2023 Dec 8, US Market
A combination of positive economic data rocked markets on Friday, with stocks closing higher on expectations that the US will avoid a recession; yet, bond traders were compelled to reduce their bets on rate cuts in 2024, sending rates surging.
While economic strength makes many investors less concerned about a hard landing, it also implies the Federal Reserve may have to keep rates higher for longer. For Treasuries, this means an unwinding of the massive dovish trade that pointed to a Fed pivot as early as March. For equities, jobs and consumer resilience bode well for Corporate America.
Following a slew of figures pointing to a slowdown in the labour market, Friday's jobs report showed an unexpected pickup: nonfarm payrolls increased 199,000 last month, the unemployment rate fell to 3.7%, and monthly wage growth exceeded expectations. A separate report showed that US consumer sentiment rebounded sharply in early December, outperforming all forecasts, as households cut their year-ahead inflation expectations by the most in 22 years.
The S&P 500 gained for the sixth week in a row, its longest winning streak since November 2019. Wall Street's "fear gauge," the VIX, hovered near pre-pandemic levels. US two-year yields rose 12 basis points to 4.72%. Swap contracts now show a 40% probability of a March rate cut, down from more than 50% prior to the economic data.
Softening inflation and employment data in the last month convinced investors that the Fed is done raising interest rates, igniting bets that at least 125 basis points of easing were on the way over the next 12 months, which traders reduced to approximately 110 basis points of easing.
Broadcom (AVGO) reported upbeat Q4 earnings and raised its quarterly dividend 14%
Lululemon (LULU) provided a "beat and raise" report for Q3
DocuSign (DOCU) provided a "beat and raise" report for Q3
Carrier Global (CARR) agreed to sell its Global Access Solutions business to Honeywell (HON) for $4.95B
Vertex (VRTX) and Crispr (CRSP) announced FDA approval of Casgevy for the treatment of sickle cell disease, while Bluebird Bio (BLUE) also received FDA approval for a gene therapy for the disease
TSMC (TSM) and labor unions in Arizona have reached a deal covering foreign workers and more to resolve labor disputes at its fab construction site in Phoenix, Bloomberg says
Apple (AAPL) and its suppliers are working to build over 50M iPhones in India within two or three years, WSJ reports
Skydance, Redbird rumored to be "kicking tires" on Paramount (PARA), Deadline says
Stellantis (STLA) has warned of thousands of potential layoffs in Ohio and Michigan, AFP reports
X has held talks over a potential ad partnership with Amazon (AMZN), WSJ says
MBIA (MBI) surges after declaring an $8 per share special dividend
ALX Oncology (ALXO) increases after Jefferies upgraded the stock to Buy
Torrid (CURV) gains after reporting quarterly results
Biomea Fusion (BMEA) falls after announcing follow-up data on its Phase II study COVALENT-111
Sunnova (NOVA) declines after the House Energy Committee questioned the company's $3B Department of Energy loan
HashiCorp (HCP) reported Q3 results, provided guidance for Q4, and raised its outlook for FY24
RH (RH) reported Q3 EPS and revenue that missed consensus, with the company stating, "we experienced increased headwinds in early October when mortgage rates peaked above 8%... we continue to expect the existing housing market to remain frozen until interest rates and/or home prices fall meaningfully"
Guidewire (GWRE) announced Q1 results and backed its FY24 guidance
Johnson Outdoors (JOUT) reported Q4 revenue and EPS lower year-over-year
Smith & Wesson Brands (SWBI) reported Q2 results, with CEO Mark Smith commenting, "We were very pleased with our second quarter results, which continued to reflect our innovative new product introductions and our consumers' enduring loyalty"
Morgan Stanley upgraded Bluebird Bio (BLUE) to Equal Weight from Underweight with a price target of $7, up from $3. The analyst thinks lovo-cel is likely to be approved for sickle cell disease by the December 20 FDA action date.
Deutsche Bank upgraded Equifax (EFX) to Buy from Hold with a price target of $267, up from $218. The firm sees asymmetric risk/reward in Equifax "if and when" mortgage rates decline to 5.5% from 7% and a recession, whether mild or severe, should hasten this decline.
Morgan Stanley upgraded First Solar (FSLR) to Overweight from Equal Weight with a price target of $237, up from $214. After the 20% selloff in the past three months, First Solar shares have an attractive risk/reward profile, the analyst tells investors in a research note.
Jefferies upgraded ALX Oncology (ALXO) to Buy from Hold with a price target of $18, up from $8. The company has three major randomized controlled Phase II studies in 2024 which could work and stock is "very cheap" at a $100M enterprise value, the analyst says.
Wells Fargo upgraded SLM (SLM) to Overweight from Equal Weight with a price target of $20, up from $14. The analyst believes SLM shares are poised to garner more attention and a higher valuation from investors given the company's "enhanced competitive positioning" with Discover Financial's (DFS) exit, clarity on future loan sales and better credit.
Morgan Stanley downgraded Qualcomm (QCOM) to Equal Weight from Overweight with a price target of $132, up from $119, in conjunction with moving the firm's industry view on Semiconductors from In-Line to Attractive. The firm says its fundamental view is turning more positive on the device side as the inventory correction runs its course and it is shifting its smartphone exposure "from defense to offense."
TD Cowen downgraded HashiCorp (HCP) to Market Perform from Outperform with a price target of $23, down from $28, following a cRPO and billings miss and management still modeling a sharp second half deceleration. Macro headwinds are showing no signs of fading and the firm thinks growth visibility will remain highly constrained for at least a few quarters.
Deutsche Bank downgraded FactSet (FDS) to Hold from Buy with a price target of $480, up from $471. The firm has lowered its FY24 revenue estimates to the low-end of the range, noting management's recent commentary with respect to the macro environment.
Jefferies downgraded Beam Therapeutics (BEAM) to Hold from Buy with a price target of $30, down from $75. The shares have rallied from $18 to $28 but 2024 is mostly a year of execution for Beam to show it can enroll the lead Phase I sickle cell program and disclose its first-in-human data on time in late 2024 in multiple patients, the analyst tells investors in a research note.
Citi downgraded Deckers Outdoor (DECK) to Neutral from Buy with a price target of $710, up from $665. The analyst increased 2024 estimates to reflect strong Ugg momentum, but believes the market "now has high expectations that are getting increasingly difficult to beat.
HSBC initiated coverage of Alcoa (AA) with a Hold rating and $29 price target. While continuous improvement in ESG/CO2 emissions should create future value, the stock's current valuation looks fair, the analyst tells investors in a research note.
DA Davidson initiated coverage of Mondelez (MDLZ) with a Buy rating and $83 price target. The company's advantaged global market positioning, increasing momentum, and optionality are not yet fully appreciated in consensus estimates or the stock's valuation, the analyst says.
Wells Fargo initiated coverage of Alnylam (ALNY) with an Equal Weight rating and $171 price target. The firm contends that the risk/reward heading into into HELIOS-B Phase 3 study of vutrisiran "looks balanced."
B. Riley initiated coverage of Etsy (ETSY) with a Buy rating and $100 price target. The analyst views Etsy's "sizable and growing" customer base, large selection of differentiated goods, and platform investments positively for growth and profitability over the medium and longer term.
Goldman Sachs initiated coverage of Gaming and Leisure Properties (GLPI) with a Neutral rating and $51 price target. The analyst believes Gaming and Leisure's earnings growth drivers are "well known and relatively limited."
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