Closing Recap

Friday, July 07, 2023

Index	Up/Down	%	Last
DJ Industrials	-187.25	0.55%	33,735
S&P 500	-12.56	0.28%	4,399
Nasdaq	-18.33	0.13%	13,660
Russell 2000	22.43	1.22%	1,864

 

 

 

 

 

 

 

 

 

After a brief dip, U.S. stocks found solid footing late morning, pushing to new highs midday amid signs of easing jobs growth, offsetting a sharp jump in private payrolls on Thursday, as markets have baked in a 25-rate hike at the July FOMC meeting (but what happens after that remains uncertain). The U.S. added the fewest jobs in 2-1/2 years in June and snapped a streak of 14-straight months of higher jobs, although persistently strong wage growth pointed to still-tight labor market conditions. Fed’s Goolsbee said the FOMC is still on its path to curb inflation in a CNBC interview, saying he sees a decent chance of further tightening in the pipeline. Nothing surprising or out of line to what other Fed speakers have said, so stocks rallied all afternoon, closing the week mixed. Dow Transports rose around 2% midday or 300 points to 15,700 (less than 200-points away from 52-week high 15,888 on 2/23) – before cutting those gains in half by end of day. Energy was the top S&P gainer behind strength in oil services (SLB, HAL, BKR), while healthcare was the biggest drag in the S&P, along with defensive Consumer Staples and Utilities. We enter a big week with CPI and PPI inflation data Wednesday and Thursday respectively and earnings season kicks off late in the week with banks. Stocks slipped in the final hour of trading, with the S&P and the Nasdaq Composite dipping into the “red” in the final minutes, joining the Dow, while the Russell 2000 held strong gains on day.

 

Economic Data

·     June Nonfarm payrolls rose +209K below consensus +225K and below downwardly revised +306K in May (from 339K) and April (to +217K from +294K). Private payrolls added +149K vs. est. +200K and gov’t jobs added +60K. Average hourly earnings of all private workers +0.4% from May (consensus +0.3%) and the unemployment rate fell from 3.7% to 3.6%, in-line with expectations.

 

Commodities

·     Oil prices rose late in the day to highs, with WTI crude +$2.06 or 2.87% to settle at $73.86 a barrel, posting its second straight weekly gain (+4.6%) , as resilient demand resulted in a larger-than-expected fall in U.S. oil stockpiles, offsetting fears of higher U.S. interest rates. Brent Crude futures settled at $78.47 per barrel, up $1.95, 2.55%. Natural gas prices finish 1% lower at $2.582/MMBtu, a 4h straight day of declines to 2-week lows and down over -7.7% for the week.

·     Gold prices rose $17.10, or +0.89% to settle at $1,932.50 an ounce, getting a boost from a sharp decline in the US dollar today. The U.S. dollar fell sharply after monthly jobs data suggested that U.S. labor market, though still tight, may be cooling after an unprecedented string of 14 consecutive beats came to an end this morning, with the BLS reporting just 209K nonfarm jobs added in June vs forecasts for 230K. The ICE U.S. Dollar Index (DXY) fell -0.7% to lowest in 2-weeks. The Euro rose +0.75% to 1.097 vs. USD and yen gained 1.35% at 142.10.

 

 

Macro	Up/Down	Last
WTI Crude	2.06	73.86
Brent	1.95	78.47
Gold	17.10	1,932.50
EUR/USD	0.0083	1.0969
JPY/USD	-1.94	142.11
10-Year Note	0.003	4.044%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA is laying off some battery production workers at its Shanghai plant, amid a bruising price war in China that’s seen manufacturers across the board heavily discount cars.

·     TSLA also said today, starting July 6, US buyers of new Model 3 or Model y to receive $500 off purchase price if they order using referral link; US buyers of new model 3 or model y to also receive 3 months of full self-driving capability if they order using referral link.

·     FSR said it produced 1,022 of its Fisker Ocean SUVs in Austria in Q2 for customers as well as for marketing and engineering purposes, lower than 1,400-1,700 vehicles it had projected.

·     RIVN win streak extends to 8-days following strong delivery data last weekend, GM posts its 9^th straight day of consecutive gains.

 

Retail, Consumer Staples & Restaurants:

·     In Restaurants: KRUS reported F3Q23 (May) results that were above consensus expectations for both EPS and EBITDA driven by better-than-expected margin performance. The restaurant’s level margins of 23.5% were well above consensus of 21.6%.

·     In Clubs: COST reported June US comp sales ex-gas, FX +2%, vs. est. +2.3%; June total comp sales -1.4%, below est. -0.4%. On a 2-year basis, total company and U.S. core comp growth accelerated sequentially from May following sequential deceleration since December 2022 – April 2023. WMT positive mention in Barron’s.

·     In apparel: LEVI shares slid after cutting its annual profit forecast to $1.10-$1.20 from $1.30-$1.40 (below consensus of $1.29) and flagged price cuts on select wholesale items.

·     In home furnishing: WSM was downgraded to Underweight from Equal Weight at Barclays and cut tgt to $115 from $126 saying ticket growth is moderating for all retailers, with potentially more to fall for some companies as inflation wanes and consumers trade back down, while transactions trends have been mixed.

 

Leisure, Gaming & Lodging:

·     In theme parks: FUN downgraded to Neutral from Buy at Citigroup citing weak visitation trends. Said its deep dive into the foot traffic, weather, ticket pricing, and operating calendar trends at US theme parks shows generally lackluster trends, so lowers ests (SEAS, SIX, FUN).

·     In Cruise lines (CCL, RCL, NCLH): Susquehanna said advertised fares in June, as well as their recent conversations with the major liners and its checks, all point to a healthy demand backdrop for cruise travel, with recent strength in future bookings (I.E., 4-12 months out) suggesting that the consumer continues to prioritize travel despite the lingering macro uncertainty for 2H23.

·     In casinos and gaming: PLTK upgraded from Underperform to Neutral at Bank America with $13 tgt citing improved ’23 industry outlook for mobile gaming in-app purchases.

 

Energy

·     Oil stocks among best performers in the S&P, led by gains in oil services as SLB, HAL among best movers; Wolfe upgrades COP to Outperform with a $120 price target saying they sees a favorable mix of offensive and defensive attributes in the stock, as well as a portfolio and organizational and execution track record that fully competes with premium valued US IOCs. Wolfe downgraded XOM to Peer Perform as has earned a premium valuation and extended outperformance. Weekly Baker Hughes rig data showed a fourth straight weekly decline in active U.S. oil drilling rigs. Oil drillers DO, RIG, NE all making 52-week highs today.

·     In MLPs: Wells Fargo said in Q2 preview that ENB could beat consensus estimates while EPD, LNG, PPL, TRGP could miss in Midstream preview; said Q2’23 could be a weak earnings season due to lower NGL pricing, narrower marketing spreads, and & Alberta wildfires.

 

Financials

·     In REITs: KBW Inc. said for the commercial mortgage REITs (CMREITs), they remain cautious and flag names with outsized risks (BXMT, KREF, CMTG, GPMT, ARI, ACRE, and ABR). For the banks and life insurers, the teams believe CRE stress is manageable and are watching it closely. In other news, PGRE said sees a negative impact to FY net income, FFO of $19.6M.

·     Insurance: Raymond James upgraded RE to Strong Buy from Outperform and raising tgt to $450 from $420 and downgraded MCY to Outperform from Strong Buy and cut tgt to $33 from $40 as expects personal lines carriers in its coverage to continue to report challenging underwriting results in 2Q23 due in part to personal auto severity trends and elevated catastrophe losses.

·     Life insurers commercial real estate exposure: KBW Inc. said CRE stress is manageable, playing out gradually due to strong credit metrics and laddered maturities. Companies with the largest office exposures include EQH, MET, BHF, and CRBG. For alt. asset managers with RE exposure, they recommend a cautious stance noting BX and BAM have the most exposure.

 

Healthcare

Biotech & Pharma:

·     BMY, HUM, PFE hitting 52-week lows today, while healthcare in general was broadly lower.

·     AXSM announced that it has dosed the first patient in the FOCUS Phase 3 trial of solriamfetol, an investigational treatment for attention deficit hyperactivity disorder (ADHD) in adults.

·     BIIB and Eisai (ESALY) received full FDA approval for their Alzheimer’s drug Leqembi. The Centers for Medicare and Medicaid Services (CMS) said in January it would cover much of the cost of Leqembi for patients if it received full approval from the FDA. However, testing requirements and side effect warnings that may limit its use came as a surprise to analysts.

·     BLCO announced a $600 million financing facility with KKR.

·     CDNA shares jumped today after a Medicare contractor withdrew its non-coverage proposal plan for a peer’s cancer test.

·     LLY shares fell after BIIB’s Alzheimer’s drug Leqembi won a coveted standard approval nod from the U.S. FDA.

·     MNK said it was open to proposed transactions as it keeps delaying payments under an opioid settlement.

·     NVS lost a patent ruling related to its blockbuster Entresto drug.

 

Healthcare Services & MedTech movers:

·     In managed care: HUM downgraded to Neutral from Overweight at JP Morgan saying they are bullish on the long-term outlook as it believes the company is well positioned to drive above average membership growth in the fastest growing market within managed care over the next several years but has near-term uncertainty.

 

Industrials & Materials

Transports

·     In Rails: CNI ests lowered below consensus at Bank America and tgt down to $132 from $137 in Q2 preview; lowers its 2Q23 EPS estimate 9%, to $1.74 from $1.91, moving well below Consensus’ $1.92, a trend it expects will be repeated across transports given sustained volume and yield pressures. Yesterday, it lowered its 2Q EPS estimates for RXO and KNX 65% and 32%).

·     In Truckers: Raymond James raised tgt for FWRD to $120 from $115, XPO to $67 from $53, ODFL to $385 from $350 and SAIA to $355 from $320 into earnings while lowered its 2023 estimates and maintained its 2024 estimates across its LTL coverage incorporating lower fuel and after its exhaustive bridging exercise and adjusted its price targets. Continues to see a disconnect between LTL tonnage & Industrial Production (LTL tonnage typically tracks industrial production).

 

Aerospace & Defense

·     In Aerospace & Defense preview, TD Cowen raised its price tgt on GE to $110.00 from $96.00, HXL to $75.00 from $65.00, TDG to $960.00 from $860.00 and WWD to $125.00 from $110.00 into earnings saying Commercial aftermarket and OE have vigorous, extended tailwinds while bizjets are supported by robust backlogs. Said favorites are TDG, GD among large caps; MOG among SMID caps.

 

Materials, Metals & Mining

·     In metals: gold prices rose as the dollar sunk, while industrial metals and materials in general saw a nice recovery after recent weakness; gold miner NEM upgraded from Equal Weight to Overweight at Barclays, noting shares have underperformed the GDX by 15% since the start of 2023 and now trades at 1.16x P/NAV, well below its 3yr average of 1.64x.

 

Technology

Internet, Media & Telecom

·     In Media: PARA downgraded from Peer Perform to Underperform at Wolfe Research with $14 tgt saying with the highest exposure to non-sports linear advertising revenue amongst coverage, Paramount is worst positioned for a secular downturn in the linear ad market. Wolfe downgraded WBD to Peer Perform from Outperform saying the risk of a significant TV advertising downturn is imminent. Wells Fargo lowered estimates for DIS saying better visibility into future earnings growth from DTC will be required.

·     In Internet: BABA shares rise as Chinese authorities announced a fine of 7.12 billion yuan ($984 million) for Ant Group for violating laws concerning consumer protection and corporate governance, ending a years-long regulatory overhaul of the fintech company.

 

Semiconductors:

·     Samsung Electronics (SSNLF) said it expects its Q2 operating profit to fall 96% on year, which would be its weakest performance in more than 14 years; said it Q2 estimates operating profit at 600 billion won ($458.2 million) vs. an operating profit of KRW14.100 trillion y/y.

·     Global semiconductor chip sales fell -21.1% in May to $40.7 billion, from April 2022’s $51.7 billion, according to the trade group Semiconductor Industry Association late Thursday. SIA expects chip sales to fall 10.3% in 2023, with a rebound of 11.9% growth in 2024.

·     In Semi-equipment: KLAC downgraded to sector weight from overweight at KeyBanc as the semiconductor capital equipment maker’s stock price exceeded the brokerage’s prior target.