Closing Recap

Thursday, July 25, 2024

It was fun while it lasted. Yesterday’s decline snapped the longest period without a 2% decline since 2007. This morning, US equity futures were again in the red, though just modestly. Macro data pre-market was a mixed bag with higher GDP versus estimates, lower durable goods and initial claims pretty much in-line. The immediate net effect on markets was pretty much a non-event. Consistent with yesterday’s market performance, today’s bull-bear spread slid to 11.5 from 29.3 with bulls falling from 52.7% to 43.2% and bears rising from 23.4% to 31.7%. The Fear and Greed Index also remains in Fear territory at 40/100 versus Neutral readings last week and last month and Extreme Greed this time last year. By late morning, stocks had slipped then recovered and Technology was the lone S&P sector ETF in the red. Leaders were Industrials, Real Estate, Financials and Consumer Staples. Small caps outperformed, with THE IWM +1.7%, testing the resistance pivot, versus SPY +0.2% and QQQ -0.17%. Consistent with the tech underperformance, growth trailed value into mid-day.

In data of interest today, China’s one-year policy rate reduction was the largest since April 2020, per @jsblokland, as China moves to end its three-year real estate recession. Back in the US, @bespokeinvest notes 2023 and 2024 had been trading nearly tick-for-tick until the recent sell-off, which came earlier than last year. On earnings, @charliebilello notes with 35% of companies having reported, S&P 500 Q2 operating earnings are up 4% year/year, marking the 6th consecutive quarter of year/year growth.  Separately, he also highlights US small cap outperformance, saying small caps have gained 7% in the past ten days versus US large caps down 4%. The 11% spread is the largest ten-day small cap outperformance ever. Lastly, with Ford stock having its worst day since the 2008 financial crisis, @KobeissiLetter points out US automakers’ rough week. Consumer demand is slipping, car prices are rolling, and net income numbers are dropping. Not a great week, indeed.

Heading into the final hour of trading, equities had reversed back to slightly in the red from the mid-day highs. Utilities (XLU, -0.7%), Real Estate (XLRE, -0.20%) and Health Care (XLV, -0.34%) slipped to the bottom rung of the intraday performance ladder, while Consumer Staples, Technology and Communications were also lower. Leading the gainers were Energy (XLE, +1.85%), Industrials (XLI, +1.35%) and Financials (XLF, +0.9%). Small caps continued to outperform with IWM also off highs but gaining 1.7%. Value continued to outperform growth in a split day, with the Russell 1000 Value +0.51% versus its Growth counterpart -0.34%. Tomorrow brings more PCE data, so likely more volatility from the Fed watchers as well.

• Weekly Jobless Claims 4-wk avg climbed to 235,500 Jul 20 week from 235,250 prior week (previous 234,750); the 4-week moving average fell to 235,000 from 245,000 prior week; continued claims fell to 1.851M Jul 13 week (con. 1.860M) from 1.860M the prior week (prev 1.867M); U.S. Insured Unemployment Rate unchanged at 1.2%.
• June Durables orders dropped -6.6% vs. consensus +0.3% and vs May +0.1%; June Durables ex-transportation orders +0.5% (cons +0.2%), June Durables ex-defense orders -7.0% vs May unchanged (prev -0.2%), June gen. Machinery orders +1.6%, electrical equipment +1.3%, defense aircraft/parts -10.0%.

• September WTI crude futures bounced $0.69/bbl, or +0.89%, to settle at $78.28. Brent similarly gained $0.66/bbl, or +0.81%, to $82.37. Mixed economic data in the US generally helped, as GDP outperformed and likely aided the demand picture to offset some China concerns. Investors may have begun to internalize the soft-landing scenario once again. Separately, ongoing geopolitical conflicts and wildfires in Canada also are adding some price support from the supply side.

• In Restaurants: CMG reported a Q2 EPS beat on strong comp sales of +11.1% for quarter vs. ests +9.1% and authorized stock buyback worth $400 mln, exclusive of commissions sending shares higher overnight; pared gains after saying expects margins will be under pressure for the next couple of quarters & warn of rising costs even as burrito sales surge.
• In Food & Beverages: NSRGY lowered its sales outlook for the year saying now expects sales to grow at least 3%, lower than the roughly 4% previously targeted.
• In Appliances: WHR 2Q adjusted EBIT of $212M, 17% below estimate on weaker sales with Major Domestic Appliance North America sales down 6% YoY, while all other segments saw positive double-digit growth YoY; cut their 2024 adjusted EPS guidance to ~$12 per share (vs. previous $13-$15) and FCF guide to $500M (vs. previous $550M-$650M).

• In Auto suppliers & Retailers: LEA mixed Q2 with EPS beat, and slight rev miss while lowers FY24 revenue view to $23.23B-$23.67B from $24B-$24.6B and cuts FY24 adjusted EBITDA view to $1.67B-$1.84B from $1.8B-$1.95B. LKQ shares fell after this morning’s EPS & sales double miss as well as lowered forward guidance. In auto retailers: ORLY reported Q2 EPS of $10.55 (vs. $11.00 Consensus) and comp growth of 2.3% (vs. 3.1% Consensus). Comp growth was below expectations due to the soft demand environment that persisted through May while Gross margin contracted 53bp to 50.7% (vs. 51.5%) and guidance lowered due to soft demand environment
• In Leisure Products: HOG reported Q2 earnings that beat expectations by a wide margin, as lower pricing helped fuel an increase in shipments; Motorcycle shipments increased 15.9% to 49,700, revenue fell 8% due to less third-party distributor volumes, now expects Harley-Davidson Motor Company revenue to be down 5% to 9%, vs. prior down -5%.
• In Cruise lines: RCL reported a beat on top and bottom line for Q2 and raised annual profit forecast for third time this year on strong cruise demand and high-ticket prices, but the company said it expects annual net cruise costs to be 0.5% higher than previously expected.
• In Ride Sharing: UBER and LYFT bounced after California’s Supreme Court said it will consider a labor union’s challenge to a ballot measure allowing app-based services such as Uber and Lyft to classify drivers in the state as independent contractors rather than as employees with more benefits. The seven-member Court will hear oral arguments in San Francisco in a lawsuit by the Service Employees International Union and four drivers who say the 2020 ballot measure known as Proposition 22 was unconstitutional.
• In Casino & Gaming: BALY agreed to be acquired by Standard General, the company’s largest common stockholder, in a transaction that values it at $4.6 billion, including debt, with holders getting $18.25 per share. CHDN beats in all three segments for the second consecutive quarter; reported strong Q224 results, including EBITDA of $445M, +8% compared to consensus following a 10% beat in Q124 and 7% in Q423. LVS posted mixed Q2 results.

• In Waste sector: RSG reported 2Q adj. EBITDA of $1.258B (+13% y/y), ahead of the Street at $1.227B as better than expected margins (+110 bp y/y to 31.1% vs. Street at 30.4) were primarily the result of solid pricing and strong cost control. WCN beat 2Q24 top- and bottom-line consensus estimates and raised FY24 guidance midpoints while announcing strong incremental M&A activity. Price (+7%) and M&A (+6%) continued to pace growth. WM weaker as Q2 EPS $1.69 vs. consensus $1.83 and said revs rose 5.5% y/y to $5.40B vs. consensus $5.43B.
• In Aerospace & Defense: Bombardier Q2 revenue rose 32%, helped by higher plane deliveries and stronger sales in the Canadian business jet maker’s services business; said delivered 39 aircraft in the quarter, up 10 from a year earlier and reported a 5% higher backlog of $14.9 billion; NOC raised its forecast for full-year revenue and profit, amid increased global defense spending and a strong backlog; now sees year sales up to $41.4B from prior $40.8B-$41.2B and higher profit view; RTX raised its full-year profit forecast driven by a rebound in the broader commercial aviation sector; sees FY adj EPS $5.35-$5.45 vs. prior view $5.25-$5.40 per share.
• In Industrials: HON shares drop on results and guidance as Q2 topped consensus, but guidance was mixed as raised full-year sales to range from $39.1B-$39.7B, up from prior guidance of $38.5B-$39.3B but cut FY adj EPS to a range of $10.05-$10.25, down from prior guidance of $10.15-$10.45.

• In crypto: shares of cryptocurrency and blockchain-related companies fall in premarket trade, with Bitcoin falling -over 3% to one-week lows around $63,4000 (before paring losses back to $65K) while the world’s 2nd largest cryptocurrency, Ethereum, dropped as much as 7.5% to $3,120 as the 1^st U.S. ETF tied to ether that started trading on Tuesday failed to generate bounce in price as seen for spot bitcoin ETFs launched earlier this year. Shares of COIN, MSTR, CLSK, HUT, RIOT, MARA among movers in crypto. MARA updates Treasury policy to HODL all Bitcoin; current Bitcoin holdings surpass 20,000.
• In Business Services: URI reported adjusted EBITDA of $1.77B, which was modestly above consensus of $1.76 billion and below our estimate of $1.82 billion. 2Q EBITDA margin came in at 46.9% (est. 46.6%), with EBITDA flow-through margins of 33.8% (est. 28.5%). Total revenue of $3.77 billion was generally in line with consensus of $3.78 billion.
• In Insurance: ALL shares tumbled late day after the U.S. Justice Dept. sues National General Holdings Corp and subsidiaries for falsely placing insurance on hundreds of thousands of borrowers’ vehicles – Reuters.
• In REITs: LINE priced 56.9M shares at $78.00. The deal size was increased to 56.9M shares of common stock from 47M shares of common stock and priced within the $70.00-$82.00 range.

• ACIU said its Alzheimer’s drug candidate, known as JNJ-2056, was granted fast track designation from the US FDA.
• AZN raised its full year sales and profit forecast after beating analyst expectations for Q2 revenue on strong demand for its cancer, rare disease and heart disease medicines; expects both 2024 revenue and core earnings per share to increase by a mid-teens percentage at constant currency rates.
• Concentra Group Holdings Parent, Inc. (CON), a wholly owned subsidiary of Select Medical (SEM), today announced the pricing of Concentra’s IPO of 22.5M shares of Concentra’s common stock at a price of $23.50 per share.
• DAWN rises early after Ipsen enters into an exclusive ex-US licensing agreement with the biotechnology company to commercialize Tovorafenib for the most common childhood brain tumor.
• RHHBY raised its full-year earnings forecast after exceeding expectations for the first half, driven by strong demand for newer drugs such as eye medicine Vabysmo; said it expects growth in adjusted earnings in the "high single-digit range", up from previous estimates of "mid-single-digit" percentage growth.
• VKTX shares jumped after saying VK2735 to advance to Phase 3 for Obesity; end-of-phase 2 meeting planned for 2H24; oral VK2735 Phase 2 Study in obesity expected to begin 4Q24.
• WST shares fell after Q2 profit and revs miss consensus; lowers 2024 profit forecast to $6.35-$6.65 from prior $7.63-$7.88 view and consensus $7.74; cuts year sales view to $2.87B-$2.90B from $3B-$3.03B prior.

• In Managed Care: MOH reported a +6.5% adjusted EPS beat vs. Street against a consolidated MLR of 88.6% (in line with Street) and adjusted SG&A ratio of ~6.9% (-20-bps vs. Street). Operating revenues came in +1.3% above Street. Notably, MOH reaffirmed its 2024 adjusted EPS guidance.
• In Medical Equipment: EW shares tumbled, downgraded by Wall Street analysts after the company missed for two quarters in a row and last night lowered its 2024 TAVR growth guidance to 5%-7% from 8%-10%, as well as a lower ’24-’25 rev growth & EPS outlook.

• In Media: UMG shares tumbled after Q2 revenue from subscriptions and streaming grew just 4.1%, well below analysts’ forecasts of more than 10%; reported revenue of EU2.93B for the three months to the end of June, up 9.6% on year vs. est. EU2.89B; streaming revenue contracted 3.9% at constant currency to EUR343 million. SIRI was downgraded to Sell from Neutral at Citigroup. WBD is suing the National Basketball Association after it rejected the media giant’s matching bid for broadcasting rights, CNBC reported. The NBA on Wednesday rejected an offer from Warner’s TNT sports division — ending their four-decade long partnership — and announced new rights agreements with DIS ESPN, CMCSA-owned NBCUniversal and AMZN in an 11-year deal valued at $77 billion.

• In Hardware & Equipment: IBM 2Q total revs $15.77B top consensus $15.61B on better margins 57.8% with Pre-tax margin of 17.7%; Q2 software revs beat at $6.74B (+8% y/y cc) vs est. $6.51B with Red Hat revs decelerating to +8% y/y cc (vs +9% y/y last qtr); Q2 free cash flow $2.61B vs consensus $2.36B. AAPL iPhone shipments in China dipped by about two percentage points, while Huawei Technologies’ smartphone shipments soared 41% year-over-year in the second quarter of 2024, according to research firm Canalys.

• In Semi equipment: TER shares slumped after reported Q2 EPS and revs that topped consensus but guidance for Q3 fell short with EPS $0.66-$0.86 below consensus $0.86 and revs $680M-$740M midpoint missing est. $717.7M. KLAC guides posted a Q4 top/bottom line beat and guided Q1 adj EPS $6.40-$7.60 above consensus $6.49; Q1 GAAP gross margin is expected to be in a range of 59.9% +/- 1.0%.