Closing Recap

Friday, November 10, 2023

Index	Up/Down	%	Last
DJ Industrials	391.29	1.15%	34,283
S&P 500	67.91	1.56%	4,415
Nasdaq	276.66	2.05%	13,798
Russell 2000	18.09	1.07%	1,705

 

 

 

 

 

 

 

 

 

A buying blitz to end the week! U.S. stocks surged all day, in a surprising and unexpected melt-up despite a lack of positive news flow or data. What a way to end the week as the S&P 500 hits highest levels since late September, rising as much as 1.6% and trading above yesterday highs, topping the 4,400 level for SPX in a broad-based rally, while Nasdaq 100 (QQQ) is up about 10% since its 10/26 closing low! The same three S&P sectors that have been doing it all year did all the heavy lifting again today (and are the highest weighted averages in the S&P) as Technology (XLK) leading +2.5% (now up 44% YTD), Comm (XLC) +1.4% (+42% YTD) and Consumer Discretionary (XLY) +1.5% (+24.5% YTD). While most sectors were higher today, many are still down on the year: Utilities (XLU) -14.5% YTD, Consumer Staples (XLP) -7.5% YTD, Healthcare (XLV) -7% YTD, REITS (XLRE) -6.8% YTD, and Energy (XLE) -4.6% YTD showing a select few are still responsible for the main average returns. Note big tech has ripped the last 2 weeks: 1) NVDA was in an 18% drawdown from all-time highs two weeks ago. Now it’s just 2% from an all-time closing high, 2) AMD extending gains above $119 – now +21% from its close on 10/31 into earnings; 3) MSFT a monster, rising 10 of the last 11-days to new all-time highs – bespoke invest tweeted: "Microsoft has joined Apple as the 2nd individual company that has a bigger market cap than the combined market cap of all stocks in the small-cap Russell 2,000." But the broader market reaction is not indicative of the broader outlook as Zerohedge noted “Nasdaq breadth at all-time lows, while a few Nasdaq companies keep pushing the Index higher.” After snapping the win streaks at 8 for the S&P and 9 for the Nasdaq on Thursday, markets were in full “risk-on” mentality heading into the weekend.

 

European and Asian markets slid overnight after Federal Reserve Chair Jerome Powell dashed expectations that U.S. interest rates have peaked on Thursday, but stocks rose on Wall Street. European markets ended lower as Europe’s Stoxx 600 declined -1.0% as Germany’s DAX dropped -0.8%, Britain’s FTSE 100 was down -1.3%, France’s CAC 40 fell -1.0%, and Spain’s IBEX slipped -0.3%. Stock managed to push higher all day despite a one-two punch data point from the consumer sentiment report where sentiment slumped, and inflation spiked. But markets took the data in stride as the dollar was flat, yields edged higher and commodity prices were mixed. Next up for US markets earnings from big retailers HD, WMT, TGT next week (among others) and the CPI and PPI inflation reports.

 

Economic Data

·     University of Michigan surveys of consumers sentiment prelim Nov 60.4 well below consensus 63.7 and Oct final 63.8; current conditions index prelim Nov 65.7 vs final Oct 70.6 and consumers expectations index prelim Nov 56.9 vs final Oct 59.3

·     University of Michigan surveys of consumers 1-year inflation outlook prelim Nov 4.4% vs final Oct 4.2% and 5-year inflation outlook prelim Nov 3.2% vs final Oct 3.0%.

·     Stat of the day: “In the last year, debt on the federal government’s balance sheet has increased from $31.2 trillion to $33.7 trillion." “This is an increase of some $2.5 trillion in the span of a year. To put it another way, the government has borrowed more than 3x times the 2008 bailout this year to fund its deficits."

 

Commodities

·     After topping $2,000 an ounce recently, gold prices have slumped to three-week lows, falling -$32.10, or 1.6%, to settle at $1,937.70 an ounce, down -3.1% for the week and marked the biggest daily decline since mid-April and first weekly loss in five weeks. Demand for haven assets have eased while more “hawkish” commentary from Fed Chair Powell Thursday added to the downside. Comments from Fed officials that they are not sure if interest rates are high enough to beat down inflation have dented market expectations that the U.S. interest rates have peaked.

·     U.S. crude oil futures rise as WTI oil gains $1.43 or 1.89% to settle at $77.17 per barrel while Brent crude futures settle at $81.43/bbl, up $1.42, 1.77%. Natural gas prices tumbled this week, down -13.7% to settle at $3.033 per million British thermal units, after falling 48.2c on Friday, snapping a 2-week win streak and down all 5-days this week.

 

Currencies & Treasuries

·     This week saw a massive spike in shorter-term Treasury yields with the 2-yr up 30-bps on week at 5.04% while the 10-yr yield up only 5 bps on week around 4.61% (inversion widened back over 40-bps after narrowing to under 20-bps last week). A very weak 30-year bond auction on Thursday was one of the top stories on bond markets after two neutral 3-10yr auctions prior. 

·     China’s largest bank ICBC, suffered a ransomware attack on its financial services unit Thursday, which disrupted the US Treasury market by forcing clients of the Industrial and Commercial Bank of China to reroute trades. Today, the cybercrime gang Lockbit confirmed that it had hacked into the Industrial and Commercial Bank of China – the biggest Chinese lender by assets.

·     The US dollar lost some of yesterday’s bullish momentum fueled by remarks from Fed Chair Powell, who pushed relatively strongly against market expectations for a rate cut. “If it becomes appropriate to tighten policy further (to bring inflation down to 2%), we will not hesitate to do so”, Powell said at an IMF panel on monetary policy.

 

 

Macro	Up/Down	Last
WTI Crude	1.43	77.17
Brent	1.42	81.43
Gold	-32.10	1,937.70
EUR/USD	0.001	1.0676
JPY/USD	0.25	151.59
10-Year Note	-0.000	4.63%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     Markets brace for a big week of earnings next week: on 11/14: HD, on 11/15: TGT, AAP, TJX, on 11/16: WMT, WSM, BBWI, M, SCVL, ROST, GPS and 11/17: BJ, BKE, DXLG.

·     BJ was upgraded to Buy at Gordon Haskett with an $80 price target saying concerns that management had established too high of an FY23 earnings bar, which they subsequently lowered in August, is now well understood.

·     DEO – Diageo shares fell after saying it expected first-half operating profit growth to drop due to "materially weaker performance" in Latin America and the Caribbean.

·     GRPN shares fell as Q3 revs $126.5M miss $129.6M; Q3 adj EBITDA $18.2M vs. est. $22.7M; Co-founder Lefkofsky resigns from board; said plan to raise ~$100M via equity offering, asset sales.

·     PRPL tumbles in the mattress retail sector after lower results and guidance, adding to weakness in sector after SNBR miss and cut guidance earlier in week.

 

Leisure, Gaming & Lodging:

·     In Casinos/Gaming: WYNN posted Q3 results that topped views, but shares fell while Macau casino stocks sank, led by slump in Wynn Macau Ltd. after Q3 earnings missed estimates, dragged by higher-than-expected operating expenses. LNW Q3 AEBITDA was +8%/+10% ahead of US/Street, with strength across all segments – but Truist noted roughly half of the beat was one-timers/pushed out litigation costs – co reiterated its 2025 $1.4B AEBITDA target.

·     In Autos/EV space: BLNK posted a smaller-than-expected Q3 adj EPS loss of (-$0.16) vs. est. loss (-$0.49) on better revs $43.4M and raised FY revs to $128M-$133M from $110M-$120M.

 

Energy, Industrials and Materials

·     In E&P and Oil Equipment: SWN was double upgraded from Underperform to Outperform at Wolfe with $8 tgt saying since the winter, the nat gas rig count collapsed, and gas demand has been supported y/y by power, industrial recovery, and higher LNG imports.

·     In Alternative Energy/Utilities: HE delays 10-Q filing due to contribution towards the fund to compensate victims of Maui wildfires; to contribute $75M-$150M fund announced by Hawaii’s governor; AEE reported EPS of $1.87 vs. $1.85/1.83 BMO/consensus estimates. Management raised the bottom end of their 2023 guidance range by +$0.05 for a new range of $4.30-4.45; PLUG reported weak 3Q results due to a series of adverse events led by acute H2 shortages across the country; gross margin declined; cash burn rate remains elevated & the 10Q has going concern language according to Wells Fargo.

 

Financials

Banks, Brokers, Asset Managers:

·     In Asset managers: Monthly assets under mgmt (AUM) data released: 1) AB prelim assets under management decreased to $652 billion during October 2023 from $669 billion at the end of September; 2) APAM prelim AUM as of October 31, 2023, totaled $132.2 billion; 3) BEN prelim AUM of $1.33 trillion on October 31, 2023, compared to $1.37 trillion at September 30, 2023; 4) IVZ prelim AUM 1,450.5 billion, a decrease of 2.5% versus the previous month-end; 5) LAZ prelim AUM as of October 31, 2023 totaled approximately $220.1 billion. The month’s AUM included market depreciation of $5.3 billion; 6) VCTR AUM of $148.9 billion as of October 31, 2023, and average assets under management for October of $151.3 billion; 7) VRTS prelim AUM of $155.8 billion as of October 31, 2023.

·     In Financial Services: DBD upgraded from Neutral to Buy at DA Davidson saying Diebold maintains a healthy backlog, with inbound orders/demand in ATMs and SCO extending Product revenue visibility at least through mid-year ’24. GDOT shares tumbled after results last night weigh on shares, trades to all-time lows.

 

Healthcare

Biotech, Pharma, and Services:

·     CRGX – Cargo Therapeutics priced its 18.8M share IPO as $15.00 per share.

·     FBIO slides after announces pricing of ~5.9M units at $1.70 for $10M raise.

·     DOCS reported a top/bottom-line beat, with profit margins of 47.7% topping consensus of 40.7% and issued F3Q guidance that was 3.5% above consensus on revenues and ~9% above on adj. EBITDA and raised its FY outlook by 1.3% on the top line and ~6.0% on the bottom line.

·     HOLX better results lift shares; Q4 EPS $0.89 vs. est. $0.84; Q3 revs $945.3M vs. est. $940.0M; sees FY24 EPS $3.90-$4.10 vs. est. $3.95 and enters $500M accelerated buyback.

·     ILMN reported Q3 beat (vs moderated forecasts) though Q4 guide was well below consensus as the new COE sets low bar and said for FY24, set ‘flat YY’ as the initial guide despite (3%) of headwinds going away; expect FY23 revs to decrease 2% to 3% y/y.

·     MRTX said the European medicines regulator’s panel has recommended approval of its treatment for a type of lung cancer, Krazati, following a re-examination of the drug the panel had declined to back for authorization in July.

·     NBIX shares fell after saying NBI-921352, licensed from XENE, failed to demonstrate meaningful seizure frequency reduction in the mid-stage trial in which it was being studied as an adjunctive therapy in adults with focal onset seizures.

·     WBA further lowered its stake in COR, formerly known as AmerisourceBergen Corp, by selling shares worth about $674 million, the U.S. drugstore chain said; Walgreens now owns approximately 15% in drug distributor Cencora.

·     In Dental industry: HSIC upgraded to Buy at Stifel after decade long “Hold” rating saying across a handful of metrics the stock is trading at trough valuation and believes several multi-year headwinds are abating. XRAY was upgraded to Outperform at William Blair saying the company has made meaningful progress, having delivered upside to earnings guidance last 3-qtrs.

 

Technology

Hardware & Software movers:

·     DV 3Q23 results ahead of expectations with revenue of $144mn (+28% y/y) better than the Street of $139mn (+24% y/y) and adjusted EBITDA of $46mn (32% margin) better than the Street of $40mn (29% margin). 4Q23 Guidance was in-line with consensus expectations.

·     EVBG Q3 ARR grew 8% y/y to $399mn, which has been on a decelerating growth trajectory since being introduced several quarters ago according to Bank America; Q4 forecast lower.

·     TTD shares tumbled as delivered Q3 beat but offered Q4 revenue and EBITDA guidance well below expectations saying saw some cautiousness from advertisers starting in the second week of October, but it has since stabilized (sees Q4 revs about $580M vs. est. $610M).

·     Unity Software (U) shares fall as Q3 revs $544M, missing the $553.7M est. and suspended guidance as it begins a comprehensive assessment of its product portfolio and cost structure.

·     VZIO forecasts Q4 adj. EBITDA $7M to $16M, est. $13.9M; forecasts Q4 platform+ net rev. $162M to $167M, est. $164.1M.

 

Semiconductors:

·     What a day for semiconductors as KLAC, LRCX, AMAT jump over 5% in the semi equipment space while overall SOX index rises around 4% in a massive risk on day for technology in general; NVDA 20% and AMD 21% off recent pullbacks.

·     SYNA posted strong F1Q results, which beat, and guided F2Q slightly lower, as Enterprise & Auto continues to undergo inventory destocking – firm said sees F2Q as the bottom, as it is seeing booking stabilization in core IoT and indicates channel inventories are close to normalizing.

·     TSM rises after earlier Nikkei report that Japan eyes $13B in aid for chips, generative AI in stimulus budget.