Closing Recap

Friday, June 16, 2023

Equity Market Recap

• Markets were quiet overnight, then gave us a little pop at the open and an almost immediate fade. There was no big economic news to sway investors, and by mid-morning breadth had settled in at about 1:1. We did hear from the Fed’s Barkin and Waller and each was appropriately hawkish given the recent announcements. Waller noted it is disturbing that core inflation is not moving and that more tightening will probably be required. Barkin commented inflation has been stubbornly persistent and he is still looking to be convinced that weakening demand can control it. Utilities and Consumer Discretionary were early sector leaders, while Communications lagged as was the only sector in the red.
• Data-wise, plenty of insight on market strength and a nice dose of caution/confusion to go along. @charliebillelo highlights that while the S&P 500 is off to the best start (+15% ytd) since 1997, the Fed Funds rate is now over 1% above the US inflation rate and the last time monetary policy was this tight with a Fed Funds rate above 0% was 2007. Similarly, @KobeissiLetter notes the S&P 500 has erased all of its losses since the Fed started raising rates, despite 10 rate hikes and peak inflation of 9.1%. Finally, @bespokeinvest points out the S&P 500 has closed at extreme overbought levels (2+ standard deviations above 50dma) for 10 consecutive days, marking the longest streak since 2021. 
• Heading into the final hour of trading before the long weekend, both the NASDAQ and S&P 500 were rolling to intraday lows (approximately -0.6% and -0.4%, respectively). Breadth had rolled to just shy of 2:1 in favor of decliners and only Utilities, Consumer Staples, Healthcare and Materials sectors remained in the green. Communications and Technology were leading the way lower, each about -0.7%. Both growth and value were in the red, with the Russell 1000 Growth the weaker at -0.4% and the Russell 1000 Value -0.1%, mirroring the S&P sector divergence.

Economic Data:

University of Michigan preliminary sentiment for June rose to 63.9 from the May final 59.2. Current conditions climbed from 64.9 to 68.0, while expectations moved from 55.4 to 61.3. Year-ahead inflation expectations dipped for a second consecutive month to 3.3% from 4.2%, marking the lowest since 2021.

Commodities

• August gold futures settled at $1,971.20/oz, up just $0.50, or +0.03% to finish the week, but still marked a loss of about 0.3% for the week overall. It was the first weekly loss in three weeks and was generally attributed to the projections and commentary from the Fed.
• July WTI oil futures gained $1.16, or 1.64%, to settle at $71.78/bbl. The move capped a gain of more than 2% for the week on the expectations for aggressive stimulus to boost economic growth, and oil demand, in China. Brent finished +$0.94, or 1.24%, to $76.61/bbl.

Currencies & Treasuries

• Treasury yields rebounded a bit after slightly more hawkish commentary from Waller and Barkin, while the US Dollar index finished little changed.

Sector News Breakdown

Consumer

• IRobot (IRBT) shares soared +20% after Amazon’s (AMZN) $1.7 billion acquisition of the company was cleared by the UK’s antitrust regulator this morning.
• Virgin Galactic (SPCE) shares held onto most of last night’s gains after they had first commercial flight as soon as June 27. Their second commercial spaceflight, ‘Galactic 02,’ will follow in early August 2023.
• Activision Blizzard (ATVI) rises as Baird boosts estimates on ‘strong’ Diablo IV launch in a mid-day note where they reiterated their Outperform rating and $90 PT.
• DraftKings Inc. (DKNG) said it delivered a letter to both the Non-Executive Chairman and Chief Executive Officer of PointsBet Holdings Ltd. setting forth an indicative offer to acquire its U.S. business in an all-cash transaction with a purchase price of $195 million.

Energy

• Cabot Corp. (CBT) shares traded lower all day after last night’s withdrawal of FY23 EPS guidance.
• Enovix Corp (ENVX) achieved its Q2 forecast of 18,000 units manufactured out of its fab1 location in Fremont; said it expects to exceed its quarterly guidance for number of units produced, with more than two weeks remaining in the quarter.

Financials

• SoFi Technologies (SOFI), the fintech company lost ground for a second day after being downgraded to Neutral from Buy at BofA and Piper Sandler. Both changes were based on valuation, despite a 2-day losing streak SoFi shares are +89% YTD. 

Healthcare

• Morphosys AG ADR (MOR) witnessed its shares soar +10% following an Upgrade from Wells Fargo and a double Upgrade from BofA. Both analysts cited a more favorable risk/reward ratio for the German biopharma company.
• Abcam Plc (ABCM) shares gained after the UK based life science company was upgraded in the pre-market by BofA, and later moved even higher after the company told investors that they have received strategic inquiries “from multiple parties.”
• Maravai LifeSciences (MRVI) shares moved higher after Betaville reported that the company may be the subject of takeover interest.

Industrials & Materials

• Ball Corp (BALL) shares saw a late afternoon spike after reports that the company was in talks to sell its aerospace business for more than $5B.
• Steel Dynamics (STLD) saw its shares retreat after they guided their Q2 EPS below street estimates. Management now sees Q2 EPS of $4.78-$4.82 versus street estimate of $5.06.
• Nucor (NUE) said it sees Q2 EPS $5.45-$5.55, below est. $5.24; said it expect earnings for steel mills segment to improve in Q2 of 2023 as compared to Q1; said steel products segment is expected to deliver strong results in Q2 of 2023 that will be comparable to Q1.

Technology, Media & Telecom

• Adobe (ADBE) shares held onto moderate gains after last night EPS and revenue beats as well as raised forward guidance. At least 20 analysts across Wall Street raised their price targets this morning.
• Millicom International Cellular S.A. (TIGO) shares closed lower today after the Latin American telecom announced that talks with Apollo Mgt (APO) and Claure Group have ceased.
• NVIDIA Corp. (NVDA) was named a Top Pick by Morgan Stanley’s Joseph Moore, who raised his price target to $500.
• Squarespace (SQSP) said it will buy the assets of Google Domains, which will be shutting down after a transition period.