Closing Recap

Thursday, August 24, 2023

Index	Up/Down	%	Last
DJ Industrials	-373.50	1.08%	34,099
S&P 500	-59.81	1.35%	4,376
Nasdaq	-257.06	1.87%	13,463
Russell 2000	-23.75	1.27%	1,846

 

 

 

 

 

 

 

 

 

It looked like it was going to be a bright day on Wall Street after chip maker NVIDIA reported blowout quarterly results and guidance last night, leading to an overnight rally in S&P and Nasdaq futures, but investors sold the pop in technology stocks, exhibiting caution ahead of commentary on rates and the economy from Fed Chairman Powell tomorrow morning at the Fed’s annual Jackson Hole gathering with world central bank leaders. Dow components DIS, BA and NKE weighed on the index as DIS hit a fresh 52-week low to lowest levels since March 2020, BA fell after its main plane supplier flagged issues affecting some 737 Max, and NKE remains in a downtrend, failing to snap its 10-day losing streak. All eleven S&P sectors ended lower as stocks bled into the close, with the S&P ending below yesterday’s lows. Technology (XLY) fell the most, down about -2.3% erasing yesterday’s advance, as the Nasdaq Composite dropped around 300 points off its opening highs. Consumer discretionary (XLY) and Communications (XLC) rounded out the top decliners. More earnings tonight in retail with ULTA, GPS, JWN results expected and MRVL, WDAY in technology. Gold, oil, and yields were little changed. After not positing a close of more than 1% since June 30^th, the S&P has done it twice this week.

 

Economic Data

·     Weekly Jobless Claims fell to 230K from 240K last week (240K also consensus est.) as the 4-week moving average rose to 236,750 from 234,500 prior; continued claims fell to 1.702M in latest week from 1.711M prior (est. 1.708M) and insured unemployment rate fell to 1.1% from 1.2%.

·     July Durables Goods Orders dropped -5.2%, more than the consensus (-4.0%) and vs June +4.4%; July Durables ex-transportation orders +0.5% vs. est. +0.2%; July Durables ex-defense orders -5.4% vs June +5.9% (prev +6.0%). U.S. July gen. Machinery orders +1.1%, electrical equipment +1.0%, defense aircraft/parts -10.9%.

 

Fed Speakers from Jackson Hole

·     Fed Chairman Powell not set to speak until tomorrow morning at 10:15 AM.

·     Philadelphia Fed President Patrick Harker got things going this morning saying there clearly is a tightening of credit; is not concerned about rise in market yields; said low-income consumers are slowing down and right now, Fed has probably done enough with policy and lastly that he needs to see inflation falling before would be willing to cut rates.

·     Boston Fed President Susan Collins speaking at Yahoo Finance saying sees promising signs Fed work having desired effect; said Fed has more work to do; must be patient, resolute; says it will take time to get inflation to 2% goal; said may need additional increments, may be near hold point. Collins said it is extremely likely the Fed will hold for some time and won’t signal at this time exactly where peak rate is.

 

Currencies & Treasuries

·     Oil prices rise as WTI crude settles at $79.05 per barrel, up 16 cents, 0.20% bouncing off the lowest levels in a month and Brent Crude futures settle at $83.36/bbl, up 15 cents, 0.18%. Prices recouped some of yesterday’s losses ahead of Fed Powell comments Friday. Natural gas prices rose 0.9% at $2.519/MMBtu after a small weekly storage injection.

·     Gold prices slip -$1.00 to settle at $1,947.10 an ounce ahead of Powell tomorrow.

·     Treasury yields were steady in comparison to the volatile moves seen earlier in the week, as the 10-year rose as high as 4.24% this morning and lows around 4.18% ending little changed ahead of Fed Chairman Powell comments at Fed annual gathering tomorrow.

·     The US dollar resumed its upward momentum after a notable pullback the day prior, as the dollar index (DXY) moved back around 104.00, +0.55% after higher jobless claims data and comments from Fed members today (Collins, Harker) not sounding like rate cuts are coming anytime soon.

·     The Turkish lira rises significantly after the Turkish central bank raised its key interest rate by a hefty 750 basis points to 25%, from 17.5% previously.

 

 

Macro	Up/Down	Last
WTI Crude	0.16	79.05
Brent	0.15	83.36
Gold	-1.00	1,947.10
EUR/USD	-0.0043	1.0816
JPY/USD	1.01	145.84
10-Year Note	0.027	4.225%

 

 

Sector News Breakdown

Consumer

Consumer Staples & Restaurants:

·     Food processing: HAIN reported slightly better Q4 EPS/sales beat ($0.11/$447.8M vs. $0.10/$442.4M) and said sees FY adjusted net sales up 2% to 4% y/y and EBITDA $155M-$165M vs. est. $182.8M and names Lee Boyce as new CFO, succeeding Chris Bellairs. IFF downgraded from Overweight to Equal Weight at Morgan Stanley and cut tgt to $75 from $112 saying after three FY23 guidance resets YTD, now sees risk to mid-term strategic goals.

Retailers:

·     Discount retailers under pressure after DLTR reports top/bottom line beat and better comps of 7.8% (7%-8% view), narrows year EPS view and boosts year sales view – but guides Q3 EPS $0.84-$1.04 below est. $1.28 and said Q2 gross margins declining -220bps y/y with less unfavorable sales mix, shrink, higher wage investments, offsetting lower freight costs. Shares of other dollar stores/discounters DG, FIVE, BIG moved in reaction.

·     In apparel retail: GES shares rise after Q2 adj EPS $0.72/$665M easily tops $0.40/$640.5M and raises FY24 EPS view to $2.88-$3.08 from $2.60-$2.90 and narrows higher FY24 revenue growth view to 2.5%-4.0% from 2.0%-4.0%; Sales in Europe grew 9% and sales in Asia were up 19%. DXLG EPS and sales short of y/y comps and said trimming financial outlook for remainder of year as sees sales to range from $535M-$545M, but shares bounced.

·     In Beauty and Personal Products: Goldman Sachs upgraded KVUE to Buy from Neutral, as it sees compelling relative valuation with an approaching catalyst for a re-rating. Notes following a successful IPO, KVUE has fallen 14% from its peak reached on May 15. EL was downgraded to Market Perform from Outperform at Bernstein; ULTA reports earnings tonight.

·     In Off price retail: BURL Q2 EPS $0.60 tops $0.43 est. saying net income more than doubled on in-line sales of $2.17B while guides Q3 adj EPS $0.97-$1.12 vs. est. $0.84; sees FY comp sales +3% to +4%, vs. prior +3% to +5%, est. +4.31% and EPS $5.60-$5.90 vs. est. $5.80. Morgan Stanley noted that BURL beat on comps but light relative to ROST and TJX.

·     In online retail: Piper raises AMZN tgt to $185 from $175 saying recent comments from the company’s Q2 earnings call suggest Amazon may have reached a new threshold in shipping and fulfillment cost efficiency and sees evidence of this emerging in GMs; says the Q3 incremental operating income guidance "was by far the strongest in company history."

·     In Specialty retail: watch retail MOV cuts FY24 sales view to $690M-$700M from $725M-$750M and EPS view cut to $2.15-$2.25 from $2.70-$2.90 to reflect the continued expected impact of the challenging consumer discretionary environment on the business.

 

Homebuilders, Building Products, Home Furnishing:

·     Lots of notable headlines this week in the Housing industry: Yesterday data showed U.S. Mortgage demand dropped to a 28-year low with adjustable-rate mortgage share of the application rising to a five-month high. Last week, the average contract interest rate for 30-year fixed-rate mortgages increased to 7.31%. Meanwhile, July New Home Sales were 714k vs 703k estimates. Zillow reported that 50% of all home buyers are first time buyers, which is the highest proportion on records. The share of 1st time buyers hasn’t been this high since 2010.

 

Energy, Industrials and Materials

·     In Aerospace & Defense: BA shares fell as well as supplier SPR (which makes roughly 70% of Boeing narrowbody jet frames as per Reuters) after Being disclosed improperly drilled holes in a component that helps maintain cabin pressure within the 737 Max jet. The latest issue with Boeing’s best-selling model threatens to derail delivery targets for the Max.

·     Separately, Australia’s Qantas Airways announced an order for 24 widebody aircraft, the final piece of the company’s jet fleet renewal program, as the multi-billion-dollar order is split between 12 Airbus A350s and 12 Boeing 787s.

·     In Energy, CPG cut its avg production guidance for the full year to156,000 to 161,000 boe/d, from 160,000 to 166,000, and cut capex to C$1.09B-C$1.19B from prior C$1.19B-C$1.29 and sold its North Dakota assets for US$500 million.

 

Financials

Banks, Brokers, Asset Managers:

·     In Canadian banks: Royal Bank of Canada said it plans to cut as much as 2% of its full-time staff in the coming quarter after a surge in expenses weighed on third-quarter results. Expenses climbed 23% to C$7.86 billion ($5.8 billion) for the fiscal third quarter.

·     In Insurance: RLI announced an estimated range of pretax net catastrophe losses from Hawaiian wildfires of $65M-$75M to be reflected in the third quarter of 2023; PRU was upgraded to Strong Buy from Market Perform at Raymond James with $125 tgt as expects will re-rate as it proves out its transformation strategy and reflects potential for increased share repurchases as a catalyst.

·     In Lending/finance: ALLY downgraded from Outperform to Peer Perform at Wolfe saying they previously assumed NIM would benefit in a recession but now see a greater likelihood of higher-for-longer rates exacerbating margin pressures and move to the sidelines. Wolfe upgraded DFS from Peer Perform to Outperform w/ $104 PT as believe recent underperformance fueled by internal control and risk management deficiencies that will ultimately be remediated.

 

Healthcare

Healthcare Services & MedTech movers:

·     In MedTech: MDT said an FDA panel narrowly voted against recommending its blood pressure treatment device, saying risks tied to using it do not outweigh the benefits. In research, Morgan Stanley downgraded SGHT, STVN to equal weight, cut AGTI, IART to Underweight and upgraded NPCE to Equal weight and lowered tgts on PODD to $208 from $343, EMBC to $16 from $19, AGTI to $10 from $15, and OM to $19 from $22 heading into its September Healthcare conf. PLSE shares fell after negative short call from White Diamond research.

·     In Managed care: CI announced the removal of nearly 25% of medical services from prior authorization (or precertification) requirements. With the removal of these more than 600 additional codes, the company has now removed prior authorization on more than 1,100 medical services since 2020. In pet insurance, WOOF shares fall as lowers FY23 adjusted EPS view to $0.24-$0.30 from prior $0.40-$0.48 (est. $0.42) and backs FY23 revs as says sees shift in consumer spending, pressures on discretionary business.

 

Technology

Hardware & Software movers:

·     Software movers on earnings:

·     ADSK shares rise as Q2 results were solid with a beat and raise across the board as management noted outperformance was primarily driven by early expansions from EBAs; also sees FY revs +8-9% vs est. +8.17%, and adj EPS $7.30-7.49 vs est. $7.28.

·     SNOW reported product revenue growth of 37% Y/Y, coming in above the Street’s ~34% target and mgmt reiterated its FY24E product rev forecast of 34% Y/Y; for Q2, had 402 customers with trailing 12-month product revenue greater than $1 million.

·     SPLK reported a solid quarter while raising their FY/24 outlook for all metrics; quarter was highlighted by profitable growth with ARR +16% y/y while operating expenses declined by 3% y/y as management noted a milestone quarter for its ongoing efficiency gains; sees FY total ARR $4.15-$4.17B vs prior $4.125-$4.175B and adj op mgn 21.0-21.5% vs prior 18.0-18.5%.

·     ZUO reported EPS beat and in-line revs for Q2 while guided both Q3 and FY revs below consensus while profit outlook topped consensus.

·     In Hardware: VZIO was double downgraded from Buy to Underperform at Bank America and cut tgt to $6 from 11 saying the device (TV) side of the business will face challenges from a weaker consumer spending environment, as firm cut its device estimates to reflect lower TV unit sales.

 

Semiconductors:

·     NVDA knocked the cover off the ball again, reported better-than-expected Jul-Q results and guidance amid continued AI demand strength. Data Center rose an impressive 141% Q/Q crushing ests while Gaming increased 11% Q/Q. overall revs/EPS of $13.51B/$2.70 easily topped Street’s $11.2B/$2.08 and guided Q3 revs $16B vs. Street’s $12.6B.

·     The semiconductor index (SOX) surged on Wednesday (+2.15) ahead of NVDA earnings results, but the group saw profit taking today in a “sell the news” event (SOX -3.3% late day) after the big beat and raise. Names in the AI space like SMCI, AVGO, AI saw big gains overnight but subsequent selling this morning. MRVL falls 7% ahead of earnings tonight.

·     Semicap equipment impact from NVDA results: Stifel noted NVIDIA reported substantial sequential strength and YY sales momentum in its datacenter/AI driven compute sales. On the back of its strong outlook and visibility into next year, Stifel expects continued favorable sentiment for its semicap/memory coverage. Names highlighted with higher per capita exposure to AI-driven HBM DRAM and/or advanced packaging expansion are LRCX, ONTO, CAMT and said AMAT and FORM also warrant attention as well.