Closing Recap

Thursday, July 13, 2023

Index	Up/Down	%	Last
DJ Industrials	46.86	0.14%	34,394
S&P 500	37.81	0.85%	4,509
Nasdaq	219.61	1.58%	14,138
Russell 2000	17.51	0.91%	1,950

 

 

 

 

 

 

 

 

 

What a run for U.S. stocks of late, up a 4^th straight day, with the S&P 500 topping the 4,500 level for the first time since April 2022, while the Nasdaq topped/held above the 14,000-level (also highest since April 2022) as data showed for a second straight day that inflation moderated in June and came in below consensus estimates. With today’s gains, NYSE breadth has been positive by more than 2-1 for five straight days now as the risk-on mood in markets stretched again as stocks climbed and the dollar weakened to a 15-month low on the inflation data. Big tech stocks continued to charge higher as Amazon advanced on the back of its Prime Day sale, while chipmaker Nvidia also rose to new all-time highs along with the semi-index. All S&P sectors were higher excluding Energy, which is still up 3% on the week, as market momentum remains clearly to the upside this year with Technology (41% YTD), Communications (+41% YTD) and Consumer Discretionary (+35% YTD) firmly leading (and were top movers today as well), though some sectors finally playing catchup (Industrials +11% YTD, Materials +7.5% YTD). With inflation data behind us, and a 25-bps hike “baked in” to the July FOMC meeting, earnings are the next market catalyst starting with the big banks tomorrow (JPM, C, WFC, STT) and next week. Late day, big news was that St Louis Fed President and well-known “hawk” James Bullard announced he was stepping down in August, giving stocks another lift. Risk on across the board today with stocks, commodities surging along with Bitcoin after a positive federal judge ruling on Ripple (ripped the whole space – see below). Overall, just another wild day adding to a wild week into options expiration next Friday during Fed quiet period.

 

Commodities, Currencies & Treasuries

·     U.S. WTI crude oil futures settle at $76.89 per barrel, up $1.14, or up 1.50% while Brent crude prices settle at $81.36 per barrel, up $1.25, or 1.56% as commodities rallied with stocks. Gold prices extended gains, rising $2.10 to settle at $1,963.40 an ounce, making it a 3^rd straight day of gains to highest levels since mid-June as latest CPI/PPI reports revealed a slowdown in inflation.

·     The U.S. dollar index (DXY) fell for a 6^th straight day (down 3% this week alone), dropping below the 100 level for first time since April 2022 while the euro topped the 1.12 level for first time since March 2022 as inflation data points show continued easing in pricing pressures. Bitcoin prices popped after cryptocurrency company Ripple won early dismissal of some regulatory allegations related to its sale of more than $1.4 billion worth of a digital token known as XRP.

·     Benchmark 10-year Treasury yields fell to a 10-day low as inflation moderated, boosting bets that the Federal Reserve will stop hiking rates after an expected 25 basis points rate increase later this month. The 10-year slipped over 10-bps to 3.76% while the shorter-term 2-year yield fell over 12-bps to 4.61%. Producer prices barely rose in June and the annual increase in producer inflation was the smallest in nearly three years, according to data Thursday.

·     The Treasury Department sold $18 billion in 30-year bonds on Thursday, the final sale of $90 billion in coupon-bearing supply this week at a yield of 3.91% vs. 3.89% when issued prior with a bid-to-cover ratio 2.43, as primary dealers take 10.85% of U.S. 29-year 10-month bond sale, direct 20.13% and indirect 69.02%. Overall, the Treasury saw solid demand for a $40 billion sale of three-year notes on Tuesday and okay interest for a $32 billion in 10-year notes on Wednesday which boosted bond buying and pressed yields lower.

 

 

Macro	Up/Down	Last
WTI Crude	1.14	76.89
Brent	1.25	81.36
Gold	2.10	1,963.80
EUR/USD	0.0093	1.1221
JPY/USD	-0.53	137.98
10-Year Note	-0.10	3.761%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Online Auto: CVNA downgraded from Neutral to Underweight at JP Morgan with $10 tgt as it believes valuation has once again disconnected materially from fundamentals. ACVA was downgraded from Overweight to Neutral at JP morgan with $17 tgt as believes valuation now gives sufficient credit for cyclical recovery in the D2D auction space along with ACVA’s ability to continue market share gains and show progress towards profitability.

·     In Electric Vehicles: NKLA and BayoTech, a hydrogen production transportation and storage solutions company, announced an agreement to advance reliable hydrogen supply for zero-emission commercial fuel cell electric vehicle fleets.

 

Retail, Consumer Staples & Restaurants:

·     In Beverages/snack: PEP Q2 core EPS $2.09 vs. est. $1.96; Q2 revs $22.32B vs. est. $21.73B; raises 2023 organic revenue view to 10%, vs. prior forecast of 8% increase and core EPS of $7.47 vs. prior view of $7.27 citing resilient demand and boost from price hikes.

·     In Food: CAG 4Q adj EPS $0.62 vs est. $0.59 on revs $3.0B vs est. $2.99B, adj gr mgn 27%, adj EBIT mgn 14.6%; guides FY revs +1% vs est. +1.96%, adj EBIT mgn 16-16.5% and adj EPS $2.70-2.75 below consensus est. $2.85; expects COGS inflation to continue into FY24.

·     In Protein: PPC was upgraded to Outperform at BMO Capital and raised tgt to $28 saying the risk/reward has become more favorable given a growing number of potential catalysts, including likely heightened investor optimism JBS acquires PPC following its proposed US listing and greater probability for lower feed costs to benefit US chicken margins in coming quarters.

 

Homebuilders, Building Products, Home Furnishing:

·     In building materials/products: LL was downgraded to Sell from Hold at Loop Capital with an unchanged price target of $3 after the company recently rejected a $5.76 per share cash take-out offer from its founder. Jefferies provided quarterly preview as thinks expectations are highest for the housing names and think OC’s 3Q guide will come in noticeably ahead of consensus and said sees FBIN raising its FY guide by $0.02-0.04 for the ASSA acquisition. Also expects agg & cement names including Franchise Pick MLM to deliver 2Q beats.

 

Energy

·     Global oil demand won’t grow as fast as previously expected this year due to the faltering economies of developed nations, the International Energy Agency said. World fuel consumption will increase by 2.2 million barrels a day — or about 2% — in 2023, a reduction of about 220,000 barrels from last month’s forecast.

·     In Oil E&P Sector: XOM said it would buy DEN in an all-stock transaction valued for $89.45 per share, or $4.9 billion, giving the oil major access to the largest carbon dioxide pipeline network in the U.S. Denbury holders will receive 0.84 shares of XOM. https://tinyurl.com/4xr2hh4d

·     In Energy Research: BirchCliff Energy (BIREF) downgraded to Market Perform at BMO Capital noting shares have performed in-line with peers and Henry Hub natural gas prices year-to-date. BMO also downgraded SU to Market Perform and tgt cut to $44 from $52 as believes it still has a lot of work to do to get back into investors’ good graces.

·     Oil drillers: Barclays noted NE marked the 1st offshore driller to announce quarterly dividend since 2015; firm believes this announcement is a strong indication of confidence in the offshore outlook, and that NE’s recent 2.5-year contract for the Faye Kozack at ~$490k/d is not an outlier.

·     In Oil Services/Equipment: NEXT said it has made a positive final investment decision to construct the first three liquefaction trains (phase 1) at its Rio Grande LNG export facility.

 

Financials

Banks, Brokers, Asset Managers:

·     Earnings tomorrow in the large cap banks for JPM, Citi (C), WFC, STT, and BLK in alt managers before the flood gates open next two weeks for regional banks.

·     In Asset managers: LAZ upgraded to Market perform on valuation at KBW. Monthly asset under management data out: 1) AB reports preliminary AUM $691B as of June 30, up from $670B at the end of May; market appreciation coupled with firmwide net inflows drove the 3% increase. 2) APAM preliminary assets under management, or AUM, as of June 30 totaled $143B. 3) BEN preliminary month-end assets under management of $1.43 trillion on June 30, 2023, compared to $1.40 trillion on May 31, 2023. 4) IVZ reports preliminary AUM $1.54T as of June 30; an increase of 3.4% versus the previous month-end; net long-term inflows of $2.9B in the month. 5) LAZ preliminary assets under management as of June 30, 2023, totaled approximately $239.3 billion. 5) TROW Assets under management $1.40 trillion. 6) VCTR assets under management of $161.6B as of June 30, 2023, and average assets under management for June of $158.7B.

 

Bitcoin, FinTech, Payments:

·     In Crypto: COIN, RIOT, MARA, MSTR shares jumped late morning after Ripple won early dismissal of some regulatory allegations related to its sale of more than $1.4 billion worth of a digital token known as XRP (COIN shares jumped over 25% late day as Bitcoin spiked), helping boost the industry. COIN earlier was downgraded to Underweight and $70 tgt at Barclays saying with volumes and USDC market cap depressed, regulatory overhang likely to last for some time, and a significant recent run-up in shares, see limited n-t drivers. COIN also reiterated Underperform at Bank America citing weak Q2 data (note shares have rallied ~60% since 6/15 on the news of spot Bitcoin ETF applications filed by BlackRock and others). The FTC reaches settlement with crypto platform Celsius Network; charges former executives with duping consumers into transferring cryptocurrency into their platform and then squandering billions in user deposits.

·     In Lending: SOFI downgraded from Equal Weight to Underweight at Morgan Stanley while raised tgt to $7 from $6.50 on price, noting SOFI has been one of the strongest growth stories in consumer finance, including 2022 revenue growth of 50%+ y/y.

·     In Insurance: PGR shares slid after Q2 earnings results fell short of consensus, though as combined ratio 100.4% vs 95.6% last year.

 

Healthcare

Biotech & Pharma:

·     ARDX announces acceptance of new drug application for tenapanor for hyperphosphatemia in China; potential approval of NDA submission in China is expected by end of 2024.

·     BCRX upgraded from Neutral to Buy at Bank America with $10 tgt saying its lead asset Orladeyo is approved as a prophylactic (preventative) treatment for hereditary angioedema and notes recent pullback in shares now presents meaningful upside potential.

·     BCYC 9.412M share Spot Secondary priced at $21.25.

·     CYRX shares plunged after lowering FY23 revenue view to $233M-$243M from $270M-$290M and well below the consensus of $274.85M.

·     FWBI shares tumbled after saying a Phase 2 study of an enhanced formulation of its adrulipase drug candidate likely missed its primary efficacy endpoint.

·     ICPT was double upgraded from Sell to Buy at HCW and raised tgt to $19 PT saying surprisingly strong interim results from Oca+Beza combo look to breathe new, longer life to the franchise and now expects Intercept may continue to grow and significantly expand the PBC market.

·     PRGO said the FDA approved the over-the-counter use of the co’s contraceptive pill, making it the first non-prescription birth control pill in the United States.

 

Healthcare Services & MedTech movers:

·     Managed Care: ahead of earnings, Wells Fargo cut HUM tgt to $541 from $610 and UNH to $561 from $616, though ests unchanged into earnings to reflect commentary on Medicare utilization. Wells Fargo increased its 2023 / 2024 MLR ests for both UNH and HUM, given higher MA utilization in 2023 and some lingering uncertainty around capture in bids for 2024.

 

Industrials & Materials

·     In airlines: group strong after beat and raise quarter from DAL; Q2 adj EPS $2.68 vs. est. $2.41; Q2 revs rose 19% y/y to $14.61B vs. est. 14.44B; raises FY adj EPS to $6.00-$7.00 from prior high end of $5.00-$6.00 view, and reiterating recently updated outlook for $3b free cash flow for 2023; sees FY total revenue +17%-20% y/y (AAL, UAL, LUV, JBLU, ALK bounced early).

·     In truckers: Several analysts preview upcoming quarter as Bank America lowers ests on JBHT below street but raise tgt to $205 as expects yield declines to accelerate as pricing comps against record 2Q22 (when accessorial revs peaked). ODFL was named top idea in sector at Wells Fargo but take sector ests lower into Q2 as volume challenges persist, leading to the view that there is likely more pain ahead as contract rates still need to normalize.

·     In Aerospace & Defense: SPCE announced that the company is targeting Aug. 10 for Galactic 02, its second commercial spaceflight. The Galactic 02 mission will also mark Virgin Galactic’s first private astronaut mission.

·     In Chemicals: SMG downgraded from Buy to Hold at Stifel and cut tgt to $72 highlighting a cautious bias ahead of F3Q23 earnings and noted shares have been volatile with the recent outperformance surprising from the late June low (SMG +21%, S&P 500 +2%).

·     In distributors: FAST reports slight operating Q2 miss for earnings and lower margins as well which weighed on shares early as well as group (GWW).

 

Technology

Internet, Media & Telecom

·     In social media: META upgraded from Market Perform to Outperform at TD Cowen and raise est’s and PT to $345 from $220 as expects further share upside given est’s are likely too low; it raised its ’23-’28 est’s off its positive 2Q ad check & potential monetization upside from Reels & other surfaces L-T and sees positive Reels engagement.

·     In Online travel: Barclays raised price tgt on ABNB to $136 from $112, EXPE to $137 from $113, and BKNG to $3,130 from $2,960 noting the sector has outperformed the market due to "catch up trade" with inflation fears steadily easing, signaling a soft landing is possible in 2H. Barclays expects online travel names to report in-line bookings in 2Q.

·     In Internet: GOOGL tgt raised to $140 from $130 at TD Cowen saying its 2Q Digital ad expert check call on 7/10 implies ongoing US consumer strength propelled GOOG 2Q23 Search spend growth higher q/q despite macro fears. AMZN said it reported record sales during its Prime Day sale. Tuesday, the first day of the event, was the biggest sales day in its history, Amazon said in a release. AMZN said shoppers purchased more than 375 million items during the two-day sale.

·     In Media & Telecom: in a blow to Hollywood, actors’ union will go on strike, joining the writers union which went on strike in May (DIS, NFLX, WBD, PARA); VSAT shares fall after saying an unexpected event occurred during reflector deployment that may materially impact the performance of the ViaSat-3 Americas satellite.

 

Hardware & Software movers:

·     In Semiconductors: The Philly semi-index (SOX traded new 52-week highs topping 3,800 (prior high 3,743) while NVDA traded above the $450 level at new all-time highs as momentum buying continued in the hot semi sector (SOX +46% YTD) on AI growth hopes.

·     In 3D sector: SSYS shares rise after DDD raised its offer to acquire the 3D maker after rival bidder NNDM increased its offering for the company; new offer implied a total bid value of $2 billion, or about $28 a share ($7.50 cash and 1.5444 shares of the combined company per share. https://tinyurl.com/4rfhdde2

·     In software: TTD will replace ATVI in the Nasdaq-100 Index, the Nasdaq-100 Equal Weighted Index, and the Nasdaq-100 Ex-Tech Sector Index prior to market open on Monday, July 17, 2023. SNOW shares jumped after Scotia upgrade and raised tgt to $212 saying Snowflake is in the sweet spot for two critical secular trends — cloud adoption and data-driven decision-making.