Mid-Morning Look

Thursday, August 25, 2022

S&P 500 rises as investors seeks cues from the Federal Reserve at Jackson Hole starting today into tomorrow. U.S. stock futures got a boost overnight (S&P hit highs above 4,187 before paring gains) after China announced a 19-point plan worth CNY1T($146B) in new stimulus to boost the economy, boosting global markets including several commodity sectors, but markets pared gains following mixed U.S. economic data. Prelim Q2 GDP data showed a slight improvement but still a negative reading while inflation data (PCE) was in-line to slightly above estimates. Note yesterday’s rally broke a 3-day losing streak in SPX and NDX, but cash volumes were the lowest of the year and didn’t even break 9B shares. A straight move higher this morning ahead of several Fed speakers today before Fed Chairman Powell’s keynote speech tomorrow at 10am EST at Jackson Hole, Wyoming. Earnings in tech and retail grabbing lots of headlines this morning, with ADSK, NTAP, SNOW, WSM leading higher, but more disappointments with ANF, BURL, DG, DLTR, NVDA, PTON, SPLK sliding. Volumes are light, as well as news outside of aforementioned earnings results. Treasury yields little changed along with the dollar and oil prices. Markets are still debating whether the Fed will go for another 0.75-percentage-point rate increase in September, as it did in June and July, or downshift to a half-percentage-point increase.

Economic Data

·     PCE Inflation data in GDP report: 2Q Prelim Core PCE Price Index +4.4% vs. estimate +4.4%; 2Q Prelim PCE Price Index +7.1% vs. est. +7.1%. The Q2 GDP (second estimate) prelim -0.6% vs. -0.8% consensus and prior estimate of -0.9%. In Q1, U.S. GDP fell 1.6%; 2Q GDP price index rises at an 9% annual rate vs. est. 8.7% (prior was 8.9%); 2Q Prelim Real Final Sales +1.3% vs. prior +1.1%

·     Weekly Jobless Claims fell to 243K in the latest week vs. est. 253K and vs. 245K prior week; the 4-week moving average rose to 247K from 245.5K prior week; continued claims fell to 1.415M from 1.434M prior; the US insured unemployment rate unchanged at 1.0%

Sector Movers Today

·     Discount or off-price stocks: DG mixed as top/bottom line beat and raises FY22 comp sales to rise 4% to 4.5%, compared with its prior forecast for 3% to 3.5% growth – but inventory up 25% per store y/y & +57% over 3 years vs sales only +18%; DLTR slides as Q2 sales miss and guides Q3 EPS $1.05-$1.20 and sales $6.75B-$6.87B, both below views of $1.81/$6.92B and Q2nventory +56% vs 2019, on sales +18%; BURL cuts full-year adj profit per share forecast to between $3.70-$4.30, from prior $6.00-$7.00 and said it now expects fiscal 2022 comparable store sales to decrease in range of 13% to 15%, from decline of 6% to 9% estimated previously (also missed qtr sales)

·     Housing & Building Products; in home furnishing, WSM 2Q comparable brand sales of +11.3% were well ahead of consensus +5.2% and the demand comp was positive in 2Q and has accelerated in the first three weeks of 3Q – comps +59.6% on a 3-year basis, and gross margin +810bps, and a reiterated FY22 guide; in research, Bank America downgraded homebuilders KBH, TOL to Neutral from Buy and LEN to Underperform while upgrade DFH to Neutral – notes KBH has the highest exposure out of builders coverage to markets where demand appears to slowing at the fastest pace (estimate 46% of deliveries in West) and TOL has relatively high concentration to slowing markets (38% of deliveries in West/Mountain) and built-to-order (80-85%), which we anticipate will cause TOL’s orders to underperform other builders

·     Bank movers; Citigroup (C) says Russia exit will affect about 2,300 employees in 15 branches, expects $170Mm in costs from Russia exit and says it is still pursuing sales of some Russian consumer banking portfolios; in Canadian bank earnings; CIBC (CM) Q3 adjusted EPS of C$1.85 (US$1.43), beating the C$1.81 consensus, fell from C$1.96 in Q2 and increased from C$1.77 in Q3 2021; provision for credit losses were C$243M vs. C$303M in Q2 2022; TD Q3 Beats, C$2.09 vs C$2.04 consensus w/strong net interest income, expenses were lower, PTPP earnings were inline, margins grew in Canadian P&C and U.S.

Stock GAINERS

·     ADSK +4%; better F2Q results, and despite incremental FX headwinds, tightens FY23 at the midpoint of guidance across all metrics

·     AMWL +2%, TDOC +6%; on reports AMZN will axe its Amazon Care telehealth business by the end of the year, The Washington Post reported https://wapo.st/3pGXyAH

·     BABA +4%; along with gains in BIDU, JD, PDD among US listed China stocks rise on China stimulus news overnight

·     FIGS +7%; shares jumped after Ron Baron on CNBC mentions positively – calls it the LULU of Healthcare and says has invested about $100M in it

·     FREY +18%; upgraded to Buy at Goldman Sachs as see FREY as a strong beneficiary from the recently enacted Inflation Reduction Act (IRA) in the US.

·     NTAP +6%; post earnings results as July-Q revenue of $1.592bn (+9.2% y/y) beat Street estimates by ~$50mn, while EPS of $1.20 beat by 10 cents on opex leverage

·     PLUG +11%; after signed a hydrogen supply deal with AMZN to provide liquid green hydrogen starting in 2025 to help the e-commerce giant hit its goal of net-zero carbon by 2040

·     SNOW +17%; better-than-expected Q2 results, with product growth of 83% above Street 72% and only 1% of deceleration from 1Q & the largest beat in 3 qtrs. and FY23 guide was slightly raised

·     WSM +4%; 2Q comparable brand sales of +11.3% were well ahead of consensus +5.2% and the demand comp was positive in 2Q and has accelerated in the first three weeks of 3Q – comps +59.6% on a 3-year basis, and gross margin +810bps, and a reiterated FY22 guide

Stock LAGGARDS

·     ANF -2%; lowered its full-year sales forecast after falling short of consensus for quarterly sales ($805.1M vs. est. $841.6M) – now expects 2022 net sales to decline mid-single digits in fiscal 2022, compared with its earlier forecast of flat to 2% growth

·     BURL -9%; cuts full-year adj profit per share forecast to between $3.70-$4.30, from prior $6.00-$7.00 and said it now expects fiscal 2022 comparable store sales to decrease in range of 13% to 15%, from decline of 6% to 9% estimated previously (also missed estimates for quarterly sales)

·     CRM -6%; reported better-than-expected Q2 revenue upside, and constant currency CRPO growth of 19% slightly beating the Street’s ~18% estimate but said due to broader macro challenges, the F3Q and 2H CRPO guidance was worse than expected

·     DLTR -10%; as Q2 sales miss and guides Q3 EPS $1.05-$1.20 and sales $6.75B-$6.87B, both below views of $1.81/$6.92B and Q2nventory +56% vs 2019, on sales +18%

·     PTON -18%; losses widen and sales tumble in Q4 as total member count dropped slightly, as churn rates ticked higher & above 1%; QA4 revs $678.7M vs. est. $685.9M; the company isn’t offering up guidance for the fiscal year 2023

·     SPLK -12%; mixed FQ2 results with better-than-expected revenue, EPS, and cash flow, but ARR was light driven by a shortfall in cloud – total ARR of $3.33B / +27% y/y was $55MM below Street $3.37B and of the $55MM miss, cloud accounted for $39MM