Closing Recap

Tuesday, January 24, 2023

Index	Up/Down	%	Last
DJ Industrials	104.27	0.31%	33,733
S&P 500	-2.99	0.07%	4,016
Nasdaq	-30.14	0.27%	11,334
Russell 2000	-6.19	0.33%	1,884

 

Equity Market Recap

·     Stocks slipped late day, but bulls remain in charge, with the S&P 500 holding above 4,000 and manage to hold big gains from the last two trading days into a big earnings week. Stocks stayed resilient despite mostly disappointing quarterly results from key companies today as the market remains in rally mode overall. Eight of the eleven S&P sectors closed higher (energy, healthcare, communications dipped) and breadth continues to push higher on the NYSE. Coming into the day, JPM noted “with 11% of S&P 500 companies having reported, 57% are beating 4Q earnings (vs. 70% avg. last 4Qs) and 61% are beating revenue estimates (vs. 69%)." That number likely weakened today as UNP shares fell in transports on weaker results, as did MMM in industrials (and lower guide), VZ mixed results and lower guide in telco, JNJ results slight beat but enough to rally shares. On the flip side TRV rebounded on in-line results after guiding lower last week and PCAR a standout in industrials on its results. All eyes turn to MSFT tonight in the tech sector with earnings due after the close, and TXN in semis. The Nasdaq Composite is on track for its best start to a year–measured by its performance over the first 15 trading days–since 2001 (+8.47%). as per DJ data. No Fed speakers heading into the FOMC policy meeting next week (25-bps hike widely anticipated) and data today mixed with the GDP and PCE inflation readings Thursday the next focus point. THE CBOE volatility index (VIX) extends weakness, dropping over 4% below 19 today (still no fear in mkt). Treasury yields slide along with the dollar, while energy prices dip. Trading was temporarily halted in dozens of stocks listed on the New York Stock Exchange shortly after the market opened today, after some stocks showed wild price swings. Among the stocks impacted were Altria, Mastercard, McDonalds, Uber, Wells Fargo, and Verizon. The NYSE said it was a systems issue.

 

Economic Data:

·     U.S. S&P global January flash manufacturing PMI at 46.8 (vs 46.2 in December) and S&P global January flash composite PMI at 46.6 (vs 45.0 in December)

·     Richmond Federal Reserve Manufacturing Survey for January fell -11 vs. -5 consensus and +1 prior as shipments dropped -3 vs. +5 prior and volume of new orders -24 from -4 prior.

 

Commodities

·     Oil prices slide, with WTI crude down -$1.49 or 1.83% to settle at $80.13 per barrel, while natural gas prices remain pressured, sliding -5.5% back down toward 19-month lows at $3.258 mln Btus. Brent crude futures settle at $86.13/bbl, down $2.06, 2.34%. Gasoline prices continue to climb for the fourth straight week, rising 32.7 cents over the last month as crude oil prices rise, data from AAA showed on Monday. Gold prices rose $6.80 or 0.4% to settle at $1,935.40 an ounce, holding at best levels since April as the dollar remains pressured and yields fall on the day.

 

Currencies & Treasuries

·     The dollar remains in tight range and down roughly -1.5% to start 2023 (DXY) as investors weigh mixed to weaker economic data and the outlook from the Fed of higher rates (more slowly) for longer, vs. market expectations of a pause sooner than later and pivot to cuts late 2023. Today the U.S. manufacturing PMI rose to 46.8 in January from 46.2 in December, but the Richmond Fed manufacturing survey came in weaker than expected. The euro holds above the 1.085 level.

·     U.S. Treasury yields erased early gains to finish lower, snapping a 3-day rise in yields ahead of next week’s Federal Reserve policy meeting that is widely expected to deliver a smaller 25 basis-point rate increase. U.S. yields were lifted earlier in the session, as 10-year and two-year yields hit one-week highs (3.55% and 4.25% respectively), lifted by data showing that a slowdown in the U.S. manufacturing and services sector eased off this month. Data showed U.S. business activity contracted for the seventh consecutive month in January.

·     U.S. Treasury sells $42B in 2-year notes at high yield 4.139% vs. 4.152% when issued prior with bid-to-cover ratio 2.94 vs. 2.71 prior auction as primary dealers take 16.28%, directs 18.73%, and indirects 64.99% of auction.

 

 

Macro	Up/Down	Last
WTI Crude	-1.49	80.13
Brent	-2.06	86.13
Gold	6.80	1,935.40
EUR/USD	0.001	1.0878
JPY/USD	-0.64	130.03
10-Year Note	-0.063	3.46%

 

 

Sector News Breakdown

Consumer

Autos:

·     In auto suppliers, MGA narrows 2022 revenue view to $37.8B from $37.4B-$38.4B (est. $37.79B) and said 2022 Adjusted EBIT Margin is expected to be about 4.3%, which is below the 4.8% to 5.0% range disclosed in November.

 

Consumer Staples & Restaurants:

·     In restaurants, Raymond James downgraded CAKE and DIN to Market Perform from Outperform; for CAKE cites continued concerns regarding the company’s ability to recover pre-COVID margins, and that shares are fairly valued. For DIN, said further upside could be limited, as Applebee’s could cede some of its pandemic share gains as some national competitors increase advertising.

·     In grocery, Bank America said they see Grocery inflation slowing but still elevated in ‘23 – WMT, COST, KR appear well positioned for pressured consumers in 2023 – see 2023 risks for DG that keep them at Underperform.

·     IPAR 4Q sales $311Mm vs est. $290.7Mm; affirms FY23 guide net sales $1.15B vs est. $1.14B and EPS $3.75 vs est. $3.74.

 

Retailers:

·     LULU downgraded to Underperform and $290 tgt at Bernstein saying after delivering 25% sales growth and 30+% earnings growth for five straight years, Lululemon has a reset coming. Now, with no more pent-up demand, a more cautious consumer outlook, and negative margin mix shifts, earnings growth will decelerate materially.

·     DLTR said Executive Chairman Richard Dreiling will replace CEO Witynski, nearly a year after agreeing to revamp its board in a settlement with activist investor Mantle Ridge.

·     Swiss watch exports for December 2022 registered +5.8% YoY growth in value (vs +11% in Nov) which implies a deceleration on a 2-year stack (+5.2% in Dec vs +17% in Nov), as per RBC.

·     WMT said starting next month, we’ll begin investing in higher wages for associates.

 

Leisure, Gaming & Lodging:

·     LYFT was upgraded to Overweight at Keybanc saying ridesharing data appears stable in their Key First Look Data sample, with Lyft data improving over the course of December. For UBER, said is also operating well, but believe consensus is somewhat aggressive on EBITDA.

·     In golf industry (MODG ) Bank America said its overall golf club sales declined 15% y/y in December, a deceleration from -11% in November. MODG club sales declined 15%, as believe cold weather in December negatively impacted sell-through.

 

Homebuilders, Building Products, Home Furnishing:

·     Homebuilder DHI Q1 EPS $2.76 vs. est. $2.26; Q1 revs $7.26B vs. est. $6.4B; Q1 net sales orders decreased -38% to 13,382 homes and 40% in value to $4.9 billion compared to 21,522 homes and $8.3 billion in the same quarter of the prior year; order backlog of homes under contract by the end of last year was down 46% y/y at 15,759 homes, below estimates of 18,370.

·     MLM and VMC both downgraded to neutral from Overweight at Atlantic Equities in the building products sector saying consensus estimates for 2023 already discount higher growth, and there are some underestimated risks to both volumes and price.

 

Energy

·     OPEC+ delegates say they expect an advisory committee of ministers to recommend keeping oil production levels unchanged when they meet next week – Bloomberg.

·     In oil services, HAL Q4 EPS $0.72 vs. est. $0.67; Q4 revs $5.58B vs. est. $5.58B; Capex $350M, +11% y/y; N.A. rev. $2.61B, +46% y/y, and Middle East and Asia revenue $1.37B, +25% y/y.

·     HPK rises after the oil producer’s board voted to initiate a process to evaluate strategic alternatives including a potential sale.

·     In E&P, Morgan Stanley downgraded APA to EW from OW and upgraded MRO to OW from EW saying with results kicking off this week, they are still generally below consensus on 4Q and see a mixed setup for 2023 guidance. While we remain constructive beyond earnings, driven by a positive oil view, they are increasingly selective.

·     Cowen raises tgts in E&P 4Q22 Preview: APA $44 (Prior $40) AR $36 (Prior $39) CPE $65 (Prior $68) CTRA $38 (Prior $42) EQT $48 (Prior $54) HES $150 (Prior $122) MTDR $67 (Prior $65) PDCE $95 (Prior $94) RRC $30 (Prior $36) SM $47 (Prior $60) – said expect relatively clean quarters from FANG, HES and CTRA in 4Q22. For SMIDs, MTDR + PR feel safest to own into print. OVV + PDCE remain top picks for 2023 but 4Q prints could be messy given weather impacting results.

·     In utilities, Evercore/ISI upgraded ES to Outperform from in-lie and ED to In Line from Underperform while downgraded AEP to In Line from Outperform

·     In solar, ENPH downgraded to mixed from Positive @ OTR Global.

 

Financials

Banks, Brokers, Asset Managers:

·     ZION posts stronger than expected 4Q22 driven by higher NII ($730mn vs $711mn cons) and lower expenses ($472mn vs $484mn cons), Q4 EPS $1.84 vs. est. $1.64; Q4 provision for credit losses $43M; guiding NII up in 4Q23 vs 4Q22.

·     In alternative managers, BX upgrade from Neutral to Overweight at JPMorgan noting investors are seemingly aware of risks to Blackstone’s retail, real estate and private equity businesses largely driven both directly and indirectly by higher inflation and interest rates. IVZ Q4 EPS $0.39 beats $0.34 as performance fees and other Gains drove the beat.

·     CFB reported 4Q22 EPS of $0.30, missing consensus of $0.32; on a core basis, higher noninterest expenses, lower fee income, and a higher loan loss provision more than offset higher NII.

·     EFSC EPS beat driven by materially wider NIM, pushing net interest income above expectations.

·     NBTB reported core EPS $0.86 per share, $0.07 below consensus; missed estimate due to higher credit costs (-$0.05) and lower fee income (-$0.02), partly offset by higher NII.

·     UMPQ Q4 EPS $0.46 misses $0.50; NII was slightly better as NIM was in line at 4.01% (+13bps q/q) and loans grew +10% LQA.

 

Insurance & Services:

·     In credit cards, U.S. card companies are expected to post the slowest revenue growth in seven quarters, as Refinitiv said revenues at Visa (V), MA and AXP are expected to be up 9%, 11% and 15%, respectively, for the three months ended Dec. 31 compared with a year earlier, marking the smallest year-over-year increase since the first quarter of 2021, according to Refinitiv data.

·     TRV Q4 core EPS $3.40 below consensus $3.40 (recall recently lowered guidance) and revs $9.64B vs. est. $8.68B; book value per share 92.90, down 22% from year-end 2021.

·     BRO Q4 EPS $0.50 beats $0.47 helped by higher contingent commissions, higher investment income, lower comp, lower expenses, and taxes as per KBW (organic growth rate +7.8% beats).

 

Healthcare

Biotech & Pharma:

·     Dow component and Pharma giant JNJ reported Q4 adj EPS $2.35 vs. est. $2.23; Q4 revs $23.7B vs. est. $23.94B; sees FY23 adjusted operation EPS $10.50 vs. est. $10.33; sees FY23 adjusted operational sales growth excluding COVID-19 Vaccine of 4.0% vs. est. $97.84B.

·     ALLO upgraded to Overweight at JPMorgan calling it a valuation driven change by upside from the current level as see a healthy strategic shift brewing behind-the-scenes to place a heavier focus on the lead CD19 franchise.

·     AXLA confirmed the regulatory path of AXA1125 for the treatment of Long COVID fatigue based on guidance from the U.K. Medicines and Healthcare products Regulatory Agency

·     CBAY 10M share Spot Secondary priced at $7.00.

·     FNCH announces decision to discontinue phase 3 trial of cp101 and focus on realizing the value of its intellectual property estate and other assets.

·     NTLA upgraded to Neutral at Citigroup citing recent share price declines and overall platform potential, while lower tgt to $39 from $48.

·     PYPD shares surged following a positive update on regulatory pathway for its abdominal surgery site infection treatment, D-PLEX100, based on a recent communication with the U.S. FDA.

·     SAVA falls after reporting top-line Phase 2 results for its oral Alzheimer’s candidate simufilam from a study involving patients with mild-to-moderate disease.

·     VRCA once again refiled for FDA approval of its lead candidate, VP-102, for the skin disease molluscum contagiosum.

 

Healthcare Services & MedTech movers:

·     AMZN said it is adding a prescription drug discount program called RxPass, a subscription service for customers who have Prime memberships. Amazon said people will pay $5 a month to fill as many prescriptions as they need from a list of about 50 generic medications.

·     DHR Q4 adj EPS $2.87 vs. est. $2.51; Q4 revs $8.37B vs. est. $7.88B; sees Q1 base business core revenue up mid-single digits and sees FY23 base business core revenue up high-single digits.

·     EHC remains top Pick amid defensive framework at UBS while EHAB (Sell) screened worst, and firm upgraded UHS to Neutral in healthcare Providers.

·     ELV announced that it entered into an agreement to acquire Blue Cross and Blue Shield of Louisiana (BCBSLA), with the deal expected to close later this year. No financial terms or EPS accretion/dilution metrics were provided by ELV.

·     ISRG earnings expected tonight (recall they issued prelim Q4 results earlier in month).

 

Industrials & Materials

Transports

·     In rails, UNP shares slide on earnings miss, Q4 EPS $2.67 misses $2.78 est. on revs $6.2B vs. est. $6.31B saying Q4 revenue growth was offset by elevated operating expenses.

·     In airlines, LUV and the union representing its nearly 500 flight dispatchers and meteorologists say they reached a tentative agreement on a new contract after almost four years of talks.

 

Aerospace & Defense

·     Aerospace and defense supplier RTX Q4 EPS $1.27 tops $1.24 est. as strong travel demand across the globe boosted demand for its jet engines, parts, and services: guides 2023 EPS $4.90-$5.05 vs. est. $5.03 and sales $72B-$73B vs. est. $72.34B

·     Defense co LMT posted better 4Q results and mostly in-line 2023 guidance and said deliveries of the F-35 remain suspended as it works with the Pentagon to investigate the cause of a Dec. 15 crash in Fort Worth – suspension left 2022 deliveries at 141 — one fewer than in 2021.

·     RKLB said it is proceeding with a launch attempt tomorrow of the Company’s first Electron mission from U.S. soil.

·     SPCE was initiated with a Sector Weight rating at Keybanc saying executing to achieve its long-term targets could yield attractive economics for the business, yet near-term visibility surrounding its commercial service timeline and future capital requirements remains cloudy.

 

Industrials & Materials

·     MMM shares drop after mixed Q4 results (EPS $2.28 vs. est. $2.36; Q4 revs $8.1B vs. est. $8.04B) and guides year EPS $8.50-$9.00 vs. est. $10.22 saying slower-than-expected growth was due to rapid declines in consumer-facing markets – a dynamic that accelerated in December – along with significant slowing in China due to COVID-related disruptions – also cut 2,500 jobs.

·     GE shares slide as results beat (Q4 adj EPS $1.24/$21.8B revs tops est. $1.13/$21.59B) but guides FY organic rev growth mid-to-high teens and sees FY adj EPS $1.60-$2.00 below consensus $2.37.

·     In heavy duty trucks, PCAR Q4 EPS $2.64 beats $2.21 on better revs $8.13B vs. est. $7.11B

·     In lithium space, ALB reported preliminary Q4 adjusted earnings Monday of $8.35 to $8.75 per share, up from $1.01 per share a year ago; Preliminary net sales for the quarter ended Dec. 31 were $2.59 billion to $2.65 billion, compared with $894.2 million a year ago (est. $2.61B)

·     In packaging sector, ORA upgraded to OW at JPMorgan while firm downgraded AMCR to Neutral ahead of the Feb-23 reporting season. SEE downgraded to Neutral at UBS and trim estimates on expectations of weaker market growth and slower automation recovery. SEE’s largest end market is fresh meat (22% of sales), expected to be down ~2.5%.

·     In chemical sector: CC upgraded to Buy from Neutral at UBS and lift tgt to $43 as believe TiO2 earnings will recover through 2023 from current trough levels; UBS also makes changes in ag chemical sector as they update est’s & PTs (CF, IPI, LXU, MOS, NTR) to reflect generally lower fertilizer pricing expectations, partially offset by lower nat gas input costs and downgrade MOS to Neutral from Buy on a more balanced risk/ reward outlook and highlight NTR as top pick.

 

Technology

Internet, Media & Telecom

·     Dow component and telecom giant VZ posted higher revenue for Q of $35.3B, posted net gain of 217,000 phone connections under postpaid billing plans (est. +210K) but guided year profit to $4.55-$4.85, below consensus of $4.97 and sees capex spend $18.25B-$19.25B

·     The U.S. Justice Department sued Alphabet Inc’s (GOOGL) regarding the company’s dominance over the digital advertising market space, Bloomberg News reported.

·     YEXT said it will cut its headcount by 8% of over 300 people and reiterated Q4 guidance.

 

Hardware & Software movers:

·     MSFT the first big software company to report earnings – number after the close.

·     JPMorgan initiating on the Security Software industry with Overweight ratings on PANW, FTNT, CRWD, S and OKTA, Underweight ratings on VRNS and QLYSand Neutral ratings for CYBR, TENB, ZS, CHKP, RPD and NABL. Accelerating tailwinds within the Cybersecurity market are driving demand as Security remains a top CIO priority on a global basis.

·     IBM upgrade from Underperform to Market Perform w/ $140 PT @ Moffett.

 

Semiconductors:

·     AMD downgraded from Outperform to Market Perform at Bernstein and cut tgt to $80 from $95 saying they have been growing increasingly concerned over the current dynamics in PCs (both due to the market and their competitor’s behavior) and see potential for incremental margin risk.

·     TXN earnings expected after the close tonight.