Closing Recap

Tuesday, December 03, 2024

U.S. stocks finish mixed as the S&P and Nasdaq posted gains while the Dow and Russell 2000 finished lower. Stock market action was similar to Monday, as the S&P 500 and Nasdaq reported new all-time closing highs despite NYSE breadth being negative, as decliners led advancers by 1.4:1 margin with 8 of 11 S&P sectors in the “red” as big tech again boosted major averages with solid gains in heavily weighted AAPL (record highs), META (record highs), AMZN, and NVDA. Just another slow, steady climb for the biggest names on Wall Street keeping the rally going after massive gains to close out November last week. The stock market still showing zero signs of fear as the CBOE Volatility index (VIX) extends its recent slide as investors remain bullish on continued dovish interest rate Fed talk into their policy meeting this month (see below), and that tariff/inflation related fears under incoming Trump Administration will be offset by expectations of loosened regulation and taxes that can boost small businesses and M&A activity. After today’s move, the SPY is up 10 of the last 11 trading days though S&P futures (Spuz) failed to make it 10 straight days of higher highs, coming up just short. In global news, South Korean stocks dropped after President Yoon Suk Yeol declared an emergency martial law. The iShares MSCI South Korea ETF tumbled 6% as the president accused opposition parties of sympathizing with North Korea and controlling parliament. Yoon did not specify how martial law would affect governance and democracy in the country.

Fed speakers remain dovish into next week’s FOMC Policy meeting. Federal Reserve Governor Adriana Kugler said on Tuesday she views the economy as “being in a good position after making significant progress in recent years toward our dual-mandate goals of maximum employment and stable prices,” in prepared remarks to the Detroit Economic Club. “The labor market remains solid, and inflation appears to be on a sustainable path to our 2% goal.” Earlier, San Francisco Federal Reserve Bank President Mary Daly said that with the US economy in a “really good place”, inflation headed to 2% and the labor market fully in balance, an interest rate cut at the US central bank’s upcoming Dec 17-18 meeting is not off the table, but neither is it a lock. Fed’s Goolsbee added to the low-rate talk saying “over the next year, rates should come down a fair amount from where they are now”. On Monday, Fed Governor Christopher Waller said he was leaning towards another rate cut this month. Fed-funds futures indicate traders now see a 74% chance of another 0.25 percentage point cut in December, up from 59% a week ago. That would mark a third consecutive decrease, and would take rates down by a total of 1% for the year.

• Longer-dated U.S. Treasury yields rose following data that showed U.S. job openings increased moderately in October while layoffs declined, suggesting the labor market continued to slow in an orderly fashion. The yield on the benchmark U.S. 10-year Treasury note rose 1.1 basis points to 4.205%. The two-year yield, which typically moves in step with interest rate expectations, fell 2.1 basis points to 4.177%.

• In Food & Grocers: KR was upgraded to Buy from Hold at Jefferies and raised tgt to $73 from $54 saying if the ACI deal closes, firm sees a path to DD% EPS / 30%+ FCF accretion potential via rightsizing of ACI’s working capital. Separately, BMO Capital downgraded KR to MP from OP with an unchanged price target of $60 as believes KR remains on track to reiterate EPS targets for F25 but believe that valuation expansion beyond 13x would likely require stronger grocery market share trends.
• In Discount/broadline retail: OLLI was downgraded from Overweight to Equal Weight at Wells Fargo saying they have been impressed with management’s execution recently, but also believe it should keep a tight rein on the stock given the complexities of this story.
• In Apparel/Footwear: PLCE shares slid as reported Q3 net income of $20.1M, down from $38.5M y/y and sales fell -19% to $390.2M citing an expected decline in e-commerce revenue and comparable retail sales decreased -17% for the quarter. DECK tgt raised from $205 to $230 at Truist and maintains Buy saying their review of wholesale data indicates that HOKA remains a leading brand at both Dick’s Sporting Goods and Fleet Feet.

• In Lodging: SHO shares rose after Bloomberg reported last night that Trinity Investments has expressed interest in acquiring Sunstone Hotel Investors, and discussed paying about $13 per share for Sunstone – though notes talks between the two Co’s are not currently active https://tinyurl.com/mrxzvvcn

• In Clean Energy/Utility, CNP was upgraded to Buy at UBS as it sees the stock at an inflection point where the regulatory risks are moderating and a path forward on dealing with the mobile generation and Houston rate case issues is emerging and upgraded DTE to Buy. Shares of BG, DAR, ADM shares tumbled after Reuters reported the Biden administration will not finalize guidelines for clean fuel production tax credit known as 45z before term ends in January as the biofuel industry seeking extension of existing blender tax credits to deal with uncertainty.
• In Materials: rare earth stocks such as MP advance after China said it has banned rare material exports to the U.S. of items related to the minerals gallium, germanium and antimony that have potential military applications, a day after Washington’s latest crackdown on China’s chip sector.
• In Steel sector: U.S. Steel (X) shares fell after President-elect Donald Trump said a series of tax incentives and tariffs will revive U.S. Steel, as he reiterated his opposition to Nippon Steel’s planned $15 bln purchase of co.
• In Precious Metals: JP Morgan forecasts gold prices to rise towards $3,000/oz next year, averaging $2,950/oz in 4q25; sees copper prices towards $10,400/mt by 4q25, average of $11,000/mt in 2026; says catch up trade later in 2025 could push silver prices towards $38/oz while platinum rallies to $1,200/oz.
• In Industrial Metals: CENX was upgraded to Outperform at Wolfe despite strong performance YTD on higher commodity price forecasts for aluminum, in addition to the increasingly likely sale of a 500MW power connection at its idled Hawesville smelter. VALE said ahead of its Investor Day that it expects to produce between 325M-335M metric tons of iron ore in 2025, following an output of about 328M tons this year; also said it expects to produce 340K-370K tons of copper in 2025, after output of about 345K this year.
• In Aerospace & Defense: AXON was upgraded to Overweight from Equal Weight at Morgan Stanley and raised tgt to $700 from $500 as it believes the 25- 30% growth rate the company has put up is becoming more durable; JOBY said CFO Matthew field to resign effective December 13, 2024 (went to OSK).
• In Transports: FDX was downgraded to Market Perform from Outperform at Bernstein ahead of Q2 earnings and the impending LTL freight spin decision. Longer-term Bernstein stills see value in the stock, but adding at these levels ahead of increasing execution, event, and policy risk seems difficult to defend.

• In Asset Managers: BLK said it had reached an agreement to buy HPS Investment Partners for $12 billion in a takeover that will give the world’s top asset manager a leading position in the fast-growing private credit market.
• In Brokers & Exchanges: CME recorded record monthly ADV in U.S. Treasury futures and options; record monthly international ADV of 9.3 million contracts; record November ADV for interest rate, foreign exchange, agricultural and metals products.
• In Crypto: CLSK reported solid F4Q24 (September quarter) and FY2024 results and reiterated its prior calendar year end 2024 and 2025 guidance of 37 EH/s and 50 EH/s, respectively. Bitcoin prices volatile again with highs over $96,000 after dropping below $94,000 earlier in the morning and crypto miners, etc. active.
• In Fin tech/Consumer Finance: SYF was upgraded to Overweight from Equal Weight at Wells Fargo and raised PT to $85 from $60 saying they recognizes the stock has run around the election, but it believes clarity on the CFPB late fee & better credit can take the shares higher. SQ said Square, AfterPay, and cash app surpass records this black Friday and cyber-Monday with 144M transactions. UPST was upgraded to Buy at Redburn and raised PT to $95 from $37 at Redburn noting the co has now delivered two quarters that have been ahead of expectations, with forward guidance an incremental positive.

• CVS was upgraded to Buy from Hold with an unchanged price target of $66 at Deutsche Bank saying believes both the company’s earnings and multiple are now likely near trough levels and that CVS has taken steps to turn the company towards improving profitability.
• HUM announces CFO transition while reiterates 2024 adjusted EPS guidance of at least $16.00 (est. $16.15).
• ITCI announced that it has recently submitted a supplemental New Drug Application (sNDA) to the U.S. FDA for CAPLYTA (lumateperone) for the treatment of Major Depressive Disorder (MDD) in adults, as adjunctive therapy to antidepressants.
• JANX shares jumps after data from an early-stage trial shows all 16 patients with a type of prostate cancer that used co’s experimental drug JANX007 achieved declines in levels of prostate-specific antigens; the drug also had a well-tolerated safety profile.
• PTCT was upgraded to Outperform at RBC Capital and raised tgt to $63 from $39 saying they view the NVS Huntington’s program deal as transformative for PTCT, validating and offloading risk for their key pipeline candidate, providing a cash infusion for the upcoming PKU launch and investment in their core R&D platform.
• ROIV said its drug Namilumab did not meet the main goal in a mid-stage trial evaluating it in patients with a type of lung disease and that they will discontinue further development of the drug.
• TAK is paying $200 million upfront to license an experimental drug from Keros Therapeutics in development for myelodysplastic syndrome and myelofibrosis.
• TMDX narrows FY24 revenue view to $428M-$432M, from prior $425M-$445M (est. $432.37M) and announces new CFO as Gerardo Hernandez succeeds Stephen Gordon.

• In Media: AAPL Global App Store rev increased +16% y/y in Nov while downloads increased +8% y/y; Global app store revenue increased +15.2% y/y in FQ125 after 64 days while total downloads increased 7.4% y/y. Entertainment revenue grew +35% y/y in FQ1 after 64 days despite being the second largest category of Apps globally as per Bank America data.
• Security Software: ZS posted Q1 revenues of $627.9M (+26%) and EPS of $0.77 versus guidance of revenue $604M-$606M and EPS of $0.62-$0.63 while guided Q2 outlook to $633-$635M (vs. prior view of $633.8M) and EPS of $0.68-$0.69 (vs. prior guide of $0.70) and left the 2H ramp in billings in place for FY25; raised year guide.

• CRDO shares surged after reporting Q2 revenue of $72.0M (+20.6% q/q) above the high-end of guidance and ests of $66.5M and raised its Q3 outlook as $120.0M rev mid-point (+66.6% q/q) and raises FY25E growth outlook to 100%+ y/y, sets Fy26 baseline to +50% y/y, on broadening AEC adoption across multiple programs.
• MCHP updated its outlook for F3Q25E (Dec), with revenue now expected to come in close to the low-end of the company’s original guidance of $1.025bn, due to lower turns orders than anticipated; said “with inventory levels high and having ample capacity in place, we have decided to shut down our Tempe wafer fabrication facility that we refer to as Fab 2.”
• STX said amid a strengthening HDD demand environment, Seagate has been focused on bringing existing production equipment back online to support customer demand and this process has taken longer than anticipated. As a result, production output for Seagate’s fiscal third quarter ending March 28, 2025 will be lower than previously expected with an associated revenue impact of up to $200M for the fiscal third quarter.