Closing Recap

Friday, April 19, 2024

US equity futures rolled overnight then recovered back to unchanged before a small fade into the open. Israel’s missile strike against multiple sites in Iran spooked investors initially, but the limited scope of the retaliatory strike then generated a more moderate reaction. Later Tehran indicated it had no intention of further escalation or its own retaliatory response and futures were able to continue to recover. With no economic data out this morning, traders were left to digest the geopolitical climate without incremental forces acting on rate-cut probabilities or soft-landing/hard-landing scenarios. Early performance favored small caps, as IWM gained about 0.75% versus SPY flattish and QQQ -0.6%. By late morning, advancers continued to outpace decliners by almost 1.7:1 despite both SPY and QQQ trending lower. Energy, Utilities and Financials were S&P sector ETF leaders, while Consumer Discretionary, Communications and Technology were laggards and all in the red. Perhaps more telling of underlying sentiment has been the Fear and Greed index, which has slipped back to 33 (Fear) from 69 (Greed) just a month ago.

After the recent weakening in the indices, @bespokeinvest has noted the 10-day advance/decline line for the S&P has fallen well into oversold territory. Meanwhile, @charliebillelo highlights the US yield curve has been inverted for 542 consecutive days, the longest in history on the 10yr minus 3mo yield basis. Separately, @DataTrekMB sounds a note of caution on US consumers, pointing out that US gasoline consumption has been comping negative yr/yr since February despite stable pricing. @Kobeissiletter casts a wider net, noting global stocks are on track for their worst week since October 2023 with the MSCI ACWI Index falling more than 2%. The S&P 500 has given back about 5% from its all-time high. Lastly, @RBAdvisors pokes fun at economists noting most continue to worry about weak growth despite the Citi US Economic Surprise Index showing its longest period of positive surprises ever.

Heading into the final hour of trading for the week, US equities continued to weaken with SPY down almost 1% and QQQ sliding more than 2%. Small caps continued to outperform, but IWM also failed to hold gains and was -0.2%. Sector-wise, Utilities (XLU, +1.5%), Financials (XLF, +1.2%) and Energy (XLE, +1.2%) remained leaders. Sectors in the red broadened but primary laggards continued to be Technology (XLK, -2.1%), Communications (XLC, -1.4%) and Consumer Discretionary (XLY, -1.2%). Consistent with the sector performance, growth significantly underperformed value with the Russell 1000 growth -2.1% versus its Value counterpart at +0.4%. Breadth slipped to nearly even but continued to modestly favor advancers. In the end, the S&P 500, Nasdaq both register 6 straight daily declines, longest losing streak since October 2022. For the week, the S&P 500 fell 3.05%, the Nasdaq declined 5.52%, and the Dow climbed 0.01%.

• May WTI crude futures finished a volatile session higher by $0.41/bbl, or +0.5%, to $83.14. Brent also gained to settle at $87.29, up $0.18/bbl or +0.21%. Oil followed an inverse path versus stocks over night with a spike on the Israeli strike on Iran, followed by easing into the open as no indications of an Iranian plan to retaliate emerged, with Tehran downplaying the incident. Futures went negative ahead of the open before recovering again and finishing with a modest gain. There was no incremental economic data to sway investors beyond what is occurring on the geopolitical stage, so recent underlying macro strength continued to provide some support as well. Expect more volatility next week as we see another round of macro data and earnings begin to ramp.
• In Bitcoin, lots of talk this week about the latest halving event, when miners’ block subsidy reward is cut from 6.25 BTC to 3.125 BTC, is estimated to occur around 9 p.m. ET today. Bitcoin halvings have been associated with significant fluctuations in the cryptocurrency’s price. While not a direct cause-and-effect relationship, these events have often preceded substantial bull runs in the bitcoin market. https://tinyurl.com/y8vznm77

• In Consumer Products: PG Q3 EPS of $1.52 topped the $1.42 consensus while sales rose 1% y/y to $20.2B, which was shy of the $20.4B estimate and organic sales rose 3%, boosted by higher pricing; raised 2024 adj EPS growth view to 10%-11%, up from a prior growth forecast of 8% to 9% and maintained sales/organic sales views.
• In Beauty: ULTA downgraded from Buy to Hold at Jefferies and cut tgt to $438 from $585 on a more cautious view of sustained +MSD comps due to increasing competition, aging brand mix, and a normalizing category; the firm has viewed Ulta as a share taker but see constraints on ULTA’s prestige biz (50% sales). JWN said late yesterday it formed a special committee in response to Erik and Pete Nordstrom’s interest in taking the company private.
• In Autos: TSLA shares fall for a 6^th straight day after recalling 3,878 Cybertruck pickups to rework or replace accelerator pedals that can dislodge and cause the vehicle to unintentionally accelerate.

• In Solar: Wells Fargo upgraded FSLR to Overweight due to relative stability & several potential catalysts and downgraded NOVA to Equal weight as rates May stay higher for longer; notes the solar sector continues to struggle due to several headwinds, and they are getting more defensive with its ratings. MAXN announced that it has initiated a patent infringement lawsuit in the Eastern District of Texas against REC Solar Holdings AS, alleging its infringement of Maxeon patents relating to TOPCon solar cell technology.
• In Materials, Paper & Forest sector: British packaging group Mondi will not make an offer to buy DS Smith (DIHTF), pulling out of the battle after its UK peer agreed to a 5.8-billion-pound ($7.21 billion) deal with IP earlier this week.
• In Chemicals: PPG reported Q1 EPS of $1.86, in line with consensus while revs of 44.31B missed the $4.43B estimate, while board authorizes $2.5B share buyback program. China slapped a levy on imports of an acid from the United States widely used in food, feed, pesticides, and medical fields, amid heightened tensions with Washington over bilateral trade.

• CNS will replace KAMN in the S&P Smallcap 600 effective prior to the opening of trading on Tuesday, April 23. Arcline Investment Management LP is acquiring Kaman in a deal expected to close on April 19.
• FITB Q1 EPS $0.75 tops $0.69 est. driven by beats on NII, fees, and expenses; NII of $1.39B was better than KBW estimate of $1.38B and said NIM came in at 2.86%, up 1bps Q/Q and compared to their 2.83% est.; PPNR outlook for 2Q24 is in line with the Street and 2024 is $0.06 better than the Street.
• HBAN Q1 EPS $0.28 vs $0.26 driven by lower expenses, partially offset by lower core fees; NII and provisions were in line while its 2024 outlook unchanged; sees NII down -2% to up 2% and core Fees expectation of up 5-7% while core expenses expectation of up approximately 4.5%.
• RF Q1 revenue $1.75B, in-line with consensus; Q2 NII expected to be flat to down 2% vs Q1 while sees 2024 NII $4.7B-$4.8B; sees 2024 average loan balances to be stable to down modestly compared to 2023; expect 2024 average deposits to be stable to down modestly compared to 2023.
• WAL Q1 beat on better fee income and to a lesser extent NII ($608.5mn vs $605.5mn est.), while credit remains benign (NCOs $9.5mn vs $15.5mn cons); NIM came in 3bps lower than street driven by increase in avg interest bearing deposits outpacing increase in avg earning assets; largely reiterated their FY24 guidance, with NII +5 to +10% (assuming 2 cuts in 2H24), but raised their non-interest expense guide to +6% to +9% (from 0 to 2% prior).
• In Credit Cards/Finance: AXP Q1 EPS $3.33 topped the estimate $2.96, as revs rose 11% y/y to $15.8B, which was in-line with consensus; said saw a 7% boost in card-member spending during Q1, on a currency-neutral basis and spending by consumer card members in the U.S. grew 8% y/y; reaffirms year EPS/rev outlook.

• In Medical Devices: ISRG posted Q1 profit and revenue above estimates, powered by higher demand for its robots used in minimally invasive procedures; Q1 sales rose 11% y/y to $1.89B vs. est. $1.87B and now sees 2024 procedure growth of 14% to 17% vs previous forecast of 13% to 16%.

• JBL shares weak after its CEO Kenneth Wilson was placed on paid leave since April 15 pending completion of an investigation related to corporate policies; Jabil pointed to the filing in response to a request seeking more details on why Wilson was placed on leave.
• PSTG upgraded to Outperform in storage sector at Raymond James and raised tgt to $63 noting Pure generates nearly half its sales from subscriptions/recurring sources, which justifies a higher multiple. With nearly 50% of sales from these sources, Pure deserves a premium over strictly appliance-based IT hardware suppliers.
• SMCI shares tumbled over 20% after the company announced it will present a live audio webcast of a conference call to review its third quarter fiscal 2024 financial results on Tuesday, April 30 – appeared that markets were disappointed that the company did not raise guidance as they did prior quarter when announced release date (SMIC did not give guidance, but the whole semi sector extended losses to 4.3% for the SOX, -9.5% for the week and down -12.4% MTD, but still up 7.5% YTD – NVDA fell over 10% and ARM over 17% on the day alone!)