Closing Recap

Thursday, May 11, 2023

Index	Up/Down	%	Last
DJ Industrials	-221.29	0.66%	33,310
S&P 500	-7.06	0.17%	4,130
Nasdaq	22.07	0.18%	12,328
Russell 2000	-14.81	0.84%	1,744

 

 

 

 

 

 

 

 

 

U.S. stocks finished mixed after large cap tech outperformed small caps all day, with the Nasdaq finishing higher and the S&P closing near its best levels. Communications and Consumer Discretionary were the few bright spots as large cap tech strength in AMZN (8-day win streak), GOOGL (9-month highs), META, NFLX helped pare Nasdaq losses. DIS shares fell after quarterly results showed they lost subscribers for its Disney+ service, weighing on the Dow Jones Industrial Average. Commodity stocks/prices underperformed broader markets, with gold, silver, copper prices tumbling after Chinese inflation data raised demand concerns while the rebound in the dollar also weighed on commodity prices. Financials were mixed as regional banks came under pressure after a company update showed more deposits flee from PACW (raises concerns of other regional banks). The U.S. dollar rose as the Bank of England raised its key interest rate to 4.5% from 4.25%, at its highest level since October 2008. Officials signaled they might be done raising interest rates, while the ECB made clear that it isn’t ready to pause its campaign against high inflation. Signs of cooling inflation (PPI) and labor market raised concerns as the yield curve remained inverted.

 

Economic Data

·     Weekly Jobless Claims jumped to 264K from 242K prior week and above ests of 245K; the 4-week moving average rose to 245,250 from 239,250 prior week; continued claims rose to 1.813M from 1.801M prior week and U.S. insured unemployment rate unchanged at 1.2%.

·     Like yesterday’s CPI data, today’s April y/y PPI decelerates as headline Producer Price Index (PPI) M/M for April rose +0.2%, below the +0.3% est. and PPI Headline Y/Y for April rose +2.3% vs. est. +2.4% (and down from the +2.7% last month). Core PPI or excluding Food & Energy for April rose +0.2%, in-line with consensus and Y/Y core +3.2% vs. est. +3.3% (down from +3.4% prior).

·     China CPI, PPI data: China’s annual CPI inflation eased more-than-expected to 0.1% in April from 0.7% previously. Annual services inflation remained the highest category at 1.0%, while annual food inflation declined to 0.4%. China’s annual PPI inflation fell more-than-expected to 3.6% in April, posting its biggest drop since May 2020. PPI inflation deflationary for 7 months.

 

Commodities

·     Oil prices fell -$1.69 or 2.33% to settle at $70.87 per barrel along with weakness in the broader commodity sector. Brent Crude -$1.43 or 1.87% to settle at $74.98 per barrel. Natural gas prices finished flattish despite slightly bearish weekly natural gas data as the EIA said gas inventories rose by 78 billion cubic feet last week versus forecasts for a 74-bcf rise.

·     Gold prices shed $16.60, or 0.8%, to settle at $2,020.50 an ounce, while silver fell $1.23, or 4.8%, to settle at $24.42 an ounce, posting the biggest one-day percentage decline since February. Industrial metals hit too with July copper down -$0.13, or 3.4%, to end at $3.71 a pound, the lowest since late November. Weakness in Chinese inflation data raised demand concerns while the dollar rebound also weighed on commodity prices.

 

Currencies & Treasuries

·     The U.S. dollar index rose +0.5% back to the 102 level after hitting 52-week lows of 100.78 in mid-April as the euro falls to 3-week lows testing the 109 levels while Sterling slumped -0.85% to around the 1.25 level after the Bank of England raised interest rates for the 12th consecutive time, up 25-bps in-line with expectations. Fed funds futures traders are pricing in a pause before expected rate cuts in September. The Fed’s target range stands at 5% to 5.25%.

·     The U.S. Treasury sold $21B of 30-year bond at high yield 3.741% vs. 3.756% when issued prior with a bid-to-cover ratio 2.43, as primary dealers take 10.21% of U.S. 30-year bond sale, direct 17.36% and indirect 72.43%. Treasury yields dipped early and held lower after the auction.

 

 

Macro	Up/Down	Last
WTI Crude	-1.69	70.87
Brent	-1.43	74.98
Gold	-16.60	2,020.50
EUR/USD	-0.0067	1.0913
JPY/USD	0.17	134.52
10-Year Note	-0.037	3.399%

 

 

Sector News Breakdown

Consumer

Consumer Staples & Restaurants:

·     In food: BYND shares hit all-time lows after a smaller-than-expected Q1 loss on cost controls and easing supply chain pressures – Q1 better than feared qtr on Revs and EBITDA and better margins but Q2 rev guidance of $106m was below consensus of $122M; USFD reported quarterly beat; UTZ Q1 sales slight miss and only raised low end of EBITDA and FY sales just reiterated.

·     In restaurants: CAKE shares slumped on earnings results while DNUT advanced on its results; NDLS reported 1Q23 results that saw revenues that were slightly below expectations while restaurant level margin results beat expectations allowing NDLS to report above consensus adjusted EPS and adjusted EBITDA results.

 

Retailers:

·     TPR rises on results, helping lift luxury retail (Q3 EPS $0.78 vs. est. $0.59; Q3 revs $1.51B vs. est. $1.44B; raises FY23 EPS view to $3.85-$3.90 from $3.70-$3.75 and ups sales growth view.

·     DDS Q1 EPS $11.85 tops consensus $10.77 on slightly better revenue of $1.58B saying they achieved a retail gross margin of 45.6% on a sales decrease of 4% as customer activity declined in the back half of the quarter.

·     WW shares fall after its top shareholder Artal Group S.A. sold its remaining stake in co, selling 14.82M share Block Trade priced at $7.25.

·     YETI Q1 beat 18c vs. est. 15c on modest sales (wholesale revs beat DTC missed); margins 50bps ahead and reit FY guide (very 4Q weighted following the stop sale announcement).

·     In research, TD Cowen said Macy’s (M) remains long term pick over KSS in department stores on inventory mgmt. & promotional balance.

·     In autos: GT rises after activist investor Elliott Investment Management reported a stake and plans to seek five board seats, as well as sale of its store network https://bit.ly/3Me6Y2J

 

Financials

Banks, Brokers, Asset Managers:

·     The U.S. Federal Deposit Insurance Corporation (FDIC) proposes special assessment fee on larger banks to recoup losses to insurance fund incurred by recent bank failures; estimates 113 banks would be subject to special assessment; FDIC says first $5 bln of uninsured deposits at each firm would be exempt from fee; FDIC says it would collect fee over eight quarters beginning June 2024, which could be extended or shortened as needed; FDIC estimates banks with over $50 bln in assets would pay over 95% of the fees, no banks under $5 bln would pay

·     In regional banks: PACW shares tumble after a 10-Q filing showed as of 5/10, immediately-available liquidity (on-balance sheet liquidity & unused borrowing capacity) was $15B; week ended 5/5, deposits fell about 9.5%, with majority of decline on May 4 & 5 and at 3/31, had $341.7M in cash & cash equivalents; said believe cash and cash equivalents, with future dividends from bank, sufficient to fund holding Co’s cash flow needs over next 12 months. Lots of weakness late days with shares of CMA, BOH, FHN falling sharply.

·     In brokers: HOOD reported quarterly better results Q1 monthly active users (MAU) increased 0.4 mln sequentially to 11.8M and said they will allow 24-hour trading between 8:PM ET Sunday thru 8:00 PM ET Friday in 43 different securities and all customers will have access by June.

·     In FinTech: SQ double downgraded from Buy to Underperform at CLSA and cut tgt to $63 from $93 on concerns around the macro environment now eclipse its ongoing enthusiasm around prospects for long-term growth.

·     In PE: BX is in talks with regional banks about forming partnerships where they would make loans that the firm funnels to its insurance clients, underlining the growing heft of private capital’s heavyweights in financial markets https://bloom.bg/3MiF2ef

 

Healthcare

Biotech, Pharma, and Services:

·     GSK said it intends to sell up to 240 mln ordinary shares in Haleon.

·     IBRX shares tumbled after the FDA declined to approve the company’s marketing application for a type of bladder cancer treatment in its present form, citing deficiencies related to inspection of IBRX’s third-party contract manufacturing organizations.

·     JAZZ Q1 adj EPS $3.95 vs. est. $4.24; Q1 revs $892.8M vs. est. $895.43M; reaffirms FY23 adj EPS.

·     CDNA shares slide after withdrawing its 2023 revenue outlook citing uncertainties around the Centers for Medicare and Medicaid Services’ (CMS) policy on transplant testing and reported Q1 revs of $77.25M, missing the $80.6M consensus view.

 

Industrials & Materials

Transports

·     Dow transports were broadly lower with industrials and materials weakness; JPMorgan was positive on truckers and rails, upgrading NSC, JBHT to Overweight & SNDR raised to Neutral saying spot truckload rate momentum just recently hit a floor for the cycle. Intermodal providers will also benefit from the shift in TL momentum.

 

Materials, Metals & Mining

·     In lithium: ALB upgraded to Overweight at Keybanc with a PT of $270 on improved risk/reward in lithium, following last week’s earnings as views the supply/demand outlook for lithium as balanced over the next 12 months, which should at least support prices at current levels.

·     In metals: aluminum producer AA upgraded to Outperform at Credit Suisse and add it as a top pick, as it sees LME aluminum prices recovering over next year as global demand cycles higher, China/EU supply remains limited by energy constraints; NUE has approved the repurchase of up to $4.00 billion of the Company’s outstanding common stock.

·     In chemicals: NTR lowered its FY23 EPS view to $5.50-$7.50 from prior view of $8.45-$0.65 saying fertilizer prices owed to Western sanctions on Russia and Belarus weighed on demand (followed a miss from MOS earlier this month in the ag chemical space.

 

Technology

Internet, Media & Telecom

·     In Internet: GOOGL extending gains after explained yesterday at its developer event how generative AI will be implemented in its products: Bringing it to search, to Gmail for help writing emails, immersive view for Google Maps. Chinese Internet names outperform behind better results from JD for the quarter (BABA, BIDU).

·     In media: DIS reported in-line Q2 top and bottom line but shares fell as total subscribers across Disney+, Hulu and ESPN+ missed estimates as they rose to 231.3 million from 205.5 million last year, but was -1.4% Q/Q and below ests around 238.8M; Q2 total Disney+ paid subs down -2% Q/Q to 157.8Mm vs. est. 163.5Mm; Hulu subs were flat (more)

·     In digital advertising: TTD Q1 revs rose 21% y/y, and were 5% better, EBITDA 37% better than Street and raises its ’23 topline trajectory to 19% from +16% given better than expected opex leverage; DV reported another solid quarter and raised its FY23 outlook, and 2Q23 guidance was in-line with expectations. MGNI Q1 revenue ex-TAC beat the consensus by $6 million, although EBITDA only matched the Street.

 

Hardware & Software movers:

·     In electronics: SONS shares slide after lowering 2023 revs view to $1.63B-$1.68B from prior $1.7B-$1.8B citing softening consumer demand and channel partner inventory tightening.

·     Software: APP reported 1Q results that beat consensus/guidance, driven by record quarterly revenue for Software Platform; Q1 revs $715M tops $693.5M estimate and guides Q2 revs $719M-$730M vs. est. $709M. U delivered better than expected Q1 results, exceeding the consensus view on revenue and profit and increased the low-end of their FY23 revenue guide by $30M and the low-end of their AEBITDA guide by $20M. RBLX upgraded by two analysts. Goldman Sachs downgraded TWLO, BSY and RNG to neutral and TTGT to sell to reflect updated views on the technology companies following first-quarter earnings.

·     In Components & Parts: FLEX posted better-than-expected March Q, driven by strong demand from energy, auto and healthcare markets, offsetting continued weakness in consumer and guided June-Q (1QFY24) of $7.25bn at midpoint, below the consensus

·     IT Services & Consulting: DOX reported 2Q23 organic constant currency (CC) revenue +8.2%, above estimate and in the USD, North America +7.4% and Europe +16.6% more than offset Rest of World -1.4%.

·     In the 3D sector: DM shares fall as reported 1Q:23 adj EBITDA of ($24.4M) vs the Street at ($22.8); revenues of 41.3M were also below the Street of $48.6M, while reiterating FY23 guidance with revenues of $210M-$260M and adj EBITDA loss of ($25M)-($50M).

 

Semiconductors:

·     AAPL supplier Hon Hai missed sales owing to a persistently weak Android phone market.

·     AMD positive mention at Morgan Stanley saying AI opportunity looks to be multiples of their initial assessment of $100Mm.

·     ENTG shares rise after earnings results to best levels since September.

·     NVDA places additional orders requiring TSM CoWoS, Digitimes reported.