Closing Stock Market Summary: Buyer conviction picks up middayThe stock market opened lower and headed even lower after that. Buyer conviction picked up around midday, leaving the S&P 500 and Dow Jones Industrial Average with modest losses. The Nasdaq was able to climb just above the flat line to close in positive territory.
The weak start was owed to several factors:
- JPMorgan Chase (JPM 108.00, -3.91, -3.5%) and Morgan Stanley (MS 74.69, -0.29, +0.4%) reported weaker than expected results with JPM CEO Dimon repeating his warning about a difficult economic environment.
- The PPI report for June was hotter than expected at the headline level, fueling more speculation about a more aggressive Fed.
- There was renewed political turmoil in Italy after Prime Minister Draghi lost the support of a major coalition partner. Mr. Draghi submitted his resignation, but the country's president refused to accept the offer, suggesting that the prime minister will maintain his post despite flagging support. The renewed uncertainty could get in the way of the ECB's tightening plans.
The lower start sent the S&P 500 back to its low from three weeks ago, but that's where the market found support and rebounded thanks to strong leadership from the technology sector. Comments from Fed Governor Waller also contributed to the turn in sentiment after he said that his base case remains for a 75-bps rate hike, though he acknowledged that he would support a larger increase if it is warranted by economic data.
Aside from information technology (+0.9%), the other S&P 500 sectors to close in the green were consumer staples (+0.2%) and utilities (+0.01%). The technology sector got a boost today from semiconductor related names after Taiwan Semi (TSM 83.67, +2.38, +2.9%) beat on earnings and revenue and issued forward guidance above consensus.
As for the consumer staples sector, Costco (COST 511.94, +19.72, +4.0%) offered support after it was upgraded today to Buy from Hold at Deutsche Bank. Holding the sector down was Conagra (CAG 33.15, -2.59, -7.3%), one of the biggest laggards in the S&P 500 today, after the company issued-below consensus guidance.
The remaining nine sectors showed losses ranging from 0.1% (consumer discretionary) to 1.9% (financials).
The advance-decline line showed the midday pick up in buyer interest. Earlier, decliners led advancers by a nearly 9-to-1 margin at the NYSE and a roughly 4-to-1 margin at the Nasdaq. At the close, decliners led advancers by a 14-to-5 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
Treasuries retreated in immediate reaction to the PPI report but most tenors found support above yesterday's lows, narrowing their losses as the day went on. The 10-yr yield rose six basis points to 2.96% while the 2-yr yield slipped one basis point to 3.12%.
More bank earnings will be released ahead of Friday's open with BlackRock (BLK 588.63, -7.75, -1.3%), Citigroup (C 44.14, -1.36, -3.0%), and Wells Fargo (WFC 38.74, -0.33, -0.8%) headlining the list. Major health care component UnitedHealth (UNH 502.43, +1.19, +0.2%) will also report its earnings tomorrow morning.
The market will receive a few more noteworthy economic reports on Friday:
- 8:30 a.m. ET: June Retail Sales (consensus 0.8%; prior -0.3%), Retail Sales ex-auto (consensus 0.6%; prior 0.5%), June Import/Export Prices, and July Empire State Manufacturing survey ( consensus -0.9; prior -1.2)
- 9:15 a.m. ET: June Industrial Production (Briefing.com consensus 0.2%; prior 0.2%) and Capacity Utilization (consensus 80.0%; prior 79.0%)
- 10:00 ET: May Business Inventories ( consensus 1.2%; prior 1.2%) and preliminary July University of Michigan Consumer Sentiment survey (Briefing.com consensus 49.4; prior 50.0)
Reviewing today's economic data:
- June PPI 1.1% (consensus 0.9%); Prior was revised to 0.9% from 0.8%; June Core PPI 0.4% ( consensus 0.5%); Prior was revised to 0.6% from 0.5%
- The key takeaway from the report is that inflationary pressures were most pronounced in the manufacturing sector due to higher energy prices, but the services sector also saw higher prices, coupled with an upward revision to the increase that was reported in May. The June report lifted the yr/yr PPI rate to 11.3%, leaving it just shy of the March peak (11.5%).
- Weekly Initial Claims 244K (consensus 239K); Prior 235K; Weekly Continuing Claims 1.331 mln; Prior was revised to 1.372 mln from 1.375 mln
- The key takeaway from the report is that while still low relative to longer-term averages, initial claims have been inching higher in steady fashion since they reached a low of 167,000 at the end of March and are now at their highest level since early February.
- Weekly EIA Natural Gas Inventories showed a build of 58 bcf vs a build of 60 bcf last week
- Dow Jones Industrial Average: -15.7% YTD
- S&P 400: -20.5% YTD
- S&P 500: -20.5% YTD
- Russell 2000: -24.0% YTD
- Nasdaq Composite: -28.1% YTD
Stripe Cuts Internal Valuation by 28%
Payments processor was last valued by private investors at $95 billion
Payments giant Stripe Inc., last valued by private investors at $95 billion, cut the internal value of its shares by 28%, people familiar with the matter said.
Stripe told employees in an email Friday that the internal share price was about $29, compared with $40 in the most previous internal valuation, known as a 409A valuation, the people said. The move lowered the implied valuation of those shares to $74 billion, according to one of the people, which is calculated separately from the stock owned by major shareholders.
Stripe said in the email that the board approved the lower share price effective June 30, the people said. The payments processor to startups and fast-growing internet companies didn’t explain the decision to lower its internal valuation, the people said.
The decision comes amid a prolonged market selloff that has slowed down the pace of private fundraising and pushed startups to slash costs and cut jobs.
Last year, Stripe became one of the most valuable U.S. startups after raising a $600 million round at a $95 billion valuation. But the share prices of publicly traded fintech companies have plummeted in the past few months, making Stripe look overvalued. Payments processor PayPal Holdings Inc., which investors often compare to Stripe, has seen its stock decline by over 60% since Jan. 1.
Private companies often update their 409A valuation to more appropriately assess the best price to issue new stock options to employees. The metric is separate from the valuations investors assign to startup shares, which is usually based on the price of the last financing round but can change based on changes in a company’s performance or external market shifts.
Stripe isn’t the first high-profile startup to lower its 409A valuation. Earlier this year, Instacart Inc. marked down its internal valuation to $24 billion from $39 billion, a decision the company said it made to help with retention and recruiting.
Elliott Sets Sights on Pinterest
Activist investor, which has built up a stake of over 9%, has been in discussions with social-media company
Activist investor Elliott Management Corp. has taken a big stake in Pinterest Inc., PINS -2.44% according to people familiar with the matter, as the once-hot social-media company grapples with a decline in users and other challenges.
Elliott has told the company that it is the biggest investor in Pinterest, having built a stake of more than 9% in recent months—partly in common stock, one of the people said. The activist has been in discussions with Pinterest over the past several weeks. It couldn’t be learned what they have been discussing.
It has been a time of turmoil for Pinterest, which operates a free online platform for sharing images that inspire projects such as planning weddings, completing home renovations and creating recipes.
In June, Ben Silbermann stepped down as chief executive, becoming executive chairman. The company named Bill Ready, who had been president of commerce at Alphabet Inc.’s Google since 2020, as his replacement.
The moves came after several Pinterest executives departed in recent months, including its head of global business operations and its investor-relations chief.
Mr. Silbermann, one of three Pinterest co-founders, has a roughly 37% voting stake in the company, according to its latest proxy filing from April, which could limit Elliott’s ability to force changes.
Pinterest’s business grew dramatically during the pandemic, and in February, the company reported its first full-year profit and more than $2 billion in annual revenue. But while revenue grew 18% in the quarter that ended in March from a year earlier, global active monthly users fell 9% and the company posted a net loss of $5 million, as Covid restrictions eased and people began spending more time offline. Changes to Apple Inc.’s privacy rules and a slowdown in ad spending also weighed in on the company’s results.
Shares in Pinterest, which has a market valuation of about $12 billion, are down around 50% year-to-date, worse than the tech-heavy Nasdaq Composite Index, which has fallen by about 30%. The company went public in early 2019 at $19 a share; the stock surged above $80 last year but is now below the IPO price, trading at $17.43 Thursday afternoon.
In recent years, Pinterest has been looking to boost revenue beyond its advertising-centric model by expanding into e-commerce. The company partnered with Shopify Inc. in 2020, giving its users the ability to purchase products they find on its platform by clicking on a link to a merchant’s website. In June, Pinterest acquired the Yes, an artificial-intelligence platform that customizes the fashion-shopping experience for users.
Pinterest faces challenges in this area, though, as online consumer spending has lately been on the decline, and the tech sector has been grappling with the combined weight of macroeconomic factors such as rising interest rates, the war in Ukraine and growing inflation, which have weakened the online ad market.
Last year, PayPal Holdings Inc. was in talks to buy Pinterest but backed out after the payments company’s shareholders balked.
Elliott is known as one of Wall Street’s toughest activist investors, with a history of taking on tech companies and others and forcing changes such as sales or executive shake-ups.
Last year, Twitter Inc. co-founder Jack Dorsey stepped down from the top job after facing pressure from Elliott. The activist took a roughly $1 billion stake in Twitter in 2020 and later reached an agreement to appoint two new members to what was an eight-person board.
In 2019, Elliott and fellow activist Starboard Value LP criticized the performance of online marketplace eBay Inc. Elliott’s Jesse Cohn was among three members added to eBay’s board. Six months later, Chief Executive Devin Wenig resigned.
Elliott, with more than $50 billion under management as of the end of last year, also has a private-equity arm, Evergreen Coast Capital, that sometimes bids on companies that are targets of the firm’s activist campaigns.
Aston Martin to raise more than £500mn through Saudi fund and rights issue
Luxury carmaker’s board to vote on proposal to bring in one of the world’s largest investors as a shareholder
Aston Martin is closing in on a deal to raise significantly more than £500mn by bringing in Saudi Arabia’s sovereign wealth fund as a major shareholder and holding a rights issue for investors, according to two people.
The luxury carmaker’s board will meet on Thursday evening to discuss the fundraising plan, which is expected to be announced as early as Friday, the people said.
The proposal will result in the kingdom’s Public Investment Fund, PIF, investing up to £200mn for a shareholding of slightly less than 20 per cent and a seat on the carmaker’s board.
PIF is one of the world’s largest investors, and owns stakes in electric carmaker Lucid and British supercar group McLaren.
The planned financing would also involve Aston launching a rights issue for investors that will be at least £300mn, and could be considerably higher.
The exact size of the rights issue will be decided in the board meeting, the people added. Chair Lawrence Stroll and his Yew Tree investment consortium have already agreed to take up their options.
Aston’s board has also recently received a separate investment proposal from China’s Geely, which it will consider during Thursday’s meeting, three people said.
The Chinese carmaker’s proposal includes both an equity investment and a wider collaboration with the global Geely family of brands, which includes Lotus and Volvo Cars, one of the people said. Geely is also a shareholder in Mercedes-Benz, which itself holds a stake in Aston.
Aston Martin and Geely declined to comment. A representative for PIF did not respond to a request for comment.
The money will be used to pay down the company’s debt, helping it become cash positive and driving away persistent investor fears about the business’s financial health.
The group had £957mn of net debt at the end of March, and last quarter said it expects to pay about £130mn in debt interest this year.
Aston Martin has been seeking additional funding for its next generation of sports cars and as it prepares to branch into electric models.
The fundraising is the latest move by owner and chair Stroll to try to shore up the business during a turnround that aims to restore its luxury credentials and make the brand highly profitable by the middle of the decade.
Stroll has an existing relationship with Saudi Arabia’s Aramco, which joined Aston Martin’s Formula One team as a named partner earlier this year. Raising the brand’s profile through racing is part of Stroll’s strategy to attract buyers, along with launching mid-engine supercars to take on Ferrari.
The company wants to release its first all-electric sports car in 2025, yet will need to invest in the programme. It is also expected to unveil a refreshed line-up of its sports car range.
Research Calls
- Upgrades:
- Centene (CNC) upgraded to Buy from Hold at Jefferies; tgt raised to $115
- Costco (COST) upgraded to Buy from Hold at Deutsche Bank; tgt raised to $579
- Empire State Realty Trust (ESRT) upgraded to Market Perform from Underperform at BMO Capital Markets; tgt raised to $8
- Flywire (FLYW) upgraded to Buy from Neutral at Goldman; tgt raised to $30
- IDEX Corp (IEX) upgraded to Outperform from Perform at Oppenheimer; tgt $215
- Downgrades:
- A.O. Smith (AOS) downgraded to Neutral from Outperform at Robert W. Baird; tgt $60
- American Assets Trust (AAT) downgraded to Sector Weight from Overweight at KeyBanc Capital Markets
- Cardlytics (CDLX) downgraded to Equal Weight from Overweight at Wells Fargo; tgt lowered to $15
- Cigna (CI) downgraded to Hold from Buy at Jefferies; tgt lowered to $271
- ContraFect (CFRX) downgraded to Mkt Perform from Outperform at SVB Leerink; tgt $1
- ContraFect (CFRX) downgraded to Neutral from Overweight at Cantor Fitzgerald; tgt lowered to $1
- Dollar General (DG) downgraded to Neutral from Buy at Citigroup; tgt $258
- Edison (EIX) downgraded to Underperform from Neutral at BofA Securities
- Fastenal (FAST) downgraded to Neutral from Outperform at Robert W. Baird; tgt $48
- Fidelity Nat'l Info (FIS) downgraded to Equal Weight from Overweight at Wells Fargo; tgt lowered to $101
- Fiserv (FISV) downgraded to Equal Weight from Overweight at Wells Fargo; tgt lowered to $97
- Franklin Electric (FELE) downgraded to Neutral from Outperform at Robert W. Baird; tgt $75
- Graco (GGG) downgraded to Neutral from Outperform at Robert W. Baird; tgt $61
- Hayward Holdings (HAYW) downgraded to Neutral from Outperform at Robert W. Baird; tgt $16
- JELD-WEN (JELD) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $17
- Others:
- Albemarle (ALB) named Catalyst Call: Buy Idea at Deutsche Bank
- Avnet (AVT) initiated with an Underweight at JP Morgan; tgt $46
- CF Industries (CF) initiated with an Underperform at Credit Suisse; tgt $73
- Corteva (CTVA) initiated with an Outperform at Credit Suisse; tgt $68
Gapping down
In reaction to earnings/guidance:
- ERIC -9.7%, AZTA -6.3% (lowers guidance for JunQ revs), JPM -2.9%, WELL -1.1%, CAG -1.1%, MS -0.9%
Select metals/mining stocks trading lower:
- AU -3.8%, GFI -3.7%, GDX -2.2%, GOLD -2.2%, BTG -2.1%, IAG -2.1%, SLV -2%, GLD -1.1%
Select oil/gas related names showing early weakness:
- TTE -4.3%, SHEL -3.3%, BP -3%, OIH -2.4%, HAL -2.2%, COP -2.1%, XLE -2%, SLB -1.8%, PSX -1.8%, USO -1.7%
Other news:
- CFRX -77.2% (independent DSMB recommends Exebacase Phase 3 DISRUPT Study be stopped)
- BLU -8.8% (prices offering of 16540541 common shares at $9.25 per common share)
- EGY -8.8% (Transglobe Energy to be acquired by VALLCO Energy (EGY) in stock-for-stock strategic business combination)
- COKE -5.1% (to move to S&P MidCap 400 from SmallCap 600)
- NVAX -3% (FDA authorizes NVAX's COVID-19 vaccine for adults)
- TSLA -1.6% (Tesla Autopilot exec to step down)
- FLNC -1.3% (luence and Nine Additional Energy Market Organisations Issue Open Letter to European Policy Makers and the Media regarding the REPowerEU Plan)
Analyst comments:
- AOS -3.4% (downgraded to Neutral from Outperform at Robert Baird)
- CDLX -3.4% (downgraded to Equal Weight from Overweight at Wells Fargo)
- HAYW -3.1% (downgraded to Neutral from Outperform at Robert Baird)
- JELD -2.5% (downgraded to Equal Weight from Overweight at Barclays)
- DG -2.1% (downgraded to Neutral from Buy at Citigroup)
- FISV -2% (downgraded to Equal Weight from Overweight at Wells Fargo)
- AAT -1.7% (downgraded to Sector Weight from Overweight at KeyBanc Capital Markets)
- FAST -1.7% (downgraded to Neutral from Outperform at Robert Baird)
- FIS -1.6% (downgraded to Equal Weight from Overweight at Wells Fargo)
- GGG -1.6% (downgraded to Neutral from Outperform at Robert Baird)
- FELE -1.5% (downgraded to Neutral from Outperform at Robert Baird)
- CI -1.4% (downgraded to Hold from Buy at Jefferies)
- EIX -1.1% (downgraded to Underperform from Neutral at BofA Securities)
Gapping up
In reaction to earnings/guidance:
- FRC +5.2%, TSM +1.7%
Other news:
- TBPH +15.9% (TBPH to sell all of its units in Theravance Respiratory to RPRX for over $1.5 bln)
- AMYT +11.9% (FDA grants Orphan Drug Designation to Mycapssa for the treatment of Carcinoid Syndrome)
- GRBK +7.3% (to join S&P SmallCap 600)
- TGA +6.9% (Transglobe Energy to be acquired by VALLCO Energy (EGY) in stock-for-stock strategic business combination)
- CLNN +5.9% (report significantly improved survival in ALS patients initially treated with CNM-Au8 compared to initially randomized placebo treated participants during the long-term open-label extension of its RESCUE-ALS trial)
- ANGI +5.6% (report June performance metrics)
- MRNS +5.4% (entered into a definitive agreement to sell its Rare Pediatric Disease Priority Review Voucher for $110 mln)
- VCYT +4.2% (new data show that its GSC is highly accurate in re-classifying lung cancer risk)
- VCTR +2.6% (reports June AUM)
- DBRG +1.8% (acquires majority stake in GD Towers in partnership with Brookfield (BIP))
Analyst comments:
- FLYW +2.1% (upgraded to Buy from Neutral at Goldman)
- COST +0.8% (upgraded to Buy from Hold at Deutsche Bank)