Closing Recap

Thursday, February 09, 2023

Index	Up/Down	%	Last
DJ Industrials	-248.47	0.73%	33,700
S&P 500	-36.26	0.88%	4,081
Nasdaq	-120.94	1.02%	11,789
Russell 2000	-27.26	1.40%	1,915

 

Equity Market Recap

·     Stocks slide with late day sell-off. After trading higher overnight, and holding steady the first hour of trading, US stock markets fade all day as investors watched Treasury yields move back to yesterday highs (10-yr 3.7%) and the Vix move back above the 21 level. Risk assets were mostly for sale all afternoon as Bitcoin, which is still up 32% YTD after a dismal 2022, tumbled over 4% to drop below 22K, while commodity prices were generally lower. Not many places to hide today, not a common statement so far in 2023 as a recent jump in used car prices and some rents (NY hitting highest January on record), both key components in CPI, are weighing on sentiment. The effects of cost cutting measures/job cuts during quarterly results for companies also appear to be losing their luster in stock prices, with Disney erasing more than 8% gains overnight on its cost cutting news to turn negative late day. All eleven S&P sectors finished in the “red” with Communications a top S&P sector decliner as well as Utilities, Financials, and Industrials.

·     Overall, another choppy session for US major averages, as markets fade ahead of key inflation data next week for the next cue on stock direction (we do get UoM data tomorrow morning with inflation expectations). Until we receive CPI next week, this choppy price action is likely to resume as the market is almost entirely focused on what the Fed is going to do on rate hikes. The real problem appears, the Fed doesn’t appear to know what they are going to do given their mixed messages in recent weeks and dependency on data. Economic data over the next few weeks is extremely important. @knowledge_vital noted the market has just about priced out rate cuts this year. YE FF now 4.85%, up ~55bp in less than a week.  And yet the SPX has barely budged in that time, reflecting remarkable resiliency. A great point and amazing given the bond market has pared losses in 2023 with yields climbing this week.

·     An important market factor that has largely gone unnoticed by media (CNBC, Bloomberg) is the rise in daily options expiration, which is garnering a huge amount of market activity and driving volatile stock price action. Zerohedge this morning noted, (citing a Goldman Sachs comment) that "0DTE gamma and daily market structure implications for 6.5 hours or less of trading: 70% of equity notional traded on a daily basis is now options! 45% of SPX options expire in 6.5 hours or less, an all-time high." News quiet today but when this activity slows may see mkt pressure.

 

Economic Data:

·     Weekly Jobless Claims rose to 196,000 in latest week vs. est. 190K (vs. prior week 183K) as the 4-week moving average fell to 189,250 from 191,750 prior week, the US insured unemployment rate rose to 1.2% and continued claims rose to 1.688M from 1.65M prior week.

 

Commodities

·     Oil prices finish lower, but off the worst levels, with WTI crude -$0.41 or 0.52% to settle at $78.06 per barrel ($76.52 was low) as commodities in general were weaker. Brent crude futures settle at $84.50/bbl, down 59 cents, 0.69%. Gold prices fell -$12.20 or 0.7% to settle at $1,878.50 an ounce, with commodities slipping day despite a weaker US dollar. Natural gas prices finish 1.4% higher at $2.430/MMBtu after a weekly EIA storage report showed a large withdrawal that trimmed a bearish storage surplus.

 

Currencies & Treasuries

·     The U.S. dollar slipped vs. rival currencies as markets stay the course on view the Fed will likely not raise rates past the March and May meetings as inflation is starting to get under control. The stance comes despite several Fed participants (Kashkari, Waller) suggesting more rate hikes may be needed for “higher and longer”. A higher-than expected U.S. jobless claims number further compounded the dollar’s losses, suggesting labor market weakness that can help bring down inflation. The next big data point comes Tuesday with the January CPI (consumer price index) where current estimates are for numbers to edge higher than previous month. Bitcoin extending losses today falling 4% at $22K and crypto names following suit with COIN, SI, MSTR, MARA, RIOT tumbling after a strong January performance.

·     Treasury yields end near highs following another lackluster bond auction this week as the US Treasury sold $21B in 30-year notes at a yield of 3.686% above the 3.654% (3.2 bps tail) when issued prior with weak demand at 2.25 with indirect bidders awarded 65.21% and Directs 18.94% and primary dealers receiving 15.84%. The 10-yr yield hit highs above 3.63% (still below yesterday highs of 3.69%) while the 2-yr was up at 4.47%.

 

 

Macro	Up/Down	Last
WTI Crude	-0.41	78.06
Brent	-0.59	84.50
Gold	-12.20	1,878.50
EUR/USD	0.0031	1.0739
JPY/USD	0.15	131.53
10-Year Note	0.041	3.677%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA came into the day on 7-day win streak and up 13 of the last 14 days, now more than doubling off the $101.81 low on January 6^th – continued upward momentum.

·     In auto retail: ORLY reported 4Q EPS of $8.37, vs. consensus of $7.70, on stronger sales & GM, + a lower tax rate while provided its initial outlook for 2023 with sales guidance above the street but margin guidance below.

·     In auto suppliers, BWA is building upon its current 400V inverter business with a major global OEM by now also supplying 800V silicon carbide based (SiC) inverters.

 

Consumer Staples & Restaurants:

·     In food: SJM entered into a definitive agreement to sell several pet food brands to POST in deal valued at approximately $1.2B, consisting of $700M in cash and approximately 5.39M shares of common stock; Kellogg (K) announces earnings beat ahead of planned separation into three publicly traded companies (global snacks, North American cereal, and plant-based food businesses) – sales rose 12% to $3.83B topping the $3.66B estimate while said is now expecting its 2023 EPS to fall 2% to 4% on a currency-neutral basis.

·     In beverages: PEP Q4 profit that beat expectations, a sign that inflation-weary grocery shoppers are absorbing higher prices on beverages and snacks (core EPS $1.67 vs. est. $1.65; Q4 revs $27.996B vs. est. $26.84B; for SAM, Morgan Stanley reiterated underweight rating as lowering FY23 EPS on lower volumes and less assumed pricing into earnings.

 

Retailers:

·     Adidas (ADDY) warned it may report an operating loss of €700m in 2023 and expects currency-neutral sales to decline at high-single-digit rate in 2023 – commentary weighed on NKE and other apparel, shoe retailers.

·     Toy retailer MAT disappoints as Q4 adj EPS $0.18 misses $0.29 consensus and revs fell -22% y/y to $1.4B, below Street consensus $1.68B; guides FY23 adjusted EPS $1.10-$1.20 vs. est. $1.66 and said Q4 gross margin fell 630 basis points to 43%.

·     In luxury retail, TPR profit beat as company raises guidance for FY23 as now expects revenue of about $6.6B and EPS of $3.70-$3.75, ahead of $3.65 consensus. RL rises after Q3 profit ($3.20 vs. $2.92) and revenue ($1.83B vs. $1.76B) beat expectations, with growth in all geographic regions (North America, Europe and Asia revenue all rose 1%) and backed its FY 23 revenue outlook of +13.5%-14%. Watches of Switzerland Group (WOSG) falls overseas as reports slower quarterly revenue growth of 17% vs 27.9% year earlier and said U.S. revenue growth was 22% vs 44.6% year earlier; reiterates full year guidance.

·     In beauty: ULTA tgt raised to $600 from $535 at Oppenheimer saying they continue to see an attractive upside case fueled by favorable category dynamics, benefits from company initiatives, pricing contributions, and continued strong execution.

·     In mattress retail: TPX 4Q EPS above but sales are light ($1.19B vs. $1.22B est.) and guided FY 2023 EPS mid-point miss ($2.60-$2.80 vs. est. $2.76) while raises quarterly dividend to $0.11; PRPL 13.4M share Secondary priced at $4.50.

 

Leisure, Gaming & Lodging:

·     Casinos active after WYNN Q4 revs beat, EBITDA beat, with Macau small miss but impacted – but strength in Las Vegas with beat (similar to MGM) as margins of 37.5% way above Bofa 36.2%. MGM Q4 EBITDAR beat at $957M, topping expectations of $860M by 11% driven by Las Vegas 12% above consensus and the regional market +7%. Same-store EBITDA increased 6% YoY vs. CZR preannounced growth of 10% to 12% (LVS, CZR, MLCO also active). In online gambling, DKNG downgraded to Sell at Roth MKM as expect 1H23E EBITDA losses greater than consensus and reduce investor conviction in DKNG’s profitability narrative.

·     In lodging, HLT Q4 adj EPS $1.59 topped the $1.22 estimate and revs +33% y/y to $2.44B vs. est. $2.37B on better margins; Q4 System-wide occupancy 67% vs. 61.3% y/y, and RevPAR $101.72, +21% y/y, below Bloomberg estimate $103.85; sees FY23 adj EPS $5.42-$5.68 vs. est. $5.60.

·     In towables: (CWH ) – According to preliminary data from Statistical Surveys, BMO Capital notes December North American RV retail registrations declined -30% y/y (U.S. -30%, Canada -39%) to 17,069 units. Registrations declined -10% vs. 2019 (towables -11%, motorized -7%) – said the registrations were below their 20,000 (-18%) estimate but will likely be revised.

 

Homebuilders, Building Products, Home Furnishing:

·     NY rents at $4,097 a month in January, up 15% y/y and the highest January on record – says average rental price $5,142 a month; says number of new leases +8.2% from Dec and vacancy rate at 2.52% vs. 3% average – CNBC.

·     In home improvement: Cowen said they are more cautious into 4Q22 and are lowering FY23 comps & EPS at both HD and LOW as they expect somewhat balanced initial guidance and for both to remain show me stories near-term. We continue to prefer HD to LOW, and despite lowering estimates think FY23 could be better than feared.

·     In building products; MAS 4Q adj EPS $0.65 vs. est. $0.67 on sales $1.92B vs est. $1.94B; guides FY potential for volumes overall to be down low-double-digits with adj EPS $3.10-3.40 vs est. $3.61; AZEK shares jump following its quarterly results.

 

Energy, Industrials, Materials

·     A 46% drop in natural gas prices this year is rippling across the U.S. shale patch, threatening to slow drilling in a move unthinkable six months ago as global demand soared.

·     ACM among industrials hitting 52-week highs today.

·     In chemicals: Wells Fargo said CMA reported ECU margins fell due to lower caustic soda prices, partially offset by better cash costs thanks to lower natural gas prices. Cash cost projections were reduced, which potentially implies upside to estimates for OLN downgraded to Neutral from Buy at UBS with $37 tgt noting the stock has outperformed the market by ~40% since Oct 2022 lows. IFF slides as volumes were weak in December-quarter, and Credit Suisse said margins appear to be the issue in 2023 given solid +6% organic sales guide.

·     In solar: CSIQ tgt raised to $46 from $33 at Wells Fargo saying they are incrementally positive on CSIQ into earnings based on: the recent drop in polysilicon prices, potential US capacity expansion, and good visibility into shipments in 2023-24. Broader Solar names were weaker on the day led by ENPH, SEDG, SPWR, RUN, NOVA.

 

Financials

Banks, Brokers, Asset Managers:

·     European firm Credit Suisse (CS) posted a bigger-than-expected loss for Q4 ($1.4B) and large client outflows, sending hares lower after it posted a fifth-straight quarterly loss.

·     Online broker HOOD posts larger Q4 EPS loss (-$0.19) vs. est. loss (-$0.14); Q1 revs $380M above last year $365M but below consensus $397.1M; Q4 monthly active users, or MAU, decreased 0.8M and said co-founders canceling nearly $500M of share-based compensation.

·     In the “Buy Now, Pay Later” (BNPL) space: AFRM slides as Q1 EPS loss wider than expected and revs $399M misses the $416M estimate while guides Q3 revs $360M-$380M below est. $418M (announced 19% workforce reduction).

·     In crypto: COIN CEO tweeted last night “We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.” Crypto exchange Kraken has agreed to shut down its cryptocurrency staking service and pay $30 million in penalties as part of a settlement with the U.S. Securities and Exchange Commission, the agency said.

 

Insurance & Services:

·     LNC shares slide following earnings as Q4 operating EPS $0.97 vs. est. $1.80, though Q4 revs $4.68B topped consensus est. $4.56B.

·     Financial Services: CDAY 4Q results posted solid upside on revenue and EBITDA, including nearly ~24% y/y growth in "core" Dayforce, roughly ~1.5pts above our JMP estimate.

·     Reinsurer RE among leaders in the S&P after earnings results.

 

Healthcare

Biotech & Pharma:

·     ABBV Q4 adj EPS $3.60 vs. est. $3.56 as revs miss at $15.12B vs. rest. $15.31B; guidance below as sees FY23 EPS adj EPS $10.70-$11.10 below consensus $11.65.

·     AZN posted a swing to Q4 profit, though it reported lower revenue due to declining sales of its Covid-19 vaccine Vaxzervria; operating profit was 9% below consensus driven by inventory write downs and termination fees related to Evusheld, core EPS was 3% ahead of consensus.

·     BAX reported mixed Q4 with EPS miss but sales beat but guide for Q1 and year well below consensus; 1Q EPS expected to be $0.46-$0.50 vs. $0.76 est. and FY23 EPS $2.75-$2.95 vs. $3.53 est. citing ongoing macroeconomic challenges and supply chain headwinds.

·     GLPG shares slide after a Phase 3 trial of filgotinib for Crohn’s disease didn’t meet two co-primary endpoints. Galapagos said it decided not to submit a Marketing Authorization Application in Europe based on the data.

·     VKTX reported 4Q22 OpEx increased 26% to $20.3M driven by expanded clinical development across three programs, cash balance of $155M, and provided a business update.

 

Healthcare Services & MedTech movers:

·     Two M&A deals in Medical Devices/Supplies today: CSII shares jump over 45% as ABT to acquire the medical-device company in a deal valued at $890M, with CSII holders to receive $20 per common share https://on.wsj.com/3RKKIPa . NUVA to combine with GMED as NUVA holders to receive 0.75 shares of GMED for each share held representing a 26% premium based on last night’s close. https://on.mktw.net/3xcxHEK (shares of ATEC, SIBN move in sympathy).

·     ICU shares jump as receives FDA approval to begin study with selective cytopheretic device to reduce hyperinflammation in adults with acute kidney injury.

·     STE shares slide as reported quarterly sales of $1.22B (+1% y/y, +7% organic cc), below consensus of $1.27B reflecting lingering constraints related to electronic components and other supply chain issues/lowered FY23 guidance constant currency organic growth to 7% from 10% previously, and its adj EPS range, $8.00-$8.10 compared to its prior range of $8.40- $8.60.

·     Healthcare Services: HIMS upgraded to Buy at Jefferies saying analysis of app downloads, web traffic and market share suggests momentum in the underlying business remains strong; while the firm downgraded ACCD to Hold saying while there is plenty of whitespace to penetrate in benefit spend, their survey suggests employers may have a limited appetite to add, leading us to believe navigation is more of a nice to have instead of a must have. Hospital operator THC 4Q EBITDA of $897M consistent with messaging over slightly above midpoint of guide while 1Q Guidance was slightly below street, though FY guidance bracketed consensus though closer to top end, with better Ambulatory vs. lighter Hospital segment guide.

 

Technology

Internet, Media & Telecom

·     In media, Dow component DIS announced massive cost cuts and shares were rewarded, saying they will lay off 7,000 people, restructure business into three units to achieve cost savings of $5.5B – followed in-line Q1 revs of $23.5B and EPS beat on theme park strength but lost Disney+ subscribers for the first time coming in at 161.8M vs. 164.2M prior quarter.

·     In “AI” sector: UBS said for GOOGL "Google Live from Paris" event was disappointing. Google failed to directly respond to Microsoft’s integration of ChatGPT into Bing search yesterday. The event put GOOG’s current Catch-22 dilemma on full display.

 

Hardware & Software movers:

·     In software, CRM rose after reports Dan Loeb’s Third Point is the fifth known activist shareholder with a position in the software company’s shares. TOST shares mentioned positively in Barron’s given strong growth and a reasonable valuation. SUMO confirmed it was being acquired by investment firm Francisco Partners, valued at $1.7 billion, Sumo Logic shareholders will receive $12.05 in cash https://on.mktw.net/3RNUf8b ; FROG reported mixed 4Q results, with strong SaaS/cloud growth (+52.7% YoY) and acceleration in revenue from Enterprise+ customers (+58.8% YoY) but revenue miss and weak FY23 guidance. APP surges as 4Q revenue exceeded expectations driven by Software Platform revs, +3% better and roughly in-line 1Q revenue guide.

·     Security software: group rallied yesterday after FTNT results and guidance buoyed the sector; today, RPD reported solid Q4 results amid sustained macro challenges, with ARR in line and total revenue 3% ahead of consensus, but 2023 outlook was below expectations. CYBR reported a mixed 4Q as ARR growth of +45% beat Street by ~3%, although revenue growth of +12% came in below guide and ~3% below Street due to weaker than expected Perpetual License revs. 1Q guidance slightly missed consensus.

·     In optical: LITE guided Q3 revs $430M-$460M, below est. $469M, similar to recent lower guide from comparable co FN which had weighed on the optical space earlier this week.

 

Semiconductors:

·     Philly semi-index (SOX) rises to highs of 3,120 before paring gains – off January lows of 2,489 on 1/3 in strong jump in semis to start the year (NVDA +57% YTD, AMD +32% YTD, ON +39% YTD, SWKS +34% YTD, TSM +31% YTD).

·     AEIS posted upside results for the December quarter, but cyclical weakness in the Semiconductor segment is expected to lower results in 2023. Advanced Energy’s other businesses were healthy including record Data Center sales.

·     MPWR reported in-line results and guidance, as weakness in consumer, PCs, data center, and industrials was offset by strength in automotive and storage.