Closing Recap

Friday, November 03, 2023

Index	Up/Down	%	Last
DJ Industrials	222.11	0.66%	34,061
S&P 500	40.55	0.94%	4,358
Nasdaq	184.09	1.38%	13,478
Russell 2000	46.49	2.71%	1,760

 

 

 

 

 

 

 

 

 

Stock markets surged again on Friday, making it a 5^th straight day of gains in what has been an amazing week for major averages. The S&P 500 advanced about 6% this week, the Nasdaq +6.6%, the Dow +5% and the Russell 2000 (which underperformed in October), rose 7.8%. It was their best week of the year, pushing the S&P 500 (SPX) back above its 200-day MA resistance midweek (4,245) and its 50-day MA today (4,347) after hitting lows of 4,132 on Monday morning. It has certainly been a “treat” not “trick” since Halloween on Tuesday behind better Treasury refunding news, FOMC/Powell commentary hinting the rate hike cycle could be behind us, and softer economic data which for the time being is being seen as market “friendly” as it raises expectations the Fed will halt hikes and look to easing in 2024 (even though Chairman Powell said this week rate cuts have not even been discussed at this point). Other factors likely helping markets this week included the completion of tax loss selling for mutual funds (end of October) as well as resumed buybacks for major companies following the blackout period into earnings. The perfect storm of news flow, coupled with a very busy week of earnings (now more than 80% done for the quarter), has boosted stocks back above key technical levels, pushed Treasury yields and the US dollar lower and put the “Santa Claus” rally back in play during this seasonally strong part of the year. @charliebilello tweets: "The probability of a rate hike at the December FOMC meeting has moved down to 5% from 47% a month ago. And the market is now expecting the rate cutting cycle to start a month earlier (May 2024 instead of June 2024)."

 

Stats on day/week: the U.S. dollar weakened to the lowest in over a month as swaps traders reined in bets for another Federal Reserve rate hike and pushed forward expected rate cuts; US 10-year Treasury yields extend fall to 4.49%, lowest since September 29^th (and off 4.935% at its peak Wednesday); a 7%+ rally this week has pushed the Russell 2,000 ETF (IWM) back into positive territory on the year; coming into today, the Nasdaq had 43 consecutive Net New Lows. Oil prices hit near two-month lows.

 

Economic Data

·     October Nonfarm payrolls headline weaker with downward revisions: +150K (vs. consensus +180K) vs September +297K (from +336K), August +165K (from +227K); the unemployment rate ticks higher to 3.9% from 3.8% (consensus 3.8%). Private sector jobs +99K below est. 158K and Manufacturing jobs fell -35K, more than the -10K estimate.

·     October average hourly earnings rose +4.1% from a year earlier (vs. consensus +4.0%) and Average Hourly earnings rose +0.2% vs. est. +0.3% (though prior month was revised up by +0.1%. U.S. October average hourly earnings all private workers +0.2% from prior month (cons +0.3%).

·     ISM non-manufacturing sector shows PMI 51.8 in October below consensus 53.0 and vs 53.6 in September; business activity index 54.1 in October vs 58.8 in Sept; non-manufacturing prices paid index 58.6 in October vs 58.9 in Sept and new orders index 55.5 in October vs 51.8 in September.

·     Federal Reserve Bank of Richmond President Thomas Barkin said Friday that softer jobs data is moving in the direction desired by central bankers trying to lower inflation, but added he was not yet ready to say what must happen next with the Fed’s monetary policy settings.

 

Commodities, Currencies & Treasuries

·     Oil prices lagged with WTI crude down near 2-month lows, falling -$1.95 or 2.36% to settle at $80.51 per barrel (down about -6% on the week), while Brent crude futures settle at $84.89/bbl, down $1.96, 2.26% (also down about 6% on week), one of the few assets not rallying this week. Baker Hughes (BKR) reports that the U.S. rig count is down 7 from last week to 618 with oil rigs down 8 to 496, gas rigs up 1 to 118 and miscellaneous rigs unchanged at 4. Natural gas futures ended the week up nearly 1%, at $3.515/MMBtu, after today’s 1.2% gain, up 21% in 2 weeks.

·     The U.S. dollar index (DXY) tumbled this week, falling another 1% today to move below 1.05 (off weekly highs above 107 on Wednesday). Treasury prices soar as yields tumble as the 10-year fell -11.1 bps on day to 4.557% and dropped 28.9 bps on the week (after hitting mid-week highs above 4.93%); yields have fallen 4 straight days.

·     Gold prices benefitted from the roll in the US dollar and Treasury yields after struggling the first half of the week amid a flight out of “haven” assets and into riskier ones – but today was risk on across the board. Gold finished higher $5.70 to settle at $1,999.20 an ounce (off earlier highs $2,011.90 an ounce) and posted a modest beat the last 5-days.

 

 

Macro	Up/Down	Last
WTI Crude	-1.95	80.51
Brent	-1.96	84.89
Gold	5.70	1,992.00
EUR/USD	0.0114	1.0734
JPY/USD	-1.10	149.34
10-Year Note	-0.111	4.558%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Auto parts: MGA a bright spot in generally weak auto supplier sector, reporting Q3 EPS and revs above prior year results (sales +15% y/y) while saying sees light vehicle productions improving globally for the year; AXL also reacting well after its Q3 results and guidance (much better results/performance after BWA numbers yesterday hurt the sector.

·     FOXF Q3 miss on top and bottom line, while cuts FY23 adj EPS view to $4.20-$4.45 from $5.00-$5.30 (est. $4.95) and lowers FY23 revenue view to $1.43B-$1.47B from $1.67B-$1.7B; group follows weakness on Thursday after APTV, BWA results/guidance missed.

 

Retail, Consumer Staples & Restaurants:

·     In Restaurants: QSR missed Q3 estimates for sales ($1.84B vs. est. $1.88B) and Burger King division’s total same-store sales growth of 7.2% missed analysts’ estimates of 8.71% while Tim Hortons chain comp sales growth of 6.8%, topped estimates of 6.5%. BLMN cuts FY23 adjusted EPS view to $2.80-$2.90 from $2.91-$3.00 (est. $2.93) and cuts FY23 U.S. comparable restaurant sales growth view to 1.5%-2% from 2%-4%.

·     In Products, Food & Beverage: MNST reported solid 3Q23 results, with sequential gross margin expansion and strong October sales most notable said Stifel. TAP upgraded to hold from sell at Deutsche Bank as believes TAP’s execution over the past 12+ months has markedly improved behind portfolio optimization efforts, more focused marketing spending. CHD shares slipped after Q3 EPS/sales beat but guided Q4 EPS $0.63 below ests $0.72 while lifted its year sales forecast but maintains year EPS view.

·     In Retail: FND shares fall as Q3 results were slightly better than the lowered guidance given last period but views for Q4 were well below the Street as guides FY comps (8.5)%-(7.8)%, net sales $4.345-4.385B vs est. $4.473B, adj EBITDA $535-550Mm vs est. $562.7Mm. WW posted wider drop in revenue in Q3, driven by lower subs as revs fell -14% y/y to $214.9M vs. est. $221.6M.

 

Leisure, Gaming & Lodging:

·     In Ride sharing: UBER upgraded to Overweight with $60 tgt at KeyBanc ahead of earnings next week (11/7), as believes expense discipline at Uber should continue driving an EBITDA and FCF inflection, while advertising provides a lever to keep prices low to drive volumes.

·     In Online travel: BKNG shares slip on results reflecting a combination of “soft” 4Q room-night y/y growth guidance (9% vs consensus of 9.5%), acknowledgment of the October volatility due to the Middle East conflict, an in-line 4Q EBITDA guide, while EXPE shares jump behind a $5B share buyback on mixed results, with slight misses on room-nights and gross bookings but modest beats on revenue and EBITDA.

·     In gaming: DKNG generated $790M of revenue during 3Q23, 2% above the highest Street estimate, and +12% vs consensus and has now improved market share in four consecutive quarters, stemming from the overall improvement in its iGaming and sports betting offering. The company also introduced FY24 revenue and adj. EBITDA guidance that came in ~8% and ~28% ahead of consensus, respectively.

 

Energy, Industrials and Materials

·     In E&P: EOG Reported EPS/EBITDA of $3.44/$3.490B compared to consensus of $3.01/$3.260B and surpassed expectations across-the-board as equivalent volumes beat by 2%, oil volumes by 1%, price realizations by 2% and EBITDA margins by 4%. SWN reported EPS/EBITDA of $0.10/$509m, ahead of consensus of $0.08/$475m as capex ($441M vs. $486M est.) and EBITDA margins were better than expected. In Oil Equipment & Services: BOOM reported weaker-than-anticipated 3Q results with revenue and adjusted EBITDA landing 5.0% and 4.9% below ests and mgmt provided softer-than-expected guidance for 4Q.

·     Dow Transports snap their 6-week losing streak, rising over 7% this week in a broad market bounce back (longest losing streak since October 2018); shares of CAR rise over 7% after a jump 14% the day prior on earnings, while airlines, truckers, freight names rebound after a rough earnings quarter for the industry.

·     In Industrials: GNRC upgraded from Neutral to Buy at Guggenheim following the Q3 report earlier this week and its subsequent conversation with the company.

·     In the Metals sector: X downgraded to Hold from Buy at Argus on valuation; STLD announces additional $1.5 billion share repurchase authorization and Q4 cash dividend. Gold miners saw outperformance following the drop in the dollar and yields and a rebound in gold prices.

 

Financials

Banks, Brokers, Asset Managers:

·     In FinTech: after stronger results/guidance from PYPL 2 days ago lifted payments space, SQ followed up with its own beat and raise as Q3 adj EPS $0.55 vs. est. $0.45; Q3 revs rose 24% y/y to $5.62B vs. est. $5.47B; Q3 adj EBITDA rises 46% y/y to $477.5M vs. est. $373.8M; Gross payment volume $60.08B, +10% y/y.

·     Regional banks (KRE) with a massive rally this week, helped by the pullback in yields and easing economic concerns, insurance stocks also outperformed behind the drop-in rates.

 

Healthcare

Healthcare Services & MedTech movers:

·     In Distributors: CAH raises FY24 adj EPS view to $6.75-$7.00 from $6.50-$6.75 earlier after posts larger Q3 EPS beat of $1.73 vs. est. $1.40 driven by strong demand for specialty products.

·     In Health Services: EVH reported a strong quarter with 3Q23 adj EBITDA $49M above consensus $45M on better earnings and announced three new operating partnerships, bringing the number of 2023 signed partnerships to 9, which is ahead of EVH’s annual target of 6-8.

·     In MedTech: SYK Q3 EPS $2.46 beat by $0.03 and raised the lower end of its profit forecast to $10.35 from 10.25 per share and on steady demand for its medical and surgical devices. CVRX shares surge after CMS published the CY 2024 OPPS final rule and Barostim was reassigned to APC 1580, which carries average reimbursement of $45K vs the original expectation of $30K.

·     In Insulin sector: PODD posted a beat-and-raise quarter driven by a near-record new patient start number, with meaningful US upside and International also modestly outpaced expectations amid O5 launches in the UK and German.

·     In Pet insurance: TRUP reported Q3 results that were better than expected and raised its full year guidance as price increases are starting to flow through the model, driving margin improvement.

·     In the nurse staffing sector, AMN and CCRN both downgraded to Hold from Buy at Jefferies as firm sees 4Q and 1Q24 EBITDA at risk for the nurse staffing cos they cover as demand is coming in lower than expected and bill rates are not seeing a seasonal increase.

 

Technology

Internet, Media & Telecom

·     AAPL posted in-line Sep-Q total and iPhone sales and 7c EPS beat on 70bps gross margin upside from favorable product mix shift and higher +16% Y/Y services reacceleration (sales decelerate 4^th straight qtr); Dec-Q outlook of flat Y/Y total sales with iPhone sales up Y/Y was below Street +5% Y/Y and indicated December YoY revenue growth would be flattish YoY.

·     In Media: PARA matched consensus for Q3 revenue but topped Street EBITDA by about $130M, says remain on path to achieving significant total earnings growth in 2024 and sees DTC losses in 2023 lower than 2022; FOXA was downgraded from Overweight to Neutral at JP Morgan and cut tgt to $36 from $40 as questions the lack of a wider digital strategy, as linear ecosystem subscriber losses remain elevated and the pace of affiliate increases will fade.

 

Hardware & Software movers:

·     Internet Security: group tumbles after FTNT reported billings and revenue below expectations and cut full year billings and revenue guidance for the second quarter in a row saying weakness in the quarter was attributed to sales execution as well as softness in several verticals. QLYS outperformed, however, in the sector after results and guidance at all-time highs.

·     In Cloud Software: BILL shares tumbled, downgraded to Sector Weight at Keybanc after the Company revised FY24 guidance lower (~6% below Street and prior guide midpoint) as headwinds to TPV picked up in late C3Q and persisted thru October. Non-FI TPV per customer declined ~4% y/y while spend & expense TPV saw avg. transaction size decline ~11% y/y.

·     In IT Services & Consulting: DOCN shares jumped as total revenue of $177.1M grew 4.3% q/q with rapidly scaling Paperspace contributing $3M and adj. FCF margins jumped to 32% with mgmt reiterating its FY targets of 38.5% EBITDA margins and 21% adj. DT reported a strong 2Q w/ net new ARR of $50M reported & $59M in cc, above ests and FY ARR guide raised. NET Q3 results beat across all metrics but given a mixed/uncertain macro backdrop Q4 rev guidance came in below estimates and FY23 revenue was raised by less than the beat and is modestly.

 

Semiconductors:

·     The Philly semiconductor-index (SOX) rises over 2.5% on day, moving back above its 50-day MA to around 3,450 in strong semi bounce.

·     CRUS Q3 results beat expectations on the top and bottom lines by a healthy margin while issuing guidance that was mostly in-line despite a favorable benefit (~$35- 40M) from one additional week in the December quarter.

·     MCHP reported roughly in-line Sep Q, with revenue of $2.25bn (-1.5% q/q) and NG EPS of $1.62. Materially lower Dec Q guidance, with revenue midpoint of $1.86bn (-11.8% vs. our est.) and NG EPS guidance midpoint of $1.13.

·     SWKS reported SepQ in-line and guided DecQ to $1.20B (cons. $1.29B), down ~2% q/q, with Handsets Mizuho estimate up ~3% q/q but Broad Markets (BM) down ~10% q/q.