Mid-Morning Look

Tuesday, January 10, 2023

Stocks advance early as a speech from Fed Chairman Powell at a Central banking conference in Sweden, just two days prior to a key reading on domestic inflation, was a complete non-event, not talking about the economy of monetary policy and easing market concerns. That turns the sole market focus to key inflation data on Thursday with December consumer prices (CPI) expected to show 6.5% (overall US CPI YoY in December), down from 7.1% in November and the 40-year high of 9.1% last June, while the M/M figures is expected to be flat (core prices y/y est. +5.7% and m/m to rise +0.35). Until then, tough for investors to make any big bets ahead of the number. This morning, the World Bank cut its 2023 GDP estimates to +1.7% from +3.0%, calling for a global recession. Stocks tumbled on Monday after hawkish Fed commentary as San Francisco Fed President Mary Daly told a WSJ event that there was a case for returning to the smaller steps that the Fed has preferred to use since the 2008 crisis while Atlanta Fed President Raphael Bostic struck a more hawkish tone in a speech on Monday, saying that the fed funds rate should go to 5.25% by the second quarter and then stay there for “a long time. Stocks, Treasury yields, the dollar all looking higher early with S&P sectors mixed.

Economic Data

·     Small business optimism fell in December to the second-lowest level in nearly a decade as expectations for the economy and earnings deteriorated. The National Federation of Independent Business overall optimism index dropped 2.1 points to 89.8

Sector Movers Today

·     In chemicals at RBC, the firm downgraded CC to sector perform from outperform on expectations that a challenging fourth quarter for the chemicals firm will feed into the first half of 2023 and cut PPG to sector perform from outperform with limited upside seen for the paint-maker’s stock amid expectations that volumes will come under pressure; FMC was upgraded from Equal Weight to Overweight at Morgan Stanley and raised tgt to $145 from $125 as satisfies desire in 2023 for exposure to: specialty chemicals, companies with solid earnings visibility and achievability and deflation beneficiaries; OLN downgraded to Underweight at Morgan Stanley as we view the stock as a potential relative under-performer with base case price Target remaining $50 per share

·     Hardware/Software sector: HPE downgraded them to equal weight from OW at Barclays, taking a cautious view on IT hardware as the firm also downgraded shares of NTAP but upgraded KEYS. Firm says they believe the traditional server/storage/PC markets will be most impacted by the challenging macro backdrop – maintain UW for HPQ due to secular growth headwinds across PC and Print, while remain positive on PSTG and NTNX, as believe they are well positioned; DV and CFLT were upgraded to overweight from EW at Barclay’s as firm said it expects a difficult 1H for US software stocks as estimates still look too high, even if valuation levels are interesting and downgraded DT to equal-weight from OW

·     Telco: AT upgraded to Overweight at Wells Fargo and downgraded USM to Underweight saying they view the telecom sector as a relatively defensive play going into 2023, despite some growth challenges ahead; ATUS downgraded to Neutral from Buy at Goldman Sachs; in towers, AMT upgrade from Neutral to Buy at Goldman Sachs and up tgt to $245 saying they are broadly constructive on towers and data center stocks, as believe underperformance in 2022 was primarily driven by macro factors, most notably higher interest rates

·     In waste, UBS upgraded CWST from Neutral to Buy, and downgrade RSG and WM from Buy to Neutral and said top pick in the space remains WCN. In 2022 municipal solid waste (MSW) stocks provided capital protection outperforming the S&P 500 by ~16% in a weak market; in Industrials, AOS downgraded to Sell from Neutral at UBS

Stock GAINERS

·     A +4%; announces $2B share buyback plan; also Wells Fargo upgraded Agilent (A) to Overweight

·     ACCD +21%; after mixed results and guidance overnight

·     COIN +2%; said it will cut 950 jobs by the end of Q2 as part of a restructuring effort and will reduce operating expenses by 25% from the previous quarter

·     FRO +25%; following the termination of its $4B merger agreement with rival oil tanker owner EURN. The merger, which was approved by both companies’ boards last summer, fell off after opposition by the Saverys family, Euronav’s biggest investor

·     OSH +29%; CVS is looking into an acquisition of OSH, Bloomberg reported citing people familiar with the matter https://bloom.bg/3IGnpnj

·     SHC +51%; announces settlement of Ethylene Oxide litigation in Illinois

·     WBD +5%; added to the Bank America US 1 list

Stock LAGGARDS

·     AVGO -3%; shares remain pressured after Bloomberg reported late Monday that AAPL will begin developing in-house Wi-Fi/Bluetooth chip, replacing AVGO socket by 2025

·     BA -1%; downgraded to equal weight from overweight at Morgan Stanley, saying the stock is now approaching fair value following recent outperformance

·     BLI -11%; said it sees FY22 revenue $78M-$78.5M, below consensus $85.36M citing a delay in several Beacon platform placements

·     CROX -1%; raises 2022 revenue view to $3.55B from $3.455B-$3.52B (est. $3.51B) and continues to expect FY ’22 OM of 27%, while sees 2023 revenue $3.9B-$4.0B, vs. consensus $3.92B

·     EURN -17%; following the termination of its $4B merger agreement with FRO

·     ON -3%; downgraded to Market Perform at William Blair saying SiC yield concerns and auto demand will test gross margin

·     SMCI -8%; named as “short call” by short seller SprucePoint