Closing Recap

Tuesday, May 14, 2024

One down, one to go as major averages finish higher (Nasdaq near record highs) ahead of key consumer prices (CPI) inflation and retail sales data Wednesday (5/15) morning. The first of two inflation reports this week was released today, as the April Producer Price Index (PPI) showed a “hotter” reading on a month-over-month (M/M) basis, but markets rebounded quickly after a brief drop after the Y/Y comparisons came in-line with expectations as prior month revisions were lower. Still, markets remain uncertain about the Fed’s next move on interest rates, and tomorrow’s CPI report, which carries more weight than the PPI, could hold the key to either new all-time highs for U.S. stocks (SPX 20 points from records), or a market reversal after a strong start to May. Federal Reserve Chair Jerome Powell also said the PPI report was more "mixed" than "hot" given that prior data was revised lower. The other story outside of inflation data (amid a very quiet time of stock news/earnings, lack of M&A stories), has been the recent 2-day spike in short interest related stocks. Prior to today’s PPI inflation data, Barron’s noted a simple “X” post (formerly Twitter) from user Roaring Kitty, followed by a series of memes from movies that amount to a hype video, galvanized the long-dormant army of retail investors, and sent shares of GameStop and AMC into the stratosphere – what does it all mean? Barron’s suggested it suggests financial conditions are still too loose, and that interest rates need to stay even higher for even longer. That’s not what the market wants. Meanwhile Fed Chairman Powell spoke earlier today, with the WSJ’s Nick Timiraos noting there was “no meaningful change in the economic outlook since Powell’s last comments means no meaningful change in Powell’s outlook today: The key line: "We’re just going to have to see where the inflation data fall out.” Note stocks still pushing higher as the Nasdaq 100 (QQQ) now within $3 of all-time highs ($449.34 on 3/21) and over $30 off the April 19th "bottom" of $413.07 (QQQ up for the 8th time in 9-days).  Absolutely no fear for major averages, holding near or making new highs heading into the inflation report as the SPY posts 9^th straight day of gains.

• Total household debt rose 1.1% in 1Q from the previous quarter, according to the Federal Reserve Bank of New York. Mortgage debt at $12.44t after $12.25t in 4Q, a change of $190b from the prior quarter. The mortgage delinquency rate rose to 0.6% from 0.57% in the prior quarter. Credit card debt totaled $1.115t from $1.129t in the prior quarter.
• U.S. Small-Business Optimism Increases for First Time This Year – NFIB sentiment index climbed 1.2 points to 89.7 in April (vs. est. 88.2) – share planning to raise prices declined to a one-year low.
• President Biden hiked tariffs on electric vehicles and assorted clean-energy goods from China on Tuesday (as widely speculated last week). The new trade policy includes tariffs on Chinese EVs hiked to 100%, up from 25%. The Biden administration also announced tariffs on Chinese critical minerals, solar goods, and batteries. Tariffs on lithium-ion EV batteries will increase to 25%, from 7.5%, in 2024 while "battery parts" will be taxed at 25% in 2024. The White House also hiked the tariff rate on solar cells from 25% to 50% in 2024. Tariffs on steel and aluminum products will also increase from 0%-7.5% to 25% in 2024. The Biden administration is increasing the tariff rate on semiconductors to 50%, up from 25%, by 2025.

• U.S. WTI crude oil futures settle at $78.02/bbl, down $1.10, or 1.39%.
• Brent Crude futures settled at $82.38/bbl, down 98 cents, 1.18%.
• Treasury yields jumped initially after the PPI data (highs above 4.53% for the 10-yr), but the impact faded, as the 10-year ended below yesterday settle, at 4.45%, and the WSJ Dollar Index falls 0.1%.
• Expectations on Fed policy continue to show about 40 bps in cuts this year, beginning in September.

• In Specialty Retail: TD Cowen raised price tgts on AEO to $25 from $23 and GPS to $24 from $21 saying investor sentiment on specialty retail has improved, and they like lean inventory, controlled promotions, and cost discipline at BBWI, AEO, & GPS. TDCowen believes upside to Q124 EPS is likely, but stock reaction could be modest given the recent stock run and the potential for management reiterating FY24 guide given macro uncertainty.
• In Food & Beverages: SAM upgraded to Buy from Hold at Jefferies and raise tgt to $360 from $335, following the firm’s bi-annual distributor survey which they said shows Hard Teas are dominating with relevant brands receiving 43% of honorable mentions and Twisted Tea "leading the way," while seltzer declines are slowing.

• In Leisure: AMC shares among the high short interest names, “meme” stocks that advanced for a second day on no news other than a few cryptic social media posts by “Roaring Litty”, social media persona of Keith Gill, credited with setting off the so-called Reddit rally in January 2021 with his bullish calls on GameStop (GME). Gym owner PLNT upgraded to Overweight from Neutral at JP Morgan with a price target of $78 from $68 citing confidence in Planet’s long-term growth trajectory.
• In Ride Hailing: UBER announced last night it will buy Delivery Hero’s Foodpanda delivery business in Taiwan for $950M cash, marking a major expansion for the U.S. company in Asia. Uber will separately purchase $300M in newly issued ordinary shares of Berlin-based Delivery Hero.

• In Utilities, Solar, Power: PLUG said it receives a conditional commitment for an up to $1.66 billion loan guarantee from the U.S. Department of Energy to build six green hydrogen production facilities.
• In Aerospace & Defense: LUNR shares slide as guides FY revenue in the range of $200M-$240M below consensus estimates of $267.9M even after posting record high revenue of $73.1M in Q1 topping the $55.9M estimate.
• In Metals & Materials: uranium stocks CCJ, UUUU, UEC shares rose initially after President Joe Biden signs into law a ban on Russian-enriched uranium. The ban on imports of fuel for nuclear power plants begins in about 90 days but will allow the Department of Energy to issue waivers in case of supply concerns. Copper names like FCX strong while aluminum (AA) fell.
• In Transports: Airlines for America said Tuesday that U.S. carriers plan to fly more than 26,000 daily flights this summer, up nearly 1,400 over 2023, or 5.6%, when they carried 255 million passengers. The summer travel season forecast is for June 1 to Aug. 31. UAL is forecasting a record-setting 3M travelers expected to fly during the May 23-28 Memorial Day travel period.

• In FinTech/Payments: PSFE shares jumped after the payment platform swung to a profit year-over-year in Q1 and revenue beat estimates ($0.57/$417.7M vs. est. $0.55/$408.2M) and reaffirmed its guidance for the year for revenue. STNE shares slipped after the Brazilian payments company’s revenue missed expectations rising 13.8% as adj net profit of 450.4M reais misses the 462M est. and issued unchanged guidance was also seen as a disappointment.

• CGON upgraded to Buy from Neutral at Goldman Sachs with $50 tgt given attractive entry point for de-risked asset with sizable market opportunity.
• ETNB initiates phase 3 ENLIGHTEN-Cirrhosis trial of Pegozafermin in Metabolic Dysfunction-Associated Steatohepatitis (MASH) patients with compensated cirrhosis.
• FULC was upgraded to Buy from Neutral at Goldman Sachs with $15 tgt, positive heading into Q424 topline data for the Ph3 REACH study of losmapimod in facioscapulohumeral muscular dystrophy (FSHD) based on multiple factors.
• SRPT was upgraded to Outperform from Perform at Oppenheimer with a $180 price target saying believes a potential Elevidys label expansion is a "prelude" to Sarepta’s pipeline in other muscular dystrophies and next-generation commercial products. The firm assumes an 80%-90% of label expansion probability for Elevidys to all ambulatory Duchenne muscular dystrophy boys. Opco also added SRP-5051 to its model, saying the drug is an underappreciated asset.

• In Healthcare Services: AUGX shares tumbled after cutting FY24 guidance from $60M-62M to $52M-55M, +23% Y/Y at midpoint, because of existing clients switching to lower-cost services and prospective customers evaluating many AI offerings before purchase commitment (prompting at least two analyst downgrades). CVS CFO said at Bofa conference this morning the Co May lose a big chunk of members in its Aetna Medicare Advantage plans next year as the insurer attempts to boost profits in its insurance plans.
• In Medical Research/Equipment: NOTV shares fall, downgraded at Jefferies to hold after results and highlighted $32M lower FQ2 RMS sales (driven by) and lower NHP sales (volume and price) and destocking; co said expects to raise going concern; QDEL shares popped midday after Reuters reported activist investor Jana Partners has built a new stake in the U.S. diagnostics company in the first quarter.

• In Internet, Media & Telecom: Variety reported CMCSA to Launch Peacock, Netflix, and Apple TV+ bundle at a “vastly reduced price”; SE reports Q1 revs $3.73B vs. est. $3.6B and Ecommerce revs $2.75B vs. est. $2.49B; affirms FY24 outlook; reported Q1 adj EBITDA $401.1M v $507.2M y/y and vs. $221.8M est. PARA shares fell midday after CNBC’s David Faber reported SONY is rethinking Paramount bid; GOOGL showed how it is building on artificial intelligence across its businesses, including a beefed-up Gemini chatbot and improvements to search.
• In 3D sector: DDD announced that it is unable to file its Form 10-Q for the period ended March 31, 2024, on time as its 2023 Form 10-K has not been filed. Previously, the company announced that it was unable to file its 2023 10-K within the prescribed period because it had hired a new Chief Financial Officer in December 2023.
• In iPhone/semi impact: Keybanc said results from their AAPL iPhone carrier survey and Key First Look Data results reflect soft iPhone demand; survey indicates iPhone 15 sell-through in April was tracking in line with to slightly below store expectations and normal seasonal trends, with pockets of softness; Key First Look Data results (-21% m/m, -14% y/y) also reflect softer iPhone demand in the U.S. its KFLD shows Indexed Spending -17% m/m in April, in line with the three year average.
• In Hard Disk Drives (HDD): Citigroup initiated both STX ($110 tgt) and WDC ($90 tgt) with Buy ratings saying following several quarters of storage digestion, CAPEX cuts and workforce reductions, the firm expects the storage media industry dynamics to improve from here with the return of pent-up storage demand led by hyperscalers.