Early Look

Friday, October 21, 2022

U.S. futures are under pressure again, paced by weakness in technology stocks as elevated U.S. Treasury yields and a revenue warning from SNAP rattled shares of other social media companies. Internet stocks tumbled overnight, led by a 25% decline in SNAP shares after saying advertising partners are decreasing their marketing budgets – leading to fears of more to come when META, GOOGL, PINS report next week. Meanwhile the 10-yr yield hits highs of 4.28% and the dollar sets another three-decade high against the struggling Japanese yen above 151. Twitter (TWTR) shares tumble on reports that the U.S. mulls national-security review for some of Elon Musk’s ventures. The early weakness follows another failed rally on Thursday, which led to the S&P settling lower for the 17^th time in the last 23 trading days, heading into the final trading day of the week. Friday’s have been disastrous in recent weeks, with the S&P falling more than 1% in each of the last four Fridays with investors leery to be long into the weekends. Stocks began to swoon late morning Thursday after Philadelphia Federal Reserve President Patrick Harker said officials are likely to raise rates to “well above” 4% this year and hold them at restrictive levels to combat inflation — while leaving the door open to doing more if needed. The Fed has been steadfast and united in recent weeks with the message of higher rates for longer to get inflation down, which remains at 40-year highs after recent CPI results.

Treasury yields have surged with the 10-year yield on track to rise a 12^th consecutive week, touching 14-year highs of 4.23% late yesterday and shorter term 2-year yields rising above 4.6%. The yen making new 32-week highs daily now, up another +0.5% nearing the 151 level. Sterling climbed to about $1.13 and the yield on 10-year gilts fell below 3.75% after Prime Minister Liz Truss announced her resignation. All this without talking about earnings, which have been hit or miss this week, especially on guidance from various companies stretching across many sectors. In Asian markets, The Nikkei Index fell -116 points to 26,890, the Shanghai Index inched higher 3 points to 3,038, and the Hang Seng Index fell -69 points to 16,211. In Europe, the German DAX is lower by -200 points to 12,565, while the FTSE 100 is down -0.85% to 6,885.

Market Closing Prices Yesterday

·     The S&P 500 Index slumped -29.38 points, or 0.80%, to 3,665.78

·     The Dow Jones Industrial Average fell -90.22 points, or 0.30%, to 30,333.59

·     The Nasdaq Composite dropped -65.56 points, or 0.61%, to 10,614.84

·     The Russell 2000 Index declined -21.36 points, or 1.24% to 1,704.39

Economic Calendar for Today

·     9:10 AM ET          Fed’s Williams Makes Opening Remarks at Careers Event

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

Earnings Calendar:

·     Earnings Before the Open: AXP CPF EEFT HBAN HCA IPG RF SLB SMPL SXT VZ

World News

·     The Biden administration is exploring the possibility of new export controls that would limit China’s access to some of the most powerful emerging computing technologies, according to people familiar with the situation. The potential plans, which are in an early stage, are focused on the still-experimental field of quantum computing, as well as artificial intelligence software, according to the people, who asked not to be named discussing private deliberations – Bloomberg

·     Japan’s CPI Inflation (Sept) came in modestly higher than expected on the headline number, which rose 3.0% (YoY). Core ex-fresh food rose 3.0% (YoY), and core ex-fresh food and energy lifted 1.8% (YoY).

·     UK leadership vote may delay Oct. 31 budget plan, officials say

Sector News Breakdown

Consumer

·     Boston Beer (SAM) Q3 EPS $2.21 below est. $3.28; Q3 revs rose 6.2% y/y to $596.5M vs. est. $567.1M; depletions decreased 6% and shipments increased 1.4% compared to Q3’21; reduces FY gross margin view to 42% to 43.5%, from prior 43% to 45%; narrows FY22 adj EPS view to $7.00-$10.00 from $6.00-$11.00

·     BJ Restaurants (BJRI) Q3 EPS loss (-$0.07) vs. est. loss (-$0.28); Q3 revenue $311.35M vs. est. $303.63M; Q3 comp sales rose 8.9%

·     Whirlpool (WHR) Q3 net sales $4.78B vs. est. $5.15B; Q3 ongoing EPS $4.49 below est. $5.34; sees challenges persisting into first half of 2023; cuts FY ongoing eps to $19 from prior $22-$24, vs. est. $21.85

·     AutoLiv (ALV) Q3 adj EPS $1.23 vs. est. $1.27; Q3 net sales $2.3B vs. est. $2.36B; sees 2022 organic sales growth of around 15% (vs. prior 13%-16%); sees 2022 adj. operating margin of upper end of around 6.0%-7.0% (vs. prior 6.0%-7.0%); sees 2022 operating cash flow of around $700-750 mln (vs. prior $750-850 mln); posted 32% organic sales increase in Q3

·     Instacart Is Said to Pull Plans to Go Public This Year – NY Times. The food delivery company had been moving toward a public offering, but the window for such deals is shutting amid market turmoil. Instacart, the food delivery company, is pulling its plans to go public in 2022, in the latest sign of turmoil in the public markets https://nyti.ms/3DhS5bc

Energy, Industrials and Materials

·     CSX Corp. (CSX) Q3 EPS $0.52 vs. est. $0.49; Q3 revs rose 18% y/y to $3.9B vs. est. $3.74B; Operating ratio increased to 59.5%, including the effect of the tentative union agreements

·     UFP Industries (UFPI) Q3 EPS $2.66 vs. est. $2.42; Q3 revs $2.32B vs. est. $2.25B

Financials

·     Associated Banc-Corp (ASB) Q3 EPS $0.62 vs. est. $0.59; Q3 net interest margin (NIM) increased to 3.13%, reflecting a 42-bps improvement from the prior quarter and a 75-bps increase from the same period last year; Net interest income $264 million

·     Axis Capital (AXS) estimates pre-tax net catastrophe losses $212M in Q3; segment’s results include an amount of $100 mln for hurricane Ian and $13 mln for other weather-related events

·     Bank OZK (OZK) Q3 EPS $1.08 vs. est. $1.17; annualized returns on average assets, average common stockholders’ equity, and average tangible common stockholders’ equity for the third quarter of 2022 were 1.97%, 11.85% and 14.02%, respectively

·     Cincinnati Financial (CINF) said it sees Q3 adj EPS 70c-76c below consensus 79c and estimated losses and expenses from catastrophe-related claims are expected to bring the company’s third-quarter 2022 property casualty combined ratio to approximately 104%

·     Robert Half (RHI) Q3 EPS $1.53 vs. est. $1.63; Q3 revs $1.83B vs. est. $1.92B; guides Q4 revenue $1.695B-$1.775B and EPS $1.31 to $1.41

·     SVB Financial Group (SIVB) Q3 EPS $7.21 vs. est. $6.95; Q3 net interest margin was 2.28% vs. 2.24% in Q2; qtrly net interest income $1,198 mln vs. $852 mln; said continue to see strength and momentum in our underlying business, despite persistent market challenges affecting liquidity flows to private companies, rising rates and fear of recession

·     Western Alliance (WAL) Q3 EPS $2.42 vs. est. $2.61; Q3 revs $663.9M vs. est. $687.38M

Healthcare

·     Tenet Health (THC) shares fell -14%; Q3 adj EPS $1.44 vs. est. $1.24; Q3 revs $4.8B vs. est. $4.81B; guides FY operating revs $19B-$19.2B vs. est. $19.34B and EPS cont ops $5.88-$6.42 vs. est. $6.11; narrows FY adj EBITDA $3.38B-$3.48B from prior $3.38B-$3.58B

·     HCA Healthcare (HCA) Q3 adj EPS $3.93 vs. est. $3.88; Q3 revs $14.97B vs. est. $15B; same facility admissions declined 1.5% while same facility equivalent admissions increased 2.3% in Q3; same facility emergency room visits declined 1.3$ in Q3; same facility revenue per equivalent admission declined 3.5% in Q3 y/y

·     Immunic Inc. (IMUX) shares fell -68% after saying its psoriasis drug trial had a high placebo rate. Said that pre-planned interim analysis in a recent trial of its IMU-935 for patients with moderate-to-severe psoriasis found that reductions in the psoriasis area and severity index in the two active arms didn’t separate from placebo at four weeks.

·     Pfizer (PFE) expects to price the Covid-19 vaccine it developed with BioNTech (BNTX) at $110 to $130 per dose for adults in the U.S. market – WSJ

Technology, Media & Telecom

·     Snap Inc. (SNAP) shares fell -24%; Q3 adj EPS $0.08 vs. est. loss (-$0.01); Q3 revs $1.13B vs. est. $1.14B; Average revs per user $3.11, -11% y/y vs. est. $3.19; Not providing formal 4Q guidance saying sees it as highly likely that y/y revenue growth will decelerate as we move through 4Q; authorized a stock repurchase program of up to $500M of common stock; Daily active users 363 million, +19% y/y, estimate 358.7 million and N.A. daily active users 100 million, +4.2% y/y

·     Twitter (TWTR) shares tumble -8%; after the U.S. government is discussing whether the United States should subject some of Elon Musk’s ventures to national review including the deal for Twitter Inc (TWTR) and SpaceX’s Starlink satellite network, Bloomberg News reported. The SpaceX chief in recent times has taken to Twitter to announce proposals to end Russia’s war in Ukraine and said SpaceX cannot indefinitely fund its Starlink internet service in Ukraine. https://bloom.bg/3TDkEoT

·     Alphabet (GOOGL), Meta Platforms (META), Pinterest (PINS) tumble overnight following the negative outlook for Q4 from SNAP citing weak ad market – Snap Inc. reported its slowest quarterly sales growth ever, saying that a decline in advertising spending on the platform continues to drag on results

·     AT&T (T) upgraded to Buy from Hold at Truist