Closing Recap

Tuesday, May 02, 2023

Index	Up/Down	%	Last
DJ Industrials	-367.24	1.08%	33,684
S&P 500	-48.28	1.16%	4,119
Nasdaq	-132.09	1.08%	12,080
Russell 2000	-37.10	2.10%	1,732

 

 

 

 

 

 

 

 

 

After a fairly tame overnight, markets rolled through the morning. Janet Yellen’s debt default warning yesterday combined with softer economic data this morning and a new round of regional bank fear created a bit of a cascade of selling that quickly fed into other sectors, particularly energy. By early afternoon, regional banks were leading the way down with the KRE -6.8% but off lows, while broader financials were faring a bit better with the XLF just -2.75%. Energy was about -5% with the XLE hovering near lows. Of course, all eyes are now on the Fed heading into tomorrow’s rate decision. The implied probability of a +25bps hike has come in a bit, but remains at 85%, while the expected probability of a pause post-May continues to climb. June now stands at 80% probability of no change in rates presuming we see +25bps tomorrow.

 

Data-wise today, @fundstrat noted the JOLTs job openings report showed progress in the direction the Fed wants to see, with the ratio of openings to available workers (1.6) the best since October 2021. The level of vacancies was the lowest since April 2021. Also on JOLTs, @charliebilello adds that while the number of openings came down to 9.6Mm, it was still well above the pre-covid level of 7Mm. On earnings, @DataTrekMB highlighted improvement. With 53% of the S&P having reported, revenue and earnings beat rates are up vs historical averages.

 

After the morning beat-down in US equities, with no sector groups in the green and breadth heavily negative at more than 3.5:1, the picture had improved a bit into the final hour of trading. The Consumer Discretionary group crossed to positive territory (XLY, +0.09%), while laggards made up a little ground. Regional Banks (KRE, -6.4%) were still the big losers on the day, followed by Energy (XLE, -4%) and broader Financials (XLF, -2.3%). Breadth also improved modestly but was still heavily negative with decliners leading advancers 3:1. As expected in a general risk-off type day, both growth and value were in the red. Value trailed with the Russell 1000 Value -1.5% vs the Russell 1000 Growth -0.75%.

 

Economic Data

·     U.S. job openings fell to 9.59M in March from 9.97M

·     March factory orders rose +0.9% vs. consensus +1.1% and vs. Feb -1.1%; factory orders ex-transportation -0.7% vs Feb -0.7% and orders ex-defense +1.0% vs Feb -1.0%; U.S. March inventories/shipments ratio 1.48 months’ worth vs Feb 1.49 months.

 

Commodities

·     Gold futures enjoyed a nice bounce on renewed banking crisis fears. The June contract settled +$31.10/oz, or +1.56%, to $2023.30. The close marked the highest since mid-April as investors looked for safe-haven assets with a Fed decision coming tomorrow and expectations for a hike and pause stance. One strategist highlighted gold upside to $2,300, noting gold climbed 70% after the Fed paused in 2018. The dollar index dipped after disappointing U.S. data, while Treasury yields ended at the lows (10-yr 3.42% and 2-yr under 4%.

·     June WTI crude oil futures rolled throughout the day, settling -$4.00, or -5.29%, to $71.66/bbl. Brent also slid to settle at $75.32/bbl, -$3.99 or -5.03%. The aggregate effect of concerns about rising interest rates, US bond default risk, a new regional banking crisis and potential recession weighed on oil and energy-related securities throughout the day with no real attempt at a bounce. The WTI close marked the lowest in over five weeks. Some traders lamented recession fears were overwhelming otherwise positive oil fundamentals with improving demand and slipping supply.

 

 

Macro	Up/Down	Last
WTI Crude	-4.00	71.66
Brent	-3.99	75.32
Gold	31.10	2,023.20
EUR/USD	0.0022	1.0997
JPY/USD	-0.91	136.58
10-Year Note	-0.135	3.439%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     In food: SFM Q1 beat comps by 1pt and EPS by ~15%, Q2 guide raised slightly, FY EPS raised by roughly the combined numbers; SYY Q3 EPS missed ests amid 8.7% rise in expenses while sales rose over 11% y/y to $18.88B above views; guided 2023 adj. EPS near the low end of the previously disclosed range; TAP posted a beat and reaffirm guidance as sales and GM ahead; QSR said Burger King US comps growing +8.7% in line with +HSD% expectations while Tim Horton’s Canada grew +15.5%, ahead of +LDD% expectations.

·     TD Cowen said into earnings they prefer WMT over TGT as they favor prospects for +LSD% traffic as consumers, inclusive of the higher end, seek value in food/essentials. Expect TGT to meet at least the low-end of a wide (LSD%) to +LSD% comp sales guide, but discretionary headwinds and NT EBIT margin fears will likely persist. In sporting goods/equipment: NLS raises 2024 rev view to $286.6M vs. est. $273M.

 

Leisure, Gaming & Lodging:

·     In casinos: MGM beat and raise LV EBITDA beats at $836m vs consensus $783m while China also beat $169 vs consensus $73m; JMP Securities said growth was impressive across MGM Resorts three segments, with Las Vegas increasing revenue 22% on a same-store basis, regional gaming +10% YoY, and Macau returning to normalcy. The company reported 1Q23 EBITDAR at +8% vs. consensus, with Las Vegas +7%, regional gaming +5%, and Macau +91%. PENN upgraded at RothMKM to Buy from Neutral, anticipating that better-than-expected property margins in the first quarter will prompt investors to reevaluate their 2023 projections.

·     In ride hailing: UBER rises after strong 2Q profit guide with adj EBITDA $800-850M vs expects $750-800M and bookings $33-34B ahead of expects $32-33B, 1Q GBs smack inline at $31.4B (vs expects $31-31.5B) and EBITDA $761M ahead of expects $730M.

·     In lodging: MAR 1Q ad EPS $2.09 vs est. $1.84 on revs $5.615B vs est. $5.409B, adj EBITDA $1.098B vs est. $996.48Mm; guides 2Q worldwide RevPAR growth +10-12%; sees FY worldwide RevPAR growth +10-15% and adj EPS $7.97-8.42 vs est. $7.74.

 

Energy

·     In majors: BP Q1 profit was $5B but shares slipped after saying it would repurchase $1.75 billion worth of shares over the next three months, down from $2.75 billion in the previous three. Q1 underlying replacement cost profit reached $4.96B, up from $4.8B in Q4.

·     In E&P: FANG Q1 adj EPS $4.10 vs. est. $4.33; Q1 revs $1.93B vs. est. $1.97B – delivered a solid operational quarter with production ~1% ahead of Street and capex relatively in line as mgmt sees quarterly volumes increase sequentially through 2023. VNOM delivered a 1Q23 beat, expects to deliver 8% sequential growth in 2Q23 at the mid-pt and raised FY23 production guidance 2% largely driven by a FANG drop down.

·     In refiners: MPC earnings beat but revs shy of consensus; SUN Q1 revs and adj Ebitda top consensus, boosts FY adjusted EBITDA guidance to $865M to $915M.

·     In oil drillers: RIG EBITDA of $217mn beat consensus by 40% and puts the company on pace to exceed the mid-point of its 2023 guidance of $845mn.

 

Financials

Banks, Brokers, Asset Managers:

·     Regional bank bloodbath continues, with the KRE falling over 7% to its lowest levels since November 2020 as concerns remain about the health of the banking systems after FRC marked the second biggest bank failure ever yesterday when its assets were acquired by JPM (FRC, SIVB, SBNY mark the 2nd, 3^rd, and 4^th biggest bank failures ever, all happening the last 2-months). Shares of ZION, VLY, PACW, CMA, BKU, TFC, LNC, MCB, KEY all tumbling and adding to Monday weakness. Market outflows continue from regionals into the “too big too fail” banks as the FDIC still not insuring assets above the 250K threshold – raising much concern for SMID banks.

·     WD downgraded at JMP due to increasingly strained U.S. financial and commercial real estate markets, largely from aggressive Fed monetary policy, which has contributed to three regional bank failures. TROW shares slip following Q1 results in asset managers, joins BEN weakness the day prior.

 

Bitcoin, FinTech, Payments:

·     In Bitcoin: COIN downgraded to Neutral from Buy at Citigroup and tgt cut to $65 from $80 citing the regulatory uncertainty surrounding Coinbase. MSTR reported quarterly results.

·     In lending: TREE sees FY revs $760M-$800M, down from prior $935M-$985M and sees 2q adj. EBITDA $17M to $22M, below est. $23.6M sending shares lower; CACC shares also fall as Q1 revenue of $453.8M misses $458.2M estimate; SOFI extends Monday decline, downgraded to Neutral from OP at Wedbush as believe there could be downside risk to its gain on sale margins and fair value Marks of its loan portfolio.

·     In financial services: TRI cuts FY23 revenue view to up 3%-3.5% from 4.5%-5%; IEP shares tumble after “short” report from Hindenburg Research saying they expect Icahn Enterprises to eventually cut or eliminate dividend entirely, barring a turnaround in performance.

 

REITs:

·     BRX reported in-line 1Q23 FFO of $0.50/share, highlighted by strong leasing, an uptick in the portfolio’s leased rate, and an impressive 500 bps y/y increase in base rental income. Management increased its FY23 FFO guidance by 0.75% at the midpoint.

·     INVH 1Q23 was largely as expected. Core FFO was in line with expectations, management affirmed 2023 Core FFO guidance, and investment activity remained relatively muted.

·     NSA reported a 1Q23 Core FFO miss vs. consensus (-$0.03/share), with NOI growth slowing 460 bps sequentially given the combination of moderating revenue growth and a sharp uptick in operating expense growth (+8.3% y/y).

·     VICI’s 1Q23 results topped consensus by $0.01/share, though the quarter was relatively in line and management affirmed its FY23 AFFO guidance.

·     NLY upgraded to Overweight from Neutral at Piper with a $21.50 price target. Last week, Annaly posted a solid 1Q23 with core EPS coming in ahead of the Street.

 

Healthcare

Biotech & Pharma:

·     PFE Q1 adj EPS $1.23 vs. est. $0.98; Q1 revs $18.28B vs. est. $16.59B; said revenues are anticipated to be lower in 2023 than in 2022 due entirely to expected revenue declines for Pfizer’s Covid-19 products; backs FY23 adjusted EPS view $3.25-$3.45.

·     INCY Q1 adj EPS $0.37 misses $0.75 est. and sales $808.67M miss $857.52M est.; 1Q JAKAFI $580.0M vs consensus $614.7M citing higher discounting due to Medicare coverage gap and 340B orders and inventory issues.

·     TVTX shares fell; announced that the DUPLEX study for Filspari in focal segmental glomerulosclerosis failed to meet the primary efficacy endpoints of eGFR total slope or eGFR chronic slope.

·     VRTX CF franchise revenue grew 13% YoY, and 3% QoQ; FY guide remains unaltered at $9.55 to $9.7B; 1Q print was overall pretty in-line with where the Street was heading into earnings on both the top- and bottom-lines.

 

Healthcare Services & MedTech movers:

·     In drug distributors: ABC 2Q EPS $3.50 vs cons $3.30 on Revenue $63.46B vs cons $60.46B. Raises FY23 guidance; sees EPS $11.70-$11.90 vs prior $11.50-$11.75 and Revenue growth +6-8% y/y vs prior +5-7% and cons +5.6%.

·     In hospitals: CYH shares fall as Q1 adj EPS loss (-$0.43) vs. est. loss (-$0.16), adj Ebitda $335M misses $376M est. and revs $3.1B vs. est. $3.09B; reaffirmed annual earnings guidance for 2023.

·     In healthcare staffing: Truist lowered ests and tgts for AMN to $105 from $140 and CCRN to $25 from $38 to reflect sequential declines in travel nurse volumes/rates – said see 5-10% downside in the shares near term, but expectations are low.

·     HOLX quarterly beat as $74mn/$0.18 beat driven by ~200bps of contribution from two extra selling days, a $20mn beat in COVID testing, and sizable out-performances across Breast Health and GYN Surgical

·     MASI shares slipped after a judge declared a mistrial in trade secrets trial against Apple (AAPL) over the Apple Watch. U.S. District Judge James Selna declared a mistrial late Monday after a jury failed to reach a unanimous decision.

·     SIBN 1Q sales exceeded 4Q sequentially for the first time ever with record active surgeons +40% y/y, record rep productivity +28% y/y, and strong physician adoption of new products.

·     SYK reported Q1 results that delivered a +5% sales and +7% EPS surprise driven by broad-based growth, especially Orthopedics and raised its 2023 organic sales growth outlook to 8.50% at the midpoint (range: 8.0–9.0%) and EPS guidance to $10.15 at the midpoint ahead of street.

·     TMDX beat-and-raise with Q1/23 revenue of $41.6M (+162% Y/Y), beating Street consensus of $37.9M and FY23 revenue projected to be in the range of $160M-$170M (compared to previous $138M-$145M).

·     ZBH a top gainer in the ortho space after earnings and guidance.

 

Industrials & Materials

Industrials

·     In heavy duty trucking: CMI reported beat and raise but shares fell with broader markets; PCAR downgraded to Hold from Buy at Argus citing concern about the impact of slower economic growth on the global trucking industry, and expects this to weigh on orders, sales, and earnings in the coming quarters; Class 8 – Truck Orders (CMI, PCAR) April preliminary Class 8 net orders were 11,600, down 27% y/y (-39% m/m). April’s orders translate to 11,800 on an SA basis (-25% y/y, -37% m/m), equivalent to ~142k units on an annualized basis.

·     AGCO Q1 EPS $3.10/$3.33B vs. est. $2.70/$3.16B.

·     AME qtr driven by strength in Electronic Instruments with outlook also raised but brackets ests.

·     FLS big beat driven by pumps with outlook also raised ahead of consensus; headline adj EPS of $0.40 vs est. $0.25 and revs $980m vs est. $900.75m.

·     ITW now expects revenue growth in 2023 of 2% to 4%, up from previous guidance of 1.5% to 3.5% and raised its 2023 earnings outlook by a nickel on the top and bottom end.

·     KMT reported a solid $0.39 vs. consensus $0.34 and revs $536M beat consensus $530M posting growth in all regions and end markets and operating margin came in at 9.8% while raised its FY23 guide to $1.50-$1.70 (prior $1.30-$1.70).

·     ROP upgraded from Market Perform to Outperform at Bernstein and raised its tgt to $525 from $490 following investor day and a strong Q1.

·     TEX reported 1Q23 EPS of $1.60 vs. consensus of $1.04 and revs of $1.23B beat by 9% along with margins beat by 280 bps as per Keybanc, despite higher SGA by 30 bps, leading to OM of 12.0% vs. their estimate of 9.4%; increased its FY23 guide.

 

Materials, Metals & Mining

·     In chemicals: DD shares slumped after cutting the top-end of its annual forecast range, as sees sales $12.3B-$12.5B vs. est. $12.59B and EPS $3.55-$3.70 vs. est. $3.74; FMC reported 1Q23 EBITDA of $362M, compared to consensus of $357M and our estimate of $356M, beat EBITDA expectation on higher margins but missed sales forecast by 6%; said price rose 7% y/y in 1Q Management raised its 2023 EBITDA guidance by $10M; in ag chemicals, CF modest beat driven by UAN (17c) but had relatively low expectations.

 

Technology

Internet, Media & Telecom

·     In online education: CHGG cut its outlook citing ChatGPT negatively impacting the growth of its homework-help services, making it one of the first co’s to highlight generative AI’s negative impact on business; sees Q2 revenue $175M-$178M below consensus $193.64M; sees Q2 adjusted EBITDA $53M-$55M.

·     In media: FOXA said this year’s Super Bowl was the most-watched NFL championship game in history as 115.1 million people watched above prior report of 113 million and topped the 2015 prior record of 114.8 million people.

 

Hardware & Software movers:

·     IBM’s CEO said sees 30% of back-office jobs replaced by AI in five years.

·     In PC Sector: Morgan Stanley upgraded DELL (top pick), Lenovo and Quanta to OW and Asustek, HPQ to Hold saying “the worst of the PC downcycle is likely behind us” and expects DELL to o/p alongside the rebound in the PC market; on HPQ, positive on PC exposure but cautious on print biz as well as the co’s back-end loaded FY23 and slowing cap returns.

·     In cloud networking solutions: ANET shares slide as reported 1Q23 results that exceeded consensus estimates and better Q2 guide but only raised guidance for FY23 revenue growth by 100bps to 26%, which implies a sharper deceleration in F2H23 revenues; said sees reduced customer visibility or orders of below 6 months from its Cloud Titans customers.

·     ZBRA guidance weighs on sentiment as expects second quarter 2023 net sales to decrease between 9% and 11% compared to the prior year.

 

Semiconductors:

·     LSCC reported better quarterly results with revenue up 5% sequentially and 22% year-over-year to a record $184.3M above ests $180M while gross margin and profitability metrics continued to improve with Q1 gross margin up 260 bps y/y basis to a company record 70.3%.

·     NXPI reported a strong MarQ at $3.12B/$3.19 (consensus: $3.00B/$3.02) with GMs at 58.2% (consensus: 58%). NXPI guided to a better JunQ top line to $3.2B (~6% above consensus of $3.03B), and up 3% q/q (versus TXN/ON down 1%/ up 2% q/q).