Mid-Morning Look

Tuesday, September 13, 2022

U.S. stocks tumble following an unexpected jump in consumer prices (CPI) for August, as investors appear to have come into the day wrong-footed. U.S. stocks had surged the last 4-days (and overnight futures as well) heading into the key CPI inflation report, topping key technical resistance levels in the process, with expectations that August would show a further deceleration in prices like the last 2-months (albeit modest dips). That is not what happened, and stock markets are seeing a sharp “unwind” of some of the last few days action. The hardest hit sectors early are Consumer Discretionary, Technology and Communication Services, while Energy and Utilities fare the best. All eleven S&P sectors are in the “red” (after all eleven in the “green” the last 2-trading days). Treasury yields skyrocketed on the surprise move in CPI (2-yr hit fresh 14-year highs around 3.71%), while the dollar rebounded, and commodity prices sunk. After the CPI data, traders have now priced in a 20% chance of a 100-bps interest-rate hike when the Fed meets next week, up from 75-bps view. Several tech stocks giving back recent gains, as AAPL rolls to lows falling back below its 200-day MA of $161 and at its 50-day at $159.S Several components of the CPI data showed more price acceleration, shelter, food, and medical care indexes. The Labor Department reported its consumer-price index rose 8.3% in August from the same month a year ago, down from 8.5% in July and from 9.1% in June, which was the highest inflation rate in four decades. Core CPI, which excludes volatile energy and food prices, increased 6.3% in August from a year earlier, up sharply from the 5.9% rate in both June and July. On a monthly basis, the CPI increased 0.1% in August from July, despite a sharp decline in gasoline prices and core CPI double July’s pace.

Sector Movers Today

·     MedTech Equipment & Healthcare Services; CVS backed its previous forecasts for adjusted earnings per share and cash flow from operations for 2022, raised adjusted EPS guidance to $8.40-$8.60, from prior $8.20-$8.40 and said it expects to cash flow from operations for the year to be $12.5B-$13.5B; CAH reaffirmed FY23 guidance of $5.05-$5.40 range (est. $5.30) saying medical segment loss guidance change primarily reflects impact of ongoing simplification efforts; HCAT downgraded from Overweight to Neutral at Piper and cut tgt to $11 from $21 as believe the company’s enterprise DOS infrastructure may require an overhaul

·     Transports: the Biden administration held talks with freight-rail companies and unions to avert more than 100,000 railroad workers walking off the job if contracts weren’t agreed upon by the end of the week, according to reports. In a transport preview at Deutsche Bank, the company said they remain bullish on the rails, despite the potential for a large-scale labor strike this week as ests is most ahead for NSC (+7% beat), followed by CNI (+5%) and UNP (+1%) into earnings. Said they are 5% below the street for SAIA, 3% below for WERN and 1% below for ODFL .  

·     Chemicals: DOW downgraded to Hold at Jefferies saying the current macro conditions suggest olefin prices will remain under pressure into next summer, and believe this model could prove too optimistic given new capacity additions; EMN guides sees 3q adj EPS about $2.00, below prior guidance of $2.46 and below the consensus estimate of $2.60 saying demand has slowed more than expected in August & September

·     Asset Managers: monthly assets under management (AUM) data reported: AB preliminary assets under management decreased to $667 billion during August 2022 from $689 billion at the end of July. Firm-wide net inflows in August were outweighed by market depreciation, resulting in a 3% AUM decrease; IVZ preliminary month-end assets under management (AUM) of $1,416.0 billion, a decrease of 2.3% versus previous month-end as experienced net long-term inflows of $2.7 billion in the month; VRTS preliminary assets under management of $157.8 billion as of August 31, 2022; APAM preliminary assets under management as of August 31, 2022, totaled $132.7 billion; LAZ preliminary assets under management as of August 31, 2022 totaled about $217.0 bln

Stock GAINERS

·     AKRO +115%; after reporting positive study results for its lead product candidate efruxifermin in the chronic liver condition nonalcoholic steatohepatitis, commonly known as NASH – as achieved statistical significance on primary and secondary histology endpoints

·     ALB +2%; handful of material related names (lithium, ag chemicals) seeing strength early (after underperformance yesterday), with LTHM, CF, MOS all higher

·     CTVA +2%; announces $2 billion share repurchase program, said plans to invest about 8% of sales in R&D and innovation through 2025

·     FANG ; energy stocks among the top performers today, with selling focus on more high growth leverages sectors such as technology and discretionary names after hot CPI

·     LNG +3% after announced “20/20 Vision” long-term capital allocation plan and increases 2022 financial guidance, buyback, and dividend

·     ORCL ; Q1 total revenue +23% y/y cc vs. +20-22% guidance and $1.03 non-GAAP EPS in line with FX-adjusted guidance, with strength led by organic Cloud acceleration to +29% y/y cc (vs. 25-28% guide) from +22% last quarter

Stock LAGGARDS

·     ADBE -4%; receives its second downgrade in as many days ahead of earnings, with BMO Capital cutting from Outperform to Market Perform

·     BLK -5%; asset managers among top decliners in the S&P (BEN, TROW, BLK) following weaker monthly AUM data and market weakness – meanwhile the WSJ reported deposits at U.S. banks fell by a record $370 billion in the second quarter, the first decline since 2018

·     EMN -6%; guides sees 3q adj EPS about $2.00, below prior guidance of $2.46 and below the consensus estimate of $2.60 saying demand has slowed more than expected in Aug & Sept

·     LEN -5%; homebuilders pressured early given the spike in rates and consumer price totals (shelter rose +0.7% in CPI report)

·     META -7%; approaching June lows around $154, top decliner in the S&P below the $157 level as high growth stocks hit the hardest today (ETSY, AMD, NVDA)

·     RENT -30%; following deterioration in Active Customer trends in the quarter (QoQ active sub growth slowed to -8% in 2Q vs Street +7%, decelerating from +17% in 1Q), while ending active subscribers 124.1k vs consensus 144.3k and guides Q3 revenue $72M-$74M vs consensus $79.9M

·     U -10%; APP withdrew its bid for Unity (U) and said it will not submit a revised proposal to combine roughly a month after making a proposal