Closing Recap

Monday, October 09, 2023

Index	Up/Down	%	Last
DJ Industrials	197.07	0.59%	33,604
S&P 500	27.15	0.63%	4,335
Nasdaq	52.90	0.39%	13,484
Russell 2000	10.55	0.60%	1,756

 

 

 

 

 

 

 

 

 

U.S. stocks squeezed higher with major averages rebounding from overnight declines after Hamas militants launched an assault against Israel on Saturday and its forces crossed the Gaza border into Israel which is controlled by Palestinians. Israel declared war on Hamas and launched retaliatory strikes in what has been a bloody conflict over the last 48-hours. Outside of the geopolitical headlines, news was relatively quiet with bond markets closed for the Columbus Day holiday, allowing investors to not fret over rising Treasury yields for a change. The escalation of tensions in the Middle East and what it means globally is uncertain, leading investors to haven assets as gold prices rise to 1-week highs. Oil prices jumped as the possibility that Iran could be involved in the Hamas attacks, as reported by the WSJ overnight, increases the possibility of stronger sanctions on Iran. Energy names rose (OXY, XOM, CVX) on surging oil amid conflict in Middle East, defense stocks (LMT, NOC, GD, RTX) surged on fears of long-war, companies with presence/operations in Israel (CHKP, TEVA, MBLY, INVZ, TSEM, NICE, CYBR, INMD, ENLT, PGY) saw pressure on fear of operations impact; travel stocks in both airlines (DAL, UAL, AAL) and cruise names (CCL, RCL, NCLH) impacted by the jump in oil prices. Nearly all eleven S&P sectors finished higher with Energy jumping over 3.5% while Consumer Staples lagged. There were no major US economic data points today as federal offices were closed for Columbus Day holiday, Markets are also bracing for the unofficial start to earnings season this week (PEP 10/10, DAL, WBA, FAST 10/12 and then the big banks starting on Friday 10/13). Inflation data this week (PPI 10/11 and CPI 10/12).

 

Commodities & Currencies

·     Oil prices surged, with WTI crude rising $3.59 or 4.3% (biggest one day gain in 6-months) to settle at $86.38 per barrel while Brent crude rose $3.57 or 4.22% to settle at $88.15 per barrel after a shock attack on Israel by Hamas brought renewed instability to the Middle East. Israel has suspended production at the Tamar gas field off its southern coast and will seek alternative fuel sources to meet its needs, the energy ministry said.

·     December gold advanced $19.10, or +1.03%, to settle at $1,864.30, a one-week high after military conflict between Israeli forces and Palestinian Islamist group Hamas raised political unrest in the Middle East, boosting demand for safe-haven assets. Prices touched a seven-month low on Friday after a rally in U.S. Treasury yields.

·     The US dollar saw modest gains overall as the dollar index (DXY) topped 106, while the euro slipped. The Bond market was closed today in observance of Columbus Day. Bond yields have been moving up strongly the last few months, pricing in the higher for longer stance by the Fed, as well as the deteriorating demand-supply balance, among other things.

 

 

Macro	Up/Down	Last
WTI Crude	3.59	86.38
Brent	3.57	88.15
Gold	19.10	1,864.30
EUR/USD	-0.0038	1.0548
JPY/USD	-0.72	148.59
10-Year Note	Was	Closed

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA sold 74,073 China-made EVs in September, a -10.9% decrease while sales of China-made Model 3 and Model Y cars were down 12% from the prior month.

·     The electrical vehicle sector continues to tumble in 2023, with heavy further declines in likes of BLNK, CHPT, EVGO, LI, NIO, RIVN and XPEV.

·     SFT shares tumbled after the online used car seller said late Friday it will file for bankruptcy and shut down its business.

·     VLVLY Around 4,000 United Auto Workers members at Mack Trucks will strike Monday after rejecting a tentative agreement in the latest dispute between the union and auto companies. Some 73% of UAW workers rejected the agreement, the union said in a post on X.

Leisure, Gaming & Lodging:

·     Cruise Lines: CCL, RCL, NCLH shares were under pressure as oil prices rose more than 4% following a surprise attack on Israel by Palestinian group Hamas over the weekend led to fears of a wider conflict in the Middle East. In September, Carnival forecast a higher-than-expected Q4 loss and said it expected a net impact of $130 million from higher fuel prices and forex.

 

Energy

·     Energy stocks amid biggest winners in the S&P today amid the spike in oil prices, lifting the overall XLE and individual stocks such as CVX, XOM, COP, OXY, HES, DVN and others. Oil futures jumped as much as 4% following a seven-session stretch in which they shed over -11% after closing Sept. 27 at a 13-month high of $93.68.

·     In stock news: CVX two liquefied natural gas (LNG) facilities in Western Australia face a new wave of strikes from next week, unions said in a formal notice to the oil and gas major on Monday, after talks on an agreed pay deal fell apart. PTEN upgraded from Neutral to Buy at Citigroup saying the upcoming recovery in U.S. drilling is likely modest by historical standards which they believe is currently weighing on PTEN’s stock.

·     Solar stocks (SEDG, FSLR, SPWR) extend year-to-date losses along with weakness in utilities on rising rate fears. SEDG said today there has been no impact to the company’s ability to deliver services and products due to the situation in Israel and that its manufacturing lines and support infrastructure, as well as sales and R&D teams globally are all working.

 

Financials

Banks, Brokers, Asset Managers:

·     In Alternative Investment: Oppenheimer downgraded OWL and APO to Perform on valuation heading into earnings saying there were a great many positives in the summer of 2023 as in many ways financial markets felt like they were “getting back to normal." But the sharp decline in the bond market over the summer makes U.S. fearful that something, somewhere will sooner or later “break” and cause financial turmoil.

·     In Insurance: NWLI rises after a unit of Prosperity Life Group agrees to buy the life insurer in a deal valued at $1.9B; deal’s value of $500/shr, implies a near 20% premium https://tinyurl.com/k3ubjxy5

 

Healthcare

Biotech & Pharma:

·     ALNY said the FDA failed to approve the expanded use of its drug Patisiran to treat a rare and fatal heart disease, citing insufficient evidence of clinical meaningfulness (FDA essentially decided to overturn the favorable 9-3 vote from the advisory committee prior).

·     ANAB said its skin disease drug, imsidolimab, met the main goal in a late-stage study as the drug helped in clearing pus-filled blisters in patients suffering with generalized pustular psoriasis in four weeks.

·     MRTX to be acquired by BMY for $58 per share, a total equity value of $4.8bB while MRTX shareholders will also receive a Contingent Value Right (CVR) worth $12 per share, which is linked to progress with MRTX1719 in NSCLC. https://tinyurl.com/mpszmpap

·     BBIO said long-term data from an ongoing phase 2 study, which support the potential use of glycosylated alpha-dystroglycan (⍺DG) levels as a surrogate endpoint in limb-girdle muscular dystrophy type 2I/R9 (LGMD2I/R9); said long-term data from phase 2 study of BBP-418 in patients with LGMD2I/R9 at month 21 demonstrate well-tolerated safety profile.

·     For ILMN, the Financial Times reported European Union regulators are set to order Illumina to sell cancer detection test maker Grail, which it had acquired for $7.1 billion in 2021, citing three people with knowledge of the matter. https://tinyurl.com/mpdyr2dx

·     Hospital operators (THC, UHS, CYH): Deutsche Bank noted several factors that have weighed on the industry in recent weeks: the 10y treasury yield is putting pressure with yields going from 4.1% to 4.81% (effecting debt); concerns around physician practice expenses continuing to escalate after 2Q results; shifting of sentiment away from strong utilization to interest rate fears; fears around the impact from GLP-1; California fears on minimum wage increase / Kaiser strike.

 

Industrials & Materials

Transports

·     In Transports: Oil stocks got a broad boost Monday, while transports such as airlines (DAL, AAL, UAL) declined given the sharp spike on oil prices overnight; cruise lines also weak early (CCL, NCLH, RCL). In Industrials: LII double upgraded from Sell to Buy at Goldman Sachs an raise tgt to $455 given the company’s strong execution over the past year as well as its view that Resi HVAC volumes are likely bottoming and favorable pricing tailwinds from the upcoming refrigerant change will help to drive stronger growth in 2024.

 

Aerospace & Defense

·     In Aerospace & Defense: Defense contractors NOC, LMT, GD, LHX, RTX advanced after Hamas attacks in Israel have created another major geopolitical crisis that could spill over into wider regional conflict. The White House dispatched a USN carrier battle group, supplemented other U.S. forces in region, and provided initial aid package to Israel. Next few days critical. AVAV was downgraded from Strong Buy to Outperform at Raymond James given view that ongoing Congressional dysfunction coupled with waning support for Ukraine funding could rob the company of a near-term catalyst necessary for a Strong Buy rating.

 

Technology

Semi’s, Internet, Media & Telecom

·     In Media: DIS shares edged higher after the WSJ reported activist investor Nelson Peltz’s Trian Fund Management increased its stake in the company and expected to bid for multiple board seats, including for himself. https://tinyurl.com/4eje2wcz ; SPOT downgraded from Buy to Neutral at Redburn and cut tgt to $160 from $170 as estimate the new audiobook offer will be gross margin dilutive and roll out in the UK/Australia could erase c60bp of gross margin.

·     In Semi’s: ARM active as Wall Street quiet period lifted; several firms initiate coverage (see at least 12 Buys and 3 "hold"); NVDA said it canceled its artificial intelligence summit in Tel Aviv, Israel, that was scheduled for next week after Hamas attacked Israel over the weekend. The event was scheduled for Oct. 15-16.

 

Hardware & Software movers:

·     APLD beat consensus estimates for Q1 revenue on Monday at $36.3M topping the $33.8M est. as rapidly growing generative artificial intelligence (AI) technology boosted demand for the company’s data centers.

·     DDOG was downgraded to Neutral from Buy and lowering tgt to $105 from $123 as demand checks and scenario analysis suggest downside revenue risk; lowers estimates to below consensus: 2024 revenue to $2.4bn (5% below Street).

·     ORCL was upgraded from In Line to Outperform at Evercore/ISI and raise tgt to $135 as believes that the recent pullback (-13% since F1Q) simply creates a more interesting entry point for a business that is now in a better position to deliver more consistent revenue and earnings growth.

·     TENB was downgraded from Overweight to Equal Weight at Barclays and cut tgt to $47 citing its CIO survey showed that while VM remains a top 3 spending area, its prioritization was down materially from prior survey, thinks consensus CCB estimates may be a tad high in FY24, and makes two structural changes to its model.

·     ZS was upgraded from Equal Weight to Overweight at Barclays saying it is a positioning call, as it likes the growth opportunity in SASE, which could be as big as network security in CY26, and it thinks ZS is a leader (raises its FY24E billings, introduce FY26 estimates).

·     Late Friday, The Information reported MSFT to unveil new AI chip at its developers’ conference next month (11/14) saying the chip is "similar" to NVDA’s GPUs and designed to run in data centers serving LLMs, and adds MSFT is still debating whether to offer the chip to Azure customers.