Mid-Morning Look

Friday, January 20, 2023

U.S. stocks in rally mode to start this options expiration Friday, with tech and communications sectors getting a boost after positive reaction to Netflix results, but major averages still on track for weekly declines on rate hike concerns. Seeing weakness early in defensive sectors (food, staples, healthcare, and utilities) while investors add to early 2023 strength in discretionary, comm, tech and financials (which were among 2022 top losers). Treasury yields, the dollar and Bitcoin on the rise as Philadelphia Fed President Harker spoke on the economic outlook, and ahead of an expected speech by Fed Governor Waller (voter, hawk) at the Council on Foreign Relations later. The comments are the last ahead of Fed blackout period starting tomorrow ahead of the first FOMC meeting of the year on February 1 where expectations are for the FOMC to raise interest rates only 25 bps to a range of 4.50%-4.75%. Treasury yields edging slightly higher, 10-yr up 5 bps to 3.45% with 2-yr up over 5-bp to 4.17%. US existing-home sales dropped 17.8% in 2022, the most since 2008. Financials higher early behind STT, ALLY results, but cautious commentary on credit and provisions remain a concern for industry.

Economic Data

·     Existing Home Sales for December fall -1.5% to 4.02M unit rate, above consensus 3.96M and down slightly from Nov reading of 4.08M; inventory of homes for sale 970,000 units, 2.9 months’ worth; national median home price for existing homes $366,900, +2.3%

Stock GAINERS

·     ALLY +14%; after reporting Q4 adj EPS of $1.08, topping consensus of $1.00 on better revs of $2.2B (est. $2.05B) as qtrly provisions for credit losses boosted to $490M from $438M and sees 2023 adj EPS of about $4 and 2024 adj EPS of about $6.00.

·     GOOGL +3%; after the NY Times reported Google founders Larry Page and Sergey Brin re-engaging to meet threat from ChatGPT; separately, GOOGL to lay off 12,000 employees or 6% of total workforce.

·     NFLX +7%; reported strong 4Q results, including 7.7mn sub net adds, well-above Street est. and guidance of 4.5mn and provided strong ’23 guidance for op. margin (18-20% assuming ’23 FX rates) and FCF (above $3bn) – also Q1 EPS miss and in-line revs.

·     PPG +5%; Q4 adj EPS $1.22 topped the est. $1.13; Q4 revs $4.19B vs. est. $4.1B, while 1Q23 EPS guidance of $1.10-1.20 was below Street expectations.

·     SIVB +13%; top gainer in the S&P after quarterly results (which were mixed)

·     STT +3%; reports a better Q4 result than comp NTRS Thursday (shares fell -8%) after EPS of $2.07 tops $1.98 estimate and Net interest income increased to $791M from $484M y/y and authorizes to repurchase up to $4.5 billion of common stock during 2023.

·     W +14%; said its plans to cut about 1,750 employees, representing 10% of its global workforce, including about 1,200, or 18%, of corporate employees and said now expects to reach its adjusted EBITDA breakeven commitment earlier in 2023.

Stock LAGGARDS

·     BBBY -10%; shares volatile after saying it received notice from Nasdaq on Jan. 12 that said the company is not in compliance with requirement for continued listing.

·     DOMO -9%; downgraded to Equal Weight with $16 tgt down from $24. Chinese stocks listed in the US trade broadly higher before the country heads into Lunar New Year holidays.

·     ERIC -4%; reported lower than expected Q4 core earnings as sales of 5G equipment slowed in high-margin markets such as the U.S., sending shares to their lowest since 2018.

·     FARO -24%; after saying it’s offering privately $60 mln 5-yr convertible bonds; to use net proceeds for working capital, other general purposes.

·     JWN -1% after preannounced softer than expected holiday sales and lowered FY guidance to reflect macro headwinds and a more promotional holiday; cuts its FY EPS outlook to $1.50-$1.70 from prior $2.30-$2.60 and cuts FY22 EBIT margin view.

·     LCII -6%; downgraded to Hold from Buy at Jefferies as they see increased risk of ’23 wholesale shipments being materially below current industry forecasts.

·     LLY -1%; said that U.S. regulators had rejected its application seeking accelerated approval for its Alzheimer’s drug Donanemab (Alzheimer drug rival BIIB rises on news).

·     SQSP -9%; In Commerce/Backoffice Software, SQSP, RSKD, and BIGC downgraded to Sector Weight from OW at Keybanc saying key ideas include INTU and ESMT