Closing Summary – S&P tops 4,000 in continued rebound effort -VipLiveAlerts-Pro Briefing

The stock market had a somewhat volatile session that ultimately left the major indices with modest gains, building on yesterday’s bounce. The market opened on a softer note before reaching session highs midmorning. Selling efforts ramped up and sent the indices toward session lows after the S&P 500 tested, and found resistance at, the 4,000 level. The market climbed off those levels throughout the afternoon with the S&P 500 closing just a hair over the 4,000 mark.  Selling efforts were fueled by rate hike concerns after the ECB’s 75 basis point rate hike, a low weekly initial jobless claims number that showed the labor market remains tight, and Fed Chair Powell reiterating at the Cato Institute’s Monetary Conference that the Fed is committed to restoring price stability and will keep at it until the job is done. Rising market rates piled on to these factors as the 2-yr note yield rose above 3.50% today before settling at 3.49%. The 10-yr note yield rose three basis points to 3.29%. On the flip side, buying efforts were fueled by a lack of selling conviction in spite of the aforementioned headlines. The resilience was construed as a sign that a lot of bad news, and worries about near-term rate hikes, have been priced in already. Buying was generally broad based, but mega caps were at a slight disadvantage as the Vanguard Mega Cap Growth ETF (MGK) closed with a more modest gain of 0.5% versus the Invesco S&P 500 Equal Weight ETF (RSP) (+0.9%) and the S&P 500 (+0.7%). Only three S&P 500 sectors closed with losses on the day, utilities (-0.1%), consumer staples (-0.2%), and communication services (-0.4%). Health care (+1.8%) and financials (+1.7%) sat atop the leaderboard.  Semiconductor stocks were notably strong today with the PHLX Semiconductor Index closing up 1.8%. Energy (+0.5%) closed near the middle of the pack as oil prices climbed. WTI crude oil futures rose 1.7% to $83.26/bbl while natural gas rose 1.2% to $7.92/MMBtu. Separately, it was announced that Queen Elizabeth II passed away today. In recognition of her death, the UK will observe a 10-day national mourning period. Kroger (KR) is set to report quarterly results ahead of Friday’s open. Friday’s economic data is limited to July Wholesale Inventories ( consensus 0.8%; prior 1.8%) at 10:00 a.m. ET. Reviewing today’s economic data: For the week ending September 3, initial jobless claims decreased by 6,000 to 222,000 ( consensus 246,000). That is the lowest levels of initial claims since late May. Continuing jobless claims for the week ending August 27 increased by 36,000 to 1.473 million. The key takeaway from the report remains the same: initial claims are running at levels indicative of a tight labor market that is still running against the grain of the Fed’s policy aim. Weekly EIA Natural Gas Inventories showed a build of 54 bcf versus a build of 61 bcf last week. Weekly EIA Crude Oil Inventories showed a build of 8.84 million barrels after last week’s draw of 3.33 million barrels Dow Jones Industrial Average: -12.6% YTD
S&P 400: -13.6% YTD
S&P 500: -16.0% YTD
Russell 2000: -17.7% YTD
Nasdaq Composite: -24.2% YTD

Overseas: Europe: DAX -0.1%, FTSE +0.3%, CAC +0.3%Asia: Nikkei +2.3%, Hang Seng -1.0%, Shanghai -0.3%

Commodities: Crude Oil +1.42 @ 83.26Nat Gas +0.09 @ 7.92Gold -7.60 @ 1721.10Silver +0.12 @ 18.45Copper +0.11 @ 3.54

Spotlight Comment: American Eagle gets its wings clipped as it was forced into markdowns and dividend pause American Eagle Outfitters (AEO 10.58, -1.01, -8.7%is under pressure today following a disappointing Q2 (Jul) earnings report last night. Revenue was in-line but AEO posted a pretty large EPS miss because margins took a hit as management had to mark down prices to clear inventory. Also, comps were negative in both brands, Aerie and American Eagle. And if that were not enough, AEO also will pause its dividend to conserve cash.

AEO’s main goal in Q2 was to right-size its inventory to match consumer demand, which included pretty significant markdowns. The good news is that AEO says it cleared all excess spring and summer goods and entered Q3 (Oct) with better inventory levels and fresh back-to-school and fall merchandise. AEO has significantly pulled back on fall receipts and continues to adjust forward inventory.

Breaking it down by brand, Aerie posted an 11% revenue increase, but that was fueled by new store openings. Aerie comps were -6%, but to be fair it was lapping huge federal stimulus fueled comps of +25% last year. Also, Aerie revenue has nearly doubled in the past three years. American Eagle revenue declined 8% yr/yr with comps at -10%. Again, it was lapping huge +39% comps last year.

One of the few positives about the quarter is that AEO’s supply chain problems are finally showing signs of improvement. AEO says shipping delays and bottlenecks are easing, transit times are shorter and freight costs have come down substantially from their highs. An improving supply chain is important not just from a cost standpoint, but it allows AEO to be more agile and responsive to changes in demand.

AEO is also clearly in cash preservation mode in the near term. The biggest item was pausing the dividend. AEO was paying a quarterly dividend of $0.18/sh, which computes as a 6.2% yield at yesterday’s close. Investors are clearly not happy to lose such a big payday, however, a yield that size for a struggling company was not sustainable. We are not surprised to see it paused and we think it’s likely it will get reduced when AEO turns it back on. AEO is also instituting a hiring freeze, making further reductions in non-critical expenses and is lowering cap-ex all to conserve cash.

Overall, this was a rough quarter for AEO and it has been a rough quarter generally for many mall-based apparel retailers. While margins took a big hit in Q2 from markdowns, we think it was the right thing to do to clear it out before the fall and holiday seasons. Some retailers have delayed doing this, but the pain will eventually come. Overall, we remain cautious on AEO in the near term. Pausing the dividend was probably the right move, but it is a signal that the company is undergoing a cash crunch, which always makes us nervous as a shareholder. Perhaps an equity raise is in the offing?

Today’s News Summary: For a full rundown of today’s market and after-hours developments, see Live In Play

Earnings/Guidance (Full Earnings Calendar):
AeroVironment (AVAV) reports Q1 (Jul) results, beats on revs; reaffirms FY23 EPS guidance, revs guidance
Altice USA (ATUS) appoints Dennis Mathew to position of CEO, effective October 3, 2022
American Eagle (AEO) misses by $0.10, reports revs in-line; will pause dividend; plans to cut expenses and cap-ex
ArcBest (ARCB) reports August 2022 consolidated revenues grew approximately 32% on a per day basis compared to August 2021
Asana (ASAN) beats by $0.05, beats on revs; guides Q3 EPS in-line, revs above consensus; guides FY23 revs above consensus; expects to reach free cash flow positive before the end of CY24
Bilibili (BILI) misses by CNY0.53, reports revs in-line; guides Q3 revs below consensus
Casey’s General (CASY) beats by $0.41, reports revs in-line, inside comps +6.3%, fuel gallons comps -2.3%; reaffirms FY23 outlook of +4-6% inside comps and fuel gallons comps of flat to +2%
Cedar Fair (FUN) reports record revenues through Labor Day 2022
Chip MOS TECHNOLOGIES (IMOS) reports August revs declined 28.5% yr/yr to ~NT$1.72 bln
Clear Channel Outdoor (CCO) reaffirms guidance ahead of Investor Day
Copart (CPRT) beats by $0.03, beats on revs
Couchbase (BASE) beats by $0.09, beats on revs; guides Q3 revs in-line; guides FY23 revs above consensus
Dave & Buster’s (PLAY) reports Q2 (Jul) results, beats on revs; comparable sales at Dave & Buster’s branded stores increased 9.6% compared with the same period in 2019
Descartes (DSGX) reports EPS in-line, beats on revs
FuelCell Energy (FCEL) misses by $0.02, beats on revs
GameStop (GME) beats by $0.07, misses on revs
Lovesac (LOVE) misses by $0.02, beats on revs
McCormick (MKC) guides Q3 (Aug) EPS and revs below consensus and trims its FY22 outlook due to inflationary pressures resulting in higher price elasticity than expected as well as ongoing supply chain disruptions
Phreesia (PHR) beats by $0.08, beats on revs; guides FY23 revs in-line
Reynolds Consumer Products (REYN) sees Q3 revs at low end of previous guidance; reaffirms EPS
Taiwan Semiconductor Manufacturing (TSM) reports August revs increased 58.7% to NT$218.1 bln
Torrid (CURV) misses by $0.02, reports revs in-line; guides Q3 revs below consensus; expects FY23 revs of $1.26-1.30 bln
Verint Systems (VRNT) beats by $0.03, misses on revs; reaffirms FY23 EPS guidance, lowers FY23 revenue guidance
Yext (YEXT) beats by $0.02, beats on revs; guides Q3 EPS in-line, revs below consensus; guides FY23 EPS above consensus, revs below consensus

General News:
Queen Elizabeth II died at the age of 96; UK to have 10-day national mourning period
ECB raises rates by 75 basis points; expects more rate hikes at coming meetings Fed Chairman Jerome Powell Q&A at Cato: History cautions strongly against prematurely loosening policy
Iran nuclear deal talks hit another roadblock, according to CNN
Russian President Putin threatened to completely stop all energy supplies to Europe and “let them freeze”, CNBC
President Biden spoke with European leaders about Russia’s weaponization of energy and the need for further coordination to secure sustainable and affordable energy supplies for Europe
Democrats are preparing to draft legislation that would ban former President Trump from running for office again, but efforts are unlikely to succeed, according to the New York Times
China extends Chengdu lockdown, according to Reuters
California avoids blackouts for another day, according to Bloomberg
UK Prime Minister Liz Truss removes ban on fracking and approves more oil drilling
UK Prime Minister Liz Truss temporarily suspends green levies; will limit household energy bills to GBP 2,500 a year for the next two years
FDA takes significant action to help expand access to monkeypox testing
22nd Century Group (XXII) eliminates the COO position; current COO Michael Zercher to leave company, effective September 30
AbbVie (ABBV) reports New MEASURE-AD Analyses Evaluate Clinical, Psychosocial and Economic Burdens in Atopic Dermatitis Patients
Air Lease (AL) announces lease placement of four new Airbus A321XLR aircraft with Air Transat
Alnylam (ALNY) Presents Positive Results from the APOLLO-B Phase 3 Study of Patisiran in Patients with ATTR Amyloidosis with Cardiomyopathy
Altria (MO): Jury Finds that Reynolds Vapor Company’s Vuse Alto Infringes Altria Patents
Amazon (AMZN) will slow down hiring rate, according to the Wall Street Journal
AMC (AMC): Cineworld commences chapter 11 cases with approximately $1.94 billion in debtor-in-possession financing commitments to facilitate a significant de-leveraging transaction and position company for long-term growth
Amgen (AMGN) announces positive new data at EADV 2022 for Otezla
Amylyx Pharmaceuticals (AMLX) announces FDA Advisory Committee supports approval of AMX0035 for the treatment of ALS
Apple (AAPL): China Guiyang lockdown could have negative effects to Apple data center, according to Bloomberg
AT&T (T) provides updates at investment conference
Bed Bath & Beyond (BBBY) CFO Gustavo Arnal was overwhelmed before he took his life, according to the Wall Street Journal
Biogen (BIIB): The New England Journal of Medicine Publishes Second Manuscript Reporting Positive Phase 2 Results for Biogen’s Litifilimab (BIIB059) in LupusBIO-TECHNE (TECH) PRESENTS INITIAL DATA ON SJÖGREN’S SYNDROME MONITORING ASSAY
Cardinal Health (CAH) announces pharmaceutical segment organizational changes
CareDx (CDNA) names Abhishek Jain as CFO, he had been interim CFO
Denison (DNN) Announces Expansion of High-Grade Uranium Mineralization at McClean Lake South
EMCOR Group (EME) companies awarded North American and European facilities portfolio contract with Siemens Energy
Endeavour Silver (EXK) Continues to Intersect Positive Drill Results at the Parral Project
Enthusiast Gaming Holdings (EGLX) announces strategic Web3 Collaboration with Coinbase (COIN)
Equinox Gold (EQX) reports an illegal blockade and suspension of operations at its Los Filos Mine
Erasca (ERAS) Presents Promising Preliminary Phase 1/1b Monotherapy Data for ERAS-007 ERK and ERAS-601 SHP2 Inhibitors Supporting Ongoing and Future Combination Trials
Exelixis (EXEL) Announces Detailed Results from Phase 3 COSMIC-313 Pivotal Trial in Patients with Previously Untreated Advanced Kidney Cancer at ESMO 2022
FREYR Battery (FREY) awarded an agreement to Italy-based NTE Process to supply a complete and integrated drying and powder handling system for FREYR’s planned battery cell Gigafactory in Norway, known as Giga Arctic
GameStop (GME) enters into partnership with FTX, making company FTX’s preferred retail partner in the U.S.
General Motors (GM) aiming to introduce direct consumer sales channel in China, according to Reuters
General Motors (GM) CEO Mary Barra in CNBC interview says production of Equinox EV will ramp quickly and expects to be in full production by Q1 of 2024
Gilead Sciences (GILD) reports Trodelvy significantly improved overall survival in pre-treated HR+/HER2- metastatic breast cancer patients in TROPiCS-02 Study
Google (GOOG) News Showcase feature is behind schedule, according to the Wall Street Journal
HUTCHMED (HCM) Highlights Phase III FRESCO-2 MRCT Data Summary of Fruquintinib in Refractory Metastatic Colorectal Cancer from the Upcoming ESMO 2022 Presentation
InflaRx (IFRX) announces vilobelimab phase III results in critically Ill COVID-19 patients published in the Lancet respiratory medicineInnoviz Technologies (INVZ): Asian-based OEM selected INVZ to serve as LiDAR supplier for production passenger vehiclesIridium Communications (IRDM) announced that it has reached an agreement with SpaceX to launch up to five of the company’s remaining ground spare satellites from the Iridium NEXT program, on its Falcon 9 rocket
JetBlue Airways (JBLU): Air Emirates announces that its partnership with JetBlue ends on October 30, 2022
Linde plc (LIN) to increase green hydrogen production in the United States
Lowe’s (LOW) and Instacart announce that same-day delivery is now available from more than 1,700 Lowe’s stores nationwide
MindMed (MNMD) Announces Positive Results from Collaborators’ Placebo-Controlled Investigator-Initiated Trial Published in Peer-Reviewed Journal
Mirati Therapeutics (MRTX) Presents Late-Breaking Adagrasib Monotherapy and Combination Results in Advanced Colorectal Cancer
Momentus (MNTS) provided its fifth Mission Update on its inaugural Vigoride mission that launched on May 25
Olo Inc. (OLO) authorizes share repurchase program for up to $100 mln of common stock
Pfizer (PFE) awarded $4.85 bln U.S. Army modification contract
Quest Diagnostics (DGX) receives Emergency Use Authorization for proprietary Monkeypox test
Regeneron Pharma (REGN): Aflibercept 8 mg meets primary endpoints
Restaurant Brands Int’l’s (QSR) exclusive operator of Tim Horton’s coffee shops in China launches two ready-to-drink coffee products with Sinopec’s Easy Joy convenience stores
Revance Therapeutics (RVNC) announces FDA approval of DAXXIFY for injection, the first and only peptide-formulated neuromodulator with long-lasting resultsRivian
Automotive (RIVN) and Mercedes-Benz (DMLRY) move to partner on electric van production
Silence Therapeutics (SLN) announces FDA fast track designation for SLN124, a novel investigational sirna therapy for the treatment of polycythemia vera
Silk Road Medical (SILK) Announces First Patient Enrolled in ROADSTER 3 Post Approval Study Evaluating TCAR® System in the Treatment of Standard Surgical Risk Patients
Stantec (STN) to develop framework to analyze impacts of PFAS on wastewater
Sun Communities (SUI) announces COO transition; Bruce Thelen, current Executive Vice President of Operations and Sales, will assume COO role effective December 31, 2022
Tesla (TSLA) delivered 76,965 China manufactured vehicles in August, according to Bloomberg
Teva Pharma (TEVA) reports Studies Show Effectiveness of AJOVY (fremanezumab) for Treatment of Migraine in Patients With Co-morbid Depression
The ONE Group (STKS) authorizes a share repurchase program for up to $10 mln; will expire in two years, unless further extended
Tilray (TLRY) announced that Breckenridge Distillery, a part of the Company’s U.S. business, has renewed and expanded its distribution agreement with Republic National Distributing Company
Toll Brothers (TOL) and Equity Residential to develop three new luxury rental communities in Dallas-Forth Worth area
Twitter (TWTR): Elon Musk will be allowed to amend Twitter countersuit, according to the Wall Street Journal
U.S. Xpress (USX) announces realignment plan primarily focused on improving its over-the-road operations; total costs expected to be reduced by approximately $25 mln on an annualized basis beginning in 4Q22
Vanda Pharma (VNDA) announced the notice of opportunity for an FDA hearing on Vanda’s Supplemental New Drug Application for HETLIOZ
Veracyte (VCYT): New Data Suggest Veracyte’s Envisia Genomic Classifier Can Help Predict Disease Progression in Interstitial Lung Disease Patients Treated with Combination Immunosuppressive Therapy
Verint Systems (VRNT) CFO Douglas Robinson to step down; Grant Highlander promoted to succeed Robinson during Q4 (Jan)Verizon (VZ) at conference says it is not experiencing problems with bad consumer debt
ViewRay (VRAY) announced that GenesisCare purchased two additional MRIdian MRI-guided radiation therapy systems for installation at new-build comprehensive cancer centres
Walmart Plus (WMT) members will now get a Paramount+ (PARA) Essential subscription at no extra cost

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