Mid-Morning Look

Friday, June 30, 2023

U.S. stocks surge on the final day of the month and quarter, on track to close out the first half with massive gains, particularly in three sectors as major averages currently at/near 52-week highs as momentum buying and end of quarter portfolio positioning lifts stocks. The Nasdaq is poised to be the big winner in the first half of the year, sitting with a nearly +30% advance ahead of Friday’s session (best 1H since 1983) and Nasdaq 100 +39% YTD, best start to year in history at mid-point. The three S&P sector winners doing all the heavy lifting through June and are the top sector gainers today as well. All eleven S&P sectors in the green Friday, led by Technology (XLK), Discretionary (XLY), & Communications (XLC) are all up over 1% and up +39%, +31%, and +35% respectively YTD. Five of the S&P sectors remain negative on the year, including Energy, Utilities, Healthcare, Financials, and Staples. Slightly improved inflation data helped push US equities higher Friday morning and pushed Treasury yields lower on hopes it opens the door for the Fed to ease up on higher interest rate hikes in coming months. PCE inflation was +0.13% in May from April and +3.8% YoY, the lowest 12-month change in two years. The 10-year yield fell -2 bps to 3.83% (off highs 3.89%) and 2-yr -2.6 bps to 4.85%. AAPL trades to another all-time high this week, as its market cap surpasses $3 trillion (a move and $190.73 per share is the marker) got a lot of attention today on CNBC. Lots of interesting data points to chew on: @RyanDetrick noted: S&P 500 about to be up >7% three consecutive quarters for only the 11th time since 1950. @carlquintanilla noted: “We are entering the best seasonal period of the year for US Equities. The first 15 days of July have been the best two-week trading period of the year since 1928… July 17th is when equities start to fade.” Stocks have continued to push higher in recent weeks, even after more calls from the Fed to raise rates further in coming months, despite market expectations just weeks ago called for 3 rate “cuts” by end of 2023. Wild times indeed.

Economic Data

·     Personal income for May rose +0.4%, topping consensus +0.3% and vs. April +0.3% (prev +0.4%); the May personal saving rate was +4.6%. Personal Spending +0.1% vs. consensus +0.2%

·     The PCE price index M/M for May rose +0.1% vs April +0.4% (and prior +0.4%) as the core PCE price index +0.3% (in-line with consensus +0.3%) vs April +0.4%

·     The PCE price index Y/Y for May rose a lighter +3.8% vs April +4.3% (and prior +4.4%); while core PCE rose +4.6% (vs. est. +4.7%) and vs April +4.7% (prev +4.7%).

·     University of Michigan surveys of consumers sentiment final June 64.4 vs. est. 63.9 vs preliminary June 63.9 and final May 59.2; current conditions index final June 69.0 from 68.0 prior and expectations index final June 61.5 vs. prelim June 61.3.

·     University of Michigan surveys of consumers 1-year inflation outlook final June 3.3% vs prelim 3.3% and final May 4.2%. University of Michigan surveys of consumers 5-year inflation outlook final June 3.0% vs prelim 3.0% and final May 3.1%

·     Chicago PMI for June actual: 41.5 vs 40.4 previous; and below the estimate 43.8.

Sector Movers Today

·     In Crypto: Bitcoin prices slumped after the WSJ reported the SEC said a recent wave of applications filed by asset managers to launch spot bitcoin exchange-traded funds are inadequate, according to people familiar with the matter. Regulator tells Nasdaq, Cboe that recent filings from BlackRock, Fidelity and others aren’t clear and comprehensive. Shares of COIN, MARA, RIOT, MSTR and others that move on Bitcoin fell https://tinyurl.com/4pmp8ffk

·     In Lending: (SOFI, NAVI) – the Supreme Court is set to announce rulings on a case that challenge President Joe Biden’s bid to forgive over $400 billion in student loans, a policy that would relieve the debt of over 40 million Americans. Six Republican state attorneys general argue that the loan forgiveness policy violates the separation of powers and the Administrative Procedure Act.

·     In Aerospace & Defense: SPR workers approved a new labor contract, ending a six-day strike that threatened to disrupt output at plane makers BA and EADSY. About 6,000 members of the International Association of Machinists and Aerospace Workers voted to ratify a four-year contract. BAH mentioned positively at William Blair saying the company’s tracker picked up that BAH was recently re-awarded the Space Force Remote Sensing $630m/8-yr contract- was originally given to BAH in Jan ’22, but never started b/c of protests. HWM reiterated Outperform at TD Cowen and raised tgt to $55 from $49 along with ‘23 estimates saying the stock remains attractive and expect Q2 beat & C23 guidance hike.

·     In Solar/Utilities: ENPH upgraded to Buy from Neutral at B Riley with a $214 price target; SEDG tgt raised to $396 from $379 at Bank America saying Q2 setup looks healthy and further points to EBITDA acceleration in the second half of this year, driven by compounding operating leverage and further commercial and industrial. D lowered Q2 operating EPS view to 44c-50c vs. prior view 58c-68c (est. 64c) and said given pending business review, company has not provided full-year 2023 earnings guidance. AEP mentioned positively at BMO Capital saying the LPSC voted to approve SWEPCO’s March settlement with modest modifications and more importantly, approved the flex-up capacity option – which they say is a significant positive for the stock.

Stock GAINERS

·     ACCD +5%; reported strong Q1 results, above consensus as well as the high end of guidance for both revenue ($2.5 million beat) and adjusted EBITDA (a $3.8 million, or 23%, beat) while also increased its guidance for fiscal 2024.

·     AUPH +9%; after its board of directors announced the exploration of strategic alternatives to maximize shareholder value; said has accepted recent director resignations and has initiated a search for new directors.

·     BLCO +8%; said it agreed to buy NVS’ dry eye drop for $1.75B (deal also includes up to $750M in milestones for NVS).

·     PRGS +6%; following quarterly results; Q2 EPS $1.06 vs. est. $0.90; Q2 revs $178.3M vs. est. $169.78M; sees FY adj EPS $4.16-$4.24, vs. prior $4.09-$4.17.

·     RNLX +28%; said the FDA granted marketing authorization to its AI-based test to assess risk of Progressive decline in kidney function in adults with diabetes and early-stage kidney disease.

·     SGH +6%; posted beat and raise quarterly results as Q3 adj EPS $0.66 vs. est. $0.40; Q3 revs fell -17.1% y/y to $383M vs. est. $375.5M; Q3 non-GAAP gross margin increased to 28.0%.

·     XPEV +7%; launches and prices its G6 SUV model at 209,900 yuan ($28,944.54) per unit in mainland China. The G6 priced 20% below Tesla’s Model Y starting price of 263,900 yuan ($36,390.97); G6 receives 25,000 orders in 72-hour presale window – South China Morning Post.

Stock LAGGARDS

·     CLB -2%; downgraded to Sell at Citigroup, lower ests and tgt to $21 on NAM completion weakness negatively impacting Production Enhancement.

·     NKE -1%; Q4 EPS estimate by a penny, while gross margin also fell on moves to clear inventories through promotions, while North American sales only rose 5%, its slowest such growth in 4 quarters and said sees Q1 rev growth to be flat to low-single digit.

·     ROOT -20%; after issued a statement late Thursday that it is not in receipt of any proposal that is actionable. Recall shares had jumped on June 21 WSJ report that Embedded Insurance has made multiple approaches and offered to acquire Root for $19.34 per share.

·     STZ -1%; reported an 11% increase in beer sales in the latest quarter as its Modelo Especial brand became America’s top beer, but said net income fell 65% to $135.9M and revenue rose 6% to $2.51B as higher raw material prices, marketing spending weighed on profits.