Mid-Morning Look

Thursday, May 18, 2023

U.S. stocks surging early adding to the mass squeeze yesterday, but the same theme continues to play out day after day, as technology again leading the broader markets. The Nasdaq extends gains along with communications and consumer discretionary, while the other eight-S&P sectors lag far behind. Technology jumps 1% on day (XLK +25% YTD) and Communications rise (XLC now up +27% YTD) but market breadth remains firmly negative early. Shares of AAPL, AMZN, AMD, GOOGL, MSFT, META, NFLX, NVDA – and broader semiconductors all surging. How long can big tech keep carrying markets higher remains the big question. Wal-Mart (WMT) is a bright spot in the consumer space with quarterly beat and better guidance. Smallcaps underperform Large Caps again. Bond yields rose on a hotter Weekly Jobless Claims number while other data points this morning were weak. Wall Street saw a big rally Wednesday after House Speaker Kevin McCarthy and President Joe Biden said the U.S. won’t default. Staff-level debt talks continue. Biden back from his trip to Asia on Sunday. Also note the 2-day market rally comes ahead of monthly option expiration tomorrow.

Treasury yields extend gains after economic data – 10-yr +5 bps at 3.634% (highest since mid-March) and 2-yr up about 10-bps at 4.25%. The U.S dollar (DXY) rises +0.5% to 103.40 both impacting precious metal prices, but not hurting tech prices. After the data, Fed futures now show a 40% chance of a 25-bps rate “hike” in June, up from ~5% last week. Futures now see just a 4% chance of rate cuts beginning in July and 26% chance in September. Meanwhile not one Fed member has said that they intend to make any rate cuts in 2023 (while futures/markets forecasting at least 2-cuts) – a massive disconnect remains between the Fed and markets. Gold prices extend weekly losses, down -1% at $1,962 an ounce.

Economic Data

·     Weekly Jobless Claims fell to 242K from 264K the prior week and below consensus of 254K; the 4-week moving average fell to 244,250 from 245,250 the prior week; continued claims fell to 1.799M from 1.807M prior (est. 1.818M) mln).

·     The Philly Fed Business Index actual negative -10.4 better than forecast of -20 and prior -31.3.

·     Existing Home Sales for April fell -3.4% M/M to 4.28M-unit rate below consensus 4.30M and down from March at 4.43M; inventory of homes for sale 1.04 mln units, 2.9 months’ worth; the April national median home price for existing homes $388,800, -1.7% from April 2022.

·     The Leading Index for April fell for the 13^th consecutive month, down -0.6% and was in-line with consensus estimates – matches longest streak of declines dating back to 2007-2009 where there were 24 consecutive months of declines (as per CNBC). 

Sector Movers Today

·     Insurance: ALL said estimated catastrophe losses for month of April of $799 mln or $631 mln, after-tax; during April, Allstate brand implemented auto rate increases of 8.6% across 13 locations, resulting in total brand premium impact of 1.6%. Bank America upgraded CINF to Buy, while downgraded THG to Neutral and SIGI cut to Underperform in regional insurance sector saying key themes from the quarter include elevated catastrophe losses from an early start to spring storm season, reinvigorated property rate increases, and continued margin pressure from inflation.

·     In software: NEWR shares rose late Thursday after the WSJ reported Private-equity firms Francisco Partners and TPG are working together on a $5 billion-plus bid to acquire the software company, according to people familiar with the matter. https://on.wsj.com/3pNot1g. In the EDA sector: SNPS posted a ~$15M revenue beat on broad-based strength, and modestly raised FY23 guidance by $10M at the midpoint while highlighted an uptick in 2H pipelines for IP. In video games: TTWO reported Q4:F23 results that beat top-line guidance and were in line, provided below consensus guidance for FY:24, but released a FY:25 guide that calls for bookings growth of over roughly $2.5B and signals the long-awaited GTA 6 is coming in FY25.

·     Semiconductors: Nonstop strength nearly every day of late as investors chase chip names on rising AI hope theme; AMD, NVDA continue to lead the pack. MU said it plans to invest up to 500-billion-yen ($3.70 billion) in extreme ultraviolet (EUV) technology over the next few years with support from the Japanese government. Philly semi-index (SOX) extends gains, trading to best levels since end of March.

Stock GAINERS

·     BBWI +10%; posts Q1 beat with sales in-line with the street and guidance (-4%) but gross margins beat by 140bps, which is better than expected.

·     FDX +3%; positive mention at Deutsche Bank, placing a near-term Catalyst Buy Rating as firm believes upcoming results next month can be a meaningful positive catalyst for shares.

·     MU +4%; it plans to invest up to 500-billion-yen ($3.70 billion) in extreme ultraviolet (EUV) technology over the next few years with support from the Japanese government.

·     NFLX +7%; rises after mgmt presentation; Oppenheimer said showed: 1) ad tier has ~5M MAUs, significantly more than the 1M reported by third parties; 2) represents 25% of new subscribers in respective geographies; 3) viewed 80% on TV; and 4) average age of 34, all of which helps support the premium ad prices.

·     SNPS +6%; posted a ~$15M revenue beat on broad-based strength, and modestly raised FY23 guidance by $10M at the midpoint while highlighted an uptick in 2H pipelines for IP.

·     TTWO +10%; reported Q4:F23 results that beat top-line guidance and were in line, provided below consensus guidance for FY:24, but released a FY:25 guide that calls for bookings growth of over roughly $2.5B and signals the long-awaited GTA 6 is coming in FY25.

·     WMT +2%; posts beat with US comps growing 7.3% and a stronger EPS beat on the quarter all generally ahead of expectations; gross margins beat by 18bps and opex beat by 35bps; boosted its adjusted earnings per share forecast for the full year.

Stock LAGGARDS

·     BOOT -12%; after Q4 net sales missed estimates and provided a forecast for the year that failed to match expectations; FY24 EPS guidance had been impacted by investments in new stores and a new distribution center.

·     CSCO -1%; delivered an April quarter beat-and-raise, but orders came in weaker than expected, down -23% and was slightly worse than expectations.

·     LSPD -11%; shares declined after lower Q1 rev guidance $195M-4200M vs. est. $206M) and FY24 revs disappoints ($875M-$900M vs. est. $897.2M).

·     NEM -3%; gold miners tumble along with decline in gold prices on dollar bounce.

·     NSTG -24%; after TXG said it won an injunction in its patent litigation against NanoString.

·     PG -1%; downgraded to Hold from Buy at Truist saying the stock’s current valuation now fully reflects its cost-cutting/turnaround efforts.

Syndicate:

·     Cabaletta Bio (CABA) 7.25M share Spot Secondary priced at $12.00.

·     EVgo (EVGO) 29.41M share Secondary priced at $4.25.

·     Gates Industrial (GTES) 22.5M share Secondary priced at $11.75.

·     GFL Environmental (GFL) 18.18M share Spot Secondary priced at $36.20.

·     Intapp (INTA) 6.25M share Secondary priced at $36.50.

·     Prelude Therapeutics (PRLD) 3.048M share Spot Secondary priced at $5.75.

·     Vivid Seats (SEAT) 16M share Secondary priced at $8.00.