platt (LEG) lowers full-year guidance and announces recent acquisitions; said full year 2022 sales guidance lowered to $5.1-$5.2B from prior $5.2B-$5.4B (est. $5.32b) and 2022 EPS guidance reduced to $2.30-$2.45 from prior $2.65-$2.80 (es.t $2.71)

·     Lululemon (LULU) upgraded to overweight from neutral at Piper, noting the company’s momentum in the broker’s Spring 2022 Taking Stock with Teens survey

Energy, Industrials and Materials

·     AZZ Inc. (AZZ) Q2 adj EPS $1.24 vs. est. $1.35; Q2 revs $406.7M vs. est. $470.9M; said will not issue FY23 guidance at this time

·     Air Lease Corporation (AL) announced an update on aircraft investments and sales activity occurring in the third quarter of 2022. As of September 30, 2022, ALC’s fleet was comprised of 405 owned aircraft and 87 managed aircraft, with 412 new aircraft on order from Boeing (BA) and Airbus (EADSY) set to deliver through 2028

·     SunPower (SPWR) downgraded to Underperform at Bank America saying it sees underappreciated risks of panel supply

·     XPO Logistics (XPO) named a new finance chief ahead of the planned of its freight brokerage business later this year

Financials

·     AGNC Investment Corp (AGNC) said for qtr ended September 30, comprehensive loss per common share was estimated to be between $1.99 and $2.03 per share; for qtr ended sept 30, Co’s net spread and dollar roll income was estimated to be between $0.82-$0.86

·     Brookdale Senior Living (BKD) said Sept sequential occupancy increased 50 basis points both on a weighted average and month-end basis

·     Rocket Companies (RKT) downgraded to In Line from Outperform at Evercore ISI

·     Vitru (VTRU) downgraded to Neutral from Buy at Goldman Sachs

Healthcare

·     Orthofix Medical (OFIX) said it agreed to combine with SeaSpine (SPNE) in an all-stock merger of equals. Under the terms, shareholders of SeaSpine will receive 0.4163 shares of Orthofix for each share of SeaSpine owned. Orthofix shareholders will own about 56.5% of the combined company, while SeaSpine investors will hold a roughly 43.5% stake. https://bit.ly/3rHJB6N

·     Amgen (AMGN) upgraded to overweight from equal weight by Morgan Stanley, which highlighted the unappreciated upside in the biopharma’s mid-term pipeline

·     Rigel (RIGL) announced that it will reduce its workforce by 16%, resulting in the elimination of 30 positions primarily in development and administration.

·     Sanofi (SNY) and Regeneron Pharmaceuticals (REGN) said their medicine Dupixent showed positive results in a phase 3 trial to treat children aged one to 11 years with active eosinophilic esophagitis (EoE).

Technology, Media & Telecom

·     Amazon (AMZN) with its two-day “Prime Early Access Sale” that begins today (its second discount day of the year and an early start to the U.S. holiday shopping season)

·     Angi (ANGI) announced the appointment of Joey Levin, CEO of IAC (IAC) and chairman of Angi, to CEO of Angi. Oisin Hanrahan has stepped down as CEO and director of Angi

·     KLA Corp (KLAC) will cease offering some supplies and services from Wednesday to China-based customers including South Korea’s SK Hynix in compliance with recent U.S. regulations, a source familiar with the situation said on Tuesday – Reuters reported

·     Roblox (RBLX) initiated with an Underweight at Barclays. PT $20

·     Meta Platforms (META) downgraded to neutral from overweight by Atlantic Equities as sees the company’s growth outlook increasingly challenged by the strengthening macro headwinds and growing competition for advertising dollars

·     Zscaler (ZS) announced that Amit Sinha has accepted a CEO position at a privately held technology company and will resign from Zscaler effective October 21