Mid-Morning Look: February 02, 2023

Mid-Morning Look

Thursday, February 02, 2023






DJ Industrials




S&P 500








Russell 2000






U.S. stocks mixed as the S&P, Nasdaq and Russell 2000 extend 2023 gains on central bank commentary/actions as well as earnings results (META lifts tech), while the Dow Jones Industrials slips after weakness in MRK on earnings, weighing on defensive healthcare (AMGN, UNH also lower). Shares of HON also a drag on the Dow early, dragging industrials lower. US equity futures climbed overnight, building on Wall Street’s advance after Federal Reserve Chair Jerome Powell said policy makers had made progress in the battle against inflation, raising hopes the central bank is nearing the end of its rate-hike cycle. Tech and Communications sectors in the S&P surge behind META quarterly results as $40B buyback and capex cuts overshadow earnings miss and boost tech space.


The tumble in bond yields continue, with 10-yr hitting lows of 3.33% after holding around the 3.5% level for 2-weeks into the Fed yesterday; the 2-yr falls to 4.03%, lowest since October. CBOE volatility index hits over 1-yr low down -2.5% below 17.50 (has since bounced). Precious metal prices big reversal as dollar rebounds off earlier weakness; gold -0.3% to $1,937 an ounce (off highs $1,975). NYSE breadth nearly 3:1 as advancers leading decliners to start with tech again leading – note Technology (XLK) up +14% YTD and Communications (XLC) +21% YTD one-month into the New Year, while Smallcaps also surge as IWM moves 9% above 200-yda MA and highest since August. Cost cutting regarding jobs and restructuring (specifically in tech), coupled with big corporate buybacks (CVX $75B META $40N MDLZ $6B BLK $5.2B) have given stocks more upside momentum along with a slower inflation environment.


A day after the FOMC raised rates by 25-bps to 4.5%-4.75% range, and hinted of slowing pace of rates in futures meetings, the BoE and ECB both raised rates by 50-bps – as expected. The Bank of England raises interest rates by 50-bps to 4% saying inflation persistence would require further tightening. The European Central Bank (ECB) raised interest rates for the fifth successive time, by 50-bps, and signaled another half a percentage point increase for March, pressing ahead with policy tightening, and said it will then evaluate the subsequent path of its monetary policy.


Economic Data

·     Weekly jobless claims fell to 183,000 in latest week vs. consensus 200,000 and down from 186,000 prior week; the 4-week moving average fell to 191,750 from 197,500 prior; continued claims fell to 1.655M from 1.666M prior week.

·     Nonfarm Productivity for Q4 rose +3.0% (best since 2021) vs. est. +2.4% and Unit Labor Costs for Q4 rises +1.1% (smallest m/m since March ’21) with est. +1.5% and vs. Q3 +2%.

·     Factory orders for Dec rose +1.8% vs. est. +2.2% and above Nov -1.9% while factory orders ex-transportation -1.2% vs. Nov -1.2%; Dec factory orders ex-defense +2.0%. U.S. Dec inventories/shipments ratio 1.49 months’ worth vs Nov 1.47 months.







WTI Crude















10-Year Note





Sector Movers Today

·     In beauty sector: EL Q2 EPS and revs beat ($1.54/$4.62B vs est. $1.29/$4.58B) as organic net sales (11%) in constant currency vs consensus (9.8%) but guidance worse as guides Q3 EPS $0.37-$0.47 vs consensus $1.78 and revenue growth (14%)-(12%) vs consensus (1.5%); ELF with beat and raise as Q3 EPS $0.48/$146.5M above est. $0.23/$122.2M on better EBITDA and raises year EPS $1.37-$1.40 vs prior $1.07-$1.10 and revs $541M-$545M vs prior $487M-$486M; SBH Q1 EPS $0.52/$957.1M vs est. $0.49/$921.8M; comps +1.1% vs consensus (2.2%) – Sally beauty +3% vs consensus (2.2%) and Beauty Systems (1.5%) vs consensus (2.1%).

·     Cyber Security: FTNT downgraded at BMO Capital due to concerns on the strength of the firewall market in CY23 and reducing product rev ests by 3% in CY23 and 5% in CY24. Deutsche Bank said given early/late cycle framework, maintain OKTA as top cyber pick, as well as ZS benefitting from a backdrop further inspired shift from CAPEX to opex, and PANW considering its comprehensive platform leadership and relative valuation; OKTA upgraded to Buy at Needham with $90 tgt as believe Okta set conservative guidance for FY24, calling for just 16%-17% Revenue growth; OKTA announced job layoffs of about 300 employees as part of a cost-cutting plan.

·     Insurance: AFL Q4 adjusted EPS of $1.29 vs. est. $1.21 as beat on lower benefit ratios while EPS was negatively impacted by $(0.11) of unfavorable FX and $(0.09) of variable investment income. ALL reported 4Q22 results roughly in-line with the management’s pre-announcement; operating EPS of (-$1.36) in 4Q22, compared with consensus of (-$1.42). MET Q4 adjusted EPS of $1.55 missed consensus $1.67 largely on $(0.15) of lower variable investment income (VII) while VII (pre-tax) was $24M vs. $1B y/y.

·     In Pharma: Dow component MRK reported a beat on the top and bottom line for Q4 but forecast adjusted 2023 earnings of $6.80-$6.95, below estimate of $7.36 and sees 2023 sales of $57.2B-$58.7B which came in below estimates of $58.1B. BMY Q4 revs of $11.41B tops $11.19B consensus on better Revlimid and Opdivo ahead while EPS was $1.82 above the $1.73 est. largely on tax; topline rev guide was in-line, while better EPS largely assumes lower operating expense. LLY reported 4Q results, with revenue slightly below consensus ($7.32B vs. $7.33B cons), with Trulicity, Taltz and Mounjaro below consensus, though EPS was ahead at $2.09 (vs. $1.78) with better gross margins and tax; reaffirmed its previously given 2023 guidance.



·     ALGN +27%; upgraded to Neutral from Sell at Goldman Sachs with a revised 12-month price target of $307, implying -6% downside from the post-market price of $325 after earnings – said has more confidence in near-term demand; long-term growth outlook remains a question.

·     ELF +12%; beat and raise as Q3 EPS $0.48/$146.5M above est. $0.23/$122.2M on better EBITDA and raises year EPS $1.37-$1.40 vs prior $1.07-$1.10.

·     HOG +10%; Q4 revs $1.14B rises 12% y/y and tops $910M estimate as Q4 sales of motorcycles and related products rise 14% to $919M with upbeat guidance.

·     META +18%; as the company used the money it saved from cutting thousands of jobs to fund their new $40B stock buyback as lower cape-ex and the buyback overshadows its earnings miss and in-line rev guidance (lifts shares of PINS, ETSY, GOOGL, AMZN).

·     RACE +4%; raised its outlook for the year on strong demand for high-margin models as now expects adjusted earnings before interest, taxes, depreciation, and amortization of as much as €2.18 billion ($2.4 billion) in 2023, up from as much as €2 billion announced in June.



·     APD -7%; posts operating miss driven by Asia (8c), Americas (6c) offset in part by Europe (6c) with outlook that brackets consensus.

·     GOOS -9%; after lowers FY23 sales view to C$1.18B-C$1.20B from prior forecast of C$1.2B-C$1.3B saying recent slowing momentum in North America set against a tough macroeconomic backdrop – also lowered year EPS outlook.

·     HBI -19%; Q4 in line but Q1 EPS guide is for loss of (4c-9c) vs. est. profit $0.14 and FY23 EPS is $0.31-$0.42 below consensus $0.90 and said the dividend has also been eliminated to focus on debt reduction.

·     HON -3%; posts Q4 profit decline of 28% (EPS beat) while revs of $9.19B missed $9.25B consensus and sees 2023 Adj EPS $8.80-$9.20 vs. est. $9.17 and Organic Sales +2% to +5% (vs. 4.92%).

·     MRK -3%; reported a beat on the top and bottom line for Q4 but forecast adjusted 2023 earnings of $6.80-$6.95, below estimate of $7.36 and sees 2023 sales of $57.2B-$58.7B.

·     PENN -5%; Q4 EPS $0.13 miss consensus $0.41 on better revenue $1.59B (est. $1.58B); EBITDA $468.3M vs consensus $477.0M; guides FY23 revenue $6.15B-6.58B vs est. $6.46B.

·     QRVO -8%; reported strong F3Q results, which beat, and guided F4Q well-below as the correction in Android continues while weakening demand across non-mobile segments were cited.


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.