Mid-Morning Look

Monday, July 24, 2023

U.S. stocks opened higher, quickly pared gains, and has since rebounded in another “buy the dip” moment early heading into a busy week of corporate earnings and central banks (FOMC, ECB, BOJ all this week). S&P warned that the prices received data suggests “that further falls in the rate of inflation below 3% may prove elusive in the near-term.” The commentary followed stronger than expected July “flash” S&P Global PMI readings (see below). Energy is an early leader in the S&P along with Financials and Healthcare while Consumer Discretionary lags. Investors are awaiting a batch of earnings reports from mega cap growth this week and technology companies (AMZN, MSFT, META, GOOGL, INTC) The Federal Reserve is expected to raise interest rates by 25 basis points after its policy meeting this week. NYSE breadth favors advancers over decliners early, with Treasury yields down along with Bitcoin prices (5-week lows), while the dollar advances.

Economic Data

·     U.S. S&P Global July flash services PMI at 52.4 (vs 54.4 in June).

·     U.S. S&P Global July flash composite PMI at 52.0 (vs 53.2 in June).

·     S&P Global July flash manufacturing PMI at 49.0 (vs 46.3 in June).

Sector Movers Today

·     In movie theatres: AMC shares surge after a court ruling issued on Friday evening denied AMC’s proposed settlement with its common shareholders, blocking its ability to convert APE shares to AMC. MAT said its “Barbie” movie hauled in $155 million in the United States and Canada over the weekend; set records as 2023’s biggest opening so far and the highest of any movie directed by a woman in history. IMAX said it had a $35 million opening weekend with “Oppenheimer,” the company’s largest ever share of a movie’s global opening weekend box office.

·     In truckers: The Teamsters union pulled back its threat of a strike this week at YELL, averting an action the company had said would send the business into liquidation. The union said Sunday that it withdrew plans for the walkout after a pension fund agreed to continue to extend health benefits to unionized workers (shares of ODFL, XPO, SAIA which were seen as beneficiary of YELL strike, are down in reaction).

·     Software/Hardware: APP upgraded to Buy from Neutral, based on an improving fundamental outlook and “undemanding” valuation. JNPR was downgraded to Outperform from Strong Buy at Raymond James saying sales expected to slow down since the industry’s “leader” Nokia reported weakness in the market. TWLO downgraded to underperform at RBC Capital Markets, as believes: 1) SMS is increasingly commoditized; 2) the company has had mixed execution; 3) the activist story is on hold in the near-term; 4) an uninteresting terminal margin profile; and 5) a misunderstood GenAI story. ZI downgraded to Sector Perform from Outperform at RBC Capital noting with shares up 40% off May lows (vs. IGV up 23%), RBC believes now is the right time to trim exposure.

Stock GAINERS

·     AMC +16%; after a court ruling issued on Friday evening denied AMC’s proposed settlement with its common shareholders, blocking its ability to convert APE shares to AMC.

·     APLD +23%; after mixed Q4 results and guided 2024 revenue $385M-$405M vs. est. $308.8M.

·     BDX +7%; after a three-year-long costly remediation effort, Becton announced that their Alaris infusion system had received FDA 510K clearance.

·     DPZ +1%; on mixed results as EPS $3.08 vs. est. $3.05; Q2 revs $1.02B vs. est. $1.07B; Q2 U.S. same store sales grew 0.1% in Q2 vs. est. +0.8%; International same store sales grew 3.6%.

·     HAL +2%; as energy and oil related stocks among early market leaders/

·     LRCX +2%; upgraded from Hold to Buy at Stifel and raised tgt to $725 from $505 as views Lam as a prime near-and-longer term beneficiary of HBM-driven DRAM growth.

·     PKX +16%; reports 1.3 trillion won ($1.01 bln) in operating profit, as estimated earlier, up 85.7% QoQ but down 38.1% YoY.

Stock LAGGARDS

·     EL -3%; downgraded to Neutral at Piper and slash tgt to $195 from $265 as still sees enough near/intermediate term downside risk to offset the eventual China recovery tailwinds.

·     GILD -2%; announced phase II trial evaluating Daxdilimab for the treatment of systemic lupus erythematosus did not meet primary endpoint; continues to assess full dataset.

·     JNPR -2%; downgraded to Outperform from Strong Buy at Raymond James saying sales expected to slow down since the industry’s “leader” Nokia reported weakness in the market.

·     KOD -50%; after saying it decided to discontinue development of wet age-related macular degeneration (AMD) treatment Tarcocimab after the treatment failed to meet primary efficacy endpoints in two studies of patients on longer treatment intervals.

·     ODFL -2%, along with weakness in truckers XPO, SAIA, others after a strike at trucking firm YELL averted after deal.

·     TWLO -3%; downgraded to underperform at RBC Capital Markets, as believes: SMS is increasingly commoditized; the company has had mixed execution; the activist story is on hold in the near-term; an uninteresting terminal margin profile; and a misunderstood GenAI story.