Mid-Morning Look

Friday, January 13, 2023

U.S. stocks open lower Friday as banks posted mixed/softer results to the start of the earnings season for the fourth quarter, but as has been the case all week, buyers stepped in to buy the dip, helped by a batch of inflation data reports showing continued deceleration. Today, Michigan consumer sentiment index hits 8-month high as inflation worries ease (lower outlook for 1-year expectations reported today), which followed a drop in CPI on Thursday, as annual inflation cooled in December for the sixth straight month, returning to its slowest pace in more than a year. After a dismal 2022, investors have come into 2023 guns a blazing, with the S&P 500 up 3.74% YTD after 8 trading days, the best start to a year since 2003 and 1987 before that while the Nasdaq and Russell 2000 come into today with 5-day win streaks. After tumbling more than 1% pre mkt, the Nasdaq briefly turned green, more than 100-point bounce off lows as it reclaims the 11,000 level. Bitcoin and related names off to a strong start after a weak 2022, up 16% the first 2-weeks back to $19.250. Equity markets looked lower to start following the disappointing results from likes of BAC, Citi, WFC, but still zero fear as the CBOE Volatility index, a measure of market fear, extends its losses, falling another 2% to its lowest levels since April 2022 below 18.50. Asia closed mixed with Japan underperforming – the 10yr JGB yield pushed through the 50bps ceiling/BOJ subsequently announced 2 unscheduled bond buying operations/another operation on Monday. Still no market believers that the Fed will keep its slow and steady rate hike agenda, despite several Fed speakers holding steady with their comments in recent days.

Economic Data

·     Import prices for December rose +0.4% vs. consensus decline of (-0.9%) and vs. Nov drop of (-0.7%), while export prices fell a greater (-2.6%), vs. est. drop of (-0.5%) and Nov (-0.4%). Dec year-over-year import prices +3.5% and export prices +5.0%

·     The University of Michigan Confidence sentiment prelim Jan 64.6 vs. consensus 60.5 and Dec-Final 59.7; current conditions index prelim Jan 68.6 vs. final Dec 59.4 and expectations index prelim Jan 62.0 vs. final Dec 59.9

·     University of Michigan surveys of consumers 1-year inflation outlook prelim January 4.0% vs final December 4.4% and surveys of consumers 5-year inflation outlook prelim January 3.0% vs final December 2.9%

Sector Movers Today

·     Transports: In airlines, DAL shares declined after announced a solid 4Q beat and guided 1Q revenues to be +14-17% vs 2019 levels (vs. consensus is +12%), but guided Q1 EPS in range of $0.15-$0.40, below the $0.55 est. as it forecasts a rise in non-fuel operating costs (affirmed year) – worse than rival AAL guide yesterday which had boosted the sector; Cowen noted rate expectations in 2023 for TL carriers called for a low single digit decline, while absorbing strong cost increases. Used truck prices have come down drastically since last Spring, though OEMs continue to experience new equipment delays. They view the results of this call as an overall negative for TL group (KNX, SNDR, WERN).

·     Hardware & Software: AAPL CEO Cook to see pay reduced by over 40% in 2023 to $49M in response to shareholder feedback; CRM was downgraded to Neutral from Overweight at Atlantic Equities and cut tgt to $140 from $200 citing execution concerns, the company’s C-suite management “exodus” and risk of slower than expected revenue growth for the downgrade; FTNT downgrade from Buy to Neutral at BTIG in Internet Security sector after speaking to 5 CISO’s, a former CIO / Advisory Practice, and an Industry Analyst recently to gain a better view on large enterprise firewall spending trends; NATI said that its board of directors has initiated a review and evaluation of strategic options, in consultation with its financial and legal advisors

·     Retail: BBBY is in talks with private equity firm Sycamore Partners for the sale of its assets, including its Buy Buy Baby stores, as part of a possible bankruptcy process, the New York Times reported; HBI updated Q4 financial outlook; announces departure of CFO and refinancing plans and said it expects Q4 net sales slightly above top end of its outlook range; PRPL rejected an offer from Coliseum Capital for $4.35 per share for the remaining shares they don’t own (they already own 44%) – proposal was announced back in September; Barclays said while Frontline Retail sales-to-inventory is improving, Wholesale sales-to-inventory spreads are worsening, with all but HBI and NKE widening; said see ongoing risk to 1H23 ests, especially those with negative YoY sales

Stock GAINERS

·     HBI +3%; updated Q4 financial outlook; announces departure of CFO and refinancing plans and said it expects Q4 net sales slightly above top end of its outlook range

·     NATI +18%; said that its board of directors has initiated a review and evaluation of strategic options, in consultation with its financial and legal advisors https://on.mktw.net/3kddOdg

·     SPCE +13%; shares rise after saying its commercial space flight service is on track for launch in Q2 2023; said planned upgrades completes and expects mothership to enter ground tests next week before commencing flight tests; also announced leadership changes

·     UNH +2%; Q4 adj EPS $5.34 vs. est. $5.17; Q4 revs $82.8B vs. est. $82.59B; said results helped by lower medical costs and boost from its Optum health services unit and backs year views

·     WEN +5%; posted prelim Q4 revs $536M vs. est. $518M and EBITDA $123M vs. est. $121M; raises dividend and new $500M share buyback; global comps 6.4% and US comps 5.9%

Stock LAGGARDS

·     CVNA -8%; after the WSJ reported the company is further cutting staff and faces a deeper slowdown in sales as it attempts to reduce costs and conserve cash to stay current on more than $7 billion of debt https://on.wsj.com/3H44zVC

·     DAL -5%; announced a solid 4Q beat and guided 1Q revenues to be +14-17% vs 2019 levels (Consensus is +12%), but guided Q1 EPS in range of $0.15-$0.40, below the $0.55 est. as it forecasts a rise in non-fuel operating costs (affirmed year) – worse than rival AAL guide yesterday

·     GM, Ford (F) -5%; auto shares weak on lower pricing in Tesla cars

·     NOC, LMT, RTX down around -2% after Goldman Sachs downgraded shares saying the US defense budget historically moves in ~decade long cycles and is up 70% cumulatively over the last 8-yrs indicating a peak

·     TSLA -3%; weighing on the auto industry overall (GM, F, RIVN, LCID) after announced some significant price cuts in the US and Europe ranging from 6% to 20% sticker reductions for Model 3/Y and various performance models

·     VICI -2%; 26.35M share Spot Secondary priced at $33.00

·     WFC -2%; reported a decline in profit Q4, but EPS topped ests as Q4 EPS $0.67 vs. est. $0.60; Q4 revs fell -5.7% y/y to $19.66B below the consensus est. $19.98B; Q4 NIM 3.14%, efficiency ratio 82%; Q4 Provision for credit losses was $957Mm