Closing Recap

Friday, November 17, 2023

Index	Up/Down	%	Last
DJ Industrials	1.81	0.01%	34,947
S&P 500	5.79	0.13%	4,514
Nasdaq	11.81	0.08%	14,125
Russell 2000	24.01	1.35%	1,797

 

 

 

 

 

 

 

 

 

One of the quietest days on Wall Street in some time, as stocks chopped up and down, ending modestly higher on the day (S&P within 20-point range), as investors keep a keen eye on Treasury yields which hit 2-month lows earlier and add to bets the Fed is done with rate hikes during their long multi-year rate hike cycle. The story of the week was inflation data, with the CPI and PPI data on Tuesday and Wednesday respectively setting the tone after both sets of figures showed deceleration in prices/coming in below economist estimates. That prompted the stock surge, especially in interest rate sensitive sectors that have been hurt by surging yields. Sectors that rely on financing or lending for their biz (housing, solar, biotech) also posted big jumps. Small caps have dominated starting Tuesday after a 5% pop on the CPI and held gains this week (+8% on week). There has been strong buying interest over the last 2-weeks as Goldman Sachs said Commodity Trading Advisors (CTAs) bought a record $70B in U.S. stocks in the last 10-days, as per Bloomberg, the largest 10-day buying on record, GS data going back to 2016 suggest. Goldman also said it has seen an “even larger pickup” in net buying from “long-only” at the turn of November to date, a 40% increase over last year. The move comes as Treasury yields tumbled this month and the dollar has eased. While the macro continues to dominate, the other big story this week was retailers, with several earnings grabbing the headlines: The sector jumped early in the week behind better TGT and Macy’s results, fell mid-week as WMT didn’t deliver same beat with stock at 52-week highs leading to slide in some names/discount retail, and today apparel retail getting a bounce after GPS reported better results (big apparel earnings next week too). ROST better results in off-price retail help today while warehouses mixed after BJ sales miss/guidance. After today’s gains, the S&P is up 13 of the last 15 sessions – and 1 of those red sessions were less than .2% as the rally remains broad based and very resilient with little to no pullbacks heading into Thanksgiving.

 

Economic Data

·     Housing Starts for October rose +1.9% to 1.372M, above the 1.350M expected and upwardly revised 1.346M in Sept; Oct Building Permits rose +1.1% to 1.487M vs. 1.463M expected and above the downwardly revised 1.471M (from 1.473M) in Sept.

 

Commodities, Currencies and Treasuries

·     Oil posts its fourth weekly loss after sinking into a bear market, in part as supply exceeds expectations as WTI crude futures settle at $75.89 per barrel, up $2.99, 4.10% (down -1.66%) and Brent Crude futures settle at $80.61 per barrel, up $3.19, 4.12%. While some of the drops reflect a real slump in demand and boost in supply, some of it looks technical and possibly temporary. Note the IEA and EIA have lowered their 2024 global oil demand forecasts for months. Natural gas futures fell -2.41% to settle at $2.96 per million British thermal units.

·     The U.S. dollar posted sharp declines, falling to 2-month lows vs. rivals this week, while the yen strengthened to trade below 150 to the dollar as concerns grow about the weakening global economic outlook. The “cooler-than-expected” U.S. inflation data Tuesday/Wednesday ended bets on further rate hikes and reset market expectations for how soon the Federal Reserve will cut rates which weighed on the greenback. The dollar dropped -1.6% this week.

·     Bonds continued to grind higher all morning as yields sank further. Data that showed U.S. single-family homebuilding increased marginally in October briefly supported the dollar, but with inflation the main market driver it remained lower on the day. The 10-yr yield was flattish today but was down -18.6 bps to 4.441% this week and MTD down -43.3 bps while the 2-yr yield was +6.7 bps today to 4.907%, but down 15.3 bps this week.

·     Gold prices erased early gains, falling -$2.60 to settle at $1,984.70 an ounce (down from earlier highs $1,996.40 an ounce), but ended the week with solid gains, rising over 2.5%, while silver prices outperformed, jumping over 7% this week to $23.80 an ounce.

 

 

Macro	Up/Down	Last
WTI Crude	2.99	75.89
Brent	3.19	80.61
Gold	-2.60	1,984.70
EUR/USD	0.0045	1.0895
JPY/USD	-1.03	149.68
10-Year Note	-0.004	4.441%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     In Apparel Retail: GPS reported better-than-expected Q3 results driven by improving sales at Old Navy and easing expenses as Q3 revs $3.7B topped the $3.6B estimate and adj EPS of $0.58 easily topped the $0.19 consensus – Wells Fargo noted GPS beat GMs by ~250bps, 2) doubled Street EBIT and 3) returned their largest/most profitable brand (Old Navy) back to pos comps.

·     In Clubs/Discount Retail: BJ Q3 net sales of $4.82B missed the $4.9B consensus estimate as they face tight discretionary spending; lowered its annual forecast for adj. comp sales to a range of 1%- 1.8% from prior target of 2% rise (est. 2.1%).

·     In Off-Price retail: ROST posted a strong Q3 beat, driven by 5% comps and a big freight recapture tailwind; operating margin improved to 11.2% from 9.8% last year; overall sales rose 7.9% y/y to $4.92B topping consensus.

·     In Consumer/Home products: SPB Q4 adj EPS and sales topped consensus and said expects low single-digit reported net sales decline in Fiscal 2024, with foreign exchange expected to have a slightly negative impact based upon current rates.

·     In Food & Beverages: NAPA shares fell after saying it would acquire Sonoma-Cutrer Vineyards and related brand trademarks from BF in stock/cash deal valued at about $400M.

 

Leisure, Gaming & Lodging:

·     In Lodging and Travel: ABNB was downgraded to inline from outperform at Evercore/ISI citing limited near-term catalysts, while EXPE was upgraded to outperform from inline. VAC was downgraded from Neutral to Underperform at Bank America and slash tgt to $65 from $125 saying it disappointed in Q3 and faces pressure across every business segment.

·     In Leisure & Recreation: MANU shares jumped after Sky News reported the Glazer family is set to finalize a $33 per share deal with Jim Ratcliffe that will see the British billionaire acquire a 25% stake in the English soccer club. https://tinyurl.com/e4z4h58x . DKNG shares rose for a 5th day in the last 6 to fresh 52-week highs.

·     In Autos/EVs: CHPT shares tumbled after missing Q3 revenue guidance by 43% at midpoint and with the CEO and CFO’s departures; slashes Q3 revenue view to $108M-$113M from $150M-$160M (est. $157.3M); expects to take a non-cash impairment charge of $42M during Q3.

 

Energy

·     In Energy: after lagging the broader S&P most of the week, the energy complex seeing biggest move higher today across the board; US total rig count 618 Baker Hughes (BKR) noted as oil rig count 6 to 500 and gas rig count down 4 to 114.

·     In Aerospace & Defense: HUBB was upgraded from Neutral to Overweight at JP Morgan on the back of its utility checks at the annual EEI conference this week, which suggests that market concerns on utility appear overdone.

·     In Paper & Packaging: WRK upgraded from Hold to Buy at Argus with $42 tgt saying it is going through a challenging period; sales and earnings in the latest quarter both fell from the prior year – but notes volume is starting to pick up, and mgmt has an ambitious cost-cutting program.

·     In Materials: CMP reported Q4 EBITDA of $33M vs. Street $42.5M, largely driven by higher Corporate and Other costs because of recognition timing for Fortress EBITDA to Q1 vs the initially expected Q4 (~$12M of EBITDA).

 

Financials

·     In Mortgage Services: RDFN reports pending home sales rise to highest level in a year. New listings were near their six-month high in October, helping drive an increase in pending sales, though buyers backed out of deals at the highest rate on record. Pending Home Sales fell 4.8% from a year earlier, but that’s the smallest annual decline in almost two years.

·     In Insurance: PGR reported October combined ratio 91.7% vs. 95.9% y/y; said net premiums earned $5.38B, +10% y/y and net premiums written $5.53B, +6.6% y/y.

·     In REITs: BKD upgraded to Outperform from Sector Perform at RBC Capital and raising PT to $9 from $7 as sees improving fundamentals and favorable supply and demand characteristics expected to persist for the next several years.

 

Healthcare

Biotech & Pharma:

·     Agilent (A) was downgraded to Neutral from Buy at UBS and cut its price target to $125 from $163 with a view that overexposure to regional headwinds in China, instrument demand normalization, and softening cyclical spend could pressure forecasts.

·     AZN received U.S. FDA approval for breast cancer drug Truqap.

·     LLY said to expand injectable manufacturing capacity with planned $2.5 billion site in Germany; to also invest up to $100M in German early-stage life science ecosystem.

·     NVAX announced mgmt changes saying John Trizzino will take on the newly created role of President and COO for the company. Current Chief Legal Officer and Corporate Secretary John Herrmann will retire effective December 8, and Mark Casey will join the company to succeed.

·     TEVA announces approval of a generic version of Forteo (teriparatide injection), in the U.S.

·     THC said it will sell three hospitals and related operations in South Carolina to Novant Health for $2.4B to cut down debt; estimates recording a pre-tax book gain of ~$1.6B on transaction.

·     TWST shares jumped after quarterly revenue topped consensus, $67M vs. est. $63.5M on narrower EPS loss, though guided FY24 revs $285M-$290M vs. est. $298.7M.

 

Technology

Hardware & Software movers:

·     MSFT shares fell after hitting a new all-time high of $376.35 on Thursday. Losses picked up steam in the final minutes of the day on reports Sam Altman has left OpenAI, saying the board no longer has confidence in his ability to continue leading OpenAI and named Mira Murati interim CEO.

·     AMSWA Q2 EPS $0.08 vs. est. $0.09; Q2 revs $25.7M vs. est. $28.27M; Q2 Subscription fees rose 8% y/y to $13.4M; cuts FY24 adjusted EBITDA view to $14.5M-$16M from $19M-$21M.

·     RBLX upgraded from Underperform to Peer Perform at Wolfe Research noting the co has showcased its more durable bookings growth and provided more granular detail on its advertising opportunity, two core points in their prior thesis for its downgrade.

·     Unity (U) kicked off its Unite 2023 conference, announcing several new features and upgrades to Unity’s platform of services and keynote highlighted the launch of its new LTS release in 2024 called Unity 6.

·     ZM was upgraded to Neutral from Sell at Citigroup with $66 tgt saying they see more balanced risk/reward with the stock sitting below its target price and near trough multiples, with most of its downgrade concerns playing out. The firm said AI companion has seen strong uptake (125K customers) and could boost free-to-paid conversion, while Contact center is a FY25 call option.

 

Semiconductors:

·     AMAT posted Q4 beat led by IoT, Communications, Automotive, Power, and Sensors while mgmt noted the impressive growth will cool-off towards the back end of FY24 coming off tough comps while noted DRAM and NAND WFE improving, but NAND still <10% of total WFE – shares fell on concerns over potential US sanctions and as AMAT did not provide a 2024E WFE outlook.

·     ADI upgraded to Overweight from EW at Morgan Stanley and raise tgt to $225 from $176 saying the current analog/MCU downcycle is expected to bottom in May 2024. That said, quality matters and shifts their preference to a late downcycle playbook, more optimistic on analog.