Early Look

Friday, July 21, 2023

U.S. futures are looking higher, with the Nasdaq bouncing +0.4% after its 2% decline on Thursday, as weakness in mega caps NFLX, TSLA and semiconductors (off TSM guidance) following earnings pushed the broader tech space lower. The Dow Jones Industrial Average comes into Friday riding a 9-day win streak, its longest since 2017. Note the reweighting of Nasdaq index could add extra volatility to $2.4T worth of monthly option expiring today according to Bloomberg as passive investors could use the last window to bring their portfolios in line with the benchmark before the changes take effect Monday. Earnings season thus far has been mostly positive with low expectations, especially in the financial/bank sector, but a bigger test comes next week among the heaviest dose of earnings in the S&P this quarter, including results from likes of AMZN, MSFT, GOOGL, and META in tech. Transports edging lower early after results from CSX, KNX last night, but WTD the index is up +2.7%. In Asian markets, The Nikkei Index fell -186 points to 32,304, the Shanghai Index dipped -1 point to 3,167, and the Hang Seng Index gained 147 points to 19,075. In Europe, the German DAX is down -70 points to 16,134, while the FTSE 100 is flat at 7,645. The Japanese yen fell sharply on reports the Bank of Japan sees little urgent need to act on yield curve control for now. USD/JPY is up 1.2% at 141.80 having shown little reaction to a slightly stronger-than-expected CPI print overnight. The pound also jumped after UK retail sales topped estimates, although have since reversed lower.

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -30.85 points, or 0.68%, to 4,534.87.

·     The Dow Jones Industrial Average rose 163.97 points, or 0.47%, to 35,225.18.

·     The Nasdaq Composite tumbled -294.71 points, or 2.05%, to 14,063.31.

·     The Russell 2000 Index declined -17.73 points, or 0.89% to 1,967.16.

Economic Calendar for Today

·     1:00 PM ET            Baker Hughes Weekly rig count data

Earnings Calendar:

·     Earnings Before the Open: AN AXP CMA HBAN IPG RF ROP SLB SXT

World News

·     UK July Consumer Confidence: -30 vs -26 cons; GFK- reality has started to bite and, as people continue to struggle to make ends meet, consumers will pull back from spending.

·     Japan June CPI: 3.3% y/y vs 3.2% consensus; June Core CPI: 3.3% y/y and June Core-Core CPI: 4.2% vs 4.3% previous.

Sector News Breakdown

Consumer

·     Autoliv (ALV) Q2 adj EPS $1.93 vs. est. $1.43; Q2 revs $2.64B vs. est. $2.54B; said Q2 profitability improved substantially, positively impacted by price increases, organic growth, and our cost reduction activities; backs FY23 view for around 15% organic sales growth.

·     Scholastic (SCHL) 4Q adj EBITDA $115Mm vs est. $98.1Mm, revs $528.3Mm vs est. $541.76Mm; expects FY24 revs growth +3-5% vs est. +5.7% and adj EBITDA $190-200Mm vs est. $192.18Mm.

Energy, Industrials and Materials

·     CSX Corp. (CSX) 2Q EPS $0.49 vs est. $0.49 on revs fell -3% y/y to $3.7B vs est. $3.735B; said the decline in revenue was primarily due to lower fuel recovery, pricing declines in export coal and lower intermodal volume; Q2 operating ratio 59.9%.

·     Knight-Swift Transport (KNX) Q2 adj EPS $0.49 vs. est. $0.57; Q2 revs fell -20.8% y/y to $1.6B, in-line with consensus $1.6B; cuts FY23 adjusted EPS view to $2.10-$2.30 from $3.35-$3.55.

·     PPG Industries (PPG) 2Q adj EPS $2.25 vs est. $2.14 on revs $4.872B vs est. $4.842B; sees 3Q adj EPS $1.85-1.95 vs est. $1.87 and total organic sales +LSD; sees FY adj EPS $7.28-7.48 vs est. $7.27; says supply chain and raw material availability has returned to pre-pandemic level and in some cases there is excess supply.

Financials

·     Associated Bank (ASB) Q2 EPS $0.56 vs. est. $0.59; Quarterly net interest margin decreased 27 basis points to 2.80%; noninterest income increased $3Mm to $66Mm; noninterest expense increased $3Mm to $191Mm; Total period end deposits increased $1.7 billion to $32.0 billion.

·     Bank OZK (OZK) 2Q EPS $1.47 vs est. $1.42 on NII $356.8Mm vs est. $348.3Mm; provision for credit losses $41.8Mm.

·     Capital One Financial (COF) Q2 EPS $3.52 vs. est. $3.22; Q2 revs rose 9.5% y/y to $9B vs. est. $9.12B; Q2 total deposits fell -1.8% q/q to $343.71B, loans held for investment rose 5% y/y to $311.32B; June domestic credit card net charge-offs rate 4.38 % vs 4.50% in May, June auto net charge-offs rate 1.69% vs 1.35% in May.

·     First Financial Bancorp (FFBC) 2Q adj EPS $0.72 vs est. $0.69, NIM 4.48%, loan growth +4.5% annualized basis, ROAA 1.62% adjusted; CET1 capital ratio 11.3%.

·     Metropolitan Bank (MCB) 2Q EPS $1.37 vs est. $1.75 on NII $53.8Mm vs est. $55.65Mm; Q2 revs $61.6M vs. prior year $62.3M.

·     Principal Financial Group (PFG) monthly AUM were $674.2 billion, of which $485.8 billion is managed by Principal Global Investors and $174.4 billion is reported by Principal International.

·     ServisFirst Bancshares (SFBS) 2Q EPS $0.98 vs est. $0.89 on NII $101.25Mm vs est. $99.25Mm; credit loss provision $6.654Mm; loans +9.3%; BV/shr +12% y/y.

·     WR Berkley (WRB) Q2 EPS $1.30 vs. est. $1.10; Q2 revs $2.996M vs. est. $3.0B qtrly gross and net premiums written grew 9.3% and 8.7% to $3.3B and $2.8B, respectively.

Healthcare

·     Bio Rad Laboratories (BIO) to repurchase up to $500M of outstanding shares of common stock.

·     Codexis Inc’s (CDXS) said it plans to lay off 25% of its workforce by Sept. 30; reiterates 2023 product revenue outlook between $30M-$35M.

·     Emergent BioSolutions (EBS) said it got FDA approval for its anthrax vaccine. Cowen analyst notes that the approval is an incremental positive as it was largely expected.

·     Intuitive Surgical (ISRG) 2Q adj EPS $1.42 vs est. $1.33 on revs $1.756B vs est. $1.739B; Worldwide da Vinci procedures grew approximately 22% y/y; placed 331 da Vinci surgical systems, compared with 279 in the second quarter of 2022; grew its da Vinci surgical system installed base by 13% y/y to 8,042 systems; raises FY23 procedure growth view to 20%-22% from 18%-21%; sees FY23 gross profit margin 68%-69%.

·     Turnstone Biologics (TSBX) 6.67M share IPO priced at $12.00.

Technology, Media & Telecom

·     Digital World Acquisition Corp (DWAC), which plans to merge with the parent company of Donald Trump’s Truth Social platform, settles charges of fraud with the U.S. SEC related to “material misrepresentations” made to investors; to pay an $18M penalty if closes a merger transaction.

·     Equinix (EQIX) downgraded to Equal Weight from Overweight at Wells Fargo.

·     Sirius XM (SIRI) downgraded to Sell at Pivotal, Underperform at Evercore/ISI and Sell rating at Deutsche Bank after the recent surge in share price.