Closing Recap

Monday, April 10, 2023

Index	Up/Down	%	Last
DJ Industrials	100.64	0.30%	33,585
S&P 500	4.11	0.10%	4,109
Nasdaq	-3.60	0.03%	12,084
Russell 2000	17.98	1.02%	1,772

 

Equity Market Recap

·     The last few days of trading has felt like the “calm before the storm” as stocks drifted lower early but managed to bounce in another “buy the dip” moment for major averages, as investors braced for another possible increase in interest rates following Friday’s payrolls report. Investors reacted to the March jobs data after the stock market was closed Friday, which showed that workers remain in high demand, upping the likelihood of another interest-rate increase by the Fed. Federal-funds futures show investors see a more than two-thirds chance that the Fed will raise rates by 0.25 bps next month, according to CME Group. Traders expect the policy rate to peak around 5% before falling below 4.5% by year-end. The Dow Jones Industrial Average turned positive, rising for the 7th time in the last 8-days while the S&P climbed into positive territory this afternoon on no news. The 10-year U.S. Treasury yield was at 3.420%, from 3.382% from Friday in response to the payrolls report Friday. Another quiet day possibly in-store ahead of the CPI report Wednesday, PPI and Jobless Claims on Thursday and Retail sales and bank earnings (JPM, C, WFC) on Friday. Geopolitical headlines captured weekend attention as China launched a 3 day live-fire military drill in the Taiwan strait in response to President Tsai’s meeting with US House Speaker McCarthy. In tech, Apple (AAPL) pressured following two data points as TMC March sales came in “softer” while IDC noted Apple’s personal computer shipments declined by 40.5% to 4.1 million in the first quarter. Big vacation week with Spring Break, light volumes today.

 

Economic Data:

·     NY Fed data showed the share of Americans seeing harder credit access in March highest since 2014, growing more pessimistic about future credit availability in March. March one year ahead expected inflation at 4.7% vs Feb’s 4.2%, March three year ahead expected inflation at 2.8% vs Feb’s 2.7% and March five year ahead expected inflation at 2.5% vs Feb’s 2.6%.

·     Feb wholesale inventories revised to +0.1% (consensus +0.2%) from +0.2%; U.S. Feb wholesale sales +0.4% vs Jan +0.4% (prev +0.9%); stock/sales ratio 1.37 months’ worth vs Jan 1.38 months.

 

Commodities

·     Gold prices slumped along with other precious metals as the U.S. dollar and Treasury yields rebound. Gold prices fell -$22.60 or 1.1% to settle at $2,003.80 an ounce as traders also positioned for inflation readings this week that could influence interest rate hikes. Silver futures for May delivery lost $0.18 or 0.7%, to $24.91 an ounce. Gold prices rose last week for the sixth week in a row.

·     WTI Crude May futures settle at $79.74 a barrel, down 96 cents, 1.19%; Brent Crude falls -$0.94 or 1.1% to settle at $84.18 per barrel. Markets retreated after rising for three straight weeks, as looming supply cuts from Saudi Arabia and other OPEC+ producers balanced concern about weakening global growth that may dampen fuel demand. US consumer inflation data due Wednesday is likely to be a key data point for oil investors trying to gauge whether gasoline and diesel prices will skyrocket again this summer.

 

Currencies & Treasuries

·     Treasury yields edged slightly higher in quiet trade Monday as past economic data (NFP) and future data (CPI on Wed) offset renewed geopolitical tensions which helped boost demand for bond-market safety plays initially. The yield on the 2-year Treasury note rose 3.6 bps to 4%, the 10-yr yield rose 3.6bps to 3.42%. The US dollar extends gains against Japanese yen to 133.835, highest since March 15 before paring gains. New Bank of Japan Governor Kazuo Ueda said he agreed with Prime Minister Fumio Kishida that there’s no immediate need to revise the central bank’s joint agreement with the government, following his first meeting with Kishida after becoming BOJ chief. Bitcoin hits its highest levels since June 2022, up 4.6% now at $29,175.

 

 

Macro	Up/Down	Last
WTI Crude	-0.96	79.74
Brent	-0.94	84.18
Gold	-22.60	2,003.80
EUR/USD	-0.0044	1.0853
JPY/USD	1.51	133.64
10-Year Note	0.032	3.415%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA cut prices in the U.S. between 2% and nearly 6%, its website showed; Tesla cut prices on both versions of its Model 3 sedan by $1,000 and on its Model Y crossover by $2,000 and cut prices on both versions of its more expensive Model S and Model X by $5,000. Separately, Reuters reported tesla will build a factory in Shanghai to make the Megapack energy storage product, Chinese state media outlet Xinhua reported on Sunday.

·     In used car sales: wholesale used-vehicle prices increased 1.5% in March from February. The Manheim Used Vehicle Value Index rose to 238.1, down 2.4% y/y. March’s increase was moderated by the seasonal adjustment. The non-adj price change in March increased by 3.5% compared to February, moving the unadjusted average price down 2.9% y/y (KMX, CVNA).

 

Retail, Consumer Staples & Restaurants:

·     In restaurants: MCD upgraded from Neutral to Buy w/ $321 PT @ Northcoast

·     Goldman Sachs said March traffic trends in the retail sector showed a broad slowdown, with average visits per venue (YoY) -11% at BJ’s, -8% at COST, -21% at FND, followed by -13% at HD and LOW.

·     Shares of TUP plunged after saying it sees “substantial” going-concern doubt and is taking action to improve its capital structure and liquidity position.

 

Energy

·     In oil space: WSJ reported this weekend that XOM eyes potential megadeal with Shale driller PXD saying the oil-and-gas giant has held informal, early-stage talks to buy the $49 billion-market cap as well as at least one other company about a possible acquisition https://on.wsj.com/3KNfTHT

·     In MLPs & Pipelines: GLOG will acquire the outstanding common units of the GLOP not beneficially owned by GasLog for overall consideration of $8.65 per common unit in cash, consisting in part of a special distribution by the Partnership of $3.28 per common unit in cash.

·     In Metals & Materials: WY upgraded from Neutral to Buy at DA Davidson saying the pullback in the stock over the past two months creating an attractive entry-point, in their view. TECK shares slipped after reinforced its rejection of an unsolicited $22.5 billion bid from GLNCY and telling shareholders that its proposed restructuring is the only option on the table.

·     In transports: railcar GBX Q2 adj EPS $0.99 vs. est. $0.61; Q2 revs $1.1B vs. est. $895.5M; boosts FY23 revenue view to $3.4B-$3.7B from $3.2B-$3.6B (est. $3.41B); In transports: Goldman Sachs broadly lowers estimates across transportation coverage as they see some near-term pullback around company demand expectations and look for volume recovery/inflection in 2H23; said focus on Buy-rated JBHT, FDX (on CL), and rail stocks and remove NSC from the Conviction Buy List as await clarity around regulatory pressure to add safety equipment and technology.

·     In chemicals: FUL raises the quarterly dividend 8% to 20.5c per share; WDFC Q2 EPS $1.21 vs. est. $1.15 while lowers FY EPS to $4.80-$5.00, down from prior $5.09-$5.24 (est. $5.19) and lowers FY net sales view to $535M-$560M, from prior $545M to $570M; SMG provides update on Q2; anticipates achieving net leverage ratio "comfortably below" credit facility covenant.

 

Financials

Banks, Brokers, Asset Managers:

·     Heading into large cap bank earnings this Friday (JPM, WFC, C, PNC and more next week), JPMorgan noted a litany of concerns is impacting the banking sector: outlook for the economy (recession), impact of sustained high inflation, some slowdown in consumer spending, deposit trends, impact on credit creation and loan growth, outlook for credit quality, and impact of likely increased regulatory requirements and oversight – this is in addition to geopolitical uncertainty which has not changed. Banks once again reduced their borrowings from two Federal Reserve backstop lending facilities in the most recent week, a sign the financial stresses that emerged following a string of bank collapses last month may be stabilizing. US institutions had a combined $148.7B in outstanding borrowings in the week through April 5, compared with $152.6B –

·     Banking headlines: FRC said in a regulatory filing on Friday that it suspends dividend payments on all its outstanding preferred stock and announced it plans to release its Q1 results after the market closes on April 24th. In trust banks, NTRS upgraded to Neutral from Underweight at JPMorgan saying trust bank stocks have declined recently but have held up better than regional banks since the banking turmoil began due to lesser concerns about deposits and liquidity. In brokerage, SCHW rallies ahead of earnings next week after the company said it saw an influx of core net new client assets of over $53 bln in March. UBS downgraded shares of regional banks HBAN, MTB and USB ahead of earnings season.

 

Bitcoin, FinTech, Payments:

·     In card services: COF said on Thursday it received from WMT a notice of termination of its credit card partnership agreement that allows COF to be the exclusive issuer of Walmart’s private label and Co-brand credit cards. The move comes after WMT recently ended its 20-year partnership with SYF to move to COF. KBW Inc in preview of the consumer finance space, highlighted AXP & DFS as names to own for the sake of safety & COF as names too difficult to ignore due to discounted valuation.

·     In FinTech: SQ downgraded at KBW Inc. citing growing disks – thinks risk/reward has become less attractive as multiple risks are starting to add up; “The big items revolve around rising competition within acquiring, and potential for regulatory scrutiny within its Cash App segment.”

·     FinTech & Financial services: JKHY mentioned positively in Barron’s this weekend saying the financial software provider is trading at its cheapest valuation in years, but the article argues that the long-term trend in its business remains intact. WU was upgraded to Neutral from Sell at UBS saying it’s currently trading at a historically low valuation following a 20% YTD stock decline.

·     In REITs: commercial real estate, Goldman Sachs cuts estimates and price targets across coverage as see a more challenging backdrop amidst a tightening lending environment, elevated level of interest rates, and falling CRE transaction and lending volumes. Recommends Buy CBRE, CIGI for their quality, scale, and capital allocation and downgrade CWK to Neutral on slowing topline, elevated leverage and high interest expenses, and low free cash flow conversion.

 

Healthcare

Biotech & Pharma:

·     CTLT upgraded to a Buy from Hold at Deutsche Bank and raise tgt to $88 tgt as now have higher conviction in our 2023 / 2024 estimates and see diminishing tail risk due to strengthening strategic partnerships.

·     INCY downgraded to Sector Perform at RBC Capital citing proprietary physician survey indicates that appetite for novel JAK inhibitors that could compete with Jakafi may be higher than expected and moderate its medium-term growth among other concerns.

·     MRK and Eisai to discontinue Phase 3 LEAP-003 trial evaluating KEYTRUDA plus LENVIMA for the first-line treatment of adults with unresectable or metastatic melanoma.

·     MRNA shares edged higher ahead of its “Vaccine Day” tomorrow.

·     SRPT said it has set May 12 for the advisory committee meeting on its SRP-9001 gene therapy for Duchenne muscular dystrophy (DMD), putting the review ahead of the agency’s May 29 target action date for the application seeking an accelerated approval.

·     TGTX shares rally as Cantor noted Briumvi sales show a big jump in March: Briumvi’s launch in Multiple Sclerosis (MS) is the primary driver of our TGTX thesis, and thus, we are using Symphony Health to track its launch in the US.

·     Post close Thursday, MRNA said its mRNA4157/V940 investigational personalized mRNA cancer vaccine in combination with KEYTRUDA was granted Priority Medicines scheme designation by the European Medicines Agency, which provides incremental resources and potential expedited review for medicines that target unmet medical need.

 

Technology

Internet, Media & Telecom

·     The Financial Times reported this weekend that TikTok owner ByteDance generated ~$25B in 2022 EBITDA as firm earned more than Tencent and Alibaba for the first time. In the movie sector, CNK shares jumped after the company said it notched its highest single day of attendance since Christmas 2019 on Saturday.

 

Hardware & Software movers:

·     PC makers: IDC reported that shipments by all PC makers combined slumped 29% to 56.9M units, below the levels of early 2019 as demand driven by pandemic-era remote work evaporated. Leaders include Lenovo Group Ltd. and DELL which posted drops of more than 30%, while HPQ was down 24.2%; AAPL performed particularly poorly, w/ units sliding 40.5% Y/Y.

·     In Storage: NTAP upgraded to Buy at Stifel saying they came away from mgmt. meetings more confident in our FY24 estimate — $5.49 — which reflects a soft 1H but a return to sales and EPS growth in 2H24.

·     In Networking & Communications: AUDC said it expects Q1 revenue to be lower than previously estimated internally when it issued an outlook for the full year 2023 in February; guides Q1 revs $58.5M-$60M, or a decline of about 10% to 12% from a year ago vs. est. $66.8M on lower EPS.

 

Semiconductors:

·     After opening lower, semis quickly rebounded as tech pared losses, led by gains in usual suspects as AMD, NVDA continue their outperformance in 2023; Samsung reported during its preliminary 1Q23 earnings guidance on April 7, with 1Q rev of 63T KRW below cons of 65.1T KRW and EBIT of 0.6T KRW below cons of 1.41T KRW; company also indicated it would cut memory chip production to a "meaningful level" and has reduced ST production plans, while continuing to invest in LT infrastructure. Shares of MU, WDC moved higher on production headlines, w/ increasing confidence of down-cycle bottom. Equipment stocks (AMAT, KLAC, MTSI, ASML, LRCX) slip on Samsung’s decision to cut memory production.

·     Monthly chip sales data: TSM said March revenue fell 15% y/y to 145.41B Taiwan dollars ($$4.78B U.S.), from NT$171.97M marking the first drop in nearly four years; Q1 revs rose 3.6% from a year earlier to NT$508.63 billion (US$16.73 billion). IMOS said Q1 revenue fell -32% y/y to NT$4.61 billion, vs. Bloomberg estimate NT$4.24B and March sales down -22% to NT$1.84 billion; UMC reported March sales of NT$17.689B, up 6% M/M vs. February’s NT$16.931B but down -20% y/y; CQ1 revenues of NT$54.209B are ~1% below consensus of NT$55.0B.