Market Review: July 01, 2022

Closing Recap

Friday, July 01, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks advance in afternoon trading, starting the new month and quarter in strong fashion after Wall Street recorded its worst first half in more than half a century, led today by gains in consumer discretionary, communication services, industrials as well as defensive sectors such as utilities, REITs, and healthcare. Information technology (semis) was the biggest drag. Some eye-popping moves in both currency and Treasury markets to kick off the quarter, with the 10-yr yield falling over 20-bps before paring the drop while the buck jumped back near two-decade highs. The original catalyst for the bond market move was the broadening concern about a recession after another round of dismal economic data, before technicals kicked, taking it lower. Activity in the U.S. manufacturing sector grew in June at its slowest pace in two years, dragged by a decline in new orders. Data overseas showed Eurozone Inflation hits an all-time high for the 9th month in a row, accelerating to +8.6% YoY from +8.1% YoY as energy increased +41.9%, compared with +39.1% in May. Markets likely see quiet news week coming up into the long three-day Fourth of July holiday weekend, but earnings are right around the corner. Expectations are generally low following several cautious outlooks this week alone (MU, BBBY, RH to names a few).

·     In stock news: absolute bloodbath for semiconductor stocks, down about -10% this week and 35% YTD after being one of the 2021 “darlings”, with 52-week lows for AMD, NVDA, INTC, and others after MU reported good MayQ but guided AugQ well below Street on weaker margins with lower volumes and pricing while TSM has seen its major clients adjust downward their chip orders for the rest of 2022 (more below). On a positive note, homebuilders saw strength for a change (PHM, KBH, MTH, TOL, LEN) benefitting from the sharp decline in yields/rates over the last week (10-yr down 23 bps this week alone). Gasoline prices drop below $5 a gallon as a record number of drivers is expected to hit the road over July Fourth weekend, according to AAA. Defensive utility and Healthcare leaders on week with markets failing to break out. Biotech extends recent advance after an abysmal 2021, with large cap Pharma also strong.


Economic Data:

·     S&P Global June final manufacturing PMI at 52.7 (vs flash 52.4) and final May 57.0; final output index for June at 50.2 vs flash reading 49.6 and final May 55.2; output prices index for June at 71.1 vs flash reading 69.4 and final May 73.9.

·     U.S. manufacturing activity slowed more than expected in June, with a measure of new orders contracting for the first time in two years. The ISM index of national factory activity dropped to 53.0 last month, the lowest reading since June 2020 and below views of 54.9 and followed a reading of 56.1 in May. New orders sub-index dropped to 49.2 from a reading of 55.1 in May.

·     U.S. May construction spending -0.1%, below the consensus +0.4% to $1.780 trln and vs. April +0.8%; May private construction spending unchanged, public spending -0.8%.



·     Oil prices with a strong close, as WTI crude gains $2.67 or 2.52% to settle at $108.43 per barrel, recouping most of the previous session’s declines, brent crude futures settle at $111.63/bbl, up $2.60, 2.38% as supply outages in Libya and expected shutdowns in Norway outweighed expectations that an economic slowdown could dent demand. OPEC June oil output falls 100,000 bpd from May to 28.52 mln bpd according to a Reuters survey. The weekly Baker Hughes (BKR) rig count fell -3 to 750 as nat gas rigs fall -4 to 153 and oil rigs rise 1 to 595

·     Gold trimmed losses after tagging a new 5-month trading lows around $1,783 an ounce, settling at $1,801.50 an ounce, a -0.3% decline. Gold prices held up relatively well given that the U.S. dollar traded back near 20-year highs. Growing fears of a recession has dampened sentiment in commodity prices over the last few weeks. September silver fell 68 cents, or 3.4%, to settle at $19.667 an ounce, the lowest finish since July 2020.


Currencies & Treasuries

·     Huge moves in both currency and treasury markets on first day of new quarter.

·     The U.S. dollar index rises to highs of 105.64, just below its 20-year high of 105.79 reached on June 15, with the euro (falls below 1.04), British Pound (to 1.20), and Aussie dollar (hit 2-yr lows) all falling over 1%. The dollar jumped despite a sharp reversal lower for Treasury yields – as markets deal with the fact the Federal Reserve will continue to hike rates aggressively to slow soaring price pressures, along with the likelihood that this tightening will hurt the economy. Sterling reached a two-week low of $1.20 a day, the buck slipped against the Japanese yen to 135.31 (after the yen hit a 24-year low of 137.01 Wednesday). 

·     Volatility in the Treasury market very eye-catching, attention-getting as yields tumbles across the board. The yield on 10-year notes tumbled about 22-bps from the open to the session’s lowest point below 2.8%, before paring the decline to around 2.9%. Both the 10-year and 2-year yield (which is more in-line with interest rate expectations) were at roughly four-week lows. The market is now assuming a 50bp hike on 7/27 with a year-end FF Rate of 3.32% (down from a high of 3.72% on 6/14) according to Vital Knowledge. Investors are now assuming essentially no hikes in 2023, with ~3.35% a peak for the cycle (cuts are set to start around May or June of 2023.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers: KSS shares tumble after announced that its board decided to end its strategic review process and not proceed with its $8B sale to FRG amid rising interest rates and an uncertain retail environment. The retailer also reaffirmed its commitment to execute a $500M accelerated share repurchase program as part of a $3B share repurchase plan, while warned it is seeing a softening in consumer spending and now expects sales to be down high-single digits for Q2 vs. a prior view for sales being low-single digits relative to last year; COST said that it now indirectly owns Costco-Taiwan after purchasing the remaining 45% minority interest in the JV for $1.05B; WWW said its Keds LLC subsidiary has sold the Champion trademarks for footwear in the U.S. and Canada to HBI for $90 million in cash.

·     Auto sector; GM warned of a Q2 earnings shortfall, as vehicle wholesale volumes were hurt by the timing of semiconductor shipments and other supply chain disruptions – sees Q2 net income between $1.6B-$1.9B below the $2.46B Street estimate but affirmed its full-year outlook; U.S. light-vehicle sales slid for the fourth consecutive month in June at Hyundai and Kia as global parts shortages and shipping woes continue to hobble output at automakers, leaving showrooms largely empty of new cars and light trucks for a year now; in Electric vehicle space (EV), Chinese autos out with Q2 updates: LI reported a more than 63% jump in Q2 deliveries as delivered 13,024 Li ONEs in June, up 68.9% from a year ago, after delivering 11,496 Li ONEs in May; NIO delivered 12,961 vehicles in June 2022, representing a strong increase of 60.3% Y/Y; deliveries consisted of 8,612 premium smart electric SUVs; Q2 deliveries grew 14.4% Y/Y to 25,059 vehicles; XPEV said 15,295 vehicles delivered in June 2022, a 133% increase Y/Y, 34,422 vehicles delivered in 2Q 2022, a 98% increase Y/Y


Energy, Industrials and Materials

·     Energy stock movers; big oil, service names and refiners were the big winners in the first half of 2022 (OXY +104%, HES 48%, VLO +47%, XOM +47% and CTRA +46% were the top S&P 500 gainers in 1H0, but today saw weakness across the board in a bout of profit taking despite higher oil prices as investors rotated into defensive sectors such as utilities and REITs; XOM sold its Barnett Shale assets to privately held BKV Corp. in $750M deal; utility stocks outperformed across the board in a flight to defensive sectors (AWK ).

·     Aerospace & Defense; China Southern Airlines Co. plans to buy 96 planes from Airbus SE (EADSY) for $12.25 billion; BA shares dipped after 737 MAX customer China Southern Airlines 600029.SS signs deal to buy 96 Airbus SE A320neo jets; RKLB confirmed the Photon Lunar spacecraft successfully completed a sixth on-orbit burn of the HyperCurie engine.

·     Transports; FDX downgraded to Hold from Buy and tgt cut to $275 from $330 at Berenberg on view that investors are unlikely to give management the benefit of the doubt due to the company’s mixed track record on execution; into trucking earnings, Cowen said they favor TL names WERN, KNX, and SNDR heading into 2Q earning as 2Q performance appears to be strong, as freight demand has not slowed despite headline spot rates, according to their panelists



·     Bank movers; ahead of earnings start in about 2-weeks, RBC Capital lowers tgts and ests for NTRS, BK, GS, USB and WFC noting volatility in the equity and bond markets is expected to weigh on custody and wealth management businesses throughout the year, impact by particularly weak investment banking for the quarter; BGCP said it now expects Q2 revenue to be slightly below the midpoint of the range of its previously stated outlook; Citigroup (C) is in talks with several local buyers over a potential sale of its operations in Russia, making it the latest major foreign bank to exit the country following Vladimir Putin’s invasion of Ukraine – Financial Times; Piper cuts price targets at the big banks, taking JPM to $158 per share from $170, Citigroup (C) to $62 from $70, MS to $90 from $100, BAC to $47 from $51; JPMorgan downgrades a few regional banks, LOB, HBAN to neutral and HBT to underweight.



·     Biotech, Pharma movers; ENDP said results of phase 2 study are not statistically significant – but later said that a federal jury in Chicago returned a verdict in favor of the company’s subsidiaries in an antitrust trial; NRXP said the FDA declines to grant emergency use authorization to co’s experimental COVID-19 therapy, Zyesami; AGRX 26.7Mshares of common stock with common stock warrants, at public offering price of $0.90/share & accompanying warrants

·     Healthcare Services & MedTech Equipment; AVTR, ICLR, ELAN, CRL, MRVI, IQV could see EPS hit said Bank America in note today as rising rates and the potential impact on companies with floating debt; ACCD kicked off FY23 with steady FY1Q results, with revenue and adjusted EBITDA coming in above expectations while the full year revenue guidance increase at the low end doesn’t hurt while maintaining adjusted EBITDA guidance


Technology, Media & Telecom

·     Media & Internet; GOOGL has reached a settlement over a lawsuit with a group of developers, where it will establish a $90 million fund to support developers in the US who earned $2 million or less in annual revenue through Google Play, during each year from 2016-2021; in tower stocks (AMT ), Keybanc reiterates Overweight ratings but lower U.S. new leasing estimates in 2023, and drive a higher interest rate into our forecasts, causing lower valuation multiples, which drive our PTs lower; META, SHOP, GOOGL underperform in Internet space

·     Semiconductors; disaster sector after MU reported good MayQ Revs/GM/EPS of $8.6B/47.4%/$2.59 but shares fell after guided AugQ well below Street to $7.2B/$1.63/42.5% (vs. consensus $9.1B/$2.57/47.9%), GMs down 490bps q/q with lower volumes and pricing; TSM has seen its major clients adjust downward their chip orders for the rest of 2022, which may prompt the pure-play foundry to cut its revenue outlook for 2022, according to industry sources – Digitimes ; semi equipment stocks AMAT, ASML, KLAC, LRCX, and TER weak initially after MU said it intends to moderate its bit supply growth and to lower its semiconductor equipment capex plan for F2023 to below its prior plan and below F2022 levels; AMD -33.5% in 18 trading days from the 6-6 hi, NVDA -26% in 20 trading days from its 6-2 hi, SMH -22.2% from its 6-2 recent high – 52-week lows today for AMD in chip names

·     Hardware & Software movers; MSFT is struggling to make enough servers available to its Azure cloud computing customers, according to a report in The Information late yesterday, Reuters reported AAPL has raised the price of its iPhone 13 in Japan by almost 20% as the value of the yen has plunged in recent weeks; DELL, HPQ weak as Gartner forecast that worldwide PC shipments would fall 9.5% in 2022, citing weaker consumer demand, (in addition to MU headlines which forecast for calendar 2022 pc unit sales now expected to decline by nearly 10% Y/Y from the very strong unit sales in calendar 2021


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.