Market Review: May 26, 2023

Auto PostDaily Market Report

Closing Recap

Friday, May 26, 2023





DJ Industrials




S&P 500








Russell 2000













Up, up, and away for U.S. equities, closing just off the highs for the day/week into the long 3-day Memorial Day holiday weekend. Bullish sentiment pushed stocks higher on Friday, lifting the S&P 500 to a weekly advance and crossing back above the 4,200 level, as investors overlook “hawkish” Fed commentary and higher PCE inflation data. The tech heavy Nasdaq Composite rises for a fifth straight week and on track for third straight monthly advance, led by semis and mega caps in what has been an unrelenting rally since the start of 2023 for Communications and Technology. With the back-to-back gains in the Philly semi-index (SOX) of 6.8% Thursday (after NVDA earnings) and over 6% again today (on MRVL results and follow through strength), the index rises to 1-year highs and up 10% for the week, 18% for the month and 32% YTD so far. The S&P Technology sector (XLK) is now up 32% YTD and the Comm sector (XLC) is up more than 29% YTD, while Consumer Discretionary +18% YTD (thanks to TSLA, AMZN). If you exclude those sectors, a far worse picture for broader averages as Energy -9%, Utilities -8%, Healthcare -6%, Financials -6%, REITs -3% and Staples, and Materials both down slightly. The heavy weighting in the technology sector is certainly carrying over to broader averages once again today.


The CBOE volatility index (VIX) has been a good gauge for stock market strength, falling over 6% to 18 (big drop from Wednesday highs of 20.81) as it has been unable to sustain/hold above 20 since mid-March levels (last time stocks showed any weakness). Meanwhile the pessimism on Wall Street, as per the weekly AAII survey was unchanged, as AAII reported that Bearish sentiment, or expectations that stock prices will fall over the next six months, was flat at 39.7% (above its historical average of 31.0% for the 74th time out of the past 79 weeks). Bullish sentiment rose 4.5% to 27.4%.


Federal Reserve Bank of Cleveland President Loretta Mester said on CNBC that she is not yet ready to say what the U.S. central bank should do with interest rates at its upcoming policy meeting. “It’s probably not wise to sort of pre-guess what the meeting outcome will be,” Mester said in response to a question as to whether another rate increase is warranted at the June Federal Open Market Committee meeting. But she also said data released Friday underscore that the Fed likely has more to do to bring price pressures back to the 2% target (hawkish commentary has not dented stocks).


Hotter PCE inflation data for April also failing to dent market enthusiasm, coming in slightly above last month’s readings and consensus on a Y/Y basis, Durable Goods data topped estimates, while Personal Income was +0.4% (in-line) and consumer spending made a big jump, rising +0.8% topping +0.5%. The data shows the Fed’s rising rate hike cycle from last year has done little to slow overall sentiment, with consumers still strong and inflation not falling at the rate the Fed would like – puts chances of another rate hike in June or July in play (and no rate cuts forecasted after 3 were expected for 2023 just 3-weeks ago). The 2-year Treasury yield reverses higher up about 6-bps to 4.56% (11-straight daily advances) and 10-yr yield flat around 3.81%.


Calendar next week 5/29-6/2: Monday is Memorial Day – US markets closed; Tuesday 5/30 – some housing data and consumer confidence, no Fed speakers; Wednesday 5/31 – Fed’s Barkin, Bowman, Collins, Harker, Jefferson speak as well as Fed Beige Book; also China PMIs and several Eurozone CPI’s; US data Chicago PMIs and JOLTs; also several Research conferences (JPM TMT, UBS Energy); Thursday 6/1 – Feds Harker speaks, several US data points (ADP, jobless, productivity, ISM); earnings in tech ($AVGO $DELL $MSB $S $VNW $ZS); in Europe ECB Minutes, China final Caixin PMI; Friday 6-2 – the nonfarm payrolls report in US; and start of ASCO healthcare conference takes place.


Economic Data

·     Hotter inflation data as PCE price index for April M/M roses +0.4% vs. est. +0.3% and Y/Y PCE price index +4.4% vs March +4.2% (and prior +4.2%); the Core PCE Y/Y rises +4.7% above consensus/prior +4.6%).

·     Personal income for April rises +0.4% vs. consensus +0.4% and vs March +0.3%; Personal Spending rises +0.8% vs. est. +0.5% and personal saving rate +4.1% vs March +4.1%.

·     Durable Goods Orders for April reported +1.1%, better than the (-1.1%) estimate and vs. previous month of +3.2%; April Durables shipments -0.7% vs March +0.7%; April Durables ex-transportation orders -0.2% vs. est. (-0.1%).

·     University of Michigan surveys of consumers sentiment final May 59.2 above consensus 57.7 and vs. preliminary May 57.7 and final April 63.5; current conditions index final May 64.9 vs prelim May 64.5 and final April 68.2 and expectations index final May 55.4 vs prelim May 53.4.

·     University of Michigan surveys of consumers 1-year inflation outlook final May 4.2% vs prelim 4.5% and final April 4.6% and University of Michigan surveys of consumers 5-year inflation outlook final May 3.1% vs prelim 3.2% and final April 3.0%.



·     Oil prices rise $0.84 or 1.17% to settle at $72.67 per barre ahead of next week’s OPEC+ meeting where Saudi warned earlier in the week of potential production cuts though Russia Deputy PM Novak played down the prospect of further OPEC+ production cuts at their next meeting next week. Novak was quoted as saying additional cuts were not likely.

·     Gold prices edge higher $0.60 to settle at $1,944.30 an ounce, falling a third straight week as the dollar and Treasury yields rose. Investors rotated out of defensive/haven related assets, favoring high growth tech related assets as markets showing no concerns, opting for riskier plays. For the week, the most-active contract fell 1.9%.


Currencies & Treasuries

·     Treasury yields and the US dollar extended gain on the week as a debt-ceiling deal starts to look more likely with both sides more positive as the week progressed. Both the 10-year and the two-year rise back to early March levels, respectively at 3.843% and 4.630% (before both pulled back off the highs). The WSJ Dollar Index rises 0.1%, after early losses.






WTI Crude















10-Year Note





Sector News Breakdown

Consumer Staples, Retailers, & Restaurants:

·     BIG shares tumbled as suspended dividend, posts wider Q1 EPS loss (-$3.40) and said expects sales to fall again in Q2 while failed to give quarterly earnings and full-year outlook; only said sees FY23 sales, gross margin momentum in back half of year.

·     COST Q3 EPS was above consensus at $3.43 versus $3.31 after adding back a $298M charge, or $0.50, from discontinuation of charter shipping activities. Gross margins accelerated, offsetting by higher expenses, leading to an operating profit beat after adjustments.

·     DECK Q4 EPS $3.46 vs. est. $2.67; Q4 revs rose 7.5% y/y to $791.6M vs. est. $720.73M; sees FY24 EPS $21.10-$21.60 vs. est. $21.77 and sees FY24 revenue $3.95B vs. est. $3.97B.

·     GPS rose as posted a narrower Q1 loss and said it is making progress in expanding its Q2 and FY gross margins as it reduces its capital projects investments.

·     HIBB cuts FY24 EPS view to $7.00-$7.75 from $9.50-$10.0 (est. $9.14) and cuts FY24 revenue growth view to flat to up ~2% from up mid-single digits; Q1 EPS $2.74 vs. est. $3.04 and revs $455.5M vs. est. $460.4M.

·     TGT declines a 7th straight day following recent controversy in stores.

·     ULTA slips; Q1 sales up +12.3% vs Street estimate of +11.7%; store comps were up +9.3% vs the Street at +9.4%; EBIT margins came in a bit below at 16.8% vs the Street at 17.4%; only reiterated EPS year view and cut its annual operating margin forecast to 14.5%-14.8% from 14.7%-15%.


Autos, Leisure, Gaming & Lodging:

·     In autos: Ford (F) partners with U.S. electric vehicles leader TSLA on charging tech. Under the agreement, Ford, a distant No. 2 in EVs, gains access to more than 12,000 Tesla Superchargers across the U.S. and Canada starting early next year.


Homebuilders, Building Products, Home Furnishing:

·     In Home Furnishings: RH reported 1Q above consensus, but guided 2Q below and implied a lower FY EPS outlook on lower margins; cut their operating margin guidance as they are now forecasting increased markdowns to clear through discontinued inventory.


Energy, Industrials and Materials

·     In energy: markets await the OPEC+ meeting next week; FTI announces significant Engineering, Procurement, construction, and Installation contract (defined as $75-$250mm contract) from Shell for its Dover development in the Gulf of Mexico; TALO announces the sale of a 49.9% stake in Talos Mexico for ~$125mm; COP buying remaining 50% interest in Surmont from TotalEnergies EP for $3B and making contingent payments of up to $325M.

·     Pipelines: Bloomberg reported the Mountain Valley Pipeline cleared a challenge to a Federal Energy Regulatory Commission (FERC) certificate which allows developers until October 2026 to put the project into service (positive for ETRN, MTZ).

·     In Tankers: The Baltic Dry Index fell 43 points or 3.5% to 1,172, logging its worst weekly decline in more than four months on Friday (-15.3% on the week), weighed down by declining rates across vessels. Capesize index posted its second straight weekly dip, falling 75 points, or 4.3%, to 1,683 points (down about -20% this week); Panamax index lost 22 points, or 1.9% to 1,119 points, down -8.4% for seventh straight weekly fall; and Supramax index was down 34 points, or 3.5%, at 946 points (worst week since mid-Jan., dropping 12.3% for the week).

·     In Industrials: Atmus Filtration (ATMU) 14.12M share IPO priced at $19.50 – note Atmus is the spinoff of CMI’s engine filtration unit (post IPO Cummins owns 83% stake); gold prices jumped early, slipped on dollar and treasury yield bounce as miners were active. China Spot rebar prices at lowest since April 2020; summer construction lull adds to headwinds; demand recovery not seen until Sept at the earliest – Reuters.



Banks, Brokers, Asset Managers:

·     CNBC reported that JPM applied to trademark a product called IndexGPT, working on a software service using AI to potentially offer select investment advice with the article citing a trademark lawyer as saying, "It’s an A.I. program to select financial securities."

·     In payments: UniCredit and Mastercard (MA) expanded their payments partnership, which includes digitalization of payments solutions, according to a statement. AXP shares outperform after Morgan Stanley said they view the recent 15%+ selloff over the past ~3 months as overdone, with shares now trading at the lowest PE multiple since 2019 (ex-COVID), with a 12x P/E pricing in a sharper slowdown in growth.



·     In Multifamily REITs, Raymond James remains with an underweight sector weighting and refreshing estimates while upgrading CSR to Market Perform and downgrading EQR to Underperform. Upgrading CSR supported by stronger than expected spring leasing demand in its core markets of Denver and Minneapolis, as well as an encouraging focus shift to internal operations with the appointment of a new CEO.



Biotech, Pharma & Healthcare Services:

·     EFTR rises after Stifel upgraded the biotech citing interim Phase 2 data for the company’s investigational therapy zotatifin as part of a drug combination in patients with breast cancer.

·     GILD said CHMP adopts positive opinion to extend the use of Remdesivir to treat COVID-19 in people with severe renal impairment, including those on dialysis.

·     NVAX Nuvaxovid receives positive CHMP opinion for full marketing authorization for the prevention of covid in the EU.

·     NVO receives CHMP positive opinion for expanded use in children and adolescents with growth hormone deficiency.

·     PDSB rises after encouraging update from PDSB’s Phase 2 VERSATILE-002 trial was revealed among ASCO abstracts released yesterday.

·     RCUS released multiple trial in progress abstracts (TPS4602, TPS4611, TPS9141, TPS9148, TPS9155, TPS8609) for TIGIT and HIF-2a ahead of ASCO conference next week.

·     WBA said to eliminate 504 roles, which account for 10% of our corporate workforce.

·     ZNTL announced updated data from azenosertib’s chemo combination in ovarian cancer in tandem with the ASCO abstract release.



Internet, Media & Telecom

·     In Media: PARA controlling shareholder Shari Redstone’s National Amusements secured a $125M investment from BDT & MSD Partners – WSJ ; LGF following a better-than-expected loss and revenue in the latest quarter – revs rose to $1.09 billion from $929.9 million and est. of $994.4 million.


Hardware & Software movers:

·     ADSK delivered in-line F1Q revs, and notably higher billings relative to Consensus ($1.17B vs Street: $1.05B) and FCF ($714M vs Street: $437M) on early renewals and strong collections; maintained its revenue, billings, OM, and FCF guidance.

·     PDD surges as reported big first-quarter profit and revenue beats, boosted by strength in online marketing and transaction services.

·     VMW CFO Zane Rowe leaving to take the same role at WDAY; Karen Dykstra will take on the role as CFO & EVP in addition to her current role as a member of the VMware board of Directors

·     WDAY reported better-than expected non-GAAP EPS of 1.31 (est. $1.12), revenue of $1.68B, (est. $1.67B), up 17% y/y, down from 20% last quarter, subscription revenue of $1.53B, (est. $1.52B) up 20% y/y, down from 22% last quarter.

·     In software analyst research: MDB downgraded to Sell at Guggenheim while raising its tgt to $210 from $205 based on modestly raised forecasts; said since issuing FY24 revenue guidance on March 8th for only 15-18% growth, well below consensus of 24% at the time, MDB shares are up 36%; Needham upgrades RNG to Buy after nearly a year on the sidelines in response to surgical cost cuts and stabilized growth and now sees the company demonstrating its capacity to achieve 20%+ OM which should provide ample FCF to pay down its sizable debt load. NEWR upgraded to OP from SP at RBC Capital and raised price target to $95 from $75, following an upbeat analyst day packed with new details and metrics.



·     What a week for semiconductors as the SOX rises about 9% the last 5-days, buoyed by the surge in NVDA shares after the “AI” theme takes hold following massive beat and rev guidance higher. MRVL kept “AI” party going last night after its results. SOX is up 16% MTD and over 32% YTD just five months in, erasing most of the 2022 losses.

·     MRVL delivered upside results as Q1 sales/EPS $1.32B/$0.31 just above Street and Q2 guided up 2%/5%; sequential growth expected through the year led by 5G and rebounding cloud and storage; said AI contribution of $200M ‘22, expected to surpass $400M ’23 and $800M next.


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.

Live Trading

Open an Account

Paper Trading