Market Review: December 15, 2023

Closing Recap

Friday, December 15, 2023





DJ Industrials




S&P 500








Russell 2000













Stocks popped and dropped in the final minutes of trading, pushing the S&P back to flat and other averages higher after trading in a narrow range all afternoon (narrow compared to volatility the middle part of the week post FOMC), posting strong returns for the week with the Dow, S&P and Nasdaq all at or near 52-week highs. The S&P and Nasdaq recorded their 7th straight week of gains (since 1990, that has happened 10 other times according to @ RyanDetrick), with huge weekly gains for the Russell (+5%) and over 2% gains for the S&P, Dow, and Nasdaq. Lower Treasury yields helped support the rally in stocks, specifically those that benefit from lower rates such as REITs, solar, biotech, homebuilders, high dividend paying stocks, etc. after Fed Chair Powell turned more dovish than anyone forecasted mid-week, prompting this massive end of week rally. Volumes were heavy but market volatility fairly subdued despite quadruple witching option expiration today (options tied to single stocks, ETFs and indexes will expire, alongside index-tracking futures contracts), which ties in with the rebalancing of the S&P 500 and Nasdaq-100. Despite the stock market euphoria on Powell, there were a few Fed speakers today that tried to limit the market expectations on rate cuts today, but failed to dent market optimism.


In an attempted walk-back or downplay of Fed Chairman Powell dovish comments on rates this Wednesday, New York Fed President John Williams said on CNBC this morning, "we aren’t really talking about rate cuts right now," "We’re very focused on the question in front of us, which as Chair Powell said…is, have you gotten monetary policy to a sufficiently restrictive stance?" Williams serves as the vice chair of the Fed’s rate-setting committee, so his commentary does carry some weight, but two-days after Powell didn’t have as meaningful impact on markets. It didn’t end there as Atlanta Fed President Raphael Bostic suggested this afternoon that the Fed can begin reducing interest rates "sometime in the third quarter" of 2024 if inflation falls as expected and sees 2-rate cuts in 2024 (less than the 5-6 cuts fed futures are anticipating). Economic data today was on the weaker side with negative manufacturing data in the NY region and slower industrial production.


Economic Data

·     NY Empire State current business conditions index weaker, down -14.5 in December vs. consensus +2.0 and vs +9.1 in November while new orders index -11.3 in December vs -4.9 in November, prices paid index +16.7 in December vs +22.2 in November, employment index at -8.4 in December vs -4.5 in November, and the six-month business conditions index +12.1 in December vs -0.9 in November.

·     Industrial Production for November rises +0.2%, missing the consensus +0.3% and better than Oct (-0.9%); Nov capacity utilization rate 78.8% below consensus 79.1% and above Oct 78.7%.

·     S&P Global December flash composite PMI at 51.0 and S&P Global December flash services PMI at 51.3 (vs 50.8 in November).



·     U.S. crude oil futures settle at $71.43/bbl, down 15 cents, 0.21%, while Brent Crude futures settle at $76.55/bbl, down 6 cents, 0.08%, both erasing earlier gains but still notched their first weekly rise in two months after benefiting from a bullish forecast from the IEA) on oil demand for next year and a weaker dollar. Baker Hughes said U.S. energy firms this week cut the number of oil and natural gas rigs operating for the first time in five weeks, falling by 3 to 623 in the week to Dec. 15. Baker Hughes said U.S. oil rigs fell 2 to 501 this week, while gas rigs were unchanged at 119. Gold prices fell -$9.20 to settle at $2,035.70 an ounce (off earlier highs of $2,059.60 an ounce and down from last week intraday record highs of $2,152.30 an ounce)


Currencies & Treasuries

·     The U.S. dollar rebounded this afternoon as the DXY climbed above 102.50 after wallowing near 4-month lows, but still ended the week down a little under 2%. Markets expectations have been built-up for 150 bps of rate cuts from the Fed next year (double the 75-bps forecast by the FOMC given this week) after Wednesday’s meeting, boosting selling pressure in the buck and bond yields. All three major central banks, FOMC, BOE, and ECB all kept rates steady this week as expected while the Bank of Japan is the last of the major central banks to meet this month and the question among traders and investors is whether it will signal its intention to ditch its policy of keeping interest rates at rock-bottom next week. The yen is up 2% this week, set for a fifth straight week of gains against the dollar.

·     Big week of declining Treasury yields: the 2-yr yield fell -27 bps this week to 4.455% and YTD now only up 5bps, but down -76-bps from 52-week high on 10/18/23. The 10-yr yield fell -31.7-bps this week to 3.927% (YTD +10bps) but down -106-bps from 52-week high 4.987% on 10/19. The 30-yr yield falls nearly -30-bps this week to 4.026% (lowest since July) and is down -107-bps from 52-week high of 5.101% on 10/19.






WTI Crude















10-Year Note





Sector News Breakdown


Retail, Consumer Staples & Restaurants:

·     COST hits new all-time highs after announces a special cash dividend of $15 per share; Q1 adj EPS $3.58 vs. est. $3.42, with EBIT ~1% above consensus, while gross margin expansion was partly offset by SG&A expense deleverage from slower comp sales growth and wage investments.

·     TSCO was downgraded to Underperform from Neutral at Bank America and cut tgt to $171 from $207 saying they see headwinds to demand and pricing that will pressure both earnings and investor sentiment.

·     In Restaurants: DRI Q2 sales of 42.73B just below consensus and lowered the top end of its year comp store sales growth to 2.5%-3.0% vs prior forecast of 2.5%-3.5% but noted higher menu prices and easing input costs helped company raise its annual profit estimates.

·     Household Products: CLX was upgraded to Neutral at Bank America and increased its tgt to $150 from $120 prior believes initial signs are encouraging and see a balanced risk/reward ahead. KMB downgraded to Underperform from Neutral at BAML and decreased its tgt to $115 from $135 as sees the gross margin landscape as less certain as pricing benefits wane. CHD upgraded to Neutral at BAML and increased its tgt to $100 from $85 prior based on view their poised to benefit from the consumer trade-down with its value portfolio.

·     In Food: HSY downgraded from Buy to Neutral at Bank America and cut tgt from $250 to $200 saying it’s a best in class snacking franchise that has delivered consistent EPS upside in recent years – but sees limited upside potential in FY24.


Homebuilders, Building Products, Home Furnishing:

·     LEN Q4 adj EPS $5.17 vs. est. $4.60; Q4 revs rose 7.8% to $10.97B vs. est. $10.34B; Q1 net new orders rose 32% y/y to 17,366 vs. est. 16,840 and sees Q1 new orders 17,500-18,000; Q1 Deliveries increased 19% to 23,795 homes; Gross margin on home sales of 24.2% vs. est. 24.4%

·     SWK said it’s selling Stanley Infrastructure to Epiroc AB in Sweden for $760 million in cash. Stanley Infrastructure is the company’s attachment and handheld hydraulic tools business, which is expected to generate revenue of $450 million to $470 million in fiscal 2023. Proceeds of the deal will be used to pay down debt.


Leisure, Gaming & Lodging:

·     In Lodging and Leisure: BYD and VAC downgraded to Equal Weight from Overweight and cut tgt to $66 from $71 at Barclays saying they e expect travel and leisure demand to prove relatively resilient overall, but with pockets of varying weakness as consumers become more discerning with their budgets. Barclays favors industries with attractive value propositions to the consumer and companies with unique growth catalysts or self-help.



·     In Utilities: AEE downgraded to Sector weight at KeyBanc after the ICC issued its decisions in AEE’s and EXC multiyear rate cases, which came in with ROEs below national averages and stakeholders’ recommendations, wholesale rejection of grid investments over the forecast period, and was punctuated by hostility toward IL utilities. Note Guggenheim downgraded EXC based on the final decision as well.

·     In Solar: several brokerages are getting more positive following the Fed hinting at lowering interest rates several times next year, lifting shares of FSLR, SPWR, ENPH, SEDG, others. In research, Jefferies initiated coverage on several names, saying they see catalysts for the sector heading into 2024 being stabilization of interest rates and more clarity on the incentives from Inflation Reduction Act (IRA) – has buys on FSLR ($211 tgt), ENPH (145 tgt) and RUN ($25 tgt).



Bitcoin, FinTech, Payments:

·     Monthly credit card delinquencies and charge-offs continue to rise: Monthly NCO/delinquency data out: COF said Nov domestic credit card net charge-offs rate 5.19% versus 5.08% in Oct; 30+ day performing delinquencies rate for domestic credit card 4.55% at Nov end versus 4.48% at Oct end; and 30+ day performing delinquencies rate for auto 6.12% at Nov end versus 6.06% at Oct end. JPM said credit card delinquency rate 0.99% at Nov end vs 0.98% at Oct end; and credit card charge-off rate 1.75% in Nov vs 1.65% in October. BAC credit card delinquency rate was 1.41% at Nov end vs 1.37% at Oct end and credit card charge-off rate was 2.23% in Nov vs 2.05% in Oct.


Insurance & Services:

·     In Insurance: LNC announced plans to free up $700M of capital via the sale of its Wealth Management business to PE-backed independent broker-dealer (IBD) Osaic. PGR reported a combined ratio for November of 91.1% vs. 92.2% y/y, Net premiums earned $5.08B, +27% y/y and Net premiums written $4.73B, +28% y/y.

·     In insurance Research: KBW downgraded AJG, AON, BRO, MMC to Underperform from Market Perform as expects smaller insurance rate increases in 2024 vs 2023, decelerating overall commercial insurance lines rate increases and likely slowing nominal GDP growth point to slowing brokerage organic revenue growth. Top picks: WTW, BRP. BHF was downgraded Underperform at KBW saying valuation was more expensive than peers.



·     It’s been a stellar week for REITs (XLRE +4.8% WTD) given the outlook for rate cuts by the Fed but down on day. In research, BMO Capital downgraded CPT to Market Perform noting benign interest rate backdrop will likely benefit CPT, but BMO is concerned of record-high new supply in many of its markets; upgraded SBAC to Outperform and raise tgt to $285, turns more bullish on Tower REITs with the sector well-positioned in a lower rate environment and offering defensive characteristics; VNO upgraded to Market Perform noting high leverage and near-term maturities; CUBE upgraded to Outperform as they turn more bullish on storage with the expectation lower rates will drive improved housing mobility, and IRT downgraded to Underperform, concerned of record-high new supply in its markets.



Biotech & Pharma:

·     AADI tumbled after saying its experimental cancer therapy in a mid-stage study showed a 26% overall response rate, the proportion of patients whose cancers disappeared or shrinks.

·     ACIU said that it would progress its Phase 2b immunotherapy and its development partner JNJ would be progressing ACI-35.030 into a Phase 2b clinical study in patients with preclinical Alzheimer’s disease.

·     CBAY submitted its application to the FDA seeking approval to market its drug to treat a type of chronic inflammatory liver disease.

·     ELAN extends gains a day after Bloomberg reported that activist investor Ancora has built a position in ELAN and is pushing for management and board changes at the company (shares upgraded to Overweight at Morgan Stanley with $16 tgt following the report).

·     ILMN upgraded to MP from Underperform at Bernstein saying the market for its next-generation genome sequencing (NGS), has grown 15% from 2017 to 2021, and it believes that the market will grow 13% beyond.

·     VCRA shares rise after saying its development and commercialization partner, Torii Pharmaceutical, reported positive top-line results from its Phase 3 trial of its potential treatment for molluscum contagiosum in Japan.


Industrials & Materials

·     In Industrials: GE was upgraded to overweight from equal weight at Wells Fargo while raising its price target to $144 a from $115 noting their attractive business with high aftermarket mix, along with solid management and a clean balance sheet. CMI downgraded to Neutral at Bank America as shares approach their price target and sees a more balanced risk/reward as shares move closer to mid-cycle valuation territory. AMRC downgraded to Neutral from Buy at Bank America noting after reaching a multi-year low in early November following a disappointing 3Q update, shares have traded up ~65% and now appear fairly valued.


Aerospace & Defense

·     In Defense sector: LHX was upgraded to Buy from Hold at Deutsche Bank (tgt to $240 from $184) while downgraded NOC to Hold from Buy as it finds its previous investment thesis increasingly untenable in the face of what appears to be incremental cost challenges on the Sentinel program. BA tgt rose to $315 from $275 and reit Buy at UBS saying strong November deliveries indicate supply chain improvement on the MAX. The DoD announced that it has awarded PLTR a $115M OTA (other transaction authority modification) to extend its work on the Army Vantage contract.


Materials, Metals & Mining

·     In Steel sector: X guides Q4 adj EPS $0.20-$0.25 vs. est. $0.19; sees Q4 adjusted EBITDA roughly $250M; says looking ahead, domestic steel markets are improving, customer demand is growing, and spot selling prices are increasing; STLD guided Q4 EPS $2.60-$2.64 vs. est. $2.40 saying that that steel order activity remains solid as evidenced by extended order lead times and recent pricing increases heading into the first quarter.



·     Bank America upgraded MU, AMD, INTC downgraded GFS, TER: MU upgraded to Buy from Neutral (tgt to $95 from $77) as believes the latest memory down cycle is now generally behind US, and MU should benefit from rising spot/contract prices of DRAM/NAND into CY24/25E. AMD upgraded to Buy (tgt to $165 from $135) as views well-positioned to gain incremental share of the hugely profitable $100B+ accelerator market. MTSI upgraded to Buy with $105 tgt and raised estimates following completion of acquisition of Wolfspeed’s RF operations. INTC upgraded to Neutral as now sees faster than anticipated growth in its Automotive/Mobileye (INTC has 88% stake) and foundry (Intel 18A node ramp in CY25/26E) businesses. GFS downgraded to neutral from Buy and lower ests as sees elevated inventories at mobile/consumer (I.E. QCOM) and automotive customers pressuring near-term growth into 1H24E. TER downgraded to underperform on valuation as it sees limited upside from current levels.

·     US listed China stocks (BABA, BIDU, JD) rise after the People’s Bank of China offered commercial lenders a net 800B yuan ($113B) in one-year loans Friday—a record cash injection into the banking system through its one-year policy.

·     AVGO rises a 7th straight day (from $903 low on 12/7 when streak began), while semi-index (SOX) tops 4,150 (+11% this month and +61% YTD), in what has been an incredibly strong sector.

·     DOCU shares jumped mid-afternoon after the WSJ reported the company is working with advisers to explore a sale, though notes conversations are in the early stages

·     ROKU downgraded to Sell from Hold at MoffettNathanson saying even with an aspirational 2025 GAAP EBITDA margin of 18%, it simply cannot get anywhere near current stock levels in its valuation framework.

·     ATNI announced that it is expanding its shareholder return program by raising the quarterly dividend by 14% to $0.24 as well as raising the repurchase authorization to $25M.


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.