Mid-Morning Look

Friday, February 24, 2023

U.S. stocks slide early, with the S&P Index (SPX) dropping back below its 50-day moving average support of 3,980 for a third day (bounced back above late Thursday) and neared its 200-day moving average support of 3,940 following another round of unfavorable economic data (bounced right around that level). Following the surprise jump in core PCE inflation data for January, Fed swaps fully price in rate increases in March, May, and June. Higher inflation readings in the University of Michigan sentiment and better new home sales data did not help the Bull case of a shorter interest rate hike cycle either. The news pushed the U.S. dollar index (DXY) to new 7-week peak after U.S. data, last up 0.5% at 105.08, hitting fresh two-month high of 136 vs yen. Treasury yields also higher as the yield on the 2-year Treasury note up to 4.799% after the inflation data–a new high since July 2007. There are four Fed speakers expected to comment today on policy and inflation: Fed Governor Jefferson (voter) speaks (10:15 am); followed by Cleveland Fed President Mester (10:15) – who spoke on CNBC earlier; St. Louis Fed President Bullard (non-voter) (11:30 am); Boston Fed President Collins (non-voter) (1:30 PM); and Fed Governor Waller (voter) (1:30 PM). Geopolitical headlines also playing a factor in sentiment as the US and other Group of Seven nations will impose new export controls and a fresh round of sanctions on Russia, with the measures singling out Russia’s defense and energy industries, financial institutions and more than 200 people. Tensions also remain tight between the US and China.

Economic Data

·     Inflation data disappoints as January overall PCE price index m/m rises +0.6% vs. Dec +0.2% and Jan PCE prices rise 5.4% vs. 5.0% in December. The core PCE Prices M/M rises +0.6% vs. est. +0.4% (and Jan revised to +0.4% from +0.3%) and core PCE y/y rises +4.7% vs. est. +4.3% (and Dec revised to 5.3% from 5%).

·     January personal saving rate 4.7% vs Dec 4.5%; Jan Personal Spending +1.8% above consensus +1.3% and Dec (-0.1%) while Jan real consumer spending +1.1% vs Dec (-0.3%).

·     University of Michigan surveys of consumers sentiment Feb-F 67.0 vs. est. 66.4 and preliminary 66.4 and final Jan 64.9; current conditions index Feb-F 70.7 vs prelim Feb prelim 72.6 and expectations index Feb-F 64.7 vs prelim Feb 62.3

·     University of Michigan surveys of consumers 1-year inflation outlook final February 4.1% vs preliminary 4.2% and final January 3.9% and the surveys of consumers 5-year inflation outlook final February 2.9% vs preliminary 2.9% and final January 2.9%.

·     New Home Sales for January at 670K annual rate vs. est. 620K and December 625K; single-family home sales +7.2% vs dec +7.2% (prev +2.3%); home sales Northeast -19.4%, Midwest -6.9%, South +17.1%, and West -7.3%; new home supply 7.9 months’ worth at current pace vs dec 8.7 months; median sale price $427,500, -0.7% y/y.

Sector Movers Today

·     In Media & Telco: WBD 4Q revenue and adj. EBITDA were largely in-line with consensus forecasts with DTC outperformance offset by modestly softer Studio and higher corp. expenses; WOW downgraded from Strong Buy to Outperform at Raymond James following 4Q results saying the potential for a catalyst now appears farther off, and as such it may take longer to realize a more appropriate multiple. LYV shares tumble following quarterly results.

·     In software: ADBE shares slip after a Bloomberg article last night stated the DOJ is preparing antitrust suit related to $20B Figma deal. Bank America notes deal not closing would mean Adobe may have to develop a competing offering inhouse – likely a multi-year effort; MSFT tgt raised to $290 from $280 at Wedbush and maintain OP reflecting more positive recent cloud checks; ADSK reported below-consensus FY24 guidance as revenue, EPS, billings, and FCF and management outlined a new Rule of 45 “target plan” (10-15% revenue growth + 30-35% FCF margin) for several years out. BIGC another software name falling after quarterly results.

·     In Biotech: NKTR shares fall after announcing Phase 2 topline data for REZPEG in systemic lupus erythematosus (SLE) in which the primary endpoint was not met. Lilly has notified Nektar that they do not intend to advance REZPEG to Phase 3 development for SLE; CCCC downgraded to Underweight at JPMorgan saying while timelines continue track toward clinical updates for CFT7455 (MM) and CFT8634 (synovial + SMARCB1-null tumors) in 2H23, they remain somewhat skeptical of the value accretive potential of these events. NEO upgraded to Buy at Benchmark after reported better than expected 4Q results and introduced a 2023 revenue guide of $545-555 million that was ahead of the prevailing consensus of $535 million. FULC tumbles after earlier posted full clinical hold on FTX-6058 in sickle cell disease.

Stock GAINERS

·     BKNG +1%; posts record bights in January and higher direct traffic mix; management provided ’23 EBITDA guidance ~5–7% above consensus and low-teens bookings growth (above Street’s +8%) implies high-single digit growth after 1Q.

·     BYND +24%; as 4q ADJ EPS ($1.05) vs est. ($1.18) on revs $79.9Mm vs est. $75.7Mm; sees FY23 net revs $375-415Mm vs est. $394.2Mm, continues to Target cash flow positive ops withing 2H2.

·     EIX +3%; after core Q4 EPS topped estimates and reiterated guidance.

·     INTU +3%; posted Q2 EPS and rev beat while guided Q3 results below views, but maintained its year revenuer outlook.

·     KTOS +12%; upgraded to Buy from Hold at Canaccord saying the company is now building a new production lot of 12 Valkyries and two Valkyries for the Navy are being assembled – company also reported quarterly results.

·     PODD +1%; reported strong beat in 4Q as accelerated demand related to the Omnipod 5 launch in the U.S. continues, and as key metrics like patient adds in all major categories, including MDI, conversions, and total, clocked in another record quarter.

·     SQ +1%; as Q4 revs beat and said it was slowing down hiring this year but would still increase headcount by around 10% through the end of 2023.

·     VRRM +4%; to replace COLB in S&P 600 at open on 3/1.

Stock LAGGARDS

·     ADBE -7%; after Bloomberg reported last night stating the DOJ is preparing antitrust suit related to $20B Figma deal.

·     ADSK -11%; reported below-consensus FY24 guidance as revenue, EPS, billings, and FCF and management outlined a new Rule of 45 “target plan” (10-15% revenue growth + 30-35% FCF margin) for several years out.

·     BA -3%; after saying it has temporarily halted deliveries of its 787 Dreamliner jets as the U.S. plane maker conducts additional analysis on a fuselage component, the FAA said.

·     CVNA -13%; shares slide after posting a wider-than-expected Q4 net loss hurt by shrinking demand for pre-owned vehicles and said continued to face worsening industry headwinds in 4Q.

·     EOG -5%; reported results that missed Q4 profit estimates, hurt by higher costs and lower demand and forecast Q1 production in the range of 902,600 to 939,400 boepd.

·     FULC -53%; after earlier posted full clinical hold on FTX-6058 in sickle cell disease.

·     NKTR -46%; after announcing Phase 2 topline data for REZPEG in systemic lupus erythematosus (SLE) in which the primary endpoint was not met. Lilly has notified Nektar that they do not intend to advance REZPEG to Phase 3 development for SLE.