Market Review: July 17, 2024

Closing Recap

Wednesday, July 17, 2024

Index

Up/Down

%

Last

DJ Industrials

243.73

0.60%

41,198

S&P 500

-78.93

1.39%

5,588

Nasdaq

-512.42

2.77%

17,996

Russell 2000

-23.93

1.06%

2,239

 

 

 

 

 

 

 

 

 

Major U.S. stock averages tumbled as the Smallcap Russell 2000 index snapped its 5-day win streak of consecutive 1% daily advances, but still outperformed the S&P 500 index (-1.39%) and Nasdaq composite (which fell -2.77%), while the Dow Jones Industrial Average advanced to record highs behind gains in healthcare as JNJ rallied after earnings and UNH extended its advance after results the day prior; rebounds in banks post earnings this week (JPM, GS); and INTC, CSCO outliers to upside in tech. After weeks (months/years) of depressed levels, the CBOE Volatility index (Fear) saw a sharp move higher today, rising around 10% midday, showing some hedging/concern if even just for a day (only 2nd down day for the S&P in July). Healthcare and Financials extended their recent runs to fresh all-time highs while Industrials pulled back, but the story of the day was the heavy-duty selling pressure in technology, led by semiconductors (SOX -6%) as the Nasdaq tumbled by as much over 500 points (though came into the year +23% YTD) before paring losses. The S&P 500 index (SPX) has now gone 352 sessions through Wednesday without a drop of at least 2%.

 

Energy, Financials, and Healthcare all outperformed technology (common theme over the last week) while defensive sectors utilities, REITs, and consumer staples were the biggest winners as NYSE breadth only small negative of 1.25:1 margin decliners leading advancers. For at least one day, there was concern in the semiconductor industry, as the Philly semi-index (SOX) fell over 5.8% to 5,460 (off recent record high of 5,931.83 on 7/11) after: 1) Donald Trump, speaking in a Bloomberg Business Week interview said that the U.S. is too dependent on Taiwan for manufacturing, which hit names like TSM (while boosted INTC, GFS which are among fab firms that could benefit from a shift out of Taiwan manufacturing); 2) also, the White House told its allies it is considering imposing the most severe trade curbs available if companies continue giving China access to advanced semiconductor technology (weighed on big chip names like NVDA, AMD); 3) lastly, semi equipment maker ASML shares tumbled more than 10% as Q2 results topped views (though were down y/y), while forecast Q3 sales below views (hitting equipment stocks). It’s important to note that semi stocks have led markets higher for the last 18 months, so profit taking on such concerns was not surprising. Another sector that saw stock selling pressure was weigh loss drugs as Roche (RHHBY) reported upbeat weigh loss drug data, sinking shares of NVO, LLY, VKTX, ALT and others on competitive pressures. Reminder the ECB is expected meet on Thursday July 18 with markets widely expecting no rate cut but look for and hints over a September possible cut.

Economic Data

  • Housing Starts and Building permits at lowest level in 4-years as per CNBC (June 2020). Housing starts reported at 1.353M vs. est. 1.3M as single-family starts fell (-2.2%) to 980,000-unit rate; multifamily +19.6% to 373,000-unit rate. June housing permits rose +3.4% to 1.446M vs. est. 1.395M and vs. May 1.399M unit rate. June single-family permits -2.3% to 934,000-unit rate; multifamily +15.6% to 512,000-unit rate.
  • June industrial output rose +0.6% vs. consensus +0.3% but down from May +0.9% as June mining output +0.3% (May -0.7%), utilities output +2.8% (May +1.9%). Capacity Utilization rate surges to 78.8% from 78.3% in May and vs. estimate 78.4%. June manufacturing output +0.4% (consensus +0.2%) vs May +1.0% (previous +0.6%).
  • Weekly Mortgage Bankers Assoc weekly data showed the applications index rose +3.9% to 214.1, the mortgage purchase index falls 2.7, the refinance index climbs 15.2% as the 30-year mortgage rate falls 13 bps to 6.87% in July 12 week.
  • Fed Beige Book showed economic activity maintained a slight to modest pace of growth in most districts this reporting cycle. Expectations for the future of the economy were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation. Prices increased at a modest pace overall, with a couple districts noting only slight increases.

Commodities, Currencies & Treasuries

  • August gold fell -$7.90 to settle at $2,459.90 an ounce, pulling back after touching fresh all-time highs of $2,488.40 an ounce earlier. Oil prices rose, snapping their 3-day losing streak as WTI crude rose $2.09 or 2.59% to settle at $82.85 per barrel while Brent Crude futures settle at $85.08/bbl, up $1.35, 1.61% following a bigger-than-expected weekly drop in U.S. crude stockpiles and as a weaker U.S. dollar overshadowed signs of slower economic growth in China. (on Tuesday, Brent closed at its lowest level since June 14 and WTI at its lowest since June 21). Front-month natural gas futures for August delivery fell 15.3c, or 7.0%, to settle at $2.035 per million British thermal units (mmBtu), lowest close since May 2. The US dollar index (DXY) dropped to a 17-week low against a basket of major currencies (DXY to 103.80). Treasury yields stayed in a narrow range, but down at lows late day with 10-yr 4.15%, 4-month lows.

 

Macro

Up/Down

Last

WTI Crude

2.09

82.85

Brent

1.35

85.08

Gold

-7.90

2,459.90

EUR/USD

0.0035

1.0931

JPY/USD

-2.19

156.15

10-Year Note

-0.021

4.146%

 

Sector News Breakdown

Retail, Consumer Staples & Restaurants:

  • In Discount Retail: FIVE shares tumbled after saying Joel Anderson steps down as president and CEO; lowered 2Q guidance for EPS, sales and comp sales and said will implement a greater sense of urgency around improving merchandising, shrink, self-checkout, and cost initiatives (cut Q2 EPS to $0.53-$0.56 from $0.57-$0.69 prior).
  • In Apparel Retail: EssilorLuxottica (ESLOY) has agreed to buy streetwear brand Supreme from VFC for $1.5 billion, both companies said on Wednesday. ANF will replace ETRN (which was acquired by EQT prior to the open of 7/22) in the S&P MidCap 400, and GTES will replace ANF in the S&P SmallCap 600. In Footwear, Adidas (ADDYY) was upgraded to Outperform at Telsey driven by better-than-anticipated underlying brand strength in Q224 with reported constant currency (CC) growth of 11% and 16% excluding Yeezy.
  • In Restaurants: SG was initiated at Buy and $31 tgt at UBS as the firm said it believes SG can generate 15%+ revenue growth over next 3-years, consisting of ~4% avg comp sales and a ~15% unit CAGR, and reach >6% EBITDA margins by ’26. TD Cowen with tgt changes for FWRG tgt to $18 from $21, MCD $285 from $305, SBUX $81 from $85 and WEN $17 from $19 into restaurant earnings saying early checks suggest the industry’s intensified push on value this Summer is stabilizing traffic headwinds but failing to accelerate sales. TDCowen prefers fast casual over quick service but has the most conviction in franchise businesses DPZ, QSR , & the greatest concern on SBUX & WEN.

Autos, Leisure, Gaming & Lodging:

  • In Theme Parks: Keybanc said Domestic geolocation data tracking DIS and CMCSA’s Universal Theme Parks appears negative noting Y/y results were -5% for Disney and 13% for Universal in June, and on a m/m basis, both Universal and Disney were below historical seasonality suggesting weakness in demand. Q2 results also declined at an accelerating rate for Disney (-5% y/y vs -3% CQ1) and Universal (-12% vs -10% CQ1).

Energy

  • In Refiners: VLO upgraded to Outperform at Mizuho in refiner preview, saying they still see risks to the outlook for U.S. refining margins, there are some green shoots and so, it selectively rates VLO (upgrade) and PARR as Outperform for investors looking to gain exposure. Mizuho believes operators with a complex refining kit with high clean-product yields, strong operational track record, and exposure to coastal markets will be advantaged. TD Cowen cut tgts on DINO and PBF and raises MPC tgt to $187 as they revise its Q224 EBITDA down another 10% after an initial 20% reduction, to 6% below consensus, and it prefers top picks MPC and PARR into prints over DK and DINO.
  • In Large Cap Energy: Bernstein upgraded HES to Outperform from Market Perform and raised PT to $172 from $166 while downgraded CVX to Market Perform from OP and cut tgt to $167 from $183. The firm takes down 2025 WTI oil price by $5/bbl to $75/bbl and Brent oil price the same amount to $78 and mark to market 2024 price. The reduction in oil prices generally reduces 2025 EBITDA across Bernstein’s coverage by between 7% and 10% (excluding LNG).

Banks, Brokers, Asset Managers:

  • In Regional Banks: CFG shares slipped as EPS/revs beat (Q2 EPS $0.82 vs. est. $0.78; Q2 revs $1.96B vs. est. $1.95B) but Q2 EPS $0.82 vs. est. $0.78; Q2 revs $1.96B vs. est. $1.95B and forecasts Q3 NII down about 1-2%. FBK downgraded to Neutral from Overweight at Piper noting shares have traded up between 5%-8% (vs 3%-4% KRE) as a better-than-expected margin drove the beat to Piper’s estimates – with contractual loan yields expanding more than the COIBDs for a third straight quarter. Shares are up ~32% since Q124 earnings – a sharp move higher. FULT a noisy quarter as per KBW Inc, due to a partial-quarter contribution from the Republic First deal. High-level PPNR trends are solid with stable credit and 2H24 PPNR in line with both KBW/ consensus. HWC Q2 EPS $1.31 vs. est. $1.20; Q2 revs $362.5M vs. est. $359.1M; Q2 loans decreased $59.3M, or 1% linked quarter annualized, deposits decreased $575.2 million, or 8% LQA, NIM 3.37%, up 5 bps – overall, stable credit, a higher NIM, better fees/expenses, and the resumption of share buybacks. USB Q2 EPS of $0.98 topped est. $0.95 on better net interest income (NII) of $4.05B (vs. est. $3.97B) and said sees NII as stable in Q3.
  • In Brokers/Investment: IBKR Q2 EPS $1.76 vs. est. $1.73; Q2 adj revs $1.29B vs. est. $1.273B; said Q2 customer accounts increased 28% to 2.92M y/y, customer equity increased 36% to $497.2B y/y, total DARTs increased 28% to 2.39 million y/y and customer margin loans increased 32% to $55.1B y/y; Q2 commission revenue increased 26% to $406M on higher customer trading volumes; customer trading volume in options, stocks and futures rose 35%, 26% and 10%, respectively. After tumbling -10% on Tuesday following earnings results, as Q2 bank deposits fell 17% year over year to $252.4B and net interest revenue also fell, dropping 6% to $2.16B for the quarter, TD Cowen downgraded to Hold from Buy.

Bitcoin, FinTech, Payments:

  • In Consumer Finance: ALLY sunk on earnings while SYF Q2 EPS $1.55vs. est. $1.35; Q2 revs $3.71B vs. est. $4.29B; Q2 CET1 capital ratio 12.6%; Q2 book value per share $36.24; Net interest income $4.41B vs. $4.41B q/q, total deposits $83.10B, -0.5% q/q, vs. est. $84.85B and net interest margin 14.5% vs. 14.6% q/q, vs. est. 14.4%.
  • In Crypto: Bitcoin prices hold recent rally, staying around the $65,000 level after a 2-day rally of over 12%; CORZ was upgraded to Buy at B Riley and raised tgt to $13 saying Core has been a leader in digital mining, and views the company as a future leader in HPC. CORZ was also initiated at Buy and $20 tgt at Cantor as believes Bitcoin miners currently have one of the most coveted assets in the world — access to power.
  • In Payments: Citigroup opened a "30-day positive catalyst watch" on shares of WU, FIS, GPN, MA, RELY, Visa (V), and FOUR into earnings season. DFS announced it has entered into an agreement to sell its private student loan portfolio to one or more strategic partnerships comprised of investment vehicles and accounts managed by CG and KKR, with Firstmark Services, a division of Nelnet (NNI), assuming responsibility for servicing the portfolio upon the sale. As of June 30, 2024, the principal balance of the private student loan portfolio was approximately $10.1 billion.
  • In REITs: Lineage Inc. (LINE), a temperature-controlled warehouse real-estate investment trust, or REIT, set terms for its initial public offering on Tuesday with plans to offer 47 million shares priced at $70 to $82 each. The company would raise up to $3.85 billion at the top of that range and become the biggest deal of 2024 to date.

Biotech & Pharma:

  • Pharma giant and Dow component JNJ reported Q2 adj EPS $2.82 above est. $2.70 on slightly better revenue $22.4B noting global oncology sales rose 16% to $5.09B in Q2, while medical devices, posted sales growth of 2.2% and its overall pharma unit posted sales growth of 5.5%; cuts FY24 adjusted EPS to $10.00-$10.10 from $10.60-$10.75 (est. $10.01); raises FY24 operational rev view to $89.2B-$89.6B from $88.7B-$89.1B (est. $88B).
  • In the Obesity markets: shares of LLY, NVO, VKTX and other players in weight loss stumbled after Roche (RHHBY) reported promising early-stage data from an experimental obesity pill acquired as part of its $2.7B buyout of Carmot Therapeutics; Roche’s once-daily pill, CT-996, helped patients lose 6.1% of their body weight on average within four weeks in an early-stage study – said phase 1 trial results show its CT-996 drug helped patients lose 7.3% of their body weight within four weeks versus weight loss of 1.2% in a placebo group. This is above the efficacy reported with Novo Nordisk’s Wegovy and Eli Lilly’s Mounjaro.
  • In Managed Care: a day after surging on earnings and in-line guidance, UNH shares were upgraded to Buy from Hold at Jefferies and raised tgt to $647 from $481; ELV reported Q2 adjusted EPS $10.12 vs. est. $10.01; Q2 revenue $43.2B vs. est. $43.05B; sees FY24 adjusted EPS ‘at least’ $37.20 per share vs. prior view (est. $37.28).
  • SAVA shares tumbled after saying CEO Remi Barbier has resigned and named Richard Barry as interim chief executive.

Transports

  • In Transports: Trucker JBHT reported a GAAP EPS miss 1.32 vs FactSet $1.48 due to lower-than-expected operating profit as brokered freight pricing continues to remain stable but volume declined 8% q/q, worse than typical seasonality; said the decline in revenue was primarily driven by a 5% decrease in gross revenue per load in Intermodal and a decline in load volume of 25% in Integrated Capacity Solutions, 9% in Truckload, and 9% in Dedicated Contract Services.
  • In Airlines: AAL was downgraded from Buy to Hold and lowering PT to $10 from $16 at TDCowen saying they have been concerned by the carrier’s aggressive discounting this summer and believe there is downside risk to 2H24 RASM/EPS estimates. Further, the company will need to make significant investments to close the Gap with DAL and UAL. TD Cowen also cut SAVE to Sell from Hold and cut tgt to $2 as believes there is still much downside risk to estimates given oversupply in leisure markets, weakness among lower income cohorts, and myriad constraints on utilization. Separately, SAVE said Q2 total revenue estimated to be approximately $1.28B (vs. prior $1.32B-$1.34B) vs. consensus of $1.33B.

Industrials, Materials, Aerospace & Defense

  • In Industrials: BE announced a partnership with a cloud infrastructure provider to deploy BE fuel cells at a co-located AI data center in IL (BE did not quantify the size of the order or the terms). ROK said they hired Christian Rothe, formerly an executive at Graco, as their next CFO after Nick Gangestad retired.
  • In the Engineering & Construction (E&C) space: Keybanc reiterated MTZ, DY at Overweight and some of top picks given the combination of valuation and favorable end market exposure and are upgraded FLR to Overweight with a $57 tgt. The firm said there were few surprises post Q1 results with the guidance increases for FIX, EME, PSN and TTEK being mostly predictable. DY and MTZ guidance increases offered more upside surprise, hence their stock reaction.
  • In Materials: KRO guided Q2 sales $495M-$510M below consensus $568M and sees Q2 EBITDA $49M-$56M; said TiO2 sales volumes in the second quarter of 2024 are expected to be approximately 134,000 metric tons which is 29% higher than the second quarter of 2023 and 3% higher than the first quarter of 2024.

Hardware & Software movers:

  • In Software: GTLB shares rose after the U.S. provider of cloud-based software development tools whose investors include Google parent Alphabet, is exploring a sale after attracting acquisition interest, according to people familiar with the matter. https://tinyurl.com/3v3ab4k9  
  • In Security Software: Keybanc lowered estimates on security vendors PANW, CHKP, FTNT, S, CRWD, CYBR and lowered price targets for CRWD while raising estimates and price target for ANET saying results from their Q2 IT VAR survey suggest a similar or even slightly more challenging quarter than Q1. Meets/beats vs plan, the 2024 growth outlook, macro views, and expected timing of an IT recovery worsened vs last quarter. 45% of survey respondents met/exceeded plan, down from Q1’s 50%, which was already a significant step down from prior quarters.

Semiconductors:

  • Semi sector (SOX) took a big breather today, falling 6% (still among top movers in 2024 and stellar 2023), hurt after: 1) Bloomberg reported that the Biden administration has told allies that it’s considering using the most severe trade restrictions available if companies continue giving China access to advanced chip technology, 2) AMSL shares fell as net income of 1.6B euros ($1.74B) for the quarter ended June 30 was down 19% from a year earlier but beat the 1.41B expected by analysts; revenue fell 9.5% to 6.2B euros but topped an analyst’s estimate of 6.04B; 3) Donald Trump said he thinks Taiwan should pay the U.S. for defense claiming the country “doesn’t give us anything.” Trump appeared to link his comments to Taiwan’s semiconductor industry which is one of the most advanced in the world saying it took “about 100%” of America’s chip business (shares of STM, TSM were lower). https://tinyurl.com/4e4pddj2 4) also a rotation toward smaller companies, with the Russell 2000, gaining more than 11% over the past five trading days.
  • Shares of INTC and GFS surged after Donald Trump questioned U.S. support for Taiwan in an interview with Bloomberg BusinessWeek saying the U.S. is too dependent on Taiwan for manufacturing. B Riley noted GlobalFoundries, Intel and other global fabrication firms seeing a benefit that there might be some shift out of Taiwan manufacturing and into other locales including U.S. certainly has caused a surge this morning.

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.