Closing Recap

Tuesday, June 06, 2023

Index	Up/Down	%	Last
DJ Industrials	10.43	0.03%	33,573
S&P 500	9.94	0.23%	4,283
Nasdaq	46.99	0.36%	13,276
Russell 2000	48.69	2.69%	1,855

 

 

 

 

 

 

 

 

 

U.S. stocks held steadily higher most of the afternoon as investors weigh the possibility of a Fed interest rate “pause” at next week’s policy meeting as well as hopes of a “soft landing.” Financials paced today’s market rally as Goldman Sachs reduced their recession probability forecast this morning from 35% to 25% while the World Bank raised its 2023 global growth forecast to 2.1% from 1.7% in January on greater-than-expected resilience in major economies. The World Bank lowered the 2024 global growth forecasts to 2.4% from 2.7% in January, citing a drag from tighter monetary policy. There were no scheduled Fed speakers as the FOMC is currently observing its “Blackout Period” ahead of its June FOMC meeting next Wednesday. Smallcaps outperformed broader markets with a 2.6% surge for the Russell 2000 after a brief dip the day prior helped by financials while defensive Healthcare and Staples sectors fell. Homebuilders and building product names broadly higher, several 52-week highs. The CBOE Volatility index (VIX) falls as much as -5.25% below 14.00, its lowest since February 2020 as market continues to exhibit zero fears ahead of the FOMC next week and as stocks climb. The Dow underperformed after declines in Merck (MRK), UnitedHealthcare (UNH), and Boeing (BA).

 

Crypto and Bitcoin grabbed the headlines early after the SEC sued Coinbase (COIN), accusing it of illegally operating without registration with the regulator (shares fell 15%). News comes a day after the SEC filed a lawsuit against Binance and its CEO, Changpeng Zhao. The SEC said Coinbase has since at least 2019 operated as an unregistered broker by handling cryptocurrency transactions, evading the disclosure requirements meant to protect investors.

 

Commodities, Currencies & Treasuries

·     NYMEX WTI Crude July futures settle at $71.74 a barrel, down 41 cents, 0.57% while Brent Crude futures settle at $76.29/bbl, down 42 cents, 0.55%.

·     Precious metals advance as August gold settles +$7.20, or +0.36%, to $1,981.50.

·     Bitcoin drops as much as 1.5% to $25,350, lowest since mid-March before rebounding sharply, falling initially after the US SEC sued Coinbase.

·     Treasury yields edged modestly higher; 2-yr yield up 4-bps to 4.523%, and the 10-yr yield rose 1-bps to 3.704%. The dollar edged slightly higher in narrow trading.

 

 

Macro	Up/Down	Last
WTI Crude	-0.41	71.74
Brent	-0.42	76.29
Gold	7.20	1,981.50
EUR/USD	-0.0027	1.0685
JPY/USD	0.18	139.72
10-Year Note	0.011	3.704%

 

 

Sector News Breakdown

Consumer Staples & Restaurants:

·     In food: MKC double upgraded from Underperform to Buy at Bank America and raised its price tgt from $75 to $100. SJM said it has increased prices to offset the impact of rising freight and labor charges as Q1 results beat ($2.64/$2.2B vs. $2.37/$2.17B) and forecast a smaller-than-expected decline in annual net sales; food stocks underperformed in general (CPB, CAG).

·     In beverages: TAP upgraded to Neutral from Underperform at Bank America and raise ests and tgt to $68 from $54 based on its view that recent U.S. market share gains related to the Bud Light boycott have lasted long enough to positively impact sales and earnings.

·     In restaurants: CBRL shares slide on Q3 adj EPS $1.21 below consensus $1.34 and weaker revs $832.7M vs. consensus $846M; said Q3 comp store restaurant sales increased 7.4%, while comparable store retail sales decreased -4.6%; said casual dining traffic declined at end of Q3.

Retailers:

·     In Apparel: CHS reported mixed quarterly earnings and guidance; GIII reports Q1 net sales $595M above $584.3M est. and an adj. EPS profit vs. estimate of a loss and said now expects fiscal 2024 net sales of ~$3.29B vs its prior projection of ~$3.23B on better earnings outlook; JOAN 1Q adj EPS ($0.93) vs est. ($0.66), adj EBITDA $3.5Mm vs est. $9.878Mm on revs $478.1Mm vs est. $480.61Mm, gr mgn 52.1%; guides FY net sales -1% to -4% vs est. -1.74%.

·     In sporting goods: ASO Q1 EPS and sales missed consensus ($1.30/$1.38B vs. est. $1.66/$1.44B) and lowered FY profit and net sales forecast on slumping demand and high costs of production; 2023 adjusted EPS view $6.80-$7.50 down from $7.00-$7.75 on weaker comp sales.

·     Miscellaneous retail: DG slips after Wells Fargo and Daiwa downgraded after recent results (makes the 4th and 5th analyst downgrade since results); shares down 5 of last 6 days at lowest levels since March 2020; OSTK shares jump after the WSJ reported the company may be bidding for Bed Bath & Beyond Branding, with plans to shut stores.

 

Leisure, Gaming & Lodging:

·     In RV’s/towable: THO Q3 EPS $2.24 tops est. $1.07 on better Q3 revs $2.93B vs. est. $2.83B and raises low end of FY23 EPS view to $5.80-$6.50 from $5.50-$6.50 (est. $5.64) and narrows its FY23 revenue view to $10.5B-$11B from $10.5B-$11.5B (est. $11.03B).

·     In leisure: Golf stocks GOLF, MODG shares outperformed after the PGA Tour agreed to merge with rival LIV Golf, which is backed by the Saudi Arabia Public Investment Fund, an entity controlled by the Saudi crown prince. The deal would end all pending litigation.

 

Energy, Industrials and Materials

·     In trucking: ODFL said its May Less-Than-Truckload revenue per day dropped -15.7%; the 8-K showed the freight shipping company said the decrease was mainly due to a 14.4% drop in LTL tons per day. The LTL revenue per hundredweight edged up by 0.1% and the LTL revenue per hundredweight excluding fuel surcharges rose 7.9% in the quarter-to-date period.

·     In Homebuilders: more strength in builders and building products as BZH, BLDR, CCS, DFH, GRBK, KBH, MHO, OC, PHM, SUM, TMHC, TOL, VMC among names in the homebuilder, building product space touching 52-week highs today.

·     In Energy: Nat gas prices slip: the EIA now sees natural gas prices averaging $2.66/MMBtu this year versus a $2.91 forecast last month and sees 2024 prices averaging $3.42 vs $3.72 previously. The EIA however raised its 2023 and 2024 forecasts for U.S. and global benchmark crude-oil prices. The EIA raised its 2023 forecast for West Texas Intermediate crude prices to $74.60 a barrel, up 1.3% from the May forecast. For 2024, it increased its forecast by 13% to $78.51.

·     In Aerospace & Defense: BA shares slumped mid-afternoon after saying it will delay deliveries of its 787 Dreamliner aircraft after uncovering flawed parts during production. Boeing said the flaw may affect about 90 already-built Dreamliners that the company has not yet delivered, Boeing said on Tuesday. It will inspect each plane for improperly (shares of supplier SPR fell in reaction the headlines); CDRE 1.5M share Spot Secondary priced at $19.00 (sold by CEO as per filing); Emirates President Tim Clark said the airline may order more Airbus A350, Boeing (BA) 777X or 787 jets as the Dubai-based carrier looks ahead to demand through the 2030s.

·     In Industrials: LII upgraded to Overweight at Keybanc with $355 tgt as finds LII’s self-help story particularly compelling and feel several idiosyncratic factors set the stage for the most upside to shares vs its HVAC OEM coverage universe. HOLI shares rise amid report of management-led buyout talks https://tinyurl.com/yuxtbdsv; ABM shares rise after mixed Q2 results; despite higher opex of $1.72B.

·     In Metals: TECK said it is pursuing a separation of its base metals and steelmaking coal businesses. Teck’s Board of Directors and independent Special Committee, with the support of their financial and legal advisors, will continue to consider and evaluate all actionable. In Research, RBC Capital upgraded VALE from Sector Perform to Outperform, Anglo American (NGLOY) upgraded to Outperform from Sector Perform noting shares are down 37% over the past year, creating an attractive valuation.

 

Financials

Banks, Brokers, Asset Managers:

·     In Bitcoin/Payments: COIN shares tumbled after the SEC sued the company claiming alleging operation as unregistered securities exchange, broker, clearing agency and that Coinbase failed to register offer, sale of crypto asset staking-as-a-service program; shares of Bitcoin slipped as did securities leveraged to crypto MARA, RIOT, BTBT, MSTR.

·     In banks: MTB shares outperform after filing last night showed CFO Bible buys $10K in shares valued at $1.2MM; FHN guided Q2 NII down 5%-7%, flat to down 2% noninterest income; sees Q2 noninterest expense up 3%-5%, with CET1 about 11.25%; said QTD deposits up $0.4B, reports net deposit growth $1.5B in May.

·     In insurance: AIG said offering 65M existing shares of CBRG in Secondary offering.

·     In REITs: BX agreed to sell the JW Marriott San Antonio Hill Country Resort & Spa for $800 million to RHP; RHP files to sell 3.5M shares stock.

·     In services & exchanges: NDAQ said May U.S. Equity options volume of 269 mln contracts, up +6.7% y/y vs 208 mln contracts in April.

 

Healthcare

Biotech & Pharma:

·     ALKS raises 2023 revenue and Gaap net income expectations by approximately $425M after it announced it received a final award (the Final Award) from the arbitral tribunal (the Tribunal) in its arbitration proceedings with Janssen Pharmaceutica N.V.

·     BCLI said the FDA has scheduled an advisory committee to review its biologics license application for NurOwn in the treatment of amyotrophic lateral sclerosis, or ALS.

·     DNLI and BIIB said they plan to consolidate and speed enrollment for the LRRK2 oral Parkinson’s drug and target data in 2025 for this pivotal program.

·     GSK said the FDA has accepted the supplemental Biologics License Application for its Jemperli endometrial cancer treatment in combination with chemotherapy.

·     MRK sued the Department of Health and Human Services, calling Medicare’s new powers to reduce drug prices under the Inflation Reduction Act unconstitutional.

·     RARE was upgraded from In Line to Outperform at Evercore/ISI and raised tgt to $80 from $60, encouraged by this data in younger patients and look forward to updates to further derisk the program ahead of P3.

 

Healthcare Services & MedTech movers:

·     In managed care: CI upgraded to Buy from Neutral at Bank America with $320 tgt on what they see as a stronger than average growth outlook for commercial and PBMs (notes those are normally the 2 slowest growing end markets for MCOs)

·     In Healthcare Tech (HCIT): GEHC files to sell 25M shares of common stock for holders; HQY reported a top- and bottom-line beat and raised both its FY24 revenue and adj. EBITDA guidance with cash higher-than-expected, driven by better custodial revenue (9% above consensus) off higher-than-expected cash yields.

·     In Healthcare Services: OSCR upgraded to Neutral from Underperform at Bank America as see an increasing visibility in the path to removing the financing overhang.

·     In Medical Equipment: NVRO shares tumbled after lowering its revenue guidance for Q2’23 to $106M-$108M from $110M-$112M and announcing a new CCO yesterday after the close.

 

Technology

Internet, Media & Telecom

·     In telecom: AT&T Inc. (T) was upgraded to Market Perform from underperform at MoffettNathanson as believe shares now appropriately reflect reality that wireless fundamentals generally, or at AT&T specifically, is not getting materially better.

·     In Media: AMCX was downgraded from Equal Weight to Underweight at Morgan Stanley and cut tgt to $12 from $19 saying discounted valuation relative to media peers already highlights concerns on declining linear networks EBITDA.

 

Hardware & Software movers:

·     In Comm & Networking: CIEN reported a top and bottom-line beat for Q2 results and said expects to repurchase $250M shares this FY while narrows FY22 rev growth view to 18%-22% from prior 20%-22% while affirms GM guidance of 42%-44%.

·     In Software: CXM reported better-than-expected F1Q24 results, with non-GAAP EPS of $0.06 above consensus $0.01; non-GAAP operating margin of 6.0% down from 8.7% in F4Q; revs of $173M +20% y/y vs. est. $169M (but a deceleration from 22% last quarter). GTLB shares jumped as reported a strong 1Q as revs grew 45%, above Street at 35%, and FY24 rev growth guide raised from 26% to 28% and guided for a smaller EPS loss for year.

·     In Electronic Equipment & Parts: CLS 12M share Spot Secondary priced at $12.40 per share.

 

Semiconductors:

·     Yesterday the SIA published its monthly WSTS report, which tracks sales, units, and ASPs across the semiconductor industry, and provides details by products, end markets, and geographies.

·     Total semiconductor sales fell -21.2% YoY in April after decreasing -19.6% YoY in March. Memory sales fell -58.5% YoY; excluding memory, sales fell by -8.8% YoY.

·     Total semiconductor sales growth MoM was worse than typical seasonality, down -13.8% versus the historical April average of down -9.8%. On a m/o/m basis as reported, 4 out of 11 groups performed better than typical historical patterns with 7 worse than typical.

·     MBLY slipped as INTC planned to sell shares of the company worth around $1.4 billion. A subsidiary of Intel will sell 35 million Mobileye shares.

·     TSM said it expects 2023 CAPEX to wind up closer to $32B, in line w consensus but at the low end of their $32-36B target (comments weighed on equipment names LRCX, AMAT, KLAC).