Closing Recap

Tuesday, April 04, 2023

Index	Up/Down	%	Last
DJ Industrials	-198.11	0.59%	33,403
S&P 500	-23.83	0.58%	4,100
Nasdaq	-63.13	0.52%	12,126
Russell 2000	-32.64	1.81%	1,769

 

Equity Market Recap

·     Is bad news good news or bad news? Well, it depends. At 10am when factory orders and job openings data both came in light, stocks popped on expectations for a less aggressive Fed and bad news was good news. By midday, US equities were broadly in the red as investors shifted attention to recession prospects over the immediate Fed implications and bad once again became bad. Consistent with the shift in focus, Industrials, Energy and Materials paced the fade, while Utilities and Healthcare held on with modest gains. Also consistent with recession concerns, gold popped again before finding a level to hold around $2,035 into the afternoon.

·     From a data perspective, once again there was something for everyone. Goldman’s flow trader, John Flood, shared that in the three months following peak Fed funds rates, the S&P 500 has returned an average of +8%, rising in five of the six occasions. In the twelve months following peak Fed funds, the return averaged +19%, climbing in five of six and gaining more than +10% in each. On the other hand, @KobeissiLetter highlights most layoffs have cited economic uncertainty as the primary reason, retail giants have called out inflation as weighing on consumer spending and two years of failed attempts by the Fed to lower inflation may have left recession as the only option. Meanwhile, @DataTrekMB managed to merge the two by reminding history suggests gains in April and 2Q after a strong 1Q but the path to incremental gains is narrow and depends on sustainability of corporate earnings along with easing inflation.

·     Sector-wise, there wasn’t much bounce heading into the final hour of trading. In a day dominated by recession fears, Utilities (XLU, +0.30%) was the only gainer, followed by modest declines in Communication (XLC, -0.03%) and Healthcare (XLV, -0.13%). Laggards included the more cyclical sectors, with Industrials (XLI, -2.17%), Energy (XLE, -1.66%), Materials (XLB, -1.52%) and Financials (XLF, -1.20%) leading the way lower. Growth and Value both faded, with Value lagging on cyclical exposure (-0.97%) vs Growth (-0.49%). Breadth weakened into late afternoon, with decliners leading advancers by about 2.6:1.

 

Economic Data:

·     JOLTS Job Openings for February actual 9.931M (lowest since April 2021), below estimates 10.5M and well below the prior month reading of 10.824M

·     Factory orders for February fell (-0.7%) vs. est. decline (-0.5%) but better than Jan (-2.1%); Feb factory orders ex-transportation (-0.3%) vs Jan +0.8% and orders ex-defense -0.5% vs Jan -2.3%. U.S. Feb Durables orders unrevised at -1.0%; U.S. Feb inventories/shipments ratio 1.49 months’ worth vs Jan 1.48 months.

 

Commodities

·     June gold settled +$37.80/oz, or +1.88%, to $2,038.20 to mark the highest active futures settlement in more than a year. A roll in the US Dollar and Treasury yields followed weaker-than-forecast job openings and factory orders and helped fuel the move as investors bolstered expectations for a recession and a pause in the rate-hike cycle at the Fed.

·     After overnight gains, May crude oil futures slid on weaker economic data and US recession fears. The active contract went negative into midday before managing a bounce to finish flattish. WTI May crude futures settled +$0.29, or +0.36%, to $80.71/bbl. Brent, similarly, rallied off a fade to settle +$0.01, or +0.01%, to $84.94/bbl. Yesterday’s OPEC production headlines look to have been drowned out very quickly today as investors once again focused on macro data, the Fed and recession prospects.

 

Currencies & Treasuries

·     Treasury yields decline, giving up their morning gains, as February’s JOLTS report showed some easing in the labor market. The 10-year falls 8-bps to 3.345% and the two-year loses 14-bps to 3.84%. Most of the decline came after job openings were reported at 9.9M, down from 10.6M in January. The British pound rose to a new 10-month high against the dollar on Tuesday, and the euro reached its highest in two months, as the U.S. currency continued to suffer from market bets that the end of the U.S. rate-hiking cycle is near.

 

 

Macro	Up/Down	Last
WTI Crude	0.29	80.71
Brent	0.01	84.94
Gold	37.80	2,038.20
EUR/USD	0.0058	1.0953
JPY/USD	-0.80	131.61
10-Year Note	-0.084	3.348%

 

 

Sector News Breakdown

Consumer

Autos:

·     Ford (F) said Q1 Total vehicle sales of 456,972, up 10.7% and said Q1 EV sales up 41% on sales of 10,866 electric vehicles; F-150 lightning, Mustang Mach-E production continues to scale to targeted annual run rates of 150,000 units & 210,000 units, respectively, by year-end.

·     EVGO awarded $6.6 million by California energy commission to deploy more than 100 new dc fast charging stalls across 17 locations.

·     TSLA sold 88,869 units of China-made electric vehicles (EV) in March for both domestic sales and exports, up 35.0% y/y, data published by the China Passenger Car Association (CPCA) showed.

 

Consumer Staples & Restaurants:

·     In food & beverage: Piper teen survey report highest intentions to eat more or the same amount of Cheez-It (K) and Goldfish (CPB); Goldfish (CPB) remained teens’ most preferred snack brand; NAPA 6M share Spot Secondary priced at $15.35.

·     In restaurants: CMG tgt raised to $1,940 at Oppenheimer noting it has been a top restaurant outperformer in 2023, with shares up +24% year-to-date vs S&P’s +7% and they remain attracted to CMG’s risk/reward following our updated analysis into 1Q23 earnings (4/25). Piper teen survey showed: Chick-fil-A remains the No. 1 favorite restaurant at 13% share (-200 bps Y/Y), followed by SBUX at 12% (+100 bps Y/Y) and CMG at 7% (-100 bps Y/Y).

·     Piper teen survey in beauty: ELF maintained its position as the No. 1 cosmetics brand, gaining 900 bps of share Y/Y to 22% of female teens; ULTA remained the No. 1 preferred beauty destination at 41% share, and it also held the strongest beauty loyalty membership at 63% of female teens with a membership

Retailers:

·     Piper teen survey showed: 57% of teens cite AMZN as their No. 1 favorite e-comm site; $NKE, SHEIN, $LULU and PacSun took spots No. 2-5; NKE remains the No. 1 brand for all teens in both apparel (33% share) and footwear (61% share); UGG (DECK) broke into the top 10 favorite footwear brands at No. 7, ranking No. 5 with all female teens; CROX ranked No. 6 and Hey Dude ranked No. 8 favorite footwear

·     BURL upgraded from Hold to Buy at Loop Capital and raise tgt from $220 to $225 on higher ests on better-looking stores; says BURL’s value proposition for its lower-income consumers is improved, and the company’s new signage is calling out opening price points across categories.

·     ETSY upgraded to overweight at Piper saying that the company should see a reacceleration of active buyer growth over the medium term, which can support continued share gains.

·     KIRK announces CEO retirement and interim transition plan. CEO Woodward will retire end of May and Ann Joyce (board member) will be interim.

·     PVH positive mention at UBS, says remain bullish and reit Buy and raise tgt to $115 from $92 as think PVH has the brand strength and balance sheet to drive earnings growth over the long term, despite multiple macro headwinds.

·     VSTO discloses over $50M cost reduction and earnings improvement program, which includes office closures, spending cuts, EBIT improvements and headcount reductions across brands and corporate teams.

 

Energy, Industrials and Materials:

·     In MLPs: OKE upgraded from Neutral to Buy at Citigroup saying they believe OKE is well positioned to achieve the high end of its ’23 guidance range and don’t believe the Street consensus properly reflects OKE’s torque to volume growth, particularly following the recently announced OPEC+ output cut.

·     In utilities & solar: DUK prices offering of $1.5 billion of 4.125% convertible senior notes due 2026; Oppenheimer positive on solar saying ENPH, SEDG, RUN, CSIQ, HASI, and FSLR are preferred ways to play renewables growth saying stocks setting up for a rally. STEM downgraded from Neutral to Underperform at Bank America and cut tgt to $5 rom $9 saying confidence in estimates is increasingly strained.

·     In industrials: AYI Q2 adjusted EPS $3.06 vs. est. $2.72; Q2 revs $943.6M vs. est. $958.47M; company’s intelligent-spaces unit posted sales of $58.2M, up 16.4% from a year earlier; LNN Q2 EPS $1.63 vs. est. $1.53; Q2 revs $166.2M vs. est. $188.27M; MSM Q2 adjusted EPS $1.45 vs. est. $1.34; Q2 revs $961.6M vs. est. $934.07M; reaffirms FY23 adjusted operating margin view.

·     In aerospace/defense: BA was downgraded to Sell with $180 tgt at Northcoast; AVAV upgraded from Outperform to Strong Buy and raise ests at Raymond James and raise tgt to $130 from $105 saying analysis suggests that consensus models have miscalculated across 3- vectors creating a significant delta between reality and forecasts; VORB plunges after the satellite launch firm tied to British billionaire Richard Branson filed for bankruptcy.

·     In transports: In rails: CSX and NSC upgraded to equal weight from underweight at Morgan Stanley saying they remain cautious on fundamentals for US Rails but falling numbers and stock prices have reset positioning enough to put the stocks closer to fair value, in their view – said believe CSX and NSC could also see the strongest outperformance in any mean reversion trade later in the year. In LTL trucking (SAIA, ODFL), Deutsche Bank said after speaking to a private national LTL carrier yesterday regarding real time demand trends, the company saw a "significant rebound" in volumes in the last two weeks of March, with the beginning of March volume down 12% year over year but ending the month down just 4% in the last couple weeks

 

Financials

Banks, Brokers, Asset Managers:

·     JPM CEO Jamie Dimon said the banking "crisis" that bubbled up last month isn’t over yet. "Even when it is behind US, there will be repercussions from it for years to come," Dimon said in his annual letter to JPMorgan Chase shareholders on Tuesday. The jitters surrounding the collapse of Silicon Valley Bank, and Credit Suisse in Europe, were caused by risks "hiding in plain sight," he said, and "this wasn’t the finest hour for many players."

·     Auto loan and credit card interest rates just hit a new record high. Average interest rates: Credit Card: 24.5%, Used Cars: 14.0%, New Cars: 9.0%. Meanwhile, we have record levels of debt: Total Household Debt: $16.5 trillion, Auto Loans: $1.6 trillion, Credit Card Debt: $986 billion, and Student loans just hit a record $1.6 trillion.

·     Regarding the flight out of banks deposits: GordonJohnson19 tweeted: …in the past 50 years, only 9 quarters had negative deposit flow (i.e., ~4.5% of the qtrs in all of history); and, four of those qtrs (i.e., 44% of the total) were Mar. 2022-to-Mar. 2023. Moreover, all prior year outflows (pre-Mar. 2022) sum to $43.2bn. Yet, the past year of quarterly deposit outflows equals $406.9bn, or 9x all of history. And, if banks keep robbing folks who put their money in banks blind with recklessly low savings rates, the outflows will likely continue.

·     Banks: Deutsche Bank previews bank earnings saying they remain cautious as the fundamental backdrops remains challenging on increased macro uncertainty, increased regulatory risk, normalization of credit and declining net interest margins; lowered estimates by 6% for FY23 and 10% for FY24 on average; are below consensus on average by 4% for FY23 and 8% for FY24.

·     In Insurance: PRU upgraded from Neutral to Overweight at JPMorgan with $114 tgt citing the company’s superior business mix, healthy balance sheet, negative sentiment, and the stock’s significant underperformance. CRBG upgraded to Buy at Goldman Sachs following the recent significant underperformance as believe concerns around its CRE portfolio are overblown – said heading into earnings, they favor AIG (growth in E&S property), HIG (conservatively booked loss ratios), ALL (subsiding reserve charges should reflect in margins).

·     In financial services: NCNO downgraded to equal weight from overweight at Morgan Stanley saying beyond SIVB / SBNY medium-term revenue risk, they expect challenging end market dynamics to weigh on F1H24 bookings performance and ultimately, FY25 results. William Blair provides update on the bank-tech market (ALKT, FIS, FISV, JKHY, MLNK, NCNO) following the sell-off in bank-tech stocks saying if history is any guide, they believe that bank tech financial results hold-up better than stock price performance.

 

Healthcare

Biotech & Pharma:

·     ABUS and Genevant Sciences file patent infringement lawsuit against PFE

·     ASND downgraded to equal-weight from overweight at Morgan Stanley on increased regulatory uncertainty, following an FDA setback for the Copenhagen- headquartered drugmaker’s TransCon PTH.

·     EHC shares rallied after Mizuho noted CMS proposal removes a major overhang on EHC – the lack of a transfer rule mention in the CMS proposal is a big positive.

·     ONCT said it was closing two studies in a move that will extend its cash runway, prompting multiple analysts to downgrade their recommendations on the stock.

·     VERU said its drug to treat influenza-induced acute respiratory distress syndrome (ARDS) significantly reduced lung inflammation in a preclinical animal study.

 

Healthcare Services & MedTech movers:

·     In MedTech: BFLY received FDA clearance for a tool to aid assessment of abnormal lung conditions, sending shares higher; HCAT upgraded to Overweight at Wells Fargo saying they like the risk/reward setup as shares appearing to price in the Services revenue mix dynamic consensus had missed ahead of 4Q.

 

Technology

Internet, Media & Telecom

·     Piper teen survey showed: TikTok declined as the favorite social platform (37% share) by 100 bps vs. Fall 2022. SNAP was No. 2 at 27% (-300 bps vs. Fall 2022) while No. 3 Instagram (META) gained share at 23% (+300 bps vs. Fall 2022). Teens spend 31% of daily video consumption on NFLX (-100 bps vs Fall ‘22) and 28% on YouTube (GOOGL) (-100 bps vs Fall ‘22); Phone is the No. 1 preferred method by teens for customer service interaction; Text/SMS shows the best multi-year gains; 87% of teens own an iPhone (AAPL); 88% expect an iPhone to be their next phone; 35% of teens own an Apple Watch

·     In Cable and wireless: KeyBanc upgraded WOW and CMCSA and downgraded CHTR saying the convergence between wireless, and broadband is becoming destructive to all, but near-term dynamics favor cable.

·     In leisure: AMC shares slide as settles shareholder litigation, paving the way for its APE conversion to move forward; will file for increasing the number of class A shares and doing a 1-for-10 reverse split.

·     In advertising: CDLX rises after raising Q1 revenue view to $63.5M-$66.5M from $54M-$63M (est. $57.9M) saying shift to a product-led operating structure is already yielding positive results.

 

Hardware & Software movers:

·     In AI sector: shares of AI tumble over 26% after cautious comments by short seller Kerrisdale Capital saying they sent a letter to C3.ai’s auditor Deloitte, the audit committee & SEC documenting serious accounting issues. https://bit.ly/3KzoNss

·     In software: PATH, SMAR were both added to Truist “Profit Prioritization Picks” list, w/ the firm seeing strong growth potential; both stocks remain Buy-rated.