Closing Recap

Monday, November 13, 2023

Index	Up/Down	%	Last
DJ Industrials	54.57	0.16%	34,337
S&P 500	-3.65	0.08%	4,411
Nasdaq	-30.36	0.22%	13,767
Russell 2000	0.56	0.03%	1,705

 

 

 

 

 

 

 

 

 

U.S. stocks opened lower after last week’s strong advance, squeezed higher most of the day before finishing with modest losses into a handful of potential market moving catalysts. The Nasdaq 100 Index snapped its streak of 18-straight higher Monday’s (a trend that started 7/3), while QQQ is now up 17 weeks out of the last 19. A few names are keeping major averages strong as META made it a 7^th straight day of gains, trading at new 52-week highs and NVDA made it a 9^th straight day of gains, as mega cap tech continues to pace broader market gains (recall MSFT just recently snapped its streak of 12 up days in last 13). It’s important to note the top 3 SPX sectors in 2023 (Tech +43.5%, Comm +42.3%, Consumer Discretionary +25.5%) were the bottom 3 sectors in 2022. Also interesting, the S&P 500 Index (SPX) has gone 467 trading days without making a new all-time high. Markets were pressured early after Moody’s placing US credit rating on negative watch this weekend citing higher interest rates and doubts about the government’s ability implement effective fiscal policies, but they affirmed the Aaa status of Treasuries, citing the USs significant credit strength. The macro and the Biden/Xi Summit in San Francisco are also in focus (trade talk, watching aerospace, semiconductor industries).

 

Potential Market Catalyst coming tomorrow morning in form of monthly inflation data where the headline October consumer price index (CPI) is expected to rise +0.1% m/m (vs prior +0.4%) and rise +3.3% y/y (vs. prior +3.7%) while the core CPI (ex: food & energy) is expected to rise +0.3% m/m (same as prior month) and rise +4.1% y/y (also same as prior) – data expected tomorrow AM at 8:30 AM.

Another potential market catalyst: The possibility of a US government shutdown looms in just a little over four days as DC remains at odds on a bill Regarding the shutdown. House Speaker Mike Johnson proposed a two-step spending plan to avert a shutdown, avoiding cuts and border rule change…but does not include the deep spending cuts that some GOP pushed for. Under current congressional funding authorizations, the government is set to go into a shutdown on Nov. 17. When lawmakers return to the Capitol on Nov. 13, they’ll only have four days until this deadline.

Data, Commodities, Treasuries and Currencies

·     Oil prices edged higher after third straight losing week, with WTI crude up $1.09, 1.41% to settle at $78.26 per barrel while Brent crude settled at $82.52/bbl, up $1.09, 1.34%. Prices were helped after OPEC’s monthly market report eased worries about waning demand in the United States and China. OPEC earlier nudged up its forecast for world oil demand growth in 2023 to 2.46 million barrels per day (bpd), up 20,000 bpd from the previous forecast.

·     Gold prices rose $12.50 to settle at $1,950.20 an ounce, bouncing off 3-week lows, helped as the dollar and Treasury yields pulled back.

·     The U.S. dollar climbed to its highest level in more than a year against the Japanese yen, near the key psychological level of 152, but then fell sharply. The dollar index (DXY) overall slipped -0.2% to around 105.65 after rising in the last few weeks.

·     Treasury yields opened the trading day higher, with the 10-yr rising as high as 4.695% before ending the trading day back at lows around 4.63% ahead of the CPI data tomorrow morning.

·     Oct budget deficit $67B (consensus $65.00B deficit) vs Oct 2022 deficit $88B. U.S. Oct budget outlays $470B vs $406B in Oct 2022; receipts $403B vs $319B in Oct 2022. Interest on the debt was $89B in October, the second largest outlay after social security payments of $118B.

 

 

Macro	Up/Down	Last
WTI Crude	1.09	78.26
Brent	1.09	82.52
Gold	12.50	1,950.20
EUR/USD	0.0018	1.0699
JPY/USD	0.10	151.61
10-Year Note	0.004	4.632%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     Retailers in general weak (KSS, M, BURL, UAA, BIG) – The consumer took a spending break ahead of the holiday season, with October retail sales, excluding autos and gas, falling by 0.08%, and core retail, which also removes restaurants, declining by 0.03%, according to the new CNBC/NRF

·     In Off-price retail: TD Cowen raised its price target on TJX to $100 from $99 and ROST to $141 from $137 saying they would pair TJX and ROST long vs BURL (which they cut tgt to $146 from $181) in off price retail into earnings for the group.

·     In Food: TSN Q4 adj EPS $0.37 tops $0.29 estimate but Q4 sales $13.34B missed the $13.7B estimate as adj operating margin was 1.8%, hit by falling chicken and pork prices as well as slowing demand for its beef products; said that volumes at its beef segment, its largest, fell 6.7% in the quarter ended Sept. 30, while prices rose by 10.2%.

·     In Casinos/Leisure: WYNN falls for a 5th straight losing session following earnings last week – hit lowest levels since January on Friday; GENI shares active on earnings.

·     In Autos: Electric vehicle shares outperformed, especially charging companies (BLNK, EVGO); TSLA revealed customers who purchase Tesla’s long-awaited Cybertruck, which are expected to be released 11/30, re stuck with the futuristic vehicle, whether they like it or not, thanks to an ironclad clause in its buyer’s agreement. Those who breach the clause give Tesla license to take “injunctive” legal action “or demand liquidated damages from you in the amount of $50,000.”

 

Energy, Industrials and Materials

·     In Oil majors: XOM announced it plans to begin producing lithium for electric-vehicle batteries by 2027 from a mining operation in southwest Arkansas under the brand Mobil Lithium; said it’s planning to be a “a leading producer of lithium” but it did not provide any projected sales figures.

·     In Aerospace & Defense: BA shares rise on two pieces of news: 1) Boeing is closing in on a major order for its 777X widebody model from Emirates; 2) China is contemplating resuming purchases of Boeing’s 737 Max aircraft when U.S. President Joe Biden and Chinese President Xi Jinping meet this week (also helped shares of plane supplier SPR).

·     In Lithium sector: shares of LTHM, ALB, SQM pressured on competitive fears after XOM said it is drilling first lithium well in Arkansas, aims to be a leading supplier for electric vehicles by 2030.

 

Financials

·     In Banks: RILY extends last week’s losses, falling another 20% after recent losses; Q3 net loss of $2.53 vs profit of $1.53 last year, driven by unrealized losses on its equity investments.

·     In Office REITs: Bank America said they believe REITs have better than average quality assets and are well positioned to compete in this market, leasing activity has not been enough to offset vacancies. As a result, they downgraded HPP and PGRE to Underperform from Neutral and HIW to Neutral from Buy on lack of visibility on when operations will stabilize.

 

Healthcare

Biotech & Pharma:

·     NVO said at the American Heart Association’s conference this past weekend that its obesity drug Wegovy notably cut the risk of heart attacks in its SELECT trial, affirming the treatment offers health benefits beyond weight loss – reduces the rate of heart attacks by 28%, strokes by 7%, and cardiovascular-related deaths by 15%.

·     VERV shares fall after saying at the American Heart Association’s conference this past weekend that its CRISPR-based gene editing treatment successfully reduced levels of "bad" cholesterol in patients with an inherited form of high cholesterol in a small trial of ten people – but Stifel noted one of the questions from the data was why the patient who received the highest dose had a lower magnitude of PCSK9 reduction and some raised caution on the safety signals of one fatal cardiac arrest and myocardial infarction, which is a type of heart attack.

·     ACRS shares plunged over -80% after saying it will stop development of its rheumatoid arthritis drug Zunsemetinib after it failed to meet its primary or secondary goals in a mid-stage trial; will also halt enrollment in an ongoing mid-stage trial studying the drug in psoriatic arthritis.

·     GH was upgraded to Outperform at Raymond James following a 22% decline since earnings last Monday, saying that its overall views were little changed after the release.

·     ILMN adds to last week’s earnings losses, falling to lowest levels in about a decade.

·     LEGN announces exclusive, global license agreement for certain car-t therapies targeting DLLl3; to get $100m upfront payment and will be eligible to receive potential milestone payments plus tiered royalties on net sales.

·     SELB announced that it has merged with Cartesian Therapeutics, Inc., a clinical-stage biotechnology company pioneering RNA cell therapies for autoimmune diseases; In connection with the merger, Selecta announced a $60.25 million private financing.

·     VIR presented new data from mid-stage studies involving experimental treatments for chronic hepatitis delta and hepatitis B.

 

Healthcare Services & MedTech movers:

·     Shares of PEN, DXCM, PODD, NARI, DVA, TNDM and others in MedTech saw early strength after NVO trial results this weekend eases fears – JPM earlier reiterated view that trial a positive for GLP-1˖s, but its take is relative to expectations for the MedTech sector from GLP-1˖s, and in that case, it thinks this trial underwhelmed. Analysts wrote, reduction in diabetes risk “does not change the fact that discontinuation rates remain high in a real-world setting” for patients taking GLP-1 drugs, “and we do not expect patients who fall off therapy to experience similar benefits.”

·     Healthcare facilities and technology: HCAT was upgraded from Neutral to Overweight at Piper after solid Q323 results, exceeding the midpoint of guidance across both revenues and adjusted EBITDA; RCM said to restate certain previously issued financial statements due to errors in accounting for expenses associated with historical acquisitions. CAH shares made new all-time highs amid strength in drug services.

·     In Dental Sector: HSIC reported Q3 adj EPS and revs ($1.32/$3.2B) in-line with consensus but lowered its full-year guidance to reflect a slowing economy; guides FY adj EPS to $4.43-$4.71 vs. est. $5.20; expects an estimated 55c-75c business impact from a recent cybersecurity incident.

·     In Medical technology: WAT was downgraded to Underweight at Barclays with a price target of $230, down from $270 citing a lack of visibility on the instrument down cycle and potential recovery, as well as expectations for continued negative sentiment on instrument names.

 

Technology

Internet, Media & Telecom

·     In Media: DIS movie "The Marvels" generated $47M in domestic box office ticket sales, below Disney’s ~$60M forecast and the lowest ever for a Marvel movie. DWAC shares volatile early after saying earlier there is substantial doubt about its ability to continue as a going concern.

·     In Telcom: VOD creates strategic partnership with ACN to commercialize Vodafone’s shared operations to accelerate growth.

 

Hardware & Software movers:

·     In Computer/Hardware movers: HPQ was upgraded to Buy from Neutral at Citigroup on continued improvements in PC ecosystem, significant cost takeout, and undemanding valuations and potential for higher FCF generation to drive higher buybacks.

·     In Security Software: CRWD resumed coverage at Stifel as upgrade to Buy with $225 tgt saying believes CrowdStrike has several secular and company-specific drivers to sustain at least low-to-mid 20% growth and operating margin/FCF expansion in coming years.

 

Semiconductors:

·     MU is facing a lawsuit from China’s Yangtze Memory Technologies over alleged patent infringement Barron’s reported. It’s another sign that memory chip maker Micron is on the front lines of the U.S.-China tension.

·     NVDA made it a 9^th straight day of gains despite broader weakness in chip names, though sector in focus as investors watch what happens with the Biden/Xi meeting this week. Most recently, the US restricted sales of AI chips to China.

·     TSEM posted a decline in Q4 revs, forecasting the midpoint at $350M, down -13% y/y and below est. $359M as faces oversupply of chips and continues to correct inventory; reported in-line Q3 revs $358.2M.