Mid-Morning Look

Tuesday, August 17, 2021

Much like yesterday’s trading action, U.S. stocks open lower as the Dow and the S&P 500 pullback off record highs (and also much like yesterday’s action…stocks already in rebound mode!) Stocks slide overnight after 1) weak earnings reports from Home Depot (HD), 2) as July retail sales data showed the pace of the U.S. economic recovery slowed, 3) on more with China regulation concerns, 4) Covid-variant rising cases, and 5) geopolitical concerns (Afghanistan). Dow component Home Depot (HD) Q2 comp-store sales data fell short of consensus (after EPS/sales beat). Data showed U.S. retail sales fell much more than expected in July as shortages weighed on purchases of motor vehicles and other goods. Transports weaker behind another lower revenue revision in airline space (SAVE lowered outlook, which followed LUV cautious view last week). Asian markets tumbled (hitting U.S. listed Chinese stocks again) after China published detailed rules to tackle unfair competition and companies’ handling of critical data. Energy stocks outperform after recent weakness, among top gainers in the S&P early. Still later this morning, Federal Reserve Chairman Jerome Powell at a town hall and note the release of minutes from the latest Fed meeting on Wednesday also a potential mkt catalyst.

Economic Data

·     U.S. July retail sales fell -1.1%, worse than the expected -0.3% drop while June was upwardly revised to +0.7% from +0.6%; July gasoline sales +2.4% vs. June +3.6%, July cars/parts sales -3.9% vs. June -2.2%; July retail sales ex-autos fell -0.4% vs. est. +0.1% and June upped to +1.6%; July retail sales ex-autos/gasoline fell -0.7% vs. June +1.3%.

·     U.S. July industrial production +0.9%, topping the +0.5% estimate, while June revised to +0.2% from prior +0.4%; July capacity use rate 76.1% above est. 75.7% and vs. June 75.4%. July manufacturing output +1.4% vs. est. +0.6%.

·     U.S. June business inventories +0.8%, in-line with estimates and compared to May +0.6% from prior +0.5%; June inventory/sales ratio 1.25 months’ worth vs May 1.26 months; June business sales +1.4% vs. May -0.2%.

·     Housing data weaker as the NAHB Housing market index reported at 75, below July and consensus reading of 80; index for august at lowest since July 2020; Index of current single-family home sales 81 versus 86 in July.

Sector Movers Today

·     Internet; BABA, BIDU, JD, NTES slide again with massive pressure on U.S. listed Chinese stocks following another regulatory crackdown after China published detailed rules to tackle unfair competition and companies’ handling of critical data; the draft regulations ban unfair competition and restrict the use of user data; SE better Q2 results as revs of $2.3B beats the consensus est. of $1.94B and raises its forecast for both digital entertainment and e-commerce bookings for the financial year 2021 – said Q2 digital entertainment bookings rose 64.8% to $1.2B

·     Casinos, Gaming, Lodging & Leisure sector; gaming related stocks, both casinos (WYNN, LVS, MGM, CZR) and online plays (PENN, DKNG) sees continued weakness; GAN tumbles Q2 as EPS loss (-$0.07) vs. est. loss (-$0.01); Q2 revs $34.6M vs. est. $34.53M; sequential revenue growth of 24%, driven by strong international results in b2c segment; GENI said it enters a definitive agreement to acquire Spirable, a creative performance platform (terms not disclosed)

·     Consumer Staples; defensive food names again one of the few market outperformers given the pullback in growth stocks today, with names like CPB, K, KR, SJM moving higher initially; PM launched IQOS ILUMA, the latest and most innovative addition to their growing portfolio of smoke-free products for adults who would otherwise continue to smoke or use nicotine products

·     Hardware, Components & Services; few changes in the IT & BPO Service sector as JPMorgan downgraded DXC to Underweight, and downgraded RXT to Neutral, while upgraded PRFT to Overweight saying the cuts were on the notion that the war for talent creates a relative disadvantage for turnarounds versus cleaner growth stories; APP was upgraded to equal-weight at Morgan Stanley noting 2Q results showcased a significant acceleration in the ad network’s (i.e. AppLovin Software’s) growth rate, which they believe could be sustained from here

Stock GAINERS

·     FN +6%; reported another quarter of record revenue as Q4 Non-GAAP EPS $1.31 vs. est. $1.22; Q4 revs $509.6M vs. est. $487.5M; sees Q1 revs $510M-$530M vs. est. $491.5M

·     GLBE +7%; reported its second- quarter results and raised its full-year revenue outlook

·     LLY +1%; announced executive leadership changes and the creation of neuroscience and immunology business units

·     MRNA +4%; vaccine makers rebound (NVAX, BNTX) after a week of selling pressure (profit taking off major runs) following reports the Biden administration is planning to announce that most Americans who have received the coronavirus vaccine will need booster shots eight months after being fully vaccinated as the delta variant sparks a surge in Covid-19 cases

·     SE +3%; better Q2 results as revs of $2.3B beats the consensus est. of $1.94B and raises its forecast for both digital entertainment and e-commerce bookings for the financial year 2021

·     WMT +0.5%; Q2 EPS and sales top views ($1.78/$141.0B vs. est. $1.56/$136.8B) with solid upside guidance for year ($6.20-$6.35 vs. est. $6.02) while sees Wal-Mart-only U.S. stores comparable sales ex-gas +5% to +6% vs. est. +3.22%

Stock LAGGARDS

·     BABA 4%; weakness again in U.S. listed Chinese stocks (BIDU, DIDI, JD, TCEHY, PDD) following another regulatory crackdown after China published detailed rules to tackle unfair competition and companies’ handling of critical data

·     FUV -18%; top and bottom lines both missed projections and disappointed expectations with its production guidance – revised the planned main line target of production output to 425 FUV platform vehicles in 2021

·     HD -4%; beat Q2 EPS and sales expectations, with revenue climbing 8% to $41.2B, but shares slipped after the company’s comparable-store sales didn’t rise as much as analysts had predicted (Q2 comp sales +4.5% below est. +5.6% and U.S. comp sales in the U.S. +3.4% vs. est. +4.9%)

·     RBLX -4%; Q2 bookings rose just 35% to $665.5M down from a 161% surge in bookings during Q1 and below analyst expectations of $683.3M/also posted Q2 EPS loss (-$0.25) vs. est. $0.24

·     SAVE ; estimates $885M-$955M in operating revenue for the quarter, short of analysts’ projected $1.05B citing recent flight cancellations and fewer bookings and said it would continue to make “tactical schedule reductions” during the rest of the quarter

·     ZEV -13%; tumbles after posting a Q2 EPS loss (-$0.79), wider than the est. loss (-$0.14) and said it sees Q3 revs $4M-$6M vs. est. $10.58M and adjusted loss from operations $12M-$13M