Closing Recap

Monday, June 05, 2023

Index	Up/Down	%	Last
DJ Industrials	-200.16	0.59%	33,562
S&P 500	-8.62	0.20%	4,273
Nasdaq	-11.34	0.09%	13,229
Russell 2000	-24.19	1.32%	1,806

 

 

 

 

 

 

 

 

 

U.S. stocks end the day lower, erasing earlier gains led by some late day selling pressure in tech. Apple (AAPL) shares topped prior all-time highs with new intraday best of $184.95, but slipped into the close to settle at below $180 after the company, as widely expected, announced a new mixed-reality headset, its first major product announcement since the Apple Watch (price starting at $3,499 and to ship early next year). Stock prices rose early as expectations have slimmed for further interest rate hikes by the Fed at its upcoming policy meeting next week following economic data. Meanwhile, other large cap tech names extended gains with AMZN, GOOGL, NFLX, TSLA all helped manage losses for the S&P and Nasdaq. A drop in treasury yields and the dollar also helped sentiment. After today’s ISM data, traders have priced in a nearly 80% chance that the Fed will hold interest rates at its June 13-14 policy meeting, according to CME Group’s FedWatch tool, though they expect another hike in July. With today’s move, the S&P 500 is on track to close nearly 20% above its October 2022 closing lows. Financials, technology, Industrials, and Staples fell while Utilities, Healthcare and Communications rose.

 

Interesting stats: Some amazing moves this year: After a 50% drawdown, FANG+ is now just 7.8% from its all-time high. The market is having its best performance on Fridays of any year since 1953. So far this year, the S&P has averaged a gain of 0.42% on Fridays. Apple is back at an all-time high for the first time since January 2022, recovering from a 31% drawdown. The SPX has gained 23% from its low last October, the largest rally since the index peaked back on January 4, 2022. Highest level since last August. The VIX ended the week at 14.60, its lowest close since February 2020 (start of the pandemic).

 

Economic Data

·     ISM non-manufacturing for May 50.3 vs. 51.9 in April and est. 52.2; business activity index 51.5 in May vs 52.0 in April; prices paid index 56.2 in May vs 59.6 in April; non-manufacturing new orders index 52.9 in May vs 56.1 in April; employment index 49.2 in May vs 50.8 in April.

·     April factory orders rose +0.4% vs. est. +0.8% and vs March +0.6%; April factory orders ex-transportation -0.2% vs March -1.0%; factory orders ex-defense -0.4% vs March +0.5%.

·     May S&P Global Composite PMI reported at 54.3 vs. est. 54.5 and prior 53.4; May S&P Global Services PMI at 54.9 vs. est. 55.1 and prior 53.6.

 

Commodities, Currencies & Treasuries

·     Oil prices started higher but pared gains, with WTI crude rising $0.41 or 0.57% to settle at $72.15 per barrel and Brent settle at $76.71/bbl, up 58 cents, 0.76% after Saudi Arabia and the rest of the OPEC-plus group of major oil producers met over the weekend and agreed to more production cuts to compensate for weakening demand. Natural gas prices climb 3.4% to close at $2.245/MMBtu after two straight weeks of declines.

·     Gold prices rise $4.70 or 0.2% to $1,974.30 an ounce after weaker U.S. services sector growth reinforced bets for the Federal Reserve to stand pat on interest rates next week. The U.S. services sector barely grew in May as new orders slowed, and inflation (price paid) fell.

·     The U.S. dollar ended little changed (DXY) around 104, pulling back on economic data ahead of the Federal Reserve’s next meeting on June 14 as markets price in a low probability of an interest-rate rise. The euro was little changed vs. the U.S. dollar, around 1.071, just above the low of $1.0635 from May 31, which was the lowest since March 20. The greenback fell to 139.2850 yen, after recently reaching 140.93 on May 30, the highest since Nov. 23.

·     Bitcoin prices fell as much as 6% below $26,000, nearly 3-month lows after the SEC is suing cryptocurrency exchange Binance claiming the company operated an illegal exchange in the U.S. Prices of crypto assets and stocks leveraged to the space fell (COIN, MARA, RIOT, MSTR).

 

 

Macro	Up/Down	Last
WTI Crude	0.41	72.15
Brent	0.58	76.71
Gold	4.70	1,974.30
EUR/USD	0.0007	1.0713
JPY/USD	-0.41	139.53
10-Year Note	0.00	3.693%

 

 

Sector News Breakdown

Consumer Staples, Retailers, & Restaurants:

·     In Beauty: EL downgraded from Outperform to Perform at Oppenheimer saying based on its work, it now sees a less favorable risk/reward scenario.

·     In beverages: BF said it plans to start distributing its own brands in Japan next spring and discontinue its decade-long collaboration with Asahi (deal ends thru end March 2024).

 

Leisure, Gaming & Lodging:

·     In racing: CHDN said that it is suspending racing operations because of 12 equine fatalities over the past few months; the horse racing complex operations will be suspended from June 7 through the reminder of the Spring Meet race, scheduled to run to July 3, as it examines safety measures. The remainder of the race meet will be relocated to Ellis Park Racing and Gaming in Henderson, Ky., beginning on June 10.

·     In casinos: Deutsche Bank said post the recent sell-off in the gaming sector, with Macau centric stocks taking the more significant hit of late, revisited its views and believes despite the healthy moves higher on Friday, represent compelling entry points for WYNN, MGM, and LVS

·     In online travel (ABNB, BKNG, EXPE): Deutsche Bank highlights the weakening hotel bookings trends against what will be the most challenging compare of the year while also checking in on OTA direct bookings trends via app based MAUs. In terms of hotel bookings volume, it notes the average global May hotel bookings that were up LSD versus the mid-to-high single digits in April.

·     In autos: TSLA surpasses Fridays hi of $217.25 and the Feb 16 hi of $217.65 if holds in continued upward momentum after rebounding off earnings miss in May; Ford (F) was upgraded to Buy from Neutral at Citigroup with a price target of $16, up from $12.80, following the firm’s 2023 U.S. Vehicle Density Survey. GM said to invest more than $1 billion in these 2 Flint facilities to make internal combustion engine heavy-duty trucks.

 

Energy

·     Saudi Arabia announced an additional 1mb/d of ‘extendible’ output cut in July, and as voluntary cuts from the 9 OPEC+ countries are now scheduled to extend until Dec 2024 (vs Dec 2023 earlier). WTI crude rose on the Saudi news.

·     In pipelines: ETRN double Upgrade to Overweight at Morgan Stanley saying with expected completion of MVP, they are raising our DCF-derived PT to $14 and our rating to OW provide a brief postmortem on the prior thesis and offer thoughts on the path ahead.

·     In Oil Equipment: PUMP announced the expansion and extension of its existing asset-based loan facility to a new five-year term and an expansion of commitments from $150 million to $225 million. PTEN reports average of 128 drilling rigs in U.S. operation in May.

 

Financials

Banks, Brokers, Asset Managers:

·     Big banks could face 20% boost to capital requirements, reported the WSJ. Those relying on fees might need larger buffers to absorb losses under planned rules https://tinyurl.com/372587zv ; in bank research CMA upgraded to Buy from Hold at Odeon Capital. In crypto, the SEC is suing cryptocurrency exchange Binance claiming the company operated an illegal exchange in the U.S.

·     In insurance: FFH has moved to buy most of the real-estate construction loans that KW has agreed to buy from California’s PACW in a $2.1 billion deal; said it would buy a 95% interest in certain of the loans the real-estate investment company is acquiring.

·     In data center REITs, CYTX and some of its subsidiaries initiated a pre- arranged court-supervised process under Chapter 11 in the District of New Jersey; shares of DLR, EQIX other data centers.

·     In market data: MKTX reports May total trading average daily volume down 19% y/y; U.S. high-grade ADV of $5.8 billion, up 2.1%, with estimated market share of 20.2%. The new issue calendar snapped back strongly in May to $155 billion, up approximately 131% from April 2023 levels. Quarter-to-date, estimated market share in U.S. high-grade is 20.8%, running 90 basis points above first quarter 2023 levels; TW reports May 2023 Total Trading Volume of $29.4 Trillion and Average Daily Volume of $1.35 Trillion; May 2023 ADV up 14.1% YoY.

·     In credit ratings: Goldman Sachs said May global debt issuance volumes rebound, creating positive implications for SPGI and MCO. Global debt issuance rebounded in May (+29% YoY) inflecting from a 15% decline in April driven by refinancing activity and a pull-forward in corporate issuance given US debt ceiling concerns.

 

Healthcare

Biotech & Pharma:

·     AMED shares jumped after saying on May 26, 2023, the Company received an unsolicited proposal from Optum to acquire all the outstanding shares of its common stock in an all-cash transaction for $100 per share and believes could be considered “superior” to the buyout deal already agreed on with OPCH in early May https://tinyurl.com/3xz77abe

·     AZN lung cancer therapy, Tagrisso, cut the risk of death by more than half in patients with a certain form of lung cancer who were diagnosed early enough to have their tumor surgically removed, trial data showed (data from ASCO).

·     AZN also showed that the phase II trial for its cancer drug Enhertu showed clinically meaningful and durable responses across patients with HER2-expressing advanced solid tumors who had been previously treated; said interim results from its DESTINY-PanTumor02 Phase 2 trial showed an objective response rate of 37.1% in the trial’s overall population.

·     BLPH shares plunge saying that its pivotal Phase 3 clinical trial evaluating the safety and efficacy of INOpulse for the treatment of fibrotic interstitial lung disease didn’t meet its primary endpoint.

·     DAWN reported positive data from registrational mid-stage trial for its investigational monotherapy Tovorafenib for a type of brain tumor, as data shows overall response rate of 67% and clinical benefit rate of 93% in 69 patients.

·     EXEL provided incremental updates from continued study of cabozantinib’s synergy with therapies in RCC.

·     FHTX said the FDA late last week lifted clinical hold on early-stage dose escalation study of blood cancer drug FHD-286; health regulator last year had placed a full clinical hold on the trial, months after a partial hold due to one death.

·     GTHX reported positive data from mid-stage trial of its drug Trilaciclib to treat patients with early-stage triple-negative breast cancer, which has limited treatment options.

·     IMGN full Phase 3 fata for ELAHERE at ASCO showed highly positive results in the Phase 3 MIRASOL confirmatory study, demonstrating rapid and consistent separation of the progression-free survival (PFS) and overall survival (OS) curves, and statistically significant blinded independent central review assessment. No new safety signals emerged.

·     NVS said at ASCO conference that its breast cancer drug Kisqali cut the risk of recurrence by more than 25% in a pivotal trial on women diagnosed at an early stage, and that the results were broadly consistent regardless of patients’ menopausal status or cancer progression status.

·     RCUS reported mid stage study w GILD that showed declined benefit in reducing disease progression in the treatment of a type of lung cancer, as per new interim data.

 

Industrials & Materials

Transports

·     CHRW shares tumbled following CEO succession plans; reportedly tapping Ford executive as new CEO; expectations were that UPS COO would be names as per Jefferies).

·     Baltic Exchange’s main dry bulk sea freight index rose for the first time in 17 sessions on Monday, up 20 points, or 2.2%, to 939 buoyed by an uptick in the larger Capesize and panamax vessel segments.

·     NSC and the transportation division of union International Association of Sheet Metal, Air, Rail and Transportation Workers on Monday reached an agreement to provide up to seven paid sick days per year for yardmasters.

 

Industrial, Aerospace & Defense

·     CIR rises after KKR agreed to acquire the company for $1.6B, including the assumption of debt, paying CIR shareholders $49 per share or 55% premium to Friday. https://tinyurl.com/2vvj6ykp

·     In heavy duty trucking (CMI, PCAR), Class 8 Trucks orders for May came in at 15,000, up 10% y/y and up 29% m/m – Jefferies notes April: was 12,016, revised higher by ~500units. With 2023 order books largely filled and backlogs stretching close to 7-months, we would not expect a meaningful pick-up in orders until the late 3Q/early 4Q period.

·     Barnes Group (B) entered into a definitive agreement to acquire MB Aerospace, a leading provider of precision aero-engine component manufacturing and repair services serving major aerospace and defense engine OEMs for $740M.

 

Technology

Internet, Media & Telecom

·     Twitter CEO Linda Yaccarino taps NBCUniversal executive as ad revenue reportedly drops 59% – NY Post.

·     Apollo (APO) announced that, on behalf of its affiliated and third-party insurance clients and other investors, it has agreed to invest $2.0 billion in preferred equity securities to be issued by AT&T Mobility II LLC, a subsidiary of AT&T Inc. (T).

·     SPOT said it plans to cut about 200 jobs, or 2% of its workforce, as it reorganizes its podcasting division to focus on partnerships with top podcasters.

·     VMEO said it ends support for TV apps, including Apple TV and Roku.

 

Hardware & Software movers:

·     Apple (AAPL) shares traded to all-time highs (topped the ATH $182.94) ahead of its annual WWDC keynote presentation, where they unveiled their first major new product in nearly a decade, a headset meant to enable users to experience virtual reality and digital apps overlaid on the real world. In other products announcements: Shares pulled back post event.

·     1) AAPL announces 15-inch MacBook air which will be powered by M2 processor chip and start at $1,299, cuts price of 2022 13-inch MacBook by $100 to $1099.

·     2) AAPL announces new M2 Ultra chip; M2 Ultra connects two M2 Max chips together and doubles performance of M2 Max (shares of INTC slumped on headlines).

·     3) AAPL announcing facetime on Apple TV saying apps like Zoom and WebEx will be coming to TV OS by end of this year.

·     4) AAPL announces new Apple watch operating system, Apple WatchOS 10, with improved widget display and comes with redesigned apps.

·     5) AAPL Announces Mixed-Reality Headset, Vision Pro which uses eyes, hands and voice for the controllers, No handheld controls. This is very different than Quest Pro according to Gene Munster (DIS shares bounced as Apple says Disney+ will be available on vision pro). Apple says Vision Pro starts at $3,499, available early next year.

·     In IT Services/Consulting: EPAM shares slide after lowered its Q2 and 2023 profit and sales outlook citing a further deterioration in the n-t demand env’t; IBM positive mention in Barron’s Tech Trader column, calling it of the most alluring bets on AI that’s “hiding in plain sight”; also calls out cheap valuation and one of the highest dividend yields in tech. SAIC rises after Q1 EPS and revs topped estimates. UBS initiates NET with a Sell Rating and Price Target of $55 following the 70% rally in May, saying investors are pricing in too much near-term AI benefit.

·     In software: PANW to replace DISH in S&P 500 at open on 6/20; PLTR announced it was awarded a contract from the US Special Operations Command (USSOCOM) to deliver technology solutions to support enterprise capabilities. The multi-year contract is worth up to $463 million. Unity (U) shares popped late day after AAPL said during WWDC event working with Unity to bring apps to Vision Pro.