Market Review: October 02, 2023

Closing Recap

Monday, October 02, 2023





DJ Industrials




S&P 500








Russell 2000













An unrelenting advance in the U.S. dollar and Treasury yields continue to wreak havoc on investor sentiment as most U.S. stock sectors declined, erasing earlier gains. Equities slumped amid another pop in Treasury yields, as the 10-year jumped over 10-bps to 4.7%, the highest since 2007, while the Treasury yield curve steepens to minus -42 bps, smallest inversion since May (2-yr at 5.12%). The 30-year yield topped 4.815%, its highest level since 2010. The sharp moves are a continuation from last month and ahead of key jobs data this week (JOLTs tomorrow, ADP Wednesday, jobless claims Thursday and Nonfarm Payrolls Friday). Stronger-than-expected manufacturing and construction data as well as the weekend deal to avoid a government shutdown gave a big boost to odds of another Federal Reserve rate hike. Overall, optimism following U.S. lawmakers surprise deal this weekend to keep the government running was overshadowed by concern over the rise in Treasury yields, which is weighing on stock valuations. Utilities were down (-4.5%) and Energy down (-2%) as the biggest drags on the S&P while Technology and Communications were the lone winners. The overall picture does not appear strong heading into quarterly earnings in about 2-weeks as @GunjanJS tweeted: Around 1/3 of Russell 2000 companies aren’t profitable–near the highest level in data going back to 1985. Also, high interest rates, high gas prices and renewed student loan payments are all hitting consumers at the same time, which may impact spending. On a positive seasonal outlook, CNBC noted that the averages &P 500 move over the past 10-years for October is +2.3%, November +3.2% and December (-0.1%).


Economic Data

·     ISM U.S. manufacturing activity index for September 49.0 vs. consensus 47.7 and above the 47.6 in August as prices paid index 43.8 in September vs 48.4 in August, new orders index 49.2 in September vs 46.8 in August and employment index 51.2 in September vs 48.5 in August.

·     Construction spending for August rises +0.5% to $1.983 trln, in-line with consensus and compared to July +0.9% while Aug private construction spending +0.5%, public spending +0.6%.

·     S&P Global September final manufacturing PMI at 49.8 (vs flash 48.9).



·     Commodity prices were broadly lower as the U.S. dollar advanced to fresh 10-month highs, with WTI crude falling -$1.97 or 2.17% to settle at $88.82 per barrel. Meanwhile, OPEC oil output rose for a second straight month in September, a Reuters survey found, led by increases in Nigeria and Iran despite ongoing cuts by Saudi Arabia and other members of the wider OPEC+ alliance.

·     Gold prices dropped -$18.90 to settle at $1,847.20 an ounce after falling almost 1% last Friday which marked a six-month low. Gold prices have slipped about 10% below a 52-week high of $2,048 hit on May 4, after a brutal September for gold, down -5.2% on a dollar spike. The biggest reason for precious metals weakness is the strength of the U.S. dollar as it is priced in U.S. dollars in most of the major trading exchanges around the world, and the ongoing strength in the buck vs. other key currencies likely makes gold more expensive to buy among foreign investors.


Currencies & Treasuries

·     Another day, another spike in the dollar as the dollar index (DXY) hit fresh 10-month highs approaching the 107 level as the euro dropped below 1.05 (after rising to $1.0575 late Friday). Meanwhile, the U.S. greenback is selling for 149.75 Japanese yen, up 14% year to date. The dollar ascent comes on the prospects that U.S. interest rates would stay higher for longer. The 10-year Treasury yield rose as high as 4.71% early Monday before easing to 4.67% (still up 10-bps on the day). The 10-year yield had fallen as low as 4.5% on Friday morning, before bouncing to 4.57% to end the week. Overall, bonds tumble, yields jump in a continuation of last month.






WTI Crude















10-Year Note





Sector News Breakdown



·     U.S. electric vehicle makers out with delivery updates:

·     TSLA Q3 deliveries were 435,059 vehicles, down nearly 7% q/q (missing ests between 450-460k) and produced 430,488 vehicles in Q3, compared with 479,700 in Q2 and 365,923 a year earlier.

·     RIVN delivered 15,564 vehicles in Q3, compared with estimates of 14,740 vehicles and up 23% from the second quarter; produced 16,304 vehicles at its facility in Normal, Illinois, up from 13,992 in the second quarter (RIVN was also upgraded to Outperform at Evercore/ISI).

·     Chinese electric vehicle makers out with monthly delivery data:

·     LI said it delivered 36,060 vehicles in September 2023, representing an increase of 212.7% y/y and setting a new monthly record; it brought its Q3 deliveries to 105,108, up 296.3% y/y; cumulative deliveries of Li Auto vehicles in 2023 reached 244,225 as of the end of Sept.

·     NIO said it delivered 15,641 vehicles in September 2023, increasing by 43.8% y/y; the deliveries consisted of 11,504 premium smart electric SUVs, and 4,137 premium smart electric sedans; delivered 55,432 vehicles in Q3 up 75.4% y/y

·     XPEV said in Sept had deliveries of 15,310 Smart EVs, representing a 12% increase over the prior month and an 81% increase y/r; G6 deliveries reached 8,132 units in September, which brought cumulative G6 deliveries to 19,381 units.

·     Reuters reported that GM faces more than $6 bln in US fuel economy fines through 2032 and Chrysler-parent STLA faces about $3 billion in US fines. U.S. automaker group calls fuel economy penalties "alarming" and will "hurt American competitiveness."


Retail, Consumer Staples & Restaurants:

·     In Retail: Birkenstock (BIRK) said it sees IPO priced at $44-$49 per ordinary share, as per SEC filing. ANF rises for a 7th straight day to best levels in more than a decade (stock has been strong since late August after earnings) – outperforms other specialty retail.

·     In Consumer products: CLX was upgraded to Buy from Neutral at DA Davidson saying shares appear to be discounting the worst after falling -18% since disclosing a cyberattack on August 14th. On Friday, they said all manufacturing sites are now operating.



·     In Coals: ARCH lowered its FY23 coking coal sales volumes to be between 8.6-8.9 mln tons, compared with previous outlook of 8.9-9.7 mln tons and sees 2023 average metallurgical cash cost to rise between $88-$91 per ton vs. $79-$89 per ton earlier (AMR, ARLP, BTU, CEIX weak).

·     In Solar: SEDG downgraded to EW from OW at Barclays saying they expect challenges to persist beyond the near-term de-stocking issue due to inevitable ASP reductions, market share losses, and an FX rate that is currently trending unfavorably (tgt to $152 from $274); At Susquehanna, the firm cut tgts across the board with ENPH from $200 to $175, maintain Positive, SPWR from $14 to $8, maintains Positive, NOVA from $32 to $25, maintains Positive.

·     In Utilities: another bloodbath for the sector with the dollar and yields extending gains, weighing on high dividend paying sectors. Utilities down over (-5%) on day after underperforming last week (-6.9%) vs. the S&P 500 (-0.7%) last week as more hawkish interest rate expectations weighed on yield-oriented securities. NEP’s distribution growth rate reduction took the spotlight last week, pulling down NEE as well, despite the company reaffirming guidance. Today, another bounce in yields weighed on the sector (and those names fell the most).



·     In crypto: Bitcoin prices hit 6-week highs, rising over 5% early above $28,400, while COIN shares jump after obtained a major payment institution license from the Monetary Authority of Singapore, which would enable the Co to expand its digital-payment token services to individuals and institutions in the city state (MARA, MSTR, RIOT shares also rise in crypto space).

·     In Consumer Finance: DFS shares outperformed after the company disclosed its much-anticipated consent order with the FDIC late Friday, as the company faces no fines or other growth-constraining penalties.

·     In REITs: MAC was upgraded to Neutral at Piper in real estate Q3 preview saying despite the recent back-up in the 10- year, Piper believes the debt markets are through the worst and on the road to recovery. SUI downgraded from Buy to Neutral at Bank America and cut tgt to $125.

·     In Consumer Lending: KBW upgraded PFSI and COOP to Outperform from Market Perform given both companies are well-positioned to generate strong servicing earnings in a high interest rate environment, which is likely to keep prepayments near their current (very low) levels and believes that mortgage banking earnings have likely bottomed. BFH downgraded to Sell as Goldman Sachs which expects the stock to underperform given sustained larger than anticipated credit losses and uncertainty from late fees (lower 12m target to $32 from $44).

·     In Insurance: CB was downgraded to Neutral from OW at JP Morgan due to an incrementally negative stance on the commercial lines market and the recovery in the stock’s valuation/said its long-term fundamental outlook for CB remains positive.



Biotech & Pharma:

·     LLY said it received a Complete Response Letter (CRL) from the FDA for Lebrikizumab BLA based on inspection findings at third-party manufacturer.

·     NVTA said the US FDA granted a marketing authorization for the firm’s test to help detect genetic variants linked with higher risk for certain cancers.

·     PODD was upgraded to Buy from Hold at Jefferies in insulin sector saying only sees the potential for GLP-1 weight-loss drugs to have “a modest drag or no drag” on the insulin-pump opportunity.

·     SDC said it voluntarily filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas as it plans to implement a comprehensive recapitalization transaction.

·     SNDX said a Phase 1/2 study of its Revumenib cancer therapy met a key goal in certain patients with acute leukemia; said it expects to file for FDA approval by the end of the year.


Industrials & Materials

·     In Industrials: MMM shares fall to around the $90 level, taking out its June lows of $92.38 – (shares down -10% last 3-months) – reminder in August, the company had agreed to pay $6 billion to settle claims that it sold potentially faulty ear protection to the U.S. military.

·     In package delivery: FDX was upgraded from Neutral to Positive at Susquehanna and raised its tgt to $315 from $225 as it rolls out its valuation framework to F2025 and raised its target P/E multiple +2x to FDX’s longer-term average of 14x.

·     In rails: NSC was downgraded from Buy to Neutral in rails at Bank America and cut tgt to $215 from $266 on 16.5x its 2024e EPS (from 19x) as moves its target multiple closer to the midpoint of its 12x-18x range given continued service challenges.

·     In Aerospace & Defense: SPR named Patrick Shanahan as its interim CEO after Thomas Gentile resigned from post and from the board. SPR says its board will launch a search for a new CEO, while Gentile will stay on as a consultant for three months.


Materials, Metals & Mining

·     Gold miners (AEM, AUY, GOLD, NEM) extend losses as gold prices fall further (dropped below $1,850 an ounce, more than $100 below last month highs) as a stronger U.S. dollar and prospects of interest staying higher for longer reduces bullion’s appeal.

·     US Steel (X) upgraded to Overweight at Morgan Stanley as sets a Street-high target of $40 and names it as a top pick in a note highlighting transformational investments.



Hardware & Software movers:

·     MSFT was added to Q4 2023 Tactical Ideas List with a $400 price target at Wells Fargo noting shares are down -10% since the Q4 report, as early enthusiasm around AI and Azure reacceleration settles a bit and the firm now sees a favorable path forming.

·     At Goldman Sachs: NVDA, OKTA, CTAS, and QTRX all added to the Conviction List, and remove CRM and JCI For NVDA, focus on its status as the accelerated computing industry standard for the foreseeable future given its competitive moat and the urgency with which customers are developing and deploying increasingly complex AI models. For OKTA, look for an acceleration in backlog (cRPO) and recurring revenue (ARR) as merger synergy issues recede.

·     TOST was downgraded to Neutral from Buy at Mizuho on reduced ests and nearly halve tgt to $16 from $30 noting GPV per location slowing faster than restaurant inflation, which could signal muted success in enterprise: increased reliance on TOST Capital adding risk late in the cycle and proprietary survey pointing to potential headwinds from looming student loan payments.

·     Piper with a few ratings changes as DDOG upgraded to Overweight with a $115 price objective as believes its thesis around cloud headwinds weighing on upside has largely played out over the past few quarters with numbers being appropriately reset following last quarter’s guide down. Piper also upgraded ZS to Overweight and upped tgt to $190 as believes the co will continue to benefit from strong trends in security spending and network transformation momentum.

·     For AAPL, the WSJ reported this weekend the company will release a software update aimed at addressing iPhone 15 overheating issues.


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.