Mid-Morning Look

Tuesday, April 04, 2023

U.S. futures pointed to a higher open overnight as the S&P and Dow come into the day up seven of the last eight trading days, unafraid of cautious comments by JPMorgan CEO Dimon as focus remains on the Fed and hopes of lower rates, keeping a constant bid to the market. JPM CEO Jamie Dimon said the banking “crisis” that bubbled up last month isn’t over yet. “Even when it is behind us, there will be repercussions from it for years to come,” Dimon said in his annual letter to JPMorgan Chase shareholders. Markets took the comments in stride this morning, as the S&P remains near 8-month highs but has since started paring gains. Overseas markets rallied as Australian Central Bank joined Canada by pausing rate hikes, raising hopes other central banks including the FOMC will soon follow suit and potentially cut rates. Oil prices extend gains a day after OPEC+ announced plans to cut more production and shifted investors’ attention to demand trends and the impact of higher prices on the global economy. Treasury yields tumble around 10:00 AM after the JOLTS job opening data lower than views; 10-yr rolls 6 bps to lows of 3.4% and 2-yr slides 6bps to 3.915% (stocks continue to react positively on bad economic data as market focus remains on inflation and hopes the Fed will stop raising rates and turn to rate cuts – vs. slowing growth). The U.S. dollar new lows down 0.37% to 101.65 after data, lowest since 2-3-23 – gold rises above $2,030 an ounce. Volumes continue to be lighter than average on the holiday shortened week we await earnings/pre-announcement season. Early weakness in financials, metals and mining, and energy while tech and defensive staples, healthcare, utilities rise.

Economic Data

·     JOLTS Job Openings for February actual 9.931M (lowest since April 2021), below estimates 10.5M and well below the prior month reading of 10.824M

·     Factory orders for February fell (-0.7%) vs. est. decline (-0.5%) but better than Jan (-2.1%); Feb factory orders ex-transportation (-0.3%) vs Jan +0.8% and orders ex-defense -0.5% vs Jan -2.3%. U.S. Feb Durables orders unrevised at -1.0%; U.S. Feb inventories/shipments ratio 1.49 months’ worth vs Jan 1.48 months.

Sector Movers Today

·     Piper teen survey showed: 57% of teens cite AMZN as their No. 1 favorite e-comm site; $NKE, SHEIN, $LULU and PacSun took spots No. 2-5; NKE remains the No. 1 brand for all teens in both apparel (33% share) and footwear (61% share); UGG (DECK) broke into the top 10 favorite footwear brands at No. 7, ranking No. 5 with all female teens; CROX ranked No. 6 and Hey Dude ranked No. 8 favorite footwear. TikTok declined as the favorite social platform (37% share) by 100 bps vs. Fall 2022. SNAP was No. 2 at 27% (-300 bps vs. Fall 2022) while No. 3 Instagram (META) gained share at 23% (+300 bps vs. Fall 2022). Teens spend 31% of daily video consumption on NFLX (-100 bps vs Fall ‘22) and 28% on YouTube (GOOGL) (-100 bps vs Fall ‘22); Phone is the No. 1 preferred method by teens for customer service interaction; Text/SMS shows the best multi-year gains; 87% of teens own an iPhone (AAPL); 88% expect an iPhone to be their next phone; 35% of teens own an Apple Watch

·     In industrials: AYI Q2 adjusted EPS $3.06 vs. est. $2.72; Q2 revs $943.6M vs. est. $958.47M; company’s intelligent-spaces unit posted sales of $58.2M, up 16.4% from a year earlier; LNN Q2 EPS $1.63 vs. est. $1.53; Q2 revs $166.2M vs. est. $188.27M; MSM Q2 adjusted EPS $1.45 vs. est. $1.34; Q2 revs $961.6M vs. est. $934.07M; reaffirms FY23 adjusted operating margin view.

·     In aerospace/defense: BA was downgraded to Sell with $180 tgt at Northcoast; AVAV upgraded from Outperform to Strong Buy and raise ests at Raymond James and raise tgt to $130 from $105 saying analysis suggests that consensus models have miscalculated across 3- vectors creating a significant delta between reality and forecasts; VORB plunges after the satellite launch firm tied to British billionaire Richard Branson filed for bankruptcy.

·     In autos: Ford (F) said Q1 Total vehicle sales of 456,972, up 10.7% and said Q1 EV sales up 41% on sales of 10,866 electric vehicles; F-150 lightning, Mustang Mach-E production continues to scale to targeted annual run rates of 150,000 units & 210,000 units, respectively, by year-end. EVGO awarded $6.6 million by California energy commission to deploy more than 100 new dc fast charging stalls across 17 locations. TSLA sold 88,869 units of China-made electric vehicles (EV) in March for both domestic sales and exports, up 35.0% y/y, data published by the China Passenger Car Association (CPCA) showed.

Stock GAINERS

·     BFLY +25%; received FDA clearance for a tool to aid assessment of abnormal lung conditions, sending shares higher.

·     CDLX +28%; as raises Q1 revenue view to $63.5M-$66.5M from $54M-$63M (est. $57.9M) saying shift to a product-led operating structure is already yielding positive results.

·     EHC +10%; following favorable CMS ruling out late yesterday.

·     ETSY +3%; upgraded to overweight at Piper saying that the company should see a reacceleration of active buyer growth over the medium term, which can support continued share gains.

·     PRU +1%; upgraded from Neutral to Overweight at JPMorgan with $114 tgt citing the company’s superior business mix, healthy balance sheet, negative sentiment, and underperformance.

Stock LAGGARDS

·     AI -16%; after cautious comments by short seller Kerrisdale Capital saying they sent a letter to C3.ai’s auditor Deloitte, the audit committee & SEC documenting serious accounting issues.

·     AMC -22%; as settles shareholder litigation, paving the way for its APE conversion to move forward; will file for increasing the number of class A shares and doing a 1-for-10 reverse split.

·     AYI 9%; after Q2 sales missed – Q2 adjusted EPS $3.06 vs. est. $2.72; Q2 revs $943.6M vs. est. $958.47M; company’s intelligent-spaces unit posted sales of $58.2M, up 16.4% y/y.

·     BA -2%; was downgraded to Sell with $180 tgt at Northcoast.

·     FRC -5%; weakness in regional banks (ZION, CMA, KEY) after JPM Dimon comments.

·     NAPA -4%; 6M share Spot Secondary priced at $15.35.

·     STEM -4%; downgraded from Neutral to Underperform at Bank America and cut tgt to $5 rom $9 saying confidence in estimates is increasingly strained.

·     STLD -5%; as industrial metals (NUE) among worst S&P performers.