Market Review: December 12, 2023

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Closing Recap

Tuesday, December 12, 2023





DJ Industrials




S&P 500








Russell 2000













US equity futures traded slightly higher overnight with CPI looming ahead of the open. Both the S&P and Nasdaq continued higher into the print, while Fed rate expectations held at 99% probability of no change this week, 97% probability of no change in January and about a 46% probability of a cut in March. Fortunately, despite high expectations, an in-line CPI was good enough and futures briefly moved to pre-market highs before traders took advantage and sold the news all the way back to flat/down for the open. There was little immediate change in the Fed implied probabilities. After an early fade, and a rebound back to green for both the S&P and Nasdaq, mid-morning breadth remained in favor of decliners by almost 3:2. Early S&P sector ETF leaders were Financials, Materials, and Industrials, while laggards included Energy, Utilities and Consumer Discretionary.


On the data side today, @KobeissiLetter takes on CPI and Fed cut expectations, noting Powell pays close attention to “Core Services Ex Housing Inflation” and that metric jumped 0.44% over last month. On an annualized basis, that’s about 5.3% and well above the Fed’s target. Perhaps cuts aren’t coming as soon as the market seems to believe. Separately, on performance, @bespokeinvest highlights 2023 would be the first year ever (since 1940 when there were 9 sectors) that three sectors gained at least 35%, but four finished the year in the red (if the year ended today). Looking into next year, @DataTrekMB notes analysts are raising the current quarter and next year earnings estimate for most big tech names, also noting these names are generally in much better fundamental shape than the S&P 500 overall. Lastly, back on CPI, @charliebilello notes shelter CPI has moved lower yr/yr for eight straight months but is likely to continue the trend given its long lag, which should lead to an ongoing decline in core inflation.


Heading into the final hour of trading, stocks were pushing new highs on the day. Breadth reversed from the morning to favor advancers by a slim margin and only two S&P sector ETFs traded in the red. Energy (XLE, -1.16%) and Utilities (XLU, -0.45%) were the decliners, while Financials (XLF, +0.7%), Materials (XLB, +0.63%) and Industrials (XLI, +0.62%) paced the gainers. Small caps lagged modestly, but still gained with the IWM +0.25%. Growth outperformed value, with the Russell 1000 Growth +0.6% versus its Value counterpart holding onto just a +0.02% gain.


Economic Data

·     The Consumer Price Index (CPI) for November headline M/M rose +0.1% vs 0.0% est. and previous 0.0%, while on Y/Y basis rose +3.1% vs est. +3.2% and prior +3.2%. Core CPI (ex: food & energy) rose +0.3% vs. est. +0.3% and prior +0.2% and Y/Y rose +4.0%, in line with prior and consensus. Nov CPI food +0.2%, housing +0.4%, owners’ equivalent rent of primary residence +0.5%. Nov CPI energy -2.3%, gasoline -6.0%, new vehicles -0.1%.

·     The U.S. government spent $314B more than it earned in November, vs. $301.1B consensus, widening from the $67.0B deficit in October and from $248.5B a year ago.

·     NFIB small business optimism index dipped -0.1% 90.6 in November after sliding -0.1% to 90.7 in October. It is a 4th consecutive monthly drop to the weakest since May after climbing to 91.9 in July which ties for the highest since September 2022.


Commodities, Currencies & Treasuries

·     February gold futures settled -$0.50/oz, or -0.03%, to $1,993.20. An in-line CPI result and Fed decision pending tomorrow likely kept prices in a narrow range as investors had little reason to change course today. Similar to the reading prior to CPI, the implied probability of no change in rates tomorrow is holding around 99% and around 97% for January. The implied probability of a cut in March drifted to about 40% in the afternoon. Of course, a more hawkish sounding Fed could boost expectations for recession and provide added support for gold in the near term.

·     WTI January crude slid $2.71/bbl, or -2.8%, to settle at $68.61, while Brent similarly slipped $2.79/bbl, or -3.67%, to $73.24. The finish was the lowest for the WTI active contract since late June. Today’s in-line CPI data may have tilted some investors away from expectations of earlier rate cuts and raised prospects for recession, and thus a potential dampening on demand. Some investors also pointed fingers to ongoing pressures in China as another demand headwind overhand on the market. We will get more insight from the Fed this week to help guide the next move, so stay tuned.

·     The U.S. dollar recovers much of its earlier losses after U.S. data showed headline annual inflation eased only slightly to 3.1% in November, offering little to suggest the Federal Reserve could cut interest rates early next year, says Simon Harvey, head of FX analysis at Monex Europe in a note. The data all but confirms that the Fed will maintain its more cautious policy guidance, and traders bought back the dollar as a result, he says. Still, the fact that the dollar only recouped previous losses showed most traders are awaiting fresh guidance from the Fed at Wednesday’s meeting. The DXY dollar index trades down 0.1% at 103.973, up from 103.6360 before the data






WTI Crude















10-Year Note





Sector News Breakdown


Retail, Consumer Staples & Restaurants:

·     GO announced that CFO, Charles Bracher, has decided to step down from his role as CFO effective March 1, 2024.

·     HAS said it is cutting nearly 20% of its workers, roughly 1,100 jobs, on weak sales of toys and games heading into the holiday sales season.

·     Retail research: Goldman Sachs upgraded PVH to Buy as improving execution in the core North America market and rising margin tailwinds should drive EPS growth even if top-line trends stay muted and upgraded RL to Neutral while raising target to $132 from $107. Macy’s (M) was downgraded to Sell from Neutral at Citigroup after the stock jumped almost 20% to a more than 9-month high on Monday; Citi expressing skepticism that a buyout offer from Arkhouse Management and Brigade Capital Management will materialize.

·     In Food: SFM was upgraded to Buy from Sell at Goldman Sachs and raise tgt to $49 from $37 as the company has been able to hold margins while competitors bring down price due to its historic price advantage. The downgraded GO to Sell from Buy given slowing new store trends, normalizing focus on value by customers, elevated promotional activity, and receding pricing tailwinds while cutting tgt to $24 from $33.


Homebuilders, Building Products, Home Furnishing:

·     In Housing: homebuilders continue to outperform, holding at or near all-time highs for several names (LEN, TOL, etc.) into FOMC meeting tomorrow; ZG was upgraded to Market Outperform, $60 PT at JMP Securities as believes consensus estimates are too low for 2025 and 2026 given building pent-up demand and increasing expectations that rates will begin to come down.

·     In Building Products: JP Morgan with several changes as they upgraded EXP from Underweight to Neutral w/ $200 PT, upgraded MLM to Overweight and raise tgt to $530 from $490 and raise EBITDA ests on better expectations for margins and upgraded VMC from Neutral to Overweight and raising 2023e EBITDA by 2% upon slightly higher margins.


Leisure, Gaming & Lodging:

·     In Lodging: CHH launched an exchange offer to acquire WH for $49.50 a share in cash and 0.324 shares of Choice common stock, equal to a cash value of $40.50. CHH, which launched a hostile bid for Wyndham in October, said it would have preferred a negotiated agreement.

·     In Online Travel: ABNB downgraded to underweight from equal weight and EXPE downgraded to Equal weight from Overweight at Barclay’s saying data shows short term rental demand is plateauing and competitive pressures from hotel peers are rising. Barclays says it is cautious about travel heading into 2024 and eventually the "pent-up" travel demand will get exhausted.

·     In Autos: Ford (F) will slow production of its all-electric F-150 Lightning pickup truck, according to a report in Automotive News. LCID after the company announced that Chief Financial Officer Sherry House had resigned.



·     In Solar/Alternative Power: JP Morgan said ARRY, NXT, SHLS remain top picks and upgraded ITRI to Neutral from underweight saying it is well positioned for revenue growth and margin expansion in FY24. JPM expects ARRY, NXT, and SHLS to continue to exhibit positive demand trends, though project timing and order activity/revenue recognition should remain lumpy.



Banks, Brokers, Asset Managers:

·     In Banks: CMA was downgraded to Neutral from OW at JP Morgan saying while sees NIM reaching an inflection point over the near term, not only is this a trend expected for most of its banks, but this outlook appears to be fully baked into the stock. AMAL was upgraded to OW, raise PT to $29 at JP Morgan saying sees 2024 as the year Amalgamated will benefit from the buildup of low-cost political deposits through the presidential election.

·     In Insurance: Raymond James upgraded BRP to Strong Buy from Outperform and EVER to Outperform from Market Perform while downgraded AJG to Market Perform from Strong Buy and PGR to Market Perform from Outperform. Firm said they believe the personal lines industry is positioned to report improving underwriting results through 2025 reflecting in part consecutive years of significant rate increases and the potential further moderation in severity trends. Believes ALL and KMPR could report the largest y/y improvements in combined ratios.

·     In Asset managers: AB prelim assets under management increased 6.7% to $696 billion during November 2023 from $652 billion at the end of October. BEN preliminary month-end assets under management (AUM) of $1.41 trillion at November 30, 2023, compared to $1.33 trillion at October 31, 2023. VCTR AUM of $159.6B as of November 30, 2023, and average assets under management for November of $155.4B. TROW prelim assets under management of $1.39 trillion as of November 30, 2023. Preliminary net outflows for November 2023 were $12.6B.

·     In REITs: In Self-storage, Wells Fargo double upgraded EXR to overweight and downgraded PSA to Equal weight, maintain that comp rev declines are likely though 1h making less compelling risk/reward, and regarding EXR, they are more comfortable w LSI synergy realization by Q1.



Biotech & Pharma:

·     ACHV shares tumble after saying the U.S. FDA required additional data to support a marketing application for its sole product candidate, cytisinicline, targeted at smoking cessation.

·     ATHA announces encouraging results from shape phase 2 clinical trial of fosgonimeton for the treatment of Parkinson’s disease dementia and dementia with Lewy bodies.

·     AZN agreed to acquire ICVX for up to $1.1B, paying $15 apiece in cash, plus a non-tradable contingent value right for up to $5 per share in cash

·     CCCC shares rose as signed an exclusive license deal with MRK to develop degrader-antibody conjugates for cancer; companies plan to develop DACs for an initial undisclosed oncology target that is exclusive to the collaboration.

·     CNTB said that its lead product candidate, Rademikibart, reached the main goal in a global Phase 2b trial for adults with asthma.

·     MRNA announces changes to commercial organization to prepare for multiple product launches in 2024 and 2025, chief commercial officer steps down.

·     SGEN rises as PFE said it has agreed to donate the rights of royalties from sales of cancer drug Bavencio to address concerns from U.S. antitrust regulators related to its $43B deal to buy Seagen and has now received all regulatory approvals to close the deal on Thursday.


Healthcare Services & MedTech movers:

·     In Managed Care: CNC said it expects to generate over $6.70 in adj EPS, up from prior view of $6.60 and vs. consensus of $6.74; sees FY24 revs $142.5B-$145.5B vs. $142.01B consensus, and the company authorized a $4B increase to its existing stock repurchase program. HUM upgraded to Buy from Hold with $550 target at Argus saying they see solid opportunities for growth in the Medicare Advantage, Medicaid, and healthcare services; raise estimates.

·     In Life Sciences & Tools: Bank America downgraded Agilent (A) to Neutral from Buy as thinks additional upside is likely limited given the lack of visibility across the life sciences tools market; downgraded ILMN to Underperform and cut tgt to $100 from $140 noting Illumina will now have gone through four years of essentially no revenue growth in its core business. Bofa upgraded MRVI to Buy from Neutral saying the stock’s risk/reward has turned positive heading into 2024 and TXG upgraded to Neutral from Underperform with a price target of $54 citing fading headwinds and an "impressive" launch from the Xenium platform and DGX upgraded to Buy from Neutral saying national clinical labs face fewer headwinds in 2024 than most broader Tools.


Industrials & Materials

·     In Aerospace & Defense: leasing giant Avolon said it had agreed to order 100 A321neo aircraft from EADSY and 40 737 MAX aircraft from BA in a deal its owner said was worth a combined $18 billion at list prices; AVAV awarded $16M U.S. Navy contract; CACI awarded $420M C5ISR task order from the US Army.

·     In Transports: Air fares in the U.S. fell 12% in November from a year ago, according to latest CPI data; Deutsche Bank downgraded GOL to Sell, and reiterate Buys on AAL, DAL, UAL and said CPA remains highest conviction Buy in airlines noting the US airline industry saw a full but uneven recovery from COVID-19 (American, Delta, and United represent 92% of the industry’s projected $11.6B pretax profit in 2023) and DBAB expects the wide margin Gap between the profitability leaders (the Majors) and laggards (low fare carriers) to continue in 2024.

·     In Tankers/Shipping: SBLK, EGLE to combine in $2.1B merger, creating a leader in dry bulk shipping. Eagle shareholders will receive 2.6211 shares of Star Bulk common stock for each share of Eagle common stock owned; represents a total consideration of approximately $52.60 per share, a 17% premium to Friday.

·     In Industrials: BLBD raised FY24 revenue ($1.15-$1.25B vs $1.1-$1.2B) 4% and EBITDA ($105- 125M vs $75-$95M) guided 35% at the midpoint; volumes of 8.5k-9k (vs 8k-9k) are expected, and a further $2,500 price increase is set for mid FY24. JCI reports Q4 adj. EPS of $1.05, missing the consensus estimates of $1.09 as revs of $6.9B missed the $7.09B estimate and guides FY24 EPS $3.65-$3.80 below consensus estimates of $3.96 per share.

·     In Lithium: ALB upgraded to Neutral from Underperform at Bank America with a price target of $149 though trims 2024 EBITDA estimate as sees modest downside risk as it notes that Albemarle shares have fallen by more than half year-to-date.

·     In Metals sector: JP Morgan upgraded Stelco (STZHF) to Overweight while raised price tgts on STLD (to $98) and NUE (to $158) ahead of the mid-quarter guidance expected later this week as expects Q4 comments to reiterate trough earnings weighed down by lagged contract pricing. Precious metal miners GOLD, PAAS shares stumbled for a 7th day amid a ongoing rotation out of defensive/haven related assets into riskier ones to end the year.



Internet, Media & Telecom

·     In Media: SIRI and FWONA announce transaction to simplify ownership structure of SiriusXM; The deal, which will see Liberty Media split off its Sirius XM tracking stock group into a new subsidiary that will then merge with Sirius XM, will create a new public company. The new company will still trade on the Nasdaq Global Select Market under the ticker symbol "SIRI." AMCX was downgraded from Buy to Neutral at Seaport Global.


Hardware & Software movers:

·     In Software: ORCL shares tumble as missed on Q2 revenue partly attributed to lower-than-expected FX tailwind and weaker cloud revenue while EPS beat driven by an op margin beat. ORCL reported Q2 growth of 4% cc, in line w/ guide of 3-5%, but organic Cloud growth of 25% cc was below guide of 27-29%, w/ both OCI and SaaS below TDCowen’s ests.

·     In Software research: HUBS upgraded to Overweight and raise tgt to $610 from $515 at Piper and raise ests based on improving data from its 2024 CIO survey coupled with a recovery in website traffic; RNG was downgraded to Hold at Jefferies following CEO recent resignation as views the mgmt. change as a sign of increased execution risk; ZS was upgraded from Neutral to Outperform w/ $231 PT from $166 at Macquarie with bullish thesis is supported by ZS’ Risk360 solution and its positioning at the nexus of cyber threat and SEC reporting requirements trends.

·     In Hardware Components: Berkshire Hathaway cut its stake in HPQ to 5.2% from 9.9% in their Form 4 files Oct 5th but was also upgraded to overweight at Morgan Stanley as it sees it as an underappreciated play on the PC market recovery that should also benefit from re-accelerating capital returns and operational efficiency. Morgan Stanley also upgraded SONO to Overweight and $20 tgt as believes broader audio market challenges have negatively impacted the stock’s valuation and downgraded CDW to Equal Weight as it sees limited upside to the current valuation with the shares trading 1-2 standard deviations above its pre-COVID average. Lastly, MSCO downgraded GPRO to Underweight with $3 tgt as it believes it has a high bar to achieve in 2024 amidst a model transition and inconsistent execution.



·     Another rip-roaring day for the Philly semi-index (SOX) which extended yesterday’s 3.4% gains to new highs again, led by likes of AVGO, AMD, NVDA and many others in what has been a fan favorite sector in 2023, with the SOX index +54% YTD!

·     Global Semis: global sales of total semiconductor manufacturing equipment by original equipment manufacturers are forecast to reach $100B in 2023, a contraction of 6.1% from the industry record of $107.4B posted in 2022, according to SEMI – Digitimes


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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