Market Review: July 18, 2022

Closing Recap

Monday, July 18, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Equities initially extended Friday’s upward momentum early. Gold, silver, oil, nat gas and bitcoin also all enjoyed gains and, unlike equities, were able to finish in positive territory. Investors appear to have digested a Fed rate hike scenario somewhat less hawkish than the immediate reaction to last week’s CPI data had implied. No doubt the early fade in the Dollar also gave early support to stocks as buyers never really came in to add on Dollar weakness.

·      Afternoon trading saw a different reality. The “sell the rally” behavior of recent weeks was reignited after AAPL headlines on slowing hiring and spending for some teams in 2023. All the major indices went red in a sign of the underlying concerns and headline risks into earnings this week. Perhaps AAPL just did the market a favor and put a cap on expectations around 2Q results and guidance. Similarly, it is interesting to note BofA’s Earnings Revision Ratio (# of upward vs downward revisions) has dropped to its lowest level since April 2020 (per @Marlin_Capital).

·     In today’s action, Energy, Consumer Discretionary (cruise lines, BBWI, BKNG, CZR, TGT) and Materials (FCX, NUE, ALB) paced the advancers. Healthcare (HOLX, REGN, MRK), Utilities (AWK, CMS, XEL) and Consumer Staples (KMB, CLX, CHD) were the sector laggards, though Technology joined them in the red after the AAPL news. Growth and value both slipped, but the Russell 1000 Value reversed the early trend and outperformed its Growth counterpart.


Commodities, Currencies & Treasuries

·     U.S. crude oil futures rise, with WTI crude settling at $102.60 per barrel, up $5.01, or 5.13%, extending last Friday gains, boosted by a weaker dollar and tight supplies as concerns over gas supply from Russia mounted, offsetting demand fears brought on by a possible recession and China lockdowns. The U.S. dollar retreated from multi-year highs, supporting prices of commodities ranging from gold to oil as a weaker dollar makes dollar-denominated commodities more affordable for holders of other currencies. U.S. natural gas futures rose to a four-week high on forecasts for hotter weather and more demand this week than previously expected.

·     Gold prices rise $6.60 or 0.4% to settle at $1,710.20 an ounce, snapping a modest 2-day losing streak, as a pullback in the U.S. dollar helped pare recent losses. Gold prices have fallen 5-straight weeks coming into today amid a surging dollar and aggressive rising interest rate expectations. The U.S. Fed entered its blackout period over the weekend, ahead of the July 26-July 27 monetary policy meeting.


Economic Data:

·     U.S. July NAHB Housing market index 55 versus 67 in June; July index of current single-family home sales 64 versus revised 76 in June; July index of home sales over next six months 50 versus 61 in June; July index of prospective buyers 37 versus 48 in June






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers: ODP sees FY22 adjusted EPS $4.10-$4.50, sees FY22 revenue $8.45B-$8.6B (est. $8.41B), sees FY22 adjusted EBITDA $430M-$460M and announces $600M share repurchase program; MAT mentioned positively in Barron’s saying expectations are high for Mattel when it reports earnings this coming week…and it may just be able to beat them; FNKO shares slid following a $100M mixed shelf offering

·     Auto sector: GM was downgraded to Hold at Deutsche Bank and cut tgt to $36 from $57 as believes weakening in consumer demand for vehicles could lead to pricing pressure and impact GM’s profitability. The firm also said they believe the stocks of most suppliers could do well over the rest of the year and favor ADNT, ALV, APTV, BWA which they upgrade to Buy, and VC – though they still see downside risk to 2Q Street numbers for some names such as ADNT, APTV, AXL, and DAN

·     Consumer Staples; FDP shares rose after Bloomberg reported late Friday Infrastructure Investor I Squared Capital is exploring an expanded partnership that could include a takeover of the bananas distributor, according to people ; EL mentioned positively in Barron’s saying the stock is starting to look like a beautiful buy with the stock down so much this year, worries may be already reflected in the shares

·     Restaurants; few previews in restaurant sector today as Goldman Sachs downgraded EAT to Neutral from Buy as see greater risk for SSS trends at both Chili’s and Maggiano’s to decelerate and believe that incremental gains from EAT’s digital brands may be harder to achieve, while double upgraded YUM to Buy from Sell as the company’s highly-franchised model provides relative insulation from macro-volatility and removed CMG from conviction Buy list and lower tgt to $1,720 from $1,995 as see risk that continued cost inflation may make it more challenging for the company to drive incrementally higher earnings; Morgan Stanley said data points to increasing risk to sales while inflation persists; here we Mark down 2H/23 numbers for much of our universe, though deceleration is likely gradual over several quarters. We see long term value in beaten down names but biased defensive near term (MCD, YUM)

·     Casinos, Gaming, Lodging & Leisure sector; in casinos (MLCO, WYNN, MGM, LVS), Macau to extend lockdown until July 22 as Bernstein estimates Jul’22 GGR -98% vs. ’19 noting Macau casinos have been shut down since July 11 with current plans to remain shut until July 22 (i.e. a total 12-day period, extended from initial plan of 7-day shutdown until July 17, the same period as the city-wide lockdown); in food delivery (DASH, UBER), British food delivery company Deliveroo slashed its FY revenue forecast, as expects FY 2022 gross transaction value (GTV) growth of 4% to 12% in constant currency versus previous outlook of 15% to 25% rise



·     E&P and Majors; SU added three new independent directors and would review a possible sale of its downstream retail business as part of an agreement with activist investor Elliott Management; FANG, MRO, RRC, APA, and COP are best positioned in E&P space into earnings according to TBC Capital, while see DVN, SM, SWN, ESTE, and EQT moving base spending higher on more inflationary pressure that is not in current spending plans.

·     Utilities & Solar; Power use in Texas will break records again this week as economic growth boosts overall use and homes and businesses crank up their air conditioners to escape another heat wave, the state’s power grid operator projected on Monday. The Electric Reliability Council of Texas (ERCOT), which operates the grid for more than 26 million customers representing about 90% of the state’s power load, has said it has enough resources to meet demand; ADN said the European Commission ratified its fuel cell and electrolyzer project in Greece



·     Bank movers; BAC reported a 34% drop in profit to $5.93B or 73c per share, missing estimates and compared with $8.96 billion, or $1.03 per share a year ago; BAC also said net interest income (NII) jumped 22% to $12.5BN driven by higher interest rates, lower premium amortization and strong loan growth, while Noninterest income slumped 9% driven by lower investment banking fees, mark-to-market losses related to leveraged finance positions and lower service charges due to non-sufficient funds and overdraft policy changes; GS Q2 profit fell 47%, earning $2.93B, down from $5.49B, but EPS of $7.73 exceeded the $6.56 a share expected, while revs were down 23% to $11.86B, but beat the $10.78 billion expected – said investment banking revs fell 41% y/y to $2.14B in fees, and trading revenue was $6.47 billion in the quarter, up 32%; SCHW posts higher quarterly profit and revenues in online brokers

·     Insurance: LMND downgraded from Overweight to Neutral at Piper as the prolonged timeline to profitability and the MILE integration risk continue weigh on the stock as the company’s substantial investments behind customer acquisition have pressured profitability

·     Consumer Finance; SYF Q2 EPS 1.60 vs 1.30 on Higher net revenues, lower provisions, and updated guidance for 2022 that is better than our forecasts for loan growth, NIM, NCO’s, and RSA as a percentage of loans; ACT downgraded from Outperform to Market Perform in mortgage finance at KBW Inc. as expect to see a weak print from the Mortgage Originators and better performance in Mortgage Insurers & Title Insurers and cut estimates across the segments to reflect lower volumes and a more sustained downturn

·     REITs: in mortgage REITs, EFC, MFA, MITT, and NYMT all downgraded on credit caution and lack of near-term catalysts at KBW Inc. and remain constructive on AGNC, DX (recent upgrades) and continue to like RWT but acknowledge a more meaningful recession could create a more challenging growth outlook

·     Bitcoin news: big day for crypto related stock amid a resurgence in the sector with Bitcoin at 1-month highs above $22,000 and Ethereum jumping over 17% around $1,500 – shares of COIN, SI, MSTR, SBNY, MARA, RIOT, BTBT and others were active



·     Pharma movers; ETON announced that the U.S. FDA has approved ZONISADE(TM) (zonisamide oral suspension); GSK completed the spinoff of its consumer-healthcare business, as the new stand-alone company, called Haleon PLC, fetched a market value of about GBP30.5 billion, equivalent to $36.4 billion, at its stock-market debut Monday; SESN said it is temporarily pausing the development of its lead drug Vicineum, being tested in bladder cancer patients, following recent discussions with the U.S. FDA

·     Biotech movers: WSJ reported this weekend, that a potential deal between MRK and SGEN would likely not be finalized by the end of month, a before MRK’s earnings date (7/28) that was previously discussed in the press; RGLS shares slip after late Friday, its partner SNY terminated a mid-stage study testing Co’s drug lademirsen to treat rare genetic disorder Alport syndrome/Sanofi also notified RGLS it is currently evaluating different opportunities for the drug; NTRA announced that the Federal Circuit Court of Appeals affirmed the Delaware Federal District Court’s September 2021 decision that all three CDNA patents asserted against Natera are invalid for claiming patent-ineligible subject matter.

·     Healthcare Services & MedTech Equipment; HOLX downgraded to Neutral and removing $79 tgt at BTIG noting its supply challenges within the Breast Health business are likely to get worse (3Q and 4Q) before they get better (2023) coupled with growing CAPEX concerns into a recessionary environment; in services, CMS published its CY’23 proposed rule for the Hospital Outpatient Prospective Payment System (OPPS), and included in the hospital payment schedule is a proposed adjustment of HIFU prostate ablation procedures to a Level 6 code from the Level 5 code at which these procedures are currently reimbursed


Industrials & Materials

·     Aerospace; plenty of updates from the Farnborough Airshow: 1) DAL will buy 100 Boeing (BA) MAX 10 jets worth about $13.5 billion at list prices and has options to buy another 30, it said on Monday; 2) AL announced long-term lease placements for six new Airbus (EADSY) A220-300 aircraft with TAAG Angola Airlines; 3) LILM said Bristow secured the option to purchase 50 Lilium Jets in addition to providing maintenance services for the jet’s launch network in Florida, and other future U.S and European markets; aero parts suppliers SPR, HXL also active on order news;

·     Defense, Industrial & Machinery; GE unveils brand names for three planned future public companies July 18, 202: GE’s portfolio of energy businesses, including EG renewable energy, GE power, GE digital, and GE energy financial services, to come together; CACI awarded $80 million task order with the U.S. Army to provide aerial intelligence, surveillance, and reconnaissance; Reuters reported LMT and the Pentagon near approx $30B deal for around 375 f-35 fighter jets

·     Metals & Materials; ASH guides Q3 EPS $1.89 an on sales $644M, above ests $1.39 and $598.7M as expect underlying near-term demand to remain strong but expects that free cash flow generation will be below prior year; in paper, packaging, and forest products, RBC Capital upgraded shares of CFX and RYAM to Outperform (from Sector Perform previously) and downgraded CAS, CFF, DBM, and GFP into earnings for the group saying the Timber REITs should also have a strong quarter. Containerboard names should deliver solid results with an improvement in production and transportation

Technology, Media & Telecom

·     Semiconductors; Reuters reported several U.S. semiconductor firms are deliberating whether to oppose a package of chip industry subsidies if the final language of the legislation awaiting a vote in the Senate disproportionately benefits manufacturers like INTC

·     Hardware, Software movers; AAPL plans to slow hiring and spending for some teams in 2023, Bloomberg News reports; BL downgraded to underperform at Bank America and cut tgt to $64 from $75 as believe BL’s premium valuation of 7.5x EV/C23e revenue,0.39x EV/R/G, compared to its horizontal software peers at 6.2x/0.29x, is pricing in all of the potential good news; several estimate cuts into earnings season in software with Truist and Piper cutting numbers on names like ADBE, CRM, VEEV, MSFT, WDAY, MDB, BILL, SNOW, MNDY, BRZE, DT, ESTC, NEWR, SPLK;

·     Media & Telecom movers; PARA downgrade from Equal Weight to Underweight at Morgan Stanley and cut tgt to $22 from $32 saying shares trade at a premium to its peers despite a more uncertain path towards long-term EBITDA and FCF growth; FOXA downgrade from Overweight to Equal Weight at Morgan Stanley and cut tgt to $38 from $45 as more cautious outlook on advertising now brings them in line with consensus in our base case, with the risk of a recession on the US ad market creating more downside risk


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.