Early Look

Monday, November 7, 2022

U.S. futures are rising +0.55% with the S&P back to 3,800, even as short-term Treasury yields rise 3.5 bps to 4.688%, ahead of a big week that includes tomorrow midterm elections and Thursday CPI inflation data. U.S. stocks closed higher on Friday in volatile trade to snap a four-session losing streak as investors wrestled with a mixed jobs report and comments from Federal Reserve officials on the pace of interest rate hikes. For the week, the S&P fell 3.34%, the Dow lost 1.39%, and the Nasdaq shed 5.65%. After a huge week that included the monthly jobs report, an FOMC meeting and over 150 S&P companies reporting, its hard to imagine another week of so many impactful events to match it coming up…but we’ll try. All eyes will be on Tuesday’s vote for the US midterm elections. The widespread expectation is for Republicans to retake the House, but there is greater uncertainty around the Senate. There will be several market risks potentially based on the outcome (budgets, social unrest, deb ceiling, etc.). Also, later this week, another key look at inflation with the October consumer price index (CPI) data on Thursday, which has been a big market mover the last few months. Treasury yields resumed their upward momentum this week as the 2-year yield rose 23-bps to 4.652%, snapping a two-week losing streak, up 11 of the past 14 weeks and hitting its second highest yield this year (up 425 bps from 52 weeks ago). The 10-year yield rose 14.8 bps to 4.157% this week, now up 13 of the past 14 weeks and up 3-straight days (up 270 bps from 52 weeks ago). In Asian markets, The Nikkei Index jumped 1.21% to 27,527, the Shanghai Index edged higher 7 points to 3,077, and the Hang Seng Index jumped 434 points or 2.69% to 16,595. In Europe, the German DAX is up over 100 points to 13,570, while the FTSE 100 slips -15 points to 7,320.

Market Closing Prices Yesterday

·     The S&P 500 Index gained 50.66 points, or 1.36%, to 3,770.55

·     The Dow Jones Industrial Average rose 401.97 points, or 1.26%, to 32,403.22

·     The Nasdaq Composite climbed 132.31 points, or 1.28%, to 10,475.25

·     The Russell 2000 Index advanced 20.14 points, or 1.13% to 1,799.87

Economic Calendar for Today

·     10:00 AM ET          Employment Trends for October

·     3:00 PM ET             Consumer Credit for September

·     3:40 PM ET             Fed’s Collins and Mester Speak at Women in Economics

·     6:00 PM ET             Fed’s Barkin Speaks at Event on Inflation

Earnings Calendar:

·     Earnings Before the Open: AMG AMR APRN AXSM BBGI CHH CNCE DCO DINO DK EGRX FOLD FOUR FWRG GHM HAE HE HEP KOS LINC MRSN NI NRG PLTR THS VTRS WHD WTRG

·     Earnings After the Close: ACCO AEL AGRX AIV AMWL APLE ASH ATVI AWR BHF BKD BNFT BRP BWXT CBT CENX CLOV DIOD DO DOCN DOOR EHTH FANG FSK GAIA GOOD GRPN GRWG HIMS ICUI IFF KE LGND LNT LPSN LYF ME MEDS MOS MTRX MTW MWA NCMI NNI NSTG OSH OUST PETS PXLW QTWO RC SANM SDC SKYT SWAV TASK TDC TRIP TRUW TTWO TWOU VECO VNOM VRM WELL YMAB ZEV

World News

·     China Oct trade surplus $85b vs $96b est., exports -0.3% vs 4.5% est.

·     UK Chancellor Hunt and PM Sunak have put plans together consisting of plans for up to £25 billion in tax rises and up to £35 billion in cuts to spending – Telegraph

Sector News Breakdown

Consumer

·     Blue Apron (APRN) Q3 EPS loss (-$0.74) vs. est. loss (-$0.50); Q3 revs $109.7M vs. est. $118.87M; withdraws previous guidance of 2022 revenue growth of 7%-13%

·     Ritchie Bros. (RBA) to acquire IAA in stock, cash transaction valued at $7.3B; combines highly complementary businesses operating in adjacent verticals to unlock accelerated growth; expected to be accretive to adjusted earnings per share post-close and to achieve $100 to $120+ million in annual run-rate cost synergies by the end of 2025 https://on.mktw.net/3DGVGP7

·     Philip Morris International Inc. (PM) said that it is moving ahead to complete its $16 billion acquisition of tobacco company Swedish Match AB despite failing to reach the planned level of shareholder support. The U.S. maker of Marlboro cigarettes said investors holding 82.6% of Swedish Match shares have accepted the deal–including the top 10 shareholders–and although this is short of the 90% Target, it has decided to move ahead and complete the acquisition.

·     Elliott Management, the biggest shareholder in Swedish Match (SWMAY), has decided to back Philip Morris’s (PM) $15.7B offer for the smokeless tobacco specialist, putting completion of the deal within reach, the Financial Times reported

·     In gym stocks, Barron’s said Planet Fitness Inc. (PLNT) is a better bet than Peloton (PTON), given it is growing members and has a much larger addressable market, citing a Jefferies analyst; notes Peloton continues to struggle with lower disposable income among consumers, a shift in spending patterns and the move back to in- person gyms

·     Ruth’s Hospitality (RUTH) downgraded to market perform from strong buy at Raymond James

Energy, Industrials and Materials

·     Peabody Energy Corp. (BTU) and Coronado Global Resources Inc. have ended talks over combining to create a new global coal giant valued at about $6 billion.

·     Exxon Mobil (XOM) will take up to a $2 billion loss on the highly leveraged sale of a troubled California offshore oil and gas field that have been idled since a 2015 pipeline spill – Reuters

·     Fluor (FLR) upgraded to buy from neutral at D.A. Davidson

·     NRG Energy (NRG) Q3 EPS $0.29 vs. est. $1.43; Q3 revs $8.51M vs. est. $7.89B

·     NuScale Power LLC, a provider of small modular nuclear reactor technology, is going public via a merger with special-purpose acquisition corporation Spring Valley Acquisition Corp. sv, in a deal with a pro forma enterprise value of about $1.9 billion, the companies said

·     Daqo New Energy Corp (DQ) said its subsidiaries Xinjiang Daqo and Inner Mongolia Daqo have signed a five-year high-purity polysilicon supply agreement with a ‘leading’ solar manufacturing company in China; also announces a $700 mln share repurchase program

Financials

·     Berkshire Hathaway (BRKA) reported operating earnings that totaled $7.761B in Q3, up 20% from year-earlier period; insurance-investment income of $1.408B, up from $1.161B a year earlier; earnings from utilities and energy businesses of $1.585B, up from $1.496B year-over-year; insurance underwriting loss of ($962M); railroad earnings of $1.442B, down from $1.538B

·     MetLife (MET) mentioned positively in Barron’s noting shares are up 20% this year, but says it could gain even more, noting its diversified businesses, which it has simplified over the years, have enabled it to post better-than-expected earnings every quarter this year

Healthcare

·     Glaxo (GSK) said phase III trial for Blenrep didn’t meet its primary endpoint; therapy for relapsed or refractory multiple myeloma will continue

·     A unit of Walgreens Boots Alliance Inc. (WBA) is nearing a deal to combine with a big owner of medical practices and urgent-care centers in a transaction worth roughly $9 billion including debt, according to people familiar with the matter https://on.wsj.com/3E7GxYn

·     Haemonetics (HAE) Q2 adj EPS $0.83 vs. est. $0.67; Q2 revs $297.49M vs. est. $269.22M; raises FY23 adjusted EPS view to $2.70-$3.00 from $2.60-$2.90 and boosts FY23 revenue view to up 12%-15% from up 8%-11%

Technology, Media & Telecom

·     Apple (AAPL) said in a statement Sunday night: “COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou, China. The facility is currently operating at significantly reduced capacity

·     Foxconn Technology Group said that it is revising down its outlook for Q4 due to the pandemic affecting some of its operations in Zhengzhou, China; said its visibility for the quarter was originally “cautiously optimistic.”

·     Meta Platforms Inc. (META) is planning to begin large-scale layoffs this week, according to people familiar with the matter; Meta reported more than 87,000 employees at the end of September – WSJ

·     Ouster (OUST) and Velodyne (VLDR) agree to an all-stock merger of equals that is expected to bring annualized cost savings of at least $75 million within nine months after closing. Equity value about $210.9 million, according to Bloomberg calculations

·     United Microelectronics (UMC) reported October net sales growth of 27.07% Y/Y to NT$24.34B; in September sales grew 34.50% Y/Y; YTD revenue grew 35.91% Y/Y to NT$235.21B.