Closing Recap

Thursday, December 21, 2023

Index	Up/Down	%	Last
DJ Industrials	321.96	0.87%	37,403
S&P 500	48.36	1.03%	4,746
Nasdaq	185.92	1.26%	14,963
Russell 2000	34.23	1.73%	2,017

 

 

 

 

 

 

 

 

 

A day after closing at the lows in a downward spiral, markets finished Thursday at the highs, making yesterday’s market swoon nothing but a bad memory as the gains today were again broad-based (9 of 11 sectors finish higher), recovering most of the prior day losses. The market leaders of 2023 again paced gains: Consumer Discretionary (XLY +39% YTD), Communications (XLLC +50% YTD) and Technology (XLK +53% YTD) all up +0.6% or more on the day, while Materials (XLB) and Industrials (XLI) were also strong. A weaker dollar helped sentiment while data showed Q3 GDP growth trimmed to 4.9% (from 5.2%), with consumer spending not quite as strong, helping keep the “soft landing” narrative for the economy in place, as PCE data points showed improved inflation results. Tomorrow morning, we get Personal Income and Spending for November as well as November Core PCE, University of Michigan Sentiment and New Home Sales. The market has been on a straight shot higher since late October, with major averages now back on track to extend their weekly gains to 8-straight with today’s impressive recovery. Overall, speculation about future interest rate cuts has further loosened global financial conditions, storing up risks for euphoric stock and bond markets if central banks view the easy funding environment as a reason to hold borrowing costs high, Reuters noted. Some interesting stats: coming into today, the Russell 2000 has gained 24% over the last 36 trading days, one of the biggest small cap rallies in history. The SPX has gained 16% over the last 36 trading days, one of the biggest short-term rallies we’ve seen in the last 30 years. >99th percentile historically. AAII Bulls hit 52.9%, the highest share since April 2021 (data from yesterday). Ending on another positive note, today (12/21) marks the shortest day of the year, as gets brighter every day until June! Momentum remains higher again as the one day pullback just another buying oppty in the end.

 

In an interesting opinion letter to Bloomberg, Mohamed A. El-Erian, a former chief executive officer of Pimco said “the Federal Reserve was supposed to leave center stage by the end of the year and let other factors play the leading role in determining asset prices in the advanced world and beyond. Instead, it has written itself an encore act that’s full of confusion.” Rather than slowly moving to the wings, the Fed in particular reinforced its lead role last week by spurring massive price moves in virtually every asset class. Chair Jerome Powell’s words about the potential for interest rate cuts have reverberated around the world, influencing expectations of what other systemically important central banks will do. http://tinyurl.com/ytnjxmzu

 

Economic Data

·     U.S. final Q3 GDP reported at +4.9%, below consensus and prior reading of +5.2% (up from +2.1% in Q2); inflation portion of readings showed: U.S. final Q3 GDP deflator +3.3% (consensus +3.6%), PCE price index +2.6% vs. +2.8% consensus, vs. prior estimate of +2.8% and +2.5% in Q2. The core PCE price index rose +2.0% vs. +2.3% consensus, +2.3% in the second estimate, and +3.7% in Q2.

·     Jobless Claims climbed to 205K from 203k the prior week and vs. consensus 215; the 4-week moving average fell to 212,000 from 213,500 prior week; continued claims fell to 1.865M from 1.866M prior week; the US insured unemployment rate unchanged at 1.3%.

·     The Philadelphia Fed factory index for December fell -10.5 vs. consensus est. -3.0 and prior (-5.9); Business Conditions rise +12.1 vs. -2.1 prior, Employment dips -1.70 vs. 0.8 prior, New Orders drops -25.6 vs. 1.3 prior and Prices paid rises +25.10 vs. 14.8 prior.

·     The 30-Year mortgage rate declined for the 8th week in a row, moving from its highest level since 2000 (7.79%) down to 6.67%. The 1.12% decrease over the last 8 weeks is the biggest 8-week decline in rates since Nov 2008-Jan 2009.

 

Commodities

·     Oil prices threaten to snap 3-day winning streak, falling -$0.33 to settle at $73.89 per barrel, weighed down after Angola said it is leaving OPEC as the 1.1M b/d producer has increasingly been showing discontent with the OPEC+ production favoritism towards Middle East producers. Brent crude futures settle at $79.39/bbl, down 31 cents, 0.39%.

·     Natural gas for January delivery on the NYMEX rose 12.5c, or 5.1%, to settle at $2.572 per million British thermal units (MMBtu), their highest close since Dec. 8 after weekly storage data.

·     Gold prices edged higher $3.60 to settle at $2,051.30 an ounce in a lackluster session, prices only modest gains despite another sharp pullback in the dollar index (DXY) down -0.55% to 101.85.

·     After spending most of the year higher, Treasury yields have tumbled since mid-October following decelerating inflation signals and the recent about face by the Fed on rates calling for cuts in 2024 from a “holder for higher” stance just a few weeks prior. The 10-year yield has tumbled 110-bps since mid-Oct to lows of 3.83% this morning and the shorter-term 2-yr yields are down 90-bps during that same stretch.

 

 

Macro	Up/Down	Last
WTI Crude	-0.33	73.89
Brent	-0.31	79.39
Gold	3.60	2,051.30
EUR/USD	0.0057	1.0994
JPY/USD	-1.30	142.26
10-Year Note	0.011	3.888%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     In Restaurants: CAKE and CAVA upgraded to Outperform at Wedbush while the firm downgraded CMG and WEN to Neutral, add BROS to Wedbush Best Ideas List (BIL) and maintain DPZ saying small cap restaurant valuation discounts relative to historical multiples attractive in a declining interest rate environment. As the average check’s contribution to SSS growth declines, the fight for transactions could become increasingly intense, particularly within QSR. Expect continued margin normalization in ’24, but QSR leverage seems optimistic.

·     In Retail: all eyes on NKE after the close tonight, likely follow thru impact on likes of UAA, FL, DECK, VFC, DKS and other sports retailers, apparel, and shoe companies.

 

Autos, Leisure, Gaming & Lodging:

·     In Autos: U.S. new-vehicle sales are expected to rise about 13% in December from a year earlier, driven by strong discounts and vehicle availability, industry consultants J.D. Power and GlobalData said. Total new-vehicle sales, which include retail and non-retail transactions, are estimated to reach about 1,396,700 units in Dec, +13.2% y/y.

·     In auto retail: KMX mixed Q3 results as EPS of $0.52 tops the $0.44 estimate while revs $6.1B missed the $6.33B estimate; Used vehicle sales fell -7.2% y/y to $4.83B vs. est. $4.97B; Retail used unit sales decreased 2.9% and comparable store used unit sales declined 4.1% from the prior year’s third quarter (shares of CVNA jumped early in sympathy with the report).

·     In Chinese EVs: The WSJ reported the Biden administration is discussing raising tariffs on some Chinese goods, including electric vehicles (NIO, LI, XPEV), citing people familiar with the matter http://tinyurl.com/5n7sy7jc

·     In Cruise lines: CCL results beat expectations and the outlook was upbeat, as demand keeps strengthening; the results helped boost shares of RCL, NCLH in the sector.

·     In Uniforms: CTAS trades to all-time highs following better Q2 results and raised year adj EPS view to $14.35-$14.65 from prior $14.00-$14.45 as Q2 EPS and revs top consensus.

 

Energy, Industrials and Materials

·     In Energy: oil stocks slumped given the pullback in oil prices after Angola said it was leaving OPEC; the weekly Baker Hughes (BKR) rig count came out a day early as the US oil rig count down 3 to 498, gas rigs rose 1 to 120 and overall rigs were 620. Due to the Christmas holiday, the weekly North America rig count was published on Thursday 21st December instead of Friday the 22nd.

·     In Aerospace & Defense: BA rises early after Reuters reported the plane-maker set to restart deliveries of 787 Dreamliner in China after two years; AIR announces agreement to acquire TGI’s product support business for $725M; EH reports EH216-S Passenger-Carrying UAV System obtains standard airworthiness certificate from CAAC.

·     In Materials: UUUU said it will begin uranium production at three new sites in Arizona and prepare others for near-term production in response to strengthening uranium market conditions; said it expects to sell 200,000 pounds of uranium into its existing long-term contracts in 2024, mostly seen occurring in the first quarter. Rare earth names MP, UUUU rise after China bans export of rare earth processing tech over national security.

·     In Transports: in airlines, DAL remains best idea at TD Cowen while raises price targets for CPA to $145 from $135, SKYW to $55 from $50, and UAL to $55 from $47 as the firm said it is expecting 2024 to be a repeat of 2023 with continued recovery in airline traffic and it estimate revenue will grow but at a slower rate than it has seen in the past two years.

 

Financials

·     In Payments: PAYX reported mostly in-line Q2 results ($1.08/$1.26B vs. est. $1.07/$1.25B) while boosted the low end of its prior growth outlook for earnings to 10%-11% from the prior 9%-11%.

·     In Crypto: the end of the year rally continued with Bitcoin holding around $44,000 and names like COIN, MARA, RIOT, MSTR moving higher.

 

Healthcare

Biotech & Pharma:

·     ANNX gained alignment with the U.S. FDA on a Phase 3 registration program for ANX007 for the treatment of patients with geographic atrophy; upgraded to Buy at Bank America on news.

·     CALT announced full FDA approval of TARPEYO, the only FDA-approved treatment for IgA nephropathy to significantly reduce the loss of kidney function.

·     HOOK announces $21.25M equity investment from GILD.

·     IMVT announced that results from the initial cohort of patients in an ongoing 24-week Phase 2 clinical trial of batoclimab in patients with Graves’ disease "meaningfully" exceeded 50% response rates.

·     MGTX announces asset purchase agreement involving its AAV-RPGR Collaboration for up to $415M; to receive $130 million in upfront and near-term milestone payments as part of the agreement.

 

Healthcare Services & MedTech movers:

·     GH files prospectus supplement related to offering of 3.4M shares at $26.77 per share directly to certain investors.

·     GKOS was upgraded to Overweight from Neutral at JP Morgan and raise tgt to $91 from $66 noting in 2023, anticipation for iDose and a string of positive reimbursement wins helped shares stay incredibly resilient against GLP-1 fears that negatively impacted the rest of the sector.

·     MMSI upgraded to Buy from Hold at Canaccord and raise tgt to $100 from $76 as believes that Merit is entering 2024 in a strong position and has potential upside to both revenue and EPS estimates.

·     NVRO was downgraded to Hold from Buy at Canaccord as part of 2024 kick-off piece and cut tgt to $23 from $30 citing increased competition and weaker macro. In short, Canaccord had upgraded NVRO in its 2023 kick-off note, and, frankly, it was wrong as the core SCS market did not recover as expected, but PDN did continue to ramp.

·     QDEL announced it had received the long-awaited 510(k) clearance for its Savanna multiplex molecular platform and the platform’s first assay (HSV 1+2/VZV).

·     Canaccord said it is bullish on the Med-Tech sector heading into 2024 with small-cap valuations bouncing off cycle lows last seen in 2002 (post dotcom bust) and 2009 (Great Recession) and a possible recession on the horizon and favored names include DXCM, NARI, IRTC, ATEC, CVRX, TELA.

 

Technology

Internet, Media & Telecom

·     In Online Services: SPOT was upgraded to Buy from Hold at Pivotal and raise tgt to $265 from $170 as forecasts higher medium- to long-term EBITDA and free cash flow given the company’s renewed focus on financial discipline and sees continued strong results.

·     In Media: Axios reported late Wednesday that WBD CEO David Zaslav met with PARA CEO Bob Bakish in New York City to discuss a possible merger; multiple sources told Axios. Zaslav also has spoken to Shari Redstone, who owns National Amusements, Paramount’s parent company, about a deal, according to the report http://tinyurl.com/27463yvd 

 

Semis, Hardware & Software movers:

·     MU helps buoy semiconductors early after earnings/guidance as Q1 revs rose 16% y/y to $4.73B vs. est. $4.54B, guided Q2 revs $5.1B-$5.5B vs. est. $4.99B as said sees pricing DRAM and NAND tailwind through C2024 and into C2025E; commentary lifts fellow memory names like WDC on results/guide.

·     CRM was upgraded to OW at Morgan Stanley and raise tgt to $350 from $290 saying low investor expectations vs potential top-line upside drivers in price increases, product bundling and Data Cloud adoption frame an attractive risk/reward for CRM.

·     BB shares slipped as reported Q3 results were slightly ahead of expectations, driven by a strong Cybersecurity quarter that benefited from some large gov’t deals, but guided Q4 revenue below consensus $150M-$159M (est. $200M).

·     FROG was upgraded to OW at Morgan Stanley and raised tgt to $42 from $32 as sees JFrog benefitting from a rebound in software development initiatives, coupled with a new product cycle and accelerating cloud growth.