Closing Recap

Tuesday, November 29, 2022

Equity Market Recap

·     U.S. stocks slip but finish off their worst levels ahead of several potential market moving catalysts tomorrow and the remainder of the week. U.S. stocks rolled mid-morning on thin volume ahead of Fed Chair Powell speaking tomorrow (first comments since Fed meeting), as well as GDP, PCE and ADP jobs economic data. There are also key inflation data points on Thursday as well as the monthly nonfarm payroll report Friday to move the needle. The morning roll was led by large cap tech, with AAPL falling after influential analyst Ming-Chi Kuo of TF International Securities tweeted “total iPhone 14 Pro and 14 Pro Max shipments in 4Q22 will be 15–20 million units less than expected”. That, coupled with general weakness in large cap tech (MSFT, AMZN, GOOGL) ahead of big earnings tonight in space (CRWD HPE INTU NTAP WDAY) led the Nasdaq lower. Energy pared gains on OPEC+ headlines that the group will likely stick with existing oil-output policy at Dec. 4 meeting (as per Reuters) before bouncing. Lots of Fed speakers to digest with Barkin, Brainard, Mester, Williams and Bullard all having spoken over the past 24-hrs. Dow Transports a bright spot for market, moving back above its 200-day moving average level. Market sentiment remains cautious; as per Charlie Bilello, Bears have outnumbered Bulls in the AAII sentiment poll for 35 consecutive weeks (since April 7). With data going back to 1987, that’s now the longest streak of negativity that we’ve seen. Volumes dried up late afternoon with the USA playing Iran in the World Cup.

Economic Data:

·     Consumer Confidence for November reported at 100.2 vs. 100.0 est. and previous 102.5; the Present Situation index at 137.4 vs. previous 138.9 and expectations at 75.4 vs. prior 78.1

·     US September 20-metro area home prices +10.4% from year ago vs +13.1% in August—S&P CoreLogic Case-Shiller. Sept 20-metro area home prices non-adjusted -1.5% vs -1.6% in August

·     U.S. Home prices +0.1 pct in September from August; U.S. Home prices index 392.3 in September; U.S. Home prices +11.0 pct in 12 months through September

Commodities, Currencies & Treasuries

·     Oil prices finish higher, with WTI crude rising $0.96 or 1.24% to settle at $78.20 per barrel. Prices traded as high as $79.65 before fading on a Reuters headline that OPEC+ likely to stick with existing oil-output policy at Dec. 4 meeting, while two OPEC+ sources say group could consider further oil-output cut. Prices resumed upward move along with other commodity prices. Note gas prices in the US have moved down to $3.54/gallon (national average), 29% below their all-time high in mid-June and at their lowest levels since February. Gold prices rise $8.40 or 0.5% to settle at $1,763.70 an ounce for February delivery, recouping most of what they lost a day prior.

·     U.S. Treasury yields rose in choppy trading ahead of a slew of data starting on Wednesday, which could reinforce expectations for a slower pace of Federal Reserve rate increases. Markets await U.S. data on gross domestic product for the third quarter, Chicago manufacturing numbers, factory activity based on the Institute for Supply Management, and payrolls.

Sector News Breakdown

Consumer

·     Retailers: in earnings, CTRN Q3 EPS $0.24 vs consensus ($0.02) and revenue $192.3M vs consensus $186.6M; EBITDA $7.5M vs consensus $5.1M; comps (18.3%) vs consensus (20.5%); quarter-end total dollar inventory +1.3% vs 3Q21; reiterating its guidance for H2 of 2022; HIBB Q3 EPS $1.94 vs consensus $2.52 and revenue $433.2M vs consensus $445.5M; comps +9.9% vs consensus +11.4%; GM 34.3% vs consensus 35.5% – says margins were affected by continued high freight and fuel costs and wage inflation; BIGC Merchants see 31% GMV increase on Black Friday; AMZN files for five-part, notes offering; features two-year, three-year, five-year, seven-year, and 10-year notes

·     Auto sector: GT downgraded to Hold from Buy saying although Goodyear should benefit over time from growth in the electric vehicle market, it is facing pressure from rising costs, unfavorable currency translation, and weakness in the EMEA region

·     Housing & Building Products: in building products, AZEK Q4 adj EPS $0.16 missed the est. $0.17 on better revs $304.6M vs. est. $288.41M and guides Q1 revenue $200M-$215M vs. est. $238.31M and sees Q1 adjusted EBITDA $8M-$12M; BAC CEO Brian Moynihan said activity in the U.S. housing market will probably slow for two years as the Federal Reserve raises interest rates, according to an interview Tuesday

·     Consumer Staples: Nestle (NSRGY) forecast organic revenue for the full year of +8% to +8.5%, saw about +8%; sees year organic revenue +8% to +8.5%, saw about +8%, estimate +8.63%; still sees underlying trading operating profit margin about 17%, estimate 16.9%; BROS selected Christine Barone as its next president. Ms. Barone will take on the role in the first quarter of next year and will report to Chief Executive Joth Ricci; ACI and KR top executive faced tough questions today from lawmakers who worry the grocers’ planned $25B merger will push up food prices

Energy

·     E&P and Majors: COP and QatarEnergy sign two sales and purchase agreements for LNG export covering at least a 15-year period; SU said it estimates 2023 spending to be between C$5.4 bln ($4.02 bln) and C$5.8 bln, higher than its 2022 forecast; nat gas levered stocks AR, CTRA, EQT, RRC rise amid forecasts for cooler weather through mid-December than previously expected

·     Coal, Utilities & Solar; in coal, stocks rallied after AMR announced its operational guidance for the 2023 calendar year – full year guide includes an increase in shipments from 2022 levels, with 15.0 million to 16.0 million metallurgical tons expected to account for most the company’s total shipments of 16.7 million to 18.4 million tons; defensive utilities (XLU) was the worst performing sector in the S&P 500

Financials

·     Bank movers: Royal Bank of Canada to acquire HSBC Canada for C$13.5B in cash; in FinTech & Payments: SQ and AfterPay sellers see more than 61m transactions during black Friday / Cyber Monday shopping weekend; FIS positive mention by Bernstein this morning saying the company is a good candidate for potential activist involvement; MA lost an appeal in a London court on Tuesday against a ruling in a 10 billion pound-plus ($12 billion-plus) collective action that allows the claims of around three million people who have died since the lawsuit began to continue; in lending, the WSJ reported the federal government is about to backstop mortgages of more than $1 million for the first time, a reflection of the rapid appreciation in home prices nationally. The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will rise to $1,089,300 next year in high-cost markets, such as parts of California and New York, from $970,800 this year, the Federal Housing Finance Agency said Tuesday.

Healthcare

·     Pharma & Biotech movers: ALDX announced the submission of a New Drug Application (NDA) to the U.S. FDA for topical ocular reproxalap, an investigational new drug candidate, for the treatment of signs and symptoms of dry eye disease; MIRM shares fell after discontinues study of its drug, volixibat, citing challenges in enrollment in high-risk pregnancy setting

·     Healthcare Services & MedTech Equipment: BSX entered into a definitive agreement to acquire APEN for a cash price of $10 per share, reflecting an enterprise value of approximately $615M; UNH Investor Day today as 2022 EPS unchanged, issues 2023 EPS guidance of $24.40-24.90 vs. cons $24.94 which had moved +9c since 3Q earnings and as such ’23 guidance range is in-line with expectations

Industrials & Materials

·     Transports, Industrial & Machinery: Rails CSX, NSC, UNP bounced early after President Biden said Congress needed to act to avert a potential rail strike amid a railroad labor standoff that threatens to idle shipments of food and fuel. Reuters noted a rail traffic stoppage could freeze almost 30% of U.S. cargo shipments by weight, stoke inflation and cost the American economy as much as $2 billion per day; RYAAY CEO said this is the most optimistic time he has seen in air travel since taking charge of the airline in the mid-1990s as passengers return to the skies; UPS and CP were both upgraded at Deutsche bank to Buy in transport sector note

·     Metals & Materials: CC said it is tracking slightly below low end of FY Adjusted EBITDA guidance $1.40-1.45B vs est. $1.43B coming from 8-K; big bounce in industrial and precious metals today, with AA, CENX, FCX, TECK, VALE, CLF rising

Technology, Media & Telecom

·     Media, Internet: weakness early in large cap tech with GOOGL, AMZN, NFLX lower; strength across US listed China stocks (BABA, PDD, BIDU) amid speculation that unrest in China over Covid restrictions would force authorities to move faster in loosening curbs; AMCX said CEO Christina Spade stepped down from her role less than three months after taking the reins, without providing details for the departure; NXST to replace SABR in the S&P MidCap 400 index

·     Software movers: BILI Q3 revenue rose 11% at 5.8B yuan ($809.66M) topping est. of 5.72B yuan; says added more paying users and raked in higher advertising sales during the quarter; net loss narrows; ENFN shares fell after the company said its chief financial officer had resigned; big night of earnings results with CRWD, WDAY, HPE, NTAP and INTU all due tonight; CRNC shares jump following commentary and guidance at its investor day

·     Hardware, Components & Services: AAPL shares pressured again as TF Int’ analyst (Ming Chi Kuo) said total iPhone 14 Pro and 14 Pro Max shipments in 4Q22 will be 15–20 million units less than expected – (def not helping tech supply chain/semis); UBS cut 2022 and 2023 global personal computers (PC) shipment forecasts by 7.6% and 12.0%, respectively as now project global PC shipments to decline 19.9% YoY in 2022, to 273.9m units, due to softening demand and inventory correction; ROKU was downgraded to Sector Weight at Keybanc saying elements of thesis: outsized growth in connected TV (CTV) advertising, and critical platform for media partners – have not manifested.