Market Snapshot
briefing.com
| Dow | 32186.99 | -98.37 | (-0.30%) | | Nasdaq | 12055.85 | -85.82 | (-0.71%) | | SP 500 | 4044.45 | -13.28 | (-0.33%) | | 10-yr Note |
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| | NYSE | Adv 1029 | Dec 2036 | Vol 715 mln | | Nasdaq | Adv 1374 | Dec 2945 | Vol 4.1 bln |
Industry Watch
| Strong: Energy, Utilities |
| | Weak: Health Care, Financials, Real Estate, Information Technology |
Moving the Market
-- Carryover momentum from Friday's retreat fueled by Fed Chair Powell's comments indicating the Fed may remain restrictive for longer
-- Rising Treasury yields and oil prices
-- Broad selling interest
| Closing Summary
29-Aug-22 16:25 ET
Dow -184.41 at 32100.95, Nasdaq -124.04 at 12017.63, S&P -27.05 at 4030.68
[BRIEFING.COM] The stock market opened on a weaker note before the selling pressure eased somewhat with the S&P 500 and Dow Jones Industrial Average briefly turning positive around midday. The main averages all pulled back from the midday highs and closed with losses. Today's weakness was a carryover from Friday's retreat, fueled by Fed Chair Powell's comments indicating the Fed is resolute about controlling inflation and may need to stay in restrictive territory longer.
The advance-decline line favored decliners by a roughly 2-to-1 margin at both the NYSE and the Nasdaq.
The selling effort brought down small cap, mid cap, and mega cap stocks. The Russell 2000 closed down 0.9%; the S&P Mid Cap 400 closed down 0.7%; the Vanguard Mega Cap Growth ETF (MGK) closed down 1.0%; the Invesco S&P 500 Equal Weight ETF (RSP) closed down 0.6%.
Also, there was no discrimination between value and growth stocks. The Russell 3000 Growth Index closed down 0.9% while the Russell 3000 Value Index closed down 0.5%.
Semiconductor stocks sold off more sharply than the broader market with the PHLX Semiconductor Index closing down 1.9%. Weakness here helped bury the information technology (-1.3%) sector in last place on the day.
Only two S&P 500 sectors closed with gains, utilities (+0.3%) and energy (+1.5%). The latter got a boost from rising oil prices with WTI crude oil futures closing 4.1% higher to $96.91/bbl. This comes after a Bloomberg report indicated the nuclear talks with Iran have been extended for a few weeks due to lingering disagreements on key issues.
On an individual basis, Pinduoduo (PDD 66.04, +8.47, +14.7%) moved up noticeably after reporting favorable quarterly results this morning.
Treasury yields settled higher with the 2-yr note yield rising two basis points to 3.42% while the 10-yr note yield rose eight basis points to 3.11%.
Looking ahead to Tuesday, market participants will receive the June FHFA Housing Price Index (prior 1.4%) and S&P Case-Shiller Home Price Index (Briefing.com consensus 19.0%; prior 20.5%) at 9:00 a.m. ET. August Consumer Confidence (Briefing.com consensus 97.4; prior 95.7) and July JOLTS Job Openings (prior 10.698 million).
Before Tuesday's open, Baidu (BIDU) and Best Buy (BBY) are reporting earnings.
There was no U.S. economic data of note today.
Dow Jones Industrial Average: -11.7% YTD
S&P 400: -12.6% YTD
S&P 500: -15.4% YTD
Russell 2000: -16.1% YTD
Nasdaq Composite: -23.2% YTD
Market moving sideways into the close
29-Aug-22 15:30 ET
Dow -88.92 at 32196.44, Nasdaq -79.85 at 12061.82, S&P -13.06 at 4044.67
[BRIEFING.COM] The stock market is moving sideways into the close.
Treasury yields settled higher with the 2-yr note yield rising two basis points to 3.42% while the 10-yr yield rose eight basis points to 3.11%.
Looking ahead to Tuesday, market participants will receive the June FHFA Housing Price Index (prior 1.4%) and S&P Case-Shiller Home Price Index (Briefing.com consensus 19.0%; prior 20.5%) at 9:00 a.m. ET. August Consumer Confidence (Briefing.com consensus 97.4; prior 95.7) and July JOLTS Job Openings (prior 10.698 million).
Before Tuesday's open, Baidu (BIDU) and Best Buy (BBY) are reporting earnings.
Market sticks to narrow range
29-Aug-22 15:00 ET
Dow -98.37 at 32186.99, Nasdaq -85.82 at 12055.85, S&P -13.28 at 4044.45
[BRIEFING.COM] The major averages traded in a narrow range for the last half hour.
Market breadth paints more of a mixed picture currently compared to the early going. Just after the open, decliners led advancers by a 5-to-2 margin at the NYSE and a 2-to-1 margin at the Nasdaq. Now, decliners lead advancers by a 6-to-5 margin at the NYSE and a 5-to-3 margin at the Nasdaq.
Commodity futures made sizable moves today. Copper futures fell 2.2% to $3.61/lbs. WTI crude oil futures rose 4.1% to $96.91/bbl. Unleaded gasoline futures rose 1.8% to $2.72/gal.
Separately, the CBOE Volatility Index drifted lower this session, currently up 0.6%, or 0.13, to 25.69.
Bristol-Myers underperforms after stroke candidate trial data
29-Aug-22 14:35 ET
Dow -74.87 at 32210.49, Nasdaq -75.38 at 12066.29, S&P -10.10 at 4047.63
[BRIEFING.COM] The benchmark S&P 500 (-0.25%) is in second place to this point on Monday.
S&P 500 constituents Bristol-Myers (BMY 66.85, -4.34, -6.10%), CF Industries (CF 114.97, -3.38, -2.86%), and Domino's Pizza (DPZ 380.73, -9.55, -2.45%) pepper the bottom of today's standings. BMY slips after this morning's results from its Phase 2 AXIOMATIC-SSP Study.
Meanwhile, Diamondback Energy (FANG 141.14, +7.21, +5.38%) outperforms on gains in crude oil futures.
Gold narrowly lower to begin the week
29-Aug-22 14:00 ET
Dow -21.51 at 32263.85, Nasdaq -42.82 at 12098.85, S&P -1.79 at 4055.94
[BRIEFING.COM] The major averages still hold a modestly lower tape into the final two hours of action on Monday, the tech-heavy Nasdaq Composite (-0.35%) still at the bottom of the standings.
Gold futures settled $0.10 lower (flat) to $1,749.70/oz despite a modestly weaker dollar as treasury yields showed modest gains.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $108.67.
Catalent's COVID-related catalyst fading faster than expected, weighing on outlook and shares (CTLT)
Catalent (CTLT), a high-flyer throughout the pandemic, issued a mixed 4Q22 earnings report that was defined by the further waning of a COVID-related catalyst that had previously sparked the company's growth. As a contract development and manufacturing organization (CDMO) that services global pharmaceutical and biotech companies, CTLT has benefited from the production of COVID-19 vaccines and treatments. In fact, Pfizer (PFE) is one of the company's largest customers.
In Q4, though, the company's revenue growth dipped to 10.5% -- representing its slowest growth rate since 4Q19. Furthermore, CTLT's downside FY23 revenue guidance calls for modest top-line growth of 5.7%. When CTLT reported Q3 results in May, CEO Alessandro Maselli stated that he was comfortable projecting a FY23 organic growth rate that was in line with the prior long-term growth rate forecast of 8-10%.
However, the decrease in COVID-related revenue is now expected to be more severe than anticipated. Specifically, Maselli disclosed today that COVID vaccine volumes are estimated to be down by roughly two-thirds in FY23 compared to FY22. A faster-than-expected shift to single dose formats is a primary cause for the accelerated downturn in volumes. For some context, CTLT estimated that COVID-related revenue represented about 18% of its organic growth in FY21.
Supply chain issues, FX-headwinds, and inflation are compounding the issue for CTLT, putting additional pressure on its margins. As a result, the company's FY23 adjusted earnings guidance also fell short of expectations.
The news isn't all negative for CTLT.
- EBITDA margin expanded by 190 bps yr/yr to 32.8% in the Biologics segment (~51% of total revenue) as CTLT capitalized on operational efficiencies and lower mix from component sourcing. This helped to offset a 330 bps decline in the smaller Softgel and Oral Technologies segment (~27% of revenue), which encountered supply chain challenges, allowing CTLT to edge past EPS expectations.
- When Maselli took the helm as CEO on July 1, one of his first moves was to reorganize CTLT into two operating segments from four segments.
- The Biologics segment will account for half of CTLT's revenue, and it will provide the same services as before (product development and manufacturing for therapies). However, it now also includes the testing services previously offered by the Oral and Specialty Delivery segment.
- Meanwhile, Pharma and Consumer health will account for the other half of revenue, encompassing the offerings of the former three segments: Softgel and Oral Technologies, Oral and Specialty Delivery, and Clinical Supply Services.
- This reorganization is expected to unlock synergies created by a new go-to-market strategy and greater exposure to higher growth sectors in the small molecule market. Therefore, the company bumped its projected long-term net revenue growth rate higher to 8-12% from 8-10%.
On August 10, CTLT announced its intention to acquire Metrics Contract Services for $475 mln. The specialty CDMO generated trailing twelve-month revenue of more than $90 mln. Of note, CTLT's FY23 revenue guidance does not include the addition of Metrics Contract Services, while some analysts may have incorporated the acquisition into their forward estimates.
Although a drop-off in COVID-related revenue has been anticipated for some time, the rapid pace of the deceleration comes as a surprise. Looking beyond COVID, though, we believe that the company is well positioned to continue benefitting from a rising trend towards CDMOs for drug development and manufacturing.
Pinduoduo surges on strong upside Q2 results despite macro headwinds in China (PDD)
Pinduoduo (PDD +22%) is surging today after the Chinese ecommerce giant reported upside Q2 results for both EPS and revenue. Revenue jumped 36% yr/yr to US$4.69 bln, which was a significant acceleration from the 7% growth seen in Q1.
- Investors were not sure what to expect given the COVID lockdowns during the quarter and the impact that might have consumer sentiment. Also, the slowing economy in China was a concern that perhaps consumers would pull back on spending. On the other hand, Q2 did include what is known as the 618, which is seen as the second largest shopping festival in China. This seemed to help offset the macro concerns.
- Taking that all together, the company said that it saw a recovery in consumer sentiment in Q2 especially during the 618 shopping festival. PDD sees it as a reflection of the resilience of overall consumption. Margins were also helped by the postponement of certain projects and lower business-related expenses during the first half of the quarter.
- The other recent big news was a Reuters report last week that PDD plans to expand internationally, with the US being the likely prime target. PDD confirmed on the call this morning that it is looking at overseas expansion. However, it stressed that it would not just simply repeat what others have done. It will strive to create its own unique value.
- Just to build on this last point a bit, PDD has been able to take share from larger peers in China like BABA and JD by focusing on extreme value pricing. Based on the comments from the call today, it sounds like that would be its strategy if it were to challenge AMZN in the US. However, we think it is going to be a heavy lift to make deep inroads in the US quickly as most Americans are unfamiliar with the brand and AMZN already has a dominant presence.
Overall, this was an impressive quarter for PDD and was a bit of a surprise given the more modest results we saw from BABA a few weeks ago and it was a nice improvement from Q1. We are also intrigued by PDD's international expansion plans. We plan to keep a close eye on those developments in the coming quarters. But as of now, investors like what PDD accomplished in Q2 despite uncertain macro conditions.
Dow opens below its 20-day moving average on an analyst downgrade; near-term remains choppy (DOW)
Dow (DOW -2%) opened below its 20-day moving average today after catching a downgrade at KeyBanc Capital Markets, citing an impending petrochemical recession. The stock has continued to trade in a consolidation pattern since mid-August, failing to break meaningfully higher than the $56.00 mark.
Briefing.com notes that Dow's broad portfolio of chemicals is used across various applications, giving it excellent diversification. However, by that same token, Dow's end markets are highly susceptible to a market downturn as slowing demand has pronounced effects across each segment.
- Its largest segment by revenue is Packaging & Specialty Plastics (~51% of FY21 sales), which consists of numerous applications and market segments, including adhesives, automotive, and construction, to name a few.
- A significant headwind affecting this segment in the near term is Europe's high energy costs. Dow estimates that in Q3, higher energy costs coupled with regional supply imbalances will adversely impact sales by $125 mln.
- On the bright side, Dow noted that demand for food packaging and consumables remains healthy, bolstered by economic expansion in the services and travel sectors. Given comments by numerous companies lately, we expect these trends to continue. However, a material slowdown in these industries may occur if inflation remains elevated.
- Dow's second-largest segment is Industrial Intermediates & Infrastructure (~31% of FY21 sales), which comprises a more extensive array of applications and end markets for industrial uses than Packaging & Specialty Plastics.
- Dow was more cautious on the near-term future of this segment than its other segments during its Q2 earnings call last month, stating that inflation will likely continue to impact global consumer durables demand. Furthermore, high energy costs in Europe will drive a $125 mln headwind in Q3.
- Dow did provide some upbeat remarks, noting that industrial activity and infrastructure spending in the U.S. remains resilient. This mirrors comments from steel giants like Nucor (NUE) and Steel Dynamics (STLD), which stated in late July that nonresidential construction has been resilient and should remain so in 2023.
- The smallest segment, Performance Materials & Coatings (~18% of FY21 sales), consists of raw materials for industrial and consumer coatings markets.
- Although Dow did not dive into too many details on this segment's near-term future, stating that consumer spending for personal applications, as well as seasonal construction activity, should persist, a major customer shared bearish remarks. Sherwin-Williams (SHW) was upbeat regarding the North American industrial market but already noticed waning demand in Europe, with the pace of recovery from lockdowns in China hard to assess. Meanwhile, on the consumer side, inflation was expected to continue to pressure all of SHW's markets.
Dow noted last quarter that the long-term fundamentals driving growth across its end markets remain attractive, but near-term market conditions remain dynamic. Being a major supplier for a host of companies operating in numerous end markets does give Dow solid diversification. However, with petrochemical prices continuing to slide from June highs, as illustrated by the ICIS Petrochemical Index, Dow may begin to feel the effects of a global economic slowdown, weighing on its results over the next few quarters.
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