Mid-Morning Look

Friday, March 24, 2023

U.S. stocks fall, paring weekly gains for major averages following sharp declines in European stocks as banking fears instability weighed on financial into the weekend. With a risk-averse mood spreading through markets, bonds and the dollar rallied. Oil prices fell sharply, with WTI crude down as much as 4% before paring losses amid declining European banking shares and after U.S. Energy Secretary Jennifer Granholm said refilling the country’s Strategic Petroleum Reserve may take several years, dampening demand prospects. The Euro is amongst the weakest G10 currencies on the day, down about 1% vs the dollar at 1.0722 (from 1.083 close). Meanwhile the safe haven Yen is the only currency trading higher versus the broadly stronger Dollar. Treasury yields extend weekly drop as inversion curve between 2s and 10s narrows dramatically the last week. Defensive Staples, Utilities, and Healthcare among early leaders while profit taking seen early in weekly winners (tech, communications). Energy and Financials remain the biggest losers on the week. St. Louis Fed’s Bullard said this morning that the U.S. response to bank stress were “swift and appropriate,” allowing monetary policy to focus on inflation. He also noted inflation remains too high, U.S. Macro data “stronger than expected and noted regulators can do more as needed to contain financial stress. Said inflation expectations relatively low, a good sign for disinflation this year. Again the S&P 500 200-day MA (SPX) remains a key level, 3,932.

Economic Data

·     U.S. Durables orders for Feb fell (-1.0%) vs. consensus +0.6% and below Jan -5.0%; U.S. Feb Durables ex-transportation orders unchanged vs. est. +0.2% and Jan +0.4%; U.S. Feb Durables ex-defense orders fell (-0.5%) vs Jan (-5.6%); U.S. Feb Durables shipments fell (-0.6%) vs. Jan (-0.4%) and Feb nondefense cap shipments ex-aircraft unchanged vs Jan +0.9%.

·     S&P Services PMI Flash Actual 53.8 (best level since April 2022) vs. est. 50.3 and prior 50.6 and S&P Manufacturing PMI Flash Actual 49.3 (best since May 2022) vs. est. 47, and previous 47.3.

Stock GAINERS

·     ATVI +7%; after UK’s Competition and Markets Authority updated its provisional findings on MSFT’s acquisition of the company after new evidence showed the transaction will not result in a substantial lessening of competition in console gaming in the UK.

·     CURV +21%; posts better Q4 results – EPS loss (-$0.04) vs. est. loss (-$0.08); Q4 revs $301.2M vs. est. $295.5M while guides year sales $1.265B-$1.32B vs. est. $1.26B.

·     KMB +1%; as defensive consumer staples/food related stocks (CHD, CL, CLX, EL, K, KHC) outperform in flight to safety trade as weekly winners pare back gains.

·     NFLX +3%; as weekly outperformance continues (+5.5%); Bank America noted third-party data has indicated that subscriber results for US and Canadas (UCAN) will be significantly stronger than current consensus (+100k) and their estimate (-350k) of net adds for the region.

·     REGN +1%; upgraded from Hold to Buy at Jefferies and raise tgt to $925 from $675 saying Dupixent well exceeded buyside bar.

Stock LAGGARDS

·     COIN -3%; adding to yesterday losses as TD Cowen downgraded to Underperform saying they see increased risk to co’s operations following U.S. SEC threat to sue on Thursday.

·     CMA -4%; more weakness in banks early (ZION, C, BK), insurance names early (LNC, PFG), and lenders (COF, SYF) as contagion fears weigh on financials.

·     DB -6%; after a sharp rise in the cost of insuring its bonds against the risk of default. Credit default swaps on Deutsche Bank debt jumped the most on record Friday.

·     INCY -5%; after the FDA declines to approve extended-release version of its cancer drug Jakafi, which is already approved to treat bone marrow cancer, abnormally high RBC count in blood, and graft-vs-host disease.

·     OXM -10%; posted better than expected 4Q results and FY23 revenue guidance was above the Street’s pre-release view but guides Q1 EPS $3.60-$3.80 vs. est. $4.10.

·     SCHL -14%; Q3 EPS loss (-$0.57) on revs falling to $324.9M from $344.5M y/y; cuts FY23 adj EBITDA view to $175M-$185M; lowers FY23 revenue up about 4%, compared to up 8%-10%.