Closing Recap

Friday, April 28, 2023

Index	Up/Down	%	Last
DJ Industrials	272.79	0.81%	34,098
S&P 500	34.22	0.83%	4,169
Nasdaq	84.35	0.69%	12,226
Russell 2000	17.77	1.01%	1,768

 

 

 

 

 

 

 

 

 

Despite some early volatility, no bad news turned out to be good news for the markets. Sure, AMZN had some mixed-bag commentary following earnings last night and the stock was down 4%, but more broad economic reports were generally in-line and helped boost investor spirits overall. Core PCE, Consumer Spending, University of Michigan Sentiment and Chicago PMI were all close enough to expectations, or better, so as not to trigger large shifts in Fed or recession expectations. We still need to get through the remainder of earnings season, but so far big tech at least has yet to sound any major alarm bells and the markets have been generally appreciative. A focus on problems and potential receivership at FRC seems to be the only real negative of the day, resulting in multiple trading halts.

 

On the data side, relatively in-line PCE numbers seemed to lock in expectations for a +25bps move by the Fed next week, with the odds around 85%. Interestingly, expectations for a +25bps move in June are holding around 20%. That said, June remains the implied peak for 2023 with at least two cuts now built into market hopes/expectations for the back half. To this point, while @charliebillelo focuses on the PCE price index moving to its lowest level since June 2021, Richard Bernstein @RBAdvisors calls the core PCE deflator stubbornly elevated and says, “Dream on about an imminent #pivot again supplying cheap and abundant #liquidity to fuel #speculation.” On a different subject, @bespokeinvest highlighted recent performance in semis, noting there have only been eight other months in the past 20 years with semis underperforming the S&P500 by more than 7.5 percentage points.

 

Into early afternoon, from a sector view, everyone was happy but Utilities (XLU, -0.15%). The remaining sector groups were all in the green, with Energy (XLE, +1.55%), Materials (XLB, +1.17%) and Real Estate (XLRE, +0.91%) leading the way. Other laggards, while still positive, were Consumer Discretionary (XLY, +0.26%) and Staples (XLP, +0.53%). The S&P was just off highs after several attempts to break through the $4,186 (Spuz) resistance pivot. Every sector but Utilities remained positive on the day. Breadth was a bit better than 2:1 in favor of advancers and both value and growth were higher, with Value +0.66% (Russell 1000 Value) vs Growth +0.44% (Russell 1000 Growth).

 

Economic Data

·     The 1Q employment cost index (ECI) increases 1.2%; est. 1.1%.

·     Personal Income for April MoM rises +0.3% vs. est. +0.2% and prior +0.3%, Personal Spending unchanged vs. est. (-0.1%) and prior +0.1% and March real consumer spending unchanged.

·     March overall PCE Deflator price index M/M rises +0.1% (in-line) and vs. Feb +0.3%; and Y/Y rises +4.2% vs. est. +4.1% vs. Feb +5.1%. Core PCE rises +0.3% M/M in-line with ests and on a Y/Y basis rises +4.6% vs. est. +4.5% and is down from Feb +4.7%.

·     Chicago report business index at 48.6; above est. 43.6.

·     University of Michigan consumers sentiment final April 63.5 (in-line w ests) vs preliminary April 63.5 and final March 62.0; current conditions index final April 68.2 vs prelim April 68.6 and final March 66.3; expectations index final April 60.5 vs prelim April 60.3 and final March 59.2.

·     University of Michigan surveys of consumers 1-year inflation outlook final April 4.6% vs preliminary 4.6% and final March 3.6% and surveys of consumers 5-year inflation outlook final April 3.0% vs preliminary 2.9% and final March 2.9%.

 

Commodities

·     Consistent with the day finishing roughly flat (June gold +$0.10 to $1,999.10/oz), gold futures ended the week with a gain of 0.4% and closed out the month higher by +0.7%. Recession fears continue to support gold near $2,000/oz, but now the market must wait for next week’s Fed decision for the next waypoint on interest rates. Expectations remain for a +25bps hike from the Fed in May, with about a 20% probability for another +25bps in June.

·     Following an early fade, June oil futures rallied through the day to settle at +$2.02, or +2.7%, at $76.78/bbl.  Brent futures similarly rallied +$1.17/bbl, or +1.49%, to settle at $79.54. The move pushed futures higher for the month by about 1.5%, despite finishing the week with a 1.4% decline. Sentiment seems to be the sell-off has been a bit over-extended and the Atlanta Fed’s recent +1.7% GDP view for 2Q, if correct, will generate a meaningful rally.

 

 

Macro	Up/Down	Last
WTI Crude	2.02	76.78
Brent	1.17	79.54
Gold	0.10	1,999.10
EUR/USD	-0.0006	1.10021
JPY/USD	2.28	136.21
10-Year Note	-0.085	3.443%

 

 

Sector News Breakdown

Consumer Staples & Restaurants:

·     CMG, MCD, YUM, MDLZ, MNST, GIS, PEP among names at all-time highs in food space as earnings remain strong and co’s continue to pass off price hikes to consumers, leading to higher revs and margins.

·     MDLZ now expects 2023 organic revenue growth of over 10% vs earlier forecast of 5% to 7%; also raises 2023 adj eps growth to 10%+ from the prior outlook of high-single digit on steady demand for its chocolates and biscuits despite price hikes.

·     SAM posts wider-than-expected Q1 loss and revenue that was also shy of estimates, but shares edged higher early on.

·     CL beats Q1 revenue and profit expectations and raises its annual organic sales forecast to 4%-6% from the prior 3%-5% betting on consistent price hikes.

·     In restaurants: BLMN and BJRI quarterly results follow strength in space this week after CMG and MCD both trade to all-time highs following earnings beats.

 

Retailers:

·     AMZN strong on solid Q1 as EPS $0.31 vs est. $0.21 on revs $127.4B vs est. $124.55B; Q1 operating income of $4.8B vs prior of $0-4 bln, but AWS net sales $21.35B vs est. $21.03B and guidance for Q1 was mixed; said AWS revenue growth is decelerating in the current quarter as April revenue growth rates are 500-bps lower than in Q1.

·     COLM FY1Q revenue topped estimates but EPS was -$0.13 light and the FY EPS guide was narrowed -$0.15 to the lower end of the range ($5.15 to $5.40 vs. to $5.55) reflecting higher G&A expense to contend with inventory excess.

·     SKX reported a 1Q beat-and-raise, as revenues grew 13% constant-FX, beating implied guidance of 2-5% constant-FX growth, while EPS grew 33% YoY to $1.02, well above guidance $0.55-$0.60 and investor expectations in the ~$0.70 range.

 

Homebuilders, Building Products, Home Furnishing:

·     In homebuilders, BZH was the latest to beat after posting Q2 EPS of $1.13 which surpassed consensus as revenues rose 7% yoy to $544M above $509M y/y and higher than expected volume also resulted in a F2Q23 gross margin of 18.7%, 20bp above ests.

·     In building products: MAS, FBIN both upgraded to Buy in building products at Jefferies noting they have lagged the homebuilder group and could be poised to re-rate as the rate hike cycle peaks. The firm anticipates that improving housing affordability could mean a quick recovery in R&R & new construction activity, aided by significant underbuilding and an aging housing stock.

 

Energy

·     Major oils CVX and XOM reported better earnings:

·     XOM posted its strongest-ever start to a year as oil production soars from new wells; net income more than doubled from a year earlier to $11.4B, its best Q1 profit ever. Q1 adj EPS $2.83 vs. est. $2.59; Q1 revs $86.5B vs. est. $85.4B; Q1 upstream worldwide earnings of $6,457B vs earnings of $4,488B as reported last year; oil and gas production rose by nearly 300,000 barrels per day y/y.

·     CVX Q1 adj EPS $3.55 vs. est. $3.41; Q1 revs $50.79B vs. est. $47.89B; Q1 cash flow from operations $7.2B, free cash flow $4.2B; qtrly worldwide net oil-equivalent production 2,979 MBoed vs 3,060 MBoed y/y; Q1 U.S. upstream earnings $1.78B vs $3.24B and downstream earnings $977M vs $486M.

·     In E&P: SWN Reported adj EPS/EBITDA of $0.31/$799m compared to consensus of $0.29/$745 as liquids volumes and NGL realizations were higher than expected. FCF of $99m was higher than consensus ($66m). In alt energy (GPRE, GEVO, AMTX, AMRS), the EPA issues emergency fuel waiver for E15 sales as EPA takes action to provide consumers relief at the pump by helping ensure an adequate fuel supply.

·     In solar it’s been a tough week so far; FSLR slides overnight after Q1 miss and lower guide. FSLR reported below-expectations 1Q results but reaffirmed its FY outlook, as a softer 1Q was a function of timing of module shipments and sales. Management noted that underlying demand remains strong, as evidenced by the sizable pipeline of NT bookings (recall shares of ENPH fell -25% this week on a lower rev outlook). JKS Q1 EPS $0.54 tops $0.43 est. and up y/y as mgmt sees global market demand to remain strong in 2023.

 

Financials

Banks, Brokers, Asset Managers:

·     Bloomberg noted that in the past 50 years of data, only after Lehman collapsed in 2008 and following the Sept. 11 attacks on the US did banks cut lending as sharply as they did in the four weeks through April 12, according to data from the St. Louis Fed. Meanwhile, Fed emergency bank loans rose to $155.2b from $143.9b the prior week; Fed discount window borrowing at $73.9 billion on April 26 vs.$69.9 billion on April 19. FRC shares bounced early following a Reuters report that U.S. officials are coordinating urgent talks to rescue the regional lender – but shares fell later after CNBC’s David Faber said FDIC receivership seen as most likely scenario for First Republic; NYCB reports in-line Q1 EPS while total deposits $84.8B vs. $58.7B.

·     In Investments: LPLA 1Q23 EPS of $4.49, which handily exceeded Street consensus of $4.33 and fell just shy of our Street-high estimate of $4.52. Relative to our model, revenues exceeded our expectation by ~1%, Core G&A was ~1.5% above, and a higher tax rate represented a $0.10 drag.

·     In Consumer/Financial Services: COF reports a profit of $2.31 EPS for Q1, below analyst estimates of $3.92 and Q1 revs of $8.90B missed est. $9.05B; AON Q1 adj. EPS of $5.17 missed the est. of $5.52, its first earnings miss in over 4-years.

·     In FinTech: several of the large players reported over the past week (V, MA, FISV, WEX, etc.) as about all have beaten expectations, generally by modest amounts and most have modestly raised guidance. Still awaiting results from GPN, SQ, and PYPL in the coming week. FIS was upgraded to Overweight at Stephens citing a clearer path to revenue acceleration in ’24 across businesses and an achievable bar for estimates in ’23, and a deeply discounted valuation.

·     In REITs: PEAK 1Q23 FFO in Line; MOBs bump cash SSNOI and AFFO guidance higher; GLPI Q23 beat; lifts the low end of the range as lease income trends slightly ahead; ESS FFO/operations beat in 1Q, but April trends give pause following eviction moratorium expiration; EGP quarter was marked by 11% SPNOI growth, 48.5% GAAP / 32% cash rent spreads, and average occupancy of 98.1%; CUBE in-line 1q, guidance affirmed; NYC provides support as growth slowdown carries on; CPT 1Q23 FFO was in line with consensus but within the high end of management’s 1Q23 guidance range and mgmt edged up 2023 FFO guidance and adjusted its same-store growth guidance; SKT reported a $0.02/share 1Q23 beat driven by stronger NOI growth, as leasing and occupancy appear to be trending above plan; DLR mixed quarter where results came in below on revenue (lower utility reimbursements), ahead on Adj. EBITDA and in line on CFFO/share.

 

Healthcare

Biotech & Pharma:

·     AMGN Revenues of ~$6.11B during 1Q23 were in line with expectations (-2% y/y) but reported non-GAAP EPS of ~$3.98 was ahead of the Street forecast of ~$3.81.

·     GILD missed earnings on costs related to its acquisition of Tmunity and R&D payments as EPS of $1.37 was below the $1.54 consensus and cut its full-year adjusted EPS guidance to $4.95 at the midpoint of its range, down from its previous guidance of $5.50 at the midpoint.

·     IMGN reported Q1 results that beat expectations as revs rise 31% y/y to $49.9M topping the $21M estimate on smaller than expected EPS loss.

 

Healthcare Services & MedTech movers:

·     In MedTech: DXCM 1Q revenue beat by 4%, with better margins and raised its 2023 revenue growth guidance (now 17-21% y/y) by more than the 1Q beat, partly reflecting the earlier implementation of basal reimbursement. RMD results came in 8% above estimates on the top line and beat the bottom line by 12c, as supply headwinds eased/beat was driven by all segments and geographies, though most notably US device sales.

·     Healthcare e-Broker Insurance: Citigroup lowers estimates and tgts on EHTH, SLQT citing new marketing rules that they say are sure to weigh on growth for plan year 2024. Notes one rule by CMS and may have a significant disruptive impact on the e-brokers—the requirement that brokers wait 48 hours between obtaining a SOA and conducting a sales meeting.

 

Industrials & Materials

Transports

·     In waste: Goldman Sachs notes RSG, WM, WCN all reported strong 1Q earnings in waste sector this week with margin momentum that is likely to continue in the year ahead; RSG earnings last night beat with Q1 adj EPS $1.24 vs. est. $1.13; Q1 revs $3.58B vs. est. $3.43B; Q1 adj net income $393.7M, adj EBITDA margin 29%; WM upgraded from Hold to Buy at Stifel saying buoyed by better-than-plan price, the prospect for margins to swing positive and catching the commodity cycle near a low.

 

Materials, Metals & Mining

·     In chemical sector (OLN, WLK): Keybanc noted according to Chemical Market Analytics (CMA), in its monthly chlor-alkali report, domestic caustic prices further declining by $30/ton, ahead of CMA’s forecast for prices to fall $25/ton. CMA tempered its caustic forecast for the coming months and now sees prices falling in the $30-$35/ton range vs. previous expectations calling for a $20/ton decline per month. EMN reported 1Q23 EPS of $1.63, compared to the consensus estimate of $1.25 and reported 1Q23 Ebitda of $424M compared to consensus of $350M. OLN reported 1Q23 EBITDA of $434M, compared to our estimate of $439M and consensus of $425M.

 

Technology

Internet, Media & Telecom

·     In social media, two disappointments as PINS guides 2Q revs grow roughly in-line with 4Q22 and 1Q23 growth, see 2Q adj expenses grow +low-teens %; SNAP tumbles after reporting its first-ever decline in quarterly revenue after making major changes to its advertising tools – did not provide formal guidance for 2Q23, but said internal expectations call for a ~6% YoY decline.

·     In cable/telecom: TMUS mixed Q1 results as EPS beats, revs light and increased 2023 guidance; CHTR Q1 earnings miss ($6.65 vs. $7.63 est.) saying that higher interest expenses and non-operating costs hit earnings; revs of $13.7B tops est. $13.62B and said 1Q total residential, small/medium business internet customers rose by 76,000 (follows a 10% up day from CMCSA on Thursday after results). In broadcasting (GTN, IHRT, NXST, SBGI, SSP, TGNA), Guggenheim lowered core advertising outlook for all by 100-250bps for both 1Q23 and 2Q23 saying recent channel checks continue to indicate incremental softness in the market due to macro headwinds.

 

Hardware & Software movers:

·     Software: NET shares slide after issuing a weaker-than-expected revenue forecast for the current period (guides Q2 EPS $0.07-$0.08 vs. est. $0.03 and revs $305-306M vs. est. $319M) and lowered its full-year revenue outlook; AYX also tumbles after guides Q2 non-GAAP EPS loss (-$0.65-$0.69) vs. est. loss (-$0.42) and revs $180M-$184M below consensus $205.1M as the regional banking crisis caused deals to stall late in the quarter; cloud stocks (SNOW, DDOG, MDB) moved after AMZN said AWS revenue growth is decelerating in the current quarter as April revenue growth rates are 500-bps lower than in Q1. MSFT signed a 10-year deal with Nware to bring Xbox and ATVI games to the Spanish cloud-gaming platform, days after Britain blocked its $69 billion buyout of the "Call of Duty" maker.

 

Semiconductors:

·     Sector bounces: INTC rises following earnings: investors focus on turnaround progress as Benchmark upgraded shares to Buy from Hold saying “with the worst baked into the 1st half, it’s time to get more constructive” noted posted revenue and earnings upside for the March quarter and providing similar guidance for its June period. Digitimes reports TSM’s major fabless clients (AMD, MediaTek, NVDA, QCOM) are deferring 3nm chip rollouts.