Market Review: October 03, 2023

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Closing Recap

Tuesday, October 03, 2023





DJ Industrials




S&P 500








Russell 2000













U.S. stocks were in freefall mode about 30-minutes after the stock market opened, tumbling after a better-than-expected JOLTs Job openings reading indicated how resilient the jobs market/economy is, which may lead the Fed to stick to a “hawkish” rate path. Higher yields have been dimming the attraction of growth stocks as well as interest rate sensitive sectors (utilities, telecom, REITs, financials) in recent weeks. Markets are also watching key technical levels as the S&P 500 broke below last week’s lows of 4,238 (SPX), while the 200-day moving average support is lower at 4,200 (it hasn’t traded below the 200-day MA since March). The massive spike in Treasury yields and the U.S. dollar continue to inflict massive damage to sentiment. The JOLTS Job Openings for August were reported at 9.61Mm above the forecast 8.815M and prior month reading of 8.827M, while we still get ADP Private payrolls tomorrow, weekly jobless claims Thursday and Nonfarm payrolls on Friday. Note the S&P 500 has closed “red” 8 of the last 10-weeks. In the last two days, the Russell 2000 (RTY) erased its year-to-date gains (to the lowest levels since May), and the Dow Jones Industrials also turned negative for the year. The Utility sector (XLU) rebounded at midday after hitting 3-year lows earlier. The CBOE Volatility Index (VIX) made new highs, topping 20 for the first time since May. Consumer Discretionary. REITs, Technology and Financials were all down -1.5% or more on the day.


Interesting timing on this stat: The Nasdaq 100 came into the day riding a 4-day win streak despite Treasury yields making new cycle highs almost every day (10-yr hit fresh 17-year highs of 4.8% today). In a more bizarre stat, BTIG noted after a late day rally Monday, the NDX closed with 0.83% gain, therefore keeping alive its positive ‘first day of the week’ streak – rising a remarkable 14 in a row on the first trading day of the week (9/5 was a Tuesday due to Labor Day) for an average return of 0.61%. They also note that the NDX has gone 198 trading days without a -2.5% or worse daily decline (worst day this year was -2.41% in February). It is extremely rare to get through a calendar year without a -2.5% NDX day (last seen ’13).” (We almost hit that marker today!)


Economic Data

·     The nation’s employers reported a large increase in job openings in August, a sign demand for labor remained solid this summer despite the weight of high interest rates. JOLTS Job openings increased by 690,000 to a seasonally adjusted 9.6 million in August from the prior month. That was the highest level since May and beat economists’ expectations for 8.8 million job openings. In August, job openings increased in sectors including business services, finance and insurance, and education.



·     U.S. crude oil futures settle at $89.23 per barrel, up 41 cents, 0.46% after falling to a three-week low in the previous session, on a stronger U.S. dollar, a darkening global macroeconomic outlook and mixed supply signals. Inventory data tonight (API) and tomorrow (EIA), but currency moves impacting commodity prices. Gold prices fell -$5.70 to settle at $1,841.50 an ounce, falling a 7th straight day, beaten down behind a relentless rally in the U.S. dollar and Treasury yields on rising rate hike expectations by the Fed to cool a strong US economy.


Currencies & Treasuries

·     No stopping the upside momentum in Treasury yields as the 10-year hits 16-year highs above 4.81%, the 20-year yield takes out 5% and the 30-year approaches 5%. A non-stop rally for a few weeks now as Fed speakers remain hawkish, data remains strong, and expectations rise for more hikes. There were big moves in currency markets today as the U.S. dollar hits fresh 10-month highs (DXY 107.34), while the yen surged from the weakest levels in a year amid speculation that Japanese officials were acting to slow the currency’s slide. The Japanese yen reached 150.16 per dollar this morning, cheapest since Oct 2022 after the JOLTs jobs report – but then soared nearly 2% in a matter of seconds to as strong as 147.43 per dollar (but ends back near 149). Sterling falls to 6-1/2-month low versus dollar.






WTI Crude















10-Year Note





Sector News Breakdown


Consumer Staples & Restaurants:

·     In Food & Beverages Sector: MKC missed Q3 sales estimates ($1.68B vs est. $1.7B) while EPS of $0.65 was in-line as weaker volumes were offset by better pricing; reaffirmed its sales and operating profit outlook and increased its adjusted EPS view to $2.62-$2.67 from prior $2.60-$2.65; DNUT said it’s exploring its strategic options for Insomnia Cookies, including a potential all-cash sale (the co acquired a controlling stake in Insomnia Cookies in 2018). BFB board approves share repurchase authorization of $400 million. TAP said it sees low single digit growth in net sales revenue, below its prior guidance in August.

·     In Restaurants: WING was upgraded from Underperform to Hold at Jefferies and tgt to $170 from $150 as it sees diminishing overhang from 2H SSS deceleration with expectations reflecting a more realistic, conservative bar. Jefferies also said in dining preview; for WEN, PZZA, JACK and YUMthey expect modest downside risk on weakened demand, inflation-led cost elevation and tighter credit could expose the QSR group to downside risks. Also said BLMN, FWRG top picks in its preview on Casual Diners ahead of 3Q earnings.



·     In Beauty and Wellness: ODD raised its Q3 rev outlook to up 30% at $83M-$90M, above est. $84.3M and prior guide of up 20.5%; raised its Q3 gross margin guidance from 67.5% to 68.5%.

·     In Specialty retail: WRBY upgraded from In Line to Outperform at Evercore/ISI as sees a fundamental inflection story based on product & marketing developments, positive survey results, upside to Street estimates, and an intrinsically attractive and asymmetrical risk-reward.


Leisure, Gaming & Lodging:

·     In Travel & Leisure: ABNB downgraded from Overweight to Sector Weight at KeyBanc as view is margins have reached a NT peak and revenue growth could decelerate to 11% y/y in 2024E as consensus works as room night (RNE) and ADR growth moderates.

·     In Gaming/Casinos: CHDN was initiated with a Buy, $148 tgt at Stifel as argues CHDN is one of the best growth stories across gaming, reflecting a best-in-class pipeline of high ROI expansion projects, robust synergy opportunity and organic growth drivers for historical horse racing.

·     In cruise lines: sector weak after Morgan Stanley cut price and earnings targets amid higher fuel costs and currency headwinds; lowered FY24 EPS by 13% for CCL (tgt to $11), 9% for NCLH and 4% for RCL (tgt to $95 from $110)



·     Kobeissi Letter tweets: "According to Reuters, the US currently has just 17 days of supply left in the Strategic Petroleum Reserves (SPR). This is roughly half the historical average of ~33 days dating back to 1990. Meanwhile, oil prices are still almost 30% above the target price the US set to refill them. Tomorrow, an OPEC meeting kicks off to discuss ongoing production cuts."

·     In Utilities: the sector recovered after a bloodbath early for the interest rate sensitive sector after XLU dropped around -5% on Monday (prices came into the day down 7 of last 8-days). Some bottom fishing in the sector after the XLU hit lowest levels since June 2020. In Solar, SPWR downgraded from Strong Buy to Outperform at Raymond James with $9 target due to the heightened risk of a near-term inventory write-down and resulting balance sheet impact.



Banks, Brokers, Asset Managers:

·     In Banks: BANC said it will run a $4.1 billion, three-year community lending program with Rise Economy, which was formerly called California Reinvestment Coalition (CRC); the plan was made in connection with its merger with PACW that’s expected to close in late 2023 or early 2024.

·     In Asset managers: AB upgraded from Neutral to Buy at Goldman Sachs saying with the stock down 12% YTD, thinks the market is under appreciating AB’s industry-leading organic fee growth prospects and differentiated operating margin expansion. Goldman said they see downside risks to 3Q EPS estimates for capital markets stocks, especially for Traditional Managers (said TROW, JHG and APAM have the most downside vs. Goldman ests).

·     In FinTech: Wedbush said its SMB survey favors PYPL mixed on SQ. Bottom line, with 30MM+ merchants, Wedbush believes this survey points to PYPL’s monetization potential of its merchant-facing platform, especially under the company’s new leadership/CEO.

·     In Insurance: VERY, which is backed by private-equity firm J.C. Flowers, agreed to be acquired by iA Financial Corp. (IAG) for $11.4 a share in cash, in deal valued at $170M, roughly a 100% premium from the prior day closing price

·     In REITs: Charlie Bilello tweets: "Office occupancy in 10 major U.S. cities remains below 50% of pre-covid levels." Tower REITs CCI, AMT, SBAC another casualty of higher rate fears, extending day and YTD losses – CCI lows down -3% (down -35% YTD), AMT -2% (down -25% YTD) and SBAC -4% near lows (down -32% YTD).



Biotech & Pharma:

·     ALXO reports positive interim phase 2 ASPEN-06 clinical trial results of evorpacept for the treatment of advanced HER2-positive gastric cancer; Evorpacept is the first CD47 blocker to show activity in a global randomized study in solid tumors.

·     AMGN shares slipped as FDA staff reviewers said late-stage confirmatory study might not be sufficient to confirm the effectiveness for its lung cancer drug, as the firm pursues a traditional nod for the treatment.

·     AZN said it will pay $425 million to settle lawsuits in the U.S. that claimed its heartburn drugs Nexium and Prilosec caused chronic kidney disease.

·     BHVN 10.227M share Spot Secondary priced at $22.00.

·     PNT to be acquired by LLY for a purchase price of $12.50 per share in cash in a deal valued at about $1.4 billion payable at closing. The transaction has been approved by the board of directors of both companies

·     TAK said it will voluntarily withdraw its lung cancer therapy from the U.S. after it failed to meet the main goal in a late-stage study; said its therapy, Exkivity, did not meet the requirement for U.S. FDA’s accelerated approval.

·     NVAX shares jumped late day as the U.S. FDA authorized the first and only protein-based non-MRNA updated COVID-19 vaccine for use in people aged 12 years and older.

·     NVO shares rose Monday after two (of three) IPR patent challenges to Novo Nordisk’s semaglutide from Viatris were denied by the PTAB.

·     NTLA and REGN announce expanded research collaboration to develop CRISPR-based therapies for the treatment of neurological and muscular diseases.


Healthcare Services & MedTech movers:

·     The new Medicare drug price reduction program enacted through the Inflation Reduction Act (IRA) is moving into its next phase, with all companies whose products were selected for the first round of the program in late August agreeing to participate in the program by the October 1 deadline (ABBV, AZN, BMY, JNJ, MRK, NVS).

·     In Managed Care: MOH said it won’t get a long-term services and support contract to serve in Indiana’s Pathways for Aging program. The Indiana Family and Social Services Administration said the state doesn’t intend to offer a contract. The co backed its 2024 premium revenue outlook.


Industrials & Materials

·     EMR and SYM both initiated at Overweight at Keybanc and Sector Weight on CGNX, ROK, and ZBRA in initiation of coverage on the Industrial Technology sector with a LT positive / ST selective bias on Industrial Automation

·     EMR was downgraded from Buy to Neutral at UBS but raised price tgt to $104 from $97 saying valuation now screens full based on its detailed SoTP analysis, in contrast to the discount highlighted in its March upgrade.

·     ENVX shares fell after announcing it has initiated a strategic realignment of Fab1 in Fremont which will result in a reduction of the workforce by approximately 185 personnel and expects this restructuring to be completed during Q4 and result in annualized savings of about $22M.


Aerospace & Defense

·     BA plans to push production of its bestselling 737 narrowbody jet to a record of at least 57 per month by July 2025, reflecting rising orders and the company’s recovery after the 737 MAX crisis, according to two sources with knowledge of the matter, per Reuters this morning.

·     BAH was upgraded to Buy at Bank America and raised tgt to $130 from $110 citing its better Q1 organic growth (up 16.6%) and hiring momentum and its unique exposure to rapidly growing technologies and modernization efforts supports strong organic growth in the near term.

·     Wells Fargo said for BA they estimate 737 production at 27/month in Q3 (25 in September), lower than its Q2 level (35), with ~237 completed aircraft in inventory, ~17 above the end of Q2, likely due to its latest supplier issue. For Airbus, estimate A220 production at five in Q3 (target six), with A320 Family production at 42 (target 45), A330 at one (target three), and A350 at five.


Materials, Metals & Mining

·     In Chemicals: NGVT was downgraded from Buy to Hold at Loop Capital and cut tgt to $53 largely because of the surge in energy could underpin another upward move in CTO feedstock costs, representing a sustained headwind for the Pine Chemicals business’ margins; and the ongoing UAW strike could create uncertainty regarding near-term (at least 4Q23) results. Keybanc upgraded shares of LYB, WLK, and DOW to Sector Weight from Underweight saying coming out of the 2Q earnings season, 2H23 earnings expectations were largely reset lower. On the brighter side, valuations are starting to look more attractive and expects 2024 volumes in its coverage to be much less affected by destocking, compared to 2023.



Internet, Media & Telecom

·     In Media: NFLX plans to raise prices after the actors’ strike ends, the WSJ reported; said Netflix will likely begin price rise in the U.S. and Canada. WMG was upgraded to Buy from Neutral at UBS and raised tgt to $37 as sees WMG as a LT beneficiary of secular industry trends in music and see the recent pullback as a buying opportunity. WBD said Discovery+ ad-lite subscription will remain $4.99/month in the U.S. In social media: TikTok said it will halt transactions on its platform in Indonesia following the country’s new ban on e-commerce trade on social media.


Semi’s, Hardware & Software movers:

·     In hardware: HPQ was upgraded to Buy from Underperform at Bank America and raised its price tgt to $33 from $25. Separately, Berkshire Hathaway sold another 5.1 million shares of HPQ in recent days according to filings, continuing to reduce its stake (now hold 10.2% stake).

·     In the EMS Sector: JBL said it will embark on a restructuring that includes headcount reductions and costs about $200 million to implement.

·     August total semis sales down 7.0% YoY, ex-memory sales up 0.7% YoY, memory sales down 44.8% YoY as per SIA data late yesterday. Semis ASPs up 14.1% YoY, ex-memory ASPs up 21.3% YoY, memory ASPs down 30.8% YoY (3mma). Semis/core semis sales grew 2.8%/3.2% MoM, with MPUs strongest core segment +7.4% MoM (3mma).


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.

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