Closing Stock Market SummaryThe stock market spent most of the session oscillating in a narrow range that included modest losses for the Dow, Nasdaq, and S&P 500. Investors were lacking conviction ahead of a slate of earnings news this week. Earnings results so far have been better than expected/feared, which helped limit selling interest, but valuation concerns kept the market from moving noticeably higher.
The market was able to log modest gains, though, thanks to a late afternoon rebound effort. The upside move coincided with a CNN reporter tweeting that House Speaker McCarthy said he thinks he has the 218 votes needed in the House to raise the debt ceiling. The sentiment shift may have been overdone, however, when considering that House Speaker McCarthy told CNBC earlier that a "no strings attached" debt ceiling increase will not pass the House. A proposal with strings attached (e.g., spending cuts in exchange for raising the debt ceiling) is unlikely to pass the Senate.
Still, the major indices all finished at their best levels of the day, leaving the S&P 500 just above 4,150. Even semiconductor equipment makers, which had been a notable pocket of weakness, came along for the afternoon rebound. The PHLX Semiconductor Index (SOX) was down as much as 1.5%, but closed with a modest 0.1% loss.
Weakness in the SOX was stemming from a Bloomberg report that Taiwan Semiconductor Manufacturing Co. (TSM 87.99, +0.79, +0.9%) may soon announce a cut in its FY23 capex budget to $28-32 billion from $32-36 billion.
Notably, Alphabet (GOOG 106.42, -3.04, -2.8%) still logged a sizable decline today despite the broader market improving before the close. This followed a New York Times piece that suggested Samsung is considering using Microsoft's (MSFT 288.80, +2.66, +0.9%) Bing as the default search engine on its devices as opposed to Google.
Most of the S&P 500 sectors were able to close with a gain led by real estate (+2.2%) and financials (+1.1%). Meanwhile, the energy (-1.3%) and communication services (-1.3%) sectors were the worst performers by a wide margin.
Separately, Treasuries settled with losses across the curve as the specter of the Fed raising rates again in May and then not pivoting to a rate-cut cycle anytime soon, along with a stronger-than-expected New York Empire State Manufacturing Survey for April, prompted some selling interest. The 2-yr note yield rose eight basis points to 4.18% and the 10-yr note yield rose seven basis points to 3.59%, unmoved in large part by the aforementioned tweet related to the debt ceiling conversation.
- Nasdaq Composite: +16.2% YTD
- S&P 500: +8.1% YTD
- Russell 2000: +3.2% YTD
- Dow Jones Industrial Average: +2.5% YTD
- S&P Midcap 400: +2.4% YTD
Reviewing today's economic data:
- April Empire State Manufacturing 10.8 (consensus -19.0); Prior -24.6
- April NAHB Housing Market Index 45 ( consensus 45); Prior 44
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 ET: March Housing Starts (consensus 1.458 mln; prior 1.450 mln) and Building Permits ( consensus 1.407 mln; prior 1.524 mln)
Pangaia to Cut up to a Third of Jobs in Swiss Move
The brand will cut as many as 50 jobs as it moves its headquarters from London to Switzerland.
Fashion start-up Pangaia is planning to move its headquarters from London to Switzerland in a restructuring that could cost as many as 50 jobs — roughly a third of the company’s workforce.
The changes are intended to streamline operations and improve efficiency that has been lost as the company has grown, Pangaia said in an internal email seen by BoF.
The planned job cuts are the latest in a wave of layoffs to hit the industry as brands grapple with an increasingly challenging economic climate. The news was first reported by The Times.
Once fashion’s hottest start-up, Pangaia has struggled to sustain the commercial momentum generated early on by its pandemic-friendly loungewear.
The company swung to an operating loss of $41.5 million in 2021 amid slowing sales and rising investment, according to public accounts filed in February. Ambitions to establish the company as an eco-innovation hub selling services to the rest of the industry remain nascent.
Pangaia did not respond to a request for comment. The company told BoF last month that it expects its fashion business to be profitable this year, while in the long-term its innovation services are intended to become the larger part of the business.
Italian Design Brands to Raise 70M Euros in IPO
The Italian furniture, interiors, lighting and kitchens firm said the capital increase would be used to fuel its strategy and fund M&A activity. Its IPO is expected to begin in May of this year.
Saba Italia furnishings.
MILAN — Italian Design Brands, one of the nation’s largest high-end furniture and design holdings, confirmed on Monday its intention to list its shares on Euronext Milan, a regulated market organized and managed by Borsa Italiana.
Established in 2015 by Private Equity Partners and a select group of investors through a company called Investindesign, the Milan-based company said the offering would consist of newly issued ordinary shares for an overall value of 70 million euros and existing ordinary shares offered by the company’s shareholders, in order to reach free float of at least 25 percent of the share capital resulting from the completion of the listing. The offering will also include a greenshoe option.
Andrea Sasso, chairman and CEO of IDB Group.
COURTESY PHOTO IDB GROUP
“The proceeds from the capital Increase will be used by the company to support the implementation of its strategic objectives, allocating them to the implementation of the organic growth strategy, according to the objectives described in the business plan, the financing of the M&A activity, and (sustain the capital expenditures and the working capital,” the company said in a statement.
IDB has already filed its prospectus statement to Italy’s market watchdog Consob. Upon approval, the offering is expected to start in May 2023. Citigroup and Italian investment bank Equita are acting as joint global coordinators, IDB said.
“IDB’s listing project on Euronext Milan and, if the conditions are right, on the Star segment, remains valid and confirmed for the first half of this year, market conditions permitting,” its chief executive officer Andrea Sasso said in an interview with WWD last month. “The IPO is a tremendous pull factor for our companies, which will help bring in new talent and top-level managers,” he added.
Last month, the group reported that its adjusted net profit almost doubled in 2022, reaching 25.5 million euros, compared to 13.3 million euros in 2021. Sales also rocketed 84.8 percent on a pro-forma basis to 266.5 million euros. Italian Design Brands’ adjusted earnings before interest, taxes, depreciation and amortization rose 111 percent to 49.2 million euros in 2022, with a pro-forma margin of 18.5 percent, up from 16.2 percent in 2021, IDB said.
In June 2022, IDB acquired the majority of Gamma Arredamenti International, an Italian company specializing in the production of upholstered furniture. In an operation that was finalized earlier this year, IDB entered into the kitchen and systems sector with a majority stake in Cubo Design, an Abruzzo, Italy-based company which owns the Binova and Miton Cucine brands, specializing in the production of modular kitchens and systems.
In total, IDB’s portfolio includes 10 companies and 13 brands including upscale furniture brands Saba Italia, Gervasoni, Meridiani, lighting companies Davide Groppi, Axolight and Flexalighting in North America, as well as luxury contract companies like Modar and Cenacchi International, which makes installation of luxury furnishings for stores, showrooms, offices, hotels and prestigious homes anywhere in the world.
“The company has pursued and will keep pursuing a clear and effective growth strategy through M&A activity, with the objective of consolidating its international presence in the market steadily integrating new companies,” IDB added.
Its luxury contract business surged 73.6 percent in 2022 to 68.3 million euros, while its furniture business rose 39.6 percent to 117 million euros on a pro-forma basis.
Research Calls
- Upgrades:
- Biogen (BIIB) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $346
- Dexcom (DXCM) upgraded to Strong Buy from Outperform at Raymond James; tgt raised to $138
- HP Inc. (HPQ) upgraded to Overweight from Neutral at JP Morgan; tgt raised to $35
- Lumentum (LITE) upgraded to Overweight from Neutral at JP Morgan; tgt raised to $60
- Ollie's Bargain Outlet (OLLI) upgraded to Neutral from Underweight at JP Morgan; tgt raised to $66
- Sallie Mae (SLM) upgraded to Overweight from Neutral at JP Morgan; tgt raised to $17
- Taiwan Semiconductor Manufacturing (TSM) upgraded to Positive from Neutral at Susquehanna; tgt $126
- Downgrades:
- AES (AES) downgraded to Peer Perform from Outperform at Wolfe Research
- AngioDynamics (ANGO) downgraded to Outperform from Strong Buy at Raymond James; tgt lowered to $13
- Catalent (CTLT) downgraded to Neutral from Outperform at Robert W. Baird; tgt lowered to $53
- Commscope (COMM) downgraded to Hold from Buy at Jefferies; tgt lowered to $5.50
- ConocoPhillips (COP) downgraded to Neutral from Buy at Mizuho; tgt lowered to $128
- Dell (DELL) downgraded to Neutral from Overweight at JP Morgan; tgt $47
- Essex Property (ESS) downgraded to Underperform from Market Perform at BMO Capital Markets; tgt lowered to $200
- Infosys (INFY) downgraded to Neutral from Outperform at Macquarie
- Kaltura (KLTR) downgraded to Underperform from Neutral at BofA Securities; tgt lowered to $1.75
- Meta Platforms (META) downgraded to Neutral from Buy at New Street; tgt $220
- Ovintiv (OVV) downgraded to Equal Weight from Overweight at Wells Fargo; tgt lowered to $40
- PENN Entertainment (PENN) downgraded to Mkt Perform from Mkt Outperform at JMP Securities
- Teradyne (TER) downgraded to Underweight from Neutral at JP Morgan; tgt lowered to $81
- Texas Roadhouse (TXRH) downgraded to Mkt Perform from Outperform at Raymond James
- ViewRay (VRAY) downgraded to Hold from Buy at Jefferies; tgt lowered to $1.25
- Wolfspeed (WOLF) downgraded to Neutral from Overweight and placed on Negative Catalyst Watch at JP Morgan; tgt lowered to $65
- Others:
- Autodesk (ADSK) initiated with an Outperform at William Blair
- Check Point Software (CHKP) initiated with an Outperform at Wolfe Research; tgt $151
- Corsair Gaming (CRSR) initiated with a Neutral at Goldman; tgt $20
- Fluence (FLNC) initiated with a Market Perform at BMO Capital Markets; tgt $24
- Hilton Grand Vacations (HGV) initiated with a Neutral at BofA Securities; tgt $50
- Rallybio (RLYB) initiated with a Buy at H.C. Wainwright; tgt $18
- Replimune (REPL) assumed with an Overweight at Piper Sandler; tgt $44
- STAAR Surgical (STAA) initiated with a Neutral at Piper Sandler; tgt $65
- Stem (STEM) initiated with a Market Perform at BMO Capital Markets; tgt $3.50
- Travel + Leisure Co (TNL) initiated with an Underperform at BofA Securities; tgt $42
- Viridian Therapeutics (VRDN) initiated with an Overweight at Wells Fargo; tgt $46
Gapping down
News:
- HIVE -3.7% (reports March production)
- ASIX -2% (Chair of the Board Michael Marberry to retire effective June 15; Todd Karran named as new Chair)
- GALT -2% (files mixed securities shelf offering)
- RCEL -1% (files for $200 mln mixed securities shelf offering)
- VNT -0.9% (announced the sale of its Global Traffic Technologies business to Miovision for $107 mln)
Analyst comments:
- COMM -2.8% (downgraded to Hold from Buy at Jefferies)
- AES -1.5% (downgraded to Peer Perform from Outperform at Wolfe Research)
- ANGO -1.4% (downgraded to Outperform from Strong Buy at Raymond James)
- ESS -1.2% (downgraded to Underperform from Market Perform at BMO Capital Markets)
Gapping up
In reaction to earnings/guidance:
- AMRX +8.8% (Q1 guidance), AQN +7.2% (Algonquin Power & Utilities and American Electric Power (AEP) terminate Kentucky power transaction; AQN reaffirms guidance), MTB +3.4%, LIVN +3.3% (CEO Damien McDonald resigns; co also guides Q1 revs above consensus), GTX +2.3%, .
Other news:
- RXDX +69.7% (to be acquired by Merck (MRK) for $200.00 per share)
- PCVX +9.8% (Reports Positive Data from Phase 2 Study of its 24-Valent Pneumococcal Conjugate Vaccine Candidate, VAX-24)
- AGEN +4.8% (receives Fast Track Designation for Botensilimab and Balstilimab in colorectal cancer)
- CLLS +3.4% (Presents Preclinical Data on TALEN-edited MUC1 CAR T-cells to Enhance Efficacy in Targeting Triple Negative Breast Cancer at the American Association for Cancer Research (AACR) Annual Meeting)
- MAXR +2.7% (receives majority of regulatory consents required for previously proposed acquisition by Advent International)
- OCUL +2.1% (to Present Pre-Clinical and Clinical Data at the 2023 Association for Research in Vision and Ophthalmology (ARVO) Annual Meeting)
- PEBO +2% (receives all necessary regulatory approvals for the merger between Peoples and Limestone Bancorp (LMST) )
- AMX +2% (approved buyback program fund for the April 2023 -- April 2024 period of MXP$20,000,000,000)
- ME +1.8% (Announces Phase 1 Results from the First-in-Human Phase 1/2a Study of 23ME-00610, an Investigational Antibody Targeting CD200R1)
- YY +1.7% (announces repurchase right notification for 0.750% convertible senior notes due 2025)
- SGML +1.5% (initiates production of green lithium)
- ARGX +1.4% (Argenx and Genmab (GMAB) enter partnership to advance antibody therapies in immunology and oncology)
Analyst comments:
- DXCM +2% (upgraded to Strong Buy from Outperform at Raymond James)
- BIIB +1.3% (upgraded to Overweight from Neutral at Piper Sandler)
ChatGPT and Advanced AI Face New Regulatory Push in Europe
European legislators to add new provisions for powerful AI to pending bill
PARIS—European Union lawmakers want to give regulators new powers to govern the development of technologies like those behind ChatGPT, the biggest push so far in the West to curb one of the hottest areas in artificial intelligence.
The breakneck pace of AI development in recent months requires a new set of rules tailored to powerful, general-purpose AI tools, a group of influential EU lawmakers say in an open letter they plan to publish Monday.
The group of lawmakers, who have been charged with hammering out a new draft of what the bloc calls its AI Act, say they are committed to adding provisions to the bill aimed at “steering the development of very powerful artificial intelligence in a direction that is human centric, safe and trustworthy,” according to a copy of the letter reviewed by The Wall Street Journal.
“With the rapid evolution of powerful AI, we see the need for significant political attention,” the lawmakers write. They add that the EU’s pending bill, which policy makers aim to pass into law later this year, “could serve as a blueprint for other regulatory initiatives in different regulatory traditions and environments around the world.”
The EU Parliament statement, coming from some of the most powerful voices in crafting the AI Act, adds new momentum to calls from some researchers and technologists for regulators to slow or pause development of very powerful AI tools, in part to allow regulators to catch up.
Late last month, a group of AI researchers and tech executives including Elon Musk signed an open letter from the Future of Life Institute that called for a six-month moratorium on the training of the next generation of AI tools to give time for the regulators and industry to set safety standards. A separate group of AI ethicists and researchers wrote another open letter last week urging the EU to include provisions that cover possible risks from “general purpose AI.”
Dragos Tudorache, a Romanian member of European Parliament who co-leads the body’s work on the AI Act along with Italian member Brando Benifei, said the group crafted Monday’s letter in part in response to the Future of Life Institute’s letter. In addition to calling for a pause in training advanced AI models, that letter described one possible risk from AI as “loss of control of our civilization” and urged regulators to step up work with AI developers.
“We share some of the concerns expressed in this [Institute] letter, even while we disagree with some of its more alarmist statements,” the EU lawmakers said in Monday’s letter. They add that they think that regulation can help humanity reap the benefit of AI and avoid “more challenging future scenarios.”
“Together, we can steer history in the right direction,” they add.
The EU’s AI bill is nearing its final stretch of debate as more regulators globally are jumping into the fray. China’s top internet regulator earlier this month proposed rules to control artificial-intelligence tools similar to ChatGPT.
In the U.S., the Biden administration has begun examining whether checks need to be placed on the tools. Last month, Italy temporarily banned ChatGPT on privacy grounds and the U.K. released a paper suggesting regulators oversee development of AI with a focus on tools’ safety, transparency and fairness.
It isn’t clear yet what new provisions the EU Parliament will propose adding to the AI Act. Monday’s letter says the rules are needed for a type of AI tools called foundation models, which are trained on massive sets of data, and underpin some of the most recent advances in AI. Foundation models include some large language models like those behind tools like ChatGPT from Microsoft Corp. -backed startup OpenAI, which can respond cogently to textual questions.
The signatories of Monday’s letter are set to meet this week to hash out their proposals and agree to a common position, which the full Parliament would vote on in May. In the past, some members of European Parliament have called for much more robust transparency about how such powerful AI tools are built, fairness requirements for the data used to build them and ongoing audits of their safety and predictability.
After the European Parliament agrees on a draft, which it is expected to do next month, it will negotiate with members of the EU’s Council, which represents member states. The Council settled on its own AI Act draft late last year, but its draft left open to the European Commission, the bloc’s executive arm, to determine any specific requirements for general-purpose AI. Both chambers must vote to approve a compromise text for a bill to become a law—something policy makers say they hope to do later this year.
The Swedish government, which holds the Council’s rotating presidency, has called the legislation a priority and said it was prepared to convene discussions as soon as the Parliament has agreed on its position.
The European Commission recognizes the need to consider specific rules for general-purpose AI and will support lawmakers in their efforts, an official said.
Adding any new rules to the AI Act that govern the development of general-purpose AI tools like foundation models would represent a major shift in approach. Until now, the legislation has taken what policy makers call a risk-based approach and saved the toughest rules for what the EU deems to be risky applications of AI, such as a ban on most police use of facial-recognition technology. But new rules for foundation models would apply to such technology no matter to what end use they might be put.
Tech companies and their lobbyists have in the past argued that the law should stick to a risk-based focus on specific AI applications, and not put too many restrictions on AI development because it would impede innovation. But some tech researchers have also joined academics and technologists in expressing support for rules that would slow a race by companies to roll out advanced new AI tools.
Current drafts of the bill would impose fines of up to 6% of a company’s global revenue in case of noncompliance.
Monday’s open letter also included other, broader calls to action from the EU lawmakers. They urged the EU’s executive arm and President Biden to convene a high-level global summit on AI, aimed at agreeing to preliminary governing principles for how to deploy the technology. They also suggested that the Trade and Technology Council, a U.S.-EU body that gathers again next month, hammer out an agenda for the summit at its next meeting.
The legislators also called on companies and AI laboratories to “significantly increase transparency towards and dialogue with regulators” and “ensure they maintain control over the evolution of the artificial intelligence they are building.”