Closing Recap

Friday, March 03, 2023

Equity Market Recap

·     The market melt up continued, adding to Thursdays sharp spike after the S&P and Nasdaq 100 held their respective 200-day moving averages, extending gains on no specific news to account for today’s bullish action. Just another broad-based rally with strong upside momentum continued to close out the week. Overall, there was little to know market resistance as stocks opened near the lows and finished near the highs as nearly all S&P sectors saw strength, with growth outperforming, snapping its 3-week losing week. Treasury yields pulled back, and market’s CBOE Volatility (VIX) “fear index” tumbled for its 6^th straight day of declines as investors choose to buy dips rather than sell rips into key monthly jobs data next week.

·     Economic data for the most part this week was not bullish for the market view of slowing interest rate hikes by the Fed, with ISM Manufacturing mid-week softer and prices paid jumping – but just did not matter. Today ISM service prices paid dipped but remains elevated, yest Jobless Claims was below 200K again and unit labor costs doubled ests as productivity dipped. But nothing mattered as stocks finished at weekly highs. Next week not a big week for inflation data coming up, but plenty of jobs related info with ADP private payrolls and JOLTS on 3/8, Jobless Claims 3/9 and Nonfarm payrolls 3/10.

·     There were positive developments in Europe on inflation as Eurozone Jan PPI undershot street expectations and broke the trend of hot data and higher rates, surprising on the downside decelerating to 15% YoY in Jan from 24.5% YoY in Dec (m/m rate fell 2.8% after rising 1.1%). Industrials and Materials found upside momentum earlier in the week with upbeat China manufacturing data, as covid lockdowns lead to pent up demand, lifting commodity prices. Hawkish Fed speakers this week, rising Treasury yields (most of the week) and US dollar all failed to worry investors with big buying the tail end of the week.

Economic Data:

·     The U.S. ISM Non-Manufacturing services sector dipped to 55.1 from a 55.2 in January (consensus was 54.5); survey’s gauge of new orders received increased to 62.6 last month, the highest level since November 2021, from 60.4 in January. Measure of prices paid by services industries for inputs fell to 65.6 from 67.8 in January. Measure of services industry supplier deliveries dropped to 47.6 from 50.0 in January. Employment rose to 54.0 (Dec 2021 high).

·     S&P Global Feb. Services PMI reported at 50.6 vs 46.8 last month, while S&P Global Feb. Composite PMI at 50.1 vs 46.8 prior.

Commodities, Currencies & Treasuries

·     Oil prices finish the day higher for a 4^th straight day (up 4.4% on week), erasing earlier losses as WTI gained $1.52 or 1.94% to settle at $79.68 per barrel. Prices initially dropped following a Wall Street Journal story indicating that U.A.E. leadership has for years discussed departing OPEC, without action and recent disagreements with Saudi Arabia had rekindled the idea. Oil prices had recovered nearly all their losses about an hour after the WSJ story appeared. Oilfield services company Baker Hughes says the number of active, oil-targeted rigs in the US fell by eight last week to 592 rigs, the lowest total in six months and a third consecutive weekly decline.

·     Gold prices rose $14.10, or 0.77% to settle at $1,854.60 an ounce, the first weekly jump after four consecutive weeks of decline. Treasury yields on the long end of the curve ended near the lows of the session, with the 10-yr down after hitting highest levels since November at 4.09% yesterday. The U.S. dollar also dipped, with the dollar index (DXY) falling -0.35% back below the 105 level. Bitcoin prices fell over 4% to 2-weel lows around $22,300.

Sector News Breakdown

Consumer

·     Retailers: COST beat Q4 earnings expectations, but revenue came in lower than projected ($54.24b vs. est. $55.3B, up from $51.9B a year ago) as comp sales growth was 5.2%, compared with analysts’ predictions for 5.5%. E-commerce sales fell 9.6%. JWN reported in-line earnings, announced job cuts, and said to close Canada operations. HIBB misses Q4 revenue and profit estimates and said expects FY24 net sales to be up mid-single digit, compared with estimates of growth of 6.8% to $1.82B; VSCO forecast Q1 2023 revenue, profit forecast below expectations as persistently high inflation slows demand for its products (sees Q1 sales to decrease in the mid-single digit range vs. est. down -2.1% and Q1 EPS $0.30-$0.60 vs. est. $0.83).

·     In Autos: TSLA sold 74,402 China-made EVs in February, up 31.65% from a year earlier and 12.6% QoQ; STLA upgraded to Outperform at RBC Capital saying the company is now their favorite mass-market OEM as Stellantis appears more appealing versus mass-market OEMs both in North America and in Europe. In EV charging, CHPT shares fell as delivered a 4Q revenue miss while non-GAAP margins and OpEx were more favorable but 1Q revenue guidance is 19% below consensus; Ford (F) said will boost North America production to meet demand. VWAGY shares jumped after saying it expects supply chain issues to ease and sales to rise to as much as 331 billion euros ($352 billion) in 2023.

·     In Consumer Staples & Restaurants: DPZ downgraded to Hold from Buy and tgt cut to $315 from $344 on lower long-term growth algorithm at Gordon Haskett; in grocers, KR upgraded to Overweight at JPMorgan after earnings as believe the risk/reward now skews favorably. HRL downgraded to Neutral at JPMorgan following 1Q23 earnings and a 6% guidance cut that, in their view, does not fully de-risk earnings. PG was upgraded to Overweight at JPMorgan as think consensus estimates are low into the back end of 2023 or 1HFY24, a more positive setup compared to when they downgraded a year ago. PBPB and FRGI also active on earnings.

Energy

·     The amount of natural gas flowing to U.S. liquefied natural gas (LNG) export plants was on track to hit a daily record high on Friday as Freeport LNG’s facility in Texas keeps pulling in more of the fuel, according to data provider Refinitiv.

·     In solar: FSLR best levels in over a decade after being upgraded from Neutral to Buy at UBS as see FSLR as the most significant beneficiary of the Inflation Reduction Act (IRA) with high visibility on capacity, revenue, and earnings growth through 2026.

·     In refiners: MPC upgrade from Hold to Buy at Jefferies and raise tgt to $157 from $134, driven by a step-up in margin capture to the high ~90%s from the prior avg of ~90% and says strong FCF generation, cash balance, and distributions from MPLX give them confidence in MPC’s ability to return capital to shareholders through the cycle.

·     In E&P sector: PXD upgraded to EW from UW at Wells Fargo despite cutting PT to $220 from $225 saying corrective actions by mgmt to address productivity issues, Q4’22 results and recent share price fall have meaningfully de-risked the stock.

Financials

·     In crypto: shares of cryptocurrency and blockchain-related companies fall after prices of Bitcoin falls by as much as 5% to 2-week lows of $22,340 and Ethereum falls 5% to $1,550 following the fallout of SI delayed 10-K filing. Crypto exchange COIN slides along with Blockchain farm operators such as MARA, HUT, BTBT, Peer crypto bank SBNY fell in sympathy with SI slips early after the Bitcoin miner says it expects to delay its annual financial report.

·     Bank America noted crypto-related companies are beginning to distance themselves from Silvergate (SI) following last night’s delayed 10-K filing release. Noted COIN, the second-largest cryptocurrency exchange, terminated its partnership with SI and was no longer accepting payments from the bank.

Healthcare

·     Healthcare Services & MedTech: COO reported F1Q results, with revenue of $859M (vs. $835M cons) and EPS of $2.90 (vs. $2.69 cons), highlighting double-digit organic revenue growth and strong op performances at both CooperVision and CooperSurgical; raised its FY23 EP. CDNA shares tumble a second day after MolDX issued a billing and coding article that severely limits coverage of the company’s tests in multiple areas; shares downgraded at Raymond James and Hallum this morning on news.

·     Drug movers: EXEL said its late-stage trial evaluating its kidney cancer drug combination (Cabometyx in combination with cancer drug atezolizumab) failed to meet main goal of progression-free survival (PFS). NBIX upgrade from In Line to Outperform at Evercore/ISI with $130 tgt noting shares are off ~25% from their Dec 2022 highs as investors have had a chance to digest the potential impact of the IRA on Ingrezza and the stock has also been dragged down in a difficult macro tape. RVMD 13.64M share Secondary priced at $22.00. VERU said the FDA declined emergency use authorization for its experimental drug to treat adult patients hospitalized with moderate-to-severe COVID-19. PRAX said its experimental drug to treat essential tremor fails in mid-stage study.

Industrials & Materials

·     Industrials: Reuters reported that NATI has decided that FTV and KEYS have the potential to top EMR’s $7 billion bid for the company, citing three people familiar with the matter. The three, all providers of automation solutions facilitating manufacturing in various industries, that their offers qualify them to go through the second round of bidding. https://bit.ly/3EU0F07 ; BA shares rose on Reuters report that Indian budget carrier IndiGo is in talks with both Boeing and its current supplier Airbus to order more than 500 passenger jet. AIR among materials and industrials hitting 52-week highs today.

·     In transports: ODFL said its revenue per day fell -2.9% in February from a year earlier, which CEO Gantt as a more than 12% drop in less-than-truckload tons per day was partially offset by higher less-than-truckload revenue per hundredweight; Dow transports generally underperformed the broader market with weakness in trucking and logistics (LSTR, ODFL, R, JBHT, EXPD). In shipping, EGLE shares slide after cutting its dividend and on Q4 revenue decline, falling 18% y/y.

Technology, Media & Telecom

·     In Media & Telecom: WBD added to Bank America’s ‘Growth 10’ portfolio / removed from the ‘Value 10’ portfolio. VZ announced a few executive management changes – Matt Ellis, who has served as the EVP and CFO since November 2016, will be leaving the company to pursue other interests, effective May 1. BMBL 12.5M share secondary priced at $22.8/share.

·     Semiconductors: AVGO Q1 adj EPS $10.33 vs. est. $10.10; Q1 revs $8.92B vs. est. $8.9B; sees Q2 revenue approximately $8.7B vs. est. $8.59B and sees Q2 adjusted EBITDA approximately 64.5% of projected revenue; Q1 Infrastructure software revenue $1.81B below views. MRVL shares fell after posted an in-line print, which, was overshadowed by another guide down as Marvell’s inventory correction continues; sees Q1 revs in range of $1.3B (+/-5%), below consensus forecast of $1.33B and EPS 29 cents (+/-5%), below Street of 33c.

·     Software movers: ZS shares slide in security sector despite top and bottom line beat as reported a weaker than expected F2Q23 as Billings growth of +34% (+0.5% beat vs +2% last qtr) missed buyside expectations of growth acceleration vs +37% last qtr. ZM filed an 8-K to disclose that President Greg Tomb has been terminated from his role effective March 3rd without cause. IOT reported a strong 4Q, delivering 48% growth (vs. 49% last qtr), w/ the ~9% beat ahead of the ~8% TTM avg. AI shares rally as 3Q results came in ahead of expectations, and the company modestly increased mid-point of FY23 revenue targets (Q3 revenues came in at $66.7M vs. the Street’s $64.2M estimate with subscription revenue coming in at $57.0M). ESTC stronger Q4 results overshadow lower Q1 and year guidance; ESTC also added 60 $100K+ customers, its strongest additions since 4Q22/ April, and grew billings 35% Y/Y.

·     In Hardware, Comm, and Services: HPE beat sales by +5% and EPS by +17% and is guiding the full year higher as many of HPE’s metrics are coming off multiple years of underperforming. DELL posted a FQ1 outlook for sales -6% and EPS -37% below consensus and materially softer than normal seasonality but followed with a F24 outlook that shows improvement each quarter as the year progresses. INVE posted about an in-line 4Q, and guided FY23 revenue below consensus.