Market Review: August 22, 2023

Closing Recap

Tuesday, August 22, 2023





DJ Industrials




S&P 500








Russell 2000













US equity futures enjoyed strong overnight gains after a better day yesterday. "Hopium" was back early as investors revisited technology stocks and looked ahead to Fed Chair Powell’s comments in Jackson Hole later this week. The reality is we easily could be in a “higher for longer” period, but that may not be what investors wish to hear. The early gains quickly gave way and by midday, the S&P 500 had gone red, and the NASDAQ was back to flat. Breadth collapsed back to slightly favor decliners. Comments by the Fed’s Barkin didn’t help as he noted moves in bond yields are not a sign of “inappropriate market tightening,” the economy could reaccelerate before inflation cools on consumer spending and economic strength, and tighter monetary policy would be necessary if, “inflation remains high, and demand gives no signal that it is likely to drop.” Sector performance was split evenly at midday, with Communications, Real Estate, Consumer Discretionary, Materials and Technology green and the rest red with Financials the largest laggard.


On the data side today, @KobeissiLetter comments existing home sales are at their lowest since 2010 and we may be about to see new home prices drop below existing home prices for the first time since 2005 as mortgage rates climb to their highest in 23 years. On breadth, @bespokeinvest notes today would be the 13th day of negative breadth in the last 16 trading days if the midday breadth trend holds. On a more positive note, @bespokeinvest also notes that while US stocks have historically been weaker in the August/September period, the next three months (8/22-11/22) is in the 91st percentile for gains over the past 10 years. Lastly, also on seasonality, @LizYoungStrat highlights volatility saying 2023 so far has tracked with historical seasonality and a continuation of trend would imply a volatility spike is coming.


Heading into the final hour of trading, stocks were near their lows as breadth expanded to the downside a bit but was still not quite 3:2 in favor of decliners. Sector performance had shuffled somewhat, with leaders now Real Estate (XLRE, +0.30%), Utilities (XLU, +0.30%). Financials continued to show the weakest performance (XLF, -0.9%), followed by Energy (XLE, -0.77%) and Consumer Staples (XLP, -0.57%). Both growth and value were in the red, but the Russell 1000 Growth was outperforming.


Economic Data

·     Existing Home Sales for July fell -2.2% to 4.07M unit rate below consensus 4.15M and June 4.16M as July inventory of homes for sale 1.11 mln units, 3.3 months’ worth and the July national median home price for existing homes $406,700, +1.9 pct from July 2022.

·     August Richmond Federal Reserve Manufacturing Survey reported at down -7, in-line with consensus and vs. -9 prior; shipments -5 vs. -6 prior; Capacity utilization -11 vs. -7 prior, and volume of new orders -11 from -20 prior.


Commodities, Currencies and Treasuries

·     August gold futures gained $3.00/oz, or +0.1+%, to settle at $1,926. The gain notched the third consecutive rise and marked the longest rally since mid-July. As with equities, gold futures may mostly just be marking time this week in advance of Fed Chairman Powell’s Jackson Hole comments on Friday. Today’s move was generally attributed to some easing in US 10-year Treasury Yields and a search for stability after gold’s recent slide.

·     WTI September crude futures declined 0.46%, or -$0.37/bbl, to settle at $80.35. Brent also slipped 0.51%, or -$0.43, to $84.03/bbl. While oil futures have moved higher this summer on expectations of a second-half supply deficit, recent action has been guided by demand concerns around China. A string of recent, uninspiring Chinese economic data and issues within the property sector have weighed on the demand side of investors’ forecasts and pulled futures lower last week, breaking a seven-week up trend.

·     The Euro slips to near 7-week low vs U.S. dollar falling -0.44% to $1.0843; treasury yields were mixed as the short end of curve advanced with the 2-yr up 5 bps to 5.044% and the 3-yr up 5 bps to 4.75% while the benchmark 10-yr was little changed at 4.33% (off highs of 4.36%).






WTI Crude















10-Year Note





Sector News Breakdown



·     For autos F, TSLA, GM, STLA, WSJ reported that severe delinquency for auto loans, based on seasonalized rates, is at the highest since at least 2006, and the trend could be an ominous sign. With the average price of a new General Motors vehicle at $52,000 and new car loans with an interest rate of 9.5%, many consumers are struggling to keep up with their payments, The Wall Street Journal reports. The squeeze faced by borrowers might soon ratchet tighter, with a payment holiday for student loans set to expire at the end of the month.


Consumer Staples & Restaurants:

·     In Beauty sector: COTY mixed Q4 results as EPS just below estimates on slightly better revs ($1.35B vs. est. $1.31B) while forecasts FY24 adj. EPS $0.44-$0.47 vs. est. $0.48 saying higher labor and production costs impact results. Recall EL shares fell to fresh 52-week lows yesterday after disappointing guidance (ULTA earnings Thursday).



·     In Department Stores: Macy’s (M) Q2 adj EPS $0.26 tops the $0.14 estimate as sales fell -8.4% y/y to $5.13B above est. $5.09B dragged down by heavy discounting and higher promotions with in-line GMs of 38.1% and left annual forecast unchanged despite beat; said credit card revenue declined as delinquencies rose more than expected; shares of JWN down (earnings on 8/24).

·     In Warehouse/Clubs: BJ Q2 adj EPS $0.97 tops est. $0.90 but revs of $4.96B ell from $5.1B y/y and below the $5.15B estimate while comp store sales rose 1.1% missing the 2.1% estimate; guides year EPS $3.80-$3.92 vs. est. $3.88; and sees 2% comp sales increase, below prior 4%-5%.

·     In Sporting Goods Stores: DKS shares tumble after lowering its FY adj EPS view to $11.50-$12.30, below its prior view $12.90-$13.80 after missing Q2 revenue and profit estimates ($2.82 vs. $3.81 est.) due in large part to the impact of elevated inventory shrink, an increasingly serious issue impacting many retailers; shares of ASO, NKE, BGFV among movers in reaction.

·     In other retail: HAS shares outperformed after Bank America reiterated Buy and raised its tgt to $90 from $85 due to the exceptional performance of Monopoly Go and Baldur’s Gate 3; said its IP library is an underappreciated asset that has the potential to produce high margin licensing fees. URBN expected to report earnings tonight after the close.


Homebuilders, Building Products, Home Furnishing:

·     In Home Improvement Retail: LOW reported better than expected 2Q results, with comps coming in better as decreased (-1.6%) vs. est. for drop of (-2.6%) and margins also beat expectations by 50 bps, up 40 bps Y/Y calling out a "strong spring recovery" and traction in its Pro and online businesses; Reiterated FY guidance (HD, TSCO among movers in reaction).


Energy, Industrials and Materials

·     In Industrials: EMR upgraded from Neutral to Overweight at JP Morgan and raised tgt to $107 from $83 saying after a decade long rolling reset, visibility around positive earnings revisions is now as good as it’s been since the 2003-2008 super cycle.

·     In Materials: NDSN shares slip early as Q3 EPS $2.22 misses the est. $2.32 on sales $648.67M vs. est. $665.65M and guides FY revs +0-2% below est. +2.45% and EPS $8.90-9.05 vs est. $9.06. PCT files to sell $200M of Green Convertible Senior Notes.

·     In Metals: BHP said its annual profit fell by more than half y/y, reflecting a pullback in commodity prices as reported a net profit of $12.92B through June, down from a profit of $30.90B y/y; cut its final dividend to 80 cents a share, less than half the $1.75 paid a year ago. In steel sector (X ), BMO Capital said steel outlook remains murky – notes an automotive workers strike, which (if prolonged) would have a meaningful impact on the sheet market as direct shipments from mills to the auto OEMs accounted for ~15% of total in 2022 excluding service centers.

·     In Utilities: EIX upgraded from Neutral to Buy at Mizuho as believes investors are underestimating its earnings power as the company continues to rerate and delivers on its forecast 5-7% EPS CAGR. XEL was downgraded to Neutral at Bank America after regulatory setbacks in Minnesota & Colorado and potential wildfire liabilities that will make a positive re-rating challenging. PNW upgraded to Buy from Neutral at Mizuho saying is sees an increasingly constructive regulatory environment in the utility’s Arizona home market in the coming years.



Banks, Brokers, Asset Managers:

·     In Banks: S&P Global cut credit ratings and revised its outlook for multiple U.S. banks, following a similar move by Moody’s, warning that funding risks and weaker profitability will likely test the sector’s credit strength. S&P downgraded the ratings of ASB, VLY, UMBF, CMA and KEY citing large deposit outflows and prevailing higher interest rates. SCHW falls for 11th straight day; longest streak since 2004.

·     Credit card names weak (AXP, COF, DFS, SYF) after Macy’s (M) earlier headlines along with earnings of increased rate of delinquencies across credit card portfolios a factor.

·     In crypto: COIN said it will acquire equity stake in crypto operator Circle Internet Financial; said will also shut down jointly managed Centre Consortium, the operator of the stablecoin, USD Coin.

·     In FinTech: GPN tgt was raised to $160 from $145, FLT to $305 from $295 at Truist as sees a notable turnaround, Legacy Processors have outperformed high-growth peers. Truist encourages patient investors to re-visit SQ, recognizing that there are few n-t catalysts.

·     In REITs: IRM upgraded to Outperform at RBC Capital and raises tgt to $68 from $58 post 2Q23 results that included key financials ahead of expectations; PEB provided operating update after impact of Tropical Storm Hilary, said did not see material damage, sees demand to be negatively impacted this week due to travel disruptions & negative media coverage of southern California. In research, ADC named top picks in the Triple-Net REIT space at Stifel.



Biotech & Pharma:

·     FULC shares surged after the FDA lifted the clinical hold on the Investigational New Drug application for FTX-6058 for the potential treatment of sickle-cell disease.

·     NVAX shares rose early after headlines that the company’s updated covid shot generates immune response against ‘Eris’ subvariant.

·     PFE announced that the U.S. FDA has approved Abrysvo, the company’s bivalent respiratory syncytial virus (RSV) vaccine, for the prevention from lower respiratory tract disease (LRTD) and severe LRTD due to RSV in infants from birth up to six months of age by active immunization of pregnant individuals at 32 through 36 weeks gestational age.

·     REGN upgraded to Buy at Canaccord and tgt raised to $992 from $720 on FDA approval for high dose EYLEA, which should enable share gains from Roche’s Vabysmo, and re-ignite EYLEA growth.

·     TEVA and Glenmark Pharmaceuticals agreed to pay criminal fines totaling $255M and to divest their versions of a certain cholesterol drug to resolve charges related to price-fixing. Under the DPA, which will allow Teva to avoid mandatory exclusion from participation in U.S. federal health care programs, Teva will pay a fine of $225M over five years.


Healthcare Services & MedTech movers:

·     In Healthcare services: KVUE to replace AAP in the S&P 500 at open on 8/25 and Advance Auto Parts to replace EBS in S&P 600 at open on 8/25

·     In MedTech: MDT raised its FY23 profit forecast to $5.08-$5.16 from the prior $5.00-$5.10 view (est. $5.05), after beating Q1 estimates on higher demand for its medical devices used in heart and gastrointestinal surgeries.

·     In Diabetes services: Roche (RHHBY) just received US clearance for their Solo patch pump which looks similar to Omnipod in many aspects. However, Wells Fargo said sees limited impact in the US pump market (PODD, TNDM) as it is not yet CGM-connected and Roche needs time to build a US commercial team.



Internet, Media & Telecom

·     In China Internet: BIDU rises as Q2 EPS $3.11 tops est. $2.32 and revs $4.7B beat the $4.57B estimate as revenue from its online-marketing services grew 15% y/y to CNY21.08 billion as the number of monthly active users for its flagship Baidu app rose 8% to 677 million in June; Online video platform IQ beat as net income RMB 0.37 vs year-ago loss of RMB 0.28 as revs beat and reports monthly average revenue per membership of RMB 14.82 vs. y/y RMB 14.53.

·     In telecom: Oppenheimer comments on sector saying they raise 2024 and outward ests on VZ based on new pricing increases and early spectrum clearing, but overall believes the industry is cooling its heated market share war, defined by wireless attacking cable’s subscribers and vice versa. However, 2Q results suggest stable flow shares and higher prices with a focus on FCF.


Hardware & Software movers:

·     In software: ZM reported a beat-and-raise against a low bar, leading shares higher as revs were driven by better-than-feared Enterprise growth, as Phone/ZoomOne cross-sell momentum continues, partially offsetting ongoing pressure on core seats and international; FY guidance was raised by less than the beat. Thoma Bravo will close its $2.3 billion acquisition of FORG this week after the Justice Department declined to challenge the deal.

·     In Optical Equipment: FN shares surge after Q4 results topped estimates saying new AI products and data-communications sales drove numbers higher; Q4 adj EPS $1.86 vs. est. $1.80; Q4 revs rose 12% y/y to $655.9M above est. $641.4M; guides Q1 revs $650M-$670M, vs. est. $657.2M.

·     IT and BPO Services coverage: JP Morgan upgrades CTSH from UW to Neutral as expectations bar seems low enough against progress on CEO’s priorities and downgrade G from Neutral to Underweight on higher relative concerns of achievability of FY23 guidance. Said continues to recommend EXLS as one of its top picks for the rest of the year, which benefits from both trends. APP was upgraded to Buy from Hold at Jefferies citing greater confidence in market share gains and price taking in its mobile ad tech segment and higher near to medium term growth outlook.



·     NVDA shares rose again, extending yesterday’s +8% jump as investors bet big ahead of earnings tomorrow (8/23) night.

·     Arm Holdings Ltd. (ARM) filed to go public late Monday, registering for an offering of American depositary shares, according to a filing with the SEC.

·     Digitimes reported that the upcoming iPhones to cost more; causing industry sources to be less optimistic about this year’s shipments, which could be impactful to chip suppliers in iPhones.


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.