Closing Recap

Wednesday, December 21, 2022

Equity Market Recap

·     Stocks extend gains after snapping their 4-day losing streak on Tuesday, propped up after better economic data (consumer confidence highest level this year), bullish oil inventory data (boosting oil/energy), and better earnings results from Nike (NKE) and Fed-Ex (FDX), boosting S&P futures back above its 50-day MA 3,887 with the 100-day MA higher around 3,930. Is this the start of the “Santa Claus” rally that the media has been clamoring for this month? Note as of yesterday’s close, S&P 500 is down 19.8% YTD in price return terms, on track for worst year since 2008 and 4th-worst since index’s modern version inception in 1957, according to one report. Today’s move was on light volume, with all eleven S&P sectors finishing higher and nearly all of them up over 1% on the day. Overall, the average S&P 500 stock is up roughly 11% QTD, but still down 5% MTD. News flow was quiet and is expected to remain so on this holiday shortened week. In other news, the United States will provide $1.85 billion in additional military assistance for Ukraine, including a transfer of the Patriot Air Defense System, Secretary of State Antony Blinken said in a statement. The announcement comes as Ukrainian President Volodymyr Zelenskiy was headed to Washington on Wednesday to meet President Joe Biden and address Congress in his first known overseas trip since Russia invaded Ukraine 300 days ago.

Economic Data:

·     Consumer Confidence index for December 108.3, the highest level of the year and above consensus 101.0 vs November revised 101.4; present situation index 147.2 in Dec vs Nov revised 138.3 and expectations index 82.4 in Dec vs Nov revised 76.7.

·     Existing Home Sales for November 4.09M unit rate below consensus 4.20M and below Oct 4.43M; Nov inventory of homes for sale 1.14 mln units, 3.3 months’ worth; national median home price for existing homes $370,700, +3.5% y/y

·     U.S. Q3 current account balance -$217.1B (vs. est. -$222.B and vs. Q2 balance (-$238.7B)

Commodities, Currencies & Treasuries

·     WTI crude oil rises $2.06 or 2.7% to settle at $78.29 per barrel, boosted by larger than expected weekly declines in U.S. crude inventories as reported by the DOE and API. Gold prices finish unchanged at $1,825.40 an ounce (high $1,833.80 an ounce and low $1,821.30). The US dollar managed to rebound after falling yesterday following the Bank of Japan widening its cap on 10-year Japanese government bond yields, which pushed the yen higher by over 4%. Treasury yields opened lower after yesterday’s jump, worked their way back to the highs of the day around 3.7% for the 10-yr (off morning lows 3.62%), but later slipped following a good 20-year auction that saw strong bid to cover demand at 2.68 at yield of 3.935% vs. 3.948% when issued prior with good indirect bidders at 72.3%.

Sector News Breakdown

Consumer

·     Retailers: sector gets a boost from NKE as posted stronger than expected 2Q results amid a challenging environment with strong CC top-line growth across channels and geographies, and inventory progress positively (NA +54% y/y vs. +65% y/y in 1Q), but company raised its revenue outlook and said that its inventory challenges are abating (shares of FL, UA rise); RAD posts better Q3 results, smaller loss and better revs but cuts FY23 EPS outlook and narrows FY23 revs view which weighed on shares as well as other retail pharmacies WBA, CVS; TGT downgraded at Gordon Haskett while Stifel lowers estimates for WMT and TGT saying survey shows spending intentions continuing to worsen since early fall, with overall results below averages since May.

·     Restaurants & Casual Dining: few analysts out on sector today as SBUX downgraded to Hold at Jefferies as expect the incremental risk of a recession in 2H23/1H24 to decrease discretionary spend among SBUX customers and lower comp sales; EAT downgraded to Hold at Jefferies as expect more aggressive competitive discounting to emerge and cut RRGB to Hold, waiting for more visibility on how strategies may evolve in ’23 with the new mgmt team – says PLAY and BLMN top picks in full-service, MCD in limited service and PFGC in foodservice. Wedbush with handful of changes, said PZZA’s 2023 consensus EPS estimate seems overly optimistic as they downgrade to Neutral, QSR burger relatively well positioned as well, with both top and bottom-line expectations reasonable, see little in the way of catalysts so downgrade JACK, STKS, DENN to Neutral and remain sidelined on CAKE, BJRI and EAT

·     Casinos, Gaming, Lodging & Leisure sector: in theme parks, SIX rises after activist shareholder Land & Buildings have accumulated a roughly 3.5% stake and is pushing the theme-park operator to sell or spin off its real estate; in cruise lines, CCL reported Q4 adj EPS loss (-$0.85) vs. est. loss (-$0.87) on revs $3.84B vs. est. $3.91B, 4Q revenue per passenger cruise day increased 0.5% and said ended Q4 with $8.6B of liquidity; in lodging, PEB said both leisure and business travel demand were weaker than expected in the second half of November, in its monthly update and lowered guidance (the update weighed on other lodging stocks HLT, HST)

·     Auto sector: TSLA hits fresh 2-year lows as selling pressure continued early before rebounding; GM recalls 140,000 Chevy Bolt EVs due to risk of carpet catching fire; BLNK signs agreement with Bosch as official EV charging solutions provider for gm dealerships, advancing EV adoptions in Latin America; CVNA another analyst downgrade (at Truist) with shares down -98% YTD

·     Consumer Staples: CHEF upgraded to Buy at Jefferies saying they believe solid demand trends in the NT coupled with strong margins will offset risk of a potential macro slowdown in ’23; CVGW Q4’22 results missed significantly on the top line on both soft avocado volume and pricing, more than offsetting a strong result from the Prepared segment for a bottom-line miss

Energy, Industrials and Materials

·     Energy stock movers: energy stocks outperform behind a jump in oil prices after bullish weekly inventory data; solar stocks weak; Bank America flagged 4Q trends QTD showing a flattening of demand growth (vs +40% comps seen with this installer y/y in 2Q & 3Q) saying it appears tied to rapidly increasing loan costs, which really materialized in 4Q. On balance, see higher rates putting transient factor into resi market saying stress trend towards leases over loans in NT should shield RUN, NOVA but deceleration trends could yet impact volumes for long-tails/hurt name like ENPH

·     Industrial & Machinery: TTC Q4 EPS beat by a few pennies while revs just miss and guides FY23 EPS $4.70-$4.90 vs. est. $4.97; in research, AIMC downgraded to Market Perform from Outperform at BMO Capital but raise tgt to $62 from $50 following Regal Rexnord’s announced proposed acquisition of Altra for $62.00 per share; TT downgraded to Market Perform from Outperform at BMO Capital based on valuation saying shares trade at 15x consensus estimated 2023 EBITDA compared with the S&P 500 at less than 12x; CAT shares trade to 18-month highs as investors continue rotation into industrials; BA rises 4% a leader in the Dow

·     Transports: FDX beat on adjusted Q2 EPS but missed on revenue and revised FY23 guidance lower as revenue was hurt by lower volumes with Domestic Express volumes -15% y/y (vs -11% in 1Q) and Ground volumes -10% (vs -3%in 1Q), offset in part by higher pricing

Financials

·     Financials Services & Consumer Finance: OPEN downgraded to Hold from Buy as believe that drag from remnant inventory, faster than expected correction in home values due to high mortgage rates and reduced demand create incremental risks for 1H23; RDFN downgraded to Hold at Truist as find the risk/reward balanced following a 50% rally in the stock recently; Jefferies noted Nov card trends (ALLY, COF, DFS, SYF) reflected ongoing credit normalization, as well as robust growth in receivables driven by consumer demand/inflation. Specifically, COF and DFS delivered some of the strongest loan growth comps of 21.2% and 20.1% respectively; WE announced that is has amended terms in relation to its line of credit (LC) facility as has effectively moved all its debt maturities to 2025.

Healthcare

·     Pharma movers: ADCT and Sobi said the European Commission granted conditional marketing authorization for the use of Zynlonta for the treatment of relapsed or refractory diffuse large B-cell lymphoma; JAZZ exercises option with ZYME to continue with exclusive development and commercialization of Zanidatamab – ZYME with one time payment received by JAZZ of $325M; ADPT upgraded to overweight from neutral at Piper on optimism about the company’s minimal residual disease (MRD) business and potential catalysts in immune medicine in 2023; SNY and GSK shares popped after Barclay’s noted Sanofi settles in California Zantac bellwether case Company has not disclosed any information regarding terms, but notes this was the only CA case it was facing scheduled for trial in 2023.

·     Med Tech & Biotech movers: CYAD to discontinue development of CYAD-211, anti-BCMA CAR T candidate for relapsed or refractory multiple myeloma; Germany has sent its first batch of BNTX COVID-19 vaccines to China, the first foreign coronavirus vaccine to be delivered to the country; PHG announced results from independent tests for its DreamStation respiratory devices as the tests addressed potential health risks related to the polyester-based polyurethane sound abatement foam; ALT adds to yesterday gains after topline results from Pemvidutide in Nash

Technology, Media & Telecom

·     Media, Internet: GOOGL’s YouTube is close to an agreement to acquire the rights to the National Football League’s Sunday Ticket subscription service, WSJ reports. Satellite broadcaster DirecTV, which is co-owned by AT&T Inc. and private-equity firm TPG Inc., currently pays $1.5 billion annually for Sunday Ticket rights https://on.wsj.com/3BRPvHQ

·     Semiconductors: sector saw a solid rebound along with the rest of tech, ahead of MU earnings tonight; not much else in news for the group as the Philly semi-index (SOX) remains down about -34% YTD with two weeks left to the year.

·     Hardware & Software movers: WDAY announced the appointment of Carl Eschenbach as co-CEO, who will assume sole CEO responsibilities in January 2024 after current co-CEO Aneel Bhursi transitions to a full-time role as executive chair; RNG downgraded to peer perform from outperform at Wolfe Research as sees fair value range of $32-$37; PLTR downgraded to Underperform with $4.50 tgt at Wolfe; BB reported Q3/F23 with revenue slightly ahead of estimates primarily driven by $12M in licensing versus our $3M estimate; OKTA suffered another security incident after its source code was stolen from its private GitHub repository earlier this month, Wolfe Research noted