Mid-Morning Look

Wednesday, August 10, 2022

U.S. stocks surging to 3-month highs following a “cooler” than expected consumer price index (CPI) report as data for both July headline and core inflation rise less than economists expected. With U.S. inflation slowing more than forecasted in July, it takes some pressure off the Federal Reserve to keep hiking aggressively, leading to the market rally. Markets will get commentary from Fed speakers Evans and Kashkari later this morning. Traders slashed bets the Fed will deliver a third straight 75-basis-point interest rate increase in September after the data. Treasury yields tumbled as the 10-yr plunged to lows of 2.675% from 2.81% into the release and the 2-yr to 3.13% from 3.29% prior (curve still inverted by over 40-bps), while gold prices rise on the dollar decline. S&P futures hit morning highs of 4,201.50 – just shy of the May 31st high of 4,202.25. Bitcoin boosted amid broad risk recovery after US inflation dip, as prices jump back above $24,000. Several stocks moving on earnings overnight, but the CPI data trumps all news this morning lifting major averages (breadth favors advancers to decliners by more than 6-1 margin early), ahead of another inflation report tomorrow (July PPI) and University of Michigan inflation expectations data on Friday as well. The US dollar hits lowest levels since early July. Zero fear in markets still with the CBOE Volatility index (VIX) falling to its lowest levels since early April around the 20 level, now well off its May highs around 35.

Economic Data

·     July consumer price index (CPI) flat m/m vs. estimate +0.2% and rises +8.5% y/y vs. est. +8.7% for headline CPI, and core CPI (ex food & energy) rises +0.3% vs. est. +0.5% m/m and rises +5.9% vs. est. +6.1% y/y – headline and core both below views and markets rally. U.S. real average hourly earnings rebounded 0.5% in July following respective drops of -0.8% in June and -0.6% in May.

·     U.S. wholesale inventories increased 1.8% in June with sales up 1.8% as well. Those monthly increases follow a 1.9% (was 1.8%) jump in May inventories, alongside a 0.7% gain in sales.

Sector Movers Today

·     Media, Internet; BABA slips investor SoftBank Corp says it will pare stake in the co; SoftBank will book an estimated gain of 4.6 trillion yen ($34.08 billion) on settling prepaid forward contracts using shares in Alibaba, reducing its stake to 14.6% from 23.7%; IHRT downgraded to Neutral at Goldman Sachs and cut tgt to $9 following mixed 2Q results and a weaker 3Q22 & full-year 2022 outlook; RBLX Q2 Bookings (-4% y/y; better ex FX) and DAUs (+21% y/y) were in-line, while AEBITDA was in below consensus; TWTR rises after Elon Musk’s selling of nearly $7B worth of Tesla stock in recent days, according to regulatory disclosures, raises prospect his $44B deal for Twitter may happen after all

·     Casinos, Gaming, Lodging & Leisure sector; cruise lines, leisure, theme parks, hotels and lodging all benefitting from the softer than expected CPI report, raising hopes of increased spending; WYNN posted a larger Q2 loss and revenue of $908.8M below the consensus est. $980.9M while operating rev from Wynn Macau was $58.6M, a decrease of $125.4M from $184.0M y/y; RRR reported an upside 2Q22 report, with revenue of $422m, adj. EBITDA of $189m and margins of 48.5% all above ests; MANU’s former director Michael Knighton, is planning to submit a bid to buy the operator of the U.K.-based football club from the Glazer family, according to a report in the Manchester Evening News. https://on.mktw.net/3vVzjlP

·     Consumer Staples; SG drops as Q2 EPS loss (-$0.36), in-line with ests as revs of $124.9M misses the consensus $130.4M and sees FY22 revenue $480M-$500M below consensus $530.1M; GO posts beat and raise quarter which included the strength of comp sales, sequential improvement in traffic, and GPM, along with an increase in the full-year top- and bottom-line outlook; CELH Q2 EPS $0.12 vs consensus $0.08 on better revs $154M (est. $148.7M) and EBITDA $17.1M (est. $14.0M) but margins weaker at 38.5%; POST announces $400M offering of convertible senior notes maturing in 2027; BGS files automatic mixed securities shelf; PM extends its $16 billion takeover bid for Swedish Match to Oct. 21 because it doesn’t expect the European Commission to rule on the deal in time

Stock GAINERS

·     ARRY +19%; on earning as 2Q adj EPS $0.09 vs est. $0.03 on revs $424.9Mm vs est. $336.9Mm; guides FY revs $1.30-1.50B vs est. $1.4B and adj EPS $0.25-0.35 vs est. $0.31

·     BAC +3%; broad strength in banks, Fintech and insurance names in financial sector following softer CPI data, easing recession fears

·     CENX +8%; after earnings and as miners and metals rally on inflation undershoot (CPI)

·     MASI +5%; 2Q22 revenue and EPS beat consensus and management raised its 2022 guidance on a constant currency basis although it lowered its guidance on a reported basis

·     NCLH +9%; cruise lines, leisure, theme parks, hotels and lodging all benefitting from the softer than expected CPI report, raising hopes of increased spending and peak inflation

·     TTD +23%; delivered strong results overcoming a challenging macro-environment to deliver upside to virtually all consensus metrics

·     TWTR +3%; after Elon Musk’s selling of nearly $7B worth of Tesla stock in recent days, according to regulatory disclosures, raises prospect his $44B deal for Twitter may happen

Stock LAGGARDS

·     BABA -1%; after investor SoftBank Corp says it will pare stake in the co; SoftBank will book an estimated gain of 4.6 trillion yen ($34.08 billion) on settling prepaid forward contracts using shares in Alibaba, reducing its stake to 14.6% from 23.7%

·     BLI -14%; downgraded at BTIG and JPMorgan noting the new mgmt team announced a Q2 miss, expects revenue to come in roughly flat for 2022 (far below its +30% Y/Y guide issued at the beginning of this year, and following last year’s miss), and announced a 12% workforce reduction.

·     CANO -12%; posts Q2 rev miss at $689.4M vs. est. $712.6M as total membership of 281,525, including 163,947 Medicare capitated members

·     COIN -6%; posts larger Q2 EPS loss of ($4.98) vs. est. loss ($2.65); Q2 revs fell -31% y/y to $808.3M vs. est. $832.23M and said qtrly trading volume $217B vs $462B y/y

·     MAPS -34%; tumbles on Q2 rev miss, prompting downgrade by several analysts

·     PLBY -25%; slides following a wider-than-expected Q2 loss and revs rose 31% y/y to $65.4M, missing the est. $70.9M as deteriorating trends at Yandy and Lover’s caused a shortfall in 2Q and -$50mn cut to FY22 revenue estimates

·     PRPL -6%; slumps on miss and lower guide as 2Q adj EPS ($0.11) vs est. ($0.07) on revs $144.1Mm vs est. $155.8Mm and guides FY revs $570-590Mm vs est. $652.6Mm

·     RBLX -8%; Q2 Bookings (-4% y/y; better ex FX) and DAUs (+21% y/y) were in-line, while AEBITDA was in below consensus

·     SG -3%; as Q2 EPS loss (-$0.36), in-line with ests as revs of $124.9M misses the consensus $130.4M and sees FY22 revenue $480M-$500M below consensus $530.1M