Closing Recap

Thursday, October 05, 2023

Index	Up/Down	%	Last
DJ Industrials	-9.98	0.03%	33,119
S&P 500	-5.56	0.13%	4,258
Nasdaq	-16.18	0.12%	13,219
Russell 2000	1.51	0.14%	1,731

 

 

 

 

 

 

 

 

 

U.S. stocks finish mixed, rebounding from morning declines, but investors were not willing to wager big bets ahead of the September Nonfarm payroll report Friday morning, the next potentially major catalyst for stock markets. ADP Private payroll data on Wednesday was nearly half expectations, helping ease fears of a more aggressive Fed rate hike in November, and jobless claims were mostly in-line with estimates today, but Fed speakers reiterated how resilient the jobs market has been despite inflation having slowed. Financials, Healthcare, and REITs paced gains in the S&P while Materials, Energy, and Consumer Staples were the biggest losers. Food and consumer product stocks fell hard (TAP, UTZ, KO, PEP) after CLX lowered guidance among other factors. Given the sharp move higher in Treasury yields amid rate hike expectations following the recent “hawkish” Fed speak (“higher for longer” view), the S&P 500 remains on track for a 5th down week in a row, the Dow is tracking for 3rd straight down week while Nasdaq tries for back-to-back weekly gains. Sentiment and viewpoints have changed so quickly on Wall Street as it was just a few months ago, futures were pricing-in 4 rate cuts in 2023 and we haven’t had one and now not expected until late 2024 at the earliest (with still the possibility of one hike in November). All about tomorrow jobs as a “hotter” number might lead to more market weakness while a “cooler” reading echoing the ADP report might give markets the “squeeze” they need.

 

Economic Data

·     Weekly Jobless Claims rose to 207K in the latest week from 205K prior week (est. 210K); the 4-week moving average fell to 208,750 from 211,250 prior; continued claims fell to 1.664M from 1.665M prior week and consensus 1.675M; Us Insured Unemployment Rate unchanged at 1.1%.

·     International Trade in Goods and Services for July shows deficit narrows to (-$58.30B) vs. (-$62.30B) consensus and (-$64.70B) in July (revised from -$65.00B).

·     The median U.S. asking rent rose 0.4% year over year to $2,011 in September, Redfin says, the sixth straight month in which rents were little changed from a year earlier. Prior to that, rent growth had been slowing rapidly for roughly a year.

 

Commodities

·     After hitting the highest prices in more than a year above $95 per barrel on higher demand given reduced supply, WTI crude prices have tumbled to below $83 per barrel today amid a surging dollar and a darkening global macroeconomic outlook given rate hike fears. WTI crude oil futures settled at $82.31/bbl, down $1.91, 2.27% while Brent settled at $84.07/bbl, down $1.74, 2.03%. Natural gas ends up 6.9% at $3.166, highest since January 24, as storage surplus narrows again.

·     Note in data this week, gasoline inventories experienced the biggest build since the end of 2021/start of 2022 last week. The large build was likely thanks to much weaker demand. Gas prices had already hit their lowest level since July coming into today’s 5%+ drop for oil. AAA National Average Price of Gas ($/Gallon): $3.785. Peaked at $3.881 on 9/17.

·     Gold prices edged lower, falling -$3.00 to settle at $1,831.80 an ounce as U.S. data indicating tight labor market conditions raised worries about the Federal Reserve keeping interest rates higher for longer. The SPDR Gold ETF (GLD) fell a 9^th straight day toward a seven-month low as declines in the U.S. dollar and Treasury yields couldn’t help. The ETF has shed -5.6% during its current losing streak, which is the worst nine-day stretch for the ETF since it fell -5.7% over the nine days ended March 21, 2022. The continued selloff comes even as the U.S. Dollar Index fell 0.3% and the yield on the 10-year Treasury note slipped 1.4bps to 4.71%.

 

 

Macro	Up/Down	Last
WTI Crude	-1.91	82.31
Brent	-1.74	84.07
Gold	-3.00	1,831.80
EUR/USD	0.0044	1.0546
JPY/USD	-0.71	148.41
10-Year Note	-0.019	4.717%

 

 

Sector News Breakdown

Consumer

Autos:

·     RIVN shares tumble as files to sell $1.5B of green convert senior notes due 2030; guided revenue for the three months ended Sept. 30 between $1.29B-$1.33B vs. est. $1.3B (vs. last year $540M).

·     NIO, a Chinese electric car company that competes with TSLA, employs 11,000 people in research and development, but sells a mere 8,000 cars per month and loses $35,000 per car it sells, maintains government backing – the NY Times reported. https://tinyurl.com/3j525v7z

·     EV Charging companies CHPT, BLNK shares weak initially after Hyundai Motor and Kia Corp said they decided to adopt TSLA’s electric vehicle (EV) charging technology in the U.S., joining peers Ford, GM, and Nissan.

 

Consumer Staples & Restaurants:

·     In Food Sector: CAG misses Q1 sales estimates ($2.9B vs. est. $2.95B) as multiple rounds of price hikes dampened demand for its ready-to-eat meals, frozen foods and snacks though posted Q1 profit helped by the price hikes (maintained FY organic net sales growth forecast). LW shares jumped after Q1 beat ($1.63/$1.67B vs. est. $1.08/$1.62B) and raised its FY24 adjusted EPS view to $5.50-$5.95 from $4.95-$5.40 and boosted its year sales outlook as well.

·     In Beverages: KO 52-week lows and PEP also fall following food related names; the NY Post reported WMT said Ozempic craze slims demand in grocery aisles; also recall on Sept 2st, the Bear Cave announced a "short call" on KO saying they believe Coca-Cola faces a perfect storm of new headwinds including a rapidly changing advertising landscape that benefits upstarts, cultural issues within the company, and a future with diminished demand driven in part by weight loss drugs Wegovy and Ozempic. https://tinyurl.com/mu2vtfsu . STZ 2Q EPS of $3.70 tops consensus $3.37 and EBIT a 5% beat, with sales of $2.84B vs est. $2.82B; raises FY EPS to $12.00-$12.02 vs prior $11.70-$12.00 and raised bottom-end of beer sales.

·     In Consumer Products: CLX guided Q1 EPS loss to (-$0.40-$0.00) vs. estimates $1.36; and Q1 sales are expected to decrease by 28% to 23% y/y and organic sales are now expected to decrease by 26% to 21% (compared to the Company’s prior expectations of mid-single-digits growth). Overall Staples sector hit hard as CLX weighed on the group.

 

Retailers:

·     COST reported total and U.S. core Sept comp growth of 3.7% and 2.7%, vs. consensus of 3.3% and 2.8%. On a 2-year basis, total company and U.S. core comp growth decelerated slightly sequentially from August, though largely in-line with the three-month avg. Traffic experienced positive trends both worldwide and domestically, but transactions were down again in Sept.

·     BKE said that comparable store net sales, for stores open at least one year, for the 5-week period ended September 30, 2023, decreased 11.1% from comparable store net sales for the 5-week period ended October 1, 2022.

·     CAL guides 3Q EPS to be in-line at $1.30-$1.35 vs consensus $1.31 but sees revenue at the low-end of its down low-singles prior guide.

 

Leisure, Gaming & Lodging:

·     In RV Sector: Jefferies said checks indicate that sales remain sluggish, with OEMs offering lower price points in MY24 to jumpstart demand. The firm is most cautious on WGO and CWH as downtrends in demand have weighed on WGO’s expensive product line and lack of EU exposure.

·     In Lodging & Leisure: VAC was downgraded to Hold from Buy at Jefferies saying they highlight their bearish outlook on timeshares as softness in domestic leisure travel/broad consumer spending and high interest rates limit NT upside (remains Hold rated on HGV, TNL).

 

Homebuilders, Building Products, Home Furnishing:

·     Mortgage rates hit their highest level in more than 20 years this week, pushing homebuyers’ monthly housing payments to all-time highs according to Redfin. A buyer on a $3,000 monthly budget, for instance, can afford a $419,000 home with a 7.7% mortgage rate, roughly the daily average on October 4. That buyer has lost $38,000 in purchasing power since last October, when they could have bought a $457,000 home with a 6.6% rate.

·     In Home Improvement Retail: Citigroup downgraded shares of TSCO, FND to Neutral from Buy on traffic weakness and upgraded auto retailer ORLY to Buy on pullback. In September, Citi said Hardlines retailers saw the worst traffic performance of the year, with store traffic down 7% Y/Y on average. Based on traffic weakness, they est. that 6 of its 13 retailers are on track to potentially miss Street comp stores for quarter including TSCO, FND, HD, LOW, AAP, and WSM.

·     In Building Products: BECN upgraded to Outperform at RBC Capital in conjunction with its Roofing industry checks (which point to upside to guidance driven by resi roofing. RBC said checks suggest resi sell-through remained robust in 3Q, it expects DD growth to continue in 4Q/1Q.

 

Energy

·     In Utility sector: what a rough stretch it’s been for the interest rate sensitive sector, with the XLU falling to 3-year lows, down -20% YTD with most of the damage in the last month. In research today, Keybanc upgraded CMS, DTE, CNP from SW to OW, PNW upgraded from UW to SW and NEE downgraded from OW to SW saying believes that the recent market selloff over the past couple of weeks (UTY -13%, SPX -5%) has created sufficient valuation dislocations.

·     Solar stocks extend 2023 losses (SEDG, ENPH, FSLR slide): recall yesterday Truist lowered tgts on many names after recent sell-off in the sector due to high interest rates; Truist said residential solar has faced a difficult year as rates and policy changes have hit U.S. growth and the trend could continue into 2024. They added that utility-scale solar firms have also not been protected from the sell off as investors question the impact of higher rates on deployments in large-scale projects (recall they downgraded NOVA, RUN on Wednesday).

 

Financials

Banks, Brokers, Asset Managers:

·     In Banks: sector weak again on rising rate hike fears. Some analyst changes today: CMA downgraded to Outperform from Strong Buy at Raymond James and cut 2024 EPS estimate to reflect mid-quarter updates, while firm upgraded PB to Strong Buy, $68 PT following shares’ recent underperformance, its discounted valuation to peer’s vs history. ISTR was upgraded to OW at Piper as think the valuation has become unreasonably depressed. FCNCA was initiated Outperform and $1,700 price target at Wedbush noting First Citizens has quadrupled in size over the last 18 months owing to two high-profile acquisitions of CIT and the failed Silicon Valley.

·     In Crypto: BTBT said it produced 130.2 Bitcoin in September, down -7% compared to the prior month primarily driven by an increase in network difficulty and a reduction in active hash rate that occurred towards the end of the month; RIOT said it produced 362 Bitcoin in Sept 2023.

 

Healthcare

Biotech & Pharma:

·     Drugs that are commonly used for weight loss (NVO ) were linked to a higher risk of bowel obstructions and other gastrointestinal side effects in patients than an older treatment, according to a recent JAMA study.

·     ACCD posted another strong quarter, but shares slid after full year guidance was not raised despite a beat in the quarter.

·     ALXO priced a 7.37M stock offering at $6.38 per share.

·     JNJ was initiated at Outperform, $178 tgt at RBC Capital saying JNJ has unlocked potential with the consumer separation and is poised to drive: (1) Pharma franchise to deliver competitive growth, including in 2H of decade aided by its pipeline (five +$5B and 12 +$1B revenue potential, +65 filings 2026-30); and (2) MedTech franchise to be a top grower.

·     IPHA said that the U.S. FDA imposed a partial clinical hold on two of its trials for lymphoma candidate lacutamab.

·     MXCT shares fall as guided FY23 revenue to $34M-$36M below consensus $45.07M given the ongoing volatility in customer activity in the life science tools sector.

·     MRTX shares surged late day amid a report that SNY is exploring a possible acquisition, according to Bloomberg. https://tinyurl.com/henxs2uk

·     NBIX announced positive top-line data from the Phase 3 CAHtalyst™ Pediatric Study evaluating the efficacy, safety, and tolerability of crinecerfont in children and adolescents with classic congenital adrenal hyperplasia (CAH) due to 21-hydroxylase deficiency.

·     QURE announces strategic reorganization to reduce operating expenses; reduction of 28% of workforce not related to hemgenix manufacturing obligations; total cost savings of $180M to extend cash runway into Q2’27; discontinuing investments in more than half of projects.

·     NBTX shares fell after saying 10 deaths occurred within 180 days of enrollment of a dose-expansion trial for its investigational treatment for patients with advanced head and neck cancer.

·     ORTX agreed to be acquired by Japan’s Kyowa Kirin at $16 per ADS in deal valued at $387.4M; contingent value rights tied to U.S. approval of Orchard’s OTL-200 could add another $1 per ADS, bringing the total value of the deal to $477.6M, or $17 an ADS. https://tinyurl.com/mpd6hcev

 

Industrials & Materials

Transports

·     In Transports: Bernstein lowers 3Q estimate for JBHT to 2% below consensus ahead of earnings, expecting a slight miss for the quarter; Bernstein lowers ests on UNP ahead of earnings on higher-than-expected purchased services and materials from the cleanup of Hurricane Hilary. Mexican airport operators Asur, GAP and OMAB tumble after announcing that the country’s civil aviation regulator had changed the terms of their tariff base regulation.

·     In Industrials: Few analyst rating changes as Bank America downgraded CARR to Underperform from Neutral citing upward valuation rerating post-Viessmann acquisition announcement, and increasingly negative datapoints on Europe’s heat pump demand trends. PH was upgraded to buy at Bank America with $475 tgt noting their destocking thesis has not played out as lead times remain stubbornly high, limiting risk to headline PMI. Finally, TT was upgraded at Bank America to Neutral on valuation and as Trane continues to outperform peers on revs, EPS, and FCF.

·     In Transport Services: SP to be acquired by Metropolis Technologies for $54.00 per share in cash, in total deal valued at $1.5B, a 52% premium to yesterday https://tinyurl.com/26j2t9p9

·     In Aerospace: SPIR said NASA selects them as one of the contractors to provide earth observation data for the agency’s Commercial Smallsat Data Acquisition (CSDA) program with $476M ceiling.

·     In Heavy Machinery: ALSMY significantly cut its full-year outlook for free cash flow, now expecting the figure to be negative; said it now sees a full-year negative free cash flow in a range of 500M-750M euros vs. prior guide for it to be "significantly positive".

 

Technology

Hardware & Software movers:

·     CMBM cuts Q3 revenue view to $40M-$45M from $62M-$70M, below the consensus $64.18M primarily due to a delay in government defense orders due to U.S. Federal budgetary timing issues impacting the Point-to-Point business.

·     DELL said to add $5 billion to its share buybacks, aims to grow quarterly dividend by 10% or more annually through 2028; announce its updated long-term value creation framework, which includes compounded annual revenue growth of 3%-4%.

 

Semiconductors:

·     Strength in MU, STX, WDC after UBS comments earlier – the firm said it now foresees a more significant increase in DRAM WFE in ’24 as it believes Samsung and Hynix in particular are moving to ramp up technology spending more aggressively. Also note Digitimes out saying Samsung reportedly to raise NAND contract prices in Q4 2023 https://tinyurl.com/e5e3j59v