Closing Recap

Tuesday, July 25, 2023

Index	Up/Down	%	Last
DJ Industrials	26.69	0.08%	35,437
S&P 500	12.89	0.28%	4,567
Nasdaq	85.69	0.61%	14,144
Russell 2000	0.25	0.01%	1,965

 

 

 

 

 

 

 

 

 

The US stock market push continued in another relentless advance that is now becoming broader based overall for 2023, heading into massive catalysts with MSFT, GOOGL earnings this evening and the FOMC rate decision tomorrow. The Dow Jones Industrial Average made it a 12^th straight day of gains, adding to the overall market euphoria. Absolutely no caution shown into a Fed meeting tomorrow where another 25-bps hike is expected to 5.25%-5.5% range. After being responsible for most gains in 2023, with Technology (XLK +43%), Communications (XLC +37% YTD) and Consumer Discretionary (XLY +33% YTD), the S&P has seen strong moves in Materials (XLB) now up 10% YTD, and Industrials (XLI) +11% YTD with only Energy (XLE) and Utilities (XLU) down on the year and Healthcare (XLV) flat. A much better picture than just a month ago when most sectors other than the top three were down. A big day of earnings behind us (see below for details), but busy times just getting started with some huge names this week. Oil prices touched 3-month highs, gold was flat, as was the dollar into the FOMC tomorrow, while markets also get ECB meeting on Thursday and the Bank of Japan on Friday as well as inflation data.

 

Economic Data

·     The Consumer Confidence index for July reported at 117.0 vs. consensus 111.8 and June upwardly revised to 110.1 (previous 109.7); present situation index 160.0 in July vs June 155.3 and expectations index 88.3 in July vs June revised 80.0 (previous 79.3).

·     Richmond Fed services revenues index -2 in July vs -8 in June; Shipments: -6 vs. -5 prior; employment: +5 vs. -1 prior and volume of new orders: -20 vs. -16 prior.

·     S&P May CoreLogic CS 20-City Home Prices were -1.7% YoY vs -2.3% consensus and 1% MoM vs 0.7% estimated. The HPI was -0.46%. The May FHFA House Price Index rose 0.7% vs 0.6% expected.

 

Commodities, Currencies & Treasuries

·     Lot of waiting for the Fed tomorrow, where a 25-basis point hike is expected to 5.25%-5.5% range, but markets are widely anticipating such a move. Gold prices were little changed, Treasury yields were modestly higher, and the dollar index (DXY) was flattish around 101.35. 

·     WTI Crude September futures settle at $79.63 a barrel, up 89 cents, 1.13%; Brent Crude futures settle at $83.64/bbl, up 90 cents, 1.09%. Front-month gas futures for August delivery rose 4.5 cents, or 1.7%, to settle at $2.730 per million British thermal units (MMBtu).

·     Gold for August delivery edged higher by $1.50, or nearly 0.1%, to settle at $1,963.70 an ounce; Silver futures gained 24 cents, or 1%, at $24.82 an ounce and September copper added 6 cents, or 1.6%, to $3.92 per pound.

·     The 10-yr yield rises 5.6bps to 3.911%, up a 2nd straight day into FOMC tomorrow and at highest in 2-weeks. The US Treasury sold $43B in 5-year notes at a yield of 4.17% vs. 4.166% when issued before prior as bid-to-cover reported at 2.60, as primary dealers take 13.49% of U.S. 5-year notes sale, direct 22.13% and indirect 64.38%.

 

 

Macro	Up/Down	Last
WTI Crude	0.89	79.63
Brent	0.09	83.64
Gold	1.50	1,963.70
EUR/USD	-0.0018	1.1044
JPY/USD	-0.43	141.01
10-Year Note	0.055	3.912%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Autos: GM Q2 adj EPS $1.91 topped est. $1.85 on revs $44.7B vs. est. $42.64B; raised its net income forecast to a range of $9.3B-$10.7B; raises FY23 adjusted EBITDA view to $12B-$14B from $11B-$13B; shares up slightly; shares however tumbled.

·     In Auto Retail: ABG Q2 adjusted EPS beats estimates at $8.95 vs. est. $8.24 but sales $3.74B below ests $3.8B and said 2Q same-store parts & service rev growth of 6%.

 

Consumer Staples & Restaurants:

·     IPAR guides FY net sales $1.3B from prior $1.25B, same as ests and guided prelim Q2 sales $309M vs. est. $280.5M.

·     KMB Q2 EPS dropped -77% y/y but still topped ests; Q2 adj EPS $1.65 beat $1.48 estimate and revs rose 1% and organic sales +5% with a boost from a 9% increase in prices and a "favorable product mix" which was offset by a 3% drop in volume.

·     LW Q4 top and bottom-line beat ests and guided annual sales and profit above market estimates, betting on higher prices as well as steady demand

·     SAM said it has appointed Diego Reynoso as its chief financial officer and treasurer, effective Sept. 5.

·     SFM was downgraded from Buy to Hold at Deutsche Bank as now sees more balanced risk/ reward following the meaningful share price appreciation over the last 12 months. In fact, shares are up nearly +20% over the last month alone.

 

Retailers:

·     AMZN announced it now plans to pay $51.75 a share to acquire IRBT, down from previously agreed-upon price was $61 a share and noted that iRobot has entered a $200 million financing facility to help fund its operations. https://tinyurl.com/zzhax63y

·     COST win streak extended to 12-straight trading days.

·     LVLU guides Q2 below views; guides prelim 2q adj. EBITDA $3.4M-$4.2M vs. est. $9.72M and net revs $104.5M-$106.0M vs. est. $116.6M and withdraws full year 2023 guidance.

·     NKE as downgraded to Underperform at BNPP Exane; PT $92

·     TSCO was downgraded from Buy to Neutral at Bank America and cut tgt to $226 from $270 ahead of the company’s 2Q earnings as expects a miss and cut guidance given a fading tailwind from inflation and worsening demand for discretionary categories.

·     WMT was upgraded from Neutral to Overweight at Piper and raise tgt to $210 from $145 as believes as grocery inflation subsides, WMT has an opportunity to further extend market share gains – also believes that the turnaround at Sam’s Club remains underappreciated.

·     TikTok is launching an e-commerce business in the U.S. to sell made-in-China goods to consumers, stepping up its rivalry with Shein and Temu – WSJ reported.

·     WHR reported Q2 EPS of $4.21, above consensus of $3.76 as the company benefited from its cost reduction efforts along with a lower tax rate, backs FY23 adjusted EPS view $16.00-$18.00 and backs FY23 free cash flow approximately $800M.

 

Leisure, Gaming & Lodging:

·     In Boating/Marine sector: KeyBanc with monthly boat industry data shows June’s +2.2% y/y (-7.8% vs 2019) better vs their checks. Said BC retail above industry (+14.1% y/y; -5.9% vs 2019); June industry OE 4-Stroke not yet released Ski/Wake: Category -14.3% y/y, -2.6% vs 2019; MBUU better vs industry, MCFT worse Pontoon: Category +3.6% y/y, +0.6% vs 2019; vs 2019, PII below, Barletta above; y/y, PII in line, Barletta below ONEW: Top brands (~60% of sales) ~in line with industry vs 2019, key states in line/slightly above vs 2019, PII also reported earnings today.

·     In Transports: ALK said it sees FY23 total rev growing 8-10% vs est. 11.1% increase and FY23 EPS in $5.5-$7.5 range, vs. midpoint of consensus forecast $6.6 after Q2 beat. UPS shares advanced midday after the Teamsters reached a tentative agreement for workers, protecting and rewarding more than 340,000 UPS Teamsters nationwide. The overwhelmingly lucrative contract raises wages for all workers, creates more full-time jobs, and includes dozens of workplace protections and improvements.

 

Energy

·     In E&P: RRC reported adj EPS/CF of $0.30/$176m compared to consensus of $0.22/$176m as volumes came in 2% ahead of Benchmark forecast, while prices missed by 1%; EBITDA margin of 38% was below their 40% forecast and said cost guidance was lowered. VTNR shares fell after operational update as expect Q2 capture rate of 30%-35% below previously forecasted range of 50%-54%, negatively impacted by significant price volatility in fuels and refined product markets.

 

Financials

Banks, Brokers, Asset Managers:

·     Banks upward momentum as KRE hits highest levels since March bank fallout); still down -18.8% YTD but up +16.75% QTD; WSJ reported midday that BANC is in advanced talks to buy PACW, in a move by the lenders to further shore themselves up following a regional-banking crisis earlier this year. A deal could be announced as soon as today, when both banks are scheduled to report results, assuming there isn’t a last-minute snag https://tinyurl.com/bdesva8s

·     In Research: GS downgraded to neutral from buy at Citigroup, saying that the company’s targets are achievable, but it will take time and a better investment banking environment to attain them. Believes risk/reward is balanced at these levels and downgrade to Neutral. HBAN upgraded from Underweight to Neutral at JPMorgan with $13 tgt.

·     In Earnings: CADE NII Shortfall Drives PPNR/EPS Miss, SMBK Soft Loan Yields Drive NII/PPNR Miss, WSFS NII-Driven PPNR Beat, Solid Core Deposit Growth. AUB reported earnings and announced to acquire AMNB for $39.23 per share in deal valued at about $417M. https://tinyurl.com/38waeztw

 

Insurance & Services:

·     PGR was downgraded from Equal Weight to Underweight at Morgan Stanley and cut tgt to $114 from $135 saying the company is facing some bumps on the road with continued reserve charges depressing earnings so far this year.

·     PRU announced a GUL reinsurance deal with Somerset Re for $12.5b of reserves that will result in proceeds to PRU of $450m (primarily capital released). This results in roughly 1/3 lower exposure to GUL and is expected to be modestly accretive to EPS as per Wells Fargo.

 

Healthcare

Biotech & Pharma:

·     BIIB Q2 revs $2.46B vs. est. $2.37B as adj net income $584.6M vs. est. $548.5M and announces a new expense reduction plan that will net $700M in cost reductions by 2025 and reduce headcount by 1,000 workers.

·     FGEN said Enrique Conterno resigned as CEO due to personal reasons.

·     LLY announces extension of tender offer to acquire DICE; the $48 tender offer, which was previously scheduled to expire one minute past 11:59 P.M., Eastern time, on July 28, 2023, has been extended until one minute past 11:59 P.M., Eastern time, on Aug. 8, 2023.

·     STOK shares stumbled after saying its experimental drug, STK-001, shows median reductions in seizure frequency in an early- to mid-stage study for treating Dravet syndrome.

 

Healthcare Services & MedTech movers:

·     In MedTech Research: KeyBanc downgraded AVNS to Sector Weight from OW and raise tgt on STE to $254 from $235 saying they would maintain or increase MedTech exposure into 2H23, as improving fundamentals appear evident, although there has been a clear bifurcation in performance that seems mostly tied to company-specific execution and weighting toward procedural volumes.

·     BAX announces Vantive as the name of proposed kidney care spinoff; is expected to launch as an independent, publicly traded company by July 2024 or earlier; until completion of proposed separation in 2024, kidney care business will continue to operate as Baxter.

·     NXGN reported F1Q24 revenue and EBITDA 2.8% and 3.5% ahead of consensus, respectively, and reaffirmed FY24 EBITDA and EPS targets.

 

Industrials & Materials

Industrials

·     DHR shares fell after cutting annual sales growth to grow by low-single digit compared to previous forecast of mid-single digit growth and said Q3 sales to be down low-single digit y/y; Q2 EPS $2.05/$7.2B topped ests $2.01/$7.12B.

·     DOV shares slid after Q2 adj EPS $2.05 missed est. $2.20 on lower revs and cut top end of FY adjusted EPS view to $8.85-$9.00, from $8.85-$9.05.

·     GE shares rise as Q2 adj EPS $0.68 beat est. $0.46 on revs $16.7B vs. est. $15B as Q2 total orders $22B, up 59%; raises FY23 adjusted EPS view, organic revenue growth, and free cash flow of $4.1B-$4.6B, up from $3.6B-$4.2B.

·     MMM raises 2023 adjusted EPS outlook to $9.10 from $8.60, benefiting from higher prices and cost-cutting measures including significant layoffs after Q2 adj EPS $2.17 topped $1.72 estimate.

 

Aerospace & Defense

·     In Defense: RTX shares fell after the company disclosed it discovered a manufacturing defect in its Pratt & Whitney unit from a rare condition in powered metal used to make certain engine parts; Q2 adj EPS and sales topped consensus as sales surged 12% to $18.3 billion, with 12% revenue growth across all business segments; narrows FY23 adjusted EPS view while raises FY23 revenue view to $73B-$74B; said Collins Aerospace sales +17% and Pratt & Whitney +15%.

·     In Aero parts/suppliers: HXL Q2 adj EPS of $0.50 vs. Street’s $0.48, driven by stronger sales (particularly within Space & Defense), yielding gross margins of 24.4% and increased its 2023 guidance for sales of $1.765B-$1.835B (from $1.725B-$1.825B) and EPS of $1.80-$1.94 (from $1.70-$1.90). FCF guidance was reduced to >$110M.

 

Materials, Metals & Mining

·     In Metals: CLF Q2 EBITDA of $775M vs Street’s $771M and revenue was ~$6.0B (vs. its $5.8B and $5.3B in 1Q23) and steel shipments were >4.2M tons (vs. its 4.1M estimate and 4.1M in 1Q23), with the Company citing another record quarter for automotive shipments. NUE Q2 EPS $5.81 vs. est. $5.53; but Q2 revs $9.52B missed est. $9.62B; average sales price per ton in Q2 rose 7% q/q; sees earnings in Q3 to fall vs. Q2. BMO Capital noted U.S. spot HRC prices increased 3.5% over the past two weeks to $890/st, with the increase in BMO’s view driven by some restocking triggered in part by unplanned Sinton outage (expected to restart soon).

·     In chemicals: DOW Q2 Operating EPS $0.75 vs. est. $0.69; Q2 revs down -27% y/y to $11.42B vs. est. $11.34B; SHW boosted its profit outlook as its second-quarter profit exceeded analysts’ estimates on higher prices and record revenue while the paint company booked selling price increases in all its segments, as well as higher sales volume in the paint stores group.

·     In Paper Products: PKG was among top gainers in S&P after earnings results; lifting IP shares in sympathy after Q2 adj EPS $2.31 vs. est. $1.93; Q2 revs $1.95B vs. est. $1.99B; sees Q3 EPS $1.88 vs. est. $1.75.

 

Technology

Internet, Media & Telecom

·     Earnings tonight from MSFT, GOOGL, TXN, SNAP, among others in tech.

·     In telecom: VZ Q2 adj EPS $1.21 vs. est. $1.16 and revs $32.6B vs. est. $33.3B; Q2 adj EBITDA $12B s. est. $11.85B; guides year wireless service revenue growth +2.5% to +4.5%, Still sees ADJ EPS $4.55 to $4.85, EST $4.67, and still sees capital expenditure $18.25B-$19.25B

·     In Internet: SPOT falls after results as Q2 Revenue EU3.18 billion, +11% y/y vs est. EU3.21 billion; Q2 Premium revenue EU2.77 billion, +11% y/y, vs. est. EU2.79 billion; Q2 Monthly active users 551.0 million, +27% y/y, vs. estimate 529.9M.

·     In towers: CCI said it will be initiating a restructuring plan commensurate with lower Tower activity. The restructuring plan includes: 1) reduced headcount by ~15%; 2) discontinuation of the installation services product within Towers segment; and 3) consolidating office space.

·     In Media: DIS downgraded from Neutral to Underweight at Atlantic and slash tgt to $76 from $113 as firm said sees the effect of what it believes is a negative tipping point in linear TV advertising, which they estimate will shave almost $1bn off 2026 forecast operating income.

 

Hardware & Software movers:

·     CDNS reported weaker Q2 EPS of $1.08 vs. est. $1.18, while raised full-year revenue guidance by $15M vs prior consensus, while Keybanc said backlog contraction of ~$100M q/q to $5.3B was better than feared.

·     FFIV beat and raise quarter as Software 25% F3Q23 revenue, -3% was much better than -20% expectations and grew 32% q/q on record Subscription software (87.5% of total software revenue), which saw an uptick in new business sequentially.

·     ZS was upgraded to Buy from Neutral at BTIG in Internet Security with $185 tgt saying over the last couple of months, BTIG has spoken with seven contacts F500 CISO’s, channel partners, and industry analysts) with a view on ZS, and feedback has been consistently positive.

 

Semiconductors:

·     Strength across the board in semi sector, with the SOX up over 2% topping 3,770 late day, led by auto chip names after NXPI 2Q results reflect strength in core-industrial, mobile, and comm infra, with auto largely in line; 3Q revenue is expected to increase 3% q/q, above the consensus (flat q/q). INTC prices rose midday after WCCF Tech reported the chip maker is planning price hike across all “core” CPUs as a part of restructuring policy.