Closing Recap

Tuesday, February 14, 2023

Index	Up/Down	%	Last
DJ Industrials	-156.14	0.46%	34,089
S&P 500	-1.11	0.03%	4,136
Nasdaq	68.36	0.57%	11,960
Russell 2000	4.11	0.21%	1,945

 

Equity Market Recap

·     Stocks finish mixed with tech leading higher in another volatile day for U.S. stocks. Higher inflation data dented hopes for mkt rate cuts by year end and raised the likelihood of additional rate hikes for “longer and deeper” by the Fed, but the fact inflation eased m/m kept stock mkt buying intact as investors continue to “buy the dip” at any opportunity. After today’s US CPI data, we see that Fed Funds Futures are now pricing in an upper bound terminal rate of 5.5%, up from 5.25%, gradually climbing the last few weeks, but still not denting stock market optimism, with growth sectors technology, discretionary and communications remaining the best performers in 2023. There were several Fed speakers today (Barkin, Harker, Logan, Williams), generally sticking with view that the Fed still has a ways to go to control inflation levels, current levels of inflation remain far too high, biggest surprise has been the jobs market, and wont change 2% inflation target. Still market unphased despite the Fed running out of dovish speakers, and stocks holding not far off the August highs. Volatility/fear index (VIX) anything but, falling 7% below 19, while Treasury yields climb and the dollar flat. Earnings season beginning to slow with most of the big names (ex-retail) behind us. CPI today showed headline prices increased 0.5% month-over-month in January, after gaining 0.1% in December, the Labor Department said and core prices, meanwhile, rose 0.4% month-over-month (both in-line), while headline and core CPI rose slightly above estimates. Tomorrow a read on the consumer with monthly retail sales data as well as NY manufacturing and Industrial Production.

·     Odds that the Federal Reserve will delivery additional 25 basis point interest-rate hikes in May and June have risen following the release of the January consumer-price index, according to the CME’s FedWatch tool. Fed funds futures were pricing in 74.3% odds of a hike in May, a marginal increase from 72% a day earlier. Investors have been pricing in higher odds of additional Fed hikes following surprisingly strong readings on the state of the U.S. labor market and services sector earlier this month. The data have helped convince investors that the Fed would hike rates above 5% and keep them there until at least 2024. Fed funds futures are pricing in higher probability of another hike in June, with odds rising to 48.2% after Tuesday morning’s data, up from 36.1% a week ago. The CPI data released Tuesday showed inflation continued to wane in January, but not as quickly as economists had expected. – Marketwatch.com

 

Economic Data:

·     Consumer Price Index (CPI) for January at 8:30 AM ET: On a headline M/M basis, consumer prices rise +0.5%, in-line with consensus and vs. (-0.1%) prior and on a Y/Y basis prices rise +6.4% vs. est. +6.2% (prior +6.5%). On a core basis, CPI Ex: Food & Energy M/M rose +0.4%, in-line with ests and vs. (prior +0.3%) and rise +5.6% y/y vs. est. +5.5% (prior +5.7%). US Real Avg. Hourly Earnings (Y/Y) for Jan -1.8% (prev -1.5%) and Real Avg Weekly Earnings Y/Y -1.5% (prev -2.6%).

 

Commodities, Treasuries and Currencies

·     Oil prices fell for the 1^st time in 3-sessions with WTI crude down -$1.08 or 1.35% to settle at $79.06 per barrel but finishes off the worst levels of the morning ($77.46). News yesterday that the US would sell more crude from reserves, offsetting a lift from Russian output cuts and rising Chinese demand dented prices. The US is looking to sell 26 million barrels from the Strategic Petroleum Reserve in accordance with a budget mandate enacted in 2015. Inventory data up tonight (API) and tomorrow (EIA). Brent Crude futures settle at $85.58/bbl, down $1.03, 1.19%. Front month Nymex natural gas rose 6.74% to settle at $2.5670 mln Btus.

·     US dollar hits 6-week highs vs. the Japanese yen above 133; the dollar pared losses against the euro at 1.074 after hitting near 2-week highs above 1.08 initially after the CPI report. Gold prices edge higher $1.90 to $1,865.40 an ounce. Bitcoin prices resume upward momentum, rising over 2% topping $22K, strong all day.

·     U.S. Treasury yields rose after the release of the latest consumer price index data, creating conflicting takeaways in the market. Yields initially fell (10-yr 3.62% lows) before ramping higher (touched 3.8%), before settling around 3.75%, highest levels of 2023 reflecting market expectations that the Fed keeps interest rates higher for longer. Two-year yields rose to 4.583%, their highest since early November.

 

 

Macro	Up/Down	Last
WTI Crude	-1.08	79.06
Brent	-1.03	85.58
Gold	1.90	1,865.40
EUR/USD	0.0016	1.0736
JPY/USD	0.62	133.02
10-Year Note	0.044	3.763%

 

 

Sector News Breakdown

Consumer

Staples & Restaurants:

·     Dow component and beverage giant KO forecasts 2023 profit above Street estimates on higher prices and steady demand (to rise between 4%-5% vs. est. 2.95%) after Q4 revs rose 7% y/y to $10.13B vs. est. $10.2B; qtrly global unit case volume fell -1% for Q4 and grew 5% for full year.

·     In restaurants: QSR misses on profit but revenue tops forecasts – revenues beat but EBITDA missed ($588m vs street $607m) what appears due to investment. DENN results included 4Q22 comp store sales growth that was consistent with previously announced levels and adjusted EBITDA slightly above the top end of its guidance range.

 

Retailers:

·     In off-price retail, Cowen raises price tgts for TJX (PT to $88 from $85), ROST ($126 from $103) and BURL ($236 from $177) saying checks suggest trends across Off-Price post-holiday are strongest for TJX, specifically at MarMaxx, and with a very favorable buying environment. They raised their comp store sales and EPS estimates. Bank America said BURL well-positioned for margin improvement in F23, driven by the unwind of freight and leverage on better sales.

·     Specialty retail: BBWI tgt raised to $55 from $46 at Deutsche Bank in conjunction with 4Q above consensus preview, saying they remain positive and see a path for multiple expansion as the company takes actions to improve profitability through merchandise margin efforts, expense reductions, and store rationalization.

·     Bank America leisure spending checks: Sporting goods (ASO, DKS) spending declined 6.4% in January, a deceleration from -4.1% in December. Golf courses spend (MODG) accelerates y/y (likely due to more favorable weather in January vs. December). Fitness club spending remains down on a 3-yr basis (PLNT). Theme parks spend is up significantly on a 3-yr basis.

 

Autos, Leisure, Gaming & Lodging:

·     In lodging, MAR posts better results as Q4 Adjusted EPS $1.96 vs. $1.30 y/y and above estimate $1.83 EPS while revs rose 33% y/y to $5.92B vs. est. $5.48B; Worldwide RevPAR in constant currency $113.83, +25% y/y, vs. estimate $114.65 (HLT, H, CHH, WH, ABNB); ABNB reports earnings tonight along with TRIP in travel/lodging.

·     In autos: Ford (F) announces plans to cut 3,800 jobs in Europe. Separately, Ford halts production and shipments of its electric F-150 Lightning due to potential battery issue. TSLA massive outperformance on new news, just continued market upside momentum as shares jumped over 7% topping the $209 level late day (more than double off 2023 lows).

 

Energy

·     Energy stocks gained after OPEC raised its 2023 oil demand forecast by 100,000 barrels per day from last month’s expectations, citing reopening of Chinese economy after relaxation of COVID restrictions and stronger prospects for world economy. In Oil equipment and services, TELL downgraded to Underperform at Bank America and cut tgt to $1.50 as their outlook for 2023 is dimmed by depressed natural gas prices and an increasingly uncertain future for the company’s Driftwood LNG (liquefied natural gas) export facility.

·     In coals & utilities: FE Q1 adj EPS $0.50 vs. est. $0.53; sees 2023 earnings guidance of $2.44-$2.64 per share for the full year vs. est. $2.44; CMS positive mention at BMO Capital after mgmt meeting which reinforced their view that CMS is well positioned to not only meet its 2023 outlook, but also be near the top end of its 6-8% long-term growth rate. EXC reported Q4 revs above consensus, raised dividend, and guided year EPS mid-point in-line. BTU shares jump following earnings results lifting other coal stocks (ARCH).

·     Solar: SEDG posts top and bottom line Q4 beat as BMO Capital said prior headwinds (FX, supply chain) improved, but whisper numbers with respect to gross margins/ASPs may have been higher among buy side compared to consensus; FSLR downgraded from Outperform to In Line at Evercore/ISI saying the co has been the major beneficiary of the announcement of the Inflation Reduction Act and has outperformed, but shares have topped their price tgt.

 

Financials

Banks, Brokers, Asset Managers:

·     SCHW said January total client assets $7.48t, -4.1% y/y and up 6% q/q. Core net new assets brought to the company by new and existing clients totaled $36.1B; net new assets excluding mutual fund clearing totaled $34.8B; billion. Client cash as a percentage of assets was 11.6% as of month-end January, compared with 11.3% in January 2022 and 12.3% in December 2022.

·     Crypto bank SI shares jump after Hedge fund Citadel reports owning ~1.7 mln SI shares as of Dec 31, worth ~$25 mln based on stock’s Mon close, according to the SEC filing.

 

Bitcoin, FinTech, Payments:

·     Bank of America aggregated credit and debit card data shows online spending fell 2% year over year in January (AXP, COF, MA, SYF, V).

·     FIS was upgraded to overweight at Morgan Stanley and tgt raised to $79 based on a greater M&A focus, likely de-risked numbers, compelling valuation, and a more favorable VC backdrop.

 

Healthcare

Biotech & Pharma:

·     BCYC shares halted- announces Phase I dose escalation results from ongoing Phase I/II Study of BT8009. 50% overall response rate (ORR) and 75% clinical benefit rate, including one complete response in urothelial cancer at the 5 mg/m2 dose on an intent-to-treat (ITT) basis.

·     FUSN rises after saying it will acquire from RadioMedix Inc, drug candidate targeting certain types of prostate cancers.

·     SNGX receives refusal to file letter from U.S. FDA for HyBryte™ New Drug Application in the treatment of cutaneous T-Cell lymphoma.

·     ZTS guides to FY23 operational growth 6-8% vs. “5-8%” range and est. ~8%; ’23 EPS guide of $5.34-5.44 brackets consensus at $5.40 and re guide above $8.575 – $8.725B vs est. $8.56B.

 

Healthcare Services & MedTech movers:

·     In MedTech, Deutsche Bank notes they expect MDT’s Aurora extravascular (sub-sternal) ICD to be approved by mid-CY23, at which point BSX will be facing competition for its crown-jewel S-ICD franchise for the first time (estimate that Emblem S-ICD represented about 19% of total HV units and 24% of total HV revenues in 2022). PKI posted Q4 beat; FY guidance is light vs consensus but assumes no contribution from Covid-related revs – so likely not same comparison.

·     In Services: OM shares fall Q4 updates were broadly incremental vs 4Q pre-announcement and already-provided ’23 guide. MEDP posts Q4 EBITDA above expectations on revenue beat, FY23 guidance midpoint above consensus.

 

Industrials & Materials

Transports

·     CAR 4Q adj EPS $10.46 vs est. $6.79 on revs $2.77B vs est. $2.69B; EBITDA $658M vs consensus $506.9M; says Q4 demand was strong with commercial business performing well above 2019 levels, and the leisure segment continuing its strong performance.

·     XPO downgrade from Outperform to In Line at Evercore/ISI and cut tgt to $35 PT based on a new 2024 EPS estimate (but incorporates the same multiple), no longer fully compensates for risk associated with executing a new LTL strategic plan amid severe macro headwinds.

·     Two railroad derailments in the last 2-weeks not getting much media attention: NSC fell to 3-month lows – the company noted yesterday in an update that they are still cleaning up hazardous materials from a Feb. 3 train derailment in East Palestine, north of Pittsburgh. Five of the derailed cars in East Palestine were carrying the chemical vinyl chloride, a type of gas. Yesterday CSX announced a derailment in South Carolina.

 

Industrials, Aerospace & Defense

·     EMR downgraded to Hold from Buy at Argus noting shares have underperformed the broad market over the past quarter, falling 9% while the S&P 500 has risen 9% and the co recently reported fiscal 1Q adjusted EPS that declined 1% from the prior year and fell short of ests.

·     In Aerospace: Dow component BA rises after Air India to purchase 220 Boeing airplanes with a list price of $34 billion which includes 190 737 MAXs, 20 787s, and 10 777Xs. Air India has options for an additional 50 737 MAXs and 20 787s. Aero supplier HWM guided FY23 EPS $1.53-$1.67 below est. $1.73 after in-line Q4 results.

 

Materials, Metals & Mining

·     In metals: CLF Q4 EPS loss (-$0.41) wider than est. loss (-$0.30); Q4 revs of $5.0B miss est. $5.19B; Q4 adjusted EBITDA was $123M vs. $1.5B y/y. In gold miners, NEM downgraded to Neutral from Buy at UBS on balanced risk/reward skew as gold prices have rallied, the Newcrest bid represents dilution risk, and expect limited upside catalysts on NEM’s 2/23 earnings report.

·     In packaging and paper: SON upgraded to Buy from Hold with $67 target at Argus which reflects the company’s strong 4Q results and positive 2023 guidance.

 

Technology

Internet, Media & Telecom

·     In online/Internet: INST reported Q4 results topping across metrics and gave guidance for 2023 that was roughly in line with consensus for revenue, and slightly above consensus on profit.

 

Hardware & Software movers:

·     Software: PLTR rises after saying it was profitable for the first time in the fourth quarter and expects 2023 to be its first-ever profitable year – 4Q adj EPS $0.04 vs est. $0.03 on revs $508.6Mm vs est. $502.3Mm; guides 1Q revs $503-507Mm vs est. $520Mm. CDNS beat the Street’s 4Q22 estimate and management guided 2023 revenue to be up 12-14%, well above the consensus estimate of ~10%.

·     Networking and Comm: ANET reported 4Q22 results that exceeded consensus estimates and reit. 2023 revenue growth at +25% y/y) – Q4 rev growth of 55% is the second consecutive quarter that growth exceeded 50%.

·     In Digital IT Services: JPMorgan said they remain cautious going into Digital IT Services earnings (EPAM, GLOB, GDYN) as weak near-term demand for project -based services, a shift toward cost-cutting projects that aren’t this group’s forte, and need for conservatism could keep CY23 growth guidance below Street expectations.

 

Semiconductors:

·     Semis outperformed broader technology, as the Philly index (SOX) traded above 3,100, rising over 1.6% late day paced by gains in NVDA, AMD, LSCC, ON, and equipment names.

·     AMKR Q4 sales of $1.91B topped the $1.85B estimate but guided Q1 sales $1.4B-$1.5B below the $1.56B estimate; Q4 EPS missed consensus.

·     For iPhone suppliers (AVGO ), Keybanc said results from their monthly carrier survey and Key First Look Data indicate better-than-seasonal sell-through (-34% m/m vs. seasonality of -47% m/m) of iPhones during January benefiting from improving supply and pent-up demand for iPhone Pro/Max due to November/December shortages.

·     GFS Q4 revenue of $2.1B slightly above $2.08B estimate and adj EPS of $1.44 better while forecasts Q1 revenue to be in the range of $1.81B-$1.85B vs. est. $1.83B.

·     LSCC reported strong 4Q results, which were slightly above expectations, and 1Q guidance, which beat. Strength was attributed to design wins ramping in auto and industrials, which offset weakness in data center.

·     NVDA tgt raised to $255 from $215 at Bank America saying the AI arms-race lead could 4x data center sales in next 5-yrs. NVDA’s full-stack of accelerated silicon/systems/software/developers positions it uniquely to lead the nascent generative AI arms-race among global cloud and enterprise customers. Reiterate Buy, a top compute pick.