Closing Recap

Monday, January 09, 2023

Index	Up/Down	%	Last
DJ Industrials	-112.66	0.33%	33,517
S&P 500	-2.98	0.08%	3,892
Nasdaq	66.36	0.63%	10,635
Russell 2000	3.12	0.17%	1,795

 

Equity Market Recap

·     Stocks finish mixed as strength in technology led the Nasdaq higher, but weakness in healthcare offset, with the S&P finishing little changed on the day, erasing strong gains. Stocks initially picked up where they left off Friday, as recent U.S. data led investors to pare Fed rate hike bets with stocks higher and the dollar lower. Following the 2-day surge in equities (heading into CPI data on Thursday) S&P futures hit 3,970, topping its 100-day MA 3,892 and 50-day 3,918 – and quickly approaching its 200-day MA resistance around the 4,000 level. Stocks got a late morning boost as Treasury yields slid to lows (10-yr lows 3.51%) after Fed inflation expectations headlines boost sentiment again: December one-year ahead expected inflation at 5% vs November 5.2% (lowest since July ’21). Risk higher overnight globally as China re-opening drives equity and commodity complex as Materials, Energy, and Industrials outperform. Technology and Consumer Discretionary the big winners today while Healthcare, Energy and Staples slipped. Key items this week include Fed Chairman Powell speaking Tuesday, CPI inflation reading Thursday, & University of Michigan on Friday – and bank earnings Friday as season gets underway. Comments from two Fed speakers’ late morning (Bostic and Daly) weighed on sentiment. Heavy dose of guidance/outlooks in the Healthcare and Retailing sectors with several co’s issuing guidance ahead of 41st JPM Healthcare Conference and ICR 2023 Retail Conference in Orlando taking place this week. M&A activity plentiful, with at least 3 mergers announced in the biotech sector (ALBO, AMYT, CINC), as well as deal in the FinTech space (PAYA), and Software sector (DCT).

·     Fed’s Daly says wage growth coming down is completely consistent with labor market slowing; notes most Fed policymakers say inflation is more persistent than thought; notes core services inflation (ex: shelter) has not shown its coming down (these headlines weighed on stocks); said the Fed shouldn’t declare victory based on one month of data; said 25 and 50 bps interest rate hikes are both on table for next Fed meeting; for inflation, sees PCE closer to 2% by end 2024, at 2% early 2025 and in low 3% range end of 2023. Atlanta Federal Reserve Bank President Raphael Bostic also commented on rates, saying sees 5%-5.25% range, with base case for 2023 is GDP growth of 1%, no recession.

 

Economic Data:

·     U.S. households see weaker near-term inflation and are expecting notably less spending, even as they foresee their incomes continuing to rise, the New York Fed said in its December Survey of Consumer Expectations. The bank reported that respondents to its monthly survey said they see inflation a year from now at 5%, from 5.2% in November, for the lowest reading since July 2021. Meanwhile, respondents’ expectations for inflation three years from now were unchanged at 3% while projections of inflation in five years’ time stood at 2.4%, up from 2.3% in November.

 

Commodities

·     Oil prices finish higher, as WTI crude gains $0.86 or 1.17% to settle at $74.63 per barrel as expectations of a recovery in Chinese demand drove oil prices higher whereas the dollar extended Friday’s decline on expectations the Federal Reserve will slow rate hikes. The rally followed a drop last week of more than 8% for both oil benchmarks, their biggest weekly declines at the start of a year since 2016. Brent crude futures settle at $79.65/bbl, up $1.08, 1.37%

·     Gold prices hit an eight-month high, rising $8.10 or 0.4% to settle at $1,877.80 an ounce, boosted by a drop in the dollar to 7-month lows after recent U.S. economic data raised hopes for slower rate hikes from the Federal Reserve going forward. China’s Gold reserves rose to $117.235bn in December, rising for the second straight month, after increasing its holdings by 30 tons in December.

 

Currencies & Treasuries

·     The U.S. dollar index (DXY) slid to seven-month lows around the 103 level, as markets price in slower Fed rate hikes into key inflation data this week (Dec CPI on Thursday). The euro jumped above 1.07 vs. the greenback, its highest versus the greenback since June 9 and adding to Friday’s 1.17% increase. Sterling hits 3-weke highs above 1.22 vs. the buck. After posting strong 2022 returns overall, the US dollar tumbled in Q4 for its biggest quarterly loss in 12 years on rising expectations that the Fed will not raise rates beyond 5%, from its current range of 4.25%-4.50%, as inflation and growth cool. Bitcoin rises a 6^th straight session, up over 2% at $17,325.

·     Treasury yields lower across the curve as the 10-yr was down 5-bps to 3.52% and 2-yr down -6-bps to 4.20% as bond market continues to discount a lower interest rate cycle from Fed. In January thus far we have seen weak economic news, including slowing wage growth, the ISM service index slipped into a contraction after expanding for 30 months and decelerating consumer-price inflation due largely to moderating rental and housing costs. We have also seen a steady decline in house prices and growth.

 

 

Macro	Up/Down	Last
WTI Crude	0.86	74.63
Brent	1.08	79.65
Gold	8.10	1,877.80
EUR/USD	0.0105	1.0749
JPY/USD	-0.51	131.56
10-Year Note	-0.059	3.512%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA positive mention in Barron’s saying it’s time to buy Tesla shares given growth prospects that remain robust, the company’s 10-year lead in EVs, and a cheap valuation

·     AZO assumed/upgraded to Buy ($2,735 tgt), AAP and ORLY (tgt to $925 from $893) assumed Neutral and Buy, respectively at Guggenheim in auto retailers noting that the near-term absolute performance could be limited in both AZO & ORLY due to current valuation levels

 

Retailers:

·     LULU said it sees Q4 revs in the range of $2.66B-$2.7B, representing a 25%-27% increase y/y and above prior view of $2.605B-$2.655B; said it now expects gross margin for Q4 to decline 90-110 bps compared to its previous expectation for an increase of 10-20 bps

·     Macy’s (M) preannounced 4Q sales at the low-end to midpoint of the previously issued guidance, implying sales declined 4.5-6.0%. Non-holiday weeks underperformed as inflationary woes crimped spending.

·     ANF raises its holiday-quarter sales forecast on strong demand for its brands during the peak holiday selling period; sees Q4 sales up 1%-2% vs. prior view for 2%-4% fall and sees Q4 operating margin between 6% and 8%, up from previous range of 5% to 7%

·     AEO said sees Q4 revs and profit tracking at the high end of guidance; Q4 gross margins are now expected to be on high end of company’s guidance of 32-33%

·     BABA rises on news that co-founder Jack Ma is ceding control of affiliate company Ant Group Co., potentially paving the way to revive plans for an initial public offering by the fintech giant

·     CHS cuts Q4 EPS view to (2c)-0c from $0.07-$0.10 prior

·     ELF downgraded to hold from buy at Jefferies saying risk-reward is balanced for the cosmetics company against an uncertain macroeconomic backdrop

·     FIVE said it sees 4q, FY results near high end of guidance range

·     TLYS lowered its 4Q loss per share forecast, as misses estimates

·     ZUMZ total net sales decreased 22.2% for nine-week period ended December 31, 2022, compared to nine-week period ended January 1, 2022; sees 4q EPS in mid to high end of $0.36 to $0.51 and Q4 sales slightly above high end of $258M to $268M

 

Leisure, Gaming & Lodging:

·     MAR, HLT downgraded from Buy to Hold at Jefferies saying it should be self-evident that with most aspects of the recovery played out and the looming recession, the upside to earnings and valuation for bellwether stocks is limited

·     UBER upgraded to overweight at Piper and downgraded DASH to underweight, recommending a pair-trade between the two as it favors ride-hailing over delivery in 2023

·     RBC reduced ests for online travel names ABNB, BKNG on weakening bookings trends; Q4 bookings for 2023 stays tracking below; bookings down-ticked vs. last round of checks with the biggest change being hearing chinks in the armor of higher-end properties & locales

·     THO upgraded from Underperform to Neutral at Davidson and raised tgt to $85 from $65

 

Homebuilders, Building Products, Home Furnishing:

·     TOL upgraded to Outperform at Raymond James in homebuilders and downgraded DHI saying homebuilding "Hope Trade" works again, but leaves some builders at mid-cycle multiples (builders outperforming the S&P by 17%+ points since 10/21)

·     ARHS guides Q4 revs to $351-356M vs est. $315.0M saying demand comps accelerated from MSD through Nov to ~10% for the qtr. (watch shares of

·     ZG upgraded to Buy from Underperform at Bank America and up tgt to $42 from $22 saying Real Estate trends should trough in early 2023 and return to growth in 2024 and estimate ZG EBITDA doubles from 2023 to 2025

 

Energy

·     Oil extended gains, rising more than 3% after China’s move to reopen its borders boosted the outlook for fuel demand and overshadowed global recession concerns

·     CRK and PXD both downgraded to Sector Weight at KeyBanc

·     KeyBanc lowers 2023 natural gas deck and mark to market Q4’22 estimates saying a volatile, but ultimately mild, winter to date is not supporting natural gas demand as they await an LNG export ramp in late ’24. Trim our 2023 natural gas outlook by $0.75 to $4.75.

·     Bank America said SLB, FTI, GTLS (still) favorites in oil equipment and services space while upgraded HP to Buy and CLB to Neutral – for HP given relative preference for US rig exposure over frac, and CLB on the heels of our more positive Int’l outlook

·     Utilities: Mizuho said top picks are DTE, CMS, XEL, and CNP into earnings while they are cautious on DUK and D noting utilities outperformed the S&P500 Index by ~17% in 2022, and with the forecasted macroeconomic backdrop for 2023 pointing to slow-to-negative growth and rising interest rates think it will be difficult for utilities to outperform the broader market again

·     Morgan Stanley said it expects utilities sector to outperform the market in 2023, driven by a reverse of the 2022 factors and an increase in earnings per share. It raises British National Grid from EW to OW and downgrades Italian Enel and ERG, Spanish Endesa, CEZ, and E.ON all to UW

 

Financials

Banks:

·     GS is embarking on one of its biggest rounds of job cuts ever as it locks in on a plan to eliminate about 3,200 positions this week, Bloomberg reported this weekend

·     Reuters reported a group led by the management of Canaccord Genuity Group Inc said it would launch a takeover bid for the Canadian financial services company, valuing the firm at nearly C$1.13 billion ($845 million). The offer price of C$11.25 per share marks a 31% premium

·     Ahead of earnings KBW recommends investors take an overweight position in WFC, HWC, BRKL, PFS, and IBTX, and take an underweight position in BAC, and pair ONB against UMBF saying markets expect strong year-over-year NII growth and still-benign credit trends in 4Q22, but also accelerating deposit betas

·     UBS lowered 2024 EPS estimates for the brokers (SCHW, MS, GS) and M&A boutiques by -3%, on average, with downward revisions directionally consistent across the group

·     Swiss National Bank on Monday estimated it will lose 132 billion francs ($143 billion) for 2022, reportedly the largest in its history.

 

FinTech, Payments:

·     PAYA agreed to be acquired by NVEI for $9.75 a share in a deal valued at $1.3 billion  https://on.mktw.net/3k4q1AQ

·     Visa (V), MA, IIIV all upgraded at Keybanc while firm downgraded PYPL, FIS, and Adyen in FinTech saying Embedded Finance is re-shaping the value chain, prompting a thesis refresh that favors key ideas such as SQ on underappreciated growth durability and profitability upside, while see new payment flows extending the growth runway at V and MA. Said the accelerated pace of industry change also creates market-related fundamental uncertainty for FIS as see embedded payments gaining notable share in FIS-heavy restaurant/retail verticals and at PYPL

·     Goldman Sachs continues to favor a defensive posture within Payments into as upgrades FOUR to Buy from Neutral given valuation support off the back of their gateway conversion strategy; upgrades NVEI to Buy from Neutral on a similar notion of valuation support; downgraded PAY to Sell from Neutral given inflationary impacts on transaction margins and the potential for further implementation delays and upgrades RSKD to Neutral from Sell following underperformance

·     FISV, PAY, and TASK downgraded to UW from EW in Payments, Fintech & IT Services at Wells Fargo saying they think ’23 will be more challenging fundamentally for coverage vs. ’22. Firm said thematically, prefer best-in-class "share gainers" and/or profitable growth companies at a reasonable price (highlight FLYW, SQ, SHOP, BILL, TOST, V, MAand PYPL).

 

REITs:

·     EXR upgraded to Outperform from Market Perform (TP $170) at Raymond James, downgrade PSA to Market Perform from Outperform, and reiterating our Strong Buy rating on CUBE, Outperform rating on LSI and Overweight rec on the self-storage REIT sector

·     GLPI, NNN, NTST and VICI downgraded one notch to Outperform from Strong Buy, O and SRC downgraded to Market Perform from Outperform in Net Lease REITs at Raymond James. Net-lease was the top performing sector among the REITs in 2022 and we expect continued strength in 2023 as investors take a more defensive posture given the macro headwinds.

·     WELL was upgraded to Strong Buy from Outperform at Raymond James and raising Healthcare REIT sector recommendation to Overweight. Also reiterate our Outperform rating on VTR

·     Credit Suisse a handful of changes in REIT sector: downgraded EQR, INVH, KIM, DEI, MAA to Neutral from Outperform, OHI cut to underperform

 

Insurance & Services:

·     Goldman Sachs said in 2023 Outlook they are becoming more selective as tailwinds decelerate as they downgraded HIG to Neutral, MET to Neutral, and PRU to Sell while saying they favor personal lines insurers. Top Ideas: AIG, WRB, ALL, MMC, RYAN, EQH, VOYA.

 

Healthcare

Biotech & Pharma:

·     ALBO agreed to be acquired by France’s Ipsen for an initial $952M, as Ipsen said it agreed to pay $42 a share in cash upfront for Albireo https://on.mktw.net/3irXYuY 

·     AMYT agreed to be acquired by Italian healthcare group Chiesi Farmaceutici S.p.A. for up to nearly $1.5 billion, which agreed to pay an initial $14.50 in cash for each American depositary share of Amryt, which each represents 5 Amryt ordinary shares, roughly 107% above Friday’s closing price https://on.mktw.net/3IzqCEV 

·     AZN agreed to buy CINC, acquiring global rights for baxdrostat cardiorenal drug for an upfront transaction value of around $1.3 billion, with holders to receive $26 a share in cash at closing and a non-tradable contingent value right (CVR) of $10 a share in cash https://on.mktw.net/3GsUVKK 

·     BAX tumbles s Healthcare remains a big drag – shares hitting lowest levels since January 2017 – note JPM, Bofa and MSCO have all downgraded shares the last few weeks noting challenges on both the top and bottom lines have continued to worsen

·     BMRN said Roctavian reduced the annualized rate of bleeding in patients with hemophilia A by 80% in a 3-year study; said 92% of patients weren’t taking prophylactic treatments three years after they received Roctavian

·     CALA plunges after board approves company liquidation and dissolution

·     CHRS to buy exclusive U.S. commercial rights to REGN’s Eylea biosimilar FYB203 from Klinge

·     CVAC extends Friday’s gains after saying preliminary data from its early-stage trial for its COVID-19 and seasonal flu shots had positive results to advance to the next stage of clinical testing

·     DAWN said it saw positive topline results from an ongoing Phase 2 trial evaluating the investigational agent Tovorafenib and said additional data will be submitted in Q2’23

·     EBS said it will reduce its workforce by about 5%, or 132 roles, and do away with the positions, saving over $60 million in annual costs when fully implemented

·     ILMN and hospital operator Nashville Biosciences enter sequencing agreement with AMGN

·     IONS and Royalty pharma enter into $1.1 billion royalty agreement for Spinraza, Pelacarsen

·     IRWD guides 2023 revenue $420M-$453M vs. est. $439.4M

·     REGN shares slide forecasts eye drug sales of EYLEA below estimates at $6.26B for the full year 2022, vs mean Refinitiv estimate of $9.27B and U.S. net product sales of Eylea at ~$1.5B for Q4 2022, vs mean estimate of $2.4B

·     VYGR rises after forming a new strategic collaboration with NBIX to advance multiple gene therapies for the treatment of neurological diseases, in which VYGR will get an upfront consideration of $175 million.

 

Healthcare Services & MedTech movers:

·     CNC said sees ‘soft’ membership in Medicare Advantage while Strong performance in ACA Marketplace (ELV, HUM, CI, MOH active on headlines)

·     CUTR falls after guiding year rev guidance to $252-$253M, below prior view $255M-$260M and vs. est. $259M

·     CVS reaffirmed its estimated full-year 2022 adj EPS and expect total Medicare advantage membership growth to be in the low to mid-single digit percentage range in 2023; entered a $2.0 fixed dollar accelerated share repurchase transaction

·     DXCM guided Q4 revs to be at least $815B, up 17% y/y and 20% on an organic basis

·     EXAS reports preliminary Q4 revenue $550.7M-$552.7M vs. $506.48 est.

·     QDEL guides Q4 revenue $853M-$868M vs. est. $753.63M and said COVID-19 product revenue is expected to be in the range of $124M-$134M

·     SYK upgraded to OP from Sector Perform at RBC and up tgt to $284 from $240 as see potential tailwinds that could position the company to deliver upside to sales estimates

 

Transports, Industrials & Materials

·     AYI Q1 adjusted EPS $3.29 vs. est. $3.00; Q1 revs $997.9M vs. est. $984.46M

·     CMC Q1 sales $2.23B vs. est. $2.19B; Q1 adj EPS $2.24 vs. est. $1.94

·     GE rises a 7th straight day following recent spin-off of its Healthcare unit (GEHC)

·     MOS downgraded to Underperform from Outperform at Credit Suisse

·     OI upgraded to OW at Wells Fargo but overall, are biased to be cautious on the Containers & Packaging sector for 2023; embedding a shallow, but protracted, recession in 2023

·     Defense stocks NOC, RTX, LMT weaker – comes on heels of House Speaker McCarthy late Friday reportedly committed the House leadership to seek cuts to FY24 discretionary spending, including defense, to return it to FY22 level

·     Trucking and Freight changes at Morgan Stanley as upgraded LSTR, SAIA to EW from UW, and raised GXO to Overweight from EW and upgrading Industry View to In-Line saying after a 12-15-month de-stocking driven downcycle, see signs of bottoming that can potentially lead to inventory normalization by mid-2023 and perhaps drive an upcycle in 2H23.

·     Susquehanna not as positive on Trucking sector, downgraded Sector to Neutral and downgrading JBHT, WERN, KNX, SNDR, SAIA, and TFII to Neutral from Positive as they remain selectively constructive on HUBG, FWRD, and GXO – says with shares higher and EPS expectations lower they move our trucking industry view to Neutral

 

Media & Telecom

·     WWE extends gains from Friday after the company had confirmed Vince McMahon, the former chief is returning to the board of the company and co said it would explore strategic alternatives

·     Chines Internet names extend recent gains – off to strong start in 2023 – Goldman Sachs said they see further earnings upside and expects more room to go for China internet this morning based on China’s faster-than-expected reopening, macro recovery from 2Q, and normalizing internet regulations (adds BABA to conviction buy list and upgraded WB to Buy)

·     TME upgrade from Sell to Neutral at Goldman Sachs and raised tgt to $8 from $5, turning incrementally positive into 2023E as it is set to enter the watershed period with revived positive profit growth backed by a quicker-than-expected transformation

 

Hardware & Software movers:

·     DCT be taken private by Vista Equity Partners in an all-cash deal valued at about $2.6B at a purchase price of $19 per share, represents a premium of 46% https://on.mktw.net/3ZpB203

·     ORCL upgraded to overweight from neutral at Piper Sandler saying FY24 growth in operating profits and earnings per share could accelerate to more than 10%

·     APPN downgraded to Underperform and tgt cut to $23 from $37 at SMBC Nikko on a lower EV/ revenue multiple and a modification of our DCF to better reflect our subjective view of APPN’s jury award value

·     NEWR, NOW downgraded in Infrastructure & Security Software at Truist, positioning for the 2023 in terms of what they expect from coverage on both fundamental outcomes and stock performance

·     CTSH downgrade to Underperform at Bank America due to incremental macro headwinds and company-specific demand challenges. Softer than anticipated bookings YTD could persist in 4Q; project funding could get off to a slow start in ’23

 

Semiconductors:

·     Bofa notes November total semis sales down -17.8% YoY, ex-memory sales down -4.5% YoY, memory sales down -51.2% YoY; Total semis ASPs up +1.5% YoY, ex-memory ASPs up +1.8% YoY, memory ASPs down -27.6% YoY (3mma); Core revs: Discrete +8.6% YoY, MCUs +19.1% YoY, PLDs +38.8% YoY, Analog +12.9% YoY, MPUs -21.1% YoY, logic +0.9% YoY (3mma)

·     QCOM, AVGO shares slipped late on Bloomberg headline that AAPL developing wi-fi/Bluetooth chip to replace Broadcom part and Apple aims to start replacing Qualcomm modem as soon as 2024

·     AMD and NVDA among top gainers in the S&P, each up over 6% as semis outperform, with SOX rising about 3%5 to 2,715 (200-day MA higher at 2,757)