Closing Recap

Monday, May 01, 2023

Index	Up/Down	%	Last
DJ Industrials	-47.25	0.14%	34,050
S&P 500	-1.89	0.05%	4,167
Nasdaq	-13.99	0.11%	12,212
Russell 2000	-0.73	0.04%	1,768

 

 

 

 

 

 

 

 

 

Markets still showing no fear into this week’s FOMC interest rate decision as U.S. stocks finish down slightly as NYSE breadth continues to lag. The S&P 500 hit its highest level since February 3, paced by gains in industrials, and defensive sectors (utilities, healthcare, and staples), while JPM helped the Dow pare losses after acquiring assets of First Republic from the FDC which they said will generate a one-time gain of $2.6 billion. JPM also said they expect over $500 million in profit per year from the acquisition. On top of this, the FDIC is covering $13 billion in losses and providing $50 billion in financing. A big win for JPM, but regional banks suffer on day, including banks that failed to win out on bids for FRC deposits (FITB, CFG, PNC) as well of fears of who else could follow. Heading into the FOMC meeting, Fed swaps almost fully pricing in quarter-point hike Wednesday after this morning’s economic data. Hot manufacturing data strengthened traders’ view that a 25-bps increase was on tap for Wednesday’s Federal Reserve meeting.

 

Tech continues to be the 2023 market leader, predominantly in some of the biggest large cap tech names in the world. @bespokeinvest noted “Nasdaq 100 YTD thru April: +21.08%, Russell 2K YTD thru April: +0.44%; 4-month performance spread: +20.64 ppts. The only other times we’ve seen large-cap Tech outperform small-cap by 20+ ppts over 4 months was in the late 90s into early 2000 and in early 2020. Meanwhile, coming into Monday, AAPL and MSFT accounted for 39% of the S&P’s gain so far in 2023; add in NVDA and META and it’s 60%!

 

The keys this week remain the FOMC policy meeting on Wednesday, and of course another flurry of earnings with Apple (AAPL) the highlight later this week (5/4) after the close. Federal-funds futures contracts show the policy rate finishing the year around 4.72%, up from 4.6% on Friday. Rate “cut” expectations came down today following the morning economic data (prices paid). Bond yields climbed all day as prices fell with the 2-yr Treasury yield up 5-bps at 4.15% and the 10-yr up 10-bps at 3.59%. The manufacturing sector continued to contract in April for the sixth-straight month, the latest Manufacturing ISM survey showed, while prices paid by manufacturers also jumped.

 

Economic Data

·     ISM Manufacturing data for April bounced off 3-year lows at 47.1 after 46.3 prior month, still weak/contracting but above ests 46.8 (now marks the 6-month below the 50 level). ISM survey’s forward-looking new orders sub-index rose to 45.7 last month from 44.3 in March, while measure of prices paid by manufacturers rebounded to 53.2, the highest reading since last July.

·     Construction spending for March rises +0.3% above ests +0.1%, to $1.835 trln, vs Feb -0.3% (prev -0.1%) and March private construction spending +0.3%, public spending +0.2%.

·     S&P Global April final manufacturing PMI at 50.2 (vs flash 50.4).

 

Commodities, Treasuries and Currencies

·     Oil prices fell on Monday, with WTI crude down -$1.12 or 1.46% to settle at $75.66 per barrel (but off lows $74.53) as concern over the economic impact of the U.S. Federal Reserve potentially raising interest rates and weaker Chinese manufacturing data outweighed support from new OPEC+ supply cuts taking effect this month. Nymex Natural Gas lost 9.20c per million British thermal units, or 3.82% to $2.3180 per million British thermal units today; off 76.05% from its 52-week high in Aug 2022 of $9.68 and up 16.42% from its 52-week low of $1.991 hit 3/29.

·     Gold and silver turned lower as the dollar strengthened ahead of the Fed decision this week. Gold prices edged lower, falling -$6.90 to settle at $1,992.20 an ounce (off earlier highs $2,015.40 an ounce), while silver also slides as the dollar rebounds, Treasury yields rise, and stocks push to best level in 2-months ahead of the FOMC rate decision Wednesday. The U.S. dollar rose after better-than-expected U.S. manufacturing data. U.S. Treasury yields opened higher after JPMorgan announced that it would buy most of First Republic Bank’s assets after regulators seized the troubled lender.

 

 

Macro	Up/Down	Last
WTI Crude	-1.47	75.31
Brent	-1.02	79.31
Gold	-6.90	1,992.20
EUR/USD	-0.0052	1.0968
JPY/USD	1.14	137.42
10-Year Note	0.12	3.572%

 

 

Sector News Breakdown

Consumer

Autos:

·     In autos: GM was upgraded to Overweight from Equal-Weight at Morgan Stanley and raised tgt to $38 from $35 citing recent strong results, raised guide, and has demonstrated capital discipline with more to come. Believe that GM will consider much more than just volume as a measure of success in the EV market, prioritizing profitable growth with unit volume.

·     In EV’s: Reuters reported the Biden administration could delay deciding whether to give electric vehicle (EV) manufacturers tradable credits for using electricity generated from renewable fuels, potentially putting the effort to boost EV automakers like TSLA in political limbo.

·     Chinese EV monthly auto data: LI delivered 25,681 vehicles in April 2023 and cumulative deliveries of li auto vehicles reached 335,599 as of end of April; NIO delivered 6,658 vehicles in April, representing an increase of 31.2% year-over-year. The deliveries consisted of 1,713 premium smart electric SUVs, and 4,945 premium smart electric sedans. XPEV delivered 7,079 Smart EVs in April; launched in March, the new P7i sports sedan continues to gather order intake.

·     In other auto headlines: PTRA named James David Black CFO as Karina Padilla Resigns; CVNA after Bloomberg reported creditors holding about 90% of bonds have been pitching the co on ways to pare down debt and improve liquidity, including a proposal for a debt-for-equity swap. RIDE said Taiwan’s Foxconn alleged in a letter that Lordstown was in breach of their investment agreement following a Nasdaq delisting notice.

 

Retailers, Consumer Staples & Restaurants:

·     In beverages: Beer Business Daily reported Sunday that BUD off-premises sales volume, or the amount of beer sold outside of restaurants and bars was down 26.1% y/y in the week ended April 22, based on scan data. Volumes were down 21.1% in the prior week, while so far this year, Bud Light volumes are down 8%.

·     In appliances: Bloomberg reported this weekend that China’s Midea is said to make takeover approach to Electrolux (ELUXY); shares of WHR also moved in sympathy. https://bloom.bg/3NncG3n

·     Homebuilders continue massive outperformance as BZH, CCS, HOV, KBH, MHO, PHM, TMHC, TPH all hitting fresh 52-week highs as housing/homebuilder related names continue upward trajectory – despite a pop in Treasury/mortgage yields today.

Leisure, Gaming & Lodging:

·     In cruise lines: NCLH Q1 revs $1.8B topped the $522M y/y figure and above ests $1.7B while EPS loss of (-$0.30) was smaller than the expected (-$0.42) estimate; said revenue per passenger cruise day rose about 17.5% on a reported basis compared to the same period in 2019; said debt position at $13.1B & liquidity about $1.9B.

·     In casinos & gaming: Macau gross gaming revenue (GGR) rises again to MOP$14.72 billion in April as the big casino shares remain active WYNN, LVS, MGM, MLCO, CZR.

 

Energy, Industrials and Materials

·     In oil sector: Energy stocks biggest laggards in the S&P following a pullback in oil prices; XOM pulling back from all-time highs last week as Goldman Sachs downgraded from Buy to Neutral following sharp multi-year outperformance noting since late 2020, shares have returned +175% vs. the S&P +13% and its closest peer CVX +89%.

·     In Transports: AAL pilots vote overwhelmingly to authorize a strike saying with over 96% of APA membership participating, over 99% voted in favor of authorizing a strike. Railroads NSC, UNP saw strength, helping keep the S&P transports higher early.

·     In industrials: in crane survey, Wells Fargo upgraded MTW to equal weight saying rising project pipelines is boosting sentiment. The firm also upgraded OTIS shares to EW from UW saying the stock looks increasingly attractive for its unique defensive characteristics through the sizable Service profit stream; TPC shares spike after $2.95B design build contact win.

 

Financials

Banks, Brokers, Asset Managers:

·     Big banks rise, regional banks mixed after JPM acquires most assets and assumes certain liabilities of FRC in a transaction expected to add $500M to Net Income, ex: one-time gain of $2.6B post-tax at closing and $2.0B in expected restructuring costs over 2023/24. Getting $173B in loans at a $150B market value, $30B in securities at market value, and $87.5B in deposits, after removing their prior $5B deposit, which will be eliminated on consolidation, and will repay $25B to U.S. banks. FRC was the 2nd largest bank failure in US history, surpassing SBNY and SIVB earlier this year while Washington Mutual was the only bigger bank failure. PNC, CFG, FITB shares tumbled after not winning any of the FRC assets, while asset manager BEN slipped on earnings.

·     The WSJ reported this afternoon lawmakers could reduce the risk of bank runs by significantly raising deposit-insurance protection for accounts used for payroll and other business payments, the Federal Deposit Insurance Corp. said. A targeted move to make sure businesses can get back money intended for such payments if a bank fail was the best of three options the FDIC considered for overhauling the deposit-insurance system, the agency said.

·     In banking research: CARE upgraded to Outperform from Market Perform at Raymond James to reflect the bank’s discount valuation at 87% of TBV as well as solid profitability to support TBV growth, active share repurchases, and a potential re-rating. VLY downgraded to Market Perform, from Strong Buy at Raymond James as feel the risk of revenue challenges has increased due to rapidly increasing funding costs for the industry as well as VLY’s relatively more rate sensitive deposit base and continued strong loan growth for VLY despite a 102% loan to deposit ratio.

·     In payments: GPN said CEO Jeff Sloan will step down and Cameron Bready will replace him, effective June 1 while guided 2023 revs $8.64B-$8.74B as mid-point misses $8.72B est. and EPS $10.32-$10.44, vs. $10.27 estimate. SOFI reverses lower after trading as high as +11% in the pre-mkt following this morn’s EPS & revs earnings beat; raised outlook.

·     In crypto: weaker results in space with Bitcoin falling -3.7% to $28,300, weighing in exchange COIN as well as MARA, RIOT, MSTR and other crypto leverages names.

·     In financial services/Real Estate: ZG upgraded from Underperform to Market Perform at Bernstein and raised tgt to $45 from $35 noting ests have been cut substantially since they initiated coverage last May.

 

Healthcare

Biotech & Pharma:

·     Astellas Pharma Inc. (ALPMF) agreed to acquire ISEE for $5.9 billion, paying $40 a share, representing a 22% premium to Iveric’s closing price on Friday. https://bit.ly/3NrwO4d . The headlines weighed on shares of APLS (Citigroup noted the market may thus initially view the ISEE news as implying APLS’ probability of M&A is materially lower).

·     ASND received a Complete Response Letter (CRL) from the FDA TransCon PTH for adults with hypoparathyroidism, but shares rise as manufacturing issues seen as the “better” of possible negative outcomes (FDA did not request any new studies). FDA cited concerns related to the manufacturing control strategy for variability of delivered dose in the TransCon PTH drug/device combination product. The FDA did not express concern about the clinical data.

·     BIIB was upgraded from Neutral to Buy at Guggenheim and raised tgt to $350 from $270 saying investment thesis revolves around new strategic key drivers for potential growth that promise to level up the company’s commercial and scientific impact across neurology, psychiatry, immunology, and rare disorders areas.

·     CABA receives FDA Fast Track Designation for CABA-201

·     PLRX slides after announces long-term data from the INTEGRIS-IPF Phase 2a trial.

·     TGTX Q1 Sales $7.80M beat $3.38M est.

 

Healthcare Services & MedTech movers:

·     ALHC upgraded to an Outperform rating with $9 tgt as believe now offers a favorable risk/reward profile. Notes ALHC’s stock, along with its peer MCOs, have been pressured YTD due to policy overhangs and concerns over recovering utilization.

·     DOCS was downgraded from Overweight to Equal Weight at Wells Fargo saying they view Doximity as a leading platform with deep domestic healthcare provider reach and strong targeting capabilities that makes it an ideal platform for pharma and health system digital marketing campaigns.

 

Technology

Internet, Media & Telecom

·     In cable: CMCSA upgraded to Buy at Bank America and raise tgt to $49 from $44 citing compelling valuation and that its connectivity business is benefitting from low churn, strong ARPU and commercial growth with cost control driving margin.

·     In Internet/Online: BIDU upgraded to Outperform with a new target price of $160 at Bernstein on potential re-rating of its businesses from GPT related innovation. CDLX announced today a determination of the First Anniversary Payment Amount in relation to the acquisition of Bridg.

 

Hardware & Software movers:

·     CHKP reported Q1 revs of $566M, just shy of $568.9M estimate as EPS of $1.80 topped the $1.74 consensus estimate.

·     QLYS was downgraded to Hold from Buy at West Park Capital citing a large set of industry channel checks and insights from last week’s RSA show.

·     TDC upgraded from Neutral to Buy at Guggenheim with $62 tgt or roughly 60% potential upside vs. current levels based on channel checks that indicate Teradata may be at a positive inflection point in terms of retaining customers and driving revenue expansion via its Cloud strategy.

 

Semiconductors:

·     NVDA made new 52-week highs above $289, moving higher all day.

·     ON reported beat and raise, helping auto related semis (NXPI ahead of its earnings tonight) as Q1 adj EPS $1.19/$1.96B top consensus $1.09/$1.92B and guides Q2 EPS $1.14-$1.28 vs. est. $1.06 and sees Q2 revs $1.98B-$2.08B vs. est. $1.93B)

·     March total semis sales down -19.6% YoY, ex-memory sales down -12.7% YoY, memory sales down -47.3% YoY, according to the Semiconductor Industry Association. Total semis ASPs down -0.2% YoY, ex-memory ASPs up +3.1% YoY, memory ASPs down -44.8% YoY.

·     LOGI was upgraded to EW from UW at Morgan Stanley saying two key pillars of their UW thesis have played out: 1) channel inv is down 55% vs. C3Q22 and back to pre-COVID levels, and 2) negative est. revision risk is more limited post-March CMD.