Mid-Morning Look: November 16, 2023

Mid-Morning Look

Thursday, November 16, 2023

Index

Up/Down

%

Last

 

DJ Industrials

-50.64

0.15%

34,942

S&P 500

2.71

0.06%

4,505

Nasdaq

2.01

0.01%

14,104

Russell 2000

-21.05

1.17%

1,780

 

 

U.S. stocks mixed after initial market strength. After retailers paced market gains on Wednesday behind better results from Target (TGT), the group is under pressure this morning as Wal-Mart (WMT) results fail to live up to TGT strength, sending shares lower, while luxury retail slides behind weakness in Burberry (BURBY) results while BBWI, PLCE, SCVL all lower guidance (Macy’s and WSM bright spots in retail). Outside of strength in mega tech players again (AAPL, MSFT, GOOGL), tech space hit with two lower guides, one in networking space as CSCO falls -11% on a lower guide and software weighed down by PANW billings miss. Energy stocks crashed following a 4% decline in oil prices and Smallcaps are also crushed with the Russell 2000 down over 1%, with the IWM falling more than $5 after hitting its 200-day MA above $181 yesterday. Interest rate sensitive stocks/sectors such as small caps, solar, biotech utilities, REITs, and Financials (names that benefit from improved financing given lower rates) jumped earlier this week behind softer CPI, PPI inflation data, but correcting. Treasuries rise as yields tumble to lows (10-yr down 10-bps to 4.43%) again and the dollar slips on a round of weaker economic data.

 

Economic Data

·     Weekly Jobless Claims climbed to 231K from 218K prior and above consensus 220K as the 4-week moving average climbed to 220,250 from 212,500 prior week and continued claims climbed to 1.865M from 1.833M prior week. The U.S insured unemployment rate climbed to 1.3%.

·     Import prices for Oct declined (-0.8%) – first drop in 4 months – and below the (-0.3%) estimate and vs Sept +0.4%; Oct petroleum import prices (-6.5%) vs Sept +6.8%; Oct export prices fell (-1.1%) vs. consensus (-0.5%) and vs Sept +0.5% (prev +0.7%). U.S. Oct y/y import prices -2.0%, export prices -4.9%.

·     November Philadelphia Fed factory index -5.9 vs. est. -8.0 as prices paid improved to 14.8 vs 23.1: new orders index down at 1.3 vs 4.4 prior, Fed future index at -2.1 vs 9.2, prices-received at 14.8 vs 14.6 and the employment index at 0.8 vs 4.0.

·     October Industrial Output fell (-0.6%) – lowest since December – and more than the (-0.3%) consensus and down from Sept +0.1%; Oct mining output +0.4% and utilities output -1.6% (sept -0.6%). Oct Capacity utilization rate 78.9% – lowest since Oct 2021 – and below consensus 79.4% and down from Sept 79.5%. U.S. Oct industrial output ex cars/parts -0.1% vs Sept +0.1%.

·     NAHB Housing market index tumbles 6 points to 34, (4th straight month of declines) lowest since December and below consensus and prior reading of 40 October as current single-family home sales 40 versus 46 in October (previous 46) and index of home sales over next six months 39 versus 44 in October (previous 44).

 

 

Macro

Up/Down

Last

 

WTI Crude

-2.56

74.12

Brent

-2.90

78.30

Gold

24.60

1,988.90

EUR/USD

0.0042

1.0888

JPY/USD

-1.00

150.35

10-Year Note

-0.102

4.436%

 

 

Sector Movers Today

·     Chinese ADRs, US listed names in technology pressured all day after President Biden and Chinese President Xi Jinping met yesterday in San Francisco with heads of some of the biggest companies in the world. Meanwhile, data showing prolonged weakness in China’s property sector is also hurting sentiment, with Asian markets falling overnight. BABA announced this morning it was scrapping its cloud unit spinoff in response to U.S. chip curbs, after it also reported Q2 revenue in line with market expectations. Shares of other E-commerce firms JD, PDD fell along with other China tech names BILI, BIDU, NTES and others.

·     Networking & Comms sector pressured by CSCO after Q1 top and bottom line beat consensus but guided Q2 revs $12.6-12.8B well below consensus $14.186B on lower earnings and slashed its year outlook for EPS to $3.87-$3.93 from $4.01-$4.08 (est. $4.05) and revs to $53.8B-$55B from $57B-$58.2B (est. $57.76B). Shares of ANET and JNPR dropped in sympathy as CSCO flagged a slowdown in new product orders in Q1 and said customers were currently focused on installing products following strong deliveries over the past three quarters.

·     Security Software: PANW shares slumped after results/guidance as lowered FY24 billings view to $10.7B-$10.8B from prior $10.9B-$11B and Q2 billings seen $2.34B-$2.39B below expectations of $2.42B after Q1 billings climbed 16% to $2.025B, missing estimates for 18% growth. PANW did report Q1 EPS and total revenues above consensus (shares of ZS, CHKP, CYBR, FTNT, OKTA slid).

·     In Auto suppliers: BWA was upgraded from Neutral to Buy at Guggenheim following what it views as unjustified post earnings weakness (-8% vs +6% S&P 500 since 11/2) saying the market fundamentally has EV risks wrong and views valuation as compelling. In Tires: GT was upgraded from Hold to Buy at Deutsche Bank and raise tgt to $21 following the unveiling of the operational and strategic plans it looks to execute over the next 24 months, after an in-depth Board-led review as part of its agreement with an activist investor. In Auto retail: AAP adds to the prior day declines after cutting forecasts and misses earnings, as Bank America downgraded to Underperform with a $43 target.

·     Homebuilders’ pullback following weakness in NAHB Housing Market index, weighing on likes of LEN, TOL, KBH, MTH as the industry slows down. Goldman Sachs initiated on housing insulation stock BLD at Buy and upgraded IBP to Buy and raise tgt to $178 as believe these names should benefit from strong momentum in single-family starts, relationships with the largest public builders, and softening inflation. Said BLD should also benefit from its vertically integrated model and increasing exposure to non-res markets.

 

Stock GAINERS

·     AAPL +1%; doing heavy lifting for broader mkts as WMT hits retail and CSCO PANW hit tech.

·     INTC +4%; a standout to upside in semis, trading at best levels since June 2022 above $42 after Mizuho upgraded to Buy and upped tgt to $50 from $37 as believes Intel is lining up significant new server product launches and foundry customer announcements in the next six months.

·     KLIC +4%; Q4 adj EPS $0.51 vs. est. $0.43; Q4 revs $202.3M vs. est. $200.16M; raises quarterly dividend to 20c from 19c per share; guides Q1 adj EPS $0.25 plus/minus 10% vs. est. $0.38 and sees Q1 revenue $170M plus/minus $10M vs. est. $190.92M.

·     M +7%; Q3 adj EPS $0.21 vs. est. 0 and sales of $5B top consensus $4.82B; Q3 comp store sales fell (-7%) on an owned basis and down (-6.3%) on an owned-plus-licensed basis; narrowed year EPS and sales guidance while said enters holiday period in healthy inventory position.

·     WSM +4%; following quarterly earnings results.

 

Stock LAGGARDS

·     AAP -6%; adds to prior day declines after cutting forecasts and misses earnings, as Bank America downgraded to Underperform with $43 target.

·     AUGX -25%; priced 6.25M shares of common stock at an offering price of $4.00 per share.

·     BABA -7%; announced this morning it was scrapping its cloud unit spinoff in response to U.S. chip curbs, after it also reported Q2 revenue in line with market expectations.

·     CSCO -10%; Q1 top and bottom line beat consensus but guided Q2 revs $12.6-12.8B well below consensus $14.186B on lower earnings and slashed its year outlook for EPS to $3.87-$3.93 from $4.01-$4.08 (est. $4.05) and revs to $53.8B-$55B from $57B-$58.2B.

·     MAXN -12%; Q3 EPS loss (-$2.21) vs. est. loss (-$0.93); Q3 revs $227.6M vs. est. $227.07M; guides Q4 revs $220M-$260M vs. est. $278.3M and adj EBITDA loss (-$27M-$37M); said all outstanding disputes with SPWR.

·     PANW -5%; after results/guidance as lowered FY24 billings view to $10.7B-$10.8B from prior $10.9B-$11B and Q2 billings seen $2.34B-$2.39B below expectations of $2.42B after Q1 billings climbed 16% to $2.025B, missing estimates for 18% growth.

·     PLCE -20%; as Q3 adj EPS of $3.22 missed ests of $3.51 and guided Q4 EPS $0.25-$0.45 below est. $1.30 saying bottom-line results impacted by higher than planned distribution costs.

·     SCVL -7%; lowered its FY sales view to $1.16B-$1.18B from prior $1.19B-$1.21B view and adj EPS view to $2.65-$2.75 from prior $3.10-$3.25 amid ongoing softness and uncertainty over consumer spending during the holiday season.

·     WMT -6%; shares pullback from 52-week highs – did report Q3 EPS, sales beat and raised results for year but not by more than beat while US operating income was a little light and issued some cautious consumer spending comments (recall retail surged yest on TGT results).

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.