Closing Recap

Wednesday, November 29, 2023

Index	Up/Down	%	Last
DJ Industrials	13.84	0.04%	35,430
S&P 500	-4.29	0.09%	4,550
Nasdaq	-23.27	0.16%	14,258
Russell 2000	11.00	0.61%	1,803

 

 

 

 

 

 

 

 

 

U.S. stocks finish Wednesday mixed, erasing early gains heading into the final trading day of the month. Stocks looked strong early, adding to their monthly winning totals as investors digested an estimate on economic growth in Q3 that was revised higher, growing at a faster 5.2% annual pace, and boosting hopes for a “soft landing” for the economy, but the surprisingly strong gain appears to have been a one-off, according to some market participants. Still no fear in the market, though the CBOE Volatility index (VIX) moved back above the 13 level, rebounding off its 2^nd lowest level since January 2020 of 12.56 the day prior. Fed speakers again dominated stock/bond market action as Fed’s Bostic and Barkin, both 2024 voters, were out today with Bostic more dovish and Barkin more hawkish. Federal Reserve Bank of Atlanta President Raphael Bostic said he expects U.S. growth to slow and inflation to continue to ease on the back of tight monetary policy. Bostic said comments from local business contacts "points to ongoing disinflation and a measured slowing in economic activity." Meanwhile Richmond Fed President Barkin expressed some caution on rate cuts, saying he expects U.S. growth to slow and inflation to continue to ease on the back of tight monetary policy. Barkin said that he is skeptical that inflation is on its way down smoothly to 2% and is not willing to take the option of another rate hike off the table in case inflation flares again. As for rate cuts next year, it’s "premature" to be even talking about it, he said. In stock news, shares of tech names CRWD, NTAP, WDAY outperformed on earnings and FL results helped boost some retail names while GM announced a big buyback boosting shares. A handful of notable earnings in the tech space again tonight with CRM, SNOW, PSTG all expected. Treasury yields fell, the dollar was flat, and commodity prices advanced. Managed care stocks tumbled on a WSJ report saying CI and HUM were looking to merge.

 

Economic Data

·     The Second reading of Q3 GDP comes in at +5.2%, above expectations of 4.9% and up from the 4.9% reading seen in the first preliminary number. Prelim Q3 consumer spending +3.6% vs. est. 4.0%. Inflation portion of readings better as Q3 GDP deflator +3.5% vs. consensus +3.5% and prelim Q3 core PCE +2.3% below the 2.4% expected.

·     International Advance Trade in Goods deficit at (-$89.84B) vs. (-$86.7B) consensus and (-$86.84B) in September as exports of goods for October were $170.8B, $3B less than September exports and imports of goods for October were $260.7B, virtually unchanged from September.

·     The Fed Beige Book showed on balance, economic activity slowed since the previous report, with four districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity. The economic outlook for the next six to twelve months diminished over the reporting period. Price increases largely moderated across districts, though prices remained elevated. The economic outlook for the next six to twelve months diminished over the reporting period.

 

Commodities

·     WTI crude oil futures rose $1.45, or 1.90% at $77.86, getting a late day pop after the WSJ reported OPEC and its Russia-led allies are considering new oil production cuts of as much as 1 million barrels a day, delegates said Wednesday, despite tensions in oil markets amid the conflict in the Middle East. The move, which would likely send oil prices higher, could be announced Thursday at a virtual meeting of the cartel, the report said.

·     Inventory data this morning was bearish, weighing on prices as the EIA reported that crude inventories rose by 1.6M for the latest week vs. expectations of -700K barrel decline along with supply increases of 1.8B barrels for gasoline (vs. est. +200K) and 5.2M barrels for distillates (vs. est. -100K barrels). Last night, the weekly API data showed nationwide stockpiles fell last week.

·     Gold prices rise $6.90 to settle at $2,067.10 an ounce (note all-time high of $2,074.88 reached in August 2020) as market expectations grow for interest rate cuts from the Fed by early 2024 (despite mixed Fed commentary on forward cuts the last few days from Bowman, Barkin).

 

Currencies & Treasuries

·     The 10-year Treasury note yield hit a 2-month low earlier today (4.25%) and is now down over 60-bps this month on rising bets the Fed is done with rate hikes and may turn to cuts in early 2024. The U.S dollar bounced from its lowest level in more than three months as investors consolidated positions after four days of losses. A stronger Q3 GDP reading helped support the buck further, rising 5.2%, faster than the previously reported 4.9% and the fastest expansion since the fourth quarter of 2021. The euro fell 0.2% vs. the dollar, pressured by inflation data from Germany, showing price growth slowed to 2.3% y/y from 3% in October.

 

 

Macro	Up/Down	Last
WTI Crude	1.45	77.86
Brent	1.42	83.10
Gold	6.90	2,067.10
EUR/USD	-0.0012	1.0978
JPY/USD	-0.31	147.16
10-Year Note	-0.055	4.281%

 

 

Sector News Breakdown

Consumer

Autos:

·     GM shares surge after reinstates 2023 earnings guidance and announces a $10B accelerated share repurchase program and 33% dividend increase starting in 2024; also lowered 2023 adj EPS $7.20-$7.40 from prior $7.15-$8.15 and lowers 2023 adj Ebit view to $11.7B-$12.7B from prior $12B-$14B. GM said UAW and Canadian contracts will add $1.5B in labor cost next year and rise to $2.5B in 2027; shares of Ford (F) and STLA jumped as well.

·     TM said it plans to sell about 125 million shares in its top auto-parts supplier Denso, a stake worth about $1.95 billion as its stake in Denso would fall to 20% from around 24%.

 

Retail, Consumer Staples & Restaurants:

·     In Footwear/Apparel: FL shares jump to 4-month high after a strong beat in earnings and improved sales outlook; Q3 adj EPS $0.30 vs. est. $0.21; Q3 sales fell -8.6% y/y to $1.99B vs. est. $1.96B; Q3 comp sales fell -8% vs. est. -9.8%; said did not buyback any shares during Q3; forecasts FY comp sales -8.5% to -9%, forecast -9% to -10%. Shares of NKE, UA, BIRK and other footwear stocks rebounded in sympathy with FL results.

·     Discount/dollar stores: DLTR reported a top and bottom line miss for Q3 while narrows FY23 EPS view to $5.81-$6.01 from $5.78-$6.08 (est. $5.97) while cuts FY23 revenue view to $30.5B-$30.7B from $30.6B-$30.9B (est. $30.82B).

·     In Leisure retail/services: ROVR agrees to be acquired by Blackstone in $2.3B transaction with shareholders to receive $11.00 per share in cash and transaction is currently expected to close in Q1 of 2024; LESL shares tumble after result/guidance disappoint, as Goldman Sachs downgraded to Neutral from Buy following their Q423 results as sales and margins are expected to remain pressured in the near term, and the demand recovery timing now appears increasingly uncertain. GME shares were very strong, rising over 30% late afternoon (earnings next week).

·     In the Food Sector: HRL Q4 adj EPS $0.42 vs est. $0.44 and sales fell -2.6% y/y to $3.2B below the consensus of $3.26B, as overall volume declined -0.4%, with retail down 2.7% and foodservice up 4.8%; sees FY adj EPS $1.51-$1.65 below consensus $1.66. HSY downgraded from Overweight to Neutral at Piper and cut tgt to $200 and trim its estimates on higher cocoa costs up ~60% in Q423) driven by supply shortages…said uncertainty makes modeling very difficult.

 

Homebuilders, Building Products, Home Furnishing:

·     In Building Products: AZEK reported a Q4 beat driven by strong operating margins as adj EPS $0.36 topped est. $0.29 on better EBITDA ($106.4Mm vs $93.44Mm) and sales ($388.812Mm vs $368.82Mm), though guides FY net sales $1.335-1.395B below est. $1.43B.

·     In Home Furnishing: BYON shares rallied after Chair Allison Abraham will now share the chairperson title with Director Marcus Lemonis. The company said its leadership mandates an "intense" restructuring, "through reducing costs and evaluating lines of business, investments and capital allocation while driving revenue and increasing [the] active customer base."

·     In Housing data: US mortgage market index +0.3% in week ended Nov 24 according to the Mortgage Bankers Assoc weekly report; purchase index climbs 4.7% in latest week; refinance index falls 8.9% and average 30-year mortgage rate falls 4 bps to 7.37%.

 

Leisure, Gaming & Lodging:

·     In Casinos: LVS announced ~46.3M shares sold by Miriam Adelson and family trust at $44.00, using net proceeds from the sale to buy Mark Cuban’s majority stake in the NBA’s Dallas Mavericks – offering reduces Adelson’s stake in LVS by about 6% to 50%, or roughly 382M shares.

·     In Leisure/Travel/Lodging: ABNB was downgraded from Buy to Hold at Jefferies and cut tgt to $140 from $155 saying a recent slowdown in Bookings increases the risk of downside to consensus, making the story more reliant on potential take rate expansion. In cruises, CCL said its Holland America said U.S. bookings up 23% from Black Friday through Cyber Monday

 

Energy, Industrials and Materials

·     Oil sector: Jefferies revised price tgts and ests on European energy names based on updated gas price assumptions on European and LNG gas prices. Reduce their 2024-25 gas price assumptions for TTF, NBP and JKM by ~33% on average. Firm also downgraded EQNR to Underperform and TTE to Hold from Buy

·     In Refiners: PSX shares rose after CNBC David Faber reported activist investor Elliott takes $1B stake and plans to seek two board seats https://tinyurl.com/ykuv3wen

·     In Utilities: PCG announces proposed offering of $1.5 bln convertible senior secured notes; said intends to use net proceeds from the offering to repay portion of loans outstanding under its $2.75 bln term loan entered in June 2020.

·     In Chemicals: DD, CC, CTVA said they reached a settlement agreement with The State of Ohio designed to benefit Ohio’s natural resources and the people of the State of Ohio. As part of the settlement, the Companies agreed to pay the State of Ohio a combined total of $110M, 80% of which the State has allocated to restoration of natural resources related to operation of the Washington Works facility.

·     In Metals/Mining: Copper prices hit their highest level since Sep. 1 after a Panama court ruling jeopardized the future of one of the world’s largest mines according to the WSJ. Copper futures traded around $3.86 a pound, up 2.4% over the past two days and 5.4% this month. The Panama quarry, operated by First Quantum (FQVLF), represents about 1.5% of world copper production. First Quantum shares have plummeted more than 60% over the past five weeks as Panama’s government has scrambled to quell widespread protests the large, open pit mine.

·     In Pipelines: ENB said it has set its guidance for the next year, expecting growth in its base business and in cash generation; said it expects adj Ebitda to be in the range of 16.6 billion Canadian dollars ($12.23 billion) and C$17.2 billion (rise of 4% from midpoint of prior view).

·     In Industrials: RBC upgraded to Buy from Underperform at Bank America to reflect stronger EBITDA margins and lower dilution impact from 2024 convertibles (~7% vs prior 14%) and expects significant margin expansion in both A&D and industrials as highly profitable volumes ramp up. Tankers were weaker after NAT after earnings missed, weighed on shares of FRO, TNP, DHT.

 

Financials

Banks, Brokers, Asset Managers:

·     Banks/Investments: Large cap/Regional banks among early leaders (JPM, BAC, C, GS, KEY, WAL) after Q3 GDP came in better, while a recent rally in bonds has reduced the unrealized losses in their investment portfolios; KKR shares rose after announcing to acquire the remaining 37% stake of insurer Global Atlantic for about $2.7 billion in cash.

·     In Crypto: Bitcoin prices rise back over $38K, at 19-month highs – highest levels since late April and early May 2022, when cryptos plunged. Bitcoin has rallied by more than a third since early October, snapping out of a multi-month period; shares of COIN strong.

·     In Consumer Finance: Retailer J. Crew announced a multi-year credit card program agreement with SYF and MA.

·     U.S. banks reported a slowdown in profits in the third quarter of the year, as lower noninterest income and higher realized losses on bank investments took a toll. The FDIC reported bank profits at $68.4 billion in the most recent quarter, down 3.4% from the prior quarter. Year over year, bank profits were down 4.6%, due in large part to banks setting aside more funds in provision expenses for potential loan losses, which were up 33.2% in the last four quarters. Noninterest income was down $4.1 billion, or 5.2%, in the third quarter, while realized losses climbed $3 billion. The agency also reported that banks saw their unrealized losses on securities climb to $683.9 billion in the third quarter, a 22.5% jump driven primarily by rising mortgages rates that have reduced the value of mortgage-backed securities held by banks.

 

Healthcare

Biotech & Pharma:

·     In Managed Care: the WSJ reported midday that CI and HUM are in talks for a combination that would create a new powerhouse in the health-insurance industry. The companies are discussing a stock-and-cash deal that could be finalized by the end of the year, assuming the talks don’t fall apart, https://tinyurl.com/33bwe5hz (watch for possible antitrust concerns)

·     ABBV announces positive topline data from phase 2 LUMINOSITY trial evaluating Telisotuzumab-Vedotin for patients with previously treated NSCLC.

·     BIVI shares tumbled; said primary efficacy endpoint of Phase 3 trial of NE3107 for treatment of mild to moderate Alzheimer’s Disease missed statistical significance "due to exclusions."

·     EGRX received a notice from the Listing Qualifications Department of The Nasdaq Stock Market on deficiency related to the requirement of timely filing of periodic financial reports with the SEC.

·     PDCO shares fall; reported Q2 top and bottom-line miss ($0.50/$1.65B vs. est. $0.58/$1.7B) and lowered its FY24 EPS view to $2.35-$2.45 from $2.45-$2.55 (est. $2.50); said steady patient traffic supported strong performance in dental consumables but was offset by lower sales in other dental equipment categories; shares of HSIC, XRAY were active.

·     WOOF shares tumbled after posted Q3 adj EPS loss (-$0.05) vs. est. $0.02; swung to a loss on a $1.2B noncash goodwill impairment charge while sales slipped -0.5% to $1.49B, missing the $1,51B estimate; cuts FY23 adj EPS view to $0.08 from $0.24-$0.30 prior; said Q3 sales in its supplies and companion animal business fell -8.8%.

·     VERV announced a 12.5M share offering priced at $10 for $125M, a 16.2% discount to stock’s last sale and said it also sold ~2.3M shares in concurrent private placement to LLY for $23M.

·     VVOS shares soared as much as 300% after saying its oral medical device to treat severe obstructive sleep apnea has been granted clearance by the U.S. FDA.

 

Technology

Hardware & Software movers:

·     In Internet Security Software: CRWD posted top/bottom-line metrics above guidance and Street and FY24 guidance goes up beyond the quarterly beat; Q3 ARR beat by $11M vs $4M last quarter and EBIT margins beat by 2pts and reiterated the FY24 net new ARR guide of "in line to modestly up" while commented that the Q4 setup is strong with record pipeline. OKTA notified customers that a recent hack was much more severe than initially thought and resulted in all customer data being stolen. Shares rebounded after the company boosted its FY 24 sales view to $2.24B-$2.25B, above prior forecast $2.21B-$2.22B on higher adj EPS view as well.

·     Overall Software: earnings tonight from CRM, SNOW; WDAY reported a strong Q3 w/ 24-month backlog growth of 23%, above guide of 21%, posted better-than-expected non-GAAP EPS of $1.53 (consensus of $1.41) on revenue of $1.87B (consensus 1.85B), and subscription revenue of $1.69B rose 18% y/y on better guide. Unity Software (U) said it will eliminate 265 jobs or 3.8% of its global workforce.

·     In the Electronics manufacturing Service (EMS) sector: JBL pre-announced Q1 results and guided down for FY24, citing recent order weakness across several end markets due to inventory issues and soft demand; cuts Q1 revenue view to $8.3B-$8.4B from $8.4B-$9B and sees FY24 revs roughly $31B below consensus $33.7B. Stifel noted the big guide down is very similar to what they saw from competitor FLEX, which guided down last month.

·     In Computer Storage: NTAP shares jump after Oct-Q sales and adj. EPS of $1.562B and $1.58 beat the Street at $1.528B/$1.39, driven by QLC-based product ramps and self-help initiatives, which drove record margins. NTAP also concluded its strategic review for its cloud business; boosts FY24 EPS view to $6.05-$6.25 from $5.65-$5.85 (consensus $5.73).

·     In Semiconductors: QCOM got a bump early after an article in Apple Insider noting confusion reigns about the future of Apple’s 5G modem project. Apple’s iPhone currently uses 5G modems made by Qualcomm, and is expected to continue to until 2026 https://tinyurl.com/4b7w57ev