Mid-Morning Look: April 05, 2023

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Mid-Morning Look

Wednesday, April 05, 2023






DJ Industrials




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U.S. stock markets decline Wednesday following a handful of weaker economic data points, as fears of a slowing economy at some point may overshadow the inflation fears. A softer-than-expected growth in private payrolls in March exacerbated worries of a steep economic downturn following the Federal Reserve’s rapid interest rate hikes, while ISM Services data slid with tumbles in new orders, as well as employment and prices paid components. The ADP private payroll report for March was below estimates, following a downside JOLTs monthly job reading yesterday, ahead of the nonfarm payroll report this Friday. Bespoke Investment noted pricing for the Fed Funds Rate by the January 2024 meeting are back down to 3.84% after this morning’s ADP miss…basically pricing in four 0.25% cuts from current levels (vs. views of 3 cuts last week). At the same time, Federal Reserve Bank of Cleveland President Loretta Mester said late Tuesday that the U.S. central bank likely has more interest rate rises ahead amid signs the recent banking sector troubles have been contained, with calls for the real fed funds rate to move above 5%. Treasury yields extend losses with the 10-yr plunging to 3.27% lows and the 2-yr down 12 bps to 3.71% which would be a new six-month closing low and now nearly 140-bps from its high of 5.07% less than a month ago in an astounding turn of events. Early market strength in defensive assets as Healthcare, Utilities up over 1%, with Discretionary and tech down the most.


Economic Data

·     March ADP Private payrolls softer; reported at 145K, below estimates of 200K while prior month revised to 261K from 242K; Annual pay rose 6.9% from a year ago, down from the 7.2% pace in the prior month.

·     February U.S. trade in goods and services deficit widened to (-$70.5B) vs. consensus deficit (-$68.7B) and vs. prior month deficit (-$68.7B); U.S. Feb goods deficit (-$92.98B) and services surplus (+$22.44B); Feb exports (-2.7%) vs Jan +3.6%, imports down (-1.5%) vs Jan +3.3%

·     ISM Non-Manufacturing data for March weak, reported at 51.2 vs. est. 54.5 and prior 55.1 reading in Feb; prices paid fell to 59.5 vs. 65.6 last month, employment fell to 51.3 from prior 54.0, and new orders tumble to 52.2 from 62.6 prior.







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Sector Movers Today

·     In metals & Mining: In steel stocks: SCHN shares slip after Q2 EPS misses consensus estimates; in research, STLD was downgraded to Neutral from Outperform at Bank America and cut tgt to $123 saying that prices for STLD’s main product, HRC, are nearing a peak. The firm upgraded CMC to Buy from Neutral and raised tgt to $60 saying while prices of STLD’s primary product, HRC, are set to peak, the prices are CMC’s main product, rebar, are set to rise.

·     In packaging and Containerboard: SEE upgraded to Buy from Neutral at UBS as believes the market is pricing in roughly 10% lower EBITDA vs. 2023 consensus; Deutsche Bank said ATR, GPK are top picks for this earnings season in packaging – these are two stocks where they have the street high estimates for the year – and are confident in their negative view on containerboard with Sell rating calls on IP and PKG. Jefferies previews, note that box shipments remain weak but see upside potential for IP, WRK and PKG from transportation costs easing, especially nat gas. Remain cautious on group as still see containerboard prices falling by $50/ton+ during 2H23.

·     In managed care: UNH and CI upgraded to strong at Raymond James after underperformance, saying the 2023 setup for the US health insurers has “improved markedly.” Says many of the policy overhangs are behind us, most notably, the MA final notice released on Friday, while P/E multiples have contracted significantly and still think that UNH and CI’s PBM assets are well-positioned to have a strong 2023.

·     In lithium sector: ALB downgraded to Underperform from Neutral at Bank America and tgt cut to $195 from $262 while upgraded LTHM to Buy from Neutral and cut tgt to $27 from $29. Deutsche Bank noted after having met with 25+ investors in Europe, said overall, investors remain interested in the Lithium space, despite a negative backdrop with spot pricing still declining and a bottom still to be found (prefers ALB, SQM).



·     AZN +2%; said that its Lynparza and Imfinzi combination met its endpoint in the treatment of patients with advanced ovarian cancer.

·     BROS +2%; upgraded to Outperform from Neutral at Wedbush as view guidance conservative.

·     CAG +2%; Q2 EPS $0.76/$3.09B above estimates $0.64/$3.08B while raises year EPS view to $2.70-$2.75 from prior $2.60-$2.70 and narrows FY23 organic sales view.

·     FDX +2%; raised quarterly dividend to $1.15, is combining its Express and Ground delivery units into a single business as part of its plan to slash $4 billion in permanent costs by the end of FY25.

·     IFRX +53%; said the FDA granted an emergency authorization to the firm’s antibody treatment for critically ill Covid-19 patients.

·     JNJ +3%; announced that its LTL subsidiary has refiled for Chapter 11 protection. JNJ now plans to contribute $8.9B (up from $2B) to settle all current and future talc claims.

·     LMNL +85%; after Thomvest Asset Management has proposed to acquire the remaining shares it does not already own in LMNL for $7.50 per share in cash (owns 64% stake through its investment firm Structured Alpha LP).

·     SLM +3%; double upgraded to Overweight at Morgan Stanley saying loan losses will remain elevated vs pre-COVID, but lower than market fears.

·     UNH +2%; and CI upgraded to strong at Raymond James after underperformance, saying the 2023 setup for the US health insurers has improved markedly.



·     AI -13%; extend its losses after plunging 26% on Tuesday after short-seller Kerrisdale Capital alleged “serious accounting and disclosure issues” at the enterprise-software developer.

·     ALB -7%; downgraded to Underperform at Bank America and tgt cut to $195 from $262 saying Lithium carbonate prices in China continue to contract, which creates earnings risk for Albemarle.

·     DLO -16%; shares slide after Q4 results miss with EPS $0.06/$118M revs vs. est. $0.11/$119.5M.

·     MKTX -10%; after reporting monthly metrics earlier for March.

·     SCHN -7%; mixed Q2 as EPS $0.14 missed $0,.21 estimate on better revs of $755M while says finished steel net selling prices, volumes lower from Q1.

·     SGH -4%; mixed results as 2Q adj EPS $0.76 tops est. $0.60 but revs $429.2Mm misses est. $434.9Mm, and guides 3Q sales and adjusted earnings below views.

·     WAL -14%; after providing a quarter-end update, with analysts saying that the lack of an explicit deposit balance was frustrating, and the rise in insured deposits also raised questions.


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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