Mid-Morning Look

Tuesday, September 27, 2022

U.S. stocks open sharply higher, looking to snap the current 5-day losing streak for the S&P 500, but stronger economic data (Consumer Confidence and New Home Sales) come in well above ests, sending Treasury yields skyrocketing further (yields have risen 13-straight days coming into today) on fear that better data keeps the Fed raising rates longer and more aggressively (the S&P fell 30-points off highs post data). U.S. stocks opened sharply higher, bouncing off 21-month lows, a day after the Dow Jones Industrial Average entered bear-market territory for the first time in more than two years. A few factors helped overnight futures as Jeffrey Gundlach said he had been buying Treasury prices and Fed President Mester said late yesterday the Federal Reserve considers global factors like the strength of the dollar as it sets interest rates, though it ultimately makes policy decisions based on domestic goals. Oversold conditions are certainly a driver of today’s strength as well. Yields soaring again as the U.S. Treasury 30-year yield hits 3.81%, highest since January 2014, last up 9.9 bps at 3.7961% and 10-yar approaches 4%.

Economic Data

·     Durables Goods Orders for August fell -0.2% vs. consensus (-0.4%) and vs. July (-0.1%); Durables ex-transportation orders rose +0.2%, in-line with consensus and vs. July +0.2%; Aug Durables ex-defense orders (-0.9%) vs July +0.9 pct (prev +1.1%); Aug Machinery orders +0.3%, electrical equipment +1.0%, defense aircraft/parts +31.2%

·     September consumer confidence index 108.0 vs. est. 104.6; consumer confidence index for august revised to 103.6 (previous 103.2)

·     New Home Sales for August rose 28.8% M/M to 685K, well above the 500K estimate and prior 532K; the Median Sale Price (Y/Y) up 8% to $436.8K from previous $439.4K; homes for sale at end of aug 0.461 mln units, vs July 0.459 mln units

·     Home prices are still higher than they were a year ago but continued to cool very quickly in July. Prices nationally rose 15.8% over July 2021, and while that is a wide gain, it was well below the 18.1% gain in the previous month, according to the S&P CoreLogic Case-Shiller Indices. The 10-City composite rose 14.9% year over year, down from 17.4% in June. The 20-City composite gained 16.1%, down from 18.7% in the previous month – CNBC

Sector Movers Today

·     Restaurants: Citigroup opens a 90-day negative catalyst watch on MCD, citing valuation and earnings risk form European exposure – said sees increasingly less favorable risk-reward in shares, with FX & macro challenges in Europe looming over EPS estimates heading into 3Q/the winter months; SBUX to open 6,000th door in China 30-Sep; expects to operate 9,000 stores across 300 cities in China by 2025; DPZ tgt cut to $362 from $410 at Cowen and remain sidelined as are increasingly cautious given industry checks suggesting a plateauing of driver staffing levels in 3Q, after slightly improving in 2Q22, and risk that 2023 openings trail 6%-8% LT guidance; CBRL Q4 adj EPS $1.57 on revs $830.4M vs. est. $1.38/$$836.93M and comp sales +6.1%

·     Semiconductors: U.S. Vice President Kamala Harris will meet on Wednesday with heads of semiconductor-related businesses in Japan, a senior U.S. administration official said. Harris will address potential investments by Japanese firms in semiconductor manufacturing in the United States, the official also told reporters; Digitimes reported TSM sees major fabless clients scale back orders for 2023 – TSMC has seen its major fabless customers start cutting back wafer starts for 2023, which may prompt the pure-play foundry to revise its sales outlook at an investors conference in January, according to industry sources; for MU, Digitimes reported drops in NAND flash prices will still be significant in 4Q’22, as demand for data centers and enterprise storage starts weakening, w/ the memory prices set to continue falling but at a slower pace in 1H’23

·     Pharma movers: MRK’s KEYTRUDA® (pembrolizumab) receives four new approvals in Japan, including in high-risk early-stage triple-negative breast cancer; AQST rises after saying it saw positive topline results from a trial for its allergy drug AQST-109, its treatment for anaphylaxis in competition with Viatris Inc.’s EpiPen; EQ announces positive interim results from EQUALISE study as continues to demonstrate favorable safety and tolerability through 6-months of treatment; VRTX and CRSP announce global exa-cel regulatory submissions for sickle cell disease and beta thalassemia in 2022

·     Transports; railroads CSX, NSC downgraded to Neutral from Buy at UBS saying with the macro backdrop deteriorating, Consensus 2023 EPS estimates appear too high for the U.S. rails and we expect downward revisions to industrial-related and intermodal volume assumptions in the near term; in trucking, KeyBanc reiterates Overweight and $135 tgt on CHRW considering current fundamentals along with the potential for further operational efficiencies while remain SW on LSTR given spot exposure (notes spot rates have underperformed seasonality 3Q22 to-date)

Stock GAINERS

·     CRSP +4%; and VRTX say FDA Granted rolling review to experimental CRISPR therapy

·     EQ +27%; after announces positive interim results from EQUALISE study as continues to demonstrate favorable safety and tolerability through 6-months of treatment

·     GNRC +2%; extends yesterday gains on expected higher demand given Hurricanes approaching Florida in coming days

·     JBL +2%; Q4 core EPS $2.34 tops the $2.14 consensus and revs beat at $9.03B vs. est. $8.39B; announces new $1B share repurchase plan; guides Q1 EPS $2.00-$2.40 vs. est. $2.10 and revs $9B-$9.6B vs. est. $8.93B

·     NLS +8%; after co announced strategic reviews, with alternatives including sale of co on Monday

·     NVAX +13%; after the company announced that an initial one million doses of its Covid-19 vaccine are now available for use in the U.K.

·     RCL +5%; rebound in leisure and discretionary names (CCL, EXPE, CZR)

Stock LAGGARDS

·     AVNT -2%; lowered its FY22 adj EPS view to $2.70 from $3.50 and lowered its Q3 adj EPS outlook citing impact from the Ukraine conflict and related energy supply concerns that have further eroded consumer sentiment and demand in Europe

·     FLT -1%; announces departure of CFO; appoints Chief Accounting Officer Vickery as interim and reiterates 3Q guidance

·     KDP -2%; downgraded from Buy to Neutral at Goldman Sachs and trim tgt to $37 from $39 as see a more balanced risk/reward

·     OCUL -9%; after saying its experimental medical implant to treat patients with wet age-related macular degeneration was well tolerated with a favorable safety profile in an early-stage study; to initiate a mid-stage study in the experimental treatment in the third quarter of 2023

·     RNA -22%; after an FDA partial clinical hold on its Phase ½ MARINA trial of AOC 1001 in adults with myotonic dystrophy type 1 (DM1), with the hold limiting new participant enrollment though currently enrolled patients may continue in their current dosing cohort