Market Review: January 13, 2023

Closing Recap

Friday, January 13, 2023





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Markets experienced an early jolt as earnings and commentary from major banks brought a dose of reality after yesterday’s CPI inflation sentiment celebration. As has been the case recently, investors brushed off the news it didn’t like to focus on something more upbeat. In this case, it was the Michigan Sentiment. Preliminary January sentiment beat expectations and the sentiment spread bounced back into positive territory, marking tempered expectations. By early afternoon, US equity markets had bounced back to green and looked to hold solid gains into the holiday weekend, with the S&P crossing above 4,000 and its 200-dam MA. The Nasdaq Composite rallied for a 6th day (longest streak since Nov 2021) as did the Russell 2000 Index.

·     Sector-wise, the equity rally was broad. Only Industrials (XLI, -0.25%), Utilities (XLU, -0.25%) and Real Estate (XLRE, -0.35%) were in the red by late afternoon. Leaders included Consumer Discretionary (XLY, +0.80%), Financials despite some big bank sloppy earnings (XLF, +0.65%) and Materials (XLB, +0.65%). Breadth heading into the last half hour was about 1.7:1 to the upside. Both value and growth gained, with growth modestly leading +0.35% to +0.20%.

·     The optimists were out providing data points for us today. @RyanDetrick noted, “I’m not so sure I agree that copper has a PhD in economics, but hard to think surging copper prices suggest a coming global recession like many keep telling US.”, while @RenMacLLC rebuts Jamie Dimon’s base case of almost 5% unemployment, saying, “Not that it is perfect, but the Okun rule of thumb is that a 2% drop in real GDP is equal to a 1ppt increase in the unemployment rate. So, real GDP would have to drop 3% to get the unemployment up 1.5ppt to 5%. That seems like an overly pessimistic baseline forecast.” Finally, @C_Barraud suggests the leading indicators point to CPI YoY normalizing quickly in coming months, with a decline to close to 3% in June 2023, absent an external shock, and leading to downward revisions in the Bloomberg +4% consensus.


Economic Data:

·     Import prices for December rose +0.4% vs. consensus decline of (-0.9%) and vs. Nov drop of (-0.7%), while export prices fell a greater (-2.6%), vs. est. drop of (-0.5%) and Nov (-0.4%). Dec year-over-year import prices +3.5% and export prices +5.0%

·     The University of Michigan Confidence sentiment prelim Jan 64.6 vs. consensus 60.5 and Dec-Final 59.7; current conditions index prelim Jan 68.6 vs. final Dec 59.4 and expectations index prelim Jan 62.0 vs. final Dec 59.9

·     University of Michigan surveys of consumers 1-year inflation outlook prelim January 4.0% vs final December 4.4% and surveys of consumers 5-year inflation outlook prelim January 3.0% vs final December 2.9%


Commodities, Currencies & Treasuries

·     WTI crude February futures gained $1.47, or +1.88% to settle at $79.86/bbl (rose 8.2% on week), while Brent gained $1.25, or +1.49% to finish at $85.28/bbl. Tempered Fed rate hike expectations post-CPI and optimism on China demand potential sparked a nice bounce-back rally this week. Markets now broadly anticipate the next Fed move to be +25bps, lending some hope that a soft landing is becoming somewhat more realistic in the US. On the China side of the equation, December’s oil imports bounced back, and the market seems to be expecting crude stockpiling to be a priority ahead of renewed economic growth

·     February gold settled at $1,921.70/oz, +$22.90 or +1.2% to mark the first close above $1,900 since April. The February contract also reached a golden cross, underpinning the recent uptick in sentiment. Recent improvement in inflation readings continued to calm markets a bit and put some pressure on the Dollar, allowing gold to find incremental gains. Some may argue the recent move leaves gold a bit overbought, so a pause here would not be unwarranted next week. Bitcoin prices rise for a 10th straight day, topping $19,300.






WTI Crude















10-Year Note





Sector News Breakdown



·     TSLA shares tumble, weighing on the auto industry overall (GM, F, RIVN, LCID) after announced some significant price cuts in the US and Europe ranging from 6% to 20% sticker reductions for Model 3/Y and various performance models. Tesla lowered the cost of the cheapest Model Y by 20% and lopped as much as $21,000 off its most expensive vehicles in its home market.

·     CVNA shares fell after the WSJ reported the company is further cutting staff and faces a deeper slowdown in sales as it attempts to reduce costs and conserve cash to stay current on more than $7 billion of debt

·     LAD and AN both downgraded to Equal weight from Overweight in auto dealers at Wells Fargo in earnings preview saying dealer pricing pressure looks imminent, and are also more cautious that margin normalization will not only lower new but used margins


Consumer Staples & Restaurants:

·     DPZ cautious comments at Evercore/ISI with a Tactical Underperform rating as lowered sharply the Q4 U.S. same-store sales estimate on the pizza chain operator to 0% to 1% based on a panel analysis that they have lost ground to Pizza Hut, Papa John’s in Q4

·     WEN posted prelim Q4 revs $536M vs. est. $518M and EBITDA $123M vs. est. $121M; raises dividend and new $500M share buyback; global comps 6.4% and US comps 5.9%


·     BBBY is in talks with private equity firm Sycamore Partners for the sale of its assets, including its Buy Buy Baby stores, as part of a possible bankruptcy process, the New York Times reported

·     HBI updated Q4 financial outlook; announces departure of CFO and refinancing plans and said it expects Q4 net sales slightly above top end of its outlook range

·     PRPL rejected an offer from Coliseum Capital for $4.35 per share for the remaining shares they don’t own (they already own 44%) – proposal was announced back in September

·     Barclays said while Frontline Retail sales-to-inventory is improving, Wholesale sales-to-inventory spreads are worsening, with all but HBI and NKE widening; said see ongoing risk to 1H23 estimates, especially those with negative YoY sales


Homebuilders, Building Products, Home Furnishing:

·     DHI, LEN, and DFH downgraded to Underperform from Sector Perform at RBC Capital and downgraded KBH, DOOR, and FBIN to Sector Perform from OP, while upgrade VMC to Outperform as view remains that demand pressures will be "deeper for longer" with home prices falling through 2023, with a likely muted 2024 recovery, given significant affordability headwinds and a weakening economy

·     HD and LOW estimates lowered at Cleveland Research saying for HD, comp down 2-3% and operating margin at 15.0% (down 40bps) suggests EPS of $15.95 and for LOW comp down 2-3% and operating margin at 13.3% (down ~30bps) suggests $13.25 EPS



·     COP is in talks with Venezuela’s national oil company Petróleos de Venezuela SA to sell oil from Venezuela in the U.S., the WSJ reported last night

·     In refiners, MPC tgt to $133 from $129), PBF to $31 from $27, and VLO to $140 from $127 at Cowen with top Refining picks MPC into earnings as see upside to 1Q23 and downside to 2H23 for group – said feedback suggests PSX and PBF revisions could disappoint



Banks, Brokers, Asset Managers:

·     Huge morning of some of the biggest bank earnings, with mostly disappointing results, but shares reverse with many of the names ending higher.

·     BAC Q4 Trading revenue excluding DVA $3.72B, FICC trading revenue ex: DVA $2.34B and Equities trading revenue ex: DVA $1.38B , all better to in-line; Q4 Noninterest income of $9.9B declined $799Mm, or 8%, as declines in investment banking and asset management fees offset higher sales and trading revenue; said it earned $7.1B, or $0.85 vs. $7B or $0.82 y/y; overall revs rose 11% to $24.5B vs. est. $24.17B; Q4 Net interest income rose 29%, or $3.3B, to $14.7B

·     BK 4Q adj EPS $1.30 vs est. $0.83 on adj revs $4.38B vs est. $4.2B, NII +56% vs est. +52.7%, CET1 capital ratio 11.2%, adj ROE 12%, says continued to derive benefit from higher interest rates

·     BLK reported an 18% drop in Q4 profit on Friday, but EPS of $8.93 topped the $8.11 estimate while Assets under management (AUM) stood at $8.59 trillion at the end of the quarter, down from a little more than $10 trillion a year earlier but up from $7.96 trillion in Q3

·     Citigroup Inc (C) reports a drop in Q4 profit as Q4 EPS $1.16 vs. $1.46 last year after boosting its provisions on fears of a worsening economy, while investment banking revs drop; FICC sales & trading revenue $3.16B vs. Bloomberg est. $2.81B and Equities sales & trading revs $789M

·     GS revealed in a regulatory filing that its credit card business, anchored by the Apple Card since 2019, has been one of the company’s biggest successes in gaining retail lending scale, but incurred a whopping $1.2B loss for the first nine of last year, and down $3B since start of 2020.

·     JPM 4Q adj EPS $3.56 vs est. $3.10 on revs $34.5B, NII $20.3B; net loan losses 2.29B, ROTCE 20%; guides FY23 NII about $73B, market dependent vs est. $73.7B (sees about $74B excluding markets), sees FY23 card services NCO rate about 2.6%, expects continued normalization in credit during 2023; says remain vigilant and prepared for whatever happens, have ability to resume buybacks this qtr as deemed appropriate

·     WFC reported a decline in profit Q4, but EPS topped ests as Q4 EPS $0.67 vs. est. $0.60; Q4 revs fell -5.7% y/y to $19.66B below the consensus est. $19.98B; Q4 NIM 3.14%, efficiency ratio 82%; Q4 Provision for credit losses was $957Mm; said Q4 consumer banking and lending loans increased 4% and commercial banking loans climbed 18%


Insurance & Services:

·     AJG remains top insurance broker idea at RBC Capital, favorite ideas are MET, CRBG, and RGA in the life insurance sector and in P&C, they like AIG, Fairfax Financial, and CB into the quarter – notes both life and P&C should show improvement vs. 3Q and P&C insurers should continue to enjoy favorable pricing driving top-line growth and margin strength

·     TRU was upgraded to Overweight from Equal Weight at Wells Fargo saying even after a 17% YTD bounce, significant LTM underperformance (-40% vs. S&P -14% and peer EFX -18%) still provides an attractive entry point for the company

·     ALLY, CACC, WFC, JPM: Auto lending slumped at the big banks in Q4, and more borrowers fell behind on payments. Wells Fargo & Co. saw auto originations fall by nearly half to $5 billion, compared with $9.4 billion a year ago and said more than 2.6% of its car loans were 30 or more days delinquent vs. 1.8% a year ago. JPM said auto originations fell by 12% to $7.5 billion. Auto-loan delinquencies of at least 30 days ticked up to 1% from 0.6% a year ago



Biotech, Pharma and Healthcare Services:

·     UNH Q4 adj EPS $5.34 vs. est. $5.17; Q4 revs $82.8B vs. est. $82.59B; said results helped by lower medical costs and boost from its Optum health services unit; said Q4 medical care ratio, the percentage of premiums versus payouts on claims, improved to 82.8% in Q4 vs 83.7% a year earlier; backs FY23 adjusted EPS view $24.40-$24.90

·     In hospitals (HCA ), Keybanc noted December data indicated a slight improvement y/y in patient activity at hospitals and physicians’ offices when adjusting for number of weekdays, as well as sequential trends in line with typical seasonality

·     JNJ has vastly scaled back its efforts in producing the shots as it faces slumping demand noting in recent months terminated manufacturing agreements with companies that helped produce the shot during the pandemic such as Catalent Inc. and Sanofi SA, the WSJ reported


Industrials & Materials


·     In airlines, DAL shares declined after announced a solid 4Q beat and guided 1Q revenues to be +14-17% vs 2019 levels (vs. consensus is +12%), but guided Q1 EPS in range of $0.15-$0.40, below the $0.55 est. as it forecasts a rise in non-fuel operating costs (affirmed year) – worse than rival AAL guide yesterday which had boosted the sector

·     Cowen noted rate expectations in 2023 for TL carriers called for a low single digit decline, while absorbing strong cost increases. Used truck prices have come down drastically since last Spring, though OEMs continue to experience new equipment delays. They view the results of this call as an overall negative for TL group (KNX, SNDR, WERN).

·     In tankers/shipping, Stifel with earnings preview, downgrading CMRE from Buy to Hold based on the rapidly deteriorating container market. Firm asks, can tanker rates remain strong, and equities supply multiple expansion, and have beaten down sectors been beaten down enough positioning them for a relief rally? They say yes


Industrials & Materials

·     Several rating changes in the industrial group today: CARR upgraded to Buy at Mizuho saying the co faces pockets of potential slowing this year, but believe it is well positioned to navigate; PNR also upgraded to Buy at Mizuho and up tgt to $60, adding to the 2023 Top Pick list for our Industrial Technology coverage as believe bearish resi sentiment is peaking (or has); AZZ downgraded to Hold at Stifel noting shares have appreciated toward our $48 Target, which currently represents 4% upside

·     In Machinery note, Bank America upgraded CAT to Buy citing near-term there is low risk of notable EPS decline Q4/Q1 given price vs cost tailwind and medium term, backlog falls yet lead indicators improve 2H. The firm also upgraded Jacobs (J) and TKR to Buy, while downgraded CWST to Underperform/ Said they see more value in SMID with less demanding valuation & re-rating catalysts: CNH, GFL, TEX. Top underperform is IPGP due to EPS risks.

·     For ag machinery/ferts (MOS, NTR, DE, CNHI), soybean futures climbed for a third session on Friday after the U.S. government unexpectedly cut its 2022 harvest estimates; Wheat gained more ground and corn rose for a fourth straight session – U.S. corn and soybean harvests in 2022 were smaller than previously estimated as crops struggled late in their development after a promising start to the growing season, the U.S. government said on Thursday

·     In chemicals, Piper said they remain bullish on most of the Ag names, but especially for the nitrogen focused names like CF and LXUwhich they expect will benefit from the rising grain prices, lower nat gas input cost and the likelihood of a sharp increase in corn plantings


Aerospace & Defense

·     LMT (tgt to $322 from $388) and NOC (tgt to $375 from $440) downgraded to Sell and RTX to Neutral at Goldman Sachs saying the US defense budget historically moves in ~decade long cycles and is up 70% cumulatively over the last 8-yrs, indicating a peak. Notes stocks are trading as if the World is entering the next great struggle between superpowers, with limited consideration for the potential for a renewed focus on US government debt. Notes margins face unprecedented cost input inflation and supply chain challenges and cash flow is facing a unique headwind

·     SPCE said its commercial space flight service is on track for launch in Q2 2023; said planned upgrades completes and expects mothership to enter ground tests next week before commencing flight tests; also announced leadership changes



Internet, Media & Telecom

·     WMG downgraded to neutral from Buy after updating fiscal Q1 model to better reflect weaker-than-previously forecast Recorded Music streaming revenue

·     PARA tgt to $21 from $18 at Bank America while lower 4Q revenue/OIBDA forecast to reflect continued softness in the advertising market – said expect strong net adds for PARA due to the Walmart deal and NFL


Hardware & Software movers:

·     AAPL CEO Cook to see pay reduced by over 40% in 2023 to $49M in response to shareholder feedback

·     CRM was downgraded to Neutral from Overweight at Atlantic Equities and cut tgt to $140 from $200 citing execution concerns, the company’s C-suite management "exodus" and risk of slower than expected revenue growth for the downgrade

·     FTNT downgrade from Buy to Neutral at BTIG in Internet Security sector after speaking to 5 CISO’s, a former CIO / Advisory Practice, and an Industry Analyst recently to gain a better view on large enterprise firewall spending trends

·     NATI said that its board of directors has initiated a review and evaluation of strategic options, in consultation with its financial and legal advisors


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.