Closing Recap

Wednesday, June 05, 2024

New records for the S&P and Nasdaq as the march higher for global stock markets continues. Good data/bad data, strong earnings/weak earnings, Fed rate cuts expected/rates higher for longer; we have heard the arguments back and forth since the end of 2023 into summer of 2024 and the bottom line is, it hasn’t mattered! Except for a few (and very brief) sharp pullbacks in 2024 (mid-April, mid-March), the path of least resistance for major averages has been up, WAY UP with the Nasdaq setting new all-time highs this morning and the S&P 500 (SPX) also at record highs. Risk assets remain well bid with technology remaining the clear leader, surging behind the constant rise in semiconductors (SOX +4.5% today back near records as NVDA leads it feels every day, hitting $3 trillion mkt cap today surpassing AAPL) on “AI” growth hype, while crypto also outperformed as Bitcoin moved back above $71,000 (up 70% YTD). Treasury yields dropped (down about 30-bps in a week for the 10-yr) helping sentiment as well, as softer economic data (ISM Manufacturing, jobs data) leads investors to believe rate cuts by the Fed are coming, possibly by September. Just today, the Bank of Canada cut its key policy rate by 25 bps to 4.75%, its first cut in four years, joining Sweden’s Riksbank and the Swiss National Bank in bringing down rates and comes ahead of tomorrow’s European Central Bank (ECB) meeting, where they are expected to follow suit. Recession fears remain in the background given that inflation is still not coming down quickly, and several data points pointing to a slowing economy, but that too has not dented the stock market optimism, not one bit as VIX Index remains pressured and growth stocks keep surging. The Nasdaq hit record highs rising as much as 300 points and topping the prior 17,032.66 May 28^th high and the S&P (SPX) also topped its 5/23 high of 5,341.88 in another record setting day. Most sectors finished higher, but again tech (XLK) did the heavy lifting, up 2%.

• S&P Global May final composite PMI at 54.5 (vs flash 54.4). S&P Global May final services PMI at 54.8 (vs flash 54.8).
• ISM non-manufacturing sector for May rises to 53.8 in May topping consensus 50.8 and above the 49.4 in April; business activity index 61.2 in May (consensus 53.0) vs 50.9 in April, inflation component, the non-manufacturing prices paid index 58.1 in May vs 59.2 in April and new orders index 54.1 in May vs 52.2 in April.
• US mortgage market index -5.2% to 180.4 in week ended May 31 MBA reported while the purchase index falls 4.4% to 132.3 in May 31 week, mortgage refinance index falls 6.8% to 432.1 as the average 30-year mortgage rate climbs 2 bps to 7.07% in May 31 week.

• U.S. WTI crude oil futures settle at $74.07 per barrel, rising $0.82 or 1.12% while Brent crude rose $0.89 or 1.15% to settle at $78.41 per barrel, snapping their 5-day losing streaks and bouncing off 4-month lows on a broad market “risk-on” trading day and despite bearish inventory data. Natural gas prices jumped 6.6% to settle at $2.757 mln btu.
• Weekly EIA inventory data showed crude inventories unexpectedly rose by 1.2M barrels in the week ended May 31, vs. expectations for a -2.3M-barrel draw (bearish for oil), while crude stocks at the Cushing, Oklahoma, delivery hub for the U.S. benchmark rose by 854,000 barrels. Gasoline stocks rose by 2.1M barrels in the week to 230.9M barrels, slightly more than forecasts for a 2M-barrel build and distillate stockpiles rose by 3.2M barrels vs. est. 2.5M build.
• Gold prices rise $28.10 to settle at $2,375.50 an ounce as bond yields fell after weaker-than-expected U.S. private payrolls data bolstered expectations that the Federal Reserve would cut interest rates later this year.

• In Sporting Goods Stores: HIBB top and bottom line beat as Q1 EPS $2.67 vs. est. $2.63; Q1 revs $447.16M vs. est. $453.91M; Q1 comp sales fell (-5.8%); no guidance considering pending transaction with JD Sports; SPWH shares slide on larger quarterly loss amid weak sales and comps as Q1 adj EPS loss (-$0.47) vs. est. loss (-$0.35); Q1 revs fell -8.7% y/y to $244.24M vs. est. $249.48M; Q1 comp same store sales decreased (-13.5%) vs. est. loss (-11.7%).
• In Apparel Retail: PVH reported a slight top-line beat, with stronger-than-expected GM flowing through to a bottom-line beat. Calvin Klein beat slightly (with strength in North America), while Tommy Hilfiger came in slightly below (weighed down particularly by Europe); guided Q2 sales ahead of Street (EPS slightly above), and FY EPS were raised. SFIX shares jumped after results and guidance as posts smaller EPS loss and sees Q4 revs $312-322Mm vs est. $306.57Mm, adj EBITDA $5-10Mm vs est. $3.565Mm; sees FY revs $1.33-1.34B vs est. $1.307B and adj EBITDA $25-30Mm vs est. $14Mm; HBI shares jumped as agreed to sell the intellectual property and certain operating assets of its Champion business to Authentic Brands Group for a transaction value of $1.2B, which could rise to $1.5B on certain thresholds.
• In Food & Beverage: CPB Q3 sales rose 6% y/y to $2.37B vs. est. $2.34B on better earnings ($0.75 vs. $0.70) and boosted its annual net sales growth view to 3%-4%, compared with its previous range of a fall of -0.5% to a rise of 1.5%, but sees FY adj EPS $3.07-$3.10, vs. prior forecast $3.09-$3.15; SAM was upgraded from Underweight to Equal weight at Morgan Stanley with a more balanced risk/reward after the YTD stock decline, and the potential for the market to assign a strategic halo to the shares given recent unconfirmed media reports of M&A discussions; USFD board has authorized a $1B share buyback program; UNFI shares rise as posted mixed Q3 (EPS beat, sales just below) while raises FY24 EPS view to (20c)-20c from (56c)-6c and backs FY24 revenue view $30.5B-$31B (est. $30.78B). BF.B shares Q4 profit beat amid price hikes while gross margin fell to 59% from 60.8% a year earlier and sales of $964M missed the $1.03B est.; reported a 2% decline in the organic sales of its Whiskey products owing to lower volumes; saw a 7% drop in organic sales of its tequila business and guided FY organic sales 2%-4% vs. est. 3.68%.

• In Towables/RVs: THO shares slumped early after posting better Q3 results (EPS $2.13 vs. est. $1.85/revs $2.80B vs. est. $2.73B) but lowered FY24 EPS view to $4.50-$4.75 from $5.00-$5.50 (est. $5.19) and lowers FY24 revenue to $9.8B-$10.1B from $10.0B-$10.50B (est. $10.17B); guidance weighed on CWH, WGO as well.

• In Materials, Mining, metals: BHP and the union representing workers at its Spence copper mine in Chile will kick off on Wednesday government-mediated talks aimed at averting a strike, both parties said. Rebound in some of the materials stocks that tumbled in the last two days as precious metals and industrial metals prices recovered.
• In Aerospace & Defense: SPR CFO Mark Suchinski to step down and be replaced by Irene Esteves. RKLB said it successfully completes second launch for NASA climate science mission and expects mission to operate for ten months. The U.S. Federal Aviation Administration (FAA) said it issued a license for SpaceX’s fourth flight of its Starship rocket system, another test mission along the company’s path to building a reusable satellite launcher and moon lander. ACHR receives U.S. FAA certification to start operating commercial airline. ASNS shares surged after announcing it received new orders for cyber-hardened networking technology to be deployed on three U.S. military bases.

• In Credit Cards: AXP said they are disappointed that EBAY made the decision to stop accepting American Express cards as of August 17th, 2024
• In Insurance: AMBC signed a definitive agreement to sell its legacy financial guaranteed businesses, Ambac Assurance Corporation and Ambac UK, to funds managed by Oaktree Capital Management, L.P. for $420M in cash. Additionally, Oaktree will receive warrants to acquire up to 9.9% of Ambac stock at a strike price of $18.50

• ANNX said it is launching $125 mln stock offering to fund neurological disorder drug.
• CYTK confirmed it held good-faith takeover talks with an unnamed suitor that opted not to move forward with a deal.
• DXCM announced that the Dexcom G7 Continuous Glucose Monitoring System now connects directly to Apple Watch.
• LLY said CFO Anat Ashkenazi will leave to become CFO and senior vice president of GOOGL effective July 31.
• MED was downgraded to Underperform from Neutral at DA Davidson saying after a meeting with the company, the firm pushed out its sequential flattening of revenue to Q125 from Q424, which lowered its 2025E sales to -5% from +2% Y/Y and its EPS by 29% while adding for the GLP-1 offering begin in July, later than June expectation.
• UNH boosts the quarterly dividend to $2.10 from $1.88.
• VIR rises after releasing preliminary data from a mid-stage trial of a combination therapy for patients with chronic hepatitis delta — a liver disease.
• In MASH sector: MDGL, ETNB, AKRO shares tumble as companies developing therapies for metabolic steatohepatitis (MASH), a liver disease, are falling after data abstract from a trial of LLY’s experimental GLP-1 drug tirzepatide to treat patients with the disease; Cantor notes the data for tirzepatide exceeded the placebo-adjusted bar investors were looking for on fibrosis improvements.
• Psychedelic stocks slump: MNMD, CMPS, CYBN, ATAI shares slide as the FDA held a Psychopharmacologic Drugs Advisory Committee (PDAC) AdCom meeting for Lykos’ MDMA for PTSD which failed to get backing from US regulatory advisers to treat post-traumatic stress disorder.
• Vaccine stocks: PFE and partner BNTX note updated covid vaccines targeting JN.1- and KP.2 variants confers better immune response versus older vaccine against emerging variants; said prepared to initiate supply of either jn.1 vaccine or kp.2 covid vaccine immediately upon approval. MRNA notes it is prepared to submit for approval a covid vaccine targeting either JN.1 or KP.2 variant; notes it is prepared to supply the US market by mid-August 2024. NVAX notes JN.1 vaccine generates broad neutralizing responses for JN.1 -lineage subvariants in non-clinical models.

• In Security Software: CRWD reported that total Q1 ARR of $3.65B, rose +33.4% y/y and exceeded the Street’s ~33% estimate, exceeded street operating income estimates by 4% and FCF forecasts by 3%; for Q2, sees revs of $958.3-$961.2Mm topped est. $954.43Mm and raised year guidance.
• In Computer Hardware: HPE shares rose as beat Q2 revenues by 6% amid strong AI server revenues ($900M vs $400M last quarter), while EPS also beat though gross margins were pressured and HPE’s other businesses all came in below consensus expectations; did not roll forward its revenue or EPS beat for the remainder of the year.
• In Software: GWRE reported significantly higher ARR ($828M vs $818M), calling out cloud momentum (4 tier-1 deals) and migration activity, translating to better-than-expected ARR and raised its full-year ARR, revenue, EBIT, and cash flow guidance, though FY24 ARR outlook didn’t capture the full FQ3 beat. SAP enters into an agreement to acquire WKME at $14.00 per share representing an equity value of ~$1.5B.
• In Telecom: AT&T (T) said it resolved an issue that had prevented making some calls to other wireless carriers last night. Earlier, AT&T, Verizon and T-Mobile said they were all experiencing issues with some calls between carriers. Some customers in multiple states had said they were unable to make calls, prompting the FCC to investigate. Softbank (SFTBY) shares active after Bloomberg reported Elliott Management has built a sizable stake in SoftBank Group Corp. and is pushing the Japanese investment firm to launch a $15 billion buyback. SYTA, a global developer and vendor of Push-to-Talk (PTT) over Cellular (PoC) handsets and accessories, today announced its partnership with JD Telecom.
• In Semiconductors: NVDA new all-time highs and tops $3 trillion mkt cap to become 2^nd biggest company; @JonErlichman noted Nvidia market cap milestones: Jun 2024: $3 trillion, Feb 2024: $2 trillion, Jan 2024: $1.5 trillion, May 2023: $1 trillion, Jul 2021: $500 billion, May 2020: $200 billion, Aug 2017: $100 billion, Apr 2016: $20 billion, Jan 2002: $10 billion, Mar 2000: $5 billion. Equipment stocks AMAT (tgt to $225 from $165) and KLAC (tgt to $765 from $630) both upgraded to equal weight from underweight at Barclay’s saying a robust uptick in China spend and aggressive capex plans at the trailing edge in the U.S. offset some of wafer fab equipment decline and bridged the gap to a more favorable environment in 2025 and beyond; now sees growth in China spend year-over-year in 2025. INTC and APO announced a definitive agreement under which Apollo-managed funds and affiliates will lead to an investment of $11B to acquire from Intel a 49% equity interest in a joint venture entity related to Intel’s Fab 34. WSJ reported Vanguard International Semi and NXPI establish JV to build and operate 300mm, $7.8B Fab in Singapore. ASML shares jumped after Jefferies noted comments from CFO Roger Dassen which suggested he was positive about the possibility of orders coming through from top customer TSM in the coming quarters.