After Hours Summary: SMCI +3.1% on raised DecQ guidance; VRE -9.4% after Kushner Companies noted it is no longer interested in transaction, DFS -6.4%, AA -3.6%, FUL -2.9%, WTFC -2.1% down on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: SMCI +3.1% (DecQ guidance), TCBI +0.6%, KMI +0.5%, NCNO +0.4% (guidance and new CFO)
Companies trading higher in after hours in reaction to news: TCMD +1.4% (files $150 mln mixed shelf), IGT +1% (signs patent cross-licensing agreement with Greentube), PGTI +1% (collaborating with GLW), CHK +0.2% (to sell Brazos Valley region), BALY +0.1% (announces workforce reduction)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: DFS -6.4%, AA -3.6%, FUL -2.9%, WTFC -2.1%, MATX -0.3% (DecQ guidance), BHP -0.2% (reiterates FY23 production targets)
Companies trading lower in after hours in reaction to news: AKTS -16.9% (proposed public offering; receives first high-volume 5G filter order), OLK -11.9% (files mixed shelf), VRE -9.4% (Kushner Companies not interested in transaction), DCPH -8.8% ($125 mln public offering), VNO -2.5% (reduces quarterly dividend), TPIC -1.8% (collaborating with WindSTAR), VMEO -0.5% (reports December 2022 statistics), AAPL -0.2% (to expand smart-home lineup, according to Bloomberg)
Closing Stock Market SummaryThe day started on an upbeat note for the stock market, but sentiment quickly shifted and the resulting retreat effort had the main indices close with a loss of at least 1.2%. General growth concerns, which had been put on the backburner to start 2023, seemed to be back in play today.
The initial positive bias, which had the S&P 500 trading above the 4,000 level, was presumably fueled by optimism about a slowdown in inflation reflected in the December Producer Price Index (PPI) (actual -0.5%; consensus -0.1%).
Any optimism that may have come from the pleasing PPI report quickly dissipated, though, as investors digested the weak retail sales and manufacturing data from December, cognizant that the Fed is likely to remain on its rate hike path.
Briefly, retail sales fell 1.1% month-over-month in December (consensus -0.8%) after falling a revised 1.0% in November (from -0.6%) and industrial production decreased 0.7% month-over-month in December ( consensus -0.1%) after decreasing a revised 0.6% in November (from -0.2%).
St. Louis Fed President Bullard (non-FOMC voter) also fueled the market's concern about the Fed remaining on its rate hike path in spite of a weakening economic backdrop. Mr. Bullard said that he would prefer that the Fed stay on a more aggressive path, according to CNBC, but he added that the prospects for a soft landing have improved.
Market participants received more official commentary on the economy this afternoon when the FOMC released its latest Beige Book at 14:00 ET. On balance, contacts generally expected little growth in the months ahead.
Today's selling efforts had the S&P 500 take out support at its 200-day moving average (3,975) close near its worst level of the day. All 11 S&P 500 sectors registered losses ranging from 0.9% (communication services) to 2.7% (consumer staples).
Just about everything came along for the retreat. The Invesco S&P 500 Equal Weight ETF (RSP) logged a 1.5% loss versus a 1.6% loss for the S&P 500 and a 1.2% loss in the Vanguard Mega Cap Growth ETF (MGK).
Treasury yields took a noticeable turn lower today, but the drop in market rates was not supportive for stocks because it was a manifestation of concerns about weaker growth which, in turn, should lead to lower earnings estimates. The 2-yr note yield fell 11 basis points to 4.09% and the 10-yr note yield fell 16 basis points to 3.38%.
- Russell 2000: +5.3% YTD
- S&P Midcap 400: +4.7% YTD
- Nasdaq Composite: +4.7% YTD
- S&P 500: +2.3% YTD
- Dow Jones Industrial Average: +0.5% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 27.9%; Prior 1.2%
- December PPI -0.5% (consensus -0.1%); Prior was revised to 0.2% from 0.3%; December Core PPI 0.1% (consensus 0.1%); Prior was revised to 0.2% from 0.4%
- The key takeaway from the report is that while it showed the desired slowdown in year-over-year headline and core PPI, the absolute levels remain high, so the market will want to see a continuation of this trend in the coming months.
- December Retail Sales -1.1% ( consensus -0.8%); Prior was revised to -1.0% from -0.6%; December Retail Sales ex-auto -1.1% (consensus -0.5%); Prior was revised to -0.6% from -0.2%
- The key takeaway from the report is that sales in most discretionary categories fell for the second month in a row with department store sales diving 6.6% after falling 3.2% in November.
- December Industrial Production -0.7% ( consensus -0.1%); Prior was revised to -0.6% from -0.2%; December Capacity Utilization 78.8% ( consensus 79.6%); Prior was revised to 79.4% from 79.7%
- The key takeaway from the report is that industrial production was pressured by decreases in all manufacturing categories and the November decrease was revised lower, which will invite renewed concerns about the overall strength of the manufacturing sector.
- November Business Inventories 0.4% (consensus 0.4%); Prior was revised to 0.3% from 0.3%
- January NAHB Housing Market 35 (consensus 31); Prior 31
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial jobless claims (consensus 4K)
- 8:30 a.m. ET: December Housing Starts ( consensus 1355K; prior 1427K) and Building Permits ( consensus 1370K; prior 1342K)
- 8:30 a.m. ET: January Philadelphia Fed Index ( consensus -11.0; prior -13.8)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior +11 bcf)
- 11:00 a.m. ET: Weekly EIA Crude Oil Inventories (prior +18.96M)
Bruno Crastes battles on at H2O following investment ban
Firm’s founder makes clear to clients he will still play an active role despite sanction by French regulator
Bruno Crastes, the star fund manager who recently earned a five-year investment ban from French regulators, held a conference call with H2O Asset Management’s clients on Wednesday in which he made clear that he will continue to play an active role at the €11.6bn asset manager.
Earlier this month, France’s Autorité des Marchés Financiers banned the 57-year-old Frenchman from managing funds or an investment company for five years as punishment for “serious” rule breaches related to H2O’s extensive illiquid investments linked to the controversial financier Lars Windhorst.
The markets regulator also levied a record €75mn fine against H2O, which Crastes founded in 2010 and ran with backing from Natixis. The French bank is now in the process of dumping its stake.
During a call with clients in his new role as H2O’s “corporate and market strategy director”, Crastes dismissed the alleged breaches at the heart of the sanctions as “very technical”, while indicating he would continue to help shape the firm’s view on the direction of global bond and currency markets.
“I’ll be happy to carry on working with markets and trying to find the right strategies,” Crastes concluded, after delivering forecasts on everything from the Japanese yen to US tech stocks for an hour. He also expounded his belief that the Federal Reserve’s rhetoric “is not sustainable” and that “Europe cannot afford not to buy Russian oil and wholesale gas”.
In a further signal of the continued importance of Crastes to H2O, the firm’s chief sales and marketing office Babak Abrar assured his now former boss: “We will be needing you and your insight more than ever this year”.
The decision to continue presenting Crastes as the public face of H2O cuts to the heart of the dilemma now facing the firm: despite the AMF’s sanctions against him, Crastes has still retained the loyalty of many core clients due to their belief in his skill at navigating swings in markets.
H2O “immediately acted” on the sanctions by adapting temporary governance and Crastes “stepped down from his position as co-CEO and portfolio manager”, said a person briefed on the firm’s thinking.
“It shows they’ve gotten legal advice that he can carry on having an input into the overall investment process — offering his view on the direction of rates or whatever — as long as he is not directing investments,” said another person familiar with H2O’s operations. “And whatever you think about Bruno, it’s clear he’s still very good at what he does.”
H2O’s flagship €1.5bn MultiBonds fund — which was overseen by Crastes for more than a decade until the AMF’s decision prompted a switch in managers — posted a 26 per cent return last year, even after initially cratering when Russia invaded Ukraine due to an enormous bet on the Russian rouble.
Crastes has been not only the manager of H2O’s flagship fund, but also remains one of its biggest shareholders, with a near 20 per cent stake.
In the wake of the AMF’s ruling, Crastes stepped down as chief executive, with his lieutenant Loïc Guilloux taking his place. H2O has previously said that it will fight to overturn the sanctions, calling them “disproportionate and completely unprecedented” and indicating that it will lodge an appeal with France’s Council of State.
Investors in H2O’s funds, including thousands of ordinary savers across Europe, have had a portion of their money trapped for more than two years, after H2O hived off €1.6bn of illiquid bonds and stocks linked to Windhorst, a German financier with a long history of legal trouble.
Earlier this month, H2O said that it would start paying back investors some of the trapped funds for the first time, after receiving a “partial repayment” from Windhorst’s main investment company.
On Wednesday’s call, Abrar said this initial repayment was “scheduled for next week”, with further details to be outlined in letters to investors. A slide indicated that the overall valuation for the so-called “side pocket” of illiquid assets on H2O’s MultiBonds fund had been marked down by about a third since it was first frozen in the latter half of 2020.
H2O is also under investigation by the UK’s Financial Conduct Authority and is facing litigation in France from a group of more than 3,000 aggrieved clients, which last year obtained a court order to appoint an expert to review H2O trades linked to Windhorst.
Shein in fundraising talks to accept valuation cut of a third since $100bn peak
Chinese fast-fashion retailer looking to raise up to $3bn at a vastly reduced $64bn valuation in response to tech downturn
Shein is in talks to raise up to $3bn in a move that would lead to the Chinese fast-fashion group accepting a vastly reduced valuation of $64bn, down more than a third from its peak following a downturn that has led investors to re-evaluate frothy tech start-up valuations.
The internet retailer is seeking to close a new fundraising round from existing investors including Abu Dhabi sovereign wealth fund Mubadala, venture capital group Sequoia China and private equity group General Atlantic, according to people with knowledge of the negotiations.
The three investors were also involved in Shein’s last fundraising round in April, which valued the group at just above $100bn. That made it the world’s third most valuable private company at the time, behind TikTok parent ByteDance and Elon Musk’s SpaceX. Only two years ago, the company was valued at $15bn.
Since Shein secured its $100bn valuation there has been a sharp decline in venture capital funding and a largely closed market for initial public offerings, all resulting in a funding crunch for many private technology companies over the past year.
In response, leading start-ups have been aggressively cutting costs, creating a wave of lay-offs across the tech sector, but a growing number of companies are running out of cash and so have been forced into so-called “down rounds” — accepting funding at a far lower valuation than a company had previously secured.
Those familiar with the Shein talks said all investors that participated in the April fundraising that valued the company at $100bn would reprice their investment at the new valuation. This would mean those involved in the previous fundraising would gain greater equity in the company, as Shein seeks to raise between $1.5bn-$3bn in the new round that is expected to close in the coming months.
Shein still expects to launch an IPO as early as this year in the US, its biggest market, according to a person familiar with the plans. It made $30bn in revenue last year, including $6bn in cash, which this person said would be used to diversify into payments.
It said: “As a private company, Shein does not comment on market speculation.”
The fast-fashion group, founded in 2008 by Chinese former marketing professional Chris Xu, has also received investment in the past from groups including Tiger Global Management and IDG Capital.
Started in the eastern Chinese city of Nanjing, Shein has been one of the fastest-growing companies to emerge from China as a regulatory crackdown by Beijing stunted growth in its once flourishing internet ecosystem.
Shein, which now has headquarters in Singapore, has recorded explosive growth in the west, where its cheap and stylish clothing has been a big hit with young shoppers posting “hauls” on TikTok of their orders.
In a signal of changing sentiment towards its valuation, however, the FT reported in October that trades on the private market — where prices are not disclosed publicly — valued the company at between $70bn-$85bn.
Shein, Mubadala, Sequoia China and General Atlantic did not immediately respond to requests for comment.
Gapping down
In reaction to earnings/guidance:
- PRGS -6.5%, HWC -5.1%, BGFV -4.4% (guidance), JBHT -4.4%, PNC -4.2%, FULT -1.2%
Other news:
- BLUE -13.5% (commences offering of 20 mln shares of common stock)
- FULC -4.6% (prices offering of 9615384 shares of its common stock at $13.00 per share)
- OLO -3.7% (COO to resign)
- TUSK -2.3% (subsidiary puts frac spread into operation)
- COIN -1.6% (makes decision to halt operations in Japan and to conduct a complete review of our business in the country)
- KRP -1.4% (files $125 mln mixed shelf; common units by selling unitholders)
Analyst comments:
- CHGG -2.9% (downgraded to Hold from Buy at Needham)
- BL -2.6% (downgraded to Sell from Neutral at Citigroup)
- IBM -1.9% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
- YETI -1.8% (downgraded to Market Perform from Outperform at Cowen)
- GRPH -1.5% (downgraded to Neutral from Buy at BofA Securities)
- LEVI -1.5% (downgraded to Neutral from Buy at BofA Securities)
Gapping up
In reaction to earnings/guidance:
- IBKR +3.7%, UAL +3.2%, PSO +1.3% (Trading update), UCBI +0.9%, AUY +0.7% (Q4 and FY22 production results)
Other news:
- PRTK +8.2% (announces inclusion of NUZYRA (omadacycline) in China's National Reimbursement Drug List)
- MRNA +7.6% (RSV vaccine meets efficacy endpoints)
- BMO +3% (receives regulatory approval to acquire Bank of the West)
- GH +2.9% (to showcase new data)
- MITK +2.5% (retains its interim CFO)
- BGNE +2.2% (presents new research)
- LOB +2% (files mixed shelf)
- CSTL +1.8% (presents at 2023 Winter Clinical Dermatology Conference)
- PR +1.6% (announces portfolio optimization transactions; not adjusting guidance as a result of these transactions)
- RDN +1% (completes a series of capital actions to enhance financial flexibility and approves new $300 mln share repurchase authorization)
Analyst comments:
- NTRA +3.3% (upgraded to Outperform from Mkt Perform at Raymond James)
- MYGN +3.1% (upgraded to Outperform from Mkt Perform at Raymond James)
- GDDY +2.9% (upgraded to Outperform from In-line at Evercore ISI)
- MQ +1.7% (upgraded to Neutral from Underperform at SMBC Nikko)
Early premarket gappers
- Gapping up:
- MRNA +6.7%, IBKR +3.3%, ACI +3.2%, BMO +3%, GH +2.9%, UAL +2.6%, LOB +2%, CSTL +1.8%, PSO +1.3%, USO +0.9%, UCBI +0.9%, AUY +0.7%, QGEN +0.6%
- Gapping down:
- PNFP -6.2%, PRGS -4.1%, HWC -3.8%, OLO -3.7%, BGFV -2.5%, TUSK -2.3%, COIN -1.7%, FULC -1.6%, KRP -1.4%, FULT -1.2%
>>> Up
* Alphabet PT Raised to $125 from $120 at Morgan Stanley
* Atea Raised to Buy at Handelsbanken
* Capgemini Raised to Overweight at Barclays
* Evolution Raised to Buy at Deutsche Bank; PT 1,230 kronor
* Gap Raised to Equal-Weight at Morgan Stanley
* Getlink Raised to Buy at HSBC; PT 19.25 euros (+)
* Greggs Raised to Buy at Deutsche Bank; PT 2,950 pence
* Grieg Seafood Raised to Hold at Kepler Cheuvreux; PT 88 kroner (+)
* Inficon Raised to Neutral at Credit Suisse; PT 840 Swiss francs (+)
* Meta Platforms PT Raised to $130 from $100 at Morgan Stanley
* NH Hotel Raised to Neutral at Oddo BHF; PT 3.50 euros
* Nordea Bank Raised to Market Perform at KBW; PT 140 kronor
* Nordea Bank Raised to Market Perform at KBW; PT 140 kronor
* Proximus Raised to Hold at HSBC; PT 10 euros
* Salmar Raised to Buy at Kepler Cheuvreux; PT 500 kroner (++)
* Scandic Raised to Buy at Deutsche Bank; PT 45.40 kronor
* Seagate Raised to Overweight at Morgan Stanley; PT $69
* VAT Raised to Outperform at Credit Suisse; PT 350 Swiss francs (+)
* Zignago Vetro Raised to Buy at Berenberg; PT 17 euros
* Zurich Airport Raised to Outperform at Credit Suisse (+)
>>> Down
>>> Down
* Aallon Group Cut to Accumulate at Inderes; PT 12 euros
* Altice USA Cut to Underperform at Exane; PT $4
* ArcelorMittal Cut to Sell at UBS (+)
* AUTO1 Cut to Neutral at Exane; PT 9.30 euros (+)
* BASF Cut to Hold at M.M. Warburg; PT 57 euros
* BP Cut to Neutral at Redburn (+)
* Bystronic Cut to Underperform at Credit Suisse (+)
* DNB Bank Cut to Neutral at JPMorgan; PT 185 kroner
* Encavis Cut to Underweight at Barclays; PT 17 euros
* Equinor Cut to Sell at Redburn (+)
* Essity Cut to Underperform at Jefferies; PT 250 kronor
* Europris Cut to Hold at Arctic Securities; PT 70 kroner (+)
* Exxon Cut to Sell at Redburn (+)
* Hugo Boss Cut to Sell at Hauck & Aufhaeuser; PT 52 euros (+)
* IBM Cut to Equal-Weight at Morgan Stanley; PT $148
* Idorsia Cut to Hold at Jefferies; PT 16.20 Swiss francs
* IntegraFin Cut to Hold at Investec; PT 330 pence
* Morgan Stanley Cut to Neutral at Citi; PT $100
* Orion Cut to Reduce at Inderes; PT 48 euros
* Orsted Cut to Underweight at Barclays; PT 700 kroner
* SEB Cut to Hold at Arctic Securities; PT 130 kronor (+)
* TER Beke Cut to Hold at KBC Securities (+)
* TotalEnergies Cut to Sell at Redburn (+)
* Vestas Cut to Hold at Pareto Securities; PT 215 kroner
* Vestas Cut to Hold at Pareto Securities; PT 215 kroner
* Vidrala Cut to Hold at Mirabaud Securities; PT 94.98 euros (+)
* Voestalpine Cut to Sell at UBS (+)
* Whitbread Cut to Neutral at Oddo BHF; PT 3,500 pence
* Zurich Ins. Cut to Hold at SocGen
>>> Initiation
>>> Initiation
* Azelis Rated New Neutral at Oddo BHF; PT 26.20 euros (+)
* Koskisen Rated New Buy at Nordea; PT 9 euros
* New Wave Rated New Hold at Handelsbanken
>>> Call
* New Wave Rated New Hold at Handelsbanken
>>> Call
* Barry Callebaut’s 1Q Miss Likely to Send Shares Lower, Citi Says (+)
* BofA Stays Bullish on Asia EM Stocks as China Uncertainty Clears
* Burberry Sales Hit Likely to Be Seen as Transitory, RBC Says (+)
* Capgemini Raised to Overweight at Barclays On Growing Resilience
* Continental Results Disappointing After Recent Rally, Citi Says (+)
* Goldman Sees Bullish Sentiment Growing Over Non-US Assets
* Grifols Upgraded to Buy, Idorsia Downgraded to Hold at Jefferies
* Investors May Wait to Re-Engage With US Internet Stocks, MS Says (+)
* Oil Majors No Longer a Clear Overweight, Redburn Cuts 5 Stocks (+)
* Repsol Consensus Could Rise Around 15% After Update, Citi Says
* Smiths Group Update, Raised Guidance Is ‘Very Good’: Jefferies (+)
* Unilever Key Pick, Nestle Raised by Jefferies in Food/HPC Sector