Closing Recap

Monday, November 25, 2024

Following a strong performance in the markets last week, US equity futures traded modestly higher overnight to start the shortened Thanksgiving holiday week. With no significant economic releases this morning and headlines indicating Israel and Lebanon had agreed to terms for a ceasefire between Israel and Hezbollah, futures gained into the open before backing off to hold more modest gains into mid-morning. Early breadth favored advancers by 4:1 as small caps were big outperformers with IWM (+2.36%) versus SPY (+0.54%) and QQQ (+0.38%). Among sector groups, Real Estate (+1.76%), Consumer Discretionary (+1.71%) and Materials (+0.92%) were early outperformers in S&P sector ETFs, while Technology (+0.35%), Utilities (+0.28%) and Energy (-0.78%) led the underperformers with ten sectors up and only Energy in the red. Sentiment-wise, we continue to see some volatility with the Fear and Greed Index at 63/100 (Greed) today versus 49 (Neutral) a week ago and 60 (Greed) last month. The Dow finished at record highs and the Russell 2000 close.

In data of note today, @bespokeinvest gives us the good news/bad news that the last week of November has been positive for six of the past seven years, but 2021 was not only negative but the fifth worst of the post-WWII period. Looking ahead, @DataTrekMB notes ongoing strength in the US economy now has Fed Fund Futures pricing in only two or three 25bps rate cuts over the next 13 months. The December 2025 implied rate now stands at 3.877%. They also note that while Wall Street has generally been reducing Q4 earnings projections, forecasts in the Financial sector have been holding up well. 

Heading into the final hour of trading, breadth had slipped to just less than 3:1 with small caps remaining the outperformer. SPY held modest gains, but QQQ was slightly in the red. Utilities (XLU, -0.15%), Technology (XLK, -0.18%) and Energy (XLE, -1.80%) were laggards as the only three groups heading lower versus only Energy in the morning, while Consumer Discretionary (XLY, +1.49%), Materials (XLB, +1.12%) and Real Estate (XLRE, +1.12%) were upside standouts. On a growth versus value basis, value solidly outperformed. The Russell 1000 Value gained 0.77% compared to its Growth counterpart losing 0.14%. In what would otherwise be a quiet holiday week, we will see US GDP, Initial Jobless Claims and Core PCE on Wednesday, so stay tuned.

• Following a strong last week on Russia/Ukraine war-related supply interruption fears, January WTI crude futures traded modestly lower overnight, then rolled into the equities open on headlines indicating a ceasefire agreement may be near between Israel and Hezbollah. Though follow-up headlines were unable to confirm any firm ceasefire agreement, futures settled -$2.30/bbl, or -3.23%, near the lows at $68.94. Brent also slid $2.16/bbl, or -2.87% to finish at $73.01.
• After climbing for an 8^th straight week last Friday, the U.S. Dollar index (DXY) slipped as the euro finished around the 1.05 level, bouncing off last week 2-year lows. Treasury yields tumbled with the 10-year down over 14 bps to 4.267% and the 2-yr yield down -10bps to 4.269%. Bitcoin prices fell off earlier highs above $97,000, after nearly topping $100,000 last Friday, ending around $95,000. The dollar decline and bond bounce came following Donald Trump’s pick of hedge fund manager Scott Bessent for the U.S. Treasury secretary, trusting he will be more fiscally disciplined than investors had been fearing.

• Building products company SUM announced it has entered into a definitive agreement to be acquired by Quikrete for $52.50 per share in cash, for a total enterprise value of approximately $11.5B, including debt. https://tinyurl.com/mtax4jcr
• In Metals, Anglo American (NGLOY) signed a deal to sell its remaining steelmaking coal assets to U.S. coal miner BTU for up to $3.775 billion. The miner is under pressure to implement the restructuring plan it outlined in May to fend off a nearly $50 billion takeover bid from rival BHP. https://tinyurl.com/yy3wtj48
• In Natural gas, EQT said Blackstone (BX) would buy non-controlling equity interests in some of its pipelines for $3.5 billion in cash. Reuters notes the sale could help the nat gas producer reduce the debt pile it accumulated after the $14 billion purchase of pipeline operator Equitrans Midstream in July.
• In Pipelines, OKE and ENLC entered a definitive merger agreement where Oneok will acquire all the outstanding publicly held common units of EnLink for $4.3B in Oneok common stock. Under the agreement, each outstanding common unit of EnLink that Oneok does not already own will be converted into 0.1412 shares of Oneok common stock. The exchange ratio was derived by dividing $15.75 per unit. https://tinyurl.com/3kvzptw5
• In Banks: ONB said it will buy privately held Bremer Financial in a $1.40 billion deal. Under the terms of the agreement, each outstanding share of Bremer common stock will be converted into the right to receive 4.182 shares of Old National common stock plus $26.22 in cash, valuing the transaction at approximately $1,401 million, or $116.76 per share, based on Old National’s closing stock price on November 22, 2024.
• In Semis, LSCC is considering making an offer for all INTC’s Altera unit, Bloomberg News reported on Friday citing people familiar with the matter. https://tinyurl.com/5n8xx55d  

• FIVE was downgraded from Outperform to Market Perform at Telsey noting the discount retailer is undergoing a major strategic transition across its business model, which combined with changes in leadership and potential pressure related to tariffs, clouds the firm’s visibility on the near- to medium-term performance.
• Macy’s (M) missed Wall Street expectations for Q3 sales in its preliminary results, falling -2.4% y/y to $4.74B vs. est. $4.77B citing steep promotions failed to drive customers; reported Q3 comp store sales fell (-2.4%) on owned basis, and down (-1.3%) on owned-plus licensed basis; delays Q3 report on identifying accounting issue.
• PG was upgraded to Buy at DA Davidson and raised tgt to $209 from $160 saying they now have greater confidence that P&G’s organic sales can accelerate to 4%-6% in the second half of FY25.

• Homebuilders surged (BZH, DHI, KBH, PHM, TOL others) following a roll in Treasury yields and news of Donald Trump’s pick of Scott Bessent for Treasury Secretary.

• In Solar: NOVA, FLSR shares were strong after Wells Fargo said this week, they see positive news for FSLR & NOVA and negative news for ARRY, NXT, SEDG, ENPH. Wells noted Reps Moolenaar (R-MI) and Golden (D-ME) introduced a joint resolution to require Treasury Dept. to rewrite 45X and prevent Chinese companies from receiving credits. They say the visibility for this bill to become law is low. However, if passed, FSLR would be the biggest beneficiary as domestic panel supply would become scarcer (and valuable). Even the threat of legislation could cause some Chinese companies to rethink building facilities in the US. Wells also noted they expect European prices to be flat to down until European demand recovers (- for ENPH and SEDG) and notes Brazil increased solar module import tariff to 25% from 9.6%, negatives for both ARRY & NXT as higher panel prices negatively impact project economics.
• In Aerospace: continued strength in space sector as RKLB shares surge to a new record after launching two missions within 24 hours from two pads in different hemispheres. U.S. defense stocks fall after Israel notes it’s moving closer to Lebanon ceasefire (LMT, NOC, LHX).
• In Metals & Mining: NEM announces agreement for sale of Eleonore for $795M in cash; transaction expected to close in Q1 2025 and sees total gross proceeds expected up to $3.6B. Thyssenkrupp Steel Europe said it plans to cut 5,000 jobs by 2030 and an additional 6,000 jobs through the sale of business activities or transfer to external service providers (cuts represent some 40% of the company’s workforce, which currently stands at 27,000).

• In Commercial Real Estate (CRE), NMRK was downgraded to Peer Perform at Wolfe Research and replaced it with JLL which was upgraded to Outperform. Wolfe noted NMRK is up ~24% since Wolfe’s upgrade, with flat consensus estimates and forecast ~flat growth in Q424 due to tough comps from Q423’s Signature Bank loan sales success. For JLL, says benefits from capital markets comps, improved disclosure supports multiple expansion.
• In Insurance: Goldman Sachs downgraded AJG to Neutral from Buy as continues to believe that Arthur J. Gallagher’s "high quality" middle market business but says its organic growth and margin estimates are no longer more than consensus. WRB upgraded from Neutral to Buy at Goldman Sachs w/ $69 tgt driven by its view that WRB is earning pricing more than claim cost trend and will be able to continue to take advantage of a firm casualty pricing environment well into 2025
• In Banks: MTB was downgraded to Neutral from Buy at Citigroup (tgt to $230 from $220) noting M&T has been one the best year-to-date performers as its core results have been strong and the bank has shown consistent improvement in credit. The firm upgraded USB to Buy from Neutral (tgt to $65 from $49) noting the bank has recently lagged the group as investors expressed concerns and believes the bank has turned the corner on investment spend and will return to delivering positive operating leverage. ONB said it will buy privately held Bremer Financial in a $1.40 billion deal.
• In FinTech: SQ was downgraded to Market Perform from Outperform with a price target of $100, up from $94 saying with shares up 22% since the Q3 report, this year’s "beat/raise cycle" will prove difficult to sustain in 2025 and 2026 and sees potential risk to Cash App gross profit growth expectations.

• BBIO announced that the FDA had approved Attruby (acoramidis, formerly BBP-265 / AG10), an orally administered near-complete (≥90%) stabilizer of transthyretin (TTR) for the treatment of adults with ATTR-CM to reduce cardiovascular death and cardiovascular-related hospitalization. BMO Capital said they believe that BBIO Attruby case has a positive readthrough to ALNY’s Amvuttra.
• BHVN shares slumped (and SRRK rallied) after saying its experimental drug, taldefgrobep alfa, did not meet the main goal of improving muscle function in patients with a rare neuromuscular disorder called spinal muscular atrophy in a late-stage study. The drug did show positive effects on body composition, such as reducing fat mass, supporting its potential as an obesity treatment.
• EDIT was double downgraded to Underperform from Buy at Bank America and slashed tgt to $2 from $13 after the company recently announced plans to out-license their reni-cel program, which the firm sees lowering the impact of upcoming updates from the RUBY SCD trial at ASH and EdiTHAL thalassemia trial expected by year-end 2024.
• MRK announces Pivotal Phase 3 ZENITH Trial Evaluating WINREVAIR(TM) (sotatercept-csrk) Met Primary Endpoint at Interim Analysis. WINREVAIR met primary endpoint of time to first morbidity or mortality event for the treatment of patients with pulmonary arterial hypertension (PAH) functional class III or IV at high risk of mortality. Study to be stopped early and participants will be offered the opportunity to receive WINREVAIR.
• SAVA tumbled more than 80% after saying a study of its Alzheimer’s treatment simufilam didn’t meet co-primary, secondary and exploratory biomarker endpoints. The Phase 3 trial sought to evaluate the company’s novel treatment called simufilam as a treatment for cognitive or functional decline vs. placebo but failed to deliver at week 52, based on the DAS-COG12 and ADCS-ADL scales

• In Managed Care: UNH shares got a bounce after Bloomberg noted the Biden administration must re-calculate a potentially lucrative Medicare Advantage quality measure for the co after federal judge ruled it wrongly downgraded the insurer’s 2025 “star ratings.” Judge Jeremy Kernodle of the US District Court for the Eastern District of Texas ruled that the Centers for Medicare & Medicaid Services “acted contrary to its own guidelines” by determining that an agency test caller did not “connect” with the insurers’ telephone call center team.

• In Semis: INTC and the Commerce Department are close to finalizing a roughly $8B grant for the struggling chipmaker, according to a person familiar with the matter, CNBC reported. Separately, LSCC is considering making an offer for all INTC’s Altera unit, Bloomberg News reported on Friday citing people familiar with the matter. https://tinyurl.com/5n8xx55d  
• In Quantum computing names RGTI, QBTS, QUBT shares advanced after Amazon Web Services announced a program to help customers get ready for quantum computing late Friday, bringing attention to the sector.