Closing Recap

Tuesday, August 29, 2023

Index	Up/Down	%	Last
DJ Industrials	292.89	0.85%	34,852
S&P 500	64.46	1.45%	4,497
Nasdaq	238.63	1.74%	13,943
Russell 2000	26.53	1.42%	1,895

 

 

 

 

 

 

 

 

 

It was a “sea of green“ for US equities on Tuesday with big gains thus far in the final trading week of the summer, narrowing monthly losses into the Labor Day weekend. U.S. stocks surged all day as economic data pushed Treasury yields sharply lower, with the 10-yr down -9 bps to 4.12% and shorter term 2-yr yield -12.5bps to 4.885%, helping growth stocks and interest rate sensitive sectors. A drop in the latest monthly job openings added to hopes of a pause in interest rate hikes by the U.S. Federal Reserve as the JOLTs survey showed the number of job openings stood at 8.827M in July, falling for the third straight month and well below the 9.5M estimate. Meanwhile the Conference Board showed consumer confidence in the United States fell to 106.1 in August, compared with expectations of 116. Both data points raised expectations for the Fed to ease off on additional hikes and lead to “soft landing.” Still later this week several inflation reports, Q2 GDP estimate tomorrow and nonfarm payrolls Friday. A lack of hawkish surprises in Federal Reserve Chair Jerome Powell’s comments at the Jackson Hole symposium last week had cushioned stocks on Monday.

 

The top sector winners of 2023 added to their totals today with Communications (XLC) rising 2% (+40% YTD), Technology (XLK) rising about 2% as well (+39% YTD) and Consumer Discretionary (XLY) rising 2.5% (+30% YTD), though all eleven S&P sectors rose. Heading into the end of August, the S&P 500 Index is on track to fall -2% still. In Asian markets, Chinese stocks advanced for a second day after Beijing ushered in stimulus measures boosting capital markets. The Chinese government over the weekend said it would halve stamp duty on securities transactions to 0.05% from 0.1%. China’s Finance Ministry and Tax Office released another fiscal support measure, an extension of the preferential (reduced) tax treatment of annual bonuses to the end of 2027. Bloomberg noted China may announce that the big state-owned banks are cutting rates on most the nation’s 38.6 trillion yuan ($5.3 trillion) of existing mortgages, according to people familiar with the matter. The reductions will only affect loans on first homes.

 

Economic Data

·     JOLTS job openings fall to 8.827M in July vs. June 9.165M and consensus of 9.5M.

·     The Consumer Confidence index for August 106.1 vs. consensus 116.0 and vs July 117.0.

·     U.S. Home prices rose for 4th straight month in June, Case-Shiller data shows as seasonally adjusted HPI Composite for 20 cities: +0.9% M/M vs. +1.1% consensus and +1.0% in May. HPI composite for 20 cities, not seasonally adjusted: +0.9% M/M vs. +0.8% consensus and +1.5% in May. Y/Y, -1.2% vs. -1.1% expected and -1.7% prior.

·     FHFA House Price Index: +0.3% vs. +0.2% expected and +0.7% prior (unchanged).

 

Commodities, Currencies & Treasuries

·     Brent Crude futures settled at $85.49/bbl, up $1.07, 1.27% and WTI crude settled at $81.16 a barrel, up $1.06, 1.32%, reversing earlier weakness in energy. Gold prices gained $18.30, or 0.9%, to settle at $1,965.10 per ounce, the highest closing level in more than 3-weeks while silver futures for September delivery added $0.54, or 2.2%, at $24.79 per ounce as the dollar and Treasury yields fell.

·     Bitcoin prices surged, rising over 7.5% above $27,900 (off overnight lows $26,000) after a panel of judges in the District of Columbia Court of Appeals in Washington said the SEC’s denial of Grayscale’s proposal to create a spot bitcoin exchange-traded fund was arbitrary and capricious because they failed to explain its different treatment between bitcoin futures ETFs and spot bitcoin ETFs. The ruling helped propel crypto assets and stocks linked to it all afternoon. Ethereum (ETH) rose 5.5% to $1,740 while COIN, MARA, RIOT shares all jumped.

·     Treasury yields retreated further from their highest levels in more than 15 years, behind weaker jobs data and lower confidence. Also today, the US sold $36 bln 7-year notes at high yield 4.212%, lower than the 4.232% when issued prior as the bid-to-cover ratio was 2.66 and primary dealers take 9.77% of U.S. 7-year notes sale, direct 14.97% and indirect 75.25%.

 

 

Macro	Up/Down	Last
WTI Crude	1.06	81.16
Brent	1.07	85.49
Gold	8.30	1,965.10
EUR/USD	0.0052	1.0868
JPY/USD	-0.68	145.85
10-Year Note	-0.092	4.12%

 

 

Sector News Breakdown

Consumer

Autos:

·     GM and Google Cloud said they have struck a deal to bring conversational artificial intelligence to GM vehicles; GM said its OnStar Interactive Virtual Assistant has been powered by Google Cloud’s conversational AI tech since its 2022 launch.

·     NIO shares slid after posting Q2 revenue of 8.77 bln yuan vs est. 9.25 bln yuan and said it expects Q3 total revenue between $2.61B-$2.92B vs. est. $2.47B; said Q2 vehicle deliveries were 23,530 and sees Q3 deliveries 55K-57K.

·     TM – Toyota Motor temporarily halted operations at 12 of its 14 factories in Japan on Tuesday due to a malfunction with its systems that left it unable to procure parts as needed; said its remaining two factories in Japan were set to shut down later Tuesday because of the same issue.

 

Consumer Staples & Restaurants:

·     In Food: SJM boosted its annual profit forecast to $9.45-$9.85 from prior view $9.20-$9.60 citing higher prices of its jams, jellies, and pet food products after Q1 adj EPS topped views; also reported Q1 gross margin rose to 36.3% from 29.5% a year earlier.

·     In Beauty: ELF signed a definitive agreement to acquire Naturium, a fast-growing, high performance skin care brand, for $355 million in a combination of cash and stock.

 

Retailers:

·     AMZN raised the amount some customers must spend on its site to get free shipping. To qualify for no-cost deliveries, some Amazon customers who don’t have Prime memberships now need to spend $35, up from $25 previously.

·     BBY beats by $0.16, reports revs in-line; guides FY24 EPS in-line, revs in-line; narrows FY24 comp sales decline to (-4.5-6.0%) from prior decline (-3%6%) while raises FY adj EPS $6.00 to $6.40, from prior $5.70 to $6.50 – said it expects this year to be the "low point" in tech demand.

·     In discount stores: BIG reported Q2 revenue of $1.14B topping the $1.1B estimate on smaller EPS loss of (-$3.24) vs. est. (-$4.12) loss and sees Q3 comparable sales to be down in the low-teen percentage range, which is a modest improvement vs Q2 comps (-14.6%).

·     In other retailers: JOAN Q2 adj EPS ($1.44) vs est. ($1.15) on sales $453.8Mm vs est. $437.4Mm; sees FY net sales down 1-3% vs est. -2.95% and adj EBITDA $85-95Mm vs est. $82.4Mm; SCVL Q2 EPS $0.71 misses est. $0.84; Q2 revs $294.6M vs. est. $286.35M; Q2 comp store sales fell (-6.5%); lowers FY23 EPS view to $3.10- $3.25 from $3.60-$3.85 (est. $3.12) and lowers FY23 revenue view to $1.19B-$1.21B from $1.23B-$1.25B. CHS rises after results top estimates.

 

Energy, Industrials and Materials

·     The energy sector lagged broader averages all day while the broader market was firmly higher.

·     In Industrials: MMM announces combat arms settlement as will contribute a total amount of $6.0B between 2023 and 2029; says agreement is not an admission of liability; because of agreement, company will record a pre-tax charge of approximately $4.2B in Q3. ROK upgraded to EW from UW at Wells Fargo on F24 earnings growth potential and relative valuation as sees a path to 12% EPS growth in F2024. DCI Q4 adj EPS $0.78 in-line and revs $879.5M vs. est. $895.95M; sees FY24 EPS $3.14-$3.30 vs. consensus $3.19 and revenue growth of 3%-7%.

·     In Aerospace & Defense: HEI Q3 EPS $0.74 vs est. $0.73 on sales $722.9Mm vs est. $701.7Mm; net sales were driven by organic commercial aerospace growth and a reengaged M&A cycle; however, increasing costs as well as Wencor integration weighed on margins.

·     In Transports: FDX will adjust shipping rates on January 1, 2024. FedEx Express shipping rates will increase by an average of 5.9% for U.S. domestic, U.S. export, and U.S. import services. FedEx Ground and FedEx Home Delivery shipping rates will increase by an average of 5.9%. FedEx Ground Economy shipping rates will also increase. FedEx Freight shipping rates will increase by an average of 5.9%-6.9% dependent on the customer’s transportation rate scale.

·     In Chemicals: CE was downgraded to Underweight from Neutral at Piper saying that many of the actions the company is undertaking to raise cash will prove detrimental to future growth and earnings; also said the company has a significant number of obstacles to overcome in the markets they participate in. PLL said it has received a partial prepayment of $31.6M for the sale of 15,000 dry metric tonnes of lithium concentrate under its offtake deal with North American Lithium (NAL) – says the prepayment increases its cash position to about $100M.

 

Financials

·     In Banks: FDIC announced a proposal that would require banks with over $100B in assets to maintain minimum long-term debt levels to aid in orderly resolution of troubled firms; unveils proposals to heighten long-term debt, resolution planning requirements for large banks. FDIC estimates affected banks have roughly 75% of proposed long-term debt levels, would have three years to meet full requirement.

·     In crypto: COIN, MSTR, MARA, RIOT all rising in crypto sector after the US court paves way for first bitcoin ETF in Grayscale ruling. US appeals court rules that the SEC wrongfully rejected Grayscale spot Bitcoin ETF.

·     Property & Casualty insurance carriers ALL, TRV, CB, HIG, ACGL, KNSL and reinsurers among names to watch as Hurricane Idalia is set to intensify into an “extremely dangerous” major storm, bringing strong winds and floods, as it barrels north toward Florida’s Gulf Coast, set to make landfall on Wednesday in Western Florida.

·     GSHD will replace NUVA in the S&P SmallCap 600.

·     JXN will replace NEX in the S&P SmallCap 600

 

Healthcare

Biotech & Pharma:

·     The US named 10 drugs subject to Medicare price negotiations between manufacturers and Medicare: 1) BMY’s Eliquis used to prevent blood clotting to reduce the risk of stroke; 2) Boehringer Ingelheim’s Jardiance used to lower blood sugar for people type 2 diabetes; 3) JNJ’s Xarelto used to prevent blood clotting to reduce the risk of stroke; 4) MRK’s Januvia used to lower blood sugar for people with type 2 diabetes; 5) AZNs Farxiga used to treat type 2 diabetes; 6) NVS Entresto used to treat certain types of heart failure; 7) AMGN’s Enbrel used to treat rheumatoid arthritis; 8) ABBV’s Imbruvica used to treat different types of blood cancers; 9) Janssen’s Stelara used to treat Crohn’s disease and 10) NVO’s Fiasp, Fiasp FlexTouch, PenFill, NovoLog insulins. The new prices will be announced on Sept. 1, 2024 and will go into effect on Jan. 1, 2026. The drugs were chosen from a list of 50 drugs. https://tinyurl.com/mr2tstfn

·     APLS announces restructuring, plans to cut 25% of its current workforce as it seeks total cost savings of up to $300 million through 2024.

·     BMY wins FDA approval for the earlier use of its anemia drug Reblozyl in certain patients with myelodysplastic syndromes, a group of closely related blood cancers.

·     CTLT announced a cooperation agreement with activist investor Elliott Investment Management LP, as it will appoint four new independent directors.

·     EBS downgraded to hold from buy at Benchmark citing restructuring plans that are expected to slow share price rebound.

·     TCRX said the FDA has cleared its investigational new drug application for TSC-203-A0201, a TCR-T targeting preferentially expressed antigen in melanoma.

 

Technology

Internet, Media & Telecom

·     In Internet/AI: Google Cloud CEO Kurian to announce ai enhancements for corporate Gmail customers for $30 a month, the WSJ reported. OpenAI: launched a new enterprise-version of its ChatGPT tool (ChatGPT Enterprise) that put it in direct competition w/ MSFTUS listed Chinese Internet names (BABA, BIDU, NTES) also rise behind better PDD earnings and after Beijing ushered in stimulus measures boosting capital markets. Google Cloud and NVIDIA today announced new AI infrastructure and software for customers to build and deploy massive models for generative AI and speed data science workloads.

·     In Telecom: ATand VZ both upgraded to Buy ratings at Citigroup saying the wireless competitive environment is showing positive signs of stabilization that should help operating performance.

 

Hardware & Software movers:

·     ORCL upgraded to Buy from Neutral at UBS while raising its PT to $140 from $120 saying independent checks corroborated the notion that Oracle is benefiting from outsized allocations of Nvidia GPUs relative to its size. We could be sitting in front of 6-12 months of GPU shortage noise, and we haven’t even seen the $2b in AI start-up commitments converted to OCI usage.