Market Review: December 15, 2022

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Closing Recap

Thursday, December 15, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Stocks finish lower in follow thru selling pressure post FOMC meeting results/commentary at yesterday’s meeting. With today’s declines, the S&P 500 index dropped below its 100-day moving average of 3,930 after dropping below its 200-day moving average earlier in the week at roughly 4,030 in what was an all-out rout of stock markets today as all eleven sectors were down sharply. The volatility this week has been notable with the S&P 500 down -6%, and the Nasdaq 100 down around -8% since the pre-market high after Tuesday’s CPI. Inflation data was a positive this week, but several signs of a slowing economy has weighed on sentiment, raising fears of a recession.

·     In an interesting turn of events, Treasury yields tumbled while stocks fell all day, but the dollar jumped. The more aggressive outlook from the Fed on rates Wednesday in the near-term lifted the greenback vs. peer currencies, sinking industrial and precious metals, but bonds still rallied. Perhaps investors finally are finally turning their attention to the weak economic data and signs pointing that a recession is indeed likely, with inflation fears subsiding a bit. Does that mean going forward that bad news is actually “bad” and good news “good”? Investors possibly looking to the “safety” of bonds as stocks fall. After falling yesterday post FOMC, the CBOE volatility index (VIX) jumped over 11% on stock declines.

·     Lots of central bank action after the Fed yesterday. The European Central Bank (ECB) raised its refinancing rate, marginal lending rate, deposit facility rate by 50-bps as expected, following the Federal Reserve in slowing the pace of increases as inflation edges lower. The ECB said it would raise its key rate to 2% from 1.5%, the highest level since 2009. The bank also said it would reduce its multitrillion-dollar bond holdings starting in March, by EUR15 billion, equivalent to $16 trillion, a month on average at first. The Bank of England raised its key interest rate to 3.5% from 3%, its ninth rate rise in a row in a 6-3 vote. Norway’s central bank raised borrowing costs to the highest level in more than a decade, and signaled it still plans to hike its key interest rate to 3% at the beginning of next year even. The Swiss National Bank raised its interest rate by 50 bps.


Economic Data:

·     Retail Sales for November fell a larger-than-expected (-0.6%) M/M vs. (-0.2%) est. and downwardly revised +1.3% prior (from +1.7%). Core Retail Sales for Nov fell (-0.2%) M/M vs. +0.2% consensus and downwardly revised (-1.2%) prior (from +1.7%). Retail sales ex-Auto & Gas fell (-0.2%) M/M vs. (-0.1%) est.

·     Empire State Manufacturing for December posted negative reading of -11.2 vs. -0.4 consensus, and +4.5 prior as New Orders -3.6 vs. -3.3, shipments 5.3 vs. 8.0, employment 14 vs. 12.2, prices paid unchanged at 50.5, prices received fell to 25.2 vs 27.2

·     Weekly Jobless Claims fell to 211K in latest week from 231K prior (est. 230K) as the 4-week moving average fell to 227,250 from 230,250 prior; continued claims rose to 1.671M from 1.670 mln prior week and US insured unemployment rate unchanged at 1.2%

·     December Philly Fed Business Outlook weaker with -13.8 reading vs. -10 est. (but better than prior -19.4 reading); employment index fell from 7.1 to -1.8, new orders weaker as -25.8 vs. prior -16.2 and prices-paid index 26.4 vs 35.3 prior

·     Industrials Production for Nov fell (-0.2%), the lowest since September of 2021 and below estimates and prior month readings; Capacity utilization fell to 79.7% from 79.8%; U.S. Nov motor vehicle assembly rate fell to 10.25 mln units per year from oct 10.84 mln units y/y

·     Business inventories rose 0.3% in October, missing the +0.4% estimate while inventories were revised to a 0.2% increase from a 0.4% gain previously. Oct business sales +0.8% vs Sept unchanged and inventory/sales ratio 1.33 months’ worth vs sept 1.33 months

·     The 30-year fixed mortgage rate for week ending today fell to 6.31% from 6.33%, Freddie Mac data show; the 15-year rate avg 5.54%, down from 5.67% a week earlier


Commodities, Currencies and Treasuries

·     Oil prices fell, as WTI crude drops -$1.17 or 1.51% to settle at $76.11 per barrel while Brent crude futures settle at $81.21 per barrel, down $1.49, 1.8%. Just a rough day for the commodity space in general with energy, metals tumbling on recession fears. Natural gas climbs 8.4% to finish at $6.970/MMBtu, the highest closing price since Nov. 29 as weather forecasts continue to highlight generally colder-than-normal temperatures, prompting higher demand.

·     Gold prices slumped -$30.90 or 1.7% to settle at $1,787.80 ounce, weighed down by a bounce in the dollar (up +0.9%) after yesterday’s Fed actions and comments suggest longer and deeper rate hikes and a longer period in between rate cuts than Wall Street had expected.

·     The U.S. dollar rebounded more than +0.9%, breaking recent downtrend as markets react to the more hawkish statement from the Fed and Powell yesterday, with a higher rate outlook than previously forecasted (to 5%-5.25% from 4.75%). The euro fell -0.6% back to the 1.06 level while the buck jumped over 2% vs. the yen. The British Pound fell around 2% to $1.2175 following their central bank meeting today.

·     Treasury yields slumped with investors jumping into the safety of bonds given the recent market rout (The S&P 500 is down 6%, and the Nasdaq 100 is down nearly 8% since the pre-market high after Tuesday’s CPI). The 10-yr yield fell 3.43% while the 2-yr yield down to 4.23%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers & Leisure: POOL initiated at Underperform and $291 tgt at Bank America saying they see downside to consensus EPS estimates (11% below on 2023E EPS) driven by weaker end market demand and near-term margin headwinds; KeyBanc previews holiday season saying TGT, WSM, and BBY seem at risk this holiday season, but they believe results are tracking in line with recent commentary and believe WMT and OLLI are positioned for relative outperformance during the holiday period, and 4Q more broadly, while see risk to fundamentals at BBBY and BIG given recent trends and channel checks; SIX shares slide on negative short seller call

·     Auto sector: TSLA CEO Elon Musk sold at least $3.58 billion of shares this week, selling nearly 22M shares over a three-day period ending Dec. 14, according to a regulatory disclosure made public Wednesday; NKLA said PLUG to purchase up to 75 Nikola Tre hydrogen fuel-cell electric vehicles for green hydrogen delivery; NIO named new Catalyst Call Buy with $21 tgt at Deutsche Bank saying going into year-end, they see several potential positive developments for NIO

·     Housing & Building Products: homebuilder LEN shares dropped as posted Q4 top and bottom-line quarterly beat, but analysts note its “sober” 21% gross margin guidance for 1Q23 (was 24.8% in 4Q22) shows its asset turn focus – starts matching orders – comes with a cost; Treasury yields still edging lower despite “hawkish” Fed outlook yesterday, helping mortgage rates

·     Casinos & Lodging: in hotels, MAR was downgraded Marriott to Equal Weight from Overweight at Barclay’s saying despite its industry leading loyalty program and "highly attractive" asset-light business model, Marriott now trades in line with the price target; the broker upgraded WH to Overweight from Equal Weight with a price target of $88, up from $80 saying their bullish thesis is finally starting to emerge



·     E&P and Majors: TC Energy Corp (TRP) is resuming operations in a section of its Keystone pipeline a week after a leak of more than 14,000 barrels of oil in rural Kansas triggered the whole pipe’s shutdown. The 622,000 barrels per day (bpd) pipe has been shut since Dec. 7, when the leak was discovered; EOG downgraded to Hold from Buy at TD Securities; in pipelines: SWX said it has agreed to sell its Mountain West Pipelines business to WMB for $1.5B in cash and to spin off its Centuri unit to form a new independent publicly traded utility infrastructure services company.

·     Utilities & Solar: PPL upgraded to Overweight from Equal Weight at Morgan Stanley with $32 tgt saying low regulatory risk as concerns have spiked across the group, greater appreciation for the strong balance sheet, and catalysts for upside; for solar, JPMorgan said following several years of outperformance from residential solar, they believe 2023 sets up favorably for US utility-scale, which should rebound from disruption created in 2022 from geopolitical uncertainty – top picks are ARRY, SHLS, and SEDG as adding ARRY to AFL as Growth ideas and remove RUN; ENPH was downgraded to Neutral from Positive at Susquehanna; note California will vote on a proposal to reduce the rate at which households with rooftop solar panels are credited for exporting surplus power to the grid, a step solar companies warn could slow installations but utilities argue will be fairer for low-income ratepayers; CSIQ said to start mass production of N-type TOPCon (Tunnel Oxide Passivated Contact) solar modules in the first quarter of 2023



·     Bank movers: recession fears grow, and that pressuring financials; in research, UMPQ upgraded to overweight at Wells Fargo as NII is likely understated by the street given the strength of the soon to be acquired COLB deposit base and upgraded FRC to Equal weight as believe recent guide proves solid floor for EPS. The firm downgraded TFIN as believe positive catalysts are baked in, cut BKU to Equal weight citing fewer near-term catalysts and less likelihood of M&A, cut PACB to Equal Weight as expect mgmt to focus on defense for the next few Qs and downgraded FBP to Equal weight as believe there is outsize risk for neg EPS revisions in coming Qs. Morgan Stanley noted banks’ commercial customers are responding even faster to rate hikes than we expected this quarter, driving deposit outflows and mix shift into higher cost sources of funding. This is driving their 4Q22 NII/NIM estimates lower at CMA, FITB, and MTB

·     Insurance: ALL continued to implement significant auto insurance rate actions in response to inflationary increases to loss costs. During the month of November, the Allstate brand implemented auto rate increases of 10.2% across 13 locations, resulting in total brand premium impact of 2.9%. Since the beginning of the year, rate increases for Allstate brand auto insurance have resulted in a premium impact of 15.0%

·     Consumer Finance: monthly Net charge offs and delinquency data shows rising debt; COF November domestic credit card net charge-offs rate 3.14% vs 2.93% in October and 30+ day performing delinquencies rate for auto 5.50% at November end vs 5.29% prior; DFS credit card delinquency rate 1.21% at November end vs 1.17% at October end; credit card charge-off rate 1.30% at November end vs 1.17% at October end; JPM reported charge-offs for November of 1.31% and delinquencies 0.73%; BAC credit card delinquency rate was 1.02% at November end vs 0.98% at October end and net charge-off rate was 1.45% in November vs 1.37% in October. Separately, Citigroup noted the firms Credit Card Data for the week ended Dec. 11 aggregate purchase volume grew 2% y/y, flat from up 2% in the prior week, and flat from up 2% in the prior two weeks. Spend growth is trending in line with 2% growth for the month of November.



·     Pharma movers: AZN and MRK said the FDA has extended by three months the Prescription Drug User Fee Act (PDUFA) date for the pending supplemental new drug application for LYNPARZA; NVAX announces proposed $125M stock offering, sending shares lower; RNA announces $150M common stock offering; ABCL announces partnership with ABBV for antibody therapies; CASI said the Chinese health regulator has accepted its partner Juventas Cell Therapy’s application seeking approval for its cancer therapy; BNTX upgraded to Buy from Neutral with $239 PT at Bank America

·     Cannabis stocks dropped (MSOS) Senate Banking Committee Chairman Sherrod Brown (D-OH) is signaling that marijuana banking reform will be on hold until the next Congress in 2023, rather than passed during the lame duck, which weighed on cannabis stocks. session as advocates and stakeholders had hoped.

·     MedTech Equipment; MASI upgraded to Buy at BTIG with $180 tgt saying the number of new products unveiled and planned for launch next year is "impressive" and there may be upside to revenue estimates; BAX downgraded from Buy to Hold and cut tgt to $51 from $69 citing the pattern of continued guide downs in 2022 and increased uncertainty around demand for CAPEX-related products, particularly within the Hill-Rom portfolio

·     Healthcare Services: CRL shares rallied as Evercore ISI said following recent reports that NHP shipments to the U.S. are not currently being suspended, Charles River noted that they are not aware of any current export restrictions and cancellations of shipments


Industrials & Materials

·     Aerospace & Defense: Morgan Stanley said they see geopolitics driving Defense in 2023 and the market undervaluing global security risk as OW-rated NOC remains Top Stock Pick (PT to $626 from $585) and LHX (upgraded to OW) replaces LMT (downgraded to EW). Notes defense trading at a ~5% premium to the S&P 500 on a NTM P/FCF basis, and think the market has yet to price in the full extent of geopolitical realities and the Pentagon’s accelerated focus on strategic competition, driving our bullish industry view entering 2023; PL delivered strong FY3Q23 earnings that featured a beat on the top and bottom line, but shares fell

·     Transports: Sector down with broader stock market on rising recession fears after another round of weak economic data and cautious/lower growth forecasts from the FOMC yesterday; in research, CPA upgraded to Outperform and at Cowen downgraded JBLU and ALGT to Market Perform while UAL remains top with DAL, ALK, and LUV all well positioned as believe airlines are better positioned for 2023 than investors believe.

·     Chemicals: MOS, NTR shares slip initially after Reuters reported overnight a U.N. senior official voiced optimism that there would be a breakthrough in negotiations to ease exports of Russian fertilizer; Citigroup with ests and tgt changes in North America Chemicals (VNTR, SHW, PPG, PLUG, LYB, LIN) as believes the impact of higher rates and uncertainty of the China reopening situation is likely to continue to impact the industry; SQM was downgraded to Neutral at Citi and added a "90-day negative Catalyst Watch" on the shares of ALB; also, Piper said as a result of the high EV costs and a slight easing in near-term lithium demand growth rate, they are modestly reducing earnings estimates and PT’s for both LTHM and LAC.

·     Paper & Packaging: AVY, AMBP both upgraded at Bank America and downgraded PKG, SLVM in paper & packaging sector saying for year ahead, avoid capacity traps, look for quality/growth ahead of recovery. Firm said think demand will have a weaker bias and the need for continued inventory destocking in boxes, labels and elsewhere mean shipments will likely trend below consumption. That said, commodities should be less volatile.

·     Metals & Mining; in steel sector, NUE sees Q4 EPS $4.25-$4.35 below est. $4.41 and said in steel mills segment, see considerably lower earnings in Q4 vs Q3 due to lower average selling prices, margin compression, lower volumes; gold miners hammered with drop in gold prices


Technology, Media & Telecom

·     Telecom, Media, Internet: NFLX shares slide on reports the company lets advertisers take their money back after missing viewership targets ; WBD now anticipates total restructuring charges of $4.1B-$4.5B, up from its prior forecast of $3.2$-4.3B (increase being driven by higher content impairment charges, which are now seen at $2.8-$3.5B; Jefferies assumed coverage on digital ad tech, downgrading both TTD and SNAP to Hold, keeping PUBM at Hold, and IAS at Buy, more cautious than the street with our lowered ests; MSGE upgraded to equal weight at Morgan Stanley as think increased visibility into the earnings power of both the NY venues and Sphere over the next year will benefit shares; VZ upgraded to overweight at Morgan Stanley and downgrades AT to equal weight saying that North American telecom services sector faces a balanced outlook heading into next year.

·     Semiconductors: WDC shares fall as Goldman Sachs downgraded to Sell from Neutral and cut tgt to $31 from $43 to reflect 3Q22-end inventory data as well as recent industry discussions that universally point to a severe near-term pricing environment; TF International analyst Kuo cautious on memory saying latest survey indicates STX HDD and SSD shipments for server storage may decline by 10-15% YoY in 1H23 due to inventory corrections and weak demand.

·     Software movers: RBLX shares tumble after saying estimated average bookings per daily active user (ABPDAU) for November were between $3.92-$3.97, down 7%-9% y/y and estimates bookings for November were up 5% to 7% y/y (vs. +13% for the first 27 days in October); in research, Barclay’s initiated GTLB at Overweight ($65 PT) on its platform approach to DevOps, TEAM at Equal Weight ($155 PT) and SMAR at Equal Weight ($45 PT), as current FY24 Street estimates indicate a less favorable setup, in their view


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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