Mid-Morning Look: July 15, 2022

Mid-Morning Look

Friday, July 15, 2022

Index

Up/Down

%

Last

 

DJ Industrials

576.33

1.88%

31,206

S&P 500

59.51

1.57%

3,849

Nasdaq

138.71

1.23%

11,389

Russell 2000

10.44

0.61%

1,717

 

 

U.S. stocks open higher and continue to drift in that direction, as better results in the banking sector today (Citi earnings), and lower inflation expectations after economic data (UoM) help buoy market sentiment early. Citigroup easily topped Q2 earnings and revenue estimates, sending shares soaring and the XLF ETF higher after touching 52-week lows Thursday. Inflation expectations declined in this morning’s University of Michigan sentiment figures as survey of consumers 1-year inflation outlook prelim July 5.2% vs final June 5.3% and relative to the preliminary June report, long-term (5-10 years) inflation expectations in the UMich report have dropped from 3.3% down to 2.8%. Treasury yields eased following the data after jumping earlier following better monthly Retail Sales data. Markets remain focused on interest rate hikes with a 75-bps increase at the July Fed meeting fully baked into estimates, but market back and forth whether a 100-point hike is needed to tame inflation, especially with no FOMC meeting in August. Several Fed speakers this week have expressed that a 75-bps is warranted but remain open to higher moves if data warrants it. Financials rebound post earnings (XLF rise +2% to $31.35 – bouncing off 52-week lows yesterday of $30.37) – helped by Citi earnings results (shares rise 8% post results) while other banking results were mixed (but group rebounding). Utilities the only S&P sector not trading higher currently.

 

Economic Data

·     U.S. consumer sentiment index rose 1.1 to 51.1 in the preliminary July print from the University of Michigan survey after diving -8.4 points to a record low 50.0 in June, above ests of 49.9 (and down from 81.2 y/y) Current conditions index climbed to 57.1 from 53.8 in June and expectations gauge dipped to 47.3 from the prior 47.5 which was the worst since 1980.

·     Inflation expectations from the UoM report lifts sentiment: the 1-year inflation metric eased to 5.2% from 5.3% and the 5.4% high going back to 1981. The 5–10-year price index fell to 2.8% from 3.1%, an 11-year high.

·     Retail Sales for June recover, rising +1.0% M/M vs. +0.9% expected and -0.1% prior, while retail sales ex-gas and autos rise +0.7% M/M vs. -0.2% expected and retail less autos rise +1.0% M/M vs. +0.6% expected and +0.6% prior

·     NY Fed Empire State current business conditions index +11.1 in July vs -1.2 in June as the new orders index rises +6.2 in July vs +5.3 in June 15; prices paid index +64.3 in July vs +78.6 in June; employment index at +18.0 in July vs +19.0 in June and the Empire state six-month business conditions index -6.2 in July vs +14.0 in June

·     Industrial Production for June fell -0.2% vs. est. +0.1% and May unchanged at +0.1%; June capacity use rate 80.0% vs. est. 80.6% and May 80.3 pct; June manufacturing output -0.5% vs. May -0.5% (previous -0.2%)

·     Import prices for June rose +0.2% M/M vs. +0.7% consensus and +0.5% in May (revised down from +0.6%), while Export prices rise +0.7% M/M vs. +1.2% expected and +2.9% prior (revised down from +2.8%)

·     U.S. May Business Inventories rose +1.4% vs. est. +1.3%; U.S. May business sales +0.7% vs April +0.6%; U.S. May retail inventories ex-autos unrevised at +0.8%; May inventory/sales ratio 1.30 months’ worth vs April 1.29 months

 

 

Macro

Up/Down

Last

 

WTI Crude

2.37

98.15

Brent

2.15

101.25

Gold

-3.30

1,702.50

EUR/USD

0.0056

1.0069

JPY/USD

-0.37

138.53

10-Year Note

-0.036

2.923%

 

 

Sector Movers Today

·     Utilities & Solar; Solar stocks tumble (FSLR, SPWR, ENPH, SEDG, RUN, JKS, CSIQ, ARRY, SHLS) after Senator Joe Manchin reportedly told Democratic leaders he would not support an economic package that includes tax increases or new spending on climate measures, according to Bloomberg. Manchin and Senate Majority Leader Chuck Schumer had been negotiating over hundreds of billions in spending on climate change measures, including some tax breaks for renewable energy, EVs and other clean power sources; in the coal sector, BTU guides prelim 2q adj EBITDA $570M to $590M below est. $651.3M; said sees prelim revenue $1.31B-$1.34B vs. est. $1.4B; said continued to reduce its outstanding debt during the quarter

·     Bank movers: big banks mixed after Citigroup (C) Q2 revenue rises 10% to $19.6B well above the $18.22B estimate as strong FICC and fixed income trading offset higher expenses up 8% YoY; Q2 profit fell to $4.5B, or $2.19 per share, from $6.19B Y/Y but above est. $1.66; WFC not so good as Q2 EPS $0.74 missed the $0.80 estimate and revs $17.03B missed the est. $17.54B as Q2 net interest income $916M below est. $10.15B and Q2 provision for credit losses $580 mln vs benefit of $1,260 mln last year – Wells Fargo CFO says bank has seen big slowdown in mortgage refinancing lines, sees challenges in mortgage banking for next few quarters

·     Regional banks earnings: PNC with Q2 revenue beat, higher NII higher earning assets and yields, NIM 2.50% from 2.28%, avg loans up 5% driven by commercial, while TBV fell (7%) due to AOCI impact and mgmt 3Q guide revenue up 3-5% from 2Q, core expenses up 2-3% from 2q; USB Q2 revenue beat higher NII. avg loans up 3.6% QoQ and 10.25 YoY; CET1 9.7% from 9.9%

·     Aerospace & Defense; SPCE said it will set up a new facility in Greater Phoenix area, Arizona, for manufacturing Delta class spaceships that will be operational by late 2023; in business jet sector, Cowen with tgt changes in space as ERJ to $10 from $12, GD to $260 from $250 and TXT to $86 from $95 saying the group looks oversold given extent of potential cyclical slowing is unclear & Q2 risks appear well understood with some potential signs of light; EVTL rises after saying AAL has confirmed delivery slots for the first 50 VX4 aircraft of an initial pre-order of up to 250 aircraft, with an option for up to 100 more

·     Transports; in the rail sector, CSX and NSC both upgraded to Buy from Hold at Stifel saying for they estimate Norfolk Southern’s 2Q22 total carload volume contracted 3.4% y/y, and grew 5.8% vs 1Q22 and are expecting CSX’s total volume to be flat y/y in 2Q22, and up 6.3% sequentially; Wolfe Research downgraded the airline sector to Market Weight from Overweight saying while they think Airlines can grow EPS next year, their C23 EPS estimates are now more than 50% below Consensus on average (the firm upgraded ALGT but downgraded AAL, SNCY, ULCC); DAL was downgraded from Buy to Hold at Argus saying Delta has benefited from the lifting of COVID travel restrictions and increased demand for transatlantic flights, but has also been hurt by capacity reductions/staffing shortages, and recently posted weaker-than-expected 2Q earnings

 

Stock GAINERS

·     C +10%; Q2 revenue rises 10% to $19.6B well above the $18.22B estimate as strong FICC and fixed income trading offset higher expenses up 8% YoY; Q2 profit fell to $4.5B, or $2.19 per share, from $6.19B Y/Y but above est. $1.66

·     EVTL +16%; after saying AAL has confirmed delivery slots for the first 50 VX4 aircraft of an initial pre-order of up to 250 aircraft, with an option for up to 100 more

·     PINS +13%; after the WSJ reported activist investor Elliott Management Corp. has built a stake of more than 9% in recent months — partly in common stock, and has been in discussions with Pinterest the past several weeks https://on.wsj.com/3AYu8EW

·     UNH +4%; Q2 adj EPS $5.57 vs. est. $51.9; Q2 revs $80.33B vs. est. $79.68B; raises FY22 adj EPS view to $21.40-$21.90 from $21.20-$21.70; Optum Q2 revenues of $45.1B grew $6.8B or 18% Y/Y; Q2 medical care ratio was 81.5% compared to 82.8% last year

 

Stock LAGGARDS

·     BTU guides prelim 2q adj EBITDA $570M to $590M below est. $651.3M; said sees prelim revenue $1.31B-$1.34B vs. est. $1.4B; said continued to reduce its outstanding debt during the quarter

·     CDXS -45%; guides FY22 revs $135M-$1441M below prior $152M-$158M and est. $155.5M; sees Q2 revs about $38M vs. est. $40.2M; announces agreement with PFE to supply enzyme for the manufacture of Paxlovid

·     CURV -2%; downgraded to MP at Cowen and cut tgt to $7 from $11 given near-term risks from the potential for higher Mark downs in 2H22 & CURV’s high exposure to lower income consumers

·     FSLR -10%; Solar stocks tumble (FSLR, SPWR, ENPH, SEDG, RUN, JKS, CSIQ, ARRY, SHLS) after Senator Joe Manchin reportedly told Democratic leaders he would not support an economic package that includes tax increases or new spending on climate measures – Bloomberg

·     HSC -17%; after guiding Q2 adj EBITDA $47.5M-$50M and said sees Q2 GAAP operating loss ($97M)-($95M)

·     IIPR -13%; after saying Kings Garden, a tenant in six properties, defaulted on obligations for base rent and property management fees for July in each of its leases

·     KWEB -3%; US listed Chinese stocks slide after weaker GDP results in region overnight (BABA, BIDU, JD, NTES, PDD all lower early)

·     RIO -1%; as warns that COVID-related labor shortages led to a 2% drop in iron ore shipments in H1; misses across the board in its second-quarter update on output, but it maintained guidance on its full-year iron ore shipments; Q2 shipments rose 4.7% to 79.9 Mt

·     TXG -20%; guides Q2 revenue below views as shortfall due to FX and lingering issues in APAC and EMEA, largely due to China Covid-related lock downs lasting longer into the quarter than previously expected; sees prelim Q2 revs to be approximately $114.5M vs. est. $127.7M

_________________________________________________________________

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.