Closing Recap

Monday, July 24, 2023

Index	Up/Down	%	Last
DJ Industrials	184.01	0.52%	35,411
S&P 500	18.33	0.40%	4,554
Nasdaq	26.06	0.19%	14,058
Russell 2000	5.42	0.28%	1,965

 

 

 

 

 

 

 

 

 

Another quiet news day as stocks await key catalysts this week, but the Dow Jones Industrial Average rose nearly 200 points, posting an 11th straight day of gains ahead of a jam-packed week. Central-bank decisions (FOMC Wednesday, ECB Thursday and BoJ Friday) and corporate earnings, including results from tech giants such as Microsoft, Amazon, Meta, and Alphabet are all on deck. Energy stocks supported the advance on Monday, but nearly all eleven S&P sectors advanced today. Price valuations remain expensive historically as @BigBullCap tweeted “US equities trade above a 12-month forward P/E of 20x for only the third time in the last 50 years; the last two times that US equities have been this expensive were both liquidity fueled bubbles – Berenberg.” So, the question is, will corporate earnings be able to deliver with stock markets near 52-week highs and expectations built into stock prices while the Fed is expected to raise rates another 25-bps this week? Market reaction will likely be driven by the communication for what transpires in September rather than the assumed hike. Presently the curve has less than half of a hike priced beyond next week’s meeting, and rate easing is priced to commence at the January 2024 meeting. US listed Chinese stocks surged on Monday (BABA, BIDU, PD, NTES, NIO, LI, KWEB) as China’s top leaders signaled more support for the housing sector, even though they fell short of announcing mass-scale stimulus to support a waning economic recovery. In geopolitical news, North Korea fired two ballistic missiles into the sea off its east coast late on Monday, South Korea’s military said, hours after a U.S. nuclear-powered submarine arrived in a naval base in the South.

 

Economic Data

·     U.S. S&P Global July flash services PMI at 52.4 (vs 54.4 in June).

·     U.S. S&P Global July flash composite PMI at 52.0 (vs 53.2 in June).

·     S&P Global July flash manufacturing PMI at 49.0 (vs 46.3 in June).

 

Commodities, Currencies & Treasuries

·     Oil prices rise as U.S. WTI crude oil futures settle at $78.74 per barrel, its best settlement since late April, up $1.67, 2.17%, while Brent prices rose $1.67, or 2.06% to settle at $82.74 per barrel as energy was a bright spot all day for commodity and broader markets. Aug gold settles -$4.40 an ounce, or -0.22%, to $1,962.20.

·     Bitcoin dropped below $29,000 for the first time in over a month as the recent excitement over ETFs and a more favorable regulatory outlook ease. Bloomberg reported late Friday that the SEC asked a federal judge to ignore parts of a recent ruling in the regulator’s litigation with Ripple Labs, saying the decision doesn’t square with existing securities laws and that it may appeal.

·     Treasury yields rebounded after early declines as the 10-yr yield rose +1.6bps to 3.855% (off lows 3.79%); and the 2-yr yield +4.3bps to 4.89%. Data earlier showed U.S. business activity slowed to a five-month low in July, as traders awaited a widely expected decision later this week by the Federal Reserve to hike interest rates to keep inflation falling. Readings of S&P Global’s Purchasing Managers’ Index (PMI) in Europe also showed weaker growth.

·     The US Treasury sold $42 billion in two-year notes at high yield 4.823% vs. 4.82% when issued prior as bid-to-cover ratio 2.78, and primary dealers take 13.79% of U.S. 2-year notes sale, direct 20.77% and indirect 65.45%. Followed by $43 billion in five-year notes on Tuesday and $35 billion in seven-year notes on Thursday.

 

 

Macro	Up/Down	Last
WTI Crude	1.67	78.74
Brent	1.67	82.74
Gold	-4.40	1,962.60
EUR/USD	-0.0054	1.1068
JPY/USD	-0.34	141.45
10-Year Note	0.02	3.859%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     COST shares rise for an 11^th straight day, while WMT touched fresh 52-week highs intraday as large cap retailers/warehouses outperform.

·     DPZ Q2 EPS $3.08 vs. est. $3.05; Q2 revs $1.02B vs. est. $1.07B; Q2 U.S. same store sales grew 0.1% in Q2 vs. est. +0.8%; International same store sales grew 3.6% vs. est. 2%.

·     EL downgraded from Overweight to Neutral at Piper and slash tgt to $195 from $265 as still sees enough near/intermediate term downside risk to offset the eventual China recovery tailwinds that many are anticipating and factoring into current valuation.

·     STZ mentioned positively in Barron’s saying It has been a summer of milestones for the company noting its Modelo Especial became the top-selling beer in the U.S., and the company managed to attract the interest of activist investor Elliott Management.

·     In footwear and spots apparel, ADDYY Q2, currency-neutral revenues were flat versus the prior year level, gross margin was up 0.6% to 50.9% during the quarter, prelim 2q rev. Eu5.34b, est. Eu5.05b, prelim 2q oper. profit eu176m, est. Loss eu130.6m and sees FY oper. loss eu450m, est. Loss eu313.7m; said qtr was positively impacted by the first sale of some of its Yeezy inventory.

 

Leisure, Gaming & Lodging:

·     In movie theatres: AMC shares surge after a court ruling issued on Friday evening denied AMC’s proposed settlement with its common shareholders, blocking its ability to convert APE shares to AMC. MAT said its "Barbie" movie hauled in $155 million in the United States and Canada over the weekend; set records as 2023’s biggest opening so far and the highest of any movie directed by a woman in history. IMAX said it had a $35 million opening weekend with "Oppenheimer," the company’s largest ever share of a movie’s global opening weekend box office.

·     In Autos: TSLA downgraded from Buy to Neutral at UBS saying it thinks the recent strong share performance fully reflects the strong demand response seen after the price cuts, as well as a solid execution in 2024. In EV sector, US listed China names outperformed (NIO, LI, XPEV) in general strength in Chinese related stocks. TM’s Hino Motors plans to start selling an electric version of its heavy-duty commercial trucks in the U.S. next year, Nikkei reported.

 

Energy

·     Energy stocks were the biggest gainers in the S&P 500 for most of the day.

·     The U.S. government will provide up to $700 million in funding to monitor and reduce methane emissions from the oil and gas sector, setting aside half of the amount for grants to states, the U.S. Environmental Protection Agency said.

·     CVX reported better-than-expected earnings as output in the Permian Basin soared to a record, 11% higher than the year-ago quarter and said its CFO Pierre Breber would step down in 2024 and would be replaced by insider Eimear Bonner.

·     TRP – TC Energy partners with Global Infrastructure Partners through $5.2 billion sale of a 40 per cent equity interest in Columbia Gas and Columbia Gulf; Transaction significantly accelerates deleveraging and delivers key 2023 strategic priority.

 

Financials

Banks, Fintech, Services:

·     The Federal Deposit Insurance Corp. sent a warning to U.S. banks not to take liberties with their deposit numbers. A Wall Street Journal analysis of the banks’ filings with the FDIC shows that Bank of America and Huntington National Bank had among the biggest revisions to their uninsured-deposit numbers – WSJ reported late day.

·     APLD shares jumped after mixed Q4 results and guided 2024 revenue $385M-$405M vs. est. $308.8M.

·     AXP downgraded to Underweight from Neutral at Piper after its Q2 revenue missed estimates and expect further headwinds to revenue growth given the re-start of federal student debt repayments in its core customer base and a slowdown in network volume.

·     CFG named Susan deTray head of Citizens Private Bank as it seeks to expand the business.

·     EFX downgraded to Underperform from Neutral at Bank America and lowered its price tgt to $195 from $255 saying despite EFX cutting its 2023 guide by 3% at the mid-point (with 2Q EPS), BAML thinks there’s still downside.

·     GBCI was downgraded to Hold from Buy at Truist as believes the stock is close to fairly valued at the current valuation.

·     ZION was downgraded to Neutral from Overweight at JP Morgan.

·     The U.S. Federal Reserve said UBS must pay a total of $387M for alleged misconduct related to $5.5B in losses tied to the default of Archegos in 2021. The action includes a $268.5M fine and consent order against UBS for misconduct by Credit Suisse, which is now owned by UBS.

 

Healthcare

Biotech & Pharma:

·     ALNY said that it has partnered with RHBBY to co-commercialize Zilebesiran, its RNAi therapeutic for treatment-resistant hypertension, for $310M upfront plus milestones and royalties.

·     BDX said after a three-year-long costly remediation effort, Becton announced that their Alaris infusion system had received FDA 510K clearance.

·     EGRX announces first patient randomized in phase 2 study evaluating cal02, a novel first-in-class anti-toxin drug candidate, in severe community-acquired bacterial pneumonia.

·     GILD announced that the Phase 3 ENHANCE study in higher-risk myelodysplastic syndromes has been discontinued due to futility based on a planned analysis.

·     HZNP announced phase II trial evaluating Daxdilimab for the treatment of systemic lupus erythematosus did not meet primary endpoint; continues to assess full dataset; Daxdilimab trials in alopecia areata, discoid lupus erythematosus and lupus nephritis ongoing.

·     KOD shares tumbled after saying it decided to discontinue development of wet age-related macular degeneration (AMD) treatment Tarcocimab after the treatment failed to meet primary efficacy endpoints in two studies of patients on longer treatment intervals.

·     PHG shares fell after posted a fourth straight drop in order intake and warned that it expects global market conditions to remain highly uncertain.

·     SNDX rises after partner INCY said their experimental therapy, axatilimab, met main goal in a late-stage study. Had been testing it as a treatment for a systemic disorder, chronic graft-versus-host disease, in adult and pediatric patients who received two or more prior lines of therapy.

·     TEVA and ALVO said they are expanding their collaboration in the U.S. biosimilars market.

·     VRCA announces FDA approval of YCANTH™ topical solution as the first FDA approved treatment of pediatric and adult patients with molluscum contagiosum; VRCA said it plans to make YCANTH™ available by September 2023 (VRCA entered non-binding $125M term loan facility).

 

Industrials & Materials

·     In truckers: The Teamsters union pulled back its threat of a strike this week at YELL, averting an action the company had said would send the business into liquidation. The union said Sunday that it withdrew plans for the walkout after a pension fund agreed to continue to extend health benefits to unionized workers (shares of ODFL, XPO, SAIA which were seen as beneficiary of YELL strike, are down in reaction).

·     In package delivery: UPS said it plans on Tuesday to resume labor talks with the Teamsters union representing 340,000 employees, to avert a strike that could roil supply chains. FDX pilots rejected a tentative agreement with the parcel carrier, with 57% rejecting the contract, versus 43% who voted to approve. The union and FedEx will return to negotiations under the supervision of the National Mediation Board.

·     In Aerospace: Reuters reported Airbus (EADSY) is contemplating a management shake-up that could restore a de facto separate leader for its plane making business and free CEO Guillaume Faury to tackle broader strategic priorities, people familiar with the matter said.

 

Materials, Metals & Mining

·     In Metals: PKX shares rallied despite Q2 below-consensus earnings, with net profit falling 57% from a year earlier to KRW776 billion, compared with a FactSet-compiled consensus forecast for net profit of KRW896 billion; said it aims to increase its annual lithium production to 423,000 tons by 2030, up 41% from its previous target.

·     In lithium: more weakness in likes of LTHM, ALB, SQM. Recall last week, China’s first-ever lithium futures market got off to a rocky start, as sentiment is weighed by an anticipated surplus for lithium products in 2024, Bloomberg reported Friday. Lithium carbonate on the Guangzhou Futures Exchange fell below the base settlement price of 246K yuan/ton (~$34,263) on Friday, with contracts for January delivery tumbling to as low as 215K yuan before paring losses.

 

Technology

Semis’ Internet, Media & Telecom

·     Media & Adverting stocks OMC, IPG, STGW were downgraded to equal weight from overweight at Wells Fargo, which said slowing demand from clients seems to be incremental and may either linger or worsen. SPOT shares dropped after confirming reports last week as they raised prices for premium subscribers.

·     LRCX was upgraded from Hold to Buy at Stifel and raised tgt to $725 from $505 as views Lam as a prime near-and-longer term beneficiary of HBM-driven DRAM growth, and off rock-bottom JunQ memory levels, see a path forward for Lam’s revenue trajectory to outperform consensus.

 

Hardware & Software movers:

·     APP upgraded to Buy from Neutral, based on an improving fundamental outlook and “undemanding” valuation.

·     JNPR was downgraded to Outperform from Strong Buy at Raymond James saying sales expected to slow down since the industry’s "leader" Nokia reported weakness in the market.

·     TWLO downgraded to underperform at RBC Capital Markets, as believes: 1) SMS is increasingly commoditized; 2) the company has had mixed execution; 3) the activist story is on hold in the near-term; 4) an uninteresting terminal margin profile; and 5) a misunderstood GenAI story.

·     ZI downgraded to Sector Perform from Outperform at RBC Capital noting with shares up 40% off May lows (vs. IGV up 23%), RBC believes now is the right time to trim exposure.