Closing Recap

Tuesday, April 23, 2024

After falling for 6-straight days as of last Friday, the longest streak since 2022 for the S&P 500 and Nasdaq, markets have surged the last two-days as major averages recover a good portion of that losing streak heading into some massive earnings reports to come in technology, industrial, healthcare, and materials. Stock jumped shortly after the open after a weaker than expected PMI reading stopped rising Treasury yields in their tracks and boosted stocks in hopes a cooler economy could boost chances for Fed rate cuts. The S&P US manufacturing PMI came in at 49.9 vs 52.0 expected and 51.9 in March. Services likewise disappointed, dropping to the lowest level since September. Basically, it was back to bad news for the economy is good news for the stock market, which was coupled with several positive earnings reports including strength in Healthcare (DGX, DHR lead Life Sciences/MedTech), GE helped boost industrials, GM lifted autos on beat and raise, KMB results gave a boost to consumer products with SPOT, SAP helping tech. The lone weak spot was materials, with metals CLF, NUE falling on disappointing results/comments, and SHW in chemicals. Tonight, we get earnings from TSLA which snapped its 7-day losing streak today, as well as Visa, CB in financials and TXN in semiconductors before fireworks in large cap tech tomorrow and Thursday (META, MSFT, GOOGL) and then big data points Thursday (GDP) and Friday (PCE). Still no Fed speakers this week as they remain in blackout period ahead of the FOMC meeting next week.

• U.S. S&P Global April flash services PMI at 50.9 (vs 51.7 in March) and U.S. S&P Global April flash composite PMI at 50.9 (vs 52.1 in March); S&P Global April flash manufacturing PMI at 49.9 (vs 51.9 in March).
• Richmond Fed composite manufacturing index -7 in April vs -11 in March; Richmond Fed manufacturing shipments index -10 in April vs -14 in March and services revenues index -13 in April vs -7 in March.
• March single-family home sales rose 8.8% to 0.693M unit ann. Rate above consensus 0.670M and vs Feb 0.637M unit rate; March home sales Northeast +27.8%, Midwest +5.3%, South +7.7%, West +8.6%; new home supply 8.3 months’ worth at current pace vs Feb 8.8 months and median sale price $430,700, -1.9% from March 2023 ($438,900).

• U.S. Treasury yields dipped following cooler PMI business activity in April to a four-month low, as the 10-yr yield dropped from 4.65% to 4.58% after the report on hopes it will boost rate cut expectations, though trading ranges remained relatively tight before GDP and PCE inflation data later this week. The PCE data is expected to show that core prices rose by 0.3% in March for an annual gain of 2.7%. Yields have risen to 5-month highs this month after hotter-than-expected consumer price pressures for March earlier this month. Also, the first of three bond auctions took place today as the U.S. sells a record $69B in 2-year notes at high yield 4.898% vs. 4.904% when issued prior as the bid-to-cover ratio solid at 2.66, while primary dealers take 15.08% of U.S. 2-year notes sale, direct 18.7% and indirect 66.22%. Later this week still, a record $67B 5-year note auction tomorrow afternoon and $43B in 7-year notes on Thursday.

• Auto parts suppliers: LKQ lowered its FY24 organic revenue growth for parts and services in range of 2.5%-4.5%, from previous forecast of 3.5%-5.5% and cut EPS view to $3.32-$3.62 from $3.43-$3.73 citing softer-than-expected Q1 demand and higher projected restructuring-, transaction-related expenses (missed Q1 revs as well).

• In Tobacco: PM Q1 profit and rev estimates on strong demand for its heated tobacco product and Zyn nicotine pouches while lowers its FY EPS view to $6.19-$6.31, from $6.32-$6.44.
• In Beverages: PEP posted stronger-than-expected sales growth thanks to robust demand in its international divisions, while volumes dropped in North America; Q1 core EPS $1.61 vs. est. $1.52; Q1 revs rose 2.3% y/y to $18.25B vs. est. $18.07B; still sees core EPS at least $8.15 (est. $8.16) and still sees organic revenue at least +4% vs. est. +4.17%.
• In Retail: CPRI shares dipped after the FTC sued to stop TPR’s $8.5 billion takeover of Capri; FIVE was downgraded to neutral from Overweight at JP Morgan and cut tgt to $170 from $215 as work points to an underlying low-to-mid-teens earnings growth profile. HIBB shares jumped as announces definitive agreement to be acquired by JD Sports Fashion Plc for $87.50 per share in cash, in a $1.1B transaction; price represents a 21% premium to the April 22, 2024, closing price. Kering (PPRUY) 1H outlook recurring operating income y/y decline of 40%-45%; Q1 group sales EUR 4.50B, down 10% on comparable basis; Q1 Gucci sales EUR 2.08B, down 18% on comparable basis.

• In Oil Servies: HAL posted a slight decline in Q1 profit amid weakness in North America sales offset a surge in international activity; Q1 revs 2.2% y/y to $5.8B topping the $5.67B estimate as North American revenue fell 8% to $2.5 billion while International revenue rose 12% to $3.3 billion.

• In FinTech: FI Q1 organic rev. +20%, est. +13.4%; forecasts FY adj EPS $8.60 to $8.75, forecast $8.55 to $8.70; FI Fiserv still forecasts FY organic rev. +15% to +17%, est. +13.5%
• In Investment Advisers: AMP 1Q:24 op EPS was $8.39, above consensus at $8.20; put core EPS at $8.26 ex $0.12 of unfavorable C&O items and a $0.25 p/s benefit from lower taxes; shares fell after results last night after AUM of $1.13 trillion fell short amid weakness in Advice and Wealth mgmt; IVZ shares drop as mgmt fees dropped -1.9% in quarter to $1.6B dragging revs -2.1% to $1.05B.

• DAWN shares rose after the FDA granted accelerated approval to its monotherapy Tovorafenib in treating patients 6 months of age and older with a type of brain tumor; the therapy will require confirmatory trials to receive the FDA’s traditional approval.
• IBRX said the FDA approved its Anktiva treatment for certain patients with bladder cancer; said it expects Anktiva to be available in the U.S. by mid-May.
• INCY announced it will acquire Escient, including EP262, including EP262, a first-in-class, potent, highly selective, once-daily small molecule antagonist of Mas-related G protein-coupled receptor X2 (MRGPRX2) and EP547, a first-in-class oral MRGPRX4 antagonist.
• NBIX reports positive phase 2 data for NBI-1065845 in adults with major depressive disorder as SAVITRI study met primary endpoint with statistically significant reduction in Montgomery �sberg Depression Rating Scale.
• NVS raised its full-year guidance on wider use of psoriasis and arthritis drug Cosentyx; said 2024 net sales were set to grow by a high-single to low double-digit percentage and added that adjusted operating income was expected to grow by a low double-digit to mid-teens percentage.

• In Skilled Nursing Facilities: (CTRE, LTC, OHI, SBRA) – The White House released its final guidelines around minimum staffing for skilled nursing facilities (SNF). Specifically, the Nursing Home Minimum Staffing Rule would require all nursing homes that receive federal funding through Medicare and Medicaid to have 3.48 hours per resident per day of total staffing, which includes a defined minimum number for both registered nurses (0.55 hours per resident per day) and nurse aides (2.45 per resident per day).
• In CRO Sector: MEDP was upgraded from Hold to Buy at Jefferies after earnings and raised tgt to $450 from $340 saying the company’s commitment to the biotech segment, internal talent development, homegrown tech, and hyper-efficient execution differentiate it from peers.

• HXL unveiled 1Q adjusted EPS of $0.44 vs. the Street’s $0.42, driven by lower revenues, while margins were largely in line; Commercial Aerospace and Space & Defense sales were largely in line; end-market guidance was unchanged, and reiterated its 2024 guidance for sales of $1.925B-$2.025B and EPS of $2.10-$2.30. 2024.
• RTX Q1 earnings topped ($1.34/$19.3B in revs vs. est. $1.23/$18.41B), helped by demand for missile defense systems and strength in the commercial aftermarket business.
• LMT reported a near 14% Q1 sales rise as sales in its missiles and fire control unit jumped 25.3% to nearly $3Band sales in its aeronautics business, which makes the F-35 fighter jets, rose 9.2% to $6.85B; reaffirmed its full-year outlook, projecting net sales of $68.5 billion to $70 billion and profit between $25.65 and $26.35 per share.

• In Metals: NUE Q1 miss and weaker guide hurts steel stocks as reported Q1 EPS $3.46 vs. est. $3.65; Q1 revs $8.14B vs. est. $8.26B; said expects Q2 earnings to decrease compared to Q1 (est. $3.63) primarily due to lower average selling prices; CLF 1Q24 EBITDA of $414M vs. the Street’s $429M and EPS weak at $0.18 vs. the Street’s $0.21 as steel shipments were ~3.9M tons (vs. 4.0M in 4Q23); FCX also weaker following Q1 results in copper space.

• AAPL iPhone shipments in China fell 19% in Q1, the worst performance since 2020; the co’s market share in the world’s largest smartphone market fell 15.7% in Q1, down from 19.7% a year ago; Apple lost its crown as the biggest smartphone seller in China to rival Vivo, sliding to third place in the quarter, followed by Huawei whose market share jumped to 15.5% from 9.3% a year earlier – Bloomberg. Separately, Apple announced a special May 7th event.
• In Electronic Design sector: CDNS shares fall (SNPS in sympathy) after reported a mixed quarter with Q224 revenue guidance missing consensus by ~7% saying the new Z3/X3 launch this year is causing some customers to hold off their Z2/X2 orders, leading to lower Q2 outlook while full year maintained.
• In Cloud Services: CALX shares tumble as guides Q2 revs $197M-$203M below consensus estimate of $228.1M on lower profit outlook for Q2 of $0.03-$0.09 vs. market est. of $0.22 and reported Q1 revs $226.3M vs. est. $233.7M. DDOG upgraded to Overweight at Wells Fargo and raised tgt to $150 from $130 as cost optimization comes to an end; believe Datadog has many ways to drive upside in FY24, including vendor consolidation, security cross-sell and Gen AI.
• Application software: SAP 1Q with results mostly in line with Street estimates. Positively, the top-line growth reaccelerated, cloud bookings remained strong, cloud margins expanded, and cash generation outperformed too. Specifically, the company generated the largest quarterly FCF in three years. HCP shares spiked after the WSJ reported late afternoon that IBM is nearing an acquisition of the cloud-software provider, but noted it is still possible the talks may not result in a transaction. https://tinyurl.com/56cjxa89