2023 Oct 30, US Market
The BoJ to tweak policy to let 10-year yields exceed 1% - NIKKEI.
As Israel's ground incursion into Gaza appeared to be less extensive than investors had feared, stocks rose, Treasuries fell, and oil fell 3.5%. The yen rose in response to news that the Bank of Japan may raise the cap on bond yields.
The S&P 500 increased 1.2%, the most since August. Amazon led gains in the battered megacap space, but Tesla defied the trend, falling about 5%. Equities are still on track for their third monthly decline, which will be the longest since March 2020. US ten-year yields increased four basis points to 4.88%. The Treasury reduced its forecast for federal borrowing in the third quarter to $776 billion. The value of the dollar fell.
Oil has lost ground since the Middle East war began, as Israel faces increasing pressure to limit its bombardments in order to facilitate hostage negotiations, keeping the conflict limited as it enters its fourth week. WTI fell as much as 4.3%, with losses accelerating after crude fell below technical support levels near $82 per barrel.
Apart from geopolitical concerns, equities were hit this month by a rise in bond yields and disappointing earnings from some major technology companies. These worries drove the S&P 500's 14-day Relative Strength Index below 30 last week, which some on Wall Street interpret as a sign of an oversold market.
Stocks posted solid gains Monday ahead of this week’s central-bank meetings, jobs data and a highly anticipated borrowing announcement from the Treasury Department.
Bouncing back from a difficult week when the S&P 500 and Nasdaq Composite entered into corrections—or declines of 10% from their recent peaks—all three major indexes gained more than 1%, powered in large part by a rebound in shares of large technology companies.
Despite the gains, investors remained focused on the U.S. bond market, worried that surging Treasury yields could slow the economy and damp the appeal of riskier assets. Some investors and analysts believe this week could prove pivotal for bonds.
Before the U.S. market opens on Tuesday, many anticipate that the Bank of Japan will announce a further loosening in its policy to cap longer-term bond yields, a move that could further drive up U.S. bond yields. On Wednesday, the Federal Reserve will issue its own policy statement, and the Treasury Department will outline the size of coming bond auctions in its quarterly refunding announcement.
Ahead of those events, the yield on the benchmark 10-year U.S. Treasury note edged up to 4.875% Monday, from 4.846% Friday. The yield had briefly topped 5% early last week.
Many analysts have expected the Treasury to increase auctions of notes and bonds by a similar amount as it did a few months ago, when auctions of 10-year notes were boosted by $3 billion. On Monday, the agency said it anticipates borrowing $776 billion in privately held marketable debt over the final three months of the year. That is less than it expected in late July, though it would still be a record for the quarter.
Barclays upgraded AbbVie (ABBV) to Overweight from Equal Weight with a price target of $170, up from $160. The firm says Friday's selloff looks like an overreaction to "external sector dynamics," against a backdrop of Immunology momentum and commentary de-risking 2024 pricing.
Wolfe Research upgraded Saia (SAIA) to Outperform from Peer Perform with a $418 price target. While trimming the firm's "high-end EPS estimates," the firm now sees a better entry point for "arguably the best LTL growth story."
BofA upgraded Chevron (CVX) to Buy from Neutral with a price target of $200, up from $190. The response to earnings that leaves Chevron shares 15% lower since the Hess (HES) merger was announced "looks overdone," the firm tells investors.
Raymond James upgraded L3Harris Technologies (LHX) to Outperform from Market Perform with a $210 price target. The firm says the business appears to be bottoming post the Q3 print.
Oppenheimer upgraded Invitation Homes (INVH) to Outperform from Perform with a $35 price target. Rent growth and occupancy are normalizing, but should remain above pre-COVID levels next year amid higher mortgage rates and limited inventory, the firm says.
Raymond James downgraded Cisco Systems (CSCO) to Market Perform from Outperform without a price target. The firm believes declining campus sales, which likely amount to about a third of the company's sales, decline in 2024 and contribute to an overall sales decline.
Baird downgraded Datadog (DDOG) to Neutral from Outperform with a price target of $84, down from $100. The firm still sees "multiple long-term positives," but its industry conversations suggest optimization headwinds are likely to continue into next year
Wells Fargo downgraded Aon plc (AON) to Underweight from Equal Weight with a price target of $304, down from $317. The company's organic growth in Q3 was 6%, below all its insurance broker peers, and its price performance "will be muted" at least until Aon sees a rebound in organic growth, the firm tells investors in a research note.
Truist downgraded Krispy Kreme (DNUT) to Hold from Buy with a price target of $13, down from $20. The firm says the current GLP-1 overhang on packaged food stocks will not dissipate for 6-12 months, if not longer.
JPMorgan downgraded Valley National (VLY) to Neutral from Overweight with a price target of $10, down from $11, post the Q3 report. With the implied cost of equity of the shares now in the range of peers, the shares no longer appear as mispriced as they did in June, the firm tells investors in a research note.
Wells Fargo initiated coverage of Verisk Analytics (VRSK) with an Equal Weight rating and $230 price target. The firm says that while the company's shift to pure-play insurance exposure is positive, the stock's valuation is full at current levels.
BofA initiated coverage of Cooper Companies (COO) with a Buy rating and $380 price target. The second-largest contact lens manufacturer with 26% share is better positioned than its three main competitors to capitalize on favorable industry trends, the firm tells investors.
Morgan Stanley resumed coverage of Safehold (SAFE) with an Overweight rating and $33 price target. Safehold owns the longest-duration assets in REITs and "investors have lost confidence in ability to originate new leases and scale," but the firm's sum-of-the-parts analysis suggests "excess value of properties at lease end is nearly free."
BofA initiated coverage of Kimbell Royalty Partners (KRP) with a Buy rating and $19 price target. The firm estimates a potential total one-year return of about 30% for the small cap partnership whose strategy is anchored on acquiring oil and gas minerals across the Permian, Mid-con, Haynesville, Eagle Ford, Bakken, Appalachia and DJ basins.
RBC Capital initiated coverage of NewAmsterdam Pharma (NAMS) with an Outperform rating and $25 price target. The firm believes the Street is overlooking the company given past failures of CETP inhibitors and gradual launches of recent lipid drugs.
Realty Income (O) agreed to acquire Spirit Realty (SRC) in a $9.3B all-stock transaction
McDonald's (MCD) reported upbeat Q3 results and raised its quarterly dividend 10%
Physicians Realty Trust (DOC) and Healthpeak (PEAK) agreed to combine in an all-stock merger of equals
Western Digital (WDC) reported mixed Q1 results and announced plans to separate its HDD and Flash businesses
General Motors (GM) and the UAW union reached a tentative deal to end a six-week strike, Bloomberg reports
Former Marvel Entertainment executive Ike Perlmutter is supporting activist Nelson Peltz's push for Disney (DIS) board seats, WSJ reports
New data Cassava Sciences (SAVA) presented at CTAD23 shows "without a doubt" that simufilam does not work, STAT's Feuerstein says
TC Energy (TRP) is pursuing a multibillion-dollar asset sale plan to reduce debt and fund new investments, Bloomberg reports
Sony's (SONY) Bungie laid off an undisclosed number of staff, Bloomberg says
BP (BP) is seeking to form joint ventures for U.S. onshore natural gas fields, Reuters reports
Coherus (CHRS) higher after announcing with Junshi Biosciences that the FDA approved Loqtorzi in combination with cisplatin and gemcitabine
MRC Global (MRC) gains after Bloomberg reported the company is exploring a sale
Lumentum (LITE) increases after announcing it will acquire Cloud Light for $750M
Revvity (RVTY) falls after reporting quarterly results and lowering its FY23 guidance
CommScope (COMM) drops after reporting preliminary Q3 results
SoFi Technologies (SOFI) reported Q3 results and raised its FY23 revenue view
Check Point (CHKP) reported Q3 revenue and EPS that beat consensus, with CEO Gil Shwed commenting "Our third quarter performance was strong"
ON Semiconductor (ON) reported Q3 results and provided guidance for Q4
XPO, Inc (XPO) reported Q3 results, with CEO Mario Harik commenting, "Our third quarter results exceeded expectations"
JinkoSolar (JKS) announces results for Q3 and provided guidance for Q4 module shipments
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