Closing Recap

Tuesday, November 14, 2023

Index	Up/Down	%	Last
DJ Industrials	489.89	1.43%	34,827
S&P 500	84.14	1.91%	4,495
Nasdaq	326.64	2.37%	14,094
Russell 2000	92.82	5.44%	1,798

 

 

 

 

 

 

 

 

 

The upward momentum in U.S. stocks continued Tuesday as investors enjoyed a massive, across-the-board move down in Treasury bond yields (long and short end of curve) in response to the better-than-expected US CPI inflation data, propelling stocks as all eleven S&P sectors closed markedly higher. Stocks, gold, oil, bonds all saw big gains after the consumer price index (CPI) was unchanged in October, and the core rate was up 0.2%, both weaker than anticipated, while y/y figures dropped. The S&P 500 Index (SPX) moved above the 4,500 for the first time since the middle of September, with the “scary” October well in the rear-view mirror at this point as the S&P 500 is now up 400 points since its low less than 3 weeks ago, on October 27^th, rising for the 10^th time in the last 12-trading days. That’s a +10% move in just 11 trading days while the Nasdaq is now up 13% from its October lows and just 6% away from a new all-time high, as the Santa Claus rally is right on time. The big mover today was the Russell 2000 Smallcap index, which has lagged large caps all year (still down -3% YTD despite today’s 5% spike). As of this morning, markets have shifted to expecting 4 interest rate cuts in 2024 and no further rate hikes this year. Among the biggest movers today were interest rate sensitive sectors as REITs (XLRE) jumped over 5.5%, Utilities (XLU) and Discretionary gained 3.6% and Financials advanced over 2%. Next up, the October producer price index (PPI) tomorrow morning as well as a few retail earnings with TGT, TJX and AAP are scheduled. Long list of 52-week highs today including: MSFT, META, AMZN, COST, WMT, AVGO, MU, KLAC, LULU, HLT among them.

 

Economic Data

·     The October Consumer Price Index was reported flat m/m, smaller than the expected +0.1% and below the prior month of +0.4% prior while headline y/y CPI rose +3.2% vs. +3.3% expected and +3.7% prior. The core CPI, which excludes food and energy rose a smaller-than-expected +0.2% m/m vs. +0.3% expected and +0.3% prior and y/y rose +4.0% vs. +4.1% expected and +4.1% prior. October housing inflation eased to the slowest pace in a year, as shelter prices rose 6.7%–down from an 8.2% peak in March. The report said that Health Insurance was down -34% y/y (really?).

 

Commodities

·     Oil prices erased earlier gains as WTI crude finished flat at $78.26 per barrel, off earlier highs of $79.77 per barrel while Brent crude futures settle at $82.47/bbl, down 5 cents, 0.06%, Earlier this morning, the International Energy Agency (IEA) raised its oil demand growth forecasts for this year and next despite an expected deceleration in economic growth in nearly all major economies. For 2023, the IEA raised its growth forecast to 2.4 million barrels per day (bpd) from 2.3 million bpd and moving closer to OPEC’s forecast of 2.46 million bpd. Gold prices jumped, rising $16.30 to settle at $1,966.50 an ounce.

 

Currencies & Treasuries

·     The U.S. dollar index (DXY) fell as much as -1.5% to around 104, among its biggest drawdowns of the year following the CPI inflation report that erased expectations of any further rate hikes this year and boosted chances of more aggressive easing in 2024 as per fed fund futures. The dollar sank alongside Treasury yields, which also tumbled following the release of an October inflation report which showed core prices rose by a slower-than-expected rate last month. The 10-year yield dropped about -18-bps to 4.44% while the 2-year fell over -21bps to 4.83%.

·     Reminder that a potential US government shutdown on Saturday threatens markets as the House prepares to vote on a temporary funding plan Tuesday. House Speaker Mike Johnson’s interim funding plan would fund some parts of the government through Jan. 19 and others through Feb. 2. 

 

 

Macro	Up/Down	Last
WTI Crude	0.00	78.26
Brent	-0.05	82.47
Gold	162.30	1,966.50
EUR/USD	0.0181	1.0878
JPY/USD	-1.35	150.36
10-Year Note	-0.187	4.445%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     In Tobacco: Imperial Brands said it expects 1H profit to rise in low single-digits while forecast revenue and profit growth next year; reported a 3.9% rise in adj operating profit for the 12 months ending Sept. 30, topping forecasts of 3.5%.

·     In Food: Bernstein upgraded shares of two food names, raising KHC to Outperform w/ $40 PT @ Bernstein due to its cheap valuation, fair relative positioning in a GLP-1 world given its protein-forward portfolio in the U.S., and an improved business model – and upgraded SJM from Underperform to Market Perform w/ $119 PT primarily due to its cheap valuation as the stock is down -32% YTD, leading to a more balance risk-reward for investors.

·     In Beverages: Citigroup said in takeaways from the 2023 Beer Insights Seminar that overall, U.S. beer industry volumes remain soft YTD, down over -5% Y/Y, with macro impacts on weaker consumer trends and elasticity impacts from price increases, and large market share shifts post the Bud Light controversy continuing (BUD, SAM, STZ, TAP). TD Cowen also said the tone of this year’s Beer Insights Seminar was decidedly cautious, given accelerating industry volume declines and slowing pricing. CELH shares fell after Morgan Stanley said y/y growth cooled in NielsenIQ scanner data for the L2W ended 11/4/23, although 2-year average growth remained robust.

·     In Retail: ONON beat earnings and revenue forecasts for Q3 but was notable that sales growth slowed for the third quarter in a row, sending shares lower; Bernstein noted Pou Sheng, NKE and ADDYY biggest China wholesale partner, reported -4% retail growth in October, and revenue is down -17% versus 2021. 80%+ of Pou Sheng’s China sales are from Nike and Adidas products. COTY increases share repurchase program by $600M to accommodate planned hedged share buyback transaction of additional 25M shares.

 

Leisure, Gaming & Lodging:

·     In Autos: FSR shares tumbled after delaying 10-Q filing, Q3 revenue miss late yesterday; RIVN said last night it plans to raise nearly $15B in debt to help build an electric vehicle manufacturing plant in Georgia; TSLA increases price of Model 3 and Y in China from Nov. 14 and China saw record monthly electric-vehicle sales in October despite the end of subsidies – Reuters. WKHS cut its annual revenue outlook to $10-15M vs. prior view $65M-$85M citing HVIP vouchers delays and stalled access of its products in the California market.

 

Homebuilders & Improvement sector:

·     In Home Improvement Retail: HD Q3 EPS $3.81 tops consensus $3.77; Q3 revs $37.71B vs. est. $37.63B; Q3 comp sales fell (-3.1%) vs. est. drop (-3.3%) and comp sales in the U.S. dropped (-3.5%) while narrows year EPS, sales and comps view; HD sees 2023 sales and comp sales to decline between 3% and 4% y/y (vs. prior down 2%-5% view for both sales and comps), EPS to decline between 9% and 11% y/y (vs. prior 7%-13% view).

·     Homebuilders were one of the biggest movers initially following the softer CPI data, which pushed Treasury yields sharply lower, in turn lowering mortgage rates and boosting expectations for increased demand in housing (BZH, DHI, KBH, LEN, MTH, TOL moved higher).

·     In Building Products: Flooring company LL said it received a new offer to be acquired, this time at $3 a share, from a firm owned by company founder Tom Sullivan. In May, Sullivan said F9 had taken a 9.4% stake in the company and offered to buy the rest at $5.76 a share.

 

Energy, Industrials and Materials

·     In Solar: CSIQ shares tumbled initially after Q3 revs $1.85B vs. est. $2.03B; Q3 EPS $0.32 vs. est. $0.82; guides Q4 revenue $1.6B-$1.8B below consensus $2.65B. However, the solar complex, which has been hammered over the last 2 months on rising rate fears and its impact on financing saw massive interest today with FSLR, ENPH, SEDG jumping and names across the board.

·     In Aerospace & Defense: Ethiopian airlines agrees to landmark order for up to 67 Boeing (BA) jets, with agreement for eleven11 787 Dreamliners and twenty 737 Max, with opportunity for 36 more jets.

·     In Metals & Mining: TECK sold its 77% stake in its steelmaking coal business to Glencore ($GLNCY) for $6.93B in cash as the deal is expected to close in Q3 2024; TECK will also sell 20% of the steelmaking coal business to Japan’s Nippon Steel Corp.

·     In Tankers: The Baltic Dry Index hit a three-week high, helped by higher rates for smaller vessel segments offset weakness in the Capesize index. The overall index gained 7 points or 0.4% to 1,662 as Capesize index was down 33 points or 1.3% to 2,574, snapping a three-session winning streak. panamax index rose for the sixth straight session, up 59 points or 3.8% to 1,607.

·     In Transports: Dow Transports surging over 500 points or 3.7% to 14,900, moving back above its 200-day MA today of 14,840. Broad based strength on signs of a “soft landing” for the US economy helped boost transports/discretionary names.

·     In Chemicals: fertilizer makers MOS and NTR were upgraded at Barclays saying they expect Canpotex to likely maintain its relative share of shipments, as demand is set to pick up post two years of underapplication (Canpotex Limited is a joint venture that is wholly owned by Mosaic and Nutrien). Barclays highlights a shift from the inventory glut that they saw most predominantly in South and North America, where fertilizer destocking has tapered off, though destocking for crop protection and seed is still prevalent in South America" The firm also downgraded CF to underweight from equal weight.

 

Financials

Banks, Brokers, Asset Managers:

·     In Brokers: SCHW provided monthly metrics saying total client assets were $7.65 trillion as of month-end October, up 9%; said core net new assets brought to company excluding Ameritrade brokerage originated clients equaled $16.1B for October.

·     In Banks: Tumbling treasury yields helped boost banks and brokers with the BKX Index up over 5% while the regional bank KRE surged over 7%. NYCB was downgraded to Underperform at Wedbush owing to its sizable exposure to the NYC rent-regulated multifamily lending market.

·     In Financial Services: RDFN noted that home sellers gave concessions to buyers in 35% of U.S. home sales during the three months ending Oct. 31, according to a new report – little changed from 35.9% one year earlier but up from 27.6% two years earlier.

 

Healthcare

Biotech & Pharma:

·     AZN said its cancer drug Imfinzi given along with chemoradiotherapy failed to meet main goal in a late-stage trial to treat unresectable, Stage 3 non-small cell lung cancer; trial did not achieve statistical significance for progression-free survival versus CRT alone.

·     BTAI shares tumbled after saying the FDA recommends an additional late-stage trial for its Alzheimer’s dementia related agitation treatment BXCL501, will be conducted in at-home settings and evaluate safety and collect additional efficacy data.

·     DNA was downgraded to Market Perform from Outperform at Raymond James and cut its price target to $2.50, down from $3.50.

·     HROW reported a surprise Q3 net loss and lower-than-expected revenue and gross margins.

·     In Aesthetics: SKIN plunges after saying the President and CEO will depart, Q3 sales rose 9.7% y/y to $97.4M below est. $117.2M on lower margins y/y (62.5% vs. 75.1%) and cuts FY23 revs to $385M-$400M from $460M-$480M; shares of other aesthetics companies were active.

·     In Life Sciences: TMO authorizes $4B of share repurchases which replaces the company’s existing repurchase authorization, of which $1B was remaining.

 

Technology

·     NVDA made it a 10th straight day of gains, rising near the $500 level for the first time since late Aug (8/24). The company hosted their keynote/special address at the annual Supercomputing conference (SC’23). Where they announced the H200 GPU with HBM3e, its top-of-the-line chip for artificial intelligence (AI), saying the new offering will start to roll out next year with AMZN, GOOGL and ORCL. The H200 will overtake Nvidia’s current top H100 chip.

·     Michael Burry unveiled a couple of new bearish bets in a quarterly filing from his Scion Asset Management released Tuesday. Burry’s firm is betting against an index of semiconductor stocks (SMH), as well as the company formerly known as Priceline.com, according to its latest quarterly 13-F filing. The filing also revealed that Scion had apparently closed out its put option positions tied to ETFs tracking the Nasdaq-100 QQQ and S&P 500 SPY.

·     SE shares tumbled after they reported Q3 EPS loss (-$0.26) vs. est. $0.03, though Q3 revs of $3.3B topped consensus of $3.10B.

·     SNAP shares rose after the Information reported that AMZN agreed to let its users shop for products directly from ads on the Snapchat app https://tinyurl.com/4naepf92

·     XPER reported Q3 adj. EPS loss of ($0.08) vs. est. loss ($0.11); adj. EBITDA $9.3M vs. est. $7.6M and total revs rose +7.2% y/y to $130.4M vs. est. $127.9M and narrowed F23 guidance.