Closing Recap

Thursday, October 10, 2024

U.S. stocks end slightly lower following a day of higher-than-expected inflation and unemployment claims, but still barely moved the needle after the S&P closed at record highs the day prior, as market enthusiasm remains high heading into the final quarter of the year. U.S. stocks rallied off early declines, continuing the upward buying momentum on any weakness (trying for 11^th winning month in last 12), even after a “hotter” CPI inflation report. September CPI came in above forecasts on both the headline and core level, but the annual increase in inflation was the smallest in more than 3-1/2 years which Bulls grabbed on to. Treasury yields remained higher, extending their rally since the Fed cut in September and the dollar index climbed a 9^th day. Rate cut expectations from the Fed by end of 2024 have dwindled from an expected 75bps in added cuts as of last week, to now less than 50-bps in cuts given the jump in jobs data last week and today’s higher CPI reading (we get the Sept PPI reading tomorrow). Fed comments today also impacted markets. Chinese stocks inched up on Thursday ahead of a weekend press briefing from the country’s finance minister, as the central bank launched a facility to make it easier to buy shares. Markets also await bank earnings with JPM, WFC, BK tomorrow morning.

The Fed remains on cruise control, overly dovish on rates as Chicago Fed President Austan Goolsbee said earlier today in an interview that he wasn’t overly concerned with a higher-than-forecast September inflation report (CPI). Meanwhile, Federal Reserve Bank of New York President John Williams said he expects more rate cuts lie ahead as inflation pressures continue to moderate. “Based on my current forecast for the economy, I expect that it will be appropriate to continue the process of moving the stance of monetary policy to a more neutral setting over time,” Williams said. Last month the Fed cut its overnight interest rate target by 50-bps to between 4.75% and 5% and penciled in more rate cuts. In a bit of a surprise and against the recent Fed narrative, Atlanta Fed President Raphael Bostic said expressed openness to either a quarter-point rate cut or holding steady at the central bank’s next meeting, depending on economic data.  Those comments took a little steam out of markets.

• Main Contributors to Change for CPI included: In September, shelter costs rose 0.2% vs. 0.5% in August. Rent increases slowed and house rent fell during the month. Food increased by 0.4% in September, while Energy fell by 1.9% in September, after a 0.8% decline in August.
• Weekly Jobless Claims climbed to 258,000 in the latest week above consensus 230,000 and vs. 225,000 prior week; the 4-week moving average climbed to 231,000 from 224,250 prior week and continued claims climbed to 1.861M from 1.819M prior week (prev 1.826M) – 18^th straight week above 1.8M.

• December gold prices rise $13.30 to settle at $2,639.30 while the dollar index (DXY) held recent gains, rising to 103.00. Against the Japanese yen, the dollar weakened 0.35% to 148.72. Bank of Japan Deputy Governor Ryozo Himino said on Thursday the central bank will consider raising interest rates if the board has "greater confidence" that its economic and price forecasts will be realized. Bitcoin prices fall over 2% to as low as $58,800 before paring losses (last $59,400).

• In Warehouses: COST reported total and U.S. core September comp growth of 8.9% and 7.3%, including a 2pt and 1.5pt benefit, respectively, from increased sales due to Hurricane Helene and port strikes, compared to consensus of 6.2% and 5.9%. Non-foods comp increased low-teens, consistent with June/July/August levels, the 11th consecutive month of positive segment growth.
• In Footwear & Apparel: NKE upgraded to Buy from Hold at Truist and raised tgt to $97 after having been cautious on Nike since its launch in the Fall’23. While Truist stills view a turnaround process as long/uncertain, it is more optimistic on shares as investor expectations finally seem to accurately reflect this reality. Further, with a team of company vets back at the helm, Truist thinks they’re moving in the right direction.

• China hit third quarter sales at BMW and Mercedes, the German luxury automakers said on Thursday. For the July-September quarter, BMW’s sales fell 13%, while Mercedes reported a 3% drop. BMW’s sales in China slumped by a third, while Mercedes’ fell by 13%.
• EVGO was upgraded to Buy from Neutral at UBS and PT raised to $8.50 from $4 following the $1.05bn DOE loan conditional commitment announced last week saying the conditional commitment provides increased visibility to EVGO funding new stall deployments beyond 2025.

• TD shares sunk after the WSJ reported overnight that the Canadian bank is expected to pay about $3 bln in penalties as part of a settlement with U.S. regulators and prosecutors over charges it failed to properly monitor money laundering. In research ahead of earnings season, Citigroup initiated SNV, UMBF with a Buy and both BANC, SSB Initiate with a Sell and said their top pick among regional banks remains WAL. Overall, Citi remains constructive on the regional bank sector given its view that the best time to buy bank stocks is the transition from late-cycle to early-cycle – underscored by its view of limited credit concerns and the more “bank-friendly” yield curve outlook. Asset Manager/Advisors: KBW previewed the quarter, said BLK, LAZ, and PWP top picks in Advisors/Asset Managers; and into the quarter, recommend being overweight BLK, underweight TROW, and a pair trade of Overweight EVR/Underweight LAZ.
• In Insurance: JP Morgan provided P&C insurer preview, upgraded AIG to Overweight from Neutral and remain bullish on ALL, AON and say feel that consensus 2025 forecasts for TRV, HIG, and CB is too high. JPM is increasing Q3 estimates for most re/insurers to reflect lower cat losses, partly offset by poor variable investment income. Meanwhile, JPMC is cutting 2025 estimates due to the drop-in interest rates. Property & Casualty names such as ALL, EG, UVE, HRTG saw an early rebound as impact of Hurricane Milton in Tampa area of Florida hits hard, but not at the wind speed and flood surge many had forecasted, breathing sigh of relief for region. @charliebilello noted that “Auto insurance rates in the US have increased by 52% over the past 3 years. That’s the biggest 3-year spike since 1975-78” – ALL, PGR.

• In Crypto: MARA initiated with Overweight w/ $21 tgt noting MARA is currently the largest publicly traded Bitcoin miner with an installed hash rate of 36.9 EH/S (as of the end of September). Like other publicly traded miners, MARA is a way to play Bitcoin. It owns more than 250k Bitcoin mining machines across its portfolio of owned and leased infrastructure totaling 1.1 GW. APLD Q1 adj EPS ($0.15) vs est. ($0.29), adj EBITDA $20Mm vs est. $10.91Mm on revs $60.7Mm vs est. $54.85Mm; says Saidal Mohmand will assume role of CFO.
• In Consumer Finance/Lending: LC was upgraded to Outperform from Market Perform at Keefe Bruyette saying despite recent strength, thinks that LC has more room to run as it benefits from the Fed rate cut cycle in several different ways as lower rates are positive for personal loan demand, secondary market pricing, deposit rates/NIM, and credit performance.

• APAM reported that its preliminary assets under management or AUM, as of September 30 totaled $167.8B. Artisan Funds and Artisan Global Funds accounted for $81B of total firm AUM, while separate accounts and other AUM1 accounted for $86.8B.
• BEN reported preliminary month-end assets under management (AUM) of $1.68 trillion at September 30, 2024, compared to $1.68 trillion at August 31, 2024. Long-term net outflows of $22.4 billion, inclusive of $27.9 billion of long-term net outflows at Western Asset Management, were partially offset by the impact of positive markets.
• IVZ reported preliminary month-end assets under management (AUM) of $1,795.6 billion, an increase of 2.5% versus the previous month-end. The firm delivered net long-term inflows of $3.3 billion in the month.
• LAZ preliminary assets under management as of Sept 30, 2024, totaled approximately $247.7 billion. The month’s AUM included market appreciation of $3.0 billion, forex appreciation of $1.5 billion and net outflows of $1.3 billion.
• TROW reported preliminary month-end assets under management of $1.63 trillion as of September 30, 2024. Preliminary net outflows were $4.9B for September 2024 and $12.2B for the quarter-ended September 30, 2024
• VCTR reported Total Assets Under Management (AUM) of $176.1 billion, Other Assets of $5.0 billion, and Total Client Assets of $181.1 billion, as of September 30, 2024. For the month of September, the average Total AUM was $173.8 billion, average Other Assets was $5.0 billion, and average Total Client Assets was $178.7 billion.
• VRTS preliminary assets under management of $183.7 billion and other fee earning assets of $2.4 billion for total client assets of $186.1 billion as of September 30, 2024.

• INDV shares tumbled after lowering its FY net revenue view to $1.13B-$1.17B, from the previous $1.15B-$1.22B and estimate of $1.18B and sees adjusted operating profit $260M-$280M, from $285M-$320M.
• LPCN said administration of its oral brexanolone for treating post-partum depression was consistent with therapies effective in managing depression, anxiety, tremors, and seizures.
• PFE gives back some recent gains after CNBC reported two former Pfizer executives who were previously linked to activist investor Starboard Value’s campaign at the struggling drugmaker said they would step back from the push late Wednesday evening.
• TPST shares jumped initially after saying will conduct a late-stage study of its experimental drug amezalpat, in combination with RHHBY’s Tecentriq and bevacizumab, for the treatment of metastatic hepatocellular carcinoma.

• In Cannabis: TLRY reported a smaller than expected Q1 loss, though revs missed (+13.1% y/y to $200M vs. est. $218.7M); the company said they believe that there is a greater likelihood that the upcoming U.S. Presidential elections will result in improved regulatory changes in the cannabis industry, as both candidates have publicly confirmed their support for further legalization.
• In Pharmacy Retail: CVS upgraded to Overweight from Equal eight at Barclay’s and raised PT to $82 from $63 saying they went three-for-three in important Medicare releases over the past two weeks, which is a positive first step to unlock significant value at Aetna.
• In Medical Supplies: ALC was upgraded from Sell to Neutral at Redburn saying a new equipment launch cycle can accelerate Alcon’s Surgical growth to above historical levels, and Redburn anticipates a halo effect supporting growth in its cataract portfolio.

• In Airlines: DAL shares sunk after guiding Q4 revs $13.9B-$14.2B, largely below expectations of $14.22B in anticipation of slower travel spending against the backdrop of the upcoming U.S. presidential election; DAL also guided FY adj EPS $1.60-$1.85 as midpoint was above expectations of $1.71.
• In Industrials/Multi Industry: JP Morgan downgraded HON mostly due to the spin that appears dilutive and HUBB to Neutral and upgraded FTV to Overweight. Having lagged this year on headwinds that are now well vetted, FTV is one of the cheapest stocks in the Sector, if not the cheapest on FCF yield.

• In TiO2sector: TROX upgraded to buy from Neutral at UBS and raise PT to $19 from $17 and updated 2025/26 EBITDA estimates are 9%/8% above consensus as believes TROX EBITDA over the last 2 years has been hindered by lower op rates and some one-time issues as production restarts. With TROX op rates now back above 80%, this represents a $55M tailwind into 2025.

• In IT Services & Consulting: CTSH and INFY shares tumbled after peer Tata Consulting reported net profit of 119.09B Indian rupees ($1.42B), below estimates of 125.02B rupees. NET shares surged after hiring Chirantan "CJ" Desai as President of Product & Engineering to further accelerate the company’s next phase of growth to $5 billion in annual recurring revenue and beyond (25-yrs experience and was previous COO of NOW)
• In Software: ETWO shares tumbled on results as Q2 results mixed with EPS in-line, Ebitda better but revs $152.2Mm missed est. $154.82Mm; guides FY total revs $607-617Mm below est. $632.97Mm EBITDA low end of $215-225Mm range. PANW, CRWD among leaders early in sector.

• CRUS downgraded to EW from Overweight at Barclays (PT to $120 from $140) and downgraded SWKS to UW from EW (PT to $87 from $115) in semis. CRUS was cut as it rolls out new content assumptions for the SE4 and the IP17 and assumes a more modest unit ramp next year. The firm said it believes handset expectations are "out of touch." For Skyworks, the firm says lower units and content headwinds will make the upcoming six months challenging.