Closing Recap

Tuesday, February 07, 2023

Index	Up/Down	%	Last
DJ Industrials	265.97	0.78%	34,156
S&P 500	52.96	1.29%	4,164
Nasdaq	226.34	1.90%	12,113
Russell 2000	14.89	0.76%	1,972

 

Equity Market Recap

·     Another bizarre trading day which saw massive swings to both the upside, downside, and back to the upside in volatile action as markets hold key levels, deal with comments from the Fed, and earnings. Markets were choppy (understatement), reacting to Fed Chairman Jerome Powell’s Q&A at the Economic Club of Washington this afternoon, again not pushing on financial conditions and stuck to the “disinflation” narrative, similar to comments from last Wednesday. Powell’s comments weren’t exactly “dovish” saying things such as disinflation started, but has a "long way to go"; that further rate increases are needed; that it will take a "couple years" for 2% inflation and a couple years to lower balance sheet and that the Fed does not want to surprise markets. Still, the market managed to surge for 30 straight minutes as the interview took place, with the Nasdaq rising as much as 1.7% and the S&P 1% as he kept to his script from last week’s FOMC meeting despite the big jobs data report last Friday. However, profit taking and a very weak 3-yr bond auction turned markets lower (going negative briefly) before powering higher late day to close near the best levels of the day – no fear despite rising Fed terminal rate trends. Next up, the State of the Union address from President Biden tonight at 9:00 PM ET.

·     Fed Chair Powell said "We’re seeing disinflation in the goods sector. We expect to see it in the housing services sector." But for the other 56% of the core inflation basket, "we’re not seeing disinflation there yet and that’s going to take some time." "We’re going to need to be patient." Powell said, "we’re going to react to the data so if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than has been priced in." In span of roughly 15 minutes, markets saw a near total unwind of last 2 days – erasing a good portion of the job-related stock mkt losses while the US dollar, yields and VIX tumbled while stocks rose sharply.

 

Economic Data:

·     December International Trade in Goods and Services showed deficit of (-$67.40B) vs. (-$68.8B) expected and (-$61.00B) in November as exports down -0.9% to $250.2B vs. $$251.90B and Imports +1.3% to $317.6B vs. $313.4B. The goods deficit increased by $7.4B to $90.6B and the service surplus rose by $1.0B.

 

Commodities

·     Oil prices rose $3.03 or 4.09% to settle at $77.14 per barrel, rising a second straight session on Tuesday, driven by optimism about recovering demand in China and concerns over supply shortages following the shutdown of a major export terminal after an earthquake in Turkey. Gold prices held higher most of the day, rising $5.30 or 0.3% to settle at $1,884.80 an ounce.

 

Currencies & Treasuries

·     Another very whippy day for both the dollar and yields; each opening the day higher, rising a 3^rd straight session, only to slide/reverse following Fed Chair Powell comments, but again spun higher following a weak 3-yr bond auction and stock market reversal. The 1-Year US Treasury yield moved up to 4.86%, its highest level since August 2007 (year ago it was at 0.88% and in mid-2021 it hit an all-time low of 0.04%). Two-year Treasury yields have spiked more than 30-bps the past 2 days, reflecting this market’s shift from believing the Fed will cut rates by year end to thinking current policy rates will remain unchanged into 2024.

·     Treasury yields rebounded after a weak bond auction as the US Treasury sold $40B in 3-year notes at a yield of 4.073%, 4-bps above the 4.033% when issued with a soft bid-to-cover at 2.333, the lowest since Dec 2020 and well below last month’s 2.839% (which was highest since 2018). Directs awarded 21.1%, well above last month’s 13.2%, and the highest since June 2022, Dealers were left holding 19.9% of the auction, the highest since November’s 20.8%.

 

 

Macro	Up/Down	Last
WTI Crude	3.03	77.14
Brent	2.70	83.69
Gold	5.30	1,884.80
EUR/USD	-0.0031	1.0699
JPY/USD	-1.31	131.34
10-Year Note	0.028	3.66%

 

 

Sector News Breakdown

Consumer

Autos:

·     In EV charging, BLNK 8.3M share secondary prices at $12 per share while also said it sees Q4 revs $21M-$23M vs. consensus of $18.7M and adj EBITDA ($18M) to ($15M) vs. ($9M) last year.

·     In car rental: HTZ shares rallied after q2 results topped expectations saying travel demand picked up as net income jumped to $116M in Q4 vs. -$710M loss year ago.

·     In auto parts: HLLY slides after announced that CEO Tom Tomlinson will retire as President and CEO and resign from the company’s Board of Directors and released preliminary 4Q results that were below consensus expectations.

·     US used vehicle prices increased in January from the prior month, according to Manheim Auctions, the world’s largest reseller of used vehicles. The used vehicle index increased 2.5% in January; from a year earlier, the index was down 12.8%. "All eight major market segments continued to see seasonally adjusted prices that were lower year over year in January."

 

Consumer Staples & Restaurants:

·     In food: BRBR reported 1Q23 EBITDA of $84.9 million and revenue of $363 million; both were nicely ahead of expectations leading to an increase in the low end of its EBITDA guidance range. HAIN mixed Q2 results as EPS beat by 7c but revs of $454M miss by $6M with better Ebitda and slightly better margins (reaffirms year). TSN downgraded to Neutral from Buy at Goldman Sachs as quarterly results revealed a sharp deterioration in profitability across the organization, most notably in Chicken.

 

Retailers:

·     GOOS provided updated strategic growth plan and five-year financial outlook – in FY25, expects to achieve revenue of $3B representing a CAGR of ~20% (in-line with the historical performance for revenue CAGR from FY17) and 30% EBIT margin.

·     In sporting goods stores, Wedbush says they remain positive on the sector into 2023 and continue to recommend purchase of DKS (tgt to 150 from 140) and ASO (tgt to 68 from 62) as believe that both companies fared well through the holidays to end 2022, driven by strong assortments, better inventory levels, exclusive products.

·     In toy retailers, Bank America remains Buy rated on MAT and underperform HAS noting Hasbro already negatively preannounced, but we don’t think that’s de-risked the stock given a host of outstanding issues and said expectations for Mattel’s 4Q have reset lower following Hasbro’s preannouncement. We prefer Mattel’s shares over Hasbro’s.

 

Leisure, Gaming & Lodging:

·     In theme parks, Keybanc said domestic geolocation data tracking Disney (DIS) and Universal (CMCSA) theme parks improved in January and arguably was the most positive set of data they have seen in several months. Both Disney and Universal Studios showed improvement y/y, Disney to flat y/y vs. -9% in December, and Universal to +12% y/y vs. -9% in December, and the m/m changes were above 2017-2019 averages.

·     Casinos/Gaming: for online betting (PDYPY ), Super Bowl Betting Projected to Hit Record $16B (legal/illegal bets placed on this year’s Super Bowl, more than double the $7.6B from 2022) – WSJ. Stifel said in Gaming Tech Q4 Preview & 2023 Outlook they are forecasting Q4 earnings beats for EVRI, IGT, LNW, and NGMS and inline for AGS saying checks suggest game ops, slot shipments, and lottery sales were stable in Q4, and into early Q1. Benchmark noted New York online sports betting skins posted total handle of $344.8M for week 4 (1/29/23 – 2/4/23) of 2023, a sharp decrease of -23% W/W, also down -23% from 2022 as all three of the top skins saw handle decline at least -20%.

·     In cruise lines: RCL posted a narrower-than-expected Q4 loss and said bookings were nearing record highs at higher prices while revs of $2.6B was in-line.

 

Homebuilders, Building Products, Home Furnishing:

·     In homebuilders, SKY sales & gross margin exceeded the guidance and consensus estimates – pricing gains more than offset a LSD volume decline and pushed revenues above the guidance.

·     In home furnishing: LEG slips as misses on top and bottom line; 4Q EPS $0.39 vs est. $0.48 on sales $1.2B vs est. $1.24B; guides 1Q EPS down meaningfully vs 4Q22. BBBY shares reversed big gains on Monday, tumbling after saying it will attempt to sell convertible preferred stock as well as warrants to purchase common shares and convertible preferred stock.

 

Energy

·     Oil giant BP reported better-than-expected Q4 profits, with higher oil and gas prices boosting earnings; underlying replacement cost profit of $4.81B misses the $5.04B est. and down from $8.15B in Q3 but up from $4.07B y/y; cash flow from operations rose to $13.57B from $8.29B.

·     In utilities: SJW downgraded to Neutral from OW at JPMorgan on narrowing risk/reward. Strong 2H22 stock performance, where SJW topped all water names, has significantly improved the company’s relative valuation to a +2% 2023 P/E premium versus water utility peers. SR was downgraded to Hold from Buy at Stifel on valuation.

·     In oil equipment: NOV delivered stronger-than-expected revenue (+9.7% sequentially) and EBITDA (+18.5% from 3Q22) fueled by robust upside in the Rig Technology and Completion & Production Solutions segments.

 

Financials

Bitcoin, FinTech, Payments:

·     FISV reported slight EPS beat for Q4 and better revs – miss was driven by lower other income (-$0.03/share), lower affiliate income (-$0.02/share), and higher shares (-$0.01/share), partially offset by lower opex and taxed and guides year above.

·     BTBT said in January 2023, company earned 134.3 bitcoins, a 3% increase compared to prior month.

·     HIVE said it produced 260 bitcoins (BTC) in January, up from 214 in December. The January figure is down from the 264 bitcoins produced in the same month of 2022.

 

Healthcare

Biotech & Pharma:

·     ALDX said the FDA accepted the marketing application for its experimental drug reproxalap to treat dry eye disease; FDA has set action date of Nov. 23.

·     COLL offered $175m of convertible senior notes due 2029.

·     INCY reported 4Q results, with revenue of $927M (vs. $881M with Jakafi ahead) and EPS of $0.62 (vs. $0.58 consensus), guiding FY23 Jakafi to $2.53B to $2.63B (vs. $2.602M est.) and other Hematology/oncology net product revenues of $215M to $225M (vs. $223M est.).

·     RCKT announced that the FDA has granted Regenerative Medicine Advanced Therapy (RMAT) designation to RP-A501 , the company’s investigational adeno-associated virus (AAV)-based gene therapy for the treatment of Danon Disease.

 

Healthcare Services & MedTech movers:

·     CVS is near an agreement to acquire OSH for approximately $10.5B including debt, the WSJ reported as the companies are discussing a price of $39 a share https://on.wsj.com/3I3QvfE (shares of CANO moved higher in sympathy).

·     In managed care: CNC reported 4Q results with revenues slightly ahead, 10 bps better HBR offset by 50 bps worse SG&A and EPS ahead at $0.86 (vs. $0.82) aided by lower tax, raised its premium + service revenue guidance and reaffirmed its EPS guidance. PGNY shares slide following “short call” report from short seller SprucePoint Capital.

 

Industrials & Materials

Transports & Industrials

·     In airlines: SAVE rises after earnings results; Goldman Sachs lowers short-term earnings forecasts for US airlines to reflect the recent spike in jet fuel prices, but do not expect the spike to have a material effect on the stocks as they have historically been short lived.

 

Aerospace & Defense

·     Aerospace: BA said it would cut around 2,000 jobs over the coming months as American companies across all sectors of the economy continue to tighten their belts in anticipation of a weaker global economy. Parts supplier SPR reports a wider-than-expected Q4 adj loss of (-$1.46) vs. est. loss (-$0.22) and revs $1.3B misses the $1.4B estimate but said it plans to produce around 420 shipsets, a structural fuselage for an aircraft, in 2023 under its Boeing 737 program; another parts supplier TDG raised its year adj profit forecast after top and bottom line Q4 beat.

·     In defense: LMT double upgrade from Underperform to Outperform at Credit Suisse and raise tgt to $510 from $427, focuses on improved confidence in LMT’s growth inflection and estimate upside opportunity, as well as out-year alignment in our EBIT growth forecasts.

 

Materials, Metals & Mining

·     In Chemicals: DD Q4 adj EPS $0.89 vs. est. $0.78; Q4 revs $3.1B vs. est. $3.09B; Sees 2023 earnings between $3-$4.50, midpoint below street of $3.86 and sees 2023 sales between $12.3B-$12.9B, midpoint also falling below street estimate of $12.9B; raises dividend.

·     Mining & Metals: LAC shares rise after a U.S. district judge in Nevada largely upheld the federal government’s decision to approve its Thacker Pass lithium mine after challenges from environmental and other groups.

 

Technology

Internet, Media & Telecom

·     In social media, PINS reported a miss on the top line as Q4 revs of $877M missed the $887M estimate, Q4 MAUs were up 4% at 450M, said its CFO was leaving, and sees Q1 revs roughly 2-3% vs. the 7% estimate. In online learning, CHGG shares plunge after guides FY revs $745-760Mm vs est. $817.5Mm, and adj EBITDA$240-250Mm below est. $275.6Mm.

 

Hardware & Software movers:

·     “AI” related news/movers: BIDU shares jump after in a statement to Bloomberg, Baidu confirmed earlier press report that it will complete internal testing and launch its ChatGPT-like bot next month. MSFT said it is revamping its Bing search engine with artificial intelligence, in one of its biggest efforts yet to lead a new wave of technology. Microsoft is staking its future on AI through billions of dollars of investment. Working with the startup OpenAI, the company is aiming to rival Alphabet Inc’s Google and potentially claim vast returns from tools that speed up all manner of content creation, automating tasks if not jobs themselves. GOOGL announced the release of ChatGPT rival ‘Bard’ to early testers and will host an AI event on Wednesday.

·     Video gamer software makers TTWO and ATVI both reported disappointing quarterly results as TTWO announced it was cutting costs, which includes personnel, and was cutting its year profit and sales outlook following a holiday quarter that disappointed. ATVI, which is still in the process of concluding its M&A deal with MSFT (expected June) posted Q4 EPS that missed estimates.

·     Software: VRNS rises as all headline metrics exceeding guidance according to RBC saying the focal point was the accelerated 10% SaaS contribution to new and up-sell ARR, which is now expected to move to 15% for both Q1. ZI shares fall as reported mixed Q4 results, delivering a slight revenue beat to consensus, but worsening macro commentary and weak 2023 guidance (FY23 guidance of 17% Y/Y growth reflects worsening macro). BIGC downgraded to Neutral at Piper, tempering expectations on the stabilization in its Commercial segment (29% of ARR). ZM shares jumped after announcing job cuts.

·     CIEN shares fall in optical sector after FN revenue guidance late yesterday (sees revenue $640 million to $660 million, vs. estimate $657.6 million)

 

Semiconductors:

·     SWKS shares rallied after a $2B share buyback announcement and both top and bottom-line quarterly results topping consensus expectations.

·     AOSL shares slide on Q2 miss and lower guide – 2Q adj EPS $0.67 vs est. $0.88 on revs $188.8Mm vs est. $196.7Mm; sees 3Q revs $125-135Mm vs est. $193.8Mm.

·     INTC to sell $11 billion of bonds in seven-part deal.

·     POWI in-line Dec Q, with revenues of $124.8mn (-22.1% q/q), and NG GMs of 54.7% (-315bps q/q); lower Mar Q outlook.

·     December total semis sales down -18.1% YoY, ex-memory sales down -9.9% YoY, memory sales down -46.2% YoY according to SIA data. Total semis ASPs down -2.2% YoY, ex-memory ASPs up +0.9% YoY, memory ASPs down -35.4% YoY (3mma). Full-year 2022 semis/core-semis sales were up +3.2%/+11.4% YoY, units down -4.4%/up +5.4% YoY, ASPs up +8.0%/+5.7% YoY.