Closing Recap

Thursday, November 02, 2023

Index	Up/Down	%	Last
DJ Industrials	564.47	1.70%	33,839
S&P 500	79.92	1.89%	4,317
Nasdaq	232.72	1.78%	13,294
Russell 2000	44.51	2.67%	1,714

 

 

 

 

 

 

 

 

 

The rally in U.S. stocks continued this week, rising for a 4^th straight day in what has thus far been a “perfect storm” of news events bolstering risk assets, while also lowering Treasury yields (10-yr hit 3-week lows of 4.62%). Several key macro pieces have fallen into place, helping the S&P 500 back above its 200-day MA of 4,245, after the Federal Reserve’s decision to pause interest rates Wednesday (as expected), and Federal Reserve Chairman Jerome Powell hinting the FOMC may now be finished with rates. Powell said late yesterday, the Fed “has come very far with this rate-hike cycle” and said, “we are close to end of the cycle.” That started the ball rolling late afternoon as stocks rallied. Also helping, the U.S. Treasury said they plan to sell $112 billion in its quarterly refunding next week, which will raise $9.8 billion in new cash and refund $102.2 billion in securities (the figure was less than forecast and less on longer dated maturities). Economic data has been “softer” with and ISM falling an 11^th straight month below 50 expansion level, and job reports that have been market friendly (ahead of tomorrow’s key nonfarm payroll report). Today, nonfarm productivity in Q3 came in higher than expected, while unit labor costs posted an unexpected decline of -0.8%. Investors also assessed Thursday’s actions by the Bank of England, which kept rates at a 15-year high. Lastly, but not least, the earnings barrage non-stop the last 2-days, busiest stretch of the quarter overall (details below), with Apple (AAPL) earnings tonight with all eyes focused on how well the iPhone 15 is selling! All eleven S&P sectors advanced more than 1%, with the biggest gains in REITs, Energy, and Discretionary as market breadth showed advancers lead declines by 7:1 margin with small caps playing catch-up.

 

Economic Data

·     Weekly Jobless Claims rose to 217K vs. est. 210K and up from the prior week 212K; the 4-week moving average rose to 210K from 208K in the prior week; continuing claims rose to 1.818M from 1.783M in prior week and Insured Unemployment Rate unchanged at 1.2%.

·     U.S. Q3 non-farm productivity rose +4.7%, above consensus +4.1% and above Q2 +3.6%, while Q3 non-farm unit labor costs fell -0.8% vs. consensus +0.7%) and vs. Q2 +3.2% (up from prior +2.2%).

·     Factory Orders for Sept advanced 2.8% M/M to $601.5B, compared with the 2.4% increase expected and the 1.0% rise (revised from 1.2%) in August.

 

Commodities, Treasuries and Currencies

·     U.S. crude oil futures rise, with WTI crude +$2.02, or 2.51% at $82.46 per barrel, snapping its three-day decline, as risk appetite returned to financial markets after the U.S. Federal Reserve kept benchmark interest rates on hold. Brent Crude futures settled at $86.85/bbl, up $2.22, 2.62%. Natural gas futures fell -0.6% to $3.472/MMBtu despite a lower-than-expected rise in US inventories (EIA said weekly stockpile rose 79 bcf vs. est. 81 bcf), as warmer weather forecasts threaten demand. The reported increase of 79 billion cubic feet in US stockpiles was 8.4% higher y/y and 5.7% above the five-year average for this time of the year. Gold prices rose $6.00, or 0.3% to $1,993.50 an ounce, getting a small boost on a pullback in the dollar and Treasury yields, but underperformed broadly given the bounce in risk assets and out of “haven” assets. 

 

Currencies & Treasuries

·     The US dollar fell across the board, with the dollar index (DXY) down -0.7% to 106.10 (more than 100-bps off yesterday’s highs) as investors’ appetite for riskier currencies grew betting the Fed is done raising rates. The Fed left interest rates unchanged on Wednesday. The British pound rose to its highest level in 1-1/2 weeks vs. the dollar after the BoE voted 6-3 to hold rates steady. Against the yen, the dollar fell 0.3% to 150.44, off a one-year high touched earlier this week.

·     Treasury yields extend losses after signs of easing US labor market supporting the case for no more Fed hikes. The 10-year yield hit lows of 4.62% before leveling off around 4.67%, down over 10-bps today alone. Weekly jobless claims rose to 217,000 from an upward revised 212,000. Preliminary 3Q productivity was 4.7%, up from a downward revised 3.6% in the 2Q and consensus of 4.3%. Unit labor costs declined 0.8% versus expectations of a 0.7% rise.

 

 

Macro	Up/Down	Last
WTI Crude	2.02	82.46
Brent	2.22	86.85
Gold	6.00	1,993.50
EUR/USD	0.0056	1.0624
JPY/USD	-0.55	150.41
10-Year Note	-0.115	4.676%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Auto/Rentals: Ford (F) reported a 5.3% drop in total U.S. vehicle sales in October after the United Workers Union staged walkouts – reported total sales of 149,938 vehicles in October, compared with 158,327 units last year. CAR delivered Q3 adj EBITDA of $907M, beating the street by $80M and CAR’s guidance by $57M while share repurchase was also robust, at $470M, which in part drove the $2.60 EPS beat. RACE raised its full-year guidance after profit and revenue grew in the third quarter on a better sales mix and higher demand.

·     In Auto suppliers: BWA cuts FY sales view to $14.1B-$14.3B from $14.2B-$14.6B view prior and narrowed its 2023 adj EPS view to $3.60-$3.80 from $3.50-$3.85 per share and said expects a roughly $110M hit to the value of its sales as the yuan weakens against the dollar. APTV Q3 profit topped views but warned of a $180M hit to sales due to the UAW strike in big autos.

 

Consumer Staples & Restaurants:

·     In Food: MDLZ Q3 EPS and revs topped consensus and raised its 2023 organic net revenue outlook to 14%-15% and adj EPS growth outlook to about 16% vs. prior outlook of +12%; BYND sees FY revs $330M-$340M from prior $360M-$380M after Q3 revs $75M missed to $87.6M est. and said it could exit certain product lines as it retools global operations.

·     In Consumer Products: CLX was upgraded to buy at Citigroup after delivered better-than-expected F1Q’24 results compared to guidance provided post the August cybersecurity incident, and lowered FY’24 guidance, as expected, to account for the FY impact of the cyberattack. In beauty, ELF reported a beat and raise quarter, far better than rival EL this week, but shares pulled back sharply after sharp overnight gains.

·     In restaurants: SBUX Q4 adj EPS $1.06 vs. est. $0.92; Q4 revs $9.4B vs. est. $8.76B; Q4 Comp Store Sales +8% globally vs. est. +6.5%, +8% in North America and +5% in International; CAKE 3Q sales of $830M and adj EPS of $0.39 missed ests while same-store sales increased 2.4% in 3Q; SHAK shares rose after earnings but warned China sales slowed sequentially heading into August, adding that the macroeconomic outlook there and geopolitical environment has grown more uncertain; WEN beats Q3 sales estimates on steady demand for its fast-food offerings and Q3 margins for company-operated restaurants in U.S. up 0.8% at 15.6%; PZZA 3Q earnings more than doubled y/y as bottom line was boosted by higher transactions, along with a drop in food costs and increased transactions boosted N.A. comp sales +3%

 

Retailers:

·     CROX cuts FY revenue forecast to $3.91B-$3.94B from the previous $4B-$4.1B and EPS to $11.55-$11.85 per share down from earlier view of $11.83-$12.22 per share after Q3 beat.

·     ETSY delivered 3Q results ahead of expectations on both the top and bottom line, the company’s 4Q outlook was below Street).

·     KTB cuts the year EPS to $4.35 from prior outlook $4.55-$4.75 and said revenue in 2023 is now expected to rise 1% instead of growing in the low single-digit range.

·     MELI rises as Q3 revs rose 40% y/y to $3.76B vs. est. $3.56B; Gross margin 53.1% vs. 50.1% y/y; unique active users rose 36% y/y to 119.8M and said payment volume rose 47% y/y to $47.26B.

·     RVLV announced mixed results, with revenue faring slightly better than expectations while margins and EBITDA faced pressure (downgraded at KeyBanc).

·     SHOP surges as revs rose 25% y/y to $1.71B topping the $1.67B estimate, and EPS beat helped by lower expenses while sees FY23 revenue up at mid-20s percentage rate on y/y basis.

·     The National Retail Federation said it expects U.S. holiday sales to rise between 3% and 4% during the Nov-Dec period this year, compared to last year. NRF CEO says overall household finances remain in good shape and will continue to support the consumer’s ability to spend.

 

Leisure, Gaming & Lodging:

·     In Food Delivery/Ride Share: DASH posted a smaller Q4 EPS loss on better adj EBITDA of $344Mm vs est. $255.14Mm on revs $2.16B vs est. $2.093B and sees Q4 adj EBITDA $320-380Mm vs est. $253.34Mm. UBER and LYFT agreed to pay a combined $328 million to resolve the New York attorney general’s allegations that the ride-hailing giants cheated drivers out of their wages.

·     In RV/Leisure: CWH top- and bottom-line results beat expectations in Q3, while CEO said the company was focused on clearing out inventory going into 2024.

·     In Online Travel/Lodging: ABNB reported revenue and adj. EBITDA above consensus, driven by stickier-than-expected ADRs, but offered a softer Q4 outlook. Shares of MAR and Hyatt (H) also active after earnings results.

 

Energy

·     In Majors: COP posted a Q3 profit that beat estimates, as the U.S. shale producer benefited from higher output, and raised quarterly dividend by 14%. SHEL launched a $3.5 billion share buyback program on the back of strong third-quarter earnings.

·     In E&P: APA delivered a 3Q23 beat as higher production was partially offset by higher operating expense and guided 4Q reported and adjusted production of 406/334 mboe/d which compares to the prior PSC estimate of 411/333, on higher capex; MRO delivered a 3Q beat driven by higher production and lower opex, which was partially offset by weaker oil pricing vs PSC estimates. The company maintained FY23 production and capex guidance. NOG delivered mixed 3Q23 results, with adj EPS and EBITDAX coming in ahead of est., but FCF lower on higher capex.

·     In MLPs/Pipelines: ET posted lower 3Q revenue despite volumes rising from a year ago across most segments; top line sank to $20.74B from $22.94B y/y and missed consensus.

·     In Solar: industry continues to tumble as SEDG tumbles for the 2^nd time in 2 weeks, lowering guidance again after Q3 adj EPS $0.55 missed the est. $1.12 and revs $725.3M vs. est. $783.92; guides Q4 revenue $300M-$350M, below consensus $718.73M. RUN reported below-consensus numbers and took down its FY23 and abstained from issuing 2024 guidance.

·     In Utility: EIX reported 3Q23 results below consensus, and reiterated 2023 EPS guidance of $4.55-$4.85 and a 2025 outlook of $5.50-$5.90. Management reiterated the 5-7% growth through 2028, which is underpinned by a 6-8% rate base growth.

 

Financials

·     In FinTech: PYPL boosted its FY adj EPS view to about $4.98 from $4.95 (est. $4.92) after Q3 beat; cut its annual forecast of adj operating margin expansion to 75 bps from 100-bps. AFRM shares rise after CNBC reported AMZN to unveil buy now, pay later option from Affirm for small business owners https://tinyurl.com/4tky3fck ; SQ to report earnings tonight.

·     Regional banks got a pop after famed bond guru Bill Gross tweeted “"Regional bank falling knife has hit bottom…I’m buying TFC, CFG, KEY, FHN. Treasury yield picture still uncertain. Best strategy is to invest in the 2/10 curve continuing to disinvert; I.E. buy 2s sell 10s duration neutral — now negative 33. It should go positive over next 6 months."

 

REITs:

·     BXP reported 3Q23 FFO/share of $1.86, which beat both our estimate ($1.85) and consensus ($1.84). However, the Company marginally lowered the midpoint of its FY23 FFO/share guidance to $7.26 by narrowing the range to $7.25-$7.27 ($7.24-$7.29 prior).

·     INN 3 results beat adj. EBITDA expectations by 4%, as favorable contribution from non-room revenue as well as contained expense growth lifted the Company’s results. While RevPAR growth reaccelerated in September to the mid-3% range and management noted encouraging trends into October, RevPAR growth is tracking towards the lower end of its 1.5-5.5% range.

·     NSA results were in line with consensus and management affirmed its FY23 Core FFO outlook. Despite the in-line quarterly result, NSA reported negative SSNOI (-0.1% y/y), driven by a combination of 1.1% SSREV growth and 4.2% y/y operating expense growth.

·     RLJ results were in line with expectations and were within the low end of management’s prior guidance range, as previously disclosed by the Company. The midpoint of 4Q23 adj. EBITDA guidance midpoint is 3% below consensus.

·     TRNO reported 3Q23 FFO that exceeded consensus by $0.01/sh. While SSNOI growth decelerated 160 bps sequentially, the 13.1% print is likely ahead of expectations.

 

Insurance:

·     AFL continues to benefit from favorable claims trends. Variable investment income was $0.02 below plan after being a $0.04 headwind in 2Q23 while FX was a $0.06 headwind.

·     ALL Investment income was $0.23 per share better than we expected. A lower underlying combined ratio added $0.83 per share. Lower than expected service results and other items accounted for the difference.

·     LMND results modestly beat expectations on both the top and bottom lines and management accelerated its timetable for cash flow breakeven.

·     LNC earnings were impacted by $0.84 related to annual actuarial assumption review while there was also $0.41 impact from items related to the Life Insurance business; swings to quarterly profit compared with a loss of $11.49 per share reported, posts higher investment income.

·     PRU reported Q3 after-tax adjusted operating income of $3.44/shr vs $2.37/shr, a year earlier and saw Q3 adj operating income rise 77% to $1.09B, driven by higher net investment spread.

 

Healthcare

Biotech & Pharma:

·     BMRN announced CEO retirement and replacement on 12/1 and on Roctavian, no U.S. patient is dosed to date, leading to lower its 2023 guidance to $10M (from $50-150M).

·     LLY 3Q revenues of $9.5B top ests. $8.97B driven by Mounjaro ($1.41B vs. $1.28B est.) and Tyvyt and Olumiant, while other products were light; leaves rev, gross margin, and spending guidance intact, while lowered its EPS range to $6.50 to $6.70 (from $9.70 to $9.90) on higher IPR&D.

·     MRNA mixed results with larger EPS loss and now expects at least $6 billion in COVID vaccine sales this year vs earlier forecast of $6 billion to $8 billion.

·     NVO results better as headline numbers and guidance in line with the pre-release, with some additional FX adjustments.

·     SRPT 3Q revenues of ~$309M beat consensus of $262M driven by robust Elevidys sales of $69.1M well ahead of its/consensus est. of $24M/$20M respectively; Mgmt remains highly confident of Elevidys label expansion by mid-2024.

 

Healthcare Services & MedTech movers:

·     CI Q3 adj EPS $6.77 vs. est. $6.67; Q3 revs $49.05B vs. est. $48.2B; raises FY23 adjusted EPS view to $24.75 from $24.70 (est. $24.80) and boosts FY23 revenue view.

·     EXAS Cologuard grew 31% YY (total Co +23%); adj EBITDA margin of 9% beat cons ~5.8% & FCF also beat at $31M; modest top-line beat ($12M or +2% vs. consensus) and much more substantial ($20M or +54% vs. consensus) adj. EBITDA surprise.

·     MCK reported Q2 rev and EPS beat, driven by US pharma, balanced by Rx Tech and Med-Surg and raised and narrowed its headline adj EPS outlook to $26.80 to $27.40, though now incorporates lower growth in MedSurg and suggests moderating operating income growth in 2H.

·     NVST downgraded to Neutral at Piper saying yesterday’s 3Q results and full-year guidance update create more questions than answers; Q3 sales and EBITDA both missed, mgmt sees FY23 core sales ‘down slightly’ YoY vs LSD growth prior.

·     QDEL reported 3Q23 revenue of $744mn, in-line with the company’s preannouncement, driving the beat was greater-than-anticipated respiratory product revenue and reaffirmed guidance.

·     TNDM posts 3Q miss and another guidance reduction, with the company lowering its ’23 rev guidance to at least $765M (from at least $785M, -$20M vs. -$108M at midpoint cut last qtr), with US guidance reaffirmed.

·     XRAY lowered FY EPS to $1.80-$1.85 from $1.92-$2.02 and cut sales view to $3.9B-$3.94B from $3.98B-$4.02B, estimate $1.98 after Q3 sales miss – other dental stocks ALGN, PDCO, HSIC

 

Industrials & Materials

Materials, Metals & Mining

·     In Ag chemicals: NTR Q3 EPS and sales well below consensus and lowered its year EPS view below consensus ($4.15-$5.00, consensus $5.28)- said it sees fertilizer demand increasing, with demand in the fourth quarter expected to grow in both the U.S. and Brazil; CF EPS, revs, Ebitda miss – Q3 EPS $0.85 vs. est. $1.03; Q3 revs $1.27B vs. est. $1.30B; Q3 adj Ebitda $445M vs. est. $481M.

·     In Lithium: ALB reported 3Q23 EBITDA of $453M, compared to consensus of $600M and Keybanc said the co missed in all segments with the largest misses coming in Specialties and Ketjen; ALB revised its EBITDA guidance to $3,300M at the midpoint, vs. prior expectation of $4,100M

 

Technology

Internet, Media & Telecom

·     In Media: ROKU surges after quarterly results as total revs up 20% y/y to $912M (tops ests $855M), platform revs up 18% y/y to $787M, active Accounts up 16% y/y to 75.8M, ARPU down 7% y/y to $41.03 and guides Q4 revs in-line; DIS announced that it will acquire the 33% stake in Hulu, LLC held by CMCSA’s NBC Universal for $8.61B. Shares of U.S. media companies (DIS, WBD, PARA) rise after streaming device maker ROKU forecast Q4 rev above estimates.

·     In Content delivery: FSLY reported 3Q revenue / EBITDA of $127.8M / $0.7M vs. Street at $126.6M / $(2.1)M, respectively; Raymond James said with Signal Sciences accounting for ~14% of 3Q revenue, this implies ~$110M in CDN revenue.

 

Hardware & Software movers:

·     CFLT reported disappointing RPO (decelerating to 24% from 34%) and F4Q23 outlook, from incremental macro pressure and an accelerated sales incentive transition plan; downgraded at Bank America and Canaccord after results.

·     CYBR shares hit 52-week highs in cyber security after results and guidance as subscription revs rose 66% y/y to $504M and overall revs topped consensus.

·     EA reported Q2 results slightly ahead of expectations driven by solid execution across its portfolio as EA Sports FC 24 and Madden NFL 24 posted strong user figures translating to solid bookings and FY24 remained static.

·     FROG surges after strong SaaS (+46% YoY) and Enterprise+ (+45% YoY) revenue growth; continues to see increased cloud usage, now accounting for ~35% of total revenue.

·     PCOR downgraded to Perform from Outperform at Oppenheimer following F3Q results calling out eroding demand trends, and a shift in the company growth profile toward the lower end of management’s LT financial framework.

·     PLTR posts Q3 revs of $558.2M and EPS of $0.07 per share, both just above consensus and said sees strong interest in the "AI bootcamps" it launched in Oct to give clients access for one to five days; guides Q4 revs $599M-$603M vs. est. $600.5M.

·     TENB shares slipped as billings missed and SMB segment (25% of revs) was very weak as evidenced by the 11% growth for next Q.

 

Semiconductors:

·     QCOM reported Q4 FY23 revenue/EPS above estimates, with revenue coming in +2% above and EPS +$0.12 above; guided Q1 FY23 revenue/EPS above estimates, with management noting early signs of stabilization in the handset market are forming.

·     QRVO reported F2Q results that beat expectations, while F3Q guidance was slightly above as upside and strength in F2Q was attributed to the (iPhone) ramp and restocking demand from Android customers as channel inventories have normalized.

·     MKSI reported Q3 EPS $1.46, which beat est. $1.02 and revenue of $932M was in-line.