Closing Recap

Wednesday, July 19, 2023

Index	Up/Down	%	Last
DJ Industrials	108.88	0.31%	35,060
S&P 500	10.72	0.24%	4,565
Nasdaq	4.38	0.25%	14,356
Russell 2000	8.43	0.43%	1,984

 

 

 

 

 

 

 

 

 

U.S. stocks rise, adding to 52-week highs as the Dow Jones Industrial Average made it an 8^th straight advance in another broad mkt move. Defensive Utilities, REITs, Consumer Staples all up over 1% but financials, energy, Healthcare also with strong performances as we grind into key earnings tonight from NFLX and TSLA. Banking earnings, especially in the regionals, helped boost financials early with WAL, USB, MTB, as well as NTRS posting big gains on results. Dow Transports hit a fresh intraday 52-week high. Large cap tech was mixed with AAPL, AMZN, META, NFLX higher but GOOGL, MSFT, semis lower. Overseas, the inflation rate in the U.K. slowed. That weighed on Treasury yields while the dollar was higher. Goldman Sachs shares rose despite a 58% drop in quarterly profit, with earnings hit by its ongoing exit from consumer lending, JBHT rallied in truckers despite a miss on top and bottom line and even boating/leisure names advanced despite a warning from BC. Momentum remains higher and price action continues to super cede anything else despite another rate hike expected next week by the Fed. Stocks took a very brief dip late morning after news reports that Russian defense ministry says it will consider all ships travelling to Ukrainian ports on Black Sea as potential carriers of military cargoes from 20 July. The headlines pushed mkts lower quickly before the dip was again “bought” but commodity prices rose, led by grains and wheat. So how strong has this US stock market been? The S&P 500 index is up 730 POINTS since January 1st., the Nasdaq 100 Index is up 3,966 points since January 1^st, a 38% gain.

 

Economic Data

·     Housing starts for June fell unexpectedly (-8.0%) to 1.434M vs. est. 1.48M and vs May +15.7%; said June single-family starts -7.0% to 935,000-unit rate; multifamily -9.9% to 499,000-unit rate; Housing Permits were 1.44M vs. est. 1.49M.

 

Commodities

·     Oil slipped -$0.40 or 0.53% to settle at $75.35 a barrel, after hitting earlier highs of $76.97 per barrel. Prices have made a decisive break higher since late June on signs that the market may finally be tightening but are still lower for the year. Gold prices finish unchanged at $1,980.80 an ounce, holding at 6-week highs after recent economic data re-ignited hopes that the U.S. Federal Reserve may soon hit pause on its interest rate-hiking cycle.

 

Currencies & Treasuries

·     The US dollar edged higher, gaining firmly against the British Pound (down -0.9%) after UK inflation eased more than expected, and traders cut bets on further Bank of England rate-hikes. The dollar also edged higher against the euro, moving back below 1.12. Markets still await the Fed policy meeting next week where a 25-bps hike is expected and then no more hikes. Treasury yields were lower, with the 10-year yield down to 3.74%.

 

 

Macro	Up/Down	Last
WTI Crude	-0.40	75.35
Brent	1.15	80.78
Gold	0.00	1,980.80
EUR/USD	-0.0029	1.1197
JPY/USD	0.78	139.58
10-Year Note	-0.047	3.7742%

 

 

Sector News Breakdown

Consumer

Autos:

·     In auto retail: CVNA shares after saying has reached a debt restructuring deal and to extend maturities, cutting total debt outstanding by over $1.2B while sells 35M shares in offering, raising proceeds of at least $350M; also posted Q2 EBITDA of $155M, above earlier forecast of $50M.

·     In autos: Mizuho raised price tgt on GM to $40 from $37 and RIVN to $30 from $27 saying after a strong start to the year, sees potential for strong auto sales momentum, specifically for EV, despite headwinds from a stretched consumer and high interest rates.

·     AUR shares fell after the company sold ~73.3M shares at $3 for $220 mln, up from $200 mln, in public offering; the co also agreed to sell ~222.2M shares to strategic investors, two directors, and new institutional investors at $2.70 for $600 mln in private placement.

 

Retail, Consumer Staples & Restaurants:

·     In Beverages: STZ said it will appoint two new independent directors to its board and share more information with Elliott Investment Management as part of agreements struck between the alcoholic beverage company and the investment firm.

·     In Beauty: EL says an unauthorized party gained access to some of its systems and stole data; COTY sees prelim Q4 revs $1.2B-$1.4B vs. est. $1.3B and adj Ebitda $150M-$170M while saying will offer senior secured notes.

Leisure, Gaming & Lodging:

·     Boating and Marine stocks active after BC guided Q2 EPS $2.30-$2.35 below est. $2.68 and guides Q2 sales $1.7B vs. est. $1.829B; also guides year EPS $9.50 vs. est. $10.26 (shares of HZO, MBUU were also active on guidance).

·     In movie theatres: CNK downgraded to Neutral from Overweight at JP Morgan saying its prior upgrade in January was largely predicated on an increasing film supply driving a higher domestic box office. Said while thinks the industry has demonstrated an ability to run at ~$8.5-9.0b of gross revenue, it estimates further improvement will require more wide releases.

 

Energy

·     In Oil Services: HAL Q2 revenue of $5.8B missed the $5.9B estimate as North America revs fell – 2% sequentially, primarily by decreased stimulation activity in U.S. land but posted better international and offshore activity, led by Latin America and Middle East; BKR Q2 adj EPS beat by $0.06 on in-line revs (rose 25% y/y) and boosted year revs, Ebitda outlooks.

·     In E&P Sector: into earnings, TD Cowen remains cautious on ’24 gas pricing and see favorable 2Q prints for HES, OXY, FANG, SM, MTDR and OVV; CHRD downgraded from Overweight to Market Perform on valuation at TD Cowen saying prefers FANG and OXY; at Benchmark, shares of HP, PTEN, PDS were all upgraded to Buy from Hold in equipment and drillers.

·     In solar: SPWR with a downside 30-day catalyst watch at Citigroup while upgraded FSLR to Neutral from Sell with raised $208 tgt saying its thesis of poly falling below $10/kg leading to lower panel pricing has played out. NOVA was downgraded to Neutral from Buy.

 

Financials

Banks, Brokers, Asset Managers:

·     In Brokers: GS reported Q2 EPS of $3.08 or $1.07B, well below last year of $7.73 per share or $2.79B as revenue fell to $10.9B from $11.86B y/y but above est. $10.61B; Investment banking fees for the quarter fell 20% to $1.43B. IBKR shares slid as 2Q results missed with adj EPS $1.32 vs est. $1.40 on revs $1.0B vs est. $1.06B.

·     In Trust Banks: NTRS Q2 profit fell -17% amid lower fee-based income, down -4% to $1.1B partially offsetting a 12% increase in its net interest income. Total assets under custody or administration of Northern Trust increased 5% to $14.48 trillion.

·     Regional Banks: CBSH rises on earnings beat; CFG rises after $0.03 earnings beat driven by higher NII and lower provision, while NIM slightly better, NCOs were inline, but total deposits still rose 3% because they grew CDs; MTB Q2 EPS $5.12 vs. est. $4.16 and $1.08 a year ago; net interest income came in at $1.81 billion, up from $1.42 billion in the year-ago quarter; noninterest income rose 41% from a year ago to $803 million; HWC reported 2Q23 EPS results that were modestly above consensus forecast as a PPNR miss was offset by lower LLP expense (NII/ NIM headwinds largely responsible for the 2Q PPNR miss); FHN, USB, WAL also active on earnings.

 

Healthcare

Biotech & Pharma:

·     AMRN implements organizational restructuring to strengthen the company while driving patients access to VASCEPA®/VAZKEPA® globally.

·     BLUE upgraded from Neutral to Buy at Bank America and raise tgt to $10 from $6 citing under-appreciated sickle cell disease gene therapy product and expects BLUE’s lovo-cel to gain timely approval on the December FDA action date (Prescription drug User Fee Act-PDUFA).

·     FGEN to reduce its US workforce by about 32% or 104 employees.

·     ODD opens at $49.10, after IPO priced at $35.

·     PBLA said it sold certain assets of its eflornithine pediatric neuroblastoma program for up to $9.5M.

 

Healthcare Services & MedTech movers:

·     Managed care stocks get a boost again after ELV forecast full-year profit above estimates after beating quarterly earnings target on lower-than-expected medical costs in its health insurance business; Q2 adj EPS $9.04 vs. est. $8.80; Q2 revs $43.4B vs. est. $41.5B; raises FY23 adjusted EPS view to greater than $32.85 per share from prior view $32.70 and est. $32.78. The beat and raise follows UNH strong results last week in space – CNC, MOH, CI shares active.

 

Industrials & Materials

·     In Transports: trucker JBHT Q2/23 results fell roughly 4% below consensus EBIT and EPS expectations reflecting volume and pricing headwinds amid the ongoing freight recession; JBHT decline in revenue was primarily driven by a decrease in revenue per load of 24% in Integrated Capacity Solutions, 13% in Intermodal, and 21% in Truckload. In rails (CSX, NSC, UNP), North American freight-railroad traffic falls 5.8% for the week ended Saturday, pinched by labor strife at West Coast ports in Canada. A 0.9% rise in carloads on 12 reporting US, Canadian and Mexican railroads is more than offset by a 12% drop in the volume of intermodal units, data from the Association of American Railroads shows.

·     In Waste sector: Citigroup initiating on RSG with Buy and $177 tgt and WCN Neutral and $155 tgt while reiterate WM Buy and 4204 tgt saying they are very upbeat on waste fundamentals given largely reshaped growth algorithms vs pre-COVID and it forecast avg.

·     In Aerospace & Defense: AIR reported fiscal 4Q23 sales of $553M (up 16%) with adjusted EPS of $0.83, compared to RBC’s estimate of $0.77 and reported adj. EBITDA of $53M (a 9.6% margin) compared to RBC’s estimate of $50M; JOBY downgraded from Neutral to Underweight at JP Morgan noting shares have rallied 60% during the last week of June on news that it had received its Special Airworthiness Certificate for the first aircraft produced off its Marina, CA line.

 

Materials, Metals & Mining

·     In Forest & Paper: KPT upgraded to OP (from SP) on falling input pulp prices at RBC Capital and downgraded PCH to SP after outperformance vs timber REIT peers. Firm said expects Q223 results to continue the weak earnings trend established in Q422, building material prices remain very low, pulp prices have materially weakened over the last six months, led by lower consumption in China, capacity adds and record inventory levels.

 

Technology

Internet, Media & Telecom

·     In Telecom: AT shares rebounded off 30-year lows after saying it does not intend to immediately remove lead cables from Lake Tahoe pending further analysis. Also discloses that <10% of its national cable network is lead-clad in the filing and says it has "serious concerns" with reliability of testing methods discussed in recent media reporting (VZ shares rebound too). FYBR was added to Raymond James favorite stocks list.

·     In Advertising: OMC shares slid after Q2 revs $3.61B miss the est. $3.674B; the results pressured shares as well as other rival ad agencies IPG, WPP.

·     In Internet: NFLX earnings after the bell tonight; GLBE downgraded to Equal Weight at Morgan Stanley saying as market growth expectations exceed its raised estimates, valuation has expanded meaningfully, such that risk-reward appears balanced at current levels.

 

Hardware & Software movers:

·     In Hardware & Networking: CSCO upgraded from Neutral to Overweight at JP Morgan and raise tgt to $62 from $55 as it expects the magnitude of order moderation to be limited from here-on following deterioration in order trends for multiple quarters; IBM earnings tonight. AAPL shares popped and NVDA, GOOGL, MSFT slipped following report AAPL tests generative AI tools.

·     In Software: VMW shares rose after Britain’s competition regulator provisionally cleared AVGO’s $69 billion purchase of VMW, saying the deal would not weaken competition in the supply of critical computer server products. MSFT tgt raised by several analysts ahead of earnings, with Bank America up to $405, TD Cowen to $390, Mizuho to $420 saying AI workloads expected to drive solid Azure upside; ATVI and MSFT extend merger deadline to October 18. NOW price tgt raised to $650 at TD Cowen ahead of earnings and $700 at Bank America – Cowen survey showed some softer performance in the qtr w/ 60% of partners meeting/beating targets vs the 80% TTM avg. TOST shares fell after the company said will remove its $0.99 order processing fee from new version of digital ordering suite by end of this week.

 

Semiconductors:

·     ASML reported a strong Q2 bookings beat (€4.5b vs cons €4B) while raising FY guidance; boosted outlook as sees strong growth for 2023, with a net sales increase toward 30% on-year vs. prior view of net sales to grow by more than 25% from 2022 and said expect consensus 2023 revenue and EBIT to move up by a low-to-mid single digit percentage.

·     QCOM The House’s select committee on the China threat this week notified GGV Capital, GSR Ventures, Walden International and Qualcomm Ventures—the investment arm of chip company Qualcomm Inc.—that the panel is examining many of their investments in Chinese companies involved in semiconductors, artificial intelligence, and quantum computing – WSJ reported.

·     MXL’s planned purchase of Simo widened amid a report about China’s antitrust review of the deal. The spread widened to $49.16 from $44.92 on Tuesday. Talks with China’s main antitrust regulator appear to have slowed down in recent weeks https://tinyurl.com/5yr5bbvs