Market Review: June 22, 2023

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Closing Recap

Thursday, June 22, 2023





DJ Industrials




S&P 500








Russell 2000













U.S. stocks finished mixed in a reversal of Wednesday trading action as gains in technology, consumer discretionary, and communications helped propel gains in the Nasdaq Composite, while the Smallcap Russell 2000 underperformed amid weakness in Energy, REITs, and Financials. Defensive Consumer Staples and Healthcare rounded out the top movers on the day, though overall NYSE breadth favored decliners over advancers by a roughly 2:1 margin. The day was dominated by central banks and Fed speakers, as the dollar and Treasury yields jumped while commodity prices tumbled (oil, gold). Federal Reserve Chair Jerome Powell stuck to his hawkish stance on the second day of his testimony before the Senate committee, while gains in growth stocks kept losses in check. Fed Governor Michelle Bowman said "additional policy rate increases" will be needed to control inflation.

Lots of central bank action: 1) The Bank of England raised its interest rates by 50-bps to 5% from 4.5% in a somewhat surprise move following a sharp spike in CPI inflation data this week (core CPI rose to +7.1%). The hike marked their 13th consecutive hike putting UK interest rates at the highest since 2008. 2) Norway’s central bank raised its key policy rate by 50-bps to a 15-year high of 3.75% in a bid to curb inflation, and said it aimed for another hike in August. 3) The Swiss National Bank announced a 25-basis point hike, taking its policy rate to 1.75%, in line with expectations at its quarterly monetary policy meeting Thursday, but said further rises may be needed to bring inflation to target. 4) Turkey’s central bank raised interest rates to 15% for its first increase in rates since 2021, and raised the country’s benchmark interest rate, the one-week repo rate, to 15% from 8.5%. 5) Brazil’s central bank left its benchmark rate unchanged at 13.75% for a seventh consecutive meeting, as expected. 6) Banxico left rates unchanged at 11.25% as expected.


Several Fed speakers today as well: 1) Powell in second day of testimony on Capitol Hill reiterated that the FOMC broadly feels it will be appropriate to raise rates again this year and perhaps two more times. He said a strong majority of the committee feels there is a little further to go with rate hikes. 2) Fed’s Bowman said today: "additional policy rate increases" will be needed to reach sufficiently restrictive level and control inflation which is still "unacceptably high" despite drop in headline number.


Economic Data

·     Weekly Jobless Claims unchanged at 264K vs. est. 260K (prior week revised +2K); the 4-week moving average rose to 255,750 from 247,250 prior; continued claims fell to 1.759M from 1.772M prior week (est. 1.782M); Insured Unemployment rate unchanged at 1.2%.

·     U.S. Chicago Fed National Activity index fell -0.29 points to -0.15 in May after climbing 0.55 points to 0.14 (was 0.07). in April. March bumped to -0.41 (was -0.37) while February edged up to -0.33 (was -0.37).

·     Existing Home Sales rose +0.2% M/M to 4.30M unit rate vs. est. 4.25M and April 4.29M; May inventory of homes for sale 1.08 mln units, 3.0 months’ worth; May national median home price for existing homes $396,100, -3.1% y/y.

·     The Leading Index (LEI) for May M/M actual (-0.7%) vs. forecast (-0.8%) and prior (-0.6%); LEI now negative for a 14th consecutive month.

·     Current Account Balance for Q1 actual -$219.3B vs. estimate -$218B and prior -$206.8B.


Commodities, Currencies & Treasuries

·     Gold hit a three-month low on Thursday, falling -$21.20 to settle at $1,923.70 an ounce as yields and the dollar rose. Fed Chairman Powell reiterated for a second day in testimony to the Senate Banking Committee that two more rate hikes are likely in 2023 to get inflation down to the Fed’s preferred 2% inflation goal. Further rate increases are "a pretty good guess" of where the central bank is heading if the economy continues in its current direction, Powell said yesterday.

·     The US dollar rebounded from a more than one-month low hit earlier, while Treasury yields were near session highs late day as the 10-year topped 3.8% and the 2-yr rose as much as 10-bps to 4.8%. Sterling fell despite the Bank of England 50-bps rate hike, the Turkish lira weakens more than 3% to record low against dollar after its Central bank rate decision, the Dollar/yen at fresh 7-month high up 0.75% around 143. Bitcoin extended its rally on Thursday after surpassing $30,000 for the second time this year the day before.

·     Oil priced dropped sharply on Thursday, with WTI crude down 4.16% or -$3.02 to settle at $69.51 per barrel while Brent slid -$2.98 or 3.86% to settle at $74.14 per barrel, erasing gains from the previous session. On Thursday the market was cautious after Fed Chair Jerome Powell said two more interest rate hikes of 25 basis points each by the end of the year was "a pretty good guess".




WTI Crude















10-Year Note





Sector News Breakdown

Consumer Staples & Restaurants:

·     In Food/beverages: BUD was upgraded to Buy from Hold at Deutsche Bank saying they believe recent underperformance implies a permanent reduction in Budweiser’s U.S. business, though its proprietary survey data suggests these headwinds are likely to fade.

·     In restaurants: DRI Q4 sales rose 6.4% y/y to $2.77B, in-line with consensus while comparable sales +4% vs. +11.7% y/y (Olive Garden comp sales +4.4% and LongHorn comp sales +7.1%); Expects full-year EPS of $8.55-$8.85, vs consensus estimate of $8.78.

·     In tobacco: WSJ reported the number of e-cigarette products sold in the US increased 47% over almost three years ending in December 2022, a study found, amid a proliferation of flavored options that often appeal to younger people. 



·     IRBT shares fell after Reuters reported the European Commission competition watchdog prepares to probe AMZN’s acquisition bid for the robot vacuum cleaner maker. The EC is scheduled to launch a four-month investigation following the end of its preliminary review of the deal on July 6th (Amazon made a $1.7 bln proposal for iRobot in August last year).

·     Discount stores extend recent gains: DG rises for an 8th straight session, and DLTR rises for 7th time in 8-days after upbeat long-term guidance this week boosted discounters.

·     Ocado Group (OCDDY) shares rise after the Times reported potential takeout interest from big tech co’s, including AMZN

·     OSTK shares jumped over 20% after winning an auction for Bed Bath & Beyond’s intellectual property, digital assets, for $21.5 million during a bankruptcy-run auction.


Leisure, Gaming & Lodging:

·     In autos: TSLA downgraded to Equal Weight from Overweight at Morgan Stanley on valuation, while raises price tgt to $250 from $200 saying Bear Case valuation to $90 from $70, and Bull Case valuation to $450 from $390. Ford (F) is getting $9.2 billion to build EV battery factories in the US.

·     Online travel: group mostly higher with gains in EXPE and BKNG though lodging and hotel stocks lagged (ABNB, MAR).


Homebuilders, Building Products, Home Furnishing:

·     In Homebuilders: KBH another strong beat and raise in builders (follows LEN results last week) as posted F2Q23 (May) EPS of $1.94 versus consensus estimate of $1.31 and total sales of $1.8 billion were well ahead of Street around $1.4B and 21.4% gross margin above the top end of the range. KBH raised prices in 70% of communities during 2Q, held price at 20% and lowered prices in 10% versus cutting price in 50% of communities during F1Q23.



·     In Utilities: NRG boosted its share repurchase program to $2.7B from $1B (the co has been facing pressure from activist investor Elliott Investment for a strategic overhaul); XEL downgraded to Market Perform from Outperform at BMO Capital to reflect the lower-than-expected terms of the company’s regulatory settlement in Colorado.



Banks, Brokers, Asset Managers:

·     In payments: UBS said shares of EEFT, AFRM, FOUR, MQ have the most downside risk and – FIS, GPN, WU, SQ, PYPL have the least downside risk per 2024 downside scenario analysis. The firm noted companies with the most exposure to discretionary spend, SMBs and balance sheet risk screen negatively on downside revenue and earnings potential.

·     In financial services: FDS shares dipped after results and guidance, saying it sees FY23 Organic ASV Plus Professional Services growth at lower end of $145M-$175M and sees FY23 rev at lower end of $2.08B-$2.1B range.

·     In insurance: ROOT added to late day gains yesterday after the WSJ reported that Embedded Insurance has made multiple approaches and offered to acquire Root for $19.34 per share, citing people familiar with the matter



Biotech, Pharma, MedTech:

·     ALVR said 20M share offering priced at $3.75 for $75Mm raise; 24% discount to last sale.

·     ASLN said it entered a licensing deal with privately-owned Japanese company Zenyaku Holdings for sale of Aslan’s skin disease drug.

·     CDMO shares slumped as posted a solid 4Q23 beat, while backlog/bookings both came in ahead of expectations, but guided FY24 revs to $145M-$165M, below consensus $181M.

·     HBIO to join the Russell 2000 and Russell 3000 Indexes effective after the U.S. market opens on June 26, 2023.

·     IGMS 3.29M share Spot Secondary priced at $8.00.

·     ROIV reported maintenance data of its ulcerative colitis drug, RVT-3101, that showed a slight increase in efficacy over earlier results; rate of clinical remission improved to 36% at week 56 from 29% at week 14.

·     SHC shares jumped after saying it finalized the settlement of hundreds of legal cases over illnesses allegedly caused by ethylene oxide emissions from a former plant of its Sterigenics unit.

·     SRPT announces FDA approval of ELEVIDYS, the first gene therapy to treat Duchenne Muscular Dystrophy, but shares fell on harsher language saying “the agency will review the data from this trial as quickly as possible to consider if further action, such as a revised indication of withdrawal of Elevidys, may be necessary.”

·     TRUP shares add to yesterday’s -17% decline after California released an Objection Letter to the pet medical insurance provider’s proposed rate increase of 28% by cutting it to 12.6%.

·     XOMA acquires royalty and milestone economics to phase 3 first-in-class orphan disease asset for Niemann-pick disease type c (NPC) and phase 2 oncology asset.


Industrials & Materials

·     In Aerospace: parts supplier SPR shares fell after saying it suspended factory production at its plant in Wichita, Kansas after workers rejected a proposed four-year deal and said they would begin a strike on June 24 (SPR is a key parts supplier to plane maker BA).

·     In Industrials: GMS beat Q4 sales ($1.3B vs. est. $1.27B) and profit expectations on rising levels of commercial construction and resilient pricing of wallboard, ceilings, and construction products; MEI shares slumped following Q4 profit miss.

·     In transports: FDX erases all its earnings-related losses yesterday (posted qtrly rev miss and lower guidance), as transports in general outperform broader market; in rails, (CSX, NSC, UNP), some 20,000 railway workers will strike on July 20, 22 and 29 as part of the ongoing national rail dispute, the RMT union announces.

·     In metals: aluminum producer AA downgraded from Equal Weight to Underweight at Morgan Stanley and cut tgt to $33 from $43 saying it sees material downside to consensus estimates; in steels, CMC posted a top and bottom line Q3 beat and said it expects financial performance to remain strong during the fourth quarter of fiscal 2023.

·     Chemicals: Bank America cautious on chemicals, downgraded DOW to Underperform and lowered ratings on CE and CC to Neutral and cut tgts and estimates across the board noting US commodity chemical companies have very back-half weighted earnings expectations for 2023. Considering much of these businesses are tied to North American and European construction, this weighting run counter to normal seasonality.

·     In agricultural chemicals: MOS reported potash revenue of $672M for April/May, down from $976M a year earlier, while phosphates revenue for the period was $948M, down from $1.03B a year earlier (said sees Q2 potash volumes high end of range and phosphate vols low end).



Hardware & Software movers:

·     In software: SAP upgraded to Hold from Underperform at Jefferies and raise price target to EUR 115 from EUR 105 saying the firm’s prior bearish view has now played out and is now trading at a discount of 12% on price to earnings basis and 18% on FCF to MSFT. PANW trades back near all-time highs as software names rebound. AMZN’s AWS is investing $100 million in generative A.I. center in race to keep up with Microsoft and Google Amazon’s cloud unit said Thursday that it’s allocating $100 million for a center to help companies use generative artificial intelligence.

·     In IT Consulting: ACN shares slip as reported an in-line Q3 with mixed bookings ($8.9B vs. $9.39B est.), guided 4Q revs light at the mid-point and FY revs tweaked a touch lower; now expects revenue growth to be in the range of 8%-9% in local currency, vs. prior 8%-10%. DOCN was downgraded to underweight from Neutral at Piper citing high SMB exposure, and a likely top line cut coming given the firm’s analysis of customers.

·     In Hardware: LOGI announces new $1B share buyback.



·     In semi-equipment: AMAT said it will invest $400 million over four years in a new engineering center in India. Indian Prime Minister Narendra Modi had met with the company’s CEO Gary Dickerson in Washington on Wednesday.

·     Bank America said Generative AI networking silicon could 5x to $10bn+ by CY27E as large language model servers drive 10x+ higher data/bandwidth BAML discusses evolution in high-speed networking switches (InfiniBand vs Ethernet) and in electro-optical (interconnects) – NVDA still Buy (compute + networking), raise AVGO tgt to $1050 (Ethernet switch, compute ASIC), and up MRVL tgt to $75 (optics, ASIC).


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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