Closing Recap

Tuesday, August 06, 2024

There haven’t been too many 4-day losing streak for the S&P 500 this year, with only two occasions in April (4/12-4/19) and the start of the year in January (which included the end of Dec), and after today’s stock market rally, a 3^rd such occasion was prevented, snapping the 3-day losing streak that wiped out 8% in the Nasdaq, 10% in the Russell 2000 and -6% in the S&P to kick off August. Major averages jumped across the board, as all eleven S&P sectors nearly rose over 1% and NYSE breadth was positive by 4:1 margin, helping erase much of Monday’s sharp declines. S&P 500 futures (Spuz) rallied as much as 100 points off overnight lows of 5,221 and 220 points off yesterday lows of 5,120 (the cash SPX rallied above 5,300 before slipping later). The CBOE Volatility index also comes back to earth, falling -35% to around the 25 level after surging as much as 180% on Monday to highs above 65 (before fading yesterday) as stocks recovered this morning. Nothing really changed from yesterday other than stocks were oversold on s-t basis, Treasury yields bounced, the Japanese yen carry trade unwind took a breather and there was no economic data to weigh on sentiment. Japan’s Nikkei also recovered over 10% overnight after a 13% plunge the day prior. The “buy the dip” mentality worked well today but markets faded into the bell; will the rally stick? Or be a dead cat bounce? We will soon see.

In Politics, Democratic presidential candidate Kamala Harris selected Minnesota Governor Tim Walz to be her running mate on Tuesday. He had been elected to a Republican-leaning district in the U.S. House of Representatives in 2006 and served 12 years before being elected governor of Minnesota in 2018. In Strategy, Stifel strategists remain cautious saying in a note this morning that the “dip is not a blip, too soon to jump back in, stay Defensive noting the S&P 500 index is only 8.5% below its Jul-16, 2024 close.” Stifel’s view remains a correction to ~5,000 by Oct-2024 (-12% from the Jul-16, 2024 peak and in-line with past mid-cycle slowdowns affected by the economy and Fed policy responses, E.G., those in 2011-12 and 2015-16) due to a sharply slowing U.S. economy with sticky inflation in 2H24E.

• U.S. household debt climbed another $109B in Q2 to hit $17.8 tln, according to the NY Fed. Mortgage balances rose $77B, auto loans increased $10B to $1.63 tln and credit card balances climbed $27B to $1.14 tln, a new record.

• The Department of Energy said Tuesday it is issuing two new solicitations to buy up to 3.5 million barrels of oil for January delivery to the Strategic Petroleum Reserve. The department is seeking bids for 1.5 million barrels of oil to be delivered to the Bayou Choctaw site in Louisiana, and on Aug. 12 intends to issue another solicitation for 2 million barrels for the Bryan Mound site in Texas. The DOE has taken advantage of dips in oil prices as it seeks to refill the reserve at $79 a barrel or less, below the $95 a barrel it received for 2022 emergency sales from the SPR.
• In Commodities: December Gold prices fell -$12.80 or 0.52% to settle at $2,431.60 an ounce. Brent Crude futures settle at $76.48/bbl, up 18 cents, 0.24% and WTI crude rose $0.26 to settle at $73.20 per barrel. NYMEX natural gas rose 3.5% to $2.01 mln btus.
• U.S. Treasury yields bounced (along with everything else) after tumbling to yearly lows on Monday, with the 10-yr rising back above 3.9% and the 2-yr back to 4% as the yield curve remains inverted again by about -10bps after “un-inverting” yesterday briefly. The U.S. Treasury sold $58B 3-year notes at high yield 3.810% (vs. 3.821% when issued prior) as bid-to-cover ratio 2.55, non-comp bids $254.45M; Primary dealers take 15.35% of U.S. 3-year notes sale, direct 20.25% and indirect 64.39%

• In Consumer Staples: TAP Q2 profit and sales topped expectations, driven by strong demand for its premium Coors Light and Miller Lite beers in the European and Asian regions; continues to expect full-year 2024 net sales to rise in the low single-digit percentage range and underlying profit to grow in the mid-single-digit percentage range. CELH rises as Q2 EPS $0.28 tops est. $0.24; Q2 revs $402.0M vs. consensus $393.16M; said continued to lead the energy drink category, contributing 47% of all Q2 growth. KVUE shares jumped after Q2 earnings topped estimates.
• In Retail: JMIA shares tumble as Q2 revenue $36.5M below $44M last year, while GMV of $170.1M fell -5% y/y and Q2 operating loss of $20.2M compared to $22.1M y/y or 8%; TPX slips Q2 EPS and revs fall just short of consensus while cuts FY24 adjusted EPS view to $2.45-$2.65 from $2.60-$2.90.

• In Lodging & Leisure: Hyatt (H) Q2 adj EPS topped ests and comp system-wide hotels RevPAR increased 4.7% compared to the same period in 2023; PLYA Q2 results came in ahead of expectations on both the top and the bottom lines and the company expects its 2024 EBITDA to be near the low end of its $250M to $275M guidance range. Cruise lines a strong day as discretionary names outperforms (CCL, RCL, NCLH).
• In Education Services: CHGG tumbles after the education technology company forecast Q3 adjusted Ebitda missed consensus estimates.
• In Autos: LCID shares rose as announced it entered into an agreement with Ayar Third Investment Company, an affiliate of the PIF (LCID’s largest shareholder with ~60% stake) for up to $1.5B. In auto dealers, SAH was to Overweight from Neutral at JP Morgan and raise tgt to $63 from $58 saying sees a compelling near-term risk/reward following the stock’s recent underperformance versus the group and after results; also raised tgts for AN, GPI, LAD, PAG in space. TSLA is performing a remote recall of 1.7 million vehicles in China with an over-the-air software update, the state market regulator. ADNT shares slumped as the part supplier guided FY sales about $14.6B, below the prior forecast of about $14.8B to $14.9B.

• In Utilities & Solar: SPWR shares tumbled after the solar company filed for U.S. Chapter 11 bankruptcy and entered a ‘stalking horse’ agreement with Complete Solaria (CSLR) to sell some of its business for $45M in cash; SPWR listed its assets and liabilities in the range of $1B-$10B, in a filing with the bankruptcy court in Delaware. In utilities, DUK reported a better-than-expected quarterly profit helped by higher electricity demand during summer months and favorable tariffs. CEG boosted its year EPS view to $7.60-$8.40 from prior view $7.23-$8.03 (above midpoint of ests of $7.81); SRE reported Q2 EPS and revenue miss but reaffirmed adj EPS guide for the year. MWA reported Q3 EBITDA of $85M, easily beating consensus $66M on better EPS, driven by Water Flow Solutions’ outperformance.

• In Insurance: EVER shares jumped as Q2 results came in well above expectations, with revenue, VMM, and adj. EBITDA all significantly above consensus as a recovery in auto insurance spending gains additional momentum with Q2 Auto revenue of over $100M, which is the highest quarterly level in company history. FNF reported slight EPS beat on better results from FG. Pre-tax title earnings were in line, but lower premiums and higher expenses were offset by other title-related income. JRVR reported EPS miss amid higher core loss ratio, worse reserve development, lower other income & higher taxes; partly offset by higher investment income and lower expenses.
• In Exchanges/Brokers: Piper recommends investors look to exchanges CBOE, CME, ICE (in that order) as defensive plays with volatility driven revenue upside, due to the volume driven revenue tailwinds that accompany periods of elevated volatility like one we currently find ourselves in. MKTX reported Q2 EPS beat on lower expenses, partially offset by higher other expenses while total revs were in-line.

• AXSM upgraded to Buy from Neutral as it is more constructive on the risk/reward on Auvelity, the company’s main value driver, which it believes has meaningful sales potential in multiple neuropsychiatry markets. In 2H24, sees pivotal data in Alzheimer’s agitation as a clearing event for the stock de-risking.
• BMRN Solid beat on revenue ($712M vs $664M consensus) primarily driven by Voxzogo ($184M vs $150M consensus) and a base business ($511M vs $489M consensus) that benefited from a $20M one-off; raised 2024 revenue guidance to $2.75B-$3.25B (+$37.5M at the midpoint) and increased operating margins to 26-27%.
• ELEV shares tumbled after reporting that 3 out of 15, or 20% of patients with cancers of the esophagus and stomach who were administered its experimental cancer therapy had a reduction or disappearance of tumors in an early-stage study.
• HSIC shares fall in dental sector as Q2 results were mostly in-line but cut its full-year profit forecast to $4.70-$4.82from prior view of $5.00-$5.16 citing a challenging economic environment in certain markets and a delay in recovery from a cyber incident that occurred in October and lowered year sales growth view to about 4%-6% from 8%-10% prior.
• TGTX shares rose after jump in Q2 revs to $73.47M from $16M y/y, establishes a new five-year $250 mln credit facility to repay existing debt and raised 2024 net product sales forecast for its multiple sclerosis drug, Briumvi, to about $290M-$300M from prior view $270M-$290M.
• ZTS raises 2024 adj EPS forecast to between $5.78-$5.88 from its previous outlook range of $5.71-$5.81 and boosts FY sales to between $9.1B-$9.25B from prior $9.05B-$9.2B it previously forecasted.

• In Machinery: CAT Q2 adj EPS $5.99, tops consensus $5.53 while Q2 revs fell to $16.7B from $17.3B y/y but was in-line with ests as higher prices on larger construction equipment have shielded the company’s profits against rising manufacturing costs; said anticipate lower machine sales to end users in Q3 y/y; anticipates its annual profit will be higher than previously expected, despite seeing slightly lower sales for the full year.
• In Building Products: SUM Q2 sales missed expectations, but adj. EBITDA and EPS came in above estimates on strong pricing and realized synergies on the ongoing Argos integration.
• In Aerospace & Defense: PLTR reported a mixed beat-and-raise quarter as guidance was raised by more than Q2 upside, boosting shares overnight as gov’t favorable timing drove Q2 revenue upside while U.S. Commercial was muted (also files automatic mixed securities shelf).
• In Chemicals: CBT guided Q3 mid-point above despite consensus after Q2 adj. EBITDA up 12% Y/Y on +5% volume to $211M vs. est. $202M despite temporary Mexico curtailments during drought; HUN guided SepQ24 adj. EBITDA midpoint of $130M vs $146M consensus after reported JunQ24 adj. EBITDA down 16% Y/Y despite +9% volume to $131M vs $129M consensus as volume rose Y/Y in all segments.

• DIS said its Disney+ to add continuous playlists to core subscription on-demand offering in U.S. from Sept 4; from Oct 17, pricing for Disney+ subscription with ads to be $9.99 monthly and from Oct 17, pricing for Disney+ subscription with no ads to be $15.99 monthly & $159.99 annually. The increase in streaming prices also boosted shares of NFLX on expectations they may follow suit).
• FOXA shares jumped as earnings and revs topped consensus.
• LUMN shares soar as secures $5B in new business driven by major demand for connectivity fueled by AI.
• NFLX is further lowering the prices of its ads, according to three ad buyers who talked to the streamer in July Ad Week reported; Netflix will charge advertisers CPMs (cost per thousand viewers) between $20 and $30 for some of its ad inventory, the buyers said.
• VMEO shares rose as the 2Q results beat consensus across the P&L; 3Q guidance also beat while the FY24 outlook was raised by the 2Q beat.
• WBD is seeking to avoid a corporate break-up amid fear of lawsuits, weighing sale of smaller assets including, Polish broadcaster TVN or stake in Warner’s video game business – Financial Times reports.

• ADSK shares were active as Starboard urges Autodesk board to weigh a CEO change.
• CDNS upgraded to Overweight: $318 PT at Piper saying demand crosscurrents in semiconductors have fueled a 23% decline in shares over the past month, but with CDNS valued in-line with industrial software peers, they believe the growth bar is meaningfully lower and currents levels are attractive to build a position.
• CRWD was upgraded to Overweight at Piper saying while their recent downgrade in early July didn’t foresee the global outage and ensuing fall-out, their upgrade on the other side of the event attempts to assess the longer-term, strategic-value of the cybersecurity leader.
• TDC delivered weak results with total ARR, cloud ARR, and revenue below consensus expectations while recurring revenue was in line; this flowed through to lower CY/24 guidance.
• ZI reported a disappointing quarter and lowered guidance as headwinds were mostly attributable to elevated write-offs related to SMB customers in June; full-year guidance was notably cut; lowered its full-year revenue guidance by ~5%, driven in part by the revision of ZI’s estimates for the collectability of previously recognized revenue.

• MU shares underperformed in semis as Keybanc noted management provided an update as its technology Leadership Forum and trimmed its outlook for FQ1 (November) to flat bit shipments q/q from prior expectations of modest sequential growth.
• TSM is not only planning price hikes for 2024 but has already informed several customers in July about price increases for its 5nm and 3nm processes in 2025, Digitimes citing sources from the IC design industry. These increases, ranging from 3% to 8%, are in response to rising costs and are aimed at maintaining a long-term gross margin of 53%, passing the pressure onto their customers. https://tinyurl.com/yc2jfxmm