Morning in New York: Strong Business Activity Data Will Support the "Bears"

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Capital Markets Research at Freedom Broker.

The situation surrounding Iran remains the focus of attention for market participants. U.S. Treasury Secretary Scott Bessent announced the imposition of “the toughest sanctions in history,” the details of which will be presented on Monday, August 24. Washington also intends to seek support on this issue from China, which accounts for more than 80% of Iran’s seaborne oil exports. However, Beijing has opposed sanctions pressure and called for a diplomatic resolution to the disputes. Increased economic pressure on Tehran and the ongoing uncertainty surrounding shipping through the Strait of Hormuz are keeping oil prices near their August highs, which is driving growth across the entire energy sector (XLE ETF).

The main macroeconomic release this Friday will be S&P Global’s preliminary estimates of the Purchasing Managers’ Index (PMI) for August. The consensus forecast calls for the manufacturing PMI to remain at 53.9 points, while the services PMI is expected to decline to 54 points. Analysts at Freedom Broker anticipate stronger readings. Our forecast for the manufacturing PMI is 54.4 points, and for the services PMI, 54.2. Results above expectations would signal continued robust economic activity, but could contribute to a further rise in Treasury yields, which would put pressure on stocks. Retail earnings reports continue to point to selective consumer demand: Walmart’s (WMT) weak results contrast with the solid performance of Ross Stores (ROST) and Target (TGT).

Futures on U.S. stock indices are trading near flat. We assess the risk balance for the upcoming session as neutral, with moderate volatility. Solid macroeconomic data and strong results from individual retailers support a positive fundamental backdrop. At the same time, high oil prices and ongoing pressure on long Treasury positions are limiting upside potential. If the S&P 500 consolidates above 7,700 points, it will increase the likelihood of a positive scenario, while a drop below 7,600 will heighten downside risks.

— Broadcom (AVGO) is in talks to raise more than $60 billion in debt financing to supply its AI chips to Anthropic and other companies. Taking into account an additional subordinated tranche, the total deal size could approach $100 billion. The scale of the financing confirms strong demand for AI infrastructure, but at the same time draws greater attention to the debt burden and financial guarantees of industry participants.

— Shares of Werewolf Therapeutics (HOWL) are surging by about 80% on news of an agreement with EMD Serono to sell the INDUCER platform and a significant portion of the INDUKINE platform. The company will receive $28 million upfront and an additional $5 million upon completion of the technology transfer.

— Ross Stores (ROST) shares are up about 8% following the release of strong quarterly earnings. The retailer’s sales rose 13% year-over-year to $6.26 billion, and EPS came in at $2.66, including a positive impact from the refund of tariff payments of approximately $0.6 per share. The company has raised its EPS guidance for the current fiscal year from $7.50–7.74 to $8.61–8.77.

— Aveanna Healthcare (AVAH) shares are down about 9% following the announcement of a secondary offering of 15 million shares at $11.75 per share. The sellers are existing shareholders, so the company itself will not receive any proceeds from the transaction. The offering is scheduled to close on August 24.

— OSI Systems (OSIS) shares are down about 14% following the release of its quarterly earnings report. Revenue came in at $484.1 million, which was significantly below consensus, while adjusted EPS rose 17% year-over-year to $3.78. The results were negatively impacted by the postponement of shipments to the Middle East totaling approximately $50 million. The company’s cautious outlook for fiscal year 2027 put additional pressure on the stock price.

— Flowers Foods (FLO) shares are down about 5% following the release of weak second-quarter results. The company’s revenue declined by approximately 4% year-over-year to $1.19 billion. Management has revised its 2026 guidance for adjusted EPS—which stood at $0.21 for the reporting period—from $0.80–0.90 to $0.75–0.85.

Trading on August 20 on U.S. stock markets ended in the red. The S&P 500 lost 0.87%, the Nasdaq-100 fell 0.72%, the Dow Jones dropped 1.32%, and the Russell 2000 fell 1.34%. Pressure on stock prices came from rising yields on long-term Treasury bonds, another increase in oil prices, and weak results from some companies in the retail sector. The energy sector (XLE: +0.27%) led the gains, while the healthcare sector (XLV: -1.87%) was among the underperformers. Among the “Magnificent Seven,” performance was negative, with Tesla (TSLA: -1.71%), Amazon (AMZN: -2.16%), and Apple (AAPL: -1.75%) seeing the heaviest selling pressure.

WTI crude oil rose 2.9%; prices have moved higher on nine of the last 11 trading days. Buyers were buoyed by escalating tensions surrounding Iran following new threats from Donald Trump. Additional factors included ongoing constraints on refining capacity and related concerns about the supply of petroleum products, particularly diesel fuel. Treasury bond yields rose by 2–6 basis points, partially offsetting the decline during the previous session following an unexpected increase in the volume of government debt buybacks by the Ministry of Finance.

Macroeconomic data was largely positive. The number of initial claims for unemployment benefits came in below average forecasts, although the number of continuing claims slightly exceeded the consensus estimate. The Philadelphia Fed’s Manufacturing Activity Index unexpectedly reached a more than five-year high in August. The employment component reached its highest level since April 2022, while the input and output price indicators returned to their lows since February. San Francisco Fed President Mary Daly described the current monetary policy stance as optimal, noting that there is no need to raise rates.

— Walmart’s (WMT: -9.2%) second-quarter results fell short of expectations amid weaker sales growth, and its earnings forecast for the next three months failed to meet the consensus. Full-year earnings guidance was raised, but the investment community had hoped for a more optimistic revision. Management noted, however, continued market share growth and steady growth in additional revenue streams.

— Deere & Co. (DE: +6.9%) reported third-quarter revenue and earnings that exceeded consensus estimates, driven by growth in shipment volumes and favorable pricing trends in the small agricultural equipment, construction equipment, and forestry equipment segments. The company raised the lower end of its net income guidance for the current fiscal year and noted positive momentum in early order volumes.

— Advance Auto Parts’ (AAP: -24.6%) comparable sales unexpectedly declined in the second quarter, and earnings excluding tariff reimbursement came in below expectations. Weak performance in the professional segment and pressure on consumer spending in the do-it-yourself auto repair category were the main negative factors. The company left its full-year guidance for revenue and comparable sales unchanged.

— Transocean (RIG: +2.9%) was awarded a contract worth approximately $300 million to operate an ultra-deepwater drilling vessel starting in early 2027.

— Elia Zaitsev, Chief Technology Officer at CrowdStrike (CRWD: -5.6%), will leave the company to launch Cognition, a venture capital fund focused on investing in artificial intelligence and cybersecurity projects.

This article was AI-translated and verified by a human editor