Closing Recap

Thursday, August 10, 2023

Index	Up/Down	%	Last
DJ Industrials	52.39	0.15%	35,175
S&P 500	1.20	0.03%	4,468
Nasdaq	15.97	0.12%	13,737
Russell 2000	-8.15	0.42%	1,922

 

 

 

 

 

 

 

 

 

U.S. stocks gave up big early gains for a third consecutive day, but this time, stocks didn’t bounce, finishing well off the intraday highs despite mostly in-line consumer price inflation (CPI) data and ahead of tomorrow’s PPI data. This CPI data appeared to confirm a moderation in price rises but looks unlikely to be associated with a major break in trend ahead of the Fed Jackson Hole Symposium or the September Fed meeting beyond. Data saw headline CPI marginally undercut expectations with a 3.2% rise vs 3.3% consensus but edged up from 3.0% previously (due to rising energy prices). Core CPI came in in line with expectations at 4.7%. WSJ’s Nick Timiraos (aka “the Fed whisperer”) tweeted this morning: “"For the Fed, core inflation has been a big focus; the improvement on core CPI in July came despite still strong shelter inflation; Chunky declines in goods prices and softer non-housing services prices delivered a second month of milder core inflation." He followed up saying "the last two inflation readings call into question whether the Fed will need to raise rates again this year, as officials projected in June (before these last two reports) and makes a September hike unlikely."

 

San Francisco Federal Reserve Bank Mary Daly said today there is "more work to do" to bring inflation down to the 2% goal. It is premature to say whether there will be another hike in September or if policy will be on hold. And the Fed is still a long way from talking about rates being "too restrictive." Price pressures are coming down and are headed in the right direction. Note @lisaabramowicz1 tweeted earlier “the bond market is telling the Fed it’s done with rate hikes. There’s just a 15% chance of a September rate hike being priced into fed funds futures, and a 21% chance of one in November. The Fed is now expected to start cutting rates in early 2024, according to market pricing.”

 

Economic Data

·     Headline Consumer Prices (CPI) for July m/m rises +0.2%, in-line with consensus and prior while on a y/y basis rises 3.2% vs. 3.3% and expected and 3.0% prior. On a core basis, ex food & energy, July CPI m/m rises +0.2%, also in-line with consensus and prior reading and +4.7% y/y vs. est. +4.8% and prior month, and real average weekly earnings unchanged in July.

·     Weekly Jobless Claims rose to 248K in the latest week vs. est. 230K while the prior week unrevised at 227K; the 4-week moving average rose to 231K from 228,250 the prior week; continued claims fell to 1.684M from 1.692M prior (est. 1.710M).

 

Commodities, Treasuries and Currencies

·     Oil prices pulled back from 9-month highs as WTI crude dropped -$1.58 or 1.87% to settle at $82.82 per barrel (off highs $84.89), while Brent crude settled at $86.40/bbl, down $1.15, 1.31%. Natural gas prices pulled back from March highs after a weekly EIA storage report that came in bearish compared to forecasts though still bullish compared to historical averages. Meanwhile a dispute between Australian energy companies and their workers has natural-gas buyers bracing for a possible curtailment of supply.

·     December gold futures settle -$1.70 an ounce, down-0.09%, to $1948.90, erasing earlier gains. Prices had risen initially after data showed U.S. consumer prices increased moderately in July, boosting expectations the Federal Reserve is at the end of its rate hike cycle. The consumer price index (CPI) rose 0.2% last month, matching the increase in June, the U.S. Labor Department said.

·     Treasury yields spiked this afternoon, with the 10-yr highs up 8.5 bps to 4.092% after holding around the 4% level most of the morning following the CPI data. The shorter-term 2-yr yield only up 3.6 bps to 4.838%; 1-yr yield down -1.4 bps to 5.34%.

 

 

Macro	Up/Down	Last
WTI Crude	-1.58	82.82
Brent	-1.15	86.40
Gold	-1.70	1,948.90
EUR/USD	0.0009	1.0981
JPY/USD	0.95	144.68
10-Year Note	0.074	4.081%

 

 

Sector News Breakdown

Consumer

Retailers:

·     In Luxury retail: Michael Kors owner CPRI shares surged over 50% after Coach brand parent TPR agreed to acquire the company in a deal valued at $8.5B, with CPRI holders to receive $57 per share in cash, a 65% premium to Wednesday’s closing price. https://tinyurl.com/2p9bwp6p . In earnings, RL reported Q1 adj EPS $2.34 on revs $1.5B, both above consensus of $2.13/$1.48B but says sees Q2 revenue flat to up slightly constant currency and LSD FY 24 rev growth. LVMH led luxury stocks higher in Europe as China lifted a ban on group tours, boosting the case for travelers spending money on high-end watches and fashion.

·     In online retail: BABA spikes as Q1 adj EPS $2.40 vs. est. $2.02; Q1 revs $32.29B vs. est. $31.2B; 1Q Taobao, Tmall group revenue $15.85B, up 12%, Q1 international digital commerce group revenue $3.05B, up 41% and Q1 cloud intelligence group revenue $3.465B, up 4%.

·     In Mattress retail: PRPL falls as Q2 adj EPS loss (-$0.20) vs. est. loss (-$0.11); Q2 revs fell -16.1% y/y to $120.9M, below consensus $131.83M; now expects net revenue to be in the range of $560M-$590M (vs. est. $588M); Q2 gross margin decreased 210 bps to 31.8% from 33.9%.

·     In Footwear: WWW shares tumble as reported in-line EPS of $0.19 on better revs of $589M but drastically lowered its guidance for year, cutting its adj EPS outlook to $0.45-$0.55 (below est. $1.42) and said its president Christopher E. Hufnagel would become chief executive officer effective immediately to succeed Brendan L. Hoffman, who is no longer with the company.

·     In Household products: SONO Q3 revs $373.4M tops est. $334.2M; Q3 adj EBITDA $34.3M topped BofA’s $8M est. while narrows FY23 revenue to $1.64B-$1.66B from $1.625B-$1.675B; lowers FY margin view to 44%-44.2%, vs. prior 44.3%-44.8%; YETI rises as Q2 adj EPS $0.57 vs. est. $0.47; Q2 revs $402.6M vs. est. $411.64M; raises FY23 adjusted EPS view to $2.23-$2.32 from $2.12-$2.23 and raises FY23 adjusted sales to increase between 4%-5%.

 

Consumer Staples & Restaurants:

·     In Food sector: UTZ swung to a Q2 loss even as sales increased ($362.9M beats est. $360M), but adj EPS slightly above views; USFD slides early on mixed results as adj EPS topped consensus but sales of $9.01B missed the $9.38B estimate.

·     In Restaurants/Dining: DNUT Q2 revenue rises 9% to $408.9M but comes in below the $410.8M estimate while reaffirms FY23 revenue of $1.65-$1.68B, shy of estimates of $1.69B

 

Leisure, Gaming & Lodging:

·     In Casino: WYNN 2Q adj EPS $0.91 vs. est. $0.62; Q2 revs $1.60B vs. est. $1.53B; said Q2 Las Vegas operating revs $578.1M vs. est. $587.2M and adj. property Ebitda $524.5M vs. est. $458.2M; Q2 Operating revenues from Wynn Macau were $301.6M for Q2.

·     In Theme Parks: SIX reports Q2 revenue below Wall Street estimates at $444M vs. est. $459M as Q2 EPS of $0.25 below the $0.78 estimate; said customer spending per capita dropped 5% as the company slashed prices on season passes, while attendance rose 5$ for quarter.

·     In Autos: GM, F, STLA shares declined as Unifor begins negotiations with the Detroit three automakers – officially opened contract negotiations them today; BLNK said they received a subpoena from the SEC requesting the production of documentation and other information since January 1, 2020, relating to various subjects, including executive departures, related-party transactions, number of EV charging stations. CARG beat high end of 2Q EBITDA guidance on stable Marketplace growth while CarOffer generated a higher gross profit from lower arbitrations and greater rental activity/3Q guidance implies accelerating marketplace rev on better pricing by targeting renewals for ~20% of dealers.

 

Homebuilders, Building Products, Home Furnishing:

·     In Home Improvement Retail: TD Cowen provides preview, saying sees tough set-ups into results for HD, LOW, RH, WSM following impressive stock runs and valuation expansion into a slowing consumer goods backdrop, and all have caution points. TDCowen says leans defensive NT and slightly prefers the risk/reward at HD. RH is a higher beta idea and could see NT volatility, but the only stock where TDCowen raises ests. and see meaningful upside to Street’s FY24 targets.

 

Energy, Industrials and Materials

·     In Materials Industrials: ENVX shares declined after filed a $1B shelf overnight. SPCE made its first private astronaut spaceflight Thursday, taking the second-youngest person ever into space and the first mother-daughter duo. Steel stocks (X, NUE, STLD) slumped perhaps resulting from STZHF (Stelco) EPS miss.

·     Utilities and Power: ENS beat the F1Q24 adj. EPS consensus estimate, as stronger margin performance offset lower sales, and guided the F2Q24 adj. EPS midpoint modestly above the Street est. 24.7%; AQN announced that it will pursue a sale of the Renewable Energy Group. PLUG posted wider Q2 EPS loss of (-$0.40) vs. est. (-$0.26) on better revs and disclosed it was in the 2^nd round of diligence for ~$1B in funding from the DOE’s LPO, targeting a Nov-Dec close.

 

Financials

·     In Real Estate: RDFN said the median U.S. asking rent in July was $2,038, just $16 below the record high set in August 2022. While rents are just shy of their all-time high, rent growth remains sluggish. The median asking rent was up just 0.3% from a year earlier in July, compared with a 13.6% annual gain in July 2022.

·     In Asset Managers: Monthly assets under management (AUM) data out: 1) APAM reported that its preliminary assets under management as of July 31, 2023 totaled $146.4 billion; 2) BEN preliminary month-end assets under management of $1.45 trillion at July 31, 2023, compared to $1.43 trillion at June 30, 2023; 3) IVZ preliminary month-end assets under management of $1,570.7 billion, an increase of 2.1% versus previous month-end; 4) VCTR assets under management of $165.9 billion as of July 31, 2023, and average assets under management for July of $163.2 billion; 5) LAZ preliminary assets under management as of July 31, 2023 totaled approximately $244.4 billion; 6) TROW prelim month-end assets under management of $1.43 trillion as of July 31, 2023. Preliminary net outflows for July 2023 were $5.4 billion.

 

Healthcare

Biotech & Pharma:

·     ARQT and Huadong announce strategic collaboration and licensing agreement for topical roflumilast in greater China and southeast Asia; to receive $30M upfront payment and an additional $64.25M if certain regulatory and sales milestones are achieved.

·     BMY announced $4 billion accelerated buyback agreements.

·     DCPH upgraded to Buy at Stifel after updating its competitive assumptions for the 2L GIST market and sees a favorable risk/reward after a ~40% pullback in shares from the 2023 price high given the continued growth in Qinlock’s base business.

·     GRTX shares tumble as reduces workforce by about 70% and announces restructuring that includes a wind-down of commercial readiness efforts and headcount reductions across several departments after receives Complete Response Letter from FDA for avasopasem manganese.

·     ILMN Q2 results topped consensus but slashes FY23 adj EPS view to $0.75-$0.90 from $1.25-$1.50 prior (est. $1.31) and cuts FY23 revenue growth view to approximately 1% from prior 7%-10% saying 2H will be negatively impacted by customer caution, slower recovery in China.

·     JAZZ posts Q2 beat on Rylaze and lower-than-expected Xyrem erosion; FY23 guide raised.

·     JNJ said the FDA had approved its antibody-based therapy for patients with a difficult-to-treat type of blood cancer (talquetamab-tgvs branded as Talvey).

·     NVO agreed to buy privately held Canadian obesity-drug developer Inversago Pharma for up to $1.08 billion; announcement came alongside earnings results for the Danish Pharma giant.

·     ORGO shares plunge after the company withdrew its previously announced 2023 guidance due to the uncertainty from the potential impact of the recently published local coverage determinations on some of its devices.

·     TNGX shares slipped as announces $80 million Private Placement financing.

 

Technology

Internet, Media & Telecom

·     In Media: DIS reported Q3 revenue relatively in line with the Street as adj. EPS came in 6% above the Street, while segment operating income beat consensus estimates by 4%. While core Disney+ subs were relatively in line with consensus, Disney+ subs fell over 11M over last qtr. DTC operating income came in above Street estimates, with DTC losses narrowing by ~$150M q/q. CNBC reported late day that Broadcast station owners including SSP, NXST, GTN, SBGI are interested in obtaining rights to local NBA, NHL and MLB games and have been in talks with leagues and teams about potential deals https://tinyurl.com/mry243yn

·     In Towers: SBAC was downgraded from Buy to Neutral at Bank America and cut tgt to $245 from $325 and CCI also downgraded with tgt cut to $115 from $160 saying that 2024 should bring lower domestic growth as carriers moderate spending. Like CCI, SBAC will also see Sprint churn impacts the next couple years,

·     In Digital Advertising: MGNI shares slide as reported an in-line quarter but disappointing 3Q guide calling for a material slowdown in CTV contribution ex-TAC; TTD 2Q bucked lackluster trends in evidence elsewhere in ad tech: revs (2% beat) accelerated; revs beat and strong incremental margins drove an 11% Adj EBITDA beat, and 3Q guide came in above consensus.

 

Hardware & Software movers:

·     ALRM Q2 results top views while increased FY23 subscription revenue guidance by 1.1% at the mid to $562.5mn (consensus $556.3mn) and raised non-GAAP FY23 EBITDA guidance by 5.7% to $129.5mn at the mid (consensus $122.7mn).

·     APP reported 2Q revenue and Adj. EBITDA above the Street and provided a 3Q outlook ahead of Street estimates; sees Q3 revenue $780M-$800M above consensus $741.41M.

·     CHKP said it acquired Perimeter 81, a pioneering Security Service Edge (SSE) company for approximately $490 million, on a cash free, debt free basis.

·     CYBR shares jump in the Internet security sector after beat and raise.

·     OSPN downgraded from Buy to Neutral at Davidson and cut tgt to $12 from $19 after Q2 Rev & EBITDA missed, CY23 ARR guidance was lowered substantially from +13-18% Y/Y to +7-10% Y/Y, & OSPN announced yet another restructuring.

·     RAMP Q1 was better than expected across the board, as the marketplace business accelerated significantly due to improvements in the digital ad market; raised its FY24 revenue outlook.

·     TASK downgraded from Overweight to Neutral at JP Morgan and cut at RBC Capital as well after the company cut its FY23 guidance that implies continuation of tough demand environment rest of the year.

 

Semiconductors:

·     NVDA shares active after China’s internet giants order $5B of NVIDIA chips to power AI ambitions, as Baidu, ByteDance, Tencent, Alibaba rush to buy amid concern of U.S. clampdown https://tinyurl.com/mt37eyky

·     INVZ shares tumbled as 26M share Spot Secondary priced at $2.50.