Closing Recap

Monday, November 27, 2023

Index	Up/Down	%	Last
DJ Industrials	-56.75	0.16%	35,333
S&P 500	-8.92	0.20%	4,550
Nasdaq	-9.83	0.07%	14,241
Russell 2000	-6.35	0.35%	1,801

 

 

 

 

 

 

 

 

 

U.S. stocks were choppy to kick off the week, enjoying a slow grind higher all morning, before stocks took a breather late afternoon finishing in the “red”. Stock markets have surged since the end of October, as the S&P and Nasdaq look to extend their weekly win streaks to five-straight heading into the seasonally strongest time of the year. The S&P 500 was up +8.7% coming into today for its best overall month since July 2022, rising 7 of the last 8 trading days while the Nasdaq has risen to its best levels since January 2022 in what has been a moonshot the last few weeks (+11% MTD). Most of today’s stocks related headlines were dedicated to Black Friday, Weekend, and Cyber Monday retail revenue figures such as Adobe e-commerce spending was +7.5% Y/Y; Mastercard said total retail sales were +2.5% on Friday, etc. (more data/details below). There were two Treasury auctions held today, with a $54B in 2-yr (auction results “ok”) and a $55B 5-year auction (stronger than the 2-yr), which pushed bonds higher and yields lower. The 10-yr yield ends at lows of day, down -9.5bps to 4.388%, biggest one day drop in about 2-weeks and down 6 of the last 7 days. Gold prices hit 6-month highs, oil was volatile, and the dollar was flat. We got New Home Sales and 2 bond auctions (2 and 5-yr) – but data picks up later this week: On Tuesday: Case-Shiller Home Prices, Consumer Confidence & Richmond Fed, and 7-yr auction as well as Fed speakers Goolsbee and Waller (both voters). On Wednesday: US 3Q GDP 2nd reading, Fed Beige Book, China PMI, and Fed speaker Mester. On Thursday: PCE inflation data for Oct, OPEC Meeting, EU CPI, China PMIs, US Jobless Claims, Chicago PMI’s, Pending Home Sales. On Friday: EU PMIs, US ISM Manufacturing and several Fed speakers: Goolsbee, Powell and Cook.

 

Economic Data

·     Oct single-family home sales fell -5.6% to 679K unit ann. rate, below consensus of 723K and prior downwardly revised 719K (from 759K); Oct home sales Northeast +13.2%, Midwest -16.4%, South +2.1%, and West -23.3%; Oct new home supply 7.8 months’ worth at current pace vs Sept 7.2 months; Oct median sale price $409,300, -17.6% from Oct 2022 ($496,800).

 

Commodities

·     Oil prices declined with WTI crude down -$0.68 to $74.86 per barrel, its fourth-straight session decline on doubts OPEC+ will be able to agree to further reduce production when it meets virtually on Thursday. Brent crude futures settle at $79.98/bbl, down 60 cents, 0.74%. OPEC+ will meet on Nov.30, a meeting originally scheduled for Sunday, to set production quotas amid weakening prices and falling demand. Note oil is down about -7% this month and on pace for the 2nd straight monthly loss after losing -10.76% in October. Natural gas prices for December closed -6.1c, or -2.1%, to $2.794/MMBtu on Nymex, its lowest settlement since Sept. 27. Gold prices rise to fresh 6-month highs of $2,012.40 an ounce, rising $9.40.

 

Currencies & Treasuries

·     Treasury yield fell back near 2-month lows after auctions (10-yr down to 4.4% and 2-yr 4.91%). There were two Treasury auctions today impacting yields with the 5-yr results better than the 2-yr results, boosting demand in bonds and pushing yields lower. 1) U.S. Treasury sold $54B in 2-year notes at a yield of 4.887% vs. 4.876% when issued prior as bid-to-cover ratio 2.54 vs. 2.64 prior auction as primary dealers take 18.76% of U.S. 2-year notes sale, direct 23.86% and indirect 57.38%. 2) In another auction, the US Treasury sold $55B in 5-year notes at high yield 4.420% vs. 4.425% when issued prior with bid-to-cover ratio 2.46, and primary dealers take 16.85% of U.S. 5-year notes sale, direct 17.63% and indirect 65.52%.

 

 

Macro	Up/Down	Last
WTI Crude	-0.68	74.86
Brent	-0.60	79.98
Gold	9.40	2,012.40
EUR/USD	0.0009	1.0948
JPY/USD	-0.82	148.62
10-Year Note	-0.095	4.388%

 

 

Sector News Breakdown

Consumer

Retail Spending statistics for Holiday

·     Adobe said Black Friday online sales in the U.S. reached a record $9.8B, a 7.5% y/y increase and expects consumers to spend another $10B over the weekend and $12B on Cyber Monday.

·     Online sales reached $70.9B globally, an 8% increase from Black Friday last year, according to data from Salesforce. Black Friday global online sales were $65.3 billion last year.

·     Adobe estimated that a record $5.6 billion was spent online on Thursday, up 5.5% year over year.

·     Shopify (SHOP), which counts both online and offline sales from its merchants, said global sales increased 22% year over year to a record $4.1 billion through Black Friday.

·     BIGC disclosed that GMV grew 6% y/y on Black Friday, driven by a 5% increase in total orders and a 1% increase in Average Order Volume. This growth shows steady progress but is still below the overall Black Friday E-commerce growth rate of 7.5% y/y, according to Adobe Analytics

 

Several Analysts recap Black Friday/Weekend sales data:

·     1) BMO Capital said based on their checks, it expects this year’s Black Friday weekend largely played out on plan or better for many; its store and online checks noted generally more, or flat, YoY discounting, but promotional cadence that appeared in control and it’d expect mostly following plan. BMO also highlights which companies see an outsized importance from Black Friday/holiday, flagging observations/promos/discounts for those who have the highest Black Friday/Q4 importance, including BBWI, VSCO, ULTA and AEO, as well as interesting shifts in cadences, or notable observances, from UGG and RL.

·     2) KeyBanc said overall, Black Friday weekend played out largely in line with expectations; highlights strong traffic and long checkout lines at LULU during its checks. Additionally, the firm saw solid traffic and sizable checkout lines at Nordstrom/Nordstrom Rack (JWN) on Black Friday. For the most part, inventory appeared to be in-stock moving through the weekend.

·     3) Wedbush said DECK and ONON appear to be clearest winners from Black Friday in their view saying checks uncovered strong demand trends, increasing shelf space, and minimal discounting for both rapidly growing running-shoe brands, On and Hoka. Wedbush also believes that DECK’s UGG brand continues to exhibit strong momentum. Firm noted FL was unusually promotional, including a weekend step-up in discounting. Wedbush saw good demand and reduced promotional activity YoY at CROX’s core Crocs brand, as well as SKX and got surprisingly positive reads on RL, suggesting they could be a winner on the apparel side.

·     4) Piper said it conducted multi-state Black Friday weekend store checks where it saw higher or similar promotions on a y/y basis in addition to weaker store traffic, although there were some exceptions. Select premium brands including ONON, DECK’s HOKA, UGG, and LULU were able to maintain pricing over the weekend while it saw the highest promotions within private label athletic apparel and footwear with discounts often 50% off or higher. Notably, NKE, UAA, and BIRD promotions were higher y/y, CROX promos were roughly in line.

 

Retail, Consumer Staples & Restaurants:

·     In stock news: IRBT shares tumbled after the European Commission said it informed Amazon.com Inc. (AMZN) that its pending deal for the maker of robot vacuum cleaners (RVCs) may harm competition. The news countered the report by Reuters on Friday that AMZN was set to win unconditional EU antitrust approval for its $1.4B acquisition of robot vacuum maker iRobot (the news on Friday sent shares of IRBT soaring).

·     In Retail Research: FL downgraded to Sell from Neutral at Citigroup with $18 tgt ahead of earnings as anticipate Q3 EPS of $0.10 (vs cons $0.23) based on weaker comps (-11% vs cons -10%) and weaker GM (-510bps vs cons -460bps) and believes a weakening macro/still elevated inventory levels are driving FL to be more promotional than plan this fall/holiday. Citigroup opened a 30-day negative catalyst watch on ULTA into earnings as anticipate a slight Q3 EPS miss vs consensus ($4.92 vs cons $4.97) driven by lower GM (-190bps vs cons -140bps) due to the impact of lapping favorable pricing dynamics LY and higher shrink/promos.

·     In Food sector: MDLZ was upgraded from Sector Perform to Outperform at RBC Capital and raised its tgt price to $83 from $75 saying the co has consistently delivered on earnings and is one of the very few staples’ names to deliver volume growth in 2023. KHC approves a share repurchase program authorizing the company to repurchase up to $3B.

 

Leisure, Gaming & Lodging:

·     In Autos: LCID was downgraded from Buy to Hold at Needham after lowering the unit estimates in its model post Q3 results and commentary and given its less optimistic view of LCID’s ability to license their industry-leading EV efficiency technology. LEV said it will reduce its workforce by 150 people or 10% of its total head count to cut costs and move toward profitability.

·     In Cruise lines: CCL shares upgraded from Hold to Buy at Melius with $19 tgt noting the positive demand momentum witnessed at hotels, airlines and other travel sectors is now playing out within the cruise industry.

 

Energy

·     In Energy: SU said it has restarted the Terra Nova floating, production, storage and offloading vessel in Canada and production is expected to ramp up over the coming months. Nat gas prices fell to a two-month low earlier in the session, weighed down by record output while mild weather limits heating demand, sending shares of RRC, SWN, EQT lower.

·     Lithium prices falling weighs on ALB, LTHM, LAC as Charlie Bilello tweets: "Batter-grade lithium prices are down over 70% from their peak in January as a result of weaker EV demand and the slowdown in China."

·     In Utilities: Wells Fargo upgraded the Utilities (XLU) sector to overweight from neutral: noting 1) the group is technically oversold saying the last times we saw this was in late 2018 and 2021, right before material bouts of risk aversion; 2) The macro environment is now more favorable to the group with the VIX low, credit spreads tight, equities rallying, and 3) group’s relative P/E valuation has compressed to levels last seen during the 2021 crypto craze.

 

Financials

Banks, Brokers, Asset Managers:

·     In Buy Now/Pay Later (BNPL) sector (AFRM, UPST), Shoppers are relying more on flexible payment methods, also known as Buy Now, Pay Later as Adobe noted that BNPL orders rose 72% w/w from Nov. 18 to Nov. 24. BNPL revenue increased 47% in that period, Adobe said. Shares of other payment-related co’s like UPST, SQ rallied with strength in AFRM.

·     In crypto: the sector was lackluster with Bitcoin failing again at 18-month highs, pulling back, but COIN shares jumped as shares are now up over 68% over the last month and are now trading at the highest price since early May 2022 in momentum buying.

 

Healthcare

Biotech & Pharma:

·     ABBV said the FDA has granted breakthrough therapy designation to epcoritamab for a type of lymphoma.

·     ABEO said the FDA accepts and grants priority review for Pz-cel BLA. PDUFA 05/25/24; FDA does not currently plan to hold an AdComm.

·     ANVS reported its mid-to-late-stage trial testing its lead experimental drug, buntanetap, in treating Alzheimer’s disease, exceeded full enrollment.

·     AUTL said it has filed for FDA approval of obecabtagene autoleucel, its lead investigational chimeric antigen receptor T-cell, or CAR-T, therapy, for adult relapsed/refractory B-cell acute lymphoblastic leukemia.

·     GEHC downgraded to Sell from Neutral at UBS and cut tgt to $66 from $86 saying soft orders, tough comps and a lack of prices rises puts UBS ests below 2024 consensus. UBS also thinks management’s midterm target for the Imaging business (50% group revenues) is unlikely to be delivered within its forecast period which puts US 5-8% below consensus for 2025-27E.

·     GSK said its blood cancer drug Blenrep had reached a key goal in a late-stage trial, as the drug, when combined with existing drug bortezomib plus steroid dexamethasone, significantly extended the time before the disease progressed, or the patients died, in those suffering from relapsed or refractory multiple myeloma.

·     JAZZ downgraded to Neutral from Buy at UBS and cut tgt to $135 from $170 saying early competitor launch metrics imply potential downside for Jazz’s sleep portfolio.

·     KRYS announced that the Company’s Marketing Authorization Application, MAA, to the European Medicines Agency’s, EMA, Committee for Medicinal Products for Human Use, CHMP, for VYJUVEK for the treatment of dystrophic epidermolysis bullosa.

·     ROIV said that the Phase 2 study of its drug brepocitinib for the treatment of moderate to severe active lupus didn’t meet its primary endpoint.

·     TEVA was upgraded to Buy from Neutral at UBS and raised tgt to $13 from $11 calling it uniquely positioned to undergo a significant transition to a more brand focused company.

·     XENE said its treatment, XEN1101, produced a clinically meaningful but not statistically significant change in the depression rating scale that served as the study’s primary endpoint.

 

Industrials & Materials

·     In Freight/Package Delivery: the WSJ noted AMZN surpassed both UPS and FDX in parcel volumes, delivering more packages to U.S. homes in 2022 than UPS, after eclipsing FedEx in 2020, and it is on track to widen the gap this year, according to internal Amazon data. The U.S. Postal Service is still the biggest parcel service by volume. Before Thanksgiving this year, Amazon had already delivered more than 4.8 billion packages in the U.S., and its internal projections predict that it will deliver around 5.9 billion by the end of the year.

·     In Truckers/Rails: Canadian rails CP downgraded to Hold from Buy (tgt to $77 from $85), and CNI downgraded to Hold from Buy all at Deutsche Bank saying for the Canadian Rails, there are tangible data points that put them increasingly in a negative light, including growing concerns on Canadian consumers Canadian mortgages adjust every 5 years, with no 30 year fixed rates, Canadian grain headwinds starting in Q2’24. Separately, Deutsche Bank downgraded ODFL to Hold from Buy (tgt to $386 from $475) in truckers.

·     In Airlines (AAL, DAL, LUV, UAL): The Transportation Security Administration said it screened 2.91M passengers on Sunday, beating the previous record of 2.88M on June 30. It has been a busy year for air travel — seven of the 10 busiest days in history have come in the past six months. The remaining three were in 2019. Overall airlines were weaker on the day.

·     In Paper & Packaging: GPK downgraded to Market Perform from Strong Buy at Raymond James as they expect share price performance and valuation to remain constrained amid 2024 price-cost pressures. In the Timber Sector, Raymond James downgraded PCH and WY to Market Perform from Strong Buy following its Q323 results and its recent model update, largely to account for its new and more conservative projections for near-term lumber pricing. Shares spiked midday for PKG as Seaport out saying they announced price increase by $70/ton to customers, which also boosted shares or WRK, IP.

·     In Aerospace & Defense: LHX announced a definitive agreement to sell its commercial aviation solutions business to TJC for $800M which includes a $700M cash purchase price and $100M earnout.

 

Materials, Metals & Mining

·     In Chemicals: CTVA was downgraded from Buy to Hold at Berenberg and cut tgt to $52 from $63 saying two years of supercharged growth in the crop-protection industry are now reversing. As farmers trade down, Corteva’s premium products are going through a larger than originally anticipated destocking.

·     In Metals & Mining: gold miner stocks (AEM, AUY, GOLD, NEM) rose as gold prices hit a more than six-month and are around $60 away from August 2020’s all-time high of $2,072.49; SCCO was downgraded from Equal Weight to Underweight at Morgan Stanley and cut tgt to $68 on the back of lower expected production volumes and higher forecast cash costs, which, in its view, point to material downside to the consensus estimates.

 

Technology

·     In Towers: CCI shares rose after activist investor Elliott Investment Management confirmed the WSJ report overnight that it has taken a more than $2 billion stake in the company and is expected to push for change at the owner of wireless towers. https://tinyurl.com/bdhkr5p8

·     In Media: IHRT said it would book $100 million in proceeds for its equity interest in Broadcast Music Inc. as part of the sale of BMI to a shareholder group led by New Mountain Capital LLC.

·     In Software: OKTA was downgraded to Market Perform from Outperform at JMP Securities in the wake of the most recent security incident announced on October 20.

·     Memory prices: Morgan Stanley said they are raising numbers to reflect double digit ASP growth in Q4 and Q1 for both DRAM and NAND as sees positive preannouncement potential for MU – but reiterate its OW on WDC, and UW on MU. Firm noted memory is improving faster than expected, a function of utilization cuts and re-stocking related demand. Shares of STX also jumped in reaction to the memory price comments.