Closing Recap

Tuesday, January 23, 2024

U.S. stocks popped late day, hitting fresh record closing highs for the Dow (a 2^nd day), the S&P 500 (3^rd consecutive day), and Nasdaq 100, maintaining their gains as investors remain comfortable holding into key economic data later this week. A handful of Dow components reported early as VZ shares jumped on earnings/sub adds/FCF results, PG shares advanced after raising its profit outlook, while JNJ dropped on its results and MMM tumbles on lower guidance. Earnings tonight in tech for NFLX and TXN coming up. In economic data, the Richmond Fed composite manufacturing index -15 in Jan vs -11 in December and manufacturing shipments index -15 in Jan vs -17 in December (mkts await GDP on Thursday and PCE inflation data on Friday). Consumer Staples were among the best performers on Tuesday after PG results while REITs fell the most. Gold prices edge higher despite a bounce in the dollar and Treasury yields. China stocks rallied after a brutal start to 2024 after Bloomberg reported overnight that China is considering a stock market rescue package of ~$280B. European markets slipped ahead of the ECB meeting later this week.

The S&P 500 closed at a new record high 4,850.53 on Monday 1/22 (intraday high was 4,868.41) while the Dow closed above 38K for the first time ever. @charliebilello noted “The Dow crossed above 38,000 yesterday for the first time. It took 772 days to go from 36k to 37k and just 40 days to go from 37k to 38k.” (took 175 days to go from 35K to 36K, only 25 days to go from 34K to 35K and 29 days to go to 34K from 33K). More upside action, with the S&P holding above yesterday’s lows as investors await the next big round of earnings/data.

The Fed is in their “blackout period” ahead of next week’s FOMC meeting, but that didn’t stop former St. Louis Fed President James Bullard from speaking, who said earlier he expects the Federal Reserve to begin lowering interest rates before inflation hits 2%, and that cuts could come as soon as March. Bullard predicts that the core inflation rate, which excludes food and energy prices, will slow to around 2% before October. The personal consumption expenditures price index, or PCE, fell to 2.6% in November 2023 from a year earlier – comments made in an interview with the WSJ’s Take on the Week podcast.

• The U.S. dollar index (DXY) rose +0.3% above to $103.70, 7-week highs and reclaiming its 103.48 200dma today. The Japanese yen fell against the U.S. dollar in volatile trading after the Bank of Japan maintained its ultra-easy policy and signaled an April exit from negative interest rates. The yen first weakened after the BOJ decision but firmed. Th euro slipped ahead of the ECB meeting later this week.
• Bitcoin drops below $40,000 to a more than 7-week low (and far off January highs above $49K). Bitcoin has fallen over 20% since the Jan. 11 launch of the first exchange-traded funds investing directly in the token.

• In Restaurants: JP Morgan downgraded BLMN to Neutral from Overweight, downgraded CAKE to Underweight and upgraded TXRH to Neutral from UW saying they prefer DRI and EAT over them saying to use CAKE as a source of funds. JPM said some debate exists around the impact on recent changes in effective industry supply growth the past several years but the segment defining, value-oriented operators seem positioned to take long term share. The firm said prefers SG, BROS at current levels and like CAVA opportunistically, over DNUT and SHAK.
• In Tobacco: UBS detailed analysis suggests next generation products (NGP) – c20% of industry revenues – growth is likely to slow over the next five years, largely due to heated tobacco and downgraded shares of PM to Sell from Buy at UBS and cut tgt to $86.50 from $105 in conjunction with call.

• In Home Sale: @charliebilello noted “Investors purchased 123k single-family US homes in the 4th quarter of 2023, down 24% from year-ago levels and 48% lower than Q2 2022 levels.”

• In Autos: VRM said it would wind down its used-vehicle ecommerce business and cut about 800 employees, stop transactions on its website for buying and selling used cars and sell its current inventory. Vroom has been looking to raise capital to fund operations for its ecommerce business but said that it hadn’t raised sufficient funds.
• In RV sector (CWH, THO, WGO): Citigroup said RV registrations in November (the most recent datapoint) were down 15%, which was an improvement from October, which was down 23% vs. 2019. Citi is modeling 2024 industry retail to be down low-to-mid single-digits y/y, which is in-line with our previous estimate on a percentage basis but higher on a unit’s basis due to better-than-expected retail to close out 2023.

• In Utilities: CNP downgraded to In Line from Outperform at Evercore ISI after solid relative stock performance in 2022 (+7% vs -2% UTY) and 2023 (- 5% vs -12% UTY) and DUK upgraded to Outperform from In Line at Evercore ISI as sees DUK as the best total return potential amongst regulated large cap names.
• In Oil Majors: XOM upgraded to Outperform from Market Perform at TD Cowen on valuation as it sees more compelling upside as the stock has declined with an unchanged valuation and downgraded CVX to Market Perform from Outperform as its largest drivers of CFO growth – Permian and TCO – could continue to be discounted by the market due to execution concerns, while the HES deal May not result in annual net cash inflows until 2027.
• In Refiners: VTNR cuts forecast for Q4 throughput volumes at its Alabama Refinery to 67,000 barrels per day (bpd) vs prior forecast of 68,000 bpd to 71,000 bpd; expects Q4 renewable diesel production to be 3,900 bpd, below its prior forecast of 4,000 bpd to 6,000 bpd.
• In Solar: ENPH upgraded from Hold to Buy at Truist and raise tgt to $145 from $85 saying sees downside risks largely priced in at this point with the stock down 50% in 2023 vs S&P +24% on headwinds in both US and European markets and upgraded NOVA to Buy from Hold saying the co changed tone in the company’s Q3 earnings report, throttling down growth expectations in favor of eliminating corporate capital needs for this year. CSIQ shares jumped after saying earlier its subsidiary Recurrent Energy has secured a $500 mln preferred equity investment commitment, convertible into common equity, from BlackRock.

• In insurance: BRO shares record all-time highs after posting an 85% surge in Q4 profit helped by higher commissions and fees alongside better investment returns as EPS of $0.94 was above $0.54 y/y as core commissions and fees increased about 11.5% to $964M.

• Bitcoin drops below $40,000 to a more than 7-week low (and far off January highs above $49K). Bitcoin has fallen over 20% since the Jan. 11 launch of the first exchange-traded funds investing directly in the token.

• The FDA said companies will be required to add a serious warning (black box warnings) on the prescribing information for cancer therapies known as CAR-T, made by GILD, JNJ, NVS, BMY, TSVT and LEGN.
• INBX was downgraded to Market Perform from OP at JMP Securities saying with four distinct assets in the clinic, a registrational trial for INBRX-101 enrolling patients, results from multiple studies expected over the next 6-12 months, and a cash position of $356.6MM (pro forma), believes Inhibrx shares are fairly valued.
• SNY said it plans to buy assets from INBX in a deal worth up to $2.2 billion as it looks to diversify its product base and boost its pipeline of rare disease treatments; will acquire Inhibrx’s INBRX-101 therapy, a potential treatment for a genetic disorder that raises a patient’s risk of developing lung diseases and other illnesses.
• TEVA upgraded to Buy from Hold at Jefferies and raised tgt to $14 from $10, bullish heading into ’24 guide given consensus rev ests look conservative despite several tailwinds at play (GX + key product trends).

• MMM shares fall after lower FY guidance; Q4 adj EPS $2.42 vs. est. $2.31; Q4 revs $7.69B vs. est. $7.7B; guides Q1 EPS $2.00-$2.15 vs. est. $2.11 and Q1 revs $7.6B vs. est. $7.89B as sees Q1 macroeconomic trends similar to Q4; sees FY adj EPS $9.35-$9.75 vs. consensus of $9.81.
• Infrastructure stocks PWR, MTZ, DY were notably lower on the day. PWR shares led the declines after reports the Tohono O’odham Nation and the San Carlos Apache Tribe filed in Arizona federal court to sue the U.S. government over the construction of a wind-energy transmission line through the San Pedro Valley and are calling for construction work to stop on the SunZia Southwest Transmission Project.
• In Airlines: UAL shares jump as Q4 adj EPS $2.00 tops est. $1.69 on better revs $13.6B vs est. $13.541B; CASM -0.1%, CASM-EX +4.9% y/y; says last two weeks of Dec busiest travel period in history flying 8.2Mm customers, says well positioned to deliver on short-term and long-term financial targets; sees Q1 adj EPS ($0.85)-($0.35) vs est. ($0.22), sees FY adj EPS $9.00-11.00 vs est. $9.52.

• LMT guided 2024 EPS $25.65-$26.35, below the $26.62 consensus view citing disruptions in labor and supply chain snags while forecasts annual sales in the range of $68.5B-$70B vs. est. $68.66B.
• RTX reported Q2 adj EPS $1.29 while revenue increased 10% to $19.93B (vs. est. $1.24/$19.74B) on higher FY24 guide but cuts its FY25 adj annual sales view to up 5.5%-6% from 6%-7% and cuts FY25 adjusted segment margin expansion view to 500-550 basis points from 550-650 basis points while backing its FY25 free cash flow view $7.5B.

• In Media: TKO shares jumped after saying NFLX will be the new home for “WWE Raw” in 2025, its first Live sporting event. SIRI downgraded from Equal Weight to Underweight at Wells Fargo and trim tgt to $4.50 saying with the firm’s adj. EBITDA growth est. of -5% y/y in ’24 + no buyback, it thinks SIRI will trade towards the lower end of its valuation range. NFLX said Scott Stuber, head of films, will leave the streaming service pioneer in March to start his own media company.
• In China news: gaming names TCEHY, NTES rallied after reports China regulators have appeared to backpedal from its plan to reduce how much money people spend on online video games after the proposal tanked video gaming company stocks – NYT reported http://tinyurl.com/262c5mwc. Separately, BABA shares got a bounce after the NY Times reported that Jack Ma has been buying shares in the tech giant he Co-founded as its stock has plunged. http://tinyurl.com/y2zn6dpm . Lastly, China stocks got a bump overnight after Bloomberg reported China is considering a stock market rescue package of ~$280B.
• WOLF shares rose after announcing an expanded and extended Multi-Year Silicon Carbide (SiC) 150mm Wafer Supply Agreement with Infineon originally signed in February 2018.
• ZUO upgraded from Neutral to Buy at Goldman Sachs and raise tgt to $12 from $10 saying heading into FY25, thinks numbers are de-risked in a stabilizing end market, new product uptake presents upside risk that is not currently modeled and the improving profitability profile of the company is sustainable.