Closing Recap

Friday, October 20, 2023

Index	Up/Down	%	Last
DJ Industrials	-286.96	0.86%	33,127
S&P 500	-53.84	1.26%	4,224
Nasdaq	-202.37	1.53%	12,983
Russell 2000	-21.28	1.25%	1,681

 

 

 

 

 

 

 

 

 

U.S. stocks sunk early and never recovered, ending lower for a third straight day, down on the week as the S&P 500 index (SPX) broke below its key 200-day moving average technical support of 4,233 and finished at the lows. The selling pressure was relentless as major averages finished broadly lower led by technology, consumer discretionary, materials, energy, and financials. The Smallcap Russell 2000 dropped below 1,700, now down -3.4% YTD (SPX still +11% YTD) after falling more than 5.5% in October thus far as surging rates/yields pressure smaller companies/impacts borrowing. Looking ahead to Monday, the S&P 500 is currently sitting at 15 straight green Mondays – longest streak ever for the index. Earnings season has started off on a rocky note with regional banks (CMA, RF, ZION), airlines, (UAL, ALK), solar (SEDG), and electric vehicles (TSLA) issuing big disappointments the last few days. Though there were some bright spots with NFLX better sub numbers and UNP and KNX earnings EPS in the transportation sector – but next week brings out the mega caps with likes of MSFT, AMZN, GOOGL, META, BA, GM, VZ, Visa, MRK, CMCSA, INTC, XOM among those reporting. Sentiment most definitely sour heading into the weekend (more fears of escalated tensions in Gaza). In an interesting stat: Bespoke Invest noted “the average decline of the S&P 500’s individual components since the index’s closing high on 7/31 is now at -9.9%, but many stocks are down much more than that. While less than one in five stocks in the index are up during this period, 81 stocks are down 20% or more, while another 166 are down between 10% and 20%." Shows how rough it’s been recently.

 

Commodities, Currencies & Treasuries

·     Gold prices touched fresh 3-week highs (up a 2^nd straight week) settling at $1,994.40 an ounce, rising $13.90 or about +0.7% to three-week highs. U.S. crude oil futures settle at $88.75/bbl, down -$0.62, 0.69% on the day erasing earlier gains yet both WTI and Brent still finished the week higher (+1.2% for WTI) on heightened fears of the Middle East conflict spreading. NYMEX natural gas prices fell 5.80 cents or 1.96%, its 8^th straight daily decline and was down 33.70c or 10.41% to $2.8990 per million British thermal units this week. Treasury 3- and 5-year yields declined 10 basis points on day – overall yields remained stubbornly high but pulled back slightly after hitting more than decade highs the day prior. The benchmark 10-yr fell to 4.92% after breaking above 5% briefly overnight. Bitcoin outperformed, topping $30K earlier.

 

 

Macro	Up/Down	Last
WTI Crude	-0.62	88.75
Brent	-0.22	92.16
Gold	13.90	1,994.90
EUR/USD	0.0013	1.0591
JPY/USD	0.08	149.86
10-Year Note	-0.068	4.92%

 

 

Sector News Breakdown

Consumer

Autos:

·     Auto supplier ALV raised its annual sales guidance after meeting Q3 profit expectations saying it would increase its 2023 sales guidance to about 17% organic growth from 15%, citing development of light vehicle production (LVP), to which it is highly exposed.

·     GM and the United Auto Workers are moving toward a tentative agreement that would put an end to a major strike that’s dragged on for more than a month, according to a top union negotiator, Bloomberg news reported. https://tinyurl.com/3w5yruh4

·     FSR said it continues its over-the-air software update strategy with fixes, enhancements, and new features.

·     TSLA shares dropped below their 200-day moving average support, extending yesterday’s losses after reporting a miss on the top and bottom line on weaker margins.

 

Retail, Consumer Staples & Restaurants:

·     COLM was downgraded to Neutral from Buy at Seaport Global saying it doesn’t like the near-term setup, given a slow start to the fall/winter season, the expectation of continued warm weather, and the likelihood that COLM’s fall 2024 orders could be weak.

·     CROX was upgraded to Outperform at Raymond James as believes the stock is oversold (CROX -31% over the last 3 months) and risk/reward is now favorable, said Crocs (75% of revenue) surprised to the upside in 1H and it sees further momentum and noted HEYDUDE’s challenges are well-known and the bear narrative is largely in the stock, in its view.

 

Homebuilders, Building Products, Home Furnishing:

·     Furniture retailers: (ARHS, OSTK, W) preview at Piper saying its Q3 Furniture Retailer survey completed in partnership with the Home Furnishings Association saw demand (written sales) slow from Q2 to an average decline of -8% y/y. All three months during Q3 on a demand basis declined -HSD% and Q4 demand was forecasted by retailers to be, on average, -7%. All in, Piper believes the survey data suggests home furnishing demand is "bouncing along the bottom" with trends continuing to decline but not getting meaningfully worse.

 

Energy

·     In Solar: SEDG weighed on the whole solar industry after cutting Q3 revenue view to $720M-$730M from $880M-$920M (est. $909.0M) and cuts Q3 gross margin view to 20.1%-21.1% from 28%-31% saying experienced substantial unexpected cancellations and pushouts of existing backlog from our European distributors; installation rates for the third quarter were much slower at the end of the summer (solar names ENPH, FSLR, ARRY, SPWR tumble on guidance). Several Wall Street analysts downgraded SEDG in reaction – but have been expressing caution this week.

·     Deutsche Bank downgraded SEDG (tgt cut to $150), RUN (tgt $15) and NOVA (tgt $12.50) all from Buy to Hold and trims its numbers for most companies as sees further downside with sluggish demand on the residential side (both in the US and Europe). A stuffed inventory channel which likely will take the next 2 to 3 quarters to decrease. pricing pressure and high competition on equipment and overall challenging macro conditions.

·     In oil services; SLB Q3 adj EPS $0.78 vs. est. $0.77; Q3 revs rose 11.1% y/y to $8.31B vs. est. $8.33B; Q3 cash flow from operations $1.68B; free cash flow $1.04B; Compared to the same quarter a year ago, international revenue grew 12%, outpacing North America, which increased 6%; well construction revenue rose 11% to $3.43B, production systems revenue increased 10% to $2.37B and reservoir performance revenue climbed 15% to $1.68B

 

Financials

Banks, Brokers, Asset Managers:

·     CMA shares slid as EPS $1.84 tops $1.68 estimate though net income down -28% y/y as net interest income (NII) dropped to $601M from $707M, total loans rose to $53.99 B from $51.1B y/y but total deposits dropped to $65.9B from just under $74B.

·     HBAN Q3 EPS of $0.36 beat by 4c on better revs at $1.89B and said sees Q4 net interest income down 4%-5%, Q4 noninterest income flat and Q4 expense up 4%-5%.

·     RF shares dropped as Q3 EPS $0.49 missed the $0.58 estimate and said expects net income interest (NII) in Q4 to decline ~5% sequentially, as banks pay more to retain deposits; said set aside $145M as provisions for credit losses in Q3, compared with $135M a year ago.

·     WAL Q3 deposit growth was better than expected, driven by both noninterest and interest-bearing deposits; fee income was better than expected, but offset by higher-than-expected expenses, mostly higher deposit costs. Credit quality was mostly positive as non-performing assets decreased to $245M from $267M.

 

Bitcoin, FinTech, Payments:

·     AXP Q3 EPS of $3.30, ahead of consensus $2.94 while revenue climbs by 13% to $15.38B vs. est. $15.36B, boosted by travel-and-entertainment spending; said Cardholder spending rose 7%, powered by 9% growth from U.S. consumer cardholders and 15% growth from international card services; the company provisioned $1.2 billion for credit losses, up from $778 million a year ago.

·     In crypto: Bitcoin prices jumped above $30K for first time since July ($30,022), taking gains for the week past 10%, against a backdrop of volatile trading across cryptocurrencies. There was no immediate news catalyst for the move in bitcoin, other than rotation given the recent spike in Treasury yields and concern about the prospect of interest rates staying higher for longer. Shares of Bitcoin miners, investors moved in reaction (COIN, HUT, MARA, RIOT, MSTR).

 

Healthcare

Biotech & Pharma:

·     MRK and Daiichi Sankyo agreed to jointly develop and commercialize three potential cancer treatments in a deal worth up to $22 billion. Merck will pay Daiichi Sankyo $4 billion up front and $1.5 billion in continuation payments over the next two years. If certain sales milestones are met, Merck will contribute up to $16.5 billion down the line.

·     AMGN generated strong response rates in patients with advanced small cell lung cancer, results that could lead to the approval of the drug. Tarlatamab delivered an encouraging objective response rate of 40% and median overall survival of 14.3 months in patients with advanced SCLC according to late-breaking data presented at ESMO and published in the NEJM.

·     ARQT announces $100M common stock offering and said sees preliminary total revenues of about $38.1M for quarter ended September 30, 2023, and expects to report about $228.1M of cash, cash equivalents, restricted cash, and marketable securities.

·     BEAM announced its portfolio priorities and its plans to streamline business operations. BEAM plans to prioritize its ex vivo and in vivo sickle cell disease (SCD) programs, including BEAM-101, the ESCAPE non-genotoxic conditioning strategy, and in vivo delivery to HSCs. BEAM plans a head count reduction of ~100 employees (~20% of its current work force).

·     JAZZ said to explore options including sale according to reports saying the company speaking with advisers to gauge potential interest https://tinyurl.com/yssajdj4 

·     In weight loss sector: Bloomberg reported LLY are looking to expand the use of their weight-loss drugs in addressing pediatric obesity, citing a source familiar with the matter. A filing at a registry of clinical trials showed that the Swiss-listed drugmaker is recruiting children with obesity six to 11 years old to evaluate its diabetes medicine Mounjaro in a phase 1 study. The study is expected to be completed on Nov. 13, 2024. https://tinyurl.com/2b2b9kpz

 

Healthcare Services & MedTech movers:

·     ISRG mixed Q3 as EPS topped views, but sales fell short ($1.74B vs. $1.77B est.); systems revenue missed estimates due to a higher mix of operating leases versus capital purchases; delivered healthy Q3 procedure growth (+19% WW; +17% U.S.; modestly lowered GM guidance.

·     SWAV announced the planned U.S. introduction of the Shockwave C2+ Coronary Intravascular Lithotripsy (IVL) catheter following approval by the FDA. The Shockwave C2+ catheter provides 50% more pulses per catheter than the Shockwave C2 catheter that was approved in 2021.

·     AMWL said late Thursday that it, along with LDOS, was awarded contract for U.S. military. Leidos Partnership for Defense Health (LPDH) will deliver Amwell Converge platform to deliver hybrid care and replace Military Health System Video Connect solution.

 

Industrials & Materials

Transports

·     Transports active with CSX 3Q EPS falling a penny short of consensus but operating income was $3M better than expected with the miss entirely driven by the tax rate – CSX now anticipates a ~$325M full-year decline in supplemental revenues versus ~$300M previously. Truckers/freight get a boost after KNX posted Q3 adjusted EPS of $0.41 topping the $0.36 estimate and issued guidance for the year that was above consensus (was upgraded at JP Morgan). UNP was upgraded to Buy from Hold with $235 tgt at Deutsche Bank after earnings.

·     In Agricultural/Industrial: Oppenheimer said they are bullish on inputs and ingredients as commodity prices retreat, driving lower-cost working capital, and sustaining healthy pricing power. The firm upgraded CTVA to Outperform on ahead-of-schedule execution against 2025 targets. Said while equipment sentiment remains hampered by cycle dynamics, below-peak valuation implies a favorable risk/reward for AGCO and DE, while CNHI remains a show-me story, which they cut to Perform. Last, they downgrade AQB on cost of capital/pricing pressures.

·     In E&C Sector: DY was upgraded to Strong Buy at Raymond James from Outperform ahead of 3Q results following a positive read-through from AT&T’s (T) 3Q23 print that underscores management’s commentary regarding the outlook for the business over the next 12 months.

 

Technology

·     In online dating: Keybanc lowered estimates on BMBL, MTCH to reflect a more cautious view on macro (E.G., student loans), but noted sentiment is overly negative, and revisions are likely to be more modest than investors fear.

·     In Advertising: IPG reports Q3 revenue of $2.31B below ests $2.38B and EPS of $0.70 missed by 3c saying revenue performance did not measure up to expectations. WPP shares fell late day after the Financial Times reported an executive at WPP-owned agency detained in Shanghai police raid https://tinyurl.com/2h5pky9u

·     In Software: AZPN announced that Chantelle Breithaupt will be stepping down from her role as CFO on December 31, 2023, to pursue another opportunity. She will initially be succeeded by Christopher Stagno in the role of Interim CFO. CTSH was upgraded to Buy at Citigroup and raised tgt to $80 from $72 on assessment it has made considerable progress on multiple fronts. OKTA suffered a security breach involving a compromise of its customer support unit, KREBS reports.

·     In IT Services: HPE reiterated its prior FQ4 and FY23 sales and adj. EPS guide, but provided FY24 guidance that was below consensus, including EPS of $1.92 at mid-point (consensus $2.14), FCF of ~$2B (consensus ~$2.4B), and constant currency rev growth of ~3%.