Closing Recap

Monday, January 22, 2024

U.S. stocks opened and stayed higher, finishing in a narrow trading range as major averages hold all-time highs for the S&P and Dow, while Smallcap Russell 2000 outperformed on Monday. Consumer Staples, Utilities, and Consumer Discretionary were the downside market outliers but overall breadth was generally favorable with solid gains in Industrials, Technology, REITs, and Healthcare sectors. Economic data appear light tomorrow ahead of GDP and PCE data later in the week, while the earnings barrage trickles in slowly starting tomorrow morning with Dow components Verizon and J&J reporting as well oil service giant HAL, industrial conglomerates MMM and GE, and defense companies LMT and RTX. This morning the Leading Economic Indicators index was reported at (-0.1%), marking the 21st month in a row of a negative reading (as per CNBC) – March 2022 was last time not negative (was unchanged). Treasury yields were little changed along with the dollar while gold slipped, oil rose, and Bitcoin slid. A quiet day, but another “up” day as momentum clearly to upside.

Overseas, ahead of central bank policy meetings this week for both the Bank of Japan and European Central Bank (ECB): Europe’s Stoxx 600 was up 0.8%, Britain’s FTSE 100 rose 0.4%, Germany’s DAX gained 0.7%, France’s CAC 40 climbed 0.6%, and Spain’s IBEX advanced 1.2%. Argentine benchmark stock index Merval hits all-time high, now up more than 4% in sixth consecutive session of gains. U.S.-listed Chinese stocks (BABA, BIDU, JD) mirror declines in China while Hong Kong’s Hang Seng approached its lowest close since 2009, but the Nikkei 225 closed at a fresh multidecade highs.

Interesting stat between Smallcaps and the S&P 500: as per @charliebilello: The S&P 500 closed at an all-time high last Friday while the Russell 2000 Small Cap Index was still in a 20.4% drawdown. That’s the largest Russell 2000 drawdown we’ve ever seen with the S&P 500 at an all-time high. What happened following the 3 previous largest Russell 2000 drawdowns when the S&P 500 was at a record high? Both indices would rally higher over the next year with the R2k outperforming and joining the S&P 500 at an all-time high…1) April 7, 1999 (-19.2% R2k Drawdown): S&P 500 gained 14.3% over the next year and R2k gained 36.5%. 2) February 13, 1991 (-13.5% R2k Drawdown): S&P 500 gained 12.1% over the next year and R2k gained 35.5%. 3) January 21, 1985 (-13.3% R2k Drawdown): S&P 500 gained 17.4% over the next year and R2k gained 18.2%.

• Gold prices slipped, falling -$7.10 to settle at $2,022.20 an ounce (highs $2,034.10 an ounce and lows $2,017.40 an ounce) as investors eased back expectations of a U.S. interest rate cut at the end of March, with a surge in equity markets further dampening interest in safe-haven bullion.

• In Retail: Arkhouse Management and Brigade Capital Management, the investment firms that disclosed a $21/share bid for Macy’s (M) last month, are now threatening to go directly to shareholders with their $5.8B offer rejected by the company. http://tinyurl.com/yx8282jx .
• In Research: LULU was downgraded from Buy to Hold at HSBC with $500 tgt saying Lululemon has been a massive growth outperformer in the sporting goods industry. However, this outperformance seems to be well reflected in the share price, which hit a lifetime high.
• In Home Improvement Retail: HD, LOW downgraded from Outperform to Perform at Oppenheimer as the firm assumes a more cautious, near-term stance towards home improvement retail though note structural underpinnings remain intact.
• In Food Processing: ADM shares tumbled after saying its CFO was placed under administrative leave as it investigates its accounting practices; expects to delay its earnings release and conference call as well as the filing of its Annual Report on Form 10-K for the year; now expects to deliver above $6.90 in adjusted EPS for the FY below consensus of $7.28.

• In Media: RUM said it has struck up a partnership with digital-media company Barstool Sports as Rumble users will get access to all Barstool Sports content on the platform, including live streams. Barstool will also market and promote Rumble as their preferred video home.
• In Leisure sector: LCII downgraded to Underperform at BMO Capital and $100 tgt saying conversations with industry participants at the early season RV shows are making them incrementally more negative about LCII’s prospects in 2024.
• In Consumer Staples: Morgan Stanley said preferred OW-Rated Stocks (CL/STZ/KO/CHD in order, STZ/KO Up in Order, ELF Downgrade to EW and CHD move down in rankings.
• In Food Delivery: CART initiated new Buy and $32 tgt at Benchmark saying its valuation underappreciates its discounted FCF outlook and addressable TAM despite expectation for future digital grocery market share loss to competing intermediaries and traditional grocers. UBER price tgt rose to $80 from $67 at TD Cowen ahead of earnings as estimate Q423 Gross Bookings near the high end of Uber’s $36.5B-$37.5B range.

• In Solar: ARRY was downgraded to Equal Weight at Barclays given weak bookings YTD and an expectation for a soft booking again in Q4, and upgraded SHLS to Equal Weight, more comfortable with risk/reward given that valuation and 2024 estimates that have both come in. SEDG said it will lay off about 16% of its workforce, about 900 employees, as part of a restructuring to slash operating costs.

• In FinTech: Goldman Sachs upgraded STNE to Buy from Neutral and raise PAGS to Neutral from Sell in Brazil payment tech sector noting Brazil payment stocks have rallied 45% since Oct. 2, 2023, with Stone +59%, PagBank +46% and Cielo +30% vs Ibovespa +14%. In GSCO’s view, the positive performance is mainly a combination of declining rates, TPV growth stabilization and lower regulatory risks for interest-free installments. PYPL notable underperformer on the day.

• Evercore is upgrading REG upgraded to Outperform from In Line and boosting its PT from $69 to $71 which implies a total return of 18% vs a 9-10% return for its coverage universe.

• CHRS rises after striking a deal to sell its Cimerli ophthalmology franchise to Swiss pharmaceutical company Sandoz for $170 million in cash.
• GILD shares tumbled after a Phase III trial testing Trodelvy in certain lung cancer patients failed to improve overall survival (Gilead bought Trodelvy-maker Immunomedics in 2022 for $21B).
• GMAB downgraded to Sell at Citigroup as now assumes Genmab is unsuccessful with regards to the ongoing arbitration regarding key drug Darzalex, used to fight cancer in bone marrow.
• IONS said its injectable treatment called Donidalorsen reduced the frequency of severe tissue swelling attacks compared to a placebo in patients with hereditary angioedema.
• PHVS announced the FDA lifting of the clinical hold of Deucrictibant for the Prophylactic treatment of HAE attacks.
• SGMT said its experimental fatty liver disease drug, denifanstat, met the main goal of a mid-stage trial, significantly reducing symptoms of the disease including fat accumulation, inflammation, and fibrosis compared to placebo.

• Freight and Logistics: TFII upgraded to Outperform from Sector Perform at Scotia and downgrade CAE to SP from OP as reviews its top ideas for 2024 based on the risk/reward and assuming a soft landing. Scotia has tempered its 2024 expectations to below consensus due to uncertainties, while trimming its multiples in a few cases. JBHT was upgraded to Buy at UBS saying its Q423 EPS report provided evidence their intermodal margin has likely reached bottom and the 80 bp sequential improvement (vs Q3) points to potential for gradual improvement in 2024.
• In Railroads: Bernstein upgraded UNP to Outperform from Market Perform with a $280 price target calling it a top-quality franchise and NSC upgraded to Outperform ($272 tgt) for its turnaround story. Overall, thinks high quality, low volume North American transportation dividend paying stocks will get a look as the interest rate regime turns, and railroads fit that bill.

• COMM downgraded from Neutral to Underperform at Bank America with $2 tgt citing limited short-term catalysts and risk with paying down debt levels.
• JP Morgan put WOLF, XRX on positive catalyst watches and GLW negative catalyst watch – along with pair trade of FLEX over JBL ahead of upcoming earnings as it sees the valuation multiples between the two companies compressing over the upcoming earnings cycle.
• In HDD sector: STX tgt rose to $100 from $60 and WDC to $70 from $65 in storage component previews ahead of earnings at Wedbush. Morgan Stanley names WDC as its top picks, replacing NVDA, raising its tgt to $73 from $52 saying separation of HDD and NAND business will unlock material value and sees pricing of memory storage medium NAND up more than 20% in Q1 .
• In infrastructure/systems software preview, Citigroup puts AKAM on positive catalyst watch and upgrade FSLY to Neutral saying channel feedback for observability/DevOps names was indeed encouraging, but sharp run-up in Buy-rated DDOG, TEAM, and lesser extent DT, leaves an unnerving stock set-up into CQ4 prints, initial CY24E/Forward-Year outlooks.

• ASML was upgraded to Outperform in Euro semi equipment at Bernstein saying despite the expected transitional year for WFE in 2024, Bernstein believes ASML is looking increasingly attractively priced vs semicap peers.
• NVDA tops $600 as the Philly semi-index (SOX) hits new record highs on upward momentum.
• SMCI extended Friday’s gains (rose 35% Friday after higher rev guidance) to record highs above $480 before giving sliding early morning in a bout of profit taking (shares rebounded off lows).