Closing Recap

Tuesday, June 18, 2024

U.S. stocks went sideways in a day that was dominated by lots of Fed speakers (at least six today), more strength in big tech/semiconductors, and mixed economic data ahead of mid-week break in the action, as stock markets are closed tomorrow for a federal holiday. The S&P posted its 31^st record closing high of 2024 on Tuesday while Nasdaq made it a 7^th straight day of record highs, led by more record highs for semiconductors (SOX +1.35% on NVDA, ARM, MU, QCOM, AMAT strength) in what has become a daily routine the last month or so. Mega cap tech names were mixed today as AAPL, NVDA, and MSFT continue to rotate as most valuable company in the world daily (NVDA outperformance today pushed it to number #1), while CMG, HLT, COST, WMT, CL were among stocks hitting all-time highs in the consumer space and AVGO, ANET, AMAT, MU, QCOM, ORCL, LRCX in tech space. Energy, Financials and REITs all advanced today while Communications and Consumer Discretionary were the biggest drags in the S&P. Bitcoin prices dropped along with the dollar and Treasury yields while gold climbed.

Bespoke Invest noted the weaker underlying market fundamentals saying, “over the last 20 trading days, there have been seven days where the S&P 500 traded higher, but breadth was negative”.  Bespoke also noted “the last time we saw so many up days in a four-week stretch with negative daily breadth was August 2020. Back then, the mega-caps were the only stocks rallying as is the case now, but they were rallying on lockdown benefits. That narrative didn’t last long”.

The Magnificent Seven companies (AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA) have contributed more than 60% to the S&P 500’s return this year. The S&P 500 has reached an overbought territory, but stock market breadth remains very narrow with only 46% of stocks trading above their 50-day moving averages. The relative strength index, or RSI, spread between the market cap and equal-weighted S&P 500 is at its widest since at least 1990. @jasongoepfert tweeted “RSI on $QQQ is on track to go above 82 for only the 7th time since inception.” For the first time based on data stretching back to 1990, the traditional capitalization-weighted S&P 500 outperformed the S&P 500 equal-weight index by 2 percentage points or more for two straight weeks, according to Dow Jones Market Data.

Outside of stock, U.S. cities are breaking decades-old temperature records this week as a heat wave stretches from central to eastern portions of the country, the National Weather Service said. Roughly 80 million people from Indiana to New England are under a heat advisory or excessive heat warning. Detroit and Philadelphia, as well as cities in New Hampshire, Connecticut and Maine are also due for record temperatures in the coming days, NWS meteorologist said. The increased temps could put pressures on utility grids.

• Industrial Production rises +0.9% vs. consensus +0.3% and vs April unchanged while Capacity Utilization rate was 78.7% vs. consensus 78.6% and vs April 78.2% (previous 78.4%). May mining output +0.3% (vs. April -0.7%), utilities output +1.6% (vs. April +4.1%). U.S. May motor vehicle assembly rate climbed to 11.19M units/year from April 11.15M units.
• April Business Inventories rose +0.3%, in-line with consensus +0.3% and vs March -0.1%; April business sales +0.3% vs March -0.2% (prior -0.1%) and U.S. April retail inventories ex-autos unrevised at +0.3% (prev +0.3%).

• U.S. WTI crude oil futures settle at $81.57/bbl, rising $1.24 or 1.54% while Brent Crude futures settle at $85.33/bbl, up $1.08, 1.28% adding to the previous day’s gains with traders betting on support for prices from summer demand. Nymex front month natural gas settles +4.3% at $2.909/mmBtu, snapping its 4-day losing streak with hot weather forecasts driving demand expectations.
• The U.S. dollar slipped slightly against the euro on Tuesday after retail sales data indicated signs of exhaustion among U.S. consumers, boosting the case for Federal Reserve rate cuts later this year. Fed Funds futures implied a 67% probability of at least one rate cut by the September Fed meeting, up from 63% a day ago. The dollar little changed against the yen at 157.81 yen, holding below Friday’s six-week high of 158.26. Bitcoin fell about 3.5% to $64,100.

• In Restaurants & Food: CMG tgt was raised to $3,888 from $3,668 ahead of 50 for 1 stock split at Argus as thinks that Chipotle has a healthy balance sheet along with robust mobile ordering and delivery platforms. Stock impacted by avocado pricing (CVGW, CMG) were active after Bloomberg reported the U.S. suspended avocado shipments from Mexico following an incident that reportedly threatened the safety of American agricultural inspectors
• In Retail: LZB shares rallied behind earnings and guidance as Q4 adj EPS $0.95 tops est. $0.70 on sales $554Mm vs est. $516.44Mm, and guides Q1 sales $475-495Mm vs est. $475.65Mm, saying expect Q1 to be lowest sales and margin quarter of the year. In Online services: CHGG surges after the online-education announces restructuring plan and new vision for growth; expects $40M-$50M savings in 2025; said restructuring includes departure of 441 employees, which represents 23% of Chegg’s global workforce. Discount retail DLTR, DG, BIG all under pressure.
• In Consumer Products: in tobacco, PM shares dropped after the company stopped online sales of its popular nicotine pouch brand Zyn in the US after an affiliate received a subpoena in the District of Columbia.

• In Metals & Mining: in the aluminum Sector (AA, CENX, RIO), Reuters reported Global aluminium producers have offered Japanese buyers’ premiums of $185 to $190 per metric ton for July-September primary metal shipments, up 25% to 31% from the current quarter, three people directly involved in quarterly pricing talks said. Copper stocks (FCX, SCCO) have been weak as copper prices dropped are now down about 15% from May record highs, continued their downward trajectory on the back of stronger USD headwinds and still weak macro data out of China. Chinese macro data showed industrial production growing at 5.6% y/y (vs. 6.0% cons.) and fixed asset investment up 4.0% YTD.
• In Homebuilders: LEN reported Q2 EPS $3.45 vs. est. $3.24; Q3 revs rose 9.6% y/y to $8.77B vs. est. $8.57B on slightly better deliveries of 19,690 (KBW est. 19,294) and Gross margin of 22.6%, +10 bps Y/Y. Orders of 21,293 homes were also slightly better while guidance includes deliveries of 20,500-21,000 below and guided Q3 EPS $3.50-$3.65 vs. est. $3.97 as weighs on other builders TOL, PHM, KBH. U.S. home prices rose 0.3% month over month in May–the smallest increase on a seasonally adjusted basis since January 2023, per a new report from RDFN. Prices climbed 7.2% from a year earlier, but annual growth showed signs of plateauing. New listings rose 0.3% month over month in May on a seasonally adjusted basis and climbed 8.8% from a year earlier, though -20% below pre-pandemic.
• In Energy & Solar: PBR late Monday had agreed to join a government tax debt renegotiation program that would result in an estimated 11.9 billion reais ($2.19 billion) hit to its second-quarter net income. Petrobras said it had agreed to pay the Brazilian government a total of 19.8 billion reais to end several tax cases. Berkshire Hathaway bought 2.9Mm shares more of OXY on June 13, 14, and 17 for about $173Mm, according to an SEC form 4 filing and now owns 255.3M shares. SEDG shares fell for the 6th straight day in solar and 8 of last 9 – just off yesterday 52-week lows of $37.07.
• In Materials: In paper stocks (IP, PKG, WRK), Jefferies preview regarding containerboard prices ahead of RISI’s price increase update this Friday saying their contacts believe a ~$30/ton increase is likely which would improve EPS for IP, PKG and WRK by 13-39%. That said, the impact would mostly flow to ’25 given the 3-6mo contractual lag. In packaging, BALL shares tumbled as much as 6% late day after providing guidance at its Investor Day. Lithium producer ALB with lowest close in over 3 1/2 years, down 9-straight days and 12 of last 13 days. Note UBS recently reduced its estimates (on 6/13) for 2024/25/26, as the pace of price improvement (and the supply response) has been slower than expected.

• In Crypto: Bitcoin prices slipping down over 3% under $64,300 with broad weakness in the crypto complex early with declines in COIN, MSTR, MARA, RIOT, HUT, IREN.

• In Dental industry: PDCO reported Q4 adj EPS $0.82 vs. est. $0.82 and sales $1.72B vs. est. $1.7B, while adj net income fell -9.7% y/y to $74.4M vs. est. $75.5M; guided FY25 adjusted EPS $2.33-$2.43 vs est. $2.39.
• ITCI reported positive results from a second, Phase 3 clinical trial seeking to expand the use of its antipsychotic medicine Caplyta to patients with major depressive disorder. Positive results from the first Phase 3 study were reported in April.
• MRNA extending recent slide, as vaccine maker down an 8th straight day and -14% in that span, while rival vaccine maker NVAX saw afternoon strength.
• TSHA announces positive clinical data across adult and pediatric patients from low dose cohort in ongoing REVEAL phase 1/2 trials evaluating TSHA-102 in Rett Syndrome.
• URGN prices underwritten public offering of 5M ordinary shares at a price to public of $17.50 per ordinary share.
• ZNTL shares declined after the company said the FDA placed partial clinical holds on three of its cancer treatment studies for its drug, Azenosertib, and said they are working with the regulator to resolve as quickly as possible.

• Software, Comm & Networking: AAPL price tgt raised to $245 from $225 at JP Morgan and reit Overweight and raising iPhone volume expectations to 250M units in CY25 (244M in FY25), and to 275M in CY26 (268M in FY26); VIAV discloses restructuring and workforce reduction plan; expects ~6% of global workforce to be affected. AAPL said today it has suspended work on the Apple Vision Pro 2 due to slowing demand. Apple is now focusing on releasing a cheaper model in late 2025. Lots of weakness in software stocks today with MDB, OKTA, SNOW, U, WDAY, ZS pressured.