Market Review: May 25, 2023

Closing Recap

Thursday, May 25, 2023





DJ Industrials




S&P 500








Russell 2000













US equity markets gained, but it wasn’t a well-attended party. If you didn’t own NVDA, AMD, MSFT, ANET, SNPS, CDNS, GOOGL, NTNX, LCRX, ADBE or a handful others, you probably didn’t make money on the long side. Thanks to NVDA’s big beat and raise quarter out last night, the indices had enough tailwind to see green as breadth was still about 2:1 decliners over advancers so certainly not everyone was participating. While NVDA helped, better GDP and jobless claims data reignited fears the Fed is not done and won’t be cutting rates anytime soon. Current implied probabilities are about 50/50 for a rate hike in June, while expectations for rate cuts have mostly disappeared for 2023. The December implied rate is now 4.925%, with the cuts generally pushed to 2024. Sept 2024 implied now stands at 3.703%


On the data side, @RBAdvisors highlighted the magnitude of the NVDA move, indicating NVDA added about $250B in market cap with the early gains, effectively growing another mega-cap company all by itself (he notes there are only 25 companies in the S&P 500 with market caps over $250B). Similarly on the technology theme, @LizYoungStrat notes the day’s early Info Tech outperformance of about +300bps would be the sector’s largest relative outperformance in almost 15 years on a daily basis. As usual, @KobeissiLetter brings us a reality check, noting home sales are -23% y/y, the avg 30-yr mortgage is above 7%, housing affordability is below 2008 levels and nearly 50% of millennials don’t own a home, yet the average US home price is down just 4% from its peak. Also on housing, it is interesting to note April pending home sales were unchanged mo/mo with the Northeast -11.3%, but the West +4.7%.


Moving into the final hour of trading, the indices were off their afternoon highs, but still holding nice gains. Technology (XLK, +4%) was still the supreme leader on the day, followed by Real Estate (XLRE, +0.7%) and Industrials (XLI, +0.5%). Primary laggards remained Energy (XLE, -1.7%), Utilities (XLU, -0.9%) and Healthcare (XLV, -0.9%), though every other sector was also in the red. Breadth improved a bit versus earlier in the day, but still stood at roughly 2:1 in favor of decliners. Unsurprisingly, Growth outpaced value given the narrow scope of the gainers today. 


Economic Data

·     U.S. GDP growth above views, down from Q4: U.S. GDP annualized Q1 (2nd estimate) rose +1.3% up from 1.1% in the advance estimate published a month ago and down from the 2.6% growth rate in Q4 of 2022. U.S. Core PCE (Q/Q) Q1 +5.0% vs. est. and prior reading of +4.9%). Personal Consumption for Q1 +3.8% vs. est. 3.7%; GDP Price Index Q1 +4.2% vs. est. +4.0%.

·     Weekly Jobless Claims rose to 229K from downwardly revised 225K (from 242K) but above estimates of 245K; the 4-week moving avg unchanged at 231,750; continued claims fell to 1.794M in latest week from 1.799M prior.

·     April Pending Home sales index unchanged vs. consensus +1.0% and April Pending Home sales -20.3% from April 2022.


Commodities, Currencies & Treasuries

·     WTI crude oil futures were soft throughout the day. The July contract settled off the lows, but still fell -$2.51, or -3.38%, to $71.83/bbl. Brent also slipped to settle at $76.26/bbl, -$2.10 or -2.68%. The WTI decline broke a string of three consecutive up days as the US Dollar gained after better economic news and Russia downplayed the probability of any OPEC+ production cuts.

·     June gold futures slid for a fourth consecutive session to settle -$20.90, or -1.06%, to $1,943.70/oz, lowest level since late March. Gains in the US Dollar and Treasury yields again put pressure on gold prices after better economic data pre-market. Both US GDP and initial jobless claims were better than forecast, leading traders to rethink recent expectations for a Fed pause with rate cuts during 2H23. Implied probabilities are now about 50/50 on a June pause versus hike and only incorporate at best one cut before year-end versus two or three a few weeks ago.

·     Treasury yields surged all day, with the benchmark 10-year yield up more than 10-bps to 3.82%, while the shorter-term 2-yr yield spiked about 19-bps to 4.53% and the 3-yr yield up 18-bps to 4.21%. The move in rates and the dollar comes on rising expectations the Fed may not be done with rate hikes in coming meetings and now no rate cuts expected in 2024 as per FedWatch.

·     The U.S. dollar extends gains, up another +0.4% to 104.30 for the dollar index (DXY), up more than 300-bps in just 10-trading days as fed fund futures pointing to potential additional rate hikes at either the June or July meeting and no rate cuts for the remainder of 2024…a sharp about face when up to 3-rate cuts were forecasted by futures by the end of 2024. Despite the change in outlook, U.S. stock markets have continued to plod along higher.






WTI Crude















10-Year Note





Sector News Breakdown

Consumer Staples & Restaurants:

·     In restaurants: RRGB reported much better than expected 1Q23 results as all operating metrics were better than Benchmark’s and consensus expectations including adjusted EPS of $0.25 (vs consensus for a loss of [$0.20]) and adjusted EBITDA of 36.1M (vs consensus of $20.1M).

·     In Cosmetics and beauty, ELF reported Q4 results with sales and adjusted EBITDA ahead of consensus, $188mm, consensus $156mm, and $21mm, consensus $18mm, respectively. Modest adjusted EBITDA upside was driven by strong sales and gross margin expansion (up 470bps y/y), offset by higher SG&A expenses (up ~330bps).


·     In apparel retail: a day after ANF crushed results and shares soared, AEO shares fall as 1Q’s top-line and GM beat were offset by SG&A/Depreciation/tax, with management guiding 2Q below-Street and cutting FY guidance; GCO slashed its year forecasts after a weaker-than-expected Q1; RL reported a Q4 profit beat $0.90 vs. est. $0.61) and revenue that topped forecasts, as strength in Asia offset declines in North America and Europe; sees Q1 revenue flat to up slightly and sees FY24 revenue up low-single digits; GES smaller Q1 loss and better revs while raises FY24 EPS view to $2.60-$2.90 from $2.45-$2.80 and boosts FY24 rev growth view to 2%-4% from 1%-3%.

·     In discount/off pricing: WMT shares fell for the 9th time in last 10 trading days (down 5-straight); BURL reported top and bottom-line Q1 miss ($0.84/$2.13B vs. est. $0.92/$2.17B) and guided Q2 and FY outlook below consensus; DLTR shares slide as cut FY forecast $5.73-$6.13 from $6.30-$6.80 prior as high inflation dampens demand for higher-margin items – said expect the elevated shrink and unfavorable sales mix to persist.

·     In specialty retail: BBY Q1 profit that beat expectations but fell a bit shy on revenue, while maintaining its full-year outlook; MOV posted a mixed Q1 report and an in-line full-year forecast; -11.3% drop in revenue year over year to $144.9M was $3.4M short of expectations. Gross profit margin contracted 260 basis points from Q1 2022 to 56.6%.


Autos, Leisure, Gaming & Lodging:

·     In cruise lines: positive headlines (CCL, RCL, NCLH) as the WSJ reported crowds have returned to cruise ships to the point that some are oversold and even bumping passengers ; CCL was upgraded from Neutral to Buy at Citigroup and raise price tgt to $14 from $10 citing recent cruise work (pricing, web traffic, virtual fireside chat, earnings read-throughs) and its belief that the balance sheet is at a turning point.

·     In theme parks: Keybanc reestablishing coverage of the amusement park sector with Overweight ratings on FUN ($54 tgt), SIX ($35 tgt) and Sector Weight on SEAS saying while encouraged by ongoing initiatives, it believes meaningful stock upside hinges on evidence that destination travel demand can continue to grow.

·     In autos: Ford (F) upgraded from Underperform to Neutral with $12 tgt at Daiwa saying Blue restructuring and Pro’s intrinsic valuation are likely to support the stock price around current levels; XPEV was downgraded at Barclays after lower guide yesterday.

·     In casinos & Gaming: CZR upgraded to Neutral from Negative at Susquehanna following its assessment of a more balanced risk/reward at current levels (LV vs regional/digital) and increased its price target to $39.


Homebuilders, Building Products, Home Furnishing:

·     Homebuilders rallied a second day after TOL upgraded to Outperform at RBC Capital and raises tgt to $77 from $55 following Q2/23 earnings beat. RBC believes sentiment has been overly negative on a relative basis given TOL’s high-end, West Coast, and build-to-order exposures.

·     Mortgage originations, which include refinances, dropped sharply in the first quarter of 2023 to $324 billion, the lowest level seen since 2014.


Energy, Industrials and Materials

·     Energy stocks slipped with oil prices after Russian Deputy Prime Minister Alexander Novak downplayed the prospect of further OPEC+ production cuts at its meeting next week. Reuters reported that CVX has launched a sale process for its oil and gas assets in Congo and could fetch up to $1.5 billion. HASI 13M share Secondary priced at $23.00.

·     In airlines: TD Cowen said UAL, DAL, CPA top three picks in airlines noting this weekend marks the beginning of Summer 2023’s travel season. TDCowen expects it to be better than 2019 as forecast 275 MM people will travel between Thursday, May 25 and Monday, September 4, an increase of 19% over 2022’s 230.6 MM & up 7.4% from 2019’s peak of 256 MM.



Banks, Brokers, Asset Managers:

·     Canadian banks: RY missed analysts’ estimates after setting aside more money than expected to cover bad loans; Canada’s largest bank took provisions for credit losses of C$600 million ($441 million), lower than analysts’ forecasts of C$574.5 million. TD Q2 adj EPS C$1.94, vs. estimate C$2.08; said provision for credit losses C$599M, Common equity Tier 1 ratio 15.3%, adjusted efficiency ratio 53.4%; net income C$3.35 billion and Q1 revenue C$12.37B vs. est. C$12.21B.

·     In Insurance: MET entered into an agreement with Global Atlantic Financial Group to reinsure approximately $19.2 billion of U.S. retail universal life, variable universal life, universal life with secondary guarantees, and fixed annuity statutory reserves. The combined value of the transaction is expected to be approximately $3.25 billion.



Biotech & Pharma:

·     ANNX announces ARCHER trial endpoint did not reach statistical significance.

·     APLS shares slip after saying a mid-stage trial investigating systemic pegcetacoplan for the treatment of ALS did not meet its main goal as well as its secondary goal.

·     BMY was granted FDA Fast Track Designation for 3 Milvexian indications.

·     ILMN shares fell as Carl Icahn nominee Andrew Teno wins Illumina board seat while Illumina shareholders also re-elect 8 of Illumina’s nominees.

·     MRTX reported sitravatinib’s Phase 3 SAPPHIRE study failed to meet the primary endpoint of overall survival in the final analysis. Although passing interim futility analysis increased some confidence in Ph3, it was not a complete surprise failure given modest Ph2 data said Barclays.

·     NVS EMA accepts Sandoz marketing authorization applications for biosimilar denosumab.


Healthcare Services & MedTech movers:

·     MDT beat quarterly expectations and announced a $738 million buyout in the diabetes segment but slumped on its light earnings forecast; sees FY organic revenue growth of 4%-5% and EPS of $5.00-$5.10 vs. est. $5.28; raises dividend.




·     NVDA strong quarter and blow out upside revenue guidance sends stock and anything semi/AI related soaring on Thursday. NVDA shares jumped as much as 30%! Early names benefiting from NVDA results included AMD, TSM, SMCI; names underperform include: INTC, NXPI, ON, QCOM.

·     NVDA posted solid Q1 results with sales of $7.19B, and EPS of $1.09, which compared better by 10% to the Street revenue consensus of $6.53B and 18% ahead of the Street’s EPS of $0.92.

·     April quarter strength was driven by record Data Center sales of $4.28B, +14% y/y and +18% sequentially, driven by the industry’s rapid adoption of Generative AI and Large Language Models

·     NVDA guides Q2 revenue $11.0B plus/minus 2% vs est. $7.15B; Q2 GAAP and non-GAAP gross margins are expected to be 68.6% and 70.0%, respectively, plus or minus 50 basis points. Q2 guidance implies data center revs are up ~100% y/y driven by strong generative AI demand across all data center segments including cloud, consumer internet, AI startups, and enterprises.


Internet, Media & Telecom

·     In telecom: DISH shares pop after the WSJ reported the company is in talks to sell wireless plans for its nascent mobile phone service through AMZN ; separately, DISH was downgraded to Neutral from Buy at Citigroup the substantial capital needs combined with the drop in market value of its securities have increased uncertainty and dilution-risk for DISH equity. Said DISH also needs to identify a clearer path to take revenue share as a wireless retailer, wholesaler, or both.

·     In Media: The WSJ reported that DIS is in talks to buy CMCA’s minority stake in Hulu; Keybanc said it remains Overweight on DIS but cut price tgt to $107 from $120 driven by its lower estimates as it reset expectations for Disney+ subscriber growth (-) and ARPU (+), Domestic Parks OI (-), and International Parks OI (+).


Hardware & Software movers:

·     SNOW disappoints today as EPS and revs beat, but revs of $624M was up 48% y/y, a deceleration from 53% last quarter and remaining performance obligations (RPO) came in at $3.40B, up 31% y/y (missing the consensus of $3.60B), down from 38% growth last quarter.

·     SPLK rises as guides FY24 revenue to be at the top end of its prior forecast of $3.85B-$3.9B and guided Q2 revs $880M-$895M above consensus of $868.5M; Q/Q absolute Cloud revenue growth of $5.5M was the smallest it’s been since July 2018.

·     PATH declines as reported healthy Q1 results w/ rev, ARR upside & raised FY guidance, but the lack of ARR upside disappoints said Bank America, modestly below their guidance.

·     APPS tumbles as Q4 net revenues of $140mn (-24% Y/Y) were in line with Street/Guide, but gross margin (44%, -530bps Y/Y) was well below Street (50%). Bank America said deterioration of the higher-margin AGP business surprised them and likely the Street.

·     ZUO posted a Q1 beat and raise, highlighted by the strong operating scale which drove the bottom line nicely above breakeven expectations with strong free cash flow generation.

·     IT Services & Consulting: NTNX shares jump following beat/raise F3Q as well as Nutanix concluding its Audit Committee investigation, which allowed the Company to file its delayed F2Q23 10Q; also reported ACV billings of $240M (consensus $221.8M).

·     In 3D sector: SSYS and DM to combine in all-stock deal valued at about $1.8 billion that will create new player in 3-D printing space


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.