Market Review: December 20, 2023

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Closing Recap

Wednesday, December 20, 2023





DJ Industrials




S&P 500








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A late day sell-off following a 10% spike in the VIX took major averages lower by as much as 1.4% (finished at lows) as major averages snapped winning streaks. S&P futures (Spuz) took out weekly lows of 4,769.50 with this late afternoon momentum pullback (hit lows 4,761) as the VIX spiked 10% to highs of 13.93 after sideways movement for weeks (sub-13). It is also important to note major averages have been up more than 15% straight since Oct lows and until this afternoon, hadn’t seen a 10-handle decline all week. There were no specific market headlines responsible for the pullback other than not a moment of weakness for US stocks since last Wednesday FOMC meeting and once some levels broke, selling accelerated this afternoon. With today’s late day pullback, the Nasdaq and Dow Jones Industrials snapped their 9-day winning streaks.


Prior to the late day drawdown, Santa Claus arrived early this year, as the U.S. stock market has been on a relentless climb since the late October lows, boosted by seasonal factors, decelerating inflationary pressure (CPI, PPI, PCE data last month), weakening economic data (gives Fed ammo to lower rates) and of course the Fed, the main driver in this latest leg higher after changing their stance on rates last Wednesday, calling for 75-bps cuts in 2024 after just two-week prior talking about holding “higher for longer”. That shift has changed the landscape for stocks, with a massive broad-based rally pushing the Nasdaq, Dow Jones Industrials to all-time highs and the S&P 500 within less than 1% of its January 2022 record best. Fed fund futures are forecasting even deeper cuts in 2024, while Treasury yields fall, the dollar weakens, and investors continue to chase performance into year-end. Today’s action was slow and steadily higher until around 2:30 PM when stocks rolled, putting the S&P and Nasdaq 7-week winning streak in jeopardy with 2-trading days left and several key economic data points. Dow Transports underperformed after a miss and lower guide from Fed-Ex (FDX) as shares dropped 10%, while Consumer Staples dropped behind a miss/lower guide from GIS in food sector.


Overnight, Chicago Federal Reserve Bank President Austan Goolsbee said "if inflation continues to come down to target, then the Fed can reconsider how restrictive it wants to be". The stock market, which surged after Fed Chair Jerome Powell last week signaled that rate hikes are likely over, and rate cuts may be next, "got a little ahead of themselves" with "euphoria" over the thought of Fed interest-rate cuts, Goolsbee said, adding that the U.S. central bank won’t be "bullied" by markets. The decision is also "not about politics," he said, responding to the suggestion that the Fed would cut rates to help President Joe Biden’s reelection prospects. This morning, WSJ’s Nick Timiraos tweeted, “since their meeting last week, Fed officials have been flummoxed that investors expect even faster and deeper cuts. The result: Confusion over when and how quickly the Fed might cut. “The Fed shouldn’t have been surprised by the market running with it.”


Meanwhile, Morgan Stanley economists weighed in on the current market expectations of a 70% chance of rate cuts beginning in March 2024. This contrasts with the broker’s forecast, which points to a later start in June. They suggest that clear and convincing evidence of inflation returning to the 2% target is needed before the Fed initiates rate cuts. They anticipate sticky services inflation leading to higher inflation prints in the next two months, potentially causing a delay in rate cuts compared to market expectations.


Economic Data

·     The Consumer Confidence index surges to 110.7 (consensus 104.0) vs Nov revised 101.0 (previous 102.0); present situation up to 148.5 vs. 136.5 prior; expectations up to 85.6 vs. 77.4 prior.

·     U.S. Q3 current account balance -$200.3B (consensus -$196.0B) vs Q2 balance -$216.8B (prev -$212.1B).

·     US mortgage rates slid for a fifth-straight week, reaching the lowest level since June as the contract rate on a 30-year fixed mortgage dropped by 24 basis points to 6.83% in the week ended Dec. 15.

·     Existing Home Sales for November rose +0.8% to 3.82M unit rate above consensus 3.77M and above Oct 3.79M; Nov inventory of homes for sale 1.130M units, 3.5 months’ worth; the national median home price for existing homes $387,600, +4.0% from Nov 2022; % of first-time buyers rose from 28% to 31%; % of all-cash buyers fell from 29% to 27%.



·     Oil prices gave back strong overnight gains but still finished up $0.28 to settle at $74.22 per barrel, rising a 3rd straight session and up 7 of last 9. Prices were up overnight on reports the US and its allies are considering possible military strikes against Houthi rebels in Yemen, after attacks by Houthi rebels on oil tankers and vessels in and around the Red Sea have been picking up over the last several weeks. Prices pared gains after weekly inventory data showed US crude productions hit new record high of 13.3M barrels per day and inventories rose across the board. NYMEX natural gas prices fell -1.81% to $2.447Mln btu (-12.65% MTD). Gold prices fell -$4.40 to settle at $2,047.70 an ounce.


Currencies & Treasuries

·     The U.S. dollar (DXY) narrow range today ahead of busy day of economic data tomorrow (GDP, jobless claims, Philly Fed, and LEI) and Friday (Personal income/spending and Nov PCE/core PCE, University of Michigan sentiment and new home sales). Bitcoin prices jumped over 3% topping the $44,000 level this morning and held all day. Treasury prices rise as yields slide. A weaker 20-yr auction had little impact. The US Treasury sold $13B in 20-year bonds at high yield 4.213% vs. 4.198% (1.5bps tail largest since Oct 2022) when issued prior, with the bid-to-cover ratio 2.55, as primary dealers take 12.89% of U.S. 20-year bond sale, direct 20.71% and indirect 66.4%.






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10-Year Note





Sector News Breakdown


Retail, Consumer Staples & Restaurants:

·     In Food: GIS shares fall on results as Q2 adj EPS topped consensus by $0.10 but sales fell -1.6% y/y to $5.14B, missing the $5.25B estimate as volume fell four percentage points to offset a three-percentage point increase in prices; lowered FY24 organic sales to (-1%) to flat y/y vs. prior view of growth of 3% to 4%. The miss and lower guide weighed on other food related names, K, KHC, CPB, CAG among others.


Homebuilders, Building Products, Home Furnishing:

·     Home Improvement: Stifel downgraded shares of LOW, FND, HAYN to Hold from Buy, taking a more cautious view of its home improvement names balancing healthy long-term category dynamics against tepid near-term trends with valuations now sporting limited room for error given the outperformance following the October CPI release.

·     In Data: Weekly Mortgage Bankers Assoc said U.S. mortgage applications market index fell -1.5%, the mortgage purchase index falls -0.6%, the mortgage refinance index falls -1.8% while the average 30-year mortgage rate falls 24 bps to 6.83%, lowest level since June, in Dec 15 week.

·     The inventory of homes for sale in New York state fell to a record low in November, according to the New York State Association of Realtors, dropping to 27,779 units, down 20.7% from November of 2022.


Leisure, Gaming & Lodging:

·     In Leisure/RVs: WGO Q1 adj EPS $1.06 missed the $1.18 estimate as EBITDA $54.1M vs. est. $60.9M on better revs $763.0M vs. est. $725.9M; said Q1 adj EBITDA margin of 6.4% decreased 440 basis points compared to the prior year, primarily due to volume deleverage, higher discounts and allowances, and operational efficiency challenges. Shares slumped following the results and margins – CWH, THO, PATK, LCII moved in reaction.

·     In Cruise lines: CCL tgt raised to $22 from $16 at Susquehanna and maintain positive rating saying checks and recent data points via advertised fares and cyber deals following the Thanksgiving holiday point to strong demand into 2024, with certain sales promos suggesting the 2024 Wave Season is already underway.

·     In Ride Hailing/Delivery: UBER, Bolt and Free Now have agreed to raise the minimum wage they pay drivers in France ahead of upcoming European Union rules aimed at strengthening gig worker protections. Drivers will be entitled to a minimum of €9 ($9.85) per trip, up from €7.65 previously and a guaranteed income of at least €30 per hour and €1 per kilometer, ride-hailing platform representatives API and FFTPR said in a statement.



·     In Transports: FDX shares tumble after results, weighing on transports as posted Q2 adj EPS of $3.99, below Street’s 4.19 as Express (46% of revs, 12% of EBIT) posted 2% volume declines, for a 1.7% operating margin, 200 bps below its est. and down 150 bps year-year. U.S. package volume was down 3.5% in the November quarter, on a down 15.1% year-ago comp. Said sees thinner margins in Q3 as it expects seasonal pressures before a rebound in FQ4. Reduced FY24 revenue guidance from flat to a low-single digit decline y/y but maintained FY24 adjusted EPS guidance. Trucking stocks surged, helping offset the FDX weakness in the Dow Transports, with JBHT, SAIA, ODFL, LSTR strong.

·     In Industrials: Jefferies downgraded GWW, TKR and TEX to Hold from Buy saying they see the most upside for machinery as multiples re-rate toward mid cycle. CAT, DE, and AGCO are their top machinery picks, downgrade TKR (destock and price risk) and TEX (limited cycle upside) and in distribution downgrade GWW as the company has executed on strong growth, margin expansion and gotten paid in multiple expansion. WCC is the value pick. TTC said Q4 profit and revenue beat analyst estimate ($0.71 above $0.56 while sales fell -16% y/y to $983.2M, but topped consensus of $973M, helped by strength in its underground and specialty construction, and golf and grounds businesses

·     In Aerospace & Defense: Morgan Stanley said the Aerospace is an Attractive sector in 2024, but firm is more selective on stocks due to valuation, capital return potential, and execution risks. The firm’s top Aero Pick is HWM as it has both OE and aftermarket exposure, downgrades HEI to Underweight on relative valuation, upgrade SPR to Equal Weight on better-than-expected pricing power and maintain BA and RTX at EW.

·     In Electrical Equipment: ENS substantially raised F3Q24 guidance and increased its annualized estimate for battery manufacturing tax credits by $40M at midpoint (~$1.00 incremental EPS).

·     In Chemicals: MOS said they see Q4 potash sales volume to be near the low end of previous guidance range of 2.4-2.6M tonnes; Mosaic Co – in phosphates, Q4 sales volumes are expected to be near the low end of the previous guidance range of 1.6-1.8M tonnes and warned dry weather conditions pose risks to Brazil fertilizer shipments in Q4.

·     Non-Resi construction (URI, WSC, MGRC): The Architecture Billings Index (ABI) increased to 45.3 in November from 44.3 in October and 44.8 in September. Prior to August’s 48.1, the ABI had been at/ above the expansion threshold of 50 for three consecutive months, and below 50 for six of seven months from October 2022- April 2023.



Banks, Brokers, Asset Managers:

·     In Banks: FULT announces an increased common stock dividend, preferred stock dividend and $125M repurchase program; KEY was upgraded to Overweight and $16.50 PT at Stephens following the stock’s underperformance in 2023 (down ~18% YTD vs ~5% decline in the BKX). USB downgraded to EW from OW at Stephens saying the capital improvement catalyst has played out.

·     In crypto: the end of year surge in Bitcoin/crypto continues, with Bitcoin +3% back above $44,000 and lifting miners, crypto investors, and others further in massive spike in 2023: note MARA +600% YTD, RIOT +420% YTD, COIN +370% YTD, and MSTR +320% YTD among biggest movers.

·     In Insurance/brokers: AON shares slipped after saying it will buy insurance broker NFP in a deal valued at $13.4 billion to expand in the fast-growing middle-market segment across risk, benefits, wealth, and retirement plan advisory.

·     In Consumer Finance: DFS was upgraded to Buy from Neutral at Citigroup and raise tgt to $133 from $93 as it sees several potential catalysts for the shares over the next year including the reinstatement of regular share repurchases, the sale of its student loan portfolio/business, a likely peaking of credit losses in 2024, and less expense pressures. IMXI announces its collaboration with Visa (V) which extends the money transfer experience for Intermex customers.

·     In Real Estate: OPEN was downgraded to neutral from buy at BTIG.



Biotech & Pharma:

·     ARGX shares plunge after disclosed that ADDRESS trial evaluating efgartigimod-SC (Vyvgart-Hytrulo) in pemphigus vulgaris (PV) failed to achieve primary endpoint of complete remission on a minimal dose of steroids.

·     BLUE shares tumbled after offers 83.33M shares at $1.50 per share, a 38.2% discount from last close.

·     GH shares fell after announced a tentative date of FDA advisory panel review of shield™ blood test. Stephens said a panel meeting introduces incremental uncertainty around Shield. The panel can comment on data adequacy, request additional studies, make labeling suggestions, etc. However, the final decision rests with the FDA.

·     LGVN said a mid-stage trial evaluating its therapy Lomecel-B showed improved cognitive function in patients with Alzheimer’s disease; the therapy countered loss of brain volume, reduced brain neuroinflammation and improved cerebral blood flow.



·     AAPL said its Apple card, Apple cash and Apple pay & wallet outage resolved after being affected by hours long outages.

·     In Internet: The Information reported GOOGL plans to reorganize a big part of its 30,000-person ad sales unit, an executive told some staff last week, prompting anxiety that some departments will face job cuts. Online travel names extend gains with BKNG, EXPE new all-time highs.

·     In Media: in CNBC story, 13 media executives make their anonymous 2024 predictions as each anonymously gave one significant or surprising prediction for 2024 ; several changes at Wells Fargo as they upgraded CCO to Overweight and raise tgt to $2.75 from $1.50 as thinks investors are less concerned with the valuation of Europe-North and downgraded CNK to underweight and cut tgt to $13 citing an unattractive box office outlook. They also upgraded PARA to equal weight from underweight as sees increased probability of M&A in FY24; believes management might sell a controlling stake to a content operator.

·     In Software: Wells Fargo several changes and outlook for 2024 provided: Wells downgraded CRM, ZM, DOCU, RNG, EVBG, YOU, KLTR and upgraded GWRE, BLND while said top picks for 2024 MSFT, SNOW, BRZE, TEAM, ZI in software.

·     In IT Services: DXC shares fall after Chief Executive and Chairman Mike Salvino is leaving the company and will be succeeded by Raul Fernandez on an interim basis.


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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