Closing Recap

Friday, February 03, 2023

Index	Up/Down	%	Last
DJ Industrials	-128.88	0.38%	33,925
S&P 500	-43.35	1.04%	4,136
Nasdaq	-193.86	1.59%	12,006
Russell 2000	-15.68	0.78%	1,985

 

Equity Market Recap

·     Stocks slide late day, but still finish with weekly gains! All the components were in place for a market pullback Friday following an incredibly strong start to 2023, with weak earnings/guidance results from AAPL, AMZN, GOOGL, SBUX, QCOM as well as a “hotter” jobs report, giving the Federal Reserve the ammo, it needs (potentially) to keep their gradual rate hikes in place beyond the March meeting. Markets opened lower, but gradually rallied, with the Nasdaq bouncing more than 2% off lows to trade positive briefly and the S&P as well with a “red” to green” move in yet another “buy the dip” action by traders, but unlike prior bounces, today’s move reversed, sending stocks lower into the close. All things considered, given the volume of negative earnings today and the jobs data, markets held up relatively well.

·     Today’s monthly jobs report was incredibly strong, nearly triple the estimate, while unemployment fell, and wages rose steadily, calling into question whether Powell’s somewhat dovish tone on Wednesday was misplaced. While great news for the economy, Wall Street will return to the thesis that a tight labor market will continue to force the Fed to tighten policy beyond the 25-bps expected at the March meeting (which is not what the current stock market is forecasting). The narrative stocks used to rally ended this morning (jobs/rates) and we had a significant gap down that was bought, giving the appearance that people are buying for the sake of buying, and chasing because they fear missing out (FOMO) – like the 2020 move.

·     There have been a lot of abnormalities in markets of late, very reminiscent of the 2020 “meme craze” phase when markets targeted high short interest names and ran them on no news. Seeing a lot of similar action to start this year with likes of troubled companies jumping day after day. Also, lots of names moving on any headlines related to “AI” as being the next market craze (like “metaverse” and “blockchain” were in the past before petered out), with odd moves in several companies simply mentioned a partnership of some sort in the “AI” space. The recent media interest in 0DTE (daily option expiration and the chase in call buying) has also garnered attention.

·     Former Fed Dallas President Fisher said today on CNBC halftime that there is real possibility the Fed takes terminal yield above 5% – thinks there are a couple more qtr point moves, then will hold and says odds of cutting rates this year are "very slim" – says don’t bet against the Fed. Stock and bond markets continue to ignore the strength in the jobs markets and the warning the Fed has provided recently. Wages have slowed but still very highs, recent JOLTs data showed over 11M jobs open (much higher than expected) and today’s unemployment rate fell and jobs added nearly tripled while jobless claims continue to fall – but stock markets keep going higher.

·     The other story today getting attention, though not impacting stock markets, were reports of a China spy balloon over Montana initially, changed course and is now floating eastward at about 60,000 feet above the central part of country, the Pentagon said on Friday, adding it would likely be over the United States for a few more days.

 

Economic Data:

·     Very strong jobs data: January nonfarm payrolls reported at 517K jobs crushing the 188K estimate (prior month revised to 260K from 223k), private payrolls 443K jobs added vs. est. 190K (prior revised to 269K from 220K), and manufacturing payrolls 19K vs. est. 6K. Unemployment rate falls to 3.4% vs. est. 3.6% and prior 3.5%. Average hourly earnings rose 0.3% after gaining 0.4% in Dec, bringing the year-on-year increase in wages to 4.4% from 4.8% the month before.

·     ISM Non-Manufacturing index (services) posts biggest monthly gain since June 2020, with new orders recovering and prices paid by businesses for materials continuing to rise. ISM non-manufacturing PMI increased to 55.2 last month after having dropped to 49.2 in December and topping the 50.4 estimate. New orders received increased to 60.4 in January from 45.2 in December and prices paid by services industries for inputs dropped to 67.8 from 68.1.

·     S&P Global Services PMI Jan-F: 46.8 (vs. est. 46.6 and previous 46.6) and Composite PMI: 46.8 (vs. est. 46.6; prev 46.6).

·     The 30-year US mortgage rate has moved from 7.08% down to 6.09% over the last 12 weeks, the largest 12-week decline (-99 bps) in rates since January 2009.

 

Commodities, Treasuries and Currencies

·     April gold tumbles -$54.20 or 2.8% to settle at $1,876.60 an ounce, falling a 3rd day in a row, dropping to more than a three-week low after stronger-than-expected U.S. jobs data raised fears that the Federal Reserve could keep hiking interest rates. The dollar gained over 1%, hitting a three-week high while the yield on 10-year Treasury notes climbed back above 3.5% (the level it was at Wednesday ahead of the FOMC meeting). Earlier this week, the Fed delivered 25-bps rate increase while Fed Chair Jerome Powell warned of possible further monetary policy tightening.

·     Treasury yields spiked following a much stronger than expected January jobs report as the 10-yr hit highs of 3.56% briefly from 3.38% prior to the report and the 2-yr rose 20 bps to 4.30%. The news, while positive in the sense that it means more people were working, raised concern among investors that the Federal Reserve may have to do more in terms of raising interest rates as it fights rapidly rising prices.

·     Oil reverses to finish the day lower, as WTI crude -$2.49 or 3.28% to settle $73.39 per barrel (off earlier highs $78), while Natural gas at lowest levels since December 2020, down -2.2% to $2.402 mln Btus. Oil prices rallied initially following strong U.S. jobs data but turned lower, along with other commodity prices, as the dollar jumped. Brent crude futures settle at $79.94/bbl, down $2.23, or 2.71%.

 

 

Macro	Up/Down	Last
WTI Crude	-2.49	73.39
Brent	-2.23	79.94
Gold	-54.20	1,876.60
EUR/USD	-0.0101	1.0811
JPY/USD	2.45	131.11
10-Year Note	0.138	3.537%

 

 

Sector News Breakdown

Consumer

Autos:

·     Ford Motor (F) earnings were disappointing end to 2022 and the company provided a soft 2023 guide as Q4 EPS $0.51 missed the $0.60 est. and provided lower than expected 2023 operating guidance – did announce a $0.65 per share year-end special dividend.

·     The IRS, which is responsible for implementing the new electric-vehicle purchase tax credits passed as part of the Inflation Reduction Act, has redone the eligibility price limits for several EVs. The changes benefit Tesla (TSLA), Ford Motor (F) as well as General Motors (GM) – Barron’s.

 

Consumer Staples & Restaurants:

·     In restaurants: SBUX with a top, bottom line Q4 miss and weaker global comparable sales growth of 5%, compared with analysts’ estimates of a 6.75% as international and China comps tumble -13% and -29% respectively.

·     In consumer products: CLX FQ2 EPS beat as results benefit from pull-forward on early cold/flu season said Bank America while co raised FY23 guidance, but to a lesser extent than the benefit of the FQ2 beat. CHD Beat on 4Q but 2023 and Q1’23 guidance is light and continuing to cite softness in discretionary brands. Higher marketing investment is consistent with peers. HLF tumbles after Bank America initiated at Underperform and $14 tgt.

Retailers:

·     AMZN Q4 revs beat but AWS revs fall short Q4 AWS revs $21.4B vs. est. $21.87B and above $17.78B a year ago and guides Q1 revenue $121B-$126B below est. $125.11B

·     JWN shares jumped after the WSJ reported activist investor Ryan Cohen has taken a sizable stake and plans to urge the company to make changes to its board https://on.wsj.com/3jxnX4r

·     Bank America noted Consumer Financial Protection Bureau proposed a new rule to limit late fees on credit cards, aimed to go into effect by 2024. They estimate a HSD hit to JWN earnings, and a 23% hit to KSS EPS (credit is higher % of EBIT) and estimate a MSD (GPS) and LSD (VSCO) negative impact as those credit portfolios are smaller.

·     DECK reported another beat-and-raise quarter in Q3 but with some noise around the wholesale channel, revenues grew 18% constant-FX and raised EPS FY guidance by less than the beat – UGG brand net sales decreased 1.6% to $930.4M, HOKA brand net sales increased 90.8% to $352.1M, and Teva brand net sales increased 48.3% to $30.5M

·     COLM Q4 EPS $2.02 vs est. $2.28 but including a 43c impairment charge, revs inline but GM missed, and 2023 EPS guidance missed street at $5.35 mid vs. consensus $5.60 on lighter op income and inventories grew 59% y/y.

·     SKX Q4 was better than expected, as sales were +14% (handily above guidance 4-7%), while EPS of $0.48 beat guidance of $0.30-$0.40. However, guidance was disappointing: 1Q23 sales were guided to be up 0-3% (vs. consensus of 7%), while EPS is planned to be in the range of $0.55-$0.60 (vs. consensus of $0.85).

 

Leisure, Gaming & Lodging:

·     In lodging and travel: HGV, TNL both downgraded to Hold from Buy at Jefferies saying while they believe in the LT growth prospects, they believe there is incrementally greater risks to fundamentals in a recession vs. peers (revise ests).

·     In casinos/gaming: BYD reported record Q4 with EBITDAR +7% ahead of consensus as the beat was fueled by strength in the Locals and Downtown segments, offsetting some Midwest & South weakness (that was boosted by FanDuel and Sky River mgmt fees, Truist noted).

·     In leisure: LESL reported 1Q sales that beat estimates, but lower margins caused a bottom-line miss; maintained FY23 guidance.

 

Energy, Industrials, Materials

·     U.S. energy firms this week cut the number of oil and natural gas rigs by the most since June 2020, Baker Hughes said. The oil and gas rig count fell by 12 to 759 in the week to Feb. 3, the lowest since September. U.S. oil rigs fell 10 to 599 this week, their lowest since September, while gas rigs dropped by two to 158. U.S. oil futures are down about 8% so far this year after gaining about 7% in 2022. U.S. gas futures have plunged about 46% so far this year.

·     In aerospace, RBC Capital downgraded BA from Outperform to Sector Perform with $225 tgt as believe continued supply chain execution challenges will limit near-term upside deliveries and will be an overhang on investor sentiment. The firm also downgraded top Boeing supplier SPR to Sector Perform considering view that supply chain issues will continue to be a bigger headwind in 2023 than is expected by many investors and believe SPR will be more impacted. NOC announced $500M accelerated shares repurchase.

·     In heavy duty trucking (CMI, PCAR, ALSN), North American Class 8 truck orders, a key measure in the trucking industry, rose to 21,600 vehicles in January y/y. On a m/m basis, it was the lowest in five months and the biggest monthly drop since Nov. 30, 2022.

·     In metals: gold miners AEM, AUY, GOLD, NEM tumbled early as gold prices slide over 2% back below $1,900 an ounce on a stronger US dollar and bounce in Treasury yields; Steel producers get a lift following better US Steel (X) results.

·     In transports: HUBG came in above consensus expectations in 4Q even as intermodal volumes experience double-digit declines; CHRW downgraded from Buy to Hold at Stifel and trim tgt to $99 PT from $107 after the co reported a sizable miss in 4Q22, with themes from its disappointing 3Q22 report carrying over—outsized costs and sluggish response to quick changes in underlying freight demand. In airlines, SKYW slides after results last night, dropping and holding at its 100-day MA support of $17.90 (was above its 200-day MA late yes around $21).

·     In chemicals: LYB Q4 EPS $1.29 vs. est. $1.19 while Ebitda fell -43% y/y below estimates and sales fell -20% y/y to $10.21B missing ests $10.7B; FUL upgraded to Buy at Citigroup saying valuation has come off, and FUL trades at a ~3.5x forward EV/EBITDA discount vs comparables, above the historical average near ~2x.

 

Financials

Banks, Brokers, Asset Managers:

·     Banks and financials were among the top movers in the S&P today with Treasury yields bouncing behind better jobs data. Bloomberg reported BX has agreed to acquire insurance firm AIG’s $3.6B collateralized-loan obligation assets, saying the purchase would make Blackstone the largest manager of CLOs global market that repackages leveraged loans into bonds.

·     In lending, SLM downgraded to Equal Weight from Overweight at Wells Fargo as believe the persistent credit issues have damaged management’s credibility; do not see visible catalysts to move the shares higher. PFSI Margins softened in all three origination channels, which drove the miss, while servicing results were mostly in line.

 

Services, Bitcoin, FinTech, Payments:

·     Bloomberg reported crypto bank SI is facing a DOJ fraud probe over FTX and Alameda dealings, noting it hasn’t been accused of wrong-doing, probe in early phases.

·     NRDY shares pop after announces new AI-Enabled products, including an AI-Generated lesson plan creator and AI-Enabled chat tutoring.

·     UPST downgraded to Hold from Buy at Loop Capital with $24 tgt saying its price target has been reached after the recent rally in the stock, helped by a potential near term pause in FOMC rate hikes and the company’s current estimated short interest of 38%.

 

Healthcare

Biotech & Pharma:

·     GILD reported higher-than-expected Q4 profit ($1.67 vs. est. $1.50) driven by strong demand for its HIV and cancer drugs, while sales of COVID-19 antiviral Veklury stronger and guided 2023 sales view to $26B-$26.5B vs. est. $25.8B

·     Structure Therapeutics (GPCR) opened at $25.00 in Nasdaq debut vs IPO price of $15.00 per ADS

·     GRCL announces FDA clearance of the IND application for phase 1b/2 clinical trial of FasTCAR-T GC012F for the treatment of relapsed/refractory multiple myeloma.

·     REGN Q4 revs ahead, with WW Dupi and US Libtayo sales ahead of street, while Eylea was consistent with preannouncement and better tax drove the EPS beat; announces $3B buyback.

·     In analyst research, Morgan Stanley upgraded ERAS, NBIX to overweight and ESPR to Equal weight while downgraded RPTX to Equal weight and cut CYT, IMRX to underweight after meeting with management teams in San Francisco last month.

 

Healthcare Services & MedTech movers:

·     In managed care, CI 4Q results saw lower revs + investment income + offset by lower tax + MCR and provided by initial EPS guidance of at least $24.60 (vs. $24.78 consensus).

·     In ortho, ZBH reported 4Q results, with revenue of $1.83B (vs. $1.76B cons) and EPS of $1.88 (vs. $1.83 cons). The company provided initial 2023 guidance, expecting reported revenue growth of 1.5% to 3.5%, organic growth guide 3% to 5% and adj EPS of $6.95 to $7.15 (vs. $6.98 cons).

·     In MedTech, TWST shares fell on weaker Q2 rev guidance of $56.5M vs. est. $61.94M.

 

Technology

Internet, Media & Telecom

·     In Internet, GOOGL missed revenue and earnings estimates for Q4, as YouTube reported its second straight decline in ad revenue, falling nearly 8% to $7.96B; said it would take a loss of $4.2 billion, mostly in the first quarter, for restructuring costs.

 

Hardware & Software movers:

·     AAPL posts its first quarterly EPS miss and largest y/y decline since 2016 for Q4, but shares still pare losses despite an iPhone and Mac segment rev misses as CEO Cook said production disruptions lasted through most of December but production now back where we want it to be. Prices fell 3% overnight but rebounded to finish strong.

·     BILL shares tumble, downgraded to Neutral at Both SMBC Nikko and BMO Capital as introduced 2H FY23 guidance materially below expectations – firms noted magnitude of guide down/ F2Q miss on some of the company’s most important KPI’s (core customer adds, TPV customer).

·     TEAM posts 27% Y/Y rev growth topping Street estimates, but disappointingly lowered FY23E cloud revenue guidance by 5 pts and cited further pressure in seat expansion.

·     PCTY reported another quarterly beat and raise as the company continues to deliver impressive revenue and EBITDA growth.

 

Semiconductors:

·     QCOM mixed Q1 results mixed on EPS beat and rev miss and guides Q2 revs $8.7-9.5B vs est. $9.6B, adj EPS $2.05-2.25 vs est. $2.26 saying sees weak handset market persisting through 1H

·     AVGO chief Hock Tan seeks more acquisitions after $69 bln VMware deal – the Financial Times reported https://on.ft.com/3HtGZRf

·     CRUS shares slide despite delivering a strong quarter with upside results and in-line guidance, bucking the excess inventory trends, and midpoint of rev guidance in-line with ests.

·     MCHP reported in-line DecQ and guided MarQ above consensus ($2.18B/$1.57) with top line up ~3% q/q and better than peers NXPI/TXN down 9%/7% q/q. MCHP said continues to see strength into the JunQ, with backlog and lead times improving.

·     SYNA falls on miss and lower guide; Q2 EPS $2.20 vs. est. $2.34; Q2 revs $353.1M vs. est. $365.38M; sees Q3 revs $310M-$340M below consensus $348.8M.