Closing Recap

Wednesday, February 22, 2023

Equity Market Recap

·     U.S. stocks sunk initially, with the S&P 500 index touching just above its 50-day moving average support of roughly 3,980 (note its 200-day MA is lower at about 3,950), before bouncing ahead of the FOMC February policy meeting minutes which were released at 2:00 PM ET. A pullback in Treasury yields also helped ease concerns initially, with the 10-yr dipping under 3.9% after earlier highs above 3.97% (most in about 3-months). But stocks leveled off following the FOMC minutes (see details below), pulling back off highs as the S&P once again battled and failed below the 4,000 level ahead of a busy upcoming two days of key economic data, earnings, and Fed speakers which include GDP, jobless claims, and PCE inflation data.

·     U.S. stocks had shed more than 2% on Tuesday after a rebound in business activity in February stoked fears of interest rates staying higher for longer. Earlier this morning, St. Louis Fed President James Bullard, who advocated for a half-point increase at the Fed’s last session, said on CNBC that the U.S. central bank needs to get inflation toward its 2% goal this year to avoid its prolonged impact. New York Fed President John Williams, a voting member of the rate-setting committee this year, is scheduled to speak later. Big night of earnings in the tech space with NVDA in the semiconductor space, along with EBAY, NTAP, and ETSY. Oil prices fell by $2 per barrel to their lowest in two weeks on Wednesday, as investors became more concerned that recent economic data will mean more aggressive interest rate increases.

Minutes from the February FOMC meeting:

·     Federal Reserve officials saw slowing inflation supporting an approaching peak in the federal-funds rate this year and emphasized their data-dependent stance, minutes from their latest policy meeting showed on Wednesday afternoon. The FOMC opted to raise the federal-funds rate by 25-bps at its most recent meeting ending Feb. 1, after a series of much larger increases—three, 75-bps hikes last year. The meeting, however, ended before January jobs and retail sales data came in hotter than expected as well as higher inflation data points (CPI, PPI) last week. Traders have responded to those data points by pushing higher futures pricing of the peak in the fed-funds rate later this year.

Sector News Breakdown

Top movers and stock stories

·     LZB reported Q3 EPS and sales above expectations, with +23% delivered comps as the retail segment written same-store sales accelerated to +3% (from -10% in 2Q) – hits 52-week highs.

·     LAZR shares jumped after company announces broad deal across next-generation production vehicle lines with Mercedes Benz.

·     In casinos: CZR reported a wider than expected Q4 EPS loss while revs grew y/y topping ests as Caesars Las Vegas and regional properties each set a new 4Q record for Adjusted EBITDA

·     In restaurants: WING shares outperform after Q4 results topped views and backed its three-to-five-year outlook and set plans to open 240 locations this year. It currently has nearly 2,000.

·     In homebuilders: TOL shares outperform on better Q4 results; industry though sees weaker weekly mortgage data as US MBA said mortgage market index falls 13.3%, purchase index falls 18.1% and refinancing index declines 2.2% as the 30-yr rate rose 23-bps to 6.62%

·     In energy: FANG a leader in the S&P after earnings results while RIG falls in drilling space on larger than expected EPS loss.

·     In crypto: COIN reported 4Q22 revenue ahead of the Street ($629.1M vs. Street $589.0M) led by subscription and services revenue ($282.8M vs. Street $239.6M) – Q4 EBITDA upside vs. Street primarily on lower-than-expected expenses.

·     AIG downgrade from Overweight to Neutral at Atlantic Securities based on slowing premium growth (which was negative in 4Q22), ongoing profitability issues in Consumer P&C, negative operating leverage given slowing premium growth, and recent strong outperformance.

·     CSGP slides as FY23 EBITDA guidance came in ~33% below consensus due to increased organic investment – 2023 profit guidance that was well-below consensus on the expectation for a material step up in resi-related investment spend.

·     CRL slides after disclosing it received a subpoena relating to an ongoing DoJ investigation into the supply chain for research primates and have voluntarily suspended shipments from Cambodia.

·     WSC reported better than expected 4Q results and introduced 2023 guidance in-line to slightly higher than consensus.

·     BMRN shares fall after being downgraded to Perform from Outperform at Oppenheimer saying they recently commissioned surveys of European and US hematologists to gather their perspective on Roctavian as its EU rollout commences in Germany.

·     In metals: AA upgraded to Buy from Neutral at Citigroup with a price target of $65, up from $55, citing an upgraded and bullish view on aluminum from the firm’s global commodity team

·     In semi’s: INTC said it will cut the quarterly dividend to $0.125 per share, or 50 cents annually as part of its strategy to improve capital amid uncertain times.

·     In Internet: BIDU Q4 EPS $2.21 vs. est. $2.00; Q4 revs $4.8B vs. est. $4.65B; announces $5B share repurchase program; non-online marketing revenue rose 11% to 7.6 billion yuan, driven by AI and cloud businesses.

·     In Telco: CMCSA sold more shares in digital media Co $BZFD, cutting its BuzzFeed stake by ~522k shares over the past few days to 15.5% from 15.9% prior, according to SEC filing Tuesday.

·     In towers: SBAC Q4 results were better vs. expectations for net organic growth, adj. EBITDA, and AFFO but 2023 guidance was in line to slightly below.

·     In security software: PANW shares rise after F2Q product, billings, next gen security (NGS) ARR, RPO, FCF, and EPS all beat, while total revenue was in line. FY23 billings, NGS ARR, FCF, EBIT, and EPS were all guided higher.

·     Other software: SPT delivered upside to ARR and profit metrics because of increased traction in the Salesforce partnership and recent pricing initiatives, according to Stifel; WK posted a solid finish to the fiscal year, topping the bar on the quarter and introducing a better-than-expected FY23 subscription revenue trajectory implied in their guide; KEYS tumbles on guidance.