Closing Recap

Friday, July 28, 2023

Index	Up/Down	%	Last
DJ Industrials	176.24	0.50%	35,458
S&P 500	44.73	0.99%	4,582
Nasdaq	266.55	1.90%	14,316
Russell 2000	25.88	1.32%	1,980

 

 

 

 

 

 

 

 

 

US equities enjoyed overnight gains fueled by better technology earnings and extended gains following in-line-to-better Core PCE and Employment Cost Index reports. Core PCE rose 4.1% year/year versus forecast +4.2%, while the month/month gain was +0.2%, in-line. Employment costs climbed 1.0% versus a forecast of +1.1%. Mid-morning breadth held strong, at better than 4:1 in favor of advancers. Post-data, the implied probability of a Fed pause at the September meeting remained just over 80% with the first expected rate cuts holding in early 2024. Early sector leaders were Communications, Consumer Discretionary and Consumer Staples, all gaining more than 1%. Only Energy was in the red, following oil lower.

 

Data-wise, @AtlantaFed published its initial GDP nowcast of 3.5% Real GDP growth in Q3. @bespokeinvest followed up by reminding us that would be the strongest growth since Q4 2021, just before the contraction in 2022. Speaking of the Fed, @RBAdvisors notes the Real Fed Funds rate is positive, suggesting the Fed is in fact fighting inflation, though perhaps less aggressively than in historical periods. On housing, @charliebilello highlights the median starter home price in the US is 46% above 2019 levels and the necessary monthly mortgage payment for these homes has more than doubled in the same span. Lastly, @KobeisssiLetter reflects on June PCE inflation, noting it is now at its lowest since April 2021, so perhaps the Fed may finally have inflation under control. Let’s hope expectations don’t jump the gun and start pulling implied rate cuts back into 2023.

 

After a mid-afternoon dip, stocks recovered back toward highs heading into the final hour of trading. Breadth eased a bit off the morning levels but was still favoring advancers over decliners by more than 3:1. From an industry view, Energy followed oil back into positive territory but both Real Estate (XLRE, -0.04%) and Utilities (XLU, -0.13%) had slid into the red.  Gainers continued to be paced by Communications (XLC, +2.2%), followed by Consumer Discretionary (XLY, +1.78%) and Technology (XLK, +1.44%). Both growth and value enjoyed gains, with growth the outperformer. The Russell 1000 growth gained 1.6%, while its Value counterpart climbed 0.4%.

 

 

 

 

 

Economic Data

·     US Core PCE Index rose 4.1% year/year versus forecast +4.2% and prior +4.6%. The month/month gain was +0.2% versus forecast +0.2% and previous +0.3%.

·     US Employment Costs rose 1% versus forecast +1.1% and prior +1.2%.

·     US Real Personal Consumption rose 0.4% month/month versus forecast +0.3% and prior 0.0%.

·     University of Michigan Consumer Sentiment final July was 71.6 versus expected 72.6 and June at 64.4. The one-year inflation outlook was 3.4% versus June 3.3%, while the five-year inflation outlook came in at 3.0%, unchanged versus June.

 

Commodities

·     December gold (most active contract) rebounded off yesterday’s weakness to settle +$14.70/oz, or +0.74%, to $1,999.90. More favorable economic reports in Core PCE, at more than a two-year low, and BoJ comments pressured the US Dollar and allowed a move higher in gold after rate hikes earlier in the week weighed.

·     WTI September crude fought off an early slide to settle +$0.49/bbl, or +0.61%, at $80.58. Brent crude similarly gained +$0.75/bbl, or 0.89%, to $84.99. An easing in the Core PCE result and a relative lack of significant earnings implosions has once again fueled hope for a Fed pause and perhaps a soft landing in the economy, providing general optimism and risk-on sentiment. Further, the Atlanta Fed initial nowcast of 3.5% Real GDP growth in Q3 also supported today’s gains.

 

 

 

Macro	Up/Down	Last
WTI Crude	0.49	80.58
Brent	0.75	84.99
Gold	14.70	1,999.90
EUR/USD	0.0044	1.1021
JPY/USD	1.674	141.079
10-Year Note	-0.043	3.969%

 

 

Sector News Breakdown

Consumer

Autos:

·     Ford (F) reported quarterly profit that was about three times higher than last year’s and a 12% increase in its revenue, moving it to raise its outlook for 2023, but the beat-and-raise was overshadowed by a delay in EV production goals.

·     Auto supplier DAN raised its FY23 EPS, sales and Ebitda outlook.

 

Consumer Staples & Restaurants:

·     CL Q2 EPS $0.77 tops $0.75 est.; Q2 revs $4.82B vs. est. $4.69B.

·     PG Q4 core EPS $1.37 topped consensus $1.32; Q4 revs $20.6B vs. est. $19.98B; Overall volumes fell 1% in the fourth quarter, while average prices across its product categories rose 7%. In comparison, P&G hiked prices by 10% in the third quarter, and its sales volume fell 3%

·     SAM benefitted from weaker Bud Light sales in latest quarter as top and bottom-line results topped expectations, sending shares higher.

·     SG posted a wider-than-expected quarterly loss and missed Wall Street expectations for its revenue while updated its 2023 guidance as well, saying it reflected higher profit margins as expects revs $575M-$595M and comp sales up between 2%-6%

·     MDLZ reported Q2 results that beat estimates and raised its full-year profit and sales forecasts in another quarter in which price increases helped make up for muted sales volumes.

·     WING was downgraded to Neutral at Wedbush saying continues to view Wingstop’s business model as among the best positioned, but as wing costs increase, believes the risk to medium-term SSS growth expectations also increases.

Retailers:

·     GME said CFO Diana Saadeh-Jajeh will be resigning on August 11 and will be appointing Daniel Moore as its Principal Accounting Officer and interim Principal Financial Officer.

·     Mattress retailer SNBR shares tumbled as reported 2Q EPS above expectations but sales below expectations due to softer demand; lowered the upper end of its 2023 EPS guidance (-21.9% to +9.2% y/y), given slightly softer demand trends.

·     SKX earnings top consensus while guidance falls short of views.

 

Energy

·     Energy giants CVX and XOM reported earnings: CVX Q2 adj EPS $3.08 vs. est. $2.93; Q2 revs $48.9B vs. est. $48.52B; said FY23 production outlook is trending near the low-end annual guidance; Plans to resume buybacks at the $17.5B annual rate in Aug. XOM Q2 adj EPS $1.94 vs. est. $2.00; Q2 revs $82.91B vs. est. $82.31B; qtrly worldwide GAAP upstream second-quarter earnings were $4.6 bln, a decrease of $1.9 bln from Q1.

·     In solar: FSLR upbeat Q2 results as EPS $1.59 vs. est. $0.96; Q2 revs $810.67M vs. est. $720.55M; to invest up to $1.1 billion in fifth US manufacturing facility; ENPH shares slide as EPS beat but Q2 revs $711.12M was below est. $722.12M and guides Q3 revenue $550M-$600M below consensus $748.08M.

 

Healthcare

Biotech & Pharma:

·     AXNX delivered a Q2 sales beat and raised guidance by more than the Q2 top line beat; total sales of $92.9MM (+35% y/y) beat by $6.5MM.

·     DXCM reports quarterly results above views in diabetes sector.

·     FIXX said it will evaluate strategic alternatives and cut 87% of its workforce, citing the current financing environment and Homology’s anticipated clinical development timelines.

·     MRK phase 3 KEYNOTE-756 trial met primary endpoint of pathological complete response (pCR) rate in patients with high-risk, early-stage ER+/HER2- breast cancer.

·     RETA to be acquired by BIIB for $172.50 per share in cash, reflecting an enterprise value of approximately $7.3 billion. https://tinyurl.com/2a93x6vx

 

Materials, Metals & Mining

·     In Chemicals: CC reported mixed Q2 as EPS beat but revs missed ($1.64B vs. $1.69b), announced the decision to close its Kuan Yin manufacturing facility and cut FY23 adjusted EBITDA view to $1.10B-$1.175B from $1.2B-$1.3B. EMN EPS missed for Q2 and beat sales while guides 2H adj EPS below 1H; sees FY EPS $6.50 to $7.00, below est. $7.20. OLN same as EPS beat but sales below views and sees Q3 adjusted EBITDA to be approximately 10% lower than Q2.

 

Technology

Internet, Media & Telecom

·     In Media: ROKU forecasts current-quarter revenue above estimates and beats second quarter revenue estimates on higher ad sales; Q2 revs were $847.2M vs. est. $774.5M.

·     In Cable: CHTR Q2 EPS of $8.05 down from last year but in-line with consensus as revs of $13.66B missed the $13.84B estimate; disclosed the addition of 77,000 net subscribers for its internet service during the quarter; logged a net loss of 200,000 video subscribers in the period but reported 648,000 net new mobile lines within its wireless business.

 

Hardware & Software movers:

·     In Comm/Networking: JNPR reported quarterly results and warned it expects "continued weakness” in bookings, particularly with our Cloud and, to a lesser extent, our Service Provider customers; forecasted revs about $1.385B below the $1.476B consensus.

 

Semiconductors:

·     INTC posted a surprise profit, but while data-center sales came in better than expected, a larger beat in PC product sales drove margin improvement; posted PC-group sales of $6.8 billion and data-center sales of $4 billion.

·     KLAC reported F4Q23 revenue and EPS that were 4% and 11% ahead of consensus, respectively, and guided F1Q24 midpoint revenue 5% and 13% ahead of consensus, respectively.

·     ASMI and ASML downgraded to Market-Perform at Bernstein based on softening demand for 2023 and into 2024. Continue to like the fundamentals and growth for both companies as we look towards 2025 and beyond. However, we believe the risk from softening demand for leading edge logic/foundry and ongoing memory weakness now outweighs the upside. We maintain our Outperform for BE Semiconductor (BESI) as we still see upside.