Closing Recap

Thursday, March 14, 2024

U.S. stocks slumped on Thursday, threatening to post back-to-back weekly market losses for the first time in 2024, though remain only 2% from all-time highs on the Nasdaq and 1% on the S&P 500 after hitting its 17^th ATH earlier this week. A litany of non-market friendly developments this week has raised cause for concern, but not enough to warrant a noticeable move into options expiration tomorrow afternoon. This week alone has seen 1) oil prices hit 4-month highs topping $80 an ounce (inflationary), 2) Treasury yields back on the move higher with the 10-yr yield hitting 4.29% this morning; 3) inflation data points not helping case for more aggressive rate cuts by the Fed this year with hotter PPI this morning – CPI/PPI both hot reports this week after same in January – hurting Fed rate cut narrative (recall coming into 2024 following December Fed “pivot” expectations were for 6-7 cuts – now we closer to three cut view). One would imagine given the rising inflation fears, jump in yields and commodity prices (copper hit 7-month highs), it could lead to a pullback after a 4 � month rally – but it has not to this point. The question remains for markets, which continue to forecast at least 3 rate cuts in 2024 by the Fed (down from six cuts outlook initially to start year) is pivoting too early is far more dangerous than pivoting too late? Wouldn’t the Fed risk economic weakness rather than a rebound in inflation by cutting rates too early? To this point, it has not mattered, but another hot print next month could change the outlook quick. Interest rate sensitive sectors such as REITs, utilities, and Small caps saw the biggest downside moves on the day with yields higher. In an interesting, the Financial Times reported more companies have defaulted on their debt in 2024 than in any start to the year since the global financial crisis as inflationary pressures and high interest rates continue to weigh on the world’s riskiest borrowers, according to S&P Global Ratings. This year’s global tally of corporate defaults stands at 29, the highest YTD count since the 36 recorded during the same period in 2009.

• Retail Sales for February rose +0.6%, less than the consensus +0.8% and vs January downwardly revised -1.1% (vs. previous -0.8%); Retail Sales Ex-autos +0.3% below consensus +0.5%) and vs January -0.8%; Feb gasoline sales +0.9% vs Jan -1.4%, cars/parts sales +1.6% vs Jan -2.1%.
• Weekly Jobless Claims fell to 209K vs. est. 218K and 210K prior (revised down from 217K0; as the 4-week moving average fell to 208,000 from 208,500 prior; continued claims climbed to 1.811M from 1.794M the prior week.
• January Business Inventories unchanged (vs. consensus +0.2%) and vs Dec +0.3% (prev +0.4%); U.S. Jan business sales -1.3% vs Dec unchanged (prev +0.4%); U.S. Jan retail inventories ex-autos unrevised at +0.3% (prev +0.3%).

• U.S. 7- to 30-year yields climb at least 10 basis points on day; 10-yr finishes at highs around 4.3% and the dollar index (DXY) climbs in response to a rise in PPI inflation data for February. gold prices fell -$13.30 to settle at $2,167.50 an ounce amid the same data/pop in yields and profit taking after hitting record highs this week. Bitcoin prices topped $73K early before pulling back to around $70K late day (down over 3%).

• In General Retailers WMT said it will begin selling the same AI-powered supply chain/logistics software (aka Rout Optimization) it uses internally to other companies as a SaaS solution. UAA shares dropped after news founder Kevin Plank will return as CEO, effective April 1 and succeed Stephanie Linnartz, who will step down as president, CEO, and member of the board; DTC reported a top and bottom line miss for Q4 and forecasts 2024 adj. EBITDA margin 10% to 12%, vs. est. 14.2%. GIII shares fall after Q4 rev miss and lower forecast. FOSL said Kosta Kartsotis stepped down as CEO and the company announced a strategic review amid pressure from an activist investor.
• In Sporting Goods: DKS Q4 net sales rose 7.8% to $3.88B topping the $3.8B estimate on strong holiday quarter demand while guided 2024 EPS between $12.85-$13.25, midpoint of which is above ests. $12.90 per share, while FY24 sales guided $13B-$13.13B vs. est. $13.13B.
• In Restaurants: JACK was upgraded to Outperform at Wedbush and raise PT to $88 from $79 saying believes Jack’s current 45% discount to franchised QSR peers and 21% discount to its own 5-year pre-COVID median EV/EBITDA multiple of 12.3x is an overly pessimistic assessment of management’s ability to deliver on near, medium, and longer-term SSS growth, margin/EBITDA, and unit growth targets.
• In Food & Beverage: UTZ was upgraded to Buy from Neutral with higher $22 tgt saying mgmt meetings increased confidence in Utz’s roadmap to achieving its long-term sales algorithm, which could drive upside to both earnings/multiple. MO is seeking to sell a portion of its stake in BUD for as much as $2.2 billion to help fund its own share repurchases. Altria, which sells Marlboro cigarettes in the US, owns about 10% of the beermaker – BUD 35M share Spot Secondary priced at $61.50. Online grocer CART was upgraded to Outperform and $43 tgt at Bernstein, walking away from the Q4 print with a more favorable view of the stock as we see room for Gross Transaction Value growth to exceed consensus expectations.

• Home improvement/Housing Retail: Goldman Sachs upgraded WSM to Neutral from Sell following their Q423 results as the company has been able to sustain higher margins, and trends came in better than expected for both Q4 and guidance for 2024. While WSM’s Q4 comp was down -6.8% y/y, it came in above consensus at -9.3%.

• In Solar: FTCI reported 4Q23 revenue and margin in line, but 1Q guidance shows project delay struggles are not over yet, with the stage hopefully set for a back-end-weighted top line rebound according to Raymond James. RothMKM downgraded shares to Neutral with a 45c PT from $2 until it can truly see a path to the $50-60M of revenue required for break-even and beyond. CSIQ shares fell after posting Q4 loss and weaker guidance as sees Q1 revs $1.2B-$1.4B vs. est. $1.87B despite Q4 revs beating ests ($1.7B vs. est. $1.68B).
• In Aerospace & Defense: RTX upgraded to overweight from equal weight and raises PT to $120 from $100 saying segment margins likely to improve as contracts rollover and programs move from development to production; said GTF recall groundings soon to peak, likely catalyst for the stock.
• In Steels: US Steel (X) extends Wednesday’s -13% decline after Nippon Steel’s $14.9B takeover offer came under scrutiny of the U.S. government a day after the deal was announced on Dec 18. The deal is under scrutiny as U.S. Steel plays a vital role in producing a material that is critical to national security.
• In Lithium Sector: LAC shares jumped after the co provided a construction plan update for its Thacker Pass lithium project located in Humboldt County, Nevada. Lithium Americas has received a conditional commitment from the U.S. Department of Energy, or DOE, for a $2.26B loan under the Advanced Technology Vehicles Manufacturing.

• In Online Trading: HOOD shares rise after Bernstein initiated at Outperform and $30 tgt as sees a monster of a crypto cycle over 2024-25 and expects crypto market cap to reach $7.5Tn vs $2.6tn today saying this leads to HOOD growing its crypto revenues by 9-fold. HOOD also overnight Assets Under Custody at the end of February were $118.7B, up 16% from January 2024 and net deposits were $3.6B in February, up 42% y/.
• In Insurance: CB was downgraded to Neutral from Buy at Citigroup while raise tgt to $275 from $238 as believes the outlook for CB is adequately reflected in the shares and see risk/reward as more balanced.
• In Financial Services: TRI was upgraded to OW at Barclay’s, PT raised to $180 after IR day saying they have been constructive on the ongoing transformation at TRI, and IR day gave US a much-anticipated look ‘under the hood’ to convince US that TRI’s content-enabled technology growth is still only in the early innings.

• AZN said it would purchase the French firm Amolyt Pharma in a deal worth up to $1 billion, picking up a rare disease drug in a pivotal trial.
• IMRX said its experimental cancer drug, IMM-1-104, induced regression in cancerous lesions in more than half of the patients enrolled in an early-stage study; expects initial data from a mid-stage study of the drug this year.
• MIRM said the FDA approved Livmarli to treat cholestatic pruritus, a feeling of itchiness, in patients five years of age and older with progressive familial intrahepatic cholestasis; said that the latest approval is based on data from the March Phase 3 study.
• SPRB shares plunge after reported a CAHmelia-203 topline miss, with tildacerfont failing to achieve the primary endpoint of A4 reduction from baseline to week 12 in CAH; 200 mg QD tildacerfont showed an A4 reduction of -2.6% (vs. ours, and even mgmt’s, base case -40%) with no statistical significance. SPRB said they intend to implement cost saving initiatives, including termination of the study and a workforce reduction of about 21%.
• VRTX hits speed bump in getting CRISPR sickle cell therapy covered in U.K., STAT News reported saying in draft guidance it has questions about the medicine’s lasting benefits for patients.
• YMAB shares dropped after announced the resignation of Chief Financial Officer Bo Kruse, who has been in the role since its founding in April 2015.
• In colon cancer screen stocks: GH and EXAS unveiled updated test results for their colon cancer screening tools in the New England Journal of Medicine: EXAS said BLUE-C study which showed the next-generation Cologuard-Plus outperformed the FIT test with Cologuard-Plus cancer sensitivity of 94%, specificity including non-advanced findings of 91% (94% including no findings), and advanced precancer sensitivity of 43%. GH said its colorectal cancer screening test succeeded in a large study. But the product, which relies on only a blood draw, was considerably less effective at detecting early-stage disease and precancerous polyps.

• In Media: PARA said it had agreed to sell its Indian television interests to partner Reliance Industries for about $517M. The deal comes two weeks after Reliance and entertainment giant DIS; NFLX price tgt raised to $640 from $600 at Evercore/ISI as thinks subscription and advertising-based video on demand (SAVOD) should at least help NFLX capture a larger audience that may be price sensitive, but ad accustomed.

• SentinelOne (S) reported F4Q with revenue, billings, and net new ARR coming in above expectations and all the profitability metrics significantly ahead. The F1Q25 top-line outlook was generally fine, but the operating margin guide for the quarter came in below and for FY25, the revenue guide was a touch below consensus.
• MOMO shares declined after reported a drop in paying users for both Momo and Tantan apps; said for Tantan, monthly active users fell by 26% in December 2023 from a year earlier.
• PATH reported strong FQ4 results, delivering a revenue beat and continued progress in improving, while ARR came in ahead of expectations ($1.464B versus Consensus expecting $1.453B), but total customers continued to decline as the company faces churn in the lower end of the market offset by focus on enterprises.
• PI announced a successful settlement of its patent disputes with NXPI.