Closing Recap

Tuesday, April 11, 2023

Index	Up/Down	%	Last
DJ Industrials	98.60	0.29%	33,685
S&P 500	-0.06	0.00%	4,109
Nasdaq	-52.48	0.43%	12,031
Russell 2000	14.16	0.80%	1,786

 

Equity Market Recap

·     Stocks logged another low volume, lackluster trading session Tuesday, much like the action the last few days ahead of the March consumer price index (CPI) data where investors await further signs of deflation. Stock markets were in “wait and see” mode into the CPI data, with estimates for headline CPI m/m at +0.2% (after +0.4% prior) and headline CPI y/y to rise +5.2% (vs. prior +6%). On a core basis, or ex: food & Energy, CPI m/m expected to rise +0.4% (vs. prior month +0.5%) and on a y/y basis to rise +5.6% (vs. prior +5.5%). Federal Reserve official Goolsbee said today the central bank should be cautious about raising interest rates so that it can assess the fallout from banking-sector stresses triggered by the collapse of two banks last month. With today’s market move, the S&P 500 reached its highest levels since mid-last week before fading in the final minutes, but things can change quickly depending on tomorrow’s data.

·     Wall Street strategists are getting more and more cautious, while stocks continue to push higher and defy all calls for a correction after s sizzling start to 2023 as investors buy every dip on rising expectations of Fed rate cuts by mid-year. Bank America desk today noted that “easy Fed policy and tightening credit conditions typically equate to the worst phase for stocks. Our US equity strategists continue to forecast: A S&P 2023 YE target of 4000, with the index expected to fall to an intra year low of 3000." Meanwhile Wells Fargo strategist Harvey said “We are within spitting distance of our 4200 SPX target and now shifting direction. Expect a 10% correction in the next 3-6mos. A front-end inversion, a 7% YTD run, and a banking crisis that will likely take an economic toll triggered our reversal." [If we assume the Fed tightening cycle ended in March (that’s still a coin toss), the near-term relief rally appears already reflected in stocks.

·     Asian markets were mostly higher overnight as Japan outperformed on reports that Warren Buffet plans to boost investment in the country. China’s CPI/PPI revealed further disinflation (CPI fell short of expectations while the PPI was in line but remained in negative territory). The Bank of Korea left policy unchanged, as expected, but pushed back for an imminent rate cut.

 

Commodities, Currencies & Treasuries

·     Oil prices finish stronger, with WTI crude up $1.79 or 2.24% to settle at $81.53 per barrel and Brent crude rises $1.43 or 1.7% to settle at $85.61 per barrel as Chinese inflation data pointed to persistently weak demand but a softer dollar and hopes that the Federal Reserve might ease up on its policy tightening after a key U.S. inflation report this week provided support.

·     Gold prices rise $15.20 to settle at $2,019 an ounce, its 6^th straight close above the $2,000 level into the CPI inflation data tomorrow morning. The dollar came off last session’s peak, while traders hunkered down for Wednesday’s U.S. inflation data for cues on future interest rate hikes.

·     Bitcoin climbed above $30,000 for the first time since June 2022, bolstered by bets on easier monetary policies that have made cryptocurrencies standout performers this year. Bitcoin is now up 82% since Dec. 31, handily beating the Nasdaq 100 tech index’s 19% gain. Gold, another haven related investment, up over 9% this year also extends gains into the CPI data tomorrow.

·     The U.S. dollar edged higher, but flattish late afternoon while Treasury yields rose into tomorrow’s CPI data, with the 10-yr yield up a few bps to 3.44% and the 2-yr at 4.05%. The U.S. sold $40 bln 3-year notes at high yield 3.810%, with a bid-to-cover ratio of 2.59, as primary dealers take 17.69% of U.S. 3-year notes sale, direct 21.01% and indirect 61.3%.

 

 

Macro	Up/Down	Last
WTI Crude	1.79	81.53
Brent	1.43	85.61
Gold	15.20	2,019.00
EUR/USD	0.0044	1.0903
JPY/USD	0.06	133.66
10-Year Note	0.022	3.437%

 

 

Sector News Breakdown

Consumer

Autos:

·     In auto retail: KMX posted a near 57% drop in Q4 profit after sales were dragged down; mixed results as Q4 EPS of $0.44 topped ests $0.20 (but below $0.98 y/y) as sales of $5.72B misses the $6.08B estimate, down -26% y/y; 4Q used vehicle sales $4.53B vs. est. $4.8B. KMX was among the top gainers in the S&P on results.

·     In auto dealers: Wells Fargo previews quarter saying they are below consensus on AN Q1 EPS. While pricing has held in, new retail volumes are ~flat y/y, interest rates are up, and both screens poorly on brand mix. Despite low valuations, remain EW, as consensus EPS likely needs to come down.

 

Consumer Staples & Restaurants:

·     In retail: PSMT Q2 EPS $1.25 on revs $1.14B topping consensus $0.88/$1.13B; saying comps for the 49 warehouse clubs that have been open for greater than 13 ½ calendar months +8.5%; WW surges after being upgraded to Buy from Neutral and raise tgt to $13 from $3.80 at Goldman Sachs saying its subscriber base and earnings power has been shrinking but believe a catalyst for a turnaround has emerged with its new obesity drug on-ramp solution.

·     In grocers: ACI Q4 EPS $0.79 topped the $0.68 estimate and said quarterly digital sales rose 16%, while ID sales rose +5.6%; overall sales grew 5.1% to $18.27B topping estimates $18.22B; said expect further declines in COVID-19 vaccination and at-home test kit revenue.

·     In restaurants: KRUS 1.1M share Spot Secondary priced at $54.00; PZZA tgt trimmed to $90 from $92 at KeyBanc and 2023 EPS estimate from $2.88 to $2.82 to reflect slightly lower international segment profit/slightly higher G&A expenses but said risk/reward favorable; PBPB prelim 1Q EBITDA $5.2M-5.6M vs prior $4M-5M and consensus $3.1M; Average Unit Volumes $23,800-$23,900 vs prior $23,000-$24,000; shop-store-sales 22.0%-22.3% vs prior 18.5%-20.5%.

 

Homebuilders, Building Products, Home Furnishing:

·     In building products: MHK upgraded from Hold to Buy at Loop Capital saying the long-term margin outlook is improving as see raw materials and logistics costs reverting to historical norms. The company’s Flooring North America segment has been most impacted by cost pressures, and they are above consensus EPS this year.

·     In home retail: WHR upgraded to Buy at Goldman Sachs as expect it to outperform industry volume growth by ~1% in 2023 as supply chains improve and comparisons ease, while operating margin expands through 2024 – all amidst compelling valuation. They downgrade LEG to Neutral as we expect challenging conditions across its consumer-facing businesses to be offset by its strong dividend yield. Lower 12m target to $34 from $39.

 

Energy

·     In the E&P sector: Truist Bank downgraded natural gas producer EQT to hold from buy, while lowering its price target to $28 from $41 on potentially lower volumes while upgraded MUR to Buy from Hold and upped tgt of $56 saying it is one of very few E&Ps they forecast will have higher production while also having lower capital spending this year. BTE was upgraded to Outperform at RBC Capital following Baytex’s recently announced US$2.5 billion cash and stock acquisition of Ranger Oil which they say shifts the company out of second gear and is aimed squarely at building quality scale over time.

·     In natural gas producers: Wells Fargo upgraded RRC to overweight and downgraded AR (to equal weight), SWN (to underweight) while revising estimates, price targets and ratings in gas coverage universe to incorporate recently updated natural gas price decks (downwardly revised) and Q1’23 actual commodity prices.

 

Financials

Banks, Brokers, Asset Managers:

·     Tighter bank lending prompted by the recent failure of two midsize American banks will slow U.S. economic growth this year, the International Monetary Fund estimated, warning that rising interest rates pose a threat to the global financial system. U.S. banks’ lending capacity will decline by 1% this year due to the fall in the value of many bank stocks as investors reassess the health of midsize banks, the IMF said in a report on global financial stability released Tuesday.

·     Analysts on Wall Street previewing banking season earnings: Jefferies said today bank stock narrative remains challenging but expect some less-bad deposit anecdotes through 1Q earnings that will hopefully ease worst-case concerns. Prefer BK and GS as ways to have exposure with less NII/credit risk and better capital positioning. Other picks: FITB/TFC/CMA/ZION in large, WAL in mid and upgrade NYCB to Buy.

·     Morgan Stanley said recent market events & uncertain macro-outlook leads them to skew preference to transactional & defensive exchanges as they downgraded NDAQ to EW (from OW) & upgrade VIRT to EW (from UW) saying top pick CBOE offers most upward revisions bias. Revise 1Q ests. +7%/-4%/+2% for exchanges/brokers/market structure.

·     Billionaire investor Warren Buffett said he’s planning to increase his investments in Japan’s biggest trading houses, pushing up the shares. Itochu (8001.Japan), Mitsubishi Corp. (8058.Japan), Mitsui & Co. (8031.Japan), Sumitomo Corp. (8053.Japan), and Marubeni (8002.Japan) all rose at least 2% on Tuesday in Tokyo trading. Buffett, in an interview with Nikkei, said he was pleased with his holdings in the firms and planned to increase them.

 

Bitcoin, FinTech, Payments:

·     Visa Inc (V) partnering with PYPL and Venmo to pilot Visa+; said later this year, Venmo and PayPal users in US will be able to start moving money seamlessly between two platforms.

·     Strength in crypto related stocks (MSTR, COIN, RIOT, MARA) as Bitcoin trades above $30,000, its best levels since June ahead of CPI data. All of these companies are among a handful of stocks that tend to trade in step with the price of Bitcoin and digital assets more broadly.

·     In Payments, Processors and FinTech: SMBC Nikko upgraded NVEI from Neutral to Outperform; upgraded FOUR from Neutral to Outperform saying while several prominent funds generated considerable alpha in 2022, they and many other investors struggled to find delineation between indiscriminate selling and sustained shifts in narrative, momentum, and sentiment given the FinTech landscape as a whole faced one of its most challenging years on record.

 

Healthcare

Biotech & Pharma:

·     MRNA said that its mRNA-1010 flu program in the Northern Hemisphere did not accrue sufficient cases at the interim efficacy to declare early success, with the study continuing. The company also provided updates on several other existing and new programs. Moderna also forecast sales from its respiratory vaccines to be between $8 billion and $15 billion in 2027.

·     AZN was upgraded to Overweight at Morgan Stanley saying they expect AstraZeneca to extend its leadership position in "smart chemotherapy" with an under-appreciated proprietary ADC platform and combination treatment optionality.

·     KDNY voluntarily paused dosing in experimental therapy CHK-336’s early-stage trial for hyperoxaluria treatment following an adverse effect.

·     KPTI a positive mention at RBC Capital saying they see a favorable setup into updated first-line data from selinexor + ruxolitinib in MF that will be presented at AACR Apr 18th, and the abstract disclosed noon on Apr 14^th.

·     RGNX said the FDA granted "fast-track" designation for its experimental therapy RGX-202, a potential one-time gene therapy for treatment of Duchenne muscular dystrophy.

·     TLRY slips in cannabis space after qtrly revs miss estimates and acquires HEXO.

 

Healthcare Services & MedTech movers:

·     Medical devices: SWAV rises after CMS issued its proposed fiscal 2024 payment ruling for hospital inpatient procedures, Piper noted SWAV was a big winner as the proposal included (1) three new codes specific to coronary IVL; and (2) an overhaul of the broader PCI code structure; WST was upgraded to Overweight at Stephens and ZBH upgraded to Outperform at Evercore ISI

·     In managed care: Morgan Stanley updates Top Pick to UNH from CI ahead of earnings Friday driven by UNH’s diversification providing more immunity to potential recent PBM regulatory and recession risks, Medicare Advantage competitive positioning into 2024 and Power of OptumHealth in driving future earnings growth.

·     In hospitals, Mizuho raising PT for HCA to $298 (was $279) and said top picks heading into Q1:23 EPS are HCA, THC, EHC, DGX and CI Based on our quarterly physician survey, baseline utilization has rebounded to pre-pandemic 2019 levels, the first time that has happened since they started publishing our survey eight quarters ago.

 

Industrials & Materials

Transports, Aerospace & Defense

·     In airlines: Susquehanna said they remain positive on, but reduce tgts for ALK from $59 to $55, ULCC from $15 to $12, LUV from $40 to $35, HA from $10 to $9, JBLU from $8 to $7

·     Bloomberg reported that BA plans to increase production rates for its 737 Max airplanes to 38 planes a month by the middle of the year, months earlier than analysts had predicted, according to people familiar with the matter.

·     In commercial Aerospace & Defense: TDCowen with Q1 preview as favors commercial plays RTX, TDG among large caps; CRS among SMIDs. Commercial aero aftermarket and OE have vigorous & extended tailwinds while defense stocks face multiple headwinds.

 

Materials, Metals & Mining

·     In metals: CLF guided Q1 revs $5.2B and steel shipments of 4.1 million net tons (in-line with ests on revs) saying its increase in profitability in the first three months of the year was driven by unit cost reductions; also said it intends to offer to sell $750 million of senior unsecured notes. In gold miners, NCMGY said it has received a revised conditional and non-binding proposal from NEM to acquire 100% of the issued shares in Newcrest. https://bloom.bg/3UFsnol

·     In chemicals: KeyBanc said they see a positive setup for select coatings in 1Q (PPG, AXTA) and ag chemicals (FMC, CTVA), while modestly trim 2023 and 2024 ests in commodities and lithium. Despite pockets of relative strength or stability (aerospace, autos), demand for chemicals is recovering very slowly in areas such as Durables and construction. Electronics/semis end markets could see a more pronounced trough in 2Q23 but also show some signs of a potential bottom.

·     In packaging: shares of BALL slipped off its highs after Truist noted Ball Corp.’s 2023 North America volume forecast may be "pressured" if the Bud Light backlash reported by beer industry publication, Beer Business Daily, on April 10 persists. Notes it’s important for Ball given that about 13% of Ball’s total sales last year came from ABI, and "mass beer/soft drinks accounted for ~70% of Ball’s business in North America."

·     In ag sector: grain futures slipped after the U.S. Department of Agriculture left unchanged its outlook for the country’s ending inventories of corn and soybeans grown last year, defying analyst expectations for lower supplies. The USDA kept stocks for corn at 1.34 billion bushels and stocks for soybeans at 210 million bushels in the WASDE report (est. 1.32B and 201M).

 

Technology

Internet, Media & Telecom

·     In Internet: BABA unveils ChatGPT Rival with Chinese and English Capabilities; in the content delivery network sector, Piper upgraded AKAM from Neutral to Overweight w/ $93 PT saying they believe the pull-back in shares presents an opportunity to own this contrarian name into earnings and over the NTM.

·     In media: The WSJ reported GOOGL said YouTube to charge as much as $449 a Year for Sunday Ticket NFL Package; cost of Sunday Ticket NFL Package will be $349 a year for people who pay $72.99 a Month for YouTube TV’s base video service package.

 

Hardware & Software movers:

·     In Comm Equipment: ADTN marks the 3rd profit warning in the space, following ATEN as issued negative preannouncement/revenue shortfall owning to customer inventory corrections which impacted Subscriber Solutions product line; guides prelim Q1 revenue to $322M-$326M, below prior $355M-$375M vs. consensus $364.11M.

·     In software: MANH downgraded to neutral from buy at Rosenblatt Securities ahead of the application software company’s quarterly results; SNOW cautious analyst commentary as research boutique out w/ negative checks, downgrading to Neutral w/ less conviction in upside to LT targets; Q1 feedback points to continued headwinds. SNOW also downgraded to Neutral from Buy at UBS stemming from deteriorating conviction in long-term upside potential due to continued headwinds via a Q1 feedback survey. For MSFT, UBS lowered Azure estimates again, with AI enthusiasm limiting the downside risk in the stock.

 

Semiconductors:

·     KeyBanc comments after Asia trip Takeaways and Industry Update saying findings are negative for Compute Semis (INTC, MRVL); negative for Analog (ADI, MCHP, MPWR, NXPI, ON, TXN); negative for Smartphones (CRUS – lowering estimates; QRVO – lowering estimates; SWKS – adjusting estimates); mixed for AMD (adjusting estimates), QCOM (raising estimates), and SYNA; and positive for NVDA (raising estimates, price target to $320), LSCC (price target to $110).

·     Bank America said they recommend EDA vendors CDNS, SNPS, least-exposed to near-term cyclical volatility, but with tailwinds from AI adoption. Said still elevated inventory levels, especially in consumer (PC, smartphones) and some parts of enterprise/data center, could suppress any big Q1 beats or Q2 guidance raises, as we head into earnings season.