Closing Recap

Friday, December 06, 2024

U.S. stocks continue to roll, as the S&P 500 registers record closing high for 57th time in 2024, Nasdaq registers 36th record high close for the year following robust jobs data and as traders increased bets on a Federal Reserve rate cut later this month. Fed fund futures now signal a more than 90% chance of a 25-basis-point rate cut on 12/18 after the data. Also, with today’s move, S&P futures (Spuz) made it a 14th consecutive day of making higher highs (topping yesterday’s high of 6,107.25 with a new high of 6,111) as market momentum remains strong. Today marked the last day for Fed members to discuss rates and the economy before their “blackout period” begins (12/7-12/19) ahead of their policy meeting in 2-weeks. Fed Governor Michelle Bowman said inflation risks to the economy remained and that augured caution with further decisions on rate cuts. Chicago Fed President Austan Goolsbee was noncommittal on whether he would support a reduction this month. Fed’s Daly said previous framework was aimed to confirm 2% inflation wasn’t a cap, and to underscore Fed won’t fight a healthy labor market if inflation is subdued; Daly says Fed is ready to raise rates if inflation breaks out again.

Energy (XLE), Utilities (XLU) and defensive Healthcare (XLV) were the biggest drags in the S&P today, while the winners today (and all week) remained Technology (XLK +3.04% this week), Communications (XLC +2.57% WTD) and Consumer Discretionary (XLY +4.7% WTD) behind big gains in META, NFLX, AMZN, GOOGL, TSLA, which have paced the S&P 500 and Nasdaq gains. Nothing has dented investor optimism as Charlie Bilello tweets” “1. Stocks: all-time highs, 2. Home Prices: all-time highs, 3. Bitcoin: all-time highs, 4. National Debt: all-time highs, 5. Core CPI Inflation: >3% for 42 straight months, longest run of high inflation since early 1990s, 6. Fed: cutting rates again in 2 weeks.” Remarkable times indeed heading into year end, with Nasdaq up over 30% YTD and S&P 500 around 30% as well! Reminder at 5:15pm ET tonight, the S&P will announce the results of its quarterly December rebalance. So just how strong has this stock market been? A few days ago, Bespoke Investment noted there have been “no 10%+ corrections yet in 2024. Since 1928, the S&P has averaged a 10%+ correction once every 346 days (almost once a year). Half of all years since 2000 have NOT had a 10%+ correction.”

• The November unemployment rate rose to 4.2% from 4.1% but was in-line with the consensus 4.2%. U.S. November average hourly earnings +4.0% from year earlier (cons +3.9%) and on a M/M basis rose +0.4% vs. est. +0.3%. U.S. November average hourly earnings all private workers +0.4% from prior month (cons +0.3%).
• University of Michigan surveys of consumers sentiment prelim Dec 74.0 (consensus 73.0) vs final Nov 71.8; current conditions index prelim Dec 77.7 vs final Nov 63.9; expectations index prelim Dec 71.6 vs final Nov 76.9
• University of Michigan surveys of consumers 1-year inflation outlook prelim Dec 2.9% vs final Nov 2.6% and University of Michigan surveys of consumers 5-year inflation outlook prelim Dec 3.1% vs final Nov 3.2%.
• October consumer credit up $19.2B vs. last month, well above consensus $10.0B. The figure is a big jump from the $3.2B increase in September and the $4.6B August gain. This is the biggest jump since the $24B pop in July. Most of the strength was in revolving credit as consumers took to the plastic in October, with spending up $15.7B.

• Bitcoin prices fell as much as 7% overnight in quick fashion to lows around $92,000…but quickly bounced and pushed higher all day back to highs around $102,000 after hitting record highs above $103,500 yesterday. The news of Trump SEC pick Paul Atkins this week added to the bullishness in crypto since the election. Feb gold prices rose $11.20 to settle at $2,659.60 an ounce, lower than last week’s closing levels of $2,682.50. Spot silver fell 1.1% to $31 per ounce but was up for the week.
• U.S. Treasuries yield fell to a six-week low following the monthly payroll data, as the 10-yr fell -3.3bps to 4.149% (low of day was 4.126%) and the 2-year yield fell -5bps to below 4.1% (low of day was 4.077%). The data raised market expectations that it gives the Fed the “green light” to one more rate cut by the Federal Reserve on its December 17-18 meeting.
• The U.S. dollar fell initially after jobs data showed the unemployment rate edged higher in November even though jobs increased more than expected last month. The dollar index lows were around 105.70 but bounced back above 106, rising +0.35%. The unemployment rate climbed to 4.2% after holding at 4.1% for two straight months. Nonfarm payrolls, however, increased by 227,000 jobs last month after rising an upwardly revised 36,000 in October. The dollar was just below 150 yen and the euro down at 1.056.

• LULU shares rise after Q3 beat; raised FY guidance as revenue grew +9% y/y, with solid Black Friday trends, and EPS of $2.87 driven by stronger than expected gross margins; mgmt also called out newness is on track to be in line with historical levels by Q125; international displayed strength (33% y/y; China +39% y/y), and the U.S. was ~flat.
• ULTA shares rise after reported a beat across the board, driven by strength in fragrance and skincare; implied Q4 guidance is below consensus, but the Q3 beat and full year guidance raise more than offset this; Q4 comps were guided down low-single digits, which is more in line with consensus.
• VSCO shares jumped after Q3 EPS loss was narrower than expected and sales better ($1.35B vs. est. $1.29B) while raising FY 2024 net sales to be up about 1% to 2%, compared with prior outlook of down ~1%.
• ZUMZ shares rose after Q3 sales rose to $222.5M, above consensus and prior year on better earnings, helped by strong North American business and gains in apparel and footwear categories.
• GCO raised its FY25 sales view to be down 1% to flat vs. prior expectation of a 1% to 2% decline and boosted its 2025 adj EPS view to $0.80-$1.00 vs. prior guidance of $0.60-$1.00 after Q3 top/bottom line beat saying sales trends at Journeys retail chain, and back-to-school season momentum helped sales.
• In Food & Beverages: TAP was upgraded from Neutral to Buy at Bank America and raised tgt to $70 from $57 saying the U.S. beer industry should perform more in line with historical levels after a challenging 2024 and TAP faces easy year-ago comps, and no headwind related to the termination of the Pabst contract brewing agreement.
• In Consumer Staples/Tobacco: MO was upgraded from Neutral to Buy at Bank America and raised tgt to $65 from $55 citing several themes that should bolster sentiment such as Republican administration priorities (lower corporate tax rate, tariffs, tighter border controls) and consensus not fully reflecting the net benefit of its new $600M Optimize & Accelerate cost savings program.
• In Discount Stores: DG was double upgraded to Buy from Underperform at Bank America given multiple early signs of "Back-to-Basics" strategy working, while lowers its F26/C25E EPS est. to reflect 2025 expense pressures incl. incentive comp, wage rates, D&A, and promotions.
• In Online Retail: SHOP was upgraded to Buy from Hold at Loop Capital and raised the tgt to $140 from $110 saying investors underappreciate the e-commerce giant’s AI capabilities.

• In Cruise lines: RCL price tgt was raised from $250 to $310 at Stifel and raised estimates above consensus post earnings saying heading into 2025, continues to believe RCL should remain a core holding. Based on strong forward demand/pricing and optionality around land-based projects, Stifel believes current out-year consensus estimates remain too conservative.
• In Casinos & Gaming: DKNG and FLUT shares fell after Senator Mike Lee tweeted: "We can’t allow online gambling companies like @FanDuel & @DraftKings to violate anti-trust laws, especially as more Americans grapple with the effects of this industry on our society.
• In Leisure Products: gun company SWBI shares tumbled, downgraded to Hold from Buy at Lakestreet and cut tgt to $13 from $18, after the company reported fiscal Q2 sales and earnings that missed the firm’s expectations and management broadly discussed the outlook for Q3 and FY25 results with a soft outlook. PTON was upgraded to Neutral from Sell at UBS and raised tgt to $10 from $2.50 as sees the company’s EBITDA being supported from further cost cutting beyond the announced $200M. UBS said they also like that Peloton’s CEO compensation package is tied to revenue and operating income and EBITDA and free cash flow performance.

• Oil Services & Drillers: NE was initiated at Neutral at JP Morgan and Underweight for VAL as the firm-initiated coverage of the offshore drillers with a cautious outlook given oil price risk and softening demand trends, which it expects to place modest downward pressure on dayrates. RIG upgraded to Neutral from Underweight as well given the more resilient earnings profile supported by its robust backlog. Weekly Baker Hughes rig data showed US drillers add oil and Nat gas rigs for first time in eight weeks as gas rig count up 2 to 102, the oil rig count up 5 to 482 as total rig count 589.
• Oil Equipment: PUMP upgraded to Neutral at JP Morgan, downgraded ACDC to Underweight, and upgraded NESR to Overweight saying in a more challenging macro environment, the firm thinks companies that can demonstrate the most earnings resiliency are best positioned to deliver alpha. FTI remains JP Morgan favorite way to play tightness in SURF, which remains the tightest ecosystem within OFS. Said BKR and GTLS look to be prime beneficiaries of the potential lifting of the U.S. LNG permit pause. Internationally, retains its Overweight on SLB. Separately, FTI was upgraded to Buy at Jefferies saying the continual improvement of its operational & commercial delivery and the sustained visibility of its market position for Subsea awards are proving difficult to ignore.

• In Insurance: British insurer Aviva (AVVIY) has agreed to buy smaller rival Direct Line (DIISY) in a sweetened 3.61-billion-pound ($4.60 billion) cash-and-stock deal that will create the UK’s largest home and motor insurer.
• In REITs: BRX upgraded to Outperform from Market Perform at BMO Capital saying although there’s still uncertainty on the consumer, is encouraged by continued solid retail sales and leasing, driving improved earnings visibility/strength. PLD was downgraded to Underperform at BMO Capital, noting industrial leasing demand is down 56% year-over-year, and BMO does not see a near-term rebound with Amazon expanding modestly.
• Commercial Real Estate: Goldman Sachs initiated CBRE, JLL and NMRK with Buys, CWK initiated at Sell and CIGI a Neutral as launches coverage of five commercial real estate services companies with a cautiously optimistic view as GSCO looks for transaction volumes to recover gradually over the medium term, amidst increasing visibility on property prices, funding costs, and a healthy outlook for US real GDP growth.

• In Healthcare Technology: VEEV reported an across-the-board beat in FQ3, delivering 12% revenue growth, 15% subscription growth, and 12% billings growth, each on a normalized basis. Non-GAAP operating margins came in at 43.5% in the quarter and LTM FCF margins were 39.7%
• In Pet Services: WOOF posted Q3 sales, profit beat, though said expects Q4 sales and profit below Street expectations – shares jumped initially before paring gains.

• In Aerospace & Defense: ACHR announced an agreement for the launch of the first commercial electric vertical takeoff and landing (eVTOL) aircraft in UAE.

• In Lumber/Timber: BMO Capital upgraded shares of PCH ($51 tgt) and WY (tgt $38) as believes higher export duties on lumber coming from CN will raise the cost floor and push prices higher. With 100% of its lumber capacity in the U.S. and Idaho sawlog prices linked to lumber, PotlatchDeltic’ s EBITDA should improve nicely and will benefit producers like Weyerhaeuser with a greater mix of production in the U.S. Canfor (CFPZF) was downgraded at BMO saying believes that Canfor’s lumber performance for the next couple of years will be challenged due to a significant jump in export lumber duties (likely to 35-40%).

• DOCU shares surge; reported better Q3 results with EPS and rev beats; Billings growth of 9% y/y accelerated nicely from 2% in Q2; new customer growth (11%, consistent with Q2); guidance was better for Q4 revs of $758M-$762M (consensus $756M), up ~7% y/y, subscription revenue of $741M-$745M (consensus $736M), up ~7% y/y.
• GTLB reported Q3 revenue and Op margins above consensus, driven by broad-based strength and continued momentum with Duo, and provided better than expected F4Q guidance. Notably, the Company announced that Sid Sijbrandij is stepping down from the CEO role to focus on his health, and named Bill Staples as his successor
• HCP reported F3Q revenue and OM results that were solidly above consensus, but did not provide any quarterly or annual guidance given the pending acquisition by IBM.
• PATH reported modest ARR upside on lower expectations, but net revenue retention decelerated to 113% (from 115%), representing the fourth consecutive quarter of decelerating growth; customer count declined -1% y/y; Guidance for Q4 ARR growth of 14% represent a deceleration from 16% in Q3.
• RBRK reported another strong beat and raise on ARR and margins; saw acceleration and material upside of revenue, ARR hyper-growth durability (ARR beat by $30M), positive FCF, and implied 4% FQ4 guide-raise; FY25 subscription contribution margin guide raised to -2.5% from -6.5% and -12% the prior two quarters.
• In Video games: Ubisoft (UBSFY) shares surged after Reuters reported shareholders are considering how to structure a possible buyout of the video game maker without reducing the founding family’s control, two people familiar with the matter told Reuters. https://tinyurl.com/yj47bcrf
• In IT Services & Consulting: Goldman Sachs ACN and EPAM both upgraded to Buy from Neutral at Goldman Sachs (ACN tgt to $420 from $370 and EPAM to $295 from $235) saying look for the IT services industry to grow 4% in 2025 (vs. a 1% contraction in 2024) supported by a gradual recovery in key end markets, like Financials; significant pent-up demand; potential AI revenue accretion; and more benign regulatory and rate backdrop.
• Donald Trump said he is selecting venture capitalist David Sacks of Craft Ventures LLC to serve as his artificial intelligence and crypto czar, a newly created position that underscores the president-elect’s intent to boost two rapidly developing industries