Closing Recap

Monday, March 06, 2023

Index	Up/Down	%	Last
DJ Industrials	40.08	0.12%	33,431
S&P 500	2.75	0.07%	4,048
Nasdaq	-13.27	0.11%	11,675
Russell 2000	-28.51	1.48%	1,899

 

Equity Market Recap

·     Stocks reverse earlier gains, finishing mixed to end the day! It appeared stocks were on track for another big market push, looking to close near the highs for a 3^rd straight session after bouncing off key technical support levels last week, but faded in the afternoon, closing near the lows. The rally petered out as Treasury yields pushed to highs late day. After rising over 1% late morning, the Nasdaq Composite cut gains in half as the 10-yr topped around 3.98%, with investors positioning ahead of Fed Chairman Powell in Washington the next two days. NYSE breadth was negative, while Smallcaps underperformed with the Russell 2000 down over 1% while the Nasdaq and S&P 500 closed higher. A quiet volume and news day ahead of several top events to watch this week including: 1) Jay Powell’s Semi-Annual Congressional Testimony is this week, starting with the Senate hearing on Tues at 10.00 AM ET, followed by the House hearing on Wednesday at 10:00. 2) Not a big week for inflation data coming up, but plenty of jobs related info with ADP private payrolls (est. 200K), and JOLTS on 3/8 (est. 10,580), Jobless Claims 3/9 (est. 195K) and Nonfarm payrolls 3/10 (est. +215K), unemployment rate steady at 3.4% est. 3) Several central bank meetings: on Tuesday, the RBA is expected raise rates by 25-bps, on Wednesday the Bank of Canada rate decision, and on Friday the Bank of Japan meeting. 4) earnings results in technology and retail dominate. For tomorrow, Federal Reserve Chair Jerome Powell is expected to echo fellow central bankers in suggesting interest rates will go higher than policymakers anticipated just weeks ago if economic data continue to come in hot.

·     Interest rate expectations continue to rise as @charliebilello notes, “Market expectations for peak Fed Funds Rate during this cycle. Mar 2022: 2.75-3.00%, May 2022: 3.00-3.25%, Jul 2022: 3.25-3.50%, Aug 2022: 3.75-4.00%, Sep 2022: 4.00-4.25%, Oct 2022: 4.50-4.75%, Nov 2022: 5.00-5.25%, Dec 2022: 4.75-5.00%, Jan 2023: 4.75-5.00%, Feb 2023/Today: 5.25-5.50%; @NickTimiraos (WSJ), noted “the next economic downturn has become the most anticipated recession in recent U.S. history. It also keeps getting postponed. Goldman economists say higher-than-anticipated consumer spending this year could support a terminal Fed rate of 5.75%-6%.

 

Economic Data:

·     Factory Orders for January m/m fell (-1.6%) vs. est. (-1.8%) and prior +1.7%, while Factory Orders Ex-Trans m/m rose 1.2% vs. est. 1.0% (prior -1.2%); Jan factory orders ex-defense (-1.8%) vs. Dec +1.8%. Durable Goods Orders m/m fall (-4.5%), in-line with estimates and Durable Ex-Transportation m/m rose +0.8% vs. est. 0.7%. U.S. Jan inventories/shipments ratio 1.48 months’ worth vs dec 1.49 months.

 

Commodities, Currencies & Treasuries

·     Oil prices fell initially on Monday after China set a lower-than-expected target for economic growth this year at around 5%, and as investors cautiously awaited U.S. Federal Reserve Chair Jerome Powell’s testimony this week – but prices rebounded to finish higher. WTI crude rose $0.78 or 0.98% to settle at $80.46 per barrel, bouncing off lows of $78.32. Natural gas posts largest one-day decline in eight months, ending down 14.5% at $2.572.

·     Gold prices finished unchanged at $1,854.60 an ounce. Treasury yields finished higher, with the 10-year at 3.96% late day (off morning lows sub 3.9%) but remain off last week highs around 4.09% as investors await two days of Fed Chairman Powell testimony on the economy and monetary policy the next two days. The US dollar slipped vs. major rivals, pulling back further after early gains last week.

 

 

Macro	Up/Down	Last
WTI Crude	0.78	80.46
Brent	0.35	86.18
Gold	0.000	1,854.60
EUR/USD	0.0042	1.0676
JPY/USD	0.12	135.98
10-Year Note	0.014	3.977%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA reduced prices of its more expensive models again, as the Model S and X now start at $89,990 and $99,990 in the US, down a respective 5.3% and 9.1%, according to Tesla’s website; lowered prices of the higher-performance Plaid versions of each vehicle by 4.3% and 8.3%.

·     IAA shares fall after Proxy advisory firm Glass Lewis recommends that shareholders vote against RBA planned takeover of U.S. auto retailer IAA Inc. – Reuters https://bit.ly/3STRClN

·     RACE replaces TSLA as Morgan Stanley’s new top pick, raising target to $310 reflecting their relatively bearish view on auto fundamentals (12 UW ratings vs. 7 OW) saying it greatest earnings visibility and highest pricing power of any company they cover.

·     RIDE reported a Q4 loss that widened or (-$0.45 from (-$0.42) y/y but ended the year in a much better cash position than expected; revenue was $194,000 after no revenue a year ago; cash and short-term investments were $221.7 million at the end of 2022 (prior view $150M-$165M).

 

Consumer Staples & Restaurants:

·     In tobacco, MO agreed to buy e-cigarette maker NJOY for $2.75 billion in cash; NJOY is one of the few e-cigarette makers whose products have clearance from federal regulators.

·     In food, NSRGY downgraded to Underperform at RBC Capital saying market growth of 3%, market share stasis and its financial performance are evidence of a company that, though impressive in many respects, is still a food company and should be valued accordingly.

 

Retailers:

·     BIRD downgraded to Neutral at Wedbush and lower target o $3 from $4 saying while the company has a long potential runway for growth, they’re concerned about BIRD’s relative underperformance vs. other emerging footwear brands in our coverage (On, Hoka, HeyDude).

·     BOOT with positive Barron’s article, says name has become a stellar growth story and lot more than just another cowboy fad.

·     COST recovered most to all its earnings-related declines from Friday trading.

 

Homebuilders, Building Products, Home Furnishing:

·     RH was downgraded from Buy to Hold at Jefferies and cut tgt to $298 from $350 given a luxury housing market that’s struggling to stabilize and corporate cuts to headcount / compensation that haven’t yet rippled across the luxury home furnishings category.

·     BMO Capital comments on building products (AZEK ) saying with homebuilder orders and U.S. building permits down sharply, they expect new residential demand for building materials to deteriorate as we move through 2023.

 

Energy

·     U.S. natural gas futures plunged as much as 15% to a one-week low on forecasts for much less cold weather and heating demand than previously expected over the next two weeks. The drop came after the contract soared about 9% on Friday to a five-week high as gas flows to U.S. liquefied natural gas (LNG) export plants jumped to record highs. EQT, RRC, CTRA and other natural gas players down the most in energy with prices falling. CHK said it would supply Gunvor Group Ltd up to 2 million tonnes of liquefied natural gas (LNG) annually for 15 years.

·     NEX rises after being added to the S&P SmallCap 600 index effective March 20^th.

·     SLB CEO on CNBC interview said expects oil prices to move higher next year amid a shortfall in supply and anticipates moderate growth this year.

·     PRMW shares active after activist investor Legion Partners said it nominated four directors for the company’s board.

·     NGL rises after signing agreements to sell marine assets for $111.65 mln.

·     Solar names broadly higher with big gains in likes of SEDG, SPWR, ENPH, FTCI, ARRY.

 

Bitcoin, FinTech, Payments:

·     Crypto Bank SI was downgraded to Underperform from neutral at Wedbush and cut tgt to $4 from $9 as the company discontinued the Silvergate Exchange Network (SEN) on Friday, its main flagship product. Crypto assets saw a rebound, led by Bitcoin after prices fell Friday.

 

Insurance & Services:

·     CB mentioned positively in Barron’s noting shares trade at less than 12 times estimated 2023 earnings, a reasonable valuation for the company which leads in property and casualty insurance.

·     FICO will replace LUMN in the S&P500 effective prior to the open on Monday, 3/20

 

Healthcare

Biotech & Pharma:

·     ACRS shares fall after a 12-week phase 2 study of oral Zunsemetinib did not meet primary or secondary efficacy endpoints in patients with moderate to severe skin condition.

·     AZN said its cancer drug Enhertu has shown clinically meaningful and durable responses across multiple HER2-expressing advanced solid tumors in its DESTINY-PanTumor02 Phase II trial.

·     BBIO rises after a mid-stage study showed that high doses of its experimental therapy infigratinib spurred increased effects in children with achondroplasia, a genetic cause of dwarfism (shares of BMRN slips amid negative competitive read-through).

·     ESPR shares slide as the CLEAR Outcomes data (a global study of nearly 14,000 patients with or at risk for cardiovascular disease) this weekend at ACC conference showed a risk reduction in 4-component major adverse cardiac events (MACE) that was lower than many investors were seeking (13% risk reduction in 4-component MACE is lower than the 15% sought by the Street).

·     ETNB presented new data from pegozafermin (glycoPEGylated FGF21 analog), from the Phase 2 "ENTRIGUE" severe hypertriglyceridemia (SHTG) study at the American College of Cardiology Conference this weekend.

·     INCY said it would discontinue its Phase 3 LIMBER-304 trial following an interim analysis that indicated the myelofibrosis study was unlikely to meet its primary endpoint.

·     MRK rises midday after saying its experimental therapy, sotatercept, helped reduce levels of low-density lipoprotein (LDL) cholesterol by between 41.2% at a low 6 mg dose to 60.9% at a higher 30 mg dose in a mid-stage study.

·     TCRR +24%; after ADAP agreed to buy to company in an all-stock transaction to bolster its pipeline of cancer therapies as TCR2 holders to receive 1.5117 ADAP ADS for each TCR2 share. https://bit.ly/3ZLa2rg

·     VIR upgraded to overweight from neutral at JPMorgan on the potential of the company’s flu shot and HBV therapies.

·     VYGR to receive $25M payment from NVS for license of next-generation AAV capsids for multiple neurologic disease targets.

 

Healthcare Services & MedTech movers:

·     ABT reported results of its TRILUMINATE pivotal study this weekend in a late-breaking data presentation at the American College of Cardiology, with the study meeting its composite primary endpoint demonstrating superiority of the TriClip system compared to the control group (win rate 1.48, p=0.02). Though focus on the lack of mortality and heart failure hospitalization benefit, which showed no differentiation between groups at one year. DXCM shares fell after FDA approves rival Abbott’s glucose monitors for use with automated insulin delivery systems.

·     In services: Mizuho lowered tgts on ACHC following earnings season and reduced 2023 estimates for both. For UHS, our lower EPS estimates primarily reflect increased interest expense assumptions, and for ACHC, our lower estimates reflect elevated wage inflation levels and a challenging labor environment.

·     WBA shares mid-afternoon after Bloomberg headlines saying Gov. Newsom said California won’t be doing business with Walgreens.

·     XRAY announces $150 million accelerated share repurchase program.

 

Industrials & Transports

·     In aerospace & Defense: BA shares slip after a new issue with a software program is delaying deliveries of some Boeing 737 MAX aircraft by up to a year, as per joint reporting by Leeham News and Airfinance Journal. ASTS rose after saying it would enter a teaming agreement with Fairwinds Technologies LLC. Pratt & Whitney, an RTX business, says that it has been awarded a $5.2b contract to support production of the 15th and 16th lots of F135 engines, with an option to award a 17th Lot.

·     In transports, airlines in focus amid two media reports (WSJ, Bloomberg) said JBLU is bracing for the Justice Department to try to block the airline’s planned takeover of SAVE in the coming days; NSC announced a six-point safety plan in the wake of last month’s derailment of a train carrying hazardous materials on the outskirts of East Palestine, Ohio. Norfolk Southern said it will enhance its hot bearing detector network, pilot next-generation hot bearing detectors, work with industry on best practice for hot bearing detectors and deploy more acoustic bearing detectors.

 

Materials, Metals & Mining

·     Industrial metals saw early weakness (FCX, AA, CENX, RIO, etc.) after China set a modest economic growth target of around 5% for the year. Material sector among the worst performing sectors in a generally upbeat day.

·     In chemicals: Wells Fargo noted while caustic prices fell and chlorine prices were flat in Feb-23, CMA reduced its ECU cash cost outlook, which they believe potentially implies upside for OLN as sense demand for PVC globally is improving, which could accelerate if China reopens.

 

Technology

Internet, Media & Telecom

·     In social media: SNAP rises as Senator McCarthy this morning said TikTok brings him ‘real concern;” seeing strength in both SNAP and META as calls for TikTok ban in US grows; META downgraded to Sell at Arete saying they see lower margin Reels monetization kicking in and ongoing pressure on DPAs/DTAs in a deteriorating macro environment and that subs won’t be material before ’24. In media, PARA is exploring a sale of a majority stake of BET Media Group, which includes the cable channels BET and VH1, WSJ reported.

 

Hardware & Software movers:

·     AAPL was initiated at a Buy and $199 tgt at Goldman Sachs saying the iPhone maker’s growing installed base of users underpins the "Apple-as-a-Service" opportunity.

·     CIEN posted profit that was nearly double expectations, driven by strong demand and an improving supply chain; 1Q beat with revenues $1.06B vs. est. $959M driven by Networking Platform with big upside on both EPS of $0.64 (vs. est. $0.36) and adj. EBITDA $155M vs. est. $101M driven by better GMs (43.7% vs. cons 42%) and OMs (12.6% vs. cons 8.3%).

·     DV said top shareholder Providence Equity Partners selling 12.5 mln shares, (co owns ~41% stake in DV, or roughly 67.5 mln shares, per Refinitiv data).

·     Earnings this week in software from DOMO (3/6), GWRE (3/6), CRWD (3/7), ASAN (3/8), MBD (3/8), DOCU (3/9), HCP (3/9), ORCL (3/9)

·     RNG files for resale of up to 1.27 mln shares of Class A common stock by Mitel US holdings – SEC filing (late Friday)

·     UIS shares fell after being removed from S&P SmallCap 600 index effective Mon, Mar 20, as part of qtrly rebalance.