Stock Market In Correction; Merck Covid Drug Rocks Moderna, BioNTech: Weekly Review

The stock market rally turned into a market correction as the Nasdaq and growth stocks led a sharp sell-off amid rising Treasury yields, higher energy prices and Congress struggling to pass key legislation. Retailers and apparel makers fell hard as Bed Bath & Beyond (BBBY) became the latest to warn on supply-chain issues. Merck (MRK) shot up Friday on Covid-19 antiviral pill with “compelling trial” results. That rocked vaccine makers Moderna (MRNA) and BioNTech (BNTX). Micron (MU) gave a weak outlook, a bad sign for chip names.


Stock Market In Correction

The Dow Jones, S&P 500 and Nasdaq composite suffered sharp weekly losses, with growth stocks having their worst week since the coronavirus crash. IBD has shifted the market direction status to “correction.” The 10-year Treasury yield ran up to a three-month high, paring gains slightly. Bed Bath & Beyond (BBBY) rocked retail stocks by becoming the latest to warn on Covid-related supply chain woes. Moderna (MRNA) and BioNTech (BNTX) plunged, with a Merck (MRK) Covid-19 antiviral pill adding to the losses. Fertilizer, energy and bank stocks fared well.

Economy Powers On

The economy continues to power through pandemic-related supply-chain woes, labor shortages, inflation, the delta variant and the lapse of fiscal stimulus. The ISM manufacturing index unexpectedly rose to 61.1 in September from 59.9, signaling faster expansion, with 50 being neutral. New orders and production remained elevated, while the jobs gauge turned slightly positive. The increase stemmed in large part from slower supplier deliveries and higher prices. ISM noted “record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products.”

New claims for jobless benefits increased 11,000 to 362,000 in the week through Sept. 25, rising for the third straight week.

The personal consumption expenditure price index rose 4.3% in August vs. a year earlier, a 30-year high. Core PCE inflation, the Fed’s favorite inflation gauge, held at 3.6%. Fed chief Jerome Powell said earlier in the week that inflation would likely remain elevated for longer.

Crude Oil Price Touch Highs

Oil prices soared to $80 per barrel, the highest in nearly three years and U.S. natural gas prices surged to a seven-year high. But energy prices are skyrocketing in Europe and China. The U.K. faces a natgas shortage as a cold winter in 2020 depleted supplies and wind power failed to fill the gap. Russia has slowed its supply of natgas to Europe, sparking worries of widespread energy crunch heading into winter. China’s Jilin province, a major industrial center, faced blackouts as its governor pleaded for more coal to keep the lights on.

Merck Jumps On Covid Oral Antiviral

Merck (MRK) will seek emergency use authorization for their Covid oral antiviral treatment for Covid-19, citing “compelling results” in trials. The drug, molnupiravir, cut the risk of hospitalization or death by 50% for patients with mild or moderate cases of Covid-19, Merck and partner Ridgeback Biotherapeutics said.

Merck stock, a Dow Jones component, jumped Friday. Meanwhile, coronavirus vaccine makers Moderna (MRNA) and BioNTech (BNTX) plunged, adding to big weekly losses.

Micron Outlook Disappoints

Micron Technology (MU) reported a 124% EPS gain as sales climbed 37% to $8.27 billion for its fiscal fourth quarter, easily beating. But the memory-chip maker badly missed views with its guidance for the current quarter. Shares fell.

Nio, Xpeng Deliveries Rebound

Nio (NIO) doubled EV sales on home turf in the third quarter, despite a hit to production from the chip shortage. China EV startup peers Xpeng (XPEV) and Li Auto (LI) nearly tripled Q3 sales. Nio sold 24,439 EVs last quarter, doubling year over year and beating its target for 22,500-23,500 deliveries. Xpeng sold 25,666 EVs, up 199% and crushing its target for 21,500-22,500 deliveries. Li Auto sold 25,116 EVs, up 190% and topping its target for 24,500 deliveries. In September, Nio and Li Auto had cut Q3 delivery forecasts, citing volatile chip supplies. Xpeng and especially Nio reported higher sales in September vs. the prior month, while Li Auto saw a sequential decline. On Friday, Li Auto indicated challenges linger in the current quarter. It’s “taking multiple measures to ensure the supply of the auto parts, aiming to shorten the waiting time of delivery for our users,” the maker of the fast-selling, hybrid-electric Li One SUV said.

Cintas Tops Views

Cintas (CTAS) beat earnings and revenue expectations for its first quarter, with EPS up 12% and sales up 9% to $1.9 billion. Cintas reported earnings of $3.11 per share, up 12% from the year-ago quarter and beating estimates by 13%. Sales grew 9% to $1.9 billion, 1% above views. The business uniforms and cleaning products provider guided slightly higher for fiscal 2022.

Supply Chain Woes Hit Retail

Bed Bath & Beyond (BBBY) missed fiscal Q2 estimates and guided low on Q3 and full-year EPS, citing supply chain issues amid the spread of the delta Covid-19 variant. The housewares retailer joins Nike (NKE) and RH (RH) in citing supply chain issues, with those companies citing Vietnam manufacturing shutdowns due to Covid. Vietnam is now easing restrictions, but supply chain disruptions from there and elsewhere are likely to continue for weeks or months, affecting the holiday season. Many retail stocks sold off as investors feared supply-chain impacts.

Jabil Misses Sales Target

The contract manufacturer reported a 47% EPS gain, beating fiscal fourth-quarter views. But revenue edged up 1% to $7.41 billion, missing forecasts. The electronics manufacturing unit was a laggard, with sales down 6%. For the current Q1, Jabil (JBL) guided higher. Shares retreated.

News In Brief

Warby Parker (WRBY) began trading on the NYSE on Wednesday at 54.05 vs. a $40 reference price for the direct listing. WRBY stock ended the day at 54.49, giving the eyewear retailer a $6.7 billion valuation.

Thor Industries (THO) reported a 93% EPS gain as revenue rose 55% to $3.59 billion, beating views. Shares of the RV maker rose.

Ford (F) and battery partner SK Innovation will invest $11.4 billion to build new EV and battery plants, joining automakers from General Motors (GM) to Volkswagen (VWAGY) as they seek to copy Tesla (TSLA) by bringing batteries in house. Ford, which will invest $7 billion, rose.

Lucid Motors (LCID) jumped after announcing late Tuesday that it has begun production of the Lucid Air, with deliveries of the luxury EV starting in October. The Lucid Air has 520 miles of range.

Dollar Tree (DLTR) said it would beginning selling at higher price points. It also added $1.05 billion to an existing buyback, for a new total of $2.5 billion. Shares surged.

Generac (GNRC) forecast full-year sales slightly below analyst estimates. It also guided low on fiscal 2024 revenue. Shares of the generator and energy storage leader fell sharply.

Polestar will go public via a reverse merger with a so-called “blank check” company. The EV startup, jointly owned by Volvo and China’s Geely, will merge with Gores Guggenheim (GGPI) in a $20 billion deal.

Merck (MRK) will buy Acceleron (XLRN) for $11.5 billion, expanding its work in rare diseases.

Jefferies Financial (JEF) reported a 40% EPS gain, with fiscal Q3 revenue up 20% to $1.94 billion.

Zoom Video (ZM) and Five9 (FIVN) agreed to terminate their merger deal, after FIVN shareholders failed to approve the $14.7 billion takeover. Regulators were reviewing the deal, with Zoom’s China ties posing a potential national security risk. Zoom’s plunging stock price since the deal was announced made the deal unattractive to FIVN shareholders


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