Closing Recap

Monday, April 17, 2023

Index	Up/Down	%	Last
DJ Industrials	100.90	0.30%	33,987
S&P 500	13.76	0.33%	4,151
Nasdaq	34.26	0.28%	12,157
Russell 2000	21.68	1.22%	1,802

 

Equity Market Recap

·     Sideways action for most of the trading day, until a late day market rally pushed the S&P out of its narrow 20-point range ahead of an important week of earnings. Stocks were up slightly today, continuing to climb in recent weeks on expectations of a final rate hike by the Fed at the May meeting (another 25-bps) amid ongoing signs of cooling inflation reports (CPI, PPI have continued to slip the last few months). There also remains high negative sentiment (note JPM Research shows very bearish investor outlook https://bit.ly/41CBfNJ) , and lots of cash on the sidelines, leading to rising expectations the market can continue to climb the “wall of worry” heading into earnings season, debt ceiling fears, and signs of a slowing economy. There are also signs of renewed China demand with economic data improving in the region the last few weeks as they have reopened their economy. The Dow Jones Industrial Average coming off a 4-week win streak and S&P and Nasdaq remain strong ahead of earnings results from TSLA, JNJ, NFLX, BAC, GS, SLB, FCX, PG, BK to name a few. Note the market is pricing in one more Fed rate hike, a 25 bps increase in May to 5.00-5.25%. The 3-Month Treasury bill yield of 5.14% is at its highest level since March 2007. Fed comments last week put rate increases back on the table. No market fear at all as the CBOE volatility index (VIX) hit a new 52-week lows below 17.

 

Economic Data:

·     NY Fed’s empire state current business conditions index +10.8 in April vs -24.6 in March and above the estimate of down -18.0. NY Fed’s empire state new orders index +25.1 in April vs -21.7 in March, prices paid index +33.0 in April vs +41.9 in March, employment index at -8.0 in April vs -10.1 in March, and six-month business conditions index +6.6 in April vs +2.9 in March.

·     April NAHB Housing market index 45 versus 44 in March; index of current single-family home sales 51 versus 49 in March; index of home sales over next six months 50 versus 47 in March; April index of prospective buyers 31 versus 31 in March.

 

Commodities, Currencies & Treasuries

·     Oil prices fall, with WTI crude down -$1.69 or 2.05% to settle at $80.83 per barrel while Brent crude dropped -$1.55 or 1.8% to settle at $84.76 per barrel. Natural gas prices rose 7.6% to settle at $2.275 mln Btus. U.S. SPR reserves of crude oil fell by 1.58 million barrels last week to 368 million barrels, lowest since oct 1983. Gold prices slip -$8.80 or 0.44% to settle $2,007 an ounce.

·     The U.S. dollar climbed to a one-month high against Japan’s yen, as the dollar index (DXY) gains over 1% the last 2-trading days as traders above 102.15 (off 1-year lows of 100.78 early Friday) anticipate another interest rate hike from the Fed in May, while the Bank of Japan stuck to its easy-money policies for now. The dollar rose to 134.22, the highest level since March 15. Bitcoin gave up some of its recent gains, falling as much as 4% below $29,300 as crypto slid. Treasury yields were broadly higher across the board, rising for a 3^rd consecutive day as the 10-year hit 3.6% and the 2-yr 4.2%, up more than 9-bps.

 

 

Macro	Up/Down	Last
WTI Crude	-1.69	80.83
Brent	-1.55	84.76
Gold	-8.80	2,007.00
EUR/USD	-0.0079	1.0920
JPY/USD	0.61	134.38
10-Year Note	0.071	3.593%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Chinese EV sector: XPEV unveiled a new vehicle platform developed in house which the co said will cut development and manufacturing costs; Smart Electric Platform Architecture (SEPA) 2.0 will help XPEV slash powertrain and battery costs by 25%.

·     U.S. Treasury said RIVN, VLVLY, NSANY, BMW, Hyundai, Volvo models lose access to $7,500 electric vehicle tax credit under new battery sourcing rules while GM’s Chevrolet bolt electric vehicle will qualify for $7,500 EV tax credit; new stricter battery sourcing tax credit rules that take effect Tuesday cut credit for TSLA Model 3 standard range rear wheel drive to $3,750, but other Tesla models will retain $7,500 EV credit.

 

Retail, Consumer Staples & Restaurants:

·     In restaurants: TXRH downgraded to MP at Raymond James citing valuation; Truist Card data supported their largely bullish view of restaurant demand and suggests 1Q23 sales beats at all the companies covered except for PLAY (quarter ends in April) as raises comp store sales to above consensus and see the largest beats at WING (+530bps), MCD (+250bps) and Burger King (+230bps). DIN estimates lowered for FY23/FY24 EPS to $6.57/$7.14 at Keybanc after fine-tuning their interest rate assumptions and trim tgt to reflect slowing SSS trends in March.

·     In retail research: DECK estimates and tgt raised to $550 from $485 at Stifel to reflect HOKA strength and expectations for continued momentum in FY24 and FY25. OLLI upgraded to Neutral at JPMorgan saying with shares underperforming the SPX by ~30% over the last 18 months, now trading 10% below their pre-pandemic trough valuation they upgrade.

·     In mattress retail (SNBR, TPX, LEG), Piper said their PSC Mattress Retailer Survey for March showed a deterioration in sales trend from prior months. While March sales of -7% to -8% were like February, March faced a much easier y/y compare such that 2-year (and 4-year) sales trends deteriorated from prior months.

 

Leisure, Gaming & Lodging:

·     In casinos/gaming: PENN downgraded to Market Perform from Market Outperform at JMP Securities saying the integration of the in-house technology stack in the U.S. will be a positive step for its online business, but will not be enough to offset the market share decline.

·     In ride hailing: Jefferies raised tgt to $49 from $47 on UBER and moving to Top Pick saying decomposition of Uber’s profitability demonstrates a path to above street EBITDA, led by faster Bookings growth in higher margin businesses (Mobility).

·     In online travel, Oppenheimer notes ABNB is underperforming S&P/BKNG by 8.5%/7.8% MTD on AirDNA 1Q room-nights (+15.4%) trending 3.5% below Street estimates. Said AirDNA is a valuable check, but, based on strong overall travel data and broader industry conversations, 1Q nights should be in line with management’s mid-Feb outlook of "nearly as strong as 4Q" guidance.

 

Energy, Industrials and Materials

·     In major oils and E&P: COP downgraded to Neutral at Mizuho while lowering PT by ~11% to $128 noting that cash generation is weighted to the latter years (2029-2032) and assumes consistency of Permian well productivity and higher commodity prices. OVV downgraded to EW from OW at Wells Fargo and lowered PT to $40 from $64 to reflect deteriorating capital efficiency trends, pending A&D transactions and our updated commodity price deck.

·     In chemicals (DOW, LYB, WLK), Keybanc noted Chemical Market Analytics published its revised forecast for U.S. contract PE (polyethylene) prices, which now calls for flat pricing through September compared to its previous expectations of a $0.03/lb. decline in May.

·     In metals: TECK shares rise early after reports the company has been approached by mining companies including FCX, VALE, and Anglo American to discuss potential deals for its base metals business if Teck goes through with a planned spin-off of its coal assets. https://bit.ly/41AIFkk

·     In solar: ENPH upgraded from Neutral to Overweight at Piper with $255 tgt noting their January downgrade was driven by concerns surrounding US resi based on indicators at the time. They view Q1 earnings as a critical update capable of validating the view that ENPH can deliver attractive earnings growth within the current environment. For SPWR, Oppenheimer said with SPWR closing a $450M solar + storage loan facility this week from HASI and Credit Agricole CIB, we believe investor concerns about liquidity in the sector have been mitigated but are not gone.

 

Financials

Banks, Brokers, Asset Managers:

·     Earnings tomorrow from likes of BAC, BK, CBSH, GS in banks. UBS shares slumped today following MarketWatch report that Credit Suisse Saw $4.4 Billion fund outflows since deal.

·     In trust banks, STT reported Q1 EPS miss ($1.52 vs. est. $1.64) on mostly in-line revs $3.1B as reports loan loss provisions in Q1 of $44M; said 1Q-end investment servicing assets under custody/administration fell 10%; Fee revenue fell 9% in the quarter note BK reports tomorrow, NTRS next week – shares of each pressured early.

·     In brokerage: SCHW Q1 EPS of $0.83 beat by 2c but revs of $5.12B just below $5.15B est.; said it is maintaining capital and liquidity required to support Schwab’s long-term growth remains our primary balance sheet objective; decided to pause active share buyback program.

·     In regional banks: MTB Q1 EPS $4.01 vs. est. $3.99; Q1 total deposits $159.1B at quarter end; provision for credit losses was $120 million, compared with $10 million last year. Net loan charge-offs for the quarter were $70 million, compared with $7 million a year ago.

·     In Crypto: Exchange giant CME is aiming to expand its cryptocurrency offerings by listing bitcoin and ether options that expire each day of the week. CME said in a press release Monday that it would add the new daily contracts on May 22, pending regulatory review. CBOE last year took a similar step with options on equity indexes such as the S&P 500, a move that helped unleash a boom in equity-options trading (accounts for more than 40% of all U.S.-listed equity options volume) https://on.wsj.com/43CJgUz

 

Bitcoin, FinTech, Payments:

·     Monthly credit card net charge offs and delinquency data shows: 1) JPM credit card delinquency rate 0.88% at March end vs 0.88% at Feb end and the credit card charge-off rate 1.62% in March vs 1.33% in Feb. 2) BAC credit card delinquency rate was 1.15% at March end vs 1.14% at Feb end and credit card charge-off rate was 1.90% in March vs 1.60% in Feb.; 3) Citigroup (C) credit card charge-offs 1.67 % in March vs 1.55% in Feb and credit card delinquency rate 1.17% at March end vs 1.12% at February.

·     In car loans (ALLY, SYF, TFC), CNN noted Along with soaring car prices, loan rates are the most expensive they’ve been in more than 15 years. More new car owners are paying as much as $1,000 a month. In January 2019, new car payments over $1,000/month made up roughly 5% of sales. In March 2023, only four years later, four-figure monthly payments ballooned to 17% of the new car market. https://gyazo.com/055c59992704850c5626627d63acad4d

 

Insurance & Services:

·     In insurance: EVER downgraded to Perform from Outperform at Oppenheimer and removing their $22 PT until they can better assess how higher losses at PGR will impact EVER’s results (notes EVER traded down 30% last Friday after PGR, its largest advertiser, reported a March combined ratio of 106.2%, materially above management’s 96% target).

 

Healthcare

Biotech & Pharma:

·     RXDX to be acquired by MRK for $200 per share, in a deal valued at $10.8 billion at a roughly 75% premium, in a move that could give the drug­maker promising immune disease treatments. https://on.mktw.net/3ojeSyr

·     William Blair noted AdCom Voted 9-1 yes for Otsuka/Lundbeck in favor of Rexulti showing sufficient data that the benefits outweigh the risks for treating AD-A. With this recommendation we expect approval by May 10, 2023, PDUFA date and Rexulti could be the first FDA-approved therapy for this indication. Firm noted they see positive regulatory read-through for other players in the psychiatric symptom control space in AD including AXSM, KRTX, CERE, ACAD.

·     AMRX reports preliminary Q1 net revenue of $550M-$560M, above estimates $530M and reaffirms FY 2023 net revenue outlook of between $2.25B-$2.35B.

·     ARGX and GMAB said they have entered into a collaboration agreement to jointly discover, develop, and commercialize novel therapeutic antibodies with applications in immunology, as well as in oncology therapeutic areas.

·     BIIB upgraded from Neutral to Overweight at Piper and raise tgt to $346 from $280 saying they see as a confluence of positive catalysts over the next several quarters…foremost among them is Leqembi.

·     MRNA and MRK cancer vaccine combo showed promising results in a key study, reducing the risk of recurrence or death by 44%. About 79% of melanoma patients in a 157-person trial who were treated with Moderna’s personalized mRNA-4157 (V940) therapy in combination with Merck’s cancer drug Keytruda were cancer-free after 18 months, compared with 62% w/ only Keytruda.

·     PCVX said it saw positive results from its VAX-24 Phase 2 study in adults aged 65 and older; said it is studying VAX-24, its lead, broad-spectrum 24-valent pneumococcal conjugate vaccine candidate, for the prevention of invasive pneumococcal disease.

 

Healthcare Services & MedTech movers:

·     In MedTech, RBC Capital said sentiment appears positive for BSX, SYK, and PEN going into Q1’23 earnings, slightly negative for ABT and neutral to somewhat mixed for EW, ISRG, TFX, and ZBH. LIVN late Friday pre-announced a solid Q1 sales beat but also announces CEO resignation as experienced board Chairman Becomes Interim CEO.

·     In hospitals, RBC Capital said continue to view THC as their best hospital idea heading into 1Q23 earnings, having seen year-to-date little closure of the nearly 1.5x discount to the group and more than 2x discount to HCA.

·     In services: CLOV cut 10% of its workforce and will move its core plan operations as part of a broader restructuring; cuts are expected to result in a total charge of between $7 million and $9 million recorded in the first half of 2023.

 

Technology

Internet, Media & Telecom

·     In Internet: GOOGL shares under pressure after a New York Times article reported that Google learned in March that Samsung is considering replacing Google w/ MSFT’s Bing as the default search engine on its devices amid Bing’s recent advances in AI technology, which caused the co. to panic, according to internal messages. NFLX earnings expected Tuesday night. The information reported after suffering its first-ever drop in ad sales, META has abandoned its once-brash tone with advertisers in favor of a more flexible approach to winning business.

 

Hardware & Software movers:

·     In PC sector: HPQ was upgraded to Overweight from Neutral at JPMorgan and downgraded shares of DELL to Neutral from Overweight saying they are looking to turn a corner in relation to the headwinds that have plagued the PC end-market with latest datapoints indicating downstream PC shipments in 1Q progressing in line with seasonality (despite a challenging 4Q22) and upstream datapoints from component suppliers as well as ODMs pointing to the likelihood of above seasonal trends in the coming quarters. AAPL sales in India hit a new high of almost $6 billion in the year through March, according to Bloomberg report as CEO Tim Cook arrives in the country to open its first local stores. Revenue in India grew by nearly 50%, from $4.1B y/y.

·     In software: RBLX shares slide as reported daily active users for March of 66.2M (+26% y/y), hours engaged 4.80B, while guides bookings $247M-$255M (up 23%-27% y/y) and revs $212M-$213M (up 15%-21% y/y); CHGG announces CheggMate, the new AI companion, built with GPT-4. Oppenheimer said they see a mixed setup for the upcoming March/April quarter in software with most companies meeting/modestly beating consensus – raise tgt prices on OKTA, PANW and cut on BLZE and FROG. Citigroup opens a negative catalyst watch on Sell-rated ZM as they see negative data points piling up which could further pressure growth rates.

 

Semiconductors:

·     TSM reportedly putting the brakes on capacity expansion as local press reports overnight suggests TSMC might cut EUV orders by c40%+ due to slower capacity expansion plans (not confirmed by TSM at this point). The report overnight by Taiwan’s Economic Daily said TSM plans cut its capex to $28B-$32B this year from $32B-$36B earlier, https://bit.ly/43Eiwmz . Shares of semiconductor equipment stocks (AMAT, LRCX, KLAC) slipped following the report as well as some of TSMC’s European suppliers (ASML, STM).

·     In semi research: JPMorgan downgraded WOLF to Neutral from Overweight and place it on (Negative) Catalyst Watch given higher likelihood of negative catalysts in the near term relative to execution, despite our continued belief that in the long-run WOLF shares offer material upside. TER downgraded to Underweight at JPMorgan with increasing risks around elevated expectations of a rebound in revenue and earnings starting with the back half of 2023 and in 2024. TSM was upgraded to Positive from Neutral at Susquehanna with a $126 price target saying that a "worst-case earnings scenario" is now reflected in investor expectations.

·     QCOM announces new IoT chips for performance-intense and industrial apps – Digitimes.

·     VIAV lowers Q3 revenue view to $246M-$248M from $256M-$276M (below est. $269.48M) and sees operating margin view is 10.5%-11.5% below prior range of 13.0%-14.2% citing pullback in R&D spend at network equipment manufacturers and semis higher than anticipated.