Closing Recap

Friday, January 19, 2024

Index	Up/Down	%	Last
DJ Industrials	394.99	1.05%	37,863
S&P 500	58.87	1.23%	4,839
Nasdaq	255.35	1.70%	15310
Russell 2000	17.25	0.90%	1,941

 

 

 

 

 

 

 

 

 

A new high for the S&P. U.S. equity futures followed yesterday’s move higher with more gains overnight. With no major earning implosions thus far, no market-moving economic data this morning and the implied probability of a March Fed rate cut still hovering just above 50%, investors seemed comfortable with stocks near new all-time highs. The Fear and Greed index continues to register Greed at 72/100, about flat week/week. Early breadth favored advancers by almost 3:2, but small caps continued to underperform with IWM -0.65% versus the S&P and Nasdaq holding small-to-modest gains. Early sector leaders were Technology, Communications and Financials, with Real Estate and Energy also in the green. Top early laggards were Utilities and Consumer Staples. The only slight drag, though far from hawkish, came from comments from Chicago Fed President Goolsbee, who noted the Fed needs more clear evidence inflation is on track to the target rate before changing the policy rate. 

 

In data of interest today, @bespokeinvest notes the S&P 500 has been 512 days without a new all-time high, marking the 6^th longest streak since 1952 when the five-day trading week began. They also mention a record high today would put the current bull market at 464 days, matching the median bull but only have as long as the average bull of 991 days. Separately, as we move further into earnings season, @edclissold highlights the SPX trades off changes in the EPS growth rate, not off EPS growth and that current consensus calls for accelerating EPS growth in 2024, which would be bullish if accurate. He also notes investors recognize the analysts often are a bit too optimistic, so surely not a done deal.

 

Heading into the final hour of trading, breadth had expanded to nearly 2:1 in favor of advancers with equities holding near highs of the day. Technology (XLK, +2.15%), Financials (XLF, +1.62%) and Communications (XLC, +1.33%) were leading the gainers, while only Utilities (XLU, -0.01%) and Consumer Discretionary (XLP, -0.03%) remained just slightly in the red. IWM and RUT had bounced back to gains of about 1% in small-cap land, but still underperformed both SPY and QQQ. From a style perspective, both growth and value were solid gainers with growth the outperformer. Russell 1000 Growth was +1.33% versus its Value counterpart at +0.89%. Not a bad way to finish the week.

 

 

 

Economic Data

·     US Existing Home Sales for December came in at -1% versus forecast of +0.26% and previous +0.8% November.

·     University of Michigan Preliminary Sentiment 78.8 versus forecast of 70.1 and previous 69.7.

 

Commodities, Currencies & Treasuries

·     February gold futures settled with a gain of $7.70/oz, or +0.38%, to $2,029.30, having spent the entire day on the upside as equities gained and the Dollar eased a bit.

·     February WTI crude futures finished the week on a down note, settling down $0.67/bbl, or -0.9%, to $73.41. Brent similarly faded to settle down $0.54/bbl, or -0.68%, to $78.56. In the recent battle of supply concerns versus demand hopes, supply concerns perhaps eased a bit today after and IEA report noted world oil supply is forecast to rise to a new record in 2024 on production increases in Brazil, Canada, Guyana and the US. Red Seas tensions took a back-burner position for the day.

 

 

Macro	Up/Down	Last
WTI Crude	-0.67	73.41
Brent	-0.54	78.56
Gold	7.70	2,029.30
EUR/USD	0.0019	1.0895
JPY/USD	0.005	148.119
10-Year Note	0.002	4.146%

 

 

Sector News Breakdown

Consumer

Autos, Leisure:

·     In Autos: Ford (F) cuts F-150 Lightning production as sees less than anticipated 2024 EV growth and announced plans to create nearly 900 new jobs as part of a new third crew at Michigan Assembly Plant in Wayne to meet demand for the popular Bronco and Bronco Raptor and the all-new Ranger and Ranger Raptor.

·     In cruise lines: NCLH tgt to $18 from $15 and RCL to $126 from $100 at Bank America saying stable pricing survey should lead to positive earnings season o BAML sees 2-4% upside to Q423 revenues from RCL.

 

Retail, Consumer Staples & Restaurants:

·     In Retail: Macy’s (M) plans to lay off about 13% of its corporate staff, roughly 2,350 positions overall, and close five stores in a bid to trim costs and redirect spending to improve the shopping experience for customers, the WSJ reported. Wayfair (W) shares jumped after the announcement of a workforce reduction involving 1,650 employees, representing 13% of its global workforce, and expects $280M in annual savings.

·     In Beverages: CELH downgraded from Buy to Neutral at Bank America saying with CELH market share unexpectedly declining and still down versus the August peak, uncertainty around sales growth now weighs on what had been a more favorable risk/reward profile.

 

 

Energy, Industrials and Materials

·     In Energy: oil service giant SLB Q4 results came in above consensus, raised its dividend, and said they plan to boost share repurchases in 2024.

·     In Chemicals: HUN lowers Q4 adj EBITDA to be in the range of $40M$45M vs. prior guidance range of $65M-$90M primarily due to continued pressure in our Polyurethanes segment, including lower equity earnings and the negative impact of an unplanned outage. PPG Q4 EPS $1.53 vs. cons $1.49 as EPS beat was mainly driven by price-cost margin expansion (260bps y/y) due to improved pricing, raw material deflation and favorable currency exchange with Q4 revenue $4.35B vs. est. $4.27B and guides Q1 EPS to $1.80-$1.87 vs. est. $1.98.

·     In Industrials: ABB shares fell after saying its operations in China are being scrutinized by two U.S. Congress committees, specifically concerned about the installation of its equipment by Shanghai Zhenhua Heavy Industries, a state-owned Chinese company; ITRI upgraded to Outperform at Oppenheimer after reported multiple strong quarters on improving backlog conversion and favorable mix during 2023; in research, Bank America downgraded CMI to Hold from Buy saying N.A. truck production is likely to fall by double-digits in 2024. However, the firm upgraded PCAR to hold from sell saying earnings power is stronger than it thought; cuts TEX to sell.

·     In Transportation: MESA shares jumped after the regional air carrier struck several deals with partner UAL to improve Mesa’s liquidity. SAVE said it was assessing options to refinance its 2025 debt maturities amid some analyst concerns over the airline’s ability to stay afloat. In Car rental: HTZ downgraded from Buy to Hold at Jefferies with $8 tgt predicated on its view that EV repair issues, higher opex and DPU will limit near-term profitability. In truckers, JBHT delivered a lower-than-expected profit in the fourth quarter as revs fell -9% to $3.3B missing the $3.29B.

·     In Aerospace & Defense: KAMN to be acquired by Arcline Investment Management in an all-cash deal with a total enterprise value of ~$1.8B, valued at $46 per share. http://tinyurl.com/wjzxpu26

 

Financials

·     In Banks: CMA Q4 EPS $1.46 vs. est. $1.38; Q4 upside driven by better credit, while 2024 guide about -4% below consensus as revenue pressures more than offset concerted focus to manage costs; FITB Q4 EPS $0.97 vs. est. $0.90; core PPNR beat of $0.01 was driven by a $0.01 beat on core fees core NII and core expenses were in-line/provisions of $55M came in $0.08 better; HBAN reports in-line EPS; RF expects net interest income (NII) for 2024 to fall to between $4.7B-$4.8B; reports NII of $5.32B in 2023; Q4 NII down 12.1% to $1.23B. STT announces new authorization to buy back up to $5B in shares; forecasts FY 2024 NII down about 10% y/y after Q4 adj EPS and revenue topped consensus; TCBI reported an in-line 4Q compared to estimates but provided mixed updates to 2024 guidance related to revenue (positive) and expenses (negative); OZK Q4 EPS $1.57 vs. est. $1.49 and states that its goal is to grow EPS in 2024.

·     In Alternative Asset Managers: BX and CG downgraded to Neutral from Buy (KKR remains top pick) as remains constructive on the segment where it sees the best growth potential among its coverage sub-sectors. But after rolling price targets to 2025, cuts BX and CG to Neutral from Buy as it sees more balanced risk/rewards at current levels after strong finishes in 2023.

·     In Fintech/Payments: KSPI 11.3M shares IPO priced at $92 per ADS; PAYX declares quarterly dividend and authorizes $400M stock repurchase.

·     In Consumer Finance: SYF announced to acquire ALLY point of sale financing business including $2.2 billion of loan receivables. ALLY also reported earnings results.

·     In Lending: President Joe Biden is forgiving nearly $5B in additional student debt as almost 74,000 student loan borrowers will see debt canceled because of administrative changes by the US Education Department in the latest round. More than three million borrowers have had about $137 billion of their federal student loans flagged for cancellation, despite a Supreme Court ruling last June that blocked relief for millions more student-loan holders.

·     In Insurance: TRV core Q4 EPS of $7.01 easily surpassed the $5.07 estimate citing lower catastrophe losses and higher underwriting gains, while revs $10.93B were below $10.96B est. saying they grew net written premiums in the quarter by $1.2 billion, or 13%, to $10 billion; combined ratio, a measure of profitability, improved to 85.8% from 94.5%.

 

Healthcare

Biotech & Pharma:

·     AXGN announced positive topline results for REPOSE, its prospective clinical trial of Axoguard Nerve Cap, with the study meeting its primary endpoint of non-inferiority between the pain visual analog scale outcomes for neurectomy with Axoguard vs. SoC.

·     CHRS said its experimental cancer therapy casdozokitug in combination with Roche’s cancer drugs atezolizumab and bevacizumab reduced tumors in up to 43% of patients of hepatocellular carcinoma in a mid-stage study.

·     SILK upgraded to Buy from Hold at Stifel saying with the stock down ~77% from its 52-week-high, the company is heartened that the new CEO is both re-affirming his belief in minimally invasive TCAR technology, extensive clinical data, and company’s growth potential.

 

Technology

·     In Internet: Goldman Sachs with broad industry note as they upgraded FVRR to Buy as it sees AI being a potential headwind in the coming years (weaker platform moat and adverse shifts in consumer/enterprise spending trends). Downgrade CHGG, COUR, and DUOL to Sell as we see AI being a potential headwind in the coming years (weaker platform moat and adverse shifts in consumer/enterprise spending trends). Downgrade ZIP to Neutral given a balanced risk-reward.

·     In Telecom: AT was upgraded from Perform to Outperform at Oppenheimer with $21 tgt noting shares have underperformed amid a difficult transition to position itself as a pure connectivity provider but believes these headwinds have moved to the rearview. In Towers, CCI was upgraded to Market Perform from Underperform at BMO.

·     In Telco Equipment: Barclays downgraded both ERIC and NOK to Underweight from Equal Weight saying telecom equipment vendors saw their North American RAN revenue almost halve last year. This downcycle is not over with 5G base station data suggesting a major slowdown in India and says l-t structural risk has also increased following AT&T’s decision to deploy Open RAN. CMBM shares tumbled after lowering Q4 revenue view to $40M from $45M-$50M saying the outlook for Q4 net loss and EPS to be below the low end of the previous non-GAAP range.

·     In Hardware: IBM upgraded to Outperform from In Line at Evercore/ISI and raise tgt to $200 as thinks that as Enterprises look to deploy AI tools to enhance productivity the process will be "complicated and messy," arguing that IBM, with their unique set of consulting and software assets, can help solve this bottleneck.

 

Media:

·     PARA gained following headlines on Apollo being among PE firms considering a buyout of National Amusements, the Redstone entity controlling Paramount.

 

 

Semiconductors:

·     The Philadelphia chip index (SOX) notched a record high, surpassing the previous peak set on Dec. 28 of 4,233.73, boosted by another optimistic outlook in the chip sector after SMCI boosted its revenue forecast sending shares over 25% early; NVDA hits a record high for the seventh time in nine sessions.

·     SMCI shares jump in AI space after saying it expects to exceed prior Q2 financial guidance as sees Q2 sales $3.6B-$3.65B (up from prior $2.7B-$2.9B and vs. est. $2.78B and GAAP EPS $4.90-$5.05 vs. est. $4.52 (shares of AVGO, NVDA saw early gains on guidance as well).

·     TXN upgraded from Neutral to Buy at UBS and raised tgt to $195 from $170 as believes it should be among the first to see orders inflect higher given less reliance on distribution and has cleaner comps and fundamentals.

·     Citigroup downgraded OLED to Neutral and moved MRVL to #1 pick among specialty semis as it likes the stock setup in 2024 on continued AI optics growth, layering of custom ASIC AI project sales, and bottoming out of non-cloud markets like enterprise networking and carrier. Moves NVDA from #1 to #2 following a 20%+ stock run and downgrade OLED on valuation. The firm said sell rated QRVO and SWKS remain CITI’s least preferred picks on increased RF android competition and China substitution risk.

·     TD Cowen said into earnings, names they like into prints: ASML (CY24 de-risked), LRCX (memory momentum), MKSI (mobile recovery), STX (HAMR thesis), TER (C2H story) & WDC (NAND pricing). ICHR (memory exposure & small cap recovery).