Closing Recap

Monday, July 17, 2023

Index	Up/Down	%	Last
DJ Industrials	76.39	0.22%	34,585
S&P 500	17.31	0.38%	4,522
Nasdaq	131.25	0.93%	14,244
Russell 2000	20.18	1.05%	1,951

 

 

 

 

 

 

 

 

 

U.S. stocks continue the upward surge as earnings season gets underway, with the usual suspects again carrying the broader averages higher led by gains in Technology (XLK +43% YTD), and Consumer Discretionary (XY +36% YTD), while Financials saw strength up over 1% (XLF) with big bank earnings on deck this week (see below). The biggest decliners on Monday were defensive sectors again with Utilities, REITs, and Healthcare falling the most. Telecom lagged led by sharp declines in AT&T and VZ, falling to decade lows after analyst commentary. China 2Q GDP reported at 6.3% vs 7.1% est. overnight, June factory output 4.4% vs 2.5% est., retail sales 3.1% vs 3.3% est., all disappointed, hitting Asian stocks and weighed on commodity prices (oil/gold). The Japanese Nikkei was closed for holiday while the Shanghai Index dropped -28 points to 3,209, and the Hong Kong cancels trading due to a typhoon. IN autos, TSLA rose after the company said on Saturday it had built its first Cybertruck, after two years of delays, while Ford tumbled after cutting the price of its F-150 Lightning trucks. Consumer staples, specifically food stocks, were hit on higher grain prices.

 

Economic Data

·     The Empire State Manufacturing Index for July rose +1.1 vs. -3.0 consensus and +6.60 in June; New Orders rose +3.3 vs. +3.1 in June; shipments rose +13.4 vs. +22.0; prices paid rose +16.7 vs. +22.0 and employment rose +4.7 vs. -3.6 prior.

 

Commodities

·     Oil dropped on Monday, with WTI crude down -$1.27 or 1.68% to settle at $74.15 per barrel and Brent crude futures settle at $78.50 per barrel, down -$1.37, or 1.72%, posting back-to-back losses after weaker than expected Chinese economic growth fueled concern over demand in the while a partial restart of halted Libyan output also pressured prices. China reported that its economy grew 6.3% year-over-year in the second quarter, missing expectations for 7.1% growth. Gold prices -$8.00 or 0.4% to settle at $1,956.40 an ounce.

 

Currencies & Treasuries

·     The US dollar was flattish most of the afternoon after tumbling around 3% last week, its biggest weekly drop of the year, as traders waited for economic data and policy decisions from the FOMC and ECB. The euro continued climbing, holding above $1.123, after hitting a fresh 16-month high earlier in the day. Versus the yen, the dollar fell 0.28% to 138.36 yen per dollar, after touching its lowest against the Japanese currency in two months on Friday. No big bets in Treasury yields today after falling last week, as the 10-year yield held around 3.80% and the 2-yr around 4.75% awaiting the Fed next week. Light economic data today as well. Bitcoin prices not rallying with stocks, down -1% back below $30K.

 

 

Macro	Up/Down	Last
WTI Crude	-1.27	74.15
Brent	-1.37	78.50
Gold	-8.00	1,956.40
EUR/USD	0.0016	1.1243
JPY/USD	-0.03	138.70
10-Year Note	-0.022	3.796%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA said they built its first Cybertruck, four years after Elon Musk first unveiled the pickup.

·     Ford (F) slashes prices of F-150 Lightning trucks, base variant to cost 17% less, or $10K less.

·     FSR said it would produce 100 limited edition electric SUVs for the Indian market and expects to begin deliveries in the fourth quarter this year; had said in Sept it would begin selling its Ocean electric SUVs in India by July 2023, with local production beginning in a few years.

 

Retail, Consumer Staples & Restaurants:

·     In Food & Beverages: PEP was downgraded from Overweight to Equal Weight at Morgan Stanley post a strong Q2, as it sees it as now fairly valued post large stock outperformance with catalysts played out & PEP at modern-day record valuation highs vs multiple peers. CAG was downgraded from Overweight to Equal Weight at Morgan Stanley as well and cut tgt to $37 from $46 citing headwinds to CAG’s growth outlook from softening packaged food volumes. BUD’s Bud Light fell yet again over the Fourth of July holiday period; dropping 23.6% in the one-week period ending on July 8 compared to the same period last year, according to Nielsen IQ data.

·     Online Retail: CHWY upgraded from Neutral to Buy at Goldman Sachs and raised tgt to $50 from $42 as sees a more positive risk/reward skew at current levels. Firm said is increasingly more positive on Chewy’s ability to maintain ~10%+ topline growth from 2023-2027.

·     In Leisure sector, Keybanc with a few changes as they downgraded boating company BC to Sector Weight from OW (om channel leg down) and downgraded YETI to Underweight (on macro price action) saying they still prefer exposure to golf and see retailers (CWH) as the best way to play the leisure vehicle space.

 

Energy

·     In E&P: Sector weak behind lower oil prices initially on softer GDP economic data out of China overnight. BRY downgraded to Hold at Jefferies saying while they anticipated persistent regulatory risk in California, they believe the appeal of Kern County’ EIR permitting approvals demonstrates the challenges facing the co going forward.

·     In Solar: prices advanced (FSLR, SPWR, SEDG, RUN) helped after report showed wind and solar energy are projected to produce more than a third of total energy in the world by 2030, according to a new report published by the Rocky Mountain Institute. "Exponential growth of clean energy is an unstoppable force," with wind and solar expected to generate a combined 33% of global power generation by the end of the decade compared to 12% currently.

 

Financials

Banks, Brokers, Asset Managers:

·     Bank/Financial earnings for the week: On Tuesday morning, BAC, BK, MS, PNC, SCHW, SYF and FULT, IBKR, PNFP, WAL at night. On Wednesday morning, ALLY, CBSH, CFG, FHN, GS, MTB and at night, BANR, COLB, DFS, ZION. On Thursday morning, EWBC, HOMB, KEY, MKTX, SNV, TCBI, TRV, WBS and at night AMTB, ASB, COF, MCB, OZK. On Friday, AXP, CMA, HBAN, and RF.

·     In Trust banks: STT adds to Friday losses after disappointing earnings and guidance sunk shares. Today, was downgraded to Neutral from Buy at UBS and cut tgt to $72 from $90 citing incremental pressure on State Street’s servicing business, beyond the loss of the BLK mandate. Meanwhile Citigroup opened a positive catalyst watch on BK into its earnings.

·     In Financial Services: BKI and ICE announced that, in connection with their previously announced merger agreement for ICE’s acquisition of Black Knight, they have agreed to sell Black Knight’s Optimal Blue business to a subsidiary of Constellation Software Inc. (CSU) for $700M.

 

Healthcare

Biotech & Pharma:

·     APLS shares sunk due to a safety bulletin distributed to eye doctors. The notice warned of six cases of occlusive retinal vasculitis, a serious inflammatory side effect, reported in people injected with Syfovre, the company’s recently approved eye disease treatment – STAT News.

·     ARGX shares rose after its ADHERE CIDP study hits all major endpoints w/ highly competitive relapse rate in Stage B (26-28% delta vs PBO; HR=0.39) and 67% response rate in Stage A supports Vyvgart Hytrulo as attractive therapy. IMVT shares rally in reaction after Wells Fargo said since IMVT is also pursuing CIDP w/batoclimab (likely w IMVT-1402), increases their POS.

·     BBIO shares surge after announces consistently positive results from Phase 3 ATTRibute-CM study of acoramidis for patients with transthyretin amyloid cardiomyopathy (ATTR-CM). BBIO said the Phase 3 trial of acoramidis achieved a highly statistically significant result on primary endpoint and clinically meaningful results on all measures of mortality, morbidity, function, and quality of life.

·     COYA said saw positive results from an open-label proof-of-concept clinical study for ld IL-2 in patients with Alzheimer’s disease; said the study enrolled eight patients with confirmed presence of brain amyloid pathology and baseline Mini-Mental State Examination scores.

·     NOVN enters into agreement to sell substantially all its assets, including berdazimer gel, 10.3% (sb206), and files for Chapter 11 protection.

·     SGEN: The Federal Trade Commission (FTC) made a second request for information to Seagen and PFE regarding their proposed $43 billion merger.

 

Healthcare Services & MedTech movers:

·     In MedTech preview: Mizuho raised price targets for COO, EW, GKOS, ISRG, MDXG and lowered for ABT, HOLX, NVRO, STAA to reflect inputs from its corporate NDRs, hospital/physician channel checks, and other proprietary datasets over the past several weeks. Lowers numbers for ABT and HOLX to account for the ongoing drop in COVID testing, lower numbers for NVRO on a more gradual core SCS recovery, and lower numbers for STAA to reflect a potentially slower China.

 

Industrials & Materials

Transports

·     In Heavy duty truckers: PCAR was upgraded from Hold to Buy at Jefferies and raised tgt to $115 from $85 as believes chances for a meaningful truck downturn in 2024 are fading, and it continues to expect strong industry growth in 2025-26 ahead of 2027 emissions regulations.

·     In E&C sector: KeyBanc raises its price target to $75 from $66 for KBR supported by high/improving visibility into a material outyear EPS growth acceleration to the tune of >25% annually through 2025 at 50% capital deployment; raises PWR tgt to $219 from $190, which is supported by a raise on its 2024E EPS/EBITDA and raises ACM ests on higher organic growth assumptions where it had an overly severe FX drag built in for F2H23.

·     In Transports: UAL reached a weekend labor agreement with pilots that includes significant wage increases. The Air Line Pilots Association, which rejected a contract offer from United last year that would have given its 14,000 members a 14.5% pay increase.

·     In Aerospace & Defense: SPCE named the three passengers for its first flight to take private astronauts to space. The VSS Unity spacecraft will transport 80-year-old Jon Goodwin, an early Virgin Galactic ticket holder and Olympian, as well as Keisha Schahaff and Anastasia Mayers, a mother-and-daughter who won their seats on the mission. Virgin Galactic is targeting Aug. 10 for the Galactic 02 mission, which is its second commercial spaceflight and seventh spaceflight. LMT could see a delay to more than $400 million in payments from the Pentagon over its new F-35 software, reported Bloomberg (earnings tomorrow morning).

 

Technology

Internet, Media & Telecom

·     In Telecom: AT new 52-week lows, downgraded to Neutral from Buy with a price target of $16, down from $22 at Citigroup along with FYBR and TDS as believes the telecommunication industry’s historical use of lead sheathed cabling is likely to remain an overhang for the stocks and valuations for at least a few months and potentially longer, cutting the telecom operators. AMT and SBAC tumbled in tower space behind weakness in VZ, T this morning.

·     In Online/Internet: BIDU was added to Regional Conviction Buy list at Goldman Sachs and raised price tgt from $183 to $197 as views Baidu as one of the best positioned China Internet names pivoting to the secular Generative AI theme, with its expanding AI product suite backed by its 4 layers of Generative AI service offerings. YELP upgraded to Buy from Neutral at Goldman Sachs and raised tgt to $47 from $38 citing stable/rising local advertising trends, an analysis of the incremental margin opportunity and the potential for stable/increased shareholder returns. Goldman lowers its ETSY operating estimates and reduce its price target to $110 (from $130) as it expects continued GMS pressure near-term from the company’s exposure to more challenged discretionary categories but increase its W price target to $55 from $35.

·     In Media: PARA shares fell after Mission: Impossible — Dead Reckoning Part One, the seventh installment of the action franchise starring Tom Cruise, took in less than projected at the box office over its debut weekend in the US and Canada.

 

Semi’s Hardware & Software movers:

·     In Semiconductors: non-stop strength continues in SOX index, rising more than 2% to new 52-week highs, with most names up on day and SOX +4.75% MTD and up over 48% YTD.

·     In Software: TWLO downgraded from Overweight to Neutral at Piper while raise tgt to $71 from $56 noting shares are up ~40% since Q1’s disappointing print, with the performance primarily due to bullish-sounding conference commentary, broader market moves, and potential activism.

·     In Cyber Security: Stifel said C2Q23 cybersecurity VAR Survey and conversations with larger partners point to modest sequential improvements across both quarterly growth and outperformance. Said survey results were stronger for ZS and weaker for NET.