Mid-Morning Look: September 29, 2022

Mid-Morning Look

Thursday, September 29, 2022

Index

Up/Down

%

Last

 

DJ Industrials

-563.61

1.90%

29,120

S&P 500

-92.06

2.48%

3,626

Nasdaq

-362.66

3.28%

10,688

Russell 2000

-57.88

3.37%

1,657

 

 

U.S. stocks imploding, erasing all yesterday’s gains (and more), back below the June lows and failing to build any momentum following their first advance in over a week. UK bond/currency market turmoil, coupled with a combination of better jobs data, a weaker US economy, and higher core inflation from US data this morning all pressuring stock markets again. Treasury yields resume upward momentum, as does the dollar after a one-day reprieve. Other global factors also of concern for markets including reports North Korea seen to have fired 2 short-range missiles earlier, while reports of ongoing leak of Nord Stream pipeline which is impacting natural gas markets. UK Prime Minister Truss broke her silence six days after her controversial fiscal measures roiled markets, calling them “the right plan” – markets not taking it well. Inflation concerns remain in Europe after German data suggests things aren’t getting any better, posting a September CPI number at a +10.1% YoY – the single worst monthly statistic since the data have been kept going back to the 1960s. More hawkish central bank talks everyday weigh as they stay focused on inflation and goal to get it to 2% (from 8.3% CPI last month). Markets and investors not showing any faith in central bankers, which have been dead wrong over the last few years and markets are suffering. At this point, sentiment overly bearish as the weekly AAII report showed bearish sentiment holding above 60% with bulls at 20%. Not much to be excited about other than the historically bad September month is nearly behind us with the S&P down over -8%, the Russell 2000 -9.5%, the Nasdaq down -9% and the Dow down -7.5% for the month.

 

Economic Data

·     Gross Domestic Product (GDP) for Q2 Final (-0.6%), in-line with preliminary reading as Q2 Real Consumer Spending rises +2.0% vs. previous +1.5%. The important inflation data showing no signs of slowing as Q2 Final PCE Price Index +7.3% vs. prelim +7.1%, 2Q Final Core PCE Price Index +4.7% vs. prelim +4.4% and Q2 GDP Price Deflator +9.1% vs. est. +8.9%

·     Weekly Jobless Claims fell to 193K from 209K prior week and below consensus of 215K; the 4-wk avg fell to 207,000 from 215,750 prior week; continued claims fell to 1.347M from 1.376M prior week; the US insured unemployment rate unchanged at 1.0%

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.58

81.54

Brent

-0.94

88.38

Gold

-12.70

1,657.30

EUR/USD

-0.0003

0.9731

JPY/USD

0.42

144.58

10-Year Note

0.079

3.784%

 

 

Sector Movers Today

·     Auto sector: in auto retail, KMX posts a wide Q2 earnings miss of $0.79 below the $1.39 estimate on revs $8.1B vs. est. $8.54B – Total wholesale units decreased 15.1% with gross profit per unit of $881, a decrease of $124 per unit; BWA, APTV weak in auto space; the KMX results weighing on industry, as well as fears of higher aluminum costs for autos/supplies if the London Metal Exchange does announce a ban on Russian metals (earlier reports they are discussing it); TM said vehicle production soared 44.3% in August year-on-year, the first increase since March; TM produced 766,683 vehicles worldwide last month, above its target of around 700K; RIDE said it has started the commercial production of Endurance pickup truck at its Ohio plant

·     Consumer Staples & Restaurants: SBUX raises quarterly dividend 8.2% to 53 cents/share; KHC upgraded to Neutral, but maintaining our $34 PT at UBS saying analysis suggested KHC was benefiting meaningfully from pulling back on promotions, competes in categories with greater trade down risk, and has high risk to consumer trade down; NAPA posted solid F4Q’22 results with a 0.7% topline beat and a 7.3% EBITDA beat vs. consensus while FY’23 guidance ranges bracketed consensus; TAP expands exclusive agreement with Coca-Cola to develop and commercialize Topo Chico Spirited

·     Pharma movers: defensive large cap Pharma remains a haven in turbulent market thus far, with LLY, MRK, BMY recent winners as well; AXLA with positive interim results from its ongoing global Phase 2b study to evaluate the safety, tolerability, and efficacy of AXA1125 for the treatment of nonalcoholic steatohepatitis, or Nash.

·     Metals & Materials: shares of FCX, AA, CENX and other industrial metals jump after reports the London Metal Exchange is planning to discuss with its members a ban on Russian metal, sources familiar with the matter said https://bit.ly/3Rhc4L3 . Any move by the LME to block Russian supplies could have significant ramifications for the global metals markets, as the country is a major producer of aluminum, nickel, and copper; WOR slips after lower quarterly profit, plan to separate steel processing business

·     Containerboard: Truist Lowering estimates and price targets for the containerboard stocks – PKG, IP, and WRK – due to higher input costs and lower box volumes but said there is the potential for better box shipments in 4Q (increasing estimates for OI). Notes there is a lot of investor concern on containerboard given slowing demand, partly due to moderating e-commerce trends and retail inventory destocking, and higher input costs such as natural gas.

 

Stock GAINERS (only a handful of S&P names positive)

 

Stock LAGGARDS

·     AAPL -4%; downgraded at Bank of America to neutral from buy amid worries about slowing consumer, weaker near-term Services trajectory

·     AMPS -24%; priced 7M shares sold by Blackstone at a public offering price of $11.50 per share

·     APTV 7%; BWA, GM weak in auto space; the KMX results weighing on industry, as well as fears of higher aluminum costs for autos/supplies if the London Metal Exchange does announce a ban on Russian metals (earlier reports they are discussing it)

·     CGNT -7%; downgraded to Hold from buy at Stifel after reported Q2 results that lagged our expectations as they continue to face similar macro and operational issues

·     COIN -9%; Wells Fargo initiates COIN at Underweight; weakness in crypto prices

·     KMX -22%; posts Q2 EPS miss of $0.79 below the $1.39 est. on revs $8.1B vs. est. $8.54B – Total wholesale units decreased 15.1% with gross profit per unit of $881, a decrease of $124 per unit

·     MLKN -14%; downgraded by one analyst after mixed Q1 results, but lower guidance as sees 2Q EPS $0.39-0.45 vs est. $0.55 and sales $1.027-1.076B vs est. $1.084B

·     RAD -28%; mixed Q2 results (rev beat but EBITDA miss) and lower guidance (its adj EBITDA outlook now expecting $450M-$490M from $460M-$500M prior)

·     SUNL -28%; withdrew 2022 guidance after impairment charges on advances to an installer and higher interest rates; comes after the company missed Q2 expectations

·     WOR -5%; after lower quarterly profit, plan to separate steel processing business

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.