Closing Recap

Thursday, January 19, 2023

Index	Up/Down	%	Last
DJ Industrials	-252.79	0.76%	33,044
S&P 500	-29.94	0.76%	3,898
Nasdaq	-104.75	0.96%	10,852
Russell 2000	-18.02	0.97%	1,836

 

Equity Market Recap

·     Stocks slipped following yesterday’s broad-based push lower but finish off the worst levels as the S&P 500 dropped back below its 50-day MA (3,925) and 200-day MA (3,970) in the last 24-hours as growing signs of a global economic slowdown has overshadowed the recent data showing decelerating inflation. The slowdown has raised investor concern that the start-of-the-year rally in risk assets may have gone too far into earnings season. Results this quarter has been a small sample size but have generally higher on earnings and revs, but several offering cautious outlooks, especially in the financial sector are raising some warning signs. Treasury yields bounced while the US dollar remains weak and commodity prices finished mixed.

·     Several banks have boosted their provision losses on fears of increasing NCOs, while credit card co Discover warned of credit card loss doubling this year, a sign that customers are unable to pay bills (read thru for retail and economy in general). Several tech companies have cut jobs in recent weeks (AMZN, MSFT alone account for 28K), but overall jobs data remains strong thus far, giving the Fed ammo to keep rates moving higher (despite inflation easing – but not exactly crashing lower – gasoline prices hit 2-month highs today). In earnings, Netflix (NFLX) results expected after the bell, likely to impact media/streaming names (DIS, ROKU, PARA).

·     The debt ceiling remains a market concern as well, as the U.S. government hit its $31.4 trillion borrowing limit on Thursday, amid a standoff between the Republican-controlled House of Representatives and Democrats that could lead to a fiscal crisis in a few months. Treasury Secretary Janet Yellen informed congressional leaders that her department had begun using extraordinary cash management measures that could stave off default until June 5.

·     Fed Vice Chair Lael Brainard said the recent downshift in pace of rate hikes allows Fed to assess more data as it moves policy to sufficiently restrictive level; says it will take time & resolve to get high inflation down to Fed’s 2% target; policy will need to be sufficiently restrictive for some time.

·     Fed President Susan Collins weighed in on rates as the Fed speaking parade continues. She said policy rate needs to rise to likely just above 5%, then we need to hold rates there for some time – noted its appropriate to slow pace of rate hikes, particularly with risks now more two-sided. Said seeing noticeably slower goods inflation but services inflation remains persistently high.

 

Economic Data:

·     Weekly Jobless Claims fell to 190K (4-month lows) from 205K prior and below consensus 214K; the 4-week moving average fell to 206K from 212,500 in prior week; continued claims rose to 1.647M from 1.630 mln prior week; US Insured Unemployment Rate unchanged at 1.1$

·     Housing Starts for December fell (-1.4%) m/m to 1.382M vs. 1.359M consensus and 1.401M in November (revised from 1.427M); Dec Building permits fell (-1.6%) m/m to 1.330M vs. 1.370M expected and 1.351M prior (unchanged)

·     January Philadelphia Fed factory index weak at -8.9 (negative for 7^th time in 8-months) vs. est. -11.0; prices-received at 29.9 vs 28.1 and prices-paid index 24.5 vs 36.3; employment index +10.9 vs. -0.9 and New Orders -10.9 vs. prior -22.3

 

Commodities

·     Oil’s eight-day win streak snapped on Wednesday but bounced today despite a round of overly bearish inventory data. Brent crude futures settle at $86.16/bbl, up $1.18, 1.39%, while WTI crude February futures settle at $80.33 a barrel, up 85 cents, 1.07%. Prices fell yesterday as softer US data sparks growth fears. Inventory data was certainly bearish for prices, with API reporting overnight a big crude inventory build of +7.6mm barrels, Cushing +3.7mm barrels and Gasoline +2.8mm barrels, while Distillates showed a drawdown of -1.8mm barrels. The EIA this morning confirmed the large build in oil inventories with crude +8.408mm barrels (vs. est. +4.8M), Cushing +3.646mm for biggest build since April 2020 and Gasoline up +4M barrels.

·     Gold prices advanced, rising $16.90, or 0.9% to settle at $1,923.90 an ounce, holding near best levels since April, supported by a weaker dollar and some safe-haven demand amid weak U.S. economic readings and mostly hawkish Fed commentary. The dollar remained near an eight-month low after a raft of data showed the U.S. economy was losing momentum.

 

Currencies & Treasuries

·     Treasury yields finish higher (10-yr 3.39%), but off their best levels (3.43%), recovering off 4-month lows (3.32%) following a bevy of Fed comments on rates the last few days on Fed policy. U.S. bond yields have fallen as investors fear that the U.S. central bank will not be able to raise rates as high and for as long as it has indicated if the economy soon enters a downturn. Fed funds futures traders are overwhelming pricing for a 25 basis points increase at February’s meeting. The Fed’s benchmark rate is also expected to peak at 4.89% in May, before declining to 4.40%. The US dollar slid again vs. major currencies in choppy trading as a slew of data continued to show that the U.S. economy was slowing down in the wake of multiple hefty rate hikes.

 

 

Macro	Up/Down	Last
WTI Crude	0.85	80.33
Brent	0.66	85.64
Gold	16.90	1,923.90
EUR/USD	0.0033	1.0825
JPY/USD	-0.39	128.50
10-Year Note	0.033	3.408%

 

 

Sector News Breakdown

Consumer

Retail, Staples & Restaurants:

·     PG Q2 core EPS $1.59 and revs $20.8B, both mostly in-line with consensus as organic growth grew +5% vs consensus +5.6% with Beauty +3%, Healthcare +8%, Home Care +8%; reaffirms FY EPS growth 0%-4% (towards the lower-end) vs est. +0.3% and Y revenue growth (1%)-0% vs prior (3%)-(1%) and consensus +0.2% and organic sales growth +4%-5% vs prior +3%-5%

·     In tobacco, PM upgraded from Hold to Buy at Jefferies and raise tgt to $118 from $86 which captures the contribution from the SM deal.

·     CELH to pay South Florida rapper Flo Rida $82.6M in damages after winning his lawsuit against the energy drink maker, a Broward County jury decided Wednesday.

·     PRPL said in statement it is "disappointed" that within days of a special committee rejecting a bid for the company from Coliseum Capital Management LLC, the hedge fund is seeking to replace most of the board (Coliseum is 44.7% holder)

 

Leisure, Gaming & Lodging:

·     NCLH commentary weighed on cruise lines early as expects to report a loss in fourth and current quarter and guides FY revs $4.7B-$5B vs. est. $4.82B; said Q4 occupancy was about 87%, with the gap vs 2019 levels continuing to narrow sequentially; as of September 30, 2022, our total debt position was $13.7 billion and announced a $500M notes offering.

 

Energy

·     CHK said it had agreed to sell the Brazos Valley region of its Eagle Ford asset to WildFire Energy I LLC for $1.425 billion.

·     In Pipelines, KMI 4Q adj EPS $0.31 vs est. $0.30 on revs $4.58B vs est. $4.58B; auth $1B increase in share repurchase program; Kim Dang to become CEO 8/1/23.

·     Solar stocks hammered on the day, with big drops in SEDG, FSLR, SUN, NOVA, SPWR on no apparent news, but follows recent surge in shares.

·     In Oil Services, Benchmark initiates coverage on 14-companies and 10 of them Buy rated: Global Diversified Service – BKR, HAL, SLB; Offshore Drilling – NE, RIG, VAL; Subsea Infrastructure and Offshore Services – FTI, OII; Oilfield Equipment – NOV, WHD

 

Financials

Banks, Brokers, Asset Managers:

·     In regional banks:

·     CMA Q4 beat $2.58 vs $2.53 and raise driven by Fees +$0.06 and taxes +$0.04 were only partly offset by NII -$0.01, expenses -$0.02, and provision -$0.02.

·     FITB Q4 EPS $1.01 vs. est. $1.00; Q4 net interest margin 3.35% vs. 2.55% y/y; compared to year-ago quarter, reported revenue increased 16% while expenses increased only 1% in Q4; Provision for credit losses $180 million vs. recovery $47 million y/y.

·     KEY earnings fall from year ago period as Q4 net income $356M down from $601M y/y, as profit hit by provision for credit losses of $265M vs. only $4M y/y.

·     FHN Q4 adj EPS $0.51 vs. est. $0.48; Pre-provision net revenue down 7% from the prior quarter and up 5% on an adjusted basis; ROTCE of 19.1% and adjusted ROTCE of 21.7% with tangible book value per share of $10.23

·     MTB Q4 adj EPS $4.57 vs. est. $4.30; total assets of $200.7B at December 31, 2022, compared with $155.1B and $198B at December 31, 2021 and September 30, 2022, respectively; provision for credit losses was $90 mln in Q4; net loan charge-offs were $40 million.

·     SNV Q4 adj EPS $1.35 vs. est. $1.36; Q4 revenue rose 18.5% y/y to $603.8M vs. est. $601.48M; Net interest income increased 27.8% to $501.3M, while net interest margin rose 11 bps sequentially to 3.60%.

·     TCBI Credit driven MISS as higher provision and partly offset by lower expenses, taxes and fees while provision of $34Min 4Q22 was higher than 3Q22’s provision of $12M.

·     TFC Q4 adj EPS $1.30 vs. est. $1.28; Q4 revs $6.21B vs. est. $6.16B; Q4 net interest margin was 3.25%, up 13 bps y/y and core net interest margin was 3.17%.

·     Trust banks fall as NTRS Q4 EPS of $0.71 misses the $1.80 estimate and well below prior year period of $1.91 and Q4 revs fell 9% to $1.5B, below the $1.8B est. as expenses were elevated due to higher compensation and salaries (STT to report earnings tomorrow morning)

·     In research: SCHW double downgraded to Underperform at Bank America and cut tgt to $75 from $92 driven by view that client cash sorting will continue at an elevated pace in 1H23 (pressuring liquidity, interest earning assets & bank deposit account levels) and the Fed will end its interest rate hiking cycle by this summer.

·     PE firms KKR, BX tumble; KKR slides after KKR Real Estate Select Trust (KREST) disclosed that it saw requests for redemptions exceed its quarterly limit of 5% of net asset value; the same related news had hit shares of BX the prior month.

 

REITs:

·     VNO slashed its quarterly dividend by 29% to 37.5c a share, as the dividend cut lowers the implied dividend yield to 6.50% from 9.19%

 

Consumer Finance, Insurance & Services:

·     ALL shares slide as sees Q4 loss between $285M-$335M and estimated adjusted net loss between $335M-$385M. Property-Liability Premiums; net investment income in Q4 is estimated at $557M, including performance-based investment income estimated at $147M.

·     DFS shares slide as Q4 EPS of $3.77 topped consensus, but said it expects full-year average net charge-off rate to be in the range of $3.5%-3.9%, above JPMorgan’s estimate of 3% after Q4 NCO’s rose +2.13% and co set aside $883M for potential credit losses vs. $620M y/y.

·     EVER tgt raised to $22 from $8 at Oppenheimer on an improving auto insurance marketing backdrop from policy profitability returning to normalized levels.

·     THG said sees Q4 operating loss (-$1.05) vs. est. +$2.12 as prelim estimate for Q4 catastrophe losses of about $190M and expects its Q4 combined ratio, excluding catastrophes to be 94.1%

 

Healthcare

Biotech & Pharma:

·     BLUE 20M share Secondary priced at $6.00 per share.

·     CNCE to be acquired by India’s Sun Pharmaceutical Industries Ltd. for an initial $576M in cash, with holders to receive an initial $8 a share and receive non-tradeable contingent value rights worth up to an additional $3.50 per share https://on.mktw.net/3XD4TjO

·     CVAC upgraded to Buy at UBS and more than doubles its price target, calling the Jan. 6 announcement on messenger RNA vaccines for flu and Covid-19 a “major de-risking” event.

·     ICPT said the FDA accepts its New Drug Application for OCA for the treatment of pre-cirrhotic liver fibrosis due to NASH.

·     NRXP said it had a meeting with the FDA over its lead compound NRX-101

·     TEVA downgraded to Hold from Buy at Jefferies while raise tgt to $12 from $10 noting shares are up 35% since October and see the risk/reward as balanced.

·     ZYME and JAZZ said their experimental cancer drug had an overall survival rate of 84% in patients being treated for a type of metastatic gastroesophageal adenocarcinoma after 18-months

 

Healthcare Services & MedTech movers:

·     NVCR said Chief Medical Officer Ely Benaim will step down and leave the company.

·     SRDX slides as the FDA rejected its application seeking approval of its SurVeil drug-coated balloon for the treatment of peripheral artery disease.

·     Hospital provider THC said it anticipates beating midpoint of latest 2022 outlook; announces key leadership updates as Daniel Cancelmi, executive VP and CFO retires.

 

Industrials & Materials

Transports

·     Overall Transports give up some recent gains on the back of airline strength after UAL results and truckers after better outlook from JBHT yesterday (though qtr missed). Start seeing rail earnings next week with CSX

·     In container market, MATX said it sees Q4 EPS $1.88-$2.01, below the consensus est. of $3.42; says y/y decrease in consolidated operating income driven primarily by lower contribution from China service – all four of the company’s primary services saw volumes down Y/Y and sequentially as demand fell and container rates were also falling quickly.

 

Aerospace & Defense

·     Wells Fargo cut NOC tgt to $460 from $575 and said they are cautious on defense despite ~10% selloff since December, as see further downside if budget growth slows meaningfully; see less risk for Fed IT, which has historically peaked later in the budget cycle (LMT, RTX, LHX)

 

Materials, Metals & Mining

·     In aluminum, AA reported lower-than-expected 4Q’22 results with adj EBITDA $29Mm vs est. $105Mm and warned total alumina shipments in 2023 to range between 12.7M-12.9M metric tons, a decrease of 0.5M metric tons from a year earlier.

·     In chemicals, FUL reported F4Q22 adjusted EBITDA of $141M, below Street estimate of $154M and revs of $958M also missed, with 6% organic growth, all from price (up 11.4% y/y vs. a 5.0% volume decline). Segment level organic growth missed only in Construction.

·     In other metals; steel producers were broadly lower (NUE, STLD), though gold miners (AEM, NEM) benefit as gold prices extend gains to 9-month highs

 

Technology

Internet, Media & Telecom

·     NFLX earnings after the close tonight, first in the streaming and Internet sector (watch shares of WBD, DIS, ROKU, PARA in reaction); saw strength in GOOGL, META, SNAP, PINS on day.

·     CHGG upgraded to OW at Keybanc, making the tactical upgrade on the premise that EBITDA margin upside will be the key driver of the stock over the next 12 months.

·     BABA, BIDU, JD and other US listed China stocks outperformed all day

 

Hardware & Software movers:

·     NCNO said Greg Orenstein to replace David Rudow as CFO; reaffirmed Q4 guidance, also announced a 7% workforce reduction and will reduce its office footprint.

·     RBLX downgraded to underweight at Morgan Stanley, which expects slower bookings growth in the second half of the year, and little upside from advertising in the near term.

·     TEL downgraded from Outperform to In Line at Evercore/ISI citing saying while expectations are set for ~3% auto production growth in FY23 driven by increased semi supply, they think chip supply continue to constrain the upper bound of production.

 

Semiconductors:

·     IDCC raises Q4 total revenue to be ~$114M vs. prior view $98M-$102M (est. $102.55M)

·     OLED upgraded from Negative to Neutral at Susquehanna and raise tgt to $135 from $82 saying Commercial Blue in ’24 bodes well, while OLED is expanding TAM to include NBs.