Daily Markets: Stocks Stumble to Start September

Today’s Big Picture

Asia-Pacific equity indexes ended today’s session down across the board: China’s Shanghai Composite fell 0.54%, India’s Sensex played catch up after yesterday’s holiday, dropping 1.29%, Japan’s Nikkei declined 1.53%, Hong Kong’s Hang Seng lost 1.79% and Taiwan’s TAIEX and Australia’s ASX All Ordinaries closed down 1.94% and 2.02%, respectively. South Korea’s KOSPI led the way, down 2.28% on the day. Overall central bank hawkishness is thought to be weighing on these markets, although the reactionary cycle of western markets signaling eastern and vice versa plays into this recent slump. By mid-day trading, European equity indices are down sharply, and U.S. futures point to a rough open later this morning.

We closed the books on August, a month that saw the S&P 500 fall 4.2% and the Nasdaq Composite shed 4.6%. September seems to be stumbling out of the starting blocks as well. The dueling narratives of interest rate hikes and inflation vs. the speed of the economy are still driving markets. However, a new round of lockdowns in China, and U.S. government export restrictions on chip companies selling products to China (more on that below), are additional headwinds for stocks. The growing question following the string of losses in recent days and these latest developments is whether equities will re-test the market’s June lows. Given the mounting headwinds that could lead to additional negative earnings revisions before we close out the September quarter, we can’t rule out that possibility, especially if China reacts poorly to the U.S.’s efforts to restrict chip exports.

Data Download

International Economy

The au Jibun Bank Japan Manufacturing PMI was revised higher to 51.5 for August compared with a preliminary figure of 51, and after a final 52.1 in July. While marking the 19th month of expansion in the sector, the latest figure was the lowest since September 2021.

The Caixin China General Manufacturing PMI unexpectedly declined to 49.5 in August from July’s posted 50.4, missing market forecasts of 50.2, and pointing to the first contraction in the sector since May. Output grew at the softest pace in three months, both new orders and buying levels fell for the first time since May.

Retail Sales in Germany fell 2.6% YoY in July vs. the revised 9.6% decline recorded for June. On a positive note, Germany’s July Retail sales rose 1.9% MoM, rebounding from a 1.5% drop in June and beating market forecasts of a flat reading.

The final reading for the S&P Global Eurozone Manufacturing PMI in August was revised slightly lower to 49.6 from an initial estimate of 49.7 as compared with July's final 49.8.

The S&P Global/CIPS UK Manufacturing PMI was revised higher to 47.3 for August vs. the preliminary reading of 46, but even so, the August figure marked the first contraction in factory activity since May of 2020.

The unemployment rate in the Euro Area edged down to a record low of 6.6% in July from an upwardly revised 6.7% in June, matching consensus expectations.

The Chinese city of Chengdu, which is responsible for approximately 1.7% of China’s GDP, locked down its 21 million residents to contain a Covid-19 outbreak after 157 new cases were reported.

Domestic Economy

In addition to the usual weekly Thursday reports that include the latest initial and continuing jobless claims data as well as EIA Natural Gas inventories, we have a full plate of data to chew on this morning. At 7:30 AM ET, the August Challenger Job Cuts report will be published and following recent layoff news from Bed, Bath & Beyond (BYND), Snap (SNAP), and others, odds are we will see a measurable jump in the data.

At 8:30 AM ET, the final 2Q 2022 reading for Unit Labor Costs and Nonfarm Productivity will be published, and they are expected to clock in at +10.7% and -4.5%, respectively.

At 9:45 AM ET, the final reading for S&P Global’s August U.S. Manufacturing PMI will be published and the prevailing view is it will come in at 51.3 vs. July’s 52.2 reading. Soon after that, the Institute for Supply Management will report its August Manufacturing PMI, and forecasters are looking for a reading of 52, down from 52.8 the prior month. While many will focus on the headline figures for these two reports, in recent iterations the center of attention has been on new orders growth as well as supply chain and inflation facing data. We expect that to continue with today’s reports.

Markets

Yesterday saw markets continue to price in future Fed hikes as the Nasdaq Composite fell, 0.56%, the Russell 2000 declined 0.62%, the S&P 500 dropped 0.78% and the Dow closed down 0.88%. All sectors fell with the exception of Communications Services led by Meta Platforms (META) posting a 3.67% gain on the day. Another highlight included EV Charging Network operator Chargepoint (CHPT) which lit up, gaining over 15% after posting the latest in a succession of strong quarterly earnings and providing strong forward guidance.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -13.29%
• S&P 500: -17.02%
• Nasdaq Composite: -24.47%
• Russell 2000: -17.87%
• Bitcoin (BTC-USD): -56.82%
• Ether (ETH-USD): 57.91%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, Campbell Soup (CPB), Ciena (CIEN), Hormel Foods (HRL), Ollie’s Bargain Outlet (OLLI), Patterson Companies (PDCO), Science Applications (SAIC), and Secure Works (SCWX) will be among the companies issuing their latest quarterly results and guidance.

Nvidia (NVDA) filed an 8K in which it shared the U.S. government informed the company it imposed a new license requirement, effective immediately, for any future export to China (including Hong Kong) and Russia, for the company's A100 and forthcoming H100 integrated circuits. DGX or any other systems which incorporate A100 or H100 integrated circuits and the A100X are also covered by the new license requirement. The license requirement also includes any future integrated circuit achieving both peak performance and chip-to-chip I/O performance equal to or greater than thresholds that are roughly equivalent to the A100, as well as any system that includes those circuits.

The U.S. government indicated the new license requirement will address the risk that the covered products may be used in, or diverted to, a ‘military end use' or ‘military end user' in China and Russia. Nvidia noted the new license requirement may impact the company's ability to complete its development of H100 in a timely manner or support existing customers of A100 and may require it to transition certain operations out of China. Nvidia also stated that its outlook for the current quarter included ~$400 million in potential sales to China, which could be impacted if customers do not want to purchase the company's alternative product offerings or if the U.S. government does not grant licenses in a timely manner or denies licenses to significant customers.

GoodRx (GDRX) approved a reduction in force involving approximately 140 employees, ~16% of its workforce, primarily in its tech-focused and marketing groups.

SentinelOne (S) reported better than expected July quarter results and upped its outlook for both the current quarter and its full year. The company sees its October quarter revenue coming in at $111 million vs. the 108.2 million consensus and the $102.5 million it delivered for its Jul quarter. For full year 2022, it now expected its top line to register in the $415-$417 million range vs. the $406.3 million consensus and its prior guidance of $403-407 million.

Okta (OKTA) shares are down in pre-market trading even though the company topped July quarter expectations and offered modestly better guidance than consensus expectations given continued demand for its identity software. The company did share, however, that its growth is being impacted by unexpected problems with integrating the identity software company Auth0, which Okta acquired in 2021.

Costco (COST) reported August net sales of $17.55 billion for the retail month of August, the four weeks ended August 28, 2022, an increase of 11.4% from $15.75 billion last year. The company also shared its net sales for its August quarter rose 15.3% YoY to $70.8 billion. For the month of August, its total company comp sales were 10.1% and on an adjusted basis that excludes the impacts from changes in gasoline prices and foreign exchange its August comp sales rose 8.7%% YoY.

July quarter results at Five Below (FIVE) missed consensus expectations for both its top and bottom lines and the discount retailer also reduced expectations for the balance of the year. For the current quarter, it now sees EPS of $0.08-0.19 vs. the $0.28 consensus with revenue between $600-$619 million vs. the $633.8 million consensus. Alongside that revision, Five Below also lowered its full year comp sales guidance to -5% to -3% from its prior guidance of +0-2% citing the impact of accelerated inflation on customers' purchasing behavior.

And with the start of a new month, auto companies have begun sharing their delivery data for August - NIO (NIO) delivered 10,677 vehicles in August, an increase of 81.6% YoY. Li Auto (LI) reported August deliveries of 4,571 vehicles. XPeng (XPEV) delivered 9,578 Smart EVs in August, up 33% YoY.

The Macau Gaming Inspection and Coordination Bureau reported August gross revenue fell 50.7% YoY to HKD 2.189 billion vs. the 95.3% YoY drop reported in July. Stocks to watch on this latest round of monthly data include Wynn Resorts (WYNN), MGM Resorts (MGM), Las Vegas Sands (LVS), and others in the gaming industry.

The Verge reports Meta Platforms is setting up a product organization to identify and build “possible paid features” for Facebook, Instagram, and WhatsApp.

IPOs

As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Broadcom (AVGO), Calavo Growers (CVGW), and lululemon athletica (LULU) will be among the companies reporting their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Friday, September 2

• Germany: Import/Exports – July
• Eurozone: Producer Price Index – July
• US: Employment Report – August
• US: Factory Orders – July

Thought for the Day

“The definition of being good is being able to make it look easy.” – Hugh Jackman

Disclosures

• SentinelOne (S), Okta (OKTA) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Calavo Growers (CVGW) is a constituent of the Foxberry Tematica Research Sustainable Future of Food Index
• NIO (NIO), Li Auto (LI), Xpeng (XPEV), Calavo Growers (CVGW)are constituents of the Tematica BITA Cleaner Living Index
• NIO (NIO), Li Auto (LI), Xpeng (XPEV), Calavo Growers (CVGW)are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index
• Okta (OKTA) is a constituent of the Tematica BITA Data Privacy and Digital Identity Index
• Broadcom (AVGO), Ciena (CIEN) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Costco (COST) is a constituent of the Tematica Research Thematic 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.

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Stocks Economy Earnings Central Banks