Closing Recap

Thursday, March 16, 2023

Index	Up/Down	%	Last
DJ Industrials	373.04	1.17%	32,247
S&P 500	68.40	1.76%	3,960
Nasdaq	283.23	2.48%	11,717
Russell 2000	25.29	1.45%	1,771

 

Equity Market Recap

·     Stocks drifted higher all day heading into tomorrow’s monthly option expiration, led in a broad-based rally (NYSE breadth 3:1 advancer leading) as a rebound in financials on several news headlines helped boost sentiment. U.S. markets keep fighting back, with the S&P enjoying a massive 100-point move from lows to high and the Nasdaq with an even wider 350-point bounce off its lows as investor concern in the banking system after two big bank failures last week were assuaged. Overnight, Credit Suisse said it would borrow as much as 50 billion Swiss francs from the Swiss National Bank to stem liquidity concerns, and regional banks jumped midday after a group of banks confirm plan to make deposits totaling $30B in First Republic (FRC). That helped boost sentiment and lift financials across the board, joining a rebound in energy stocks after days of selling pressure and continued strength in large cap tech. The SPX closed Wed 3/8 at 3992. After the close that day Silvergate announced it would shut down. Silicon Valley failed on Fri 3/10. And Signature went down on Sun 3/12. And the SPX is only down less than 1% in that time, an incredible feat given expectations of another 25-bps rate hike by the Fed next week. The CBOE Volatility index (VIX) also tumbled today to 23 level, more than 7-points off weekly highs. Interest rate expectations are back to showing 2 more 25 bps rate hikes this year as governments & big banks support small banks, but futures are currently showing rate cuts beginning in June (sooner than prior views of late 2023). This is providing Bulls more ammo as broad averages rise. After falling roughly 14% from Feb highs coming into today, the Smallcap Russell 2000 rallied. It was a buying blitz on Thursday, pushing the S&P 500 (SPX) back above key technical levels: its 100-day MA of 3,953 and 200-day MA 3,937.

 

Economic Data:

·     Weekly jobless claims fell to 192K vs. 205K estimate and prior week reading of 212K; the 4-week moving average fell to 196,500 from 197,250 prior; continued claims fell to 1.684M from 1.713M prior week and the insured unemployment rate unchanged at 1.2%.

·     February Housing Starts rose +9.8% m/m to 1.450M, well above the 1.315M expected and 1.321M in January while Building permits jumped +13.8% m/m to 1.524M vs. 1.340M expected and 1.339M prior. Feb single-family starts +1.1% to 830K unit rate; multifamily +24.0% to 620K.

·     March Philly Fed Business Outlook declined -23.2 vs. -15.6 consensus (and -24.3 prior) as the employment index fell -10.3 vs. +5.1; futures capital expenditures index was -3.50 vs. prior 7.50 and new orders tumbled to -28.2 vs. prior -13.6.

·     Import prices for February fell (-0.1%) vs. (-0.2%) expected and (-0.4%) prior (revised from -0.2%), while Exports rose +0.2% vs. (-0.1%) consensus and +0.5% in January (revised from +0.8%).

 

Commodities, Currencies & Treasuries

·     Oil prices rebound, as WTI crude gains $0.74 or 1.09% to settle at $68.35 per barrel after falling by 12% over past three days and recovering off a 15-month low $65.71 this morning. Financial market turmoil and U.S. recession fears have weighed on oil prices. A more cautious assessment of China’s growth and demand outlook and comments from IEA this week saying that the oil market is in surplus added to pressure on oil this week. Brent crude futures settle at $74.70/bbl, up $1.01, 1.37%. Gold prices slip -$8.30 to settle at $1,923 an ounce.

·     The U.S. dollar slipped, falling vs. the euro after the European Central Bank (ECB) raised benchmark interest rates by 50-bps ahead of next week’s FOMC meeting. Bitcoin adds to recent advance, now up 24% WTD on pace for the best week since Feb 2021. Treasury prices again all over the place as the volatility continues ever changing interest rate expectations by central banks. The 2-year Treasury yield has moved from 5.05% down to 3.93% over the last 5 trading days, which is the largest 5-day decline in yields (-112 bps) since October 19-26 in 1987 (Black Monday crash was on October 19).

 

 

Macro	Up/Down	Last
WTI Crude	0.74	68.35
Brent	1.01	74.70
Gold	-8.10	1,923.00
EUR/USD	0.0041	1.0616
JPY/USD	0.02	133.42
10-Year Note	0.062	3.556%

 

 

Sector News Breakdown

Consumer

Staples, Retailers:

·     Specialty retail: SIG rises after Q4 adjusted EPS beats estimates; GIII forecasts full-year profit $2.55-$2.65, below estimate of $3.10 as consumers cut down on discretionary spending while co battles with rising costs with higher inventory; PLCE said it plans to close about 100 additional stores, as the money-losing children’s apparel retailer continues to reduce its footprint in a bid to return to profitability; posted in-line Q4 revs $456M (down -10% y/y) and EPS loss (-$3.87); toy retailer MAT said at a conference today it sees Q1 sales down -25% to -30% excluding FX and sees Q1 negative adj. EBITDA of -$30M to -$60M.

·     In discount retailers: DG delivers mixed Q4 results and disappointing profit outlook for the year as it felt the impact of higher interest rates; sees EPS growth of 4% to 6% for year, which implies $10.58-$10.78 per share, below $11.29 consensus. FIVE Q4 EPS $3.07, in-line with consensus and revs $1.12B vs. est. $1.11B; Q4 comparable sales increased by 1.9% vs. est. 0.6%; guides year comps 1%-4% vs. est. 2.65%; guides year EPS $0.59-$0.65 vs. est. $0.69.

·     In research: FL upgraded to Outperform at Telsey and raise tgt to 450 as believe Monday’s investor day could serve as a catalyst for the stock, as new CEO Mary Dillon outlines her transformation plan and financial objectives. ONON was upgraded to Outperform with $25 tgt at Wedbush as believe the company is one of the most compelling growth stories in their space, noting the brand is extremely hot right now (55%-60% revenue growth in 2022E).

·     Staples: APRN reported a narrower loss from year earlier, helped by cost reduction, losing (-$21.8M) vs. prior year loss (-$26.4M) saying Q4 cost reductions expected to drive up to $50M in annualized savings; over 50% y/y reduction in cash burn as of Feb. 28; HNST reported an unexpected Ebitda loss in Q4 and forecast for annual revenue implies a shortfall vs consensus.

 

Energy, Industrials, Materials

·     More weakness in energy, with several oil related companies hitting 52-week lows: CRC, DVN, CEQP, EQH, HP, PXD, SM, SWN, TALOIn oil stocks: Berkshire Hathaway (BRKA) purchased nearly 8-million shares of OXY in recent days, bringing its stake to 208 million shares, or 23% of the big energy company, according to a regulatory filing late Wednesday.

·     In transports: Dow Transports rebound after falling 5-straight days (more than 1,400-point decline during that stretch (15,001 high 3/9 to lows 13,603 yesterday 3/15); FDX upgraded to Buy from Hold at Stifel and raised tgt to $222 from $171 saying emerging consensus around an inventory bottom and pull forward with early signs of execution on two significant tranches of cost savings initiatives present a compelling opportunity. In tankers, Baltic Dry Index Falls 2.68% to 1,560 (index has risen 194% in the past month).

·     In chemicals: AMRS Q4 EPS loss (-$0.46) vs. est. loss (-$0.27); Q4 revs rose 17% y/y to $75.8M vs. est. $104.1M; sees FY23 revenue growth 95%-100% vs. est. $505.65M.

·     In aerospace & Defense: LHX received a request for additional information from the FTC as part of the regulatory review process for the acquisition of AJRD

·     In metals & Mining: NUE guides Q1 EPS $3.70-$3.80 vs. est. $3.84; profitability of steel mills segment is expected to increase in q1 of 2023 as compared to q4 of 2022. Gold miners giving back some recent gains as gold prices pullback with rotation back into riskier assets.

 

Financials

Banks, Brokers, Asset Managers:

·     Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC) announced they are each making a $5B uninsured deposit into First Republic Bank (FRC). Goldman Sachs (GS) and Morgan Stanley (MS) are each making an uninsured deposit of $2.5B, and BNY Mellon (BK), PNC Bank (PNC), State Street (STT), Truist (TFC) and U.S. Bank (USB) are each making an uninsured deposit of $1B, for a total deposit from the eleven banks of $30B.

·     Banks: Credit Suisse (CS) said it would borrow as much as 50 billion Swiss francs from the Swiss National Bank to stem liquidity concerns. Credit Suisse also announced an offer by Credit Suisse International to repurchase certain OpCo senior debt securities for cash of up to about CHF 3 billion. In regional banks. The weakness seen in a handful of regional banks again today early, as volatility remains high (WAL, PACW, CMA, ZION, FITB), but many reversed higher midday on bank assistance, easing liquidity crunch fears.

·     In FinTech: SQ upgraded to Buy from Neutral at Mizuho and raise tgt to $93 from $80 saying detailed fixed vs. variable cost analysis shows up to 30% potential upside to SQ’s 2023 EBITDA guide, with 400-500bps further margin growth potential thereafter.

·     In insurance: ALL estimated catastrophe losses for month of February of $211M or $167M, after-tax; catastrophe losses for February events were estimated at $241M; catastrophe losses for January and February totaled $518M, pre-tax. More weakness in insurance with 52-week lows for: AIG, LNC, MET, PNC, PRU

·     In REITs: MPW downgraded to neutral, lowering tgt to $10 at Bank America saying it has become a show me story; says valuation is compelling but need to see a positive resolution to Prospect & improvements in debt costs to avoid dilutive refinancing or asset sales. DLR files automatic mixed securities shelf. 52-week lows: AHT, BDN, CUZ, CPT, CSR, HIW, HPP, MPW, PDM, SLG, VNO.

 

Healthcare

Biotech & Pharma:

·     ESPR shares plunges after disclosing a dispute over milestone payments with partner Daiichi Sankyo Europe. Any failure to receive or any delay in receipt of the payments may “significantly” impact future capital needs, the US drug company said.

·     MRSN was upgraded to Overweight at JPMorgan on UpRi’s opportunity in platinum-resistant ovarian cancer, on the back of our due diligence into the pivotal study’s mid-year readout.

·     PTRA posts wider Q4 loss of $81M vs loss of -$45.1M last year saying margins were impacted by manufacturing inefficiencies and underutilization related to parts shortages; sees FY23 revs in a range of $450M-$500M, up between 45% and 61% y/y.

 

Technology

Internet, Media & Telecom

·     GOOGL YouTube TV is increasing its monthly subscription price to $73 per month from $65 per month starting in April, CNBC reported this afternoon.

·     BIDU unveiled its much-awaited AI-powered chatbot known as Ernie Bot on Thursday, but disappointed investors with its use of pre-recorded videos and the lack of a public launch.

·     Shares of SNAP, META moved higher initially after the WSJ reported overnight the Biden Administration is demanding that Chinese-owned TikTok be sold or spun-off from its parent company ByteDance or could face a ban in the US given security concerns. Going back to the Trump Administration, the Committee on Foreign Investment (CFIUS) has been examining whether US data is properly safeguarded around US consumers.

 

Hardware & Software movers:

·     ADBE delivered a strong 1Q as DM net new ARR beat guide by 9%, above the ~5% beat last qtr, while DX was in line. 2Q DM ARR guide was above Street & FY was raised by $50m; boosts FY23 adjusted EPS view to $15.30-$15.60 from $15.15-$15.45 (est. $15.31).

·     PATH shares jump after Q4 beat consensus ARR by $28M / ~2% and revenue by $30M / 11%, driving 4Q operating margin of 22% above expectations citing progress on strategic initiatives including pricing, packaging, segmentation, platform positioning, and growth products – ARR grew +30% Y/Y (+34% Y/Y in CC) to $1.2B on $94M of incremental ARR (-12% Y/Y) in 4Q.

·     LPSN shares tumble after missed 4Q estimates and guided 1Q and year well below the Street as it reduces non-core revenue streams and said expects to be EBITDA positive in 2Q and beyond (sees Q1 revs $106M-$109M vs. est. $132.5M and year revs $395M-$410M vs. $550.5M est.)

·     PD shares rise as beat for both the top and bottom lines in Q4 as revenue grew 29% YoY and NRR remained in the 120% range; sees Q1 adjusted EPS $0.09-$0.10 vs. est. $0.03 and revs $102M-$104M vs. est. $104.82M.

 

Semiconductors:

·     Susquehanna upgraded INTC to neutral from negative and both QCOM and SWKS to Positive from Neutral saying they believe the acute portion of the semiconductor downcycle for the handset, PC and Consumer end markets has passed. Industrial and Auto semis yet to correct. Noted Asian checks suggest Chinese handset sell-through was better for both January and February, the first positive surprises in their data for over a year.