Mid-Morning Look

Friday, August 25, 2023

U.S. stocks bounced off yesterday’s declines overnight as investors anxiously waited for Fed Chairman Powell speech at Jackson Hole event. Markets took his commentary in stride after providing signs of a long pause in rates going forward. Quick recap from Powell: Said the Fed is “prepared” to raise further if needed; the Fed will not change 2% inflation target; said they will proceed carefully on whether to hike again; said lowering inflation will require softer labor markets and noted that above trend growth could warrant more rate hikes. The general reaction was favorable for US stocks initially, moving to fresh overnight highs as Powell provided no major surprises to the FOMC latest minutes. All eleven S&P sectors opened higher and extended gains led by Technology, Consumer Discretionary and Industrials though Treasury yields, and the dollar bounce. The question is, can the market hold its gains as August has been all about “selling the rips” vs. “buying the dips”?

Economic Data

·     University of Michigan surveys of consumers sentiment final Aug 69.5 below consensus 71.2 and prelim 71.2/July-final 71.6; current conditions index final aug 75.7 vs prelim aug 77.4 and final July 76.6; expectations index final aug 65.5 vs prelim aug 67.3 and final July 68.3

·     University of Michigan surveys of consumers 1-year inflation outlook final aug 3.5% vs prelim 3.3% and final July 3.4% and University of Michigan surveys of consumers 5-year inflation outlook final aug 3.0% vs prelim 2.9% and final July 3.0%.

Stock GAINERS

·     AFRM +22%; posted a good quarter with the company beating revenue, gross profit and GMV estimates and guided FY24 slightly better than expected GMV and revenue growth.

·     ARDX +7%; upgraded to overweight from neutral at Cantor Fitzgerald saying that the Street is underappreciating the peak sales potential of its flagship drug Xphozah.

·     HAS +4%; tgt raised from $79 to $94 at Stifel, reiterate Buy and add to Select List as examines the changes being undertaken along with the opportunities, and implications for earnings power.

·     HIBB +16%; reports better Q2 results (EPS $0.85 vs. est. $0.73; Q2 revs $374.9M vs. est. $376.11M) and reaffirmed its yearly outlooks – better than comp DKS earlier this week.

·     INTU +2%; reported FQ4 results ahead of expectations and guided FY24 revenue and EPS modestly above consensus but provided mixed segment revenue guidance.

·     NFLX +1%; after Loop Capital upgraded to Buy with 4425 tgt citing improving fundamentals, while noting the shares have corrected 15% from Netflix stock’s recent gains.

·     WDAY +3%; delivered strong FQ2 results, exceeding consensus estimates across the board while raising FY24 subscription revenue guidance to 17.9% Y/Y growth at the mid-point, and operating margin guidance to 23.5% from 23.0%.

Stock LAGGARDS

·     DOCN -11%; after current CEO Yancey Spruill said will step down after a successor is hired.

·     DOMO -40%; after posting a slight Q2 beat, but significantly lowered FY24 guide, citing tougher macro conditions impacting pipeline conversion & tougher competitive conditions; sees FY24 EPS loss (47c-39c), vs. est. loss (-$0.35) and revs $316M-$320M vs. est. $325.5M.

·     HE -14%; after suspending its cash dividend on common stock; Maui County also filed a lawsuit Thursday against them alleging that its power lines caused recent wildfires on the island.

·     JWN -10%; after beats on earnings but reiterates a cautious full-year outlook and notes losses from theft are at a historical high.

·     MRVL -7%; reported an in-line print and guide slightly above expectations as reported AI driven upside (as expected) which was offset by weakness in other segments.

·     ULTA -3%; reported F2Q results that beat expectations and raised its FY23 outlook but said “shrink continued to be a drag on results.”

·     WBD -3%; as WSJ reports Warner Bros will delay the release of three big-budget action films (Dune, Godzilla x Kong, and Lord of the Rings) due to the actor/writer strike.