Closing Recap

Thursday, November 16, 2023

Index	Up/Down	%	Last
DJ Industrials	-45.28	0.13%	34,945
S&P 500	5.38	0.12%	4,508
Nasdaq	9.84	0.07%	14,113
Russell 2000	-27.56	1.52%	1,773

 

 

 

 

 

 

 

 

 

Muted stock market action for a second straight day, with the S&P 500 holding its 10% rally off the October lows, moving above/below its 4,500 level several times today as markets have gone from anticipating the end of interest rate hikes to now anticipating the begging of cuts in a matter of days after “tamer” CPI and PPI inflation data this week turned market sentiment back to easing. Cleveland Federal Reserve President Loretta Mester tied to temper down the stocks markets outlook on interest rates, saying earlier Easing monetary policy “is just not part of the conversation right now,” Mester said in an interview on CNBC. “It is really not about cutting rates,” she said. “It is really now about how long do we stay in a restrictive stance, and perhaps have to go higher, given what happens in the economy.” Economic data today was mostly weaker as jobless claims jumped above views/last week, import prices dropped for the first time in 4-months, industrial output posted its lowest output in 11-months and the NAHB housing market index recorded its 4th straight month of declines to the lowest since December.

 

Looking at sectors: The mega cap tech stocks did the “heavy lifting” again today led by AAPL, MSFT, GOOGL, NVDA, AMD – nothing new in 2023 and kept the major averages afloat all day despite market breadth negative by 1.4:1 margin. DataTrekMB noted: "Big Tech accounts for 59% of the S&P 500’s QTD returns, which shows that Q4’s rally is more than just these 7 names. But, they are responsible for all the S&P’s gains this year. Without them, the S&P would be posting a loss in 2023." The Smallcap Russell 2000 was again under pressure after a brief 1-week spike, the energy sector (XLE) was hammered as oil priced fell as much as 5%, Consumer Discretionary (XLY) dropped over 1% after retailer earnings WMT, PLCE, BURBY raise consumer spending concerns and Consumer Staples (XLP) dropped over 1%. When the day was over, the S&P 500 managed its 12^th gain in the last 14 days as big caps save the day.

 

Economic Data

·     Weekly Jobless Claims climbed to 231K from 218K prior and above consensus 220K as the 4-week moving average climbed to 220,250 from 212,500 prior week and continued claims climbed to 1.865M from 1.833M prior week. The U.S insured unemployment rate climbed to 1.3%.

·     Import prices for Oct declined (-0.8%) – first drop in 4 months – and below the (-0.3%) estimate and vs Sept +0.4%; Oct petroleum import prices (-6.5%) vs Sept +6.8%; Oct export prices fell (-1.1%) vs. consensus (-0.5%) and vs Sept +0.5% (prev +0.7%). U.S. Oct y/y import prices -2.0%, export prices -4.9%.

·     November Philadelphia Fed factory index -5.9 vs. est. -8.0 as prices paid improved to 14.8 vs 23.1: new orders index down at 1.3 vs 4.4 prior, Fed future index at -2.1 vs 9.2, prices-received at 14.8 vs 14.6 and the employment index at 0.8 vs 4.0.

·     October Industrial Output fell (-0.6%) – lowest since December – and more than the (-0.3%) consensus and down from Sept +0.1%; Oct mining output +0.4% and utilities output -1.6% (sept -0.6%). Oct Capacity utilization rate 78.9% – lowest since Oct 2021 – and below consensus 79.4% and down from Sept 79.5%. U.S. Oct industrial output ex cars/parts -0.1% vs Sept +0.1%.

·     NAHB Housing market index tumbles 6 points to 34, (4^th straight month of declines) lowest since December and below consensus and prior reading of 40 October as current single-family home sales 40 versus 46 in October (previous 46) and index of home sales over next six months 39 versus 44 in October (previous 44).

 

Commodities

·     Oil prices slumped as WTI crude futures settle at $72.90 per barrel (lowest levels since July), down $3.76, or 4.90% as concerns over a potential slowdown in energy demand following downbeat U.S. economic data contributed to a drop in prices. Data released Thursday showed that U.S. industrial output fell 0.6% in October, builder confidence in November fell to its lowest since December 2022. There also remains growing concerns of slowing China demand too.

·     Gold prices rose $23 to settle at $1,987.30 an ounce as the dollar and Treasury yields dipped after U.S. weekly jobless claims increased more than expected, strengthening expectations that the Federal Reserve will pause its interest rate hiking cycle. The data confirms that the U.S. economy is slowing down a little bit.

 

Currencies & Treasuries

·     The U.S. dollar nudged slightly lower after a volatile two days that saw sharp declines followed by a rebound as traders took incoming economic data as signaling the Federal Reserve will wait longer before cutting interest rates. The dollar index (DXY) fell to lows around 104 this morning after weaker economic data, but pared losses to finish flattish around 104.35. The euro also jumped earlier on the buck dip but finished near break-even at 1.085. Bitcoin prices tumble over 5%, hitting afternoon lows around $35,500 and Ethereum -4.6% at $1,950.

·     Treasury yields were broadly lower as the 10-year fell 9.1 bps to 4.444%, down 43-bps this month so far as rate hike expectations by the Fed are now likely off the table given the easing in CPI and PPI inflation data this week. The 2-year yield fell -7.4 bps to 4.84% and down nearly -23 bps on the month and now over 37-bps below October 18 highs of 5.218%.

 

 

Macro	Up/Down	Last
WTI Crude	-3.76	72.90
Brent	-3.76	77.42
Gold	23.00	1,987.30
EUR/USD	0.0006	1.0854
JPY/USD	-0.74	150.61
10-Year Note	-0.09	4.447%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Autos: Cruise, the robo-taxi unit of GM suspended the program under which GM buys back employees’ shares, following an accident that led to the pause of its self-driving vehicle operations, Reuters reported.

·     In Auto suppliers: BWA was upgraded from Neutral to Buy at Guggenheim following what it views as unjustified post earnings weakness (-8% vs +6% S&P 500 since 11/2) saying the market fundamentally has EV risks wrong and views valuation as compelling.

·     In Tires: GT was upgraded from Hold to Buy at Deutsche Bank and raise tgt to $21 following the unveiling of the operational and strategic plans it looks to execute over the next 24 months, after an in-depth Board-led review as part of its agreement with an activist investor.

·     In Auto retail: AAP adds to the prior day declines after cutting forecasts and misses earnings, as Bank America downgraded to Underperform with a $43 target.

 

Retail, Consumer Staples & Restaurants:

·     In Broadlines: WMT Q3 EPS of $1.53 beat by a penny and comp sales rose 4.9% ex fuel while e-commerce was up 24%, which it attributed to pickup and delivery; raises FY24 EPS to $6.40-$6.48, up from prior $6.36-$6.46 and sees FY comp sales 5%-5.5% vs. prior 4%-4.5% estimated previously; shares slump as U.S. operating income a little light – $5.0B vs consensus $5.3B; shares pulled back from 52-week highs on consumer spending comments.

·     In Department Stores: Macy’s (M) Q3 adj EPS $0.21 vs. est. 0 and sales of $5B top consensus $4.82B; Q3 comp store sales fell (-7%) on an owned basis and down (-6.3%) on an owned-plus-licensed basis; said Q3 digital sales decreased (-7%) y/y while gross margin rose to 40.3% from 38.7% y/y; narrows FY23 adj EPS view to $2.88-$3.13 from $2.70-$3.20 (est. $2.77), narrows FY23 revenue view to $22.9B-$23.2B from $22.8B-$23.2B (shares of JWN, ROST, KSS, BURL moved).

·     In Specialty Retail: BBWI lowered its annual sales outlook to fall by 2.5% to 4%, vs previous forecast for a decline of 1.5% to 3.5% as consumers cut back spending on high-end fragrances and personal care products (followed Q3 sales dip of -2.6% missing ests). PLCE shares tumbled as Q3 adj EPS of $3.22 missed ests of $3.51 and guided Q4 EPS $0.25-$0.45 below est. $1.30 saying bottom-line results impacted by higher than planned distribution costs; planning for these costs to continue in Q4 (guided year EPS below views as well).

·     In Luxury Retail: Burberry (BURBY) warned about a global slowdown on luxury demand, noting that it might not achieve its annual revenue target if the trend continues; said sales slumped by 8% in mainland China over the quarter, and sales dropped by 10% in the Americas; shares of other luxury retailers RL, TPR active on results.

·     In Footwear: SCVL lowered its FY sales view to $1.16B-$1.18B from prior $1.19B-$1.21B view and adj EPS view to $2.65-$2.75 from prior $3.10-$3.25 amid ongoing softness and uncertainty over consumer spending during the holiday season. DECK downgraded to Neutral at Piper saying its Overweight thesis has largely played out, and valuation now looks fair (DECK has increased +75% since 10/25/22 compared to the S&P at 18%).

 

Homebuilders, Building Products, Home Furnishing:

·     Homebuilders’ pullback following weakness in NAHB Housing Market index, weighing on likes of LEN, TOL, KBH, MTH as the industry slows down. Goldman Sachs initiated on housing insulation stock BLD at Buy and upgraded IBP to Buy and raise tgt to $178 as believe these names should benefit from strong momentum in single-family starts, relationships with the largest public builders, and softening inflation. Said BLD should also benefit from its vertically integrated model and increasing exposure to non-res markets.

 

Energy, Industrials and Materials

·     Oil stocks were the biggest decliners in the S&P 500 all day, tumbling as oil prices fell as much as 4% before paring losses on higher supply and expectations of weaker energy demand, and expected slowdown in oil refinery throughput in China after data this week. Saw losses in majors like CVX, XOME&P like COP, OXY, MR, APA, services like SLB, HAL and refiners VLO, PSX

·     In Solar: MAXN Q3 EPS loss (-$2.21) vs. est. loss (-$0.93); Q3 revs $227.6M vs. est. $227.07M; guides Q4 revs $220M-$260M vs. est. $278.3M and adj EBITDA loss (-$27M-$37M); said all outstanding disputes with SPWR.

·     In E&C Sector: Stifel resumed coverage on PWR ($212 tgt) MTZ ($70 tgt) MYRG ($144 tgt) resumed Buy in Specialty Engineering & Construction sector as views these as "pick-and-shovel" ways to play 1) the renewable energy transition, 2) related growth in transmission & distribution (power grid) investment, and 3) tailwinds from IRA and IIJA funding. Stifel believes the recent pullback for the group creates an attractive entry point, particularly for MTZ where recent operational challenges at IEA are likely worked through over time.

·     In Chemicals: Jefferies made several rating changes in the European sector as downgraded BASFY to Underperform, cutting av. EBIT ~13% through FY24F/25F and cut tgt; K+S (KPLUY) was downgraded to Hold from Buy saying risk to FY24 EBITDA is growing and the broker is 20% below consensus and at the bottom end of street expectations. They also downgraded AkzoNobel (AKZOY) to Hold from Buy while acknowledge Akzo (and peers) have displayed pricing power throughout an inflationary cycle but in the absence of any volume improvement, other levers for earnings growth (cost-cutting) are unlikely to provide material earnings benefits until 26/27.

 

Financials

Banks, Brokers, Asset Managers:

·     In Banks: Regional banks (KRE) traded above their sector 200-day MA for the first time since the regional banking crisis began yesterday (roughly $45 level), though failed to close above it, and extends its move back below it with losses today. In Brokers: HOOD trading activity rose across options, equities, and crypto on a per day basis in October, with crypto volumes rising more than industry volumes, and options and equity volumes less. Customer cash balances rose $0.3B (similar increase as September), and margin balances fell 3% m/m.

 

Healthcare

Biotech & Pharma:

·     AUGX priced 6.25M shares of common stock at an offering price of $4.00 per share.

·     BMY said the FDA approved a new treatment for people with non-small cell lung cancer that contains a rare genetic alteration called Ros1. The genetically targeted medicine, called Augtyro, will be sold by Bristol and was developed by Turning Point Therapeutics, (acquired in June 2022.

·     CRL launches new products for cell therapy development and manufacturing.

·     CRSP and partner VRTX said they received UK Medicines and Healthcare products Regulatory Agency conditional marketing authorization for the gene therapy Casgevy to treat blood disorders.

·     SWTX reported results from the Ph2b ReNeu study of mirdametinib in plexiform neurofibroma, which demonstrated a 52%/41% confirmed response rate in pediatric/adult patients, which compares to Koselugo cORR of 44% in the pediatric population/no standard of care in adults.

 

Technology

Internet, Media & Telecom

·     US listed China names in technology pressured all day after President Biden and Chinese President Xi Jinping met yesterday in San Francisco with heads of some of the biggest companies in the world. Meanwhile, data showing prolonged weakness in China’s property sector is also hurting sentiment, with Asian markets falling overnight. BABA announced this morning it was scrapping its cloud unit spinoff in response to U.S. chip curbs, after it also reported Q2 revenue in line with market expectations. Shares of other E-commerce firms JD, PDD fell along with other China tech names BILI, BIDU, NTES and others. NTES reported revs w/ Game beat but Cloud music & innovative business revs weaker; operating profit & bottom-line beat; CFO steps down.

·     SQSP announced a secondary offering with 6 mln shares sold by PE firm General Atlantic priced at $29.70, which represents a 2.4% discount to stock’s last sale of $30.44.

 

Hardware & Software movers:

·     Networking & Comms sector pressured by CSCO after Q1 top and bottom line beat consensus but guided Q2 revs $12.6-12.8B well below consensus $14.186B on lower earnings and slashed its year outlook for EPS to $3.87-$3.93 from $4.01-$4.08 (est. $4.05) and revs to $53.8B-$55B from $57B-$58.2B (est. $57.76B). Shares of ANET and JNPR dropped in sympathy as CSCO flagged a slowdown in new product orders in Q1 and said customers were currently focused on installing products following strong deliveries over the past three quarters.

·     Security Software: PANW shares slumped after results/guidance as lowered FY24 billings view to $10.7B-$10.8B from prior $10.9B-$11B and Q2 billings seen $2.34B-$2.39B below expectations of $2.42B after Q1 billings climbed 16% to $2.025B, missing estimates for 18% growth. PANW did report Q1 EPS and total revenues above consensus (shares of ZS, CHKP, CYBR, FTNT, OKTA slid).

·     In 3D sector: SSYS cuts its FY23 EPS view to $0.10-$0.14 from $0.12-$0.24 and consensus $0.18 and cuts FY23 revenue view to $620M-$630M from $630M-$670M vs. consensus $641.99M.

 

Semiconductors:

·     INTC a standout to upside in semis, trading at best levels since June 2022 above $42 after Mizuho upgraded to Buy and upped tgt to $50 from $37 as believes Intel is lining up significant new server product launches and foundry customer announcements in the next six months.

·     KLIC Q4 adj EPS $0.51 vs. est. $0.43; Q4 revs $202.3M vs. est. $200.16M; raises quarterly dividend to 20c from 19c per share; guides Q1 adj EPS $0.25 plus/minus 10% vs. est. $0.38 and sees Q1 revenue $170M plus/minus $10M vs. est. $190.92M.

·     QCOM shares popped after Bloomberg reported AAPL’s plan to replace QCOM chip set to slip further behind as its bid to bring modem in-house faces technical challenges. Apple risks delaying modem chip until end of 2025 or early 2026.

·     Worldwide semiconductor revenue will grow to $526.5B in 2023, down 12.0% from $598B in 2022. This is up from the $519B IDC forecast in September. For 2024, IDC sees year-over-year growth of 20.2% to $633B, up from $626B in the prior forecast.