Market Review: May 23, 2023

Closing Recap

Tuesday, May 23, 2023





DJ Industrials




S&P 500








Russell 2000













U.S. stocks showed concern for the first time in weeks, with the S&P closing more than -1% lower for the first time in 3-weeks as President Joe Biden and House Speaker Kevin McCarthy remained without a deal on the debt limit today after another round of talks Monday night and Tuesday afternoon. They continue to call their discussions “productive” and vowed to keep “negotiating” to avert a catastrophic U.S. default, with June 1st the unofficial “X-day” when the U.S. runs out of funds to pay its debt obligations. The debt ceiling issue has dragged on for weeks, but with just about a week left, attention firmly focused on Washington. Treasury yields slipped from their highs after weaker than expected manufacturing data as stocks selling intensified in late afternoon. The Treasury bill market is where debt-ceiling angst has played out the most and Tuesday brought wild trading. A little pullback for markets not entirely expected as Monday, the Nasdaq Composite ended at its highest level in nine months, while the S&P carved out its second-highest level of 2023. Economic data was mixed as S&P Flash U.S. services-sector index hit a 13-month high, while Housing stayed strong, but overall manufacturing data points pointed to weakness. Energy (XLE) was the only bright spot in the S&P 500, with the other 10 sectors closing in negative territory.


Economic Data

·     Philadelphia Fed non-manufacturing regional business activity index -16.0 in May vs -22.8 in April; non-manufacturing new orders index 2.7 in May vs -23.9 in April; full-time employment index 14.9 in May vs 11.5 in April; wage and benefit cost index 35.3 in May vs 39.7 in April.

·     S&P global May flash services PMI at 55.1 (vs 53.6 in April); S&P global may flash composite PMI at 54.5 (vs 53.4 in April) and S&P global may flash manufacturing PMI at 48.5 (vs 50.2 in April).

·     Richmond Fed composite manufacturing index -15 in May vs -10 in April; Richmond Fed manufacturing shipments index -13 in May vs -7 in April; and services revenues index -10 in may vs -23 in April.

·     April New Home Sales rose +4.1% M/M to 683K topping the 663K consensus and 656K in March (revised from 683K). April home sales northeast -58.6%, Midwest +11.8%, South +17.8%, West -9.1%; new home supply 7.6 months’ worth at current pace vs March 7.9 months and the April median sale price $420,800, -8.2% from April 2022 ($458,200).


Commodities, Currencies and Treasuries

·     Oil prices rise as WTI crude gains $0.86 or 1.19% to settle at $72.91 per barrel as a warning from Saudi Arabia’s oil minister, that speculators must "watch out" for the risk of output cuts also added to the uptick in futures that left the front end WTI contract.

·     Gold prices dip -$2.70 to settle at $1,974.50 an ounce, falling back-to-back sessions and settling below the key $2,000 level for a sixth consecutive session as the U.S. dollar has steadily climbed over the last 2-weeks off more than 1-year lows from early April. Bets have increased that the Fed may not be finished raising rates the last few weeks.

·     After hitting the highest levels since early March above 3.76% for the 10-year yield, bonds rallied, and yields slumped late day on signs the debt ceiling talks are not getting any closer. The June 1st deadline when the U.S. is expected to run out of money nears. The yield on U.S. one-month Treasury bills fell from record highs, down to 5.5% after a record high of 5.888%.

·     The U.S. Treasury sold $42 B in 2-year notes at a yield of 4.30% vs. 4.315% when issued prior, as the bid-to-cover ratio 2.90, as primary dealers take 16.19% of U.S. 2-year notes sale, direct 15.6% and indirect 68.21%.






WTI Crude















10-Year Note





Sector News Breakdown


Consumer Staples & Restaurants:

·     BUD – Bud Light sales volumes were down 28.4% in the week ended May 13, worse than the 27.7% decline in the previous week, according to Beer Business Daily, which uses NIQ scan data. Budweiser Red volumes down 14.9% in the latest week and Michelob Ultra, the company’s strongest U.S. brand, down 6.8%.



·     In wholesale/clubs: BJ Q1 adj EPS $0.85 in-line with consensus while revs $4.72B missed consensus $4.81B; Q1 comparable club sales, excluding gasoline sales, increased by 5.7% y/y vs. est. +6.0%; reaffirmed its FY23 guidance outlook.

·     In sporting goods stores: DKS beats Q1 estimates for revenue and profit, with sales of $2.84B topping ests $2.8B and EPS of $3.40 above est. of $3.18 and comp sales 3.4% vs. est. 3.65%; reaffirms FY comp sales outlook to grow flat-2% and EPS of $12.90-$13.80. MODG said between May 15 & May 18, the company repurchased 1 mln shares of common stock, at an average purchase price of $17.83 per share as part of an existing $100M share repurchase plan.

·     In apparel & accessories: CTRN lowers FY23 revenue growth view to negative mid-single-digits to negative low single-digits, had previously seen growth down in low single-digits to up in low single-digits, and lowers FY23 EBITDA view to $5M-$20M from $20M-$30M. Earnings expected tonight from VFC, URBN, NLS.


Autos, Leisure, Gaming & Lodging:

·     In lodging, shares of WH spiked late day after the WSJ reported CHH is seeking to buy Wyndham Hotels & Resorts, according to people familiar with the matter

·     In auto retailers: AZO shares tumble over 6% after Q3 EPS $34.12 tops consensus $31.42 and revs rose 4.9% y/y to $4.1B but was slightly below the est. $4.12B; Q3 comp store sales rose 1.9% missed est. 4.6%; gross margins still beat by 70bps and grew 60bps y/y.

·     In casino & Gaming (DKNG, CZR, MGM) – NY Online Sports Betting (OSB) skins posted total handle of $318.4M in week 19 (5/14 – 5/20) 2023, a 7% sequential decrease but up 11% from week 19 2022 according to Benchmark. Said GGR was also down 23% sequentially to $37.0M, but up 20% Y/Y. $37.0M in online GGR equates to a weekly hold of 12%, down 200 bps sequentially. Big casinos WYNN, LVS, MGM were sharply lower on the day.

·     In ride Hailing: Waymo and UBER partner to bring Waymo’s autonomous driving technology to the Uber platform.


Homebuilders, Building Products, Home Furnishing:

·     In home improvement retail: LOW Q1 top and bottom line beat (EPS $3.67 vs. est. $3.44; Q1 revs $22.35B vs. est. $21.6B) but Q1 comp sales decreased (-4.3%) and cuts FY23 EPS view to $13.20-$13.60 from 13.60-$14.00 & cuts FY23 rev view to $87B-$89B from $88B-$89B (est. $88.45B); sees year comparable sales is expected to be down 2% to 4%; Comparable sales decrease driven by lumber deflation, unfavorable weather and lower DIY discretionary sales.

·     In home furnishings: WSM reported Q1 EPS $2.64 vs. est. $2.37 on revs $1.76B vs. est. $1.79B, while gross margins fell to 38.5% from 43.8% y/y and said expect net revenue growth in the range of -3% to +3% with an operating margin between 14% to 15%.



·     Energy stocks were the leaders in the S&P (CVX, XOM, etc.) as Saudi Arabia’s top official warned speculators of more pain as OPEC+ meeting looms next week. The group surprised traders last month by announcing output cutbacks. “I keep advising them that they will be ouching — they did ouch in April,” Saudi Energy Minister Prince Abdulaziz bin Salman said at the Qatar Economic Forum in Doha on Tuesday. “I would just tell them: Watch out!”

·     In tankers: (DSX, EGLE, GNK, NM, SHIP, SB, SBLK) Baltic Dry Index falls 1.25% to 1,348 in London, down for a ninth day. Other dry cargo indexes, expressed in USD/day: Capesize -1.19% to $16,922, Panamax -0.74% to $9,575, Supramax 58k tons -1.91% to $11,473.



Banks, Brokers, Cards, Insurance, Asset Managers:

·     Mixed bag in banks today with regionals extending recent gains (ZION, CMA, PACW, KEY) while larger cap names lagged.

·     COF rises for the 6th time in 7-days – continues momentum after 13F filing last week showed Buffett’s Berkshire took a stake.

·     RNR to acquire AIG’s treaty reinsurance business, which includes Validus Reinsurance Ltd. and its consolidated subsidiaries for approximately $2.985B in total consideration, including $2.735B of cash and $250M of RenaissanceRe common shares.

·     Insurance brokers were weak (WTW, AON), note RYAN 8.3M share secondary offering priced at $43.65, 1.3% discount to stock’s last sale on Mon with Barclays as sole underwriter.



Biotech & Pharma:

·     ACHV said its experimental treatment, Cytisinicline, showed statistically significant benefit in smoking cessation compared to placebo in a late-stage confirmatory trial.

·     ICPT downgraded to Hold from Buy at Needham after the company’s obeticholic acid failed to win the support of a panel of FDA advisers.

·     MYGN double upgraded from Sell to Buy at Goldman Sachs and raised its price target to $25 from $18 noting since being added to Americas Sell List in June ’21, stock is down -26% vs S&P -1.3%.

·     RCKT receives FDA regenerative medicine advanced therapy (RMAT) designation for rp-l301 gene therapy for pyruvate kinase deficiency (PKD).

·     TTOO said to explore potential strategic alternatives, cuts 30% of work force.


Healthcare Services & MedTech movers:

·     GH 12.5M share Spot Secondary priced at $28.00.

·     IART said it initiated a voluntary global recall of all products manufactured in its Boston, Massachusetts facility distributed between March 1, 2018, and May 22, 2023, and sees impairment charge of about $22M; lowers Q2 EPS and rev’s view in response.

·     QGEN upgraded to Overweight from Equal Weight at Morgan Stanley and tgt rose to $53.85 from $48.46 – as Covid transition issues fade, analyst feels Qiagen’s growth will re-accelerate.

·     In Pharma Services: PETS 4Q adj EPS $0.04 vs est. $0.14 on revs $62.4Mm vs est. $65.75Mm, adj EBITDA $3.6Mm vs est. $4.679Mm.


Industrials & Materials


·     BA CEO said it could take until the end of next year to cure sector-wide supply chain problems that have disrupted jetliner production – Reuters.

·     HEI Q2 sales $687.8M vs. est. $676.94M; Q2 Ebitda $187.2M, Q2 operating income $157.1M and operating margin 22.8%.

·     MVST shares fall following the US Energy Department’s cancellation of a planned $200 million grant to the lithium-ion battery maker amid criticism over ties to China.

·     NDSN Q2 sales $650.1M vs. est. $638.73M; Q2 EPS $2.21 vs. est. $2.11; Q2 gross margin 54.2%; narrows year EPS view to $8.90-$9.30 while maintains prior FY23 revenue growth guidance.

·     SAIC awarded $249 million contract to support naval air warfare center weapons division instrumentation platform.


Materials, Metals & Mining

·     In Steel stocks: NUE was initiated with an Underweight rating and $130 tgt and STLD at underweight and $82 tgt at JP Morgan saying rating reflects a view of lower steel prices and squeezed metal margins coinciding with weakness in non-res construction (55% exposure for NUE and 49% for STLD).

·     In copper stocks (FCX, SCCO, TECK); sector falls as copper prices slide as global demand drops sharply; LME stockpiles build up rapidly as European industrial activity cools. The price of copper has widened to the biggest discount against its futures equivalent in almost two decades.

·     In precious metals: WPM downgraded to sector perform from outperform by RBC Capital saying the stock now trades at the upper end of the royalty group valuation ranges, and the company’s sector-leading short- term growth profile is appropriately priced into shares.



Internet, Media & Telecom

·     In Internet: YELP rises after activist investor TCS Capital Management has built a stake in Yelp and is calling for the company to explore strategic alternatives including a sale, WSJ reports; SSTK to buy GIPHY, the world’s largest GIF library, for $53M; JMIA Q1 revs fell -2.8% y/y to $46.3M, below the $50.5M est. as Q1 operating losses was -$30.9M (better than expected) and said Q1 active consumers, orders and GMV all fell more than -22% y/y.

·     In Media: PARA said Paramount+ will officially integrate with Showtime on June 27, and streaming subscribers can expect a price hike at the same time. NFLX offers subscribers options to share accounts; account users can transfer profiles; subscribers can pay $7.99/mo to share.

·     In broadcasting: TGNA announces $300M ASR; increases regular quarterly dividend by 20% after saying in a regulatory filing that it terminated its merger agreement with Standard General.


Hardware & Software movers:

·     In AI: Jefferies boosted MSFT PT to $400 from $350 and adding to Franchise Picks. GOOGL PT to $150 from $130 saying the least at Risk from AI: MSFT, GOOGL, AMZN, Meta, SNOW, ADBE, INTU, PWSC, PCOR, CRM, PANW, HUBS, while tweener Positioning in AI: ORCL, TEAM, GDDY, WIX, ESTC, FRSH, DOCU, UDMY, DDOG, PLTR, WDAY, NOW; and those most at Risk from AI: – CHGG, DBX, SEMR, MSTR, LAW, FIVN, NICE.

·     PERI 6%; mentioned as a Strong Sell from short seller SprucePoint Capital saying there are too many red flags to ignore w/ unusual sales/employees, minimal CAPEX/R&D, low audit fees.

·     ZM Q1 revenue came in nearly 2% above consensus and at the top end of the guidance range (and ~1% above our model) and the >$100K enterprise customer base remained resilient with an estimated 117% NRR in-quarter (consistent the last three quarters). Q3 EPS of $1.16 (consensus $0.99), non-GAAP operating margin of 38.2% (consensus 34.9%), and free cash flow of $396.7M (consensus 345.1M) on revenue of $1.11B (consensus $1.08B).



·     AAPL said it has entered a multi-billion-dollar deal with chipmaker AVGO in a multi-year deal, where Broadcom will develop 5G radio frequency components with Apple that will be designed and built in several U.S. facilities, including Fort Collins, Colorado.

·     NVDA and DELL announce a joint initiative to "make it easier for businesses to build and use generative AI models on-premises to quickly and securely deliver better customer service, market intelligence, enterprise search.

·     STX announces offering of senior unsecured notes, up to $1B of senior notes due 2029.


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.