Closing Recap

Tuesday, December 17, 2024

US equity futures dipped overnight and were testing a move modestly below the 6,058 support pivot into the open. The only economic news items were retail sales and industrial production, which were a mixed bag resulting in little impact on equity futures. Recent, sloppy market action continued early with breadth favoring decliners by 3:1 as Smallcaps underperformed in general risk-off action with IWM (-1.19%) versus SPY (-0.58%) and QQQ (-0.67%). Consumer Staples (+0.26%), Health Care (+0.17%) and Real Estate (+0.14%) were early outperformers among S&P sector ETFs, while Financials (-0.76%), Technology (-0.97%) and Energy (-1.27%) led the underperformers with four sectors gaining versus seven declining. The moves reflected some reversal versus recent performance, as both Health Care and Real Estate fell for five consecutive sessions. Only Materials were worse, at ten consecutive sessions lower. Sentiment-wise, the Fear and Greed Index came in at 53/100 (Neutral), consistent with Neutral rankings both a week and a month ago. A year ago, we were at 69 (Greed).

In data of note today, @bespokeinvest highlights every sector ETF remains up on the year but the performance range is wide with four that are up single-digits and six up at least 20%. Communication Services leads, while Health Care posts the smallest gain. On the broader market, BofA notes investor allocation to US equities hit a record high in December with cash as a percentage of assets under management dipping to 3.9% (lowest since 2021). Investors also have the largest underweight in European stocks since 2022. Historically, similar metrics have been met with losses the following month. This time we have the Fed to muddy the waters a bit, so we shall see. Also, @bespokeinvest also notes we have seen 11 consecutive days of negative breadth which could lead to an “all-or-nothing” day of nearly everything up (including mega caps) or nearly everything down (excluding mega caps). Lastly, @jasongoepfert tweets: “The Dow Jones Industrial Average is on track for its 9th consecutive down day, the first since 1978. This is the *first time in history*, dating to 1896, that the Dow sank for 9 straight days while holding more than 5% above its 200-day avg or within 5% of a high.”

Heading into the final hour of trading, stocks had attempted a rally but were back near the lows with nobody looking to add much risk ahead of a Fed Day. Breadth had improved modestly, but still held at about 5:2 favoring decliners as small caps continued to underperform. On the sector side, only one group remained in the green. Consumer Discretionary (+0.30%), Health Care (-0.07%) and Consumer Staples (-0.17%) were outperformers, while Financials (-0.71%), Industrials (-0.92%) and Energy (-0.74%) were the largest underperformers. On a growth/value basis, growth was the outperformer but neither was enjoying a great day. The Russell 1000 Growth slipped 0.45%, while its Value counterpart dipped by 0.85%.

In a strategy call on Wall Street, Bank America strategist Michael Hartnett said cash as a percentage of total assets under management dropped to 3.9% in December, a move that in the past has been followed by losses on the MSCI All-Country World Index. Allocation to US equities surged to a record high of a net of 36% overweight, according to the BOFA survey. Since 2011, every time the BOFA sell signal was triggered, the MSCI All-Country World Index handed investors losses of 2.4% in the following month. Exposure to cash fell to net 14% underweight in December, a record low, from 4% overweight last month. Investors are the most overweight on the US relative to eurozone equities since June 2012

• November Industrial Production fell -0.1% vs. consensus +0.3% and vs Oct -0.4%; Nov capacity use rate fell to 76.8% (consensus 77.3%) from Oct 77.0% (previous 77.1%); Nov manufacturing output +0.2% (consensus +0.5%) vs Oct -0.7% (previous -0.5%); cap use 76.0% vs Oct 75.9%.
• December NAHB Housing market index 46 (consensus 47) versus 46 in November (previous 46); current single-family home sales 48 versus revised 48 in November (previous 49); index of home sales over next six months 66 versus revised 63 in November (previous 64); index of prospective buyers 31 versus 32 in November (previous 32).
• Oct Business Inventories +0.1% (consensus +0.1%) vs Sept unchanged (prev +0.1%) while Oct inventory/sales ratio 1.37 months’ worth vs Sept 1.37 months; U.S. Oct business sales unchanged vs Sept +0.3% (prev +0.3%).

• WTI January crude futures slid early on headlines boosting hopes for a Gaza ceasefire agreement within the next few days (supply side) and on soft-ish recent economic data out of China (demand side). A late morning rally continued into the afternoon, but futures still settled down $0.63/bbl, or -0.89%, at $70.08, solidly off the early lows. Brent, similarly, slipped by $0.72/bbl, or -0.97%, to $73.19. Now traders wait for the Fed decision and commentary tomorrow for help setting expectations into next year.
• The 10-year yield declined 1.3 bps to 4.384% today, down for two consecutive trading days but month-to-date up 19.2 bps and YTD up 52.4 bps.

• In Food & Beverages: BF downgraded to Underweight from Neutral at JP Morgan on the back of still challenged trends in the US and Developed International markets. BF still isn’t fully out of the Woods yet given tariff uncertainty in the coming months (I.E., potential reimposition of E.U. retaliatory tariffs at 50% as of March 31, 2025), and ongoing soft consumption trends in the U.S.

• In Casinos & Gaming: MLCO was downgraded to Equal Weight from Overweight at Morgan Stanley and cut tgt to $7.50 from $9.60 saying Macau Gaming gross gaming revenue and EBITDA could grow by mid-single digits in 2025, which notes its estimates are below sell-side consensus as it is more conservative on margins. BYD upgraded to Buy from Hold with a $90 price target at Argus.

• In Solar/Alternative Energy: SEDG was double upgraded to Buy from Sell at Goldman Sachs with $19 tgt believes estimates are now finally bottoming for SEDG. Goldman notes its Buy thesis comes on the heels of being negative on SEDG for the better part of the past year, as the US resi solar cycle churned through a challenging downturn, and Europe solar demand (as well as inventories) proved to have more downside than it anticipated. SHLS was upgraded to Overweight at Morgan Stanley citing increased confidence in the earnings outlook heading into 2025.
• In Ag Chemicals, Fertilizers and Equipment: BMO Capital said looking into 2025, they think ag bearishness has peaked (crop prices have rebounded) and lithium prices have bottomed out. Said CTVA remains their top pick while stay cautious on b and ag equipment, and still like N. American ferts, but now prefer NTR and MOS to CF (still rated Outperform) on valuation and a seemingly underappreciated potash rebound. Slow expected lithium price recovery, and now prefer SQM and SGML over ALB (also still rated Outperform) and still like MEOH (as methanol remains hot).
• In Energy: KOS shares bounced after walking away from its plan to buy West Africa-focused Tullow Oil saying it does not intend to make a firm offer for Tullow at this time. The announcement comes less than a week after KOS revealed it was in early talks for an all-share acquisition of Tullow. IN Research, Wells Fargo downgraded APA to Equal Weight from Overweight (tgt to $25 from $42) as the firm favors gas equities in 2025, saying the favorable fundamentals for gassy exploration and production companies s are well known but still favorable. Wells upgraded both AR to Equal Weight from Underweight and EOG to Overweight from Equal Weight with a price target of $150, up from $147.
• In Metals & Mining: Steel producer NUE became the 2^nd company to guide lower in as many days, saying it sees Q4 EPS of $0.55-$0.65 below consensus of $0.87 (follows lower guidance from comp STLD the day prior in steel sector) saying they don’t expect a sequential increase in earnings of the raw materials segment in Q4.

• In Crypto: Bitcoin topped $107,000 again today as the crypto space rises for 7 straight weeks so far; Piper initiated Bitcoin miners with an Overweight, $34 PT on MARA, Overweight, $23 PT on RIOT, Overweight, $33 PT on HUT and Overweight, $29 PT on Galaxy Digital (BRPHF). Piper said mainstream crypto sentiment (particularly around bitcoin) is improving — a trend Piper expects to continue with greater regulatory clarity and a more crypto-friendly SEC under Trump admin. HUT tgt was raised to $41 from $32 at Benchmark
• In Banks: NWBI agreed to buy PWOD in transaction valued at $270.4M all-stock deal; Penns Woods shareholders will be entitled to receive 2.385 shares of Northwest common stock for each share of Penns Woods common stock they own upon the effective time of the merger. Based on Northwest’s closing stock price of $14.44 as of December 16, 2024, the transaction consideration is valued at $34.44 for each share of Penns Woods.
• In Brokers & Services: VIRT shares popped late day after The Pulte Family Office, a current activist shareholder in Virtu Financial and the founding family of one of the nation’s largest homebuilders PulteGroup, said it is calling upon Virtu Financial to sell itself to either a third-party private equity firm or to another public company.

• Mall REITs initiated at Deutsche Bank with coverage of 3 stocks – MAC Hold, $22 price target, SPG Hold, $195 price target and SKT Hold, $37 price target saying they have a neutral view near-term. While healthy retail fundamentals are a tailwind for the group, they remain concerned about the potential negative impact of the macro environment (i.e tariffs and higher-for-longer interest rates) on currently elevated valuation levels (P/FFO at 14.5x vs 10.3x 5-yr average).

• EXEL was downgraded from Buy to Neutral at Bank America (raise tgt to $39 from $35) as it sees a more balanced risk / reward following the recent stock run-up. EXEL stock price has gained +37% (vs -4% XBI) following a win on Cabo IP dispute and favorable Q324 update.
• RVPH shares tumbled as 12M share Spot Secondary priced at $1.50 (down from $2.30 prior day close)
• TEVA and SNY said that their experimental drug, duvakitug, met the main goals in a mid-stage trial in treating patients with inflammatory bowel disease; Duvakitug showed disease remission for ulcerative colitis and decrease in inflammation in Crohn’s disease, two most common forms of IBD.

• Healthcare Services: EHTH shares jumped after forecasts FY loss $12.0M to profit $3.0M, vs. est. loss $30.7M and raised its FY total rev to $500-$520M from prior view $470M-$495M.
• In Lab Sector: DGX was upgraded to Overweight at Morgan Stanley and raised tgt to $172 from $145 saying they recognize the incremental clarity into its medium- and L-T outlook and growth as it enters 2025 against the backdrop of a seemingly lasting robust utilization environment and relative insulation from negative election impacts.
• In Managed Care: JP Morgan resumed coverage and upgraded CNC to Overweight from Neutral and downgraded MOH to Neutral from Overweight saying they enter 2025 "cautiously optimistic" that Medicaid rate updates can narrow the disconnect between rates and utilization and acuity. On the Affordable Care Act exchanges, sees enhanced advance premium tax credit expiration as likely driving potential headwinds to managed care originations with varying impact.
• Pharmacy Benefit Managers (CVS, CI): STAT News notes that after two years of debate, Congress has nearly reached a deal to rein in pharmacy benefit managers as part of a government funding package lawmakers are planning to pass before the end of the year, according to sources. Measures expected to be included in the package would prohibit PBMs from linking their payments to drug prices in Medicare, increase transparency, and regulate how PBMs get paid for drugs by Medicaid programs. As part of this government funding package, lawmakers are also expected to extend pandemic-era telehealth flexibilities in the Medicare program for two years.

• In IT Services & Consulting: NET was upgraded from Hold to Buy and raised PT from $95 to $136 at Stifel saying they believe Cloudflare is positioned to deliver improving execution, and upside to numbers, against a massive and growing TAM.
• Quantum compute stocks extend gains; QUBT shares jumped as announced that the Company has been awarded a prime contract by the National Aeronautics and Space Administration’s (NASA) Goddard Space Flight Center (shares of other quantum compute names like IONQ, RGTI have been soaring over the last month)
• In Semiconductors: a rough day overall, giving back mush of Monday gains led by declines in NVDA (falling for the 4th straight day and 8 of last 9) and AMD with Wolfe Research cautious saying they think the setup for the stock into Jan earnings is difficult and expects some downside to street estimates in Q1 due to slow Q1 PC seasonality off a strong Q424. The firm said they remain selectively positive on names MU, NXPI and NVDA.