PCOR - Wall Street Lunch: Recession Around The Corner?

2023-11-07 12:27:00 ET

Summary

• U.S. lending standards have tightened, indicating a possible recession - Deutsche Bank SLOOS report.
• Celsius surges after strong top-line growth; Datadog jumps after robust results, outlook.
• Office buildings could get even cheaper - Barclays.

Listen below or on the go on Apple Podcasts and Spotify

Tighter lending standards signal the downturn . (0:15) Celsius says it's the top energy drink on Amazon. (1:57) Barclays says there's more pain to come for office real estate. (3:00)

This is an abridged transcript of the podcast.

Our top story so far

The probability of a U.S. recession hit its highest levels, according to one metric that captures what banks are telling us.

The October Senior Loan Officer Opinion Survey on Bank Lending Practices (or SLOOS) showed that lending standards have tightened across the board. They are now at levels that indicate a recession is imminent or already happening, according to Deutsche Bank.

When the percent of banks tightening standards on small firm C&I loans nears 30%, the probability of a U.S. recession in the next 0 to 12 months jumps to almost 90%.

Steve Caprio, head of the E.U. and U.S. Credit Strategy, says: “It still feels like we’re in a race against time.”

“Can lending standards improve quick enough before funding becomes too restrictive or unavailable for important borrowers and tips the economy into a much more difficult situation? If that happens, the non-linearities could easily kick in.”

The U.S. recession probabilities would dwindle if the SLOOS improved much more in the future quarters.

In today’s trading

The stock market is looking to add to what Barclays called the sharpest global rally in risk assets in 10 years outside of the Pfizer vaccine-news rally.

The Nasdaq ( COMP.IND ) leads the major averages, up nearly +1%. It’s on course for an eighth straight session in the green. A streak like that hasn’t happened since November 2021.

The bond market is also active. After yields popped on Monday, they are down again today. The 10-year yield ( US10Y ) is back around 4.60%.

Looking to active stocks and earnings

Celsius ( CELH ) shares gained after the beverage company reported strong top-line revenue of $385 million, up from $188 million a year ago. Celsius says it’s now the top-selling energy drink on Amazon.

Datadog ( DDOG ) surged after reporting strong third-quarter earnings and an outlook for the coming period. For the fourth quarter, Datadog forecasts revenue between $564 million and $568 million, well above the consensus of $543.95 million. Non-GAAP net income per share was forecast between 42 and 44 cents per share, above the 34 cent-per-share consensus.

And bulls and bears are slugging it out following Uber’s ( UBER ) earnings report. The numbers came in lower than what Wall Street was expecting for earnings and revenue in Q3. But guidance was more promising.

Uber sees Q4 gross bookings of $36.5 billion to $37.5 billion vs. the consensus of $36.3 billion.

And you can take a deep dive into the past quarter’s gross bookings, trips, and segment revenue in our Uber in Charts story.

In other news of note

In the wake of WeWork’s ( WE ) bankruptcy, Barclays is out with more pessimism for commercial office space .

Analysts say prices for office buildings have dropped ~20%–30% from peak levels, but warn there may be "more pain to come" as offices are yet to feel the full extent of the Federal Reserve's aggressive rate hikes.

Prices for "high-quality and well-located" buildings are expected to fall ~40% from peak valuations, while distressed properties will likely trade based on land and redevelopment costs.

And in the Wall Street Research Corner

Mizuho is out with its “ America’s Top Picks ” list—its favorite names on a 12-month outlook.

Looking to the tech sector, while the mega caps got some representation in the form of Microsoft ( MSFT ) and Nvidia (NVDA), an interesting non-household name that surfaced was Procore Technologies (PCOR).

Analyst Matt Broome says the construction project management platform is “best-in-class” with a lot of growth potential. The software has an opportunity to digitize the construction industry as an upcoming AI product, he adds.

The market cap is $8.5 billion, and Broome’s target price is $75.

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