Closing Recap

Friday, June 14, 2024

U.S. stocks finish mixed as the Nasdaq posts its 5^th straight record closing high (SPX flat), though the underperformance in Smallcaps and the Dow continue to stand out as a handful of large cap tech names (NVDA, AVGO, GOOGL) continue to go much of the heavy lifting for major averages.  Volumes were lighter than normal on Friday as stock markets chopped this afternoon following weaker economic data earlier this morning. Most S&P sectors declined (sans Tech, Comm and Staples) with Industrials, Materials and Consumer Discretionary falling the most as NYSE breadth was just shy of 3:1 decliners leading advancers. The standout underperformers remain Smallcaps as the Russell 2000 swung to a weekly loss with today’s drop and is up only slightly YTD vs the S&P near 14% YTD gains and Nasdaq +17.6% gain YTD. Biggest weekly winners in tech were ADBE, AVGO, ORCL on earnings as well as NVDA (+7%) and AAPL (+8% WTD). For the week, the S&P 500 gained 1.58%, the Nasdaq climbed 3.24% (posted 5th straight record closing high), and the Dow fell -0.54%.

Outperformance for large cap vs. small cap continues to grow as @KobeissiLetter tweets: “US large-cap relative to small-cap stocks are on track for their best yearly streak since the late 1990s’. US large-cap stocks are on track to outperform small-cap stocks for the 4th consecutive year. Relative to the Russel 2000 index, the S&P 500 has already outperformed small caps by 7% in 2024. If the difference stays positive until the end of the year it would mark the best run since 1995-1999 when large caps outperformed for 5 straight years. Meanwhile, over the last 8 years the Russell 2000 has only outperformed the S&P 500 ONE time.” Meanwhile, @SethCL tweets: “Absent a bear market, S&P Small Caps are now at 2nd lowest Forward P/E since 2006, only surpassed by 2023’s lows.” Smallcaps got crushed today, falling over -1.6% for the Russell 2000 below its 50dma (2,036) and 100dma (2,034) today on weakness.

Overseas, European markets weak, especially in France as French Finance Minister Bruno Le Maire warned on Friday that the euro zone’s second-biggest economy faced the risk of a financial crisis if either the far right or left won the coming parliamentary election because of their heavy spending plans. Political uncertainty has already triggered a brutal sell-off of French bonds and stocks after President Emmanuel Macron unexpectedly called the election, following a trouncing of his ruling centrist party by Marine Le Pen’s National Rally (RN) in European Parliament elections on Sunday.

Note: S&P futures (Spuz – /ES) is rolling from June front month (ESM2024) to September front month (ESU2024). These levels are now all September going forward to reflect this fact. Rollover is ongoing for the next week and volume will gradually migrate from June to Sept, until June expires in 1 week.

• University of Michigan surveys of consumers 1-year inflation outlook prelim June 3.3% vs final May 3.3% while the 5-year inflation outlook prelim June 3.1% vs final May 3.0%.
• University of Michigan surveys of consumers sentiment prelim June tumbles to 65.6 vs. consensus 72.0 and below the final May 69.1; current conditions index prelim June 62.5 (consensus 71.0) vs final May 69.6; consumers expectations index prelim June 67.6 (consensus 70.0) vs final May 68.8.

• The U.S. dollar showed strength the latter part of the week, rising to best levels in about 6-weeks (DXY 105.55), as the euro tumbles behind election concerns in France. The Fed looking to keep rates “higher for longer” given their statement at FOMC policy meeting this week, only forecasting one rate cut this year, boosted the buck.
• Bitcoin prices slumped this afternoon, falling over 2% to lows around the $65,000 level before paring losses, with crypto names (miners etc.) COIN, RIOT, MARA, CLSK slipping.
• In Energy, WTI crude settled at $78.45/bbl, down 17 cents, 0.22% (rising 3.87% for the week). while Brent Crude futures settle at $82.62/bbl, down 13 cents, 0.16%. Nymex front month natural gas prices settle down -2.6% at $2.881/mmBtu for a -1.3% weekly loss, falling for a third straight day from highs reached early in the week on weather-driven demand.
• Note weekly rig count from Baker Hughes showed the US oil rig count down 4 to 488 – gas rig count unchanged at 98 – and US total rig count 590 as oil and rig count falls to lowest since January 2022.
• Aug gold prices rise $31.10 to settle at $2,349.10 an ounce; ends the week 1.14% higher.

• In Toy Retail: HAS was upgraded to Buy from Neutral at Bank America and raised tgt to $80 saying they do not believe consensus forecasts are fully accounting for the success of HAS’ digital gaming strategy with Monopoly Go! and expect the game to move off minimum royalty guarantees in Q2.

• In Autos: TSLA proposal for re-domestication from Delaware to Texas by conversion standard won support of about 63% of entitled votes and standard won support of about 84% of entitled votes. CEO Elon Musk’s $56 bln pay package won support of about 77% votes cast. TM was downgraded to Hold from Buy at Erste. Autos were pressured with auto suppliers MGA and LEA hitting 52-week lows today.
• In cruise lines: CCL, NCLH, RCL shares tumble early after Bank America said cruise pricing was `modestly softer’ in early June vs May; said on a sequential basis, 40% of itineraries had softer pricing compared to 33% in May.
• In Casinos: PENN shares tumbled after Truist Securities said a formal strategic review of the gaming and casino company is unlikely in the near term despite activist Donerail Group’s call for a sale.

• In Metals & Mining: steel producer NUE said its steel products segment is expected to have decreased earnings in Q2 of 2024 as compared to Q1 of 2024 as guides Q2 EPS $2.20-$2.30 vs. est. $3.06 (and down from $5.81 in the same period a year ago); said primary reason for weakness in steel mills earnings were lower average selling prices and lower volumes. Gold miners rebound with gold prices, after tumbling the day prior after GFI cut production forecasts. Copper stocks (FCX, SCCO) and prices fall, pressured by a firm dollar and rising inventories that highlighted a supply surplus.
• In Oil & Energy: BOOM shares rose after Steel Connect, in a regulatory filing last night, disclosed a 9.8% stake in DMC Global and noted that on May 31, 2024, Steel Connect delivered to the board of directors of DMC a non-binding proposal to acquire all the outstanding shares that the reporting persons do not already own at a price equal to $16.50 per share in cash https://tinyurl.com/4x6kjha3 ; APA was downgraded from Outperform to In Line w/ $39 tgt from $52 at Evercore saying filling a near-term portfolio gap via an acquisition while Egypt has disappointed and the North Sea is likely more an ongoing question of liability management has created little incremental value; OVV was upgraded from In Line to Outperform at Evercore saying while relative performance to the sector over the past 6 months tells the story, the stock remains well positioned relative to SMID-cap peers in Evercore’s view.
• In Refiners: price tgt changes at Piper and lower estimates as DINO ($58 from $65), DK ($25 from $30), MPC ($168 from $190), PARR ($37 from $43), PBF ($47 from $54), PSX ($151 from $170), VLO ($169 from $187) saying with refining margins continuing to struggle under the combination of robust supply (95% utilization) and underwhelming demand, Piper is revising its Q2 estimates lower, reducing EPS estimates ~43% vs prior, and it now sees 42% downside to Street estimates on average across the group. In news, PSX said it has agreed to sell its 25% non-operated common equity interest in Rockies Express Pipeline LLC to a subsidiary of Tallgrass Energy, LP for an enterprise value of approximately $1.275B as transaction generates pre-tax cash proceeds of $685M.
• In Aerospace & Defense: The FAA is investigating falsified documents that were used to verify the authenticity of titanium used in some recently manufactured BA and Airbus (EADSY) jets, the New York Times reported on Friday. Northcoast downgraded CRS and HWM to Sell and ATI to Neutral saying the aerospace supply chain inventory bubble seemed to burst late last month, and their survey results suggest that industry contacts are feeling shaken and are starting to reevaluate their internal business forecasts.
• In Chemicals: BMO said they view the news that the EU announced it set preliminary tariffs on Chinese TiO2 imports at up to ~40% as a significant positive for CC and TROX and cause for us to raise our 12-month target prices (to $37 and $26, respectively) and reiterate our Outperform on both stocks.

• In FinTech: Keybanc provided thoughts on Apple Pay announcements this week saying the updates likely add fuel to the PYPL share loss narrative with increasing product/channel parity at a time when PYPL is fighting to restart branded payment momentum, presumably against the likes of Apple Pay, Shop Pay, etc. Across the BNPL category, KEYB sees Apple Pay installment/BNPL announcements as net negatives to PYPL (Pay in 4) and SQ (Afterpay) and a net positive to MQ assuming the Company remains tied to AFRM in the new AFRM/Apple Pay construct. Visa (V) and MA ($30B) class action settlement w/ US merchants likely to be rejected by federal judge, Bloomberg reported.
• In Crypto: MSTR shares rose early after tumbling 9% the day prior, helped after Bernstein initiated coverage at an Outperform on its strong bitcoin buying strategy with a Street high $2,890 price tgt (implying 95% upside to stock’s last close). Noted the co positions itself as an "active-leveraged Bitcoin strategy vs. passive spot ETFs. Bernstein revised BTC price forecast to cycle-high of $200K by 2025 (up from $150K).

• IONS upgraded to Market Perform from Underperform at Bernstein with $44 tgt saying they would not want to be Underperform into the ALNY HELIOS-B readout, where there is a favorable risk/reward on the readthrough to Ionis.
• TAK signs option agreement with Ascentage Pharma to enter exclusive global license for Olverembatinib, a third-generation BCR-ABL Tyrosine Kinase Inhibitor; Takeda to receive exclusive option to license global rights to Olverembatinib in all territories outside of mainland China, Hong Kong, Macau, Taiwan and Russia
• VXRT noted the U.S. HHS announced yesterday after the close that it is funding three companies with novel vaccine platforms for the prevention of COVID-19, including Vaxart for up to $453M to fund a Phase 2B trial vs an approved mRNA vaccine.
• Managed care: Goldman Sachs noted that CMS announced on 6/13 that it would recalculate 2024 Star ratings (which impact 2025 quality bonus payments) as a result of recent court decisions that ruled in favor of Medicare Advantage plans. CMS will apply its previous methodology before application of the Tukey outlier deletion method, and if a plan’s Star rating would have been higher under the prior method, CMS will award that plan the higher Star rating. However, the plan’s 2024 Star rating will not be reduced because of this recalculation. Goldman said recall, ELV saw 3 of its 4 largest plans drop from 4+ Stars to 3.5, with membership in 4+ Star plans (the threshold for the 5% bonus payment) falling to 34% from 64%.
• In Deal pricing: Avidity Biosciences (RNA) 10.55M share Secondary priced at $38.00. Gain Therapeutics (GANX) 7.12M share Spot Secondary priced at $1.35. Ultragenyx (RARE) 7.44M share Secondary priced at $39.00.

• In Semiconductors: sector pulls back from all-time highs of 5,624 this week for the SOX index, but the leaders in the sector NVDA, ARM, AVGO given AI excitement continue to push higher; ARM benefitted early from announcement it will be added to the Nasdaq 100 index later this month.

• Tempus AI (TEM) set the pricing of its U.S. initial public offering at $37 per share (the high end of $35-$37 range), aiming to raise $410.7 million and valuing the genetics-testing company at about $6.10 billion.
• BAND downgraded from Equal Weight to Underweight at Morgan Stanley and cut tgt to $15 from $18 as still expect headline rev upside in ’24 on election cycle, but majority of growth attributable to pass through surcharges is captured in 25%+ YTD run in shares and thinks this creates a challenging set up for ’25 ests.
• DDOG was downgraded from Neutral to Sell at Monness saying in the face of further evidence of treacherous trends across the enterprise software complex, combined with a gen AI hype cycle that has revealed itself to be a revenue mirage this year, Monness believes the market will not support software stocks with excessive valuations.
• TWLO downgraded from Overweight to Equal Weight at Morgan Stanley and cut tgt to $60 from $70 citing lack of NTM top line catalyst and majority of near-term operating leverage having been achieved.
• ZS was upgraded from Neutral to Overweight at JP Morgan and raised tgt to $230 from $205 as views current levels as an opportunity to own a leading Zero Trust vendor with favorable market exposure, well positioned to inflect to better growth in 2H25, currently trading at a discount to high growth peers and historical valuation levels.