Closing Recap

Wednesday, November 01, 2023

Index	Up/Down	%	Last
DJ Industrials	221.71	0.67%	33,274
S&P 500	44.04	1.05%	4,237
Nasdaq	210.23	1.64%	13,061
Russell 2000	6.93	0.42%	1,669

 

 

 

 

 

 

 

 

 

U.S. stocks finish higher as the Fed meeting was met with optimism. Stocks rallied most of the day, staying steady after the FOMC kept rates on hold, then pushed upward as Fed Chairman Powell’s press conference began, moving to the highs of the day. Stocks pulled back initially as Powell began his Q&A, with the Chairman saying “we are not confident, yet we have achieved stance of policy that will bring inflation down to 2%” leaning to the possibility of another rate hike in the future. Stocks however got a late day pop as Powell noted the Fed “have come very far with this rate-hike cycle” and said, “we are close to end of the cycle.” Those comments helped push averages to new highs as the S&P 500 index (SPX) topped its 200-day moving average resistance of 4,243, its best level in over a week (and up a 3^rd straight day). Also helping late day, Doubleline Capital’s Jeffrey Gundlach said he has been negative on the equity markets for several months, says believe we’ve started a bond rally here, which also helped yields lower.

 

The Federal Reserve held interest rates steady at 5.25%-5.5% as expected but continued to leave the door open to a further increase in borrowing costs in a policy statement that noted the U.S. economy’s surprising strength, but also noted tighter financial conditions faced by businesses and households. Overall, the FOMC statement made minimal changes: 1) It describes Q3 economic activity as “strong” and said, 2) in light of higher Treasury yields, it adds the word “financial” to the description of “tighter credit conditions” that should weigh on growth. Following the statement, traders of short-term U.S. interest-rate futures see chance of further Fed rate hike this year falling to less than 20%.

 

Prior to the Fed meeting, news that the U.S. Treasury decided to moderate sales of its longer-dated debt helped push down bond yields, and push up bond prices, and provided support for stocks. The department said it would sell $112 billion in long- and medium-term securities in its coming auctions but dialed back the increase in 10 and 30-year auctions compared with the amount laid out in August. Outside of the Fed meeting and economic data (which was weaker) there was another barrage of corporate earnings and a deluge again tonight (details below of top movers). Some big names on deck, but none bigger than Apple (AAPL) tomorrow night.

 

Economic Data

·     ADP Private payroll data reported at 113K, below the consensus estimate 150K jobs after added 89K jobs last month; data comes ahead of the nonfarm payroll data Friday.

·     U.S. Sept. Job openings (JOLTS) reported at 9.553M vs. est. 9.400M; 1.52 million layoffs in Sept, down from 1.68 million in Aug. layoff rate fell to 1.0% in Sept from 1.1% in Aug.

·     ISM U.S. manufacturing activity index 46.7 in October below consensus 49.0 as prices paid index 45.1 in October (vs. est. 45.0) vs 43.8 in September; new orders index 45.5 in October vs 49.2 in September; and employment index 46.8 in October (consensus 50.3) vs 51.2 in September.

·     September construction spending +0.4% m/m vs. +0.4% est. and rises 1% in prior month (rev up from +0.5%); private residential construction +0.6%.

 

Commodities, Currencies & Treasuries

·     U.S. crude oil futures settle at $80.44/bbl, down 58 cents, 0.72%, erasing earlier gains to extend their losses into a third consecutive session (after falling -10% in October). Recent inventory data and a significant increase in U.S. oil production has weighed on prices as well as dollar bounce.

·     Gold prices slid -$6.80 to settle at $1,987.50 an ounce, falling behind another bounce in the dollar ahead of the Fed meeting. Meanwhile the US dollar is on track for its 9th week higher in the last 11 given rising bets on the Fed staying “higher for longer” on interest rates.

·     The 10-yr yield made new lows late day as stocks made new highs; 10-yr yield down-12bps now at 4.755%, while the 2-yr down -13.4bps to 4.937%. Better Treasury auction news, positive Powell comments and weaker data help. The U.S. Treasury Department said it plans to "gradually" increase the size of most of its debt auctions in the November 2023 to January 2024 quarter. But Treasury yields fell after the announcement on relief (10-yr as low as 4.78%) as the increases were not as large as some had feared. It comes after the U.S. government on Monday cut its borrowing estimate for the quarter to $776 billion, $76 billion less than its forecast in July.

·     Treasury said plans to sell $112 billion in its quarterly refunding next week, which will raise $9.8 billion in new cash and refund $102.2 billion in securities. This will include $48 billion in three-year notes, $40 billion in 10-year notes and $24 billion in 30-year bonds. The Treasury said it plans to increase the size of its two-year and five-year auctions by $3 billion per month, and to increase the size of its 3-year and 7-year auctions by $2 billion and $1 billion per month, respectively. Treasury yields fell after the announcement on relief; the increases were not as large as some had feared. It comes after the U.S. government on Monday cut its borrowing estimate for the quarter to $776 billion, $76 billion less than its forecast in July.

 

 

Macro	Up/Down	Last
WTI Crude	-0.58	80.44
Brent	-0.39	84.63
Gold	-6.80	1,987.50
EUR/USD	-0.0011	1.0564
JPY/USD	-0.99	150.68
10-Year Note	-0.12	4.755%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Autos: Ford Motor (F) and GM both upgraded to Overweight from Equal Weight at Barclays and move Auto sector to positive on historically cheap valuation, saying they prefer GM over Ford and says Ford/GM catalysts: moving past UAW strike, ’24 est’s better than feared. In earnings, TM profits surge as weak Japanese yen bolsters carmaker’s revenues generated revenues saying Qtr benefited from favorable exchange rates and sold more vehicles in all regions worldwide; net profit nearly tripled and more than doubled margins from 6.1% to 12.6%.

·     In China Electric vehicles: LI said it delivered 40,422 vehicles in October, representing an increase of 302.1% year over year. Monthly deliveries exceeded the 40,000 milestone for the first time. NIO delivered 16,074 vehicles in October 2023, increasing by 59.8% year-over-year. The deliveries consisted of 11,086 premium smart electric SUVs, and 4,988 premium smart electric sedans. Cumulative deliveries of NIO vehicles reached 415,623 as of October 31, 2023. XPEV said its Smart EV monthly deliveries reached a record high of 20,002 units, representing a 31% increase over the prior month and a 292% increase year-over-year.

 

Consumer Retail and Staples:

·     In Apparel retail: GOOS lowered FY rev guidance to range C$1.2B-$1.4B Canadian dollars vs. prior view C$1.4B-C$1.5B citing global macroeconomic and geopolitical headwinds.

·     In Sporting Goods Retail: BGFV shares slid after cutting its cash dividend in half to 12.5c from 25c while Q3 EPS of $0.08 missed the $0.16 estimates and revs $239.9M vs. est. $243M and comp store sales fell 8.2% y/y. XPOF downgraded to Neutral from Buy at Bank America and cut tgt to $16 from $35 as believes risk/reward is now more balanced.

·     In Beaty: EL shares slide as guides Q2 adj EPS $0.47-$0.57 below est. $1.25 and sees FY adj EPS $2.17-$2.42, missing the est. $3.60 and said given the slower-than-expected pace of recovery, announces profit recovery plan to rebuild its profit margins in fiscal years 2025 and 2026. Note shares of rival ELF tumbled Tuesday ahead of their earnings tonight.

·     In Food: KHC raises annual profit forecast, after beating Q3 earnings estimates, as prices in Q3 rose 7.1% helping adj gross margin to rise by 396 bps to 34%; now sees FY EPS in the range of $2.91-$2.99 per share vs prior forecast range of $2.83-$2.91 per share.

 

Leisure, Gaming & Lodging:

·     Macau Gaming data: Macau’s casino revenue jumped in October after the world’s largest gambling hub saw a surge during China’s Golden Week holiday. Gross gaming revenue grew 400% to 19.5 billion patacas ($2.4 billion), according to data released by the Gaming Inspection and Coordination Bureau, more than the median analyst estimate of a 392% year-on-year increase. (shares of WYNN, MLCO, MGM, LVS move).

·     In Casinos: CZR rises on strong 3Q performance, in which both revenue and profitability results beat estimates as Las Vegas continues to operate on all cylinders with regional markets, the surprise of the quarter, continuing to show; BALY lowered FY revs to $2.4B-$2.5B from prior $2.5B-$2.6B after weaker Q3 results as revs $632.5M vs. est. $633.6M on wider net loss of -$61.8M vs. est. loss $7.15M.

·     In Theme Parks: FUN shares popped late afternoon after Reuters reported SIX approached FUN with a merger offer, pursuing a combination that would unite two of the largest U.S. amusement park operators https://tinyurl.com/esm5r6p9 . JP Morgan initiated SIX at Underweight ($16 PT) and SEAS assumed with a Neutral ($57 PT) saying near-term within the regional theme park industry, sees pair trade opportunity with SIX trading at a ~2 turn valuation premium to SEAS despite material differences in relative margin profile, balance sheet position and (EPS setup).

 

Homebuilders, Building Products, Home Furnishing:

·     Homebuilders: earnings from MTH Q3 EPS $5.98 vs. est. $5.14; Q3 revs $1.61B vs. est. $1.57B; said Q3 orders of 3,474 homes for the third quarter increased 50% y/y; said projecting 3,500 to 3,700 home closings for the Q4; SKY Q2 adj EPS $0.82 vs est. $0.80, adj EBITDA $$58.5Mm vs est. $59.08Mm, adj EBITDA mgn 12.7%, sales $464.2Mm vs est. $459.48Mm.

·     In Data: the weekly Mortgage Bankers Assoc said weekly applications index fell -2.1%, the purchase index fell -1.4% and the refinance index fell -3.5; while the average 30-year mortgage rate falls 4 bps to 7.86 pct in Oct 27 week.

·     In Building products: MLM shares jump on results; FTDR Q3 a top and bottom line easily top consensus and raises FY adj. EBITDA view to $320M-$330M from prior $260M-$280M view; BLD also outperformed following quarterly results.

 

Restaurants:

·     DIN Applebee’s posted -2.4% lower same-store sales during 3Q, while IHOP’s same-store sales were up 2% and overall, revenue declined 13% to $202.6M

·     EAT Q3 comp sales rose 5.8% vs. est. 5/7% and now expects Fy24 EPS $3.35-$3.65, compared with consensus of $3.32 and maintains year revs $4.27B-$4.35B after posted better Q3 results; Chili’s Comp sales +6.1% vs. 3.8% y/y, Maggiano’s 2.6% vs. 18.2% y/y and Chili’s rose 6%.

·     WING raised its full-year guidance and now expects same-store sales growth of about 16%, up from prior guidance of 10% to 12%; still expects to open 240 to 260 global net new units; Q3 EPS, sales, and comp sales all above consensus.

·     YUMC shares dive after missing Wall Street expectations for its Q3 earnings, revenues and comp store sales saying that “softening consumer demand” emerged in recent weeks.

·     YUM reports that Q3 comp sales rose 6% at KFC, gained 8% at Taco Bell and were up 1% at Pizza Hut while overall, same-store sales rose 6% vs/ est. 4.6%.

 

Energy

·     In Solar: FSLR reported strong 3Q results, beating consensus estimates across all metrics but revenue, driven by lower sales volumes, while reiterated 2023 guidance in line with estimates and increased the midpoint of both operating income and EPS guidance. SPWR just the latest In solar space tempering expectations by lowering FY23 adjusted EBITDA view to ($35M)-($25M) from $55M-$75M (follows lower guides from SEDG, ENPH in recent weeks).

·     In MLPs/Pipelines: OKE ex-transaction costs, adj EBITDA was above expectations and OKE bumped 2023 EBITDA guidance by 3% at the midpoint to $4.8bn (ex-MMP). Including MMP, OKE expects 2023 EBITDA of $5.1B.

·     In Utilities: DTE revising 2023 operating EPS guidance from $6.09 – $6.40 to $5.65 – $5.85; said is well-positioned for future growth; posts EP $1.61 vs est. $2.24. NRG was upgraded to Buy from Neutral at Guggenheim on the back of increasing comfort with the Smart Home business and its improved view on several of the intangibles that had underpinned its preference to remain on the sidelines YTD.

 

Financials

REITs:

·     DEI reported 3Q23 FFO/share of $0.45, which beat both our estimate ($0.44) and consensus ($0.44). In addition, the Company left its FY23 FFO/share guidance midpoint unchanged at $1.83 with a range of $1.81-$1.85 despite increasing guidance for both cash SSNOI growth by 50 bps.

·     PECO reported in-line 3Q results and management maintained its FY23 Core FFO midpoint of $2.33/share by narrowing each end of the range by $0.01; the new range of $2.31-$2.35/share compares to consensus of $2.34/share.

·     XHR’s 3Q23 results missed adj. EBITDA and adj. FFO expectations, as moderating fundamentals and disruption from renovations likely weighed on overall performance more than anticipated. RevPAR growth increased modestly in 3Q23.

 

Banks, Insurance & Services:

·     In Payroll Services: PAYC shares tumbled over 30% as guides 10%-12% revenue growth in 2024, well below the analysts estimate for a 21% jump ($420M-$425M vs. est. $452M)

·     In Insurance: VOYA 3Q adj. EPS of $1.74 missed consensus of $2.05 which was largely contained within the Health Solutions segment, while a modest miss in Wealth Solutions was essentially offset by better corporate expense management.

 

Healthcare

Biotech & Pharma:

·     ALDX signed a licensing deal with ABBV on an eye-condition drug where Aldeyra will receive a $100M up-front payment, less option fees, and up to an additional $300M in milestones.

·     CLLS shares soar as AZN said it plans to invest $245 million in a deal with the biotechnology company to develop next-generation therapeutics in oncology, immunology, and rare diseases, making an initial payment of $105M in Q4.

·     CRSP rises following positive FDA advisory panel meeting on the gene-editing drug exa-cel developed by Crispr and partner VRTX as a treatment for sickle-cell disease. The FDA has set a Dec. 8 target action date for possible approval of the treatment.

·     GSK hiked full-year guidance as Q3 net profit rose, mainly reflecting the U.S. launch of its Arexvy vaccine–though it still missed market expectations.

·     NVAX said it has received the European Union medicines regulator’s backing for approval of updated version of its COVID-19 vaccine for use in individuals aged 12 years and older.

·     TNXP said it is discontinuing development of TNX-601 ER based on efficacy results of Phase 2 study for MDD.

 

Healthcare Services & MedTech movers:

·     In Drugstores: CVS Q3 EPS and revs top consensus, backs year EPS, and raises rev view, while for FY24, sees FY24 adjusted EPS at ‘low end’ of $8.50-$8.70 (est. $8.60).

·     Medical Research: IQV cuts FY23 ests as see EPS $10.16-$10.23 from prior $10.20-$10.45 and reduced its revenue projection to $14.89B-$14.92B vs. prior $15.05B-$15.18B; comes after mixed Q3 results as EPS beat, revs missed.

·     In Managed Care: HUM Q3 EPS topped ests after better-than-expected performance in its government-backed insurance plans, but only maintained FY guidance despite the beat, sticking to its EPS tgt of $28.25 vs. et. $28.31.

 

Industrials & Materials

·     In Machinery/Equipment: GNRC Q3 adj EPS $1.64 vs. est. $1.51; Q3 revs $1.07B vs. est. $1.04B; Residential product sales were down 15% at $565M, though commercial and industrial product sales were up by nearly a quarter at $385M; TKR cuts FY23 adjusted EPS view to $6.85-$6.95 from $7.00-$7.50; TT beats Q3 estimates, raises FY23 outlook.

·     Transports: the Baltic Dry index fell for a 10th straight session today, slipping 4% or by 58 points to 1,401. The Capesize index declined 6% or 121 points to 1,899, its lowest in over one month. The panamax index slipped 2.9% losing 45 points at 1,489, its lowest level since early September.

In Engineering & Construction: MTZ reported Q3 EPS, EBITDA, and revenue below guidance and guidance for 2023 was lowered due to numerous project delays, deferrals, and lower utilization (sending shares sharply lower)

·     In Aerospace: BA was upgraded from Buy to Conviction Buy at Goldman Sachs with $258 tgt saying with a 25% pullback from its June air show highs, and the stock now trading at sub-10X mid-cycle free cash flow, believes that investors are more focused on near-term disruptions than l-t fundys. SPR posted a narrower Q3 EPS loss of (-$1.42) vs. est. (-$1.54) but announced $101M forward losses on key BA and EADSY aircraft production and cut its forecast for 737 fuselage deliveries grappling with production defect.

·     In Chemicals: DD saw its 3Q net sales drop 8% y/y, lowers year adj EPS to $3.45 from prior $3.40-$3.50 and cuts full-year revenue forecast to $12.17B from prior $12.45B; said Q3 sales in electronics and industrial segment fell 13%, water and protection unit down 8%; HUN Q3 adj EPS $0.15 vs. est. $0.19; Q3 revs $1.506B vs. est. $1.55B; says 4Q will likely be the most challenging period in recent memory due to weak demand, pricing pressure; SMG said volumes fell 23% overall, down 30% for the consumer segment and 13% for the Hawthorne business. LTHM quarter showed a modestly more pronounced decline from lower lithium prices than expected, with 4Q guidance lower due to a delay in the Argentina expansion; Q3 adj EPS and revs miss and cuts FY23 revenue view to $890M-$940M from $1.025B-$1.125B.

·     In Papers & Packaging: Europe’s Smurfit Kappa, which agreed an $11 billion deal to buy U.S. rival WRK in September, said it saw tentative improvements in its German order books that could bode well for a return to volume growth; UFPI downgraded from Buy to Neutral at DA Davidson following a modestly weaker than expected 3Q23 performance. SON 3Q operating EPS $1.46 topped Street at $1.23 and above company’s prior guidance of $1.25-1.35 while total segment operating profit of $213M above est. and raises FY23 EPS and lowers FCF view.

 

Technology

Internet, Media & Telecom

·     In Media: CMCSA Reportedly exercising its put option on Hulu today; DIS to pay ~$8.5B next month – CNBC’s David Faber reported this morning.

·     In social media: MTCH reported in-line Q3 revs but sees Q4 total revenue $855m-$865M below consensus of $895.M, anticipating continued weakness in spending on dating services (shares of BMBL declined in sympathy).

·     In Telecom: LUMN reported 3Q revenue that was ahead of the Street and missed on adjusted EBITDA.

 

Hardware & Software movers:

·     In Software: SPLK announces plans to cut global workforce by 7%; PERI posted slight upside to both revenue and AEBITDA for Q3 and reiterated the outlook for FY23.

·     Comm and Networking: EXTR shares fall after posted a revenue and EPS beat for Q1, but issues downside guidance for Q2 and FY24 vs prior double-digit revenue growth outlook, citing changing customer buying patterns based on macroeconomic conditions.

 

Semiconductors:

·     AMD reported Q3 beat but came up short with its revenue forecast for Q4 ($5.8B-$6.4B vs. est. $6.4B) but talked up its opportunities in artificial intelligence; Q3 data-center revenue was flat with the year-earlier sum but up 21% sequentially.

·     CRUS was upgraded to Buy from Hold and raise tgt to $100 at Loop Capital saying the stock offers a unique opportunity emerging for both the company and investors, as Cirrus Logic can level up its earnings per share.

·     SLAB Q3 results in-line to slightly better but guides Q4 adj EPS loss ($1.66)-($1.22) vs. est. $0.67 and sees Q4 revenue $70M-$100M below consensus $204.93M.