Closing Recap

Tuesday, March 28, 2023

Index	Up/Down	%	Last
DJ Industrials	-37.43	0.12%	32,394
S&P 500	-6.23	0.16%	3,971
Nasdaq	-52.76	0.45%	11,716
Russell 2000	-1.04	0.06%	1,752

 

Equity Market Recap

·     Markets posted another choppy trading day Tuesday as the S&P fell below yesterday lows but remains in the same trading range the last 2-weeks, under its 50-day moving average resistance, but above its 200-day MA support. It sounds a bit like a broken record, but the S&P and major averages remain trapped for the time being, awaiting the next clues about inflation, the Fed, or the banking situation. Today in D.C, FDIC Chairman Gruenberg and Fed’s Vice Chairman for Supervision Michael Barr spoke to a Senate committee on the recent bank failures. They will speak again tomorrow to the House. Markets also await key inflation data Friday with the Fed; preferred inflation reading (core PCE). Technology, Communications and Healthcare were the biggest S&P decliners today, while Energy, Industrials and Materials led.

·     The question remains, with so much uncertainty regarding the Fed and interest rate hikes, inflation, geopolitical concerns, volatile Treasury markets/yields, and the latest banking financial concerns, why are equities holding up so well? The answer to this point has been simple, the weightings of Mega cap Tech names (AAPL, MSFT, AMZN, GOOGL, TSLA, AMD, NVDA), which are all massive outperformers in 2023 after a dismal 2022, have helped prop up the S&P 500 as the banking crisis has triggered a rotation into tech. Now with profit taking the last few days in the same such tech names, it’s been buying in all other sectors that keep the S&P trading in between its 50-day and 200-day MA levels (SPX 4,013 and 3,930 respectively – Spuz 4,026 and 3,940).

·     In their testimony today Federal Reserve Vice Chair for supervision Michael Barr said Silicon Valley Bank (SIVBQ) management failed to address clear interest rate risk and liquidity risk. CNBC Liesmann tweeted “Wow. Barr tells Senate Banking that SVB told regulators $100b was going to fly out the door on Friday. after $42b fled on Thursday, leading to the bank’s closure. If you don’t think we’re in a new world of potential hyper-speed bank runs, you’re not paying attention."

 

Economic Data:

·     February Advance Wholesale Inventories rose +0.2% M/M to $920.3B vs. +0.2% consensus and -0.4% prior. Advance Feb Retail Inventories rose +0.8% to $747.3B vs. +0.4% prior (revised from +0.3%). February International Trade in Goods (-$91.6B) vs. (-$90.0B) expected and (-$91.1B) – (revised from -$91.5B) in January.

·     Consumer Confidence index for March reported at 104.2 vs. est. 101.0; Consumer Confidence index for February revised to 103.4 (previous 102.9); the present situation index 151.1 in March vs February revised 153.0 and expectations index 73.0 in March vs February revised 70.4. US 1-year consumer inflation rate expectations 6.3% in March vs February revised 6.2%.

·     The Case Shiller 20-City Home Price Index moved down for a 7th straight month, the longest down streak since 2011-12. San Francisco, Seattle, San Diego, and Portland home prices were all negative YoY, the first time 4 major cities in the index were down YoY since 2012.

 

Commodities, Currencies & Treasuries

·     Gold prices rise $19.70 or 1% to settle at $1,973.50 an ounce, getting a boost as the dollar slides and investors look for haven assets. Oil prices rose $0.39 or 0.54% to settle at $73.20 per barrel, highest in more than two weeks and extending sharp gains from the previous session on supply disruption risks from Iraqi Kurdistan and hopes that banking sector turmoil is contained. Natural gas falls 2.8% to end at 30-month low $2.030 on weak springtime demand and oversupply.

·     Treasury markets were steady, with yields holding in a tighter range than what has become the norm, with the 10-yr as high as 3.58% before ending around 3.55%, while the 2-yr yield remains above 4% for a second day. The U.S. Treasury sold $43B in 5-year notes at a yield of 3.665%, below the 3.675% when auction prior with bid-to-cover ratio 2.48 (in-line with prior auction), as primary dealers take 13.33% of U.S. 5-year notes sale, direct 18.21% and indirect 68.46%. Better auction that yesterday’s 2-yr. A few economic data point today, but none to rock markets in any direction ahead of the PCE core data Friday. The U.S. dollar slid about -0.4% with the dollar index 102.40 and the euro up around 1.084.

 

 

Macro	Up/Down	Last
WTI Crude	0.39	73.20
Brent	0.53	78.65
Gold	19.70	1,973.50
EUR/USD	0.0044	1.0838
JPY/USD	-0.81	130.75
10-Year Note	0.043	3.572%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA is slated to report 1Q23 deliveries and production figures this coming weekend, as RBC forecasts total deliveries 445K (would be +44% y/y and 10% q/q) and Deutsche Bank trims their 1Q deliveries estimate lower to 416k units (+34% YoY, +3% QoQ) and estimate Tesla delivered about 135k units of Model 3+Y in China, with the rest to come from N. America (168k), Europe (73k), and RoW (25k). All in, our 1Q revenue is lowered to $22.5bn on trimmed volume, down from $23.3bn and cut gross margin expectations to about 18.3%.

·     Cox Automotive forecasts new-vehicle sales volume in Q1 will increase by nearly 6% year over year, reaching 3.5 million units. Sales volume in March, the final month of Q1, is expected to be near 1.30 million, an increase of 2.6% from March 2022. Through Q1, the seasonally adjusted annual rate (SAAR) is forecast at 15.0 million, an increase of more than 6% compared to the 14.1 million SAAR in the first quarter of 2022.

·     EV sector (more): NKLA CFO Kim J. Brady to Retire; Anastasiya Pasterick to succeed as new CFO. FREY said it has entered discussions on a potential strategic coalition with Glencore Plc, CAT, Siemens AG, and Nidec Corp. to pursue the scale up of sustainable battery solutions across Europe, North America, and beyond. LCID shares fell late day on reports of 18% layoffs.

·     In EV charging: BLNK initiated with Equal Weight rating and $11 PT at Barclays characterized by a race to secure the most attractive real estate for charger installations, limited pricing power for the equipment and for charging, commoditization, and risk of obsolescence on the equipment side while waiting for EV adoption to hit more critical levels.

 

Consumer Retail, Staples & Restaurants:

·     In food: MKC Q1 adj EPS $0.59 vs. est. $0.51; Q1 revs rose 3% y/y to $1.57B vs. est. $1.54B; still sees 2023 adjusted EPS $2.56-$2.61 vs. consensus $2.57; says constant currency sales growth of 5% reflected an 11% increase from pricing actions partially offset by a 2% volume decline from the Kitchen Basics divestiture, lower China consumption.

·     In luxury retail: PVH shares rise on big beat as 4Q adj EPS $2.38 tops est. $1.67 on revs $2.49B vs est. $2.37B; guides FY revs +3-4% (+2-3% constant currency) vs est. +3%, op mgn approx 10% and EPS approx $10.00 vs est. $8.92; constant currency rev growth +8%; total DTC +10%; GM 55.9% vs est. 56.5%. (Shares of luxury retailers RL, CPRI rise in sympathy).

·     In home furnishings: LOVE beats Q4 sales and profit estimates and provides mixed guidance as sees 2024 sales above analysts’ estimates at $700M-$740M vs. est. $692M but guides 2024 profit of $1.83-$2.24 per share, as mid-point below expectations of $2.10 per share.

 

Leisure, Gaming & Lodging:

·     In ride hailing: LYFT founders Logan Green and John Zimmer said they would step down as CEO and president, with board member and former AMZN executive David Risher taking on top role.

·     In cruise lines: CCL upgraded to Equal Weight from Underweight at Wells Fargo saying the risk/reward seems balanced here—CCL has minimal NT maturities/refi needs, Europe is holding up well, and FY23 EBITDA guide is reasonable.

 

Energy, Materials, and Industrials

·     Energy stock movers: OXY rises as Berkshire Hathaway bought more stock in recent days (3/23-3/27), purchasing 3.66 million shares of the energy company and bringing its ownership to 211.7 million shares, a 23.5% stake, according to a filing late Monday. OXY was also upgraded to Outperform at TD Cowen and tgt raised to $70. BP and Abu Dhabi National Oil Co. will form a natural gas joint venture and have made an offer to take Israel’s NewMed Energy private in a deal worth around $2 billion, Bloomberg reported.

·     In materials: Lithium producer ALB shares slip after Liontown Resources snubbed a bid from the co that valued the Australian lithium developer at $3.7B. News of the offer helped boost shares of other smaller lithium producers this morning (LTHM, LAC).

·     In refiners: MPC downgraded to Neutral from Overweight at JPMorgan noting since the beginning of COVID-19, MPC has been the top-performing refiner, driven by a combination of solid execution and a well-executed sale of Speedway. Says while is executing well they now see slightly below-average upside potential to price tgt.

·     In solar and utilities: ARRY upgraded to Buy from Hold at Truist saying the solar equipment manufacturer has made significant progress addressing past challenges related to its product portfolio, execution, and margin structure.

 

Financials

Banks, Brokers, Asset Managers:

·     Banks still holding up after the recent contagion fear decline following the SIVB and SBNY bank closures two-weeks ago. Bloomberg noted the amount of corporate bonds and loans trading at levels considered distressed — which for bonds primarily means yields greater than 10% points above government debt — is an important gauge. At that spread, it’s increasingly difficult for companies to obtain new financing in traditional debt markets. They risk being cut off. There are 642 of them in the market today, up from 590 before SVB’s failure, according Bloomberg.

·     In exchanges: Deutsche Bank said Trading volume trends so far in 1Q are trending favorably for most exchanges vs. 1Q Consensus estimates, except for NDAQ and TW, and volumes are trending most favorably for CME, implying a significant ~10% upside to their trading revenue forecast & ~12% upside to current 1q consensus eps. In payments, shares of AFRM tumbled after AAPL introduces Apple Pay Later to allow consumers to pay for purchases over time Apple Pay users can split purchases into four payments with zero interest and no fees.

 

Bitcoin, FinTech, Payments:

·     Crypto sector weaker the last few days, with Bitcoin down around $27K after highs above $28,600 last week. U.S. prosecutors unveiled a new indictment against Sam Bankman-Fried, charging the founder of now-bankrupt FTX cryptocurrency exchange with conspiring to violate anti-bribery provisions of the Foreign Corrupt Practices Act. @KobeissiLetter noted alarming data: “U.S. regulators just sued Binance, the world’s biggest crypto exchange. Last week, regulators told Coinbase to expect enforcement action. Coinbase said regulation is one of crypto’s "biggest threats." We’ve researched crypto lawsuits and the data is alarming.” According to Yale Law School, as of 2022, over 200 individual and class action lawsuits have been filed in crypto. This number is up 50% since 2020 and is likely near 300 as of March 2023.

 

Healthcare

Biotech & Pharma:

·     ALLR shares slip after saying interim data readouts from ongoing mid-stage studies of its breast cancer drug and ovarian cancer drug is expected to occur at end of 2023.

·     BMY receives European Commission approval of Sotyktu once-daily oral treatment for adults with moderate-to-severe plaque psoriasis.

·     HRMY shares tumbled after Scorpion Capital issues investigative report on Harmony Biosciences. The short seller said it will file a citizen’s petition with the U.S. FDA requesting withdrawal of approval for HRMY’s tablet, Wakix, in the treatment of excessive daytime sleepiness.

·     ITCI rises after announcing positive topline results from study 403 evaluating Lumateperone as monotherapy in patients with major depressive disorder with mixed features and in patients with bipolar depression with mixed features.

·     SNOA and REGN announce collaboration to discover, develop and commercialize Treg cell therapies for autoimmune diseases; Sonoma to get $75 million upfront, inclusive of $45 million cash and $30 million equity investment.

·     VKTX reported positive results from a Ph1 study of dual GLP-1/GIP receptor agonist VK2735 sending shares higher; showed encouraging safety and tolerability in the study, along with positive effects on body weight, with up to 6% placebo-adjusted mean weight loss observed after 28 days; said it plans to initiate a Phase 2 study of VK2735 in patients with obesity in mid-2023.

 

Healthcare Services & MedTech movers:

·     In managed care: ELV upgraded to Outperform from Sector Perform at RBC Capital and raised the price tgt to $572 from $523 as came away from ELV’s 2023 Investor Day with a greater appreciation for the momentum building in Carelon.

·     In pharmacy retail: Dow component WBA Q2 EPS $1.16 topped consensus estimate $1.10 as sales of $34.86B beat the $33.57B estimate with US sales $27.6B and int’l sales $5.7B; said still sees FY Adj EPS $4.45-$4.65 vs. est. $4.50.

·     In health insurance: OSCR announces appointment of healthcare veteran Mark Bertolini to CEO; Co-Founder and CEO Mario Schlosser transitions to President of Technology.

 

Technology

Internet, Media & Telecom

·     After leading major U.S. averages higher in 2023, with the Nasdaq up over 12% YTD, mega cap tech falls for a second straight day in a bout of profit taking with semiconductors (NVDA, AMD), as well as large cap tech (GOOGL, AMZN, AAPL, NFLX) pulling back.

·     In Internet: BABA said it plans to split its $220 billion business into six main units encompassing e-commerce, media, and the cloud, each of which will explore fundraising or initial public offerings when the time is right. PINS approved a restructuring plan intended to support the Company’s corporate strategy, improve efficiency, and position the business considering the ongoing macroeconomic environment; sees charges $100M-$125M.

·     In media: FOXA downgraded to Neutral from Buy at Bank America and lower tgt to $34 (from $42) as they struggle to find near-term catalysts; downgraded IHRT to Underperform and cut tgt to $4 due to limited near term visibility in IHRT’s business and upgraded PARA to Buy from neutral and up tgt to $32 based on the sum of its asset values in a sale scenario. KeyBanc said February streaming monthly churn moved modestly lower to 2.9% compared to a year ago and remained flat m/m and, when excluding NFLX from our data, churn for the traditional Media streaming services increased 0.1% m/m at 3.3%.

 

Semi’s, Hardware & Software movers:

·     In networking: ANET shares drop after Cleveland Research said 1Q bookings appear to be moderating vs. trend as order visibility narrows in conjunction w/ shorter lead times; shipments from backlog are seen supporting revenue upside to the business in the near-term.

·     In optical: CIEN upgrade to Strong Buy from Outperform at Raymond James as envision Ciena’s entry in the edge router market as a catalyst; says an upcoming platform, WaveRouter, expands Ciena’s TAM by $8B, aids growth, and helps margin.

·     In semi’s: group was weaker to start following more profit taking but pared losses midday after Infineon technologies (IFNNY) said it now sees Q2 revs to come in above EUR 4 bln, compared to its original anticipation of around EUR 3.9 bln euros. Chip makers levered to auto industry saw relative strength with ON, NXPI bouncing.