Closing Recap

Friday, October 27, 2023

Index	Up/Down	%	Last
DJ Industrials	-366.25	1.12%	32,418
S&P 500	-19.83	0.48%	4,117
Nasdaq	47.41	0.38%	12,643
Russell 2000	-20.11	1.21%	1,636

 

 

 

 

 

 

 

 

 

After a bumpy week, US equity futures looked primed to bounce back a bit with overnight gains in both the Nasdaq and S&P 500. Earnings have been a mixed bag thus far, but better results from Amazon and Intel last night helped offer support, along with pre-market upside in other earnings names like Chipotle, Dexcom and CapitalOne. The Nasdaq is moving off recent weakness that pressured it to its lowest since May. Pre-market economic news was generally in-line, leaving investors with little reason to change opinions going into the weekend and ahead of next week’s Fed meeting. Current probabilities continue to see no change from the Fed. By late morning, indices had diverged a bit with the S&P only up about 0.2% versus the Nasdaq holding gains of about 1.2% thanks again to Intel and Amazon. Overall market breadth tilted slightly in favor of decliners. Early sector leaders included Consumer Discretionary, Technology, Materials and Communications all in the green. Energy and Healthcare led the rest lower.

 

In data today, despite the recent doom and gloom in the markets, @bespokeinvest notes the national average price for a gallon of gasoline has dropped to its lowest since April according to AAA (good for consumers heading into the holidays). Also from @bespokeinvest, though it may not have felt like it, the 93 stocks that reported earnings before the open yesterday actually averaged a gain of 0.73% on the day. On diverging performance, @charliebillelo highlights the S&P 500 is up 18% versus last year’s closing low while small caps are down 1%. He also notes today’s Core PCE moved down to 3.7% in September, the lowest since May 2001. Lastly, @KobeissiLetter continues to remind us that housing affordability is at an all-time low and there has never been a worse time to be a home buyer. Existing home sales are at their lowest since 2010, mortgage applications are down 50% since the beginning of the year and at their lowest since 1994 as mortgage rates cross above 8%.

 

Heading into the final hour of trading, equities had lost the early momentum and were near lows of the day. The S&P 500 was -0.7%, while the Nasdaq held onto gains of just +0.3%. Sector-wise, only Consumer Discretionary (XLY, +0.7%) and Technology (XLK, +0.2%) remained in the green. Leading the losers were Energy (XLE, -2.5%), Financials (XLF, -2%) and Healthcare (XLV, -2%). Thanks to the outperformance in technology, Growth outperformed Value with the Russell 1000 Growth +0.08% versus its Value counterpart -1.47%. Small-caps were underperformers, as well, with the IWM -1.33% (about double the S&P decline) as IWM has now undercut the bear market low of $162.50 from Oct 13, 2022. Overall breadth had deteriorated to more than 2:1 in favor of decliners. With the Fed likely on hold next week, investors will mostly look to earnings for direction.

 

Economic Data

·     Sept personal income rose +0.3% below consensus +0.4% and vs. Aug +0.4% while the Personal Spending rose +0.7% vs. consensus +0.5%; Sept personal saving rate fell to 3.4%; real consumer spending rose +0.4% vs Aug +0.1%.

·     Inflation portion of data: Sept overall PCE price index +0.4% vs. est. +0.3% and vs. Aug +0.4%; Sept core PCE price index +0.3% (+0.3%) vs Aug +0.1%; Sept y/y PCE price index +3.4% vs Aug +3.4% (prev +3.5%); core +3.7% (consensus +3.7%) vs Aug +3.8% (prev +3.9%).

·     University of Michigan Sentiment Oct-Final University of Michigan surveys of consumers sentiment final oct 63.8 vs. consensus 63.0 and vs. Sept-F 68.1; current conditions index final oct 70.6 vs prelim oct 66.7 and final sept 71.4; Consumers expectations index final Oct 59.3.

·     UoM Inflation expectations rise: University of Michigan surveys of consumers 1-year inflation outlook final oct 4.2% vs prelim 3.8% and final sept 3.2% while University of Michigan surveys of consumers 5-year inflation outlook final oct 3.0% vs prelim 3.0% and final sept 2.8%.

 

Commodities, Currencies & Treasuries

·     December gold futures gained $1.10/oz, or +0.06%, to settle at $1,998.50 after being lower for much of the day. Today’s move concludes a third consecutive weekly gain for gold futures. Incremental concern about expansion of Israeli ground operations in Gaza again boosted gold’s safe-haven status and is likely the primary driver of today’s demand ahead of next week’s Fed meeting. Today’s economic reports likely did little to sway investor expectations for next week’s meeting, with gold already pricing in the consensus view for no change in rates.

·     WTI November crude gained $2.33/bbl, or +2.8%, to settle at $85.54 after slipping to flattish midday. Brent also gain, up $2.55/bbl, or +2.9%, to settle at $90.48. Headlines noting expanded ground forces activity by Israel in Gaza pushed crude to afternoon highs, but the move was too little to erase losses earlier in the week. The weekly move was -2.9%. The war trade clearly still has some legs but has lost much of its early momentum. Expectations for no move from the Fed next week also isn’t doing much to generate activity in either direction, so perhaps now we wait for the next outlier economic release to guide the supply/demand discussion.

 

 

Macro	Up/Down	Last
WTI Crude	2.33	85.54
Brent	2.55	90.48
Gold	1.10	1,998.50
EUR/USD	0.0004	1.0565
JPY/USD	-0.83	149.55
10-Year Note	-0.008	4.837%

 

 

Sector News Breakdown

Consumer

Autos:

·     Ford Motor (F) shares dropped after missing earnings and revenues for Q3 and withdrew its full-year 2023 results forecast due to the pending ratification of its deal with the United Auto Workers (UAW) union. The two sides reached a tentative agreement on Wednesday that included a 25% wage hike for 57,000 workers over 4-1/2 years.

·     In Auto Retail: AN Q3 EPS and revs beat ($5.54/$6.89B vs. est. $5.49/$6.72B); said new vehicle revenue increased 11% to $3.2B and used vehicle revenue declined 10% to $2.2B; said saw double digit y/y growth in new vehicle sales/strong sequential growth in used vehicle volume.

·     In EV Sector: RIVN was upgraded to Overweight from Neutral at Cantor based on valuation, after the share price has underperformed ~27% in the past month and is down ~12% YTD. Cantor believes this to once again be a good entry point for investors with a l-t investment horizon.

 

Consumer Staples & Restaurants:

·     In Restaurants: CMG Q3 tops market expectations for quarterly sales, posting a 100 bps increase in quarterly operating margin and comp sales of 5% a touch above the 4.6% estimate while guides Q4 comp sales growth in the mid to high-single-digit range vs. est. 5.3%. BJRI Q3 revs and comp sales (+0.4% vs. +3.2%) misses estimates, but EPS narrower loss.

·     In Household Products: NWL shares slid after cutting the year sales view to $8.02B-$8.09B from the prior $8.2B-$8.34B and lowered its profit outlook citing slowing demand for its food containers/appliances amid rising cost of living expenses. CL posted better-than-expected Q3 earnings after it again raised prices by 9.5% globally, boosting sales to $4.915B from $4.45B y/y and above consensus $4.81B; gross profit margin rose 140 basis points to 58.6% and raises the low end of full-year sales to grow 6% to 8% vs. prior view 5%-8%. In beauty, EL shares tumbled over 7%, falling to its lowest level in over 4-years.

·     In Food & Beverage: HSY tgt cut to $200 at TDCowen and downgrade to Market Perform citing too many headwinds noting mgmt warned of volume pressure from a major customer reducing merchandising space to improve the shop-ability of its aisle plus cocoa costs are higher. SAM declines as Q3 revs fell -0.9% to $601.6M vs. est. $594M, depletions fell 6%, due to decreases in some company’s brands and cut its EPS guidance range to $6.04-$8.04 compared with prior guidance of $6.00-$10.00 and expects depletions down (5%-7%) more than prior.

Retailers:

·     Online retail giant AMZN shares rally as Q3 revenue of $143.1M topped consensus of $141.41B, but its cloud unit AWS brought in revenue of $23.1B up 12% y/y, mostly in-line with estimates while guided Q4 sales $160B-$167B vs. est. $166.6B; said advertising business racked up sales of $12.1B, up from $9.6B y/y.

·     Footwear Retail: DECK beat 2Q consensus EPS by $2.39 as UGG grew 28% y/y, HOKA grew 27% y/y, and operating margin expanded 597 bps to 20.6%. DTC sales grew 39% y/y, outpacing wholesale growth of 19%; SKX DTC sales grew 24% y/y in 3Q with +DD growth domestically and internationally, and gross margin expanded 590 bps y/y; improve inventory levels, which declined -22% y/y, but guides FY23 revenue $7.95B-$8.05B vs. est. $8.13B.

·     Apparel Retail: COLM 3Q sales grew 3.2% y/y, slightly missing consensus estimates, driven by 4% growth at Columbia and 9% growth at SOREL offset by declines from prAna and Mountain Hardware. Growth was supported by strength in international direct markets. CRI Q3 EPS and sales topped consensus but guided Q4 EPS and sales below views weighing on shares.

 

Energy

·     Oil Majors: Earnings results from the big two today CVX and XOM: 1) CVX Q3 adj EPS $3.05 vs. est. $3.33; Q3 revs $54.08B vs. est. $47.79B; said it had net income of $6.526B, or $3.48 a share, down from $11.231B, or $5.81 a share y/y; said decline in earnings was due to lower upstream realizations and lower margins on refined product sales; 2) XOM Q3 adj EPS $2.27 vs. est. $2.24; Q3 revs $90.76B vs. est. $83.76B; raises quarterly dividend by 3.3% to $0.94; 3Q cash flow from operations $16b, free cash flow $11.7B; 3Q global refinery throughput 4.2m barrels/day.

·     In Solar: the pain continues as ENPH is the latest with a bleak outlook (follows recent guidance from SPWR, SEDG that crushed the sector) as ENPH guided Q4 revenue $300M-$350M below consensus of $577M after slightly missing Q3 results.

·     In Oil Equipment: NOV mixed results for Q3 as EBITDA beat due to RigTech (with impressive margin notes Piper), but FCF missed. C&P orders beat, but RigTech orders missed. GTLS shares tumble over -20% after EPS/revs miss as adj EPS $1.28 vs. est. $1.61 and revs $897.8M vs. est. $1.04B and lowered this year EPS view but 2024 looked above.

 

Financials

Banks, Brokers, Asset Managers:

·     In Banks: RF downgraded from Overweight to Neutral at JP Morgan to reflect the impact of faster catch-up in deposit betas. OBK upgraded to Outperform at Raymond James following 3Q results that exceeded their forecast and consensus on both a core EPS and PPNR basis. EGP upgraded to Outperform at Raymond James following another strong quarter which has them to increase their estimates. NWG shares tumble after the British bank cut its guidance and admitted “serious failings” in its treatment of Brexit campaigner Nigel Farage. One M&A deal as ONB said it is buying CSTR, accelerating its presence in Tennessee by bringing in $3.3 billion in total assets, $2.3 billion in total loans, and $2.8 billion in deposits as of Sept. 30.

·     In Asset managers: TROW posts Q3 adj EPS $2.17 topping ests $1.78 as revs rose to $1.67B from $1.59B y/y and above est. $1.62B; AB top and bottom line for Q3 results beat consensus while saw modest net outflows of $1.9 billion, with active net flows nearly flat.

·     In Consumer Finance: COF 3Q EPS was $4.45 vs consensus $3.24, helped by better expenses as operating efficiency was 41.5% in the quarter, Net interest income climbed 6% to $7.42B, credit card loans increased 3% to $146.8B, while consumer banking loans fell 1% to $76.8B, auto loans decreased 1% to $75.5B and commercial banking loans declined less than 1% to $91.2B.

 

Healthcare

Biotech & Pharma:

·     ABBV Q3 adj EPS $2.95 tops $2.70 estimate on mostly in-line revs of $12.93B and raises annual adj profit forecast to range between $11.19-$11.23 from $10.86-$11.06 prior.

·     LLY pulls back below its 50-day MA of $568.15 and NVO shares pulled back below its 50-day MA support of $94.70 in the weight loss drug sector following the strength in MedTech after DXCM quarterly beat and raised guidance.

·     PTCT shares fell after posted lower-than-expected revenue in Q3, falling -9.5% y/y to $196.6M missing the $201M estimate alongside a wider EPS loss of (-$1.76); was downgraded to Sell at Citigroup post results and pipeline update.

·     SNY tumbled as said it plans to separate its consumer-healthcare business to focus more on innovative medicines; reported Q3 sales of 11.96 billion euros ($12.63 billion), down 4.1% on the same period last year but up 3.2% at constant exchange rates vs. est. EU12.06B.

 

Healthcare Services & MedTech movers:

·     In Insulin sector: DXCM shares jump after raising its FY revenue forecast and beats Q3 estimates on strong demand for its continuous glucose monitoring devices; guides year revs $3.58B-$3.6B from prior $3.5B-$3.55B after Q3 sales rose 27% y/y to $975M topping $939M est. (shares of comps PODD, TNDM active in reaction) – Canaccord notes results show GLP-1s not a headwind.

·     In MedTech: MASI rises as a U.S. federal trade agency found that Apple (AAPL) violated the patent of the MedTech company in a ruling that could lead to an import ban for certain models of the AAPL smartwatch. The complaint by MASI was that AAPL violated its patents related to measuring blood-oxygen levels.

 

Industrials & Materials

Materials, Metals & Mining

·     In Steels: U.S. Steel (X) reported 3Q’23 EBITDA of $578m vs consensus estimates of $549m and vs X’s September EBITDA guide of $550m; no outlook commentary provided other than X flagging project pipeline remains on schedule and on budget. EGO shares jumped as Q3 loss narrowed and revs rose 13% at $245.3M and average realized price for gold was 11% higher y/y.

·     In Chemical Sector: TROX downgraded to Neutral at JP Morgan and lowered its EBITDA forecast for Tronox for 2024 from about ~$700m to ~ $600m to reflect lower titanium dioxide price expectations; DOW was downgraded to Hold from Buy at Argus post earnings; CC lowered its outlook for 2023 following a decline in top- and bottom-line results in Q3 and said adjusted free cash flow for the year is seen coming in greater than $225M, below prior $325M view. EMN Q3 profit topped estimates, helped by cost cuts and reduced inventory levels, while sales revenue fell about 16%, hurt by a decline in both volumes and prices.

 

Technology

Internet, Media & Telecom

·     In Cable/Telecom: CHTR tumbles on Q3 results as revs almost flat y/y to $13.58B below est. $13.63B while free cash flow drops -27% y/y to $1.1B citing network expansion expenses and only added 63K Internet users in Q3, below consensus around 77K (follows a weaker result from rival CMCSA on Thursday on weaker subs as well).

·     In Internet: YELP upgraded to Neutral at JP Morgan noting the co has navigated the challenging ad market better than most of its peers, with nine straight quarters of double-digit% revenue growth.

 

Semis, Hardware & Software movers:

·     In Cloud Software: shares of SNOW, CRM, ORCL, NOW, MDB and others saw early gains after AMZN said its AWS cloud services was picking up pace of signing and closing deals, coming just a few days after GOOGL warned cloud customers were curbing spending. DDOG downgraded to EW and lowering our PT to $95 at Wells Fargo as cost optimization trends are still ongoing and FY24 estimates look high, offset by potential share gains related to Cisco/Splunk acquisition.

·     INTC forecast Q4 revenue about $14.6B-$15.6B vs. est. $14.35B; overall delivered beat/raise results as 3Q sales/EPS $14.2B/$0.41 bested consensus by 4%/85%. INTC strong results helped by bounce in PC market, lifting shares of DELL early.