Market Review: October 14, 2022

Closing Recap

Friday, October 14, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     After yesterday’s massive market recovery…zero follow through for major averages Friday with slow steady selling pressure throughout following more hawkish Fed speakers and another negative inflation reading as every rally continues to be met with aggressive selling (markets giving back a chunk of yesterday’s gains). Today’s more than -1% decline in the S&P marked the fifth Friday in a row it has declined over that amount: today, 10/14: -1.85%, last Friday 10/7 -2.79%, 9/30: -1.55%, 9/23: -1.68%, and 9/16: -1.17% in a relentless pullback. Futures looked higher before the open after Russian leader Vladimir Putin said there were no plans for a further military mobilization in Russia and says no need for massive strikes on Ukraine now. In Europe, U.K. Prime Minister Liz Truss fired her Treasury chief Kwasi Kwarteng to salvage her tenure following pressure from her Conservative Party and the international market. Former foreign minister Jeremy Hunt has been appointed Britain’s finance minister, Prime Minister Liz Truss’s office said. Mr. Kwarteng, who just three weeks ago presented the largest tax cuts since the 1970s. Britain’s corporation tax will rise to 25%, as UK U-turned on a program of tax cuts on Friday. But once markets opened, it was straight selling as even financials, which had jumped initially behind better earnings from JPM, Citi, WFC, succumbed to pressure. Earnings pick up steam next week with tech names NFLX, IBM, LRCX, TSLA, SNAP reporting.

·     Stock losses accelerated after the University of Michigan 1-yr inflation expectations rises to 5.1% from 4.7%, the first increase since March and the 5-yr prelim October 2.9% vs final September 2.7% (again, inflation data points raise concern of a longer/more aggressive rate hike cycle by the Fed, crimping economic activity and growth). The data followed a 40-year high reading for core consumer prices (CPI) yesterday (ex food & energy). Treasury yields spike, with the 10-yr back above the 4% level and 2-yr above 4.5%, while the U.S. dollar hits highs above 148 against the Japanese yen (32-yr highs). U.S. retail sales flat in September; import prices fall again.

·     Yet another round of Fed speakers today (endless stream) again reiterating course of action is higher rates – looking to get to 4.5%-5% level by early next year – remains concern for market (Fed’s George, Daly, Cook, Bullard all spoke again today). In an interesting (and hard to believe) story, Reuters reported that the U.S. Treasury Department is asking primary dealers of U.S. Treasuries whether the government should buy back U.S. government bonds to improve liquidity in the $24 trillion market (as they currently rip interest rates higher and in process of QT, unraveling the QE it started more than a decade ago).


Economic Data:

·     Retail Sales unchanged in Sept vs. est. for +0.2% increase (Aug revised to +0.4% from +0.3%) while retail sales ex-autos +0.1% vs. est. (-0.1%) and Aug revised up to (-0.1%) from (-0.3%); Sept gasoline sales -1.4% vs Aug -5.2% and cars/parts sales -0.4% vs Aug +2.8%

·     Import Prices for Sept fall (-1.2%) vs. est. decline (-1.1%), while Sept export prices fell (-0.8%) vs. est. (-1.0%); Sept non-petroleum import prices -0.5%; U.S. Sept year-over-year import prices +6.05%, export prices +9.5%

·     University of Michigan Surveys of Consumers Sentiment Oct-P reported at 59.8 vs. est. 59.0 and vs final Sept 58.6; current conditions index prelim Oct 65.3 vs. Sept-F 59.7 and expectations index prelim Oct 56.2 vs. Sept-F 58.0.

·     University of Michigan 1-yr inflation expectations rise to 5.1% from 4.7%, rise for first time since March and the 5-yr prelim October 2.9% vs final September 2.7%

·     U.S. business inventories rose 0.8% in August and sales were up 0.3% after respective July prints of 0.5% (was 0.6%) and -1.0% (-0.9%). June inventories had climbed 1.4% with sales up 1.2%

·     China’s CPI inflation rose to 2.8% y/y in September (vs. +2.5% y/y in August), primarily on elevated food prices. On a month-over-month basis, CPI inflation fell at a0.1% seasonally adjusted annualized rate (vs. -4.3% m/m ann. In August). PPI inflation fell to +0.9% y/y in September from +2.3% y/y in August, as commodity prices fell in September



·     After posting a more than 2% rally last week, gold took a turn for the worse this week, sliding -$28.10 or 1.7% today alone to settle at $1,648.90 an ounce, closing the week with a decline of roughly -3.5% its first weekly loss in three weeks, as a 75-bps interest rate rise by the Fed next month looked to be locked in following the higher than expected U.S. consumer price inflation and UoM expectations data. The U.S. dollar rose over 0.5% against its rivals. Benchmark U.S. 10-year Treasury yields firmed, further weighing on zero-yield gold.

·     Oil prices fell with WTI crude down -$3.50 or 3.93% to settle at $85.61 per barrel while Brent crude futures settle at $91.63/bbl, down $2.94, 3.11%. Oil prices declined as global recession fears and weak oil demand, especially in China, outweighed support from a large cut to the OPEC+ supply target. The weekly oil rig data from Baker Hughes showed overall rig count rose 7 to 769, with oil rigs added 8 to 610, gas rigs down -1 to 157 and miscellaneous unchanged at 2. For the week, WTI crude fell roughly -7.5% and natural gas -4.37% (down an 8th straight week) as record output and reduced liquefied natural gas (LNG) exports allowed utilities to inject much bigger than normal amounts of gas into storage this month.


Currencies & Treasuries

·     The U.S. dollar hit fresh 32-year high vs Japanese yen, hitting highs of 148.86 as the dollar index ended the day and week high. The greenback dropped the previous day despite U.S. inflation accelerating. Sterling fell sharply against the U.S. dollar after British Prime Minister Liz Truss fired her finance minister and scrapped parts of their economic package that has caused so much turmoil in the UK’s currency and bond markets. Markets watching if the BoJ steps in to stem the sharp slide in its currency of late. Fears about the global economy have also boosted the haven asset. Last month, Japan intervened to buy yen for the first time since 1998.






WTI Crude















10-Year Note





Sector News Breakdown


·     Consumer, Autos, Retailers: FIGS downgraded to Equal Weight from Overweight at Barclays and cut tgt to $9 from $15 citing the current weakening demand backdrop, increasing acquisition costs + potential for slowing sales growth; ANF opening Positive Catalyst Watch at Citigroup ahead of 3Q22 earnings to be reported late November as believes the market is discounting an overly bearish scenario and under appreciates ANF’s balance sheet; TSLA slides 7%, trading at new 52-week lows and lowest intraday levels since June 18, 2021.

·     Housing & Building Products: Credit Suisse downgrades TREX to underperform from neutral and takes price tgt to $43 from $65 and AZEK downgraded to neutral from outperform and tgt cut to $18 from $29 in deck building names; in other building product/home improvement changes, CSFB also downgraded FBHS, JELD, and SWK to Neutral from Outperform

·     Consumer Staples: a big M&A deal confirmed in the supermarket sector as the 2nd largest grocer (KR) with mkt share in the US to acquire the 4th largest (ACI) – (WMT biggest and COST 3rd) in a deal valued at nearly $25B, with KR holders to receive $34.10 a share (ACI closed Thursday at $28.63) as the transaction is expected to close in early 2024, subject to regulatory clearance ; BYND cuts FY22 revenue view to $400M-$425M from $470M-$520M (est. $494.55M) and guides Q3 revenue $82M below consensus $117.11M; sees $27M in cash operating expense savings in next 12 months; to reduce workforce by about 200 employees



·     Aerospace & Defense: NOC downgrade to Neutral at JPMorgan saying valuation may not matter for long periods but what stood out in preparing for Q3 earnings was NOC’s pronounced premium to both the group; RKLB selected to build solar panels for NASA’s cadre mobile robot program as will supply solar panels that will power NASA’s mobile robots as part of cadre program; Goldman Sachs with A&D earnings preview as says BA, TXT, and TDG favorite names into earnings and least favorite names for the day of earnings are WWD, LHX and LMT saying supply chain bottlenecks remain a hurdle but expect incremental clarity on forward delivery rates

·     Transports: DAL upgraded to Outperform at Cowen saying the mix of air traffic passengers is shifting with higher yielding business and international passengers making up a greater share. 4Q looks strong as business and international traffic return; but overall group down with market

·     Chemicals, Metals & Materials; weakness in agricultural chemicals (MOS, CF, NTR) after Russian leader Putin said there were no plans for a further military mobilization in Russia and no need for massive strikes on Ukraine now (note names have rallied on supply issues in recent months)

·     Paper & Packaging: AMBP downgraded to SP (from OP) at RBC Capital and lowers PT to $5 from $7 as believe investor sentiment will remain negative on the beverage can manufacture sector, for AMBP given its FX exposure, EMEA exposure, beverage category mix and net leverage of ~4.5x. Overall in packaging, previews 3Q22, lowering ests and PT’s as look towards H2/FY23, IRI data has softened, and we expect moderating raw material cost pressures offset by higher energy, labor/ logistics cost and FX headwinds. Favorite names this season are GPK and SLGN.

·     Alt Power, Utilities & Solar: PLUG said it sees 2022 revenue 5%-10% lower than $900M-$925M guidance (est. $912.61M) as revenue impact reflects some larger projects potentially being completed in 2023 instead of 2022 due to timing and broader supply chain issues; DQ said its units have signed a 5-yr polysilicon supply deal with Shuangliang Eco-Energy starting next month



·     Bank movers: big bank earnings out – mixed results:

·     1) JPM Q3 adj EPS $3.12 tops est. $2.878 and revs $33.49B above est. $32.35B – Equities sales & trading rev $2.30B, vs. est. $2.48B; Fees were down 47% y/y at JPMorgan’s investment bank; credit reserve build of $808 million ate into its net income for the latest quarter – Net interest income climbed 34% to $17.6 billion

·     2) Citigroup (C) Q3 profit falls 25% y/y; Q3 EPS $1.63 vs. est. $1.43 and Q3 revs $18.5B vs. est. $18.25B; Q3 FICC Sales & Trading Revenue $3.06B (vs. est. $3.17B) and Equities Sales & Trading Revenue $1.01B vs. est. $0.995B; Investment Banking Revenue $631M vs. est. $1.07B – set aside $370 million for potential loan losses, part of $1.37B in credit costs that dragged down profit – Expenses rose 8% to $12.75 billion – Return on tangible common equity fell to 8.2% from 11% a year ago (but above ests 7.1%)

·     3) WFC Q3 revs $19.51B tops est. $18.81B; but EPS of $0.85 missed the $1.09 est.; Net interest margin 2.83% vs. estimate 2.68% and net interest income (NII) $12.10B, estimate $11.64B – New car loans dropped 41% at Wells Fargo, while late payments climbed – co said expects to see continued increases in delinquencies – qtr incl $2B loss on regulatory matters, other costs

·     4) MS disappoints as profit falls 3rd straight quarter as EPS $1.47 vs. est. $1.52 and revs fell -12% y/y to $13B below the $13.3B est.; Investment banking revenue, including fees from mergers and acquisitions, fell 55% – ROE weighed in at 14.6%, down from 19.6% a year earlier – Wealth management revenue was $6.1 billion, up 3% y/y – FICC sales & trading revenue $2.18B

·     5) USB Q3 adj EPS $1.18 vs. est. $1.17; Q3 revs $6.3B vs. est. $6.24B; Provision for credit losses $362M vs. est. $351M; return on average assets 1.22% vs. 1.45% y/y and ROE 15.8% vs. 15.9%

·     6) PNC Q3 adj EPS $3.78 vs. $3.70 est.; loans $315.40 billion, +1.5% q/q, estimate $313.88 billion; deposits at end-period $438.2 billion, Provision for credit losses $241 million vs. recovery $203 million y/y; Net interest margin 2.82% vs. 2.27% y/y



·     Healthcare Services: Dow component and managed care giant UNH Q3 adj EPS $5.79 tops consensus $5.42 and revs $80.89B above est. $80.5B; said the total people served domestically by UnitedHealthcare has grown by approximately 850,000 in 2022, including 185,000 in Q3; Medical care ratio 81.6% vs. 83% y/y, estimate 82.5%; raises FY adj EPS $21.85-$22.05, up from prior $21.40-$21.90, estimate $21.88

·     Pharma movers: ABBV Catalyst Driven Idea, reit Overweight w/ $185 PT at Morgan Stanley; ATRA said the Committee for Medicinal Products for Human Use of the European Medicines Agency has adopted a positive opinion recommending the European Commission approve Ebvallo tabelecleucel; RETA announced that the FDA does not plan to hold any advisory committee prior to the upcoming Feb-28 PDUFA for its treatment of Friedrich’s ataxi; HRMY upgrade to Buy and up tgt to $61 at Jefferies saying DCF relative valuation metrics indicate the stock is undervalued at current levels

·     Biotech movers: the WSJ reported new offshoots of the Omicron COVID-19 variant that virus experts say appear to spread easily are on the rise in the U.S., the latest federal data show (vaccine names include PFE, MRNA, BNTX); TVTX announced that it sees a three-month extension of the previously assigned PDUFA target action date for its application for accelerated approval of sparsentan for the treatment of IgA nephropathy.


Technology, Media & Telecom

·     Semiconductors: after a brief and quick rally yesterday for the sector, selling pressure resumed with big declines in the equipment names again LRCX, KLAC, AMAT; for the SMH, 72% of the ETF hit 52-week lows this week and the SOX index down -43% YTD; Goldman Sachs lowered 2023 Wafer Fab Equipment (WFE) market forecast from ~$78bn to ~$66bn (-28% YoY), due to recently implemented export controls and a likely deeper cyclical downturn in DRAM and NAND markets. For equipment names (AMAT, LRCX, KLAC) see favorable risk/reward over a 12m horizon, although near-term estimate revisions are likely to be negative

·     Software, Hardware, Components & Services: NTNX shares jump after the WSJ reported the company is exploring a sale after receiving takeover interest. The company is expected to Target private-equity and industry players


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.