Closing Recap

Friday, January 26, 2024

U.S. stocks finish the day mixed, another consolidation type day after breaking out to new all-time highs earlier this week, awaiting potentially huge catalysts coming up. The S&P 500 index (SPX) once again topped the 4,900-level intraday but failed to hold/push meaningfully higher. The S&P 500 and Nasdaq each had their 6-day win streak snapped. Still, the S&P has advanced three straight weeks after having its 9-week win streak interrupted the first week of 2024 (totaling 12 of last 13 weeks closing higher), in a remarkable run since the end of October. Markets remain optimistic into next week’s FOMC policy meeting where investors/markets hope the recent “tamer” inflation data will prompt “dovish” comments and lead to rate cuts starting at the March meeting.

Next week a biggie for Wall Street with the FOMC meeting on Wednesday (no rate changes expected but mkts looks for dovish commentary) as well as five of the “Mag 7” companies expected to report (GOOGL, MSFT on 1/30, AAPL, AMZN and META all on 2/1) and some other big names as well (AMD, BA, GM, MA, UPS, XOM among others) – in what could be an interesting week! The week could mark a fresh catalyst for new market highs or provide the correction that Bears have been waiting for after a relentless 3-month rally.

So how long does the bullish market/rate cut optimism last? A Vanguard survey noted today that investors in December expected stocks to return 5.7% over the coming 12 months, 1.3 percentage points higher than in October…a level that was more than double their expectation of 2.7% for 2023. Markets certainly priced to perfection for the time being with much “AI” related hype built into growth stocks such as chips/players in the space (NVDA, MSFT, GOOGL, AVGO, others).

In Sector news today: the Philly semiconductor index (SOX) declined around -3%, led by INTC and KLAC after softer revenue guidance, leading to some profit taking in a group that has been a market leader on AI growth prospects. Credit cards a strong space today led by AXP (lifting the Dow) after upbeat 2024 profit guidance and COF moved higher on results (Visa slipped after their Q4 – more below).

• Inflation data showed: December overall PCE price index +0.2% vs. Nov -0.1% and December year-over year PCE price index +2.6% vs estimate and prior reading of +2.6%
• Core PCE price index for December +0.2% (in-line with est. +0.2%) and vs. Nov +0.1% and the Dec year-over year PCE core +2.9% (vs. consensus +3.0%) and vs Nov +3.2%.
• Pending Home sales for December climb 8.3% m/m, the highest reading since June 2020 and above the consensus for up 2%; Dec. Pending Home sales fall 1.0% from previous year.
• China’s outstanding property development loans totaled 12.88 trillion yuan ($1.80 trillion) at the end of 2023, up 1.5% from a year earlier, the Central bank said on Friday. Outstanding individual mortgage loans stood at 38.17 trillion yuan at the end of 2023, down 1.6% from a year earlier.

• Gold prices slip -$0.50 to settle at $2,017.30 an ounce.
• Treasury yields edge higher with all eyes on the FOMC meeting next week; the 10-yr yield was up a modest 1.4 bps on the week to 4.159% while the 2-yr yield fell -4.1 bps to 4.365%.
• The U.S. dollar index (DXY) pares loss to 103.40 around the 200dma.
• Bitcoin extending gains over 5% topping $42K, more than $4K off recent lows (after falling 20% from mid-January highs) – remains very volatile.

• In Consumer Staples: CL Q4 beats Q4 profit ($0.87 vs. $0.85) and sales ($4.95B vs. $4.9B) estimates, helped by higher pricing and steady demand for its self-care products while guided annual sales growth in the range of 1%-4% vs expectations of 3.55% growth.

• In Gaming: Flutter Entertainment, parent company of online sports betting platform FanDuel, is about to make its New York Stock Exchange trading debut. In addition to FanDuel, it also owns other sports-betting brands around the globe like Paddy Power, PokerStars, Sportsbet, and more. On Monday, Flutter will complete a dual listing on the NYSE under symbol “FLUT.”

• In Rigs and Services: Baker Hughes (BKR) said its U.S. oil rig count was up 2 to 499 as nat gas rig count down 1 to 119 and total rig count 621 (add oil and gas rigs for 2nd week)
• In LNG: The Biden administration announced yesterday that it is delaying actions on LNG export facilities. Lake Street said they believe this will cause delays to the planned ramp in this segment for GTLS, though does not impact their estimates as no big new LNG projects are in estimates but could weigh on shares as the Street expects 2-3 big-LNG projects over the next 12-18 months.

• In Payments/Credit cards: Dow component Visa (V) Q1 adj EPS $2.41 topped $2.18 per share view but forecast Q2 net revenue growth of upper mid to high single-digit vs expectations of 12.1% and said sees FY 2024 revenue growth of low double-digit vs expectation of 11%. Dow component AXP forecasts 2024 EPS $12.65-$13.15 vs. est. $12.40 after Q4 revenue rose 11% y/y to $15.80B missing the $15.99B estimate and said provision for credit losses jumped 40% y/y to $1.44B (est. $1.39B). COF EPS look lower than expected, driven by higher than anticipated expenses (ex. FDIC special assessment) while a higher than forecasted tax also weighed and NII was also a touch light, while fees beat.
• In Crypto: COIN was upgraded to Outperform at Oppenheimer with $160 tgt based on thesis that either COIN will prevail in SEC lawsuit, or the court will dismiss it; Spot Bitcoin ETF is a net positive; COIN’s fundamentals are in upward trajectory; prospects for positive GAAP EPS in Q4.
• In Fintech: Several analysts noted PYPL showcasing the company’s latest product innovations yesterday which disappointed, as they are expected to roll out this year. Many were not surprised to see the stock down today vs. elevated investors’ expectations, but we view PYPL’s new urgency/focus on innovation and execution key to the turnaround. (The payments company details six changes it is planning to roll out throughout 2024).
• In Financial Services: FICO reported solid results with double digit growth in revenue and EPS, -2% and -5% below Street estimates respectively, while mgmt maintained the FY24 guide.
• In Banks: Piper downgraded USB to Neutral and reiterate its OW rating on its favorite large regional KEY, which it believes possesses the best combination of positive touchpoints in the large regional space. Piper also continues to like FITB, which it considers a strong “down-the-middle” name that could get back into share repurchase later this year.

• AVBP priced its upsized initial public offering (IPO) of 9.7M shares of its common stock at a price of $18.00 per share (shares opened at $24).
• BMY receives positive CHMP opinion for car t cell therapy Abecma (idecabtagene vicleucel) in earlier lines of therapy for triple-class exposed relapsed and refractory multiple myeloma.
• BTSG priced its initial public offering (IPO), selling about 53.3M shares at $13, below its targeted range of $15-$18 to raise $633 million (shares opened at $12).
• CDNA shares fell a jury in a patent lawsuit with NTRA ruled in favor of Natera, winning the first phase of jury verdict, according to a court observer. http://tinyurl.com/mry5vkhp
• DYN shares popped late Friday after Bloomberg report of takeover interest (shares of RNA popped in sympathy as well) http://tinyurl.com/bdeb67br
• PTCT shares fell after the Committee for Medicinal Products for Human Use of the European Medicines Agency issued a negative opinion following a re-examination procedure for conditional marketing authorization of Translarna.
• VERA announced positive 72-week data from the open label extension (OLE) period of its Phase 2b ORIGIN trial of atacicept in patients with IgA nephropathy (IgAN), in-line with its guidance of a 1Q24 readout.
• Diagnostic companies A, AVTR, DHR, TMO, WAT all rebounded early after German competitor Sartorius (SOAGY) Q4 top/bottom line beat; sales of 850M euros ($922.1M), down -17% y/y on c/c but above views and said expects underlying EBITDA margin to rise to slightly more than 30% in 2024, from 28.3% last year.

• In Shipping: EGLE downgraded to Hold from Buy at Stifel saying given the window to shop EGLE to other investors has passed, we believe the merger with SBLK will occur. For industry, said shipping equities and rates generally did well in 4Q seasonally. In addition, the Red Sea and Panama issues have tightened supplies, which will benefit all shipping by elongating ton miles. From our perspective, product tankers have the best supply-demand dynamics with stocks that are still 10-15% below NAVs. Dry Bulk is next, with a tight supply picture.
• In Railroads: the last of US major rails reported today with NSC Q4 EPS $2.32 missing the est. $2.87 on revs $3.07B vs. est. $3.09B (yesterday saw UNP and CSX report results).

• In social media: SNAP upgraded from Hold to Buy at Deutsche Bank and raise tgt to $19 from $10 saying they see a clear, strong catalyst path towards upwards revenue and EBITDA revisions; PINS tgt raised from $45 to $50, maintains Outperform following checks at Evercore/ISI and materially raising estimates in the wake of its proprietary tracking and analysis of its Amazon partnership and a series of channel checks.

• APPF shares jumped after the results, as Q4 adj EPS $0.88 tops est. $0.72 on better revs $171.83M vs. est. $162.71M and guides FY24 revs $755-765Mm vs est. $763.34Mm.
• CRM is the latest tech company to cut jobs, trimming 700 people, a report says.
• JBL reinstated Buy at Goldman Sachs following the divestiture of its Mobility business and believe Jabil offers attractive longer-term EPS and FCF growth given its meaningful exposure to end markets such as hyperscale datacenter, EVs/ADAS, renewables, and healthcare.

• KLAC Q2 results were solid, yet guidance for FQ3 missed consensus estimates (revs of $2.30B plus/minus $125M vs. est. $2.46B), driven by a customers delayed greenfield fab expansion; expects sequential revenue growth to resume in FQ4(Jun) and sustain through CY-end.
• NXPI positive mention in Barron’s saying chip stocks are flying, except the chip stocks that do business with auto makers which has created a buying opportunity in NXPI, which should be able to buck the sector’s weakness when it reports earnings in February.
• SMCI tries to make it a 6th straight day of gains after high rev guidance last week has boosted shares and now up +67% YTD into earnings on Monday night in chip space.
• WDC reported in-line DecQ with revenue of $3.03B, while guiding the MarQ to a better than expected $3.30B/$0.05 (above consensus $3.14B/(-$0.40), though shares slipped on concerns of weaker NAND shipments.
• Huge week of earnings coming up in chip sector: AMD, MCHP, QCOM, SWKS, SMCI, TER, WOLF