Mid-Morning Look

Monday, November 27, 2023

U.S. stocks are trading lower for only the 4^th time in November, with the S&P 500 index down slightly as the holiday and shopping hangover from this weekend carries into Cyber Monday. The retail spending figures this weekend were strong for both brick-and-mortar as well as online sales, noted in early stock trading for the likes of AMZN (highest levels since April 2022), SHOP, and others. Treasury yields edge lower while the dollar is flat, holding its prior week decline. The dollar index (DXY) slipped to 103.266 – last week’s Tuesday low just below 103.178 before bouncing while gold climbs to six-month highs. Oil prices dropped more than a buck earlier before rebounding, but still down about -7% this month and on pace for the 2nd straight monthly loss after losing -10.76% in October. The CBOE Volatility Index (VIX) rose over 5% earlier above 13 before pulling back, after hitting lows 12.45 last Friday, below the 9/15 low of 12.68 and lowest since 1-24-20. A quiet day with no major earnings or Fed speakers and lone piece of economic data was a weaker Housing report (see below).

Economic Data

·     Oct single-family home sales fell -5.6% to 679K unit ann. rate, below consensus of 723K and prior downwardly revised 719K (from 759K); Oct home sales Northeast +13.2%, Midwest -16.4%, South +2.1%, and West -23.3%; Oct new home supply 7.8 months’ worth at current pace vs Sept 7.2 months; Oct median sale price $409,300, -17.6% from Oct 2022 ($496,800).

Sector Movers Today

·     Retail Spending statistics for Holiday: Adobe said Black Friday online sales in the U.S. reached a record $9.8B, a 7.5% y/y increase and expects consumers to spend another $10B over the weekend and $12B on Cyber Monday. Online sales reached $70.9B globally, an 8% increase from Black Friday last year, according to data from Salesforce. Black Friday global online sales were $65.3 billion last year. Adobe estimated that a record $5.6 billion was spent online on Thursday, up 5.5% year over year. Shopify (SHOP), which counts both online and offline sales from its merchants, said global sales increased 22% year over year to a record $4.1 billion through Black Friday. BIGC disclosed that GMV grew 6% y/y on Black Friday, driven by a 5% increase in total orders and a 1% increase in Average Order Volume. This growth shows steady progress but is still below the overall Black Friday E-commerce growth rate of 7.5% y/y, according to Adobe Analytics

·     In Paper & Packaging: GPK downgraded to Market Perform from Strong Buy at Raymond James as they expect share price performance and valuation to remain constrained amid 2024 price-cost pressures. In the Timber Sector, Raymond James downgraded PCH and WY to Market Perform from Strong Buy following its Q323 results and its recent model update, largely to account for its new and more conservative projections for near-term lumber pricing.

·     In Freight/Package Delivery: the WSJ noted AMZN surpassed both UPS and FDX in parcel volumes, delivering more packages to U.S. homes in 2022 than UPS, after eclipsing FedEx in 2020, and it is on track to widen the gap this year, according to internal Amazon data. The U.S. Postal Service is still the biggest parcel service by volume. Before Thanksgiving this year, Amazon had already delivered more than 4.8 billion packages in the U.S., and its internal projections predict that it will deliver around 5.9 billion by the end of the year.

·     In Truckers/Rails: Canadian rails CP downgraded to Hold from Buy (tgt to $77 from $85), and CNI downgraded to Hold from Buy all at Deutsche Bank saying for the Canadian Rails, there are tangible data points that put them increasingly in a negative light, including growing concerns on Canadian consumers Canadian mortgages adjust every 5 years, with no 30 year fixed rates, Canadian grain headwinds starting in Q2’24. Separately, Deutsche Bank downgraded ODFL to Hold from Buy (tgt to $386 from $475) in truckers.

Stock GAINERS

·     AFRM +14%; after Adobe Analytics said shoppers are relying more on flexible payment methods, also known as Buy Now, Pay Later as Adobe noted that BNPL orders rose 72% w/w from Nov. 18 to Nov. 24. BNPL revenue increased 47% in that period, Adobe said.

·     AMZN +1%; trades to highest levels since April 2022 as the WSJ noted AMZN surpassed both UPS and FDX in parcel volumes; and Online sales reached $70.9B globally, an 8% increase from Black Friday last year, according to data from Salesforce.

·     CCI +4%; after activist investor Elliott Investment Management confirmed the WSJ report overnight that it has taken a more than $2 billion stake in the company and is expected to push for change at the owner of wireless towers. https://tinyurl.com/bdhkr5p8

·     COIN +2%; moves above to $118 to highest levels since May 2022

·     SHOP +4%; which counts both online and offline sales from its merchants, said global sales increased 22% year over year to a record $4.1 billion through Black Friday.

·     STX +2%; at 52-week highs along with strength in WDC, MU after Morgan Stanley said they are raising numbers to reflect double digit ASP growth in Q4 and Q1 for both DRAM and NAND as sees positive preannouncement potential for MU

Stock LAGGARDS

·     ALB -4%; LTHM, LAC decline as Charlie Bilello tweets: “Batter-grade lithium prices are down over 70% from their peak in January as a result of weaker EV demand and the slowdown in China.”

·     FL -3%; downgraded to Sell from Neutral at Citigroup with $18 tgt ahead of earnings as anticipate Q3 EPS of $0.10 (vs cons $0.23) based on weaker comps.

·     GEHC -3%; downgraded to Sell from Neutral at UBS and cut tgt to $66 from $86 saying soft orders, tough comps and a lack of prices rises puts UBS ests below 2024 consensus.

·     LCID -2%; was downgraded from Buy to Hold at Needham after lowering the unit estimates in its model post Q3 results.

·     ODFL -1%; Deutsche Bank downgraded to Hold from Buy (tgt to $386 from $475) in truckers.

·     ROIV -4%; said that the Phase 2 study of its drug brepocitinib for the treatment of moderate to severe active lupus didn’t meet its primary endpoint.