Closing Recap

Wednesday, November 15, 2023

Index	Up/Down	%	Last
DJ Industrials	163.91	0.47%	34,991
S&P 500	7.22	0.16%	4,502
Nasdaq	9.45	0.07%	14,103
Russell 2000	2.90	0.16%	1,801

 

 

 

 

 

 

 

 

 

US equity investors weren’t ready to leave the CPI party quite yet, as futures gained overnight into today’s PPI release. PPI didn’t disappoint, also coming in below expectations. Retail sales were also a bit softer, while Core was a little better and Empire Manufacturing also beat. Overall, nothing really to shift the positive sentiment hangover from yesterday. If anything, perhaps one could argue today’s data adds a little support for the soft-landing bulls. Early breadth was a little better than 2:1 in favor of advancers and expanded to almost 5:2 by late morning. Among S&P sector ETFs, only Utilities were in the red by late morning. Materials, Energy, Financials, and Industrials were leaders.

 

In data points of interest today, @bespokeinvest highlights the small cap rebound noting the IWM was bouncing 1.6% early to bring its two-day move to +7.2%, but still not overbought. On the large-cap side, @charliebilello notes the tech sector has gain 47% in 2023 versus an 18% rise in the S&P 500 and the highest relative strength versus the broader market since March 2000. Separately, @charliebilello also notes current expectations are for the Fed to remain on pause until May 2024, then cut through November 2025. @RedDogT3 takes a different view, saying while the Fed may be done with hikes, it doesn’t necessarily mean they cut a point next year, especially if the market continues to climb toward new highs. Even @KobeissiLetter, normally a more cautious voice, has noted the CPI and PPI data suggest the Fed is done raising rates and likely will be on pause for a while.

 

By early afternoon, markets were fading with multiple big tech names among decliners. AMZN, META, NVDA and MSFT were all softer while AAPL and GOOGL held onto modest gains. Heading into the final hour of trading, markets had rebounded a bit and held small gains as breadth receded to about 3:2, still favoring advancers. Leading sectors included Consumer Staples (XLP, +0.8%), Financials (XLF, +0.75%) and Materials (XLB, +0.70%), while laggards were Utilities (XLU, -0.1%) and Energy (XLE, -0.04%). Small caps performed roughly in-line with the big caps as the IWM gained +0.3% versus the S&P 500 at +0.3% and Nasdaq +0.16%. Both growth and value gained, with value the outperformer as the Russell 1000 Value climbed 0.57% versus its Growth counterpart at +0.08%.

 

Economic Data

·     The Producer Price Index (PPI) for Oct fell (-0.5%) vs. a rise of +0.1% expected and well below the +0.4% prior (revised from +0.5%) and on a Y/Y basis, rose +1.3% below the +2.0% expected and +2.2% prior. Core PPI, which excludes food and energy, was unchanged vs. a rise of +0.3% expected and +0.2% prior (revised from +0.3%) and Y/Y rose +2.4% vs. +2.7% expected/prior.

·     October Retail sales beat, posting a smaller-than-expected loss of (-0.1%) vs. est. loss (-0.3%) but marked the first decline in seven months, while retail sales ex autos rose +0.1% vs. expected (-0.2%). Oct gasoline sales -0.3% vs Sept +1.0% and Oct cars/parts sales -1.0% vs Sept +1.1%.

·     Sept Business Inventories rose +0.4% (in-line with consensus) and vs Aug +0.4% while Sept business sales +1.1% vs Aug +1.4% (prev +1.3%); U.S. Sept retail inventories ex-autos revised to +0.4% (prev +0.3%); Sept inventory/sales ratio 1.36 months’ worth vs Aug 1.37 months.

·     The US MBA Mortgage Bankers Assoc said the weekly applications index rose +2.8%, the purchase index climbs 3.3% and the refinance index climbs 2.0% as the average 30-year mortgage rate unchanged at 7.61% in Nov 10 week.

 

Commodities

·     December gold futures slipped $2.20/oz, or -0.11%, to settle at $1,964.30 on modest profit taking following recent gains. More benign CPI and PPI have enticed investors back toward a risk-on view of the world in which equities are once again potentially an attractive alternative to gold, with a bounce in the Dollar also making gold marginally less attractive. Technically speaking, $2,000 remains the big resistance level while $1,900 is technical support so current prices are not driving technical traders to participate in a meaningful way.

·     WTI December crude futures slipped $1.60/bbl, or -2.04%, to settle at $76.66 after EIA inventory data reflected a larger-than-forecast build. The decline marked the first down day in the last five and was mirrored by Brent crude also slipping $1.29/bbl, or 1.56%, to $81.18. Today’s inventory data, after skipping last week for system updates, is said to reflect rising imports and an active refinery maintenance period. Further, some incremental unwinding of bullish positions on the Israel/Hamas fighting has continued to apply modest downward pressure.

 

 

Macro	Up/Down	Last
WTI Crude	-1.60	76.66
Brent	-1.29	81.18
Gold	-2.20	1,964.30
EUR/USD	-0.0036	1.0844
JPY/USD	1.00	151.39
10-Year Note	0.10	4.541%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     Retail sector got a big boost after TGT reported Q3 adj EPS $2.10 easily topping est. $1.48 while revs fell -4.2% to $25.4B (in-line) on a smaller Q3 comp store sales drop of (-4.9%) vs. est. for a (-5.3%) decline; guides Q4 adj EPS $1.90-$2.60 vs. est. $2.23; Q3 margins improved (rose to 27.4% from 24.7% y/y), helped by fewer discounts, a 14% reduction in inventories and related costs, and lower freight, supply-chain and delivery expenses.

·     In Auto retail: AAP mixed results/disappoint guidance: Q3 sales $2.7B vs. est. $2.67B and said is launching new cost-cutting program aimed at $150M in savings; Q3 comp sales rose 1.2%; initiates sale processes for WorldPac and Canadian business; narrows FY sales view to $11.25B-$11.3B and slashes FY23 diluted EPS view to $1.40-$1.80 from $4.50-$5.10.

·     In Off-Price retail: TJX Q3 comp sales +6% topped est. +4.5% with better segment sales as Marmaxx comparable sales +7% vs. +3% y/y and HomeGoods comps +9% vs. -16% y/y; Q3 results ahead but guided Q4 EPS $0.97-$1.00 vs. est. $1.13.

·     In Research: AEO was upgraded to Neutral from Underperform at Bank America as see near-term momentum for upward estimate revisions driven by stronger than expected revenues; VFC was upgraded from Underweight to Neutral at JP Morgan and raise tgt to $19 as they see a profit inflection over the next 12-18 months supported by CEO cost savings program. ENR was downgraded at JP Morgan, Morgan Stanley and RBC following Q3 earnings results.

 

Leisure, Gaming & Lodging:

·     In Lodging: BVH downgraded to Hold from Buy at Truist while raised tgt to $75 from $54, HGV tgt to $66 from $73, TNL PT to $59 from $66 and VAC to $149 from $187 saying Q323 earnings was one of the more eventful quarters for the Vacation Ownership companies in years.

·     In Autos: GT unveiled a transformation plan that aims to raise more than $2 billion in proceeds from portfolio optimization and to generate cost cuts of $1.3 billion by the end of 2025. The company also said Chief Executive Richard J. Kramer will retire in 2024.

 

Energy, Industrials and Materials

·     In Industrials: GNRC upgraded from Underperform to Neutral at Bank America with $110 tgt noting Q3 results beat expectations, led by better-than-expected execution in resi and C&I, where the bulk of the delta to its estimates was driven by improving HSB sales.

·     In Transports: ZIM reported Q3 results that fell short of Wall Street estimates as it incurred a massive net loss of $2.3B for the quarter, compared to net income of $1.17B in the year ago quarter and bottom line was weighed down by a non-cash impairment loss of $2.06B.

·     In Aerospace & Defense: Elon Musk’s SpaceX is discussing an initial public offering for its Starlink satellite business as soon as late 2024, Bloomberg News reported on Wednesday. Musk denied the report, calling it "False" in a post on his social media platform X, formerly known as Twitter.

 

Financials

Banks, Brokers, Asset Managers:

·     Bank stocks rallied again after the BKX and the KRE outperformed the SPX by +2.8% and +5.6%, respectively on Tuesday. KBW Inc noted that part of this strength was due to favorable inflation data (following a strong productivity report and a weaker job report), which drove down 10-year yields to approximately 4.45%. FCNCA with a positive mention in Barron’s saying despite its gains rising 88% this year, still has relatively cheap shares, along with an unusual growth engine https://tinyurl.com/2b5xpxsk

·     In FinTech/Payments: FI reaffirms FY23 EPS view $7.47 to $7.52 vs. est. $7.49 and reaffirms FY23 outlook for organic revenue growth of 11%; sees FY24 adjusted EPS growth 13%-17% and sees FY24 organic revenue growth of 11%-13% for 2024. SQ was upgraded to Buy at Daiwa.

·     In Consumer Finance: Monthly NCO and delinquency data released: BAC credit card charge-off rate was 2.05% in Oct vs 2.09% in Sept and credit card delinquency rate was 1.37% at Oct end vs 1.30% at Sept end. COF said Oct domestic credit card net charge-offs rate 5.08 % versus 4.16% in Sept and 30+ day performing delinquencies rate for domestic credit card 4.48% at Oct end vs. 4.31% at Sept end. The 30+ day performing delinquencies rate for auto 6.06% at Oct end vs. 5.64% at Sept end and the Oct auto net charge-offs rate 2.26 % versus 1.79% in Sept. DFS credit card delinquency rate 1.47% at Oct end vs 1.63% at Sept end and said the credit card charge-off rate 2.09% at Oct end vs 1.94% at Sept end. JPM credit card charge-off rate 1.65% in Oct vs 1.60% in Sept end and said credit card delinquency rate 0.98% at Oct end vs 0.95% at Sept end.

·     In Business Information Services: in Europe, Experian (EXPGY) reported Q2 organic revs grew 5% YoY (in line w/ 1Q) and the reiterated its organic rev forecast for the FY (peers EFX TRU were active in reaction). Separately, TRU said it plans to reduce its 13,000-employee work force by 10% or, about 1,300, as part of a cost-cutting plan/said will take $355M-$375M of one-time pre-tax expenses, mostly by the end of 2024.

 

Healthcare

Biotech & Pharma:

·     ALKS completes its separation of its oncology business into Mural Oncology, with regular way trading starting tomorrow and provided updated financial targets, incorporating improved expectations on YTD results and reduction in operating expenses from the separation.

·     ARCT shares rise as Q3 EPS results as loss ($0.61) smaller than est. ($1.69) on revs $45.1Mm vs est. $15.87Mm; expected cash runway extended to end 2026.

·     BMY downgraded from Overweight to Neutral at Cantor and cut tgt to $55 from $68, notes downgraded near a 52-week low, saying the new launch thesis just hasn’t materialized – and there’s no line of sight to restoring investor confidence in the new product launches/pipeline.

·     CTLT posted smaller than expected Q1 loss while revs of $982M fell 4% y/y but beats the $939M est.; recorded a net loss of $715M for Q1, which includes the goodwill impairment charge; sees FY24 revenue $4.300B-$4.500B vs. est. $4.35B and sees FY adj EBITDA $680M-$760M.

·     VREX F4Q results were slightly below street on topline, while better margins drove an EPS beat and provided initial F1Q guidance of revs of $180M to $200M (vs. consensus $214M) and EPS of $0.00 to $0.20 (vs. $0.21 consensus).

 

Technology

·     DIS shares active after CNBC’s David Faber reported ValueAct Capital began buying Disney this summer during the Hollywood strikes and it is now one of the investor’s largest positions, the Activist Spotlight has learned https://tinyurl.com/2rpep2m9

·     MSFT unveiled two chips at its Ignite conference in Seattle as the first, its Maia 100 artificial intelligence chip, could compete with NVDA’s AI graphics processing units while the second, a Cobalt 100 Arm chip, is aimed at general computing tasks and could compete with INTC.

·     WIX was upgraded from Equal Weight to Overweight at Barclays and raised its tgt to $130 saying Partners is scaling well; few competitors address this channel effectively and says AI tools could help WIX take price in 2024.

·     Few media names active after Warren Buffett’s Berkshire revealed stakes: BATRA new position for Berkshire with $8M stake and buys 9.7M shares of SIRI valued at $43.8M, as per an SEC filing.

·     DT shares fell after Private equity firm Thoma Bravo said to sell 10M shares, cutting its stake by about 3% to 10.8%, or approx 31.9M shares.

·     In Semis: Infineon Technologies (IFNNY) said sales would continue to grow in its new fiscal year, albeit at a slower pace than in fiscal 2023, aiming for around 17 billion euros ($18.50 billion) in revenue for the year ending September 2024, up from EUR16.31 billion that Infineon reported for FY23; shares of analog semi names rose in reaction (ON, STM, ADI, TXN, MCHP).