Early Look

Friday, June 24, 2022

U.S. futures are looking at a higher open, with the S&P +0.80% at 3,830 around the highs overnight (off lows 3,781.25), while Nasdaq futures outperform up over 1% as major averages look to close out the week in positive territory. Both the Nasdaq and S&P have fallen 10 of the last 11 weeks coming into this one and the Dow down 11 of the last 12 but are on track for solid gains with the S&P +3.2% week-to-date, the Nasdaq +45 WTD and the Dow +2.64% on the week. Biotech has had a solid week with the IBB up 7.7% coming into today with more news in the space overnight after the WSJ reported MRK pushes forward with M&A deal with SGEN. Volumes could be higher than normal today as FTSE Russell completes the annual rebalancing of its indexes which include market cap benchmarks like the Russell 2000 (IWM) and Russell 3000 (IWV) as well as other indexes such as the Russell 1000 Growth (IWF) and Russell 1000 Value (IWD). Treasury yields at the overnight highs as the 10-year tops 3.11% and thee 2-yr 3.02% while the dollar slips, and Bitcoin remains below $21,000. In banking news, the Federal Reserve said last night in its “stress tests” that the largest U.S. banks would remain well capitalized in the event of a severe economic shock, and as a result, banks including JPM, BAC, WFC, Citi, MS and GS can use their excess capital to issue dividends and buybacks to shareholders. In Asian markets, The Nikkei Index jumps 320 points (1.23%) to 26,491, the Shanghai Index rises 29 points to 3,349 and the Hang Seng Index spikes over 2% or 445 points to 21,719. In Europe, the German DAX is higher by +0.67% to around the 13,000 level, while the FTSE 100 gains 90 points or 1.3% to 7,113. Oil prices ae higher, but on track for weekly losses after hitting 6-week lows on Thursday.

Market Closing Prices Yesterday

·     The S&P 500 Index gained 35.84 points, or 0.95%, to 3,795.73

·     The Dow Jones Industrial Average rose 194.23 points, or 0.64%, to 30,677.36

·     The Nasdaq Composite jumped 179.11 points, or 1.62%, to 11,232.19

·     The Russell 2000 Index advanced 21.40 points, or 1.27% to 1,711.67

Economic Calendar for Today

·     10:00 AM ET                University of Michigan Confidence, June-F

·     10:00 AM ET                New Home Sales M/M for May

·     1:00 PM EST                Baker Hughes Weekly rig count data

World News

·     U.S. investment-grade bond funds have recorded an unprecedented streak of 13 consecutive weeks of outflows, with $55.7 billion withdrawn in the period – Lipper

·     UK consumer confidence index decreased one point to -41 in June, the lowest since records began in 1974.

·     Bank of Mexico increases interest rate by 75 bps to 7.75%

·     Japan May services PPI above expected; 1.8% y/y vs 1.5% consensus; May National CPI below expected; 2.5% y/y vs 2.9% consensus; Japan May CPI excluding Fresh Food as expected at 2.1% y/y and May CPI excluding Food, Energy above expected; 0.8% y/y vs 0.4% consensus

·     Ukraine accepted as candidate status in bid for EU membership, path to membership could take over a decade

Sector News Breakdown

Consumer

·     Smith & Wesson (SWBI) 4Q adj EPS $0.82 vs est. $0.69 on sales $181.3Mm vs est. $179.9Mm, says board authorized 25% increase in qtrly dividend to $0.10/shr; expects inflationary pressure to persist and for firearm market conditions to return to more normalized levels in FY23

·     Altria Group (MO) upgraded to Equal Weight from Underweight at Morgan Stanley

·     Denny’s (DENN) downgraded to Neutral from Outperform at Wedbush

Energy, Industrials and Materials

·     Fed-Ex (FDX) 4Q adj EPS $6.87 vs est. $6.86 on revs $24.4B vs est. $24.5B; says for FY23 unable to forecast Mark-to-market retirement plan accounting adjustments and may incur additional costs related to business optimization; as a result, unable to provide FY23 EPS or ETR outlook on GAAP basis; guides adj EPS $22.50-24.50 vs est. $22.14, sees CAPEX $6.8B

·     AZZ (AZZ) said it will contribute its infrastructure solutions unit to a joint venture – AIS Investment – and sell 60% stake in the JV to Fernweh Group at an implied enterprise value of AIS of $300M; the stake sale is expected to result in proceeds of ~$228M to AZZ

·     Rocket Lab USA Inc (RKLB) said is preparing to launch a satellite to Moon for NASA as early as June 27; launch will take place from rocket lab launch complex 1 on New Zealand’s Mahia peninsula

Financials

·     The largest U.S. banks would remain well capitalized in the event of a severe economic shock, the U.S. Federal Reserve said on Thursday in its stress tests. The 34 lenders the Fed oversees with more than $100 billion in assets would suffer a combined $612 billion in losses under a hypothetical severe downturn, but that would still leave them with roughly twice the amount of capital required under its rules. As a result, banks including JPM, BAC, WFC, Citi, MS and GS can use their excess capital to issue dividends and buybacks to shareholders.

·     LendingTree (TREE) said Q2 revenue is now anticipated in range of $259-$264M down from prior range of $283M-$293M; sees Q2 adj EBITDA in range of $26M-$29M, below prior range of $35M-$40M and said Q2 variable marketing margin is now seen $88M-$92M from prior $100M-$106M

·     NerdWallet (NRDS) agrees to acquire Colorado-based On the Barrelhead, Inc., a robo-advisor for consumer debt for total consideration of ~$120 million

·     Hippo Holdings (HIPO) set to join Russell 2000® and Russell 3000® Indexes on 6/27

Healthcare

·     Merck & Co. (MRK) is pushing forward with a potential deal for biotech Seagen Inc. (SGEN) the WSJ reported, according to people familiar with the matter. The Wall Street Journal reported last week that Merck was in talks to buy Seagen, but that no agreement was imminent. The talks have picked up pace and are scheduled to meet this week https://on.wsj.com/3nbYmfA

·     Sarepta (SRPT) announced that the FDA has placed a clinical hold on SRP-5051, the company’s next-generation peptide-conjugated phosphonodiamidite morpholino oligomer, or PPMO, to treat patients with Duchenne muscular dystrophy who are amenable to exon 51 skipping

·     Bausch Health (BHC) said its chairman Joseph Papa had resigned from the board, effective immediately; BHC said it had appointed John Paulson to the board to replace Papa upon his resignation

·     Sanofi SA (SNY) said its coronavirus booster vaccine, developed alongside Britain’s GSK PLC, has produced successful results against the Omicron variant of the coronavirus in an efficacy study.

·     Calithera Biosciences (CALA) announced that the first patient has been enrolled in a multicenter phase 2 clinical trial evaluating its spleen tyrosine kinase inhibitor mivavotinib in patients with relapsed/refractory non-germinal center B-cell like diffuse large B-cell lymphoma

·     Replimune Group (REPL) files $400M mixed securities shelf

Technology, Media & Telecom

·     Zendesk Inc. (ZEN) is close to a deal with a group of buyout firms, according to people familiar with the matter, resurrecting a failed attempt to sell itself in what would be one of the biggest private-equity takeovers of the year. A deal with a group that includes Hellman & Friedman LLC and Permira could be struck in the coming days – WSJ https://on.wsj.com/3OprIDy

·     Blackberry (BB) Q1 EPS loss (-$0.05) vs. est. loss (-$0.03); Q1 revs $168M below consensus $208M; non-GAAP gross margin was 63% and GAAP gross margin was 62$; IoT revenue rose 19% Y/Y to $51M with gross margin of 84% and ARR of $94M

·     CalAmp Corp. (CAMP) Q1 EPS loss (-$0.34) vs. est. loss (-$0.03); Q1 revs fell -19% Y/Y to $64.7M vs. est. $69.4M; said visibility into product shipments remains uncertain due to the global component supply shortages; expects sequential qtrly rev growth in 2q to be in the mid to high single digit percentage points

·     Twitter (TWTR) Elon Musk’s lawyers sent the Twitter board a letter last Friday which claimed that the historical data supplied by Twitter wasn’t enough, and earlier this week Twitter released to Musk further user data which included real-time API information, according to Business Insider citing people familiar with the matter, per Bloomberg

·     Wolfspeed (WOLF) upgraded to Buy from Neutral at Goldman Sachs