Early Look

Monday, October 23, 2023

S&P futures are down -0.55% at 4,225 (overnight low 4,215.25), adding to last week’s losses as Treasury yields resume their push higher with the 10-yr yield up +8.8bps to 5.015%. Last week, the S&P fell 2.39%, the Dow lost 1.61%, the Nasdaq shed 3.16%. Two things stood out in the FOMC’s most recent dot-plot including that another rate hike may be appropriate, and the higher policy rate would be in place for longer than previous dot-plots had suggested. The next Fed decision comes on Nov. 1, with expectations the central bank will pause and wait for more data before the December meeting. The rise in yields is raising borrowing costs which could put more pressure on economic growth. In corporate news, one mega M&A deal in the oil E&P sector as Chevron (CVX) agrees to buy Hess (HES) in a $53B stock and cash deal. In the drug sector, Roche (RHHBY) agreed to buy immunology company Telavant Holdings from Roivant Sciences (ROIV) and Pfizer (PFE) in a $7.1 billion deal. Lastly, there were two M&A deals in the Industrial sector (more details below). A huge weak of earnings coming up, the busiest for S&P 500 companies, while thus far, 86 S&P 500 companies representing 24% of S&P 500 earnings are in with 65%/59%/48% of reporters beat on EPS/sales/both so far, overall better than last quarter’s 67%/51%/43%. In Asian markets, The Nikkei Index dropped -259 points to 30,999, the Shanghai Index falls -43 points or nearly 1.5% to 2,939, and the Hang Seng Index declines -123 points to 17,172. In Europe, the German DAX is lower by -125 points to 14,673, while the FTSE 100 is down about -50 points to 7,355. Stocks down across Asia-Pacific, partly fueled by carry over from Friday’s risk-off tone, though Taiwan’s Hon Hai Precision was hit by fallout from China probes. The CBOE Volatility index (VIX), or fear index rises 5% to 22.84, its highest level since the bank failure crises in March. The US dollar edges higher and touched above 150 yen in early morning trade. Will the S&P (SPX) be able to keep its streak alive? The S&P 500 is currently sitting at 15 straight green Mondays – longest streak ever for the index.

Market Closing Prices Yesterday

·     The S&P 500 Index stumbled -53.84 points, or 1.26%, to 4,224.16.

·     The Dow Jones Industrial Average fell -286.89 points, or 0.86%, to 33,127.28.

·     The Nasdaq Composite tumbled -202.37 points, or 1.53%, to 12,983.81.

·     The Russell 2000 Index declined -21.91 points, or 1.29% to 1,680.79.

Economic Calendar for Today

·     8:30 AM ET                  National Activity Index for September

Earnings Calendar:

·     Earnings Before the Open: ACU BMRC BOH DX HOPE WSFS

·     Earnings After the Close: AAN AGYS ARE BRO CADE CALX CATY CCK CDNS CLF CR HLX HSTM HXL IBTX KREF MEDP PKG RBB RLI SSD TBI TRST WASH WRB

Other Key Events:

·     The European Society of Medical Oncology (ESMO) meeting, 10/20-10/24.

·     Goldman Sachs Japan Mobility Conference 2023, 10/23-1025, in Tokyo

World News

·     U.S. Sept budget deficit (-$171B) vs. consensus (-$78.6B) deficit and vs. Sept 2022 deficit (-$430B). U.S. Sept budget outlays $638B vs $917B in Sept 2022; receipts $467B vs $488B in Sept 2022. U.S. fiscal 2023 deficit largest since covid-fueled Gap in 2021, exceeds all prior deficits.

Sector News Breakdown

Consumer

·     Tesla (TSLA) raises FY23 Capex to exceed $9.00B from prior $7.0B-$9.0B for FY23-FY25); and affirms FY24-25 Capex of $7.0B-$9.0B as per filing.

Energy

·     Chevron (CVX) said it would buy Hess (HES) in an all-stock deal worth $53 billion to upgrade and diversify its portfolio, adding a large oil asset in Guyana and bolstering its U.S. shale operations. HES holders will receive $171 a share based on Chevron’s closing price, shareholders receiving 1.0250 shares of Chevron for each Hess share. https://tinyurl.com/yjr4p7ra

·     Fortive (FTV) agreed to acquire electronic test solutions company EA Elektro-Automatik Holding for $1.45 billion in cash. https://tinyurl.com/26pc363m

·     Stonepeak has struck a deal to purchase shipping-container lessor Textainer (TGH) for more than $2 billion, as Textainer investors will receive $50 a share in cash (deal valued at more than $7B including debt). The company unveiled the news on Sunday night, confirming an earlier report the WSJ https://tinyurl.com/24b262k2

·     Alcoa (AA) downgraded to Neutral from Buy at Bank America.

Financials

·     Great Ajax Corp. (AJX) terminated its merger agreement with Ellington Financial Inc. (EFC) saying the companies “intend to continue to work together on mortgage loan opportunities”.

·     Hope Bancorp (HOPE) Q3 EPS $0.25 vs. est. $0.26; Q3 revs $143.68M vs. est. $138.25M.

Healthcare

·     Roche (RHHBY) agreed to buy immunology company Telavant Holdings from Roivant Sciences (ROIV) and Pfizer (PFE) in a $7.1 billion deal. Shares in ROIV, which has a 75% stake in Telavant, surged 15% in premarket trading. Roche take on the rights to develop and commercialize it in the U.S. and Japan pending regulatory success. https://tinyurl.com/4nmdr6hv

·     Bausch Health Companies Inc. (BHC) said the FDA approved a new drug application for Cabtreo topical gel for treatment of acne vulgaris in patients 12 years and older.

·     Verve Therapeutics (VERV) said that it had received clearance from the FDA to conduct a clinical trial in the U.S. of its experimental, gene-editing treatment for a common form of heart disease. The FDA’s action removes a clinical hold on Verve’s CRISPR-based therapy, called VERVE-101, that was placed on it last November.

·     Walgreens Boots Alliance (WBA) upgraded to overweight from neutral at JP Morgan noting the company has an opportunity to remove several stock overhangs and improve performance.

Technology, Media & Telecom

·     China is investigating iPhone maker Foxconn, according to local media reports. Foxconn—also known as Hon Hai Precision Industry (2317.Taiwan)—was subjected recently to searches by Chinese authorities. https://tinyurl.com/272e5fb3

·     Take-Two Interactive Software Inc. (TTWO) Zynga game platform defeated International Game Technology Plc’s (IGT) patent infringement suit alleging three popular online casino slot games infringed a mobile device patent, a Texas federal jury said Friday.