Market Review: June 29, 2022

Closing Recap

Wednesday, June 29, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks end mixed in narrow, choppy trading as we head to the three-day holiday weekend, while bonds rallied sending yields lower as investors remain worried about inflation and rising interest rates impacting economic growth. The Federal Reserve is “just at the beginning” of raising rates, according to the Loretta Mester, president of the institution’s Cleveland bank today, renewing those rate fears. The dollar jumped back near 20-year highs while oil reversed earlier gains, ending lower and snapping its 3-day win streak. Market breadth was negative with the biggest decliners in Consumer Discretionary, Tech, Industrials and Materials while Healthcare was a standout to the upside along with Consumer Staples. Top stock/sector movers included weakness in solar (ARRY, SHLS, FTCI) as analyst says products detained under new law, semi names fell on analyst cautious comments, cruise lines top decliners in the S&P (CCL, RCL, NCLH) on negative analyst views, while healthcare jumped. Economic data weak as Q1 GDP showed contraction, in-line with expectations.

·     Investors digested comments from several global central bankers at a panel in Europe that provided insight into their views on the economy, inflation, and the path of monetary policy. Cleveland Federal Reserve Bank President Loretta Mester pushed for another 75-bps interest rate hike at the U.S. central bank’s July meeting, if economic conditions remain the same. The benchmark 10-yr yield tumbles to lows down over 10 bps at 3.10%. Fed Chairman Jerome Powell said he was more concerned about the risk of failing to stamp out high inflation than he was about the possibility of raising interest rates too high and pushing the economy into a recession. Since March, the Fed has raised its fed-funds rate 3x from near zero to a range 1.5%-1.75%, including a 75-bps rise this month. Mr. Powell and his colleagues have signaled that another increase of that magnitude is likely to be warranted at the Fed’s next meeting, July 26-27.


Economic Data:

·     Gross domestic product (GDP) fell at a (-1.6%) annualized rate last quarter, the government said in its third GDP estimate, revised down from the (-1.5%) pace of decline reported last month and a sharp contraction compared to the robust growth of 6.9% pace in the fourth quarter. Personal Consumption for Q1 rose 1.8%, below the 3.1% estimate while the GDP deflator reading rose 8.2% above the 8.1% estimate and core PCE inflation +5.2% vs. est. +5.1%



·     Oil prices reversed sharply, with WTI crude down -$1.98 or 1.77% to settle at $109.78 per barrel, ending well off highs of $114.05 per barrel as weekly inventory data was mixed. Data this morning showed crude stockpiles in strategic petroleum reserve fell last week to lowest since April 1986. The losses today snapped a 3-day win streak for oil as concerns about a weaker global economy offset tight supply worries. Both WTI and Brent had risen more than 2%. Gold prices fell -$3.70 or 0.2% to settle at $1,817.50 an ounce that saw highs of $1,834.90 an ounce, but off lows $1,810.90 as a stronger dollar weighed on precious metal prices.


Currencies & Treasuries

·     U.S. Treasury yields eased across the curve for a second consecutive day as the market remains on edge about the Fed’s ability to slow inflation without throwing the economy into recession. The benchmark 10-year fell about 10-bps to lows around 3.10%, while the 2-yr dropped to 3.07%. Fed Chair Powell said at an ECB conference that there is a risk the Fed’s interest rate hikes will slow the economy too much, but the bigger risk is persistent inflation that allows public expectations about prices drift higher. Economic data was expectedly week, with Q2 GDP reported at a contraction of (-1.6%) while inflation data points were higher.

·     The U.S. dollar index (DXY) rises +0.5% back above the 105 level and once again nearing 20-year highs as the Euro falls to lows, down -0.7% at 1.0445. The buck had been firming during the ECB forum where central bankers have been stressing the need to bring inflation under control. Fed Chairman Powell noted the biggest risk is not acting forcefully enough to get prices back to 2%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; BBBY CEO steps down, reported Q1 adj EPS loss (-$2.83) vs. est. loss (-$1.33) as sales of $1.46B misses the $1.51B estimate, adjusted gross margin 23.8%, below estimate 31.6%, while comp sales fell (-23%), said in quarter there was an acute shift in customer sentiment and, since then, pressures have materially escalated; BBWI downgraded to Neutral from OW at JPMorgan, cut tgt to $30 and lower ests noting incremental downside potential risk in a FY23 consumer-led recession scenario; JOAN downgraded from Buy to Hold at Loop Capital and lower tgt from $10 to $8 incorporating lower sales and a higher expense rate into their discounted NOPAT model; BNED shares slipped as well following quarterly results and guidance; BBY among retailers hitting 52-week lows today

·     Auto sector: NIO shares weak a second day after short seller Grizzly Research on Tuesday claimed that the Chinese electric-vehicle maker exaggerated revenue and profit margins (NIO denied the report); TSLA closes office in San Mateo, California and lays off about 200 employees working on its Autopilot driver-assistant system, Reuters reported; EVGO shares tumbled following a short call from short seller mention on Twitter

·     Housing & Building Products; Piper said Home equity extraction activity (cash-out refinancing + HELOC originations) jumped in Q1 2022 to $135B – led by a notable increase in HELOC originations – this represented a $40B increase y/y, much of which they think gets spent on home remodel activity over several quarters (HD, LOW, FND); weekly data from the MBA showed that the U.S. mortgage market index rises 0.7% to 322.7 in week ended June 24, purchase index rises 0.1% and refinancing index rises 1.9% as 30-year mortgage rate falls 14 bps to 5.84%

·     Consumer Staples: in food space, MKC slips after Q2 adj EPS $0.48 missed the $0.65 est. on weaker Q2 sales -1.3% Y/Y to $1.54B vs. est. $1.61B and lowers year EPS view to $3.03-$3.08 from $3.17-$3.22 (est. $3.15) driven by updated adjusted operating income outlook and an optimization of company’s debt portfolio; GIS Q4 adj EPS $1.12 vs. est. $1.01; Q4 revs rose 8% to $4.89B vs. est. $4.8B; raises quarterly dividend 6% to 54c per share; sees 2023 organic net sales +4% to +5%, vs. est. +3.72%

·     Tobacco: European tobacco stocks slide (BTI, IMBBY) after the AFP reports the EU is proposing ban on flavored tobacco vaping devices in Europe; in the U.S., MO downgrade to Underweight from Equal Weight at Barclays and cut tgt to $36 from $55 as believes the shares deserve a much lower multiple than when they built in potential for a successful combination with Juul and possible "white-knight" bid from PM

·     Restaurants: MCD upgraded from Neutral to Overweight at Atlantic Equities and raise tgt to $278 from $245 saying as the global consumer softens, companies who operate resilient business models and have a wealth of experience at managing through such challenging periods come to the fore

·     Casinos, Gaming, Lodging & Leisure sector; in cruise lines, CCL slides despite a bullish init at Barclays (named top pick with OW and $14 tgt) following a report out of Morgan Stanley saying CCL shares can plunge to zero in a bear case scenario/in event of another demand shock; in lodging (MAR, HLT, H, HST), BMO Capital said the lodging sector is staring down the barrel of another potential macro downturn and they continue to expect near-term demand strength, but are trimming 2023 EBITDA estimates by 4% on average (2.5% below consensus); GLPI to buy Real Property Assets of BALY for $1B, Gaming and Leisure offers 6.9m shares to fund asset deal



·     Weekly inventory data showed: the EIA said Crude inventories -2.76M barrels vs. -0.569M consensus, Gasoline +2.6M and Distillates +2.56M barrels. Last night the API showed weekly crude inventories fell -3.799M barrels, Cushing with a drawdown of -650K barrels; gasoline with a weekly build of +2.852M barrels and distillates with a weekly build of +2.613M Barrels

·     Utilities & Solar; in solar space, Roth Capital noted they learned today that there has been a new UFLPA detention of a large Tier 1, and CBP is requiring documentation showing the source of the quartzite. Firm said they believe this is a major problem for the U.S. solar industry because checks suggest none of the module vendors have quartzite documentation – firm said FSLR benefits the most with its CdTe module technology and U.S. manufacturing base while see this as an incremental negative for those exposed to the U.S. solar industry, especially the utility scale segment, including ARRY, CSIQ, JKS, FTCI, MAXN, SHLS, SOL will replace CMC Materials in the S&P MidCap 400 on 7/7



·     Bank movers: GS upgraded to Buy from Neutral at Bank America and raise tgt to $380 as see the stock as well-positioned to outperform in what is likely to be a worsening economic backdrop that could weigh more materially on the EPS outlooks for its balance sheet lending heavy peers; broadly however, banks were mostly lower on the day.

·     Bitcoin, FinTech & Payments; MSTR purchased 480 bitcoins between May 3 and June 28 as average purchase price was about $20,817; MARA said because of a storm that passed through Hardin, MT earlier this month, the Company’s mining operations in the region are currently without power and likely to remain offline until the damaged power generating facility can be repaired

·     Consumer Finance: UPST downgraded at Morgan Stanley to underweight from equal weight amid rising cyclical headwinds and increasing required returns from institutional partners as cut tgt to $19 from $88; Piper significantly reduced estimates for 2023 earnings for the consumer finance sector (AFRM ) as they embed credit reserve builds and stock buyback suspensions starting in 4Q22

·     REITs: data center REITs in focus today (DLR, EQIX) after Jim Chanos said in a Financial Times interview that he is gambling against legacy data centers as they now go head-to-head with what was once some of their largest clients. Chanos added: “The story is that although the cloud is growing, the cloud is their enemy, not their business. Value is accruing to the cloud companies, not the bricks-and-mortar legacy data centers.” Amazon Web Services, Google Cloud and Microsoft Azure are three of largest and most impactful occupants of data centers around the world and Chanos believes these organizations will opt to create their own centers versus move into an existing one. Therefore, the REITs are to become overvalued.



·     Pharma & Biotech movers; ETNB reports positive topline results from ENTRIGUE phase 2 trial saying the trial met primary endpoint demonstrating statistically significant and clinically meaningful reductions across all doses; ETNB 18.7M share Spot Secondary priced at $3.55; TRVI said that the pain therapy Haduvio met key goals in a Phase 2b/3 study for patients with prurigo nodularis, a dermatological condition.

·     MedTech Equipment; XAIR receives FDA approval for LungFit, its device for treating a type of respiratory failure in newborn babies; says the first phase of U.S. commercial launch of the product has begun


Industrials & Materials

·     Industrials, Aerospace & Defense; AVAV shares fall after Q4 miss (EPS $0.30 vs est. $0.39 on sales $132.6Mm vs est. $135.3Mm) and guides FY revs $490-520Mm, midpoint below est. $514Mm and FY adj EPS $1.35-1.65 below est. $1.75; FDX announces 2025 financial targets ahead of investors day call – targets compound annual growth rate of 4%–6% in revenue, and 14%–19% in adjusted EPS for fiscal 2025

·     Metals & Materials; in the steel sector (X, NUE, STLD), UBS said they surveyed 60 U.S. steel industry operators for an industry view on prices, demand and import strategies and 96% of respondents expect HRC prices to fall over the next three months, while 77% of respondents expect prices to find support around the US$800/st level (vs. US$1,000/st spot); precious metals

Technology, Media & Telecom

·     Internet: TWOU shares rise after Bloomberg reported India’s Byju’s said to offer about $15 per share to buy 2U, or more than $1B citing a person familiar with the matter. Byju’s made the offer, which represents a 61% premium to 2U’s closing price ; JD announced that it renewed the strategic cooperation agreement with TCEHY a 3-yr period, JD said they would issue shares worth $220 million to Tencent; PINS longtime CEO is stepping down and a GOOGL commerce executive is taking over the top job, the social-media company said

·     Semiconductors: AMD, NVDA, NXPI all touching 52-week lows as SOX index down -33% YTD into end of 1H 2022; cautious analyst comments at Bank America as the firm lowers the industry outlook but flagging opportunities as downgrade SWKS, QRVO, TER, TXN – but upgrade CDNS, SNPS to Neutral saying pricing strength could help cushion cyclical downturn. Said tighter global monetary policy, geopolitical turmoil and consumer weakness is likely to pressure 2HCY22/CY23E chip demand but unit weakness could be cushioned by richer non-consumer mix, robust pricing, expanding content, and constrained supply.

·     Hardware & Software movers; ORCL upgraded from Neutral to Outperform with $90 tgt at Exane BNP as defensive qualities attractive in current market With Oracle down 32% from its peak, the shares now trade on 12x forward EV/EBITA.

·     Media & Telecom movers; FCC Commissioner Brendan Carr said today on Twitter that TikTok is not just another video app, that’s the sheep’s clothing. It harvests swaths of sensitive data that new reports show is being accessed in Beijing. He said he called on Apple & Google to remove TikTok from their app stores for its pattern of surreptitious data practices ; CCI downgraded from Buy to Hold at Deutsche bank and cut tgt to $183 PT as see a tougher near-term path to upside for shares, with slight downside to consensus expectations and AFFO/share growth likely to fall short of CCI’s 7%-8% Target range; DIS Board of Directors unanimously voted to extend Bob Chapek’s contract as Chief Executive Officer for three years


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.