Early Look

Monday, October 17, 2022

Futures	Up/Down	%	Last
Dow	281.00	0.95%	29,989
S&P 500	40.25	1.13%	3,638
Nasdaq	138.50	1.29%	10,882

 

 

U.S. futures are looking to a higher open, with S&P futures +1.1% at 3,640 to kick off the week ahead of a slew of earnings results that could temporarily put the focus back on fundamentals. Overnight, new UK finance minister Hunt scrapped almost all planned tax cuts in bid to appease markets, as Treasury yields slide, and stocks rise. UK long-dated gilt yields dropped further as the UK 30-year gilt down around 40 bps to 4.382%, heading for its second-biggest daily drop on record, while the pound gained over 1% to $1.130 vs. the dollar. U.S. stock market bear Mike Wilson of Morgan Stanley also said this morning US stocks could rally in the short term as the 200-week moving average provides a “serious floor of support” until companies flag an earnings capitulation, or a recession arrives. A team led by Michael Wilson say inflation has likely peaked and “could fall rapidly next year.” Note that history points to the next 3-4 months as the window to fully discount the earnings recession. Expect major earnings cuts in 4Q rather than 3Q and the strategists see the S&P 500 rising to as high as 4,150 points in this rally — suggesting an upside of 16% from its latest close. However, if the index falls below the 200-week moving average, there could be no rally and stocks could decline straight to 3,400 or lower. Investors will also be closely tracking moves in the Fed Funds futures market, where traders are betting on a 93.4% chance of a 75-bps rate hike from the Fed next month, following last week’s hotter-than-expected September inflation reading of 8.2%, with bets on a fifth consecutive move in December rising to 63.3%. In Asian markets, The Nikkei Index fell -314 points to 26,775, the Shanghai Index rose 12 points to 3,084, and the Hang Seng Index edged higher 25 points to 16,612. In Europe, the German DAX is up +0.6% at 12,516, while the FTSE 100 rises +0.5% to 6,895.

 

Stocks slumped Friday, capping off a volatile week of trading, a day after posting a historic turnaround rally as investors digested inflation expectations. The Dow fell 1.33%, the S&P 500 tumbled 2.36% (its 53rd decline of 1% or more this year) and the Nasdaq plunged 3.08%. For the week, the S&P fell 1.53%, the Dow added 1.18%, the Nasdaq shed 3.11%. After big banks started the ball rolling for earnings on Friday (generally better results from JPM, WFC, and Citi), a slew of big-name tech, financials and Industrials are expected this week: TSLA, NFLX, IBM, SNAP, T, VZ in tech, BAC, GS, SCHW, AXP in financials, and AAL, UAL, LMT, HAL, KMI, AA, NUE in industrials/energy.

 

The 10-year yield rose 12.2 bps this week to 4.005%, its largest one-week yield gain since Friday, Sept. 23, 2022, and the yield is now up for 11 consecutive weeks. The yield is up 2.663 percentage points from its 52-week low of 1.342% hit Friday, Dec. 3, 2021. The 2-year yield 20.1 bps this week to 4.507%, also largest one-week yield gain since Friday, Sept. 23, 2022, and up 2-consecutive weeks (up 10 of last 11 weeks). Yield hit highest since Wednesday, Aug. 8, 2007, is up 4.134 percentage points from its 52-week low of 0.373% hit Wednesday, Oct. 20, 2021

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -86.84 points, or 2.37%, to 3,583.07

·     The Dow Jones Industrial Average fell -403.89 points, or 1.34%, to 29,634.83

·     The Nasdaq Composite tumbled -327.76 points, or 3.08%, to 10,321.39

·     The Russell 2000 Index declined -46.01 points, or 2.66% to 1,682.40

 

Economic Calendar for Today

·     8:30 AM ET          Empire Manufacturing for October

 

Earnings Calendar:

·     Earnings Before the Open: BAC BK HNTY SCHW

·     Earnings After the Close: CFB ELS FBK SFBS

 

Other Key Events:

·     China Retail Sales, GDP, and Industrial Output data

 

 

Macro	Up/Down	Last
Nymex	0.41	86.02
Brent	0.33	91.96
Gold	12.70	1,661.60
EUR/USD	0.0035	0.9756
JPY/USD	0.00	148.74
10-Year Note	-0.059	3.947%

 

 

World News

·     UK finance minister Hunt vows to win back financial market trust ‘; “What I’m going to do… is to show the markets, the world, indeed people watching at home, that we can properly account for every penny of our tax and spending plans,” Hunt told BBC; “I’m going to be asking every government department to find further efficiency savings,” he said – Reuters

·     British finance minister Jeremy Hunt announced on Monday tax changes that he said would raise 32 billion pounds ($36.16 billion) a year in extra revenues as he sought to end a rout in the bond market caused by the government’s previous plans. Hunt also said the government’s huge energy price cap would only run until April

·     Economists now expect a recession, job losses by next year ‘; 63% probability of a recession in the next 12 months, up from 49% in July’s survey; GDP will contract at a 0.2% annual rate in the first quarter of 2023 and shrink 0.1% in the second quarter – WSJ

·     The Japanese yen last bought 148.75 per dollar, not far off Friday’s 32-year low of 148.86. Japanese authorities kept up their warnings to the market on Monday of a firm response to overly rapid yen declines. Japan last month intervened to buy the yen for the first time since 1998, after the Bank of Japan stuck to its policy of maintaining ultra-low interest rates, which has battered the currency this year.

 

Sector News Breakdown

Consumer

·     Church & Dwight (CHD) and Clorox (CLX) upgraded to equal-weight from underweight in Consumer Staples at Morgan Stanley, while cutting Edgewell Personal Care (EPC) to underweight from equal-weight

·     Hain Celestial Group Inc (HAIN) expects FY 23 results to be in line with FY23 guidance for adjusted EBITDA on a constant currency basis

·     TJX Cos Inc. (TJX), Ross Stores Inc. (ROST) and Burlington Stores Inc. (BURL) are off-price retailers that benefit from a glut of inventory, something that didn’t happen during the pandemic but is happening now, Barron’s reported

·     Decker’s Outdoor (DECK) positive mention in Barron’s this weekend (follows + write- up in Barron’s digital earlier this week) saying the co may be best known as the maker of winter favorite Ugg sheepskin boots, but the footwear company has become a stock for all seasons, and that it is time to buy the stock

 

Energy, Industrials and Materials

·     Continental Resources (CLR) announces definitive agreement to be acquired by the Hamm family; merger sub will commence tender offer to purchase any and all of outstanding shares of co’s common stock at $74.28 per share

·     Cameco (CCJ) mentioned positively in Barron’s saying its time buy the uranium miner. Article notes CCJ had posted a double-digit gain in 2022, but one deal made those gains disappear and created a buying opportunity. Along with Brookfield Renewable Partners (BEP), Cameco agreed to buy Westinghouse Electric, a servicer to nuclear power plants, for $7.88 billion, including debt. Cameco will own 49% of the joint venture after the deal is complete. But its stock dropped 20% this past week, after Cameco said it would issue $650 million in new shares at $21.95 apiece

·     Mining stocks BHP Group Ltd. (BHP), Rio Tinto Plc (RIO), Glencore Plc (GLNCY) and Anglo-American Plc (NGLOY) among names deserve a second look according to Barron’s noting they have robust balance sheets with little or no net debt, still-solid earnings, ample reserves, and good dividends

·     OPEC+ members line up to endorse production cut after U.S coercion claim ‘; Iraq says the decision was based on economic indicators and was unanimously

 

Financials

·     Goldman Sachs (GS) is planning a major reorganization, with plans to combine its flagship investment-banking and trading businesses into one unit, while merging asset and wealth management into another – WSJ https://on.wsj.com/3EMzNQx

·     BNY Mellon (BK) Q3 adj EPS $1.21 vs. est. $1.10; Q3 revs $4.28B vs. est. $4.2B; Q3 tangible book value per share $21.55; reports Q3 CET1 capital ratio 10%

·     Discover Financial Services (DFS) credit card delinquency rate 1.12% at Sept end vs 1.07% at Aug end; credit card charge-off rate 1.14% at Sept end vs 1.15% at Aug end

·     NMI Holdings (NMIH) downgraded to Market Perform from Outperform at Keefe Bruyette

·     Radian Group (RDN) upgraded to Outperform from Market Perform at Keefe Bruyette

 

Healthcare

·     Unity Biotechnology (UBX) files for mixed shelf of up to $250 mln

·     Hims & Hers (HIMS) downgraded to Neutral from Overweight at Piper Sandler

·     Acorda Therapeutics (ACOR) rises after saying an arbitration panel awarded $16.5 million from Alkermes (ALKS) as part of its final decision in a dispute regarding licensing royalties relating to drug AMPYRA

·     Moderna Inc (MRNA) has agreed to provide its new variant-adapted COVID-19 vaccine to the global scheme aiming to deliver shots to the world’s poorest people.

·     Sage Therapeutics (SAGE) and Biogen (BIIB) present further analyses from phase 3 skylark study of zuranolone in postpartum depression at the European college of neuropsychopharmacology ECNP) Congress

 

Technology, Media & Telecom

·     Activist investor Starboard Value LP has built a just under 5% stake in Splunk (SPLK) and plans to push the software maker to take action to boost its stock price – WSJ https://on.wsj.com/3S0Klys

·     Oracle (ORCL) mentioned positively in Barron’s saying the stock looks cheap again. Oracle is using the cloud to drive new growth in the company’s application and database software businesses, while also moving to take on the three giants in the public cloud – Amazon (AMZN) Web Services, or AWS, Microsoft (MSFT) Azure, and Alphabet (GOOGL) Google Cloud, Barron’s noted.

·     Rupert Murdoch explores recombination of Fox Corp. (FOXA) and News Corp (NWSA), the WSJ reported. A special committees established at both to study possible deal. Deliberations are at an early stage, sources say; Murdoch family has large voting stakes in each company; Murdoch split up his holdings into two companies in 2013 https://on.wsj.com/3MxoKwl