Market Review: August 25, 2023

Closing Recap

Friday, August 25, 2023





DJ Industrials




S&P 500








Russell 2000













U.S. stocks saw ups and down on Friday following Federal Reserve Chair Jerome Powell’s speech at Jackson Hole, where he said the central bank would "proceed carefully" on any further rate increases. Stocks jumped initially as the commentary was similar to the prior Fed meeting Minutes saying they will remain data dependent but provided an argument for holding rates steady for now. Stocks then proceeded to push down, as most sectors endured selling pressure while yields and the US dollar spiked. But as those assets leveled off and reversed, stocks followed suit, rising the duration of the day as the S&P finished higher on day and the week, snapping its 3-week losing streak. The Nasdaq rose over 2% this week following today’s gains while the Russell 2000 and Dow posted modest losses. Still, for the month major averages are on track for sharp declines. Overnight, Asian markets closed lower despite the Chinese government moving to ease its mortgage policies to boost China’s struggling property market.


Market strength for most of 2023 has been very concentrated, possibly masking broader weakness as Bespoke Invest tweeted: "These seven stocks have accounted for 75% of the S&P 500’s gains in 2023: NVDA, AAPL, MSFT, GOOGL, AMZN, META, TSLA. NVIDIA leads the way, accounting for nearly 17% of the S&P’s YTD gain." The question now as we head into the final week of the summer, what near-term catalysts are there that can push stocks higher? Ther are no more big earnings reports until Q3, and the Fed doesn’t meet until Sept 20 (where no rate change is expected). Only meaningful data points in n-t include PCE, consumer confidence, jobs news and some other data. Retailers certainly took the shine off the economy this week with weak forecasts from the likes of Dicks Sporting Goods and Foot Locker while department stores Nordstrom and Macy’s each flagged delays in store credit card repayments.


Fed Comments from Jackson Hole

·     Fed Chairman Jerome Powell in pre-released comments said, “we are prepared to raise rates further if appropriate and intend to hold rates at restrictive level until confident inflation is moving sustainably down to 2%”. Said Fed will proceed “carefully” when deciding to hike again or hold steady and will decide next rate moves based on data. Powell said, “two months of good data are only the beginning of what we need to build confidence on inflation path and there is substantial further ground to cover to get back to price stability.” Powell said they need some further progress on non-housing services inflation”.

·     Federal Reserve Bank of Philadelphia President Patrick Harker spoke afterwards saying: Fed must get inflation down to 2%, FOMC committed; repeats he doesn’t see need now for additional rate rises; said Fed at restrictive stance, needs to keep pressure on; said it’s going to take some time to get to inflation target; said if inflation decreases stall, may need to raise rates. Also said can’t see rate cuts until next year at the earliest.

·     Federal Reserve Bank of Cleveland, Loretta J. Mester said at meeting that the Fed is getting close to where we need to be with rates; we need to see more evidence inflation is cooling; said the Fed has made a lot of progress on inflation; said probably still have some more work to do with rates but doesn’t want Fed to overtighten interest rates. Mester said in June the forecast did not see Fed cutting rates in 2024.


Economic Data

·     University of Michigan surveys of consumers sentiment final Aug 69.5 below consensus 71.2 and prelim 71.2/July-final 71.6; current conditions index final aug 75.7 vs prelim aug 77.4 and final July 76.6; expectations index final aug 65.5 vs prelim aug 67.3 and final July 68.3

·     University of Michigan surveys of consumers 1-year inflation outlook final aug 3.5% vs prelim 3.3% and final July 3.4% and University of Michigan surveys of consumers 5-year inflation outlook final aug 3.0% vs prelim 2.9% and final July 3.0%.


Commodities, Currencies & Treasuries

·     WTI Crude October futures settle at $79.83 a barrel, up 78 cents, 0.99% (but was down -1% for the week – 2nd straight weekly drop) while Brent Crude futures settle at $84.48/bbl, up $1.12, 1.34%. Front Month Nymex Natural Gas for Sept. delivery lost 1.10 cents, or 0.43% to $2.5400 per/MMBtu. Diesel fuel futures rose 4.8% at $3.3075 a gallon, the highest since Jan. 27.

·     The US dollar jumped to fresh 9-month highs earlier around 146.50 before paring gains mid-afternoon back around the 104 level; the euro fell to its lowest since the middle of June below 1.08. Sterling slipped vs. the US dollar and the USD/Yen climbed.

·     Gold prices dropped -$7.20 to settle at $1,939.90 an ounce but ended the week higher by 1.3% while silver prices rose over 6.7% on the week.

·     The bond market’s initial take is that Federal Reserve Chair Jerome Powell leaned hawkish in his Jackson Hole speech this morning. The potential for further rate hikes caused short-term Treasury yields to climb higher, though longer-term yields also ticked up. The 10-year hit lows of 4.22% initially on Powell comments, rose above 4.28% later and leveled off around 4.24%.






WTI Crude















10-Year Note





Sector News Breakdown


Retail, Consumer Staples & Restaurants:

·     In food & beverages: MNST mentioned positively in Barron’s saying after a recent pause, the stock looks set to resume a 25-year winning streak. TWNK shares rose late afternoon after Reuters reported the company is exploring a sale after fielding takeover interest from major snack food makers. Instacart (CART) today filed for IPO, shows growing profitability saying its revenue increased about 31% to $1.5 billion for the first six months of the year.

·     In apparel retail: GPS reported mixed Q2 results as adj EPS $0.34 tops est. $0.09 but sales of $3.548B just below the est. $3.572B, comps -6%, gross margin +310bps (merch mgn +410bps), inventory -29% y/y; guides Q3 net sales -low-double-digit % vs est. -6.8%.

·     In Sporting Goods: It has been a tough week for the sector given disappointing guidance from DKS to start the week sending shares plunging then a lower outlook from FL in sporting space also hurt sporting goods stores, but HIBB reports better Q2 results (EPS $0.85 vs. est. $0.73; Q2 revs $374.9M vs. est. $376.11M) and reaffirmed its year outlooks.

·     In Department Stores: JWN reported quarterly sales that were down 5% y/y, while Piper noted rack continues to make progress in its turnaround. Reported Q2 adj EPS $0.84 vs est. $0.44 on revs $3.77B vs est. $3.592B; reaffirmed FY guide, sees revs -6% to -4% vs est. -5.2%.

·     In the beauty sector: ULTA reported F2Q results that beat expectations and raised its FY23 outlook. F2Q sales/comps +10/8% y/y and EPS of $6.02 came in ahead of consensus estimates as comps accelerated through the quarter and grew in all key beauty categories, with traffic up double-digits – said “Shrink continued to be a drag on results”; OLPX was downgraded from Neutral to Underweight at Piper and cut tgt to $2 from $3 to account for even more increased cautiousness around the professional channel and lack of brand equity improvement.

·     In Retail research: ANF was upgraded from Underweight to Equal Weight at Morgan Stanley and raised price tgt to $51 from $18 reflecting an improved operating model, updated DCF assumptions, & a change in methodology to the midpoint of its bull & base cases. HAS tgt raised from $79 to $94 at Stifel, reiterate Buy and add to Select List as examines the changes being undertaken along with the opportunities, and implications for earnings power.

·     In Autos: The United Auto Workers gave union leaders permission to call a strike against the biggest US carmakers if they fail to agree on a new contract before Sept. 15 (GM, F, STLA were among shares weaker – also watch parts suppliers AXL, MGA, VC, LEA).


Energy, Industrials and Materials

·     In Utilities: HE said it plans to suspend quarterly cash dividend on common stock, beginning with Q3 Of 2023. Maui County filed a lawsuit Thursday against the utility company alleging that its power lines caused recent wildfires on the island.

·     Interest rate sensitive sectors weeing weakness as Treasury yields recover off lows; homebuilders down more than 2% across the board – DHI, KBH, LEN, TOL

·     In Oil services: Baker Hughes (BKR) U.S. rig count is down 10 from last week to 632 with oil rigs down 8 to 512, gas rigs down 2 to 115 and miscellaneous rigs unchanged at 5. us drillers cut oil and gas rigs for the seventh week in a row.



·     In REITs: Realty Income Corp (O) announces a $950 million investment in the real-estate assets of The Bellagio Las Vegas, acquiring a 21.9% indirect interest from Blackstone Real Estate Income Trust (BREIT) that values the property at $5.1 billion. DLR downgraded to Hold from Buy at Deutsche Bank citing valuation and a lack of upside though said remains bullish on Data Center REIT fundamentals, given a highly favorable demand backdrop.

·     In FinTech/payments: AFRM posted a good quarter with the company beating revenue, gross profit and GMV estimates and guided FY24 slightly better than expected GMV and revenue growth, but Piper notes higher funding costs and a limited appetite from the secondary market for consumer loans has caused AFRM to lean into longer-duration loans and hold more loans on balance sheet. FOUR was upgraded from Underweight to Equal Weight at Morgan Stanley and raised tgt to $57 from $52 as finds valuation more appropriate trading at 16.3x forward P/E, which compares to MSCO’s prior base case target PT of $52.

·     In Crypto: The WSJ reported the Treasury Department proposed new rules Friday to make Cryptocurrency investors comply with tax law. The goal is to make it harder for crypto investors to dodge income taxes when they sell digital assets and simplify complicated tax messes for people who are trying to follow the law.


Insurance & Services:

·     CLVT was downgraded to SP from OP at RBC Capital and lowers tgt to $8 from $9 noting their positive view was based on the potential for strategic optionality; however, the possibility is likely diminished with higher rates, changes in the investor base, and management’s focus on turning around product and execution.

·     FDS was downgraded from Outperform to Sector Perform at RBC Capital and cut tgt to $464 from $500 and lowers ests saying ASV and revenue growth could likely moderate in FY24 with the elongation of the sales cycles, IB mixed bag, increased erosion, CS-UBS merger, pricing normalization, and likely increased competitive intensity.

·     INTU reported FQ4 results ahead of expectations and guided FY24 revenue and EPS modestly above consensus but provided mixed segment revenue guidance. Operating margin guidance (40-60bps expansion) was above consensus. FY24E TurboTax outlook for 7-8% somewhat disappointing though offset by QuickBooks outlook for 16-17%.



Biotech & Pharma:

·     MRK multiple headlines as Merck and partner Eisai provide an update on phase 3 LEAP-010 trial evaluating KEYTRUDA(R) plus LENVIMA(R) in patients with certain types of recurrent or metastatic head and neck squamous cell carcinoma saying it did not meet goals. MRK also said it is launching a Phase 3 clinical program for MK-0616 for the treatment of adults with hypercholesterolemia, with plans to enroll about 17,000 participants across three global studies.

·     NVOs anti-obesity drug Wegovy also eased the symptoms of a common form of heart failure in patients who also have obesity, according to results published online in the New England Journal of Medicine. The patients who took the once-weekly injection for a year reported improvements in fatigue and shortness of breath, while losing an average of 13% of their body weight.

·     NVSSandoz generic-drugs unit has received approval from the U.S. FDA for biosimilar medicine Tyruko to treat relapsing forms of multiple sclerosis.

·     RAD shares tumbled over 40% after the WSJ reported Rite Aid is planning to file for chapter 11 bankruptcy "within weeks" to address federal and state lawsuits the chain is facing over its role in the sale of opioids

·     ARDX upgraded to overweight from neutral at Cantor Fitzgerald saying that the Street is underappreciating the peak sales potential of Xphozah, Ardelyx’s flagship drug.

·     The diabetes sector remains in a downtrend as PODD falls to the lowest levels since June 2020 while TNDM, DXCM extend YTD losses.



Internet, Media & Telecom

·     In Media: DIS closed back below its COVID Crash low from March 2020 yesterday. In news, The Information reported AMZN is in talks with DIS about ESPN streaming partnership The Information also reported DIS’ ESPN considers charging $35 for new streaming service. WBD shares fell after the WSJ reports Warner Bros will delay the release of three big-budget action films (Dune, Godzilla x Kong, and Lord of the Rings) due to the actor/writer strike.

·     BABA launched two new artificial intelligence models on Friday – Qwen-VL and Qwen-VL-Chat – which the company says can understand images and carry out more complex conversations.

·     In streaming: NFLX upgraded to Buy at Loop Capital and raised tgt to $500 from $425 saying they have been fundamentally strong believers in NFLX, but cautious on valuation. NFLX has corrected ~15% from its recent gains, but more importantly, the fundamentals continue to improve.

·     In social media: The Information reported TikTok plans to ban links to e-commerce sites like AMZN to force users to buy via TikTok Shop, The Information reported. TikTok Shop will lose more than $500M in the U.S. in 2023. 


Hardware & Software movers:

·     CRDO rises on results as Q1 EPS loss (-$0.03) vs. est. (-$0.03); Q1 revs $35.1M vs. est. $34M; sees Q2 revenue $42M-$44M vs. est. $40.32M and margins 58%-60%.

·     GRAB was upgraded to Overweight at Barclays after reported better-than-expected 2Q results with better GMV and much narrower-than-expected losses.

·     DOMO shares tumbled after posting a slight Q2 beat, but significantly lowered FY24 guide, citing tougher macro conditions impacting pipeline conversion & tougher competitive conditions; sees FY24 EPS loss (47c-39c), vs. est. loss (-$0.35) and revs $316M-$320M vs. est. $325.5M.

·     WDAY delivered strong FQ2 results, exceeding consensus estimates across the board while raising FY24 subscription revenue guidance to 17.9% Y/Y growth at the mid-point, and operating margin guidance to 23.5% from 23.0%.



·     MRVL reported an in-line print and guide slightly above expectations as reported AI driven upside (as expected) which was offset by weakness in other segments.

·     BB shares popped late morning after Bloomberg reported that Private Equity Veritas is said to consider takeover offer for Blackberry. Reuters later followed up as well saying Private equity firm Veritas Capital has made an offer to buy Canadian software company BlackBerry, according to a person familiar with the matter.


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.