Closing Recap

Tuesday, May 16, 2023

Index	Up/Down	%	Last
DJ Industrials	-336.26	1.01%	33,012
S&P 500	-26.38	0.64%	4,109
Nasdaq	-22.16	0.18%	12,343
Russell 2000	-25.26	1.44%	1,736

 

 

 

 

 

 

 

 

 

U.S. stocks chopped sideways most of the afternoon before sliding the final 30-minutes on reports President Biden will return to U.S. on Sunday after the G7 meeting this week to focus on debt ceiling talks. The headlines disappointed investors which waited for talks between the two sides this afternoon. Recently, it feels markets are always waiting for something, as major averages have been listless, trading in a narrow range over the last month. Over the last year, the S&P has had trouble breaking above the 4,200 level, while also holding the 3,800 level – trading within that band most of the time (few exceptions were breaks below last October). Overall, not much going on, volumes light as we wait.

 

Among the top stocks stories today: 1) the FTC sued to block AMGN’s $30B acquisition deal for HZNP, surprising the market and raising fears about other M&A deals. 2) Home Depot (HD) reported an earnings beat, but revs missed, comps fell more than expected, and lowered its year profit and sales outlook weighing on shares early/confidence in retail. 3) Economic data weaker as retail sales for May rose less than expected while overnight China activity data was weaker than expected (Industrial Production, Retail Sales and Fixed Asset Investments all missed). The Nasdaq climbs again as large cap tech continues to be a place that investors turn too amid uncertainty (AMD, NVDA, AMZN, GOOGL, MSFT), while historical defensive plays such as utilities, REITs, staples were among the weakest, and energy was the biggest drag in the S&P. Thus far in 2023, Tech and Communication Services are both up 22%+ YTD while Health Care, Utilities, Financials, and Energy are in the red. There were more Fed speakers again today (Mester, Williams, Barr, Goolsbee) but not impacting stock markets today – message remains same, inflation been decelerating but still needs to come down.

 

Stocks remain in a tight range as we wait…but waiting for what remains the bigger question? Inflation data came and went, earnings season is behind us, Fed speakers are out every day and now it appears we are waiting to see if the U.S. fails to raise the debt ceiling to avoid defaulting on debt. Time is running out according to Treasury Secretary Yellen recently (said June 1^st U.S. will run out of money). Dow Jones reported yesterday was 6th trading day in row and 25th in past 30 trading days when $SPX had a sub-1% move, "quietest” such 30-day streak since November 2021.

 

On a sour note: Auto loan and credit card interest rates just hit a record high as the average interest rates: a) Credit Card: 25%, b) Used Cars: 14%, and c) New Cars: 9%. Meanwhile, we have new record levels of debt: a) Total Household Debt: $17.1 trillion, b) Auto Loans: $1.6 trillion, c) Credit Card Debt: $986 billion. At the same time, student loan payments are set to resume this summer with a record $1.6 trillion in student loan debt.

 

Economic Data

·     Advance Retail Sales M/M for April rose +0.4%, less than the expected est. +0.8% (vs. March -0.6%) and Retail Sales – Less Autos M/M for April rose +0.4%, in-line with estimates (vs. March -0.4%). US April gasoline sales -0.8% vs March -0.7% and cars/parts sales +0.4% vs March -1.4%.

·     Industrial Output for April rose +0.5% vs. consensus unchanged and vs March unchanged; April capacity utilization rate 79.7%, in-line with ests vs. March 79.4%. April manufacturing output +1.0% vs. est. +0.1% and vs. March (-0.8%).

·     U.S. March Business Inventories -0.1% vs. consensus unchanged and Feb unchanged, while March inventory/sales ratio 1.39 months’ worth vs Feb 1.38 months and business sales -1.1%.

·     May NAHB Housing market index 50 vs. 45 in April (previous 45); current single-family home sales 56 vs. 51 in April (previous 51); index of home sales over next six months 57 vs. 50 in April.

 

Commodities, Currencies & Treasuries

·     Gold prices slide -$29.50 or 1.5% to settle at $1,993 an ounce, first time below 2K since beginning of month following U.S. economic data and hawkish remarks from Federal Reserve officials that drove bets that interest rate cuts may be delayed, but debt default jitters remain. Treasury yields jumped on both the short and long end of the curve with the 10-yr around 3.55% and the 2-yr around 4.1%. The dollar was up slightly on the day.

·     Oil futures edged lower as WTI Crude June futures settle at $70.86 a barrel, down 25 cents, 0.35% and Brent crude settles at $74.91/bbl, down 32 cents, 0.43% as weaker-than-expected economic data in China offset a forecast of higher global demand from the International Energy Agency. Both benchmarks rose more than 1% on Monday, reversing a three-session losing streak. The IEA raised its forecast for global oil demand this year by 200,000 bpd to a record 102M bpd.

 

 

Macro	Up/Down	Last
WTI Crude	-0.25	70.86
Brent	-0.32	74.91
Gold	-29.50	1,993.00
EUR/USD	-0.0003	1.0869
JPY/USD	0.23	136.34
10-Year Note	0.039	3.547%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     BIG, CRI, CVS, DBI, GPS, HBI, LEVI among retailers making 52-week lows today.

·     APRN said it has signed a non-binding letter of intent to sell its operational infrastructure, including fulfillment centers, equipment, and personnel, to FreshRealm for up to $50Mm.

·     KHC and KO were removed from Bank America US1 list following its 1-year term (simple refresh).

·     NWL said it will reduce the quarterly dividend to $0.07 per share vs prior declaration of $0.23.

·     ONON raised FY sales-growth guidance by the size of the Q1 beat, now expecting 42% growth (vs high-30’s prior); shares slipped early as inventories rose.

·     SHAK reaches ‘cooperation agreement’ with activist investor Engaged Capital, will add two agreed upon board members.

 

Autos, Leisure, Gaming & Lodging:

·     In cruise lines: RCL upgraded from Hold to Buy at Argus with $88 tgt as thinks that high cruise occupancy in 1Q23 points to a demand recovery and is likely to result in stronger-than-anticipated revenue and earnings.

·     In autos: TSLA has applied for regulatory approval to expand its Shanghai plant and start making pouch-type battery cells in small numbers, Reuters reported Tuesday, citing a notice posted on the website of the district where the plant is located. STLA said it is recalling just over 132,000 Jeep Cherokee SUVs in the United States for fire risks and warning owners to park outside until repairs are made.

 

Homebuilders, Building Products, Home Furnishing:

·     Home improvement retail space weak as Dow component HD beats by $0.01, misses on revs and reported comp sales for quarter down (-4.5%) vs. est. decline of (-1.6%) and said Q1 gross margin was 33.7%, down 8 basis points, primarily driven by increased pressure from inventory shrink; cuts FY23 EPS view to down 7%-13% from down mid-single digits percent and lowers FY23 revenue view to down 2%-5% from flat, upon total comp-store sales decline of 2-5%. Shares of LOW slip in sympathy ahead of earnings next week; TSCO also pressured early. RH shares slipped after 13F filing shows Berkshire Hathaway exited its position.

 

Energy, Industrials and Materials

·     In Energy: WMB upgraded to Buy from neutral at Citigroup citing YTD under-performance, noting natural gas futures prices are down over 50% since late ’22, driving the stock weakness. NOG 6.65M share Spot Secondary priced at $30.00. ETRN shares advanced midday after the New York Times reported the Biden administration grants permit to allow Mountain Valley Pipeline to run through Jefferson National Forest https://nyti.ms/3M2o1Du

·     In Industrials, Aerospace & Defense; DCO announced pricing of its public offering of 2 mln shares of common stock at $40.00 per share for net proceeds of approx $74.4M. Heavy duty truckers CMI, PCAR shares dropped late day after mid-month ACT heavy duty truck data showing build rates and cancellations rates data worsens.

·     In Transports: in rails, CP upgraded from Hold to Buy at Argus with $92 tgt noting Canadian Pacific is among the most efficient operators in the rail industry, which has been in a secular growth trend compared to other transport options for the past 20 years. In airlines, ALGT said April scheduled service load factor 84.3% vs 85.3%, scheduled service traffic rose 1%; scheduled service capacity rose 2.1%; total system capacity rose 2.5%.

 

Financials

Banks, Brokers, Asset Managers:

·     WAL shares edge higher as Bank America resumed coverage with a Buy and $42 tgt (down from $48) saying strong execution, superior profitability, healthy capital levels combine for an attractive risk/reward despite the near-term uncertainty surrounding EPS power.

·     WFC has agreed to pay $1 billion to settle a shareholders lawsuit related to its 2016 fake-accounts scandal, according to the Wall Street Journal.

·     COF rises after released 13F filing shows Warren Buffett’s Berkshire Hathaway Inc. added the stock to its portfolio in the first quarter.

·     NY Fed bank said Tuesday in its latest Business Leaders Survey for May that 20% of manufacturing and factory company chiefs reported that they found credit harder to access over the last three months, which the bank said was like what was seen in the prior quarter.

·     FUTU and TIGR shares slip following a report they to remove China trading apps as regulatory pressure mounts, the WSJ reported, https://on.wsj.com/451D9tE.

·     Several office REITS continue to fall further, extending losses in 2022 into 2023 – work from home, hybrid work schedules continue to hit office space names – SLG, VNO, BXP, CUZ, DEI, ARE, HIW, KRC to name a few.

 

Healthcare

Biotech & Pharma:

·     HZNP shares dropped after the FTC sues to block biopharmaceutical giant AMGN from acquisition https://bit.ly/42ZzGd9 ; AMGN responded saying it is disappointed by the FTC’s decision and remains committed to completing this acquisition; shares of SGEN declined given the FTC headlines, raising questions if its deal with PFE can proceed as well.

·     AGL priced 86.9M share Spot Secondary at $21.50.

·     GEHC was initiated at Outperform rating and Street-high price target of $97 at Oppenheimer saying the firm is an attractive large-cap play on the diagnostics and imaging markets.

·     GILD upgraded to Outperform at BMO Capital and tgt raised to $100 as believes it to be a best-in-class cell therapy franchise supported by strong manufacturing capabilities and cites an improving solid tumor oncology business, anchored by Trodelvy.

·     NVCR upgraded to overweight from equal weight at Wells Fargo ahead of Lunar clinical trial data for metastatic, non-small cell lung cancer (NSCLC), which will be presented at the 2023 American Society of Clinical Oncology (ASCO) Annual Meeting in Chicago, on June 6.

·     VKTX announces positive top-line results from phase 2b VOYAGE Study of VK2809 in patients with biopsy-confirmed non-alcoholic steatohepatitis (NASH).

 

Technology

Internet, Media & Telecom

·     In Internet: BIDU Q1 EPS $2.34 vs. est. $1.79; Q1 revs rose 9.6% y/y to $4.54B vs. est. $4.31B; beat due to gains in online marketing and other sales; said that its quarterly GAAP net profit was 5.825B yuan ($837.8M), compared with a loss of CNY885M a year earlier. GOOGL said if a google account has not been used or signed into for at least 2 years, they may delete the account and its contents as early as December 2023. ETSY slides after MSCO cut tgt to $74 saying new LTV/CAC model shows Etsy’s cohort economics have degraded ~30% since 2018.

·     In Media & Telco: DISH Form 4 filing shows Officer/Dir DeFranco II Buys 3,000,000 shares between 5/11/23-5/12/23 valued at $18.5M. VOD shares slide after saying they would cut 11,000 jobs over three years to help the telecoms group regain its competitive edge after it warned that a poor performance in its biggest market Germany would hit cash flow.

 

Hardware & Software movers:

·     APLD rises after saying its recently launched AI Cloud Service has its first major AI customer with an agreement worth as much as $180 million over a 24-month period.

·     DOX upgraded from Equal Weight to Overweight at Barclays and raised tgt to $115 saying they have become more confident that new domains will provide revenue growth tailwinds.

·     SE shares slid after top and bottom line miss as Q1 EPS $0.16 vs. est. $0.39; Q1 revs rose 4.9% y/y to $2.9B vs. est. $3.06B.

·     SSYS raises the lower end of FY23 revenue forecast to $630M from $620M above ests $637.7M and guides FY23 non-GAAP EPS $0.12-$0.24 vs. est. of $0.16.

 

Semiconductors:

·     AMD rises for the 8^th time in last 9 trading days, topping the $100 level for the first time in 7 weeks as investors continue to pile into large cap tech and “AI” related type plays.

·     NVDA trades new highs, taking out May 8th 52-week high of $292.20.