Closing Recap

Friday, July 29, 2022

Equity Market Recap

·     U.S. stocks advance for a 3^rd straight day, with the S&P and Nasdaq Composite posting their best monthly return since November 2020, boosted today by big tech earnings from Apple and Amazon as markets ignore another rise in key inflation data. Yesterday markets ignored the second straight month of negative GDP and today saw pretty-hot inflation numbers with 2Q employment cost index up 1.3% m/m and Core PCE up 4.8% y/y – the key metric the Fed watches and wants to see 2%. The June PCE price index y/y rise +6.8% (highest since Jan 1982). It didn’t matter, at least for today, with markets “melting” higher throughout the trading day and adding to its big weekly advance. There were several key earnings results this week, with nearly 1/3 of the S&P 500 overall reporting (and another 1/3 due next week), but it was strength in the all-important technology sector (AAPL, AMZN last night after MSFT, GOOGL mid-week), coupled with a more “dovish” Fed that boosted stocks. Nothing else matters for now as the CBOE Volatility Index (VIX) trades to lowest since April (no fear), with price leading the action, as the S&P first topped its 50-day moving average around 3,920 last week, then the 4,000 and 4,100 level just this week (up 7 of the last 9 trading days) and its 100-day MA of 4,120.

Economic Data:

·     Personal Income for June rises +0.6% vs 0.5% expected (May was up +0.6%), and spending rose +1.1% vs 0.9% estimate (and vs May +0.3%); June real consumer spending +0.1% vs May -0.3%

·     June overall PCE price index +1.0% vs May +0.6% and June core PCE price index +0.6% above the +0.5% estimate and May’s +0.3%. June PCE price index y/y rise +6.8% vs May +6.3% and core PCE y/y rises +4.8% vs. est. +4.7% and May reading of same

·     U.S. Q2 employment cost index (ECI) rose +1.3% above the 1.2% estimate but down from +1.4% in Q1; Q2 wages/salaries +1.4% vs Q1 +1.2% and Q2 benefit costs +1.2% vs Q1 +1.8%

·     University of Michigan surveys of consumers sentiment final July 51.5 vs. consensus 51.1 and above final June 50.0; current conditions index final July 58.1 vs prelim July 57.1 and final June 53.8 and expectations index final July 47.3 vs prelim July 47.3 and final June 47.5

Commodities

·     Oil prices rise, but settle off the highs, with WTI crude up $2.20 or 2.28% to settle at $98.62 per barrel (highs $101.88) as attention turned to next week’s OPEC+ meeting and expectations that it will disappoint U.S. hopes for a supply boost. Still, for the month, oil prices posted a decline. Today marked the 44th straight day that gas prices have declined as the national average stands at $4.230/gal, down 80 cents from June 14^th according to industry data. Baker Hughes (BKR) said the weekly U.S. oil rig count rose 6 to 605, total rig count rises 8 to 767, and the gas rig count was up 2 to 157. Baker Hughes says U.S. Drillers add oil rigs for record 23rd month in a row.

·     Gold prices rise $12.60 or 0.7% to settle at $1,781.80 an ounce, getting a late week boost as the dollar pared recent gains. Economic data this week has been “softer”, while inflation readings staying higher. Just today, U.S. consumer spending increased more than expected in June, with monthly inflation surging by the most since 2005. Still, gold posted its fourth straight monthly drop, now down over $300 since climbing past the $2,000-per-ounce level in March, as the Fed started its rate hike path. Chicago soybeans rallied, set for their biggest weekly rise in 22 years, as forecasts of hot and dry weather in the U.S. Midwest raised supply concerns; corn is on track for its biggest weekly gain in nearly five months, – CBOT soybean contract up over 11% this week.

Currencies & Treasuries

·     The decline in the dollar/yen (USDJPY) continued the momentum over the last few days, leading into, and post, the FOMC and has now declined over 3% since this week’s Wednesday high of 137.46; meanwhile the euro bounces back above 1.02 after briefly dropping below parity a week ago vs. the dollar. Mixed economic data signals have weighed on the dollar and sentiment with inflation continuing to creep higher, but confidence, manufacturing and housing data staying weak, leading to expectations the Fed will slow its rate hike cycle after this week’s 75-bps move. The 10-yr Treasury yield falls over 6-bps to below 2.63%; the 2-yr yield flat at 2.87%; the 30-yr down 6.4 bps to 2.975%.

·     Bitcoin prices hits 6-week high topping $24,000 in a post-Fed rally (24,440 intraday high) before fading. Bitcoin’s rally began after the Federal Reserve hiked interest rates on Wednesday but signaled that the pace of such rises could slow. Bitcoin is down about 48% this year and remains more than 60% off its all-time high price of $68,990.90 hit in November. Bitcoin has been trading within a range of around $18K-$24K since mid-June. A deluge of negative headlines and sentiment has weighed on prices: the collapse of Terra/Luna, Celsius Network pausing client withdrawals, Three Arrows looking for a restructuring and bailout, Babel Finance suspended redemptions and withdrawals, and Voyager has a substantial loan exposure to Three Arrows.

Sector News Breakdown

Consumer

·     Retailers: DECK a strong beat and raise mainly driven by stronger revenue growth (+$0.15) and resulting SG&A leverage (+$0.32) as HOKA was the standout brand, growing +55% while UGG was down -2.4%; VFC posts mixed Q1 results as earnings miss estimates on slightly better revs though now expect FY adjusted eps of $3.05 to $3.15 vs. est. $3.34 – weak Q2 Vans revenue down 7% y/y at $946.8M; CRI guides year sales $3.25B-$3.3B vs. est. $3.52B and lower EPS outlook as well after posted a miss on to/bottom line for Q2

·     Consumer Staples; PG slips as Q2 EPS $1.21 vs. est. $1.22; Q2 sales rose 3% y/y to $19.5B vs. est. $19.4B; expects to buyback $6B to $8B of shares in fiscal 2023; forecasts average fiscal 2023 earnings per share of $5.93, below estimate of $6.02; CL 2Q EPS $0.72 vs est. $0.71 on better sales of $4.48B while sees FY sales higher end of +1-4% vs est. +2.2%, and increases its 2022 organic sales growth expectation to between 5% and 7%, up from a prior range of 4% to 6%; CHD Q2 net sales rose 4.2% y/y to $1.33B, slightly below ests with adj EPS a bit better with organic sales +3.4%; NWL mixed 2Q results (EPS beat sales miss) but guides 3Q sales $2.39B-2.5B below the est. $2.58B, and core sales -1 to -5% and lower year view

·     Restaurants; TXRH same-store sales growth of 7.6% ahead of the Street and included (0.8%) traffic, 7.4% price and 1.0% menu-mix with a further 3.9% increase in July against difficult (44.1%) comparisons and forecast commodity inflation of just 9% in 2H22, down from ~14.5% in 1H22; BLMN Q2 EPS $0.68 tops $0.62 estimate on revs $1.125B vs. est. $1.105B and comp restaurant sales fell (-0.4%) with Outback Steakhouse down 1.1%, Carrabba’s Italian Grill down 1% and Fleming’s Prime Steakhouse & Wine Bar up 6% – raises year rev view to $4.4B-$4.45B from $4.35B-$4.4B prior but EPS lower; WING downgraded from Buy to Hold at Stifel following the 20% appreciation in the stock following the 2Q earnings release while have a favorable view of the company’s near-term sales outlook and longer-term growth prospects; YUMC 2Q adj EPS $0.20 vs est. $0.00 on revs $2.13B vs est. $2.18B; comps -16%; says entering 3Q gradual recovery

Energy

·     Energy stock movers; big cap energy out with earnings as CVX Q2 adj EPS $5.82 tops the est. $5.10 and Q2 revs $68.76B above est. $59.29B, while raises top end of annual buyback guidance to $15B and said qtrly worldwide net oil-equivalent production was 2.90 mln barrels per day; XOM Q2 adj EPS $4.14 vs. est. $3.98; Q2 revs $115.6B vs. Est. $132.7B; qtrly oil-equivalent production in the second quarter was 3.7 million barrels per day; capital and exploration expenditures were $4.6 billion in the second quarter

·     Energy equipment & E&P movers: CLR reports Q2 EPS beat of $3.47 vs. est. $3.18 and revs $2.65B vs. est. $2.57B with a total equivalent production beat on lower-than-expected CAPEX, maintained 2022 CAPEX at prior guidance and posted a quarterly EBITDA beat (but had lower quarterly oil production); SLCA Q2 adjusted earnings and revenues topped views, saying it sees signs that its oil and natural gas customers are eager to lock in sand supplies.

·     Utilities & Solar; FSLR upgraded to Outperform at Oppenheimer following earnings last night which were mixed as cost, logistic, and currency headwinds impacted operating results, but the company was able to complete the sale of its project business and book 10GW since its last conference call; EIX Q2 core EPS $0.94 vs. est. $0.92; Q2 revs $4.01B vs. est. $3.55B; reaffirms 2022 EPS guidance of $4.40-$4.70 and reiterates long-term EPS growth rate target of 5-7%; ES 2Q EPS $0.84 vs est. $0.84 on revs $2.57B vs est. $2.31B; guides FY EPS $4.04-4.14 vs est. $4.11 excluding transaction and transition charges; reaffirmed long-term EPS growth rate

Healthcare

·     Pharma movers; ABBV Q2 adjusted EPS $3.37 vs. est. $3.31; Q2 revs $14.58B vs. est. $14.64B; backs FY22 adjusted EPS view $13.78-$13.98 vs. est. $13.91 (guide excludes any impact from acquired IPR&D and milestones that may be incurred beyond the second quarter of 2022); BMY said a trial evaluating a combination of its two cancer drugs, Opdivo and Yervoy, failed to meet the primary goal to treat localized kidney cancer; BHC adds to yesterday losses, after falling -41% Thursday following the adverse lower court ruling in the Xifaxan patent case; ENTA rises after saying its oral antiviral treatment for COVID-19, EDP-235, was generally safe and well-tolerated in healthy adults in an early-stage study

·     Biotech movers: SRPT its intent to submit a Biologics License Application (BLA) seeking accelerated approval for SRP-9001 to treat ambulant individuals with Duchenne muscular dystrophy. SRP-9001 is an investigational gene therapy for Duchenne being developed in partnership with Roche; SGEN posted solid 2Q across the product portfolio and slight raise in FY revenue guidance driven by Adcetris; MRNA announces new supply contract with the U.S. Government for an initial 66 million doses of a Moderna bivalent COVID-19 booster vaccine with options for U.S. Government to purchase up to an additional 234 million doses; names that have been moving on monkeypox vaccine news (SIGA, CMRX, TNXP, INO) declined late day after FDA provides update on agency response to monkeypox outbreak

·     MedTech Equipment; DXCM tumbles as Q2 EPS $0.17 misses est. $0.19; Q2 revs rose 17% to $696.2M vs. est. $698.6M; sees FY22 revenue $2.86B-$2.91B below consensus $2.92B and delayed the timeline for G7, with FDA clearance and limited launch expected later this year; EW slides as 2Q total revenues fell short of consensus ($1.37B vs $1.40B) and came in at the low end of guidance, driven primarily by underperformance in the all-important TAVR franchise; MTD 2Q top and bottom-line beat highlighted by 10% constant currency growth: 2Q revenue of $978mn beat consensus of $952mn and EPS of $9.39 beat consensus of $8.77. Total revenue growth of 5.8% came in above consensus of 3.0%; AVTR slides early on Q2 miss

Industrials & Materials

·     Industrial & Machinery; UBS upgrades Sandvik to neutral from sell, cutting its as sees a balanced risk-reward ratio on the Swedish engineering company; GWW (new all-time highs) raises FY22 daily growth view to 14.5%-16.5% from 11%-14% and gross profit margin view to 37.2%-37.5% from 36.8%-37.3%; Barnes Group (B) slips after lower guidance for year to $1.90-$2.05 from $2.20-$2.40 prior; MOOGGAAP EPS of $0.03 misses by $1.36, revenue of $773M beats by $10.72M; GTLS lowers FY22 adjusted EPS view to $5.20-$5.60 from $5.35-$6.50 and cuts FY22 revenue view to $1.725B-$1.80B from $1.725B-$1.85B (est. $5.24 and $1.75B); GE rises an 11th straight winning session

·     Metals & Materials; in steel sector, US Steel (X) announces a new $500 mln stock buyback authorization; Q2 EPS $3.86 vs. est. 43.87; Q2 revs $6.29B vs. est. $5.76B; Q2 adjusted EBITDA rose 26% y/y to $1.62B above est. $1.44B; VALE said Q2 earnings fell sharply from a year earlier, smacked by declining iron ore and copper prices at the end of the quarter – Q2 adjusted EBITDA plunged 53% Y/Y to $5.25B from $11.2B a year earlier, far short consensus estimate $6.32B

·     Chemicals; several earnings results overnight as: CE reported 2Q22 adjusted EBITDA of $744M topping the $705M Street estimate driven by better-than-expected top line growth in Engineered Materials, with Acetate Tow coming in below expectations; CC Q2 adj EPS $1.89 vs. est. $1.43; Q2 revs up 16% y/y to $1.9B vs. est. $1.84B; price was a positive contributor to the improved results; EMN reported 2Q adj EPS of $2.83 above the $2.68 consensus from adjusted EBIT of $469M as stronger pricing across the board helped drive the beat, despite volume/mix headwinds; OLN and LYB other earnings related movers in a busy sector

Technology, Media & Telecom

·     Hardware, Components & Services; AAPL Q3 revenue and earnings narrowly topped expectations (Q3 EPS $1.20 vs est. $1.16; Q3 revs $82.96B vs. est. $82.81B) as iPhone revs rose nearly 3% y/y topping views and service revs up 12% y/y, while Macs fell -10% y/y and wearables -7.9% y/y

·     Media, Internet; AMZN a bright spot of earnings season with better Q2 revs, AWS revs and guidance, leading shares higher – sees 3Q net sales $125-130B vs est. $126.4B and op Inc. $0-3B vs est. $4.27B; Q2 AWS net sales $19.73B vs. $14.81B a year ago; ROKU shares tumbling on wider 2Q EPS loss ($0.82) vs est. ($0.69) on net revs $764Mm below est. $805.2Mm; for TWTR, Delaware judge issues July 28 order on trial dates and orders oct 17-21 trial for Musk-twitter case; BABA leads an overall weak China US listed stock sector lower (TCEHY, BILI, BIDU); EB slides after lower Q3 guidance

·     Semiconductors: INTC a miss and lower guide sends shares sliding in chip space as EPS missed by about $0.40 per share and revs more than $2B miss, while cuts FY22 adj EPS view to $2.30 from $3.60 and below consensus $3.42; in semi-equipment, KLAC with a top and bottom-line beat; overall chip sector outperforms early despite the disaster quarter from INTC

·     Software movers: FIVN reported 2Q results that exceeded expectations as total revenue of $189.4mn, +32% y/y, topped est. $180mn at the high end of guidance, and represents the 8th consecutive quarter of at last 32% topline growth since the start of the pandemic

·     Telecom movers; CHTR Q2 EPS $8.80 vs. est. $6.89; Q2 revs rose 6.2% y/y to $13.6B vs. est. $13.43B; Q2 total residential and SMB internet customers increased by 38,000 in qtr; capex $2.2B; AVYA slides after guiding Q3 revs $575M-$580M, down from prior view of $685M-$700M, initiated cost-cutting measures and said prior financial guidance should no longer be relied upon; CMCSA was downgraded to Neutral at JPMorgan following the company’s disappointing results