Mid-Morning Look

Friday, April 28, 2023

U.S. stocks open lower but quickly rebound, taking out yesterday highs as the “buy the dip” mentality back in place after two days of selling pressure Tuesday/Wednesday following mixed economic data and earnings. Stocks slumped overnight, particularly tech/software after Amazon (AMZN) warned that growth in its cloud computing business AWS is continuing to cool (shares rose 11$ initially on earnings results but down -4% now after comments)- but tech quick recovery. There was more evidence of a decline in the U.S. Inflation rate ahead of the Fed interest rate policy meeting next Wednesday as the PCE Price Index moved down to 4.2%, its lowest level since June 2021 (peak was 7% in June 2022), though above ests, while wages increased as the 1Q employment cost index increases 1.2%; est. 1.1%, Personal Income for April MoM rises +0.3% vs. est. +0.2% and prior +0.3%, Personal Spending unchanged. Michigan sentiment improved as did Chicago PMI data, nothing likely to change the Fed 25-bps hike expected next week. Early on, NYSE breadth favors advancers strongly a second day and nine of eleven S&P sectors higher led by energy behind CVX, XOM earnings results, REITs, and technology. The Japanese yen weakened by 1.85% to 136.40 against the U.S. dollar as the BoJ pledged to continue persistent easing and launches a broad-based policy review that may take up to 18 months.

Economic Data

·     The 1Q employment cost index increases 1.2%; est. 1.1%

·     Personal Income for April MoM rises +0.3% vs. est. +0.2% and prior +0.3%, Personal Spending unchanged vs. est. (-0.1%) and prior +0.1% and March real consumer spending unchanged.

·     March overall PCE Deflator price index M/M rises +0.1% (in-line) and vs. Feb +0.3%; and Y/Y rises +4.2% vs. est. +4.1% vs. Feb +5.1%. Core PCE rises +0.3% M/M in-line with ests and on a Y/Y basis rises +4.6% vs. est. +4.5% and is down from Feb +4.7%.

·     Chicago report business index at 48.6; above est. 43.6.

·     University of Michigan consumers sentiment final April 63.5 (in-line w ests) vs preliminary April 63.5 and final March 62.0; current conditions index final April 68.2 vs prelim April 68.6 and final March 66.3; expectations index final April 60.5 vs prelim April 60.3 and final March 59.2.

·     University of Michigan surveys of consumers 1-year inflation outlook final April 4.6% vs preliminary 4.6% and final March 3.6% and surveys of consumers 5-year inflation outlook final April 3.0% vs preliminary 2.9% and final March 2.9%.

Sector Movers Today

·     Software sector, specifically cloud names slump early: Software: NET shares slide after issuing a weaker-than-expected revenue forecast for the current period (guides Q2 EPS $0.07-$0.08 vs. est. $0.03 and revs $305-306M vs. est. $319M) and lowered its full-year revenue outlook; AYX also tumbles after guides Q2 non-GAAP EPS loss (-$0.65-$0.69) vs. est. loss (-$0.42) and revs $180M-$184M below consensus $205.1M as the regional banking crisis caused deals to stall late in the quarter; cloud stocks (SNOW, DDOG, MDB) moved after AMZN said AWS revenue growth is decelerating in the current quarter as April revenue growth rates are 500-bps lower than in Q1. MSFT signed a 10-year deal with Nware to bring Xbox and ATVI games to the Spanish cloud-gaming platform, days after Britain blocked its $69 billion buyout of the “Call of Duty” maker.

·     In solar it’s been a tough week so far; FSLR slides overnight after Q1 miss and lower guide. FSLR reported below-expectations 1Q results but reaffirmed its FY outlook, as a softer 1Q was a function of timing of module shipments and sales. Management noted that underlying demand remains strong, as evidenced by the sizable pipeline of NT bookings (recall shares of ENPH fell -25% this week on a lower rev outlook). JKS Q1 EPS $0.54 tops $0.43 est. and up y/y as mgmt sees global market demand to remain strong in 2023.

·     Banks: Bloomberg noted that in the past 50 years of data, only after Lehman collapsed in 2008 and following the Sept. 11 attacks on the US did banks cut lending as sharply as they did in the four weeks through April 12, according to data from the St. Louis Fed. Meanwhile, Fed emergency bank loans rose to $155.2b from $143.9b the prior week; Fed discount window borrowing at $73.9 billion on April 26 vs.$69.9 billion on April 19. FRC shares bounced early following a report that U.S. officials are coordinating urgent talks to rescue the regional lender as private-sector efforts led by the bank’s advisers have yet to reach a deal. The government’s involvement is helping bring more parties, including banks and private equity firms, to the negotiating table, one of the sources told Reuters. NYCB reports in-line Q1 EPS while total deposits $84.8B vs. $58.7B.

·     In chemical sector (OLN, WLK): Keybanc noted according to Chemical Market Analytics (CMA), in its monthly chlor-alkali report, domestic caustic prices further declining by $30/ton, ahead of CMA’s forecast for prices to fall $25/ton. CMA tempered its caustic forecast for the coming months and now sees prices falling in the $30-$35/ton range vs. previous expectations calling for a $20/ton decline per month. EMN reported 1Q23 EPS of $1.63, compared to the consensus estimate of $1.25 and reported 1Q23 Ebitda of $424M compared to consensus of $350M. OLN reported 1Q23 EBITDA of $434M, compared to our estimate of $439M and consensus of $425M

Stock GAINERS

·     CHTR +6%; Q1 earnings miss ($6.65 vs. $7.63 est.) saying that higher interest expenses and non-operating costs hit earnings; revs of $13.7B tops est. $13.62B.

·     CL +3%; beats Q1 revenue and profit expectations and raises its annual organic sales forecast to 4%-6% from the previous 3%-5% betting on consistent price hikes.

·     IMGN +20%; reported Q1 results that beat expectations as revs rise 31% y/y to $49.9M topping the $21M estimate on smaller than expected EPS loss.

·     INTC +6%; investors focus on turnaround progress as Benchmark and Wedbush both upgraded shares – noted posted revenue and earnings upside for the March quarter and providing similar guidance for its June period.

·     MDLZ +5%; now expects 2023 organic revenue growth of over 10% vs earlier forecast of 5% to 7%; also raises 2023 adj eps growth to 10%+ from the prior outlook of high-single digit.

·     XOM +2%; posted its strongest-ever start to a year as oil production soars from new wells; net income more than doubled from a year earlier to $11.4B, its best Q1 profit ever. Q1 adj EPS $2.83 vs. est. $2.59; Q1 revs $86.5B vs. est. $85.4B.

Stock LAGGARDS

·     AMZN -4%; strong on solid Q1 as EPS $0.31 vs est. $0.21 on revs $127.4B vs est. $124.55B; Q1 operating income of $4.8B vs prior of $0-4 bln, but comments about decelerating AWS revs into next quarter weighed on stock (was up as much as 11% overnight on earnings).

·     AYX -15%; tumbles after guides Q2 non-GAAP EPS loss (-$0.65-$0.69) vs. est. loss (-$0.42) and revs $180M-$184M below consensus $205.1M.

·     CHTR -4%; after Q1 earnings miss ($6.65 vs. $7.63 est.) saying that higher interest expenses and non-operating costs hit earnings; revs of $13.7B tops est. $13.62B

·     DDOG -4%; falls along with other cloud stocks after AMZN said AWS revenue growth is decelerating in the current quarter as April revenue growth rates are 500-bps lower than in Q1.

·     FSLR -12%; reported below-expectations 1Q results but reaffirmed its FY outlook, as a softer 1Q was a function of timing of module shipments and sales.

·     NET -25%; missed 1Q23 top line and guided 2Q23 and 2023 lower due to deteriorating sales cycles in March, which have not improved as mgmt characterized sales cycles as “unprecedented”, elongating 25% further from already worsened conditions exiting 4Q22.

·     PINS -15%; guides 2Q revs grow roughly in-line with 4Q22 and 1Q23 growth, see 2Q adj expenses grow +low-teens %.

·     SNAP -20%; 1Q rev declined 7% y/y, slightly missing estimates as ad platform changes drove top line headwinds in the quarter; internal forecast comprises revs down (6%) y/y & EBITDA of ($100MM)-($50MM).