Market Review: December 13, 2023

Closing Recap

Wednesday, December 13, 2023





DJ Industrials




S&P 500








Russell 2000













U.S. stocks surge following the Fed meeting/press conference as the end of year rally continued its momentum. Bring on all-time highs as the Dow Jones Industrial Average closed above 37,000 for the first time as the Federal Reserve held interest rates steady (as expected) while noted that inflation "has eased over the past year," and said it would watch the economy to see if "any" additional rate hikes are needed – implying that, after months of aggressive tightening and a bias towards moving rates higher, they may not need to move higher again. According to the 2:00 PM ET policy statement, 17 of 19 Fed officials project that the policy rate will be lower by the end of 2024 than it is now – as the FOMC median forecast shows 75 bps of rate cuts in 2024 to 4.6% from the current 5.25%-5.50% range. Fed officials see another four cuts in 2025. The Fed lowered the 2023 core PCE outlook to 3.2% from 3.7%. Fed officials see inflation slowing to 2.8% by the end of this year and to 2.4% by the end of 2024. After the statement, US interest rate futures raise odds of May rate cut to 90% after Fed decision vs 80% just before and a 57% chance of a cut in March. Until today, the market had been pricing in substantial rate cuts next year…but it wasn’t pricing in that the Fed would agree, giving reason for today’s stock market push higher. The Fed Chairman Jerome Powell in his press conference reiterated the comments from the statement, much more dovish than recent speaking engagements, in what many called a surprised “policy pivot” from his/the Fed prior stance.


All other stock related headlines can be seen below, but the Fed (as expected) stole the show today with an overly dovish outlook, making the case for a “soft landing” for the US economy. After the statement, the 10-yr yield tumbled 20-bps to 4.01%, the dollar dropped -1% and gold futures spiked. Stock strength was broad based, but interest rate sensitive sectors such as REITs, Financials, and Utilities saw the biggest gains. Market all-time high look: QQQ hit highs of $404.36 – the ATH from 11-22-21 higher at $408.71 while the SPY jumped above $470, its ATH from 1-4-22 is higher at $479.88. Bespoke Invest noted PRIOR to the FOMC meeting: The S&P 500 has rallied 9.6% since the last Fed meeting, the best inter-meeting performance since June-August 2009!


While the Fed painted a picture of improving inflation and a lower interest rate outlook it is worth noting that higher inflation still prevalent in data today and impacting consumers: 1) CNBC noted credit card delinquency rate 2.98% highest since 2012 vs. 1.55% year ago; 2) Redfin noted the median U.S. asking rent declined 2.1% y/y in November to $1,967—the biggest annual drop since February 2020. However, they’re still 22.1% higher than they were in November 2019 and just 4.2% below the $2,054 record high hit in August 2022! 3) Used Car prices in the US are at their lowest levels in 29 months, down 10% from the peak in July 2022 – but the Nov ‘23 used car price is $28,154 still a far cry from the $22,715 level in January 2021! Things are better from peaks for sure, but still significant signs of higher prices (also include rising healthcare, auto insurance).


Economic Data

·     The Producer Price Index (PPI) for November final demand M/M was unchanged vs. +0.1% expectations (prior was -0.5%) while rising +0.9% Y/Y vs. est. +1% (prior revised to 1.2% from 1.3%). On a core basis, or ex: food/energy, PPI was unchanged as well vs. est. +0.2% and on a Y/Y basis, core rose +2.0% vs. est. +2.2% (prior month revised down to +2.3%).

·     Federal Reserve officials see the U.S. economy growing at an inflation-adjusted rate of 1.4% in 2024, down from 2.6% in 2023, according to forecasts released following the end of their two-day meeting. They see growth accelerating to 1.8% in 2025 and 1.9% in 2026. They see the unemployment rate rising to 4.1% at the end of 2024 from 3.8% at the end of 2023.



·     US Treasury 10-year yields fall to lowest since August, last down 19-bps at 4.01%; the 2-yr yield tumbles about 30-bps on policy statement to 4.437% and 3-yr down -28-bps to 4.15%; all tumbling following the Fed statement and expectations of rate cuts in 2024.

·     Oil prices advanced amid a flurry to buy risk assets on the Fed dovish statement today, as Brent Crude futures settled at $74.26/bbl, up $1.02, 1.39% and WTI crude settled at $69.47 a barrel, up 86 cents, 1.25%. The move today helped oil bounce off six-month lows reached in the previous session after a more than 3% drop, with investors concerned about oversupply.

·     Weekly energy inventory data from the Energy Information Admin (EIA) was bullish: crude inventories fell by -4.3M barrels, more than the -650K barrel draw expected. Gasoline stocks rose by a smaller 408K barrels vs. est. for 1.9M barrel build (easing demand fears) and distillate stockpiles rose by 1.5M barrels, more than the 600K barrel build est. (bearish). Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.2 million barrels, the EIA said.

·     Gold prices edged higher $4.10 to settle at $1,997.30 an ounce (settlement came prior to the FOMC meeting results) – gold futures jumped over 2% after the statement back above $2,035 an ounce. The dollar index (DXY) was flat around 103.90 just prior to the FOMC policy meeting at 2:00 PM before falling further to around 103 on declining interest rate expectations.






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10-Year Note





Sector News Breakdown


Retail, Consumer Staples & Restaurants:

·     In Household Products: Citigroup said top Buy-rated picks in order are CLX (moved to top pick), CL, STZ, KO, PG, MNST, while downgraded CHD to Sell, and remains sell on KMB, BFB saying after two years of above-average organic sales growth across the group on outsized pricing with limited elasticity impacts, and recovery in GMs in 2023 on moderating commodities, sees a return to historical topline/EPS growth levels in 2024, with a few exceptions.


Homebuilders, Building Products, Home Furnishing:

·     Rates on 30-year fixed mortgages were down last week to 7.07% from 7.9% in October, according to the MBA. That’s the lowest average rate since July. Purchase-loan volume is up a bit off the recent lows, but it’s still 18% below year-earlier levels.

·     In Building Products: MHK upgraded to Equal Weight at Barclays and downgrade TREX to Underweight and HLMN to Equal Weight saying they remain constructive on homebuilders and are now incrementally positive on building products, leading US to raise its Industry view to Positive.


Autos, Leisure, Gaming & Lodging:

·     In Online travel: ABNB said Airbnb Ireland, its European headquarters, has signed an agreement with the Italian tax authorities to settle a tax assessment of 576M euros ($620.56M) relating to the 2017 to 2021 tax years. The company said it signed the deal without admitting any liability.

·     TSLA stands to lose up to $7,500 federal tax credit for its Model 3 Rear-Wheel Drive and Long-Range vehicles from Dec. 31, as per new guidance under the U.S. Inflation Reduction Act. Separately, TSLA said it will recall more than two million vehicles (covers some Tesla Models 3, S, X and Y manufactured between 2012 and 2023) over concerns over its Autopilot system, following a 2-year probe by U.S. auto-safety regulators into crashes.

·     In Autos: RACE was downgraded from Buy to Hold at HSBC saying the potential for mid-term earnings upgrades and results surprise has diminished. BNP Paribas also downgraded RACE to Neutral from Outperform with a $367 price target and cut Ford (F) to underperform and VC in suppliers to neutral from Buy saying today’s battery electric vehicle weakness "is merely the tip of a melting iceberg as affordability constraints bite".

·     In Used cars (KMX, CVNA): Charlie Bilello tweets that "Used Car prices in the US are at their lowest levels in 29 months, down 10% from the peak in July 2022" – (worth noting thought that the Nov 23 used car price is $28,154 still a far cry from the $22,715 level in January 2021).


Energy, Industrials and Materials

·     In Industrials: PNR was upgraded to Overweight at Keybanc with $82 tgt saying it feels PNR’s attractive backdrop is underappreciated at current levels, while they downgraded shares of ZWS to Sector weight noting while it continues to appreciate secular Drinking Water trends, it sees a more balanced risk/reward moving forward following the sizable re-rate (up +38% YTD). ABM reported Q4 results that beat expectations and issued an upbeat full-year forecast.

·     In Airlines: LUV said it sees Q4 available seat miles (ASM) to increase by about 21%, compared to its earlier view of no change; Q4 outlook for revenue seat miles improved to a drop of up to 10% from its earlier view of down as much as 11%; and expects Q4 unit revenue to improve to the better end of its previous guidance range; raises fuel cost forecast.

·     In other transports: HTZ was downgraded from Outperform to Perform at Oppenheimer as they believe next year will be a transition year and will face several headwinds in 2024, including significant ongoing challenges to its EV initiative, higher vehicle interest expense. XPO said it got approval from the U.S. bankruptcy court for the district of Delaware to buy 28 service centers previously operated by Yellow Corp., which filed for bankruptcy in August.

·     In Chemicals: LYB was downgraded to Neutral from Buy at Citigroup and lowered price target to $98 from $105 as sees more balanced risk/reward with weaker polyethylene fundamentals and softer oxyfuels and refining but with potential for 2H’24 upside. Overall, raised price targets on CE, HUN in chemicals saying a sluggish macro picture has pushed the recovery outlook to 2H’24, and prefers to stick with paints and coatings, citing price/cost.

·     In Metals & Mining: US Steel (X) shares rose after CNBC’s David Faber noted the company’s board to meet today and going over bids more than $40 per share and notes CLF financing to go up to $45/shr bid of X as per Faber on CNBC.

·     HVAC names were weaker (LII, TT): Keybanc noted the EPA is considering changing the installation date requirement for R-410A "systems" to Jan 1. 2026 (from Jan. 1, 2025) to address concerns from industry participants. This will still necessitate pricing actions from OEM’s who will still need to adjust plans to produce R-410A units for longer than expected.

·     In Solar: ENPH shares pressured, falling along with European solar stocks such as Meyer Burger (MYRBY) and SMA Solar (SMTGF) plunge as German politicians including Olaf Scholz announced they must make subsidies cuts that will affect the industry.



Banks, Brokers, Asset Managers:

·     In Consumer Finance: COF upgraded from Underweight to Equal Weight at Morgan Stanley saying slowing rate of entry into delinquencies bodes well for lower reserve build and EPS growth in 2024-25. Notes loan losses will continue to rise from here, but at a slower pace than previously feared. ALLY upgraded from Underweight to Equal Weight at MSCO as well noting the Fed no longer hiking rates from here means ALLY’s NIM is likely about to bottom, easing pressure on the company’s EPS into next year.

·     In Insurance: BFH downgraded from Equal Weight to Underweight at Morgan Stanley saying risks to the subprime consumer are being priced into the valuation but notes BFH’s high subprime exposure and private-label tilt, add significant downside to bull/bear skew. In Mortgage Insurance, KBW upgrades RDN to Outperform and reiterate OP ratings on MTG and ACT saying strong residential mortgage credit tends, stable home prices, and stable unemployment should combine to result in losses on the delinquent book coming in below assumptions.

·     In Real Estate: OPEN upgraded to MP at KBW as thinks the fundamentals do not justify valuation, but the stock lacks clear downside catalysts; CSGP remains KBW’s top long-term best idea, issuing 2–3-year bull case where it sees the potential for a 24% annualized return (50-90% upside to $130-$160/share). In Commercial Real estate, KBW downgraded WD and NREF on balanced risk/reward saying they forecast additional declines of 1% in CRE volumes and 5-10% in CRE values, before a market bottom in 1H24 and slow-building recovery starting in 2025.

·     In Lending: SLM at its Investor Day provided its growth strategy for post CECL phase-in period as well as capital return strategy and loan sale premium & credit scenarios.



Biotech & Pharma:

·     PFE tumbles as provided disappointing FY’24 guidance, saying revenue could fall next year, weighed down by a continued slowdown in demand for its Covid-19 vaccine and related products – guided FY24 revs $58.5B-$61.5B below consensus $62.6B and tgts FY24 adj EPS $2.05-$2.25 vs. est. $3.17. Shares of other vaccine makers NVAX, MRNA were weaker initially in reaction.

·     ACAD shares jumped after a court ruled in favor of the company on all grounds under Nuplazid (pimavanserin) patent litigation.

·     CCCC said its experimental therapy, CFT7455, to treat a type of blood cancer was well tolerated and showed promising signs of anti-myeloma activity in phase 1 of its early-to-mid stage study.

·     EDIT entered into a license agreement w/VRTX where Vertex will obtain a non-exclusive license for Editas Medicine’s Cas9 gene editing technology for ex vivo gene editing medicines targeting the BCL11A gene in the fields of sickle cell disease and beta thalassemia, including CASGEVY.

·     JNJ downgraded to Equal Weight from Overweight at Wells Fargo saying earnings growth will be muted the next few years due to the Stelara loss of exclusivity and its medical technology growth targets seems optimistic.

·     VRTX said its non-opioid pain drug, VX-548, was successful in reducing nerve pain in patients in a mid-stage trial and says given efficacy of drug, it is working with urgency to advance it in late-stage study; said other late-stage studies of VX-548 in acute pain are on track to read out in Q1.

·     VSTM announces initiation of a confirmatory phase 3 trial of Aumolertinib and Defactinib in recurrent low-grade serous ovarian cancer.


Healthcare Services & MedTech movers:

·     In Healthcare Facilities/Services: RCM, MODN both downgraded to Neutral at JP Morgan and the firm upgraded HCAT to Overweight saying its sentiment survey points to 83% of recipients expecting its space to be up >5% next year with 57% expecting an improvement in the underlying demand environment for life sciences, and 57% expecting improvement in the provider space.



·     ADBE earnings expected tonight after the close.

·     AVGO price target raised to $1250 from $1200 at Bank America following virtual investor meeting w mgmt saying its AI opportunity is strong as its workload complexity changes (shares traded to new record highs on positive analyst comments this week – Citi two days ago).

·     COHR downgraded from Overweight to Equal Weight at Morgan Stanley but raised tgt to $45 from $39 as multiple is now more in-line with COHR’s traditional trading range. MSCO’s Bull case is now $63 (from $57) and reflects 19x its bull case FY25e earnings power of ~$3.3.

·     ETSY is laying off roughly 11% of its workforce, a spokesperson confirmed, as the e-commerce site that helps small businesses sell handmade goods grapples with a slowdown in consumer spending and increased competition.

·     PLAB Q4 adj EPS $0.60 vs. est. $0.53; Q4 revs rose 8% y/y to $227.5M vs. est. $224M; sees Q1 revenue $217M-$225M vs. est. $220M.

·     TTWO will be added to the Nasdaq-100 Index and Seagen, Inc. will be removed as part of the annual reconstitution after being acquired by Pfizer.

·     For AAPL Foxconn wins approval to invest at least $1 billion more in a 300-acre factory in India, bringing the cost to about $2.7 billion, Bloomberg reported.


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.