Daily Markets: Stocks Trying to Shake September Funk

Today’s Big Picture

After posting the biggest jump since August yesterday, U.S. equity futures point to a drop at the open as investors wait to digest the August Retail Sales report, which will be released before the market opens. The major European equity markets were all in the green by midday trading despite the slide in Asia-Pacific. China’s Shanghai Composite lost 1.3%, and its Shenzhen Component fell nearly 2%, Hong Kong’s Hang Seng dropped 1.5% amid casino regulatory concerns, and Japan’s Nikkei slid 0.6%. The lone winner for the day was Australia, with its ASX 200 gaining 0.6%.

The S&P 500 is down 0.9% for September so far, and the Dow is down 1.6%, while the Nasdaq has lost just 0.6%. After seven consecutive months of gains, September is traditionally a down month for equities, and in light of pandemic fears and weaker than expected economic data, investors appear to be rethinking valuations.

Data Download

Coronavirus

Yesterday Pfizer (PFE) released data that showed the protection from its Covid-19 vaccine wanes six to eight months after the second dose. This morning Moderna (MRNA) followed suit, sharing analysis from its phase 3 study of breakthrough cases amongst vaccinated participants between July 1 and August 27. The study found a 36% reduction in those who had been vaccinated more recently, with a median follow-up period of eight months, versus those vaccinated last year, with a median follow-up period of 13 months. This comes on the heels of an opinion piece published on Monday in The Lancet in which the authors argue that a booster is not necessary. The staff at the FDA declined yesterday to take a stance, either way, saying that U.S. regulators have not been able to verify all the available data.

Alberta, Canada declared a public health emergency yesterday as a surge of cases has pushed the province’s healthcare services to the breaking point, with ICUs operating at more than 2x their normal capacity. The current modeling of the situation predicts that the province will run out of staff to attend to ICU beds within ten days.

It is getting complicated in NYC with the UN. Wednesday, the head of the UN said that he could not insist that world leaders show they have been vaccinated against Covid-19 when attending the General Assembly meeting in New York next week. It turns out NYC officials have decided that the UN’s General Assembly Hall is considered to be a convention center which means that anyone entering is required to show proof of vaccination. Technically the UN headquarters are international territory, thus not subject to U.S. laws, but UN officials have said they would abide by local laws. Well, that just got awkward.

Next month Los Angeles County will require proof of coronavirus vaccination to enter bars, nightclubs, and other drinking establishments. The requirement also extends to “outdoor mega-events,” where attendees and employees starting on Oct. 7 must show either proof of a vaccine or a negative Covid test within the past three days.

International Economy

Japan’s Exports slowed to a 26.2% YoY increase in August, from 37% in July, and well below the expectations for a drop to 34%.

The Swiss Secretariat for Economic Affairs shared it now sees the Swiss economy grow by 3.2% this year, down from its prior forecast of +3.6% in June, but also lifted its 2022 forecast to +3.4% from the prior +3.3%.

Data from the European Automobile Manufacturers’ Association informs new-car registrations in Europe fell 18% in August and 24% in July with double-digit drops in Germany, France, the UK, Italy, and Spain.

A survey by Germany’s VDMA engineering industry association found the majority of German mechanical engineering companies are facing noticeable or serious supply chain problems that are expected to hamper production growth into 2022. Per the report, 81% of mechanical engineering companies reported impairments in their supply chains, especially electronic components, and two-thirds of the companies surveyed suffered from logistics and transport problems.

Domestic Economy

Yesterday’s Import and Export prices came in a bit better than expected, with export prices rising 0.4% MoM, as expected, down from the prior 1.1% MoM increase, but Import Prices actually fell -0.3% MoM versus expectations for slowing to +0.3% MoM from July’s +0.4% increase. On a YoY basis, Import Prices are up 9.0% in August, slowing from the 10.3% pace in July, and Export Prices are up 16.8%, down from July’s 17%.

August saw a fairly broad-based decline in manufacturing activity, but yesterday’s NY Empire State Manufacturing survey saw a widespread acceleration in activity across categories in the New York region. While the headline index was expected to decline slightly to 18.0 from 18.3, it rose to 34.3, the seventh-highest level on record. The only sub-index lower on the month was Prices Paid. Every other sub-index shows acceleration with Delivery Times and Prices Received at record highs. New Orders and Shipments saw increases that were in the top percentiles of their historical ranges. A worrisome area is in Delivery Times, which has been increasing over the past two months after having been improving previously, signaling worsening supply chain challenges.

Industrial Production came in as expected, rising 0.4% MoM in August, slowing from July’s 0.8%, and is now up 5.9% YoY. Manufacturing output has now reclaimed the levels it occupied pre-pandemic and is on the rise, despite supply chain and automobile semiconductor chip challenges. Capacity Utilization remains relatively relaxed at just 77.0%, below the peak of 78.4% in the middle of 2018. The one exception here is steel mills with iron and steel capacity utilization at the highest levels since the mid-2000s.

Later today, we will get Retail Sales for August which are expected to fall -1.1% MoM, weekly Jobless Claims, Philadelphia Fed Manufacturing Index, Business Inventories, Net Capital Flows, and Foreign Bond Investment.

Markets

Equities shrugged off recent downward pressure to finish higher yesterday, with the S&P 500 closing 0.9% higher. The Dow Jones Industrial Average added 0.7% while the Nasdaq Composite climbed 0.9% and the Russell 2000 gained 1.1%. Ten of the 11 S&P 500 sectors ended the session in positive territory, led by the energy, industrials, and materials, while the lone sector to close the day slightly lower was utilities.

Stocks to Watch

Earnings Announcements & Guidance

Before U.S. equity markets open this morning, no companies are expected to report their quarterly results.

Despite changing the launch date for Battlefield 2042 to November 19, Electronic Arts (EA) reiterated its net bookings guidance for the fiscal year 2022.

Braemar Hotels & Resorts (BHR) announced its preliminary portfolio occupancy was ~59.2% in August, with revenue per available room up 149 YoY during the month (-12% vs. August 2019).

InterDigital (IDCC) upped its revenue outlook for the current quarter to $119-$121 million vs. the $111.6 million consensus. The company’s revised outlook for the current quarter includes $89-$91 million of recurring revenue and $30 million in non-recurring revenue associated with a fixed price license agreement signed during the quarter.

Engineered bearings and power transmission products company Timken (TKR) has withdrawn its full-year 2021 guidance and announced it expects lower sales and earnings in 2H21 relative to its prior guidance. Per the company, results are being impacted by unabating customer and supply chain disruptions and related manufacturing inefficiencies, as well as continued inflationary pressures across the enterprise.

At a virtual meeting with Wall Street analysts, Cisco Systems (CSCO) said that it expects half of its sales will likely come from software and recurring revenue as it continues shifting into new areas beyond its long-time core networking products. The company estimates its software and subscriptions business will grow from 44% of total sales in 2021 to 50% by 2025Cisco also shared the ongoing worldwide shortage in computing parts such as memory chips and power supply units will result in some pressure on the company’s hardware profit margins.

Shares of electric vehicle maker Lucid Group (LCID) traded higher following reports that a version of its debut sedan was recognized by the US Environmental Protection Agency as having the longest range ever for an EV.

AMC Entertainment (AMC) CEO Adam Aron tweeted the company “will accept Bitcoin for online ticket and concession payments by year-end 2021.”

Molson Coors (TAP) announced Topo Chico Hard Seltzer will officially expand product distribution nationwide starting January 2022.

IPOs

Enact Holdings (ACT) priced its 13.3 million share IPO at $19.00 per share, the low end of the targeted $19-20 range.

The Swiss running shoemaker On Holding AG (ONON), which counts tennis superstar Roger Federer as an investor thanks to its proprietary cushioning technology, enjoyed a 46% jump in share price during its first day of trading, closing at $35 after its IPO price was set at $24.

The biotech firm Prenetics, which helped the English Premier League play through the pandemic with its Covid-19 tests, has merged with the Nasdaq-listed Artisan Acquisitions Spac (ARTA) that valued the biotech at $1.25 billion. The Spac will be renamed Prenetics and will have a combined equity value of $1.7 billion when taking into account the funds already raised by the SPAC.

M&A Activity

Shares of media company Tegna (TGNA) soared yesterday following a report the company has received takeover bids and is working with JP Morgan to run the bidding process.

After receiving valid acceptances for or acquired 74.77% of Vectura Group pc (VEGPF) shares, Philip Morris International’s (PM) offer for Vectura Group, a provider of inhaled drug delivery solutions, is now unconditional.

Dividends and More

Texas Instruments (TXN) announced it will raise its quarterly dividend 13% to $1.15 per share, up from $1.02 per share.

After Today’s Market Close

No company is expected to report its quarterly results, but with two weeks until the close of the quarter, we’ll be on the lookout for September quarter earnings pre-announcements, both good and bad. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• September 17: University of Michigan Consumer Sentiment Report
• September 20: NAHB Housing Market Index
• September 21: Housing Starts, Building Permits
• September 22: Existing Home Sales, Federal Reserve Rate Decision
• September 23: Chicago Fed National Activity Index, Weekly Jobless Claims, Markit Manufacturing PMI, Markit Service PMI
• September 24: New Home Sales
• September 27: Durable Goods Orders, Dallas Fed Manufacturing Index
• September 28: Goods Trades Balance, Wholesale Inventories, S&P/Case-Shiller Home Price Index, Conference Board Consumer Confidence
• September 29: Pending Home Sales
• September 30: GDP for Q2 (final estimate), weekly jobless claims, Chicago PMI
• October 1: Personal Income & Spending, PCE Price Index, Markit & ISM Manufacturing PMIs, Michigan Consumer Sentiment, Construction Spending
• October 4: Factory Orders
• October 5: Total Vehicle Sales for September, Balance of Trade, Market & ISM Service PMIs, IBD/TIPP Economic Optimism
• October 6: ADP Employment Change
• October 7: Jobless claims
• October 8: Nonfarm payrolls, Wholesale inventories
• October 12: JOLTs report
• October 13: CPI, FOMC Minutes
• October 14: Weekly jobless claims, PPI, Monthly budget statement
• October 15: Retail Sales, Import & Export Prices, NY Empire State Manufacturing, Michigan Consumer Sentiment(preliminary), Business Inventories

Thought for the Day

“A storyteller makes up things to help other people; a liar makes up things to help himself.” ~Daniel Wallace.

Disclosures

• Cisco Systems (CSCO), InterDigital (IDCC) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Cisco Systems (CSCO), Texas Instruments (TXN) are constituents of the Tematica Research 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.

Other Topics

Stocks Earnings Economy Coronavirus Smart Investing