Closing Recap

Tuesday, November 07, 2023

Index	Up/Down	%	Last
DJ Industrials	57.01	0.17%	34,152
S&P 500	12.40	0.28%	4,378
Nasdaq	121.08	0.90%	13,639
Russell 2000	-4.91	0.28%	1,733

 

 

 

 

 

 

 

 

 

US equity futures slipped overnight after six consecutive days of gains for the S&P 500 and seven for the Nasdaq, then rallied into the open. Corporate earnings continued to be mixed with some companies missing expectations and many issuing more conservative guidance even on the backs of above-plan quarters. By late morning, indices were solidly back in the green, yet market breadth was neutral with just a slight tilt favoring advancers. Technology led the sector ETF gainers with a 1% rise while Communications, Consumer Discretionary, Consumer Staples and Healthcare also gained. Energy was the leading laggard with a 2% decline as Materials, Real Estate, Utilities, Industrials and Financials also slipped early.

 

In data points of interest today, @charliebilello reminds investors the recent rally in equities should not make them too complacent by noting the US unemployment rate has moved +0.5% off the April cycle low, something that historically occurs near the start of a recession. Similarly, @KobeissiLetter notes debt levels are rising to new highs as excess savings are nearly depleted, all as interest rates are climbing at their most rapid pace in decades. On a slightly more positive note, @DataTrekMB highlights that while S&P sector correlations to the index are now above average given concern about rising rates, the recent stabilization in rates may allow correlations to fall and support a rally into year end. Lastly, while history does not always give us the right answers @RyanDetrick highlights the value of history when he notes, “Midterm elections were a year ago. Stocks had never been lower a year later. We noted this, but many told us about yield curves, LEIs, inflation, Quad 4 (whatever that is), and more. A yr later the S&P 500 is up 14.1%, exactly the avg return since WWII.”

 

Heading into the final hour of trading, equities were off their highs but still solidly in positive territory. Breadth had tilted further in favor of decliners but remained generally neutral. From a sector perspective, Technology (XLK, +1.1%) continued to lead the gainers, while Energy (XLE, -2.2%) paced the laggards. Materials (XLB, -1.9%) was the other stand-out decliner. Small caps continued to lag, with the IWM -0.26% versus the S&P 500 +0.31% and the Nasdaq +0.9%. Growth, measured by the Russell 1000 Growth Index, also gained 1%, far outpacing its Value counterpart at -0.43%.

 

 

Economic Data

·     September International Trade in Goods and Services showed deficit widens to (-$61.5B) vs. (-$60.3B) consensus and (-$58.7B) in August (revised from -$58.30B); Imports rose 2.7% to $322.7 billion in September while exports moved up a smaller 2.2% last month to $261.1 billion, just a hair below an all-time high.

·     NY Fed: total US household debt climbs 1.3% to $17.29 trillion in Q3; total mortgage balances climb $126B to $12.14 trillion in Q3; credit card balances up $48B in third quarter to $1.08 trillion; jump in credit card balances consistent with strong consumer spending, GDP; Q3 aggregate delinquency rates climb by 3%; Q3 auto loans up by $13B to $1.6 trillion.

 

Commodities, Currencies & Treasuries

·     December gold futures slipped for a second consecutive session, declining $15.10/oz, or -0.76%, to settle at $1,973.50 after hitting the lowest intraday level in roughly three weeks. After finishing October at a record high monthly close, gold futures suffering a bit of profit taking should not be too surprising, especially combined with some risk-on sentiment in equities.

·     WTI December crude futures tumbled $3.45/bbl, or -4.27%, to settle near the low at $77.37 after hitting the lowest intraday level since August. The close did mark the lowest settle since July. Brent crude similarly dropped $3.57/bbl, or -4.19%, to $81.61. The Gaza war is no longer the driving factor behind crude pricing (at least for now), leaving room for fundamental demand concerns to take a leading role. Mixed data from China (weak exports) stoked the demand fears and weighed on prices despite EIA comments expecting OPEC+ production cuts to remain through the end of 2024 and offset production growth from non-OPEC sources. Natural gas falls 3.8% for total loss of nearly 11% over the last two days, to settle at $3.140/MMBtu.

·     Treasury yields slipped further after the successful $48B 3-year auction, easing fears. Short covering likely helped support the rally, but still longer dated maturity auctions this week with a $40B 10-year note auction on Wednesday and $24B in 30-year bonds on Thursday. Treasuries overlooked hawkish comments from Fed Governor Bowman and Dallas Fed Logan, as well as earlier comments from Kashkari and Goolsbee who warned over the potential for additional tightening. The 10-yr yield fell around 8-bps to 4.57%.

 

 

Macro	Up/Down	Last
WTI Crude	-3.45	77.37
Brent	-3.57	81.61
Gold	-15.10	1,973.50
EUR/USD	-0.0023	1.0692
JPY/USD	0.35	150.42
10-Year Note	-0.087	4.575%

 

 

Sector News Breakdown

Consumer

Consumer Staples & Restaurants:

·     In Food: CELH Q3 EPS $0.89 vs. est. $0.46; Q3 revs rose 104% y/y to $384.76M vs. est. $348.94M; North America revenue increased 107% to $371M, up from $180M in Q3 2022; HAIN Q3 sales missed consensus and said comparable sales fell 3% from the year-ago period, pressured in part by lower sales in Hain’s North America baby and kids’ business.

·     In Consumer Products: IFF Q3 top and bottom-line beat, with full year EBITDA guidance now targeting the high end of the range. The company continues to streamline its portfolio, with the recent sale of Cosmetic Ingredients to be used for debt reduction – and said Icahn Cap, IFF agreed to renominate one Icahn Director and one mutually agreed director to its Board.

·     In Tobacco: MO, BTI, PM – The 2023 National Youth Tobacco Survey (NYTS) showed a reversal in trends as past 30-day incidence fell 390 bps to 12.6%, the lowest in 20+ years. Disposables and flavors remain problematic as disposable mix among current high school e-cig users rose 8 pts to 65% while flavor incidence grew 4.8 pts to 90.3%. Nicotine pouches were up 30 bps, to 1.7%, well below the early incidence seen for vapor.

 

Leisure, Gaming & Lodging:

·     In ride hailing/food delivery: UBER guides Q4 gross bookings $36.5B-$37.5B vs expectations of $36.31B and posts Q3 revenue of $9.29B which missed estimates of $9.52B; said accounting changes related to how it recognizes revenue impacted growth at its combined mobility.

·     In Gyms/Leisure: PLNT Q3 revs $277.6M topped $268M estimate and raises 2023 revenue and profit growth outlook; sees FY revenue to increase by 14% vs previous expectations of 12% and guides FY adj EPS to increase by 35% vs earlier forecast of 34% – ends Q3 with 18.5M members.

·     In Used Car Data (AN, CVNA, KMX): Manheim Used Vehicle Value Index SA (Oct) fell -2.3% M/M (prev. Sep. +1.0%, mid-month Oct. -2.2%), -4.0% Y/Y (prev. Sep. -3.9%, mid-month Oct. -5.5%).

·     In Online travel: TRIP joined rival EXPE with good quarterly earnings and guidance in the past week as Q3 EPS $0.52 vs. est. $0.46; Q3 revs $533M vs. est. $505.03M; said exceeded expectations for adjusted EBITDA, at $127M or 24% of revenue.

 

Homebuilders, Building Products, Home Furnishing:

·     Homebuilders with good earnings from DHI which posted a quarterly beat and guided FY revs $36B-$37B above the $36.08B estimate while saying despite continued higher mortgage rates and inflationary pressures, net sales orders increased 39% from the prior year quarter, as the supply of both new and existing homes at affordable price points remains limited and demographics supporting housing demand remain favorable.

·     In Home Improvement retail: Wall Street remains cautious on group heading into earnings (now three analysts at least cautious – on HD and LOW into earnings): 1) Citi provides earnings previews and model/target price updates for HD, LOW, RH, WSM, BBY, CHWY and WOOF ahead of results the next few weeks as expects this group to report lackluster Q3 results overall. The earnings themes are likely to be sales misses, weakening demand trends as the quarter ended; 2) Wedbush said expects largely in line results from HD when it reports earnings on November 14, but it sees potential for a miss for LOW when it reports on November 21 BMO; 3) RBC initiated coverage on HD and LOW with Sector Perform ratings.

 

Energy

·     In E&P: FANG beat 3Q oil production by 1% and beat EBITDAX by 4%. 4Q oil is guided 1% above estimates, in part due to the inclusion of VNOM’s GRP acquisition and capex guided 4% above estimates on higher well costs from the recent water JV. CPG agreed to acquire Hammerhead Energy for 21 Canadian dollars per share, the equivalent of about $15.33, in cash and stock. In a deal valued at C$2.55 billion, including debt. CTRA 3Q production/capex/CFPS beat consensus by 4%/5%/5%, posted a 3% increase to 2023 production guidance that included an initial 4Q forecast that was 2%/6% above Street total/oil production estimates.

 

Financials

Banks, Brokers, Asset Managers:

·     In Banks: Last night, the Fed released its most recent survey on bank lending. This survey offers qualitative thoughts from industry participants on areas such as loan demand, standards, and quality. Overall, the survey revealed another series of weakening demand and tighter standard trends investors have seen in recent releases. It is also consistent with the downbeat commentary heard on 3Q conference calls. In Services, RMAX was downgraded to underweight at Morgan Stanley warning of litigation risks.

·     In REITs: In Multi-family REITs: Wells Fargo remains OW on AVB, underweight on CPT, and downgrade UDR to EW saying the sector finally showed the cracks from new supply this quarter. Despite underperformance, they still view Sunbelt as most at risk given weak visibility on where rents in heavy supply markets bottom. WELL 17.5M shares priced for gross proceeds of $1.5B; offering priced at $85.95, 2.5% discount to last sale.

 

Healthcare

Biotech & Pharma:

·     AURA announced pricing of an underwritten public offering of 11M shares of its common stock at a price to the public of $9.00 per share.

·     BMRN shares rose after Reuters reported activist investor Elliott Investment Management has built a stake and has been in discussions for months about its future https://tinyurl.com/2bwzsyd4

·     CHRS shares fell after cutting its net product revenue and combined R&D and SG&A expenses forecast for the full year.

·     ELAN Q3 revenue slightly ahead ($1.07B vs. $1.04B est.), Pet +6%, Farm +4%) and EBITDA ($214M vs. $186M est.); tightened its rev guidance, reflecting a higher FX headwind. EBITDA and EPS guidance were both raised; 4Q guidance catches street closer to the upper end.

·     JNJ said it would submit an application to the FDA in the second half of 2024 to initiate clinical trials of its robotic surgical system.

·     SAGE posts a wider Q3 EPS miss and light sales and stock offering.

·     VRTX Q3 CF revs of $2.48B were reported in line with consensus, non-GAAP EPS ($4.08) beat consensus ($3.91) and rev. guidance was raised.

 

Healthcare Services & MedTech movers:

·     ATEC reported a solid beat on both revenue and AEBITDA and increased the outlook for both metrics for FY2023.

·     HIMS posts Q3 revs $226.7M topping consensus $220.1M, growing 57% Y/Y an the $12.3M EBITDA also beat the Street estimate of $11.5M; FY23 guidance raised with revs $868-873M vs $830-850M prior and EBITDA moving to $43-46M vs the prior guide of $35-40M.

·     NEO reported better than expected 3Q results and raised guidance for the remainder of 2023.

·     QTRX reported 3Q23 revenue of $31.3M vs. est. $28M; 3Q adj gross profit of $15.2M compares to consensus $11.6M; non-GAAP gross margin increased to 48.6% vs 3Q22 adj. gross margin of 35.0% and raised FY23 revenue expectations.

·     ROVR reported beat and raise Q3 results w/total bookings growth accelerating, revenue coming in 5% above the high end of guidance, and EBITDA $3.5M above the high end of guidance.

·     WAT 3Q showed better growth in US and Europe offset by weaker than expected results in China; lowered its FY23 organic cc sales guidance to a decline of -2% to -1%; lowers year EPS view to $11.65-$11.75 from $12.20-$12.30 prior) and Q4 implied EPS guide below views.

·     ZBH in ortho reported 3Q revenues inline and better margins driving an EPS beat; incorporated a slightly higher FX impact, though reiterated the underlying components of its 2023 guidance.

 

Industrials & Materials

Industrials

·     In Industrials: CNHI mixed Q3 report as EPS of $0.42 misses but revs $5.98B slightly above and initiated restructuring program targeting 5% reduction in salaried workforce cost. EMR shares fell as Q4 adj EPS of $1.29 missed the $1.31 estimate and sales $4.09B missed the $4.19B est. and guided Q1 adj EPS $1.00-$1.05 vs. est. $1.15.

·     In Aerospace & Defense: SpaceX is on track to book revenues of about $9 billion this year across its rocket launch and Starlink businesses, according to Bloomberg citing people familiar with the matter, with sales projected to rise to around $15 billion in 2024. EH shares tumbled after noted short seller Hindenburg Research out negative on shares. TGI shares jumped after boosting its 2024 outlook on continued strong commercial aftermarket demand and now sees sales $1.43B-$1.47B vs. prior $1.39B-$1.43B after Q2 rev beat.

·     In Chemicals: APD reported Q4 revs $3.19B missing the $3.35B estimate, thought EPS of $3.15 beat by 3c, as revs impacted by lower fees for energy pass-through and unfavorable currency impacts; guidance for FY EPS $12.80-$13.10 vs. est. $12.85.

 

Technology

Internet, Media & Telecom

·     In Media: VMEO Q3 as revenue was 5% above consensus driven by beats across all 3 segments with a Q3 Adj EBITDA margin of 12% (vs street 2%) while bookings grew 4% y/y, but management expects Bookings will decline mid-single digits in Q4.

 

Hardware & Software movers:

·     In Software: AYX Q3 ARR $914M up 21% topped consensus and guidance $903M, even with a $6M q/q headwind from FX relative to guidance which comes after disappointing Q1 and Q2; AZPN posted modestly lower F1Q ACV growth of 10.9% y/y, vs Street’s expectations of 11.6% and reiterated its FY24 ACV growth guidance of at least 11.5% and FCF guidance of at least $360M; DDOG shares soar as delivered a better-than-expected forecast as sees year EPS $1.52-$1.54 above prior $1.30-$1.34 and revs $2.10B-$2.11B vs. prior $2.05B-$2.06B (helping boost shares of MDB, ESTC, SNOW; DSP reported solid 3Q23 results as gross revenue, contribution ex-TAC, and EBITDA came in 1%, 6%, and $2.2M (29%) above the high end of guidance. EVCM shares slid as reported mixed Q323 results with adjusted EBITDA beat and revs light including payments growth of 28% y/y, down from 32% y/y last quarter. RNG delivered solid Q3 results, beating revenue and margin expectations and raised the midpoint of its full-year guidance.

·     Comm & Networking: ADTN shares fall as Q3 EPS loss (-$0.14) vs. est. loss (-$0.09) on in-line revs $272.3M and guides Q4 revs $210M-$240M vs. est. $287M; downgraded to Neutral at Rosenblatt because of its high exposure to Telecom (large majority of total) and Europe (more than half of total).

·     In Electronic Manufacturing (EMS): FN shares rally on its Q1 beat and Q2 guidance while peer SANM Q3 results missed Wall Street’s estimates for its Q4 and guided much lower than views for the current period sending shares lower.

 

Semiconductors:

·     GFS posted a Q3 beat and said it continues to deal with excess inventory in some markets, but its guidance indicated a market improvement.

·     NXPI posted higher Q3 results and guided Q4 in line; Q3 results reflect solid demand in core-industrial and mobile, with auto largely in line and comm infra below; Q4 revenue is expected to decrease 1% q/q, largely in line and slightly below consensus.