Mid-Morning Look

Wednesday, February 01, 2023

After a late day run-up to close at highs on Tuesday into the FOMC policy meeting, markets moving sideways as expected this morning as investors await the Fed decision at 2:00 PM (est. for 25-bps hike) and Powell press conference after with close attention to outlook on rates. Inflation data points have continued to decelerate (ECI for Q4 yesterday latest example), boosting market expectations for the Fed to begin pausing rate hikes in the coming meeting (with hopes for a pivot lower year-end), but the labor mkt remains “tight” as indicative of the monthly JOLTs job openings data today, giving the Fed the ammo, it needs to keep rate hikes slow and steady. The market has been in “goldilocks” scenario thus far in 2023, with slowing inflation, job mkt stays strong while wages ease and as strong earnings results have been rewarded, and weaker guidance getting a “pass” for the most part. Treasury yields steady over the last week, with the 10-yr holding around 3.5% waiting on the Fed and the dollar index (DXY) holding below 102. WTI crude comes off 7th negative month in last eight while natural gas prices extend slump, lowest levels since April 2021. Near-term market fate remains in the hands of the Fed policy meeting in a few hours.

Economic Data

·     Private Payroll data showed January ADP Jobs Report rose +106K vs. +158K consensus and +235K in December; annual pay rose 7.3% Y/Y, unchanged from December.

·     ISM manufacturing for January contracted further, falling to 47.4 from 48.4 in December, the third straight monthly contraction to the lowest level since May 2020; new orders sub-index plunged a 5^th month to 42.5 in January from 45.1 in December while supplier deliveries edged up to 45.6 from 45.1 in December; employment index 50.6 in January vs 50.8 in December.

·     Construction Spending for December falls -0.4% (vs. est. unchanged) and Dec private construction spending -0.4%, public spending -0.4%.

·     S&P Global January final manufacturing PMI at 46.9 (vs flash 46.8).

·     U.S. JOLTS job openings for December 11.012M vs. prior reading 10.44M for November. Number of workers quitting jobs tops 4 million for 19th month in a row.

Sector Movers Today

·     In medical devices, BSX Q4 EPS of $0.45 misses the $0.47 est. on in-line revs of $3.24B and guided FY23 adj profit in range $1.86-$1.93 below est. $1.93; EW delivered a Q4 beat on both sales and EPS, as well as reiterated its 2023 outlook while said TAVR growth trends in both the U.S./OUS decelerated sequentially on a stacked 2-year basis; SYK Q4 results exceeded consensus top-line expectations, while beating on EPS by 6% and introduced 2023 organic sales growth outlook of 7.75% at the midpoint; TMO 4Q rev/EPS beat driven by broad based strength, although margins light; initial ’23 guidance comes in ahead of Street on both top/bottom line.

·     In foods, MDLZ Q4 adj EPS $0.73 vs. est. $0.70; Q4 revs $8.70B vs. est. $8.32B; Q4 adj gross margin 36% and adjusted operating margin 15%; expects organic net revenue growth of 5 to 7 percent, high single-digit adjusted EPS; CASY guides Q3 same-store inside sales in lower half of annual range of 5-7% increase, same-store fuel gallons near low end of annual range of flat to +2%, and total operating expense growth near low end; CAG said it is recalling 2.58m pounds canned meat/poultry due to possible packaging defect.

·     Retail: In footwear, FL upgraded to Outperform from Neutral at Credit Suisse as think sentiment on the stock remains overly bearish and focused on the negative thesis of NIKE pulling back from FL. In toy retailers, Goldman Sachs assumed MAT with Buy rating on accelerating revenue growth from the return of Disney Princess, margin expansion, and upside from share repurchases, downgrade FNKO to Sell on elevated execution risks and downgrade HAS to Neutral. PTON Q2 EBITDA ($122.4M) vs est. ($108.1M) on revs $792.7M vs est. 709.8M

·     Semiconductors: AMD posted a drop in profit in its latest quarter, as operating expenses more than doubled and revenue linked to the PC market was cut in half on weaker demand; forecast Q1 revenue $5.3B plus/minus $300M vs. est. $5.48B citing fears of fewer orders. SMCI slides as lower guidance offset a quarterly beat, guides 3Q net sales $1.42-1.52B vs est. $1.6B and adj EPS $1.88-2.14 vs est. $2.12. WOLF and German chip supplier ZF Friedrichshafen will announce plans to build an electric vehicle chip plant in the Saarland region, Reuters reported. Hard disk drive maker WDC issued March quarter guidance that fell well short of previous expectations.

Stock GAINERS

·     AMD +3%; EPS beat but posted a drop in profit in its latest quarter, as operating expenses more than doubled and revenue linked to the PC market was cut in half on weaker demand; forecast Q1 revenue $5.3B plus/minus $300M vs. est. $5.48B citing fears of fewer orders.

·     BIDU +7%; as BlackRock reports 6.6% passive stake as of Dec 31, 2022 – SEC filing

·     DT +7%; after Q3 adj EPS and revs beat and boosted year outlook.

·     EAT +4%; Q2 EPS $0.76/$1.02B above consensus $0.52/$991.7M; EBITDA $91M vs consensus $79.7M; comps +9.7% vs consensus +6.1%.

·     ODFL +6%; leads truckers higher on EPS beat and in-line revs of $1.49B.

·     PTON +13%; EBITDA ($122.4M) vs est. ($108.1M) on revs $792.7M vs est. 709.8M; connected fitness subs 3.033M vs est. 3.00M; guides Q3 EBITDA ($50M)-($35M) vs consensus ($43.7M).

·     SYK +8%; Q4 results exceeded consensus top-line expectations, while beating on EPS by 6% and introduced 2023 organic sales growth outlook of 7.75% at the midpoint.

Stock LAGGARDS

·     EA -11%; Q3 missed, mgmt. guided down the FY significantly partially because Star Wars game was delayed to FY24 and set FY24 expectations that are way below where the Street was.

·     JNPR -6%; reports Q4 revenue of $1.44B below consensus $1.48B.

·     MTCH -5%; as Q4 adj EPS $0.30 vs. est. $0.54; Q4 revs fell -2% y/y to $786.2M vs. est. $788.5M; payers declined 1% yoy to 16.1M; guides Q1 revenue $790M-$800M below est. $816M.

·     SNAP -11%; shares tumble after Q1 revs of $1.3B was flat from same period last year and rev growth decelerating for 7 straight quarters to an estimated ~0% in Q4.

·     SYF -7%; along with weakness in COF, AXP, DFS after Reuters reported the White House was due to announce fresh efforts to slash credit card late fees and drive down the prices that AAPL and GOOGL charge on mobile app stores.

·     TSHA -34%; disclosed last night that the FDA recommended the company conduct a double-blind placebo-controlled trial in GAN using MFM32 as the endpoint for TSHA-120.

·     WDC -5%; issued March quarter guidance short of Wall Street expectations as sees 3Q revs $2.6-2.8B vs est. $3.0B, adj gross margin 9.0-11.0%, adj EPS loss ($1.70)-($1.40) vs est. ($0.30).