Stocks Stabilize after Monday’s Rout

Morning Markets

September S&P 500 futures (ESU22) this morning are up +0.13%.  U.S. stocks are stabilizing following Monday’s rout.  Strength in energy stocks is positive for the overall market, with WTI crude up more than +1% at a 1-week high.  Also, an +8% jump in Palo Alto Networks in pre-market trading is lifting technology stocks after the company reported better-than-expected quarterly earnings. 

Stocks are being undercut by this morning’s rise in the 10-year T-note yield to a 1-month high of 3.061%. T-note yields are rising as the market braces for hawkish comments from the Fed at Friday’s annual Fed symposium at Jackson Hole, Wyoming.  Recent Fed commentary signals the Fed will continue its aggressive rate-hike plan to tame inflation. 

The Euro Stoxx 50 today dropped to a 3-week low and is down -0.03%.  Weakness in shipping stocks is weighing on the overall market today after Citigroup downgraded Maersk, Hapag-Lloyd, and ZIM Integrated Shipping, saying the end of the shipping rates upcycle is on the horizon. 

Also, signs of a slowdown in Eurozone economic activity are undercutting stocks after the Eurozone Aug S&P Global manufacturing PMI fell to a 2-year low and the Eurozone Aug S&P Global composite PMI fell to a 1-1/2 year low.  Losses in automakers and technology stocks are leading losers in European stocks today.  In addition, European government bond yields are climbing and pressuring equity prices, with the 10-year U.K. Gilt yield posting a 2-month high today at 2.573% and the 10-year German bund yield climbing to a 1-month high of 1.347%.

Despite a -4% decline in European nat-gas prices today, electricity prices continue to climb to new record highs, bolstering concerns that the surge in energy prices could drive the Eurozone economy into recession. Electricity rates rose to records today in the UK, France, Germany, Italy, and the Nordic region.  German electricity rates to a record of over 700 euros per megawatt Monday, 14 times the seasonal average over the past five years. Russia is halting gas flows through the Nord Stream pipeline to Germany for three days of maintenance starting Aug 31, raising concern the supply link won’t return even after the maintenance work is completed.

The Eurozone Aug S&P Global manufacturing PMI fell -0.1to a 2-year low of 49.7, although that was stronger than expectations of 49.0.  Also, the Eurozone Aug S&P Global composite PMI fell -0.7 to a 1-1/2 year low of 49.2, although stronger than expectations of 49.0.

Asian markets today closed lower.  China’s Shanghai Composite index today closed down -0.05%, and Japan’s Nikkei index closed down -1.19%. 

China’s Shanghai Composite posted modest losses today and was weighed down by concerns about a slowing Chinese economy.  China’s yuan dropped to a nearly 2-year low today against the dollar of 6.8663 yuan/USD.  A rally in property developers limited losses in the overall market after a Bloomberg report Monday said that special loans for the property sector would top $29 billion. 

Japan’s Nikkei Stock Index fell to a 1-week low today on concern global growth may slow from the Fed’s aggressive rate hike plan. Also, a gauge of Japanese manufacturing activity showed signs of slowing that weighed on stocks after the Japan Aug Jibun Bank manufacturing PMI fell to a 1-1/2 year low.  The Nikkei Stock Index recovered from its worst levels as travel stocks rallied after the Nikkei reported that the Japanese government is considering loosening pandemic restrictions and opening the country to more tourists by raising the daily cap on the number of people entering the country to 50,000 from 20,000.

The Japan Aug Jibun Bank manufacturing PMI fell -1.1 to a 1-1/2 year low of 51.0. 

Pre-Market U.S. Stock Movers

Palo Alto Networks (PANW) jumped more than +8% in pre-market trading after reporting Q4 adjusted EPS of $2.39, better than the consensus of $2.28, and forecast 2023 adjusted EPS of $9.40-$9.50, stronger than the consensus of $9.30. 

Kohl’s (KSS) rose more than +2% in pre-market trading on signs of insider buying after an SEC filing showed Chairman Boneparth bought $750,130 of Kohl’s stock.

Energy stocks and energy service providers are moving higher in pre-market trading, with WTI crude up more than +1% at a 1-week high.  Devon Energy (DVN), Diamondback Energy (FANG), Marathon Oil (MRO), ConocoPhillips (COP), Schlumberger (SLB), Exxon Mobil (XOM), and Haliburton (HAL) are all up more than +1%.

Macy’s (M) rose more than +1% in pre-market trading after reporting Q2 adjusted EPS of $1.00, better than the consensus of 85 cents, and forecast 2023 net sales of 424.34 billion to $24.58 billion, the midpoint above the consensus of $24.35 billion.

Zoom Video Communications (ZM) tumbled nearly -9% in pre-market trading after reporting Q2 revenue of $1.10 billion, below the consensus of $1.12 billion, and cutting its 2023 revenue forecast to $4.39 billion-$4.40 billion from a prior forecast of $4.53 billion-$4.55 billion, weaker than the consensus of $4.54 billion.

Grocery Outlet (GO) dropped -4% in pre-market trading after Morgan Stanley downgraded eh stock to underweight from equal weight.  

Today’s U.S. Earnings Reports (8/23/2022)

Advance Auto Parts Inc (AAP), Intuit Inc (INTU), J M Smucker Co/The (SJM), Medtronic PLC (MDT).

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