Closing Recap

Friday, May 19, 2023

Index	Up/Down	%	Last
DJ Industrials	-109.48	0.33%	33,426
S&P 500	-6.14	0.15%	4,191
Nasdaq	-30.94	0.24%	12,657
Russell 2000	-11.14	0.62%	1,773

 

 

 

 

 

 

 

 

 

U.S. stocks with a “muted” response today, modest selling pressure following back-to-back days of massive upward momentum, holding up relatively well despite cautious comments from Treasury Secretary Yellen on banks, and as both political parties walked away from debt ceiling limit talks into the weekend, as the stock market remains incredibly resilient. Over the past week, Treasury yields have retraced nearly half the decline from the regional bank scare drop that started in early March. Generally, a rise in yields and the dollar is not great for high multiple names but hasn’t mattered yet. There were a couple of potentially market moving headline stories today, that did impact specific sectors but not the market with option expiration likely playing a factor.

 

1) Fed Chairman Powell and former Fed Chair Bernanke spoke at 11:00 AM for a question-and-answer session at the Thomas Laubach Research Conference. Shortly after comments, U.S. interest rate futures traders cut bets on June fed rate hike, add to bets on fed rate cuts later in year. Odds of a 25-basis point rate hike in June (to 5.25%-5.5%) are now down from 40% to 20% after Powell’s comments, but up from close to 0% last week. 2) Bank stocks slipped late Friday morning after a CNN report indicated that Treasury Secretary Janet Yellen told executives at a meeting Thursday that more bank mergers may be necessary as the industry continues to navigate through a crisis. Those headlines pressured regional banks that had been having a good week until that point. 3) Lastly, Debt ceiling deal optimism was put on hold after late morning reports that debt limit talks were paused. @JakeSherman reported first “DEBT LIMIT TALKS between the White House and House Republicans have been paused, per multiple sources involved in the talks. "We’re at an impasse," a source involved with the talks tells me. Not one issue, but multiple issues have proven problematic, I am told.” 4) Overseas markets remain strong as the German hit its first record since January 2022, while the Nikkei 225 closed at a 33-year peak.

 

Fed Commentary

·     Fed Chairman Powell said inflation remains "far above 2% objective" by the Fed and they remain committed to getting inflation to 2%. He said it is unclear if rates are "sufficiently restrictive" and that failure to lower inflation prolongs pain. He also noted that it will "take time" to lower inflation. None of the comments were surprising or earth shattering, and markets took them in stride, even reducing expectations (low) of a possible rate hike at the June FOMC meeting.

 

Commodities, Currencies & Treasuries

·     Gold prices rise $21.80 to settle at $1,981.60 an ounce, getting a small recover after a week of selling pressure amid a resurgence of the US dollar and Treasury yields on slightly higher bets that rate “cuts” get pushed out further to September (as per Fed fund futures) and a chance of rate “hike” at the June meeting popped back in the realm of possibility. WTI crude fell -$0.31 or 0.43% to settle at $71.55 per barrel, snapping a 4-week losing streak.

·     Treasury yields rallied on the week with the 2-yr up 27-bps the last five days (flat today just above 4.26%), while the 10-yr yield hit highs of 3.72% before paring gains to 3.68%. The U.S. dollar index slipped on the day, but on the week as currency and bond markets position bets into debt ceiling talks this weekend and possible Fed moves next month.

 

 

Macro	Up/Down	Last
WTI Crude	-0.31	71.55
Brent	-0.28	75.58
Gold	21.80	1,981.60
EUR/USD	0.0038	1.0807
JPY/USD	-0.64	138.06
10-Year Note	0.042	3.69%

 

 

Sector News Breakdown

Consumer

Staples & Restaurants:

·     In Staples: FLO shares slip after reports in-line Q1 EPS of $0.38 and slight miss to sales consensus and EBITDA at $151.1M vs consensus $154.9M on lower margins and lowered FY sales, revenue and Ebitda outlooks due to softer category demand. IFF is said to explore sale of $1B Lucas Meyer cosmetics unit, according to Bloomberg report.

·     In restaurants: for TXRH, a day after hitting 52-week highs, announced that it has appointed Chris Monroe as the company’s next chief financial officer, effective June 28; WEN was upgraded to Buy from Hold at Argus with $26 tgt as expects Wendy’s to benefit from unit expansion, strong international growth, and investments in its digital business. CMG tgt raised to $2,350 from $2,200 at TD Cowen, confident in its multi-pronged strategy will drive share gains, while Project Square One is in early innings & it estimate can ultimately unlock ~500 bps of traffic growth; SHAK upgraded to EW from UW at Morgan Stanley based on the prospect for margin and other tactical catalysts and improved accountability to the board for these; NDLS downgraded at Stephens saying they await greater visibility into traffic rebound.

 

Retailers:

·     In Footwear & Apparel: FL shares tumble after reported Q1 EPS $0.70, below $0.85 estimate, and revs of $1.93B missed the $2.00 est.; slashes FY23 EPS outlook to $2.00-$2.25 from $3.35-$3.65 (est. $3.46) and cuts FY23 comp sales change view to down 7.5%-9.0% from down 3.5%-5.5% citing challenging near-term trends (UAA, NKE moved lower in reaction in sportswear, while general apparel names tumbled as well ANF, AEO, LULU, URBN, VFC).

·     GPS upgraded to Neutral from Sell at Citigroup saying while they anticipate 1Q sales results will be below consensus (comps -4% vs cons -2%) and believe 2Q trends are running below consensus, sentiment is extremely negative.

·     FTCH posted stronger 1Q revenue results, adj. EBITDA largely in line with expectations, and reaffirmed FY23 guidance. Macro headwinds weighed.

·     In Sporting Goods: TDCowen lowered estimates for comps and EPS for ASO and DKS as it is more cautious on the direction of SSS and EPS as April saw a pronounced moderation in Sporting Good retail sales vs earlier 1Q trends.

·     ROST Q1 EPS $1.09 vs consensus $1.06 and revenue $4.49B vs consensus $4.48B; comps +1% vs consensus +0.7%; gm 26.7% vs consensus 26.2%; SG&A 16.6% vs consensus 15.8%.

 

Energy, Industrials, Materials

·     In machinery: agricultural giant DE raised its full-year profit forecast amid strong demand for farm equipment and the easing of supply chain woes; raised its 2023 net income range to $9.25B-$9.5B, above its prior $8.75B-$9.25B forecast (lifted shares AGCO, CNHI initially). Shares reversed as Goldman Sachs noted Dealer inventories rose $2.8 bn sequentially, ahead of +$1.6B last year and normal seasonality of $1.6B.

·     In energy: sector among top gainers in the S&P (FANG, PXD, EOG) as oil snaps 4-week losing streak; weekly Baker Hughes (BKR) rig count data showed US total rig count 720, the gas rig count was unchanged at 141 and oil rig count down 11 to 575. OXY rises as Warren Buffett’s Berkshire Hathaway Inc acquires more shares, boosting its stake in OXY to 24.4%; the top shareholder now owns about 217.3M shares worth about $12.7B.

 

Financials

Banks, Brokers, Asset Managers:

·     Regional banks slumped (KRE, PACW, WAL, ZION, CMA) after CNN reported during a meeting Thursday with the CEOs of large banks, Treasury Secretary Janet Yellen told executives that more bank mergers may be necessary as the industry continues to navigate through a crisis https://cnn.it/3BEhn1J

·     MS CEO James Gorman told shareholders Friday that the company will likely appoint its next CEO in the next 12 months; says that the board has identified three "strong, senior internal candidates for consideration as the next CEO."

·     In REITs, DLR shares slid after TD Cowen said they believes the Core JV for its Elk Grove Village Campus is in jeopardy after the +$1.0B deal was re-cut lower due to future churn and a higher cost of debt, while valuations continue to fall for non-core assets.

 

Healthcare

Biotech & Pharma:

·     Agilent (A) said it intends to appeal the PTAB decision regarding CRISPR guide RNA.

·     CTLT sharply lowered guidance saying sees FY adj net $187M-$228M, below prior view $567M- $648M and slashed FY adj. EBITDA to $725M-$775M, from $1.22B-$1.30 as well as cuts to revs; shares rebounded after saying it continues to win significant new business, including expansion of supply agreements with NVO

·     CVAC filed an expanded patent infringement claim against PFE and BNTX over the use of mRNA technology and that a U.S. court had granted its request to transfer the trial.

·     ICPT shares were halted all day before a U.S. FDA advisory committee meeting on Friday discussed its oral tablets, called obeticholic acid (OCA), for treating a type of fatty liver disease (NASH). FDA staff reviewers on Wednesday listed some of the risks with the drug.

·     KRYS gets FDA approval of Vyjuvek for treatment of Dystrophic Epidermolysis.

·     PFE snapped its 8-day losing streak, recovering off 52-week lows.

 

Healthcare Services & MedTech movers:

·     HOLX announces FDA clearance of panther fusion SARS-CoV-2/flu A/B/RSV Assay.

·     STXS said it entered a global collaboration with ABT to integrate the medical device company’s Abbott EnSite X EP System with Stereotaxis’ Robotic Magnetic Navigation systems.

 

Technology

Internet, Media & Telecom

·     WSJ reports Samsung, the world’s largest smartphone maker, has suspended an internal review that had explored replacing Google with Bing on its mobile devices, the people said. The headlines helped lift GOOGL to fresh 52-week highs before shares faded. META’s Instagram readies Twitter competitor for summer release, Bloomberg reported.

 

Hardware & Software movers:

·     DXC Q4 revs of $3.59B missed consensus of $3.62B and EPS of $1.02 was light a penny while guided Q1 EPS and revs below current consensus views, but shares rebounded.

·     In Comm Equipment & Parts: APH was downgraded to Neutral from Outperform at Credit Suisse and cut tgt to $77 from $91 as believes weakness in communications related markets (40% of APH) will offset Amphenol’s growth from industrial, aerospace, military, and automotive markets. The firm upgraded TEL to Outperform from Neutral citing its resilient auto production, rising EV mix, relatively low exposure to communications markets, margin tailwinds from restructuring.

 

Semiconductors:

·     AMAT reported F2Q23 EPS of $2.00, which beat consensus of $1.84 by 9% on revenue of $6,630M, which beat consensus by 4% and guided midpoint revenue and EPS 2% and 6% above consensus, respectively, and given bottom-of-cycle conditions.

·     ADI announced that Mr. Prashanth Mahendra-Rajah (CFO) will step down to explore other opportunities.

·     In semi-equipment research Citigroup maintains its offense mode on the group and prefers equipment stocks to wafer starts in the cyclical recovery Phase 2. CITI’s #1 pick AMAT reported “beat & raise” Apr-Q results on continued strength in the ICAPS biz on trailing edge logic demand in both China and outside. CITI maintains LRCX #2 pick and lower tgt for bottom pick WOLF.