Mid-Morning Look

Thursday, December 22, 2022

U.S. stocks slide following stronger than expected GDP growth data for Q3, coming in above consensus and raising fears it will keep the Fed on a trajectory for higher and deeper rate hikes to slow the economy as they continue to bring down inflation. The increase in gross domestic product to 3.2% annual rate, was initially reported at 2.6% and updated to 2.9% last month – not exactly signs of a slowing economy. Inflation data points in the GDP data, core-PCE, came in higher than expected. Cautious commentary on the stock market from one of the most well know hedge fund managers, Appaloosa Management’s David Tepper, said in a CNBC interview this morning “I am leaning short on equities, the risk/reward here doesn’t make any sense.” “The Fed means business and rates will remain high.” The data boosted Treasury yields, while Tepper’s comments sunk equities. Not a pretty picture to start the day as stocks falls further, adding to year-to-date declines. After all eleven S&P sectors closed higher on Wednesday, all eleven started the day in negative territory today.

Economic Data

·     Q3 GDP (third estimate) rose +3.2% vs. +2.9% consensus and prior estimate of +2.9 %. In Q2, U.S. GDP slipped 0.6%. US final Q3 GDP deflator +4.4% (consensus +4.3%), prior +4.3%, US Q3 PCE price index +4.3%, prior +4.3%; core PCE +4.7% (est. +4.6%), and Q3 year-on-year PCE price index +6.3% in-line with prior and core PCE +4.9% also in-line with prior

·     Weekly Jobless Claims rose to 216K in latest week from 214K prior but below est. of 222K; the 4-week moving average fell to 221,750 from 228,000 prior; continued claims fell to 1.672M from 1.678M prior and the US insured unemployment rate steady at 1.2%

·     Leading Economic Indicator Index fell far below expectations at -1% (vs. the Street -0.5%)

Stock GAINERS

·     ALVO +22%; said AVT02, a biosimilar to ABBV’s arthritis drug Humira, said the FDA to decide on approval for its anti-inflammatory drug candidate by April 13, 2023; shares +13%

·     CLF +10%; said it will achieve higher annual fixed prices for steel in the calendar year 2023 and expects significantly lower steelmaking unit costs in 2023 compared to 2022

·     FDX +0.5%; holds gains after yesterday post earnings advance

·     MLKN +5%; Q2 EPS $0.46 vs consensus $0.42 and revenue $1.07B vs consensus $1.04B; guides Q3 EPS $0.40-$0.46 vs consensus $0.43 and revenue $980M-$1.02B vs consensus $1.02B

·     MRTX +4%; said the FDA granted ‘Breakthrough Therapy Designation’ (BTD) to its lead drug adagrasib in combination with cetuximab in advanced colorectal cancer (CRC) patients

·     ORIC +66%: entered a clinical development collaboration for a potential Phase 2 study of ORIC-533 in multiple myeloma with PFE

Stock LAGGARDS

·     ALLY -3%; auto loan lenders slide following weaker KMX earnings results (COF as well)

·     AMC -14%; as proposes 1 for 10 reverse stock split and said would raise $110 million in new equity capital through the sale of its preferred stock

·     KMX -8%; following weak results as Q3 EPS $0.24 well below the $0.70 estimate as sales fell -23.7% to $6.5B vs. est. $7.28B; paused share repurchases; combined retail and wholesale unit sales fell by -28%; retail used car unit sales fell -20.8%

·     LRCX -7%; weakness in the semi equipment sector after MU cut 2023 CAPEX to $7.0B-$7.5B from earlier $8B target and from $12B in FY22 (shares of KLAC, AMAT, ASML also lower)

·     MU -4%; Q1 EPS loss (-$0.04) vs. est. loss (-$0.01); Q1 revs $4.09B vs. est. $4.11B; sees Q2 adj gross margin 6%-11% vs. est. 17.8%; sees Q2 adj EPS loss (52-72c) vs. est. (-$0.29); sees Q2 revs $3.6B-$4.0B vs. est. $3.88B; to reduce headcount by 10% during 2023