Closing Recap

Wednesday, May 03, 2023

Index	Up/Down	%	Last
DJ Industrials	-270.42	0.80%	33,414
S&P 500	-28.73	0.70%	4,090
Nasdaq	-55.18	0.46%	12,025
Russell 2000	7.17	0.41%	1,739

 

 

 

 

 

 

 

 

 

As expected, the Federal Reserve delivered a 25 basis-point interest-rate increase to a 5%-5.25% range. U.S. stocks bounced back and forth in a narrow range for 90-minutes throughout Fed Chairman Powell press conference which had a little something for both Bulls and Bears. Powell noted that assessing the extent to which firmer policy will be needed will be ongoing, and meeting by meeting and said it’s not possible to say with confidence if has reached sufficiently restrictive level. At the same time, Powell said the statement change today was meaningful after removing a phrase saying that some additional policy increases might be appropriate. The one thing that was certain following today’s meeting and comments is that…nothing is certain into the June meeting! By the end of the day, stocks succumbed to some selling pressure with the S&P 500 (SPX) back around the 4,100 level.

 

All 11 voters on the rate-setting Federal Open Market Committee agreed to the decision today of a hike. The Fed removed a phrase from their previous policy statement in March that said some additional policy increases might be appropriate – that popped markets higher initially. Following the FOMC statement, U.S. Interest rate futures priced in pause in June, July meeting, according to FedWatch. Rate futures also show traders’ price in rate cuts in September after the Fed decision and show the policy rate finishing the year around 4.45%. The Fed raised interest rates at its previous nine meetings by a cumulative 4.75 percentage points from near zero in March 2022 through March 2023.

 

Earnings were plentiful, economic data mixed again, but markets hung on every word from Fed Chairman Powell all afternoon that overshadowed all of it. In geopolitical news, drones struck the Kremlin in the early hours of Wednesday, said the Russian government, which blamed the attack on Ukraine. Two unmanned aircraft launched by Ukraine crashed into the Kremlin after they were downed by electronic-warfare systems, according to a statement. Big night for earnings again tonight and massive day of results tomorrow, including Apple (AAPL) tomorrow night.

 

FOMC Policy meeting highlights

·     The Federal Reserve said “economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”

·     Powell said late in his press conference that a particular focus now and going forward is what’s happening with credit tightening. Need to factor credit tightening into whether our policy stance is sufficiently restrictive. He said would not be appropriate to cut rates, given our view that inflation will take some time to come down.

 

Economic data

·     ADP Private Payroll employment data for April came in a much stronger than expected 9-month high of 296K jobs, well above the 148K estimate and last month’s revised 142K figure. Annual pay increased 6.7% Y/Y, down from the 6.9% pace in March and from 7.2% in February.

·     ISM non-manufacturing PMI for April 51.9 vs. est. 51.8 and prior month 51.2; business activity index 52.0 in April vs 55.4 in March, prices paid index 59.6 in April vs 59.5 in March, new orders index 56.1 in April vs 52.2 in March, employment index 50.8 in April vs 51.3 in March.

·     Weekly U.S. mortgage market index slips -1.2% to 214.4 in latest week as per the Mortgage bankers Assoc; purchase index falls 2.0%, refinance index rises 0.8% and the average 30-year mortgage rate falls 5 bps to 6.50 pct in April 28 week.

 

Commodities, Currencies & Treasuries

·     Oil prices extended losses as WTI crude settled down -$3.06 or 4.27% to $68.60 per barrel (6-week lows) after plunging 5% in the previous session, as investors fret about the health of the U.S. economy. U.S. inventories of crude oil declined but gasoline stockpiles surprisingly increased sharply, according to the EIA weekly data. Commercial crude-oil stockpiles fell by 1.3 million barrels last week to 459.6 million barrels.

·     Gold prices settled higher, rising $13.70 or 0.7% to finish at $2,037 an ounce (then popped higher after the initial FOMC statement), moving to highest level since mid-April. The dollar index (DXY) was weak all day while treasury yields were lower most of the day, narrow range as well. The ECB is expected to reduce the pace of increases to 25 bp tomorrow from 50 bp.

 

 

Macro	Up/Down	Last
WTI Crude	-3.06	68.60
Brent	-2.99	72.33
Gold	13.70	2,037.00
EUR/USD	0.0055	1.1055
JPY/USD	-1.03	135.50
10-Year Note	-0.051	3.388%

 

 

Sector News Breakdown

Consumer

Autos:

·     Ford (F) swung to a quarterly profit and reported a 20% rise in sales to $41.5B easily topping consensus, but the car maker only reaffirmed its 2023 guidance of adjusted EBIT of $9 billion to $11 billion and adjusted free-cash flow of about $6 billion.

·     STEL reported Q1’23 group revenues of €47.2b beat consensus of €45.9b by +3.0%, driven by ASPs of €32.0k, +4.1% vs. consensus, but offset by volumes of 1.48m, -1.0% below consensus. FY’23 guidance confirmed.

·     TSLA slightly raised the price of its Model 3 and Model Y vehicles Tuesday by $250 as the Model 3 sedan now starts at $40,240 and the Model Y crossover starts at $47,240.

 

Retail, Consumer Staples & Restaurants:

·     In restaurants: an M&A deal in the space as DRI acquires RUTH for $21.50 per share in a deal valued at $715M; SBUX reported a Q2 beat helped by a surprise same-store sales gain in China (+3%), continued solid demand in the U.S. (comps +12%) and higher prices, but only reaffirmed guidance for the year despite the beat; YUMC Q1 EPS $0.69 ex-items beating Con $0.46 with revenue above as comps +8% beat consensus +4.5% on upside in both KFC and Pizza Hut; WING rises after strong Q1 total domestic stores comp sales growth +20.1%, topping estimate +8.57% on EPS and revenue beat; DIN Q1 EPS and sales topped consensus expectations; EAT shares fall as comps and margins basically in-line with the street with Chili comps missing by 40bps and traffic down 5.8%, offset by mix, price was 9.8%; DENN slides on Q1 EPS miss.

·     In consumer products: CLX reported a material F3Q beat with EPS of $1.51 topping ests $1.24, driven by y/y organic sales growth accelerating to +8% on price/volume +19/-11%, and gross margin +590 bp y/y to 41.8%. In beauty space, EL shares fall after cutting FY23 adjusted EPS view to $3.29-$3.39 from $4.87-$5.02 and sees FY23 sales to decrease between 12%-10% y/y vs. prior view of a decrease between 7%-5% (COTY, ELF, LRLCY, ULTA shares active in reaction). In food: KHC guides FY adj EPS $2.83-$2.91, above prior $2.67-$2.75 after Q1 adj EPS of $0.68 tops analysts’ estimates of $0.60; guidance boost citing price hikes.

·     In retail: HBI posted sales decreases across all three of its business segments in its first-quarter earnings results as sales fell but was in-line with ests; LEG Q1 results, with sales, EBITDA, and EPS above consensus; however, demand softness in residential end markets persists; bedding sales decreased y/y, due to a 9% decline in unit volume.

 

Leisure, Gaming & Lodging:

·     In ride hailing, UBER upgraded from Neutral to Positive at Susquehanna while several analysts raise their price tgt after company posted another nice quarter, as the company is seeing continued solid top-line traction while demonstrating discipline on the cost side.

·     In RV space: CWH Results beat consensus (EBITDA + $14.0M, sales +$11.7M); Gross margin beat by +100bps and adjusted EBITDA margin beat by +80bps.

·     In casinos: CZR posted revenue and EBITDAR beat led by record EBITDA in Vegas.

 

Energy

·     In Energy earnings: CRK production and EBITDA came in largely as expected in the quarter; ET reported strong 1Q23 adj EBITDA of $3.4bn vs Mizuho/Street estimates of $3.2bn, respectively, and raised FY23 guidance by ~$150mn; LNG handily beat 1Q23 adj EBITDA estimates ($3.6bn vs. Street $2.5bn) on cargo timing and ’23 marketing realizations that were more weighted to 1Q23 than expected; FY23 adj EBITDA guidance increased

·     In Alt energy, utilities, solar: GPOR topped consensus expectations, with higher-than-expected EBITDA in 1Q23 driven by both volume and gas pricing; EIX reported better than expected 1Q results, reiterated guidance for 2023 and through 2025; SPWR posted an unexpected Q1 EPS loss and margins fell to 14.5% from 20.6% y/y; affirmed 2023 guidance of $2,450–$2,900 Adjusted EBITDA per customer before platform investment and 90,000–110,000 incremental customers.

 

Financials

Banks, Brokers, Asset Managers:

·     Regional bank stocks (PACW, MCB, ZION, WAL, CMA, KEY) rebounded initially from sharp losses on Tuesday as concerns about the health of banks are persisting after First Republic’s assets were snapped up by JPM this week. Fears of another Federal Reserve interest-rate increase, and the prospect of recession have weighed on sentiment. Prices edged lower late morning with insurance, banking, brokers weak. Commercial property loans, in which some regional banks specialize, may be a particular worry. Berkshire Vice Chairman Charlie Munger said earlier this week that banks are full of bad loans and there are tough times to come as property prices fall.

 

Bitcoin, FinTech, Payments:

·     WU adjusted EPS of $0.43 notably above the Street’s $0.34 forecast, primarily driven by margin upside associated with earlier expense cuts and raised its outlook.

·     COIN ests and tgt cut at Mizuho – lowering our revenue estimates by 9% for 2023 and now sit ~20% below consensus. Reducing PT to $27 from $30. Reiterate Underperform.

 

Insurance & Financial Services:

·     In insurance: busy day of earnings and mor upcoming; PRU and VOYA shares both active after results overnight; PRU Q1 adj EPS $2.66 vs. est. $2.93; Q1 Book value per Common share of $85.33 versus $76.77 per share y/y; VOYA Q1 adj EPS $1.44 vs. est. $1.71; UNM Q1 EPS $1.87 vs. est. $1.66; Q1 revs $3.04B vs. est. $3.05B; raises FY23 after-tax adjusted operating income outlook; tonight results from MET, ALL

·     In lending: NRDS reported better-than-expected revenue growth and adjusted EBITDA margin in Q1 but is pulling back on planned marketing spending for FY23 despite the good result" as the company is seeing increased credit tightness (downgraded at Citigroup).

·     In Services: TW reports April 2023 total trading volume of $22.3 trillion and average daily volume of $1.15 trillion; U.S. government bond ADV was down 11.5% YoY to $120.2 billion; PAYC reported Q1 results ahead of consensus (2% beat in line with last four-quarter average) and increased its FY23 guidance while recurring revs ex-float (est.) grew 22% Y/Y vs. 30% y/y; IEP continues slide, breaking below the Covid lows ($34) to lowest levels since Jan 2011 following negative commentary from Hindenburg Research the day prior.

·     In REITs: EXR Q1 miss driven by lower than expected revenue growth and higher operating expense growth; APLE 1Q23 Beat; 2023 Guidance Affirmed; AKR reported a 1Q23 FFO beat (+$0.05/share), and management increased the midpoint of its FY23 guidance by 0.8% by lifting the low end of the range by $0.02/share; LSI beat consensus and underlying fundamentals were stronger than expected; PECO 1Q23 beat (+$0.01/share vs. consensus) and management affirmed its FY23 Core FFO guidance; WELL 1Q23 normalized FFO beat consensus by $0.03/share and management increased 2023 normalized FFO guidance by nearly1% at the midpoint.

 

Healthcare

Biotech & Pharma:

·     LLY shares jump after saying its Alzheimer’s treatment donanemab slowed disease progression in clinical trial; drug slowed the disease by 35% over a year and a half in a trial of 1,182 patients with early-stage Alzheimer’s. Note BIIB shares active after rival LLY Alzheimer’s drug candidate donanemab met primary and secondary goals in a late-stage trial and plans to file for traditional U.S. approval by the end of June.

·     IMGN shares rise after saying its experimental drug Elahere, to treat a type of ovarian cancer helped extend the lives of patients in a late-stage trial with the disease without it getting worse.

·     GSK said the FDA has approved the first vaccine against respiratory syncytial virus, or RSV, as its Arexvy is approved for adults 60 and older, and GSK plans to make doses available before the 2023-24 RSV season.

·     AKLI jumps after reported positive topline results of a clinical trial evaluating the efficacy and safety of EndeavorRx in adults with attention-deficit/hyperactivity disorder.

·     SRPT reported Q1 revenues were ~$232M bolstered by solid Amondys 45 sales, while all eyes on ‘9001 briefing docs next week ahead of 5/12 AdComm.

·     Mizuho previews upcoming ASCO cancer conference in June – said expected updates from: AUTL, RCUS, ERAS, INAB, MRK, ADAP as per Mizuho.

 

Healthcare Services & MedTech movers:

·     CVS Q1 EPS $2.20 vs. est. $2.09; Q1 revs $85.30B vs. est. $80.85B; Q1 adj Operating Income $4.37B vs. est. $4.19B); Q1 comp sales +11.6% vs. est. +6.3%; sees FY Adj EPS $8.50-$8.70, down from $8.70-$8.90 prior and still sees FY cash flow from ops $12.5B-$13.5B.

·     ATRC 1Q23 revenue, adjusted EBITDA, and EPS beat consensus and raised its 2023 revenue, adjusted EBITDA, and EPS guidance.

·     OMCL posted a Q1 beat with revenues topping consensus by 4.5% and adj. EBITDA beating consensus by 130%.

·     PEN 1Q23 revenue and EPS beat consensus and management raised its 2023 revenue guidance as both Vascular and Neuro growth improved, driven by new products.

 

Industrials & Materials

Transports

·     In industrials: GNRC reported Q1 EPS $0.63 topping the $0.49 estimate on better-than-expected net sales of $888M vs estimates of $841M, though did slide -22% y/y; posted a 30% increase in commercial & industrial product sales. EMR raised its FY23 outlook and reported better-than-expected quarterly earnings, on the back of strong demand for its automation systems.

Aerospace & Defense

·     MRCY Q3 EPS and sales topped expectations but lowered its guidance for the year to $990M-$1.01B from prior $1.01B-$1.05B and EPS loss (34c-20c) vs. prior profit (24c-44c).

·     SPR shares fall; the aero parts supplier reported a much wider-than-expected Q1 loss and revenue that came up short and said a quality issue on components used in Boeing’s 737 planes hurt results (Q1 revs $1.43B missed $1.52B estimate).

·     Lufthansa (DLAKY) reported Q1 earnings missing the median estimate by 7.5% entirely due to softer performance in air cargo as supply chains normalized, while the passenger business continued to experience high yields: +19% vs 2019.

 

Materials, Metals & Mining

·     In lithium sector: LTHM raises FY23 revenue view to $1.025B-$1.125B from $1.0B-$1.1B and boosted its FY23 adjusted EBITDA view to $530M-$600M from $510M-$580M; ALB said it plans to double the capacity of a lithium hydroxide plant in Western Australia after approves up to $1.5B lithium hydroxide plant expansion.

·     In chemicals: AXTA delivered solid 15% EPS growth, exceeding its targets and the consensus with all oars rowing in the same direction. The beat came from robust pricing and better-than-expected vols that led to improved margin lift for both segments. SMG shares declined as Q2 revs of $1.53B misses $1.61B estimate and below last year $1.68B.

 

Technology

Internet, Media & Telecom

·     In online: META shares slipped in the afternoon after the FTC proposes tightening of previous privacy order with Meta’s Facebook, says company failed to fully comply; SPT shares stumble after Q1 modest upside across revenue, margins, and cash flows, but bookings and ARR were light; Q1 new ARR disappointed the Street, resulting in ARR growth dipping below 30% for the first time since 3Q20.

·     In broadcasting: SBGI guides Q2 revs $757M-$773M vs. est. $777M which compared to $773M in Q1 while warned Q2 expenses for programming and production as well as general and administrative purposes at its media unit to range from $613M-$617M.

 

Hardware & Software movers:

·     ADBE shares slipped initially after Reuters reported that UK competition watchdog says it was looking into ADBE’s $20 bln acquisition of cloud-based designer platform Figma.

·     BAND reported 1Q23 results that beat lowered expectations with revenue/NG EPS estimates +4%/+$0.03 vs consensus. 2Q23 guidance calls for adj revenue to remain stagnant ~ +1% y/y.

·     FRSH posted strong 1Q23 results with their first quarter of positive non-GAAP operating income as a public company, a solid $3.5mm revenue beat, and guidance indicating increased operating leverage in FY23.

·     Unity Software Inc (U) said it announced a reduction of approximately 600 employee roles, or 8% of its workforce.

 

Semiconductors:

·     AMD shares declined after posted in-line results despite weakness in data center products and guided a modestly softer JunQ $5.30B (est. $5.57B); mixed analyst comments today as some upgraded on pullback (Hallum) while Bank America downgraded shares to Neutral.

·     SMCI shares rebounded as FQ3 sales of $1.28B were in-line with pre-announced revenue estimates (guided lower just 2-weeks ago) while margins dipped as sales (and server volumes) came in below expectations but remained optimistic about Q4 guidance.