Closing Recap

Wednesday, May 29, 2024

U.S. stocks took a breather, with the Smallcap Russell 2000 and Dow Jones Industrials falling the most amid a spike in Treasury yields, with the benchmark 10-year yield hitting a 4-week high above 4.63%. Yields extended gains this afternoon following the third “lackluster” Treasury bond auction of the week (7-yr soft results today). Renewed rate hike concerns arose yesterday after Minneapolis Fed President Neel Kashkari said that the Federal Reserve could hold rates higher for longer to gain clarity on inflation and warned that a hike isn’t off the table. Investors now see a 54% chance the Fed will stand pat through its next three meetings, the CME FedWatch tool showed, up from 42% a week ago (and only one cut being expected now in 2024 – down from original view of 5-6 this year). However, with key inflation data coming up tomorrow and Friday, including the Fed’s preferred inflation data point core PCE on Friday morning, things could change. The tech heavy Nasdaq Composite fared better than Dow/Russell, but still finished lower after notching its first record close above 17,000 on Tuesday. The pullback comes ahead of earnings from Dow component and software giant Salesforce (CRM) and HP Inc. (HPQ) after the bell. Oil prices turned lower after nearing a four-week high earlier on expectations major producers (OPEC+) will extend output cuts at a Sunday meeting. Travel stocks, mainly airlines tumbled after American (AAL) cut its earnings/CASM outlooks. Semiconductors pulled back after record highs for the SOX on Tuesday though NVDA still pushed higher. The Dow Jones Industrials fell for the 4^th time in the last five trading days, down over 1,500 points from 5/20 record high of 40,077.40. In the end, after early weakness, stocks were steady for the remainder of the day awaiting tomorrow’s GDP.

• US bank profits climb 79.5% in Q1 2024 to $64.2B, boosted by large decline in noninterest expense on non-recurring items – FDIC reported. Noninterest income for banks up 15.2% and provision expenses down 17.3% in Q1 2024. Non-current rate of non-owner occupied commercial real estate loans hits 1.59%, highest level since Q4 2013. The number of ‘problem banks’ climbed from 52 to 63, now totaling $82.1B in assets and representing 1.4% of total banks.
• Australian headline CPI came in at 3.6% YoY in April (above est. 3.4%, and vs. previous 3.5%), highest since Nov. 23, and the second month of upturn; excluding volatile items CPI was steady at 4.1%. The most significant contributors to the April annual rise were Housing (+4.9%), Food and non-alcoholic beverages (+3.8%), Alcohol and tobacco (+6.5%).

• Gold prices fell -$15.30 or 0.65% to settle at $2,341.20 an ounce as a stronger dollar, higher bond yields and hawkish comments from a Federal Reserve official weighed on market sentiment as it braced for the release of U.S. inflation data. The U.S. dollar (DXY) rose 0.4% back above 105 against its rivals, making gold more expensive for other currency holders, while the benchmark U.S. 10-year Treasury yields climbed to a near one-month peak. Minneapolis Fed Bank President Neel Kashkari said on Tuesday the U.S. central bank should wait for significant progress on inflation before cutting interest rates. Silver eased after hitting an 11-year high last week and aluminum hit 2-year highs.
• Oil prices slipped -$0.60 or 0.75% to settle at $79.23 per barrel, pulling back off earlier highs, while Brent Crude futures settle at $83.60/bbl, down 62 cents, 0.74%. Front month Nymex natural gas fell 3.75% to settle at $2.4930. Natural gas futures were lower as production picks up and recent heat in the southern U.S. is seen easing into the end of the week.

• In Sporting Goods Retail: DKS rises on results and better guidance as Q1 $3.30/$3.02B tops ests $2.93/$2.94B on better comps 5.3% vs. 2.5% est., gross margins 36.3% vs. est. 35.8% and raises FY24 comp sales guidance to a range of 2.0% to 3.0%, up from 1.0% to 2.0% previously and boosted EPS view to $13.35-$13.75, from $12.85-$13.25 previously.
• In Food & Restaurants: Mediterranean restaurant chain CAVA reported better-than-expected 1Q same-store sales growth of 2.3% and boosted its outlook for FY comps to +4.5-6.5% vs prior +3.0-5.0%, restaurant level margin 23.7-24.3% vs prior 22.7-23.3%, and on better adj EBITDA $100-105Mm vs prior $86-92Mm and est. $91.26Mm; says no price increases planned for remainder of the year, says consumers becoming increasingly discerning. GIS exec notes looking ahead, consumers are in a tough place – Bernstein conference comments.
• In Online Retail: pet retailer CHWY shares jumped on results and authorized a share buyback program of up to $500M stock; Q1 adj EPS $0,31 topped the $0.16 estimate and vs. 0.20 y/y while saying during the quarter, Chewy says its Autoship customer sales increased by 6.4% from last year to $2.23B. PDD shares dipped after theinformation reported late day that U.S. officials have escalated a crackdown on the controversial customs exemption that Temu, Shein and other e-commerce firms use to send cheap items from overseas to American shoppers without paying tariffs.
• In Auto Retail: AAP shares slide on results/guidance as Q1 EPS $0.67 vs. est. $0.68; Q1 revs $3.4B vs. consensus $3.43B; Q1 comparable store sales for the fourth quarter 2023 decreased (-0.2%); backs FY24 EPS and comp store sales view, while raised upper end of its FY rev outlook (co said saw negative impact from weather, coupled with a challenged consumer who is experiencing diminished purchasing power, higher credit card debt and uncertainty).

• In Transports: airlines weak as AAL cuts Q2 EPS view to $1.00-$1.15 from $1.15-$1.45 (est. $1.30), cuts Q2 operating margin view to 8.5%-10.5% from 9.5%-11.5%, affirms Q2 ASM of up 7% to up 9% y/y; and cuts Q2 CASM to flat to up 1% from up 1% to up 3%; guidance weigh on shares of other airlines DAL, LUV, UAL. Jefferies upgraded UAL from Hold to Buy and raise tgt to $65 from $54 saying product offering succeeding across premium to economy cabin w/ Domestic PRASM discount to DAL narrowing, up gauging + corporate benefit and int’l margin harvest as peak profit fears ease.
• In Metals & Mining: Anglo American (NGLOY) rejected BHP’s last-ditch request for more time to discuss a $49 billion takeover offer, dismissing it as highly complex and likely ending a five-week pursuit by the bigger rival. Anglo had granted BHP a one-week extension to its original May 22 deadline to submit a binding offer. EGO was upgraded to OP from Sector Perform at RBC Capital and raised tgt to $20 from $14 saying production, margins, FCF coming. TFPM downgraded to Sector Perform from Outperform at RBC Capital but raised tgt to $19 from $15. In copper sector, RBC Capital noted after starting the year stuck in a range around $3.75/lb., the dam finally burst in mid-March when Chinese smelters acknowledged they did not have enough concentrate and announced plans to reduce, sending copper up 22% to $4.65/lb. and recently made new all-time highs over $5.00/lb. on the Comex exchange.
• In Solar & Utilities: FSLR price target raised to $350 from $270 at UBS and keeps Buy rating saying has greater confidence in underlying utility-scale projects demand driven by corporate "100% renewable" demand and recent positive news on U.S. import tariffs.
• In Aerospace & Defense: FTAI 2.09M share Spot Secondary priced at $82.00. HEI reported FQ2 EPS of $0.88 vs the consensus estimates of $0.81 on better revenue of $955M (consensus $951M and its $941M estimate) and Stifel noted standout improvement in the quarter was to margins, which increased to 21.9% vs Stifel’s consensus 21.0% estimate.

• In Crypto: BITF responds to unsolicited proposal from RIOT saying they are committed to maximizing value for all shareholders; strategic alternatives process underway and reaffirms confidence in business and guidance of 21 EH/s and 21 w/TH in 2024 (yesterday RIOT offered to buy BITF for $2.30). Canaccord raised its price tgt on MSTR to $2,047 from $1,590 saying MSTR remains one of the best ways most equity investors can get exposure to Bitcoin and main drivers of new PT are continued appreciation of BTC and some revaluation up for the software business. BLK’s iShares Bitcoin Trust (IBIT) has become the world’s largest fund for the original cryptocurrency, racking up nearly $20 billion in total assets since listing in the U.S. at the start of the year, Bloomberg News reported overtaking Grayscale Bitcoin Trust’s (GBTC) $19.65B, report said, citing data compiled by Bloomberg.
• In Insurance: PLMR raised FY24 adjusted net income view to $122M-128M as announced the successful completion of certain reinsurance programs incepting June 1; said procured approximately $400M of incremental limit to support the growth of its Earthquake franchise. Palomar’s reinsurance coverage now extends to $3.06B for earthquake events, $735M for Hawaii hurricane events, and $117.5M for all continental United States hurricane events.

• MRK agreed to buy privately held EyeBio for $1.3B in cash up front and could make an additional $1.7B in milestone payments for the company (confirming a report in the FT overnight).
• PRTA announces that BMY opt-in for exclusive global license for prx019, the second program from global neuroscience research and development collaboration; PRTA to receive $80M from Bristol Myers Squibb for exclusive global license to PRX019; PRTA will initiate a phase 1 clinical trial for PRX019 in 2024.
• SRDX announced this morning it is going to be acquired by private equity firm GTCR for $43 per share, for a total equity value of $627M. The transaction is expected to close in 2H24.
• Managed care stocks dropped, led by weakness in UNH after the company cited a near-term disturbance around reimbursement rates for Medicaid due to ongoing program-wide enrollment hurdles that began about a year ago (shares of HUM, CNC, ELV also moved lower in reaction).

• In Software: Cloud computing startup CoreWeave, one of the biggest beneficiaries of the artificial intelligence boom, is now planning an IPO in first half of 2025 according to a report in theinformation, noting the company was last valued at $19B; NABL shares rose after Reuters reported the software is exploring a sale after attracting acquisition interest, noting one of its suitors is cybersecurity company Barracuda Networks, which is owned by KKR. APPS shares dropped after Q4 revs missed ($112.2M vs. $117.7M) as U.S device headwinds persisted & drove 4FQ miss said Bank America, flat device run rate vs March Q likely assumed in FY25 guide.
• In Hard Disk Drives (WDC, STX), Cleveland Research said checks point to further strengthening nearline demand in CY24 w/ supply pressure & ASP gains; for STX, notes further pushouts of HAMR ramp; for WDC, hearing stronger nearline TAM & share outlooks, NAND market tightness and potential to ramp high cap eSSD + AI Products.
• In Semiconductors: a day after hitting new all-time highs of 5,343.68, the Philly semi-index (SOX) took a small breather; MCHP announces proposed private offering of $1.1B of convertible senior notes.
• In AI related names: a report in Theinformation said AAPL to introduce AI services while protecting user data, Apple will process data in a virtual black box, where employees won’t be able to access it. DELL price tgt raised to $180 from $130 at Bank America into earnings as expects strong momentum into 2025 given upside from AI servers, high end storage and PC refresh with optionality from AI PC; said expects $1.4B in rev and $4-5B in AI backlog.