Closing Recap

Thursday, January 26, 2023

Index	Up/Down	%	Last
DJ Industrials	204.45	0.61%	33,948
S&P 500	44.11	1.10%	4,060
Nasdaq	199.06	1.76%	11,512
Russell 2000	12.73	0.67%	1,903

 

Equity Market Recap

·     Stocks rise as the S&P 500 continues to climb the “wall of worry”, holding above the 200-day moving average for more than a week now and closing at the highs as investors bet on another softer CPI inflation report tomorrow morning. An onslaught of economic data and a string of mixed corporate earnings dominated headlines as investors await next week’s Federal Reserve monetary policy meeting. Tesla (TSLA) led gains in the Nasdaq and Consumer Discretionary space after earnings while strength in semiconductors again helped pace tech. More than one fourth of the companies in the S&P 500 have reported and a weaker beat rate than in prior quarters so far, but investors focus remains the Fed and inflation.

·     US economic data flow was largely encouraging and should keep hopes of a “soft” landing for the US economy alive. First, advance Q4 GDP saw an annualized gain of 2.9% vs 2.6% expected (though personal consumption disappointed). Core PCE decelerated to 3.9% from 4.7% and Durable goods orders beat expectations rising 5.6% on headline, while core non-defense cap goods ex aircraft was down 0.2%. New home sales beat expectations.

·     The ultimate question remains, does the market think that the Fed is being deceptive about its real level of hawkishness? Coming into today’s data (which was strong), market expectations remain for rate hikes to slow, pause, and then cut by year end. Meanwhile the Fed keeps saying they won’t cut rates this year. The market disagrees and is doubling down on rate cuts by September. At the end of last year, traders were pricing a year-end fed funds rate of 4.6%. Today they’re pricing in 4.4% by December – a stark disconnect from what the Fed has been communicating. Still no Fed speakers ahead of their February 1^st monetary policy meeting.

 

Economic Data:

·     US GDP Annualized (Q/Q) Q4-A was +2.9% vs. est. 2.6% and down from prior +3.2%; inflation readings improve as US Core PCE (Q/Q) Q4-A was +3.9% vs. est. 3.9% and down from prior +4.7%; the GDP Price Index for Q4-A +3.5% vs. est. +3.3% and down from prior +4.4%. lastly, Q4-A Personal Consumption at +2.1% vs. est. +2.9% and vs. prior +2.3%.

·     Weekly Jobless Claims fell to 186K in the latest week vs. est. 205K and down from 192K prior week; the 4-week moving average fell to 197,500 from 206,750 prior; continued claims rose to 1.675M from 1.655M prior.

·     Durable Goods Orders for December strong at +5.6% vs. est. +2.5% and well above prior (-1.7%) as Durables ex: transports (-0.1%) vs. est. (-0.2%) and capital goods new non-defense orders ex air (-0.2%), in-line with estimates.

·     Advance Goods Trade Balance for December (-$90.3B) vs. est. (-$88.1B) and vs. prior (-$82.9), with Wholesale Inventories (M/M) +0.1% vs. est. +0.5% and prior +0.9%.

·     New Home Sales for December rose +2.3% M/M to 616K vs. 614K consensus and 602K prior (revised from 640K), remains down -26.6% from December 2021.

·     Freddie Mac US 30-Year mortgage rate falls to 6.13% from 6.15%, down for a 3^rd straight week while the 15-year rate avg 5.17%, down from 5.28% a week earlier.

 

Commodities

·     Oil prices rise with WTI crude +$0.86 or 1.07% to settle at $81.01 per barrel, and Brent crude futures settle at $87.47/bbl, up $1.35, 1.57% while natural gas prices tumble yet again. Gold prices slide -$12.60 to settle at $1,930 an ounce ahead of CPI inflation data tomorrow morning and after a bounce in the dollar, though remains under pressure. Natural gas prices extend tumble after weekly EIA data showed domestic natural-gas supplies fell by 91 billion cubic feet in the latest week while total working gas stocks in storage stand at 2.729 trillion cubic feet, up 107 billion cubic feet from a year ago. February natural gas fell over -7% at $2.842 per million British thermal units, lowest since June 2021.

 

Currencies & Treasuries

·     Bond prices rise and yields fall following another solid bond auction, as the US Treasury sold $35B in 7-year notes at a yield of 3.517% vs. 3.538% when issued prior as the bid-to-cover was 2.69 vs. 2.45 prior auction as primary dealers take 6.12% of U.S. 7-year notes sale, directs 16.82% and indirects 77.07%. The 10-year yield, which hit highs of 3.52% (but has had trouble staying above 3.5%), pulled back to lows of 3.45% after the data, before finishing little changed around 3.48%. The US dollar has remained in a downtrend on expectations of lower rate hikes but managed a small gain today following upbeat economic data.

 

 

Macro	Up/Down	Last
WTI Crude	0.86	81.01
Brent	1.35	87.47
Gold	-12.60	1,930.00
EUR/USD	-0.0026	1.0889
JPY/USD	0.65	130.25
10-Year Note	0.03	3.491%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA reported better-than expected profits in Q4, while revs rose 37% y/y to $24.32B vs est. $24.16B; adj EBITDA $5.4B vs est. $5.39B; but weaker free cash flow at $1.42B vs. est. $3.13B; said expects to remain ahead of L-T 50% CAGR on production (shares up +60% in 3-weeks).

·     Other EV stocks opened higher initially following the TSLA results, but faded throughout the morning (RIVN, NKLA, FSR.

 

Retailers:

·     BBBY shares slipped after filing showed co say does not have sufficient resources to repay amounts under credit facilities – SEC filing.

·     BOOT slips on miss and guidance; 3Q EPS $1.74 vs est. $1.75 and Q1 EPS $1.42-1.51 vs est. $1.62.

·     LEVI Q4 adj EPS $0.34 tops est. $0.29 on revs $1.6B vs. est. $1.57B; said expect to bring inventory back to normal levels by the end of Q2 and guides in-line for year.

·     TSCO Q4 EPS of $2.43 beats by 8c on better revs of $4.01B with in-line FY23 profit and sales guidance and sees FY23 comparable store sales growth of 3.5%-5.5% after Q4 comps +8.6%.

·     CRI downgraded to Neutral from Outperform at Wedbush after rising past their price Target and they see near-term risks to fundamentals.

·     FL said to Wind Down Sidestep Banner in Europe.

 

Leisure, Gaming & Lodging:

·     In casinos, LVS reported an upside 4Q property EBITDA result (hold-adj), driven by Singapore strength and noted Macau’s rapidly recovering GGR, currently outpacing visitation.

·     In lodging, Hyatt (H) downgraded to Equal Weight at Wells Fargo citing ~1,000bp outperformance YTD/and tgt price reached and notes tailwinds from China met w/ headwinds of slowing RevPAR gains in key ALG markets, slowing in U.S. rooms under construction vs. peers.

·     Leisure products a few weaker earnings results as RV space saw LCII gave prelim Q4 results that came in below expectations including revenue in the range of $890-$900m (est. $941M) and a reported EPS LOSS of $0.62- $0.73 (est. loss -$0.87); in boating space, HZO Q1 adj EPS $1.24 misses the $1.64 estimate on revs $507.9M vs. est. $513.8M and guides 2023 EPS view to $6.90-$7.40 below consensus of $8.04.

 

Homebuilders, Building Products, Home Furnishing:

·     In home furnishing, ETD reported better-than-expected F2Q EPS, benefiting from margin expansion, backlog conversion, and cost controls despite a deceleration in written order trends.

·     In composite decking, Wedbush lowers estimates for both TREX and AZEK to reflect 1) slightly slower than expected December sell-through, 2) likely lingering channel inventory challenges, and 3) a slowing outlook for 2023 on tough comps and slower R&R spending.

 

Energy

·     CVX announced $75B stock repurchase program and increases quarterly dividend.

·     In alternative power, PLUG lowers FY22 revenue growth view to 45%-50% from over 80% saying Q4 revenue was impacted by new product launch delays.

·     MUR Q4 adj EPS $1.10 vs. est. $1.17; Q4 revs $975.2M vs. est. $862.4M; Q4 production averaged 173.6 MBOEPD and consisted of 56% oil volumes, or 97.0 MBOPD.

·     Refiner VLO beats profit estimates as EPS of $8.45 handily tops $7.37 estimates saying refineries operated at 97% capacity utilization rate in Q4, highest since 2018.

 

Financials

Banks, Brokers, Asset Managers:

·     Investment managers: AMP with EPS beat ($6.94 vs 6.47) on better Advice & Wealth Management (AWM) results +$0.22 on higher spread income, driven by both yields and cash balances; RJF EPS miss in the quarter was primarily driven by lower cap markets revenues, although NII and NIM were stronger than expected; BX Q4 profit plummets more than 40% but EPS $1.07 still Beat $0.94 and consensus on strong expense discipline (lower comp) and a lower tax rate; TROW mixed Q4 with EPS beat, revs below views.

 

Consumer Finance, Insurance & Services:

·     For AXP, COF, DFS, SYF: Citi’s Credit Card Data for latest week show aggregate purchase volume was up 9% y/y, up from up 5% in the prior week, and up from up 6% in the prior two weeks. When looking at the trailing two- and four-week data, two-week trailing spend increased to 6.6% from 5.5% in the prior week and 4-week trailing spend decreased to 5.1% from 6.4% last week.

·     In credit cards, MA in-line Q4 revs of $5.80B with EPS $2.65 above consensus $2.58; cross border volumes 45% (vs. est. 34.6%) and purchase volume $1.73t (est. $1.77t)

·     In lending, LC reported an in-line quarter consistent with its pre-announcement on 1/12, with mixed underlying fundamental trends, and provided a downbeat outlook given the uncertain economic environment.

·     In insurance, MMC with lower quality EPS beat driven by lower taxes and RIS expenses; AXS EPS beat ($1.95 vs $1.68) as a better-than-expected core loss ratio and investment income outpaced higher-than-expected catastrophe losses, acquisition-related expenses, and taxes.

 

Healthcare

Biotech & Pharma:

·     PFE downgraded to Neutral from Buy at UBS with a price target of $47, down from $55 saying COVID estimates still need to come down and the company’s pipeline upside is minimal in the near- to mid-term.

·     EBS dips after the FDA classified the recall of the co’s skin decontamination lotion kits as the most serious type.

·     FGEN upgraded to Outperform at Raymond James based on analysis of the pamrevlumab IPF data (believe pam could generate >$1B in IPF, and if the mid-year IPF readout is successful, we see ~150%+ of upside for the stock, vs. -50-60% downside if it fails).

·     MGTA paused its dose escalation study of MGTA-117 in r/r AML after the latest patient dosed at the 3rd dose level of 0.08 mg/kg died after experiencing respiratory failure and cardiac arrest.

·     OCUP shares tumble after its investigational drug APX3330 fails to meet main goal in mid-stage study for treating diabetic retinopathy, a complication of diabetes that affects eyes.

 

Industrials & Materials

Transports

·     In rails, CSX the last of the major railroads to report earnings which were weaker than expected EPS (on an adjusted basis) and provided confusing guidance; in research, Deutsche Banks upgraded NSC following results and downgraded UNP – says see opportunity for upside over the course of 2023 as valuation more appropriately reflects the resiliency we see in earnings.

·     In airlines, AAL Q4 EPS beat on in-line operating revs with strong 2023 Adj EPS guidance of $2.50-$3.50 well above estimate $1.89 and above $0.50 y/y; LUV Q4 adj EPS Loss (-$0.38) vs. est. loss (-$0.12) as revs in-line at $6.17B saying incurred q4 pre-tax negative impact about $800m and sees net loss in Q1 based on trends; JBLU posted better-than-expected Q4 earnings as it returned to profitability despite the impact of the massive winter storm named Elliott but guides Q1 EPS loss (-0.45-$0.35) vs. est. (-$0.04) loss.

 

Aerospace & Defense

·     Last of major defense companies report today with NOC Q4 revs $10.0B vs. est. $9.65B; Q4 EPS $7.50 vs. est. $6.57; sees 2023 sales $38B-$38.4B vs. est. $37.95B (follows generally better results this week from GD, LMT, RTX).

·     Aerospace suppliers HXL 4Q22 adjusted EPS of $0.40 vs. consensus $0.32, driven by stronger sales, yielding higher gross margins; sees 2023 adj EPS $1.70-$1.90 vs. est. $1.82 and sales $1.725B-$1.825B vs. est. $1.76B.

·     VSAT downgraded to Market Perform at William Blair following the stock’s 18% return vs the S&P’s 5% gain to start 2023, as think there is equal risk/reward.

 

Materials, Metals & Mining

·     In chemicals, weak earnings as: DOW Q4 adj EPS of $0.46 below the $0.58 estimate and guides Q1 sales $11.0B-$11.5B below the $13.12B estimate; announces plans to achieve $1 bln in cost savings over 2023 and said will cut workforce by ~2,000 roles, shut down select assets; SHW also weak in coatings space (RPM, PPG) after lower guide as sees FY adjusted EPS $7.95 to $8.65, below estimate $10.18; AXTA reported 4Q22 EBITDA of $208M, compared to consensus of $197M given strong volume growth in Mobility Coatings, and catch up on price/cost recovery.

·     In steel space, STLD 4Q22 EPS of $3.59 vs. guidance of $3.34-$3.38 provided in mid-December; NUE Q4 EPS $4.89 tops est. $4.19 and said 2022 post profitable year in its history and sees profitability of the steel mills segment to increase in Q1 2023 on higher margins and volumes.

·     URI posted Q4 results of a 3% beat on EBITDA while revenues were in line with consensus estimates and introduced new 2023 guidance with revenue and EBITDA well above consensus.

·     OTR Global upgraded its view on the U.S. commercial HVAC equipment business for CARR, JCI, TT and Daikin Industries (DKILY) to Positive from Mixed.

 

Technology

Internet, Media & Telecom

·     In cable, CMCSA Q4 earnings and revenue beat analysts’ expectations, despite wider losses at its streaming service Peacock – saw continued demand at its theme parks and experienced modest gains in broadband subscribers outside of regions hit by Hurricane Ian (lost 26K vs. est. -40K).

·     In media, BZFD rises after WSJ reports META is paying the Co to generate creator content for Facebook and Instagram https://on.wsj.com/3ZXc9ca

·     In Internet, RBC Capital raised price tgts for META, PINS and SNAP saying their bi-quarterly SMB ad agency checks marginally improved vs. last round published mid-Dec, with early views of Q1 ad spend coming back in-line to slightly better-than-feared with several, largely macro items cited as drivers.

 

Hardware & Software movers:

·     IBM reported solid rev growth and FY23 growth guidance, particularly in Consulting, though missed FCF for 2022 at just ~$9.3B vs target of ‘at least $10B’; reports highest annual revenue growth in a decade; 4Q software revs +2.8%, +8% at constant currency; qtrly red hat revs +10%.

·     In software, NOW reported 4Q cRPO growth of 25.5% cc, slightly below guide of 26% due to less early renewal activity than anticipated, but mgmt outperformed on net new ACV growth & in qtr renewals and sees Q1 cRPO guide of 24% cc 1% ahead of Street & FY23 guide of 23%

·     SAP said it would shed up to 3,000 positions after a steep profit drop in late 2022; said net profit fell 47% to EUR1.2 billion in the three months to the end of December; SAP, which still controls XM through ownership of 84% of the company’s common stock and 98% of voting rights, said it was seeking a buyer for the stake.

·     DV will replace VIVO in the S&P SmallCap 600 effective prior to the opening of trading on Tuesday, January 31.

·     SNX 4.5M share secondary for holders’ prices @ $97 per share.

 

Semiconductors:

·     Semis extend January gains, SOX comes in +15.2% MTD and more than 20% (or more) gains for month for MU, QRVO, SWKS, TSM, ASML and 30% for NVDA

·     LRCX posted beat both top- and bottom-line estimates in the Dec-Q, but their Mar-Q guide missed the consensus top- and bottom-lines. Mar-Q revenue was guided down -28% Q/Q. Noted that WFE is expected to decline to the $75B range after ending CY22 at $95B, or down -21% YY.

·     WOLF posted weaker than expected C4Q results and C1Q guidance as execution issues impacted once again – main issues: 1) longer cycle times for taller boules, setting back shipments; 2) supply-related equipment issues/delays for the Durham fab; and 3) weaker than expected RF orders as 5G continues to mature and slow (down -25% QOQ), noted Susquehanna.

·     STX company beat DecQ and guided MarQ revs up +6%q/q to ~$2B (vs consensus $1.8B), while the EPS range $0.05-0.45 brackets consensus $0.30.

·     TER lagged in equipment space on guidance: Q4 EPS $0.92 vs est. $0.75; sales $731.84M vs est. $711.58M; announces board authorization of $2b share repurchase program; sees Q1 EPS $0.28-$0.52 vs est. $0.58 and sees Q1 revs of $550M-630M Vs est. $644.6M

·     AVGO shares popped midday after influential AAPL analyst Ming Chi Kuo said Apple has halted developing its own Wi-Fi chips; said AVGO is the biggest winner of the iPhone 15’s upgrade to Wi-Fi 6E and the leading beneficiary of the Wi-Fi industry-standard upgrade to Wi-Fi 6E/7.