Mid-Morning Look

Wednesday, September 28, 2022

U.S. stocks are pushing higher as investors digest a barrage of market moving headlines and stories impacting various sectors/macro early as the S&P looks to snap its 6-day losing streak. Technology shares pressured initially following a Bloomberg report that AAPL is dropping plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize. Markets are also watching for the potential impact of Hurricane Ian that is hitting Florida with expected record flood surges in some parts. The larger story on a macro basis remains global Treasury yields falling after the Bank of England’s (BOE) surprise announcement that it’s buying bonds to help restore orderly market conditions. The 10-year Treasury note was trading about 17 basis points lower at around 3.80% (after hitting highs above 4% this morning), while the two-year Treasury yield fell about 18 bps to around 4.13%. The U.K.’s 30-year government bond yield plummeted to 4.09%, from over 5% before the announcement. The BOE said it would buy U.K. government bonds with long maturities “on whatever scale necessary” to restore order to the market after a large set of government tax cuts sent borrowing costs soaring. U.S. pending home sales fell -2.0% to 88.4 in August but fell -22% Y/Y. Commodity prices seeing a relief rally with gold and oil bouncing after weeks of pressure on inflation fears/strong buck. Ten of the eleven S&P sectors are trading higher early (tech lagging), with energy the biggest gainer.

Economic Data

·     Wholesale Inventories M/M for Aug P +1.3% vs. est. +0.4% and previous +0.6%; Retail Inventories M/M for Aug +1.4% vs. est. +1.0% and previous +1.1%; Advanced Goods Trade Balance for August (-$87.3B) vs. est. (-$89.0B) and previous (-$90.2B)

·     Pending Home sales index -2.0% vs. est. -1.4% while Aug Pending Home sales -24.2% Y/Y

Sector Movers Today

·     Hurricane Ian impact: Airlines canceled over 2,000 U.S. flights on Tuesday and Wednesday and some Florida airports halted operations; Disney and universal closed parks today and tomorrow; GNRC, PWR, HD, LOW shares active on rebuild concerns; could temporarily disrupt homebuilding operations in Tampa, Sarasota and Fort Myers based on its current path (Bofa said LEN 11% of closings, PHM 10% and DHI 6% highest exposure); all eyes on Property & Casualty sector as Hurricane Ian is expected to make landfall in Florida late Wednesday evening (ACGL, ALL, CB, TRV, WRB, RE, RNR); watch disruptions in cruise industry CCL, RCL, NCLH; BMO Capital notes INVH, SUI, MAA, UDR, ELS among REITs with highest exposure to impacted areas in Tampa, central Florida from Hurricane Ian. Orange juice futures on the ICE are limit-up early in trading. The most-active FCOJ contract is up 5.5% to $1.92 per pound, a 10-cent climb

·     Semiconductors: sector pressured early, especially names that supply to Apple after Bloomberg News reported the iPhone maker is dropping plans to increase production of its new iPhones this year as demand falters (TSM, QCOM, AVGO, SWKS among movers); INTC signaled yesterday the company would re-enter the graphics business, releasing a graphics card for gamers that is slated to be available on Oct. 12, competing in a market that has been dominated by AMD and NVDA (said cards will start at $329 – NVDA last week unveiled a new generation of graphics processors priced at up to $1,599); Barclay’s lowers ’23 ests given the sharper reset we have already seen in areas such as PC, Gaming, Consumer, and Handsets and anticipation that the rest of the Semi universe will follow as supply continues to free up

·     Insurance: all eyes on Property & Casualty sector as Hurricane Ian is expected to make landfall in Florida late Wednesday evening, most likely south of Tampa as a Category 3 storm. While insured loss estimates are far ranging ($10-30 billion), Wells Fargo said they do think the industry can absorb the loss. They said those best positioned to benefit from the upturn include RNR and ACGL (as well as RE and even WRB who has pointed to potentially increasing their cat reinsurance exposure even before Hurricane Ian). Bank America said it is not unreasonable to expect reinsurers like RE or RNR to have 2-3% market share of a major event, while ACGL and AXIS market shares are likely closer to 1%.

Stock GAINERS

·     BIIB +36%; after its Alzheimer’s drug lecanemab slowed cognitive and functional decline in a large trial of patients in the early stages of the disease (shares of other Alzheimer drug makers LLY, PRTA, ABOS among other Alzheimer treatment names jumping on the headlines)

·     DOCU +3%; announces restructuring plan, will cut current workforce by about 9% and sees charges of about $30M to $40M

·     ILMN +5%; upgraded from In Line to Outperform at Evercore/ISI and raised tgt to $250 from $170 noting ILMN is coming out of a multi-year underperformance vs. secular peers (EW, ISRG) and is about to enter a new product cycle

·     PAYX +2%; reported Q1 profit that beat expectations and raised the full-year outlook, citing notable strength in mid-market, retirement, and HR solutions businesses

·     NEM +4%; rebound in gold miners after Treasury yields and dollar slide on UK headlines

·     NFLX +3%; upgraded from Neutral to Overweight at Atlantic Equities and up tgt to $283 from $211 noting Netflix will launch its advertising supported initiatives in early November

·     THO +3%; quarterly results easily topped consensus views and said it plans to begin providing annual guidance and will give FY23 following the conclusion of the Dealer Open House

Stock LAGGARDS

·     AAPL -3%; following reports it is dropping plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize, Bloomberg News report said

·     ASTL -9%; provided FY2Q’23 guidance, indicating expected EBITDA of ~C $75m-80m, well-below Consensus of C$187m citing operational issues resulting in production shortfalls and falling prices for the weak results

·     BR -1%; mentioned as a short by Spruce Point Capital, saying they see 65% to 75% downside risk

·     PATH -5%; as co analyst day provided outlook for FY24 ARR growth of +20% y/y CC represents a meaningful deceleration from the guided +36% y/y CC for Q3 FY23 said bank America

·     QCOM -1%; semiconductors pressured early, especially names that supply to Apple after Bloomberg News reported the iPhone maker is dropping plans to increase production of its new iPhones this year as demand falters

·     VFC -2%; introduces the fiscal year 2027 long-term strategic growth plan, while sees FY adj. Operating margin about 12%, saw about 13.2% and cuts FY23 adjusted EPS view to $2.60-$2.70 from $3.05-$3.15