Closing Recap

Monday, July 31, 2023

Index	Up/Down	%	Last
DJ Industrials	100.90	0.28%	35,560
S&P 500	6.92	0.15%	4,589
Nasdaq	20.37	0.21%	14,346
Russell 2000	22.08	1.11%	2,003

 

 

 

 

 

 

 

 

 

Ahead of a big week of earnings and economic data, US markets were in a “holding pattern” most of the day, maintaining gains on this final trading day of the month, with major averages closing out July in the green (5^th straight month of gains). On a month-to-date level, the S&P 500 finished higher about +3%, the SmallCap Russell 2000 rose +5.8%, the Dow Jones Industrial Average climbed +3.3% (included a 13-day win streak this month) and the Nasdaq Comp rose +4% MTD. Note the S&P 500 index still has not seen a 1% decline in over two months. All eleven S&P sectors advanced in July, led by Energy (XLE) +7.7%, Communications (XLC) +5.4%, and Financials (XLF) +4.5% as the S&P rally has become more broad-based. This week brings another 170 companies reporting earnings results before the season begins to wind down the week following when just 33 are scheduled (AAPL, AMZN this week). At this point in the season, about 78% of companies have beaten analyst estimates. China’s economic activity lost more steam in July with manufacturing contracting again and the services sector weakening, as Beijing promises small measures of support to boost consumption.

 

Economic Data

·     Chicago PMI rose 1.3 points to 42.8 in July from 41.5 but was below the forecast a 43.3 reading marking the 11th straight reading below the 50 threshold that indicates contraction territory. The results mimic other surveys of manufacturers that show tepid growth.

·     Dallas Fed manufacturing index for July -20.0 vs. est. -22.5 and Fed Texas manufacturing output index -4.8 in July vs -4.2 in June.

 

Commodities, Currencies & Treasuries

·     Oil prices closed out a stellar month with gains, rising $1.22 or 1.51% to settle at $81.80 per barrel, bringing its July advance to about 16% (largest 1-month rise since 17% in January 2022). Brent crude settles at $85.56 per barrel, up 57 cents, 0.67% (rises 14.2% for July). Gold prices rose $9.30 or 0.47% to settle at $2,009.20 an ounce, closing at its highest levels since late May. For the month, gold was up 2.1%, its highest monthly advance since March, and Silver gained 48 cents, or nearly 2%, to end at $24.97 per ounce, with prices up nearly 8.5% for the month. Natural gas prices erase earlier gains and fall 0.2% to end the day at $2.634/MMBtu.

·     The Japanese yen softened vs. the dollar, extending losses from a volatile session at the end of last week after the Bank of Japan (BoJ) loosened its grip on interest rates, but it remained on track for its first monthly gain against the dollar since March. In Europe, dipped after data showed economic growth nudged higher and inflation ticked lower. Lots of potential market moving catalysts this week for currencies and bonds with the Bank of England meeting on Thursday, and U.S. payrolls on Friday. The U.S. dollar posted a monthly loss on the prospect that the Federal Reserve’s aggressive rate-hike cycle may be at its conclusion.

·     Treasury yields fell early before rebounding and paring losses into late day but finish the month higher. The US 10-year yield rose 13.8 bps to 3.956% this month, up three consecutive months (rising 50-bps over that stretch). The yield is off 27-bps from its 52-week high of 4.231% in October. The 2-yr yield was little changed on the month at 4.874% this month, snapping a three-month winning streak. Yield is off 19-bps from its 52-week high of 5.064% in March (and up nearly 200-bps from its 52-week low of 2.909% Monday, Aug. 1, 2022).

 

 

Macro	Up/Down	Last
WTI Crude	1.22	81.80
Brent	0.57	85.56
Gold	9.30	2,009.20
EUR/USD	-0.0009	1.1006
JPY/USD	0.97	142.12
10-Year Note	-0.012	3.956%

 

 

Sector News Breakdown

Consumer

Autos:

·     In auto News: Ford (F) has acknowledged in a letter to the National Highway Safety Administration a safety recall of 870,701 F-150 trucks equipped with a single exhaust system. In research, Ford (F) was downgraded from Buy to Hold at Jefferies w/ $15 PT from $17 after a recent upgrade in late May. However sensible it is to slow down the pace of loss-making Gen 1 sales to preserve returns, the change in Model E guidance is a setback just a few weeks after the May 22 Investor Day for a group that has needed to address volatility in operating performance.

·     In Auto Dealers: PAG downgraded from Neutral to Underweight at JPMorgan and cut tgt to $140 from $150 saying its execution has been undeniably strong across all aspects of the business along with significant de-leveraging of the balance sheet since the pandemic and shares have outperformed (+80% last 24 months vs peers +10%) as a result.

·     In Auto parts & Services: CVNA downgraded from Hold to Underperform at Jefferies with $30 tgt down from $55) saying consensus appears to overestimate the sustainability of recently elevated profitability, which they believe benefited from transitory tailwinds that will abate.

·     In EV space: NKLA after announced a deal to sell trucks to JBHT, selling 13 Class 8 trucks to J.B. Hunt subsidiary J.B. Hunt Transport Inc., with the first deliveries expected in August 2023. XPEV was upgraded to Neutral at JPMorgan saying story is fundamentally challenged while UBS downgraded to Neutral saying catalysts are priced in.

 

Consumer Staples & Restaurants:

·     In Restaurants: SG upgraded from Neutral to Overweight at Piper and raised the tgt to $19 from $13 following its 2Q23 earnings report late last week.

·     In Beverages: HEINY cut its 2023 profit growth forecast after an economic slowdown in Vietnam and price hikes squeezed sales volumes, depressing first-half earnings by more than expected. CELH tgt raised to $165 at Stifel as see upside to Q2 and 2023 sales into earnings and raised MNST tgt to $65 as remains comfortable with its slightly below consensus sales expectations and above-consensus EPS estimate.

·     In Food: OTLY downgraded to Sector Perform at RBC Capital and cut tgt to $1.80 from $7 after reported underwhelming Q2’23 performance and provided major updates to its strategy in China. Also noted in the Americas, volumes are lagging internal expectations.

Retailers:

·     BNED said it entered into an agreement with its stakeholders and strategic partners on refinancing terms.

·     CPRI was downgraded from Overweight to Neutral at Morgan Stanley as sees slowing web traffic for the company’s Michael Kors and Versace brands and sees risk to 2H’23 revenue estimates given the expected acceleration in retail sales growth.

·     HAS upgraded to Buy at Bank America ahead of earnings; expects Hasbro will report an earnings beat given strong demand for The Lord of the Rings Magic set which was released in late June.

·     TPX said on July 23 Co identified a cybersecurity event involving certain of company’s information technology systems.

 

Leisure, Gaming & Lodging:

·     In travel/leisure: Mizuho raised price tgts on ABNB to $145.00 from $125.00, BKNG to $3,265.00 from $2,950.00, DASH to $85.00 from $75.00, EXPE to $120.00 from $110.00 and UBER to $60.00 from $55.00 saying while travel data remained strong into the quarter when looking at flight volume and hotel pricing, firm believes the positive news is mostly priced in with tough comps.

·     In cruise lines: CCL said it would retire $1.2 billion of its highest-cost debt, “given the confidence we have in our business and its cash flow generation.” The move will save Carnival about $120 million a year in interest expenses.

·     In casino/gaming: CRSR was upgraded to outperform from neutral at Wedbush, which sees an inflection point ahead for the consumer electronics company.

 

Homebuilders, Building Products, Home Furnishing:

·     In Furniture retail: Wayfair (W) upgraded from Neutral to Overweight at Piper and boosted tgt to $97 from $35 saying the home furnishings industry appears to be stabilizing based on its Q2 Furniture Retailer survey.

·     In Home Improvement retail: TSCO downgraded from Overweight to Equal Weight at Barclays and lowered tgt to $224 from $254 saying while they don’t see meaningful downside to estimates, it struggles with the upside case amid mixed top-line trends and uncertainty around the real run-rate of the business.

 

Energy, Industrials and Materials

·     In Energy: CVX outperformed as Goldman Sachs upgraded to Buy with $187 tgt. OPEC oil output has fallen in July after Saudi Arabia made an additional voluntary cut as part of the OPEC+ producer group’s latest agreement to support the market and an outage curbed Nigerian supply, a Reuters survey found on Monday. OPEC has pumped 27.34 million barrels per day (bpd) this month, the survey found, down 840,000 bpd from June. That’s the lowest since September 2021 according to Reuters surveys.

·     In Multi Industry: WCC and ATKR are favs of RBC Capital in companies still yet to report, two electrical names trading at ~7x EBITDA while their least favorites are TT with slowing HVAC sales and lack of a positive catalyst and MWA with a high expectations bar to beat. GE was downgraded from Outperform to Perform at Oppenheimer citing valuation.

·     In railroads: CSX and CNI both downgraded to Sector Perform from Outperform at RBC Capital and rolling forward valuation year to 2025. For CP, a tentative deal has been reached to settle a labor dispute affecting more than 7,000 workers at ports on Canada’s west coast that handle billions of dollars in trade annually.

·     In lithium: ALB shares rose after Bloomberg reported XOM is in talks with automakers to supply lithium, including TSLA, F, VWAGY and others citing people familiar with the matter while noting ALB is among the lithium producers Exxon is talks with.

·     In Chemicals (OLN, WLK): on July 28, Chemical Market Analytics (CMA) released its monthly chlor-alkali report, which showed the domestic market further softening in July. Caustic soda prices fell $50/ton in July, ahead of CMA’s forecast calling for a $40/ton decline.

·     In Pipelines: PAA said that it agreed to sell certain non-core assets for $593 million; sold a 56.25% interest in the MARA project to Glencore International AG for $475M; Glencore will hold 100% project ownership following the transaction.

 

Financials

Banks, Brokers, Asset Managers:

·     U.S. banks during Q2 saw tighter standards, weaker demand for commercial and industrial loans, and CRE loans. US. banks during Q2 reported tighter standards, weaker demand for residential real estate loans vs prior quarter – as per, Fed Senior Loan Office Opinion Survey.

·     In bank research: NYCB upgraded from Hold to Buy at Deutsche Bank and raised tgt to $16 PT saying the continued execution on the transformation of the business model has been strong leading into 2Q earnings. Raymond James downgraded two banks following recent earnings results (CNOB, FBNC) and upgraded SMBK to Strong Buy on expectation that earnings should meaningfully improve in 2024 from NIM expansion as Treasuries mature.

·     In Crypto: COIN shares active after the Financial Times reported the SEC has asked the company to stop trading in all cryptocurrencies except bitcoin before suing the cryptocurrency platform in June, citing CEO Brian Armstrong.

·     In Lending: SOFI shares surge after reported operating EPS of ($0.07), as adjusted net revenues of $489mm and adjusted EBITDA of $77mm were ahead guidance ($470-480mm and $50-60mm) helped by stronger personal loan originations while guidance was raised for 2023.

 

Healthcare

Biotech & Pharma:

·     ALLR said it entered into a clinical collaboration agreement with privately held FivepHusion to develop FivepHusion’s chemotherapy candidate against solid tumors.

·     APLS shares rose initially after saying it saw positive data from its extension study following 30 months of continuous treatment with Syfovre pegcetacoplan injection. STAT News later reported that five elderly people have been blinded by a severe side effect after receiving injections of a newly approved treatment for eye disease from the company.

·     BPMC was upgraded to Overweight from Equal Weight at Wells Fargo and raised tgt to $82 from $55 saying Ayvakit survey trends continue to look good and based on the # of incremental ISM pts docs have treated, thinks revs should top cons ests in 2Q.

·     IONS upgraded to Buy from Neutral at Citigroup as multiple key pipeline events approach. The FDA decision for Eplontersen of ATTR-PN is expected by YE2023.

·     JNJ: a bankruptcy judge on Friday rejected JNJ’s attempt to resolve lawsuits alleging that its talc-based products caused cancer. Following this, JNJ issued a statement announcing that its subsidiary LTL Management LLC (LTL) will appeal the ruling.

 

Healthcare Services & MedTech movers:

·     BAX shares slipped initially after the FDA said the company issued urgent medical device correction for some infusion pumps.

·     DCGO shares were weak after the New York Times reported an article criticizing DCGO’s execution of a relocation service contract for asylum seekers sent to New York City.

·     GDRX upgraded from Market Perform to Outperform at TD Cowen and raised the tgt to $12 saying they believe, based on its industry checks, that GDRX’s new partnerships with large PBMs will be a game changer for the company.

 

Technology

Internet, Media & Telecom

·     In Media: DIS shares rally after positive Barron’s comments last Friday; TME was downgraded from Buy to neutral at Citigroup; SIRI was upgraded to Neutral from Sell at Seaport; ROKU added to Friday’s 31% earnings related gains today.

 

Hardware & Software movers:

·     ADBE upgraded from Equal Weight to Overweight at Morgan Stanley and raise tgt to $660 from $510 saying greater clarity on AI-enabled products and the monetization road map increase MSCO’s confidence in reaccelerating the Creative Cloud organic growth engine.

·     CRM downgraded from OW to EW at Morgan Stanley and cut tgt $251 to $278 noting while confident in Salesforce’s longer-term opportunity to further penetrate large enterprises with more vertically oriented solutions, near-term catalysts, including margin expansion and price increases, are now in rear-view mirror.

·     NEWR to be acquired by Francisco Partners and TPG, a leading global alternative asset management firm, for $87.00 per share in cash. The all-cash transaction values New Relic at an equity valuation of approximately $6.5 billion. https://tinyurl.com/3ubhtc2j

·     BIGC said it would launch New Google Cloud AI-Powered Ecommerce Features.

 

Semiconductors:

·     ON the latest auto chip maker to report solid results as Q2 revs $2.09B tops $2.02B estimate on better adj EPS of $1.33 vs. est. $1.21 as expenses fell and guided Q3 adjusted earnings of $1.27 to $1.41 per share, above estimates of $1.21 per share.