Market Review: April 05, 2023

Closing Recap

Wednesday, April 05, 2023





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     US stocks dropped Wednesday/bonds rallied as another soft employment print, coupled with weaker services data reignited investor worries about a recession. After a string of gains for U.S. stocks (S&P and Dow snapped 4-day win streaks yesterday), some steam has come out of that rally the last 24-hours, as weakness in industrials, materials, technology, and banks all on slowing growth/recession fears pushed major averages lower. Investors continued their rotation into the safety of Treasuries (sending yields lower) as doubts grew about whether the Fed would still go ahead with any more rate hikes following the data/bank concerns. The U.S. economy showing signs of weakness with latest string of economic data as the Atlanta GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 1.5% on April 5, down from 1.7% on April 3 (and sharply lower from the 3.5% just 10-days ago).

·     While Treasury yields and the dollar have slumped on rising expectations the Fed will not only pause but cut rates this year (fed fund futures pointing to 4-cuts), Fed speakers continue to focus on inflation and bringing own prices. Late last night, Federal Reserve Bank of Cleveland President Loretta Mester said 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% (a far cry from the 3.85% terminal rate forecast for end of 2023 as of this morning). Defensive sectors moved higher on recession fears as Utilities (XLU) were the top gainers, also helped by tumbling yields helping dividend paying sector, along with healthcare. The Dow Jones Industrial Average outperformed, led by gains in JNJ, UNH, AMGN, MRK.

·     All eyes on global central banks. The Aussie and Canadian central Banks recently paused their rate hike cycle, while New Zealand central bank (RBNZ) overnight raised interest rates by 50-bps (markets were looking for 25-bps hike) but remove explicit tightening bias. All eyes on Fed with next meeting not until May – a lot can happen between now and then. Reminder short week for U.S. stock markets, tomorrow last trading day and closed on Friday in observance of Good Friday while fixed income markets will close early at 2:00 PM ET.


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.



·     Oil prices edge lower, down -$0.10 at $80.61 per barrel after having risen sharply earlier this week on OPEC+ production cut headlines. Brent Crude futures settle at $84.99/bbl, up 5 cents, 0.06%. Natural gas prices end higher for a fourth session in the past five, rising 2.3% at $2.155/MMBtu, bouncing off 2 ½ year lows ahead of tomorrow weekly inventory data.

·     Gold prices slipped -$2.60 to settle at $2,035.60 an ounce after closing at its highest level since March 2022 the day prior. Gold is roughly 2.5% away from making an all-time high and prices are up nearly 13% in just one month. The haven asset has risen as recent U.S. economic data raised fears of a slowdown and spurred bets the Federal Reserve may ease up on rate hikes.


Currencies & Treasuries

·     The U.S. dollar rebounds off recent losses, rising about +0.3% (below 102 for DXY), but weakens against the safe-haven Japanese yen, following a busy round of weaker economic data. Markets are pricing 59% odds of a pause in the Fed’s hiking cycle in May, according to the CME FedWatch. Treasuries yields tumbled further after reports on private payrolls and the U.S. services sector pointed to a cooling economy and added to market speculation that the Federal Reserve might pause its hiking of interest rates in May. Treasury yields extend losses with the 10-yr plunging to 3.27% lows and the 2-yr lows 3.71% (before paring losses), 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.






WTI Crude















10-Year Note





Sector News Breakdown


Staples & Restaurants:

·     In food & beverages: CAG 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 to 7%-7.5% from 7%-8% and raises lower-end of year operating margin view to 15.5%-15.6% (off 15.3%); SMPL reports top and bottom line Q2 beat while sees 2023 net sales up slightly greater than 4%-6% view vs. est. 6.6% and sees margins to decline greater than prior estimate. CMG files lawsuit claiming that SG’s "Chipotle Chicken Burrito Bowl" menu item infringes trademarks.

·     In consumer products: RBC Capital said they expect March quarter results to be in-line to above for most companies but do expect more cautionary commentary about the overall selling environment. Adjusting estimates (CL, ENR, KMB, EPC, MDLZ, HSY ). Based on current information, top ideas into the print are PG, HSY, COTY, EPC and are cautious into the print on ENR, NWL, KMB and top ideas in order are STZ, KO, COTY, MNST and EL.


·     Broadline: WMT said still sees FY adj eps $5.90-$6.05, vs. est. $6.14; and still sees FY net sales +2.5% to +3%; sees FY Walmart-only US stores comparable sales ex-gas +2% to +2.5% vs. estimate +2.75%; guides Q1 EPS $1.25-$1.30 vs. est. $1.30; aims to have about 65% of its stores serviced by automation by 2026 end.

·     In tobacco: PM said progressing toward 2025 aspiration of becoming a majority smoke-free co, CEO says; to ultimately phase out cigarettes; focusing resources on developing and commercializing smoke-free products that are less harmful than smoking; says adult users of co’s smoke-free products estimated at 24.9m in 2022 vs. 21.7m in 2021.

·     In restaurants: BROS upgraded to Outperform from Neutral at Wedbush saying while aggressive near-term consensus expectations are a poor reflection of management’s internal expectations and consistent messaging, they view full year ’23 AEBITDA guidance as conservative. KRUS adj EBITDA $2.3Mm vs est. $0.39Mm on sales $43.9Mm vs est. $41.8Mm; guides FY23 sales $185-188Mm vs est. $185.4Mm.


Autos, Leisure, Gaming & Lodging:

·     In leisure space: MTN estimates reduced at Deutsche Bank to midpoint of guide, reducing FY 24 to 3% below consensus on concerns that skier growth is stagnating, and guests are increasingly price sensitive.

·     In autos: Ford (F) said that four of its six electric and plug-in electric hybrid models will see tax credits halved to $3,750 on April 18 after new U.S. Treasury rules take effect.


Homebuilders, Building Products, Home Furnishing:

·     Mortgage Bankers Assoc (MBA) said weekly mortgage applications index fell 4.1% in week ended March 31, after rising 2.9% in prior week (first week down since Feb. 24), while purchases down 3.5% after rising 2.0% in prior week and refis fell 5.4% after rising 4.8% in prior week. The average 30-yr fixed rate 6.40% vs 6.45% in prior week.


Energy, Industrials and Materials

·     In Energy: XOM said in a filing late Tuesday that it expects oil prices in 1Q to knock between $600M-$1B out of its upstream earnings in the quarter as compared with 4Q and gas prices to dial down upstream earnings by between $400M-$800M, among other impacts. FLNC upgraded from Neutral to Buy at Guggenheim and establishing a $25 price target following several meetings with the management team.

·     In Industrials: Class 8 heavy duty truck stocks slipped (CMI, PCAR) after monthly data; Morgan Stanley notes March North American Class 8 preliminary orders came in at 19.2k M/M, trailing ACT’s seasonally implied forecast of 22.9 and well below the seasonally implied -3.6% M/M movement; decreased ~10% Y/Y, despite a relatively easy comp (Mar 2022 -46% Y/Y).

·     In transports: FDX raised its quarterly dividend 10% 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. Baltic index rises 52 points, or about 3.5%, to its highest level in over two weeks at 1,525 as Capesize index rose 90 points, or about 4.8%, to 1,957, its highest since March 16, Panamax index to its highest since Oct. 17, adding 89 points, or 5.2%, at 1,813.

·     In oil services: price tgt changes CHX $38 (Prior $36) HAL $46 (Prior $48) HP $53 (Prior $55) LBRT $14 (Prior $17) OII $18 (Prior $16) TEN.IM €20 (Prior €23) TS $43 (Prior $49) at TDCowen saying OPEC’s cut likely tempered the downside to North American, but they struggle to see a catalyst beyond commodity prices to reverse investor preference for Int’l / Offshore.

·     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).

·     In metals & Mining: In steel stocks: SCHN 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; 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 rare earth stocks, MP shares popped after headlines that China weighs export ban for rare-earth magnet tech Beijing looks to strike back after Washington’s chip restrictions.

·     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 solar, renewables, utilities: Raymond James upgraded CLNE while downgraded BE in renewables/clean energy saying after hefty losses in 2021 and 2022 erased nearly all the record-setting gains from 2020, clean tech stocks are off to a moderately good start in 2023.



Banks, Brokers, Asset Managers:

·     In banks: WAL provided a business update last night, highlighting a step up in insured deposits of 68% vs 55% at YE22. More details this afternoon as the bank said its 1Q deposits were 11% lower than at the end of 2022, as customers spooked by the U.S. banking crisis pulled out funds. The bank held total deposits of $47.6 billion as of March 31, down from $53.6 billion as of end-2022s.

·     In Bitcoin news: HUT said 131 Bitcoin were generated in March, resulting in an average production rate of approximately 4.2 Bitcoin per day; 240 Bitcoin — all of those produced in February, and part of March; MSTR said between March 24, April 4, co & units acquired about 1,045 bitcoins for about $29.3M in cash, at avg price of about $28,016/bitcoin and as of April 4, co with units, held aggregate of about 140,000 bitcoins; RIOT said produced 695 Bitcoin in March 2023 up about 36% as compared to March 2022 and sold 675 Bitcoin, generating net proceeds of about $16.7M in March 2023

·     In lending & services: SLM double upgraded to Overweight at Morgan Stanley saying loan losses will remain elevated vs pre-COVID, but lower than market fears. Higher funding costs, lower sale execution price weighs modestly on EPS, but more than offset by improved credit. DLO shares slide after Q4 results miss with EPS $0.06/$118M revs vs. est. $0.11/$119.5M



Biotech & Pharma:

·     JNJ 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 and the legal team has secured commitments from 60K+ claimants. The company believes this refiling addresses the Third Circuit’s concerns that drove the dismissal of the original bankruptcy case

·     ABBV was downgraded to Hold from Buy at Argus saying while the company has worked hard to diversify its revenue in advance of the introduction of biosimilar competition in the U.S. for Humira, the product still represents more than 40% of the company’s sales, creating a scenario of potentially significantly lower revenue and earnings.

·     AZN said that its Lynparza and Imfinzi combination met its endpoint in the treatment of patients with advanced ovarian cancer; said the combo improved progression-free survival in newly diagnosed patients with advanced ovarian cancer without tumor BRCA mutations.

·     DNA announced the acquisition of StrideBio’s adeno-associated virus (AAV) capsid discovery and engineering platform assets with a secondary close scheduled upon the transfer of certain additional in-license agreements to Ginkgo.

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

·     LMNL rises 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).


Healthcare Services & MedTech movers:

·     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.



Internet, Media & Telecom

·     In Internet: META upgraded to BUY from HOLD at Argus with $270 tgt noting the co is making some of the deepest cost cuts in the Tech sector as CEO Mark Zuckerberg has dubbed 2023 "the year of efficiency." GOOGL shares edged higher early and NVDA lower after Reuters reports Google released new details about the supercomputers it uses to train its AI models, saying the systems are both faster and more power-efficient than comparable systems from Nvidia.


Hardware & Software movers:

·     In Internet Security: CRWD yesterday hosted an investor briefing where they updated its long-term tgt model increasing its FY26 FCF margin guide from 30%+ to 32%+ but kept its $5b ARR guide. Bank America said PANW, CRWD, CYBR, ZS highlighted as preferred cybersecurity names as 4Q earnings and FY23 guidance was largely better than feared, despite cybersecurity companies continuing to report on elongated sales cycles and increased deal scrutiny.

·     In other software movers: PLTR said that Palantir Federal Cloud Service (PFCS) achieved FedRAMP authorization and accreditation to support workloads at U.S. Department of Defense (DoD) Impact Level (IL) 4 and DOD IL5 on Microsoft Azure; SGH 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.



·     AAPL supplier Foxconn said Q1 revs rose 3.9% y/y, but that sales for the current quarter would be down; revs last month was 3rd highest ever at T$400.3 billion ($13.14 billion), though that represented a 21.1% y/y fall; said Q2 outlook is expected to decrease on a quarter-on-quarter and year-on-year basis.

·     Semiconductor active: China said it will respond if Japan doesn’t change new restrictions on chip exports to the world’s second-biggest economy. On Tuesday, China’s commerce ministry called on Japan to change its "wrong practice" after the country last week said it would restrict 23 kinds of semiconductor manufacturing equipment. 

·     RMBS said it had extended its patent license agreement with South Korean semiconductor giant SK Hynix for an additional ten years.


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.