Early Look

Monday, October 31, 2022

S&P futures are down about -0.55% at 3,890 (overnight high 3,914.75 and low 3,884) – after S&P rose about 4% last week and ahead of the FOMC meeting mid-week. Bonds are lower as yields rebound, with the 10-year yield back above 4% at 4.05% and the dollar higher by +0.4%, leading commodity prices lower. Stocks rose on Friday, led by big gains in Apple (AAPL) offsetting weakness post Amazon (AMZN) results, as the S&P 500 rose 3.9% last week, the Dow rose 5.7% and the Nasdaq rose 2.2%. The Dow Jones Industrials, with Friday’s 6th straight winning session, also topped its 200-day moving average (MA) of 32,645 – closing +2.59% at 32,861. The 2-year yield rose 10-bps Friday, but overall declined 6.7-bps this week to 4.422%, down now 2-straight weeks; The 10-year yield rose 7 bps Friday, but declined 20.3 bps this week to 4.009%, snapping a 12-week winning streak (largest 1-week decline since July 1, 2022) = into the Fed this week. Speaking of, the week ahead brings a heavy schedule of economic releases for the US including ISM and payrolls, but the Nov 2 FOMC decision looms larger. Expectations are near universal for a 75-bps hike to 3.75%, so the question for markets is whether the FOMC signals likely slowing in the pace of tightening in December and beyond. Another huge week of earnings, with many top-mid tier names this week after the onslaught of large cap giants last week. In Asian markets, The Nikkei Index jumped 482 points to 27,587, the Shanghai Index fell -24 points to 2,893, and the Hang Seng Index dropped -176 points to 14,687. In Europe, the German DAX is up 20 points to 13,263, while the FTSE 100 rises 10 points to 7,057. Brazil stocks tumble (PBR -9%, VALE -5%, RIO -3%) as Brazil’s former leftist President Luiz Inácio Lula da Silva defeated incumbent Jair Bolsonaro Sunday in an extremely tight election.

Market Closing Prices Yesterday

·     The S&P 500 Index spiked 93.76 points, or 2.46%, to 3,901.06

·     The Dow Jones Industrial Average rose 828.85 points, or 2.59%, to 32,861.80

·     The Nasdaq Composite surged 309.78 points, or 2.87%, to 11,102.45

·     The Russell 2000 Index advanced 40.60 points, or 2.25% to 1,846.92

Economic Calendar for Today

·     9:45 AM ET             Chicago PMI for October…est. 47.0

·     10:30 AM ET           Dallas Fed manufacturing Index for October…prior -17.2

Earnings Calendar:

·     Earnings Before the Open: AIMC ARLP CNA GPN HWM JELD L NSP ON PEG SAIA SBT SXC XPO

·     Earnings After the Close: ACHC ADUS AFL AMKR ANET AWK AXNX BCC BSM CAR CHE CINF CIVI CLW CNO CSR CVI FLS GT HLF HLIT HOLX HTLF KFRC KIDS KMT LEG LSCC OGS OTTR PLOW PSMT RMBS RHP SBAC SOI SON SYK TREX UAN VAC VNO VRNS WMB

Other Key Events:

·     China’s Caixin Manufacturing PMI for Oct-F

World News

·     Brazil’s former leftist President Luiz Inácio Lula da Silva defeated incumbent Jair Bolsonaro Sunday in an extremely tight election that marks an about-face for the country. With more than 99% of the votes tallied in the runoff vote, da Silva had 50.9% and Bolsonaro 49.1%, and the election authority said da Silva’s victory was a mathematical certainty. Silva was imprisoned three years ago over a corruption scandal that sidelined him from the 2018 election

·     China manufacturing PMI 49.2 vs 49.8 est., non-mfg PMI 48.7 vs 50.1 est.

·     Euro-area inflation surged to a new high of 10.7%, climbing at a faster pace than analysts expected; Prices jumped by record 10.7% in October as ECB hikes rates; Gross domestic product rose 0.2% in third quarter vs. est. 0.1%

·     Russia launched a barrage of strikes in Kyiv and across Ukraine, targeting electricity and water supplies, as Moscow intensified attacks on infrastructure – WSJ

Sector News Breakdown

Consumer

·     TuSimple Holdings Inc. (TSP) tumbles -18%; after terminates its CEO. Move comes after reports the co faces three US federal investigations into whether it improperly transferred technology to a Chinese startup, the Wall Street Journal reported, citing people familiar with the matter. https://on.wsj.com/3zwHUxb

·     Jeld-Wen (JELD) Q3 adj EPS $0.71 vs. est. $0.45; Q3 revs $1.3B vs. est. $1.22B; sees FY22 revenue up 10% vs. est. $4.99B and sees FY22 adjusted EBITDA $400M-$420M

·     Keurig Dr Pepper (KDP) downgraded to Sell from Hold at Truist

Energy, Industrials and Materials

·     Emerson (EMR) to sell majority stake in Climate Technologies to Blackstone in transaction valuing the business at $14.0 billion; Emerson to become a pure-play global automation company serving diversified end markets

·     China Southern Airlines Co Ltd has cancelled plans for two Boeing Co (BA) 737 MAX flights on Sunday that would have represented the model’s return to passenger flying in China after more than three years, according to the airline’s website – Reuters

·     XPO Logistics (XPO) Q3 revenue $3.04B vs. est. $3.08B; Q3 EPS $1.45 vs. estimate $1.35; reaffirmed targets for the North American LTL business for fy2022; sees at least $1 billion of full year adjusted EBITDA for the North American LTL business

·     Iron ore extended its rout on Monday, with Dalian prices set for their sharpest monthly drop since February 2020, following an unexpected fall in October factory activity in China. The most-traded January iron ore on China’s Dalian Commodity Exchange ended daytime trade 4.1% lower at 606.50 yuan ($83.31) a tonne, after touching its weakest since July 22 at 602.50 – Reuters

·     Caterpillar (CAT) downgraded to Neutral from Buy at UBS

Financials

·     Visa (V) mentioned positively in Barron’s saying the stock has been hit hard by the market selloff, but its earnings suggest that it has been hit too hard. For investors looking for quality at a reasonable price, Visa fits the bill, said Barron’s

·     Truist (TFC) among dividend-paying stocks to help battle inflation, according to Barron’s noting dividend stocks can offer crucial balance and additional income to a portfolio, especially in today’s environment of high inflation. Further, dividend stocks have been relative winners in this year’s market selloff. Simon Property (SPG), Digital Realty (DLR), Realty Income (O), Truist Financial (TFC) and U.S. Bancorp (USB) are among those w/dividends that should keep rising

·     CNA Financial (CNA) Q3 EPS $0.78 vs. est. $0.60; Q3 revs $3.46B vs. est. $2.24B; CNA Financial Corp- book value per share at qtr end $29.88 vs $47.20 at dec 31, 2021

Healthcare

·     VillageMD, which is majority owned by Walgreens Boots (WBA) is said to evaluating a deal to merge with Warburg Pincus-backed Summit Health, the parent of CityMD. The acquisition of Summit Health is expected to value the combined company between $5 billion to $10 billion, according to a Bloomberg report, which cited people familiar. https://bit.ly/3WsqawW

·     Fresenius (FMS) downgraded its outlook for the full year, citing the expected lower contribution from its Fresenius Medical Care unit due to wage and general cost inflation in the US.; now expects group net income to fall about 10%, compared with the prior estimate of a decline in a low-to-mid single-digit percentage range

·     Kalvista Pharmaceuticals (KALV) announces positive phase 1 data for orally disintegrating tablet formulation of Sebetralstat for use in hereditary angioedema

·     Amgen (AMGN) downgraded to Underweight from Equal Weight at Barclays

·     DaVita (DVA) downgraded to Neutral from Buy at UBS

·     Gilead (GILD) upgraded to Equal Weight from Underweight at Barclays

Technology, Media & Telecom

·     ASML (ASML) mentioned positively in Barron’s saying shares could soar 40%. Article notes the semiconductor-equipment maker has had a rough year as inflation sparked a consumer slowdown and a slump in demand that has weighed on the industry, losing 30.3% this year, but some upbeat developments could drive the price higher

·     Meta Platforms Inc. (META) could drive a rebound in its stock if Mark Zuckerberg would relinquish his role as CEO and bring in a respected executive as replacement, Barron’s argues. The company could also cut headcount and reverse course on its announced spending plans

·     Quotient (QTNT) will affect a one-for-40 reverse stock split