Closing Recap

Tuesday, July 11, 2023

Index	Up/Down	%	Last
DJ Industrials	316.42	0.93%	34,260
S&P 500	29.72	0.67%	4,439
Nasdaq	75.22	0.55%	13,760
Russell 2000	18.11	0.96%	1,913

 

 

 

 

 

 

 

 

 

U.S. stocks finish around the highs of the day, with investors showing no concern ahead of tomorrow’s highly anticipated inflation data. The U.S. government will release June inflation data, as measured by the consumer-price index (CPI) at 8:30 AM ET tomorrow morning. Estimates indicate Consumer Price Index (CPI) Headline M/M for June est. to rise +0.3% (prior +0.1%) and the CPI Headline Y/Y for June expected to rise +3.1% (prior +4.0%). On a core basis, Ex: Food & Energy M/M for June est. to rise +0.3% (prior +0.4%) and on a Y/Y core basis, est. to rise +5.0% (prior +5.3%). The US dollar and Treasury yields slipped into the data, while stocks were broadly higher, again unconcerned about inflation or rates.

 

Stocks got a late morning boost, led higher by headlines that MSFT’s $69B deal to acquire ATVI can go forward in a blow to the FTC and another report from the Financial Times that the EU is set to clear AVGO purchase of VMW. The news boosted market sentiment and raised hopes for further M&A/deal making to proceed with less government scrutiny. Outside of M&A headlines, stocks on Wall Street saw another broad-based rally (on good breadth), with Energy, Financials, Industrials, and Communications the biggest winners while Staples, and Healthcare lagged. Dow Transports closed at a fresh 52-week high with shares of FDX hitting a new 52-week best as well. Smallcaps also outperformed large caps for a second straight day with big tech lagging.

 

Reminder of yesterday’s announcement that Nasdaq 100 will undergo a Special Rebalance effective July 24th (i.e., rebalance will be traded on close of Friday 21st). Wells Fargo noted today thinks MSFT weighing to likely to be reduced by -1.8%, AAPL -1.7%, NVDA, AMZN, GOOGL all by -1%. Note 62% of NDX is trading above 200d is elevated vs history, but over 80% of NDX’s gains YTD come from 7 stocks (FANGMAA), which are 55% of QQQ.

 

Commodities

·     Oil prices edged higher on Tuesday, with WTI crude rising $1.84, or 2.52% to settle at $74.83 per barrel, its highest level in 10-weeks on continued dollar weakness and supported by supply cuts by the world’s biggest oil exporters and hopes for higher demand in the developing world in the 2H’23 2023 despite a sluggish economic outlook. Supply cuts by top exporters Saudi Arabia and Russia for August helped to lift the benchmark prices. The EIA raised its forecast for 2023 world oil demand growth by 170,000 bpd and now sees 1.76 mln bpd Y/Y increase and cuts forecast for 2024 world oil demand growth by 60,000 bpd and now sees 1.64 mln bpd Y/Y increase.

·     Aug gold futures settled +$6.10/oz, or +0.3%, to $1,937.10, helped by a pullback in the US dollar and bond yields ahead of tomorrow’s CPI inflation report, where investors look forward to U more cues on the Federal Reserve’s rate hike path. Gold prices posted a third consecutive session of gains as the dollar hit a 2-month low.

 

Currencies & Treasuries

·     The U.S. dollar hit fresh two-months low against a major currency index (DXY) ahead of tomorrow’s CPI inflation report, while sterling hit a 15-month high after pay growth exceeded expectations. The dollar index (DXY) traded to 101.75, down despite Fed member calling for likelihood of two additional rate hikes this year (compared to Wall Street calls for at least 3 rate “cuts” by the end of 2023 just 2-months ago). Against the yen, the dollar fell to a four-week trough of 140.17 and plunged to its lowest in two-and-a-half years versus the Swiss franc.

·     Treasury yields were mixed with longer-dated yields dipping slightly while the shorter end was flat up slightly into the CPI data Wednesday. Fed officials have indicated that they expect to hike rates by at least another 50 basis points as they tackle persistent price pressures, but traders are only pricing in approximately 35 basis points of further tightening. Interest rate sensitive two-year yields rose 2-bps to 4.885%, after reaching 5.12% on Thursday, the highest since June 2007. The US Treasury sold $40B in 3-year notes at a yield of 4.534% vs. 4.536% when issued prior; 3-year notes bid-to-cover ratio 2.88, non-comp bids $162.01 mln; primary dealers take 10.78% of U.S. 3-year notes sale, direct 19.79% and indirect 69.43%.

 

 

Macro	Up/Down	Last
WTI Crude	1.84	74.83
Brent	1.71	79.40
Gold	6.10	1,937.10
EUR/USD	-0.0001	1.0998
JPY/USD	-0.90	140.41
10-Year Note	-0.02	3.986%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     In off-price retail, TD Cowen raised tgt on ROST to $113 from $105 and TJX to $91 from $89 and said sees upside to TJX Q2 comp store sales and FY EPS guidance.

·     NWL rises after being +8%; initiated Buy and $13 tgt at Canaccord saying they believe new management can reignite modest top-line growth.

·     PVH said it plans further headcount reductions after last year’s cuts and expects to incur about $50 million in severance expenses in 2q for additional headcount reductions.

 

Auto, Leisure, Gaming & Lodging:

·     In Lodging: CHH backs FY23 outlook, reports FY24 Adj EBITDA guidance; RLJ said says resort RevPAR tracked above 2019 levels in April-May but moderated from 2022 as post-covid seasonality returned.

·     In Ride Hailing: UBER announces Nelson Chai plans to step down as CFO; marks the first significant executive departure since the 2019 IPO. Separately, ISI added to its to ‘TAP Outperform’ list, replacing META as the firm’s top pick in internet.

·     In Autos: U.S. auto safety investigators said they are opening an investigation into 346,000 Ford (F) Escape sport utility vehicles because a weld in the door assembly may fail, potentially resulting in a door inadvertently opening while driving.

 

Homebuilders, Building Products, Home Furnishing:

·     In Generators: GNRC upgraded to Buy with $155 tgt at Argus noting Generac has benefited from stronger-than-expected growth in its Commercial & Industrial business, as well as from cost-cutting efforts and believes shares are undervalued at recent prices near $139.

·     In Housing/Real Estate: ZG upgraded from Neutral to Overweight at Piper and raise tgt to $62 from $42 saying they like the setup driven by: 1) continued Premier Agent share gains, and 2) product optionality & new initiatives, and 3) a bottoming in the housing macro with sequential improvements forecast through ’24.

 

Energy

·     In Oil and pipelines: ETRN shares fell after an appellate court halted construction for the Mountain Valley Pipeline project in the Jefferson National Forest. Energy stocks were among the biggest winners in the S&P 500 today.

·     In Utilities: Canadian electric utility TransAlta Corp said it will buy the rest of the stake it does not own in TransAlta Renewables Inc in a cash-and-stock deal valued at C$1.38 billion ($1.04 billion). Dominion (D) announced it has an agreement to sell its remaining 50% non-controlling interest in Cove Point to Berkshire Hathaway Energy for a total transaction value of ~$3.5B.

 

Financials

Banks, Brokers, Asset Managers:

·     In Banks: lots of analysts positioning ratings ahead of earnings season: JPM upgraded to Buy from Hold at Jefferies and raise tgt to $165 from $149 citing balance sheet strength, strong liquidity positioning, and best-in-class earnings generation; ZION downgraded from Buy to Hold at Jefferies citing lack of stock-specific catalysts after decent bounce off the bottom, TFC cut from Buy to Hold at Jefferies saying sees few positive catalyst opportunities over the next few quarters that would justify relative re-rating vs peers and lastly downgraded HWC to Hold from Buy. Bank America upgraded USB from Neutral to Buy as believes investor focus on capital build has distracted attention away from what is among the highest quality franchises in US banking.

·     In Crypto/Business Services: COIN shares extend YTD rally, now up over 150% this year amid widespread gains for cryptocurrency-related stocks (MSTR, MARA, RIOT); PAYO said it will cut its workforce by 9%, a move it says will reduce operating expenses by ~$20M.

·     In Insurance: RNR upgraded to Outperform at BMO Capital given EPS upside from higher-than-expected expense synergies following its acquisition of AIG’s reinsurance arm, and recent Florida tort/lawsuit/insurance reforms lowering inflation levels insurers bear post-hurricanes. Reuters reported French insurer AXA has been discussing strategic options for its XL Re unit, including a possible private sale or stock market listing, said the people.

 

Healthcare

Biotech & Pharma:

·     ADCT said it paused enrollment of new patients in a mid-stage study evaluating its drug Zynlonta in combination with rituximab for treating a type of blood cancer, citing safety concerns.

·     BMY said its cancer immunotherapy, Opdivo, in combination with chemotherapy improved survival in patients with a type of bladder cancer in a late-stage trial.

·     CDNA company said its molecular testing service has received Medicare coverage.

·     DERM announces positive topline results from its two phase 3 trials (MVOR-1 and MVOR-2) evaluating DFD-29 for the treatment of Papulopustular Rosacea in adults.

·     DNA advances collaboration with NVO on expression systems for pharmaceutical products

·     ENZ reduced the price of the clinical labs assets it is selling to LH to $113.25M from $146M.

·     EVO said that BMY entered into a licensing agreement with the company by exercising an option linked to their 2016 partnership on neurodegeneration.

·     IOVA announced a 20 mln share offering priced at $7.50, 14.7% discount to last sale of $8.79.

·     LLY shares slipped after Reuters reported the EU extended Ozempic probe to include similar drugs.

·     PRTA to receive $55M from BMY after it obtains the exclusive worldwide license to PRX005.

·     SLRX receives FDA clearance of SP-3164 investigational new drug application to begin a phase 1 clinical trial in relapsed/refractory non-Hodgkin lymphoma patients.

·     SYBX said the FDA issued its Fast Track designation to the company’s experimental therapy labafenogene marselecobac to treat the rare metabolic disorder.

·     TNDM received U.S. FDA Clearance for Tandem Mobi Insulin Pump, sending shares higher.

 

Industrials & Materials

·     In Airlines: Jefferies out with a 2Q preview for Airlines saying for the quarter, estimates TRASMs remain 18% ahead of ’19, driving revs up 17% with capacity down 1%. Firm is incrementally positive on pricing given continued tight supply, which supports higher revs/margins on lower ASMs. Jefferies top pick remains DAL (reports this week) as the best-in-class operator with option values from diversified rev and cash streams. In other research, GOL downgraded from Buy to Neutral at Goldman Sachs with $5.65 PT from $4.80; post the recent outperformance of Brazilian airlines stocks. JBLU downgraded from In Line to Underperform at Evercore/ISI with $8 tgt noting shares are up 37% in one month following a negative fundamental outcome (lost NEA ruling).

·     In Industrials: AMRC announced its largest ever wholly owned asset contract with United Power, whereby Ameresco will supply a 78.3 MW, 313.34 MWh battery storage system, spanning a 20-year agreement; MMM upgraded from Underperform to Neutral at Bank America with $110 tgt, citing four near-term catalysts balanced by continuing legal risks with potentially severe financial impact; Wolfe Research upgraded ROK from Underperform to Peer Perform as more confident in their earnings estimates while downgraded ETN to Peer Perform on valuation/recent rally.

·     In aerospace & defense: Reuters reported Democratic Senator Elizabeth Warren joined three other lawmakers to urge the Defense Department to thoroughly review defense contractor LHX $4.7 billion deal for AJRD; for LMT, Reuters reported Washington will move ahead with the transfer of F-16 fighter jets to Turkey in consultation with Congress, U.S. National Security Adviser Jake Sullivan said on Tuesday, a day after Ankara gave the green light for Sweden to join NATO. Turkey had requested in October 2021 to buy $20 billion of Lockheed F-16 fighters and nearly 80 modernization kits for its existing warplanes. BA announced 266 deliveries YTD, 136 total deliveries in Q2; deliveries included 103 737s, 8 767s, 5 777s, and 20 787s.

 

Materials, Metals & Mining

·     In Chemicals: NTR said it temporarily curtailed its potash production in Saskatchewan as striking workers at the Port of Vancouver has limited export capacity; WDFC shares rose after Q3 results as EPS $1.38 vs. est. $1.22; Q3 gross margin 50.6%; Q3 revs $141.7M vs. est. $138.42M; Keybanc previews sector by cutting estimates for commodity names/segments (LYB, DOW, OLN, WLK, HUN) and raising for coatings; SMG upgraded from Hold to Buy at Truist and raised tgt to $80 from $65 as believes the post pandemic reversion of the US Consumer segment has finally ended and believes the stock can return to its historical counter-seasonal trading pattern.

·     In Metals: Wolfe Research with several changes today as they downgraded TECK from Outperform to Peer Perform which reflects lower copper/zinc/met coal forecasts, which shrink its 2023/24E EBITDA down to $6.4B and $7.7B, from a prior $7.4B and $8.1B. In aluminum space, Wolfe downgraded CENX to Underperform with $6 tgt and AA to Underperform and $25 tgt on weak aluminum prices, to reflect expected challenging aluminum markets ahead. Gold miners gain (AEM, GOLD, NEM) as bullion nears 3-week high on weaker dollar, falling to 2-month lows.

 

Technology

Hardware & Software movers:

·     ATVI shares jumped after MSFT wins US court nod to buy ATVI in loss for FTC. A federal judge in San Francisco has denied the Federal Trade Commission’s motion for a preliminary injunction to stop Microsoft from completing acquisition of video game publisher Activision Blizzard.

·     CRM said it plans to increase list prices by 9%, on average, across Sales Cloud, Service Cloud, Marketing Cloud, Industries and Tableau and will go into effect globally in August 2023.

·     HP, DELL shares rose as Canalys report showed decline in PC shipments slowed in Q2 – Reuters.

·     PWSC said it has agreed to buy SchoolMessenger for $300 million from Apollo Global Management-backed telecommunications company West Technology Group.

·     ROKU shares jumped after announced what it called "a first-of-its-kind partnership" with SHOP that gives viewers the ability to purchase products from Shopify merchants directly from their TV through Roku Action Ads.

·     VMW shares jumped after the Financial Times reported EU regulators are set to clear Broadcom’s $69B acquisition of cloud software company VMware, leaving competition authorities in the UK and US as holdouts to finalize the deal. https://tinyurl.com/27mm9yfp

 

Semiconductors:

·     Semi equipment stocks underperformed broader semi space (AMAT, KLAC, LRCX), with commentary at SEMICon West from some companies cited as reason for potential weakness.

·     AMD announces Chief Sales Officer Darren Grasby to transition to new role as EVP, strategic partnerships; appoints Phil Guido as Chief Commercial Officer.

·     GFS announced that Tim Stone and GF have agreed that he will not assume his duties as CFO for GF and will depart the company effective 7/11; David Reeder will remain as GF’s CFO through the end of the year.

·     In research: KeyBanc raised tgt prices on a few: AMD tgt to $160 from $150 saying while near-term challenges associated w/ delays of its MI300 AI server and stability issues w/ its PC NB Ryzen Phoenix could result in near-term risk to ests, AI server wins provide confidence that AMD could see well over $2B in AI revs in 2024; MRVL tgt to $80 from $70 saying stands to see a significant benefit from increasing demand for AI, as well as for cloud optimized silicon, based on ASIC design wins for AWS’ Inferentia Gen 3 processor and Google wins; and NVDA tgt to $550 from $500; delays associated w/ AMD’s MI300 are likely to free up incremental capacity in 2H23.