Mid-Morning Look

Monday, January 30, 2023

U.S. stocks slip on the open ahead of a monumental week of macro news, data, and earnings – but quickly pare losses as the theme to start 2023 remains – “buy the dip”. Bank America strategist noted “we have not seen these three major central bank decisions (Fed, BoE, ECB); and key data releases (US ISM, payrolls, and the employment cost index, as well as Euro Area inflation, GDP, and confidence data) in the same week before. Not to mention in combination with month-end flow, which given the incidence of supply in Europe should be sizeable in both EUR and GBP.” Small profit taking early after a 4-week run in the Nasdaq has seen an 11% gain to start the year (best in 20-years). Overall, a whopping 35% of S&P earnings by sector are set to report this week, including results from AAPL, AMZN, GOOGL, QCOM, AMD, SBUX, META, PFE, Ford, CAT among many others. Markets continue to expect a 25-bps hike from the Fed and possibly 50-bps each from the ECB and BOE but decelerating inflation data builds case for an earlier pause of hikes than the Fed has been communicating. Reminiscent of 2020, highly shorted stocks seeing some of the biggest moves higher as shorts get “squeezed” with big gains to start day for likes of BBBY, SI, CVNA among others. Dow Jones Industrial Average on track for a 7th straight day of gains, with mkt breadth improving from the open overall.

Sector Movers Today

·     Autos: TSLA adds to recent upside momentum (up 65% in just three weeks after shares tumbled in 2022), upgraded from Hold to Buy at Berenberg with $200 tgt from $255 saying the company’s price cuts represent an “investment in growth”, which they believe reflects Tesla’s cost leadership strategy. GM was downgraded from Buy to Hold at Berenberg and cut tgt to $41 from $45 saying they expect investors to gain confidence in GM’s ability to execute EV rollouts through 2023: New launches in the North American SUV and pick-up segments should support order intake momentum, as should efficiencies from GM’s dedicated EV platform. Ford (F) prices of its electric crossover SUV Mustang Mach-E by as much as $5,900 per vehicle after rival TSLA slashed prices on its electric vehicles by as much as 20%.

·     Retailers: BBBY is closing an additional 87 of its flagship stores and its entire Harmon chain of drugstores, as the retailer struggles to find financial support to keep its operations funded – WSJ reported. LVLU downgraded from Overweight to Sector Weight at Keybanc saying 2023 is likely to be a challenging year for the Company as reopening tailwinds dissipate and difficult revenue compares continue in 1H23. SHOP upgraded from Neutral to Buy at Roth Capital with $56 tgt as see the last of tough comparables for SHOP subsiding entering ’23. After more than tripling sales in just three years, we still project double-digit growth this year.

·     In metals, AEM and GOLD maintain OW ratings at Barclay’s in gold miners, but downgrade KGC to EW saying while economic growth has remained better than expected, they still see gold as a good hedge against further deterioration in the outlook and continue to prefer gold over copper; Thyssenkrupp joined peers in saying that European industry was under threat should they fail to come up with a scheme similar to the U.S. climate package, dubbed the IRA, to boost companies. WTO says United States appeals panel reports regarding US duties on steel and aluminium products (X, NUE, STLD).

Stock GAINERS

·     ARLP +8%; Q4 revenue of $700.7M rises 48% y/y and tops ests $688M helped by higher coal sales and oil and gas royalties’ revenue; Q4 net income jumps more than four times y/y to $214M.

·     AXTA +1%; Citigroup upgraded AXTA to a Buy after reporting a solid 4Q and said they see further upside ahead; AXTA also upgraded from Hold to Buy at Deutsche Bank with $40 tgt.

·     BIDU +1%; is developing an AI-based chatbot like the ChatGPT product and plans to release it in March, the WSJ reported this weekend.

·     GEHC +4%; reported its first report as a standalone company, with revenue of $4.9B (+8% y/y, +13% organic), driven be growth in Imaging, PCS, and Ultrasound; adj EPS of $1.31.

·     OKTA +1%; upgraded from Hold to Buy at Stifel and raise tgt to $90 from $60 following survey of 37 current customers which reveal generally happy customers.

·     SOFI +13%; posted record Q4 adj Ebitda ($70M tops $43M est.), on better revs ($443.3M vs. $425.6M est.) as well as an upbeat forecast for Ebitda of $260M-$280M vs. est. $246M.

Stock LAGGARDS

·     FANG -1%; energy stocks among early sector laggards.

·     Ford (F) -2%; after cutting prices of its electric crossover SUV Mustang Mach-E by as much as $5,900 per vehicle after rival TSLA slashed prices on its electric vehicles by as much as 20%

·     GM -2%; downgraded from Buy to Hold at Berenberg and cut tgt to $41 from $45 saying they expect investors to gain confidence in GM’s ability to execute EV rollouts through 2023.

·     GNRC -3%; pulling back after big gains late last week.

·     NVDA -2%; after semi’s pare recent gains (NVDA +35% to start the year).