YOUR QUIVER | January 9, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Last Week's Themes
Just a refresher—last week China Reopening was a leading theme. The gov softened tech regulation banter and supported the real estate sector. China Internet was up big. Gold Miners, airlines, travel/leisure—also up big. Laggards until Friday were SaaS/software, cyber security, de-SPACs, unprofitable tech. Party Sec at the PBOC told People’s Daily that China’s economic growth will revert to its “normal” path as the gov supports households and private firms assist with purchases (homes, cars). Also, China will make more sectors and asset classes available to foreign investors. Plus, China issued ~112mm tons of oil import quota in its 2nd round of allocations for 2023, according to NoSo.
Negative Nellies
GS’ Kostin warns that he expects more downgrades to consensus EPS estimates. Rev have been up 8% last q, but margins fell by 81bps to 11.2%. Ex-energy, he estimates, S&P EPS to decline by -5%, given around >-130bps margin compression. MS’ Wilson recommends investors sell the S&P at 3,900 before a weak earnings season. (FWIW, our team also has been cautioning about lower margins/earnings/cash flow).
Energizing
One of the most hotly contested subjects seems to be energy in 2023. Multi-year, low-supply driven tailwind? China reopening beneficiary? Or hot weather loser? Recessionary headwinds? Well, GS came out with a $5/barrel price tag for a faster China reopening, and the view that oil prices will rally in 2023, noting tailwinds in aviation recovery, better US prices, and those same supply-side constraints.
Eurozone Action
One of our PBs mentioned they were roughly 4:1 better for sale today in Europe to start the week, with every sector showing sell-skew but most active in Healthcare, Industrials and Media. Cyclicals continuing to get love, though, after Friday’s reduction in yields. Sweden, Finland, and Poland are outperforming, and so are Resource names. Utilities are soft.
Macro Moments
Powell will speak at The Global Monetary Policy Forum tomorrow, and we’ll get an inflation print (CPI) on Thurs (countdown below). Most bets are on a soft print, which would further fuel markets. But we know that higher Unemployment is bad for risk assets, so where’s your bet? Will unemployment be lower or higher at year-end 2023? Think about that before you narrowly focus on last Friday’s data point.
LULU Lower
Revs came in line for $LULU, but a lowered GM% (by >100bps) fuels continued investor concern (stock down -12% premarket, around -9.5% after open). With not much talk about inventories (another prior problem), investors are even more nervous. $M reported Jan sales at the low-to-mid part of prior guidance, and EPS/margins in line. Holidays were good, but non-holiday periods were worse than expected. Mgmt expects 2023 to be tough for the consumer, especially 1H23.
"The Patient's Not Dead"
That’s what IG Australia’s Sycamore said about crypto. The top 100 tokens were up +6% this mo, outperforming stocks, bonds and golds so far.
Book Shelf
Dalio’s “Principles for Navigating Big Debt Crises” hardcover edition includes historical case studies from the last century, presented with a trader’s perspective. His theory of markets is that credit cycles drive business cycles, and rate tightening often pops credit bubbles. Also, you can check out Bridgewater’s LinkedIn videos, if you need quick summaries.
Upgrades and Downgrades
Today we’ll do it per research firm.
Barclays: lower price targets for $BCE and $STZ, and higher price targets for $LBTYA, $UHS, $MPC
BofA: downgrade for $SE
Citi: lower price target for $LUV
CS: downgrades for $EQR, $INVH, $MOS
GS: downgrades for $HIG, $MET, $PRU
JPM: bullish for $NFLX
MS: raised price targets for $FDX and $BABA
RBC: upgraded $SYK and $ZBH
A Bad Memory
GS is slashing >3k positions this week, with more than 1/3rd from its trading and banking units. I remember a confidential job back in 1994, when I was asked to crunch numbers to figure out job cuts at GS. As a lowly Analyst, I was not allowed to tell my group what I was working on, just that the orders “came from the top." The heavy feeling inside the firm, as employees waited to hear their fate, was palpable to all.
