Closing Recap

Friday, January 05, 2024

U.S. stocks finished in positive territory (barely) for the first time in 2024, but it wasn’t enough to extend the 9-week winning streaks for major averages as stocks declined on the week. The tech-heavy Nasdaq Composite fell the most, down about 3.3% this week as Treasury yields jumped on better data. Monthly jobs data showed the U.S. economy added 216,000 jobs last month, more than the 170,000 economists expected while the unemployment rate held steady at 3.7% and hiring for October and November was revised down. Treasury yields finished the day and week higher, snapping a 3-week streak of lower yields while the dollar was flat and oil prices higher. The Nasdaq 100 managed to snap its 5-day losing streak and the S&P 500 (SPX) snapped its 4-day losing streak, though major averages pressured all day as investors pare interest rate cut bets this year following strong jobs data this week.  

With the jobs data behind us, we look forward to several important company updates next week with three big conferences taking place as well as inflation data and the unofficial start of earnings season. 1) The ICR Conference takes place 1/8-1/10, in Orlando, FL with many retailers and consumer related companies speaking. 2) The JP Morgan 42nd Annual Healthcare Conference, 1/7-1/11, in San Francisco, CA will be a big place for company updates in Healthcare/Biotech. 3) The tech space has its own catalyst with the Consumer Electronics Show (CES), 1/9-1/12, in Las Vegas, NV. Also, late week, the consumer price index (CPI) is Thursday 1/11 and the producer price index (PPI) on Friday 1/12. Lastly, the start of earnings season begins next Friday 1/12 with Financials JPM, C, WFC, BLK, BX as well as UNH in Healthcare and DAL in Transports. A little further out, White House budget director Shalanda Young said Friday she is not optimistic about reaching a deal to avoid a partial government shutdown later this month. Congress returns to Washington next week to tackle Jan. 19 and Feb. 2 deadlines for settling government spending through September.

• The U.S. December Nonfarm payrolls rose +216,000 topping consensus +170,000 and above downwardly revised November +173,000 (from +199,000), and October +105,000 (from +150,000).
• December also marked the 36th consecutive month of jobs growth.
• Factory jobs +6,000 (in-line with consensus of +5,000, but down from +25,000 prior.
• Private Payrolls were +164,000 vs. est. +130,000 and vs. downwardly revised +136,000 (from +150,000).
• The Unemployment rate was 3.7%, in-line with prior but below the expected 3.8% figure (the US Unemployment Rate has now been below 4% for 23 straight months, the longest streak since the late 1960s).
• The participation rate 62.5% (lightest since January 2023) vs 62.8% estimate.
• Average Hourly Earnings rose +0.4% M/m vs. est. +0.3%.
• Total jobs in the US increased 1.7% over the last year, the lowest YoY growth rate since March 2021.
• ISM report on U.S. non-manufacturing sector shows PMI 50.6 in December below consensus 52.6 and prior month 52.7 as prices paid index 57.4 in December vs 58.3 in November; new orders index 52.8 in December vs 55.5 in November and employment index 43.3 in December vs 50.7 in November.
• Factory Orders for November ex-transportation +0.1% vs Oct -1.3%, factory orders ex-defense +3.0% vs Oct -4.0%, nondurables orders were unchanged vs Oct -1.8% and Nov total manufacturing inventories +0.1% vs Oct unchanged.

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• Massive moves in Treasury yields today, whipping between gains, losses, and then gains again. The benchmark 10-year yield, which rose 18.1 bps this week, jumped as high as 4.10% this morning after the nonfarm payrolls report, proceeded to erase all those gains and hit a low below 3.96% around 10:30 AM (after the ISM report), but climbed the remainder of the day to end near 4.04% extending gains to start the year.
• Gold prices end the day little changed, down 20c to $2,049.80 an ounce, and finish down about 1% on the week. After big swings up and down, the dollar index (DXY) ended little changed on the day, but gained 0.6%, its best weekly rise since early December. The dollar dropped from three-week highs early after data showed the U.S. services sector slumped in December, negating gains posted after a report showing higher-than-expected nonfarm payrolls last month. The euro ended flat (high 1.0988 and low 1.0878)

• COST reported total and U.S. core December comp growth of 8.1% and 7.4%, with an extra selling day adding ~3pts, compared to consensus of 4.3% and 4.0%. On a 2-year basis, adjusting for the extra selling day, total company, and U.S. core comp growth accelerated 70bps and 90bps relative to November quarter levels.
• TD Cowen raised price tgts on off-price retail as TJX target to $104 (from $100), ROST target to $144 (from $143), and Market Perform BURL to $185 (from $157) saying December proprietary data which demonstrates off price was a major holiday winner, continuing the theme of value channels gaining share across much of retail.
• In Research: BOOT upgraded to Buy at UBS while downgraded GIL to Neutral and cut COLM, BKE to Sell saying Softlines growth stocks have historically been the best performers over 12-month time horizons. UBS expects the trend to continue and for growth stocks to outperform through what is likely another year of high volatility. UBS prefers these names over Sell-rated M, GPS, FL, JWN, ROST, and KSS.
• In Beverages: STZ Q3 comparable net sales $2.47B misses est. $2.54B but Q3 EPS $3.19, est. $3.03 as strong beer sales for the Modelo maker offset a continued decline in its wine and spirits business. STZ cut its earnings outlook for its fiscal year to $9.15-$9.35 a share from a prior view of $9.60-$9.80. French makers Remy Cointreau (REMYY) and Pernod Ricard (PRNDY) shares declined in Europe after China launched an anti-dumping investigation into brandy imported from the European Union.
• In Restaurants: Oppenheimer downgraded MCD, PZZA to Perform from OP and upgrade YUM to Outperform with top picks DPZ, QSR, SG in 2024 outlook. The firm fine-tune financial models and introduce ’25 estimates following a deep-dive analysis across OPCO’s coverage. OPCO’s work suggests 2024 Marks a year of "normalization" for the restaurant industry, and it stresses the importance of bottom-up selectivity.

• In Autos: TSLA recalls more than 1.6 million cars in China over problems with Autopilot. TSLA recalled virtually every car it’s ever sold in China due to issues with the driver-assistance system Autopilot that increase the risk of crashes. The carmaker will deploy over-the-air software fix to more than 1.6 million vehicles.
• In Casinos/Gaming: Wells Fargo downgraded BALY to Underweight with $10 tgt as their more cautious view reflects no line of sight to leverage dropping below ~6x for the foreseeable future, which could limit Bally’s appeal. Wells also downgraded CHDN, cutting to Equal Weight from Overweight as sees risk/reward as fair here, though an upside scenario could push Churchill Downs to $170.
• Another Outlook in Gaming/Leisure, Stifel downgraded both BYD and MCRI to Hold saying they want Macau/cruise exposure (smaller-cap cruise names, preferred) as regionals are a concern and said their top three ideas (> $2B market cap) for 2024 are WYNN, RCL and BOWL as believes owning a combination of those three names will allow investors to capture the Macau/LV Strip/cruise upside opportunity as well as a highly controversial/misunderstood story in BOWL. Their other top ideas for 2024 include OSW, LIND, CHDN, and AGS.

• KeyBanc with 2024 REIT outlook as they upgraded NSA, ROIC to Overweight from SW and downgraded AVB, MPW, and DOC to Sector Weight saying slower growth in 2024 (y/y) could pave way for an uptick in 2025, but uncertainty over whether the economy tips into recession remains a risk and may define the year. The firm favors Self Storage, Healthcare, Retail subsectors and maintain/reduce Industrial, Office, Residential, Triple-Net/Gaming, Lodging.
• UBS raised prices targets on several names: CPT tgt from $94 to $105, EQR from $63 to $73, ESS $221 to $250, BXP $52 to $69, NSA $36 to $40 and SPG $121 to $143 in outlook saying they think the setup for REITs in 2024 is more nuanced than at first glance despite visibility into rate cuts. A softer macroeconomic backdrop will likely pressure REIT fundamentals & earnings growth.

• APLT shares tumbled after reported its drug AT-001 was not statistically significant vs placebo in a late-stage trial to treat patients with diabetic cardiomyopathy at high risk of heart failure.
• CYTK downgraded to Equal Weight at Morgan Stanley but raised price target to $90 from $60 as thinks shares are close to being fully valued shares having appreciated almost 90% after topline aficamten Phase 3 SEQUOIA-HCM data.
• FUSN said it expects cash, cash equivalents, and investments to be enough to fund operating expenses and capital expenditure requirements into Q4 2025; said the company’s Phase 2/3 protocol for FPI-2265, a treatment for certain kinds of prostate cancer had a protocol approved by regulators.
• LQDA said enrolled first PH-ILD patient in the open-label ASCENT study of YUTREPIA and confirmed with FDA that a single pivotal efficacy trial with L606 will support PAH and PH-ILD indications.
• TPBH shares fell after saying results from its Phase 4 study of Yupelri Revefenacin inhalation solution didn’t show a statistically significant difference between Yupelri and Spiriva HandiHaler on the primary endpoint.
• VYGR 7.778M share Spot Secondary priced at $9.00.

• In Medical Equipment: ANGO shares tumbled after Q2 revs $79.1M missed the $92M estimate and lowered its FY24 EPS view to wider loss of (-$0.42-$0.35) from prior loss (-$0.34-$0.28) and cut its FY24 revenue view to $320M-$325M from $328M-$333M (est. $329.1M) and FY24 gross margin view to 49%-51% from 50%-52%.

• CACI was upgraded to Buy from Hold at Stifel and raised tgt to $380 from $365 as sees good upside potential following several new contract wins.
• Wells Fargo raises price tgts: BA tgt to $280 from $230, GD to $290 from $264, LMT to $482 from $450, RTX to $91 from $82, HWM to $60 from $55, HXL to $81 from $64 and RKLB to $6 from $5 in defense stocks at Wells Fargo saying upcoming U.S. elections could support defense sector later in the year, as the stocks have outperformed the market by 9-10% in presidential election years. A shift to one-party control of Congress would be a positive. Says it expects better original equipment growth in 2024, particularly given easy compares on 2023 production delays.
• Barclays with industry note as they upgraded LDOS to OW, downgraded BAH to Underweight and said prefers CACI in services; within defense, favor LHX and downgraded HII to EW; in aerospace favors ATI, SPR, TDG and upgraded TGI to Overweight as sees further outperformance on upside to forward expectations that can more than offset likely modest valuation compression. To that end, forecasts 15-20% production growth along with ~25% delivery growth and 20%+ aftermarket growth; less deceleration than expected as new aircraft deliveries haven’t increased enough yet to hurt.

• AAPL shares slipped later afternoon after the New York Times reported the Justice Department is in the late stages of an investigation into Apple and could file a sweeping antitrust case taking aim at the company’s strategies to protect the dominance of the iPhone as soon as the first half of this year, said three people with knowledge of the matter.
• ANSS shares popped midday after the WSJ reported SNPS is in advanced talks to acquire the company for around $35 billion in a stock-and-cash deal and a deal could come together as soon as mid-next week, granted the talks don’t fall apart. Synopsys is discussing paying around $400 per share for Ansys http://tinyurl.com/3s52wfe5
• SIMO said prelim Q4 sequential revenue growth is expected to slightly exceed the high-end of its original guidance range of 10% to 15%, which the company issued on November 2, 2023 and non-GAAP gross margin is also expected to exceed the high-end the company’s original 42.5% to 43.5% guidance range.