Closing Recap

Friday, August 05, 2022

Equity Market Recap

·     Last week’s closing price for the S&P futures was 4,133.50 – after all the big swings this week, gyrating up and down after market moving economic data reports (jobs today), China headlines with Pelosi, Treasury yields dumping and spiking, oil prices tumbling on week, and over 1/3 of the S&P 500 reporting earnings – the S&P futures ended just a few points above that level! A lot of movement taking markets nowhere over the 5-day span! Stocks slumped on Friday, as large caps underperformed small caps, and the dollar rallied along with Treasury yields after the U.S. July employment report blasted past expectations (more than double estimates), raising the odds of continued aggressive monetary tightening from the Federal Reserve at the September meeting.

·     Tensions grow between the U.S. and Beijing heading into the week as China said it would sanction US House Speaker Nancy Pelosi, after she defied Beijing by becoming the highest-ranking American politician to visit Taiwan in 25 years China on Friday continued its military drills and cut off defense talks with the US. Reuters reported Taiwan’s defense ministry said the island’s military has dispatched aircraft and ships and deployed land-based missile systems to monitor the situation, as China conducts large-scale military drills in zones surrounding Taiwan.

·     Market momentum has clearly been to the upside for 7-weeks: Bespoke Investment tweeted” Can call the rally off the 6/16 low the "intraday rally" as all the market’s gains have come during regular trading hours. If you only owned SPY after hours since 6/16, you’d be down 1.3%. If you only owned intraday (buy the open, sell the close), you’d be up 14.1%. Also, the Nasdaq has been on an intraday tear lately as well. Over the last 25 trading days (5 weeks), 13 days have seen intraday gains of 1%+. Don’t see this type of intraday strength often.”

Economic Data:

·     Nonfarm payrolls for July a much stronger than expected +528K, more than doubling the economist estimate of +250K and prior month revised up to +398K from +372K; private sector jobs +471K vs. est. +230K and prior revised to +404K from +381K and manufacturing jobs +30K vs. est. +17K; the average hourly earnings all private workers +0.5% vs. est. +0.3% and y/y earnings +5.2%; the unemployment rate falls to 3.5%, labor participation rate down to 62.1% from 62.2%.

Commodities

·     Oil prices finish higher, with WTI crude up $0.47 or 0.53% to settle at $89.01 per barrel as today’s advance helped recoup some of the weekly losses after WTI hit lowest levels since February mid-week. Brent Crude futures settle at $94.92/bbl, up 80 cents, 0.85%. During the session, both benchmarks hit lows last seen before Russia’s Feb. 24 invasion of Ukraine, as end lower on the week. The OPEC+ producer group agreed this week to raise its oil output goal by 100,000 barrels per day (bpd) in September, but this was one of the smallest increases since such quotas were introduced in 1982, OPEC data showed. The weekly Baker Hughes (BKR) rig count down 3 to 764 as oil rig count down 7 to 598 and gas rig count was up 4 to 161.

·     Gold prices decline following the better jobs report, as it boosted the dollar and Treasury yields with investors bailing on haven related assets. Gold had bounced off 15-month lows hit last week on hopes the Fed will shift from hawkish to dovish on rate hikes with signs of inflation easing. But the jobs data shows the U.S. economy is strong and can prompt Fed to be more aggressive

Currencies & Treasuries

·     U.S. Treasury yields surged after the U.S. economy created more than double the number of jobs expected by economists, bolstering expectations for a big increase to interest rates by the Federal Reserve at the September policy meeting (75 bps now on table from 50 bps prior). The benchmark 10-yr yield rose over 18bps to 2.864% and 2-yr up 21 bps to 3.248% as the yield curve remains inverted by 40-bps – widest since dot.com bubble).

·     The U.S. Dollar Index (DXY) advanced to highs of 106.85 before paring gains, but still posting strong returns around 106.50, +0.8% after the BLS said nonfarm payrolls rose 528,000 last month, far beating economists’ expectation for a 250,000 increase. The data boosted expectations the Fed will ratchet up rate hikes more aggressively, sending the buck higher as the euro fell by 0.8% to $1.02 (recall the euro hit parity with the greenback for the first time in 20 years in mid-July). The British pound fell by about 1% to $1.205.

Sector News Breakdown

Consumer

·     Retailers: IRBT to be acquired by AMZN for $61 per share in an all-cash transaction valued at approximately $1.7 billion, including iRobot’s net debt; ELY reported 2Q results that came in above expectations, and also raised its FY sales/EBITDA guidance higher; FNKO falls as Q2 adj EPS $0.26 vs. est. $0.23; Q2 revs +33.7% y/y to $315.7M vs. est. $292.6M; guides year EPS $1.88-$1.99 vs. est. $1.90 and sales $1.3B-$1.35B vs. est. $1.31B; LESL slips after lowering annual sales outlook to range $1.55B-$1.57B from prior $1.58B-$1.61B and lower profit

·     Auto sector: CVNA shares rebound despite a wider Q2 EPS loss (-$2.35) vs. est. loss (-$1.79) and revs $3.88B missing the est. $3.98B, while gross profit per unit (GPU) fell $1,752 from the prior year quarter to $3,368; TSLA shareholders approved a board proposal authorizing an increase in outstanding shares to enable a three-for-one stock split; auto supplier AXL raises FY22 revenue forecast to $5.75B-$5.95B from $5.6B-$5.8B after Q2 top and bottom line beat; GT posted Q2 results that topped views sending shares higher initially

·     Housing, Real Estate, & Building Products; ZG shares fell as guided Q3 revenue of $431M-461M, down from the consensus of $561.9M, while Homes unit generated sales of $505M in Q2, down from $777M in Q2 of last year; RDFN reported a wider-than-expected loss (-$0.73) vs. est. loss (-$0.60) and revs $606.9M vs. est. $612.6M, while sees Q3 revs $590M-$627M vs. est. $626.7M

·     Consumer Staples; BGS 2Q results fell below internal expectations for EBITDA and EPS and management lowered guidance again for the year; POST Q3 top and bottom line beat while boosted its FY22 adj Ebitda guidance to $930-$945M; MNST Q2 sales grew 15% organically, well ahead of April sales +8%, but EPS of $0.51 missed the $0.70 estimate on weaker gross margins; BYND delivered solid revenue and a worse than expected EBITDA loss in Q2, announces reduction of approx 4% of its global workforce and sees FY revs $470-520Mm vs est. $559.4Mm; ELF trades to fresh all-time highs after earnings and guidance in beauty space

·     Casinos, Gaming, Lodging & Leisure sector; in gaming, DKNG posts Q2 revenue of $466M, compared to estimates of $436.2M and raises midpoint of its FY22 revenue outlook range by $15M as was driven by 68% rise in sales in co’s B2C segment; in online travel, EXPE lodging bookings were +9%, +9%, +5% in Apr, May, Jun, respectively on a reported basis vs. 2019 and QTD Jul is trending in-line – handily surpassed 2Q EBITDA estimates while pointing to slowing lodging trends into July, driving a slower lodging growth estimate in the 3Q; in food delivery, DASH Q2 report was somewhat mixed, with modest downside to GOV/revs but upside to EBITDA, and GOV guidance relatively in-line; LYFT Q2 revenue/adj. EBITDA ahead of estimates/guidance, with NT outlook mixed with Lyft guiding to a slower Q3 revenue ramp vs consensus

Energy

·     Energy stock movers: volatility continues as the sector was among the top performers on Friday after leading lower the first part of the week; oil prices rebounded, and a handful of earnings results helped slightly with EOG among the top gainers in the S&P post results; overall energy has fell sharply from 2022 highs with oil prices sliding on slowing demand and inflation concerns.

·     Utilities & Solar; solar and alternative energy stocks (BLDP, FSLR, SPWR, RUN, ENPH, CLNE) and electric vehicle names rallied early after Democrats agreed on a revised version of their tax and climate bill, dropping a provision that would have narrowed a tax break for carried interest, altering a 15% minimum tax on corporations, and adding a new 1% excise tax on stock buybacks. Senator Kyrsten Sinema, a pivotal Democratic vote in the 50-50 Senate, said Thursday night she’ll back the revised bill; DUK downgraded to Neutral from Outperform at Credit Suisse following 2Q earnings where we now see increased risk of a re-base to the 5-7% LT EPS CAGR

Financials

·     Bitcoin, FinTech & Payments; SQ slides on slowing growth fears as it sees its Square ecosystem gross payment volume to increase 18% y/y and 23% on a 3-year compound annual growth rate, which compares with 29% y/y growth and 24% on 3-year CAGR in April; GDOT posts Q2 earnings beat and raises FY22 EPS guidance

·     Banks, Consumer Finance: RKT posted a Q2 EPS miss vs. expected profit and revs of $1.13B missed the $1.53B estimate (and down from $2.79B y/y) – Q2 closed origination volume dropped to $34.5B from $83.8B a year ago; rally in financials (JPM, WFC, FITB, PNC) following the jump in yields on better jobs data

·     Financial Services: Genpact (G) delivered solid revenue growth of 12.0% cc and adj. EPS of $0.70 ahead of expectations driven by strong demand from clients looking to increase efficiencies; PCTY 4Q beat and introduced FY23 guidance well above Street expectations driven by combo of new client growth (+16% for FY22) and increase in average recurring revenue per client (+16%)

Healthcare

·     Pharma movers: GBT rose after the WSJ reported PFE was in talks to buy the co for about $5B https://on.wsj.com/3JvpLnn . The story comes a day after Bloomberg had reported the company was attracting takeover interest, citing people familiar with the matter https://bit.ly/3oUEmiC ; VRTX reported a top/bottom line beat as product revenue of ~$2.2B in the quarter was a 22% increase y/y and boosts full-year revenue of $8.6B-$8.8B, from a prior estimate of $8.4B-$8.6B; ACAD falls after the FDA declines to approve expanded use of Co’s antipsychotic drug; has recommended that Acadia conduct an additional trial; TEVA upgraded to Buy at Bank America as believe TEVA is making material progress towards cleaning up its legal litigation overhangs

·     Biotech movers; DVAX raised its 2022 guidance for revenue of its key product, the vaccine adjuvant CpG 1018; IOVA Q2 results missed on the bottom line as net loss in the quarter widened ~22% to $99.3M (-$0.63 per share vs. -$0.53 year-ago period) on no revs; GH 2Q results which came in ahead of targets for total revenue, despite certain market headwinds that came out in May and June and affected volumes

·     MedTech Equipment; CDNA slides after Q2 top and bottom results missed estimates and the company lowered its FY22 revenue outlook to $325M-$335M vs. est. $337.9M; ATEC delivered Q2 organic revenue growth of 30% despite a challenging macro backdrop and raised 2022 guidance, calling for revenues of $325M (+34% Y/Y, +31% organic) vs. $316M previously; IRTC raised the low end of its FY22 revenue guidance to $415-420M from $410-420M to reflect the strong quarter results but did signal that Q3 would be below consensus expectations; XRAY said it plans to restate Q1 results due to an ongoing internal probe into its accounting practices that was announced in May; PODD 2Q revenue of $299.4M (+14% reported, +18% constant currency) that came in $8M above Street estimates driven by U.S. Omnipod

·     Healthcare Services: DOCS tumbles after cutting FY rev guidance to $424M-$432M, well below consensus estimate of $455.92M and prior view of $454M-$458M on lower Ebitda guidance

Industrials & Materials

·     Aerospace & Defense; SPCE filed a prospectus for offering of up to $300 mln of common stock, released Q2 results, and again delayed its commercial flight to Q2 2023 from Q1 2023; KTOS top and bottom-line results exceeded expectations and raised FY22 revenue view to $890M-$930M from $880M-$920M

·     Transports, Industrial & Machinery; MTZ reports Q2 earnings beat while narrows its FY22 EPS and adjusted EBITDA guidance; IR downgraded to Hold from Buy at Deutsche Bank as still think IR is a high quality company, but very hard to identify drivers of further upside to the stock; WAB rises on Q2 beat and raise guidance; transports outperform behind strong jobs data/sign + economy

Technology, Media & Telecom

·     Media movers: IHRT Q2 results mixed as op income $83M topped $28M y/y but revs of $954M missed ests with slightly lower Q3 rev growth guidance; FUBO said it expects to have 1.475M-1.515M subscribers worldwide in Q3, up from the 1.294M subscribers in Q2 with upbeat Q3 rev guidance; AMCX posts Q2 profit and revenue that missed expectations, while streaming subscriber growth beat and the full-year outlook was affirmed; WBD tumbles after results and cut its FY23 EBITDA guidance from $14B to $12B+ (analysts cautious post results)

·     Internet movers: YELP posts Q2 beat-and-raise quarter as Q2 advertising revenue gained 16% Y/Y to $284M – raise its FY 2022 revenue guidance to $1.18B-$1.20B from prior $1.16B-$1.18B; NET shares surged after raising its 2022 revenue guidance ($968-972Mm vs est. $958.4Mm) as it added a record number of large customers in Q2.

·     Semiconductors: WDC issued Q1 sales and adjusted earnings guidance below analyst expectations as sees revs $3.6B-$3.8B vs. est. $4.75B; SWKS Q2 results were slightly better while its Sep-22Q outlook was slightly below; World chip sales growth has decelerated for six straight months — yet another sign the global economy is straining under the weight of rising interest rates and mounting geopolitical risks. Semiconductor sales rose 13.3% in June from a year earlier, down from 18% in May; OLED Full year guidance lowered as consumer demand weakens

·     Software movers: HUBS delivered ~39% cc billings growth nicely above Street at ~34%. 3Q cc rev growth guide of 33% was slightly below; TEAM named a new CFO, reported a Q4 rev beat as subscription revenue of $597M was up 55% y/y and guides Q1 revs $795M-$810M vs. est. $770M; TWLO reported mixed 2Q results, with a continued deceleration, DBNE softness, and weak gross margins as shares slide; JAMF strong quarter with +40% ARR growth and record net-new ARR vs +42% last quarter and a consecutive quarter of accelerating SaaS revenue growth; in video game names (ATVI, EA, TTWO, UBSFY, NTDOY) active as consumer spending on video game hardware, content and accessories stood at $4.3 bln in June, a 11% fall from a year ago, according to research firm NPD – video game hardware dollar sales for June declined 8% y/y

·     Telecom, Hardware, Components: MSI posted strong revs/EPS of $2.14B/$2.07, well ahead estimates, predominantly driven by 20%+ growth in both Video and Command Center and raised guidance for Q3 and the year; TDS Q2 results beat estimates and maintains its FY 2022 guidance unchanged