On August 23, stocks and bonds rose as economic data supported the idea that major central banks might halt interest rate increases to avoid a recession. Before Nvidia Corp.'s earnings report, there were notable gains in the stock market, primarily driven by the performance of major tech companies. Additionally, a US government report suggested that the downward revision of job growth in the year leading up to March might be around 306,000 jobs, a smaller correction than some economists had predicted. In response to data indicating limited customer demand, US business activity saw minimal expansion, causing two-year Treasury yields to decrease by 10 basis points, falling below 5%. Simultaneously, the 10-year German interest rate declined due to a heightened contraction in private-sector activity across the euro area. US new-home sales surged in July, reaching the highest point in more than a year due to ongoing advantages for homebuilders caused by limited supply in the resale market. Purchases of new single-family homes notably grew by 4.4% last month, totaling an annualized rate of 714,000, although this figure was adjusted downward for previous months. Government data released on Wednesday revealed these figures, surpassing the median prediction of 703,000 in a Bloomberg survey of economists. Furthermore, a gauge of backlogs saw a reduction, hitting its lowest level for this year.
According to a report from CNBC, economic conditions in Europe have worsened, with recent data indicating the lowest levels since April 2013, excluding Covid-affected months. The eurozone, comprised of 20 nations sharing the same currency, grew 0.3% in Q2 and 0.1% in Q1. Analysts polled by Refinitiv predict that the European Central Bank will likely maintain its current main rate of 3.75%. Business activity in Europe contracted further in August, reaching its lowest point since November 2020. The flash composite purchasing managers' index for the eurozone fell to 47.0 in August from July's 48.6, missing the expected 48.8. Figures above 50 signify growth, while figures below 50 indicate contraction. Excluding Covid-impacted months, this data indicates the weakest reading since April 2013. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that the service sector's decline matches the struggling manufacturing performance. The services PMI hit a 30-month low at 48.3, while manufacturing PMI slightly improved from 42.7 in July to 43.7 this month. Based on PMI figures, Rubia projected a 0.2% contraction for the eurozone in Q3. The region's growth was 0.3% in Q2 and 0.1% in Q1, influenced by higher interest rates, energy costs, and subdued external demand. Differences within the region are evident, with Germany experiencing a significant business activity decline in August. This data shapes discussions on the European Central Bank's upcoming decisions. After the July meeting, President Christine Lagarde suggested potential rate hikes or pauses hinging on new data.
On the precious metals market side, gold prices rose significantly by 1%, reaching a high point that hasn't been seen in two weeks. This increase can be attributed to the decline in U.S. bond yields and a slight dollar weakening. As investors eagerly anticipate the Jackson Hole symposium, they seek insights into potential interest rate shifts. The current value of spot gold stands at $1,916.50 per ounce, and U.S. gold futures experienced a notable 1.1% rise, reaching $1,946.30. Of note, the flash U.S. composite PMI revealed that business growth in the United States has been sluggish in August, particularly within the service sector. All eyes are now directed toward Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium. This speech is anticipated to provide valuable cues regarding the trajectory of interest rates. According to the CME's FedWatch Tool, there is a strong 88.5% likelihood that the Federal Reserve will maintain its current rates during the upcoming September meeting. It's important to understand that gold's responsiveness to increasing U.S. interest rates is grounded in opportunity cost. As interest rates rise, the cost of holding assets that don't yield returns, like gold, becomes relatively higher. This dynamic often impacts the demand for gold. Moreover, the wider precious metals market saw positive movement. Notably, spot silver recorded a gain of 3.4%, bringing it to $24.18 per ounce. Similarly, platinum experienced an increase of 1.8%, reaching $934.79, and palladium rose by 1.9%, reaching $1,285. This overall upward movement in precious metals aligns with the ongoing market trends.
On the stocks market front, notable stocks such as Target Corporation (NYSE:TGT) and Certara, Inc. (NASDAQ:CERT) were downgraded by analysts, among many others. Check out the complete article to see some other stocks recently downgraded by analysts.
Analysts on Wall Street Lower Ratings for These 10 Stocks
On August 21, Baird downgraded Insulet Corporation (NASDAQ:PODD) rating from "Outperform" to "Neutral" and lowered the price target from $320 to $219. This change follows a survey of 25 endocrinologists who were asked about the use of GLP-1 in type two diabetes management. The downgrade reflects a more cautious outlook based on insights from the survey, suggesting a potential shift in Insulet Corporation (NASDAQ:PODD) market dynamics and growth prospects.
The Ithaka Group made the following comment about Insulet Corporation (NASDAQ:PODD) in its second quarter 2023 investor letter:
“Insulet Corporation (NASDAQ:PODD) is a medical device company focused on the design, development and commercialization of insulin pump systems for people with type 1 diabetes. Diabetes is a chronic, life-threatening disease for which there is no known cure. Insulet’s insulin pump system is superior to traditional multiple daily injections because it provides its users with a more accurate and pain free way to administer insulin when compared to injecting it via syringe multiple times per day. Insulet’s stock was under pressure following news that Medtronic purchased EOFlow, the manufacturer of the EOPatch, a tubeless, wearable and fully disposable insulin delivery device. While the EOPatch is not yet launched in the US, it is widely believed it will be available by the end of 2024, increasing competitive pressure on Insulet.”
Kanzhun Limited (NASDAQ:BZ) runs BOSS Zhipin, an online job search platform that connects job seekers with employers. The company generates revenue by providing recruitment services to job seekers and enterprise clients through its mobile apps and websites. On August 22, Macquarie analyst Danny Lee significantly adjusted his stance on Kanzhun Limited (NASDAQ:BZ). Previously having held an 'outperform' rating for the company, Lee has now revised his recommendation to 'neutral'. This modification could indicate a shift in Lee's assessment of Kanzhun's future performance and market dynamics. Such changes in analyst recommendations can carry substantial implications for investors as they reflect the evolving perceptions and insights within the financial industry. Similar to Target Corporation (NYSE:TGT) and Certara, Inc. (NASDAQ:CERT), Kanzhun Limited (NASDAQ:BZ) is yet another stock that has recently faced analyst downgrades.
Xcel Energy Inc. (NASDAQ:XEL) has shown minimal movement in the trading session on August 22 due to an announcement from Bank of America. The bank has decided to downgrade the stock's rating from 'Buy' to 'Neutral', accompanied by a notable adjustment in the price target. Previously set at $72, the new target now is $60. This decision comes in light of recent challenges faced by Xcel Energy Inc. (NASDAQ:XEL) in regulatory matters within Minnesota and Colorado. These regulatory setbacks could have impacted the company's operational outlook and strategic trajectory. Additionally, the potential liabilities associated with wildfires have raised concerns, prompting a reevaluation of the stock's investment potential. Bank of America's rating change highlights their reassessment of Xcel Energy Inc. (NASDAQ:XEL) short to mid-term prospects. The shift from a 'Buy' to a 'Neutral' recommendation could reflect Bank of America's view that the stock's previous upside potential might now be more tempered due to the regulatory hurdles and potential financial risks linked to wildfire liabilities.
07. Alpha Metallurgical Resources, Inc. (NYSE:AMR)
Price Reaction after the Downgrade: -1.50 (-0.77%)
On August 21, TD Cowen analyst Lance Vitanza downgraded Alpha Metallurgical Resources, Inc. (NYSE:AMR), moving from an 'Outperform' to a 'Market Perform' rating, lowering the price target from $200 to $194. This shift led to around 0.77% drop in Alpha Metallurgical Resources, Inc. (NYSE:AMR) stock on August 22. Vitanza cited the company's recent substantial surge in value, alongside weaker global economic growth affecting demand for finished steel products and coking coal indices. Despite acknowledging Alpha Metallurgical Resources, Inc. (NYSE:AMR) strong management and prudent cash flow distribution, Vitanza's decision was influenced by the significant reduction in the gap between the stock price and the value determined through discounted cash flow analysis. Much like Target Corporation (NYSE:TGT) and Certara, Inc. (NASDAQ:CERT), Alpha Metallurgical Resources, Inc. (NYSE:AMR) is now part of the group of companies experiencing recent analyst downgrades. This occurrence suggests a broader trend where analysts are reassessing their outlook on various stocks.
Price Reaction after the Downgrade: -0.39 (-1.07%)
On August 22, a significant alteration emerged in the evaluation of Genpact Limited (NYSE:G) by an analyst from JPMorgan. Previously maintaining a 'neutral' rating on the stock, the analyst has now opted for a more cautious stance by downgrading it to an 'underweight' rating. This adjustment in the analyst's perspective could suggest a heightened concern about the stock's near-term performance and the potential challenges it might face.
In conjunction with this change in rating, the JPMorgan analyst has introduced a new price target of $40. This figure indicates the level at which they anticipate the stock to perform in the future, and it is notably lower than the stock's current trading value. Establishing this new price target reflects the analyst's recalibration of their expectations for Genpact Limited (NYSE:G) value and growth trajectory.
Vulcan Value Partners made the following comment about Genpact Limited (NYSE:G) in its second quarter 2023 investor letter:
“We purchased two new positions during the quarter: Genpact Limited (NYSE:G) and Dun & Bradstreet Holdings Inc. Genpact is an IT services company that was spun out of General Electric several years ago. Genpact focuses on business process outsourcing (BPO) and technology digitalization markets. It has a diverse client base that is spread across multiple industries. Complexity within the IT space is growing rapidly, and Genpact plays an important role in helping customers navigate the complexity. We have owned Genpact in the past and are happy to have the opportunity to own it once again.”
