Closing Recap

Monday, November 04, 2024

As expected, U.S. stock markets saw a lot of “choppy” action on Monday, trading nervously ahead of Tuesday’s election results, finishing little changed while bond yields slide ahead of too-close-to-call election results. The S&P 500 (SPX) fell as much as -0.5% briefly below the 5,700-level mid-afternoon (which happened to be its 50-day moving average technical support) after the WSJ reported late morning that Russia plotted to put incendiary devices on passenger or cargo planes bound for the U.S. and Canada, Western security officials said. Those news headlines weighed on stock futures and gave the VIX a little boost. However, stocks quickly rebounded after hitting that support level, managing a bounce to end the day little changed. Energy was the best S&P performer following a bounce in oil prices after U.S. election uncertainty loomed with markets pricing in chances of a contested result and political tensions, while investors also kept a close tab on the Federal Reserve policy meeting later this week. REITs, Materials and Technology were among other leaders while Utilities (led by nuclear name weakness), Financials and Healthcare were the biggest laggards.

Obviously, election day is tomorrow that will impact not only the Presidential choice, but key seats in both the House and Senate, but this is also a huge week of central bank action. Central bank actions this week include: the FOMC is widely expected to cut rates by 25-bps on Thursday 11/7; Reserve Bank of Australia (RBA) announces rates on Tuesday 11/5 along with quarterly Statement on Monetary Policy – no change is expected to the cash rate of 4.35%; China’s highly anticipated National People’s Congress (NPC) Central Committee meeting is scheduled from November 4th thru 8th; The Bank of England is widely seen cutting rates by 25bps on 11/7 to 4.75%. Other bank actions expected this week include: The Norges Bank, Riksbank meet Thursday November 7 with cuts expected and Brazil Central bank meets Wednesday.

• OPEC+ issued a press release stating that its planned production increases have been delayed by one month and will start on January 1, 2025, instead of December 1, 2025. Additionally, Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman all reiterated a collective commitment to achieve full conformity with the Declaration of Cooperation, including the additional voluntary production adjustments that were agreed to be monitored by the JMMC during its 53rd meeting held on April 3, 2024, and to fully compensate by September 2025 for the overproduced volumes since January 2024.

• December gold prices slip -$3.00 to settle at $2,746.20 an ounce (off earlier highs $2,757.50) as U.S. election uncertainty loomed with markets pricing in chances of a contested result and political tensions, while investors also kept a close tab on the Federal Reserve policy meeting later this week.
• The U.S. Treasury sold $58B in 3-year notes at high yield 4.152%, vs. 4.143% when issued prior with a solid bid-to-cover ratio 2.60, as Primary dealers take 19.75% of U.S. 3-year notes sale, direct 9.62% and indirect 70.62%. The solid auction was the first of three this week ($42B of 10y notes on election day and $25B in 30y bonds the day after – FOMC meeting is Thursday).

• In Specialty Retail: PTON was upgraded to Buy at Bank America and raised its tgt to $9 from $3.75 on higher estimates, saying Q1 surprised with much higher-than-expected EBITDA and FY25 guide was raised to $240- 290M (vs. $232M for Street); believes Peloton can exceed $300M in EBITDA this year.
• In Restaurants: YUMC reported a top and bottom line beat as Q3 EPS $0.77 vs. est. $0.62 on revs $3.07B vs. est. $3.05B; said total store count reached 15,861 as of September-end; company opened 438 net new stores during the quarter; Q3 Comparable sales -3% vs. est. -2% as KFC comp. sales -2% and Pizza Hut comparable sales -6%.
• In Food space: FRPT Q3 volumes rose over 26% along with 26% gains in revs y/y to $253.4M vs. est. $248.2M and guided 2024 net sales to be $975M above prior forecast of $965M citing strong demand for its dog and cat foods.

• In Cruise lines: NCLH upgraded to Buy from Hold with a price target of $30 at Argus saying increased occupancy (108% in Q3), higher ticket prices and strong advance bookings for 2025 are benefiting results. In addition, Norwegian’s new ship pipeline aims to expand capacity by 30% within three years.

• In Nuclear sector: On Friday, the Federal Energy Regulatory Commission (FERC) voted 2-1 to unexpectedly reject the TLN nuclear interconnection agreement/data center connected directly to a nuclear power plant in Pennsylvania; the news also weigh on other nuclear-power utilities as well (CEG, PEG, VST, OKLO) and uranium names (UEC, CCJ, UUUU). Separately, VST will replace AES in the Dow Jones Utility Average.
• In Utilities: ETR was upgraded to Equal Weight from Underweight at Morgan Stanley and raised tgt to $150 from $116 saying growth is exceeding expectations – ETR was able to raise its EPS 9% with the addition of a large customer, and more customer demand is still in the pipeline and Louisiana regulatory issues have been resolved more smoothly than expected and near-term regulatory risk has declined.

• In REITs: Reuters reported BX is in advanced talks to acquire ROIC, which owns U.S. shopping centers and has a market value of $3.4B including debt, according to people familiar with the matter. If the talks are successful, a deal could be finalized in the coming weeks, the sources said.

• IART shares jumped after Q3 beat (EPS $0.41 vs. est. $0.39 and revs $380.8M vs. $375.78M; narrows its FY24 EPS and rev outlook and announced that its board of directors has appointed Mojdeh Poul as the new president and CEO, effective January 6, 2025.
• NKTR announces definitive agreement with Ampersand Capital Partners to sell its commercial PEGylation Reagent Manufacturing Business in Alabama; Nektar to receive $90M in total consideration for the business, comprised of $70M in cash and $20M equity ownership in new portfolio company.
• RVTY Q3 adjusted EPS $1.28 topped consensus $1.12 on better revs $684M vs. consensus $679.65M and announces $1B share repurchase program and raised year EPS outlook, while cut its 2024 revenue forecast to $2.75B-$2.77B from prior $277B-$2.79B as reduced biotech spending and a strong dollar weigh on demand for its tools and services.
• SMMT was initiated at Outperform and $32 price target at JMP Securities as the firm acknowledges the risk associated with data obtained from Chinese patients only, but believes the results obtained from the Orient are of a much higher standard given the significant increase in deals and growing healthcare market in China. With multiple global Phase 3 studies under way and "solid" head-to-head monotherapy data, Summit has the potential to achieve.
• PACS shares tumbled midday after short seller Hindenburg Research announced a short position.
• VERX upgraded to Buy from Hold at Jefferies and raise PT to $50 saying when they moved to the sidelines to start 2023, it underappreciated the durability of the VERX’s sub rev growth and the margin leverage on the other side of the post-IPO investment cycle.
• VKTX presented data on the higher doses of its experimental oral obesity drug VK2735 at a conference, Obesity Week. Patients who received the higher dose 100 milligram version of the oral drug, VK2735, showed an 8.2% reduction in body weight on average after 28 days, compared to 1.4% for placebo and 6 out of 9 patients who received the highest dose experienced mild nausea and only 1 patient experienced vomiting at that level (shares jumped pre mkt trading as much as 25% before erasing all those gains and falling more than 10% below $65 per share late morning).

• In Chemicals: SHW is replacing DOW in the Dow Jones Industrial Average prior to the start of trading on Nov. 8, S&P Dow Jones Indices said in a statement; CC reported Q3 results topped expectations for profit (EPS $0.40 vs. est. $0.28) on better sales ($1.5B vs. est. $1.44B) and Ebitda ($208M vs. $187.7M) but guided Q4 net sales to decrease in the mid- to high-single digits sequentially. ECL was downgraded to Neutral at UBS as it sees less potential for outsized stock gains and see risk/reward as more balanced at current levels. In fertilizers, MOS, NTR shares advanced after Belarus President Alexander Lukashenko asks the new CEO of the country’s biggest potash fertilizer firm to speak to Russian companies about a coordinated output cut. Per Bloomberg.

• In Cable & Telecom: CHTR was upgraded to Buy at Bank America and raised tgt to $450 from $385 as ACP headwinds are largely behind the company and broadband sub trends should continue to improve and noted the company is reducing its CAPEX estimate for 2024, supporting its new higher FCF estimates which should help drive ample capacity for buybacks post CHTR’s negotiations around a deal with Liberty. Canadian telecom firm BCE said on Monday it will buy internet service provider Ziply Fiber for C$5.0 billion ($3.60 billion) in cash.
• In Hardware: Warren Buffett’s Berkshire Hathaway Inc. (BRKA) further reduced its position in AAPL by 25% during the third quarter, the company’s latest quarterly report indicates. The latest position value was about $69.9 billion as of the end of the third quarter or roughly 300M shares, down from a stake of 400M at end of Q2 as per latest 13-F.
• In Media: FOXA reported Q1 revs $3.56B vs. est. $3.37B, helped from higher political advertising ahead of the U.S. presidential election; said Q1 ad revs were $1.33B vs. est. $1.29B and cable revs $1.95B, ahead of estimates of $1.92B; revenue at Fox’s Cable Network Programming came in at $1.60B vs. est. $1.4B. NYT reported in-line Q3 revs of $640M while adding 260K digital-only subscribers, compared with 300K additions in the previous quarter (vs. est. 280K); forecast subscription revenues to grow by 7% to 9% in the fourth quarter, slightly below ests for 8.2% growth. SSP shares tumbled over 30% after results and said it didn’t seal a deal to sell its Bounce TV network.
• In Software: RBLX was upgraded to Overweight at Morgan Stanley and raise PT to $65 (bull case to $110) saying the company’s success reaching a broader audience and scaling on new platforms (E.G. PlayStation) suggests the company’s opportunity is only growing.
• In Comm Equipment: KEYS was upgraded to Overweight from EW at Barclays with $180 PT saying with last Q orders positive y/y for the first time in six consecutive Qs, >80% of the company’s business lines either stable, recovering, or accelerating, and KEYS’ multiple treading water YTD and below peer levels and historicals, sees shares attractive.