Market Review: September 01, 2022

Closing Recap

Thursday, September 01, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     A late day rally for U.S. stocks snaps the S&P 500 4-day losing streak, but Nasdaq couldn’t turn green, extending its losing streak to 5-days (longest since Feb) but finished at the highs ahead of key monthly jobs data Friday morning. Bonds tumble (yields rise) and the dollar at fresh 20-year highs vs. counterparts in another volatile trading day. U.S. stocks started the day on a sour note led by weakness in semiconductors (AMD/NVDA) following China chip restrictions instituted by the U.S., weaker China data, another lockdown of 21Mm in China, surging Treasury yields and dollar (20-yr highs), weak earnings/guidance results in food space (HRL/CPB) and software (MDB, OKTA, VEEV, AI) and several retail lower outlooks (FIVE, OLLI, DLTH, SIG, LE all lower). Lastly, economic data this morning mostly better-than-expected…but weighed on stocks on fear good news is bad news for market as it keeps the Fed on the gas pedal for higher rates to cool economy. It looked bleak to start, but stocks held up well generally, managing to bounce off lows (3,900 level for S&P a day after failing above its 50-day MA of 4,015) and finish at the highs in hopes for a well-received jobs report.

·     Attention turns back to economic data tomorrow with August Non-farm payrolls expected to show gains of 300K jobs for both nonfarm and private payrolls, +20K for manufacturing, unemployment rate to hold at 3.5% and average hourly earnings to rise +0.4%. Will it be another “good news is bad news” situation like today’s ISM report, as the Fed appears determined to raise rates on signs of a strong economy. Will same hold true on a miss? Will markets rally in hopes it could slow the pace of rate hikes? We’ll find out tomorrow. Signs of easing inflation in the ISM report failed to ease investor fears. Note the bull-bear spread in the American Association of Individual Investors (AAII) weekly survey was -28.5 vs -14.7 last week as Bulls fell to 21.9% from 27.7% and Bears rise to 50.4% from 42.4% (a contrarian indicator).

·     Semiconductors among the day’s biggest losers after both NVDA and AMD both disclosed that the U.S. has informed the companies that certain AI products will require a license for export to both China and Russia. Affected products for NVDA include its A100 and H100 processors, while AMD believes the new requirements will impact its ability to ship its MI250 product.


Economic Data:

·     Weekly Jobless Claims fell to 232K in latest week, down from 237K last week (revised) and vs. est. 248K; the 4-week moving average fell to 241,500 in latest week from 245,500 prior; continued claims rose to 1.438M from 1.412M prior (est. 1.438M) and the U.S. insured unemployment rate unchanged at 1.0%

·     Nonfarm productivity for Q2 revised to -4.1% from (-4.65) prior and vs. consensus (-4.5%); U.S. Q2 non-farm unit labor costs revised down to +10.2% from 10.8% prior and vs. consensus +10.7%

·     S&P Global U.S. Manufacturing sector final PMI for August at 51.5 vs flash reading 51.3 and final July 52.2; final output index for August at 49.2 vs flash reading 49.3 and final July 49.5; final output prices index for August at 62.9 vs flash 63.0 and final July 66.7

·     August ISM Manufacturing PMI reported at 52.8 vs. 52.0 expected and 52.8 prior; prices paid index 52.5 in August vs 60.0 in July (lowest since June 2020); new orders index 51.3 in August vs 48.0 in July; employment index 54.2 in August vs 49.9 in July (highest since March)

·     July Construction Spending fell (-0.4%) to $1,777.3B, in-line with consensus and -0.5% in June (revised up from -1.1%); construction spending climbed 8.5% Y/Y in July



·     Oil prices tumble, extending losses after falling a third straight month in August with WTI crude -$2.94 or 3.28% to settle at $86.61 per barrel (printed daily low of $85.98 – which was lowest since January). Brent crude futures settle at $92.36/bbl, down $3.28, 3.43%. Weak PMI data out of China, in addition to additional lockdowns, mixed inventory data this week in the U.S. and fears a recession will further crimp demand all weighing on energy prices. Front month NYMEX natural gas rose 1.48% to settle at $9.2620.

·     Gold prices briefly slid below $1,700 for the first time in six weeks (low of $1,699.10) before paring losses to -$16.90, or 1% settling at $1,709.30 an ounce as a surging dollar, rising Treasury yields and weakness in China weigh on the precious metal (commodities in general). Major central banks remain vigilant to an aggressive stance to combat inflation, raising interest rates and dulling metals demand, raising growth concerns. Spot silver touched its lowest level in more than two years, while platinum and palladium fell over 3%. Gold has dropped more than $350 since rising above$2,000 per ounce in early March, and marked a fifth monthly drop in August, its longest run of monthly losses since 2018.


Currencies & Treasuries

·     The U.S. dollar strength continues amid the expected aggressive upward trajectory of U.S. interest rates, with calls for another 75-bps hike in September from the Fed (similar totals to their June and July meetings). The dollar moved above the 140 level against the yen for the first time in over 20-years, while the euro swung back below parity vs. the greenback. Bitcoin prices dropped back below $20,000 as crypto volatile with broader markets.

·     Treasury yields jumping to highest levels in months (years in some cases) ahead of tomorrow’s monthly jobs report. The 10-yr yield hit highs of 3.29%, up as much as 16bps today alone ahead of the data while the 2-yr rose 9.5bps to 3.545%. The yield curve inversion narrows to about 25 bps between 2s and 10s – steepest in roughly a month.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers: in discount retail, FIVE posted Q2 EPS/sales miss and lower guidance while Q2 comp decline of 5.8% was somewhat better than the down 6-7% – said it plans to convert majority of its chains to the higher-priced concept; COST reported total and U.S. core August comp growth of 8.7% and 7.6%, respectively, compared to consensus of 7.7% and 7.0%. Sales growth remains strong, with the 2-year comp CAGR accelerating ~170bps after decelerating starting in May through July; OLLI cuts its FY sales and profit forecasts after missing Q2 results estimates on slower-than-expected demand, higher costs; DLTH lowers both its year profit and sales outlook citing macro uncertainty and inflationary pressures impacting discretionary spending; FLWS declines following results; GCO mixed Q2 results, while cuts year EPS/sales view; SIG posts better Q2 and reaffirms FY23 revenue and operating income guidance but slashes 2023 profit between $10.98 and $11.57, down from prior forecast of $12.72-$13.47; LE another retailer to cut sales and profit outlook for year amid steep discounts and higher costs

·     Auto sector: in Chinese EV space, LI reported vehicle deliveries for August of 4,571 units vs. 9,433 y/y; vehicle deliveries 4,571 units, -52% y/y; total stores 265 vs. 114 y/y; NIO reported deliveries for August of 10,677 vs. 10,052 m/m; deliveries 10,677, +6.2% m/m; premium smart electric SUVs 7,551, -0.4% m/m; premium smart electric sedans 3,126, +26% m/m; XPEV saw a 33% Y/Y growth in August 2022 vehicle deliveries as delivered 9,578 Smart EVs in the month; MULN signed partnership with Israeli company Watergen to launch water-from-air solutions for EVs; HMC U.S. July car sales down 46.9%, us truck sales down 32.6%

·     Housing & Building Products; in home improvement retail, Atlantic Equities said HD and LOW robust 3-yr comp trends, despite cautious commentary from multiple suppliers, are indicative of the companies’ unique positions as diversified home improvement retailers, primarily exposed to big ticket project demand and repair & maintenance activity

·     Consumer Staples: HRL slides as Q3 EPS of $0.40 missed ests of $0.41 on better sales $3.03B vs. est. $2.98B; also cuts FY22 EPS $1.78-$1.85 from $1.87-$1.97 (est. $1.88) but boosts FY22 revenue view to $12.2B-$12.8B from $11.7B-$12.5B (est. $12.45B) – said expect elevated cost inflation to persist, primarily related to operations, logistics and raw material inputs; also in food space, CPB reported in-line Q4 EPS and sales ($0.56/$1.99B) on better organic sales view (4%-6% vs. est. 3%), but weaker 2023 profit outlook (flat to up 4% vs. est. 2.7%)



·     Energy stock movers: oil prices continue to swoon, tumbling again today on global demand concerns, pressuring energy stocks. Oil declined in August for its 3rd straight monthly drop and started September off on a sour note too. Natural gas prices in Europe plunged 30% this week — just as Russia officially cut off supplies…but are still over 10x higher from the start of 2021

·     Utilities & Solar; the defensive utility sector was one of the few market bright spots, moving higher on the day (XLU); meanwhile, shares of PCG, EIX, SRE, PWR and other leveraged power names active as California lifts emergency grid measures as blackouts averted but warned of limiting usage such as raising thermostats and not charging EV’s to avoid rolling blackouts; California lawmakers passed a bill approving a $1.4 billion government loan to extend the life of the state’s only nuclear power plant to shore up electric reliability; RBC added PCG to its Energy Best Ideas list saying the CA wildfire season is ongoing but believe PG&E has taken meaningful steps to reduce its wildfire risk.



·     Bank movers: Major U.S. banks JPM, C, WFC, GS, BACand MS and others slipped with broader global markets as higher Treasury yields fail to overshadow the concerns of economic fluctuations with concerns about bad loans and slowing loan growth amid a recession

·     Bitcoin, FinTech & Payments; ACIW updates guidance, lowering Q3 and year revs – sees Q3 rev $306M-$321M, down from prior $310M-$325M view and year revs to $1.4B-$1.42B from prior $1.42B-$1.44B; FUTU upgraded from Neutral to Overweight at JPMorgan and raise tgt to $62 based on Q2 results beat expectation on the back of stable client growth, market share gain and a higher blended commission rate and as regulators in the US and China signed an agreement on cooperation in the inspection of China ADR stocks which partially eases de-listing risk



·     Biotech & Pharma movers; FMTX to be acquired by NVO for $20 per share in cash; deal valued at $1.1B (shares of AGIO, which also develops sickle cell disease treatments, advanced in sympathy); shares of defensive large cap Pharma names ABBV, JNJ, MRK, BMY outperformed broader markets; PFE and MRNA rise initially after EU health regulators backs COVID bivalent booster retooled to target Omicron variant; WSJ reported ILMN wins trial vs. FTC over acquisition of grail, as administrative law judge allows Illumina’s acquisition of grail to stand, sources say; judge denies FTC’s attempt to unwind merger, sources say

·     Healthcare Services; COO reported FQ3 revenue of $843M/+9% organic that beat Street’s $830M, with top-line upside coming from across-the-board strength in CVI and CSI, while FX headwinds did hit margins and EPS in FQ3, offsetting the top-line beat; PDCO slides after Q1 results as revs miss estimates and Q1 adj EPS 32c vs 43c last year; VEEV mixed results with some F2Q upside offset by a reduction in FY23 outlook as Commercial Cloud was the primary source of weakness – saw ~$15M incremental FX headwinds to billings, while the remainder of the cut (~$35M) was attributable to weaker advertising activity


Industrials & Materials

·     Metals & Materials; RIO agrees to buy the rest of TRQ for C$43 a share cash, almost six months after its initial offer, moving to gain more control of a giant copper mine in Mongolia; in chemicals, SMG lowers year free cash flow to range from negative $275 million to negative $325 million compared to its previous guidance of negative $150 million; reaffirmed the other aspects of its earnings guidance; Industrial (copper, aluminum, zinc) and precious metals fall on weaker China data, slowing global economic growth fears amid rising rates – hitting shares of FCX, NEM, AA, X and others; GEF reported F3Q22 adj. EPS of $2.35, above consensus of $2.00, with its adj. EBITDA of $251M above consensus of $230M


Technology, Media & Telecom

·     Media, Internet; BIDU upgrade from Neutral to Overweight at JPMorgan and raise 2022/23E EPS by 20%/22% post 2Q22 results citing ads growth having bottomed in 2Q22, followed by meaningful recovery expected in 2H22, and a stronger profit outlook due to cost optimization; social media names performed better than most other tech names (META, SNAP)

·     Semiconductors; huge news in sector as NVDA revealed that the U.S. moved to restrict its data-center sales in China and Russia, stating that forecast for the current quarter includes an expected $400 million in data-center sales to China that could be affected by the move; NVDA later said the U.S. gov’t has allowed exports and in-country transfers needed to complete the development of the company’s H100 artificial intelligence chip; AMD also said it had received new license requirements that will stop its MI250 artificial intelligence chips from being exported to China, but it believes its MI100 chips will not be affected; SMTC provided Q2 results largely in-line, but October quarter guidance was significantly below expectations as sees revenue guidance of $175M at midpoint, compared to consensus of $215.6M (downgraded at Cowen); MU said it plans to invest about $15 billion through the end of the decade for a new memory manufacturing plant in Boise, Idaho

·     Software movers; MDB shares tumble as revenue of $304M (+53% Y/Y) beat consensus by $19M, as Atlas revenue grew 73% Y/Y to $193M, but co issued lower EPS guidance for Q3 as sees adj EPS loss (19c)-(16c) vs. est. loss (14c) and lower year EPS; AI shares fall after reported 1Q revenue slightly below consensus and slashed its FY23 revenue growth guide from ~23% y/y down to ~4% at the midpoint, citing an uncertain macro driving longer sales cycles and budget cuts

·     Internet Security software; names weak as OKTA downgraded by a few Wall Street analysts as reported a mixed FQ2’23 print with in-line billings, a slight beat on current RPO, and better than expected operating losses/EPS, but issues with Auth0 integration, sales attrition, and a weak macro caused the company to reduce its FY23 billings guidance by just over 6%; SentinelOne (S) delivered another solid result in F’2Q with ARR, revenue and operating profitability all exceeding street estimates and raises year revs to $415M-$417M from $403M-$407M

·     Hardware, Components & Services; PSTG reported stronger than expected F2Q23 results, guided F3Q23 above estimates and raised full year expectations as stated pipeline generation, close rates and overall demand remain healthy; NTNX a bright spot in tech after quarter and outlook were much better than expected following last quarter’s challenges around the supply chain and sales attrition – Q4 results beat and guides FY revs $1.77B-$1.78B vs. est. $1.67B; SNPS approves stock repurchase program with authorization up to $1.5 billion; Hard-disk drive makers STX (to Hold) and WDC (to Sell) both downgraded at Benchmark after Seagate’s comments about inventory issues and caution among some of its cloud customers


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.