Morning Briefing: August 2nd, 2023

Market Overview

Stock Market Reaction

General Outlook:
Stock futures are showing signs of losses at the open as earnings season continues to unfold. Negative reactions to results and guidance from major companies such as Starbucks (SBUX), Pinterest (PINS), and SolarEdge Technologies (SEDG) are acting as a drag on the broader market. Ongoing consolidation efforts also contribute to the gloomy outlook.

International Perspective:
Global equities have dropped sharply following Fitch Ratings’ downgrade of US government debt, spurring a retreat from riskier assets. The declines have moderated during the session, but the Nasdaq 100 futures are 0.7% lower, and the Stoxx 600 index was down 0.8%. A pullback is expected later on Wednesday.

U.S. Credit Rating Downgrade

Fitch has downgraded the United States credit rating from “AAA” to “AA+” citing expected fiscal deterioration over the next three years, growing government debt, and an erosion of governance standards. Investors are concerned about the risks of recession and whether the current run-up in stocks is sustainable.

Resilience of Treasuries:
Despite the downgrade, Treasuries remain strong, and yields have moved lower. The 2-year note yield is down four basis points to 4.88%, and the 10-year note yield is down two basis points to 4.02%.

Corporate News

Earnings Reports

Several companies have released their earnings reports with mixed results:

Starbucks (SBUX): Beat on EPS but missed on revenue. Global sales increased 10%.
Advanced Micro (AMD): In-line with revenue and was upgraded to Buy at Citigroup.
Electronic Arts (EA): Beat on EPS but guided Q2 EPS below consensus.
e.l.f. Beauty (ELF): Beat on EPS and revenue.
Match Group (MTCH): Beat on EPS and revenue.
Paycom Software (PAYC): Beat on EPS but guided Q3 revenue mostly below consensus.
Pinterest (PINS): Beat on EPS and revenue.
SolarEdge Technologies (SEDG): Beat on EPS but guided Q3 revenue below consensus.
AmerisourceBergen (ABC): Beat on EPS and revenue, declared dividend.
Humana (HUM): Beat on EPS and revenue.
CVS Health (CVS): Beat on EPS and revenue.
DuPont (DD): Beat on EPS and revenue but guided Q3 below consensus.
Kraft Heinz (KHC): Beat on EPS but missed on revenue.
Yum! Brands (YUM): Beat on EPS, worldwide system sales grew 13%.
Generac (GNRC): Missed on EPS but beat on revenue.
Johnson Controls (JCI): Reported EPS in-line, revenue in-line.

Individual Stock Moves

Ferrari NV: Slumped more than 4% after disappointing guidance.
Siemens Healthineers AG: Fell after missing estimates.
Hugo Boss AG: Dropped after margins fell short of expectations.
Advanced Micro Devices Inc. (AMD): Gained in premarket trading.
Starbucks Corp. (SBUX): Dropped as quarterly sales fell short.
Pinterest Inc. (PINS): Slid after failing to meet expectations.

Geopolitical Insights

Asian Markets:

Stocks in Asia posted their biggest decline in over four months, with Japanese stocks slumping the most this year, as gains in the yen impacted the outlook for corporate profit.

Oil Markets:

Oil extended its rally, with West Texas Intermediate up 0.9%, pointing to a huge drawdown in US inventories and signals that the market is tightening.

Concluding Remarks

The market today is laden with mixed feelings. The downgrade by Fitch is an added complexity to an already uncertain environment. But it’s not all gloom, as some corporate giants have outperformed expectations, and safe-haven assets like Treasuries continue to show resilience. Investors will likely keep a close watch on how high interest rates are affecting the economy, with key reports from Apple Inc. and Amazon.com Inc. coming up this week. The interplay of these various factors makes the market’s future course all the more intriguing and nuanced.