Market Review: October 19, 2023

Closing Recap

Thursday, October 19, 2023





DJ Industrials




S&P 500








Russell 2000













U.S. stock volatility increased again on Thursday, with big swings for major averages as investors remain anxious with Treasury yields pushing higher, which could further crimp consumer spending, along with increased tensions in Gaza and Israel and following commentary from Fed Chairman Powell today. U.S. equities tracked weaker European/Asian markets lower, seeing increased volatility especially between 12:00-1:00 PM ET when Fed Chairman Powell, spoke at the Economic Club of New York, more “hawkish” than markets would have liked. Treasuries, stocks, and commodities whipsawed after he began speaking, with the 10-yr touching just shy of the 5% level after Powell cautioned the U.S. economy’s strength and continued tight labor markets could warrant further Federal Reserve interest rate increases. That comment slammed markets initially, though he eased off slightly at the end, allowing US stocks to rebound. What it appears the market gathered from today’s action post comments by Powell (not necessarily what was said but how the media spun it), especially as the long end of curve yields held higher but shorter-term yields fell was: “the Fed may be higher for longer – but not necessarily higher” – as the 2s and 10- yield curve inversion narrowed to around 20 bps. The Powell hour dominated action this afternoon which had previously been controlled by better earnings results from NFLX, AT&T, TSM which helped tech/telecom, while financials. Stocks tanked to new lows in the final hour as the 10-yr yield made another push to 5% and on headlines of attacks on U.S. troop bases in Syria, Iraq reported in past 24-hours. Oil prices rebounded along with gold. Details of all the top stocks movers on earnings below. The volatility comes ahead of option expiration Friday. Lastly, note on this day in financial history – October 19th, 1987, Wall Street takes its worst plunge of the modern era, as the Dow loses 508 points, or 22.6% (the worst daily % loss on record), to close at 1738.74. Of the 2,257 NYSE-listed stocks, there were 195 trading delays and halts that day.


Economic Data

·     Weekly Jobless Claims fell to 198M in the latest week from 211K prior (vs. est. 212K); the 4-week moving average fell to 205,750 from 206,750 prior; continued claims rose to 1.734 mln oct 7 week (est. 1.710M) from 1.705M prior week; insured unemployment rate unchanged at 1.2%.

·     The Philadelphia Fed factory index for October fell -9.0 vs. est. -7.0; employment index at 4.0 vs -5.7; the new orders index at 4.4 vs -10.2; future index at 9.2 vs 11.1; priced-received at 14.6 vs 14.8 and the prices-paid index 23.1 vs 25.7.

·     Existing Home Sales for Sept sunk to lowest levels since 2010 at 3.96M unit rate, down -2,0% below consensus 3.89M and below Aug 4.04M. Sept inventory of homes for sale 1.13 mln units, 3.4 months’ worth and median home price for existing homes $394,300, +2.8% y/y.

·     Sept leading economic indicators (LEI) -0.7% (consensus -0.4%).



·     WTI crude oil settled at $89.37 per barrel, up $1.05, 1.19% after falling about 2% overnight as the United States eased sanctions on Venezuela to allow more oil to flow globally, but fears that Israel’s military campaign in Gaza may escalate to a regional conflict kept a lid on losses. Brent crude futures settle at $92.38/bbl, up 88 cents, 0.96%.

·     U.S. natural gas futures lost 9.90 cents per million British thermal units, or 3.24% to $2.9570 per million British thermal units to a fresh two-week low, on a bigger-than-expected storage build, and nat gas now down for a 7th straight day. The EIA said utilities added 97 billion cubic feet (bcf) of gas into storage – more than the 80 bcf build expected.

·     Gold prices gain $12.20 to settle at $1,980.50 an ounce as the dollar extends declined -0.4% around 106 for the dollar index (DXY). Note the dollar/yen hit highs of 149.98 before pulling back – CNBC noted the JPY/USD has traded over 150 intraday on 10/3 of this year (150.16) but didn’t close above the level and there has only been one close above 150 since 1990 (10/20 of last year) and must go back to 1990 for it to have multiple days with close above 150.

·     Treasury yields continue to dominate broader market action as the 10-year yield trades just shy of 5% on two occasions today while short-term yields like the 2-yr slipped after Fed chair Powell speech, as traders keep bets on no more rate hikes. The two-year yield fell 4-basis points to 5.178% after earlier hitting a 17-year high of 5.2592%.






WTI Crude















10-Year Note





Sector News Breakdown



·     In the EV sector: TSLA missed the top and bottom line for Q3 while reported a gross margin of 17.9% (vs. est. 18%), compared with 25.1% a year earlier, when it had yet to start the price cuts. Cybertruck deliveries are confirmed to start at the end of November, but CEO Musk was cautious on the ramp and near-term profit contribution of the vehicle.

·     China’s CATL, the world’s largest battery maker for electric vehicles (EV), said Q3 profit rose 10.7%, its weakest quarter since the start of last year and down from a 63.2% increase in Q2 profit and a 188.4% surge in profit y/y; the co said it saw its China market share tumble in September to the lowest in more than a year.

·     In Auto Parts & Suppliers: GPC mixed Q3 as EPS topped consensus, but sales fell short; raised the low-end of its previous guidance range from $9.15 to $9.20 and affirmed sales view; APTV was upgraded to Overweight at JPMorgan as expects it will benefit disproportionately as investors increasingly begin to look out to 2025, given faster top-line growth and specific margin drivers.


Consumer Staples & Restaurants:

·     In Tobacco: PM Q3 EPS beat views but sales fell short and raised FY23 EPS view; said smoke-free product sales rose by more than a third in 3Q to $3.3B and made up more than a third of the company’s total revenue Q3; shipment volumes of the company’s heated tobacco products were up 18% at 32.5B units, with volumes for both cigarettes and HTUs up 2.2% at 193.6B.

·     In food: TD Cowen lowers tgts into earnings for BGS $7 from $9.50m BYND to $7 from $10, FRPT to $80 from $90, HSY to $235 from $250, KHC to $33 from $35, MDLZ to $77 from $82 and UTZ to $15 from $18 saying or 3Q, TDCowen forecast 3% organic growth for food companies, 5.7% for CSDs, 51% for energy drinks, and 3.9% for alcohol.



·     BBY was upgraded to Buy from Neutral at Goldman Sachs as it sees the potential for a positive demand inflection to drive upside, primarily through multiple expansion.

·     FL was downgraded to Sell from Neutral at Goldman Sachs as the repositioning of the Champs Sports brand will likely continue to weigh on the comp; FL’s market share position will be difficult to stabilize following the NIKE allocation changes.

·     COST named Ron Vachris, its current president and chief operating officer, as its next CEO effective Jan. 1, replacing Craig Jelinek, who has served in the role since 2012.

·     GOOS downgraded by two Wall Street analyst; cut to Market Perform at TD Cowen and tgt to $15 as watches cautious economic news in China & Europe and lack visibility into margin expansion if sales miss expectations. Wells Fargo also downgraded to EW from OW, concerned China could get worse before it gets better following weaker results at LVMH.

·     KTB was upgraded to Buy from Neutral at Goldman Sachs driven by its strong brand momentum, opportunity for better sell-in trends to key wholesale partners, significant margin tailwinds in 2H23E and 2024E, and strategic investments in brand diversification and DTC distribution.

·     PTON was downgraded to Underperform from Neutral at Bank America and cut tgt to $4.15 saying shares do not reflect risk to revenue from increased churn due to declining platform engagement and subscriber base that is increasingly at risk.


Transports, Leisure, Gaming & Lodging:

·     In Casinos & Gaming: LVS swung to a Q3 profit amid a continued recovery in travel and tourism spending in Macao and Singapore while revs jumped to $2.8B from $1.01B y/y (est. $2.72B) and announced its board authorize $2B share buyback plan. MCRI was downgraded to Hold from Buy at Truist and cut tgt to $65 from $90 after Q3 EBITDA was in-line with the Street, with Black Hawk strength overshadowed by Reno’s competitive environment, while mgmt also warned of a deteriorating macro, seemingly more negative than in the past.

·     In airlines: AAL Q3 adj EPS $0.38 tops the $0.25 est. but revs $13.48B misses the $13.52B estimate; Q3 total rev per seat mile fell -6.3% y/y while Q3 cost per seat mil +3.3% y/y; lowers FY adj EPS $2.25-$2.50 from prior $3.00-$3.75 and est. $2.34. ALK Q3 EPS $1.83 vs. est. $1.86; Q3 revs $2.84B vs. est. $2.87B; cuts FY23 EPS view to $4.25-$4.75 from $5.50-$7.50 (est. $5.16).

·     In rails: UNP gives boost to transports as Q3 EPS $2.51 tops est. $2.41 though revs fell -10% y/t to $5.94B missing ests $5.96B; said it saw reduced fuel surcharge revenue, lower volumes, and business mix, partially offset by core pricing gains; Q3 operating ratio 63.4%, up 350 bps y/y.



·     In Oil E&P: Bloomberg reported DVN is considering major acquisition targets to gain scale in U.S. shale and has recently held talks with MRO about a potential combination

·     In Pipelines: KMI posted a lower-than-expected Q3 profit as higher interest expenses offset strength in its natural gas and products pipeline segment (EPS/revs both missed). ETRN shares declined after the company disclosed that following a review of progress achieved since the resumption of forward construction in August and construction activity remaining for completion of the Mountain Valley Pipeline project, Mountain Valley Pipeline, LLC has refined the targeted timing for completing construction of the project from year-end 2023 to Q1 of 2024.

·     In Solar: more weakness amid much caution on Wall Street overall into earnings, with several lowered price targets this week: FSLR was upgraded to OW at JP Morgan as believes the recent pullback tilts risk-reward favorably for a company that has the best visibility into medium-term growth prospects owing to a backlog that stretches into later this decade. Wells Fargo said they remain cautious on residential solar names (ENPH, NOVA, RUN, SEDG, SPWR) after surveying 100 US resi solar installers which suggests Q3 trends were worse than Q2. ENPH was downgraded at Scotia citing a lack of recovery visibility.



Banks, Brokers, Asset Managers:

·     Several earnings results in sector today:

·     BX shares slid as Q3 distributable earnings fell more than expected due to a decline in asset sales in its real estate business.

·     CFG CFO said expects a further contraction in its net interest margin (NIM) to around 3% in the current quarter after posting 3.03% this qtr (down from 3.25% y/y).

·     FITB Q3 EPS of $0.92 beat by $0.10 with NII $1.44B beating $1.43B est.; Quarterly net income of $660M beat ests of $567.8M; provisions beat and better guide.

·     KEY posted a lower-than-expected drop in its quarterly profit; net interest income fell 23.3% to $923 million for the quarter from $1.2 billion y/y; provisions for credit losses fell 25.7% to $81 million from $109 million.

·     TFC Q3 EPS $0.86 beats $0.82 est.; Q3 net interest income of $3.62B tops estimate of $3.51B

·     ZION slides as adjusted EPS $1.13 vs est. $1.15, says while loan demand weakened in Q3, pleased with growth in customer deposits which increased 5% sequentially; reported a mixed quarter with an NII miss and rising CRE nonperforming assets.


Bitcoin, FinTech, Payments:

·     In Fintech: FIS upgraded to OW from EW at Barclays saying Capital Markets is an increasingly critical growth driver for FIS, especially given the recent sale of WP. On the back of BARC’s analysis, it sees FIS as undervalued at 9x ’24 P/E (or ~11x ex-Worldpay).

·     Consumer Finance: DFS shares slid after reported Q3 profit of $2.59 missing estimates for $3.19 with Q3 net interest margin (NIM) 11% vs. 11.1% q/q and net interest income (NII) +17% y/y to $3.32B; and boosted provision for credit losses $1.70B vs. $773M y/y.

·     In Financial Services: EFX reduced its 2023 outlook at the midpoint to revenue of about $5.26B and adj EPS of $6.67 (below prior views $5.3B/$6.98) based on the weaker US mortgage market and impact of forex, though partially offset by its acquisition of its Brazilian credit bureau.



·     In Tower REITs: CCI falls to lowest levels in 6-years after forecasts FY24 site rental revenue of $6.37B (est. $6.28B) and posted Q3 rev miss of $1.58B vs. est. $1.7B saying the slowdown in spending by telecoms past few quarters has hit demand for cell tower site development services.

·     In Self REITs: FR Q3 with $0.01 beat vs. consensus and increased FY23 guidance by 0.4% at the midpoint due to $0.01 of previously unexpected ground lease income.

·     In Office REITs: SLG beats FFO by 1c vs street and boosts FY23 FFO guide by 2c (ex: one time severance and accel stock-based comp to Mathias.



Biotech & Pharma:

·     MRNA shares fell for a 7th straight day (down -20% during that stretch); follows weak Covid related vaccine data from likes of PFE last week as well as company updates.

·     PFE will sell its Covid pill Paxlovid to private payers in the US at a list price of $1390 for a 5-day course. $1,390 is more than twice what it charged the government for the antiviral during the pandemic. On Monday, Pfizer reduced its 2023 forecast for sales of Paxlovid to $1 billion from $8 billion after agreeing with the US to take back its inventory of the drug.

·     PTCT announces Evrysdi royalty agreement with Royalty Pharma for up to $1.5B; PTCT to receive $1B in upfront cash for about 67% of outstanding royalties.

·     RHHBY Q3 sales were in-line but said a slump in COVID-19 product sales and a strong Swiss franc overshadowed the launch of a drug against blindness; revenues from new drug Vabysmo came in better-than-expected at 656 million francs.

·     RARE 8.33M share Secondary priced at $30.00.


Industrials & Materials


·     British pest control giant RTO warned of weakness in its biggest market North America, citing near-term market uncertainty as forecasts annual adj. operating margin of 18.5%-19% for N.A vs previous guidance of about 19.5%; notes the region accounted for nearly half of its revenue in 2022 (shares of pest control company in the U.S. ROL dropped in sympathy – reports next week).

·     In Building Products/Construction Materials: SUM received a $38 a share bid after it agreed to a deal with Cementos Argos last month.


Materials, Metals & Mining

·     Metals: AA trades to fresh 52-week lows after larger than expected Q3 EPS loss and said a decline in raw material and production costs wasn’t enough to offset lower average realized pricing for alumina and aluminum; In steel space, STLD 3Q23 EPS of $3.47 beats slightly, ended 3Q23 with liquidity ~$3.7B, did not provide numeric guidance for 4Q23. In copper, FCX Q3 EPS beats, helped by higher copper production and sales volumes as avg copper prices were up about 8% y/y. CLF announces price increase for hot rolled, cold rolled and coated steel products; minimum base price for hot rolled steel is now $800 per net ton.

·     Lithium stocks extended declines with ALB adding to yesterdays near -10% decline after Bank America downgraded shares to underperform saying they see the lithium mkt challenged; shares of LTHM, LAC also trade to fresh 52-week lows today with ALB.



Internet, Media & Telecom

·     In Media & Internet: NFLX shares jump after Q3 results, posting global streaming net paid adds 8.76 vs est. 6.139 and sees Q4 paid net adds like Q3 after Q3 EPS/revs topped consensus; said plans to immediately raise prices for its basic plan in the U.S. The FCC voted 3-2 on a proposal to reinstate open internet rules adopted in 2015 and reestablish the commission’s authority over broadband internet. DUOL shares slipped late day after TechCrunch reported GOOGL takes aim at Duolingo with new English tutoring tool.

·     In Telecom: AT&T Inc. (T) raised guidance for free cash flow to ~$16.5B, up from its prior forecast of $16B after posting mobile subscriber gains and profit for Q3 that topped consensus; said added 468K net monthly bill-paying wireless phone subscribers in Q3, above est. 398K.


Hardware & Software movers:

·     VMW shares slide after a report that Beijing is weighing holding up U.S. chipmaker AVGO’s $69 bln purchase of the cloud computing company. The Financial Times reported China’s State Administration of Market Regulation has not signed off on the deal and is likely to delay approving after the White House unveiled tougher chip controls.

·     Internet Security changes at Jefferies as they upgraded ZS to Buy and raise tgt to $225, CRWD upgraded to Buy with $225 tgt as highlight that positive channel checks and easing comps while downgraded FTNT to Hold from Buy with $65 tgt as expect the hardware digestion pain to last several quarters as customers delay large renewals until at least early ’24.



·     In Semi-equipment: LRCX said Q1 profit and revenue plunged from the prior year period, but handily topped consensus (EPS $6.85 vs. $6.15 est. and revs -31% y/y to $3.48B but tops $3.42B estimate); said seeing a cyclically soft year for wafer fabrication equipment spending. What weighed on investor minds was that China was 48% of Sep Q sales.

·     In Semiconductors: TSM posted better results as Q3 EPS $1.29 vs. est. $1.17; Q3 revs $17.28B vs. est. $17.07B; sees Q4 revenue $18.8B-$19.6B vs. est. $18.65B; says gross profit margin is expected to be between 51.5% and 53.5%; MXL downgraded at Deutsche Bank; SMTC said it is offering privately $250M 5-yr convertible bonds and plans to use net offering proceeds to prepay term loans under its credit facilities. Separately, shares were upgraded to Buy from Hold at Benchmark following recent meetings with the CEO and CFO.


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.