Closing Recap

Monday, June 03, 2024

Stocks finish mixed, after opening the trading week higher following a strong surge late Friday, with the Nasdaq rising and both Dow and Russell 2000 falling. Stocks tumbled after the open, giving back much of last Friday’s late day surge, but interestingly the S&P (SPX) bounced off the 5,235 level (which happened to be the "lift-off-level" on Friday when stocks surged to end at highs, closing around 5,280 that day). The Dow fell over -300 points early and the Nasdaq reversed more than 250 points off its highs to lows in volatile trading – but by days ended way off lows. Energy was the biggest drag in the S&P (XLE -2.65%), falling alongside a decline in oil prices as Brent and WTI crude tumbled as investors digested the deal brokered by producer group OPEC+ this weekend to extend various layers of output cuts, much of them into 2025. Technology and Communications were among early market leaders, but faded on profit taking, while Materials, Industrials, and Financials joined Energy weakness. Healthcare (XLV) was the big winner today rising +0.7%. In foreign/emerging markets, India markets rallied after India elections exit polls show Narendra Modi expected to win historic third term. Mexico a different situation as markets tumbled (and peso fell over 4%) after the ruling party scored a surprisingly strong election, as Claudia Sheinbaum won a landslide victory in Sunday’s presidential election, which was widely expected. Technical glitches impacted the NYSE for the second time in less than a week, saying it was investigating a technical glitch that led to dozens of trading halts for US-listed companies, regarding LULD Bands," referring to the limit up and limit down bands. NYSE said by 11:41 all technical issues were fixed, and quotes resumed. We have a big week of jobs data coming up (JOLTs tomorrow, ADP Wednesday, Nonfarm payroll Friday), but today manufacturing weakened as new goods orders dropped by the most in nearly two years, while a measure of input inflation fell back from the highest since mid-2022 and U.S. construction spending also fell unexpectedly for a second consecutive month in April. JP Morgan strategist Kolanovic said today in a note “We see the market upside capped during summer due to the inconsistency between consensus call for disinflation and at the same time the belief in ‘no landing’ and in earnings acceleration…U.S. inflation can prove sticky even as growth is moderating, which is not a great combination.”

• ISM U.S. manufacturing activity index declined to 48.7 in May from 49.2 in April and below consensus 49.6, raising hopes of Fed rate cuts; the prices paid index 57.0 in May (consensus 58.5) vs 60.9 in April; new orders index 45.4 in May vs 49.1 in April and the employment index 51.1 in May vs 48.6 in April.
• April construction spending fell -0.1% below consensus +0.2% and vs March -0.2%; U.S. April private construction spending -0.1%, public spending -0.2%.
• China’s Caixin manufacturing PMI lifted to 51.7 or its highest since July 2022, from 51.4 previously. This contrasts with the official gauge which unexpectedly fell to 49.5 or in contraction from 50.4 in the previous month.

• Gold prices rose $23.50 or a little over 1% to settle at $2,369.30 an ounce amid a drop in the dollar and yields. U.S. Treasury yields fell across the board to two-week lows, as the 10-yr dropped 9-bps to 4.4% and the 30-yr fell as much as 10-bps to 4.55% following data that showed U.S. manufacturing activity slowed for a second straight month in May, boosting expectations that a softening economy may allow the Fed to cut interest rates later this year. U.S. construction spending also fell unexpectedly for a second consecutive month in April on declines in non-residential activity.
• The U.S. dollar fell to a three-week low after today’s data showed the U.S. economy is slowing down, falling to a two-week low against the yen following the data and was last down 0.6% at 156.245 while the euro gained 0.45% to $1.09 (highest since 3/21), pushing the dollar index down 0.3% to a three-week low around 104.15. Bitcoin prices jumped over $70,000 earlier before paring gains given the pullback in stocks off highs.

• In Restaurants: DNUT was assumed/upgraded from Neutral to Overweight at JP morgan noting year to date the stock is down ~32%, underperforming the broader SPX by ~42% and trades ~38% below the June 30, 2021, $17 IPO price.
• In Consumer Products: KMB was upgraded to Outperform at RBC Capital and raising price target to $165 saying since KMB’s analyst day in March, RBC has been conducting a 360-degree assessment of the company by talking to retailers, ex-execs and other supply chain partners and said the output of work has made them more bullish on shares.
• In Beverages: SAM shares dropped after Japanese whisky-maker Suntory Holdings said this weekend (6/1) that it was not in negotiations to acquire Boston Beer, refuting a report late Friday that there were deal talks between the two companies. SAM shares surged 26% on Friday on news of deal talks https://tinyurl.com/5m6bpbpr

• Chinese Electric Vehicles: monthly May delivery data showed: LI may total vehicle sales rose 23.8% y/y to 35,020 units: Jan-May total vehicle sales 774,571 units; NIO said May total vehicle sales 20,544 units; up 233.8% on year and for Jan-May total vehicle sales 66,217 units; up 51.0% on year; XPEV delivered 10,146 vehicles in May, up 35% y/y as May deliveries rose 8% in month; Jan-May deliveries 41,360 vehicles, up 26% on year; 9 deliveries 1,625 units in May.
• In Auto news: Toyota Motors (TM) temporarily halted shipments and sales of three car models made in Japan; Japan’s transport ministry found irregularities in applications to certify the models.

• In Airlines: The International Air Transport Association (IATA) said it expected the worldwide industry to generate $30.5 billion of profit this year, higher than an upwardly revised $27.4 billion in 2023 and comes just four years after the industry collapsed to a $140 billion loss in 2020 because of the pandemic and is above the $25.7 billion forecast for 2024 issued in December. JBLU forecasts Q2 revs -6.5% to -9.5%, forecast -6.5% to -10.5%, a smaller drop due to healthy travel demand, supported by recent trends in jet fuel prices, which have declined over the quarter.
• In Industrials: In waste, WM confirmed weekend M&A reports in the WSJ that it will acquire medical waste disposal company SRCL in a deal valued at $7.2 billion, the companies said as the deal is expected to close by Q4. Bloomberg reported last month that Stericycle was exploring a potential sale after receiving takeover interest. https://tinyurl.com/yunk2k84 ; in shipping, Maersk (AMKBY) shares jumped after guiding FY underlying EBITDA $7B-$9B vs. prior $4B-$6B and forecasts FY underlying EBIT $1B to $3B, forecast loss $2B to $0.
• In Paper & Packaging (IP, GEF, PKG, WRK): RBC Capital noted, citing data from Random Lengths, that the Framing Lumber Composite increased $6 w/w to $388 (Elements estimate: $378) and the OSB Composite decreased $1 w/w to $476 (Elements estimate: $500). For next week, RBC Elements forecasts that the RL Framing Lumber Composite will increase $15 w/w to $403 and that the RL OSB Composite will increase $16 w/w to $492.
• In Chemicals: WDFC mentioned positively in Barron’s noting the shares took a hit in April after reporting sales that were slightly lower than expectations in Q2. While shares trade at a pricey 40 times 12-month forward earnings, they may be worth buying because of the company’s consistent earnings and sales growth, Barron’s. Deutsche Bank said TROX, KRO both look well positioned to benefit from recent industry outages and any potential Q3 price increase as both the companies’ North American TiO2 manufacturing facilities are operating normally. The firm noted Friday announcement from CC that it was pausing production at its Altamira, Mexico TiO2 plant due to a severe regional drought.
• In Solar: ENPH was added to US Conviction List at Goldman Sachs saying believes the company is poised to see a rebound in revenue, particularly from California, as a regulation-induced inventory de-stocking cycle dissipates; the firm also removed FSLR from the Conviction list after outperformance.

• BMY presented a four-year follow-up from the RELATIVITY-048 Phase 1/2 study of relatlimab in combination with nivolumab (Opdivo) and ipilimumab (Yervoy) for 1L treatment of advanced melanoma (Abstract #9504).
• CRBU shares tumbled after presented updated data from an ongoing early-stage trial studying its off-the-shelf CAR-T cell therapy CB-010; reported 5 deaths of which 1 death was possibly related to CB-010 due to bladder rupture.
• GILD, RCUS announced new data from Cohort B of ARC-9, a Phase 1b/2 study evaluating the safety and efficacy of etrumadenant, a dual A2a/b adenosine receptor antagonist, plus anti-PD-1 monoclonal antibody zimberelimab, FOLFOX chemotherapy and bevacizumab in third-line metastatic colorectal cancer.
• GPCR shares surge after saying its experimental obesity drug, GSBR-1290, showed statistically significant average weight loss of 6.2% at 12 weeks in a mid-stage study and showed generally favorable safety and tolerability following repeated, daily dosing up to 120mg.
• GSK and SNY shares fell after news they must face trials in state court in Delaware after a judge found evidence backing up claims the companies’ former Zantac heartburn treatment causes cancer is legitimate and can be heard by juries.
• LQDA shares jumped after a U.S. District Court Judge denied UTHR’s request for a preliminary injunction in a patent dispute which had claimed LQDA drug, Yutrepia, infringes on a United patent covering the inhaled administration of the drug Treprostinil.
• NVAX, PFE, MRNA shares jumped early after the FDA said vaccine makers should consider targeting one of the currently dominant JN.1 variants and JN.1-derived subvariants such as KP.2 as they develop COVID-19 shots for the 2024-2025.

• In Medical Devices/Equipment: EW shares advanced after entering into a definitive agreement to sell its Critical Care product group to BDX, in an all-cash transaction valued at $4.2B. MASI was upgraded to Overweight from Neutral with a price target of $160 from $126 at Piper as sees investors as having a higher likelihood than not of making money from current levels.

• In Hardware/Software: ADSK shares jumped as announced the results of the audit committee investigation; no restatement of financials was required, though it was noted that FY/23 multi-year upfront billings were above historical levels and prelim Q1 and Q2’25 guidance was ahead while CFO Debbie Clifford will move to Chief Strategy Officer (shares -22% since the investigation announcement). DELL added to last Friday’s -17% decline– had posted Q1 adj operating income $1.474B missed est. $1.485B and said the company expects gross margin rate to decline about 150 basis points with mixed EPS/rev guidance.
• In PCs (DELL, HPQ), Barron’s reported Personal computer sales will be about flat in 2024 compared with the previous year at about 260.2M units, according to a new forecast from the market research firm International Data Corp. According to IDC, unit sales of consumer PCs will decline 1.1% in 2024 overall, with a 1.6% improvement not counting China.

• ARM expects 100B Arm devices worldwide will be ready for artificial intelligence by the end of next year, the company’s chief executive, Rene Haas, said on Monday at the Computex forum in Taipei.
• LSCC shares fall, as COHR hired Jim Anderson as the laser maker’s new CEO, poaching the executive from Lattice Semiconductor. Lattice said Esam Elashmawi, its chief marketing and strategy officer, will step in as interim CEO.
• NVDA said this weekend at the Computex technology trade show in Taipei that the company’s next-generation artificial intelligence (AI) chip platform was called Rubin and would be rolled out in 2026; new CPU will be called Versa and the new graphics chips that are used to power AI applications will bundle next generation high-bandwidth memory.