Daily Markets: Federal Reserve, Student Debt Relief to Nudge Markets

Today’s Big Picture

Asia-Pacific equity indexes ended today’s session up across the board except for India’s Sensex which closed down 0.53%. Japan’s Nikkei rose 0.58%, Australia’s ASX All Ordinaries gained 0.68%, Taiwan’s TAIEX advanced 0.87%, China’s Shanghai Composite was up 0.97% and South Korea’s KOSPI closed ahead 1.22%. Hong Kong’s Hang Seng had a strong day, gaining 3.63% led by Healthcare, Retail Trade, and Basic Materials names. By mid-day trading, European equity indices are mixed, and U.S. futures point to a healthy open later this morning.

Economic data reported so far this week has led the Atlanta Fed GDPNow model for the current quarter to retreat to 1.4% from 1.6% last week and its 2.1% reading in late July. Comments from Fed heads ahead of the annual Jackson Hole gathering have also shifted expectations back to a 75-basis point rate hike at the Fed’s September monetary policy meeting. Before U.S.-listed stocks begin trading, we’ll get the second reading on GDP in 2Q 2022, which will contain another look at the GDP Price Index for the quarter, as well as one of the Fed’s preferred measures of inflation, the PCE Price Index for the quarter.

With most second looks at data, the question is how the revised will reading stack up against the preliminary one of 8.9% for the GDP Price Index and 7.1% for the PCE Price Index. Hotter figures will likely tilt expectations for hawkish comments from Fed Chair Powell at Jackson Hole tomorrow, but should cooler readings emerge, odds are equities will cheer what it sees as progress on the inflation fight. To us, however, the real PCE figure to watch will be tomorrow’s reading for July and comparing it against those for the last few months.

Data Download

International Economy

2Q 2022 GDP in Germany expanded 1.7% YoY, a far quicker pace than indicated by the preliminary flat reading.

The Ifo Business Climate indicator for Germany edged down to 88.5 in August from an upwardly revised 88.7 in July and the expected reading of 86.8. The Ifo Current Conditions subindex edged down to 97.5 in August from 97.7 in July, also better than the expected 96. The Ifo Business Expectations subindex inched lower to 80.3 in August from an upwardly revised 80.4 in July and the expected figure of 79.

Domestic Economy

At 8:30 AM ET, we’ll have several pieces of economic data to chew through. These include the latest weekly initial and continuing jobless claims, which are expected to come in at 253K and 1442K, respectively with estimates ticking up slightly from the previous releases. We’ll also get the second estimate for 2Q 2022 GDP, which is expected to remain unchanged from its initial reading of -0.9%. Included in that report is the 2Q 2022 GDP Price Index, which is expected to come in at 8.7% with the core reading at 4.4%.

Markets

Yesterday saw the markets come up for air after the previous few down or mixed sessions as all sectors participated in a Jackson Hole / student debt relief mini rally. The Dow gained 0.18%, the S&P 500 tacked on 0.29% and the Nasdaq Composite rose 0.41%. Small caps led the way up as the Russell 2000 closed 0.84% ahead. There were no real standouts on Wednesday although we did see Warner Brothers Discovery gain 5.71% on the day based on some cost-cutting measures which pleased shareholders but left some subscribers and content creators unhappy.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -9.27%
• S&P 500: -13.12%
• Nasdaq Composite: -20.54%
• Russell 2000: -13.81%
• Bitcoin (BTC-USD): -53.93%
• Ether (ETH-USD): -55.09%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, Abercrombie & Fitch (ANF), Burlington Stores (BURL), Coty (COTY), Dollar General (DG), Dollar Tree (DLTR), Hain Celestial (HAIN), Hibbett (HIBB), Malibu Boats (MBUU), Peloton (PTON), and Sanderson Farms (SAFM) will be among the companies issuing their latest quarterly results and guidance.

In addition to reporting mixed July quarter results, Nvidia (NVDA) issued downside guidance for its October quarter with revenue of $5.78-$6.02 billion vs. the $6.92 billion consensus. Revenue for the July quarter rose 3.0% YoY to $6.7 billion, matching the consensus forecast, with Data Center revenue up 61% YoY to $3.81 billion and Automotive up 45% YoY to $220 million. Those gains were mitigated by the 33% YoY drop in Gaming revenue and the 4% fall in Pro Visualization revenue to $496 million. Those two businesses are expected to decline further in the current quarter as OEMs and channel partners reduce inventory levels to align with current levels of demand and prepare for NVIDIA's new product generation. The company has $11.93 billion remaining under its share repurchase authorization through December 2023.

Even though its July quarter results edged out top and bottom-line expectations, Salesforce (CRM) issued downside guidance for both the current quarter and its FY23. For its October quarter the company sees EPS of $1.20-$1.21 vs. the $1.29 consensus with revenue in the range of $7.82-$7.83 billion vs. the $8.07 billion consensus. For the fiscal year, revenue is now expected to be $30.9-$31.0 billion vs. the $31.73 billion consensus. Part of the revenue change was due to the ongoing strength of the U.S. dollar, as foreign currency exchange "headwinds" impact the company's sales. Salesforce also shared that during its July quarter it began seeing sales cycles for some deals being stretched out beyond prior estimates.

Snowflake’s (SNOW) July quarter revenue easily outpaced consensus expectations soaring 82.78% YoY to $497.2 million vs. the $467.31 million consensus. Product revenue for the quarter was $466.3 million, up 83% YoY. Exiting the July quarter, the company had 6,808 total customers and 246 customers with trailing 12-month product revenue greater than $1 million. For its FY23, Snowflake now sees its product revenue in the range of $1.905-$1.915 billion vs. its prior guidance of $1.885-$1.900 billion.

July quarter results at Splunk (SPLK) came in stronger than expected spurred on by the almost 32% YoY increase in its revenue to $787.75 million, well ahead of the $747.92 million consensus. Cloud revenue was $346 million, up 59% YoY and for the quarter the company had 723 customers with a total ARR greater than $1 million, up 24% YoY. Splunk issued upside guidance for both the current quarter and its fiscal year, with revenue for its FY23 now expected to be $3.35-3.40 billion, up from $3.30-3.35 billion and the $3.33 billion consensus.

Honda Motor (HMC) said its plant in the Chinese city of Chongqing will remain closed this week as the local government extended an order to curb power use and shut factory operations. Local governments in Sichuan and Chongqing have ordered power cuts for industrial plants and households as the region faces searing heat and severe drought. Other reports indicate Honda will cut production plans by up to 40% in Japan early in September due to persistent supply chain and logistical issues.

California is poised to ban the sale of new gas-powered vehicles by 2035. The rule would phase in over time, with 35% of new passenger vehicles sold by 2026 and 68% by 2030. California is one of the largest markets for car sales in the world, with nearly 15 million registered vehicles on the road and 1.85 million new vehicle registrations in 2021. With reportedly another 12 states waiting in the wings to adopt a similar zero-emission vehicle mandate, we expect this effort in California could benefit EV companies like Tesla (TSLA) and also those auto companies shifting production to EVs like Ford Motor (F), GM (GM) and others as well as EV charging station companies such as ChargePoint (CHPT) and Blink Charging (BLNK).

Citing challenging economic conditions, Sony (SONY) will increase the recommended retail price of PlayStation 5 in select markets across Europe, the Middle East, Africa, Asia-Pacific, Latin America, as well as Canada. For now, no price increase in the U.S. is expected.

Callaway Golf (ELY) announced plans to change its name to "Topgolf Callaway Brands Corp." and expects it to be effective on or about September 6, 2022.

The Washington Post reports Amazon (AMZN) will shut Amazon Care, the virtual and in-home health service it initially created for its employees, by the end of this year.

Apple (AAPL) announced it will hold a press event on September 7 at 1 PM ET where it’s expected to announce new iPhones.

The Senate Judiciary Committee announced a full Committee hearing to investigate allegations of widespread security failures at Twitter (TWTR) and foreign state actor interference on Tuesday, September 13.

IPOs

As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Affirm (AFRM), Dell (DELL), Farfetch (FTCH), Gap (GPS), Marvell (MRVL), Ulta Beauty (ULTA), VMware (VMW), and Workday (WDAY) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Friday, August 26

• Japan: Tokyo CPI – August
• Germany: GfK Consumer Climate – September
• US: PCE Price Index – July
• US: Personal Income & Spending – July
• US: Retail Inventories ex-auto – July
• US: Michigan Consumer Sentiment Index (Final) – August

Thought for the Day

“Your reality is yours. Stop wasting time looking at someone else’s reality while doing nothing about yours.” – Steve Harvey

Disclosures

• Splunk (SPLK) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• ChargePoint (CHPT), Blink Charging (BLNK), Peloton (PTON) are constituents of the Tematica BITA Cleaner Living Index
• ChargePoint (CHPT), Blink Charging (BLNK), Peloton (PTON) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index
• VMware (VMW) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index
• Apple (AAPL) is a constituent of the Tematica Research Thematic Dividend All-Stars Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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