Market Review: June 14, 2023

Closing Recap

Wednesday, June 14, 2023





DJ Industrials




S&P 500








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Following a pre-mkt sell-the-news dip on PPI data, US equities rallied into morning highs on close to 2:1 breadth favoring advancers. The tame PPI reading was followed by comments from the IIF expecting the US economy to avoid recession in 2023, with inflation dipping to 3.1%. Big tech lagged a bit, but healthcare and energy were the only two S&P sector groups in the red at midday. Energy names faded following oil lower after EIA data showed a big build versus and expected draw and healthcare lagged on managed care weakness following UNH comments medical costs (see below). But it’s Fed day, so all of this was just the warm-up act.


On the data side today, @bespokeinvest reminds us what a difference a year makes. A year ago inflation spiked, the Fed was revving up its rate-hike machine and stocks had entered bear market territory, while today inflation is falling, the Fed may (did) go on hold and stocks have just entered bull market territory. On housing, @charliebillelo notes 62% of US mortgage holders have rates below 4% and 92% hold rates under 6%, leaving many homeowners with little incentive to sell/move and creating a shortage of homes for sale. Also on the topic of homes, @RDC_Economics highlighted large investors, traditionally not a big factor in homebuying, grew share of investment purchases from 16.7% in 2020 to a high of 31.8% in June, 2022.


The Fed did not surprise, leaving the overnight rate unchanged in a unanimous decision, but may have surprised a bit with commentary indicating it sees two 25bps hikes by year-end. Policymakers also indicated they see less progress on core inflation than they saw in March and remain strongly committed to returning inflation to the 2% objective. After the announcement, Fed swaps no longer priced in a 2023 rate cut and the implied probability of a July hike climbed to over 70% from less than 60% this morning. Stocks sold off after the announcement as traders wondered why pause with a more hawkish commentary/outlook. It’s all about managing expectations and equities fairly quickly erased much of the dip.



Economic Data

·     The Producer Price Index (PPI) M/M for May fell (-0.3%) vs. est. (-0.1%) and on a Y/Y basis rose +1.1%, below the +1.5% estimate. On a core basis, or ex food & energy, PPI M/M for May rose +0.2%, in-line with ests and Y/Y for May rose +2.8% vs. est. +2.9%. results were also down from the prior month reading across the board.


Commodities, Currencies & Treasuries

·     August gold futures gained $10.30/oz, or +0.53%, to settle at $1,968.90 ahead of today’s Fed decision. Today’s more benign PPI report undoubtedly helped further ease concerns over inflationary pressures, allowing gold to rise as yields and the Dollar slipped.

·     WTI July crude slipped $1.15/bbl, or -1.66%, to settle at $68.27 after earlier EIA data reflected a large inventory build versus an expected draw. While the surprise build was generally attributed to an adjustment, futures still fell as the EIA also said it sees the post-pandemic demand boost ending this year and growth in EV’s also weighing on future demand.

·     The US Dollar and Treasury yields both popped on the Fed announcement. But, as with equities, both reversed course as the afternoon progressed and finished back close to pre-announcement levels.






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10-Year Note





Sector News Breakdown

Retail, Consumer Staples & Restaurants:

·     In dining: DIN downgraded to Neutral (from OP) and tgt cut to $65 from $80 at Wedbush citing their soft Q2 Applebee’s and IHOP checks, the dearth of medium-term positive catalysts beyond Q2, and its changed view that a meaningful acceleration in near-term share repurchases. Piper initiates SHAK ($84 tgt) and DPZ ($349 tgt) at OW and best ideas in restaurants; also OW on WEN ($25 tgt) and PTLO ($24 tgt); neutral rated on many others.

·     In mattress retail (TPX, SNBR, LEG), Piper said its Mattress Retailer Survey for May improved from April but remained soft at -7% and -5% on a mean/median basis, respectively. Memorial Day weekend at -LSD% within the survey set was better than the overall month but was still a disappointment relative to the +2% expectations from a month ago. All in, Piper believes Q2 is running weaker than expected.



·     Chinese EV maker LI rose following Citigroup’s opening of a “30-day positive catalyst watch” on the Buy-rated company.

·     STLA Chrysler files recall of 80,629 US vehicles: NHTSA





Energy, Industrials and Materials

·     In Majors: SHEL announced a 15% dividend increase; lowered its capital expenditure guidance for 2024-25 to $22B-$25B, with the company noting that the range doesn’t includes inorganic activity; said plans to stabilize liquid production in its Upstream business, which includes oil.

·     The IEA said the boost to oil demand from the post-pandemic recovery is set to end this year, citing a slowing economy. The IEA said strong demand from China and India boosted its outlook for growth this year by almost 300,000 barrels per day (bpd) to 2.4 million bpd, but that will fall by nearly two-thirds due in large part to more use of electric cars.

·     In solar: MAXN upgraded to Buy from Hold at RothMKM saying they were “encouraged” by MAXN’s first positive margin print since spinning off from SPWR, raising tgt to $40 from $21 saying recent raise/capacity expansion plans here should also support growth.

·     In fertilizers, Germany’s K+S Aktiengesellschaft issued a profit warning due to recent potash price movement which weighed on U.S. producers, CF and MOS.



·     In credit cards: DFS said May credit card delinquency rate 1.37% at May end vs 1.38% at April end; credit card charge-off rate 1.78% at may end vs 1.78% at April end

·     In payments: FOUR upgraded to Outperform from Market Perform at MoffettNathanson; PT raised to $80; Repay adds PYPL and Venmo to its suite of payment solutions, making them available to clients across REPAY’s verticals, including personal finance, auto finance, credit unions and mortgage.

·     In Insurance: PGR shares dip early after May combined ratio after worsens year-over-year (99% vs. 96.5% y/y); premiums written $4.32B vs $3.72B last year and net premiums earned $4.49B vs $3.76B last year.

·     In lending: SOFI strong early after BTIG initiated at Buy and $14 tgt as believes few names are as attractive in the consumer-focused fintech space.



·     Managed care stocks slid after UNH warned of a Q2 spike in medical costs (MLR); said there has been a rise in volumes of non-urgent surgeries in second quarter, adding margin pressure to insurers (ELV, CI, HUM shares slide). UNH expects the medical care ratio in Q2 to land in the upper end or moderately above the upper bound of its original outlook (MLR of 83.1%-83.3%, vs the Street’s 82.4%), and the full-year medical care ratio to settle in the upper half of the full-year guidance range (82.1%-83.1%, vs the Street’s 82.5%). DBAB said for reference, a 25bps increase in MLR for the full year would impact EPS by $0.55-$0.60 and be just over 2% dilutive to EPS.

·     Hospitals and Medical Device makers, Ortho companies (SYK, BSX, EW, SNN, ZBH, UHS, HCA, THC) rise on UNH results/comments. UNH said a few categories in outpatient services have been seeing elevated utilization trends, such as hips and knees procedures among the senior population and there has been a rise in volumes of non-urgent surgeries in second quarter.

·     TSVT said it paused its Phase I clinical trial for SC-DARIC33 in patients with Acute Myeloid Leukemia after a patient died. The trial coupled 2seventy bio’s DARIC T cell platform with Seattle Children’s expertise in oncology cell therapies.

·     Allogene Therapeutics, ALLO, dropped sharply after announcing their CFO would depart vindicating sellers of the stock, which at 52%, has the 2nd highest short interest after CVNA.



Hardware & Software movers:

·     IVAC falls after guidance and Benchmark downgraded to Hold citing last week’s announcement of an unprecedented cancellation of $54M in 200 Lean system orders.

·     LOGI shares fell after unexpectedly announced that Bracken Darrell, President/CEO would be departing; Guy Gecht, previously a member of the non-executive board will assume the role of interim CEO.

·     SONO announced a reduction in force involving approximately 7% of our employees and ests that it will incur approximately $11 to $14 mln of restructuring and related charges in Q3.



·     Semi-equipment stocks ACLS, AEI, AMAT, KLAC, NVMI, ONTO all downgraded to Hold from Buy at Needham noting amid enthusiasm over exposure to generative acritical intelligence, the stock prices of many have reached new 52-week highs and, in some cases, all-time highs and with only 10% or less upside over the next 12 months believe risk/reward not justified. Deutsche Bank said their preferred names in the sector are LRCX in the large cap and ENTGin the mid cap as raises its company estimates and price targets across its coverage to reflect its industry view that 2025 is likely the normalized year of WFE spending.

·     AMD rises early after Reuters reported Amazon Web Services is considering using new AI chips from AMD, an AWS executive told Reuter; though said AWS has not made a final decision.

·     COHR introduced its new PH20 SmartWeld+ laser processing heads optimized for precision control of welding depths that are ideal for electric vehicle (EV) manufacturing applications.

·     NVDA continues its historic rally as the AI technology standard bearer while peer AMD is also garnering attention as another AI play following their Investor Day with Buy rating reiterations and/or price target raises from BMO, Stifel, Piper Sandler, Jefferies, TD Cowen and Barclays. Furthermore, Amazon Web Services (AMZN) is considering using AI chips from AMD


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.