Live Markets: Fix the faucet, keep the kitchen

Floor & Decor Holdings

27/01/2023 18:30

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      Main U.S. indexes green: Nasdaq leads, up ~1%
    

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      Cons disc leads S&P 500 sector gainers; energy weakest
group
    

        * 
      Dollar, bitcoin rise; gold ~flat; crude off ~2%
    

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      U.S. 10-Year Treasury yield rises to ~3.52%
    

  
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    FIX THE FAUCET, KEEP THE KITCHEN (1330 EST/1830 GMT)
    While many people went big on home improvements during the
pandemic, the UBS Housing Intentions Consumer Survey has since
found softening demand, even from pre-pandemic levels.
    The survey of over 2,000 adults from Nov. 25-Dec. 14, showed
51% of people expected to complete a project in the next 3
months versus 69% showing interest in December 2021 and a 59%
average for 2014-2019.
    The average expected spend per project rose 5%
year-over-year to ~$6,900. But those shopping at top vendors
Home Depot  HD.N  expected their spend to fall 3%, while the
expected decline was a more dramatic 12% for Lowe's Companies
 LOW.N  and 13% for Amazon.com  AMZN.O . 
    Home Depot was mentioned by 31%, Amazon by 22% and Lowe's by
13%. While HD's popularity rose by 200 basis points, Amazon's
fell by 100 bps and Lowe's sank by 400 bps.
     UBS analyst Michael Lasser said reasons for the slowdown
included "a pull-forward of demand during COVID." He also cited
a tight housing market, due to rising interest rates rise
declining affordability and a trade-down from bigger remodeling
projects to smaller maintenance & repair projects. 
    Re-painting interiors and repairing or replacing sinks were
the most common. Spending was considerably higher for those
planning to buy or sell homes.
    More affluent households were cautious about high-ticket
projects with those earning $200k+ suggesting significantly
fewer $20,000 or more projects. However this was offset by
intentions for more low-value projects.
    Flooring was weak with intentions to replace or add wood,
tile or stone floors falling ~300 basis points yr/yr, marking
the 5th consecutive quarter of pressure on this sector. 
    With 84% on fixed rate mortgage, and 53% are paying <4%
interest, Lasser said higher interest rates may keep more
homeowners in current homes, potentially driving spending on
maintenance and repairs.
    Only 55% of homeowners reporting having funds for their
projects, which is the second lowest level in history after Sept
'22, according to the report. So nearly 30% plan to use credit,
which Lasser sees adding potential risk to the category if high
interest rates impact their spending.
    So he cut his HD 2023 EPS view to $16.30 from $16.75 vs
consensus of $16.67 and also cut his 2024 EPS view to $17.50
from $18 vs $17.89 consensus.
    He cut his LOW '23 EPS view to $13.95 from $14.04 vs $13.92
consensus, and cut his 2024 EPS view to $15.05 from $15.52 vs
$15.14 consensus.
    Floor & Decor Holdings  FND.N  2023E EPS view, he cut to
$2.65 from $3.16 vs $3.03 consensus, and his 2024 EPS view to
$3.40 from $3.93 vs consensus of $3.83).
    But on the plus side, Lasser says near-term uncertainty is
already reflected in HD and LOW valuations.
    (Sinéad Carew)
    *****
    BULLS TEMPER THEIR RECENT ENTHUSIASM -AAII (1225 EST/1725
GMT) 
    Individual investor optimism over the short-term direction
of the U.S. stock market fell from a nine-week high in the
latest American Association of Individual Investors (AAII)
Sentiment Survey. With this, pessimism rose, while neutral
sentiment dipped.
    AAII reported that bullish sentiment, or expectations that
stock prices will rise over the next six months, dipped 2.6
percentage points to 28.4%. Bullish sentiment remains below its
historical average of 37.5% for the 56th consecutive week, but
is "no longer at an unusually low level for the second
consecutive week." 
    Bearish sentiment, or expectations that stock prices will
fall over the next six months, increased 3.6 percentage points
to 36.7%. This is the first time since August 2022 that
pessimism is below 40% for three consecutive weeks. Bearish
sentiment is above its historical average of 31.0% for the 59th
time out of the past 62 weeks. 
    Neutral sentiment, or expectations that stock prices will
stay essentially unchanged over the next six months, slipped by
1.0 percentage point to 35.0%. Neutral sentiment is above its
historical average of 31.5% for the fourth consecutive week. At
four weeks, this is the longest streak of above-average neutral
sentiment since a five-week stretch in March and April 2022. 
    With these changes, the bull-bear spread widened to -8.3
percentage points from -2.1 percentage points last week:
    The current reading is still below the historical average of
6.6%.
    AAII noted that concerns over the economy, inflation,
corporate earnings and stock market volatility continue to weigh
on investor sentiment. 
    (Terence Gabriel)
    *****
    WILL STOCKS GAIN AFTER A FED PAUSE? MAYBE NOT THIS TIME
(1200 EST/1700 GMT)
    Stocks and credit markets have typically benefited in the
past 30 years after the Federal Reserve stops raising rates, but
this time might be different, according to Barclays Capital,
which says that the current environment more closely resembles
inflationary periods of the more distant past when there was
greater downside for both markets.
    A less-hawkish Fed is normally bullish for risk assets,
while an economic downturn is bearish. But in the tug of war
between the economy and a less-hawkish Fed, credit markets are
more reactive to an impending economic slowdown, Barclays said.
    In the past 30 years a Fed pause was neutral to positive for
credit, however going back to the 1950s data show that credit
spreads widen after a Fed pause, on average, and the effect is
more pronounced for older time periods.
    The picture is also similar for stocks. In the last six
hiking cycles going back 40 years, the S&P 500 has nearly always
hit a new all-time high after a Fed pause. However, “as with
credit, time until recession was a determinant of performance,
and we are skeptical that the eventual Fed pause will be a
risk-on event.”
    The last time the Fed was fighting “runaway inflation” was
in the early 1980s, and at that time the window between the
Fed’s last hike and a recession was “too short or even
non-existent,” and led to a 20-35% equity drop after the Fed
paused, Barclays said.
    Barclays expects the Fed to pause in the second quarter and
a U.S. recession to start in the second half of the year and “a
Fed pause in today's environment would likely be a bearish
signal for equities."
    (Karen Brettell)
    *****
    NOT TOO HOT, NOT TOO COLD: WELCOME TO GOLDILOCKS FRIDAY
(1133 EST/1633 GMT)
    All week, market participants anxiously awaited today's
data, which arrived with much fanfare and few surprises. 
    To summarize: demand is softening a bit, which is helping
inflation to cool. It's the proverbial "Goldilocks" scenario
which suggests what the Fed is doing is actually working.       
    The Commerce Department's feverishly anticipated Personal
Consumption Expenditures (PCE) report, which covers everything
from consumer income, spending and inflation, came very close to
hitting the consensus bull's eye up and down the line.
    The Fed's most closely watched element is, of course, the
price index  USPCE=ECI , which rose by 0.1% from November and
5.0% year-over-year.
    Stripping out volatile food and energy prices, the so-called
"core" PCE measure gained some heat on a monthly basis, rising
by 0.3% from 0.2% the prior month, but shed 0.3 percentage
points to 4.4% on an annual basis.
    The price index furthers the narrative that the Fed's
restrictive monetary policy is working as intended, that prices
have begun their long descent back toward Powell & Co's average
annual 2% target.
    "The Fed can legitimately downshift the pace of rate hikes
next week as inflation cools," writes Jeffrey Roach, hief
economist at LPL Financial. "Faltering growth and decelerating
inflation will likely cause the Fed to refocus on growth, the
other part of its dual mandate."
    Elsewhere in the report, while personal income  USGPY=ECI 
nailed expectations by rising by 0.2%, personal outlays
 USGPCS=ECI  decreased by 0.2%, slightly steeper than the 0.1%
drop projected, and the report's singular surprise.
    Taken together, those two elements resulted in the saving
rate - or the portion of disposable income left unspent  -
rising off historic lows, gaining 0.5 percentage points to 3.4%.
    "Coupled with yesterday's GDP report, I think (the PCE data)
should be viewed favorably," said Oliver Pursche, senior vice
president at Wealthspire Advisors, in New York. "We seem to be
having a slowing economy that's still growing, which is a
Goldilocks scenario from the Fed's perspective."
    Separately, signed contracts for the sales of pre-owned U.S.
homes  USNAR=ECI  unexpectely rose by 2.5% in the last month of
2022, according to the National Association of Realtors (NAR).
    Street expectations called for a 0.9% drop.
    It marked the index's first uptick in seven straight months,
which is particularly good news since, along with mortgage
demand and building permits, pending home sales is considered
the among the more leading housing indicators.
    The data falls in line with other recent housing market
data, which together suggests the troubled sector may have found
a floor. 
    "This recent low point in home sales activity is likely
over," says Lawrence Yun, chief economist at NAR. "Mortgage
rates are the dominant factor driving home sales, and recent
declines in rates are clearly helping to stabilize the market."
    Even so, it should be noted that the index remains well
below pre-pandemic levels:
    And finally, the University of Michigan released its final
take on Consumer Sentiment for January  USUMSF=ECI , which
landed at 64.9, or 0.3 points brighter than its initial take.
    While the "current conditions" component lost some luster,
shaving off 0.2 points, "expectations" posted a 0.7 point jump.
    Even so, "there are considerable downside risks to
sentiment, with two-thirds of consumers expecting an economic
downturn during the next year," writes Joanne Hsu, director of
UMich's Surveys of Consumers.
    "Consumers continued to exhibit considerable uncertainty
over both long and short-term inflation expectations, indicating
the tentative nature of any declines," Hsu adds.
    That's certainly true. While one-year and five-year
inflation expectations both edged a bit cooler to 3.9% and 2.9%,
respectively, those levels are still elevated, and well above
the Fed's aforementioned 2% annual target.
    Wall Street wavered in morning trading as investors chewed
on the data and a mixed spate of earnings.
    (Stephen Culp)
    *****
    
    U.S. STOCK ADVANCE PROVING HARD TO CHIP (1010 EST/1510 GMT)
    Wall Street is higher early on Friday even after Intel's
bleak outlook dragged chipmakers down. Meanwhile, a reading on
the Federal Reserve's preferred inflation measure showed signs
of price pressures easing.
    The chip index  .SOX  is down around 0.5%. That said, it's
well off its initial drop of more than 2%.
    In any event, the DJI  .DJI  is shooting for a
sixth-straight daily rise, while the Nasdaq Composite  .IXIC  is
on track to gain for a fourth-straight week.
    The IXIC (roughly 11,575) is also attempting its first close
above its 200-day moving average (now 11,506) since January 14,
2022.
    Here is a snapshot of where markets just after 1000 EST:
    (Terence Gabriel)
    *****
    TWO COVID VACCINE LEADERS, TWO DIFFERENT STORIES (0937
EST/1437 GMT)
    2023 has not been kind so far to the maker of the first
approved COVID-19 vaccine in the United States. 
    Waning infections have dragged sales of Pfizer's  PFE.N 
shot down from pandemic highs and along with it, the drugmaker's
share price, which fell 13% last year. This has brought into
question the drugmaker's growth prospects in 2023.
    Shares have fallen nearly 14% in the first month of this
year, with the latest setback coming from a rating downgrade by
UBS analysts on Thursday. 
    UBS slashed its estimates for Pfizer's COVID vaccine and
therapy sales in 2023 and said Street estimates also need to
come down given falling COVID cases and decreasing severity of
variants.
    The analysts don't see an upside from Pfizer's pipeline in
the near term either. 
    "While PFE's pipeline has a number of shots on goal, the
late stage assets (RSV, etc.) are already in street ests and it
is too premature to assign value to the earlier stage assets,"
they said in a note.
     For 2023, Cantor Fitzgerald analysts expect U.S. revenues
for Pfizer's vaccine, Comirnaty, to be minimal, unless more
government contracts are secured or sales move into a commercial
market. 
        Additionally, they expect expecting minimal to no
revenues in the U.S. for the company's antiviral Paxlovid in the
fourth-quarter, they said in a note earlier this year. 
  
    On the other hand, Pfizer's rival and fellow market leader
in the breakthrough messenger RNA (mRNA) space, Moderna Inc
 MRNA.O  is off to a much better start this year. 
    Shares of the company, which quickly bagged U.S. approval
for its own COVID shot after Pfizer, have risen 7.6% so far in
2023, thanks to growing interest in the potential of its
extensive mRNA vaccine pipeline.
   Analysts have cheered the recent success of Moderna's
respiratory syncytial virus (RSV) vaccine, saying it validates
the company's mRNA platform beyond its COVID franchise.
    Pfizer is due to report fourth-quarter results on Tuesday of
next week and Moderna is expected to report in February, where
analysts and investors will get a further glimpse into the
companies' plans to tackle declining COVID revenue.
        (Amruta Khandekar, Bhanvi Satija)
    *****
        RETAIL PUNTERS FLOCK TO FAVORITE TESLA EVEN AS PRICE
JUMPS (0915 EST/1415 GMT)
  
    Tesla shares rallied in the previous session after strong
results and a bullish outlook by top boss Elon Musk, with retail
punters deciding to chase the stock higher rather than take
profits.
    Retail investors set a new daily record for purchases - over
$358 million - even as shares of the electric vehicle maker
jumped nearly 11%, according to Vanda Research. 
    "If we exclude Q1 of 2020 (for obvious reasons), then we can
expect retail investors to chase momentum after these upbeat
results and continue buying TSLA shares at a high clip in the
week ahead," researchers at Vanda Research added in a note.
    Shares of Tesla are rising more than 1% in premarket trading
on Friday and are set for their best weekly performance in 15
months.
    Rising interest rates had sparked a sharp selloff in
technology stocks last year, with Tesla posting its worst year
ever in 2022. 
    But, the automaker has sharply rebounded this month, up 30%
so far as China reopened its borders and Tesla announced price
cuts to stir demand.
    "Tesla investors are craving clarity and stability and this
quarter has offered a dose of both," said Sophie Lund-Yates,
Lead Equity Analyst at Hargreaves Lansdown.
    (Bansari Mayur Kamdar)
    *****
    DOW INDUSTRIALS: SHOOTING FOR SIX (0900 EST/1400 GMT)
    The Dow Jones Industrial Average  .DJI  ended Thursday
higher for a fifth-straight session. That's its longest daily
winning streak since a six-day run of gains in October of last
year.
    It remains to be seen if the DJI will match that streak
Friday, but in the wake of the 0830 EST release of December core
PCE price index data, e-mini Dow futures  1YMcv1  are suggesting
the blue-chip average is poised to open roughly flat.
    Meanwhile, the DJI, which ended Thursday at 33,949, has
spent the last five weeks, chopping around between 32,573 and
34,712:
    On the downside, the Dow is once again using the 23.6%
Fibonacci retracement of its March 2020-January 2022 advance, at
32,530, and its 40-week moving average (WMA), now at 32,285, as
support. 
    Therefore, traders may look for momentum in the event of a
breakout of the 32,285-34,712 range.
    In the event of an upside thrust, however, a long-term
log-scale resistance line from the Dow's 1929 high, can once
again present a hurdle.  
    This line comes in around 36,000 on a weekly basis. The
Dow's January 2022 record intraday high was at 36,952.65.
    Breaking the 40-WMA may see the DJI once again threaten the
38.2% Fibonacci retracement of the March 2020-January 2022
advance at 29,794. 
    (Terence Gabriel)
    *****
    FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
- CLICK HERE
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
DJI01272023B    https://tmsnrt.rs/3JkF6J7
Retail punters flock to favorite Tesla    https://tmsnrt.rs/3HbgWOQ
Two COVID vaccine makers, two different stories    https://tmsnrt.rs/40kKQsL
earlytrade01272023    https://tmsnrt.rs/3Jkezvy
Inflation    https://tmsnrt.rs/3RdQKHC
PCE    https://tmsnrt.rs/3DmYMbM
Pending home sales    https://tmsnrt.rs/40929wr
UMich inflation expectations    https://tmsnrt.rs/3Hd5sdE
AAII01272023B    https://tmsnrt.rs/3HB2G2Z
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)