Closing Recap

Thursday, February 02, 2023

Index	Up/Down	%	Last
DJ Industrials	-39.22	0.12%	34,053
S&P 500	60.52	1.47%	4,179
Nasdaq	384.50	3.25%	12,200
Russell 2000	40.41	2.06%	2,001

 

Equity Market Recap

·     Another absolute rip-fest for U.S. stocks, continuing to defy calls of an overheated short-term rally with technology and discretionary stocks staying on fire to start 2023 on hopes for central banks to pause rate hikes. After massive underperformance in growth sectors in 2022 amid rising interest rate hikes by the Fed (over 400-bps last year), investors came out buying in January with two hands to kick with the communications sector (XLC) +23% in a month, Consumer Discretionary (XLY) +20% YTD and Technology (XLY) +14% so far. The leading sector in 2022 was Energy, rising over 57%, but down -2% YTD along with weakness in defensive Staples and Healthcare. Major averages all easily topping key technical resistance levels in recent weeks and haven’t looked back since with decelerating inflation data points raising the case for a “softer” Fed in months to come. Seeing several high short interest stocks and sectors with the biggest upside moves, reminiscent of the 2020 squeeze higher that took markets to record highs.

·     The Nasdaq remains on track for a fifth straight week of gains, with semi’s software, EV stocks all jumping. Markets can further extend tomorrow or see some profit taking with several huge earnings results with AAPL, AMZN, and GOOGL reporting tonight and then the monthly jobs report tomorrow. Tech got a boost Thursday as META rallied nearly 25% on a $40b buyback and costs cuts overshadowing an earnings miss and slowing revs, while the Dow Jones Industrials slips after weakness in MRK on earnings, weighing on defensive healthcare (AMGN, UNH also lower). Shares of HON also a drag on the Dow early, dragging industrials lower. 52-week highs surging across various sectors with DHI, LEN PHM in homebuilders, ITW SNA OTIS PH URI in industrials and ORCL ON among those in tech as investors keep buying. Transports outperform led by FDX after broker upgrade and truckers CHRW, LSTR despite mixed/weaker results.

·     A day after the FOMC raised rates by 25-bps to 4.5%-4.75% range, and hinted of slowing pace of rates in futures meetings, the BoE and ECB both raised rates by 50-bps – as expected. The Bank of England raises interest rates by 50-bps to 4% saying inflation persistence would require further tightening. The European Central Bank (ECB) raised interest rates for the fifth successive time, by 50-bps, and signaled another half a percentage point increase for March, pressing ahead with policy tightening, and said it will then evaluate the subsequent path of its monetary policy.

 

Economic Data:

·     Weekly jobless claims fell to 183,000 in latest week vs. consensus 200,000 and down from 186,000 prior week; the 4-week moving average fell to 191,750 from 197,500 prior; continued claims fell to 1.655M from 1.666M prior week.

·     Nonfarm Productivity for Q4 rose +3.0% (best since 2021) vs. est. +2.4% and Unit Labor Costs for Q4 rises +1.1% (smallest m/m since March ’21) with est. +1.5% and vs. Q3 +2%.

·     Factory orders for Dec rose +1.8% vs. est. +2.2% and above Nov -1.9% while factory orders ex-transportation -1.2% vs. Nov -1.2%; Dec factory orders ex-defense +2.0%. U.S. Dec inventories/shipments ratio 1.49 months’ worth vs Nov 1.47 months.

·     Mortgage rates fell for the fourth straight week, according to Freddie Mac data. The average 30-year fixed mortgage rate has now fallen nearly one percentage point since its 2022 highs. The average interest rate on a 30-year fixed-rate mortgage was 6.09% as of Thursday, the lowest since early September, the data showed.

 

Commodities, Currencies & Treasuries

·     Oil prices drop and bounce, then fall again with WTI crude down -$0.53 or 0.69% to settle at $75.88 per barrel in very whippy day (high $77.24 and low $74.97). Gold prices erased overnight gains as the US dollar rebounds, with April prices falling -$12.00 or 0.6% to settle at $1,930.80 an ounce (off earlier highs $1,975), while silver also slid.

·     The US dollar started weaker but picked up ground following yesterday’s 25 basis-point Fed rate raise and today’s 50bp increases by the Bank of England and ECB. The actual rate hikes were all widely anticipated, but the Fed indicated it may be close to done and the ECB said it would likely raise another 50-bps in March but would revisit then. The dollar strengthens 0.7% against the euro, by 1.2% against the pound but weakens 0.3% against the yen.

 

 

Macro	Up/Down	Last
WTI Crude	-0.53	75.88
Brent	-0.67	82.17
Gold	-12.00	1,930.80
EUR/USD	-0.0083	1.0906
JPY/USD	-0.27	128.66
10-Year Note	0.002	3.40%

 

 

Sector News Breakdown

Consumer

Autos:

·     Ford (F) Jan. U.S. sales increased 2% y/y, saw ‘record’ EV sales – earnings tonight.

·     RACE raised its outlook for the year on strong demand for high-margin models as now expects adjusted earnings before interest, taxes, depreciation, and amortization of as much as €2.18 billion ($2.4 billion) in 2023, up from as much as €2 billion announced in June.

·     HOG Q4 revs $1.14B rises 12% y/y and tops $910M estimate as Q4 sales of motorcycles and related products rise 14% to $919M with upbeat guidance.

·     CVNA "squeeze" continues, with shares up all day above $17 (shares were at lows of $6.33 last Friday) – huge, short interest in names, rallying with market rebound.

·     Auto supplier LEA posted beat and guide below consensus – operating beat driven by strength in seating while FY23 outlook below consensus.

 

Consumer Staples & Restaurants:

·     In beauty sector: EL Q2 EPS and revs beat ($1.54/$4.62B vs est. $1.29/$4.58B) as organic net sales (11%) in constant currency vs consensus (9.8%) but guidance worse as guides Q3 EPS $0.37-$0.47 vs consensus $1.78 and revenue growth (14%)-(12%) vs consensus (1.5%); ELF with beat and raise as Q3 EPS $0.48/$146.5M above est. $0.23/$122.2M on better EBITDA and raises year EPS $1.37-$1.40 vs prior $1.07-$1.10 and revs $541M-$545M vs prior $487M-$486M; SBH Q1 EPS $0.52/$957.1M vs est. $0.49/$921.8M; comps +1.1% vs consensus (2.2%) – Sally beauty +3% vs consensus (2.2%) and Beauty Systems (1.5%) vs consensus (2.1%).

·     In food, HSY said it expects full-year 2023 net sales to grow between 6% and 8%, compared to analysts’ estimates of an 5.6% increase; SYY downgraded to Hold from Buy at Argus reflecting concerns about the company’s high product costs.

Retailers:

·     COST January comps +6.9% in the U.S. (ex-gas) & +7.4% total company (ex-gas, FX) driven by traffic (+5.1% U.S., +6.2% total company).

·     HBI shares tumble as Q4 in-line, but Q1 EPS guide is for loss of (4c-9c) vs. est. profit $0.14 and FY23 EPS is $0.31-$0.42 below consensus $0.90 and said the dividend has also been eliminated to focus on debt reduction.

·     GOOS shares slide after lowers FY23 sales view to C$1.18B-C$1.20B from prior forecast of C$1.2B-C$1.3B saying recent slowing momentum in North America set against a tough macroeconomic backdrop – also lowered year EPS outlook.

·     BKE said comparable store net sales, for stores open at least one year, for the 4-week fiscal month ended January 28, 2023 increased 6.1% from comparable store net sales for the 4-week period ended January 29, 2022.

 

Leisure, Gaming & Lodging:

·     In online travel, Bank America said January app data update—Omicron comps favor OTAs and pressure eCommerce; Travel app trends remain very strong on easier Omicron comps, BKNG downloads and DAU growth accelerated.

·     In casinos, PENN Q4 EPS $0.13 miss consensus $0.41 on better revenue $1.59B (est. $1.58B); EBITDA $468.3M vs consensus $477.0M; guides FY23 revenue $6.15B-6.58B vs est. $6.46B.

 

Energy

·     Energy names broadly lower mid further rotation into riskier sectors (tech/comm).

·     COP posts Q4 profit of $2.71, up 23% from last year, but misses analysts’ estimates of $2.81 saying profit was hurt by lower earnings from Canada.

·     CHX drops with broader energy and revs miss of $985.9M vs. $1.01B est.

·     CRK pre-announced lighter than expected production and heavy CAPEX.

·     SHEL posted record profit for 2022 as its natural gas business thrived.

·     In solar, FSLR downgraded to Neutral at Bank America saying favorable catalysts priced in after +50% stock gain since August based on benefits from the Inflation Reduction Act (IRA).

 

Financials

Bitcoin, FinTech, Payments:

·     Just a massive squeeze in several names related to the Bitcoin and crypto space, as the weakness in 2022 is now the strength in 2023: shares of beaten up names SI, COIN, MSTR, MARA, RIOT, SBNY and any other name related to Bitcoin saw squeezes as Bitcoin approaches $24K.

 

Insurance & Services:

·     AFL Q4 adjusted EPS of $1.29 vs. est. $1.21 as beat on lower benefit ratios while EPS was negatively impacted by $(0.11) of unfavorable FX and $(0.09) of variable investment income.

·     ALL reported 4Q22 results roughly in-line with the management’s pre-announcement; operating EPS of (-$1.36) in 4Q22, compared with consensus of (-$1.42).

·     MET Q4 adjusted EPS of $1.55 missed consensus $1.67 largely on $(0.15) of lower variable investment income (VII) while VII (pre-tax) was $24M vs. $1B y/y.

 

Healthcare

Biotech & Pharma:

·     Dow component MRK reported a beat on the top and bottom line for Q4 but forecast adjusted 2023 earnings of $6.80-$6.95, below estimate of $7.36 and sees 2023 sales of $57.2B-$58.7B which came in below estimates of $58.1B.

·     BMY Q4 revs of $11.41B tops $11.19B consensus on better Revlimid and Opdivo ahead while EPS was $1.82 above the $1.73 est. largely on tax; topline rev guide was in-line, while better EPS largely assumes lower operating expense.

·     LLY reported 4Q results, with revenue slightly below consensus ($7.32B vs. $7.33B cons), with Trulicity, Taltz and Mounjaro below consensus, though EPS was ahead at $2.09 (vs. $1.78) with better gross margins and tax; reaffirmed its previously given 2023 guidance.

·     PLRX announces FDA clearance of investigational new drug application for PLN-101095, a novel integrin inhibitor for the treatment of solid tumors.

 

Healthcare Services & MedTech movers:

·     ALGN was upgraded to Neutral from Sell at Goldman Sachs with a revised 12-month price target of $307, implying -6% downside from the post-market price of $325 after earnings – said has more confidence in near-term demand; long-term growth outlook remains a question.

·     BDX 1Q revenues and EPS were ahead of street, with the better topline and better margins flowing through to EPS; raised its EPS guidance to $12.07-$12.32 from $11.85-$12.10.

·     CAH rises after EPS and revs beat; raise FY guidance and lift core distribution outlook to 4%-6.5% growth vs prior +2%-5% (vs ABC maintaining and MCK raising).

·     DGX Q4 EPS and revs topped consensus while guidance was below views for FY23 revs $8.83B-$9.03B below est. of $9.13B and EPS $8.40-$9.00 vs. est. $8.69.

·     HOLX F1Q23 revenue was in line with its preannouncement and EPS beat consensus while raised it FY23 revenue and EPS guidance. COVID sales decreased to $164M from $188M.

·     In managed care (ELV, HUM, UNH), Goldman Sachs noted CMS’s release of the Advance Notice for CY24 MA payment rates was meaningfully weaker than investor expectations (around +1-2%), with MA plans expected to see an average decrease in revenue per member of -2.27% – the lowest since at least 2016 – shares of managed care stocks were crushed on the CMS rates.

 

Industrials & Materials

Transports

·     In trucking sector, weaker earnings results as CHRW Q4 adj EPS $1.03 miss est. $1.38; Q4 revs fell -22.1% y/y to $5.1B vs. est. $5.68B; Operating expenses increased 6.2% to $604.1M; Adjusted operating margin decreased 1,220 basis points to 21.4%; LSTR miss on top and bottom line as Q4 EPS $2.60 vs. est. $2.62; Q4 revs $1.67B vs. est. $1.77B.

·     In freight, FDX upgraded to Buy from Neutral at Citigroup as believe the co is showing increasing signs of cost control following its missteps in 2022 and think the catalyst path around UPS’s Teamsters deal is a positive with potential for some share gains and customer mix improvements.

 

Industrials, Aerospace & Defense

·     AME 4Q adj EPS $1.52 vs est. $1.47 on sales $1.63B vs est. $1.59B; guides 1Q sales +mid-single vs est. +5.7% and adj EPS $1.38-1.42 vs est. $1.42; sees FY sales +mid-single vs est. +5% and adj EPS $5.84-6.00 vs est. $5.95.

·     CNHI Q4 top/bottom line beat and said it sees its net sales of industrial activities increasing between 6% and 10% this year.

·     HON posts Q4 profit decline of 28% (adj EPS beat) while revs of $9.19B missed $9.25B consensus and sees 2023 Adj EPS $8.80-$9.20 vs. est. $9.17 and Organic Sales +2% to +5% (vs. 4.92%).

·     IEX delivered a top line beat with revenues up 12% organically. Adjusted EPS was 5% ahead of the street at $2.01 but ’23 Q1 guide came in light at $2.01 vs consensus of $2.09.

·     ITW profit increased in Q4 as sales of automotive and food equipment jumped as sales and profit figures outperformed market expectations.

·     PH among S&P leaders early on earnings results.

·     WNS trades to near 2-decade highs after beat and higher outlook.

 

Materials, Metals & Mining

·     In chemicals: APD posts operating miss driven by Corp (10c), Asia (8c), Americas (6c) offset in part by Europe (6c) with outlook that brackets consensus; ASH downgrade from Neutral to Underweight at JPMorgan saying it faces challenges in F2023 noting volumes contracted in 1Q:F23 by (5%) due to inventory destocking and weak demand in the European and China. In lithium, Digitimes reported lithium pricing likely in decline throughout 2023 (ALB, LTHM, LAC).

·     In metals: CLF announces price increase for coated steel products. Gold prices reversed lower as the dollar rebounded off downward trend, weighing on gold miners.

·     In paper & packaging: OI upgraded to Outperform and raising tgt to $34 from $20 as believe that OI is operating at a structurally higher level of earnings power, which they don’t think is yet reflected in the stock price, even after the recent run.

 

Technology

Internet, Media & Telecom

·     META shares surged as the company used the money it saved from cutting thousands of jobs to fund their new $40B stock buyback as lower cape-ex and the buyback overshadows its earnings miss and in-line rev guidance at mid-point Q1 revs $26B-$28.5B vs. est. $27.25B; PINS announced another 150 job cuts; while Guggenheim noted January Ads Manager and download data show a strong rebound in Jan user trends for PINS while traffic to its ad portal accelerated y/y. Shares of AMZN, GOOGL highlight the earnings barrage tonight in tech.

·     In advertising, PUB shares rise after guiding organic net revenue growth of 3-5% this year, posted 10.1% organic growth in net revenue to 12.57 billion euros last year, beating the 8.8% consensus forecast (IPG and OMC moved in sympathy)

 

Hardware & Software movers:

·     Apple (AAPL) earnings tonight among top names to watch.

·     In software: PTC reported in-line F1Q ARR results in C.C., and essentially reiterated full-year growth guidance on an organic basis; BofA’s MidCap Portfolio added SPLK while removing FTNT; increased weighting of KLAC, decreased BILL; XM downgraded to Hold at Deutsche Bank after 5-% rally in shares since SAP announcing it will explore a sale of its stake; ORCL files for four-part, notes offering; size not disclosed; VRNS downgraded to Hold at Needham as moves above tgt.

·     Cyber Security: FTNT downgraded at BMO Capital due to concerns on the strength of the firewall market in CY23 and reducing product rev ests by 3% in CY23 and 5% in CY24. Deutsche Bank said given early/late cycle framework, maintain OKTA as top cyber pick, as well as ZS benefitting from a backdrop further inspired shift from CAPEX to opex, and PANW considering its comprehensive platform leadership and relative valuation; OKTA upgraded to Buy at Needham with $90 tgt as believe Okta set conservative guidance for FY24, calling for just 16%-17% Revenue growth; OKTA announced job layoffs of about 300 employees as part of a cost-cutting plan.

·     Hardware, Networking, Comm: AVT reported 2Q eps, revs better, guided 3Q higher; EGHT reported 3Q eps, revs light, guided 4Q lower; NTGR reported 4Q eps, revs better, guided 1Q lower; LUMN wins $223 million defense information systems agency contract.

 

Semiconductors:

·     QRVO reported strong F3Q results, which beat, and guided F4Q well-below as the correction in Android continues while weakening demand across non-mobile segments (HPA, CSG) were cited.

·     DRAM spot prices have continued their downward trend in January 2023, as buyers from end markets remain cautious about procurement and order pull-ins, according to industry sources – Digitimes reported (shares of MU leveraged to DRAM)

·     SITM reported 4Q22 sales/GM that were in-line, while EPS beat guidance in part due to higher interest income.