Early Look

Friday, May 19, 2023

U.S. stock futures are looking to add to yesterday’s strength, as Spuz up a modest 4 points at 4,216 (4,212 low 4,225.50 high) after breaking above the 4,200 level yesterday (had briefly broke and failed that level May 1st) to its best levels in 9-months. The Nasdaq 100 rose 1.85% on Thursday to close at new 52-week highs amid another surge in large cap mega tech. Shares of GOOGL, AMAT, BKNG, AVGO, LRCX, META, MSFT, NVDA, ORCL, SNPS, TTWO were some of the names hitting fresh 52-week highs in tech. Also, a handful of homebuilders and building product names (BZ, BLDR, EXP, MLM, PHM, TOL) made 52-week highs despite rising Treasury yields and chances of rate cuts this year slimmed after bullish jobs data Thursday. Stocks advanced on Thursday as Wall Street traders kept focus on debt ceiling negotiations as stocks broke out of their recent tight trading range, sharply to the upside. European stocks rally for a second day with the German DAX on course for a record close as the mood around the US debt ceiling negotiations continues to improve The U.S. 2-yr yield rose 10-bps to about 4.25 on Thursday (flattish this morning), up a total of nearly 37 bps in gains over the past trading week. The continued selloff in Treasuries (as yields rise) and rise in dollar come amid a multitude of possible catalysts such as ongoing strength in the jobs market, Fed speakers out hawkish every day, risk appetite increasing, optimism over a debt limit deal, and an unwind of haven trades. In Asian markets, The Nikkei Index gained 234 points to 30,808 (highest since 1990), the Shanghai Index fell -13 points to 3,283, and the Hang Seng Index declined -276 points to 19,450. In Europe, the German DAX is higher by 95 points to 16,258 (on track for record high), while the FTSE 100 rises 33 points to 7,775.

Market Closing Prices Yesterday

·     The S&P 500 Index jumped 115.20 points, or 0.94%, to 4,198.01.

·     The Dow Jones Industrial Average rose 115.20 points, or 0.34%, to 33,535.97.

·     The Nasdaq Composite surged 188.27 points, or 1.51%, to 12,688.84.

·     The Russell 2000 Index advanced 10.36 points, or 0.58% to 1,784.86.

Economic Calendar for Today

·     8:45 AM ET           Fed’s Williams Speaks at Monetary Policy Conference

·     11:00 PM ET         Fed Chair Powell, Former Chair Bernanke Speak on Policy Panel

·     1:00 PM ET           Baker Hughes Weekly rig count data

Earnings Calendar:

·     Earnings Before the Open: DE DXPE FL RBC

World News

·     Japan national CPI YoY rose 3.5% in April, as expected, and versus 3.2% prior. CPI YoY ex fresh food rose 3.4% as expected, and versus 3.1% prior. CPI YoY ex fresh food, Energy rose 4.1% vs 4.2% expected, and 3.8% prior. This was the fastest annual pace for core-core since Sept 1981.

·     The New York Fed recently released its first-quarter report on household debt, revealing that American households now owe someone a staggering $17 trillion. The majority of that is tied up in home mortgages, with the remainder split across student loans, car loans and credit cards. Credit card debt remained at a record level of $986 billion. This is the first time in over two decades that credit card balances haven’t decreased in the first quarter.

Sector News Breakdown

Consumer

·     Cavco industries (CVCO) 4Q EPS $5.39 vs est. $5.10 on revs $476Mm vs est. $482.92Mm.

·     Farfetch (FTCH) Q1 adj EPS loss (-$0.16) vs. est. loss (-$0.42); Q1 revs rose 8% y/y to $556.4M vs. est. $512.72M; Q1 2023 GMV rises +0.1% y/y or 4% y/y at constant currency to $931.7M; reaffirms FY23 adjusted EBITDA margin view 1%-3% and GMV view roughly $4.9B.

·     Flowers Foods (FLO) 1Q adj EPS $0.38 vs est. $0.38 on sales $1.534B vs est. $1.55B, adj EBITDA $151.1Mm vs est. $154.87Mm; guides FY sales $5.086-5.141B below est. $5.184B, adj EBITDA $494-528Mm vs est. $526.35Mm, adj EPS $1.15-1.25 below est. $1.25.

·     Ross Stores (ROST) 1Q EPS $1.09 vs est. $1.06 on sales $4.495B vs est. $4.507B, repurchased 2.2Mm shares for $234Mm; guides 2Q comps relatively flat, EPS $1.07-1.14 vs est. $1.25, see high level of uncertainty in macro and geopolitical environments; remain on track to repurchase $950Mm stock during FY23.

·     Noodles & Company (NDLS) announced the resignation of Chief Financial Officer, Carl Lukach, effective June 9, 2023. Mr. Lukach has accepted a similar role at a company in the retail industry.

Energy, Industrials and Materials

·     Deere & Co (DE) Q2 adj EPS $9.65 vs. est. $8.59; Q2 revs rose 30% y/y to $17.38B vs. est. $14.82B; raised its 2023 net income range to $9.25B-$9.5B, above its prior $8.75B-$9.25B forecast; Q2 production and precision agriculture sales jumped 53%, small agriculture and turf sales increased 16% and construction and forestry sales rose 23%.

·     Warren Buffett’s Berkshire Hathaway Inc acquires more shares of Occidental (OXY), boosting its stake in OXY to 24.4%; the top shareholder now owns about 217.3M shares worth about $12.7B.

·     Alcoa Corp. (AA) said members of the United Steelworkers have ratified a new collective bargaining agreement that covers employees at its aluminum smelters in the United States

·     TechnipFMC (FTI) has been awarded a significant contract by Equinor to provide riserless light well intervention (RLWI) services on the Norwegian Continental Shelf.

·     Kadant (KAI) authorizes share repurchase of up to $50M.

·     Libya aims to boost oil production by about 8% by December, a level that would catapult it to the highest in over a decade, reported Bloomberg.

Financials

·     Federal Reserve Chairman Jerome Powell will sit down with his predecessor, Ben Bernanke, for a question-and-answer session at the Thomas Laubach Research Conference in Washington later this morning. The event will mark Powell’s first public appearance since the Fed’s last policy meeting on May 3, when the Central bank lifted its benchmark Fed Funds rate for the tenth consecutive time, taking it to a 2007 high of between 5% and 5.25%.

·     Fed emergency bank loans rose to $96.1b from $92.4b the prior week.

Healthcare

·     Thermo Fisher Scientific (TMO) said the FDA approved its Preeclampsia blood test; said that the blood test it already sells in Europe could be available in the U.S. soon. Its introduction could transform prenatal care in the U.S., doctors and maternal-health advocates said.

·     2seventy bio (TSVT) presents late-breaking results for SC-DARIC33, an investigational CD33-targeting CAR T in pediatric and young adults with relapsed or refractory acute myeloid leukemia. Results of preliminary correlative analysis from the PLAT-08 study show rapamycin-regulated in vivo expansion and activation of SC-DARIC33 T cells as well as concurrent anti-CD33 activity.

Technology, Media & Telecom

·     Applied Materials (AMAT) 2Q adj EPS $2.00 vs est. $1.84on revs $6.63B vs est. $6.378B, adj gr mgn 46.8%, adj op mgn 29.1%; guides 3Q net sales approx $5.75-6.55B vs est. $6.019B and adj EPS $1.56-1.92 vs est. $1.65.

·     Samsung Electronics Co will not be replacing Google (GOOGL) with Microsoft Corp’s (MSFT) Bing as the default search on its smartphone anytime soon, The Wall Street Journal reported.

·     Apple (AAPL) has restricted use of ChatGPT and other external artificial intelligence tools as it develops its own similar technology, according to a document reviewed by The WSJ and people familiar with the matter. Apple is concerned workers who use these types of programs could release confidential data, according to the document. Apple also told its employees not to use Microsoft-owned GitHub’s Copilot, which automates the writing of software code.

·     DXC Technology (DXC) 4Q adj EPS $1.02 vs est. $1.03 on revs $3.59B vs est. $3.619B, adj EBIT mgn 8.9%; guides 1Q organic revs -2% to -1% vs est. -2.5%, adj EBIT mgn 7.5-8.0%, adj EPS $0.80-0.85 vs est. $0.92, FCF $(12)Mm; sees FY organic revs -0.5% to +0.5% vs est. -0.02%, adj EBIT mgn 8.0-8.5%, adj EPS $3.80-4.05 vs est. $3.98, FCF $900Mm.

·     Globant (GLOB) Q1 EPS $1.28 vs. est. $1.27; Q1 revs rose 17.7% y/y to $472.4M vs. est. $471.1M; Q1 IFRS gross profit margin was 35.6% compared to 38.0% y/y; sees FY revs at least $2.07B, in-line with prior view; Cash and cash equivalents and Short-term investments were $284.8M.

·     TE Connectivity (TEL) upgraded to Outperform from Neutral at Credit Suisse and raise tgt to $138 from $136 citing its resilient auto production, rising EV mix, relatively low exposure to communications markets, margin tailwinds from restructuring, improving FX.