Closing Recap

Tuesday, August 13, 2024

All was well today on Wall Street as the Nasdaq Composite climbed over 2.4% for its fourth-straight gain and the S&P 500 added over 1.6% (topping 5,400) for its fourth-straight increase as it approaches its 50day moving average resistance a little higher (5,451) helped by cooler PPI inflation data earlier today and ahead of tomorrow’s CPI inflation report – major averages finished at the highs of the session! The July Producer Price Index rose 0.1% vs. the 0.2% increase economists expected. It was also lower than June’s 0.2% increase. Estimates for tomorrow’s Consumer Price Index (CPI) reading is for headline M/M to rise +0.2% (vs. prior -0.1%) and Y/Y for July to rise +3.0% (prior +3.0%). the core CPI reading or Ex: Food & Energy (core) M/M for July est. +0.2% (prior +0.1%) and Y/Y for July est. +3.2% (prior +3.3%). Starbucks (SBUX) surged after the coffee chain poached Chipotle Mexican Grill’s (CMG) CEO. With today’s full push higher all day, markets erased last week’s declines heading into the CPI report. Fed’s Bostic was the lone Fed speaker today, saying it would be really bad if the Fed cut rates and then had to raise them again; says is willing to wait for first rate cut but it is coming; notes if economy evolves as he expects, there would be rate cut by the end of the year (note his comments not as dovish as markets which are looking for 75-100 bps worth of cuts this year). He noted housing inflation has come down in an important way the last couple of months and says recession not in his outlook. In the bond market, the 10-year Treasury yield shed five basis points to 3.86% Tuesday. U.S. crude oil fell over 1% snapping its 5-day win streak. Risk sentiment in Asia gained overnight as the Nikkei 225 posted a 3.45% advance to further erase much of the early August selloff as the index was closed yesterday, but with only ~5% or so of losses from the 18% drop last week left to claw back.

• July NFIB Small Business Optimism came out at 93.7 vs the consensus of 91.5 and marks a fourth consecutive rise that puts the index at a high since February 2022

• In Restaurants and Food: SBUX shares jumped, and CMG shares tumbled after SBUX announced that Brian Niccol has been appointed Chairman and Chief Executive Officer (CEO) starting on September 9, 2024 – Niccol currently serves as Chairman and CEO of Chipotle. CMG names Scott boatwright as interim CEO. HRL was upgraded to Buy from Neutral at Citigroup and raise tgt to $37 from $33 as sees slight upside potential to fiscal Q3 and fiscal 2024 earnings estimates and further upside in fiscal years 2025 and 2026. TLRY to acquire four craft beer breweries from TAP
• In Specialty Retail: in Sporting goods, TD Cowen downgraded ASO to Hold from Buy and cut tgt to $54 from $58 amid concerns regarding the company’s implied same-store-sales acceleration in 2H’24 and its gross margin rate durability in the event of a moderation in sales. TD Cowen separately BBWI are preferred names in Specialty Retail amid tough macro backdrop and noted credit card sales indicate sequentially improving trends across AEO, BBWI, GPS, & VSCO.
• Sports/Footwear Retail: ONON Q2 sales rose nearly 28% to 567.7M Swiss francs vs. est. 560.9M Swiss francs, and adj profit $0.15 Swiss francs vs. est. $0.16, but only maintained its 2024 net sales growth forecast of at least 30%; guides FY adj EBITDA margin 16% to 16.5%, vs. est. 16.3%. Bernstein noted that NKE and ADDYY biggest China wholesale partner, Pou Sheng, reported an -11% retail sales decline in July, down -9% YTD. Bernstein notes 80%+ of Pou Sheng’s China sales are from Nike and Adidas products. The July data extended a weak trend of -14% sales in June and -9% in 1H24. Parent company Yue Yuen reported a sharp acceleration in manufacturing revenue in July to +22%.

• British automotive supplier Dowlais Group hit a record low on Tuesday after it cut its annual revenue forecast citing a slowdown in Europe’s electric vehicle (EV) market.
• TSLA shares outperformed as shares moved back above the $200 level.

• In Aerospace & Defense: Goldman Sachs upgraded DCO to Buy as expect it to benefit from its exposure to aerospace original equipment as the OEMs ramp up production significantly to meet strong demand. Look for expanding operating margins and value addition from acquisition compounder opportunity (raised tgt to $80 from $64) and Goldman downgraded TGI to Neutral from Buy given its lagging organic growth and limited visibility on margins and free cash flow (lowers tgt to $15 from $19); LUNR reported Q2 revenue of $41.4M missing the consensus estimate of $46.6M while raised the low-end of 2024 revenue forecast to between $210M-$240M with midpoint below est. $228.4M.

• IVZ prelim month-end assets under management of $1,732.0 billion, an increase of 0.9% versus the previous month-end. The firm delivered net long-term inflows of $10.8 billion in the month. Non-management fee earning net inflows were $3.2 billion and money market net outflows were $12.1 billion.
• VCTR reported Total Assets Under Management (AUM) of $172.1 billion, Other Assets of $4.8 billion, and Total Client Assets of $177.0 billion, as of July 31, 2024. For the month of July, the average Total AUM was $170.8 billion, average Other Assets was $5.0 billion, and average Total Client Assets was $175.7 billion.
• VRTS prelim assets under management of $178.1 billion and other fee earning assets of $2.5 billion for total client assets of $180.6 billion as of July 31, 2024. The increase in AUM from June 30, 2024, primarily reflects market performance and positive net flows in retail separate accounts

• In Business Services: Goldman Sachs said Debt issuance volumes increased meaningfully in July led by high yield refinancing activity — rising 67% yoy in July, accelerating from 30% growth in June – and is currently tracking ahead of Buy-rated SPGI and Neutral-rated MCO outlook of roughly 20-25% issuance volume for the year. Goldman stays positive on SPGI given its leverage to debt issuance volume strength, diversified non-ratings revenue growing high-single-digits and idiosyncratic revenue synergies from IHS Markit.

• CYTK downgraded to Neutral from Buy at Goldman Sachs and tgt cut to $60 from $85 saying looking ahead to the next 12-18 months, anticipate more positive than negative developments but believe that these events are largely expected.
• SYRS shares tumble after saying late yesterday that an interim analysis of data from a mid-stage study for its blood cancer therapy showed a low probability of success for the trial and that they plan to stop enrolling patients in the study testing its therapy, tamibarotenein, in combination with ABBV/Roche’s Venclexta in AML patients.

• Internet company SE shares jumped as reported Q2 EPS $0.14/$3.81B vs. consensus $0.17/$3.68B; said they expect that Shopee will become adjusted EBITDA positive from Q3; revising up our guidance for Shopee’s 2024 FY GMV growth to mid-20%; shares traded lower initially but reversed higher. GOOGL unveiled a lineup of new Pixel smartphones with deeper integrations of its artificial intelligence technology as it races to incorporate AI into its hardware. Pixel 9 pro fold starts at $1799; pixel 9 pro starts at $999, and pixel 9 pro xl starts at $1,099; pixel 9 starts at $799; new pixel smartphones includes tensor g4 processor.

• NVDA shares active as the WSJ reported China’s Huawei Technologies is close to introducing a new chip for artificial intelligence use to challenge NVDA in China amid U.S. sanctions. Huawei’s latest processor, Ascend 910C, is being tested by Chinese internet and telecom companies in recent weeks.
• MU estimates trimmed at Citigroup, but remain Buy rated and $175 PT as a little bit of inventory has built up in the PC and wireless supply chains and it appears Micron will end up increasing inventory, which adds risk to near-term estimates. However, the DRAM upturn continues with upside from Samsung and Hynix and DRAM pricing is set to increase 12% in 3Q24E and 6% in 4Q24E.