Closing Recap

Thursday, December 07, 2023

Index	Up/Down	%	Last
DJ Industrials	62.95	0.17%	36,117
S&P 500	36.25	0.80%	4,585
Nasdaq	193.28	1.37%	14,339
Russell 2000	16.2	0.87%	1,868

 

 

 

 

 

 

 

 

 

After a modest decline in the S&P 500 yesterday, S&P futures trended flattish overnight ahead of weekly initial jobless claims. The actual claims number came in just as forecast at 220k, allowing US equities to enjoy a strong open and early gains. Investors’ soft-landing hopes remain alive. Further, both Argus and BofA were out today with forecasts for 2024 market gains. Argus sees potential for 8-12% appreciation in the S&P 500 next year, while BofA has published a more specific $5,000 target for year-end 2024 with broader leadership than we’ve seen in the top-heavy gains this year. Further, BofA sees the index gains while still expecting the average stock to hold about 13% below its post-Covid highs. By mid-morning, indices were testing resistance levels and breadth was over 2:1 favoring advancers. Health Care was the only S&P sector ETF in the red, while Communications and Consumer Discretionary were leaders to the upside.

 

In data of interest today, the Fannie Mae Home Purchase Sentiment Index dipped by 0.6 points in November with just 14% of consumers seeing now as a good time to buy a home, marking a survey low. Also, on the subject of sentiment, the AAII weekly survey saw bulls fall from 48.8% to 47.3%, while bears rose from 19.6% to 27.4%; interesting given more investors seem to be looking for Fed cuts sooner rather than later. Separately, expanding on BofA’s comments referenced above, they noted that even if the big seven stocks from 2023 flatline and the forward multiples on the remainder of the market also flatline at an average 15x, BofA’s EPS growth forecast would still result in an S&P 500 index value of $5,100. Lastly, @charliebilello notes gasoline prices in the US have dipped to a national average of $3.20/gallon, their lowest level of the year (money in the pockets of consumers for holiday spending?).

 

Moving into the final hour of trading, US equities were slightly off highs for the day with no bad news being good news and perhaps even a little bad news being good news as well in the eyes of Fed watchers. Breadth held at better than 2:1 in favor of advancers. From a sector view, Energy (XLE, -0.84%) and Utilities (XLU, -0.05%) had joined Health Care (XLV, -0.07%) in the red. Communications (XLC, +2.15%), Technology (XLK, +1.24%) and Consumer Discretionary (XLY, +0.68%) paced the gainers. Large caps outperformed small caps, with SPY +0.78% versus IWM +0.55%. 

 

Economic Data

·     Weekly Jobless Claims climbed to 220,000 in the latest week vs. consensus 222,000 and from 219,000 the prior week; the 4-week moving avg climbed to 220,750 from 220,250 prior; continued claims fell to 1.861M from 1.925M the prior week.

·     October Wholesale sales (-1.3%) vs Sept +2.0% while Oct wholesale inventories revised to (-0.4%) vs. consensus (-0.2%) from -0.2%; stock/sales ratio 1.34 months’ worth vs Sept 1.33 months.

 

Commodities

·     The Japanese yen strengthened mightily against the US dollar amid fallout from the rapid repricing in expectations on BoJ policy in the wake of overnight comments by officials. The USDJPY briefly dipped as far as 141.70 before stabilizing and bouncing back to current levels around 143.50, which marks a 2.6% move on the day! There was little news flow associated with the mid-session swoon, that just seems to have caught momentum movement.

·     February gold futures settled flat, just -$1.50/oz, or -0.07%, to $2,046.40. That said, it was a bit of a roller coaster session, with moves testing both support and resistance pivot levels before returning to just a modest decline. This morning’s initial jobless claims data was not enough to drive prices with any conviction, leaving gold to follow the opinion swings around the Fed and future moves in rates. That said, some concern does appear to be evolving around the potential for a soft landing in the US economy and the historical flat-to-negative impact such events have had on gold. Time will tell.

·     WTI January crude futures slid for a sixth consecutive session, settling -$0.04/bbl, or -0.06%, to $69.34. Prices have been in a generally bearish pattern for the last couple months, reflecting both incremental domestic production and concerns about macro-driven demand impediments. Recent commentary from OPEC+ on production curbs and ongoing geopolitical issues around Gaza continue to provide a modest support buffer. Brent crude also slipped on the day, settling -$0.25/bbl, or -0.34%, to $74.05.

·     The “goldilocks” scenario of falling bond yields and improving equity market pricing of economic growth has lifted the S&P 500 P/E by 10% during the past month. The bond market now implies 130 bp of Fed cuts in 2024 and the real 10-year US Treasury yield has declined by 50 bp to 2.0%. At the same time, the outperformance of cyclical stocks vs. defensive stocks has been consistent with a roughly 100 bp improvement in the equity market’s pricing of economic growth.

 

 

Macro	Up/Down	Last
WTI Crude	-0.04	69.34
Brent	-0.25	74.05
Gold	-1.50	2,046.40
EUR/USD	0.0037	1.0799
JPY/USD	-3.81	143.50
10-Year Note	0.004	4.125%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Used Cars (CVNA, KMX), Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) decreased 2.1% in November from October. The Manheim Used Vehicle Value Index (MUVVI) dropped to 205.0, down 5.8% from a year ago.

 

Retail, Consumer Staples & Restaurants:

·     In dollar stores: DG posted a smaller-than-expected drop in Q3 sales on demand for its cheaper groceries and household essentials; said Q3 comp sales fell (-1.3%) vs. est. (-2.1%), after earnings and total sales beat and reaffirmed its fiscal 2023 forecasts.

·     In Restaurants: DPZ rises after comments at investor day, as lifts long-term (2024-2028) annual global retail sales growth forecast to 7% climb from prior view of 4%-8% climb; forecasts more than $4B incremental sales opportunity in its international business over the next 5 years.

·     In Specialty Stores: Pet retailers CHWY slid as top-line guidance came in lower than expected, with management also lowering its FY2023 top-line guidance, though FY2023 EBITDA margin was reiterated at 3%. GME Q3 revs $1.078 below consensus $1.18B; hardware and accessories sales fell to $579M, down from $627M y/y and software sales declined to $321M from $352M (shares fell initially before rebounding). BNED shares jumped after their quarterly results.

·     In Beverages: NAPA shares fell after muted 1Q results with F24 guidance revisions coming in below expectations due to category pressures from a weaker consumer and slowing premiumization trends; downgraded to Neutral at Bank America following Q1 results.

 

Homebuilders, Building Products, Home Furnishing:

·     Redfin (RDFN) said 2023 has been the least affordable year to buy a home in Redfin’s records. Someone making the $78,642 median U.S. income in 2023 would’ve had to spend 41.4% of their earnings on monthly housing costs if they bought the $408,806 median-priced U.S. home. That’s the highest share on record and is up from 38.7% in 2022.

·     Note homebuilders (TOL, LEN) and others are hitting fresh all-time highs this week, building on the upside momentum of lower mortgage rates amid expectations the Fed will ease rates starting in early 2024 (futures point to 50% chance of cut in March) as inflation data points have showed continued improvement and the economy holding strong.

 

Energy

·     CVX unveiled its 2024 cap-ex budget, calling for expenses of about $16B, up from $14B this year, mostly to boost production in U.S. shale projects. Said it plans to spend about two-thirds of this year’s budget on U.S. projects, including about $6.5B to develop Chevron’s U.S. shale portfolio.

·     BE downgraded to Neutral from Buy at Bank America and reduced the tgt to $16 from $17 as it sees less clarity on ’24 on orders and backlog noting on its Q3 call in early November, mgmt. indicated a heightened focus on pipeline conversion through YE.

·     EQNR was upgraded to Buy from Neutral at Bank America and raise its price target as believe Equinor will be able to rely on more sources of resilience in what we believe will be a year of rangebound oil & gas prices.

 

Healthcare

Biotech & Pharma:

·     ABBV agreed to acquire CERE for $45.00 per share in cash for total equity value of approximately $8.7 billion. Proposed acquisition adds robust pipeline of assets focused on best-in-class potential for psychiatric and neurological disorders https://tinyurl.com/2tp962z9

·     BIIB was upgraded to Outperform from Market Perform at Raymond James predicated on the view that 1) the Leqembi launch will begin to pick up speed in 2024, 2) the Skyclarys U.S. launch will continue at its strong pace in 2024 and 3) leadership will remain prudent with R&D spend.

·     BMY announces an additional $3 billion share repurchase authorization.

·     HEPA announces restructuring plan to enhance shareholder value and management changes; cash runway continued into Q2 2025.

·     SLDB receives FDA fast track designation for DMD gene therapy SGT-003.

·     VNDA announced that it has acquired U.S. and Canadian rights to PONVORY from JNJ’s Actelion Pharmaceuticals Ltd, which is approved to treat adults with relapsing forms of multiple sclerosis.

·     VTGN was upgraded from Hold to Buy at Jefferies with $15 tgt saying it’s poised to become a major turnaround story saying the co’s lead asset fasedienol (PH94B) is a fast-acting nasal spray whose recent phase III social anxiety data drives 50-60%+ confidence in an FDA approval.

 

Healthcare Services & MedTech movers:

·     In Tools & Diagnostics: Goldman Sachs downgraded DHR to Neutral saying they are getting more selective based on valuation and upgraded QGEN to Buy based on the defensiveness of QGEN’s respective end markets and resilience vs. other mature Tools with more capital-intensive instrument exposure – firm believe tools sector growth will normalize to 5% in 2025 and 2026.

·     In MedTech: MDT announced that it was terminating its agreement to acquire EOFlow citing multiple breaches of offer.

 

Industrials & Materials

Transports

·     Trucker JBHT upgraded from Sell to Neutral at UBS and raised tgt to $205 from $176 because they see an improving outlook for intermodal volume growth in 2024 and it also believes the reset down in EPS expectations for 2024 has nearly run its course.

·     Airline JBLU said it now expects its FY23 adj. EPS loss (-$0.50-$0.40), improved from prior loss outlook of (-$0.65-$0.45) saying since late October, close-in bookings have outperformed expectations for both holiday peak and non-holiday travel periods; also raises the low end of revenue forecast to rise 4%-5% y/y vs. prior view of 3%-5%.

·     Car Rental: CAR initiated at Sell and $164 tgt at Goldman Sachs saying while the company has been executing better than HTZ YTD, Goldman sees a more limited catalyst path from here, and expects further downside to consensus estimates in 2025.

·     In LTL, SNDR upgraded from Underweight to Equal Weight at Wells Fargo and raise tgt to $25 as views the risk/reward balanced given the backdrop of stabilizing freight trends and opportunity for earnings acceleration in H2 2024.

·     In Rails (CSX, NSC, UNP), Susquehanna notes Rail volumes were +5% Y/Y this week, compared to the four-week trend of +3%, QTD trend of +1%, and YTD trend of -3%.

 

Aerospace & Defense

·     ASLE receives supplemental type certificate from the FAA for "AerAware" – Co’s Enhanced Flight Vision System (EFVS) for Boeing’s 737NG product line.

·     NOC raised its share-buyback authorization to $3.8 billion after saying it had authorized an additional $2.5 billion for repurchasing company stock.

·     Elon Musk’s SpaceX has initiated discussions about selling insider shares at a price that values the closely held company at $175B or more. The most valuable US startup is discussing a tender offer that could range from $500M-$750M – Bloomberg https://tinyurl.com/26raunx3

 

Technology

Internet, Media & Telecom

·     GOOGL said it developed a new artificial-intelligence (AI) system more powerful than any currently on the market, including technology developed by ChatGPT creator OpenAI. The Alphabet unit said the algorithm, Gemini, wouldn’t be widely available until early next year. Shares rallied on the day while MSFT shares were down early before bouncing.

 

Hardware & Software movers:

·     AI shares slipped as results were mixed as revenue came within the guided range while margins beat; revenue of $73.2 grew 17% y/y, up from 11% last quarter and 7% in the year-ago period; lowers FY24 loss from operations to ($135M)-($115M) vs. prior guidance of ($100M)-($70M).

·     BASE Q3 revenue/EPS exceeded consensus estimates, with solid ARR growth (+24.4% y/y) and improving DBNRR (at >115%), but only raised full-year ARR guidance modestly; had continued momentum in Capella migrations, +14.5% YoY growth in ARR/Customer.

·     BRZE reported better-than-expected FQ324 results, the fourth such quarter in a row, with non-GAAP EPS of ($0.05) (consensus ($0.13)) and non-GAAP operating margin of (7%), flat from (7%) last quarter, on revenue of $124M (consensus $117M), up 33% y/y.

·     CXM shares tumbled; Q3 rev growth of 18.5% topped ests 14.7%, and adj op income of $27.4M, topped ests $19.5M and raised its full-year view – shares fell as outlined pressure on renewals, including some large customers downsizing their contracts in Q4, prompting them to lower Q4 billings guidance to $262M (vs. est. $277M) and giving an initial guide of 10% subscription revenue growth for FY25 (vs. est. 16.6%).

·     TTWO downgraded to Neutral from Buy at Bank America as assume Grand Theft Auto launch in the Fall 2025.

·     VRNT reported results above consensus as Q3 revenue down 3.1% y/y, and sees no change to stable "elongated sales cycles," reiterating FY24 revenue guidance of $910M; said SaaS ARR up 11% Y/y driven by solid bookings and renewals.

 

Semiconductors:

·     AMD shares rose around 10% after unveiled new so-called accelerator chips that it said will be able to run artificial intelligence (AI) software faster than rival products; raised AI TAM to $45B in ’23 growing at 70% CAGR to >$400B by ’27 (up from previous $150B) and said sees MI300X performance surpassing NVDA H100 for AI workloads.

·     SMTC reported in-line results but worse guidance, primarily as the module business takes another leg down; guides Q4 net sales $180-200Mm vs est. $211.8Mm.

·     WDC has informed customers that prices for NAND flash memory may rise by up to 55% in the coming quarters, according to industry sources, Digitimes reported overnight.