Mid-Morning Look

Wednesday, September 27, 2023

U.S. stocks are looking to recover from yesterday’s sharp decline, with investors awaiting to put a brutal September behind them as rising rate fears and its potential impact on spending have crushed sentiment. Month-to-date, the S&P 500 is down about -4.8%, the Nasdaq -6.5%, the Dow -3% and the Russell 2000 -6.2% with no place too high. There has no let-up in U.S. dollar strength on rising rate hike expectations (and ahead of key PCE inflation data in next 2-days), rising +0.3% above 106.50 – highest since November (and a big bounce off the early July lows sub-100). The euro falls 0.6% to 1.0512, lowest level since January while gold prices are crushed further, down -0.75% to $1,905 an ounce amid the surge in the US dollar. Stock prices have tumbled this month as various negative catalysts have converged, including worries around the lagged impacts of Fed tightening/rising dollar/Treasury yields, impact of higher oil prices on inflation as well as consumer spending, the resumption of student loan repayments, high profile labor strikes (Auto, Hollywood and now Casino), and a potential government shutdown (just 4-days away). Treasury yields pop back near yesterday’s highs after easing overnight (10-yr yield back to 4.55%). Markets remain concerned about the potential government shutdown as Goldman Sachs said they now put the odds of a shutdown at 90%. The U.S. remains on track for an Oct. 1 government shutdown despite incremental progress late Tuesday in the House and Senate on rival spending bills. Earnings from chip maker Micron (MU) tonight, Nike (NKE) tomorrow.

Economic Data

·     Durable goods orders rose 0.2% in August, compared with the -0.5% decline expected and the -5.6% drop (revised from -5.2%) seen in July. Transports, core durable goods orders advanced 0.4%, compared with the 0.1% rise expected and the prior month’s 0.1% decrease.

Sector Movers Today

·     In Freight: XPO upgraded from In Line to Outperform at Evercore/ISI and tgt raised to $79 from $72 even though the stock is already up 100+% YTD, noting XPO has a lot moving in its favor now such as being a direct beneficiary of the YELL liquidation. Benchmark raised price tgt on SAIA to $475 from $450 given Saia’s third quarter operating data are higher than its expectations while noted ODFL operating data showed acceleration in LTL tonnage volume growth, but below peers. WNC downgraded to neutral from Buy at Davidson saying the mgmt tone at recent Industrials Conference on 2024 was less optimistic than they had expected.

·     In Banks: UBS shares fell after Bloomberg reported this morning that the U.S. DOJ stepped up its probe into Credit Suisse and UBS over suspected compliance failures that allowed Russian clients to evade sanctions. In bank research: CBSH upgraded to EW at Morgan Stanley and firm downgraded VLY, ZION to Underweight saying higher for longer rates mean Street estimates for NII need to come down further and they expect the group to remain under pressure near term. They remain defensively positioned with Top Pick MTB. Truist downgraded SSB to Hold and adjusting its PTs, EPS ests. for banks and introducing ’25 ests. to reflect its updated interest rate forward curve assumption of 50 bps of rate cuts in 2H24 and 100 bps in 2025. Said banks most attractive near term, in its view, are Buy rated ABCB, IBTX, LOB, PB, and WAL

Stock GAINERS

·     BLNK +7%; initiated Buy and $7 tgt at UBS as believes investors do not fully appreciate positive attribute including its unique business model is unique and margins improvement potential.

·     COST +1%; reported F4Q EPS of $4.86 (vs. our $4.41 est.) which included a 53rd week and comps increased +3.8% for the total company (ex-gas, FX) and +3.1% for the US (ex-gas) driven by traffic.

·     DNA +9%; as PFE signs an R&D deal worth up to $331M to develop RNA drugs according to Endpoint News reporting first. https://tinyurl.com/yckhyxas 

·     MLKN +27%; after better results as Q1 adj EPS $0.37 vs. est. $0.21; Q1 revs $917.7M vs. est. $899.6M; Q1 Organic order growth of 2.1% for the Americas Contract segment y/y; guides Q2 adj EPS $0.52-$0.58 vs. est. $0.51.

·     NET +5%; after two announcements: 1) powers hyper-local AI inference with NVDA accelerated computing; 2) collaborates with MSFT to enable AI Models to run anywhere.

·     PRO +10%; after Reuters reported the co is being advised by investment bank Qatalyst Partners as it explores options that include a potential sale https://tinyurl.com/2ut6dv7r

·     SE +7%; on news that Indonesia has banned e-commerce transactions on social media platforms, the trade minister said on Wednesday, in a blow to short video app TikTok. Indonesia’s e-commerce market is dominated by GoTo, SE’s Shopee and BABA Lazada.

·     WW +9%; upgraded to Hold from Sell at Craig Hallum saying Weight Watchers has an opportunity to play a key role in the new, GLP-1 driven landscape for weight loss.

Stock LAGGARDS

·     FFIE -23%; after entering an at-the-market equity offering sales deal to offer and sell up to $90.0 mln of Class A common stock.

·     MORF -4%; after CEO Tipirneni takes leave of absence due to an emergency medical event.

·     NEP -17%; after guiding its limited partner distribution per unit growth rate between 5%-8% per year through at least 2026 vs prior 12%-15% view.

·     PRGS -2%; beat on top/bottom line, said continues to see limited fallout from the MOVEit breach, with retention rates remaining stable, but 4Q guidance fell slightly short of expectations.

·     UBS -3%; shares fell after Bloomberg reported this morning that the U.S. DOJ stepped up its probe into Credit Suisse and UBS over suspected compliance failures that allowed Russian clients to evade sanctions.

·     WNC -6%; downgraded to neutral from Buy at Davidson saying the mgmt tone at recent Industrials Conference on 2024 was less optimistic than they had expected.