Closing Recap

Friday, May 17, 2024

After a strong start to the week, with stocks pushing to new all-time high Wednesday following tamer inflation readings and softer growth data, raising prospects for a more accommodative Fed on rates, stocks cooled the last two days, holding near those record bests. Today was a very slow, lackluster trading day considering an options expiration day, with no big sector movers outside of Energy (XLE) to the upside as commodity prices jumped. Commodities with continued big gains for likes of oil, gold, copper, and silver on low rate cut environment expectations. Are investors/stocks celebrating inflation too soon? Seeing lots of interest rate sensitive sectors moving higher this month/YTD with Utilities, Financials among the biggest winners (though 10 of 11 sectors higher YTD). The quarterly earnings season is mostly in the rear-view window, but there are still some notable reports in the coming weeks with NVDA, TGT, LOW, PANW and several retailers among expected. This week, AAII reported Bullish sentiment, or expectations that stock prices will rise over the next six months, was flat at 40.9%. Bullish sentiment is above its historical average of 37.5% for the 27th time in 28 weeks. AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, edged down 0.6 percentage points to 23.3%. CBOE Volatility Index (VIX) continues to crumble at new 2024 lows below 12. Lots of sideways trading throughout Friday with the S&P holding around 5,300 and the Dow pushing back above 40,000 with a late push. For the week, the S&P 500 gained 1.54%, the Nasdaq climbed 2.11%, and the Dow climbed 1.24%.

• China April Retail Sales rises 2.3% vs 3.7% consensus; China April Industrial Output rises 6.7% y/y vs. 5.5% consensus and China Jan-April Fixed Investment rises 4.2% y/y vs 4.6% consensus.
• China’s existing home prices fell -0.94% MoM in April to be -6.79% YoY, a further annual decline from -5.9% in March. While new home prices fell -0.58% MoM to be -3.5% YoY, a further annual decline from -2.65% in March.

• U.S. WTI crude oil futures settle at $80.06/bbl, up 83 cents, 1.05%, while Brent Crude futures settle at $83.98/bbl, up 71 cents, 0.85%. Baker Hughes (BKR) said energy firms this week added oil and natural gas rigs for the first time in four weeks, as the oil and gas rig count, an early indicator of future output, rose by one to 604 in the week to May 17, though the total count was still down 116, or 16% below this time last year. Natural gas futures extend gains triggered by yesterday’s lower-than-expected U.S. inventory build. The U.S. awarded contracts for the purchase of 3.3M barrels of oil to help replenish the Strategic Petroleum Reserve after a massive sale from the stockpile in 2022, the Department of Energy said on Friday. The oil is being bought at an average price of $79.38, the DOE said.

• GME shares tumbled as files to sell 45M shares of Class A common stock; after guided Q1 sales to $872M-$892M below the $1.237B a year ago though narrows Q1 net loss to range from $27M-$37M from $50.5M loss y/y; said expects selling, general and administrative costs to range from $290M-$300M, down from $345.7M y/y.
• In Retail Research: TD Cowen said trade-down, and dept./specialty store closures should continue to play to Off-Price Retail’s favor (BURL, TJX, ROST) and views the biggest competitive threats to the channel coming from SHEIN and TEMU. JP Morgan upgraded BBWI to Neutral from Underperform, placed ANF on positive catalyst watch while raising comp sales ests and said off-Price names (TJX, BURL, ROST) a buying opportunity pointing to favorable 1H May/2QTD momentum across all 3 Off-Pricers on Spring weather inflection & spending catalyst at Mother’s Day.
• In Food/Grocers: Asda, Britain’s third largest supermarket group said its underlying sales rose 1.4% in the first quarter – a slowdown from growth of 2.2% in the previous quarter and an underperformance versus its bigger rivals.
• In Online Travel: DESP posted Q1 gross bookings/net revenue coming in 0.4%/1.9% ahead of ests as top-line outperformance and expense discipline led to a meaningful beat on adj EBITDA/net income, on record adj EBITDA margin of 22.4%; reiterated FY revenue guidance of "at least $820m," and raised its adj EBITDA guidance to at least $155m (up from at least $150m).

• In Materials: Iron ore prices rose +3% overnight, following a -0.3% w/w decline due to a slower-than-expected recovery in Chinese steel demand, coupled with stable supply and reduced speculative buying says RBC. The uptick in iron ore prices can be attributed to an announcement made by the local government in Hangzhou’s Linana district yesterday, which specified a plan to purchase up to 100,000 sq. ft. of housing at market prices and lease them at affordable rates
• In Airlines: Wolfe Research upgraded UAL from Peer Perform to Outperform w/ $76 PT saying while shares have already outperformed YTD, they see more to go for the stock given strong fundamentals for legacy airlines and its expectation for improving domestic main cabin trends in 2H. Wolfe also upgraded ALK from Peer Perform to Outperform w/ $55 PT saying while they prefer fundamentals for the legacy airlines right now, ALK is facing several emerging tailwinds on the West Coast with an accelerating corporate recovery, improving competitive capacity and lower regional jet fuel prices.
• In Industrials: RBC posted higher Q1 sales, rising 4.9% y/y to $413.7M vs. the prior $394.4M and vs. est. $414M in its latest quarter with growth coming from its aerospace-defense segment and EPS $2.47 topped $2.34 est.; said sales in its industrial segment decreased 0.4%, while sales for the aerospace-defense segment jumped nearly 17%.
• In Chemicals: DD was upgraded to Buy at Jefferies with $101 tgt as expect DD’s end markets to start to exit trough conditions in 2H24, with upturns in demand and a tailwind from inventory restocking likely driving volume gains ’25. Lanxess (LNXSF) downgraded to Underperform at Jefferies, reducing average EBITDA by 4% (FY24F below the low end of guidance, FY25F 23% below cons) as believes the risk surrounding its sustainability would imply financial risk.
• In Metals: Gold and Silver miners rise amid another pop in precious metal prices on improved interest rate cut expectations after eco data this week; shares of NEM, GOLD, AEM, GFI, PAAS, WPM, CDE among movers. Copper names also surged FCX, SCCO, VALE as copper prices topped $5 per pound.
• In Utilities & Solar: Spanish utility Iberdrola said it is acquiring the remaining 18.4% stake in its U.S. subsidiary Avangrid (AGR) that it does not already own for about $2.6 billion, to pay $35.75 per share above its previous offer of $34.25 per share, which it unveiled in March. Utilities +extend gains, up 8.5% on month and +14.4% YTD – only two down days in May as investors rotate to dividend paying/defensive names given low-rate outlook for year.

• In Financial Services: RDDT announced a newly formed partnership with OpenAI that includes the monetization and licensing of Reddit’s data as demand is growing for the company’s massive and unique data.
• In Crypto: Bitcoin rises +2.85% to $67,175 as crypto names with big gains; COIN rises on analyst upgrade and MSTR +8% above $1,550 (well off May 1st lows $1,010), with most of the gains this week. COIN upgraded to Neutral at Bank America following its updated view that the current macro environment has been a positive for Cryptocurrency market cap appreciation and trading volumes; COlN’s expense discipline and ability to benefit from operating leverage following large expense cuts in 2022 will help it maintain profitability going forward; increased diversification of revenue sources less correlated with overall volumes should dampen earnings volatility.

• MRNA won a case at the European Patent Office in its dispute with Pfizer and BioNTech over its COVID-19 vaccine, the company said on Friday.
• NUVL said the FDA granted NVL-655 Breakthrough Therapy designation (BTD) for the treatment of 3L+ ALK-positive NSCLC, allowing for an NDA submission based on results of the ongoing Ph 2 AKLOVE-1 study.

• In IT Services/Consulting: DXC shares tumble as quarter was above guidance, except for FCF, while FY25 guidance was weaker than expected across the board and notably in FCF; sees FY revs $12.67-12.95B vs est. $13.191B, and adj EPS $2.50-3.00 vs est. $3.49; GLOB reported strong 1/CY24 results, while adjusting CY24 guidance (from at least 16% YOY C/C revenue growth to a range of 14.7%-16.4%) on continued macro-related spending uncertainty.
• In Software: Video game maker TTWO cut its FY25 bookings forecast to between $5.55B-$5.65B, down from its prior forecast of just over $7B and set the release of "Grand Theft Auto VI" in the fall of calendar 2025; Q4 bookings fell 3% to $1.35 billion but beat analysts’ average estimate of $1.30 billion. SNOW is in talks to buy Reka AI for $1B, according to a Bloomberg report overnight.
• In Semiconductors: for a second straight day, the sector started higher and faded late day, with shares of NVDA moving lower ahead of earnings next week *still not far from all-time highs); equipment maker AMAT reported April Q results near the high end of the guidance range ($6.65B/$2.09 vs. cons $6.54B/$1.99), followed by July Q guide modestly above consensus ($6.65B/$2.01 vs. cons $6.59B/$1.97). Looking to 2HCY24, mgmt wouldn’t offer specific guide but did discuss an expected slowdown in domestic China DRAM, growth in domestic China ICAPS, accelerating spend in HBM DRAM.