Closing Recap

Wednesday, January 10, 2024

U.S. stocks melted higher most of the day (small blip lower late), showing no concern into a key inflation data point coming up tomorrow morning, which could provide insight as to the timing and speed of widely anticipated rate cuts for the Fed following their pivot to a more dovish stance at their December meeting. The biggest gains today came from the biggest winners of 2023, as Technology, Consumer Discretionary, and Communications sectors all rose +0.7% or more on expectations of an accommodating Fed. Headline CPI M/M estimate tomorrow is for a gain of +0.2% (vs. +0.1% prior) and Headline CPI Y/Y to rise +3.2% (vs. prior +3.1%). The core CPI, or ex: food & energy expected to rise +0.3% M/M (same as prior month) and core CPI Y/Y est. +3.8% (vs. +4.0% prior). We also get weekly jobless claims, but the CPI will be the focus. Treasury yields pushed higher midday to best levels (10-yr 4.03%) following a weaker 1-yr bond auction. After a few days of selling pressure to kick off the New Year, markets are back to buying on any pullback, with the S&P closing in on its all-time highs.  The rally today was again in the mega tech, large cap names that Wall Street has come to acknowledge as the primary drivers of the broader market, with mass gains in META up over 3% on no major news, AMZN, GOOGL, MSFT, and NVDA again making a new record high as investors continue to chase winners. Energy and Smallcaps were the biggest laggards. Stocks pulled off their best levels in the final 30-minutes after NY Fed President Williams provided comments on the economy, rates, and inflation. CPI tomorrow, PPI Friday and bank earnings get things going end of week too!

• Treasury yields moved to the high’s midday following a lackluster 10-yr auction where the US Treasury sold $37B in notes at a yield of 4.024% vs. 4.019% when issued prior (4^th tail in a row), and the bid-to-cover ratio 2.56, as primary dealers take 15.15% of U.S. 9-year 10-month notes sale, direct 18.74% and indirect 66.11%. The 10-year yield ended around 4.03%, near its best level of day awaiting the CPI data tomorrow.

• In Beverages/Spirits: STZ was downgraded to Hold from Buy at Argus saying the company is likely to benefit from high single-digit growth in its beer business, but stubbornly high packaging costs, competition from craft brewers, and higher operating expenses remain a concern. BUD was upgraded to Buy and ROYUF downgraded to Underperform at Jefferies as sees 2024 as an inflection year for beer to become more consistent with 1) volume growth resuming, 2) margin improvement starting to become visible, 3) re-rating potential as the discount to staples narrows.

• In Homebuilders: LEN raised the annual dividend to $2.00 from $1.50 per share and increases its stock repurchase program by $5B. ZG was downgraded from Buy to Neutral at Bank America but raised tgt to $60 from $47 saying believes the stock is pricing a steady recovery in housing in 2024 (shares are up over 40% y/y), near record low home affordability could limit volume upside (even w/ lower rates) and real estate commission lawsuits are an overhang. KBH expected to report earnings after the close tonight.
• In Housing data: Weekly US Mortgage Bankers Assoc data showed the applications index rose +9.9% in the latest week, the purchase index climbed 5.6%, the refinance index surges 18.8% and the average 30-year mortgage rate climbs 5 bps to 6.81% in Jan 5 week.

• KBW Inc. downgraded PFSI to Market Perform from Outperform and UWMC to Underperform from Market Perform primarily on valuation. KBW notes despite the recent decline in interest rates, KBW assumes mortgage volumes remain weak through 2025 as long rates decline only modestly.
• Citigroup named HOOD a new 90-day downside catalyst watch and opened a 90-day negative catalyst watch a SCHW as well ahead of the expected SEC equity market structure rules in early 2024 and the Thinkorswim client conversion in 1H24 as continues to prefer the growth stories in the space (LPLA/IBKR).

• AULT announced that the Company has decided that it will start holding up to 20% and minimum of 5% of the Bitcoin it mines on the Company’s balance sheet.
• BLK and Ark Investments said they were lowering the fees on their proposed spot bitcoin exchange traded funds. BlackRock would charge 0.25%, compared with the 0.30% fee set earlier. Ark Investments and 21Shares lowered their fee to 0.21% from 0.25% earlier.

• AMRN shares jumped on prelim Q4 revs of $72M-$74M topping consensus of $62.1M saying its European business grew 65% in Q4 vs Q3, benefiting from launch of its heart disease drug Vazkepa in 3 additional markets.
• CHRS terminated its TIGIT Program collaboration with Junshi Biosciences; despite termination with Junshi biosciences on TIGI, said to continue to support patients in its current studies involving CHS-006; said collaboration agreement remains effective & active for all other purposes.
• PIII said it expects FY24 revenue to be in the range of $1.45B-$1.55B, topping ests of $1.42B and expects to achieve meaningful profitability in 2024; sees FY24 adjusted EBITDA to be between $20M-$40M.
• SANA shares jumped after the company discussed early Phase 1 trial results from its SC291 CAR T-cell therapy.

• GDRX shares rose after rev guidance above views; sees Q4 revs $195M-$197M, above prior forecast $188M-$194M and FY revs $749M-$751M, topping forecast $742M-$748M.
• ISRG guided Q4 sales of $1.93B, topping consensus of $1.87B and saying procedures with its surgical robot da Vinci rose 21% in Q4 while expects worldwide da Vinci procedures to rise ~13% to 16% in 2024 from 2023.
• MASI guided 2024 revenue to $2.05B-$2.17B, above est. $2.09B and Q4 revs $541M-$551M vs. est. $537M.
• MDRX lowered full-year revenue view to $608M-$622M from prior view $615M-$635M and cut its FY adj EPS view to $0.79-$0.88 from the prior $0.80-$0.90 view.

• In Industrials: ITW was downgraded from Neutral to Underperform at Bank America as the firm thinks the company is likely to miss consensus 2024 EPS on lower-than-expected margins (as Welding, the highest margin business, lags and Auto OEM, the largest segment, contributes to headwinds as well). AZZ forecasts FY adj. EBITDA $315M to $335M, above prior forecast $300M to $325M and boosted its FY sales view to $1.45B to $1.55B, from prior $1.4B to $1.55B. VMI upgraded to Buy from Neutral at DA Davidson and raise tgt to $290 from $230 saying after a tough 2023 for the shares, sees estimates at/near the end of a downward revision cycle with better catalysts ahead supported.

• Goldman Sachs a few changes in sector: WWD upgraded to Buy from Sell on potential upside from content gains on next-generation aircraft, HXL upgraded to Neutral from Sell, and downgrades MRCY to Sell from Neutral (cut tgt to $24 from $37) as believe consensus expectations are elevated amidst pressures on organic revenues and free cash flow driven by delays in key programs. Overall, Goldman remains bullish on commercial aerospace and cautious on defense.

• Uranium sector strong (CAJ, UEC, UUUU), extending gains from Wednesday after the U.S. Department of Energy on Tuesday said it has about $500 mln in funding from the 2022 Inflation Reduction Act for HALEU, or high assay low enriched uranium fuel, sending uranium prices higher.

• JPM said its Internet survey showed: AMZN expected to be the best performing Internet Mag7 stock (~50%) and GOOGL the worst (46%); UBER expected to lead Large-Caps (37%), PINS the Mid-Caps (35%), and Z/ZG (21%) & MTCH (18%) amongst Small-Caps; Online Ads expected to be the best performing sub sector (META/GOOGL preference split at 32% each); investors prefer UBER in rideshare/food delivery (58%), BKNG in online travel (38%).
• Goldman Sachs made several changes: assumed coverage of EBAY (Sell), CHWY (Buy), RENT (Buy) saying they remain cautious on the eCommerce sector amidst a continued shift of consumer budgets away from discretionary goods, competition from Asia-based platforms, and consumer preference for platforms with scale. Goldman downgraded ETSY to Neutral, initiated on RVLV at Sell based on current industry headwinds in the high-end online apparel space.

• HPE confirmed WSJ reports the prior day by agreeing to acquire JNPR in an all-cash transaction for $40.00 per share, representing an equity value of approximately $14B (more than the $13B offer the WSJ reported Tuesday).
• PD shares popped midday after Bloomberg reported the company is considering options amid takeover interest from private equity firms and has been speaking with advisers about a potential sale.
• SGH rises as Q1 EPS $0.24 and sales fell -41% y/y to $274.2M; forecasts Q2 net sales $260M to $310M and EPS $0.15-$0.35; board of directors approved a $75 mln share repurchase authorization.
• TOST upgraded from Neutral to Buy at Goldman Sachs with $24 tgt based on room to take market share, the potential to outperform on better-than-expected expense mgmt, and attractive valuation vs peers.
• Global shipments of traditional PCs marginally surpassed expectations in the fourth quarter of 2023 (Q423) with nearly 67.1M PCs shipped, down 2.7% from the prior year, according to preliminary results from the International Data Corporation (IDC) Worldwide Quarterly Personal Computing Device Tracker. Despite the improved results, Q423 was the eighth consecutive quarter of year-over-year shipment volume contraction.

• KeyBanc said views December carrier survey and Key First Look Data results as slightly negative for the Apple supply chain (AVGO, CRUS, QCOM, QRVO, SWKS). Keybanc’s First Look Data shows Indexed Spending +27% m/m in December, below the 3-yr avg. of +37%, where its data indicated below-average Spend in each month of the quarter.
• AEHR shares tumbled as Q2 EPS/revs beat but guides FY revs $75-85Mm vs est. $103.13Mm and GAAP net income 20-25% of revs saying slowing EV growth rates are having a "negative impact on the timing of several current and new customer orders (AEHR involved in SiC chips, which pressured other players in group ON, WOLF).
• IMOS reported Q4 revenue that increased 22.2% from the fourth quarter of 2022 to $187M, representing an increase of 2.6% from the third quarter of 2023.
• TSM said Q4 revs came in at T$625.5 billion ($20.10 billion) vs. $19.93B y/y; and topped its prior view of a range of between $18.8-19.6B; for December alone, TSMC reported that revenue fell 8.4% year-on-year to T$176.3 billion, which was down 14.4% compared with the previous month.