Mid-Morning Look

Monday, February 13, 2023

U.S. stocks quietly melting higher to start the day after slipping last week, with no economic data, Fed speakers (outside of Bowman), or major earnings to ruffle feathers as investors wait for CPI inflation data in the US tomorrow for a read on Fed intentions. Note the S&P pulled back about 130 points last week to the top of monthly value support and has rebounded thus far nicely. This morning, ahead of the CPI, Federal Reserve governor Michelle Bowman said she sees the need to keep raising interest rates and then hold them at a higher level to tackle inflation. “We are still far from achieving price stability, and I expect that it will be necessary to further tighten monetary policy to bring inflation down toward our goal,” she said. Morgan Stanley strategist Mike Wilson dialing up new round of caution saying they see US stocks ripe for a selloff after prematurely pricing in a pause in Federal Reserve rate hikes. Meanwhile, as US-China tensions intensify, a fourth object was shot down by the US military on Sunday. Treasury yields reverse, with the 10-year yield down at 3.71% after highs of 3.75%. Fed Fund futures are currently pricing in a peak of ~5.2% by the July meeting. This is up from 5% less than a month ago and no cuts in 2023. Very light volumes early with all eyes on CPI Tuesday.

Sector Movers Today

·     In software: The Verge reports MSFT hopes to hold a product event in March at which it will detail how OpenAI’s technology will be incorporated into Office productivity software; CRM tgt raised to $200 at Bank America and lower FY24 rev estimates in a transition year saying is emerging as quality GARP Stock; VMW shares fell on Friday amid fears the AVGO deal could face more intense regulatory opposition from the FTC; TWLO to cut 17% of workforce.

·     Internet Security: CHKP 4Q rev/EPS of $638.5M/$2.45 (+7% y/y vs 6.1%E) exceeded St’s $636M/$2.36E, driven by a tad better subscription line performance ($231M vs. $229E) and Product line of $173.4M; OKTA Initiate at Underperform and $64 tgt at Bank America, implying -17% additional downside saying consensus is modeling Okta’s Customer Identity too high.

·     In housing services: ZG upgraded to Outperform from in-line at Evercore/ISI and tgt jumps to $61 as anticipates Q1 being the trough quarter for residential real estate in terms of existing homes sales and home prices; in building products, MAS upgraded from Sell to Hold at Deutsche Bank and raised tgt to $56 after quarterly results in home improvement, Wells Fargo noted the Q4 setup was “tricky” as an understatement saying FY23 ests are too high, sentiment is bearish; yet shares are off ’22 lows & rates add support. LOW is Q4 preferred play.

·     Defense stocks were active (GD ) following reports that the US has shot down three unidentified objects over the past three consecutive days, thought to be surveillance balloons; WSJ reported a federal judge in Texas denied a request by families of those killed in two 737 MAX crashes to throw out or modify a two-year-old settlement between Boeing Co. (BA) and the U.S. Department of Justice.

·     In metals: FCX Indonesia unit has temporarily halted mining and processing work at its Grasberg mine as flooding and debris flow from heavy rains and landslides damaged the milling complex; GORO suspends its dividend; said as per 2023 guidance, lower gold grades will result in less production in 2023 than 2022 and further significantly contribute to an increased Cash Costs and All-in Sustaining Costs; CLF announces price increase for hot rolled, cold rolled and coated steel products.

Stock GAINERS

·     BIDU +6%; strength in US listed China stocks early (KWEB +3%).

·     FSLY +20%; double upgraded to Buy from Underperform at Bank America with $16 tgt saying the co has strong foundations and believe the new mgmt team can capitalize on them.

·     HSIC +2%; authorized a new $400 million share repurchase program.

·     META +2%; has delayed setting budgets for some of its teams as it prepares for more job cuts under Chief Executive Officer Mark Zuckerberg’s drive to reduce costs – Financial Times reports.

·     MSFT +3%; leading in software as GOOGL slides as ChatGPT becomes battle.

·     OCUL +29%; after the company announced 10-month interim data from an early-stage study of its experimental treatment for wet age-related macular degeneration.

·     ZG +4%; upgraded to Outperform from in-line at Evercore/ISI and tgt jumps to $61 as anticipates Q1 being the trough quarter for residential real estate in terms of existing homes sales and home prices.

Stock LAGGARDS

·     APRN -18%; after filed an “at-the-market” equity offering program for up to $70M.

·     AXSM -1%; shares slide after on saying on Feb 10, received notice letter from TEVA, providing notification to Co that Teva has submitted ANDA to FDA.

·     FIS -11%; said it would spin off its merchant payments business. The unit, Worldpay, is a payments processor for companies and it was acquired by Fidelity in a $43B deal four years ago.

·     GTHX -50% after announces top line results from pivotal phase 3 trial of Trilaciclib in patients receiving triplet therapy with Folfoxiri for metastatic colorectal cancer.

·     SRNE -43%; shares tumble after to company and its non-opioid painkiller development unit Scintilla Pharmaceuticals commence Chapter 11 proceedings under the U.S. bankruptcy code.