Closing Recap

Friday, May 12, 2023

Index	Up/Down	%	Last
DJ Industrials	-8.89	0.03%	33,300
S&P 500	-6.50	0.16%	4,124
Nasdaq	-43.76	0.35%	12,284
Russell 2000	-3.86	0.22%	1,740

 

 

 

 

 

 

 

 

 

U.S. stocks faltered on Friday as the Dow Jones Industrial Average fell for the 5^th straight day (and down 9 of last 10 days) while broader markets were lower (negative breadth again), but the S&P 500 index (SPX) once again held the 4,100 level, managing a late day bounce off the lows in a strong 30-minute late move. Overall, major U.S. averages had traded sideways all of April, and not much has changed thus far 2-weeks into May, as stocks close out the week negative heading into option expiration week coming up. Perhaps concerns on interest rates weighed on sentiment today after Fed Governor Miki Bowman said the central bank should be prepared to continue lifting interest rates because inflation remains too high and the labor market is too tight, hinting at disagreements that may have surfaced at last week’s policy meeting. Her comments lifted the U.S. dollar and Treasury yields, pushing commodity prices lower. Other factors pressuring markets include the health of regional banks following 3-massive bank failures this year, concerns of a recession, and a debt ceiling deadline approaching for the U.S. (fears of a default).

 

Shares of NVDA, MSFT, GOOGL continue to lead the S&P this year (among other large cap tech) as SocGen noted that AI-hungry investors have propelled shares of each, as the three stocks are among the biggest contributors to the S&P 500’s 7.6% gain in 2023. "So strong that without the AI popular stocks, S&P 500 would be down 2% this year. ($NVDA +95 YTD, $MSFT +29% YTD and $GOOGL +32% YTD coming into today). @bespokeinvest noted “Pretty much the only sectors in uptrends are ones that contain one of the mega-caps. Communication Services, Technology, Consumer Discretionary. Rest of the market is trending sideways or lower.”

 

In an interesting (and eerie) stat, Bank America noted that the SPX was up 11%, Nasdaq up 15% in the 2- months after Bear Stearns failure in March 2008. They also note the SPX is up 7%, Nasdaq up 10% in the 2-months now after the SVB failure. In 2008, the decline after the 2-month rally was roughly -48% from the May peak to the November lows for reference. What will the move be like in 2023?

 

Economic Data

·     April import prices rose +0.4% above ests. for +0.3% rise and vs March -0.8%; April non-petroleum import prices -0.1%, year-over-year -2.1%; April petroleum import prices +5.7% vs March -2.5%; U.S. April export prices +0.2% in-line with ests and vs March -0.6%.

·     University of Michigan surveys of consumers sentiment prelim for May 57.7 below consensus 63.0 and vs final April 63.5; current conditions index prelim May 64.5 vs final April 68.2 and expectations index prelim May 53.4 vs final April 60.5.

·     University of Michigan surveys of consumers 1-year inflation outlook prelim May 4.5% vs final April 4.6% and consumers 5-year inflation outlook prelim May 3.2% vs final April 3.0%.

 

Commodities

·     Oil prices fall, finishing just off the lows, down -$0.83 or 1.17% to settle at $70.04 per barrel (low of day $69.93) as oil prices decline a 4^th straight week (follows a streak of 4-straight week 0f gains prior), in a generally weak commodity market. Metals fall as aluminum trades at its lowest levels since September 2022, nickel at its lowest levels since October 2022, and copper at its lowest levels November 2022 as the U.S. dollar posts its biggest weekly win since February. Weaker economic data out of China and big data coming up next week as well as a bounce in the dollar pressured metals and energy prices late week. Natural gas climbs 3.5% to finish at $2.266/MMBtu after a weekly rig-count report showed a sharp drop-in drilling activity. June gold settles -$0.70, or -0.03%, to $2,019.80, posting a small loss of roughly -0.3% for the week.

 

Currencies & Treasuries

·     The U.S. dollar advanced vs. rival currencies, with the dollar index (DXY) +0.6%, gaining steam today following a speech from Fed governor Michelle Bowman signaling support for more rate rises. At an ECB conference, Bowman said recent CPI and employment reports "have not provided consistent evidence that inflation is on a downward path," and that if inflation remains high and labor tight, "additional monetary policy tightening will likely be appropriate." That was enough to move the dollar and Treasury yields higher. After hitting 52-week lows of 100.78 in mid-April the DXY rose to 102.70 late day, posting its best one week gain in 3-months.

·     Bitcoin prices fell over 3% to $26K, extending its slide this week below support levels, now down -5% over the past 24 hours to its lowest level in almost two months. Prices had topped $30K in April for the first time since June 2022, but have since been able to sustain upward momentum (Bitcoin down about 15% from last month’s highs). Treasury yields rise as the 10-yr yield +6.5 bps on day to 3.461%; rises 1.6 bps on week snapping 2-week losing streak; remains down 61-bps from 2023 closing high of 4.072%.

 

 

Macro	Up/Down	Last
WTI Crude	-0.83	70.04
Brent	-0.81	74.17
Gold	-0.70	2,019.80
EUR/USD	-0.0063	1.0851
JPY/USD	1.13	135.67
10-Year Note	0.065	3.461%

 

 

Sector News Breakdown

Consumer

Retailers:

·     Retail earnings previews:

·     In apparel and off-retail: Deutsche Banks said they anticipate EPS results to be generally in-line with consensus for most of its apparel names under coverage, but points out that it expects slight EPS beats from AEO, BBWI, and FL. Meanwhile, the firm believes EPS could fall short of Street estimates for BURL, ROST, KSS, and JWN.

·     In broadlines: Deutsche Bank highlights WMT as its top pick where it expects a beat and raise where it sees sustained sales momentum and ability to start growing EBIT margin and constructive on ULTA and BJ following their meaningful share price pullback over the last two weeks. Conversely, DBAB is cautious on TGT and BIG due to their discretionary mix which combines with a more challenging macro and less stimulus in the market.

·     In off price preview at TD Cowen: says checks were mixed into mid-May but data showed improving traffic trends in April. TJX/Marmaxx looked the strongest as think they can slightly raise guidance; reiterate Market Perform ratings on ROST and BURL as see risk to Q2 guidance and higher macro headwinds, lowering our targets on both.

·     In beauty space: EL downgraded to Hold from Buy at Argus concerned about the slow pace of recovery in China and in the travel retail segment in Asia, where inventories are rising.

·     In housewares: SPB Q2 EPS loss (-$0.14) vs. est. (-$0.04) and revs $729M misses $759 estimate; cuts FY23 outlook citing lower first half demand and additional short-term headwinds and cuts FY23 revs to a decline mid-single digits y/y’ vs. prior view of flat y/y.

 

Energy

·     Weekly Baker Hughes (BKR) rig count showed the total rig count fell to 731 as U.S. oil rig count down 2 to 586 and gas rig count down -16 to 141, biggest weekly decline since February 2016.

·     In solar: FSLR shares surge as RothMKM said checks with "multiple confirmations" suggest the domestic content ITC adder will require both cell and module and indicate that there is no grace period for foreign-produced cells, which the firm calls "a substantial positive". Separately, FSLR acquires Sweden’s thin-film solar cell technology firm Evolar AB for $38M at closing and up to additional $42M to be paid subject to milestones achieved.

·     In Industrials, Materials, Machinery: BLBD boosted its revenue and adjusted its Ebitda forecast for the full year; DE shares reversed lower after larger supply findings in monthly USDA agricultural data as showed 2023/24 world end stocks- corn 312.90 mln (vs. trade est. 307.47 mln and 2023/24 world end stocks-wheat 264.34 mln tonnes (trade vs. est. 259.69 mln).

·     In transports: EURN upgraded to Buy with price tgt of $20 at Deutsche Bank, saying QTD rates for its VLCC and Suezmax vessels are very strong, averaging $67,000/day and $62,000/day respectively or roughly four times its P&L breakeven rates. In airlines, MESA upgraded from Underperform to Market Perform at Raymond James due to a more balanced risk/reward following the recent sell-off in shares on the heels of a disappointing earnings update.

·     In Water sector: Wells Fargo upgraded AWR to Equal Weight and downgraded SJW to Underweight while maintains a rating bias within the water sub-sector (2 UWs) that reflects its cautious stance relative to other utility sub-sectors.

 

Financials

Banks, Brokers, Asset Managers:

·     SCHW provided monthly update saying total net new assets totaled $13.6 billion in April, while core net new assets equaled negative $2.3 billion. These flows reflect client cash disbursements during tax season. Total client assets were $7.63 trillion as of month-end April, up 5% from April 2022 and up 1% compared to March 2023. Active brokerage accounts reached 34.2 million in April, up 1% from April 2022 and flat compared to March 2023.

·     Trust banks (BK, STT): Citigroup noted the FDIC released its proposal for a special assessment to fill the DIF following the failures of SVB and SBNY. The proposal notes that the estimated cost of the failures is $15.8B and will be applied through a 12.5bps annual assessment rate applied to an assessment base equal to each bank’s 4Q22 uninsured deposit total. Firm sees a ~4.5% headwind to 2024 EPS with the biggest impacts at STT and BK.

·     Key Fed emergency lending little changed in latest week showed borrowing via its discount window stood at $9.3 billion on Wednesday, from $5.3 billion on May 3, while its Bank Term Funding Program lending moved to $83.1 billion from $75.8 billion the prior week.

·     In REITs: MPW shares fell after two of its hospital tenants Steward Health Care and Prospect Medical Holdings hired advisers to refinance debt, according to a report from the Wall Street Journal. https://on.wsj.com/3nSmAzJ

 

Healthcare

Biotech, Pharma & MedTech:

·     SRPT shares halted ahead of an FDA advisory committee (AdCom) meeting today to discuss co’s gene therapy for DMD as the panel to consider if the data is enough to secure an accelerated approval. In a briefing document on Wednesday, FDA staff highlighted several issues with the data and said existing studies did not provide "unambiguous evidence" that the gene therapy will benefit patients with the disease.

·     AMLX posted a Q1 profit after a loss of -$47.8M a year ago as product revs of $71.4M was led by sales of RELYVRIO in U.S. and ALBRIOZA in Canada.

·     ANIP 1.9M share Spot Secondary priced at $39.50.

·     CTLT shares slipped early after delaying filing timely 10Q with SEC last night.

·     ENOV upgraded to Overweight from Equal Weight and tgt to $67 from $55 at Wells Fargo citing positive survey results for ENOV’s P&R segment; benefit from improving MedTech markets and attractive valuation vs peers.

·     SPRY surges after an FDA panel of advisers voted in favor by 16-6 vote of the company’s nasal spray, neffy, for use in adults and for children above 30 kg in weight, for the treatment of allergic reactions including anaphylaxis.

 

Technology

Internet, Media & Telecom

·     In media: Elon Musk selected NBC Universal’s Chairman of Global Advertising and Partnerships Linda Yaccarino to be the new CEO of Twitter; NWSA shares jump after Q1 results as Q1 adj EPS $0.09 vs. est. $0.05; Q1 revs fell -1.7% y/y to $2.45B vs. est. $2.38B; expects to achieve at least $160 mln in annualized savings from previously announced headcount reductions, up from prior estimate; FOXA downgraded to EW from OW at Wells Fargo saying there’s a lot less to get excited about; DIS downgraded from Outperform to Peer Perform at Wolfe Research with $81-110 fair value range after quarterly results.

 

Hardware & Software movers:

·     In IT Services & Consulting: IONQ reported Q1 revenues that were above consensus estimates as bookings of $4.1mn for Q1 FY22 were lumpy according to one analyst.

·     Hardware & Equipment: OUST reported Q1 results that were above consensus due to strong sales in industrials and robotics as saw higher unit volume sales, higher ASPs, and booked $33mn of business during the quarter/did guide below views.

·     In software: ARLO posted Q1 with annual recurring revenue (ARR) of $182.6M vs $101.3M y/y and said cumulative paid accounts of over 2 mln at end of first quarter vs 1.3 mln a year earlier; GEN slips as Q4 results topped views but Q1 rev guide $940M-$950M missed est. $954.1M.