Closing Stock Market SummaryMarket participants received a much stronger than expected January retail sales report this morning, which reflected continued strength in the economy, but left the market concerned that the Fed will raise rates more than expected. Briefly, total sales in January were up 3.0% month-over-month (Briefing.com consensus 1.7%) and sales, excluding autos, up 2.3% (consensus 0.8%).
Price action in the Treasury market today was indicative of ongoing rate hike concerns. The 10-yr note yield rose five basis points to 3.81%, initially fueling worries about valuation constraints and competition for stocks.
Equities also started the day in retreat mode, but true to 2023 form, investors stepped in to buy the early weakness. The main indices all closed the session at or near their best levels of the day. The rebound in the stock market, in spite of rising market rates, suggests perhaps that buyers were influenced more by the hopeful economic implications of the January retail sales data than its potentially adverse implications for monetary policy.
High-beta stocks, uplifted by the positive earnings news and guidance from the likes of Airbnb (ABNB 137.01, +16.14, +13.4%), Roblox (RBLX 45.08, +9.41, +26.4%), and Analog Devices (ADI 196.18, +13.64, +7.5%), paced today's gains. Several mega cap stocks also offered support to the broader market. Alphabet (GOOG 97.10, +2.15, +2.3%) and Tesla (TSLA 214.24, +4.99, +2.4%) were among the standouts in that regard.
Alphabet and Tesla helped to propel their respective S&P 500 sectors -- communication services (+1.2%) and consumer discretionary (+1.2%) -- to first place on the leaderboard today. Meanwhile, the health care (-0.5%) and energy (-1.8%) sectors were alone in negative territory by the close. The latter was dragged down by a big earnings-driven loss in Devon Energy (DVN 57.23, -6.71, -10.5%).
Notably, small cap stocks performed better than their larger peers today. The Russell 2000 (+1.1%) logged the biggest gain among the major indices.
- Nasdaq Composite: +15.3% YTD
- Russell 2000: +11.3% YTD
- S&P Midcap 400: +10.6% YTD
- S&P 500: +8.0% YTD
- Dow Jones Industrial Average: +3.0% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -7.7%; Prior -7.4%
- January Retail Sales 3.0% (consensus 1.7%); Prior -1.1%; January Retail Sales ex-auto 2.3% (consensus 0.8%); Prior was revised to -0.9% from -1.1%
- The key takeaway from the report is that consumers were spending freely on goods in January despite the ongoing inflation pressure; in fact, every single sales category showed a month-over-month increase, led by a 7.2% surge in sales at food services and drinking places.
- February Empire State Manufacturing -5.8 (consensus -19.0); Prior -32.9
- January Industrial Production 0.0% (consensus 0.5%); Prior was revised to -1.0% from -0.7%; January Capacity Utilization 78.3% (consensus 79.1%); Prior was revised to 78.4% from 78.8%
- The key takeaway from the report is that the soft reading for January can be attributed entirely to a drop in the output of utilities. Otherwise, there was some welcome rebound strength in both mining and manufacturing output, the latter of which saw advances in durable, nondurable, and other manufacturing activity.
- December Business Inventories 0.3% (consensus 0.3%); Prior was revised to 0.3% from 0.4%
- February NAHB Housing Market Index 42 (consensus 37); Prior 35
Ahead of tomorrow's open, Crocs (CROX), Hasbro (HAS), Hyatt Hotels (H), Paramount Global (PARA), Shake Shack (SHAK), Toast (TOST), and US Foods (USFD) will headline the earnings reports.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: January Housing Starts (consensus 1.355 mln; prior 1.382 mln), Building Permits (Briefing.com consensus 1.350 mln; prior 1.330 mln), January PPI (consensus 0.4%; prior -0.5%), Core PPI (consensus 0.3%; prior 0.1%), weekly Initial Claims (consensus 203,000; prior 196,000), Continuing Claims (prior 1.688 mln), and February Philadelphia Fed survey (consensus -8.0; prior -8.9)
- 10:30 ET: Weekly natural gas inventories (prior -217 bcf)
Gapping down
In reaction to earnings/guidance:
- CRDO -46.4%, POWW -15.1%, ABST -12.3%, BCS -10.8%, DVN -6.9% (also increases dividend), UDMY -6.4% (also 10% workforce reduction), CNDT -6.3%, TX -6%, LAD -6%, AKAM -5.5%, EHAB -5%, CHEF -5%, GDDY -2.6%, LTHM -2.6%, GFI -2.6%, WAT -2.2%, KHC -2.1%, HL -1.8%, NMIH -1.2%, CIM -1%, GOLD -0.7%, SAH -0.7%
Other news:
- TSM -5% (Berkshire Hathaway / Warren Buffett discloses decreased position in 13F filing)
- MEDP -1.4% (files mixed securities shelf offering; also files offering by selling shareholders)
- BK -1% (Berkshire Hathaway / Warren Buffett discloses decreased position in 13F filing)
Analyst comments:
- AKAM -5.5% (downgraded to Sector Perform from Outperform at RBC Capital Mkts)
- AEO -3.9% (downgraded to Hold from Buy at Jefferies)
- LCII -3% (downgraded to Neutral from Buy at ROTH MKM)
- LVLU -2.2% (downgraded to Hold from Buy at Jefferies)
- TEL -1.3% (downgraded to Hold from Buy at Stifel)
- CMA -1.1% (downgraded to Neutral from Overweight at Piper Sandler)
Gapping up
In reaction to earnings/guidance:
- OSUR +18.9%, TTD +11%, TRIP +9.4%, ABNB +9.4%, NU +9.2%, ADPT +6.6%, ADI +6%, ALVR +4.9%, HLF +4.3%, CEVA +3.9%, CRK +3.4%, ANDE +3.4%, SFL +3%, WIRE +2.5%, GNRC +2.2%, DNUT +1.7%, CAL +1.7%, HCSG +1.4%, CHH +1.2%, ADC +1.1%, BIIB +1%
Other news:
- EBS +9.4% (divests Travel Health Business to Bavarian Nordic for Up To $380 mln)
- ADI +6% (increases dividend)
- KNTE +5% (FDA grants Fast Track designation for KIN-3248)
- RBBN +3.1% (Bharti Airtel selects co to build its new high-speed transport network)
- LPX +2.7% (Berkshire Hathaway / Warren Buffett discloses increased position in 13F filing)
- GPI +2.5% (increases dividend)
- PARA +2.4% (Berkshire Hathaway / Warren Buffett discloses increased position in 13F filing)
- QGEN +2.1% (announces EU certification of QuantiFERON-TB Gold Plus)
- CNCE +1.9% (announces that, after a recent review of deuruxolitinib clinical data by the U.S. FDA, the FDA determined that deuruxolitinib will maintain its Breakthrough Therapy designation)
- EXPE +1.6% (in sympathy with strong ABNB earnings)
- BKNG +1.1% (in sympathy with strong ABNB earnings)
Analyst comments:
- TSLA +2.2% (initiated with an Overweight at Barclays)
>>> Up
* Anima Holding Raised to Accumulate at Banca Akros (+)
* Brenntag Raised to Buy at Citi; PT 96 euros
* Coca-Cola HBC PT Raised to 2,800 pence at Jefferies
* Genmab Raised to Buy at Jyske Bank; PT 3,300 kroner (+)
* Heba Fastighets Raised to Hold at Handelsbanken
* K2A Raised to Hold at Kepler Cheuvreux; PT 17.50 kronor (+)
* Norma Raised to Buy at Hauck & Aufhaeuser; PT 40 euros (+)
* Norsk Hydro Raised to Hold at Nordea (+)
* Norwegian Air Raised to Buy at Pareto Securities; PT 15 kroner
* Nurminen Logistics Raised to Accumulate at Inderes (+)
* Pantheon Infrastructure Raised to Buy at Stifel (+)
* Thyssenkrupp Raised to Neutral at JPMorgan; PT 5.90 euros
>>> Down
* Thyssenkrupp Raised to Neutral at JPMorgan; PT 5.90 euros
>>> Down
* Banca IFIS Cut to Neutral at Banca Akros (+)
* Banca Generali Cut to Hold at Intesa Sanpaolo; PT 34.30 euros (+)
* Betsson Cut to Sell at ABG; PT 79 kronor
* FLEX LNG Cut to Hold at Fearnley; PT 365 kroner
* Glencore Cut to Add at AlphaValue/Baader (+)
* Lulu's Cut to Hold at Jefferies
* Mercialys Cut to Neutral at Oddo BHF; PT 11.20 euros (+)
* MFE Cut to Neutral at Banca Akros (+)
* Michelin Cut to Hold at HSBC; PT 29.50 euros
>>> Initiation
* Autoliv Rated New Equal-Weight at Barclays; PT $100
* Michelin Cut to Hold at HSBC; PT 29.50 euros
>>> Initiation
* Autoliv Rated New Equal-Weight at Barclays; PT $100
* Danone Rated New Buy at Bryan Garnier; PT 66 euros (+)
* Nestle Rated New Neutral at Bryan Garnier; PT 119 Swiss francs (+)
* Unilever Rated New Neutral at Bryan Garnier (+)
>>> Call
>>> Call
* Brenntag Upgraded at Citi on Re-Rating Scope From a Separation
* Jefferies More Cautious on US Apparel Outlook, Cuts Four Stocks
* Swiss Prime Raised at Baader, Seen Moving in Right Direction
* Swiss Prime Raised at Baader, Seen Moving in Right Direction
- United Internet (UTDI TH) +4.4%
- Encavis (ECV TH) +3.5%
- Carrefour (CAR TH) +2.7%
- Carrefour Cash Flow, Share Buyback Seen as Positive: Street Wrap
- Mowi (PND TH) +2.4%
- Mowi Sees 2023 Harvest 484,000 Metric Tons
- Rio Tinto (RIO1 TH) +1.8%
- AMS-Osram (DQW1 TH) +1.7%
- Brenntag (BNR TH) +1.4%
- Brenntag Upgraded at Citi on Re-Rating Scope From a Separation
- BAT (BMT TH) +1.2%
- Vodafone (VODI TH) +1%
- Heineken (HNK1 TH) +0.9%
- Heineken Takes Russia Writedown as It Hopes to Sell Unit Soon
- Puma (PUM TH) -0.8%
- Hugo Boss (BOSS TH) -0.8%
- Knorr-Bremse (KBX TH) -0.9%
- Sandvik (SVKB TH) -0.9%
- Sandvik to Supply SEK370m Worth of BEV Equipment to Rana Gruber
- Novo Nordisk (NOVC TH) -1%
- Amundi (ANI TH) -1%
- Demant (WDH1 TH) -1.1%
- Tomra (TMRA TH) -1.2%
- Michelin (MCHA TH) -2.9%
- Kering (PPX TH) -4.7%
- Kering Sales Slump on Gucci, Balenciaga Ad Controversy (1)
DAX:
- Brenntag (BNR TH) +1.9%
- Brenntag Upgraded at Citi on Re-Rating Scope From a Separation
- Airbus (AIR TH) +0.8%
MDAX:
- United Internet (UTDI TH) +4.8%
- Encavis (ECV TH) +3.5%
- Encavis Prelim FY Oper Ebitda About EU340M, Est. EU327.5M
- Aroundtown (AT1 TH) +1.1%
- Thyssenkrupp (TKA TH) +1%
- Thyssenkrupp Raised to Neutral at JPMorgan; PT 5.90 euros
- Delivery Hero (DHER TH) +0.8%
- Lufthansa (LHA TH) -0.5%
- Hugo Boss (BOSS TH) -0.6%
- Fraport (FRA TH) -0.9%
- Software AG (SOW TH) -1.3%
SDAX:
- Elmos Semiconductor (ELG TH) +7.9%
- Ceconomy (CEC TH) +2.9%
- SAF-Holland SE (SFQ TH) +2.7%
- SAF-Holland SE FY Adjusted Ebit Margin Beats Estimates
- DIC Asset (DIC TH) +1.5%
- DIC Asset FY FFO per Share Misses Estimates
- Heidelberger Druck (HDD TH) +0.7%
- Schaeffler (SHA TH) +0.5%
- SGL (SGL TH) -0.7%
- Deutz (DEZ TH) -0.8%
Hedge fund Element to slim down after $1bn hit in rally
Jeffrey Talpins’ $12bn vehicle aims to be more nimble and able to respond to market moves
Jeffrey Talpins’ Element Capital, one of the world’s biggest macro hedge funds, is planning to shrink its asset base in an effort to improve performance after a run of poor returns, including losing more than $1bn in last month’s market rally.
New York-based Element, which manages about $12bn in assets and has one of the sector’s best long-term track records, suffered a 9.6 per cent loss last month, according to people who had seen the numbers, as equity markets rose strongly on hopes that interest rate rises were almost done.
Element will now let investors exit its fund more easily than usual by temporarily relaxing its redemption terms, the people said. The move, which has not previously been reported, is aimed at reducing the firm’s assets in order to make it more nimble and able to respond quickly to market moves, the people said.
Element declined to comment.
January proved a tough month for some hedge funds as equities rallied, led by more speculative stocks that were hard hit last year, and bond markets also gained on hopes that central banks were finally succeeding in taming inflation. Those market moves inflicted heavy losses on funds that had been positioning for higher rates, including some computer-driven funds betting on falling bond and equity prices.
Element’s loss follows two years of negative returns, the first annual losses in its 18-year history. It suffered an 8.9 per cent drop in 2021 after taking a roughly $1bn hit in the bond market tumult of October that year.
Last year it lost a further 3.4 per cent, after betting that inflation would prove more transitory than it eventually did. That decline came even as rivals such as Caxton, Rokos and Brevan Howard were making big gains from the huge sell-off in global government bonds and the rally in the US dollar as interest rates were raised sharply to combat inflation.
Element will now relax its redemption terms that allow investors to withdraw only 25 per cent of their money each quarter, and instead permit unlimited exits before the end of March. It will also allow clients to give less notice before pulling their money out.
The move highlights a growing concern among hedge fund managers that becoming too large can potentially hurt their performance by making them slower to react to big market moves.
Size was widely seen as a factor in hurting returns at Brevan Howard, whose assets grew to around $40bn in 2013 before tumbling to around $6bn as performance sagged.
While losing assets reduces the amount that firms can earn in management fees, many believe that it is more important not to damage their performance record. Firms such as Millennium and Citadel are among those to have returned some capital to clients in recent years.
Element has been closed to any new inflows for nearly five years, during which time it has already handed back more than $5.5bn to investors, but the firm nevertheless feels it needs to shrink further as it looks to prosper in the current market environment.
In late 2020 the Financial Times reported that Talpins’ firm had made a highly prescient call that the results from Pfizer’s phase 3 coronavirus vaccine trials would stun the market by having a higher efficacy than had widely been expected.