Closing Recap

Wednesday, April 03, 2024

U.S. stocks posted a morning bounce behind economic data/Fed comments but faded late afternoon as major averages finished mixed. Macro headlines once again dominated early stock/bond market action as Federal Reserve Chair Jerome Powell reiterated that the U.S. Central bank has time to deliberate over its first interest rate cut given the strength of the economy and recent high inflation readings. "Recent readings on both job gains and inflation have come in higher than expected," Powell said in remarks prepared for delivery at the Stanford Graduate School of Business. "Recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2% on a sometimes-bumpy path." "Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said, with decisions made "meeting by meeting." Earlier, Atlanta Federal Reserve President Raphael Bostic expressed concern in a CNBC interview about the pace of inflation and indicated he doesn’t think interest rate cuts should come until much later in the year. The central bank official said strong productivity, a rebound in the supply chain and a resilient labor market are indicating that inflation is going to decline “much slower than what many have expected.” In stock news, a few Dow components slipped on the day including Disney (DIS) shares fell as shareholder back CEO Iger defeating Peltz activist campaign to get board seats; INTC shares tumbled on foundry revenue outlook; BA shares dropped after reports MAX jetliner production has fallen sharply in recent weeks as U.S. regulators step up factory checks. Consumer Staples (XLP) fell the most in the S&P behind consumer product weakness (ULTA comments hit Beauty space), while Energy was a market leader again as oil prices climbed, along with industrials and materials.

• ISM Services PMI for March reported at 51.4 vs. est. 52.7 (prior reading 52.6), business activity index 57.4 in March (consensus 56.7) vs 57.2 in February, prices paid index 53.4 in March vs 58.6 in February, new orders index 54.4 in March vs 56.1 in February and employment index 48.5 in 48.0 in February.
• S&P Global March final composite PMI at 52.1 (vs flash 52.2) and U.S. S&P Global March final services PMI at 51.7 (vs flash 51.7).
• Caixin China General Services Business Activity Index (headline services PMI) rose slightly to 52.7 in March from 52.5 in February, as the new business index rose to 53.3 in March (vs. 51.6 in February) and the outstanding business index inched up to 49.6 in March (vs. 49.5 in February).

• Treasury yields spiked this morning following the better ADP private payroll data, as the 10-yr hit highs of 4.43% before slumping later following a weaker ISM Services report/accompanying drop in the prices paid component as well as comments from Fed Chairman Powell in a speech today in California. Powell repeated that rate cuts are on the horizon but aren’t necessarily imminent, sticking to the message Fed officials have been delivering since their March meeting. Powell says tight monetary policy is weighing on the economy. The 10-yr yield ended at around 4.35%, up from yesterday but off intraday highs.

• In Retail: FIVE, COST downgraded to Accumulate from Buy at Gordon Haskett while DLTR cut to Hold from Buy, and LOW to Hold from Accumulate saying there is also a "notable wall of worry," including the recent uptick in gas prices, election risk, fewer holiday shopping days and uncertainty. SIG boosted its FY25 EPS outlook to $9.90-$11.52 from prior $9.08-$10.48 per diluted share and said plans to repurchase half of the preferred shares from Leonard Green & Partners, for around $414M.
• In Food/Beverage Sector: CALM overall sales volumes rose 3.2% in Q3 as sold 300.8M dozen compared with 291.4M dozens y/y (strong egg demand) but sales fell due to y/y drop in egg prices, still Q3 revs of $703.1M topped consensus est. $692.35M; TSN 90-day upside catalyst watch announced by Citigroup as they raise estimates as sees potential for TSN to boost its annual operating profit outlook. PEP downgraded to Hold from Buy at Argus saying the company’s price hikes are likely to cause its revenue growth to slow as consumers choose dining out over meals at home.

• In Metals & Mining: after outperformance recently, industrial metals such as steel makers (NUE, STLD) slumped midday, while precious metals/gold and silver miners saw ongoing strength with gold prices topping $2,300 an ounce for all-time highs, and silver best levels in years. Aluminum producers AA (rises a 5th straight day) and CENX (rises an 8th straight day) extend recent gains.
• In Industrials: AYI reported Q2 adj EPS $3.38 vs. est. $3.25 and revs $906M vs. est. $906.7M; Q2 EBIT $140M vs. est. $131M; Q2 gross margins came in at 45.5%; CSL initiated at Buy and $455 tgt at Goldman Sachs as believes is well positioned to benefit from the macro, industry and company-specific dynamics over the next several years, contributing to above average growth relative to global peers and GIR’s building products coverage. March N.A. Class 8 net orders fell nearly 10,400 units from February, a 38% m/m decline (vs normal seasonality of -9% in March vs. Feb) and 8.7% from a year ago to 17,300 units (shares of CMI, PCAR leveraged to data).
• In Ag Products: Citigroup updated estimates and preview the set ups into 1Q24 earnings for ADM, BG, and DAR as model an EPS beat for BG and see potential for a slight guidance boost; look for inline earnings for ADM and a guidance reiteration; model below consensus EPS for DAR, though says would not be surprised if 1Q estimates were to come down ahead of earnings.
• In Chemicals & Materials: Wells Fargo raised tgt on WLK to $180 from $150 and OLN to $60 as believes that along with higher PVC & caustic soda prices and ECU margins, PEM segment should also benefit from recent integrated PE margin increases. SEE shares slipped amid short call at Sohn charity conference https://tinyurl.com/uf84ehzc

• In Investment Managers: OWL announced to acquire Kuvare Asset Management for $750mn. They will fund the acquisition through a combination of $325 million in cash and $425 million in stock. It is expected to close in 2Q23 or 3Q23 subject to customary approvals and conditions.
• In REITs: Bloomberg reported the office vacancy rate hit a new peak in 1Q24 rising to a record 19.8% according to Moody’s, from 19.6% in 4Q23.

• ACB led gains in cannabis space today after industry executive Paul McCarthy was named President of the Cannabis Council of Canada (C3) trade group; CGC and TLRY also saw strength.
• CRNX mentioned positively as best biotech idea at Sohn conference from StemPoint Capital’s Michelle Ross, who spoke on CNBC midday.
• GMAB announced it will acquire U.S. ProfoundBio for $1.8 billion in cash as it looks to bolster its pipeline of cancer treatments, giving them worldwide rights to a portfolio of next-generation antibody-drug conjugates.
• NARI announced the appointment of Tim Benner as SVP of U.S. Sales to replace John Borrell – the former head of sales. Bank America notes NARI says the transition is not related to the DOJ investigation noting the head of sales transition has been going on since October 2023 and the DOJ investigation wasn’t known until December 2023.
• VNDA said it got FDA approval for Fanapt (iloperidone) tablets for treating manic or mixed episodes associated with bipolar I disorder in adults.

• In Life Sciences: Citigroup upgraded HOLX, SHC to Buy and downgraded BIO to Neutral saying: for BIO, visibility remains limited on the ability to achieve its Life Sciences revenue ramp given the lack of tangible catalysts; for HOLX, believes the USPSTF overhang has outweighed the strong core performance; even if there is a change, it sees the impact as manageable in the forward-year estimates and for BIO, says visibility remains limited on the company’s ability to achieve its life sciences revenue ramp given a lack of tangible catalysts.

• INTC shares fell after saying losses have deepened at its factory business and the unit May not reach a break-even point for several years; said its foundry business had $7B in operating losses for 2023 vs. $5.2B the year before. INTC expects foundry segment operating losses to peak in 2024 and then to improve in subsequent years with break-even targeted mid-way between now and the end of 2030, at which point management targets 40% non-GAAP gross margins and 30% operating margins for the segment.
• WOLF was downgraded from Overweight to Equal Weight at Wells Fargo and cut tgt to $30 from $55 saying they remain long-term bulls on the market prospects for SiC in xEV applications, but notes TSLA still drives ~55% of SiC market demand, & w/TSLA volumes possibly declining in `24, & w/o a needed offset from BYD, MB, Hyundai and/or industrial, `24 SiC demand May fall short of expectations.