Market Review: February 08, 2023

Closing Recap

Wednesday, February 08, 2023





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     US equities were back under pressure today as investors may finally be taking to heart what Fed speakers have been saying for quite a while: rates higher for longer. The implied peak rate has ticked up to about 5.2% with an expectation we will not dip back below 5% until December. This is likely welcome news to the Fed, as it signals more hawkish expectations in the market.  Today’s Fed speakers did their best to reinforce desired expectations. Williams mentioned unusually high demand in the economy, 5.0-5.25% as a reasonable range for rates and an expectation there could be a need to maintain a restrictive stance for a few years. Waller also commented the job on inflation may be a long fight and rates may stay higher for longer than some are anticipating. Kashkari expects to see a Fed funds above 5% this year and noted the financial markets have more confidence inflation will fall quickly than the Fed. That said, while the Fed seems not to be hyper-reactive to a single economic data point, the market has been a bit more reactive so expect the volatility to continue.

·     On the data side, today seemed to be opposite day. @Bespokeinvest highlighted that year-to-date performance of major US index ETFs has everyone at overbought levels and all are up, while at this point last year all but one (DIA) was oversold and all were down, with all but DIA down more than 5%. Similarly, @DataTrekMB reminds us of their list of last year’s 10 worst performing tech stocks in the S&P as of mid-December had all down over 40%. Those same names are averaging +32.89% year-to-date. They also remind us of a strong January means most of the 1Q gains have already been made but strong January usually has meant strong +double-digit annual returns (average +24.1%). The Fed’s plans make that statistic more uncertain for 2023. Lastly, @KobeissiLetter says what we all have probably been thinking: “The market currently has no idea what the Fed is going to do. Bulls are looking for any sign of a Fed pivot, bears say no rate cuts in 2023. Meanwhile, the Fed also has no idea what’s coming next as they await more inflation data. Conditions are prime for extreme volatility.”

·     Sector-wise, heading into the final hour of trading, it was all red. Leading the decliners were Communications (XLC, -3.1%), Utilities (XLU, -1.95%) and Technology (XLK, -1.3%). Expectations of higher interest rates and GOOGL dropping the ball on its AI demo not helping. Healthcare (XLV, -0.35%), Real Estate (XLRE, -0.5%) and Financials (XLF, -0.6%) were the “leaders” on the day. Breadth was solidly unfavorable, with decliners leading advancers by about 2.5:1, while growth and value segments were both losing ground consistent with the sector performance. Russell 1000 Growth was -1.1%, modestly ahead of Russell 1000 Value at -0.75%.


Commodities, Currencies & Treasuries

·     April gold settled +$5.90, or +0.31%, at $1,890.70/oz despite early gains in Treasury yields. The close marked the third consecutive gain as recent disinflation commentary has pressured the Dollar and boosted gold. Continued Treasury yield gains as Fed speakers warn of a higher-for-longer scenario could make any incremental rally in gold more challenging.

·     WTI crude March futures gained $1.33, or +1.72% to settle at $78.47/bbl, while Brent climbed $1.40, or +1.67% to finish at $85.09/bbl. The WTI settlement marked the third consecutive daily gain despite earlier EIA data showing a seventh straight rise in inventories. US weekly crude inventories rose to the highest since June 2021 and production rose to its highest since April 2020. On the demand side, data did indicate some expected improvement in consumer demand for refined products and US refinery utilization climbed 2.2%.

·     The US dollar was flat to slightly higher in choppy trading, as investors paused selling the greenback a day after Federal Reserve Chair Jerome Powell did not significantly change his U.S. interest rate outlook despite a strong U.S. jobs report last week. Treasury yields opened flat, rose to highs (10-yr 3.69% high) then sold off following a mixed 10-yr auction (good demand, and large indirect interest but at lower yield than when issued).






WTI Crude















10-Year Note





Sector News Breakdown



·     TSLA topped the $200 level early, coming into the day with 6-day win streak and up 12 of last 13 days into today.

·     Volvo (VLVLY) downgraded to Hold from Buy at Jefferies saying they struggle to see further upside as margins will remain under pressure in the near term due to excess production cost in the system and financial support to suppliers.

·     China’s passenger car retail sales plunged 37.9% last month as businesses shut down for an early Lunar New Year holiday as China’s car makers and dealers sold 1.3 million passenger cars in January, down 40% from December, the China Passenger Car Association said.


Consumer Staples & Restaurants:

·     In restaurants: CMG tumbles as Q4 adj EPS $8.29/$2.2B revs misses the $8.91/$2.23B estimate on weaker comps (+5.6% vs. est. 7.04%) and operating margin 13.6% up from 8.1% year ago but below the est. 14.7%; YUM posted EPS beat by 5c, comps strong across board with Taco Bell strength and said total same-store sales at Yum rose 6% in the fourth quarter, while analysts were expecting a 4.57% increase; YUMC Q4 adj EPS $0.13, in-line with ests and revs -8.9% y/y to $2.09B vs. est. $2.22B; Pizza Hut comparable sales -8% vs. est. +0.5%. Wedbush said they continue to view WING, DPZ and PZZA as well positioned in 2023.

·     In beauty, COTY raised its full-year profit forecast, betting on price hikes and resilient demand as now sees 2023 adjusted EPS 35c=36c from prior 32c-33c after Q4 sales beat.

·     In food: PFGC 2Q adj EPS $0.83 vs est. $0.75 on in-line sales $13.9B, adj EBITDA $308.8Mm vs est. $288.7Mm; guides 3Q sales $13.7-14.0B vs est. $14.0B. HAIN downgraded to Underweight at Piper with $17 tgt as see risks to F24 estimates from higher spending (also cut at JPM).



·     Apparel and Accessories:

·     CPRI shares tumble as reports quarterly sales that came in below analyst expectations and lowered year view citing a -20% decline in sales to department stores and other third parties known as wholesale revenue, largely at its Michael Kors brand. Sales at the company’s retail stores performed better (sees Q4 EPS $0.90-$0.95 vs est. $1.39 on weaker sales)

·     UAA raised its forecast of earnings for the full fiscal year to $0.52-$0.56 from prior $0.44-$0.48 and backs rev view after Q3 results beat.

·     VFC Q3 results beat and announced a series of capital plans this quarter aimed at reducing gross leverage toward a 2.5x target level (4.4x today) which included a dividend cut.


Leisure, Gaming & Lodging:

·     In travel: TRIP upgraded to Buy from Underperform at Bank America on accelerating growth in Viator (experiences bookings), with strong US demand and European recovery.

·     In ride hailing: UBER reported a clean beat 4Q earnings result and provided 1Q ex-FX bookings growth guidance above the Street along with a 1Q EBITDA outlook well above Street expectations (shares of DASH, LYFT move in reaction).

·     In cruise lines: RCL upgraded to Neutral from Underperform at Bank America saying the important Wave booking season for cruise lines that goes from January-March is off to a solid start based on RCL’s (Royal Caribbean) commentary and our recent pricing survey. (raise tgt to $78 from $40) and now see a more balanced near-term risk-reward across the group. Separately, RCL announces proposed offering of senior guaranteed notes to refinance debt.

·     In leisure: MANU shares rise after the Daily Mail reported the bid from Qatar, which hosted the World Cup, will "blow away" other offers.

·     In lodging: RRR reported an ~in-line 4Q LV Locals EBITDA result, +1% above the Street as LV Locals fundamentals remain stable, and we get the sense mgmt. is being prudent said Wells.


Homebuilders, Building Products, Home Furnishing:

·     US mortgage market index rises 7.4% to 249.5 in week ended said the Mortgage Banks Assoc as the mortgage purchase index rises 3.1% and refinancing index rises 17.7% as the average 30-year mortgage rate falls 1 bp to 6.18 pct in latest week.


Energy & Materials

·     In solar, ENPH reported Q4 EPS $1.51 top $1.24 estimate on better revs ($724.65M vs. est. $706.51M) and guides Q1 revenue $700M-$740M above consensus $690.46M. Goldman Sachs said read through for ENPH +SEDG (50% exposure to Europe which was strong) and NOVA (negative on disappointing slower resi commentary).

·     Ethanol producer GPRE says it ran up against a ‘challenging’ environment for producing ethanol late last year, which included rail delays and weather-related shutdowns. Although the company reported selling 12.3% more gallons of ethanol in 4Q than last year, and 16.3% more for the full year of 2022 versus 2021, profit per gallon fell considerably.

·     In oil equipment: NBR 4Q EPS ($7.87) on revs $769.3Mm, adj FCF $101Mm, adj EBITDA $230Mm; guides FY adj FCF to exceed $400Mm.

·     Weekly inventory data: 1) the American Petroleum Institute reported weekly Crude Stocks fell -2.2 Mln Barrels, Gasoline Stocks rose +5.3 Mln barrels, Distillate Stocks rose +1.1 Mln barrels and Cushing Crude Stocks +0.2 Mln Bbl in Week. Energy Information Administration (EI)A data showed crude +2.4M barrels vs. +2.46M consensus, Gasoline inventories rose +5M barrels vs. +1.27M consensus, +2.6M last week. And Distillates +2.9M barrels vs. +0.10M consensus.

·     In chemicals: SHW was downgraded to Sector Weight at Keybanc saying they think SHW’s TAG unit guidance of down 8% to 2% (with 2-5% + price) is fair (our $8.30 EPS vs. $7.95-$8.65 guide), with our view that valuation reflation (vs. S&P) is unlikely until earnings visibility improves. FMC reported 4Q22 EBITDA of $432M, compared to consensus of $427M and revs beat, volumes grew 9% y/y, coupled with price contribution 8% growth.



Banks, Brokers, Asset Managers:

·     For trust banks, JPMorgan says expect trust banks’ (BK, STT) earnings in 2023 to also be marked by peaking net interest income, but with a good start near term to revenues in servicing and asset management because of strong markets in 4Q and to date in 1Q. Said remain Underweight on NTRS as it has lagged peers on both fronts (revs/expense growth) on core basis in 2022.


Bitcoin, FinTech, Payments:

·     In consumer finance: Morgan Stanley upgraded AXP from Equal Weight to Overweight saying they tilt stock picks toward 1) higher credit quality, 2) sustainable revenue growth, and 3) positive operating leverage. The firm downgraded DFS downgrade from Overweight to Equal Weight following 3Q22 earnings in late October, as believed the stock was not properly priced for a forthcoming resumption in share repurchases on top of the largest stockpile of excess capital in the group. Since then, the company has announced a resumption of buybacks. Wells Fargo said they are constructive on the networks as they provide defensive with upside optionality. Travel growth has moderated, but it’s still a tailwind. AmEx is our Top Pick, and we feel good about our tactical preference for V over MA post-earnings.

·     Payment processor Adyen (ADYEY) shares fall after reported a 4.1% rise in its second-half core earnings, missing analysts’ expectations as margins were hit by higher staffing and investment costs; EBITDA rose to 372M euros ($399M) from 357.3M a year earlier (est. 464M); EBITDA margin fell to 52% from 64% (SQ, PYPL, FIS shares active on results)



·     EGP reported a strong 4Q22 FFO beat (+$0.05 vs. est.), driven by a stronger core performance. Initial FY23 FFO guidance of $7.30-$7.50/share missed est. by $0.01 at the midpoint.

·     ESS initial 2023 core FFO guidance missed consensus by 3% at the midpoint. Despite notable headwinds related to net bad debt, same-store revenue guidance of 4.4% on a GAAP basis seems to incorporate little to no incremental offset from management’s prior 2023 revenue growth build-up provided last quarter said Keybanc – Hedgeye said 4Q results bearish read-across INVH on bad debt, AMH as a reminder has essentially no CA exposure.

·     PEAK initial 2023 FFOA guidance missed consensus by 3% at the midpoint as Keybanc said guidance assumes cash SSNOI growth of 3.5% at the midpoint, which is being driven by another year of above-average growth from the Company’s CCRC portfolio. Notably, PEAK’s cash SSNOI growth exceeded management’s initial 2022 guidance by 90 bps but came up slightly short of its revised expectation in 4Q22.


Insurance & Services:

·     AIZ Earnings were better than expected in 4Q22 driven by better results in Global Housing that more than offset underperformance in its larger business – Global Lifestyle, said Piper.

·     PRU 4Q:22 operating EPS was $2.42, below consensus at $2.54 as new business and capital trends were mixed; raises quarterly dividend to $1.25; board authorizes $1B share buyback.

·     VOYA earnings were better than expected as co reiterating its expectation to resume share repurchase activity in 2Q23, talked about 10%+ EPS growth in ’23 with a path towards 12% – 17% with Benefitfocus. Earnings exceeded forecasts and margins were healthy, but net flows were weaker than assumed.

·     ARGO to be acquired by Brookfield Reinsurance (BNRE) in $1.1 Billion Transaction with Argo Shareholders to receive $30.00 per share in cash.



Biotech & Pharma:

·     TEVA 4Q adj EBITDA was light of consensus ($1.24B vs. $1.33B est.) driven by weaker gross margins from mix and EPS of $0.71 (vs. $0.72 est.) and company provided FY23 guidance largely bracketing consensus, albeit modestly closer to the upper end.

·     VRTX reported Q4 CF product revenues of $2.30B, slightly below Street’s $2.32B estimates, decreasing -1% QoQ and full year CF revenues of $8.93B hit the high end of guidance ($8.8-$8.9B) – FY2023 CF revenue guidance is $9.55-9.7B, (Street $9.6B), representing 7-9% annual growth.

·     EXEL reported 4Q22 earnings with financial results largely in-line with consensus expectations given the company had previously provided prelim 4Q22 results and FY23 guidance in January.

·     In secondary pricings: CVAC 27.0M share Secondary priced at $9.25; LBPH 5M share Spot Secondary priced at $4.00; TMCI 4.76M share Spot Secondary priced at $21.00.


Healthcare Services & MedTech movers:

·     CVS to acquire OSH in deal valued at $10.6 billion that’s a primary-care play, paying $39 per share and confirming reports yesterday ; CVS also reported Q4 results that topped consensus expectations.

·     EHC unveiled 2023 EBITDA guidance of $860-900M compared to Street est. $892M while Q4 results topped consensus.

·     In MedTech: INSP guides FY23 revenue above consensus at $550-$570M vs $545M est. and better Q4 revenue, primarily driven by higher utilization at existing centers and the addition of 61 new U.S. implanting centers and 16 new U.S. sales territories; SINT 2.15M share Spot Secondary priced at $5.60; RXST 4M share Spot Secondary priced at $12.50. GH rises after receives coverage from UNH for its Guardant360® CDx blood test as companion diagnostic in advanced lung and breast cancer.


Industrials & Materials

Industrials, Aerospace & Defense

·     CSL Earnings came in above consensus ($3.92/share vs. consensus of $3.76/share) on stronger top-line and margin performance (lower corporate expense).

·     ETN reported slightly better Q4 results while mid-point of Q1 EPS guide below views.

·     EMR shares slipped as Q1 EPS of $0.78 missing by a dime on weaker revs of $3.37B and guides Q2 results below consensus estimates.



Internet, Media & Telecom

·     In Internet: GOOGL shares dropped after Google’s Bard AI chatbot gives wrong answer at launch event as the rival to Microsoft’s ChatGPT AI tool falls at the first hurdle.

·     In Telecom: LUMN shares fall after forecast FY adj EBITDA of $4.6B-$4.8B below consensus of $5.03B and forecasts free cash flow in fiscal 2023 below Street ests.

·     In Media sector: FOXA says its board adds $3B to its stock buyback program, boosting the total authorization to $7B and reports a top/bottom line beat for Q2 as ad revs rose about 4%, lifted by the World Cup, the NFL season, higher political advertising leading up to the midterms.

·     In advertising: OMC Q4 EPS $2.09 vs. est. $1.98; Q4 revs $3.87B vs. est. $3.75B; Q4 operating profit margin 16.5%; SG&A expenses decreased $25.4 million to $84.5 million (followed strong results from WPP last week)


Hardware & Software movers:

·     Cyber security stocks jump after FTNT reported a strong 4Q led by billings growth of +32% y/y (vs +33% last qtr) and Product revenue growth of +43% y/y (vs +39% last qtr) as both metrics grew >30% for the seventh consecutive qtr and FY23E Billings guidance of +21% y/y above views (shares of other security stocks S, ZS, PANW, CRWD, CYBR, OKTA move higher in reaction).

·     In Software: PAYC delivered strong 4Q results, highlighted by recurring revenue growth of 30% and a record 4Q EBITDA margin of 44% while FY23 rev growth outlook (+24%) beat consensus (+22.5%), but points to a significant slowdown in core sub rev growth, Jefferies noted. NEWR posted a good quarter with revenues and operating income both reporting a strong beat along with improving Gross margins and opex discipline led to an operating income beat. ATVI slides as the UK regulator said its in-depth probe found that MSFT purchase raised competition concerns.

·     In “AI” sector: MSFT unveiled its new AI-powered search engine and web browser yesterday as the new Bing experience will contain a standard search engine that collates web page results and a new sidebar with a chat interface for summarizing answers from across the web and performing interactive Q&A. Edge will gain two new functionalities (named "Chat" and "Compose") that allow users to ask questions about and interact with content and data on the webpage. The updated experience will be powered by a new, next-gen large language model ("Prometheus") that builds on OpenAI’s ChatGPT and GPT-3.5 generative AI advancements.

·     In networking: CSCO added to Tactical Outperform List, reit Outperform w/ $58 PT at Evercore/ISI saying they think the co is positioned to report and guide at minimum inline to street expectations, with some upside potential. UBS said its survey suggests Cisco demand remained solid over the past 3 months – a modest improvement from checks last qtr – but the trend continues to show a business softening on the margin.

·     In PC/IT Consulting/Services: Global Worldwide smartphone shipments totaled 301.5 million units in the fourth quarter of 2022, down 15.4% on year – Digitimes reported. DT 14.8M share secondary priced at $45.55 as Private equity firm Thoma Bravo offloads ~14.8 mln shares, cutting its stake by ~5% to ~24%, or ~17 mln shares, per prospectus filing.


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.