Closing Recap

Tuesday, April 25, 2023

Index	Up/Down	%	Last
DJ Industrials	-343.68	1.01%	33,531
S&P 500	-65.33	1.58%	4,071
Nasdaq	-238.05	1.98%	11,799
Russell 2000	-42.31	2.37%	1,746

 

 

 

 

 

 

 

 

 

For the first time in a long time stocks pulled back on the open but didn’t bounce, with breadth firmly negative all day and closing at lows. Major averages have been in “buy the dip” mode for more than a month, rebounding after any market pullback, but that was not the case on Tuesday as weakness in financials and energy led the market decline along with technology, materials, and industrials. The SmallCap Russell 2000 underperformed broader market weakness (banks on FRC Q1 deposit decline and energy on oil slide). Financial selling pressure picked up steam late afternoon following a flurry of headlines on First Republic (FRC), falling as much as 45% late day, and causing contagion fears for other small/midcap banks as the KRE, XLF tumbled. In economic data, signs of strength in housing as U.S. home prices rise for first time in eight months, Case-Shiller data showed, while New Home Sales for March rose +9.6% M/M to 683K easily topping consensus. However, consumer confidence falls to a 9-month low on worries about jobs and recession. No Fed speakers as they remain in blackout period ahead of FOMC meeting next week. All about earnings this week, but the S&P 500 (SPX) break below 4,100, the VIX test of the $20-level catching some attention. Earnings tonight from MSFT, GOOGL, Visa (V), TXN, CMG, ILMN and PACW; then tomorrow morning results expected from BA, HES, NSC, among others. Concerns remain in Washington as lawmakers are far from reaching a deal to raise the debt limit, with economists warning about the potential macroeconomic consequences of a deadlock and possible default. House leader McCarthy last Sunday said the House will vote this week on GOP’s debt limit proposal that was introduced last week named “Limit, Save, Grow Act”. The act will raise the debt limit by $1.5tn or March 31, 2024 (whichever comes first).

 

Economic Data

·     Consumer Confidence index for April reported at 101.3 vs. 104.0 consensus and 104.0 prior (revised from 104.2); the Present Situation Index: 151.1 vs. 148.9 prior (previous 151.1) and consumer expectations index 68.1 in April vs March revised 74.0 (previous 73.0).

·     New Home Sales for March rose +9.6% M/M to 683K vs. 630K consensus and 623K prior (revised from 640K); the median sales price of new houses sold in March was $449.8K and average sales price was $562.4K; March new home supply 7.6 months’ worth at current pace vs Feb 8.4 mos.

·     Richmond Fed Manufacturing reported -10 vs. est. -8; and shipments index -7 in April vs +2 in March; services revenues index -23 in April vs -17 in March.

·     U.S. Home prices +0.5% in February from January; U.S. Home prices index 394.8 in February – U.S. Home prices +4.0 pct in 12 months through February.

·     U.S. February 20-metro area home prices +0.4% from year ago vs revised +2.6% in January—S&P CoreLogic Case-Shiller reported; February home prices in 20 metro areas +0.1% seasonally adj vs -0.4% in January- and 20-metro area home prices non-adjusted +0.2% vs -0.6% in January.

 

Commodities

·     Oil prices slumped as WTI crude fell -$1.69 or 2.15% to settle at $77.07 per barrel as concerns over the outlook for energy demand in focus. Gold prices rose $4.70 to settle at $2,004.50 an ounce, holding gains despite a jump in the U.S. dollar, but helped by a drop in treasury yields. Investors turned back to haven assets following renewed bank failure concerns.

 

Currencies & Treasuries

·     Treasury prices rose as yields slid with the 10-yr falling over 11-bps below 3.39% and the 2-yr down over 19-bps to 3.95%. Meanwhile 3-month Treasury yields rose 5-bps to 5.11%, slightly below the 16-year high reached earlier this month. Financial banking crisis fears were renewed following the stock reaction in regional bank FRC after earnings and a 35% drop in Q1 deposits. Separately, the U.S. Treasury sold $42 bln 2-year notes at high yield 3.969%, vs. 3.966% when issued prior with the bid-to-cover ratio 2.68 vs. 2.44 prior auction as primary dealers take 18.93% of U.S. 2-year notes sale, direct 19.87% and indirect 61.2%. The U.S. dollar was firmly higher all day, rising vs euro, Sterling, and Japanese yen counterparts.

 

 

Macro	Up/Down	Last
WTI Crude	-1.69	77.07
Brent	-1.96	80.77
Gold	4.70	2,004.50
EUR/USD	-0.0077	1.0964
JPY/USD	-0.61	133.61
10-Year Note	-0.121	3.394%

 

 

Sector News Breakdown

Consumer

Consumer Staples & Restaurants:

·     In restaurants: MCD Q1 adj EPS $2.63 vs. est. $2.33; Q1 comp sales +12.6% vs. +11.8% y/y and estimate +8.19% and U.S. comparable sales +12.6% vs. +3.5% y/y and estimate +7.54%; Q1 revs $5.90B, +4.1% y/y vs. est. $5.57B; CMG to report earnings tonight.

·     In food: CALM downgraded to EW from OW at Stephens citing a weak pricing backdrop for eggs; NSRGY Q1 Sales +5.6% to CHF23.5b; Q1 organic growth at 9.3%; confirms FY O/L for organic growth of 6-8%; increasing EPS 6-10%; CAG all saw early gains as food related names getting a boost.

·     In beverages, PEP follows KO on Monday with a beat and upbeat guidance as Q1 core EPS $1.50 vs. est. $1.39; Q1 revs $17.85B vs. est. $17.22B; Q1 Organic Rev +14.3% (vs. est. +9.47%) and now expects year 2023 organic rev to boost 8%; raises FY23 core EPS view to $7.27 from $7.20; CCEP Q1 revenue €4.15B vs est. €3.98B; comparable volume +4.0% vs. consensus +0.9%; comparable revenue growth +12.0% vs consensus +7.1%; reaffirms guidance for FY23.

·     In Consumer products, KMB said Q1 gross margin rise by 340bps to 33.2%, as EPS and revs topped consensus and raises 2023 profit to rise +6%-10%, compared with its prior forecast of 2%- 6% but maintains its annual net sales and organic sales growth expectations.

 

Retailers:

·     CPRI was downgraded to hold from buy at Jefferies, seeing sentiment being challenged further by underappreciated macroeconomic, brand and channel risk to estimates.

·     Bernstein said based on BBBY’s category mix, channel mix and formats, Target and TJX are the closest competitors; they expect both to see modest short-term softness in Home categories as the BBBY liquidation sucks oxygen out of the market.

 

Autos, Leisure, Gaming & Lodging:

·     In autos: GM Q1 sales and profit beat expectations and raises FY FCF view to $5.5B-$7.5B from prior $5B-$7B; sees FY adj Ebit $11B-$13B from prior $10.5B-$12.5B; raises FY23 adjusted EPS view to $6.35-$7.35 from $6.00-$7.00 citing stronger-than expected demand and higher prices. In auto dealers: ABG posts Q1 rev miss; in LiDAR market: LAZR Assume at Buy at Jefferies with $7 tgt as believe the company is best positioned to capture a dominant share in the nascent LiDAR market due to its full stack platform.

 

Homebuilders, Building Products, Home Furnishing:

·     Homebuilders continue to exhibit strong earnings as PHM Q1 results were ahead of consensus expectations on both the top and bottom line; homes closed increased 6% YoY (down 8%E consensus) while ASP grew 7%; margins 28.4% and order results were better than expected.

·     In building products: AWI said fluctuations in prices for raw materials and energy negatively impacted its 1Q operating income by $4M compared with a year ago; said decided to raise costs during the period, namely on its mineral fiber ceiling, grid products and other items.

 

Energy

·     In oil services, the last of the majors reports as HAL Q1 EPS $0.72 beats $0.67 est. as revs grew 32.5% to $5.68B above ests. $5.50B and saw largest increase in revenue on a percentage basis in North America growing 44% to $2.8B

·     In E&P sector: RRC upgraded to Buy at Benchmark following Q1 EPS beat ($1.95 vs. est. $0.89) as revs and other income increased more than six-fold to $1.19B from $180.7M y/y.

 

Financials

Banks, Brokers, Asset Managers:

·     Regional banks: FRC shares tumble after Q1 deposits tumbled 40% to $104.5B, but said have stabilized since while the bank also said it is “pursuing strategic options to expedite its progress while reinforcing its capital position; Bloomberg reported First Republic Bank is exploring divesting $50B to $100B of long-dated securities and mortgages as part of a broader rescue plan to help reduce its asset-liability mismatch; BKU posts miss from lower NII and higher expenses; CADE Stable core NIM (down 5 bps), strong growth (12% loans/5% deposits; HOPE Lower PPNR was offset by low credit costs; trust bank NTRS tumbles as EPS fell -15% y/y, on lower asset mgmt fees, missing ests as NII was down 1%, fees up 2% q/q.

·     In payments: FISV 1Q adj EPS $1.58 vs est. $1.57 on revs $4.55B vs est. $4.19B; guides FY organic revs +8-9% vs est. +6.9% and adj EPS $7.30-7.40 vs est. $7.34.

·     In REITs: The U.S. office vacancy rate reached a milestone in the first quarter when it rose to 12.9%, exceeding the peak vacancy rate during the 2008 financial crisis. Office-building prices are down 25% since early 2022, estimates real-estate analytics firm Green Street. Prices of malls are down 19% since early 2022 and down 44% since 2016 – WSJ reported.

·     In Credit Services: TRU posts 1Q earnings and revenue slightly ahead of its prior projections, with adjusted 1Q of 80 cents a share on revenue of $940M, as rising demand in Asia Pacific, India, Latin America, and Africa offset anemic growth in US operations.

·     In insurance/Investment sector: AMP Q1 operating EPS was $7.25, above consensus at $7.18. R&P (~$0.10 p/s), AM (~$0.04 p/s) and the tax rate (~$0.21 p/s) beat, mostly offset by a miss in A&WM; BRO much stronger-than-expected organic growth rate (+12.6% versus consensus forecast of +4.9%).

 

Healthcare

Biotech & Pharma:

·     ABUS shares slid after the company said the FDA placed a clinical hold on its application to study its lead candidate AB-101 in patients with chronic hepatitis B virus.

·     BIIB reported Q1 adjusted earnings of $3.40 per share on total revenue of $2.5 billion, topping (modestly) consensus estimates ($3.29/$2.34b) while there was no change to financial guidance for the remainder of the year.

·     IDYA 7.44M share Spot Secondary priced at $18.50.

·     MORF posted promising results from a mid-stage clinical trial of MORF-057, an ulcerative-colitis treatment candidate saying patients experienced statistically significant improvement in their condition with no signs of safety or tolerance issues (shares jumped at first before sliding).

·     NVS Q1 sales +8%, core income +15%; expects to grow mid-single digits from low to mid-single digits; raised FY guidance.

 

Healthcare Services & MedTech movers:

·     In Medical Services: in the CRO sector, MEDP shares jump as Q1 results came in significantly better than expected, highlighted by 31% y/y growth in net new business awards and the company also raised guidance for 2023 (CRL, ICLR, SYNH, IQV shares active); GEHC shares slide and LH also among names active after earnings results. Online healthcare insurance stocks SLQT, GOCO, EHTH were under pressure all day.

·     Hospital operators: THC Q1 EPS $1.42 vs. est. $1.16 on better revs $5.02B vs. est. $4.84B noting strong sales, core earnings in company’s ambulatory care segment and raises year outlook; UHS was upgraded to equal-weight from underweight at Barclays citing several positives ahead of the hospital operator’s first- quarter results.

·     In MedTech: DHR lowered views saying it now expects full-year adjusted core revenue growth of mid-single digit, vs high-single digit rise forecast previously (Q1 adj EPS also missed by 4c).

 

Industrials & Materials

Transports

·     In transports: in package delivery, UPS shares slide as reports Q1 adj EPS $2.20 vs. est. $2.21; Q1 revs $22.9B vs. est. $23.01B; lowers FY23 revenue view to about $97B from $97B-$99.4B (est. $98.13B); sees FY23 consolidated adjusted operating margin at low end of around 12.8%; in airlines, JBLU posts smaller Q1 EPS loss (34c vs. 38c) on in-line revs of $2.33B, while guides Q2 EPS above views but reaffirms year saying demand trends remain robust in Q2; in tankers, Stifel upgraded EURN to buy noting shipping markets are in various stages of the cycle. Tankers are performing very well, aided by inefficient Russia-related voyages and tight supply.

·     In industrials: GE raises low-end of full-year adj. profit per share forecast to $1.70-$2.00 from its prior outlook of $1.60-$2.00 citing strong demand for jet engine spare parts and services spurred by recovery in air travel (also posted Q1 top/bottom line beat); MMM to cut about 6,000 jobs globally; expects annual pre-tax savings of $700 mln to $900 mln while reported Q1 EPS and sales beat; in heavy duty trucking, PCAR Q1 EPS $2.25 tops $1.81 on better revs $8.47B vs. est. $7.71B saying demand remained strong, boosted by customers looking to replace ageing fleets.

·     In Aerospace & Defense: RTX Q1 EPS $1.22 tops $1.13 estimate as revs of $17.21B beats $16.95B view while still reaffirms year sales, EPS and free cash flow views; Deutsche Bank said they continue to be constructive on aircraft leasing stocks (AIR, AL, FTAI) saying view is that fleet planning is a long-term decision made by airlines based on future outlook of the company; HXL adjusted EPS of $0.50 vs. the Street’s $0.38, driven by stronger sales (particularly within Commercial Aerospace), yielding higher gross margins.

 

Materials, Metals & Mining

·     In metals: CLF Q1 EPS loss (-$0.11) vs. est. loss (-$0.19); Q1 revs 45.3B vs. est. $5.21B; cuts FY23 CAPEX view to $675M-$725M from $700M-$750M; materials sector was among the worst movers in the S&P.

·     In chemicals: Dow Jones Industrial component DOW Q1 sales of $11.85B topped ests of $11.35B but was down from $15.26B a year ago which reflects a decline in all co’s operating segments amidst slow global macroeconomic activity; SHW posted Q1 beat and raise ($2.04/$5.44B above consensus $1.79/$5.13B) while still sees adjusted EPS $7.95 to $8.65 vs. estimate $8.48.

·     In Paper sector: PKG reported 1Q results below expectations with EBITDA of $405M below consensus at $409M; EPS of $2.20 missed consensus at $2.26, as well as guidance of $2.23 and Q1 box shipments fell -12.7% y/y, below DBAB estimate of a 7% decline.

 

Technology

Internet, Media & Telecom

·     In Internet & media: Reuters reports NFLX will invest $2.5B in South Korea over the next four years; SPOT shares bounce after adding 5 mln premium subs in quarter, crushing ests of 2.23M and ended with 210Mm subs worldwide; also had 515Mm monthly active users (MAUs) vs. est. 500Mm; BABA shares fall for a 6th straight session as China stocks in recent downtrend.

·     In telco: VZ Q1 adj EPS in-line at $1.20 with rev miss ($32.9B vs est. $33.57B) while guides FY23 adjusted EPS $4.55-$4.85 vs. est. $4.70 and sees FY23 total wireless service revenue growth of 2.5%-4.5%; lost 127K net new monthly bill-paying wireless phone subscribers in Q1; said consumer unit added 256K 5G subs, a deceleration from 262,000 adds in 4Q.

 

Hardware & Software movers:

·     In software: TENB shares slide as guides FY23 revenue in the range of $775M-$785M, below ests $788M on lower Q2 guide as well (Q1 results just topped views while billings went from 23% in Q4 to 13% in Q1; Total Def Revs 25% to 22%); ZBRA upgraded from Neutral to Outperform at UBS/Credit Suisse ahead of Q1 results, driven by strength in the EMEA region, and better FX; SAP upgraded to Buy from Neutral at Citigroup citing consistent FY outlook, and greater confidence in credibility of upcoming medium-term roadmap refresh; DOCN downgraded at Needham.

·     In electronic design: CDNS shares slip after posting an in line/better Q but tweaked the FY guide only in line with consensus – did not raise FY by the beat and that magnitude is weaker than most expected as they await 2H visibility; shares of SNPS slipped in sympathy.

 

Semiconductors:

·     Philly semi index (SOX) down -3% into at 2,900 as index down -10% MTD (still +18.7% YTD); ASML was downgraded to Hold from Buy at Stifel saying they expect ASML’s industry outperformance in 2023 (+25% sales growth) to pause in 2024 (we forecast 5.5% growth) as believe the current demand shift from leading-edge to mature semiconductor production technology CAPEX at leading foundries should imply EUV demand pushouts.

·     In semi preview, Susquehanna said they expect PC/Mobile/Consumer to show signs of a near-term bottoming, while Networking/Comms and Apple-exposed read-throughs have deteriorated of late and present near-term risks – lowered estimates for AMBA, CRUS, COHR, LITE, MXL, QCOM, SWKS, STM, SYNA, and TXN. Raising estimates and price target for IFX (from €35 to €38), lowering price targets for AMBA (from $100 to $85), CRUS (from $110 to $105), COHR (from $45 to $38), LITE (from $70 to $55), MXL (from $48 to $45), MCHP (from $100 to $95), POWI (from $100 to $95), QCOM (from $140 to $135), STM (from $55 to $54), SWKS (from $135 to $130), SYNA (from $145 to $140), and TXN (from $210 to $205).