Closing Recap

Friday, August 04, 2023

Index	Up/Down	%	Last
DJ Industrials	-150.27	0.43%	35,066
S&P 500	-23.52	0.52%	4,478
Nasdaq	-50.48	0.36%	13,909
Russell 2000	-3.94	0.20%	1,957

 

 

 

 

 

 

 

 

 

Stocks finish near the lows in a late day market roll! U.S. stocks slipped early, bounced late morning in another “buy the dip” moment for investors, but major averages slumped late day following a further deterioration in shares of Apple (AAPL) after earnings last night left shares weak, dragging broader averages down. Stock prices ended the week lower, capped by news that the United States had its top rating cut by Fitch mid-week to AA+ from AAA which weighed on market sentiment. Treasury yields and the dollar advanced mid-week (dollar to 3-week highs and yields to YTD highs), while stocks were sold. Stock prices looked strong early, turning higher after weaker nonfarm jobs data (though wages rose) and more upward momentum in riskier assets, but markets couldn’t hold their gains as stocks closed the week down roughly 2% across the board on the week. This week we saw the first decline of more than 1% in the S&P in roughly 47 days before rallying the tail-end of the week to pare weekly losses, but it has been nearly 6-months since the S&P posted a daily decline of over 2% (Feb 21^st) as the S&P 500 remains higher by 17% YTD, the Russell 2000 +11%, the Dow a modest 6% but the Nasdaq outperforms +33% YTD led by a 46% jump in the SOX index. Following the “softer” better jobs report, Atlanta Fed President Raphael Bostic said U.S. employment gains are slowing in an orderly manner and there is no need to hike rates further to ease inflation. The commentary helped ease fears of additional rate hikes at the September meeting.

 

Economic Data

·     Jobs data for July a mixed picture as headline light but wages higher: July private sector jobs +172,000 vs. consensus +179,000), Nonfarm payrolls +187,000 vs. est. +200,000) and both June and May revised lower: June to 185K from 209K and May to 281K from 306K. July government jobs +15,000 above views. July average hourly earnings all private workers +0.4% from prior month vs. est. +0.3% and July average hourly earnings +4.4% from year earlier (est. +4.2%). The U.S. July unemployment rate 3.5% below consensus 3.6%.

 

Commodities, Treasuries and Currencies

·     Oil prices extended their winning streak to 6-week, with WTI crude rising $1.27 or 1.56% to settle at $82.82 per barrel, helped by Saudi Arabia’s decision to continue curtailing its production into the fall, and by signs that oil demand is finally outpacing supply. This week, Saudi Arabia announced that it will continue to hold back an additional one million barrels per day of oil production through September and possibly longer. Russia will reduce its production cut to 300,000 barrels in September from 500,000 barrels in August.

·     Natural gas prices gained +0.5% Friday to settle at $2.577/MMBtu, but end with a -2.3% weekly decline, the fourth weekly drop in the past five weeks amid uncertainty over weather patterns for the remainder of this month. Today’s weekly rig-count report from Baker Hughes showed no change in the number of active, natural gas-targeted rigs in the US. YTD gas is 43% lower.

·     Gold prices reversed higher, rising $7.30 to settle at $1,976.10 an ounce, snapping the 3-day losing streak as the dollar slumped and Treasury yields eased off YTD highs following lower than expected headline job readings.

·     The US dollar fell (DXY -0.7%) after trading flat prior overnight and erasing nearly all the week’s gains, after slowing U.S. jobs growth in July encouraged hopes of a soft economic landing but higher wages suggested the Federal Reserve may need to keep interest rates higher for longer. The U.S. economy added fewer jobs than expected last month, but solid wage gains and a decline in the unemployment rate to 3.5% pointed to continued tightness in labor market conditions. Treasury yields dropped on the day, but still climbed on the week.

 

 

Macro	Up/Down	Last
WTI Crude	1.27	82.82
Brent	1.10	86.24
Gold	7.30	1,976.10
EUR/USD	0.0087	1.1031
JPY/USD	-0.70	141.82
10-Year Note	-0.121	4.068%

 

 

Sector News Breakdown

Consumer

Consumer Staples & Restaurants:

·     In Beverages & Food: BGS Q2 EPS and sales top consensus and reaffirms FY EPS $0.95-$1.15 vs consensus $1.00 and EBITDA $310M-$330M vs consensus $317.3M. MNST reported in-line earnings and slightly weaker sales. POST Q3 EPS $1.52 vs consensus $0.94, revenue $1.86B vs consensus $1.82B and EBITDA $338.2M topped consensus $275.2M. WW no lift all day, falling over -20% after earnings miss and lowered rev outlook for year.

 

Retailers:

·     AMZN shares jump as reported net sales of $134B, above expectations of $131B. Operating income of $7.7B beat consensus of $4.8B. Top-line growth was driven by stronger-than-expected third-party seller services, advertising services, and AWS. AWS revenue of $22.1B beat consensus expectations of $21.8B. Operating income came in higher than expected at $5.4B vs. consensus of $5.0B. 3Q23 net sales were guided in the range of $138B-$143B, +11% y/ y, 2% beat.

·     AEO sees 2q operating income to exceed $25M-$35M; sees Q2 revs to be about flat to last year; sees Q2 rev & operating income exceeding prior guidance; COO Michael Rempel steps down.

·     FND falls as Q2 sales fall below expectations; management cuts full-year guide on continued housing market headwinds; EPS guided down $0.30 at the mid, less than the $0.50 assumed.

·     FNKO shares fell to the lowest levels since late 2020 after Q2 results missed with weaker gross margins (29.2% vs consensus 32.7%) and softer guidance.

·     TUP shares rose after saying it reached an agreement with its lenders to restructure its existing debt obligations, as it continues its turnaround efforts.

·     XPOF reports Q2 EPS $0.07 below consensus $0.14 but revenue $77.3M tops est. $72.0M on better EBITDA $25.3M and guides FY revenue $295M-$305M vs consensus $299.9M.

 

Leisure, Gaming & Lodging:

·     Online travel stocks rebound after BKNG top-line outlook was raised meaningfully, though did not raise its FY margin outlook. Gross bookings of $39.7B (+15% Y/Y) were 4% above consensus while adj. EBITDA of $1.78B exceeded the Street’s $1.47B estimate by 21%. ABNB gross bookings and revenue modestly above consensus, while beating adj. EBITDA expectations by 12.6% and guided 3Q23 adj. EBITDA margin modestly higher Y/Y, and revenue in the range of $3.3-$3.4B.

·     Casino and OSB stocks active after DKNG reported massive beat & raise, with adj. EBITDA +$53M ahead of Consensus and 2023E revenue/adj. EBITDA guidance raised by $315M (+10%)/$110M at the midpoint. DKNG increased MUPs 44% YoY, vs +39% in 1Q23 and +31% in 4Q22 and raised its FY23 revenue growth outlook while significantly reducing its expected EBITDA loss.

·     In Autos: NKLA said Michael Lohscheller will step down as CEO due to a family matter and be replaced by Stephen Girsky at the end of the month (4^th CEO in 4-years for company). NKLA also reports a narrower Q2 loss as lower production of its Tre battery-electric trucks helped costs. FSR shares dropped on earnings results and CARG slides as postponed its second quarter earnings release and conference call with analysts scheduled for Thursday saying they have not completed its customary quarterly closing and review procedures.

 

Energy, Industrials and Materials

·     Energy stocks outperformed as oil prices post set for sixth weekly gain on extended supply cuts by Saudi Arabia and Russia. Global oil demand is set to grow by 2.4 mln barrels per day this year, Russian Deputy Prime Minister Alexander Novak said on Friday. Strength in energy stocks comes disappointing results from handful of earnings this week OXY, COP. Weekly Baker Hughes rig count data showed oil rig count drops for eighth straight week.

·     In Industrials: HAYW 22.26M share Spot Secondary priced at $14.30. MTZ reported 2Q adj EPS beat but lowered revenue, adjusted EPS, and adjusted EBITDA guidance attributed primarily to project delays at IEA pushing revenue into 2024. GNRC upgraded to Buy from Hold at Truist following a ~30% post-earnings sell-off that it sees creating an attractive entry. FLR shares jump on Q2 top/bottom line beat and raised FY adj EPS and Ebitda outlook.

·     In Transports: The Baltic Exchange’s main sea freight index rose for the second straight week on Friday, led by strong demand in the panamax vessel segment. The overall index, which factors in rates for Capesize, Panamax and Supramax shipping vessels carrying dry bulk commodities, gained 8 points, or 0.7%, to 1,136. The main index was up 2.3% for the week. XPO posted a profit decline for Q2 but topped consensus on lighter revs. CSX shares declined after announced that Executive VP of Operations Jamie Boychuk left.

 

Financials

·     In Brokers & Exchanges: ICE upgraded to Buy at Citigroup given better than expected pricing trends through July in trading, a tick up in mortgage transactional activity, improving FICC data outlook and a lower expense trajectory, it is raising estimates.

·     In Real Estate Services: RDFN tumbles following slightly better 2 results (though revs fell to $275.6M from $349M y/y), but sees Q3 revenue $265M-$279M, vs. est. $288.21M and now expects to break even on an adjusted EBITDA basis in the next 12 months, rather than in 2023. OPEN shares also tumbles after weaker guidance as sees Q3 revs $950Mm-$1.0B vs est. $1.359B and adj EBITDA loss (-$70Mm)-(-$60Mm) vs est. (-$56.7Mm).

·     In FinTech: SQ shares tumbled, following weakness in FinTech peer PYPL yesterday after its results; SQ reported gross profit ahead of the Street (~3% upside) with adj. EBITDA well ahead at $384M vs. the Street at $291M, but Square GPV decelerated 5% to 12% y/y and FY Ebitda imply a flat second half of the year, at least when compared with the first half.

·     In crypto: COIN Q2 loss narrowed, and revenue exceeded estimates reported 1Q23 adjusted EBITDA of $194M, well ahead of consensus of $55.5M. Also reported a better-than-expected GAAP loss of $0.42 per share, vs. Street at a loss of $0.76 per share.

·     In Financial Services: IEP shares tumbled after the company cut its quarterly distribution to $1 from $2 previously; also reported a surprise quarterly loss and revenue that lagged consensus estimates.

 

REITs:

·     CPT reported a 2Q23 Core FFO beat and management increased 2023 Core FFO guidance by 0.3%, which is consistent with management’s prior disclosure.

·     CUBE reported in-line 2Q23 results, though management lowered guidance 0.6% at the midpoint as fundamentals are trending below management’s original forecast for the year.

·     EXR reported a disappointing 2Q23 miss driven by lower-than-expected revenue growth in the quarter, and management lowered its FY23 Core FFO guidance 3.8%,

·     RLJ’s adj. FFO came in above expectations and adj. EBITDA was slightly better than consensus after management previously decreased its quarterly guidance to the low end of its initial range. However, RevPAR growth of 4.5% y/y was below the low end of management’s guidance.

·     SKT reported a 2Q23 beat (+$0.02) and management increased FY23 guidance 1.3% at the midpoint because of better-than-expected operating trends in the quarter and an improved outlook for the remainder of the year; management lifted its SSNOI growth forecast by 50 bps.

 

Healthcare

Biotech & Pharma:

·     AMGN raised its profit and revenue guidance for the year as its Q2 results exceeded expectations citing strong sales of treatments for cholesterol, osteoporosis, and other drugs.

·     ASRT shares fall as withdrew its full-year 2023 financial outlook to assess the impact of an FDA-approved generic indomethacin, an arthritis drug.

·     DVAX posted Q2 Heplisav sales of $56M, which topped consensus of $48M and raised full year Heplisav sales guidance.

·     GILD lowered its earnings outlook for the year citing litigation costs accrued from settlements made to some plaintiffs in an antitrust lawsuit over its HIV drugs.

·     LLY reports positive results in trial of treatment for non-small cell lung cancer.

·     MESO announced the FDA had issued a CRL for remestemcel-L for the treatment of steroid-refractory (SR) acute graft-versus-host disease (aGvHD) in pediatric patients, citing that additional clinical data was needed to support marketing authorization.

·     TMDX posted another beat-and-raise with Q2/23 revenue of $52.5M (+156% Y/Y) ahead of consensus $42.4M and raised guidance by $20M to $180M-$190M, which implies 2H/23 is slightly down to slightly up vs 1H/23.

 

Healthcare Services & MedTech movers:

·     RMD shares tumbled after Q4 earnings miss.

·     SYK beat on the top and bottom lines and lifted FY guidance as continues to deliver top-line growth in both MedSurg and Ortho as it notes strong demand.

·     TNDM lowered its annual sales forecast to at least $785M from prior view $885M-$900M saying it sees potential for disruption and reduced sales visibility in the near-term and now sees U.S. sales of at least $575M vs. prior view $560M-$660M.

 

Technology

Internet, Media & Telecom

·     In Telecom: the boards of directors of TDS and USM have each decided to initiate a process to explore strategic alternatives for UScellular. The comprehensive process will explore a range of strategic alternatives.

·     In Media: the WSJ reported post market that KKR is in talks to buy Simon & Schuster for about $1.65B from PARA and that a deal could be announced in the coming days and the agreement is not expected to raise competition concerns w/ US regulators. AMCX shares outperformed following better Q2 earnings results. FUBO Q2 revenue rises 41% to $312.7M topping estimate of $302.1M while North America subscribers of 1.17M, exceeding its midpoint forecast of 1.13M. In Advertising, WPP cut sales view for the year to grow between 1.5%-3%, vs. prior view of +3%-5%. OUT shares fell as reported soft sales growth and cited weakness due to labor strikes and a stalling transit recovery in New York City.

·     In social media: SPT delivered upside to estimates for 2Q but offered an outlook that came in below expectations because of the decision to model "non-core customer" contribution to zero exiting 2023.

 

Hardware & Software movers:

·     AAPL sales declined for a third-straight quarter, first time since 2016, after weak iPhone Sales, and an inventory surge; Q3 revs $81.80B vs. est. $81.55B; Q3 EPS $1.26 vs. est. $1.20; products revs: Products revenue down -4.4% y/y to $60.58B, iPhone revs -2.4% y/y to $39.67B, Mac revs -7.3% y/y to $6.84B (but above views); Q2 service revenue $21.21B, +8.2% y/y (better).

·     Internet Security stocks stumble behind FTNT results and guidance as Q2 billings +18% y/y to $1.54B vs. est. $1.59B; sees FY23 revenue $5.35B-$5.45B, down from prior $5.43B-$5.49B and lower billings outlook for the year (CRWD, S, PANW, OKTA and others were active in reaction). QLYS delivered a strong quarter with a beat on revenue and a very significant beat on EPS as billings also recovered to 11% growth and is expected to stay around these levels for the rest of the year; QLYS hired a new CRO and is postponing some investments.

·     AAOI surges after posted narrower-than-expected adjusted EPS loss and was upgraded at B Riley to Buy citing the ramp of 400G, the supply agreement with MSFT that could be worth $300M over the next 3 years, and CATV bottoming.

·     BIGC reported 2Q results ahead of the Street while guiding the midpoint of 3Q revenue slightly behind expectations; despite beating 2Q revenue guidance, maintained its FY23 revenue guidance at the midpoint while narrowing its guidance band.

·     DBX reported a beat/raise 2Q23 financial update as billings growth of ~10% in 2Q23, up from ~9% in 1Q23.

·     DOCN reported disappointing results, with 2Q revenue in-line with consensus, and guidance below expectations for both 3Q and full year. Due to an error in calculating tax expense in 2022 and 1Q, management postponed EPS results and guidance.

·     NET delivered a beat and raise quarter with record operating income (4th consecutive quarter in a row), EPS, and free cash flow (FCF) estimates and said they are seeing better macro demand and is executing better following last quarter’s sales force realignment.

·     TEAM shares soared as Q2 revs y/y rose 24% to $939Mvs. Est. $914M, sub revs of $800M grew 34%, Cloud revs of $563M grew 30%, and Data Center revs of $232M grew 46%; bad: Cloud guidance is 25%-30% below consensus of 30%, and data center guidance of 30% below est. 33%.

 

Semiconductors:

·     According to the Semiconductor Industry Association (SIA), June total semis sales were down -7.9% YoY, ex-memory sales down -7.6% YoY, memory sales down -12.8% YoY. Total semis ASPs up +1.8% YoY, ex-memory ASPs up +7.8% YoY, memory ASPs down -41.7% YoY. Total semis/core semis sales grew +14.5% MoM/+7.3% MoM, with MCUs strongest core segment (+15.2% YoY).

·     AAPL impact: the company posted Q3 iPhone revenues in line with expectations, citing continued weakness in the U.S., offset by demand strength in emerging markets, while China and Europe are improving. For Q4, it expects y/y revenue performance to be like F3Q23 (-1% y/y), with iPhone revenue y/y to accelerate from F3Q23 (-2% y/y), and Mac and iPad to decline DD% y/y. We view AAPL’s results/guidance as consistent with results posted by key Apple suppliers such as CRUS and QCOM and view this as neutral for our Apple supply chain coverage.

·     CRUS posted strong F1Q (Jun) results and F2Q (Sep) guidance, which both exceeded expectations and were much better than feared given the 8K on July 12 indicating plans for a 5% RIF.

·     MCHP reported in-line F1Q24 (Jun) results and guided F2Q24 (Sep) lower, acknowledging it is finally seeing signs of a cyclical correction after 11 quarters of sequential growth.

·     POWI a slight beat, with revenues of $123.2mn (+15.9% q/q), up +1.0%; lower Sep Q outlook than anticipated, with revenue guidance mid-point at $130.0mn, though still up +5.5% q/q.

·     SYNA posted mixed F4Q (Jun) results and guided F1Q (Sep) lower citing total revs and IoT have bottomed in F4Q, mgt indicated that inventory destocking is likely to persist for several more quarters before normalizing. Additionally, Gross margins missed.