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Daily Market Report | August 8, 2022

US FINANCIAL MARKET

Stocks Open Higher With Earnings in Focus – Wall Street Journal, 8/8/2022

  • U.S. stocks edged up, starting the week on a positive note as investors reviewed a series of earnings reports for insight into the impact of higher inflation on companies and consumers.
  • Tech giant Nvidia declined 7.3% after reporting preliminary quarterly revenue that came below analysts’ forecasts and said it expects challenging market conditions to persist in the third quarter.
  • Palantir Technologies fell 13% after its forward guidance missed Wall Street’s estimates.
  • The yield on the benchmark 10-year Treasury note edged down to 2.793% from 2.838% on Friday.
  • The inverted yield curve continued to flash a recessionary signal, with the 2-year yield at 3.214%.
  • Berkshire Hathaway added 1% after reporting quarterly results over the weekend. The investment firm’s operating earnings, CEO Warren Buffett’s preferred metric, rose although the company posted a net loss.
  • Tesla rose 2.4%. The U.S. Senate passed a bill on Sunday to spend billions of dollars on climate, including the extension of a tax incentive for electric vehicles.
  • Signify Health jumped 16% after The Wall Street Journal reported that drugstore chain CVS Health is planning to bid for the company.
  • Global Blood Therapeutics climbed 4.5% after Pfizer agreed to buy the company for $5.4 billion.
  • Overseas, the pan-continental Stoxx Europe 600 rose 1%. Retail investment firm Hargreaves Lansdown climbed 8% after reporting better-than-expected earnings and raising its guidance for 2023.
  • Oil prices slipped, with global crude benchmark Brent falling 1% to trade at $93.96 a barrel.
  • In Asia, major benchmarks were mixed. The Shanghai Composite Index added 0.3%, while Hong Kong’s Hang Seng Index slid 0.8%. Japan’s Nikkei 225 added 0.3%.
  • SoftBank reported a record $23 billion quarterly loss driven by the global selloff in tech stocks after markets closed in Tokyo.

Palantir Stock Tumbles After Annual Forecast Disappoints – Bloomberg, 8/8/2022

  • Palantir shares fell after the data software company forecast annual sales and profit that fell short of analysts’ estimates.
  • The outlook reflects the sharp challenge facing the data software company when fewer customers are willing to open their wallets.
  • Adjusted income will be about $342 million on revenue of about $1.9 billion in 2022, excluding any major future contracts with the US government.
  • Analysts had been expecting adjusted income of $527.9 million on revenue of $1.98 billion on average, according to estimates compiled by Bloomberg.
  • Increased competition from Snowflake and other software companies, particularly those with a larger cloud presence, could hamper Palantir’s ability to sell to businesses, and additional salespeople could notably compress its operating margin, according to Damian Reimertz., a contributing analyst to Bloomberg Intelligence.
  • The company’s commercial business, particularly in the US, was one of the few bright spots during an otherwise bleak quarter. Global commercial revenue increased 46% to about $210 million in the second quarter.
  • Total revenue in the period that ended in June increased 26% to $473 million, in line with analysts’ expectation.
  • Palantir lost $179 million during the quarter, significantly wider than analysts expected and than any other time since it first went public. The adjusted loss was $21 million, falling well short of the $91 million adjusted profit analysts anticipated.
  • Karp, the CEO, said the strength of the dollar weighed on the results because 40% of Palantir’s business is outside of the US.
  • Karp expects Palantir to be profitable in 2025, he said on the conference call.

Nvidia Stock Sinks as Revenue Estimate Misses, Gross Margin Outlook Slashed– Barron’s, 8/8/2022

  • Nvidia is expecting revenue to be $6.7 billion, well below guidance and estimates calling for $8.1 billion.
  • The miss was primarily due to weaker-than-forecast gaming revenue, which will come in 33% lower year over year at $2.04 billion.
  • Adjusted gross margins are expected to come in at 46.1%, down from the company’s previous guidance for 67.1%, Nvidia said.
  • Nvidia will report final earnings results on Aug. 24.

Tyson Shares Slump Most in Two Years as Inflation Hits Meat Sales – Bloomberg, 8/8/2022

  • Tyson Foods, the biggest US meat company, is getting hit by inflation with soaring costs and a tight labor market squeezing sales of chicken and pork.
  • The owner of Hillshire Farm and Ball Park hot dogs posted adjusted earnings Monday of $1.94 a share for its third quarter, narrowly missing the $1.98 average estimate of analysts surveyed by Bloomberg.
  • Shares fell as much as 9.8%, the biggest intraday tumble since March 2020.
  • Springdale, Arkansas-based Tyson in a statement said meat sales were slowing with high prices pinching consumers.
  • Pork and chicken sales dropped in the latest quarter; beef sales, while higher volume-wise in the third quarter, are still down for the year to date. Still, total sales in the quarter of $13.5 billion topped estimates for $13.31 billion.
  • Tyson in its outlook reiterated expectations for sales in fiscal-year 2022 of $52 billion to $54 billion but it cut estimated margins in the pork segment to between 3% and 5%, down from 5% to 7% in May, and its chicken outlook no longer included expectations for a “stronger performance in the second half of the year.”

Pfizer Agrees to $5.4 Billion Deal for Global Blood Therapeutics – Wall Street Journal, 8/8/2022

  • Pfizer has agreed to buy Global Blood Therapeutics Inc. for $5.4 billion, in a deal that would give the big drugmaker a foothold in the treatment of sickle-cell disease.
  • Pfizer said Monday it would pay $68.50 a share in cash for Global Blood Therapeutics, which has one of the few approved treatments for sickle-cell disease.
  • The acquisition continues a string of deals for Pfizer, which is flush with cash from sales of its Covid-19 vaccine and drug. It has said it wants to add $25 billion in revenue from business-development moves like mergers and acquisitions by 2030.
  • Adding Global Blood Therapeutics would bolster Pfizer’s rare-diseases business and help it realize a longtime goal of selling drugs to treat sickle cell, an inherited blood disorder that affects about 100,000 people in the U.S. and 20 million worldwide, including many who are Black.

CVS Plans to Bid for Signify Health – Wall Street Journal, 8/8/2022

  • Signify Health is exploring strategic alternatives including a sale, The Wall Street Journal reported this past week.
  • Initial bids are due this coming week and CVS is planning to enter one, some of the people said. Others also are in the mix, they said, and CVS could face competition from other managed-care providers and private-equity firms.
  • There is no guarantee any of them will reach a deal for Signify, which has a market value of around $4.7 billion after its shares rose on the news of a potential sale.
  • For Woonsocket, R.I.-based CVS, which has a market value of $134 billion, a deal would help fulfill its stated ambition to become an even bigger provider of medical services.

Buffett’s Berkshire Pounces on Market Slump to Buy Equities – Bloomberg, 8/8/2022

  • Warren Buffett’s Berkshire Hathaway Inc. is following an age-old adage: Buy the dip.
  • The conglomerate was a net buyer of equities in the quarter, reporting $3.8 billion in purchases, according to results released Saturday. It was a net seller in the second quarter of last year.
  • The Omaha, Nebraska-based company also reported an operating profit of $9.2 billion as the insurance and railroad businesses posted gains.
  • Berkshire said losses at Geico were the result of higher claims due to rising used-car prices and auto parts shortages.
  • The company also reported that Berkshire Hathaway Energy had acquired $870 million in common stock from Vice Chairman Greg Abel in June. The transaction wasn’t previously disclosed.
  • Despite the spending spree, Berkshire made only a measly dent in its cash pile. The company reported $105.4 billion at the end of June, barely budging from the $106 billion at the end of the first quarter.

Carlyle CEO Resigns in Sudden Reversal of Generational Shift – Bloomberg, 8/8/2022

  • Carlyle Chief Executive Officer Kewsong Lee stepped down, reversing a changing of the guard set in motion just five years ago when founders of the private equity giant ceded leadership to a new generation. The stock dropped as much as 6.3%.
  • His sudden exit, announced late Sunday, follows tensions with the company’s old guard and a stretch in which Carlyle’s shares trailed its peers. Co-Founder Bill Conway, currently the non-executive co-chairman, will step in as interim CEO during the search for a successor.
  • With his five-year employment agreement due to expire at the end of the year, Lee and board directors clashed over his contract in recent discussions, said a person familiar with the matter.

US ECONOMY & POLITICS

Senate Passes Democrats’ Climate, Healthcare and Tax Bill – Wall Street Journal, 8/8/2022

  • The Senate passed a bill spending hundreds of billions of dollars on climate and healthcare programs while raising taxes on large, profitable companies, as Democrats unified around elements of President Biden’s agenda after a year of frustrated efforts to advance a broader package.
  • The legislation, which passed the Senate 51-50 on Sunday with a tiebreaking vote by Vice President Kamala Harris, offers tax incentives for reducing carbon emissions, seeks to allow Medicare to negotiate the price of some prescription drugs, allots roughly $80 billion to the Internal Revenue Service and extends subsidies for health insurance under the Affordable Care Act.
  • Along with a new 15% corporate minimum tax, it creates a 1% excise tax on companies’ stock buybacks and sets aside roughly $300 billion toward reducing the deficit.
  • The bill’s prescription drug plan would for the first time empower Medicare to negotiate the prices of a limited set of drugs selected from among those that account for the biggest share of government expenditures, long a goal for lawmakers. It would also cap out-of-pocket drug costs for Medicare beneficiaries at $2,000 a year beginning in 2025, and starting next year mandate free vaccines for Medicare enrollees. It would cap insulin costs for Medicare patients at $35 a month starting next year.
  • On climate, the bill’s tax incentives aim to channel billions of dollars to wind, solar and battery developments that put clean power onto the grid. Consumers could receive subsidies for certain windows, heat pumps and other energy-efficient products, as well the extension of a $7,500 tax credit to buy electric vehicles.

EUROPE & WORLD

SoftBank Reports Record $23 Billion Quarterly Loss as Tech Downturn Hits – Wall Street Journal, 8/8/2022

  • Japanese technology investor SoftBank reported a record quarterly loss of more than $23 billion after an investment spree that Chief Executive Masayoshi Son described as delirious turned sour.
  • As of June 30, 2022, the Vision Fund 2 had made investments totaling $49.65 billion, a majority of which came in a period of just six months between April and September of last year.
  • In May of this year, as the losses from those investments began to emerge, Mr. Son said he was switching to a defensive policy.
  • He said Monday that SoftBank’s Vision Funds approved about $600 million in investments in the April-June quarter, down from a peak of $20.6 billion in the same quarter a year earlier. He said the caution would continue, even though the market’s decline may make some companies a bargain.
  • SoftBank’s first Vision Fund, totaling about $100 billion including money from the sovereign-wealth fund of Saudi Arabia, shook the startup world with its size and aggressiveness. Mr. Son followed with Vision Fund 2, which gets all its money from SoftBank.
  • The Vision Fund 2 is deep underwater when considering investments still on its balance sheet. SoftBank estimated their value at about $37 billion as of June 30—which it said was $11 billion less than it paid to acquire them.
  • While investment losses accounted for most of SoftBank’s April-June loss of ¥3.16 trillion, equivalent to $23.4 billion, it also recorded a loss equivalent to $6 billion related to the yen’s fall against the dollar.

Mediterranean Buyers Return to the Market for Russian Crude – Bloomberg, 8/8/2022

  • Oil buyers in southern Europe are quietly returning to the market for Russian crude, with a European Union ban on such shipments still four months away from coming into force.
  • Shipments of Russian crude to ports in Italy and Turkey rose to multi-week highs in the seven days to Aug. 5, offsetting another drop in shipments to customers in northern Europe.
  • Shipments from Russia to the Mediterranean region as a whole were the highest since mid-June.
  • Outflows edged lower in the week to Aug. 5, slipping to 3.46 million barrels a day from 3.51 million the previous week, according to vessel-tracking data monitored by Bloomberg. Still, four-week average shipments, which smooth out some of the volatility in weekly figures, rose to the highest in four weeks at 3.25 million barrels a day.

Two Chinese Cities Approve Baidu’s Unmanned Self-Driving Taxis – Wall Street Journal, 8/8/2022

  • China took a notable regulatory step in the field of driverless taxis, with two cities giving Baidu Inc. approval to operate ride-hailing services without a driver or a person overseeing safety in the vehicle.
  • The Chinese search-engine giant, which already operates self-driving taxis, plans to add five unmanned cars each to the cities of Wuhan and Chongqing, it said.
  • These vehicles will run in designated areas of those cities during the daytime, when there tends to be more traffic on the road, the company said. The approvals also allow Baidu to charge users for the rides, it said.

Factmonster – TODAY in HISTORY

  • English forces attacked the Spanish Armada, permanently crippling Spain’s “invincible” fleet. (1588)
  • Michael-Gabriel Paccard and Jacques Balmat became the first to climb Mont Blanc. (1786)
  • Thomas Edison patented the mimeograph machine. (1876)
  • In “The Great Train Robbery,” some 15 thieves robbed the Glasgow-to-London mail train, making off with more than $6 million in cash. (1963)
  • Sharon Tate, wife of director Roman Polanski, and four others were murdered by members of Charles Manson’s “family.” (1969)
  • President Nixon announced he would resign the following day as a result of the Watergate scandal. (1974)

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