Closing Recap

Tuesday, January 10, 2023

Index	Up/Down	%	Last
DJ Industrials	187.90	0.56%	33,705
S&P 500	27.32	0.70%	3,919
Nasdaq	106.98	1.01%	10,742
Russell 2000	26.74	1.49%	1,822

 

Equity Market Recap

·     U.S. stock markets melted higher on Tuesday, closing at the highs with the S&P 500 index moving back above the 3,900 level as the waiting game begins ahead of the all-important consumer price index (CPI) inflation report Thursday morning. U.S. equity futures were steady early as investors weighed hawkish comments from Federal Reserve officials on Monday (Bostic, Daly) while a speech from Fed Chairman Powell at a Central banking conference in Sweden was a complete non-event, not touching upon the economy or monetary policy. Most Wall Street expectations are for a “softer” CPI reading, slipping further from the prior month, with today’s bond market 3-yr auction showing no fear ahead of the CPI either. Will a softer reading boost stocks, lifting the S&P back to its 200-day moving average around the 4,000 level? Will a higher inflation result push us back to October lows? At this time, based off action in stocks and bonds, the market appears to be anticipating an easing of inflation, continuing the recent trend. The consensus estimate for Thursday’s inflation report is 6.5% (overall US CPI YoY in December), down from 7.1% in November and the 40-year high of 9.1% last June. The M/M Dec CPI figures are expected to be flat (core prices y/y est. +5.7% and m/m to rise +0.35). Earlier today, the World Bank cut its 2023 global growth forecast to 1.7% from 3.0% in June; third weakest pace in nearly three decades and forecasts U.S. 2023 GDP growth at 0.5% vs 2.2% in June forecast; weakest non-recession performance since 1970. World Bank says China’s 2022 growth slowed to 2.7% but will recover to 4.3% for 2023. Given all the Fed has tried to do by aggressively raising rates by 400-bps last year, they can’t be happy given that financial conditions have loosened while a weakening dollar is sending liquidity back into the markets. Meanwhile the 30-yr fixed mortgage rate slides to near 5% handle, which could boost more home buying and inflation.

 

Commodities, Currencies & Treasuries

·     Oil prices rise as WTI crude gains $0.49 or 0.66% to settle at $75.12 per barrel, rising a 4^th straight session and Brent crude gains $0.45 to settle at $80.10 per barrel. Natural gas prices hit 13-month lows around $3.63 mln btus. Moves for oil followed a monthly report from the Energy Information Administration, which showed expectations for record high global consumption in 2024 for liquid fuels, including gasoline, diesel, and jet fuel.

·     Treasury yields were mostly higher all day, but some pullback following a strong Treasury auction as U.S. Treasury sold $40B in 3-year notes at high yield 3.977%, 2.3bps stop from 4% when issued (biggest stop through since at least 2016) bit bid-to-cover at 2.84, with primary dealers taking 17.28% of U.S. 3-year notes sale, direct 13.18% and indirect 69.54%. The 3-yr yield dipped below 4%, up 5-bps on day after auction while longer dated maturity yields remained higher with the 10-yr up 10.2 bps at 3.62%.

·     The U.S. dollar edged higher but has generally been in a downtrend since peaking at 22-year highs in Oct, down more than 1,000 bps since those highs as inflation has decelerated the last few months, lowering expectations of additional interest rate hikes in months to come. The Fed has talked hawkishly about rates the last 2-months, but the bond market and reaction in equities tell you investors do not believe them as a Fed “pivot” and lower rates are still being expected. Gold prices edge lower by -$1.80 to settle at $1,876.50 an ounce.

 

 

Macro	Up/Down	Last
WTI Crude	0.49	75.12
Brent	0.45	80.10
Gold	-1.80	1,876.50
EUR/USD	0.0001	1.0729
JPY/USD	0.39	132.27
10-Year Note	0.107	3.624%

 

 

Sector News Breakdown

Consumer

Retailers & Staples:

·     ACI Q3 adj EPS $0.87 tops the $0.67 estimate on sales $18.15B vs. est. $17.64B; Q3 identical sales increased 7.9% and digital sales increased 33%

·     BBBY shares bounced despite posting a quarterly loss of about $393 million while the co did not say if it would file for bankruptcy after saying last week it was working with outside advisers to look at various options

·     CROX raises 2022 revenue view to $3.55B from $3.455B-$3.52B (est. $3.51B) and continues to expect FY ’22 OM of 27%, while sees 2023 revenue $3.9B-$4.0B, vs. consensus $3.92B

·     EXPR said it sees FY22 comparable sales of around flat, consistent with prior outlook and EPS loss ($1.18 to $1.22), within the range of prior outlook

·     OTLY rises after partnership announcement with Reitan

·     URBN reports record holiday sales as total net sales for two months ended Dec increased 2.3% compared to two months ended December 31, 2021; said its retail segment net sales up 2%, partially offset by 1% negative impact of for-ex translation for two months end Dec 31, 2022

·     WWW cuts FY22 revenue view to $2.685B from $2.74B-$2.79B prior and vs. consensus $2.68B; guided Q4 EPS at loss (15c)-(5c) vs. est. loss (-$0.11) and revs $665M vs. est. $658.8M and FY22 EPS at $1.41-$1.51 vs. est. $1.45

·     TPX added to Wedbush’s best ideas list in mattress sector

 

Leisure, Gaming & Lodging:

·     In cruise lines, Morgan Stanley raised RCL to EW from UW while downgraded NCLH to UW from EW and lower CCL forecasts post Q4 as now expect a fourth year of losses in FY23 – said cruise channel checks remain mixed – notes ongoing Covid /economic concerns, and several flag growing promotional activity, weaker demand for big ships, and overcapacity in the Caribbean

·     PLNT said Total membership of 17.0M, up 1.8M y/y, implying ~400K net additions in 4Q vs. ~200K last year; 154 franchisee equipment placements vs. guidance of 150-160 as well as 158 new store openings (including 14 corporate-owned stores)

 

Energy

·     Mizuho with several ratings changes in energy complex saying for 2023 they remain positive on the sector despite commodity price headwinds and ~100% outperformance vs. the S&P 500 since Jan 2021. Firm transfers coverage to new analyst, who is more cautious on natural gas producers, refiners and SMID Cap E&Ps, while taking a differentiated view on U.S. Shale productivity trends. Top picks are FANG, CTRA and XOM; high conviction in Buy-rated COP, DVN, PXD, CHK, and VLO; and downgrade PSX, MRO, HES, EOG, MPC, SWN, CVX, CRK, APA and DK to reflect a more cautious overall view of the U.S. Oil & Gas sector

·     Barclay’s a few changes as well, upgrading NBR and PUMP (both to OW) in the oil and gas equipment sector while downgraded RNGR to EW from OW saying for US Onshore Energy Services, too quick to dismiss NAM as repricing, FCF and shareholder returns set up for favorable

·     In alt energy/clean technology, Morgan Stanley upgraded AMPS, BE and STEM saying the top three key themes for 2023 are focus on path to profitability, delayed IRA benefits, and battery storage oversupply and says strong multi-year growth is not reflected in highly discounted valuations, supporting their Attractive view on Clean Tech into 2023

 

Financials

Bitcoin, Finance, FinTech, Payments:

·     COIN said it will cut 950 jobs by the end of Q2 as part of a restructuring effort and will reduce operating expenses by 25% from the previous quarter

·     COF downgrade from Buy to Hold at Jefferies and cut tgt to $100 as believe there is incremental risk in an economic downturn, due to elevated DQ/NCOs rates vs peers given sub-prime composition, auto exposure, higher cost structure and lower returns vs peers

·     ALLY downgrade from Buy to Hold at Jefferies and cut tgt to $25 from $40 citing sensitivity to auto residual pricing, a liability-sensitive B/S and NIM pressure and loan vols under pressure given constraints to credit and lower demand

 

Insurance & Services:

·     Barclay’s upgraded UNM to EW from UW (tgt $43) and downgraded LNC to UW from EW (tgt to $29 from $35) in the life insurance sector saying for 2023, capital to be the key differentiator. As life insurers exited ’22 with less capital cushions, focus is on balance sheet resilience

·     Evercore ISI with a few changes in the insurance sector as they upgraded Dow component TRV from In Line to Outperform (tgt to $220) partially based on TRV having the most exposure to commercial property lines and upgraded AON to In Line as organic revenue growth estimates remain below consensus, they are no longer below on EPS. The firm downgraded PLMR to In-line as estimate a worse than consensus ULR, and higher reinsurance costs/catastrophe losses and cut HIG to In Line as struggles to see the stock re-rating

 

Healthcare

Biotech & Pharma:

·     ABBV and Anima Biotech (Anima), announced a collaboration to discover and develop mRNA biology modulators for three targets across Oncology and Immunology

·     AMRN shares jump following Q4 and FY revenue updates

·     BNTX said to acquire InstaDeep for total upfront consideration of ~£362M in cash and shares, plus earnouts 

·     INGN guides prelim Q4 revs $87.5M-$88.5M vs. est. $89M and said received European Medical Device Regulation certification from its Notified Body, the British Standards Institution in Dec

 

Healthcare Services & MedTech movers:

·     CVS is looking into an acquisition of OSH, Bloomberg reported citing people familiar with the matter https://bloom.bg/3IGnpnj

·     ACCD active after earnings results; 3Q adj EBITDA ($10.2M) vs est. ($11.85M) on revs $90.9Mm vs est. $87.5Mm; sees 4Q revs $97-101Mm vs est. $101.7Mm and adj EBITDA ($1M)-$3M vs est. $3.8Mm

·     BLI said it sees FY22 revenue $78M-$78.5M, below consensus $85.36M citing a delay in several Beacon platform placements, which are now expected in 2023

·     GEHC said it sees 2023 organic revenue growth to be in the range of 5% to 7% on robust customer demand even as inflation remains a concern and expects adj operating margin to be in the range of 15.0% to 15.5%, up 50-100 bps from last year

·     KIDS guides prelim Q4 revs $31M vs. est. $33.8M

·     SHC shares surge as announces settlement of Ethylene Oxide litigation in Illinois

·     In Life Sciences sector, Wells Fargo upgraded Agilent (A) to Overweight, raised TECH to EW while reiterate Underweight on TMO while overall reiterating their negative Pharma/Biotech outlook on late-cycle headwinds and positive Industrial/Applied outlook on secular growth tailwinds, expecting both themes to continue playing out in 1H23

 

Industrials & Materials

Transports

·     In tankers, FRO shares jump following the termination of its $4B merger agreement with rival oil tanker owner EURN. The merger, which was approved by both companies’ boards last summer, fell off after opposition by the Saverys family, Euronav’s biggest investor

·     In rail cars, Cowen said 4Q22 Rail Equipment Survey shows demand remains strong. Says after cautious near-term view on GBX into the print they continue to favor the stock along with TRN and GATX. Also favor WAB but are cautious in the short term into the print

·     In truckers, CHRW downgraded from Buy to Neutral at Goldman Sachs and cut tgt to $93 from $102 on the back of what they see as more tempered outlook in the brokerage sector as we move through the next several quarters

·     Wolfe Research with several changes as they upgrade CVLG from Underperform to Peer Perform saying it’s still relatively cheap trading at 10x our 2023 and 2024 estimate; Ryder (R) upgraded from Peer Perform saying it is materially over-earning right now and downgraded PCAR from Peer Perform to Underperform as believe that C23 will likely represent peak EPS this cycle

·     In rails, CNI downgrade from Neutral to Sell at Goldman Sachs citing premium valuation versus its U.S. counterparts (20.6x on 2023E vs 17.3x for US rail average) that they think should narrow with ongoing U.S. rail service improvement, eventual positive volume growth

·     In airlines, Deutsche Bank maintains constructive stance on favored Buy-rated names AAL, ALK, DAL, LUV, SNCY, UAL, ULCC (alphabetical order) citing favorable capacity backdrop, further recovery of key revenue segments and deviation of the airline cycle from the economic cycle

·     In waste, UBS upgraded CWST from Neutral to Buy, and downgrade RSG and WM from Buy to Neutral and said top pick in the space remains WCN. In 2022 municipal solid waste (MSW) stocks provided capital protection outperforming the S&P 500 by ~16% in a weak market; in Industrials, AOS downgraded to Sell from Neutral at UBS

 

Aerospace & Defense

·     BA downgraded to equal weight from overweight at Morgan Stanley, saying the stock is now approaching fair value following recent outperformance

·     VORB shares fell after the company confirmed that its first launch out of the United Kingdom failed to reach orbit. This was Virgin Orbit’s sixth mission to date, and its second launch failure

 

Materials, Metals & Mining

·     In chemicals at RBC, the firm downgraded CC to sector perform from outperform on expectations that a challenging fourth quarter for the chemicals firm will feed into the first half of 2023 and cut PPG to sector perform from outperform with limited upside seen for the paint-maker’s stock amid expectations that volumes will come under pressure

·     FMC was upgraded from Equal Weight to Overweight at Morgan Stanley and raised tgt to $145 from $125 as satisfies desire in 2023 for exposure to: specialty chemicals, companies with solid earnings visibility and achievability and deflation beneficiaries

·     OLN downgraded to Underweight at Morgan Stanley as we view the stock as a potential relative under-performer with base case price Target remaining $50 per share

·     VNTR shareholder J&T MS 1 SICAV, which owns 14.3% of Venator has asked for board seats, criticizing the chemical company’s poor financial performance and a 96% drop in its share price

·     WDFC 1Q $1.02 vs est. $1.09 on revs $134.4Mm vs est. $140.7Mm; reit FY23 guide, sees FY sales $545-570Mm vs est. $544.2Mm, gross margin 51-53%, EPS $5.09-5.24 vs est. $5.17

·     In lithium sector (ALB, LAC, LTHM, SQM), Deutsche Bank notes the key areas of Lithium investor debate as we enter 2023 remain centered on China EV Demand, energy storage, and pricing environment and notes investor sentiment has now been cautious/bearish on the space for the past few months given the fall in spot prices and demand concerns over coming months.

·     In metals, steel producers outperformed with shares of STLD, NUE and US Steel (X) up over 3%

 

Technology

Internet, Media & Telecom

·     Telco: AT upgraded to Overweight at Wells Fargo and downgraded USM to Underweight saying they view the telecom sector as a relatively defensive play going into 2023, despite some growth challenges ahead; ATUS downgraded to Neutral from Buy at Goldman Sachs; DISH slumps after Goldman reinstated w/ Neutral and $14 PT

·     In towers, AMT upgrade from Neutral to Buy at Goldman Sachs and up tgt to $245 saying they are broadly constructive on towers and data center stocks, as believe underperformance in 2022 was primarily driven by macro factors, most notably higher interest rates

·     BMBL upgraded to Overweight with a $27 PT at KeyBanc, reflecting positive revisions to EBITDA forecast (now ~1%/2% above Street 2023E/2024E EBITDA) as First Look credit and debit card data suggest payer trends remained solid in December

·     UDMY reaffirmed its 4Q revenue guidance of $164M-$167M, which is in line with consensus of $166M, and is expecting EBITDA margin to exceed its previously issued guidance range of negative 15-17%, which is slightly better than the consensus estimates of -16.2%

·     WBD added to the Bank America US 1 list

 

Hardware & Software movers:

·     MSFT considers $10 billion investment in ChatGPT Creator; ChatGPT has crowned a year of advances for AI applications; OpenAI already working on next generation of technology – Bloomberg https://bloom.bg/3islF6h

·     HPE downgraded them to equal weight from OW at Barclays, taking a cautious view on IT hardware as the firm also downgraded shares of NTAP but upgraded KEYS. Firm says they believe the traditional server/storage/PC markets will be most impacted by the challenging macro backdrop – maintain UW for HPQ due to secular growth headwinds across PC and Print, while remain positive on PSTG and NTNX, as believe they are well positioned

·     DV and CFLT were upgraded to overweight from EW at Barclay’s as firm said it expects a difficult 1H for US software stocks as estimates still look too high, even if valuation levels are interesting and downgraded DT to equal-weight from OW

·     RBLX tgt cut to $40 from $44 at Stifel noting their December bookings estimate is $388M (+5% y/y; up HSD%s ex- FX) and below consensus at $399M

·     ZS added to Needham conviction list and making ZS its top pick in Security for CY23

 

Semiconductors:

·     ON downgraded to Market Perform at William Blair saying SiC yield concerns and auto demand will test gross margin – said the increase in cost of capital globally undermines confidence in the auto and industrial end-markets served in its traditional businesses

·     NXPI upgraded from Sell to Neutral at UBS and up tgt to $167 PT saying after 2022 weak performance on fears mainly around the macro impact on automotive demand (c50% of sales),

·     AVGO shares remain pressured after Bloomberg reported late Monday that AAPL will begin developing in-house Wi-Fi/Bluetooth chip, replacing AVGO socket by 2025 – Bank America noted no impact expected for next 2+ years, but 4-6% sales/EPS impact expected by CY25

·     Bank America tweak down CY23 INTC est. on continued channel inventory headwinds

·     TSM said Dec revs rose 24% y/y to NT$192.56B

·     IMOS Q4 revenue NT$4.69B, -31% y/y