Closing Recap

Tuesday, November 21, 2023

Index	Up/Down	%	Last
DJ Industrials	-62.75	0.18%	35,088
S&P 500	-9.19	0.20%	4,538
Nasdaq	-84.55	0.59%	14,199
Russell 2000	-23.82	1.32%	1,783

 

 

 

 

 

 

 

 

 

U.S. stocks finished lower in lackluster trading, snapping the 5-day win streaks for the Nasdaq and S&P but finished well off the morning lows as optimism grew heading into the NVDA earnings report tonight and its impact on technology/semiconductors. Fed minutes from the November FOMC meeting late afternoon delivered no major surprises though commentary continues to suggest they are erring in being more restrictive for longer on interest rates than what the market implies to make sure they adequately squash inflation. It was a dull trading day, paring losses off morning lows with strength in Healthcare, Materials, and Consumer Staples while Tech and REITs lagged. The Thanksgiving Day holiday is two days away and volumes and volatility already starting to peter out.

 

Lots on Wall Street saying positive into year-end as Bank America strategy call provided 5 reasons why the S&P 500 is likely to trade at 5,000 by end of 2024, including: 1) Lack of conviction among bears – saying “Bull markets typically end with high conviction and euphoria – we are far from that,” 2) BofA’s bottom-up analyst survey indicates a "goldilocks" scenario for 2024, with expectations for decelerating but not declining prices, higher margins, offsetting wage inflation with efficiency gains, and falling costs in other areas, 3) they forecast $235 (+6% YoY) in 2024 EPS despite slowing GDP”, 4) said election years have been positive for equities and 5) US exceptionalism is intact – “The US began to wean itself off of China in 2018, and reshoring has been cited as a tailwind by companies. In more signs of market strength, bespoke invest tweeted: "The percentage of stocks above their 50-DMAs has risen rapidly for these sectors: Financials: 93%, Comms 81.8%, Technology: 81.3%, Industrials: 79.2%, S&P 500: 71.2%".

 

Federal Reserve officials agreed at their last policy meeting they could take a cautious approach to raising U.S. interest rates moving forward and would only need to move them higher "if" incoming information showed insufficient progress in lowering inflation. "All participants agreed that the FOMC was in a position to proceed carefully," according to minutes of the Oct. 31-Nov. 1 session. "Participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee’s inflation objective was insufficient," the minutes said.

 

Economic Data

·     Existing Home Sales for October fell (-4.1%) to 3.79M unit rate from Sept 3.95M (and below consensus 3.95M) prev 3.96M); Oct inventory of homes for sale 1.15M units, 3.6 months’ worth; U.S. Oct national median home price for existing homes $391,800, +3.4% from Oct 2022.

·     The Chicago Fed’s National Activity Index slid to –0.49 in October from –0.02 the month before as all four broad categories of indicators used to construct the index decreased.

 

Commodities, Treasuries and Currencies

·     Gold prices jumped $21.30 to settle at $2,000.60 an ounce (hit highs of $2,009.80 an ounce earlier), its highest finish since July. The move initially came on weaker Treasury yields and US dollar weakness, though both reversed. Oil slipped on Tuesday, reversing steep gains made in the past two sessions, as investors turned cautious ahead of a meeting of OPEC+ this Sunday when the producer group may discuss deepening supply cuts due to slowing global growth. WTI crude finished little changed, down 6c to $77.77 per barrel. Oil has dropped about 16% since late September as crude output in the U.S. held at record highs, while the market was concerned about demand growth and economic slowdown. Weighing on the dollar/boosting yen was a rally in China’s yuan, which rose to an almost four-month high.

 

 

Macro	Up/Down	Last
WTI Crude	-0.06	77.77
Brent	0.13	82.45
Gold	21.30	2,001.60
EUR/USD	-0.0023	1.0914
JPY/USD	-0.08	148.28
10-Year Note	-0.004	4.417%

 

 

Sector News Breakdown

Consumer

Retail, Consumer Staples & Restaurants:

·     In Sporting Goods Retailers: a standout group to upside early behind better results from DKS and HIBB: DKS Q3 adj EPS $2.85 beat by $0.40 on better sales $3.04B vs. est. $2.94B and boosted its FY23 adj EPS view to $12.00-$12.60 from $11.50-$12.30 and comp store sales growth 0.5%-2% vs. prior view flat to up 2%. HIBB Q3 EPS $2.05 vs. est. $1.18; Q3 sales $431.9M vs. est. $416.7M; Q3 comp sales (-2.7%) vs. est. (-6.18%), but down from y/y +9.9%; E-commerce sales as share of total sales 17% vs. 15% y/y; still forecasts 2024 comp sales down low-single digit.

·     In Electronic retail: BBY reported Q3 EPS $1.29 vs est. $1.19 on lighter revs. Comps fell (-7%) vs est. (-6%) and guided Q4 comp sales -3% to -7%, est. -1.12% and FY comp sales -6% to -7.5%, vs. prior forecast -4.5% to -6%. CEO said, “in the more recent macro environment, consumer demand has been even more uneven and difficult to predict."

·     In Footwear: CAL shares jumped after Q3 adj EPS of $1.37 topped the $1.29 estimate with upbeat guidance as benefited from its Famous Footwear segment delivering double digit operating margin; FL was downgraded from Buy to Neutral at BTIG noting shares have rebounded over 30% off the August lows post the Q2 report, despite the firms view that the upcoming Q3 report (11/29) will point to unchanged fundamentals.

·     In Dept Stores/Apparel: ANF Q3 adj EPS/$1.83/$1.1B topped the $1.18/$980.9M estimate, forecasts FY net sales +12% to +14%, from prior about +10% which includes a 53^rd week and guides year operating margin to be about 10% from prior 8%-9% view (shares fell despite beat and raise as shares _215 YTD); AEO Q3 revs rose 4.9% y/y to $1.30B above est. $1.28B on slightly better EPS of $0.49 but shares fell as guides Q4 operating income $105M-$115M vs. est. $114M (but raised the low end of year op income outlook to $340M-$350M from $325M-$350M.

·     In Dept Stores/Off-price Retail: BURL shares outperformed as profit beat expectations in Q3 and said gross margins rise 200-bps while Merchandise margin improved 150-bps and freight expense up 50-ps while raises FY23 revenue view to up 11% from 3%-4% – follows better results and guidance from comps last week TJX, ROST. KSS Q3 EPS 53c vs est. 35c on lighter revs, comps worse down (-5.5%) vs est. (-4%) on better margins 38.9% vs est. 37.9% and raised year EPS but cut its sales growth outlook to negative 2.8% to 4.0% from negative 2% to 4%.

 

Homebuilders, Building Products, Home Furnishing:

·     In Home Improvement Retail: LOW with mixed Q3 as EPS $3.27 topped est. $3.03 but Q3 revs $20.47B miss est. $20.88B; Q3 comp store sales fell (-7.4%) vs. est. (-4.9%); cuts FY23 EPS view to $13.00 from $13.20-$13.60 (est. $13.32), lowers FY23 revenue view to $86B from $87B-$89B (est. $87.55B) and cuts FY23 comparable sales view to down 5% from down 2%-4%.

 

Leisure, Gaming & Lodging:

·     In Autos: Ford (F) said it is moving forward on construction of a battery plant in Michigan but at a reduced size from original plans, citing a pullback in the outlook for future electric-vehicle demand. FSR shares hit all-time lows after its chief accounting officer Florus Beuting has resigned, within two weeks of being appointed to the role which led to the EV maker to delay its quarterly results after it flagged issues relating to internal controls over financial reporting.

·     In Lodging & Leisure: WH said CHH offer not in best interest of company saying, “Choice Looks to Impose Two Years of Regulatory Limbo and Significant Business Risk on Wyndham Shareholders and Fails to Address Substantial Concerns with Prior Offer Now Valued at $86”. Choice hasn’t boosted its cash-and-stock offer, currently worth $86 a share. That is down from $90 given a decline in Choice shares since the takeover offer was made in October.

 

Energy

·     In Solar: Mizuho initiated shares of ENPH, FSLR, HASI, NXT, RNW, SHLS, SEDG, NOVA, RUN with Buy ratings and Neutrals on ARRY, ENLT, MAXN, SPWR saying they expect the industry to be dominated by: interest rate increases slowing (or reversing), the US Treasury clarifying the next phase of IRA rules, channel inventory absorption in the first half, and growing demand due to declining equipment costs. Mizuho’s top picks are FSLR, NXT, and HASI

·     In Utilities: Few Wall Street analyst calls as Mizuho downgraded EXC to neutral from Buy and cut tgt to $40 from $45 due to concerns over the Illinois regulatory environment noting the recent decision for Illinois gas utilities and the subsequent below-average ROEs. Mizuho upgraded BKH to Neutral from Underperform, as the company’s balance sheet has improved considerably over the past year. Also, ETR was upgraded to Buy at Bank America after a positive financial update at this year’s Edison Electric Institute (EEI) financial conference.

·     In E&C Sector: DY Q3 adj EPS $2.82 vs. est. $1.75; Q3 revs $1.14B vs. est. $1.07B; Q3 adj EBITDA $166.8M, rising +46% y/y, vs. est. $125.9M; Dycom also identified its fifth largest customer as only "Customer #5" and said the company requested that their name not be disclosed. Jacobs (J) Q4 EPS $1.90 vs. est. $1.87; Q4 revs $4.29B vs. est. $4.13B; Q4 backlog increased $1.2B to $29.1B, up 4% year-over-year; sees FY24 adjusted EPS $7.70-$8.20, vs. consensus $8.40 and sees FY24 adjusted EBITDA $1.53B-$1.6B.

·     In Industrials: CRH boosted its full-year EBITDA guidance to $6.3B from $6.2B prior given in August and said expects positive pricing momentum to continue; also announces a $2.1B acquisition of building materials assets in the high-growth Texas market from MLM. SYM shares surged after Q4 beat on both Revenue and EBITDA, which included the Company’s first quarter of positive adjusted EBITDA and a shift to gross profitability with the Software segment.

·     In Metals & Mining: VALE upgraded to Buy at Goldman Sachs as expects a balanced iron ore market for 2024, strong operational momentum, and ongoing China policy support to create a compelling setup amidst low investor expectations and attractive valuation. Gold miners (AEM, AUY, GOLD, NEM) saw strength as gold prices resumed upward momentum, topping $2,000.

 

Financials

Banks, Brokers, Asset Managers:

·     In crypto: Changpeng Zhao, the chief executive of Binance stepped down and pled guilty to violating criminal U.S. anti-money laundering requirements in a deal that may preserve the company’s ability to continue operating https://tinyurl.com/y7w5u9rn

·     In Banks: ZION downgraded to neutral from buy at Citigroup citing valuation and said the firm now trades at the median of peers on its implied cost-of-equity.

 

Healthcare

Biotech & Pharma:

·     GLMD said late Monday it estimates a delay of 6-9 months in the initiation of a mid-stage study of its lead drug, Aramchol Meglumine, for Primary Sclerosing Cholangitis

·     INCY downgraded to Neutral from Buy at Goldman Sachs given the continued uncertainty around Jakafi lifecycle management ahead of the mid-27/late-28 EU/US losses-of-exclusivity (LOEs) and look to clarity on several programs.

·     MOR shares fell after saying its experimental treatment for myelofibrosis, a rare type of bone marrow cancer, achieved the primary efficacy goal in a pivotal trial, but fell short in addressing patient symptoms, raising questions about its chances for approval.

·     MRK said it will acquire Caraway Therapeutics, a privately held developer of drugs for genetically defined, neurodegenerative diseases, for $610 million. Caraway’s drug candidates, targeting Parkinson’s disease, are in preclinical development.

·     MRNA shares fell after Reuters reported that BNTX said the European Patent Office has declared an mRNA patent invoked by Moderna in litigation as invalid.

 

Healthcare Services & MedTech movers:

·     In Life Sciences: Agilent (A) Q4 adj EPS of $1.38 beats by 4c per share on better revs $1.69B vs. est. $1.67B saying lower costs and improvement in demand for laboratory instruments and consumables helped but offered lower FY revenue/EPS guidance.

·     In MedTech: MDT Q2 profit and revenue estimates topped consensus and raised its annual earnings forecast as sees EPS $5.13-$5.19 vs. prior view $5.08-$5.16 and increased its FY24 organic revenue growth forecast to 4.75%, versus the previous expectation of 4.5%.

 

Technology

Internet, Media & Telecom

·     AMZN shares stumbled after CNBC’s David Faber said this morning on air, citing market speculation among traders, that Jeff Bezos may be selling 8M-10M of those shares, or potentially $1B worth of stock.

·     Telecom stocks outperform, continued string of gains as VZ made it an 8th straight day of gains and AT posts its 6th straight day as Telecom names strong.

 

Hardware & Software movers:

·     For AAPL KeyBanc noted that their October carrier survey reveals slowing iPhone 15 sell-through, as demand for the iPhone 15/Plus has slowed meaningfully, partially offset by healthy demand for the iPhone 15 Pro/Max. Accordingly, the firm is also seeing a meaningful increase in store inventories to almost two DOI, which is above last year’s iPhone 14 inventory levels. Said their data also reflects weaker sales of iPhones (+3% m/m, -5% y/y), below seasonal trends.

·     Video Software: ZM reported Q3 results ahead of consensus despite continued headwinds in the company’s Online and overseas segments, reached ~7M paid seats, revenue beat was driven by better-than-expected Enterprise revenues (7.5% Y/Y vs consensus of 5.4% Y/Y); guidance mixed.

·     In IT Services & Consulting: Oppenheimer made several ratings changes: DOCN was upgraded from Perform to Outperform as thinks growth is set to accelerate and are increasing outer-year estimates driven by several factors. NET was upgraded from Perform to Outperform as thinks the company is well-positioned to offer edge compute at scale on one infrastructure enabling one common developer platform (Workers). AI was upgraded from Perform to Outperform with 440 tgt at Opco saying their 6/29/23 initiation was positive on C3.ai’s long-term growth opportunity, but neutral on the stock. Since, C3.ai has reset guidance, and worked through a model transition.

 

Semiconductors:

·     NVDA reporting earnings after the close tonight with shares +240% YTD, among top leaders in the Nasdaq this year which is up 36% YTD.

·     AVGO and VMW announced that they have received all required regulatory approvals and intend to close Broadcom’s acquisition of VMware on November 22, 2023. Broadcom has received legal merger clearance in Australia, Brazil, Canada, China, the European Union, Israel, Japan, South Africa, South Korea, Taiwan, the United Kingdom.

·     ADI reported Q4 EPS $2.01 on revs, mostly in-line with consensus while guides Q1 below estimates as $2.4B-$2.6B vs. est. $2.71B; said continues to expect customer inventory digestion to persist into H1 2024

·     WDC was upgraded from Sell to Neutral at Goldman Sachs and raised tgt to $48 from $31 citing improving NAND Supply/Demand, says cyclical recovery in nearline HDD.