Stocks Fall on Hawkish Fed Comments

Morning Markets

September S&P 500 futures (ESU22) this morning are down -0.23% at a 7-week low. The prospects of aggressive Fed tightening are weighing on equities today after Richmond Fed President Barkin said the Fed must raise interest rates to a level that restrains economic activity.  Also, global growth concerns are undercutting stocks after Chinese economic reports today showed China’s export and imports last month were weaker than expected. 

Richmond Fed President Barkin said the Fed must raise interest rates to a level that restrains economic activity and keep them there until policymakers are "convinced" that inflation is subsiding.

The U.S. July trade deficit of -$70.7 billion was wider than expectations of -$70.2 billion, which had negative implications for Q3 GDP.

Goldman Sachs said the rally in stocks that began in mid-June was a "bear market rally," and they expect "further weakness and bumpy markets before a decisive trough is established."

The Euro Stoxx 50 today is down -0.64% on continued concerns about the energy crisis and hawkish global central banks.  The ECB is expected to raise interest rates by at least 50 bp and possibly 75 bp at Thursday’s policy meeting.   Losses in the overall market are limited by strength in European utilities and renewable energy stocks after the European Commission proposed a price cap of 200 euros per MWh for electricity from non-gas electricity producers.

Better-than-expected Eurozone economic news today is supportive of stocks.   Eurozone Q2 GDP was revised upward to +0.8% q/q and +4.1% y/y from the originally reported +0.6% q/q and +3.9% y/y.  Also, German July industrial production fell -0.3% m/m, stronger than expectations of -0.6% m/m.

Asian markets today settled mixed.  China’s Shanghai Composite Index closed up +0.09%, and Japan’s Nikkei Stock Index closed down -0.71%.

China’s Shanghai Composite today climbed to a 1-1/2 week high and settled modestly higher.  A rally in Chinese chipmakers lifted the overall market higher after President Xi Jinping called for a stronger effort to pool nationwide resources to advance key technologies.  However, gains in Chinese stocks were limited after today’s trade news illustrated the negative effects that Covid lockdowns had on China’s exports and imports in August. 

China Aug exports rose +7.1% y/y, weaker than expectations of +13.0% y/y.  China Aug imports rose +0.3% y/y, weaker than expectations of +1.1% y/y.

Japan’s Nikkei Stock Index today dropped to a 7-week low and closed moderately lower.  Weakness in Japanese technology stocks led the overall market lower today after Samsung Electronics, the world’s largest maker of memory chips, said the outlook for the second half of this year is gloomy and it does not see a recovery until next year.  Also, Japanese shipping stocks fell after the CEO of Nippon Yusen said shipping companies will face challenges as “a recession is inevitable toward the end of 2022.”  Limiting losses in the overall market was strength in exporter stocks after the yen today dropped to a new 24-year low against the dollar.

The Japan July leading index CI fell -0.7 to a 17-month low of 99.6, weaker than expectations of 100.2.

Pre-Market U.S. Stock Movers

Newell Brands (NEWL) fell more than -4% in pre-market trading after cutting its full-year EPS forecast to $1.56-$1.70 from a previous estimate of $1.79-$1.86, weaker than the consensus of $1.84.

Guidewire Software (GWRE) fell more than -1% in pre-market trading after RBC Capital Markets said the company reported a “mixed” quarter amid macroeconomic headwinds, noting “muted” guidance from the company. 

UiPath (PATH) plunged -21% in pre-market trading after forecasting Q3 revenue of $243 million-$245 million, weaker than the consensus of $269.5 million.  Morgan Stanley then downgraded the stock to equal weight from overweight.     

Electronic Arts (EA) fell more than -1% in pre-market trading after MKM Partners downgraded the stock to neutral from buy.

Paycor HCM (PYCR) dropped more than -4% in pre-market trading after the company announced an underwritten public offering of 5 million shares of common stock on behalf of investment funds advised by Apax Partners LLP. 

Coupa Software (COUP) surged +12% in pre-market trading after reporting Q2 adjusted EPS of 20 cents, stronger than the consensus of 9 cents, and raised its 2023 adjusted EPS estimate to 37 cents-44 cents from a prior estimate of 21 cents-27 cents, better than the consensus of 26 cents.

Gitlab (GTLB) climbed +3% in pre-market trading after reporting Q2 revenue of $101 million, above the consensus of $94 million, and raised its 2023 revenue estimate to $411 million-$414 million from a prior estimate of $398 million-$402 million, stronger than the consensus of $402.9 million. 

Pinterest (PINS) rose more than +2% in pre-market trading after Wolfe Research upgraded the stock to outperform from peer perform.

Petco (WOOF) rose more than +1% in pre-market trading after RBC Capital Markets initiated coverage of the stock with an outperform rating and a price target of $17. 

Today’s U.S. Earnings Reports (9/7/2022)

Casey's General Stores Inc (CASY), Copart Inc (CPRT), GameStop Corp (GME).

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