Closing Recap

Thursday, November 30, 2023

Index	Up/Down	%	Last
DJ Industrials	520.54	1.47%	35,950
S&P 500	17.12	0.38%	4,567
Nasdaq	-32.27	0.23%	14,226
Russell 2000	5.21	0.29%	1,809

 

 

 

 

 

 

 

 

 

U.S. stocks finish mixed on the day as weakness in large cap technology weighed on the Nasdaq, but the Dow soared behind better earnings from Salesforce.com (CRM) and the S&P 500 spiked in the final minutes to end the day near the highs after holding the 4,550 level again (lots of support there all week), closing out a strong month of gains. The Dow Jones Industrial Average rose more than 500-points, hitting 52-week highs for the first time since August 1^st. The Nasdaq 100 (QQQ) has skyrocketed this year, posting its best monthly return since July 2022 rising around 11%. Overall, the QQQ’s, which has a large exposure to the technology sector, has jumped around 46% so far in 2023. A recent decline in Treasury yields and market expectations that the Fed is done raising interest rates has helped fuel November gains for stocks this month. Note the top 5 holdings in the QQQ’s are AAPL, MSFT, AMZN, NVDA and META. Big gains overall for major averages in November with the &P 500 rising 8.8% (best since July 2022), the Dow rose 8.7% and the Smallcap Russell 2000 index rose about 9% this month. Big gains in Europe this month as well with the German DAX rising 9.49% on month, the FTSE 100 gains 1.8%, the Cac 40 gains 6.17% for month and the STOXX Europe 50 Index gains 4.48% in November. Sentiment for market high as the latest AAII Investor Intelligence Poll showed Bulls stood at 48.8, highest since summer when they were 51 while Bearish sentiment sunk to 19.6, the lowest since June 2021 (those are usually contra indicators). Have talked about the lack of fear too with the CBOE Volatility index (VIX) holding around the 13 level all week after touching its 2nd lowest level since January 2020 at 12.56 midweek. So what does December have in store for major averages that are up big this year (Nasdaq +36% YTD, S&P +18.5%, Dow +6.9%), we will soon see.

 

Economic Data

·     The Federal Reserve’s preferred inflation gauge, core PCE, advanced 3.5% Y/Y in October, matching the consensus and cooling from 3.7% in September while for a M/M basis, core PCE rose 0.2%, in-line with forecasts and down from 0.3% the prior month.

·     Oct overall PCE price index unchanged vs Sept +0.4% and below the consensus +0.1% expectation while on a Y/Y basis, PCE price index +3.0% (in-line) and down from Sept +3.4%.

·     Consumer spending rose 0.2% in October, down sharply from a 0.7% rise in September, the Commerce Department said Thursday. That marked the slowest increase since May.

·     Jobless Claims climbed to 218K in the latest week from 211K prior and vs. consensus 220K; the 4-week moving average fell to 220K from 220,500 the prior week; continued claims jumped to 1.927M in the latest week from 1.841M prior.

·     Chicago PMI manufacturing data for November was reported at 55.8 (snaps the 14-month streak in contraction territory – below 50), above the consensus of 46.0 and highest since May of 2023.

·     Pending Home sales index for October fell (-1.5%) vs. consensus (-2.0%) and Oct Pending Home sales -8.5% from Oct 2022.

 

Commodities

·     Oil prices fell after rising by more than 1% earlier in the session after OPEC+ oil producers agreed to voluntary output cuts approaching 2 million barrels per day (bpd) for early next year, with each country announcing separately its voluntary cut. WTI crude ended lower by -$1.90 or 2.44% to settle at $75.96 per barrel after hitting earlier highs of $79.60 (around 3-week highs) and finish down about 9% on the month (after falling over -10% in October). Brent crude at $82.60 down about 6% on the month

·     OPEC+ members said today at a virtual meeting the latest agreement would involve cuts approaching 2 million bpd, including Saudi Arabia extending a voluntary cut of 1 million bpd it has had in place since July. The additional OPEC+ cuts for the first quarter of 2024 are set to be voluntary, a delegate said. Natural gas futures slipped -0.1% at $2.802/MMBtu, down a 5^th day.

·     Gold prices fell -$9.90 to $2,057.20 an ounce but ended November just off all-time highs having risen roughly 12% since trading around $1,830 per ounce in early October. Since then, the dollar and bond yields have reversed their relentless rise.

 

Currencies & Treasuries

·     U.S. Treasury yields climbed on Thursday, with the 10-year yield up about 7-bps to 4.34% even after economic data on consumer spending and inflation provided more evidence the Federal Reserve could cease hiking interest rates, as PMI data showed a strong economy. U.S. Treasury yield posted their biggest monthly drop since August 2011, roughly 53 bps while the two-year yield rose 6 bps to 4.709% and is down about 36 bps in November. The euro fell against the US dollar after Eurozone inflation fell more than expected, putting ECB rate cuts into view.

 

 

Macro	Up/Down	Last
WTI Crude	-1.90	75.96
Brent	-0.27	82.83
Gold	-9.90	2,057.20
EUR/USD	-0.008	1.0888
JPY/USD	0.95	148.19
10-Year Note	0.079	4.349%

 

 

Sector News Breakdown

Consumer

Autos:

·     Ford (F) said it now anticipates FY23 adj Ebit of $10B-$10.5B (prior guide $11B-$12B), which would include $1.7B in strike-related lost profits – $1.6B of that from Q4, owing to interruptions in production of high-margin trucks and SUVs and, in turn, vehicle wholesales about 100,000 units lower than planned; now sees adj FCF $5.0B-$5.5B down from prior $6.5B-$7B but above the consensus of $4.26B.

·     GM said it was awarded U.S. Department of State contract for next generation armored heavy-duty sport utility vehicles with a ceiling value of $300M, a 10-year indefinite delivery indefinite quantity full-rate production contract.

·     TSLA to start deliveries of its long-delayed Cybertruck electric pickup on Thursday, after CEO Elon Musk revealed details. Tesla says Cybertruck rear-wheel drive variant to cost $60,990, all-wheel drive variant to start at $79,990, the CyberBeast variant to start at $99,990; said Cybertruck all-wheel drive can travel 340 miles per charge.

 

Retail, Consumer Staples & Restaurants:

·     In Specialty retail: BBW lowered its FY23 revenue view to 3%-5%, down from its prior forecast of 5%-7% growth after Q3 revs were $107.56M missing the $108M est. while EPS topped ests.; MOV shares fell as the watchmaker posted a -11% y/y drop in Q3 sales to $187.7M and cut its full-year outlook ahead of the holiday shopping season citing a challenging environment.

·     In Warehouses: COST total and U.S. core October comp growth of 4.4% and 3.5%, compared to consensus of 4.9% and 4.6%. On a 2-year basis, total company, and U.S. core comp growth decelerated 20bps and 30bps sequentially from October and ~250bps below F2H23 levels.

·     Apparel retail: PVH Q3 EPS $2.90 vs. est. $2.74; Q3 revs rose 4% y/y to $2.36B vs. est. $2.41B; guides Q4 adj EPS $3.45 vs. est. $3.51 and sees Q4 sales to decrease 3%-4% y/y; VSCO reported ~in-line sales with slightly worse EPS (GM beat offset by SGA miss), while mgmt noted Q3 improved as the quarter progressed, guided Q4 above-consensus at the high-end.

·     In Discount stores: FIVE Q3 EPS $0.26 vs est. $0.24 on sales $736.405Mm vs est. $727.48Mm; sees Q4 net sales $1.32-1.35B vs est. $1.338B, comps +2-3%, EPS $3.64-3.80 vs est. $3.70; announces new $100M share repurchase program. BIG Q3 comp sales fell (-13.2%) vs. (-11.7%) y/y and vs. est. (-13.1%), as sales fell -15% y/y to $1.03B (in-line) and inventory was $1.18B, down (-12%) y/y and vs. est. $1.13B.

·     In Sporting Goods Retail: ASO disappoints as forecasts FY net sales $6.11B-$6.17B, below its prior forecast $6.18B-$6.37B on wider comp sales losses of (-6.5% to -7.5%), from prior forecast (-4.5% to -7.5%) after Q3 EPS/sales missed (did announce a $600M stock buyback).

·     In Food: KR lowered full-year same-store sales excluding fuel in the range of 0.6%-1%, down from its prior forecast of 1%-2%, citing a slowdown in food inflation and broader economic pressure; forecasts FY adj EPS $4.50 to $4.60, forecast $4.45 to $4.60.

 

Homebuilders, Building Products, Home Furnishing:

·     ZG said it predicts more homes for sale and improved affordability in 2024. Home buying will remain expensive, so expect a competitive market for homes that need some work and for single-family rentals.

 

Leisure, Gaming & Lodging:

·     In Marine Products/Leisure: DOOO reported Q3 adj EPS C$3.06 vs. est. C$3.07; cuts FY24 EPS view to C$11.10-C$11.35 from C$12.25-C$12.75 and lowered its FY24 revenue view to up 4%-5% from up 7%-10%.

·     In Leisure: UBER shares pared losses late in the day after Barron’s article suggested it could be included in the S&P 500 this week amid the index rebalance announcements.

 

Energy, Industrials and Materials

·     In Energy: OXY is in negotiations to buy Texas energy producer CrownRock in a deal that could be valued at more than $10 billion, the Wall Street Journal reported. If all goes well, the deal could come together soon, according to the Journal. https://tinyurl.com/vzrsu3w

·     In Industrials: TITN reported Q3 results that were below expectations as revenue came in at $694.1M vs $727M estimate and EPS came in at $1.32 vs $1.53 estimate, as miss driven by delayed OEM deliveries; full year revenue guidance was slightly revised downward.

·     In agriculture/machinery (DE, AGCO, MOS): In its latest export sales report, the USDA said that export sales of U.S. corn for delivery in the 2023/24 marketing year totaled 1.93M metric tons. That’s up 35% from the previous week, and the highest sales have been in the current marketing year. WSJ survey had forecast sales to land between 600,000 tons and 1.2M tons.

·     In Paper & Packaging: strength continued for the group with IP, PKG, WRK all extending recent gains; PKG shares rose for the 6th time in 7-days, trading at all-time highs, and rallying since announcing recently a $70/ton Kraft linerboard increase and $100/ton corrugated medium increase for Jan 1st.; WRK and IP also strong.

 

Financials

·     In Consumer Finance: DFS board authorized management to explore the sale of its student loans business, according to a regulatory filing. It will also transfer the servicing of those loans to a third-party provider as it pursues strategic alternatives for the student loan business. ALLY was upgraded to Outperform at Wolfe Research with $39 target as expects to benefit regardless of the economic env’t, with its retail auto loan yield migrating towards 10% as deposit pressures abate in a soft-landing scenario.

·     In Brokers/Exchanges: HOOD said it would roll out brokerage services in the United Kingdom as part of an international expansion plan; says British customers will have access to commission-free trading of more than 6,000 U.S.-listed stocks and American Depositary Receipts (ADRs).

·     In Banks: Canadian bank RY Q4 adjusted diluted EPS C$2.78 vs. C$2.78 last year and Q4 revenue C$13.03B vs. C$12.57B last year; raises quarterly dividend 2% to C$1.38 per share.

·     In crypto: COIN slips early but has rallied around 80% since 10/27 and is up nearly 300% off its all-time low on 12/28/22 (though still down over 60% from its all-time high); MSTR said it may issue and sell shares of its class a common stock having offering price of up to $750.0M

·     In REITs: REG was upgraded to Buy, AKR downgraded to Neutral at Compass Point based on their relative earnings growth outlook in 2024 as well as YTD performance. Compass also raised their 2024 and 2025 outlook for UE to reflect recent capital recycling and see accelerating earnings growth into 2026.

·     In Insurance: In auto insurance carriers, Briley upgraded EVER (tgt to $14 from $8) and QNST (tgt to $19 from $11) to Buy from Hold on what it sees as an increasingly favorable 12-month risk/ reward profile amid relevant inflationary pressures showing meaningful signs of abating.

 

Healthcare

Biotech & Pharma:

·     In M&A news: ABBV to acquire IMGN for $31.26 per share in cash in a deal valued at roughly just over $10B to acquire its flagship cancer therapy elahere® (mirvetuximab soravtansine-gynx), expanding solid tumor portfolio. https://tinyurl.com/mry6ku37 . Also, JNJ said it has bought Laminary, a privately held medical device company, for an upfront payment of $400 million.

 

Technology

Hardware & Components

·     In Storage: PSTG shares tumbled as management significantly lowered Q4’24/FY’24 revenue expectations following a substantial Q3 EPS beat; guides Q4 revs $782Mm vs est. $919.42Mm, adj op Inc $150Mm vs est. $197.29Mm.

·     In Electronic Design Automation (EDA) sector: SNPS reported solid FQ4 results which featured an impressive backlog figure of $8.6B or 21% y/y, and top and bottom-line beats and issued an in-line FY24 revenue growth guide of 13%. SNPS announced it was exploring strategic alternatives for its SIG business.

·     IT Services & Consulting: NTNX reported Q1 EPS of $0.29 easily topping consensus $0.18 on revenues of $511M above ests. $501M, while Q1 revenue grew 18% Y/Y and ACV billings of $287M topped consensus $267M, growing 24% Y/Y; guided Q4 revenue of $545M-$555M above consensus $534M and ACV billings of $295M-$305M vs. est. $298.4M

·     Computer Hardware: HPE was upgraded from Underweight to Equal Weight at Morgan Stanley with $16 tgt saying would have liked more derisking of Intelligent Edge estimates heading into FY24, but given where it is in hardware cycle, and the longer-term AI opportunity, it sees little opportunity for further multiple compression.

·     In Telecom Equipment: ERIC and NOK both downgraded to Neutral at JP Morgan saying market conditions in 1H24 likely to remain very challenging: notes all three top US telcos (T, VZ, TMUS) have indicated that they intend to cut CAPEX in ’24 despite already reducing spending very substantially in ’23 and with inventory at these same telcos well ahead of normal levels.

 

Software movers:

·     CRM better results as Q3 adj EPS $2.11 vs. est. $1.88; Q3 revs $8.72B vs. est. $7.95B; sees Q4 2024 EPS $2.25-$2.26 vs est. $2.17 and revs $9.18B-9.23B vs est. $9.21B; raises FY24 EPS view to $8.18-$8.19 from $8.04-$8.06 and narrows FY24 rev view to $34.75B-$34.8B from $34.7B-$34.8B; raises full year fy24 operating cash flow growth guidance to 30% to 33% y/y.

·     SNOW reported Q3 product revenue growth of 34% Y/Y, above the Street’s ~29% target as mgmt cited strong, broad-based consumption activity in FQ3, with improvement beginning in the month of September, while issued better-than-expected FQ4 outlook that includes product revenue growth of 29-30%.

·     NCNO reported FQ3 revenue ahead of the Street (~1% upside) and above the high end of guidance led by subscription revenue outperformance (~2% upside, above high end of guidance) while FY24 guidance was raised at the midpoint (revenue, subscription revenue, non-GAAP operating income), albeit to a lesser extent than FQ3 upside.

·     OKTA shares downgraded by TDCowen, Wells Fargo, Keybanc, and Scotia following results.

·     ZUO Q3 beat on both top and bottom line and the full year was guided up on the top line and significantly on operating margin and free cash flow. Zuora’s DBRR grew sequentially to 108% as Q3 was a strong quarter for renewals with RPOs growing 20% y/y.

 

Semiconductors:

·     Tech was down on the day, and semiconductors were no exception, with the SOX index falling over 1% back to 3,700 with AVGO, NVDA, INTC all seeing weakness.

·     AMKR shares active as AAPL announces expanded partnership with Amkor for advanced silicon packaging in the U.S.

·     CRDO reported in-line OctQ at $44M and guided to a better JanQ top line of $52M (consensus $51.1M), continuing its execution and noted ~3 >10% customers are ramping AEC, Line Card PHY, Optical DSPs and sees top line up q/q through F24E(Apr), and AEC Ramps expanding with new products P3 driving better ToR server utilization.

 

Internet/social media:

·     In Media: Activist investor Nelson Peltz and his firm, Trian Fund Management, are seeking seats on DIS board. Trian Fund Management said Thursday it "intends to take our case for change directly to shareholders." The firm claims Disney offered to set up a meeting with the media giant’s board, but rejected Trian’s bid to join the board, which includes the addition of Peltz.

·     In social media: PINS and SNAP both upgraded to Buy from Hold at Jefferies in social media on the view that both have catalysts for revenue growth upside in fiscal 2024.

·     In online services: WB announces a $300M convertible senior notes offering.