Stocks Lower on Growth Concerns and Q2 Earnings Caution

Morning Markets

September S&P 500 futures (ESU22) this morning are down by -0.44%.  U.S. stock indexes are weighed down today by concern that a flare-up in Covid infections in China could lead to expanded pandemic restrictions that slow economic activity and lead to more supply-chain turmoil.  Also, inflation concerns are fueling long liquidation pressures in stocks ahead of Wednesday’s U.S. consumer price index for June, which is expected to climb to a new 40-year high of +8.8% y/y.

The markets remain cautious ahead of the Q2 earnings season that starts this week, which will provide clues about the state of the economy and how companies are navigating inflation and supply constraints.   Major Wall Street banks are expected to begin reporting this week, along with other companies such as Fastenal, Delta, Cintas, and Conagra.

The Euro Stoxx 50 is down -0.60% today and added to Monday’s losses.  A slump in German investor confidence weighed on stocks today after the German July ZEW survey expectations of economic growth fell more than expected to an 11-year low.  European stocks are also under pressure on concern that a worsening pandemic in China could lead to new lockdowns that snarl supply chains and further weigh on global growth.  Spanish banks retreated today to lead European bank stocks lower after Spanish Prime Minister Sanchez said the country will impose a new tax on “big financial institutions.”

The German July ZEW survey expectations of economic growth fell -25.8 to an 11-year low of -53.8, weaker than expectations of -40.5.

China’s Shanghai Composite Index today fell to a 2-1/2 week low and closed down -0.97% on the Covid resurgence in China.  Shanghai reported 59 new Covid infections Monday, the fourth day in a row case numbers have stayed above 50.  The jump in new cases has triggered two additional rounds of mass testing this week across 9 of Shanghai’s 16 districts.  Many of the new Covid infections were found to be from the more contagious BA.5 sub-strain of the omicron variant.  Already, close to 30 million people are under some form of movement restrictions in China as the government maintains its strict Covid-Zero strategy.

Japan’s Nikkei Stock Index closed down -1.77% today.  Concern that a resurgence of new Covid infections in Japan will lead to new pandemic restrictions and lockdowns weighed on stocks today after Tokyo reported 11,511 new coronavirus cases, more than double from a week ago and the most in 4 months.  The Japanese yen recovered slightly today from Monday’s 24-year low against the dollar after Japanese Finance Minister Suzuki warned the slump in the yen is causing alarm in the Japanese government and that he’ll take “appropriate measures if necessary” to halt the spiral.

Japan’s June PPI eased to +9.2% y/y from +9.3% y/y in May, stronger than expectations of +8.9% y/y.

Pre-Market U.S. Stock Movers

American Express (AXP) and Capital One Financial (COF) are down more than -2% in pre-market trading after Morgan Stanley cut its recommendation on the stocks to equal-weight from overweight. 

Cryptocurrency stocks are trading lower in pre-market trading, with Bitcoin down more than -3% at a 1-week low.   Marathon Digital (MARA) is down more than -5%, and Coinbase (COIN) and Riot Blockchain (RIOT) are both down more than -3%.

The Gap (GPS) is down more than -6% in pre-market trading after CEO Syngal was terminated.  The company also said it expects rising costs and deepening discounts to erase this quarter’s operating profit.

STORE Capital (STOR) dropped more than -3% in pre-market trading after Morgan Stanley downgraded the stock to underweight from equal-weight.

National Retail Properties (NNN) slid almost -2% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight.

Lennar (LEN) fell -2% in pre-market trading after JPMorgan Chase cut its recommendation on the stock to neutral from overweight. 

PepsiCo (PEP) is up more than +1% in pre-market trading after it reported Q2 core EPS of $1.86, stronger than the consensus of $1.74.

Ginkgo Bioworks (DNA) jumped +9% in pre-market trading after ETFs managed by Cathie Wood’s Ark Investment Management bought 860,480 shares in the company.

Today’s U.S. Earnings Reports (7/12/2022)

AngioDynamics Inc (ANGO), CIRCOR International Inc (CIR), PepsiCo Inc (PEP).

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