Closing Recap

Wednesday, April 17, 2024

U.S. stocks stumbled on Wednesday, as S&P futures (Spuz) declined for a 4^th straight session, making a new daily low for a 7th straight day in the process despite NYSE breadth favoring advancers to decliners. The Philly semi-index (SOX), the hottest sector in 2023 (rose over 40%) was down -2.85% today below 4,600 – now nearly 12% off its ATH high 0f 5,217 on March 8^th. The group was hit today following weak results from ASML as shares fell over -7%. The recent about face view on the interest rate outlook (view heading into 2024 was initially that Fed would cut at least than 3 times this year/or more, but now viewed as less/if at all after stubborn CPI inflation data) has pushed Treasury yields higher (10-yr hit highs 4.68% today before fading to 4.58%) and punished many rate sensitive sectors, including Smallcaps. The Russell 2000 is now roughly down 20% from its all-time highs in November of 2021 and down over 7% this month so far as Treasury yields have jumped. The risk sentiment remained fragile after Fed Chair Jerome Powell yesterday refrained from providing any guidance on when interest rates may be cut and said monetary policy needed to be restrictive for longer, dashing investors’ hopes for meaningful reductions in borrowing costs this year. Still have Middle East tensions with expectations that Israel will retaliate against Iran after a Drone attack this weekend.

In stock news, ASML tumbled overnight as orders missed, weighing on semi equipment stocks (AMAT, LRCX, KLAC) and the group overall. Insurance stocks were weak as Dow component TRV dropped over -7% following earnings miss on larger catastrophe losses. Dow Transports -1.6% at 15,000 (far cry off 52-week high of 16,717) as weakness in truckers JBHT, KNX following earnings/guidance disappointments offsets strength in airlines behind UAL beat as rails falling in sympathy with truckers not helping. Bank earnings remain mixed as weaker net interest income (NII) takes its toll on shares of USB today on miss/lower guide. Shares of industrial metals were higher early after reports the White House is calling for higher tariffs on Chinese steel and aluminium, to help shore up the American steel sector. Warehouse-focused real estate investment trust PLD declined after lowering its full-year forecast for core funds from operations. Solar stocks (FSLR, SEDG) advanced after reports the White House is likely to remove a tariff exemption for two-sided panels.

The U.S. economy grew slightly faster in the early spring and businesses added more workers, a Federal Reserve survey found, but there was little progress in lowering inflation. The latest findings by the Fed’s Beige Book match the assessment of top Fed officials, who in recent weeks pointed to a strong economy and still-elevated inflation as a reason not to cut U.S. interest rates soon. Fed Chairman Jerome Powell and others have signed that reductions in rates will probably have to wait because of resurgence in inflation in early 2024.

• In Electric Vehicles: TSLA will have shareholders vote again on its massive compensation package for Elon Musk after a Delaware court voided a $56 billion award arranged for the CEO in 2018. In its proxy filing, Tesla also said it will call a vote on moving the company’s state of incorporation to Texas, from Delaware.

• In Apparel Retail: URBN was downgraded to Underperform from Hold at Jefferies and cut tgt to $32 from $42 saying they have identified a notable deceleration in rolling 3-month foot traffic to all three of URBN’s brands, per its latest monthly alt data note. PLCE said it received $90 million in unsecured financing from majority shareholder Mithaq Capital to pay back debts and vendors. Jefferies said LULU March traffic trends were underwhelming, flat YoY, an improvement vs Feb./Jan., though still below prior quarter averages.
• In Beauty: ELF was upgraded from Hold to Buy but lower tgt to $190 from $220 as believes ELF can double the business over the next three years growing at a low to mid 20% CAGR driven by high teens unit volume growth and M-HSD% pricing growth. They also cut tgts on COTY to $13 from $16, SBH to $11 from $13, and ULTA to $520 from $580 in a Beauty preview saying recent stock pullbacks of (13%) imply modest expectations ahead of earnings but TDCowen remains constructive on the category (says prefers ULTA into the print).

• In Solar space: shares of SEDG, ENPH, FSLR among others got a little pop after reports the Biden administration is expected to grant a request by South Korea’s Hanwha Qcells to reverse a two-year-old trade exemption that has allowed imports of a dominant solar panel technology from China and other countries to avoid tariffs. Hanwha Qcells had requested the restoration in a petition to the US Trade Representative on February 23, Reuters reports, citing the document.
• In Industrials: FTV was downgraded to Neutral from Overweight at JP Morgan in conjunction with their 1Q24 Earnings Pregame report and removed it from the Analyst Focus List saying while see potential upside from AHS margins and IOS growth/margins are tracking well, we don’t see enough to more than offset a potential shortfall at PT/Tek, which means that raising the guide is unlikely. Homebuilders weak again (LEN, TOL, KBH, BZH) on “higher for longer” rate fears as the weekly mortgage applications index rose +3.3%, the purchase index climbs 5.0% and the refinance index climbs 0.5% despite the average 30-year mortgage rate climbs 12 bps to 7.13% in April 12 week as per weekly MBA data.
• In Metals & Mining: shares of STLD, NUE, AA, CENX, FCX, CLF were higher early after reports the White House is calling for higher tariffs on Chinese steel and aluminium, to help shore up the American steel sector; Biden proposes raising 301 tariffs on China steel, aluminum. Citigroup upgrades its base case NY silver price forecasts for 2024 (12%) and 2025 (19%) to $29/oz and $31/oz, respectively. VALE reported growth of 6.1% in Q1 iron ore production from a year earlier, driven by improved output from a key project in northern Brazil, while sales of iron ore, meanwhile, rose 14.7% to 63.83 million tons.

• CFG posted lower Q1 profit as net interest income (NII) tumbled 12% to $1.44B y/y, period-end loans and leases fell 7% to $143 billion in the quarter y/y, set aside $171M in provisions for credit losses, slightly higher than $168M a year earlier.
• FHN Q1 adj EPS $0.35 vs. est. $0.34; loans at end-period $61.75B; deposits at end-period $65.74B; Q124 RoTCE of 11.0% and adjusted RoTCE of 11.6% with tangible book value per share of $12.16.
• HWC was upgraded to Buy at Citigroup after earnings as believes the outsized capital base and solid deposit pricing trends check the boxes investors need to see before valuation multiples can start to normalize.
• IBKR EPS of $1.64 beat, boosted its qtrly dividend to $0.25 from $0.10; net interest income (NII) $747Mm vs est. $759.6Mm; said trading volume was mixed across product types as options contract volume was up 24%, but futures contract and stock share volumes were down 3% and 16%, respectively.
• USB shares dipped after cutting its forecast for full-year interest income (NII) between $16.1B-$16.4B from prior view of over $16.6B after Q1 NII declined 14% to $3.99B and net interest margin (NIM) fell to 2.70% vs. 3.1% y/y.
• In Insurance: TRV reported a Q1 core EPS miss ($4.69 vs. est. $4.90) driven by elevated catastrophe losses ($20B) and less than expected favorable reserve development as revenue from all three of its units (business insurance, bond and specialty insurance, and personal insurance) were below estimates as catastrophe losses – though total Q1 revs rose 15.7% y/y to $11.23B vs. est. $11.18B (other P&C stocks ALL, CB, PGR were active). MMC was downgraded from Overweight to Neutral at Piper saying the stock is reasonably valued and second, the firm doesn’t see much in the future that will change that.
• In REITs: PLD, which is the world’s largest industrial property company, posted better Q1 revs but warned of a slowdown in warehousing markets in the coming quarters as customers focus on tamping down logistics costs; lowered its yearly FFO guide to $5.37-$5.47 vs. prior range $5.42-$5.56 a share. Other industrials REITs such as REXR, TRNO declined in sympathy.

• LLY reported positive results of its obesity drug Zepbound in obstructive sleep apnea, giving the medication a new edge in the highly competitive obesity market and paves the way for Zepbound to potentially become the first approved treatment for obstructive sleep apnea (shares of CPAP companies INSP, RMD declined on headlines).
• SAGE shares fell after announcing topline results of its Phase 2 PRECEDENT study of Dalzanemdor (SAGE-718) as a treatment for Parkinson’s Disease, with the study not hitting stat sig on its primary endpoint. The company will no longer pursue further development of SAGE-718 in PD given these results.
• VNDA shares jumped after confirmed that, since March 2024, it received several unsolicited proposals from Future Pak, LLC to acquire all the outstanding shares of Vanda, with the most recent proposal from April 1 offered $7.25 – $7.75 per share. https://tinyurl.com/8dpwazd7

• In Life Sciences: TD Cowen with price tgt changes in review as raise BRKR tgt to $91 from $84, MYGN tgt cut to $23 from $26, NTRA to $123 from prior $110, QTRX tgt to $20 from $31, TMO to $644 from $612 and TXG to $57 from $70 saying they see a favorable set up as Q1 guides have a low bar, & while ’24 outlooks are back-half weighted, macro drivers are improving (Pharma R&D, Bioprocess, China bottoming). DHR, AVTR are top picks.

• In Airlines: UAL reported a smaller-than-expected loss on slightly better revs $12.5B and the demand environment remained strong with a double-digit percentage increase in business demand quarter over quarter, as compared to pre-pandemic lowers FY24 adjusted CapEx view and sees Q2 adj EPS $3.75-$4.25 vs. est. $3.76. The US FAA issued a ground stop advisory for all ALK mainline and subcarrier flights, while issue was mitigated and ground stop for Alaska and horizon flights expired at 8:30am PT.

• In social media: PINS and SNAP shares popped after an afternoon report that House Speaker Mike Johnson aims to include a bill that would force ByteDance to divest its ownership of TikTok in a package of fast-moving bills that include aid for Ukraine and Israel. https://tinyurl.com/2dcbf8dj
• In Software: ADSK shares fell after announced will not file 10-k for year ended Jan 2024 within 15-day extension period due to ongoing internal investigation re free cash flow, non-Gaap operating margin practices. TTWO board approves cost reduction program including a workforce reduction of ~5%; expects to incur ~$160-200M in total charges related to the plan. ZUO shares popped mid-afternoon after Bloomberg reported the company is exploring strategic options that include a potential sale, working with advisers to gauge interest from potential buyers https://tinyurl.com/4tymajuk
• In Semiconductors: ASML shares dropped overnight after Q1 net bookings were EUR3.61B, well below the estimates of nearly EUR5.10 billion; bookings for extreme ultraviolet lithography machines came to EUR656M after posted Q1 net profit of EUR1.22B vs. prior EUR2.05B and sales came to EUR5.29B, down from EUR7.24B. The comments/results weigh on semis and equipment names (AMAT, LRCX, KLAC). MBLY shares rose after the company said it had secured orders to ship 46 million of its EyeQ6 Lite assisted-driving chips over the next few years as automakers race to make cars safer and easier to drive.