Closing Recap

Thursday, December 01, 2022

Equity Market Recap

·     Stocks finish mixed after big swings early, as yesterday’s Fed Powell induced rally continued at the open, starting the month out strong, but soon erased those gains with the S&P and Nasdaq falling. The S&P 500 held its 200-day moving average support of 4,050 (after breaking above that level yesterday for the first time in 8-months), only to move higher and settle modestly higher ahead of Friday’s nonfarm payroll report. Fed Chair Powell provided a clear signal on Wednesday that the Fed is on track to raise interest rates by 50-bps at its next meeting stepping down from an unprecedented series of four 75-bps hikes aimed at combating high inflation. The Dow Jones Industrial Average underperformed, led by an 8% decline in Salesforce (CRM) after mixed quarterly results and co-CEO leaving. Stocks overall wavered amid softer ISM Manufacturing (renewing concerns about a recession, especially after plunging Chicago PMI data Wednesday) and mixed jobs and income/spending reports. Retailers were pressured, with declines in BIG, DG, DLTH, GIII, LE and VSCO, while tech rebounded on mixed results. There was no clear market sector leader with afternoon trading quiet ahead of the important jobs data. Markets back to no fear as the CBOE Volatility index (VIX) falls back below 20, to lowest since mid-August.

Economic Data:

·     US PCE Deflator (M/M) for Oct rises +0.3% vs. est. +0.4% (prior +0.3%) and PCE Deflator (Y/Y) Oct rises an in-line +6.0% vs. prior +6.2%; US PCE Core Deflator (M/M) for Oct +0.2% vs. est. +0.3% and below previous +0.5% while PCE Core Deflator (Y/Y) in-line at +5%

·     Weekly Jobless Claims fell to 225K from 241K prior week and below est. 235K; the 4-week moving average rose to 228,750 from 227,000 prior week; continued claims jump to 1.608M (first move above 1.6M since February) from 1.551M prior week

·     Oct. Personal income rises 0.7% m/m vs. est. +0.4% and real personal spending rises 0.5% m/m vs. est. 0.5%; Personal spending rises +0.8% m/m vs. +0.8% expected

·     ISM U.S. Manufacturing activity index 49.0 in November, first time below 50 since May 2020, below 50.2 in October; prices paid index 43.0 in November vs 46.6 in Oct; new orders index 47.2 in November vs 49.2 in Oct and employment index 48.4 in November vs 50.0 in Oct

·     U.S. Construction Spending for Oct fell -0.3%, in-line with consensus vs Sept +0.1%; Oct private construction spending -0.5%, public spending +0.6%

Commodities, Currencies & Treasury’s

·     Gold prices surged along with silver, rising $55.30 or 3.1% to settle at $1,815.20 an ounce, while silver rises over 5% to $22.63 an ounce, getting a boost from a further plunge in the US dollar and Treasury yields on expectations the Fed will ease the pace and aggressiveness of interest rates.

·     Oil prices rise, with WTI crude up $0.67 or 0.83% to settle at $81.22 per barrel but off best levels of the day at $83.34 per barrel, as oil slipped late day. It still posted its best settlement in 2-weeks, helped as China moved to ease some COVID-19 restrictions ahead of a meeting of major oil producers set for Sunday. Natural gas prices erase earlier gains and finish the day down 2.8% at $6.738/MMBtu after a below-forecast storage decline

·     The US dollar extended losses, down another -1% today after falling over -4% in November below 105 for the DXY and well off the Sept 28 20-year highs of 114.78. The dollar index broker below its 200d (105.52) as investors bet on slower interest rate hikes with a pause in early 2023.

·     US Treasury yields slide, with the 10-yr down about 17 bps to 3.54% and the 2-yr 4.265% (lowest since October), down -10 bps, extended losses led by the long end. Fueling today’s gains was the slowing PCE inflation data and positioning ahead of tomorrows jobs data. Mortgage rates drop again after hitting 20-year highs, now down to 6.5%, following Treasury yields.

Sector News Breakdown

Consumer

·     Retailers: GIII shares fall after cutting its fiscal-year profit forecast to $2.90-$3.00, below consensus $3.58 with revs slightly above views – announced staggered license expirations for Calvin Klein and Tommy Hilfiger; PVH reports top and bottom line Q3 beat & guides FY revs high end previous range EPS $8.25 vs est. $7.89; COST reported net sales of $19.17B for the retail month of November, which included Black Friday, an increase of 5.7% from $18.13B last year; BKE reported net sales for November of $117.9M vs. $117.3M y/y; LZB reported Q2 EPS and sales above Street expectations, with pricing and surcharges helping sales, and favorable channel mix helping margins, while written same-store sales declined 10%; DBI falls after FY forecast cut, weak Q3; VSCO slips as sees Q4 net sales to decrease in the high-single digit range, compared to expectations of a 6.8% fall; DLTH slides on earnings; LE reported a surprise Q3 loss and revenue that declined, while also cutting guidance for the year

·     Discount retailers: BIG tumbles after larger Q3 adj EPS loss ($2.99) vs. est. loss ($2.94); Q3 revs fell -9.8% y/y to $1.2B vs. est. $1.21B; sees Q4 comparable store sales down in low double-digit range; FIVE beat Q3 sales and profit estimates and raises full-year 2022 sales and profit forecasts on strong demand for discounted products as sees 2022 sales between $3.04B-$3.06B, compared to previous expectation of $2.97B-$3.02B; DG cuts FY22 EPS growth view to 7%-8% from 12%-14%, and sees FY22 net sales growth of approximately 11% after Q3 EPS missed views

·     Auto sector: NSANY CEO says 2023 will ‘not be easy year’ for global auto sector, supply chain issues will persist; TTM reported vehicle sales for November of 75,478 units vs. 62,192 y/y; NIO reported deliveries for November rose 41% y/y to 14,178 vs. 10,059 m/m; LI reported vehicle deliveries for November rose 11% y/y to 15,034 units vs. 13,485; XPEV reported vehicle deliveries for November of 5,811 units, down -63% y/y vs. 15,613; for EV sector, Morgan Stanley said they think FY23 is shaping up to be a disappointing year for EVs. A combination of slowing demand and rising supply can have an adverse impact on returns across the EV value chain; FREY 13.5M share Spot Secondary priced at $11.50; TM November 2022 electrified sales totaled 38,288 vehicles, down 9.4% on a volume basis

·     Consumer Staples: in grocers, KR Q3 adj EPS $0.88 topped estimates of $0.78 as sales rose 7.3% y/y to $34.2B above ests $33.98B as Identical-store sales excluding fuel +6.9% vs. +3.1% y/y, and gross margin 21.4%; SPTN upgraded to Buy at Northcoast saying strengthening 2022 performance bodes well for 2023 eps gains

·     Casinos and Gaming: in casinos/gaming (WYNN, LVS, MGM, MLCO), Macau’s January-November casino revenue fell 50.9% from a year earlier to 38.7b patacas, and November casino revenue decreased 55.6% from a year earlier to 3b patacas (vs. est. of 47% decline, as per Bloomberg); BX has agreed to sell its 49.9% stake in two Las Vegas hotels (MGM Grand Las Vegas and the Mandalay Bay) to VICI in a deal that values the properties at $5.5 billion (Blackstone would receive $1.27 billion in cash, and Vici would assume Blackstone’s share of some $3 billion in debt)

Energy

·     U.S. spot natural gas prices at the Henry Hub benchmark in Louisiana rose in November to their highest since 2008 as soaring prices around the world kept demand for U.S. liquefied natural gas (LNG) exports strong, according to Reuters data. In November, gas prices averaged $5.40 per million British thermal units (MMBtu), up from $5.05 during the same month in 2021 and a five-year average (2017-2021) of $3.48. In November 2008, prices averaged $6.60.

·     E&P and Majors: in oilfield services, Cowen raises tgt got BKR, CHX, CLB, DRQ, FTI, HAL, HLX, HP, NOV, OII, SLB, TS while saying HAL seen having the most meaningful near-term catalyst; FTI remains top pick, and view BKR, TS and HAL as relatively attractive across the group

·     Utilities & Solar: SHLS CEO Jason Whitaker to step down while the company announces 20M share offering of Class A common stock; OGS downgraded to Sell from neutral at Guggenheim and cut tgt to $64 after the co released lower than expected 2023 guidance and a disappointing roll forward of its five-year plan after yesterday’s close, cutting LT growth guidance rate

Financials

·     Bank movers: Moody’s’ said 2023 outlook for global banks is stable as rising rates, strong balance sheets counter global slowdown and says global banks face a weak and more volatile macroeconomic environment; CS comes into the day with a 12-day losing streak; Dow Jones notes default swaps on Credit Suisse Climb to new high; Five-year credit default swaps in euros on Credit Suisse were quoted at 409 basis points, or 4.09 percentage point

·     FinTech and Consumer Finance: in research, Morgan Stanley downgraded ALLY, COF and SYF to Underweight from Equal Weight and upgrade NAVI to Equal Weight from Underweight saying they are entering 2023 with a cautious view on Consumer Credit as expect higher credit losses, driven by a consumer cash flow squeeze from high inflation, rising unemployment, less excess savings; STNE upgrade from Sell to Neutral at Goldman Sachs and up tgt to $11 PT following better than expected 3Q22 results and downgraded PAGS to Sell from Neutral with lower $9 tgt following weaker than expected 3Q22 results

Healthcare

·     Pharma movers: PFE said it plans to invest more than 1.2 billion euros ($1.26 billion) to expand manufacturing at its plant in Dublin, which would double the capacity to produce key substances used in biological drug; LLY said that its experimental Alzheimer’s treatment did a better job at clearing amyloid plaque than Eisai and BIIB’s Aduhelm in a Phase 3 clinical trial. Amyloid plaque is a biomarker associated with Alzheimer’s.

·     Biotech movers: Biotech ETF (IBB) trades to highest levels since January 2022 with growth names rebounding; AURA 6.7M share Spot Secondary priced at $12.00; ISEE 13.35M share Spot Secondary priced at $22.50; NTLA 6.55M share Spot Secondary priced at $45.80; for NVCT, FDA grants fast track designation to its NXP800 for the treatment of platinum-resistant, ARID1A-mutated ovarian carcinoma; ONCR downgraded to neutral at Piper

·     Healthcare Services: HUM raised its 2023 Medicare Advantage membership growth guidance to "at least" 500,000 members, up from a previous guidance range of 325,000 to 400,000 members, due to higher-than-expected sales seen so far during the current enrollment period; EHTH upgraded to Buy from Hold with $6 tgt at Hallum; PDCO mixed Q2 results

Industrials & Materials

·     Industrial & Machinery: GE board approves separation of GE Healthcare with distribution date of January 3, 2023, after market close; GE shareholders will receive one share of GE healthcare for every three shares owned; LII upgraded to Overweight at Wells Fargo, saying taking a conservative approach to the Resi HVAC cycle that demonstrates LII earnings resiliency given margin opportunities; OTIS downgraded to Equal Weight from Overweight as Barclays as continues to have a neutral view on U.S. multi-industry stocks into 2023, while upgraded PNR to Overweight and $55 tgt as favors stocks exposed to U.S. residential construction

·     Metals & Materials: steel stocks higher early led by STLD, NUE; gold miners outperform (GOLD, NEM, AEM) after gold rises over 3% and silver 4% on plunging dollar and falling yields; CE lifts force majeure on acetate tow products declared on May 11

Technology, Media & Telecom

·     Software movers: Dow component CRM shares slip after Bret Taylor to step down as co-chief executive officer while Marc Benioff, who is currently co-CEO, has been named a CEO while raises FY23 EPS view to $4.92-$4.94 from $4.71-$4.73 (est. $4.73) and backs FY23 rev view of $30.9B-$31.0B; SPLK shares rise after boosting its 2023 total revenue forecast to between $3.46B-$3.49B from prior $3.35B-$3.4B and beats Q3 revenue and profit estimates on strong demand for its data analytics software and helped by efforts to reduce expenses; SNOW posted a wider than expected Q3 net loss, hit by sharp jump in R&D while guided Q4 product revs $535M-$540M below estimates $553M; ESTC tumbles after cutting its revenue forecast for the year; OKTA shares jump on a solid FY3Q print and FY4Q guide but warned material weakening of conditions; NCNO 3Q results beat both Street estimates on the top and bottom line.

·     Hardware, Components & Services: Bank America noted for AAPL that Global App Store rev in F1Q23 QTD declined to $4.4bn (-3% y/y through Nov 29th), with total downloads up 3% y/y. For the month of Nov (as of Nov 29th), China App Store rev declined 4% y/y vs. prior year of +2% y/y growth; NTNX shares rallied after Bloomberg reported HPE has held talks with the co in recent months about a potential takeover https://bit.ly/3H5pk3M ; for APH and TEL, UBS said connector price trends have re-accelerated in November, tracking +3.3% vs. October and marking the strongest m/m improvement since February; Cowen said they see the shift towards safe, green, and connected vehicles having a profound impact on semiconductors, sensors, and battery materials and said key beneficiaries for: APTV , and MBLY, VC, CHPT, ENVX; BOX delivered Q3 results highlighted by a record operating margin of 24.0% with in-line revs; PSTG double digit growth and large margin beat as mgmt highlighted it continues to expect storage to outgrow GDP and overall IT spend in CY23

·     Media, Internet: ATUS slips after saying it has decided to keep its regional internet and cable business, Suddenlink Communications, after a strategic revie; Citigroup downgraded SIRI ahead of potential combo with LSXMA noting once Liberty creates Liberty Live Nation in 2023, they expect SIRI to enter a share exchange with the new LSXMA. We expect SIRI’s share count to decline by 10% but expect leverage to increase to 4.8x debt-to-EBITDA.

·     Semiconductors: Philly semi-index (SOX) dipped under 2,800, underperforms broader tech after failing at 2,841 this morning, just below its 200-day MA of 2,843; TSM will make advanced 4nm chips at its new $12B fab in AZ once it opens in 2024; STM named top large-cap pick at Stifel, raising ests for ‘24 by 31% reflecting materially lower risk of losing key socket on supply of iPhone from 2024 onwards; SMTC Q3 sales/EPS $178M/$0.65 edged Street’s $175M/$0.63E and guided Q4 to $150M/$0.48, $7M, $17M below consensus