Closing Recap

Tuesday, December 05, 2023

Index	Up/Down	%	Last
DJ Industrials	-79.72	0.22%	36,124
S&P 500	-2.58	0.06%	4,567
Nasdaq	44.42	0.31%	14,229
Russell 2000	-25.98	1.38%	1,856

 

 

 

 

 

 

 

 

 

U.S. stock markets finished mixed, with underperformance in Smallcaps after rallying the last few sessions back above key technical levels, and market breadth favoring decliners by a wide 2:1 margin, though large cap tech strength (“Mag 7” names) helped keep broader markets in check. Today was a reversal of yesterday’s action as only a handful of large caps/heavily index weighted names (AAPL, AMZN, GOOGL, NVDA, TSLA among them) kept the S&P and Nasdaq from falling. Major averages got a boost around 10:00 AM ET after the ISM services index edged higher while JOLTS job openings declined sharply from September’s readings, showing employers pared back hiring. Technology (XLK) Consumer Discretionary (XLY) led today while Materials (XLB), Energy (XLE), Communications (XLC) and REITs (XLRE) were the biggest laggards. Stock stories were busy following comments at various Wall Street investors conferences such as: cable stocks (CHTR, CMCSA) falling after Charter comments at UBS conference, several regional banking stocks/consumer finance names moving (AXP) following comments at Goldman Sachs conference. Oil prices fell to fresh 5-month lows, gold slipped again as did Treasury yields. Weakness in Asia overnight after Moody’s cut its outlook on China’s government credit ratings to negative from stable weighed on sentiment. However, Europe a different picture as the German Dax hit all-time highs today. Europe’s Stoxx 600 gained 0.4%, Germany’s DAX rose 0.8%, Britain’s FTSE 100 was down 0.3%, France’s CAC 40 was up 0.7%, and Spain’s IBEX climbed 0.6%. All eyes on more jobs data this week with ADP tomorrow, jobless claims Thursday and nonfarm payrolls Friday.

 

Note U.S stock markets remain strong heading into year-end and are tracking for big gains in 2023. Much of the last 5-week rally has been predicated on expectations that the Fed rate hike cycle is done and that they may turn to rate cuts as early as March 2024, according to Fed Fund Futures (despite Fed members saying it was early to discuss cuts). It is also worth noting that these same Fed Fund Futures at the end of 2022 had indicated the probability of four rate “cuts” in 2023, when in fact there have been no cuts and more hikes than expected! Still, the S&P remains less than 6% from all-time highs as investors look to add to winners into year end. Also worth noting that the CBOE Volatility index (VIX) remains depressed, coming off its lowest levels in over 3-years just last week (no fear).

 

Economic Data

·     Job openings declined to 8.733M in October from 9.350M in September and lower than the 9.4M consensus, according to the U.S. Labor Department’s Job Openings and Labor Turnover Survey. The September figure was revised from the 9.553M previously reported.

·     ISM Non-Manufacturing Services PMI advanced to 52.7, topping the 52.0 consensus, and above 51.8 in October, signaling economic activity in the services sector saw a faster rate of expansion during the month.

 

Commodities, Currencies & Treasuries

·     U.S. WTI crude oil futures settle at $72.32/bbl, down -$0.72, or 0.99% while Brent crude settled at $77.20/bbl, down 83 cents, 1.06%. Weekly API inventory data tonight and EIA tomorrow. Gold prices fell -$5.90 to settle at $2,036.30 an ounce, extending losses from Monday when prices fell by -$47.50, or 2.3% to settle at $2,042.20 an ounce, off the all-time highs of $2,152.30 in that overnight session on profit taking.

·     Treasury yields fall while the dollar rises. The benchmark 10-year yield fell -11 bps to 4.175%, while the 30-year yield falls 12 basis points on day to 4.31% and shorter-term 2-yr yield dipped 6.7 bps to 4.59%. The weaker JOLTS job openings report showed a decline in job openings in October to 8.7 million, a 28-month low, from a revised 9.4 million in September. The data was the first of four job-related data points this week that could move markets. The U.S. dollar index (DXY) rises back above the 104 level (more than 100-bps off last week lows below 103)

·     Bitcoin’s upside momentum continues, spiking as much as 4.3% above $44K, now up more than 180% since Nov last year and again crypto-leverage stocks such as COIN, MARA, MSTR, RIOT spiking alongside today. @KobeissiLetter notes that over the last year, crypto markets have seen: 1. Collapse of FTX, largest fraud in recent history, 2. Collapse of regional banking system, 3. $2 trillion bear market, its largest in history, 4. Over 500 lawsuits and regulation cases, 5. Multiple crypto lender bankruptcies, 6. Binance fined a record $4.3 billion by US regulators, 7. Increased calls for regulation around the globe – Yet, #Bitcoin is up 160% this year and just hit $43,000.

 

 

Macro	Up/Down	Last
WTI Crude	-0.72	72.32
Brent	-0.83	77.20
Gold	-5.90	2,036.30
EUR/USD	-0.0054	1.0782
JPY/USD	0.08	147.29
10-Year Note	-0.112	4.174%

 

 

Sector News Breakdown

Consumer

Retail Sector Movers

·     AZO posted a better-than-expected 10% rise in quarterly profit helped by demand for its Do-It-Yourself (DIY) kits; said quarterly net sales rose about 5.15% to $4.19 billion; Domestic same-store sales in the quarter ended Nov. 18 remained constant at 1.2%.

·     DBI shares fell after top and bottom line Q3 results missed, said Q3 total comparable sales decreased by (-9.3%) and cut its FY23 EPS view to 40c-70c from $1.20-$1.50 and lowered FY23 rev view to down high-single digits from down mid- to high-single digits.

·     GII Q3 adj EPS $2.78 tops consensus $2.06 though sales of $1.07B, -1% y/y, below est. $1.13B, but issues upbeat FY adj EPS guide to $3.90-$4.00, from $3.20-$3.30 and better FY adj. EBITDA $317M-$322M, from prior $284M-$289M.

·     JOAN, LE, SIG (cuts forecasts) were other movers following earnings.

 

Consumer Staples & Restaurants:

·     In Food: SJM Q3 results mixed as EPS $2.59 tops est. $2.47 while sales of $1.94B fell -12% y/y and just miss estimates while for year guidance, now expects sales to rise 8.5%-9.0%, down from prior guidance of 8.5%-9.5% and sees FY adj EPS to $9.25-$9.65 vs. prior $9.45-$9.85. Tomorrow morning, we get earnings results from CPB.

·     In Restaurants: SBUX shares for a 12^th consecutive day, extending losses following comments at the Morgan Stanley conference where they said the China recovery will be choppy, but it is normalizing at half the pace than what you would think it would.

 

Energy, Industrials and Materials

·     In Industrials: TTC was downgraded from Buy to Neutral at DA Davidson following its quarterly golf course management survey and its checks with dealers and peers. Specifically, checks with Toro and Ditch Witch dealers during FQ4 revealed that many expect a down retail year in 2024. URI was downgraded from Buy to Neutral at UBS as thinks risk/reward is balanced; PCAR declares $3.20 per share extra cash dividend.

·     In Chemicals/Lithium sector: ALB (tgt to $128 from $140) and LTHM (to $15 from $18) both downgraded to underweight from neutral at Piper to reflect a significant deterioration of global lithium markets.

 

Financials

Banks, Brokers, Asset Managers:

·     In Fintech: BMO Capital initiated/assumed coverage of 15 Fintech Stocks noting while Fintech stocks have been rallying in recent weeks, BMO is still bullish on the setup for its coverage for the year ahead. The firm rates SQ, FLT, ADYEN, NVEI, FI, IMXI, MA, and V at Outperform, and RELY, GPN, RPAY, IIIV, AVDX, WU, and PYPL Market Perform. Top Picks (SQ, FLT, and ADYEN).

·     In Regional Banks: Several regionals issue guidance at conference: KEY said they see Q4 loans as down 1% – 3% vs Q3’23; deposits as relatively stable vs Q3; sees FY 2023 loans up 6% – 9% and deposits flat to down 2%; sees FY23 noninterest income down 7%-9%; sees FY23 net interest income: down 12%-14%; CMA Q3 quarterly average deposits $65.9B vs $74B in Q3 last year; TFC says lower income consumer is under more stress, sees higher delinquency rates and that the bank is reducing portfolios w/lower returns, such as student loans; sees NII bottoming in 1H24.

·     In brokers/Exchanges: HOOD said in November 2023, customers contributed roughly $1.4B of net deposits to Robinhood; equity notional trading volumes and options contracts traded were roughly in line with October 2023 levels; November crypto notional trading volumes were roughly 75% above October 2023 levels; NDAQ said November equity options volume 254M contracts, -6.3% y/y and European options and futures volume 6.2M contracts, +8.8% y/y. MKTX said total credit average daily trading volume of $14.3 billion, up 9.3% versus the prior year, and up 13.4% versus October 2023 levels; record total credit trading volume of $303.3B; record Eurobonds trading volume of $43.7B and record municipal bond trading volume of $12.6B.

·     Large cap Banks: UBS was downgraded to Neutral at Bank America as remains convinced of the financial and strategic benefits of the Credit Suisse acquisition but says sees a lengthy 2024 as the heavy lifting is undertaken as they cut 2024E EPS by 32% and 2025E a more modest 10%.

·     In Financial Services. PFSI announced they will take a one-time $155 mill charge as the result of a ruling relating to a 2019 complaint from Black Knight. XP was upgraded to overweight from neutral at JPMorgan, saying that the firm’s revenues are more leveraged to a market rebound. AXP shares tumbled after the CEO said billings in October was not as strong as in Q3.

·     In REITs: several ratings changes in research as BTIG upgraded RWT to Buy from Neutral, with an $8.50 price target; FR was upgraded to Buy at Mizuho and downgraded PLD EGP to Neutral saying sees downside risk, which is balanced by Industrial REITs having low leverage and better earnings growth than other sub-sectors.

 

Healthcare

Biotech & Pharma:

·     APLS upgraded from Neutral to Buy with new $85 PO as it sees this is a lower risk story from here given clarity on risk/benefit for Syfovre from an FDA stance and a strong launch trajectory.

·     CRSP said it will replace CTX110 and CTX130 with next-generation AlloCAR-Ts CTX112 and CTX131, which have higher potency. Updated data from CTX110 was only marginally better vs. single-dose data, pointing to a ceiling for CTX110 efficacy said JMP.

·     CVS reaffirmed its ’23 guidance and provided initial FY24 guidance with revs ahead of street ($366B vs. $345B est.) and EPS of at least $8.50 (vs. $8.51 est.) while in conjunction with its Investor Day, introduced CVS CostVantage.

·     GDRX shares pressured after CVS announced a plan to shift to fixed rates for reimbursements from pharmacy benefit managers and insurers, to boost transparency amid scrutiny on high drug prices.

·     IMGN said the FDA grants priority review of its Supplemental Biologics License Application for ELAHERE in platinum-resistant ovarian cancer.

·     JNJ said it expects FY24 adj EPS $10.55-$10.75 (vs. $10.78), with this guidance incorporating $0.15 dilutive impact form its previously announced acquisition of Laminar Inc and expects at least 3% operational sales growth in 2025 despite STELARA biosimilar entrants.

·     LLY said its recently approved obesity drug Zepbound is now available in U.S. pharmacies and could be available to some insured customers at $550 per month or half of the list price.

·     MMSI announces private placement of $550M convertible senior notes.

·     OLMA shares tumbled on midday study results of its Ribociclib.

·     REPL shares tumbled after saying its experimental drug RP1, in combo with cemiplimab, fails to significantly remove or reduce cancerous lesions in patients compared to cemiplimab alone.

·     SWTX 9.483M share Spot Secondary priced at $29.00.

·     TRVI announces the initiation of its phase 2b clinical trial of Haduvio for chronic cough in idiopathic pulmonary fibrosis.

·     TVTX announced plans to reduce its workforce by about 20% and focus n-t resources on its ongoing Filspari launch in IgAN and the advancement of pegtibatinase in classical HCU.

 

Technology

Internet, Media & Telecom

·     In Telecom: AT and ERIC announced a collaboration that will seek to scale open radio access networks (Open RAN, or ORAN) in the U.S. According to the release, AT&T’s spending could approach ~$14B over the five-year term of the contract with Ericsson. Further, AT&T’s ORAN plan is for 70% of its network traffic to flow through ORAN-capable platforms by 2026, with sites starting operation in 2024. Shares of ERIC competitor NOK fell in reaction to the news as they will no longer be supplying AT&T with 5G RAN equipment.

·     Cable stocks tumbled around midday, led by weakness in CHTR which fell over 10% following commentary at the UBS Global TMT conference; the weakness weighed on shares of other cable related names CMCSA, ATUS. CHTR guided for negative broadband adds in Q423 despite spending $4B on rural CAPEX in 2023 according to reports.

 

Hardware & Software movers:

·     In Hardware: AAPL shares rallied, helped by Foxconn’s comments that, "the outlook for the fourth quarter should be better than the original guidance for "significant growth"". Gene Munster said in tweet “while I don’t know what percentage of Foxconn’s business comes from Apple, Apple is their biggest customer.”

·     In Video Games: TTWO shares fell after the company’s Rockstar Games unit released the first trailer for the highly anticipated Grand Theft Auto VI video game, which will be released in 2025. Note TDCowen said "the 2025 date gives context to the shade-down of FY25 guidance on TTWO’s last earnings call. Most likely, the company was looking at a late CY24 release for the game as of May, but probably recently shifted it back a few months".

·     In Software: GTLB reported a strong Q3 w/ rev growth of 32% above Street at 26% & FY24 growth guide raised from 31% to 35%; guided Q4 EPS $0.08-$0.09 vs. est. loss (-$0.01) and revs $157M-$158M above the consensus est. $150.24M.