Market Review: September 14, 2022

Closing Recap

Wednesday, September 14, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     US equities enjoyed a less volatile day, holding in positive territory for much of the session after yesterday’s CPI-induced sell-off. While the implied probability of a +100bps hike from the Fed in September remains elevated at 37%, at least some of the shock and panic appears to have subsided. Bulls can move back toward, “…at least now it’s priced in so we won’t have to worry as much about that shock and we can get back to looking for deals in the market…,” while bears resume with something like, “…we told you it was bad and now the Fed will have to be more aggressive for longer and we definitely have a recession on the horizon…” Time will tell.

·     From and S&P sector perspective, Energy (XLE), Consumer Discretionary (XLY) and Utilities (XLU) all gained. Laggards were Materials (XLB), Real Estate (XLRE) and Financials (XLF), though only the three groups mentioned above (of eleven) saw gains. Growth and value performed similarly, though growth modestly outperformed as some names clawed back part of their over-sized losses from yesterday.


Economic Data:

·     Producer Price Index (PPI) for August m/m reported in-line at (-0.1%) vs. (-0.1%) and y/y PPI rose +8.7% vs. expected increase of +8.8% (prior month +9.8%). The core Aug PPI (ex food & energy) m/m rose +0.4% vs. est. rise +0.3% and y/y core PPI rose +7.3% vs. est. +7.1% (prior month +7.6%). The headline was in-line to slightly better, but core came in a bit higher. The cost of services increased 0.4% after rising 0.2% in July. Sixty percent of last month’s advance in services was attributed to a 0.8% rise in margins received by wholesalers and retailers.


Commodities, Currencies and Treasuries

·     WTI crude oil rallied $1.17, or +1.34%, to settle at $88.48/barrel. The move reflected a Bloomberg report suggesting the Biden administration may look to refill the SPR if/when crude slips below $80/barrel (putting a speculative floor under oil prices). Also lending support were comments from Goldman reminding that the end of the SPR drawdown may be nearing and a story indicating China’s Chengdu is set to begin gradually easing covid restrictions Thursday. Brent crude also gained, settling at $94.10/barrel, +$0.93 or +1%, while Natural Gas settled at $9.114/MMBtu, +$0.83 or +10%, on persistent supply concerns.

·     December gold settled at $1,709.10, -$8.30 (-0.5%). Today marked the lowest Mark since July 20 for the most active contract. Treasury yields finished little changed after surging on Tuesday post CPI data, as the 10-year at 3.415%, the 2-yr at 3.78%, pulling back from 14-yr highs around 3.9% and the 30-yr at 3.47%. The dollar index slipped after surging on Tuesday but finished near best levels of the day at 109.70 as the euro held below parity and the buck bounced vs. the yen.






WTI Crude















10-Year Note





Sector News Breakdown


·     Auto sector: electric vehicles TSLA, RIVN as well as charging co’s BLNK, CHPT active as President Biden highlights at the Detroit Auto Show automakers’ increasing shift to electric vehicles and billions of dollars in new investments in battery plants; NKLA upgraded to Buy at BTIG with $12 target saying it is well positioned to benefit from increasing demand to decarbonize the Class 8 truck market and NKLA plans to roll out its FCEV next year; TSLA is pausing its plans to make battery cells in Germany as it looks at qualifying for U.S. electric vehicle and battery manufacturing tax credits, the WSJ reported, citing people familiar with the matter said.

·     Housing & Building Products; As Treasury yields rise, so do mortgage rates and lower housing activity. US Mortgage Bankers Assoc said the mortgage index falls 1.2% to 255.0 in latest week, the purchase index rises 0.2% and the refinancing index falls 4.2% as the average 30-year mortgage rate rises 7 bps to 6.01% in Sept 9 week, first time over 6% since 2008 – homebuilders LEN, PHM, TOL, BZH declined early on the rising rates data

·     Consumer Staples & Restaurants: SBUX CEO Howard Schultz outlined a wide-ranging revamp of the coffee chain, ranging from cafe upgrades to expanded employee benefits; expects to spend between $2.5 to $3 billion annually through its 2025 fiscal year to build new types of stores; KDP approved a 6.7% increase in its annualized dividend rate to 80 cents a share from 75 cents

·     Casinos, Gaming, Lodging & Leisure sector; WYNN, MGM, PENN early drags as casinos and gaming names among biggest S&P decliners; in the leisure/boating space, Truist noted boat/marine stocks faced a ‘gut check’ moment last week (MCFT’s FY23 outlook), but said recent lender conversations and proprietary dealer inventory analysis suggest that the premium end of the industry – to which most public players skew – has remained relatively resilient (said favors BC and MBUU)



·     Energy stocks were the standout to the upside this morning, led by E&P, services (SLB, BKR, HAL), and majors after a bounce in oil prices and further rotation out of materials Signs of bullish demand in an International Energy Agency (IEA) report helped buoy oil prices. The IEA cut its forecast for demand growth this year by 110,000 barrels per day (bpd) to 2 million bpd but kept its 2023 growth forecast of 2.1 million bpd.



·     FinTech & Payments; in research, SQ double downgraded from Outperform to Underperform at Evercore/ISI and slash price tgt to $55 from $120 given potentially growing headwinds to its Seller and BNPL (Afterpay) businesses driven by increasing competition, tightening credit and an expected slowdown in macroeconomic growth; PYPL was upgraded from Market Perform to Outperform at Raymond James with $123 tgt saying after several consecutive challenging quarters of meaningful negative estimate revisions (FY22 EPS down 33% vs. a year ago, stock down 66% vs. S&P 500 -7%), now have increased confidence forward estimates have bottomed

·     Consumer Finance & Lending: SOFI upgrade from Neutral to Buy at Bank America with $9 tgt as view the risk/reward equation as attractive and see potential fora meaningful catalyst path over the next few quarters as benefits from the student, loan payment moratorium; DFS said it was hiring for 2,000 additional customer care positions; UPST was reiterated Sell and $14 tgt at Goldman Sachs after speaking at their conference

·     Insurance: IBM is transferring $16 billion of defined benefit obligations to MET and PRU in the 2nd largest U.S. pension risk transfer (PRT) deal of all-time. The split is 50/50 or $8 billion each for MET and PRU, representing retired lives where pension payments began prior to 2016. KBW said it estimates roughly $60 million of annual incremental earnings for each company

·     REITs: Truist upgraded shares of BDN to Buy from Hold while downgraded SLG to Hold from Buy, while lowering 2022 FFO estimates an average of 0.4% and our ’23 estimates 0.9% following recent results and amid rising interest rates. Think office REIT stocks are incrementally more attractive after falling an average of roughly 7% in the past three months (vs +6% RMZ)



·     Pharma movers: JNJ announces $5 billion share repurchase program, reaffirms its full-year 2022 adjusted operational sales growth and earnings per share guidance of 6.5% – 7.5% and $10.65 to $10.75 per share (est. $10.07), respectively; PFE said it had started a late-stage U.S. trial of an influenza vaccine involving 25,000 patients, among the first such studies for a messenger RNA flu shot; ALT slides after its experimental drug for non-alcoholic fatty liver disease meets main and secondary goals of an early-stage study, but data on weight loss appears weaker vs older studies (comes a day after AKRO positive Phase 2b study results for its lead product candidate in NASH)

·     In Pharma research: Berenberg with several changes as MRK upgraded from Hold to Buy with $100 price tgt as believe Merck & Co offers many attractions: medium-term growth just ahead of the sector average, limited patent expiry burden, low exposure to US price reform; BMY was downgraded from Buy to Hold (tgt to $76 from $82) following share price outperformance this year; NVS was downgraded to Hold from Buy citing a lack of pipeline progress and patent expiries eroding sales growth from 2025; at Argus, PRGO was upgraded from Hold

·     Biotech movers: MRNA has held talks with the Chinese government about supplying COVID-19 vaccines, but no decision has yet been made, CEO Stephane Bancel told Reuters; overall vaccine related names saw some strength – MRNA, NVAX, BNTX

·     Healthcare Services & MedTech Equipment; AVTR downgraded Outperform to Market Perform at Cowen and cut tgt to $28 from $39 citing the company’s most recent guidance cut (for M&A contribution; also, 3Q core organic guide < consensus); SYNH downgraded to Neutral from Buy at Guggenheim after updating its expected 3Q22 bookings in an 8-K filing, which implies a second consecutive quarter of down y/y bookings – said would focus investors on Buys ICLR and IQV; CCRN raises Q3 EPS, Ebitda, and revenue outlook.


Industrials & Materials

·     Aerospace & Defense; RTX cut its free cash flow outlook to reflect the impact of legislation requiring capitalization of research and experimentation for tax purposes; now sees 2022 free cash flow to be ~$4B instead of ~$6B; reaffirmed its 2022 sales and adj. EPS guidance; WWD was downgraded to Hold from Buy and cut tgt to $90 from $107 as sees risk from supply chain issues and the continued push-out of China’s MAX certification

·     Industrial & Machinery; FLS warned Q3 EPS to be negatively impacted by approximately 18 to 22 cents due to certain unanticipated, period-specific issues; ROLL downgraded to Underperform from Neutral at Bank America but tgt raised to $235 from $193 (notes shares have risen +60% from June lows) citing substantial outperformance and shares are more than priced for perfection; The Baltic Exchange’s main sea freight index rose 187 points, or about 13.3%, its largest gain in over seven months, at 1,595. The Capesize index gained 486 points, or about 45%, to hit its highest in over a month at 1,565. The panamax index was up 71 points, or about 3.4%, at 2,145, hitting its highest in over two months

·     Transports; Railroads UNP, CSX, Berkshire Hathaway’s BNSF and NSC face union strikes or employer lockouts if they don’t reach tentative deals with three hold-out unions (representing ~60,000 workers) by Friday midnight; CSX and UNP both downgraded from Outperform to Market Perform at Bernstein saying rails should be fine into 3q earnings, but at some point, consensus forecasts will need to be adjusted to the reality of weaker volumes, moderation in pricing tailwinds, and elevated inflation

·     Metals & Mining: in steel sector, NUE guided Q3 EPS $6.30 to $6.40, below the consensus estimate of $7.74 as expect the steel mills segment earnings to be considerably lower as compared to Q2 due to metal margin contraction and reduced shipping volumes; Briley initiated GSM at Buy and $12 tgt, the largest merchant producer of silicon metal (outside of China) and a leading producer of silicon-based and manganese-based alloys; metals in general tumble, led by weakness in aluminum names (AA, CENX), and copper (FCX) along with steels post NUE guide

·     Chemicals: DOW said it sees $600M lower Q3 net sales compared to consensus (follows weaker guidance from EMN the day prior); Deutsche Bank lowered estimates and tgts for DOW, LYB and WLK to reflect the 6 c/lb. polyethylene (PE) contract price decline in August, a likely 6 c/lb. decline in September and continued downward pressure on PE prices and margins into Q4 and ’23; EMN was downgraded to Equal Weight at Wells Fargo amid Volume and Cost Headwinds; ASH said it is tracking to high-end of year sales, EBITDA guidance range and expects to invest ~$2B-$2.5B in bolt-on acquisitions and return ~$1.5B to shareholders over the next five years.

·     Materials, Paper sector: OI raised its 3Q22 EPS guidance to the high end or above previous guidance of $0.55-$0.60 driven by stronger net pricing realization & better op performance and boosted its FY22 EPS view to $2.10-$2.25 from prior $2.05-$2.20 and boosts FY FCF; CMP announces $252 million strategic equity investment partnership with Koch Minerals & Trading


Technology, Media & Telecom

·     Media, Internet; GOOGL lost most of its appeal to overturn a $4.33B antitrust decision by the EU for allegedly using its Android system to squash competition; for NFLX, Cowen said proprietary survey suggests NFLX’s upcoming paid sharing measures could add nearly 15MM UCAN paid sharers and ~1.0MM new members in ’23 (or in total ~22% of current UCAN sub-base); MTCH was downgraded to Hold from Buy at Loop Capital and cut tgt to $60 from $70 as Q2 missed from a revenues and earnings perspective, and they see potential for further misses into 2023; NFLX estimated that an advertising-supported version of its streaming service would reach about 40 million viewers globally by the third quarter of 2023, as per a WSJ story

·     Software & Semiconductors: The Nikkei reports AAPL will adopt TSM’s new 3-nanometer technology in iPhone, Mac in 2023; TWLO reducing workforce by approximately 11%, reaffirms Q3 guidance, including EPS loss of (43c)-(37c), vs. consensus (36c) and reaffirms Q3 rev view $965M-$975M (est. $971.44M)

·     Hardware, Components & Services; IBM announced a series of transactions aimed at transferring $16B worth of pension obligations off its books (IBM will record a $5.9B non-cash charge in Q3 related to this, although the number won’t be included in non-GAAP EPS); MSI downgraded from Overweight to Equal weight at Morgan Stanley as think current P/E multiple appropriately credits defensibility and health in growth drivers, and do not believe our estimates are overly conservative, with upside likely anticipated in valuation

·     Telecom movers: CMCSA increases share repurchase authorization to $20B; for cable (CMCSA, CHTR, CABO), Wells Fargo price targets come down, and remain cautious on industry saying Cable’s derating on slowing broadband net adds really reflects the belief that CAPEX will need to increase amidst competition, squashing FCF and think this discussion brings Cable closer to being washed out, with CAPEX visibility the key.


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.