Closing Recap

Tuesday, July 30, 2024

U.S. stocks were mixed on Tuesday ahead of the FOMC and Bank of Japan central bank meetings tomorrow, as the tech heavy Nasdaq saw the most damage along with the S&P 500 behind weakness in technology, consumer discretionary, and consumer staples. However, the Dow Jones Industrial Average managed modest gains behind strength in financials (overshadowing sharp declines in MRK, PG after earnings disappointed), while the Smallcap Russell 2000 managed to add to July gains as hopes of lower interest rates buoy several sectors. Semiconductors have seen a rough run over the last month heading into earnings season (after leading markets highs the last 18-months), as the SMH is -11% for July, down more than 20% from the highs with AMD results tonight and ARM tomorrow, along with QCOM, SWKS, QRVO this week (followed disappointing results from NXPI, STM the last 2-weeks in analog/auto names).  NYSE market breadth was positive by nearly 1.5:1 margin amid strength in energy stocks (XLE) despite another drop in oil prices ahead of OPEC+ meeting this week, and Financials (XLF) among leaders in the Dow (JPM, AXP, TRV) and gains in interest rate sensitive sectors Utilities and REITs. Economic data showed U.S. job openings fell modestly in June and data for the prior month was revised higher, suggesting the labor market continued too gradually slow. The data comes ahead of ADP private payrolls tomorrow and the Nonfarm payroll report on Friday. The Japanese yen/US dollar carry trade unwind also continues to play a part in the reversal of stock market strength, with the sector rotations and forced selling in Tech stocks in July. Still a busy week with more earnings (AAPL, AMZN) and data coming up as stock markets rallied in the final 15-minutes to pair losses.

Causing a little bit of a stir today, a newly published white paper accused the Treasury Department of conspiring to boost the economy for political ends, and of risking a revival of inflation in the process. The paper, published last week, claims that the Treasury Department’s decision to continue financing an outsize chunk of the U.S. debt with short-term Treasury bills is tantamount to deliberate manipulation of the economy. Its authors even invented a term for this: “activist Treasury issuance.” “By adjusting the maturity profile of its debt issuance, Treasury is dynamically managing financial conditions and through them, the economy, usurping core functions of the Federal Reserve,” co-authors Stephen Miran and Nouriel Roubini wrote in the paper’s introduction. https://tinyurl.com/28y4xt3j

• July Consumer Confidence index 100.3 (consensus 99.7) vs June revised 97.8 (previous 100.4)
• US May 20-metro area home prices +6.8% (consensus +6.7%) from year ago vs revised +7.3% in April– S&P CoreLogic Case-Shiller reports. U.S. May home prices in 20 metro areas +0.3% seasonally adj (consensus +0.3%) vs +0.4% in April and May 20-metro area home prices non-adjusted +1.0% vs +1.4% in April.
• U.S. home prices 0.0% in May from April as index 424.6 in May; U.S. home prices +5.7% in 12 months through May – U.S. regulator.

• The Japanese yen pared losses late morning and eventually gained vs. the greenback after a report that Bank of Japan board members to discuss raising rates at tomorrow central bank meeting (dollar went from 154.50 to 153 late day vs. yen). New FX chief comments impacted currency prices and ahead of central bank meetings.
• WTI crude fell -$1.08 to settle at $74.73, per barrel, down about -9% so far in July and lowest levels since early June on dissipating geopolitical risks and concern about the strength of Chinese demand. Top oil ministers at OPEC+ panel is unlikely to make any changes to its current deal to cut production at its Aug 1st meeting and to start unwinding some cuts from October, despite recent sharp declines in oil prices according to reports.
• U.S. Treasury yields dropped late day in choppy trading, ahead of the FOMC meeting, and after a generally positive consumer confidence report and a widely tracked job report still showed a resilient labor market. The reports, however, did not alter expectations that the Federal Reserve will flag at this week’s monetary policy meeting an interest rate cut in September, the first in more than four years. The Fed is widely anticipated on Wednesday to keep its benchmark overnight rate in the 5.25%-5.50% range for an eighth straight meeting.

• In Luxury Retail: Prada (PRDSY) 1H net revs EUR2.55B30 above ests for 1H net rev at EUR2.48B; Prada 1H Net Rev Up 17% at constant exchange rates and 1h operating profit EUR575.1M; said 1H Retail Sales Increased by 18% at Constant Exchange Rates.
• In Food: SFM shares jumped after boosting its Fy25 view for comparable sales and profit following a stronger-than-expected second quarter, prompting upgrades on Wall Street; ADM Q2 EPS of $1.03 missed the $1.22 estimate, hurt by lower crush margins and demand while prices slumped to nearly four-year lows; Q2 adjusted operating profit from ADM’s Ag services & oilseeds segment, its biggest by profit, slumped 56% to $459 million from a year ago. SYY posted Q4 EPS slightly above ests on easing costs as margins fell -1bps to 18.7% while revs rose 4.2% y/y to $20.56B, in-line.
• In Beauty sector: TD Cowen said they prefer ELF into earnings given the strength of the brand and stays cautious on EL despite the pullback (-33% since last earnings) mainly on weaker Chinese sentiment as lower tgt to $110 from $140; continues to like COTY as prestige fragrance remains a bright spot in beauty, but FY25 guide could be conservative. Loreal (LRLCY) reported mixed Q2 results as sales beat but comps were weaker.
• In Retail: BYON posted better than expected sales and EBITDA for Q2, but saw sales decline -5.7% y/y combined with an EBITDA loss. Mgmt executed its goal to drive sales consistent to Q1 but with a lower operating loss. Looking to Q3, the company has grand reopened Overstock.com with a new ad campaign, and it will likely be launching Zulily.
• In Sporting Goods Retail: VSTO said it was reviewing alternatives, including a sale, for its outdoor sporting gear business Revelyst and said Czechoslovak Group is considering a Revelyst acquisition, while it is also engaging with MNC Capital on its bid for the whole company.
• In Autos: TSLA is recalling over 1.8 million vehicles in the U.S. because software may fail to detect an unlatched hood, according to the National Highway Traffic Safety Administration. "The hood latch assembly may fail to detect an unlatched hood condition after the hood has been opened," said the NHTSA.

• In Appliances: WHR downgraded to Underperform at Bank America saying recent M&A speculation appears to have faded following Bosch’s public comments that they will be focused on closing its acquisition JCI’s light commercial and residential HVAC assets over the next 12 months, which has allowed WHR to return to trading on fundamentals.

• In E&P: CHK reported 2Q adj. EBITDA of $358mn was largely in line with Consensus as production ~2.75 bcfpd (+1% vs Consensus while capex was ~6% below Consensus and lowered ’24 capex/production cost guide by ~4%/8% at midpoint on efficiencies and deflation, while keeping production guide unchanged.
• Oil Service & Equipment: OIS recovered nicely from a slow start to the year, as both revenues and EBITDA bettered RJ/Street expectations. The double-digit top-line bounce back drove a 38% sequential EBITDA improvement
• In MLPs: WMB downgraded from Buy to Neutral at Seaport noting the stock is up more than 22% YTD and now trading at ~11x vs Seaport’s 2025 EBITDA estimates, a 1 turn premium vs its 5-year historical average and in-line with the longer-term 10-year average.

• In FinTech: PYPL Q2 adj EPS $1.19 topped consensus $0.99 and revs rose 8.2% y/y to $7.89B, also above consensus $7.82B as logged total payment volume of $416.81 billion, up 11% y/y and mainly driven by growth of 28% in unbranded card-processing volumes and a 9% increase across Venmo; said Q2 payment transactions increased 8%, to 6.6B; saw a 0.4% decline in its active account base, to 429 million; raised FY EPS view to $3.88-$3.98 from a prior guidance of about $3.65. AFRM was upgraded to Buy from Neutral at Bank America saying GAAP profitability maybe closer than consensus expects and U.S. interest rate cuts could benefit AFRM’s funding costs.
• In Insurance & Brokers: AON upgraded from Underperform to Outperform and raise target to $380 from $313 following its very strong 2Q24 earnings report at KBW saying they think AON is in the early stages of recovering organic revenue growth – and subsequent margin expansion. CNO posted Q2 EPS beat, helped by higher annuities of +.16 on higher NII (+$0.05) and favorable mortality (+$0.11), Health earnings were +$0.08 on favorable Long-Term Care and Medicare Supplement claims, and Life earnings were +$0.06 on lower advertising spend, said KBW.
• In REITs: ROIC shares popped after Reuters reported BX is in early-stage talks to acquire Retail Opportunity Investments, the owner of U.S. shopping centers with a market value of about $1.7B, people familiar with the matter.

• In Cannabis: TLRY shares bounced after saying that its beverage-alcohol division saw a 127% jump in revenue, to $76.7M in the fiscal fourth quarter from $32.4M y/y; said Beverage-alcohol gross profit increased 146% to $40.8M in the quarter; narrowed its quarterly loss to $15.4M compared with a net loss of $119.8M in the prior-year quarter.
• BNTX announces Phase II trial of BNT111/Libtayo in advanced melanoma achieves primary endpoint of statistically significant improvement of ORR.
• CLDX reported four serious adverse events in a mid-stage trial of its investigative treatment for chronic hives, where one patient experienced a severe allergic reaction.
• CORT posted Q2 beat and raise with EPS of $0.32 above est. $0.23 and revs of $163mm topping consensus est. $155mm while raises Fy24 Rev guidance from $620-50mm to $640-70mm.
• INCY reported 2Q revenues of $13.3B (vs. $12.96B est.), with the beat driven by Vyndaqel, Nurtec and the Oncology portfolio, with EPS of $0.60 (vs. $0.46 est.); raised FY24 guidance, now expecting operational rev growth of 9% to 11% (from 8% to 10%) and boosted year EPS view.
• NVO said data from a small clinical trial showed that a drug from the GLP-1 receptor agonist class known for weight loss slowed the loss of brain volume in people with mild Alzheimer’s disease.
• NVAX shares stumbled after being downgraded to Underweight from Neutral at JP Morgan saying shares are up 267% since the announced strategic partnership with Sanofi (SNY) for Novavax’s COVID-19 vaccine program.
• PTCT announced the submission of the Sepiapterin NDA to the U.S. FDA. The NDA submission is for the treatment of pediatric and adult patients with phenylketonuria (PKU), including the full spectrum of ages and disease subtypes.
• TERN announces CFO Vignola to leave in Jan. ’25 and the company announces Elona Kogan as new chief legal officer.

• In Healthcare Service/Facilities; NEO reported better-than-expected 2Q results and took up the guidance for revenue and Adjusted EBITDA for the remainder of the year.
• In Ortho space: FMS shares slumped after results in ortho space; said now expects full-year U.S. treatment volumes to be flat or to rise to 0.5% vs. prior view for a 0.5% to 2% growth range.

• In Machinery, AGCO shares dropped after posted a sharp Q2 loss as revs fell -15% y/y to $3.25B (vs. est. 3.48B) while targeted FY sales of about $12.5B, below consensus of $13.13B and well below the $14.4B in 2023; said tractor sales fell 8% in North America in the first six months of the year, while combine sales fell 11% in the same region; guided year adj EPS $8.00, well below consensus $10.95 (DE, CNHI, DE shares fell early in sympathy).
• Industrials/components: SYM shares dropped after posted mixed results and offered softer guidance (revenue beat guidance in FQ3’24 but adj. EBITDA fell well short, on weaker System gross margins); FLS Q2 adj. EPS of $0.73 came in well above $0.65 consensus, driven by FPD margins and growth in both segments and raised guide to $2.60-$2.75 from $2.50-$2.70. Other industrial movers post earnings: WSO, XYL

• Chorus Aviation has agreed to sell its regional aircraft leasing segment to HPS Investment Partners and its affiliates in a deal worth 1.9 billion Canadian dollars, the equivalent of $1.37 billion.
• HWM shares hit record highs after $2B share buyback, raised both its FY EPS and rev outlook (to $7.4B-$7.8B from $7.22B-$7.37B), driven by strong demand for its engine products and fastening systems from planemakers dealing with a surge in air travel
• LDOS Q2 EPS $2.63 vs. consensus $2.27; Q2 revenue $4.13B above consensus $4.06B; reports Q2 net bookings of $4B with a book-to-bill ratio of one for the quarter and 1.1 for trailing twelve months; raises FY24 adjusted EPS view to $8.60-$9.00 from $8.40-$8.80 and narrows its year sales view.
• WWD shares slid as Q3 EPS beat, but midpoint of year profit, sales and FCF below consensus.

• In Internet: META has agreed to pay $1.4 billion to Texas to resolve the state’s lawsuit accusing the Facebook parent of illegally using facial-recognition technology to collect biometric data of millions of Texans without their consent.

• In IT Services & Consulting: FFIV shares jumped after Q3 results were solid vs consensus with top-line and bottom-line metrics coming above expectations and FY/24 guidance moving higher across the board.
• In Hardware & Components: IPGP shares drop after Q2 miss ($0.45/$257.6M vs. $0.51/$258.9M) and sharply lower guidance as forecasts Q3 EPS $0-$0.30 below consensus est. $0.82; GLW shares slipped as Q2 profit fell, despite a rise in revenue supported by strong adoption of its new optical connectivity products for Generative AI.; guides core Q3 EPS $0.50 to $0.54, vs. est. $0.56 and core sales about $3.7B vs. est. $3.81B.
• Software Security: TENB shares spiked this afternoon after Bloomberg reported the Cybersecurity firm is noted to explore potential sale and is noted to work with advisers after takeover interest https://tinyurl.com/59jun4e2 . VRNS delivered strong results as ARR growth accelerated to +18% which moved CY/24 guidance up across the board, while SaaS adoption, now accounting for 36% of ARR as guidance moves up to 48% SaaS contribution in CY/24 vs 46% previously. CRWD shares pressured after reports that DAL is hiring attorney David Boies to seek potential damages from the cyber security company and MSFT following the widespread outage earlier this month.
• Comm & Networking: HLIT shares jumped as Q2 beat (adj EPS $0.08 vs. est. $0.04; Q2 revs $138.7M vs. consensus $133.67M) and sees Q3 revenue $175M-$190M vs. est. $177.83M.

• AMD expected to report earnings after the bell tonight. NVDA shares fell over 5% this morning.
• AMKR shares tumbled on results; reported Q2 results exceeding consensus and guiding slightly below the Street, and relative to 90 days ago, AMKR sees auto/industrial and traditional server recovery being weaker than expected.
• ASML upgraded to Overweight from Equal Weight at Barclay’s with a price target of EUR 1,150, up from EUR 930 saying the recent news flow and concerns have created an attractive entry point.
• LSCC shares tumbled on results; was downgraded from Neutral to Underperform at Bank America and cut tgt to $47after results, citing slowing growth prospects and muted visibility; Q2 sales were below midpoint of guide and Q3 also below consensus, as Q2 auto/industrial suffered from broad end market weakness and inventory normalization.
• RMBS reported Q2 earnings that fell short of Wall Street estimates and forecast product revenue for the third quarter below analyst estimates; sees Q3 licensed billings $60M-$66M, and product revenue $62M-$68M.