Closing Recap

Friday, February 10, 2023

Index	Up/Down	%	Last
DJ Industrials	169.52	0.50%	33,869
S&P 500	8.98	0.22%	4,090
Nasdaq	-71.46	0.61%	11,718
Russell 2000	3.47	0.18%	1,918

 

Equity Market Recap

·     Stocks finished at the highs in choppy afternoon trade, with the S&P 500 index hovering lifting into the bell, while the tech heavy Nasdaq underperformed as Treasury yields rise and investors took profits in 2023 winners heading into the weekend. Another big week of earnings coming up volume wise, but many of the large cap giants (outside of retail) behind us and but attention squarely focused on inflation data next week. The January consumer price index (CPI) is expected Tuesday with forecasts for a slight increase for the prior month, while today the University of Michigan Sentiment Index popped to 66.4 vs 65 expected while 1-year Inflation Expectations moved higher to 4.2% while 5-10-year IE were anchored at 2.9%. The data has pushed Treasury yields to best level in 4-weeks and lifted the dollar, yet to really feel the impact in stocks which posted a weekly decline, and the S&P is now down 5 of the last 6 trading days.

 

Economic Data:

·     Univ. Of Michigan Sentiment Feb-P reported at 66.4 vs. est. 65.0 and prior 64.9; the current Conditions jumps to 72.6 from 68.4 and expectations index at 62.3 vs. 62.7 prior. The 1-Year Inflation expectations rises to 4.2% vs. previous 3.9% and the 5-10 Year Inflation in-line at 2.9%.

·     December monthly CPI was revised from -.1% to +.1%. Bureau of Labor Statistics released benchmark revisions. Revisions include seasonal adjustment factors. Ex food and energy was up +.4% vs +.3%.

·     U.S. Jan budget deficit (-$39B) vs. consensus (-$63.00B deficit) vs Jan 2022 surplus $119B; U.S. Fiscal 2023 year-to-date deficit $460B vs comparable fiscal 2022 $259B deficit.

 

Commodities

·     Oil prices rallied on day and week, with WTI crude up $1.66 or 2.13% to settle at $79.72 per barrel helped after Russia said will cut oil production by 500,000 barrels per day, or around 5% of output in March, says Deputy Prime Minister Alexander Novak. Meanwhile, the OPEC+ group led by Saudi Arabia will maintain output despite plans by the Kremlin to cut 500,000 barrels a day in retaliation for international sanctions, according to delegates. Brent crude futures settle at $86.39/bbl, up $1.89, 2.24%. Gold prices slip -$4.00 or 0.2% to settle at $1,874.50 an ounce, falling a second straight week amid rising yields and US dollar.

·     Treasury yields finish the day and week near highs, as the 10-yr yield rose 6.1 bps today to 3.743% and gained over 21 bps on the week alone, now up for 3-straight weeks to the 2nd highest level if 2023 and the 2-yr above the 4.5% level ahead of next week’s CPI inflation report on Tuesday. Investors are starting to prepare for a terminal rate of over 5% by end of year. Markets finally believing what the Fed has been saying over the last few weeks as the strong jobs data last Friday and todays UoM inflation data taking fed fund futures higher. The US dollar was up on the day as well vs. rival currencies.

 

 

Macro	Up/Down	Last
WTI Crude	1.66	79.72
Brent	1.53	86.03
Gold	-4.00	1,874.50
EUR/USD	-0.0064	1.0672
JPY/USD	-0.05	131.52
10-Year Note	0.061	3.743%

 

 

Sector News Breakdown

Consumer

Autos:

·     In electric vehicles (TSLA, RIVN, FSR, F, GM): CNBC’s Phil LeBeau notes $869…that is the average monthly payment for a new EV bought in 2022. By comparison, the average monthly payment for an internal combustion engine vehicle was $651. RIVN slides after Ford (F) discloses stake in Rivian Automotive falls to 1.15%.

·     In EV charging: BLNK teams up with HTZ to keep EV rentals charged and on the road in Phoenix for the Super Bowl; Blink to provide reliable charging to hertz customers at all greater phoenix area charging stations for both level 2 and DC Fast Chargers.

·     In auto suppliers: MGA shares tumbled after reported an 80% slump in quarterly profit, as adj EPS of $0.91 missed the $1.06 estimate citing higher engineering costs in its electrification and self-driving businesses.

 

Consumer Staples & Restaurants:

·     In consumer goods: NWL forecasts FY23revenue and profit below analysts’ estimates citing stubbornly high inflation pressuring consumer spending – also forecasts Q1 revenue below estimates but posts better-than-expected Q4 results and said CEO to retire (shares rebounded).

·     In foods: FLO reported in-line Q4 EPS on slighter light revs and guides FY EPS $1.20-$1.30 vs est. $1.34, revs $5.176B-$5.242B vs est. $4.99B, and EBITDA $513M-$543M vs. est. $531.5M.

Retailers:

·     In apparel retail: VFC upgraded from Hold to Buy at Stifel with $30 tgt saying the dividend cut and resulting dislocation in shares present an attractive entry point and recommend capitalizing on elevated volume to build positions; HBI announces offering of senior notes.

·     NLS reported 3Q miss and material cut to fiscal 2023 expectations, prompting weakness in shares and a downgrade at William Blair as they view any potential inflection into positive sales trends as likely pushed to late calendar 2023 at earliest.

·     In specialty retail: BARK lowered its FY23 sales view to $530M from $556M prior and street $555M citing macro pressures on demand in Bark’s toys and treats categories/implements cost-cutting initiative involving 12% reduction of workforce.

 

Leisure, Gaming & Lodging:

·     In ride hailing: LYFT a major disappointment after disappointing 1Q guidance which missed on both the top and bottom line (following a good quarter from UBER this week); guides Q1 revs roughly $975M vs. est. $1.09B; Q4 adjusted EBITDA ($248.3M) vs ($47.6M) last year.

 

Homebuilders, Building Products, Home Furnishing:

·     In mortgage space: RDFN reported the median U.S. asking rent rose 2.4% year over year to $1,942 in January–the smallest increase since May 2021 and the lowest level in nearly a year; January marked the eighth straight month in which annual rent growth slowed. Rents fell 1.9% from a month earlier and were down 5.4% from the August peak of $2,053.

·     In building products: MAS upgraded to Outperform from Sector Perform at RBC Capital and raising tgt to $57 from $49 following what they view as a realistic and credible FY’23 guide which clears the deck and should pave the way for LT investors to return.

 

Energy

·     Oil companies jumped early (XOM, CVX, COP, HES) after reports Russia will cut oil production by 500,000 barrels per day, or around 5% of output in March, citing Deputy Prime Minister Alexander Novak. Strength was broad based with equipment, refiners, service stocks all rallying on the Russia production news. BE 4Q results beat as EBITDA of $74.4M on revs and $462.6mm, above expectations (Street: $46.2mm/$399.8mm) and record 4Q PF gross margin of 30.4%. XOM traded to all-time highs today with oil pop. Baker Hughes weekly rig count showed U.S. Drillers add oil rigs for first time in four weeks, adding 10 to 609 but cut 8 gas rigs to 160.

 

Financials

Banks, Brokers, Asset Managers:

·     Banks: DB downgraded to underperform from neutral but up tgt to EUR11.45 from EUR10.50 at Bank America saying Deutsche Bank will struggle to improve profitability as growth is heavily volume reliant, consuming cost and capital resources.

·     In payments: PYPL reported 4Q22 results that were in line to modestly above Street expectations for top- and bottom-line results and usage metrics; managed to outpace e-commerce growth and returned to delivering both Y/Y EPS growth and margin expansion and guides higher-than-expected EPS. GPN Q4 adj EPS $2.42 on revs $2.25B tops ests $2.41/$2.01B; reauthorizes up to $1.5B of share repurchase capacity and guides sees FY23 adj EPS $10.25-$10.37 vs. est. $10.37 and sees FY23 revenue $8.575B-$8.675B vs. est. $8.57B. AFRM downgraded at Morgan Stanley to Equal Weight and tgt to $15 from $46 after earnings this week.

 

Asset managers:

·     Monthly assets under management data release:

·     AB preliminary assets under management increased to $680 billion during January 2023 from $646 billion at the end of December.

·     BEN preliminary month-end assets under management (AUM) of $1,451.9 billion at January 31, 2023, compared to $1,387.7 billion at December 31, 2022.

·     IVZ preliminary month-end assets under management of $1,482.7 billion, an increase of 5.2% versus previous month-end; experienced net long-term outflows of $0.1 billion in the month.

·     LAZ assets under management -11% $230.6 billion vs. $258.69 billion y/y

·     TROW preliminary month-end assets under management of $1.35 trillion as of January 31, 2023. Preliminary net outflows for January 2023 were $5.7 billion.

·     VCTR assets under management (AUM) of $161.4 billion as of January 31, 2023; also reported average assets under management for the month of January of $157.1 billion.

·     VRTS preliminary assets under management of $157.8 billion as of January 31, 2023; provided services to $2.6 billion of other fee-earning assets, which are not included in AUM.

 

Healthcare

Biotech & Pharma:

·     BPMC said the FDA verbally informed the company on February 8, 2023 that it has placed a partial clinical hold on the Phase 1/2 VELA trial of BLU-222 due to visual adverse events (AEs) observed in a limited number of patients.

·     ELYM paused all further developments of its experimental therapy, ETX-155, which was being tested for treatment of major depressive disorder/cuts workforce by 55%/downgraded to Neutral at HCW on plan to pause development.

·     MLYS 12M share IPO priced at $16.00, the higher end of $14-$16 range.

·     PHAT shares slide after the FDA declined to approve the company’s experimental drug based on acid-blocker compound vonoprazan to treat inflammation in esophagus.

·     PFE and BNTX initiate phase 1/2 study of first MRNA-based shingles vaccine program saying the study is aiming to enroll up to 900 healthy volunteers 50 through 69 years of age.

 

Healthcare Services & MedTech movers:

·     In diabetes sector: DXCM 4Q revenue was in line with preliminary results announced in early January, with performance in the quarter driven by continued U.S. record patient adds despite an ongoing competitor launch and the upcoming G7 launch.

·     In health services: DOCS shares fall as Q3 results as sales and adj EBITDA beat but still, full-year guidance was trimmed modestly for total sales and adj EBITDA (sees 4Q revs $109.6-110.6Mm vs est. $123.1Mm and adj EBITDA $45.2-46.2Mm vs est. $54.9Mm).

·     In diagnostics: EXAS downgraded from Outperform to Neutral at Credit Suisse to reflect a view that the durable value of its Cologuard test is realized while its pipeline could translate to sales more slowly than investors appreciate.

 

Transports, Materials, Industrials, Aerospace & Defense

·     OSK shares tumbled after AM General upset Joint Light Tactical Vehicle-maker Oshkosh Defense in the U.S. Army’s new competition to build more of the vehicles, winning a contract valued at $8.66 billion https://bit.ly/3xbgs6r

·     In metals: US Steel (X) double downgraded from Buy to Sell at GLJ Research and slash tgt to $13.85 from $42.75 noting it reported clear earnings beat last week, but when looking at the internals, which included losses on the EBIT line in both X’s Mini Mill (i.e., -$68M in 4Q22) and USSE segment (i.e., -$68M) and -$72M EBIT loss at Big River, they see problems on the horizon.

·     In paper products: MERC downgraded to neutral from Outperform at Credit Suisse saying several areas of greater fibre costs do not bode well for financial generation – especially with trends for NBSK pricing which declined ~5%-6% since Q4.

 

Technology

Internet, Media & Telecom

·     Online travel: EXPE reported 4Q numbers that largely missed consensus estimates but shares pared losses as Wall Street looked through reported 4Q numbers, as weather-related cancellations late in the 4Q served as the primary factors behind the miss – co said it anticipates double-digit top-line growth with margin expansion for FY23.

·     Online services: COUR shares fall as reported better-than-expected 4Q results (24% top-line growth) but 2023 guidance was mixed calling for 14%-16% revenue growth (vs. consensus at 19%), but sees a lower loss than expected.

·     In Internet & media: NWSA slides on weaker results as Q2 adj EPS $0.14 vs. est. $0.19 and down from $0.44 last year; Q2 revs $2.521B vs est. $2.55B and $2.717B last year. SPOT rises after saying activist investor ValueAct Capital Management has taken a stake in SPOT.

 

Hardware & Software movers:

·     In software: AYX reported a strong 4Q with 31% ARR growth ahead of consensus 29% and FY23 ARR guide of up +22-23% was above Street as were margins; guided Q1 and 2023 revenue of $198M-$202M and $980M-$990M both ahead of estimates ($196M and $970M).

·     IT Services: NET reported a solid 4Q, with revenue growth of 42% Y/Y that was in line the Street citing further elongation in sales cycles and initiated a better-than-expected top-line outlook.

·     Security software: good week of results continued as QLYS reported a solid quarter featuring top and bottom-line beats as total revenues came in at $130.8 million, growing 8% y/y while EPS came in at $1.01 with the Street at $130.1 million and $0.90, respectively.

·     In hardware: KN forecast Q1 revenue and profit below estimates, hurt by weak consumer-end market demand and excess channel inventory; Q4 revenue missed estimates but profit in-line with expectations.

 

Semiconductors:

·     MU ($72PT), WDC ($50PT), and STX ($82PT) all upgraded to BUY from Neutral at Mizuho, as they see improving structural trends driving an accelerated path to supply/demand balance for Memory. We believe AMAT and LRCX also stand to benefit from a rebound in Memory WFE. Said a cyclical 1Q-trough with structural improvement, driven by supply/Capex cuts and better 2H demand, positions MU, WDC and STX for upside with shares 40-50% below prior cycle peaks.

·     MU said last night it would cut compensation and bonuses of its senior executives; cuts are part of previously announced steps to reduce costs.