Mid-Morning Look: September 14, 2022

Mid-Morning Look
Wednesday, September 14, 2022
Index |
Up/Down |
% |
Last |
|
||
DJ Industrials |
43.78 |
0.14% |
31,147 |
|||
S&P 500 |
9.87 |
0.25% |
3,942 |
|||
Nasdaq |
42.07 |
0.37% |
11,676 |
|||
Russell 2000 |
-6.78 |
0.37% |
1,824 |
|||
U.S. stocks looking to rebound after posting their biggest one-day decline in over 2-years, as rampant inflation fears impact U.S. stocks following yesterdays higher CPI reading. Today, headline producer price index (PPI) data showed in-line to slightly better results, but core PPI (ex food and energy) came in a bit higher than expected. In the 12 months through August, the PPI increased 8.7%. That was the weakest year-on-year reading since August 2021 and followed a 9.8% increase in July. Surging Treasury yields also raising slowing growth concerns as the 2-yr note remains at highest level since November 2007 (hit highs around 3.9%) and the 30-yr note the highest since April 2014 above 3.5%, with the yield curve inversion steepening. A handful of chemical companies lowered guidance last two days (DOW, EMN) and one steel producer today (NUE), while some companies announce job cuts and restructuring (TWLO), dealing with macro issues. Transports lagging led behind railroads (CSX, UNP, NSC) ahead of potential strike with deadline this Friday. Meanwhile a few companies announce stock buybacks (JNJ, CMCSA). Yesterday’s market meltdown was the worst day since June 2020 for the Dow (7th ever largest point loss), the S&P 500 170-point loss yesterday, its 5th largest point loss ever (10 of the 11 S&P sectors are more than 10% below its 52-week highs) and the Nasdaq and Russell 2000 also posting worst one-day losses since June 2020. Note Fed officials gather next Tuesday and Wednesday for their regular policy meeting as markets have priced in a 75-basis points rate increase next Wednesday, with potential for a full percentage point rise, according to Fed Fund Futures. The U.S. central bank has twice hiked its policy rate by three-quarters of a percentage point, in June and July. Since March, it has lifted that rate from near zero to its current range of 2.25% to 2.50%.
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.
Macro |
Up/Down |
Last |
|
||
WTI Crude |
1.44 |
88.75 |
|||
Brent |
0.92 |
94.07 |
|||
Gold |
-3.40 |
1,714.00 |
|||
EUR/USD |
0.0006 |
0.9976 |
|||
JPY/USD |
-1.87 |
142.68 |
|||
10-Year Note |
0.000 |
3.422% |
|||
Sector Movers Today
· 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.
· 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
· 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.
· 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)
Stock GAINERS
· APA +5%; strong recovery in energy stocks, among the leaders early (PXD, SLB, DVN, HAL)
· JNJ +2%; announces $5 billion share repurchase program, reaffirms its full-year 2022 adjusted operational sales growth and earnings per share guidance
· NKLA +5%; 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
· PYPL +2%; upgraded from Market Perform to Outperform at Raymond James with $123 tgt saying now have increased confidence forward estimates have bottomed
· SBUX +5%; 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
· TWLO +3%; 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)
Stock LAGGARDS
· ALT -29%; 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
· FLS -7%; warned Q3 EPS to be negatively impacted by approximately 18 to 22 cents due to certain unanticipated, period-specific issues
· LEN -2%; along with weakness in BZH, DHI, PHM and other homebuilders as the average 30-year mortgage rate rises 7 bps to 6.01% in Sept 9 week, first time over 6% since 2008
· NUE -8%; 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
· SQ -5%; 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
· UNP -5%; and CSX 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
· WYNN -6%; along with weakness in MGM, PENN, LVS as casinos and gaming names among biggest S&P decliners
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.