Early Look

Monday, May 1, 2023

U.S. futures are down slightly, erasing modest gains earlier after JPMorgan will buy most of First Republic Bank’s (FRC) assets in a last-ditch rescue led by U.S. regulators, marking the third major U.S. banking institution to fail in two months. The deal, announced early on Monday by regulators who said they had seized First Republic, will see the banking giant take $173 billion of loans, $30 billion of securities and $92 billion of deposits of the failed lender. S&P futures are just high of their mid-April highs of roughly 4,200 as stocks continue to push higher into this week’s FOMC interest rate policy meeting. The Fed is expected to boost the benchmark lending rate target by another 25-bps when they meet this Thursday, marking the 10th consecutive increase. For months on end, it has seemed like Wall Street is playing chicken with the Federal Reserve. Policymakers keep insisting interest-rate cuts aren’t coming anytime soon, yet futures traders still bet on them anyway.

We are more than half-way done with earnings season as some 265 out of 500 companies have reported earnings, of which 211 (84.4%) have reported an upside earnings surprise, averaging 6.79%. This week another 150 S&P companies expected to report. The Dow rose on Friday, notching its best month since January. On Friday, the Dow gained 0.80%, the S&P 500 rose 0.83%, and the Nasdaq was up 0.69%. For the week, the S&P 500 rose 0.9%, the Dow rose 0.9% and the Nasdaq rose 1.3%, erasing losses earlier in the week after finishing at highs Thursday and Friday. For the month, the S&P 500 rose 1.5%, the Dow rose 2.5% and the Nasdaq rose 0.04%. The Asian trading session was very quiet, with global Labor Day holidays across all of Asia, except Australia, and New Zealand. There are Labor Day holidays in the U.K., Germany, France, Italy, Sweden, and across much of the EU, and Switzerland today.

Market Closing Prices Yesterday

·     The S&P 500 Index jumped 34.22 points, or 0.83%, to 4,169.57.

·     The Dow Jones Industrial Average rose 272.29 points, or 0.81%, to 34,098.95.

·     The Nasdaq Composite gained 84.35 points, or 0.69%, to 12,226.58.

·     The Russell 2000 Index advanced 17.77 points, or 1.01% to 1,768.99.

Economic Calendar for Today

·     9:45 AM ET                  S&P Global Manufacturing PMI, Apr-F

·     10:00 AM ET                Construction Spending for March

·     10:00 AM ET                ISM Manufacturing PMI for April

Earnings Calendar:

·     Earnings Before the Open: ALX AMG BEN CNA GPN KBR L NCLH ON K SBT SJW SOFI WEC

·     Earnings After the Close: ADUS AIRC AL AMKR AMRC ANET BRX CACC CAR CF CHGG CLAR CNO CRC CSR CVI CYH ETWO FCPT FLS FLXS FMC FWRD GAIA HOLX INST INVH KMT LEG LSCC MED MFIN MGM MSA MSTA NSA OGS OTTR PLOW RIG RMBS SBAC SCI SFM SGRY SIBN SOI SON STRL SYK TEX TMDX TTI TWO UAN VICI VNO VNOM VRNS VRTX WWD ZI

World News

·     China’s manufacturing activity unexpectedly contracted in April, as the official manufacturing purchasing managers’ index (PMI) fell to 49.2 from 51.9 in March, the National Bureau of Statistics said Sunday.

·     China’s non-manufacturing PMI eased slightly to 56.4 in April, from 58.2 last month. And the composite PMI eased to 54.4 in April, from 57.0 last month.

·     Australia’s house prices rose for the second consecutive month in April, convincingly ending 10 consecutive months of decline. The 0.7% (MoM) lift in April follows last month’s 0.8% lift. But leaves annual house prices -8.3% (YoY).

Sector News Breakdown

Consumer

·     General Motors (GM) upgraded to Overweight from Equal Weight at Morgan Stanley.

·     Carvana Co (CVNA) shares rise pre-mt after Bloomberg reported the co’s creditors holding about 90% of the co’s bonds have proposed a debt-for-equity swap to improve the company’s liquidity.

·     Li Auto Inc. (LI) said the company delivered 25,681 vehicles in April 2023 and cumulative deliveries of li auto vehicles reached 335,599 as of end of April.

·     Nio (NIO) announced its April delivery results. Nio delivered 6,658 vehicles in April, representing an increase of 31.2% year-over-year. The deliveries consisted of 1,713 premium smart electric SUVs, and 4,945 premium smart electric sedans.

·     XPeng (XPEV) delivered 7,079 Smart EVs in April; launched in March, the new P7i sports sedan continues to gather order intake momentum. The company is significantly ramping up production which will accelerate customer deliveries of the P7i soon.

·     Zillow Group (ZG) upgraded to Market Perform from Underperform at Bernstein.

Energy, Industrials and Materials

·     KBR (KBR) Q1 EPS $0.67 vs. est. $0.58; Q1 revs $1.7B vs. est. $1.61B; Q1 backlog and options for the quarter totaled $20.9B; reaffirms FY23 adjusted EPS $2.76-$2.96 vs. est. $2.88 and backs FY23 revenue view $6.9B-$7.1B (consensus $6.99B).

Financials

·     JPMorgan (JPM) announced it has acquired the substantial majority of assets and assumed the deposits and certain other liabilities of First Republic Bank (FRC) from the FDIC after having being put into receivership earlier. JPMorgan said it will assume all of First Republic’s $92 billion in deposits—insured and uninsured. It is also buying most of the bank’s assets, including about $173 billion in loans and $30 billion in securities. JPM will make a payment of $10.6b to the FDIC.

·     CNA Financial (CNA) Q1 EPS $1.19, in-line with consensus and Q1 book value per share of $32.00; Property & casualty combined ratio 93.9% vs. 91.9% y/y; Catastrophe losses $52 million.

Healthcare

·     Astellas Pharma Inc. (ALPMF) agreed to acquire Iveric Bio (ISEE) for $5.9 billion, paying $40 a share, representing a 22% premium to Iveric’s closing price on Friday. https://bit.ly/3NrwO4d  

·     Biogen (BIIB) upgraded to Buy from Neutral at Guggenheim and raised tgt to $350.

·     Doximity (DOCS) downgraded to Equal Weight from Overweight at Wells Fargo.

·     Kenvue Inc., the consumer spinoff from Johnson & Johnson (JNJ), is set to sell shares in an initial public offering in the coming week and the IPO looks like a winner, Barron’s reported.

Technology, Media & Telecom

·     Comcast (CMCSA) upgraded to Buy from Neutral at Bank America and raise tgt to $49 from $44.

·     Check Point (CHKP) Q1 EPS $1.80 vs. est. $1.74; Q1 revs rose 4.3% y/y to $566.2M vs. est. $568.88M; Q1 operating income $200M.