Market Review: June 02, 2022

Closing Recap

Thursday, June 02, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks were in massive rally mode all day as investors ignored “hawkish” Fed comments, tech bellwether MSFT lowering guidance (citing FX impact) and dismal economic data, as the Nasdaq rebounded over 500-points off morning lows and the S&P recovered above yesterday highs (SPX 100-point move off morning lows). Fed Vice Chairman Lael Brainard said today in a CNBC interview its “hard to see case for rate hike pause right now” and said 50-bps hikes at both the June and July meetings seems “reasonable.” Stocks dropped initially on her comments before bouncing. Tech giant Microsoft (MSFT) lowered its Q4 EPS, revenue and operating income citing the dollar impact (despite the dollar falling since its last reported earnings) – as shares fell over 4% before turning positive late day in the massive market melt-up. Lastly, economic data was disappointing across the board as private payroll data (ADP) missed estimates ahead of the nonfarm payroll report on Friday while Factory Orders also missed consensus. Q1 Nonfarm Productivity -7.3% vs. -7.5% expected and +6.6% prior marking the biggest decline in productivity since Q3 1947, while unit labor costs surged +12.6% vs. +11.6% expected and +0.9% prior. So given that, as well as the cautious comments from JPMorgan CEO Dimon yesterday about the economy, it was a tad surprising to see the all-out strength in markets throughout the day, with a 2% climb for the Nasdaq as many of the beaten-up stocks of April and May have slowly been paring those losses. For sentiment, the weekly American Association of Individual Investors (AAII) survey showed Bulls rise to 32% from 19.8%, Neutrals rise to 30.9% from 26.7% and Bears fall to 37.1% from 53.5%.


Economic Data:

·     ADP Private Payrolls data for May reported at +128K jobs, well below the +300K estimate; April total of jobs added revised to 202,000 from 247,000 – said job growth rate of hiring has tempered across all industries

·     Weekly Jobless Claims fell to 200K from 211K prior week (est. 210K); as the 4-week moving average fell to 206,500 in latest week from 207,000 prior; continued claims fell to 1.309M from 1.343 mln prior; the U.S. insured unemployment rate fell to 0.9% from 1%

·     U.S. Q1 non-farm productivity revised to -7.3% from -7.5% (which was also consensus), while Q1 non-farm unit labor costs revised to +12.6% above prior and consensus reading of +11.6%

·     U.S. April factory orders rose +0.3% below the consensus +0.7% and the March +1.8%; April Durables orders revised to +0.5% from +0.4%; April nondefense cap orders ex-aircraft revised to +0.4% from +0.3%; April shipments unrevised at +0.8%; U.S. April inventories/shipments ratio 1.48 months’ worth vs March 1.47 months



·     Oil prices incredibly resilient, with WTI crude rising $1.61 or 1.4% to settle at $116.87 per barrel, bouncing off morning lows of $111.20 per barrel despite today’s OPEC+ meeting resulting in the group to raise output by 648,000 bpd in July and 648,000 bpd in August, higher than previous monthly increases of 432,000 bpd. Prices first dropped after media reports Saudi Arabia indicated to Western allies that it was prepared to raise oil production should Russia’s output fall substantially due to sanctions.

·     Gold prices settle at $1,871.40 an ounce, rising $22.70 on the day as the dollar tumbles -0.75% to 101.75 (DXY). Weaker economic data in the form of ADP payroll data, factory orders and non-farm productivity sunk the buck vs. major rival currencies. The U.S. dollar index (DXY) slipped off a one-week high touched on Wednesday but is now down over 300bps from 20-year highs just a few weeks ago on rising interest rate fears by the Fed. Treasury yields were quietly little changed on the day with the 10-year holding just above the 2.9% level.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; CHWY posted a big 1Q EBITDA beat and a FY guidance that was not revised lower, helping a short squeeze after analysts expressed caution into the earnings print – while active customers declined Q/Q, NSPAC grew +15% resulting in a topline beat (+13.7% vs. consensus of +13.1%); LE slips as posts Q1 loss compared with a year-ago profit and a 5.5% drop in quarterly revenue to $303.M vs. est. $327M and guides Q2 sales $335-$350M vs. $396M est.; BKE comp store sales for 4-week period increased 5.3%; Jefferies said they surveyed 900+ warehouse club members about renewal intentions and shopping behaviors, and the results are bullish for both COST and BJ; PVH reported 1Q EPS of $1.94, beating the $1.61 est. due to stronger sales and a better than expected EBIT margin and reiterated its F22 EPS guidance; DBI posts Q1 EPS beat $0.48 vs. est. $0.25 and raised FY EPS outlook to $1.90-$2.00 from $1.80-$1.90; shares of GME and DLTH also movers following earnings

·     Consumer Staples; APRN is launching a new offering on Starting today, consumers can purchase a selection of meal kits without a subscription, from classic menu items to family favorite recipes; HRL Q2 EPS $0.48 vs. est. $0.47; Q2 revs rose 19% to $3.1B vs. est. $3.07B; Q2 organic sales rose 10% but cut top end of FY EPS range by 6c and called it narrowing; SPTN reported top and bottom line beat for Q1 while raises year revenue and Ebitda outlook

·     Casinos, Gaming, Lodging & Leisure sector; in autos, Ford (F) said it plans to invest $2 billion, create 3,200 jobs in Michigan and will receive at least $100.8 million in state incentives; FUN reported that preliminary year-to-date net revenues through Monday, May 30 increased 21%, or $60M, to a record $343M when compared with the five-month period ended Monday, June 3, 2019; BYD announced $500M increase to share repurchase authorization; SABR said in May 2022 gross air bookings recovered to approximately 56% vs May 2019; monthly NICS firearms data out (RGR, SWBI ) falling to 2.34M NICS firearm background checks in May from 2.728M in April; sharply lower from the 3.22M figure Y/Y and lowest monthly total since Sept 2019 (2.2M)



·     Energy stock movers: despite OPEC+ announces larger production output in coming months, oil prices still found a way to move higher, reversing earlier losses of more than 3%. Shares of energy stock rebounded along with oil, pushing higher; MGY 7.5M share Spot Secondary priced at $27.15; CPE 6.5M share Block Trade priced at $58.00

·     Utilities & Solar; in solar, SEDG upgraded from Perform to Outperform at Oppenheimer saying demand is growing with stable margins and with energy commodities, notably natural gas, remaining elevated, they expect additional electricity rate increases across the globe even as solar + storage economics already seem compelling across much of the US and EU; in utilities, SJW was downgraded at Wells Fargo, reiterating their cautious stance on water utilities given valuation (the 40-45% premium exceeds the 20-25% they believe may be more appropriate)



·     Bank movers: sector again lagging broader market performance, with large cap banks still lagging; JPM CEO Jamie Dimon warning yesterday comparing the U.S. economy to a “hurricane coming” raised market fears yesterday; in insurance, RGA upgraded to Neutral from Underperform on valuation and improving mortality and earnings trends at Credit Suisse; in Fintech, SQ shares rose after announces plans to bring tap to pay on iphone to square sellers

·     Consumer Lending & Finance; RDFN advises listing sooner rather than later, pricing slightly below recent comps and other home-selling tips for a changing market; UWMC downgraded to Hold at Argus which reflects the impact of rising interest rates on both new mortgage originations and refinancing activity; in financial services/technology, NCNO rises after earnings beat, raises FY23 guidance, analyst upbeat after Q1 results



·     Pharma movers; IMUX plunges after saying its lead drug IMU-838 failed to meet the main goal of a mid-stage trial testing it in ulcerative colitis patients; drug failed to help patients achieve clinical remission compared with a placebo; PFE and MYOV announce FDA Acceptance of Supplemental New Drug Application for MYFEMBREE as FDA set a target action date of Jan 29, 2023; RPTX rises early after announced a worldwide license and collaboration agreement with Roche (RHHBY) for its leading cancer candidate RP-3500; CNCE 10M share Secondary priced at $4.75; CNTA said it was discontinuing the clinical development of Lixivaptan for Autosomal Dominant Polycystic Kidney Disease

·     Biotech movers; MRNA said it will delay delivery of some vaccine doses to the EU that were planned for Q2, as part of an amended agreement with the European Commission; PDSB said the FDA granted its Fast Track designation to its lead asset PDS0101 in combination with MRK anti-PD-1 therapy, Keytruda for a certain type of head and neck cancer; Piper said it remains largely bullish on biotech, but also would continue to advise a more defensive posture, saying they remain skewed toward larger, more mature names with ABBV still their favorite large cap, ARGX and RARE replacing BHVN as favored mid-cap ideas, and COGT as favorite under-the-radar

·     MedTech Equipment; XRAY upgraded from Neutral to Buy at UBS while cut tgt to $47 from $58 saying following extensive channel checks and financial analysis, they believe that the various concerns coming out of the company’s 1Q earnings (increased inventories, lower margins, global macro supply chain, COVID, and management uncertainty) are explainable and largely transitory.


Industrials & Materials

·     Aerospace, Industrials and Machinery: BA shares outperformed, among top gainers in the Dow; PLTR said the U.S. Space Systems Command awarded a $53.9M increase to its 2021 contract of $121.5M; GNRC favorable risk/reward said UBS calling it their Top Pick in Alternative Energy as reiterate Buy & $450 PT as expect 2023-24E revenue growth of 7% p.a. and adj. EPS of 10% p.a. driven by the Clean Energy and C&I segments offsetting moderating demand for home standby power (HSB)

·     Metals & Materials; lithium names have been clobbered the last few days (ALB, LTHM, LAC, PLL, SQM) after Goldman Sachs said they see a sharp correction in lithium prices over the next two years; today, ALB was downgraded from Buy to Neutral at UBS and cut tgt to $260 from $300 noting upside has been driven by lithium prices (up ~140% YTD through April), and ALB’s shift to variable rate contracts. While this benefits near term earnings, lithium prices are now well above the cost curve, and the likely direction of pricing over the next 5 years is down; UBS upgraded ECL from Neutral to Buy as believe earnings revisions have troughed and see upside potential to 2023; industrial metals outperformed early – CENX

Technology, Media & Telecom

·     Internet & Media; SNAP and PINS were downgraded to Neutral at Piper saying after a strong two-year stretch, digital ad spend looks to be normalizing. Group multiples have declined and are ~40% off recent highs, but history suggests multiples may not re-rate until after ad spend growth bottoms; FB rises a day after its COO said was stepping down; EB said it sees Q2 revs to exceed prior outlook and be within a range of $64M-$66M as highlights plan for long-term growth; NFLX tgt cut from $350 to $265, maintains Buy at Guggenheim

·     Semiconductors; strength in general for the sector with NVDA, AMD among leaders; AMBA rebounds after prior day sell-off post weak guidance; SMTC reported figures ahead of expectations for both April quarter results and the July quarter; WOLF upgraded to Outperform at Oppenheimer saying while expect some inefficiency in WOLF’s Mohawk Valley ramp, the company should work through any yield issues in an expedited manner, resulting in steady margin improvement.

·     Software movers: MSFT lowered 4q operating income view to $20.60B-$21.30B from prior $20.90B-$21.60B view, sees Q4 revs $51.94B-$52.74B below prior $52.40B-$53.20B and lowered Q4 EPS outlook to reflect additional FX impact; MDB reported its fifth consecutive quarter of accelerating growth, this time to 57% (vs. ests. +47% y/y), which was driven by 82% Atlas growth vs. consensus of 72.8% y/y, and operating margin of 6.1% vs. consensus of (-1.1%) while Enterprise Advanced grew 30.0% y/y; AI shares fall as Q4 revs rose 38% Y/Y to $72.3M vs. est. $71.3M, but guides Q1 revs $65M-$67M below consensus est. $74.4M; Q4 subscription revenue was $56.3 million; TWLO downgraded to Equal weight from Overweight at Barclay’s and cut tgt to $110 from $175 as suspects a slowdown in the digital economy; VEEV Q1 results beat with subscription growth of 18% and full-year guide increased; ESTC reported slightly better Q4 results with most metrics and initial FY23 guidance just ahead of guidance and consensus; PATH shares jump after Q1 results surpassed analyst estimates

·     Hardware, Components & Services; PSTG shares rise as reported a strong quarter even after excluding the $60m of revenue pull-in from 2H and raised its full year revenue and operating profit outlook; HPE reported F2Q results and F3Q guidance slightly below Street estimates in the context of a tough supply chain environment that impacted unit shipments during the quarter; CIEN posted Q2 EPS and revs miss (50c/$949M vs. est. 54c/$950.8M) and guided Q3 revs $870M-$930M, below $1.08B estimate

·     Telecom movers: AMT announced an 8.35M share offering of common stock; CCI was downgraded from Equal Weight to Underweight at Wells Fargo not based on absolute downside risk, but rather what they view as an unfavorable relative valuation vs. its 2 tower peers (particularly AMT, but also SBAC); CMCSA and FOXA downgraded to peer perform at Wolfe Research in assumption of coverage in the sector as sees more risk to the second half and 2023 consensus for broadband and advertising, while also downgraded PARA to Underperform and lowered tgts on CHTR, DIS, T, VZ in telco and LYV, MSGE, MSGS, NFLX in media/leisure


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.