Mid-Morning Look

Tuesday, August 01, 2023

The S&P 500 and Nasdaq come into August riding 5-month win streaks, closing out July with gains for the S&P 500 of +3.12%, the Dow +3.35%, and the Nasdaq gained +4.05%, but historically, the start of August tends to be weaker. Note in the past 24 years DJIA has risen just 32.0% (up 8, down 17) of the time on the first trading day of August. Several sizable gains in those up years have mitigated the average first day percent change, but the median performance is a more sizable loss. Over the past 12 years, DJIA and S&P 500 have both declined 9 times. Higher Treasury yields are not helping as the 10-year jumps 8.5 bps to 4.043% while the 3-month Treasury Bill yield has moved up to 5.55%, its highest level since January 2001 (a year ago it was at 2.41% and two years ago it was at 0.06%). Economic data in China disappoints as the Caixin Manufacturing PMI fell to 49.2, slumping into contraction range, while European PMIs also weigh on sentiment overseas. In the US, economic data was stronger as the changes of “soft” landing or no landing at this point increases, but also raises prospect that the Fed may not be done with interest rate hikes with the economy staying so strong. Industrials among early leaders after better results from CAT, AME, ETN while growth sectors fall on the spike in yields.

Economic Data

·     U.S. June JOLTs Job Openings reported at 9.582M vs. est. 9.610M and below prior 9.824M (down from the 12,027k record peak from March 2022 and is the lowest since April 2021).

·     S&P Global July manufacturing PMI at 49 vs 46.3 prior.

·     Construction Spending for June rises +0.5% vs. consensus +0.6% and vs. May +1.1% as private construction spending +0.5%, public spending +0.3%.

·     ISM Manufacturing PMI at 46.4 in July vs. 46.0 in June and vs. est. 46.8; prices paid index 42.6 in July (consensus 42.8) vs 41.8 in June, new orders index 47.3 in July vs 45.6 in June, and employment index 44.4 in July (consensus 48.0) vs 48.1 in June.

Sector Movers Today

·     In semiconductors: LSCC reported strong 2Q results and guided 3Q in line noting it saw strength in industrials including factory automation and robotics, as well as in automotive. MPWR reported in-line 2Q results and 3Q guidance saying the broader environment remains weak and is seeing limited signs of a recovery but did see a modest improvement within its consumer segment; but sees 4Q below consensus. RMBS slides; while 2Q EPS was a beat, 3Q EPS guide miss was primarily due to product revs 19% below street on continued DDR4 inventory digestion (Q3 EPS 15c-21c vs. est. 44c). SYNA announced it has added new products and technologies to its wireless license agreement with Broadcom and extended its original 2020 exclusive rights in certain markets by three years to 2026.

·     In Autos: LI said it delivered 34,134 cars in July, a record for the company, up from 32,575 delivered in June, and up from 10,422 delivered in July 2022. NKLA scores big win in hydrogen station regulatory grant funding with an additional $16.3M for a total of $58.2M in the last 30 days. NIO reported July deliveries that more than doubled from a year ago; delivered 20,462 vehicles in July, up 103.6% from the 10,052 EVs delivered in the same month a year ago, and up 91.1% from the 10,707 EVs delivered in June. RIVN was downgraded from Overweight to Neutral at Cantor but raised price tgt to $29 based on valuation given the recent outperformance in the share price, and on increased competition from TSLA, as well as competition from GM . XPEV said it delivered 11,008 cars in July, up from 8,620 delivered in June and down from 11,524 delivered in July 2022.

Stock GAINERS

·     ANET +17%; as reported 2Q EPS of $1.58 topping ests $1.44 on revs of $1.46B (above est. $1.38B) though the 2Q23 revenue growth of 38.7% Y/Y reflects a deceleration from the >50% growth achieved in the past three quarters.

·     CAT +7%; Q2 adj EPS $5.55 tops est. $4.58 on better revs $17.32B vs. est. $16.49B; and said sees 2023 adj operating profit margin close to top end of target range; sees 2H sales, revenue above year-ago levels; sees 2H adj operating profit margin above year-ago levels.

·     EBS +9%; was awarded a 10-year Ebola-treatment contract by the US government valued at up to $704M.

·     NKLA +17%; scores big win in hydrogen station regulatory grant funding with an additional $16.3m for a total of $58.2m in the last 30 days.

·     TREX +5%; reported 2Q23 revenues and adjusted EBITDA above expectations as +5% y/y sell-through in the quarter was better than the down LSD expectation.

Stock LAGGARDS

·     AAN -14%; mixed Q2 as EPS beats but revs miss ($530.4M vs $547.9M) as reiterates FY EPS $1.01-$1.40 vs consensus $1.23 and lowers revenue $2.12B-$2.22B vs prior $2.15B-$2.25B.

·     CRK -6%; reported a 2Q23 miss on lower volumes and higher operating expenses and sees Q3 volumes that were ~5% below consensus at the midpoint, while FY23 volumes are anticipated at the low-end of the prior range.

·     HLIT -22%; tumbles after Q2 miss and cuts year EPS outlook to $0.38-$0.52 vs. prior $0.63-$0.74 (est. $0.70) and revs $620M-$660M vs. $723M.

·     JBLU -8%; cut its 2023 profit view after terminating revenue-sharing deal with AAL to adj profit of $0.05-$0.40 from prior view of $0.70-$1.00 and sees Q3 revenue down 4%-8% vs. est. $2.62B.

·     NCLH -15%; as Q2 results topped ests, but forecasts Q3 profit below estimates (EPS $0.70 vs. est. $0.79) as higher fuel costs reverse its gains from pent-up demand for cruise bookings and raised ticket prices; Q2 operating expenses were up 29% at $138.4M.

·     ROK -7%; as Q3 EPS of $3.01 misses $3.17 est. and sales $2.24B misses $2.34B while trims upper range of FY23 adj. EPS outlook.

·     TGTX -47%; as missed Q2 sales and profit estimates on lower-than expected sales of MS drug Briumvi; overall sales of $16.07M misses estimates of $17.45M on wider loss.

·     ZBRA -18%; after slashing its FY net sales outlook to down -20-23%Y/Y vs previous guidance of 2-6% decline and guided Q3 adj. EPS below analysts’ consensus forecast.

·     ZI -26%; as Piper notes $2.5M revenue shortfall during Q2 and guide down suggest outsized exposure to software remains a near-term overhang and revised 2H23 guidance implies growth could further moderate to 5%.