Closing Recap

Tuesday, August 08, 2023

Index	Up/Down	%	Last
DJ Industrials	-158.38	0.45%	35,314
S&P 500	-19.11	0.42%	4,499
Nasdaq	-110.07	0.79%	13,884
Russell 2000	-11.59	0.59%	1,947

 

 

 

 

 

 

 

 

 

U.S. stocks finished the day in negative territory, but well-off the morning lows into key inflation data later this week. As all eleven S&P sectors closed “green” on Monday, most sectors were down on day outside of healthcare (helped by LLY, NVO obesity drug news), Energy (late day reversal higher) and defensive utilities (as yields fall). Stock indexes fell and government bond prices climbed after Moody’s lowered credit ratings for 10 smaller U.S. banks and said it was reviewing ratings for six larger ones, renewing focus on the health of the banking system (financials slid on day). The VIX hit afternoon highs above 18 (highest levels since the end of May) but closed back near the 16 level. Another heavy dose of earnings tonight and tomorrow before the quarter finally begins to slow up into the “dog days of summer”. A few top stories that dragged on market sentiment today included: 1) Chinese exports fell 14.5% in July from the year-ago period, the biggest decline in more than three years and imports fell 12.4%, far worse than the 5.4% drop expected by analysts polled by FactSet. 2) Financials decline as Moody’s downgraded its debt ratings on several small and midsize U.S. banks. 3) European markets slid after the Italian government approved a surprise 40% windfall tax on banks’ profits.

 

Economic Data

·     The U.S. trade deficit fell -4% in June to -$65.5 billion due to declining imports, reflecting a shift in consumer spending habits as well as a slump in global manufacturing. The trade gap dropped $2.8 billion from -$68.3 billion in May. U.S. June exports -0.1% vs May -0.5%, imports -1.0% vs May -2.3% – exports $247.48 bln vs May $247.83 bln, imports $312.98 bln vs May $316.12 bln.

·     June wholesale inventories revised to -0.5% vs. consensus -0.3% and from -0.3%; U.S. June wholesale sales -0.7% (consensus +0.1%) vs May -0.5% (prev -0.2%); U.S. June stock/sales ratio 1.41 months’ worth vs May 1.40 months.

·     U.S. consumers’ credit card balances topped $1T in Q2 as consumers continued to spend, according to the New York Fed’s Quarterly Report on Household Debt and Credit. The total amount of household debt ticked up by 0.1% to $17.06T. During the April through June period, credit card balances rose 4.6% to $1.03T, the highest level since the New York Fed started collecting the data in 2003. The number of credit card accounts increased by 5.48M to 578.35M. And the total limits on credit card accounts edged by $9B to $4.6T.

 

Commodities, Currencies & Treasuries

·     U.S. crude oil futures settle at $82.92 per barrel, up 98 cents, or 1.20% (well off the lows of $79.90) in a strong reversal, settling at highest levels in 17-weeks. Oil prices had fallen by more than 1.5% earlier after data showed China’s imports and exports fell much more than expected in July. Brent Crude futures settled at $86.17 per barrel, up 83 cents, 0.97%.

·     Gold prices a casualty of the weaker China trade data (impacting commodity prices) as well as a strong dollar impact as December gold fell -$10.10, or -0.51%, to $1,959.90 an ounce.

·     The US dollar index (DXY) rose +0.45% around 102.50, holding around that level most of the day awaiting inflation data later this week. Bitcoin rises from a two-week trading lull above $29,700, up nearly 2% as Moody’s downgrade hits U.S. banking sector.

·     Treasury yields pulled back as the 10-year fell over 6-bps to 4.015% (off lows around 3.98%), as markets await CPI inflation data Thursday and PPI on Friday. The U.S. sold $42 bln 3-year notes at high yield 4.398%, with strong bid-to-cover ratio 2.90, as primary dealers take 10.33% of U.S. 3-year notes sale, direct 15.7% and indirect 73.97%.

 

 

Macro	Up/Down	Last
WTI Crude	0.98	82.92
Brent	0.83	86.17
Gold	-10.10	1,959.90
EUR/USD	-0.005	1.052
JPY/USD	0.98	143.47
10-Year Note	-0.06	4.018%

 

 

Sector News Breakdown

Consumer

Autos:

·     ACVA delivered strong 2Q results, beating consensus estimates for revenue and adjusted EBITDA by 4% and 59%, respectively. Following the strong quarter, management raised its full-year outlook on both the top and bottom lines, driving shares higher.

·     LCID Q2 EPS ($0.40) vs est. ($0.33) on revs $150.9Mm vs est. $175Mm disappoints but kept unchanged its 2023 production outlook despite weaker quarterly sales.

·     PTRA shares sink after saying it voluntarily filed for chapter 11 bankruptcy in Delaware on Monday to strengthen its financial position "through a recapitalization or going-concern sale."

·     WKHS reported a big Q2 rev miss ($3.97B vs. est. $14.8M) and slashed its full-year outlook as revenue guidance range to between $65M-$85M from prior $75M-$125M saying longer-than-expected certification testing may delay the W56 production launch by about 45 days.

 

Consumer Staples & Restaurants:

·     In Food: BYND shares slide as Q2 revs $102.1M vs. est. $108.4M; Q2 adj Ebitda (-$40.8M) vs. est. (-$42M); says unlikely to meet cash flow positive target in timeframe; forecast FY23 revs between $360M-$380M, below prior view $375M-$415M. BRBR reported 3Q23 EBITDA of $87M representing 7.5% growth and revenue was up 20% supported by an 11% contribution from price/mix and 9% volume growth.

·     In products: IFF shares slide after reported disappointing 2Q23 results and reduced its 2023 sales and adjusted EBITDA guidance by 7% and 18%, respectively, each at the midpoint as miss and lowered guidance largely reflects ongoing customer destocking, hurting volumes.

Retailers:

·     AMZN announced a new Prime event in October.

·     HBI shares active following a Wall Street Journal report that activist investor Barington Capital has built up an undetermined stake in the apparel company.

·     UAA reported slight profit for Q2 vs. estimated loss on better revs $1.32B, backs year profit and sales outlook while says expects Q2 revenue to be flat to down slightly.

·     In Department Store preview: TD Cowen says has negative U.S. read thru from luxury brands, lower dept store retail sales, & continued spending shifting to services & travel convey caution, but conservative guidance should help. 2Q EPS appears achievable as M guided sales -HSD% y/y. Prefer KSS on new CEO/strategies, but like M on valuation/inventory mgmt.; cautious on JWN’s aspirational customer exposure and work-in-progress inventory mgmt.

 

Leisure, Gaming & Lodging:

·     In Theme Parks: SEAS slides after Q2 results miss expectations saying revs fell -1.7% y/y to $496M vs. est. $518M; second-quarter profit fell, squeezed by a drop in attendance and higher costs from operations and interest rates.

·     In movie Theatres: AMC shares active after earnings; NCMI shares rose after saying it completed its financial restructuring following a chapter 11 bankruptcy filing in April.

·     In RV Sector (CWH, THO, WGO): Keybanc said for RV Industry, preliminary domestic retail unit sales came in -18.1% y/y (N.A. -17.8%; Canada -15.4%) and based on average revision trends, sees June fully revised N.A. retail – LDD y/y (-high-teens vs 2019), implying ~normal seasonality.

·     In Education Services: CHGG reported better 2Q revenue and EBITDA results, beating expectations by $6M and $5M, respectively, and issued more in-line 3Q guidance.

 

Homebuilders, Building Products, Home Furnishing:

·     In Home Improvement retail: HD downgraded from Outperform to Market Perform w/ $315 PT and LOW cut to MP with $225 tgt at Telsey as expects the companies to experience a slightly steeper slowdown related to the weak housing market trends, consumers remaining cautious with spending, especially on big ticket items and projects, and continued normalization.

·     In construction products: JELD 2Q23 results were above expectations for both revenue ($1.126B vs. $1.103B Street consensus) and adjusted EBITDA ($109M vs. $87M) while sales decreased 4.5% y/y (core sales down 4%) on an 11% decline in volume/mix, partially offset by pricing (+7%).

 

Energy

·     The U.S. EIA left its 2023 world oil demand growth unchanged. In its monthly forecast, the agency cut its oil demand growth estimate for 2024 by 30,000 bpd to 1.61 million bpd. U.S. crude oil production to rise by 850,000 bpd to 12.76 million barrels in 2023 (versus previously forecasted rise of 670,000 bpd).

·     In Refiners: Reuters reported PSX and ADM are discussing a biofuels joint venture with an aim toward producing lower-carbon jet fuel, three people familiar with the matter said. The two companies are discussing putting ADM’s dry corn mill operations into a venture that would convert grain-based alcohol to jet fuel.

·     In utilities: MRC tumbles as Q2 revenue misses on weaker U.S. business and management lowers 2023 guidance driven by softness in Gas Utilities Sector. DUK mixed Q2 as EPS miss/revs beat. Several 52-week lows for a handful of utilities including AEP, AGR, D, ES, NEE

·     In Pipelines/MLPS: OKE reported 2Q23 adjusted EBITDA of $971mm, beating Cons expectations of $937mm by 4%. Base volumes sequentially increased across the system 8% in the NGL segment and 4% for G&P.

 

Financials

Banks, Brokers, Asset Managers:

·     Financials among the worst performers in the S&P Index after Moody’s Investors Service lowered credit ratings for 10 small and midsize US banks and warned it may downgrade major lenders including USB, BK, STT and TFC, warning that the sector’s credit strength will likely be tested by funding risks and weaker profitability. Said elevated commercial real estate (CRE) exposures are a key risk due to high rates, declines in office demand and low availability of CRE credit.

·     In Real estate services, weakness continues as COMP declines after reported Q2 Ebitda that came in at the low-end of guidance and Q3 outlook that missed analyst expectations; just the latest in string of disappointments in the space as OPEN, RDFN declined last week post results.

 

REITs:

·     CXW reported 2Q23 results that were in-line with consensus and raised its FY23 guidance.

·     MAC sees FY FFO per share $1.78-$1.84, vs. prior $1.79 to $1.89.

·     MPW guides FY EPS 0.33-$0.37, below prior $0.83-$0.98 view and consensus $0.77

·     NSA downgraded to Hold at Stifel and its TP to $35, because of an operating environment that deteriorated faster than it expected and higher for longer rates.

 

Healthcare

Biotech & Pharma:

·     LLY shares soar after better results and NVO headlines; LLY Q2 revenue $8.31B vs. est. $7.58B; Q2 adj EPS $2.11 vs. est. $1.98; 2023 revenue guidance increased by $2.2B to range of $33.4 to $33.9B. Shares had popped prior to results after NVO’s SELECT trial data showing 20% reduction in CV events – LLY’s CVD outcomes study SURMOUNT-MMO primary readout expected in 2027.

·     NVO shares jump as its Semaglutide 2.4 mg reduces the risk of major adverse cardiovascular events by 20% in adults with overweight or obesity in the SELECT trial. The headlines helped boost the obesity drug market (LLY, ALT, GPCR) as the obesity market could be expanded by reducing the reimbursement barriers said Piper.

·     AXSM upgraded to Neutral w/ $81 PT from $59 at Bank America given the Auvelity Major Depressive Disorder launch is tracking ahead of its expectations; it foresees label expansion into Alzheimer’s Agitation as likely and ultimately believe Auvelity exclusivity should last to ’34. AXSM was also upgraded to Overweight and $90 tgt at Piper.

·     NVAX reports Q2 EPS of $0.58 vs. est. loss (-$6.53) y/y and consensus loss of (-$1.37) helped by $285.2M in sales of Covid vaccine but lowers FY23 revenue view to $1.300B-$1.500B from $1.400B-$1.600B (est. $1.44B) and filed to sell up to $500M of common stock.

·     TLRAY said it had agreed to buy eight beer and drink brands from Anheuser-Busch InBev — including Shock Top, Redhook Brewery and Widmer Brothers Brewing, sending shares higher.

 

Healthcare Services & MedTech movers:

·     DCGO 2Q revenue beat; margins (%) were in-line reflecting the initial ramp of two previously discussed large NYC Muni contracts (no quarterly guide) and 2023 revenue guidance increased 8%, while EBITDA guidance increased 6%.

·     HIMS posts another beat and raise quarter as outperformance has been driven in part by the company’s strategic decisions – namely, the introduction of more personalized products, but shares reversed lower amid rising acquisition costs.

·     SWAV reported Q2 revenue that beat on coronary strength; raised guidance driven by new product launches (C2+, L6) and strong OUS (Germany, Japan, China).

·     ZTS lowers FY revenue outlook, raises profit guidance after reported sales and revenue above analysts’ estimates in Q2 as its companion pet business grew.

·     The Diabetes sector saw weakness with DXCM, TNDM, and PODD (which reports tonight) following encouraging results from NVO and LLY in obesity space.

·     In Life Sciences: MRVI 2Q revenue of $68.9M missed est. $70.9M and EPS slight miss while lowered FY23 rev guidance to range of $300-$325M from prior $400-$440M.

 

Industrials & Materials

·     In transports: UPS shares fall as reports Q2 adj EPS $2.54 vs. est. $2.50 on weaker revs $22.1B, below consensus $23.1B; cuts FY23 revenue view to about $93B from about $97B and well below consensus $96.77B and updates operating margins lower to 11.8% from 12.8% prior.

·     In Industrials: MTW 2Q23 results meaningfully beat expectations for revenue ($603M vs. $525M Street consensus) and adjusted EBITDA ($60M vs. $39M) as revenue increased 21.2% y/y and adjusted EBITDA margin improved 270 bps y/y to 10.0%.

·     In Aerospace & Defense: BA provides update saying they delivered 43 aircraft to customers last month as the handovers were down from 60 in June but brought Boeing’s total deliveries in the first seven months of the year to 309, an increase of nearly 28% from the same period in 2022.

·     In Metals & Mining: shares of copper (FCX, SCCO), aluminum (AA, CENX), gold miners (NEM, GOLD), energy names (XLE, OIH), iron ore and steel (X, CLF, NUE) initially weaker after disappointing Chinese import data overnight weighed on sentiment…but prices rebounded.

·     In Materials: paper company SEE slides after Q2 EPS beat but revenues miss and lowers FY23 EPS view to $2.75-$2.95 from 3.50 to $3.80 and now expects net sales in the range of $5.4-$5.6B vs. prior outlook of $5.85B-$6.1B.

·     In Chemicals: CE sees EPS of $9.50 (inclusive of $1.20 of M&M amortization) at the midpoint, compared to its prior expectations of $11.50; new guidance implies a ~$0.82 sequential step-up in 4Q, compared to current consensus of $0.17. CBT Q3 adj EPS $1.42 vs. est. $1.55 on weaker sales; said anticipate pricing pressures in EV value chain in China will impact battery materials results in near-term; says expects FY23 results to be below previous forecast range.

 

Technology

Internet, Media & Telecom

·     In Media: PARA results were above expectations for both revenue and EBITDA, partially benefiting from the timing of content licensing deals, with advertising trends worse than expected while subscription/affiliate trends were better. Also announced asset divestment of Simon & Schuster to reduce leverage, slower than expected recovery in TV Media advertising; FOXA authorized a $7 billion stock repurchase program and raised dividend after better Q4 results; WBD will create a new sports tier in association with its Max streaming product where users can watch games for an added cost.

·     In telecom & Satellite: DISH and SATS to combine in an all-stock deal, confirming a report by the Wall Street Journal late Monday where EchoStar shareholders will receive 2.85 DISH shares for each share of SATS common stock and 2.85 shares of DISH Network Class B common stock. https://tinyurl.com/yasnkm8v . TDS upgraded from Neutral to Overweight at JPMorgan and raised tgt to $38 from $14 after recent news that USM/TDS are exploring strategic alternatives for US Cellular. TDS owns ~82% of US Cellular, and that stake represents most value at TDS.

 

Hardware & Software movers:

·     AYX shares tumbled over -20% as reported a second disappointing quarter in a row as deals pushed out of the quarter; posts Q2 ARR shortfall ($14M miss driven by a shift in customer behavior) and sees FY revs $930-940Mm vs est. $983.92Mm.

·     DDOG drags software names lower as Q2 EPS/rev top views but issues weaker Q3 rev guidance of $521-525M vs $534.5M and lower year rev’s view of $2.05-2.06B vs $2.09B est.

·     DELL outperformed today; Morgan Stanley positive saying checks point to DELL rapidly ramping AI server builds in CY23/24. GPU supply is a gating factor, but at $5B of revs and ~30c of EPS in FY25, AI servers have potential to drive 4-5% upside vs MSCO’s above-Street FY25 ests.

·     FIVN beat Q2 across the board, although top line beat not as good as prior quarters and 2023 guidance was raised, but by less than the Q2 beat and Q3 rev guidance was below Street.

·     RNG shares fell as reported in-line quarter, with mixed guidance and announced a CEO transition with Hewlett Packard CFO Tarek Robbiati appointed as CEO.

·     PLTR reported largely in-line 2Q results, albeit with some positive momentum in its US Commercial business. William Blair notes both PSN and BAH leapfrogged Palantir as the fastest-growing government contractors. BAH and PSN achieved revenue growth of 18% and 23%, respectively, on an organic basis, compared with Palantir’s 12%.

 

Semiconductors:

·     SWKS reported June quarter results largely in line with management guidance and consensus expectations. Mobile-related sales represented 59% of overall revenue, declining 17% y/y and down 8% q/q. While Android sales have declined to roughly 10% to 15% of revenue.

·     GFS reported top and bottom-line beats for Q2, while forecast Q3 revs $1.83B-$1.87B below $1.89B estimate and said seesQ3 operating profit $227M to $287M.

·     NVDA announces new GH200 grace hopper super chip; says new chip to be in production in Q2.