FT : Investors warn of looming downgrades to US and European earnings forecasts

Investors warn of looming downgrades to US and European earnings forecasts
Profits are expected to grow for the rest of 2022, even as economic conditions sour

Expectations for US and European corporate profits have not fully adjusted to take into account the worsening economic outlook, according to a clutch of investors who warn earnings season could be a disappointment.

Analysts estimate companies listed on Wall Street’s S&P 500 will report 6 per cent year on year earnings growth for the second quarter, according to a survey by data providers IBES and Refinitiv. The rate of growth is forecast to rise to 11 per cent for the third quarter of the year.

Forecasts for Europe’s Stoxx 600 share index are even rosier, with analysts overall predicting 22 per cent earnings growth for the second quarter — in part because of the gauge’s heavier weighting of energy companies. In the third quarter, the growth rate is expected to increase to 29 per cent.


Some investors are sceptical about those projections, pointing out the mismatch between the progress that companies have guided analysts to expect and a macroeconomic picture, clouded by soaring inflation and business surveys, which suggest the US and Europe are heading into recession.

“We’re going to be seeing earnings downgrades, no doubt about that,” said Neil Birrell, chief investment officer at asset manager Premier Milton Investors. The consensus of analysts’ estimates, Birrell added, “looks like they are in cloud cuckoo land.”

Grace Peters, head of European equity strategy at JPMorgan’s private bank, added that corporate management teams will probably “start to admit” business conditions are deteriorating as the latest earnings season gets under way.

Purchasing managers’ indices, which collate executives’ responses to survey questions on topics such as business volumes and new orders and tend to predict how analysts’ expectations will move, have been pointing south. A PMI for the global manufacturing sector, produced by JPMorgan and S&P Global, hit a 22-month low in June.


“Usually when business confidence drops, analysts downgrade [earnings forecasts] and they haven’t been doing that as much as you’d normally expect,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.

The FTSE All World index of developed and emerging market shares has fallen more than a fifth so far in 2022, with the S&P 500 down by the same amount and Europe’s Stoxx 600 off 16 per cent. But some investment strategists say the likelihood of earnings downgrades is not fully priced into stock markets yet.

US equities are the “most vulnerable to earnings disappointment,” strategist at Oxford Economics wrote in a research note. “Margins are stretched [and] cost pressures are broad based,” they wrote.

US financial companies Morgan Stanley, JPMorgan and BlackRock kicked off the Wall Street quarterly earnings season by missing analysts’ forecasts.

Emmanuel Cau, Barclays’ head of European equity strategy, expects the Stoxx 600 to fall to about 380 points, from around 410 currently, if economic conditions unfold as the bank predicts and Russia cuts gas supplies in retaliation for Western support of Ukraine.

“Europe will be in a recession by the turn of the year,” Cau said, predicting that the consensus of analysts’ forecasts for 2023 will gradually change from 5 per cent earnings growth currently to a 5 per cent decline.

“At face value, equities are cheaper than they were six months ago,” Cau said. “But they are trading on earnings expectations that are too high. The valuations are misleading.”

FT : North Macedonia approves EU proposal to start accession talks

North Macedonia approves EU proposal to start accession talks
Membership talks have been given fresh impetus by Russian agression in Ukraine

North Macedonian lawmakers have approved a proposal to help resolve a longstanding dispute with neighbouring Bulgaria over history and language that opens the way for EU accession talks, a move that furthers the EU’s expansion in the Western Balkans.

The EU has stepped up efforts to convince the region’s countries to set aside long historical disputes and expand the bloc at a time when the war in Ukraine has elevated an urgency to complete enlargement and choke off increasing Russian influence.

North Macedonia’s government has accepted the French proposals after they were amended to guarantee that Macedonian would be a recognised language in the EU and that bilateral issues with Bulgaria would no longer be a factor in the accession talks. It was passed in the country’s 120-member parliament with 68 votes despite a walkout by the opposition, which has said it feared a “Bulgarianisation” of the country.

“Congratulations and huge thanks to the MPs who showed a democratic capacity today, supported the conclusions of the European proposal and voted for the European future of the country,” premier Dimitar Kovačevski wrote in a Facebook post on Saturday.

“There is no greater patriotism than supporting the prosperity of the country . . . Finally the Macedonian language will echo all over Europe. This is how you love the state, with wise and state decisions!”

Albania has been linked with North Macedonia in its own bid for EU membership, so progress on Skopje’s accession plan would also unlock Tirana’s EU bid, with a potential wider impact for expansion in all of the western Balkans, experts say.

“Congratulations to North Macedonia on the vote that now paves the way for opening the accession negotiations rapidly,” EU Commission president Ursula vin der Leyen tweeted. “It was an historic opportunity. And you seized it. A big step on your path towards a European future. Your future.”

North Macedonia was designated as a candidate for EU membership almost 20 years ago. It resolved differences with Greece in the Prespa agreement, joined Nato, only to be blocked by Bulgaria.

Tension between Bulgaria and North Macedonia stems from disputes over interpretations of history and other expressions of national identity in the former Yugoslav republic.

The liberal government of Bulgarian prime minister Kiril Petkov approved the French proposals last month just before it was ousted in a vote of no confidence, leaving the matter up to Skopje alone.

The opposition nationalist VMRO party of North Macedonia said it would continue to fight against the agreement.

Membership talks have been given fresh impetus by the desire to strengthen the EU’s presence in the Balkans and provide a bulwark against greater Russian influence.

Albania, for years beholden to the bilateral disputes, welcomed the North Macedonian vote.

“Finally,” Albanian premier Edi Rama wrote on Facebook. “Negotiations for Albania’s membership in the European Union have no obstacles . . . Albania’s absurd hostage is over.”

An Albanian delegation would leave for Brussels on Monday, he said.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Markets aren’t exactly full of optimism about China, but Mizuho analyst James Lee thinks it’s time for investors to take a fresh look at China’s internet sector.


Cover Story:
-With stocks down 20% this year—and in many cases, much more—the Barron’s Roundtable pros are busily buying companies with durable franchises, wide moats, strong balance sheets, abundant cash flows, and share prices far below what they think the businesses are worth.

Interview:
No update this week

Tech Trader:
-Markets aren’t exactly full of optimism about China, but Mizuho analyst James Lee thinks it’s time for investors to take a fresh look at China’s internet sector. The KraneShares CSI China Internet exchange-traded fund, a popular way to track Chinese internet stocks that’s better known by its ticker KWEB, has lost about two-thirds of its value over 18 months. It’s been pressured by the Chinese government’s crackdown on the tech sector and rolling factory shutdowns tied to the country’s zero-Covid policy.

The Trader:
-Mattel stock has had a good year. The shares are relatively unchanged from where they started 2022 thanks to the perception that toys are recession-proof, as well as hopes that the company will be able to sidestep the inventory problems that have hit many consumer-goods makers and the margin pressures affecting, well, everyone. Mattel gets a chance to test all that when it reports earnings on Thursday. The numbers aren’t particularly big—Mattel is expected to report a profit of 6 cents a share, an improvement from the 3 cents it reported during the same quarter the year before, while sales are expected to be up 7%, to $1.101B, from $1.026B. Expectations may actually be higher, however. JP Morgan’s Megan Alexander notes that investors might be anticipating earnings closer to 10 cents a share, something that would normally give us pause, but the hopes might be justified.
-It’s hard to describe another week of market losses as hopeful. The DJIA dipped 0.2%, the S&P 500 fell 0.9%, and the NASDAQ dropped 1.6%. The market, however, exhibited more resilience than might have been expected. After closing near its lows on Monday and Tuesday, the S&P turned large losses into small ones on Wednesday and Thursday, before closing up 1.9% on Friday. The market action was driven primarily by worries that the Fed would become even more aggressive to bring down inflation. The chances of a full-point interest-rate hike surged to more than 90% on Wednesday after June’s consumer price index increased by 9.1% from the year-earlier level.

Features:
Lawyers for Elon Musk filed papers with the Delaware Chancery Court, their first public response to the lawsuit filed earlier this week by Twitter seeking to enforce the terms of their merger agreement. The court should reject Twitter’s “unjustifiable request to rush this,” they said in their filing. Twitter has asked the court to expedite the proceedings, citing risks from the recent economic downturn and being held in limbo by a buyer. The company requested a trial by mid-September “to protect Twitter and its stockholders from the continuing market risk and operational harm resulting from Musk’s attempt to bully his way out of an airtight merger agreement.”

European Trader:
-Danish vaccine maker Bavarian Nordic is still in the trials stage with its Covid shot, making it a latecomer and dragging down its stock price. But its smallpox vaccine, alone in having been approved for use against monkeypox, gives the Copenhagen-listed firm a virtual monopoly. This could make the shares a buying opportunity. Bavarian Nordic stock has dropped from its March 2021 peak of 356 Danish kroner ($50.41) to a recent DKK243.

Emerging Markets:
-Nearly 5 months into Russia’s invasion of Ukraine, a cruel paradox persists: Western powers are substantially funding Vladimir Putin’s war machine by buying Russian oil and gas, while they fund Ukraine’s resistance with cash and weaponry. “We’re fighting a proxy war against ourselves,” laments Simon Johnson, former chief economist of the International Monetary Fund and now a professor at the Massachusetts Institute of Technology.

Commodities:
The lumber market has taken hits from rising inflation and a slowdown in the housing market, with lumber prices down more than 40% in the first half of the year. They could fall still further before bottoming out. Lumber has bucked the overall uptrend in the commodities market. The S&P Goldman Sachs Commodity Index, composed of 24 exchange-traded commodity futures contracts, jumped 26% in 2022’s first half. “Lumber truly has its Ph.D. in trading and is the ultimate canary in the coal mine when it comes to being a leading indicator for all other commodities,” says Greg Kuta, president and CEO of lumber broker Westline Capital Strategies. “The inherent volatility in lumber pricing is highly sensitive to both demand and supply dynamics, and is very quick to reflect changes in demand and supply on a micro level.”

Streetwise:
-Overall, the movie theater business is doing much better than feared, especially if we squint and extrapolate. One Wall Street analyst predicts 66% upside for IMAX and 40% plus a favorable dividend surprise for Cinemark Holdings. North American ticket sales during the first half were up 228% from last year, which tells us little, and down 31% from 2019, which isn’t a great comparison, either.

Barrons : Apple’s AirPods Are Everywhere. So Why Is This Stock in the Dumps?

Apple’s AirPods Are Everywhere. So Why Is This Stock in the Dumps?

Sometimes, even one of the hottest products on Earth can’t lift a stock.

German battery maker Varta VAR1 0.00% (ticker: VAR1.Germany) is widely believed to provide the lithium-ion micro-batteries that power Apple AAPL +1.15% AirPods, the most popular wireless earphone. But Varta’s stock has been cut in half over the past year, and it could well fall further. The main culprit: rising costs of raw materials and energy for its plants.

Stephan Bonhage, an analyst at Germany’s Metzler Capital Markets, has rated the stock a Sell, forecasting that the price will fall 19% to 64 euros ($64.53). “Overall,” he writes, the valuation of the shares is “in our view demanding, trading at a multiple of 27.5 times the expected earnings for 2023 against the background of clouding growth prospects, declining margins, and stiffening competition.”

Varta’s major claim to fame is the AirPod. Varta won’t talk about its customers, but Metzler and others have identified Varta as the maker of tiny batteries inside the device. Apple sold some 72 million sets of AirPods last year, according to TFI Asset Management. Apple didn’t respond to requests for comment about Varta.

In all, such “hearables’’ saw sales roughly quintuple from 2018 through 2020, accounting for about a third of Varta’s revenues. Varta makes a variety of other batteries for consumer, automotive, and industrial markets. But much of it looks to be coming under pressure.

The cost-of-living surge is denting consumer demand, and semiconductor shortages, combined with lockdowns in China, have caused business customers to curb production of electrical goods, some analysts say.

While Varta doesn’t disclose a sales breakdown of its divisions, analysts have made estimates. The core business, which makes household batteries, accounts for 38% of 2020 revenue, according to Bonhage. But there’s not much growth: Its mature and highly competitive market grows 1% to 2% annually.

Another 18% or so of revenue comes from providing batteries for hearing aids. But that market is shifting towards rechargeable power cells, so repeat business for nonchargeable batteries is declining.

Faster growing is its battery pack business, which makes rechargeable units for manufacturers of vacuum cleaners and other household items. But this generates just 5.5% sales, says Bonhage.

The company, based in Ellwangen, Germany, between Munich and Stuttgart, dates to 18887 and has a market value of €3.1 billion. Varta posted adjusted earnings before interest, tax, depreciation, and amortization, or Ebitda, of €282 million in 2021, a 17.4% increase on 2020, while sales grew 3.8% to €902.9 million.

It has forecast adjusted Ebitda between €260 million and €280 million for 2022—essentially flat. That’s based on sales between €950 million and €1 billion—up 10% or so, at best.

CEO Herbert Schein told Barron’s, “Varta’s strength is our power to innovate. We will continue our very successful growth strategy, which we have implemented in all of our business units. However, lithium-ion technology has the greatest potential, and this business is set to be the biggest driver of Varta’s future growth.”

While Barenberg analyst Charlotte Friedrichs thinks 2022 guidance is feasible, she says it requires Varta to perform strongly in the second half, achieving 15% to 20% year-on-year increases in Ebitda and sales. “We believe this is challenging, but possible in the absence of lockdowns in Asia or a material weakening in consumer demand,” she wrote. In other words, the economy might need a recharge for Varta to hit its numbers.

WWD : Everything to Know About the Louis Vuitton and Nike Air Force 1 Virgil Abl

Everything to Know About the Louis Vuitton and Nike Air Force 1 Virgil Abloh-designed Sneaker Collection
The nine-piece collection will be available to purchase starting Tuesday.

VIEW ALL11 PHOTOS



Louis Vuitton and Nike are continuing their celebration of Virgil Abloh with one of the year’s biggest fashion collaborations.
The two brands are gearing up to release a new collection of the coveted Louis Vuitton and Nike “Air Force 1” sneakers created by the late designer, who was the design house’s men’s artistic director. Abloh died in November after a private two-year battle with cancer.
The collection first debuted in June 2021 at Louis Vuitton’s men’s spring 2022 show. In February, 200 pairs were sold exclusively at Sotheby’s, which auctioned the sneakers to benefit Abloh’s “Post-Modern” Scholarship Fund. The auction generated $25.3 million. Louis Vuitton and Nike also celebrated the collection in May with an exhibit in New York City.

Here, WWD rounds up everything you need to know about the Louis Vuitton and Nike “Air Force 1” Virgil Abloh-designed sneaker collection.

When was the Louis Vuitton and Nike “Air Force 1” Virgil Abloh-designed sneaker collection revealed?
Louis Vuitton and Nike first debuted the “Air Force 1” sneakers designed by Abloh at the brand’s men’s spring 2022 show.
What is the inspiration behind the sneaker collection?
Abloh was inspired by “Amen Break,” a drum break in the 1969 song by The Winstons, which is one of the most recognizable samples in hip-hop and jungle music. Abloh compared the drum break to the Air Force 1 sneaker, as the style was first introduced in 1982 and was a popular sneaker in New York’s hip-hop scene.
“The Air Force 1 is a sample like the ‘Amen Break,’” Abloh said in a statement provided by Louis Vuitton. “A T-shirt is an ‘Amen Break,’ a suit is an ‘Amen Break.’ We’re all iterating on the same ideas. But, in my canon, the Air Force 1 puts the edge on the blade. This object happened way before me, but to get to a context where it’s adjacent to the T-shirt and the suit, its logic has been 40 years in the making.”
What do the Louis Vuitton and Nike “Air Force 1” sneakers look like?
The nine-piece sneaker collection includes a variety of colors and design elements. The collection includes all-white and all-black sneakers embossed with the Louis Vuitton logo, a white checkered version featuring graffiti-style art, a metallic gold style and a multi-colored style featuring a silver chrome toe, among others.
When is the sneaker collection available for purchase?
The Louis Vuitton and Nike “Air Force 1” sneaker collection will be available to purchase starting Tuesday.
What is the price range for the Louis Vuitton and Nike “Air Force 1” sneakers?
Prices for the collection range from $2,750 to $3,450.
How can I buy the Louis Vuitton and Nike “Air Force 1” sneakers?
The collection will be available to purchase through Louis Vuitton’s website.

WSJ : Parts of U.K. Forecast to Hit 100 Degrees Fahrenheit

Parts of U.K. Forecast to Hit 100 Degrees Fahrenheit
Extreme heat warning triggers national emergency alert level

A heat wave set to hit the U.K. has prompted the country’s first red extreme heat warning, triggering a national emergency alert level.

Temperatures in coming days are expected to exceed 100 degrees Fahrenheit in some parts of the U.K., a country where umbrellas, gray skies and mild temperatures are comfortably familiar.

“I can say that the extreme heat we are forecasting right now is absolutely unprecedented,” said Penny Endersby, chief executive of the Met Office, the country’s national weather service.

“Here in the U.K., we’re used to treating a hot spell as a chance to play in the sun. This is not that sort of weather,” Ms. Endersby said in a video. “Our lifestyles and our infrastructure are not adapted to what is coming.”

The hottest weather is expected on Monday and Tuesday in parts of central, northern, eastern and southeastern England, said the Met Office. But high temperatures are also forecast for much of Wales and parts of southern Scotland.

It is the first time the Met Office has forecast temperatures of 40 degrees Celsius, or 104 degrees Fahrenheit, in the U.K. The country’s current record of 38.7 degrees Celsius was set in July 2019, at the Cambridge Botanic Garden.

On Friday, some models showed a 50% chance of maximum temperatures exceeding 40 degrees Celsius in isolated parts of the U.K. Officials have warned of possible disruptions to trains and roads, and urged people in England and Wales to only travel if necessary. The National Health Service said the hot temperatures were dangerous, especially for older and disabled people, and encouraged people to check in on others.

Homes with air-conditioning systems are rare in Europe and the U.K. Many buildings are centuries old and rely on heavy stone walls to insulate their interiors from hot air.

Supermarket chain Aldi said it had its biggest sales of ice cream in the U.K. in one day this past Monday. Sales of electric fans and deodorant are reaching record levels, the company said.

Swaths of Europe are already experiencing an intense heat wave this summer, with the temperature in some parts of Portugal reaching 115 degrees Fahrenheit on Wednesday, according to the Portuguese Institute of the Sea and Atmosphere. It was the highest temperature recorded by the agency.

Firefighters in the country are battling blazes, and the Portuguese government on Thursday extended a state of emergency to Sunday.

Heat waves have become more frequent in Europe, with record temperatures in some places becoming an almost yearly phenomenon. In 2003, soaring temperatures killed more than 70,000 people across 16 countries, according to a 2008 report. Some 15,000 of those deaths came in France alone, many of them among the elderly.

The long-term trend of rising global temperatures is being driven by greenhouse-gas emissions, according to scientific studies.

“Climate change has already influenced the likelihood of temperature extremes in the U.K.,” Dr. Nikos Christidis, with the Met Office, said in a statement Friday. “The chances of seeing 40°C days in the U.K. could be as much as 10 times more likely in the current climate than under a natural climate unaffected by human influence.”

WSJ : Elon Musk Opposes Twitter’s Request for Expedited Trial Over Stalled Deal

Elon Musk Opposes Twitter’s Request for Expedited Trial Over Stalled Deal
Billionaire’s lawyers filed court papers in first public response to Twitter’s lawsuit

Elon Musk filed a motion Friday opposing Twitter Inc.’s TWTR 4.00% request to expedite a trial over his intention to terminate his $44 billion takeover.

Lawyers for Mr. Musk filed papers with the Delaware Chancery Court, their first public response to the lawsuit filed earlier this week by the social-media company seeking to enforce the terms of their merger agreement. The court should reject Twitter’s “unjustifiable request to rush this,” they said in their filing.

Twitter has asked the court to expedite the proceedings, citing risks from the recent economic downturn and being held in limbo by a buyer. The company requested a trial by mid-September “to protect Twitter and its stockholders from the continuing market risk and operational harm resulting from Musk’s attempt to bully his way out of an airtight merger agreement.”

Mr. Musk moved to terminate the acquisition last week, saying the company hadn’t provided the necessary data and information he needed to assess the prevalence of fake or spam accounts and was “in material breach of multiple provisions” of the merger agreement.

Twitter has rejected that assertion and argued that Mr. Musk hasn’t adhered to the terms, including violating a nondisclosure agreement and then bragging about it on Twitter.

In Friday’s filing, Mr. Musk’s lawyers said: “The core dispute over false and spam accounts is fundamental to Twitter’s value. It is also extremely fact and expert intensive, requiring substantial time for discovery.”

Mr. Musk’s lawyers argued that “it is unnecessary to resolve these weighty considerations on a breakneck schedule” and asked for a trial date on or after Feb. 13 of next year, adding that the debt financing was valid until April 25, 2023.

Mr. Musk has fired criticism at Twitter through a steady stream of tweets over the past several months, and his lawyers have raised specific complaints in several letters that have been made public through securities filings. But Friday’s court document is the first time his side has laid out publicly a clear timeline around his concerns over data about fake and spam accounts, and included new claims about Twitter’s level of cooperation on the issue.

Mr. Musk’s side became concerned about Twitter’s user numbers after the company announced revisions in its first quarter earnings in April, when it said it had overstated its user base for nearly three years through the end of 2021 due to an error in how it accounted for people linked to multiple accounts. The revision reduced the number of monetizable daily active users by 0.9% for the fourth quarter of last year.

In a May 6 meeting with Twitter executives about how spam is calculated, Mr. Musk ’s team on Friday said he was “flabbergasted to learn just how meager Twitter’s process was,” and pointed to the absence of automated tools to help with the calculation.

Twitter has long estimated that fewer than 5% of its monetizable daily active users are spam or fake accounts, a figure Mr. Musk has disputed. In its suit against Mr. Musk, Twitter said the Telsa Inc. CEO’s attempt to abandon the transaction reflects souring market conditions that resulted in his personal wealth declining by more than $100 billion from its November 2021 peak. “Rather than bear the cost of the market downturn, as the merger agreement requires, Musk wants to shift it to Twitter’s stockholders,” the company said.

Twitter had said it had bent over backwards to accommodate Mr. Musk’s data request, including by giving him access to its so-called fire hose of near real-time tweets as well as historical tweets. His side on Friday countered that the interactions were akin to “a two-month treasure hunt of delays, technical bottlenecks, evasive answers, and, ultimately, refusals.”

Twitter has said its process for estimating fake and spam accounts on its platform involves multiple human reviews of thousands of accounts sampled at random over time and that it also relies on private user data it doesn’t disclose publicly—and hasn’t shared with Mr. Musk—such as IP addresses and phone numbers.

Mr. Musk’s side also took issue with other elements of the Twitter suit, including the company’s assertion that the billionaire had disparaged the business he was planning to buy. “With the sense of humor of a bot, Twitter claims that Musk is damaging the company with tweets like a Chuck Norris meme and a poop emoji. Twitter ignores that Musk is its second largest shareholder with a far greater economic stake than the entire Twitter board,” the filing states.

WSJ : Merck Deal for Seagen Unlikely by Earnings, Sources Say

Merck Deal for Seagen Unlikely by Earnings, Sources Say
Deal talks still on track but upcoming data, arbitration slowed timeline, people familiar with the matter say

Merck & Co.’s roughly $40 billion deal for Seagen Inc. is unlikely to be finalized ahead of the pharmaceutical giant’s earnings later this month, though the talks remain on track, according to people familiar with the matter.

The Wall Street Journal reported earlier this month that Merck aimed to agree on a purchase of the cancer biotech within a few weeks, a plan that has since been delayed, the people said.

The change is due partly to a need to wait for data expected soon from a study evaluating one of Seagen’s treatments, the people said. There is also a desire to possibly see the outcome of a royalties-payments case Seagen is pursuing that is also expected soon, the people said. Both could have an impact on Seagen’s valuation.

There is still no guarantee the companies will reach agreement on a takeover deal. Merck is set to report its fiscal second-quarter earnings July 28.

Acquiring Seagen would help Merck broaden its lineup of cancer drugs, currently led by the blockbuster immunotherapy Keytruda.

Seagen helped pioneer a class of drugs known as antibody drug conjugates. The therapies take advantage of the honing abilities of antibody drugs to deliver a potent toxin to a specific tumor target.

As soon as this month, a study evaluating Seagen’s Padcev as a first-line treatment for bladder cancer could produce data. The study is examining Padcev’s use alone and in combination with Keytruda, according to analysts.

Padcev is currently approved to treat bladder-cancer patients who had failed a previous therapy. Sales for treating first-line bladder cancer could amount to billions of dollars a year if study results are positive and regulators approve the use, analysts have estimated.

A combination with Keytruda for bladder cancer could also help Merck extend the commercial life of its product after current patents run out later this decade, according to the analysts.

Additionally, Seagen could receive significant royalties and milestone payments if it wins an arbitration case and other litigation against Japanese drugmaker Daiichi Sankyo Co. Ltd., a former partner that went on to develop its own line of antibody drug conjugates including a breast-cancer therapy called Enhertu.

Seagen has alleged that Enhertu and the rest of Daiichi’s antibody-drug-conjugate pipeline infringes on Seagen’s patented technology, while Daiichi has said Enhertu doesn’t rely on Seagen’s technology, according to analysts. Daiichi sells Enhertu with AstraZeneca PLC.

A ruling in the arbitration case is expected as early as this summer, according to people familiar with the matter.

>>> US Close Dow +2,15% S&P +1,92% Nasdaq +1,79% Russell +2,16%

Closing Stock Market Summary: Buyer conviction picks up ahead of weekend

Buying interest picked up today to build on yesterday's rally. The major indices closed decidedly higher with the Dow Jones Industrial Average leading, up 2.2%. Despite the strong finish, the DJIA still lost 0.2% for the week while the S&P 500 fell 0.9%.

The buyer conviction was fueled by the better-than-expected Retail Sales data, which showed a 1.0% increase on both the headline level and when excluding auto sales. Retail sales are not adjusted for inflation, so the increase in sales was largely a reflection of consumers tolerating higher prices. Recall that CPI increased 1.3% month-over-month in June.

The July University of Michigan Consumer Sentiment preliminary reading was 51.1 (Briefing.com consensus 49.4), compounding the positive bias. The reaction to this may be outsized since the final reading for June was the lowest reading ever on records dating back to 1978. In addition, the slight uptick in consumer sentiment was due to falling oil prices. Crude oil, which fell past its 200-day moving average yesterday (93.58) to a level not seen since late February, settled up more than $2.00 today, and up $7.36 or 8.1% off yesterday's low. 

Despite the factors fueling buying interest, the Atlanta Fed GDPNow estimate was downwardly revised today and shows an expected contraction of 1.5% from 1.2% in the prior forecast.

To be fair, the positive bias today was also aided by favorable earnings and/or guidance from several large stocks. Citigroup (C 49.98, +5.84, +13.2%), Wells Fargo (WFC 41.13, +2.39, +6.2%), and UnitedHealth (UNH 529.75, +27.32, +5.4%) all showed big gains today. Citigroup had the best Q2 results of any big bank thus far while Wells Fargo missed estimates but noted that net interest income is expected to be 20% higher than 2021. UnitedHealth beat earnings estimates and issued above-consensus guidance.

These names also gave a nice boost to their respective S&P 500 sectors, financials (+3.5%) and health care (+2.5%), which closed at the top of the leaderboard. All 11 sectors closed in the green with countercyclical sectors, utilities (+0.2%) and consumer staples (+0.4%), rounding out the bottom of the pack. Even with today's underperformance, these two sectors finished the week ahead of the remaining nine sectors.

The 2s10s spread became more inverted this week with the 2-yr note yield up one basis point on the day and week-to-date to 3.13%. The 10-yr note yield dropped notably this week, settling down three basis points on the day and 17 basis points week-to-date to 2.93%.

Before Monday's open, a few more financials are set to report earnings, including Bank of America (BAC 32.25, +2.1%, +7.0%), Charles Schwab (SCHW 62.18, +1.61, +2.7%), and Goldman Sachs (GS 293.87, +12.28, +4.4%).

Economic data on Monday will be limited to the July NAHB Housing Market Index (Briefing.com consensus 66; prior 67) at 10:00 a.m. ET and May Net Long-Term TIC Flows (prior $87.7 billion) at 4:00 p.m. ET.

Today's notable economic data includes:

  • Total retail sales increased 1.0% month-over-month (consensus 0.8%) following an upwardly revised 0.1% decrease (from -0.3%) in May. Excluding autos, retail sales increased 1.0% ( consensus 0.6%) following an upwardly revised 0.6% increase (from 0.5%) in May.
    • The key takeaway from the report is that it was strong enough to keep concerns about weakening consumer spending at bay for the time being. At the same time, it needs to be acknowledged that these figures are not adjusted for inflation, so they should not be viewed as an exact reflection of consumer strength.
  • Total industrial production decreased 0.2% month-over-month in June (consensus 0.2%) following a downwardly revised flat reading in May (from 0.2%). The capacity utilization rate decreased to 80.0% ( consensus 80.0%) from an upwardly revised 80.3% (from 79.0%) in May.
    • The key takeaway from the report is that total production was weighed down by the second consecutive month of falling manufacturing output. A continuation of this dynamic would be viewed as a negative signal about the strength of the manufacturing sector.
  • The preliminary reading of the University of Michigan Index of Consumer Sentiment for July rose to 51.1 ( consensus 49.4) from June's final reading of 50.0. One year ago, the July reading was at 81.2.
    • The key takeaway from the report is that the slight improvement in sentiment was owed to a dip in inflation expectations after the recent pullback in energy prices. While any improvement is a welcomed sight, this one could be reversed easily if energy prices rebound.
  • The Empire State Manufacturing survey rose to 11.1 (consensus -0.9) in July from -1.2 in June.
  • Business Inventories increased by 1.4% in May (consensus 1.2%) after increasing a revised 1.3% (from 1.2%) in April.
  • Import prices rose 0.2% in June after increasing a revised 0.5% (from 0.6%) in May. Excluding oil, import prices fell 0.5% after decreasing 0.3% in May. Export prices rose 0.7% in June after increasing a revised 2.9% (from 2.8%) in May. Excluding agriculture, export prices rose 0.9% after increasing a revised 3.0% (from 2.9%) in May.
  • Dow Jones Industrial Average: -13.9% YTD
  • S&P 400: -18.9% YTD
  • S&P 500: -19.0% YTD
  • Russell 2000: -22.3% YTD
  • Nasdaq Composite: -26.8% YTD