Closing Recap

Tuesday, October 15, 2024

U.S. stocks took a breather today, as the S&P 500 and Dow Jones Industrial Average pulled back from all-time highs on Monday, while the Nasdaq fell the most following a lowered outlook in the semi-equipment sector sending semiconductor stocks tumbling. It was a quiet day outside of a few earnings reports in the banking sector (GS, BAC, PNC solid results, Citi down) and healthcare sector as UNH tumbled on lower guidance (weighing on the Dow), with results coming in mostly better so far overall. The Philadelphia Semi Index (SOX) fell as much as -5.8% below its 100dma support after ASML issued cautious guidance, weighing on semi equipment stocks (LRCX, KLAC, AMAT). The Smallcap Russell 2000 outperformed large caps, advancing on the day. New York Manufacturing economic data disappointed, falling below consensus and below the prior month, while two smaller inflation data points came in above expectations, which followed the “hotter’ consumer price index (CPI) inflation report last Thursday. Interest rate cut expectations have narrowed since the better jobs report over two-weeks ago and further after the CPI data last week (from expected 75bps cut in last 2-months of 2024 to view of less than 50-bps). If the data continues to show a bounce in inflation, it could derail the near-term outlook for rate cuts this year. The big story of the morning outside of earnings was the sharp decline in energy prices, weighing on the energy complex (XLE -2.8%). U.S. crude futures tumbled as much as over -5% back below $70 per barrel on media reports saying that Israel will not strike Iran’s nuclear or oil facilities in retaliation for an earlier missile attack. The reports from multiple outlets cite anonymous Israeli government officials. The headlines ease fears of a supply disruption pushing oil prices lower. Both Brent and WTI crude oil prices had settled about 2% lower on Monday but are now down about $5 so far this week. Apple (AAPL) shares hit new all-time highs today, but tech was among worst sectors along with Energy. Despite the Nasdaq and S&P finishing at the lows, NYSE breadth was actually positive by roughly 1.2:1 margin as defensive Utilities, REITs and Staples jumped.

• NY Fed data showed Sept one-year expected inflation unchanged at 3%, the three-year expected inflation 2.7% versus 2.5% in August, the five-year expected inflation 2.9% versus 2.8% in Aug; said Sept credit delinquency expectations climb to highest since April 2020 and expectations around credit access improved. Sept median expected home price climb 3% versus 3.1% in Aug and expected year-ahead spending, income growth eased from August.

• December gold rises $13.30 to settle at $2,678.90 an ounce. Spot silver rose 1% to $31.49 per ounce, platinum fell 0.5% to $988.45, and Palladium was down 1.6% to $1,012.98. The U.S. dollar continued to press higher, as the euro fell -0.21% to 1.0886, its 1st time below 1.09 since early August (and off intraday highs of 1.1213 on 9/25) as economic data in the U.S. continues to come in strong, reducing expectations of aggressive rate cuts by the Fed.
• Treasury markets reopened after being closed Monday for Columbus Day, as long dated yields fell, with the 10-yr yield down over 4-bps to 4.03% (off highs overnight around 4.095%), while the shorter-term 2-yr yield rose 2bps to 3.962%.

• In Retail: Department stores (KSS, M, JWN) along with discount stores (DG, DLTR) bounced; ETSY was downgraded to Sell from Neutral at Goldman Sachs, citing a more selective approach to e-commerce stocks ahead of earnings. FL announced a multi-year partnership with the Chicago Bulls ahead of the 2024-25 NBA season. AAP was upgraded to Outperform from Neutral at Wedbush and keeps $55 tgt saying they see potential for new hope emerging from AAP’s 3Q earnings report in mid-November as expects positive new information on the co’s core "RemainCo" business, following the sale of WorldPac, a wholesale parts distribution business. NRF says U.S. holiday sales during November and December expected to grow between 2.5% and 3.5% compared to 2023.
• In Restaurants/Casual dining: CAVA shares slipped after CMG said it is making a minority investment in Brassica, a fast-casual restaurant concept. Truist said fast food chains including CMG (tgt to $71 from $69), MCD (tgt to $350 from $295) and others are poised for near-term growth following new menu innovations and promotions, while saying expects WEN to miss quarterly results as sales growth decelerated in September due to a quiet promotional quarter.
• In Food & Beverages: Grocer ACI reported Q2 revenue of $18.55B vs. ests $18.48B as identical sales for +2.5%, and 24% rise in digital sales driven by strong growth in pharmacy sales

• In Nuclear Power/Solar: CEG was initiated with a Neutral, $284 PT at Citigroup based on thesis of 1) Co-location/behind-the-meter power deal execution may disappoint Street expectations, 2) Crane (Three Mile Island) will restart but on a delayed schedule, but 3) FCF outlook has derisked downside and uncapped upside tied to power prices and commercial activity. ENPH was downgraded to Sector Perform from Outperform at RBC Capital and PT cut to $100 from $125 reflecting a revised valuation methodology and competitive market dynamics that it believes will result in a slower pace of growth next year not reflected in current consensus estimates.
• In Energy: energy stocks fall, mirroring a slump in oil prices after reported overnight that Israel may avoid targeting Iran’s crude infrastructure; in research, RIG, VAL and NE were all downgraded to Hold from Buy at Benchmark as offshore drilling pricing and utilization trends have stabilized. Benchmark noted Deepwater drilling contract and pricing momentum has slowed from the torrid pace through 1H24. TD Cowen upgraded SM to Buy from Hold saying while cautious crude it believes SM stands out as retaining multiple resource catalysts – at a time when that’s largely nonexistent in E&P – that can shape a more capital efficient ’25 v what’s appreciated. PSX said its subsidiary, Phillips 66 Limited, has entered into a definitive agreement to sell its 49% non-operated equity interest in Coop Mineraloel AG to its Swiss joint venture partner. It will receive cash of approximately $1.24 billion.

• Citigroup (C) Q3 EPS of $1.51 topped consensus of $1.31 as revs rose 1% y/y to $20.3B, topping $19.84B estimate; said Q3 growth was driven by Services (+8%) and U.S. Personal Banking (+3%); Q3 expenses fell 2% YoY to $13.25B, slightly better than expected; Q3 provisions for credit losses rose 45% y/y to $2.7B; Q3 net income fell -9% y/y to $3.2B, but mostly in-line with ests and ROE fell to 6.4%, down from 7.3% YoY, reflecting lower profitability; Q3 investment banking revenue jumps 31% to $934M; expects net interest income (NII) to be roughly flat in Q4, ex-markets.
• GS reported Q3 net revenue rose 7% y/y to $12.70B above consensus $11.77B on better earnings of $8.40 vs. est. $6.89 as profit rose 45% y/y; Q3 FICC sales & trading revs fell -12% y/y to $2.96B, in-line with estimates $2.96B while equities trading jumped 18%; Q3 Investment banking fees jumped 20% to $1.87B; Revenue in asset and wealth management increased 16% to $3.75 billion.
• PNC Q3 EPS $3.49 topped consensus $3.30 (profit dropped -4% y/y) and revs $5.43B above ests $5.39B; Q3 tangible book value per share $96.98 and Q3 CET1 capital ratio 10.3%; Q3 net interest income (NII) declined to $3.41 billion in from $3.42 billion a year earlier; guides Q4 NII up about 1% vs Q3, sees Q4 average loans stable vs Q3; provisions for credit losses in Q3 rose to $243M from $129M a year earlier.
• Trust Bank STT announced CFO Aboaf to depart by February 2025, leaving for a new opportunity outside of banking, while the co reported Q3 EPS $2.26 vs. est. $2.12 as revs rose 21% y/y to $3.26B vs. est. $3.19B as fees revenue rose 11% y/y to $2.62B, net interest income (NII) rose 16% y/y to $723M vs. est. $698.7M and provision for credit losses was $26M compared to $0 y/y.
• In Brokers: SCHW Q3 net income rose about 25% driven by a jump in asset management fees and client assets hitting a record high; total client assets rose 27% to a record $9.92 trillion in Q3, net interest revenue fell about 0.7% to $2.22 billion, and Net revenue rose 5% to $4.85 billion.
• In Research BOKF was upgraded to Buy from Neutral at DA Davidson and raise tgt to $124 from $113 saying the bank is well positioned for lower rates and has a stronger conviction in its second half of 2024 and 2025 EPS estimates at the top-end of consensus. Davidson also downgraded PB to Neutral from Buy saying that its 2025 margin forecast of 3.13% is below consensus of 3.20%, driving a below consensus 2025 EPS forecast of $5.65.

• In Rating Agencies: BMO Capital raised its price target on MCO to $464 from $455 and SPGI to $589 from $537 and raising estimates for MCO owing to a stronger than expected Q324 MIS performance and on SPGI owing to a stronger-than-expected Q324 debt issuance.
• Financial Services/Software: APPF was downgraded to Underperform at KBW on the heels of lower revised estimates; lower PT to $193 from $255. KBW’s revised estimates are significantly below consensus, representing Street-lows across most metrics.
• In Insurance: AIG was downgraded to Market Perform from Outperform at BMO Capital and cut tgt to $84 from $90 saying insurance pricing power within the large employer marketplace remains "soft" and most large employers do not expect their pricing costs to meaningfully accelerate in the coming six months. PGR reported Q3 net premiums written rose 25% y/y to $19.46B topping views, on better EPS of $3.97 vs. est. $3.74; noted net premiums earned $18.30B, +23% y/y and the combined ratio reported 89% vs. 92.4% y/y.

• In Managed care: Dow component UNH tumbled as Q3 adj EPS $7.15 tops consensus $7.00 on revs $100.82B vs. est. $99.28B; but its medical cost ratio, the share of premiums paid out to cover expenses, came in at 85.2%, compared with estimates of 84.4%; narrows FY24 adjusted EPS view to $27.50-$27.75 from $27.50-$28.00 vs. est. $27.70.

• In Medical Research: CDNA guided Q3 revenue $82M-$83M, above consensus $79.53M; said grew Testing Services volume to approximately 44,600, an increase of approximately 16% y/y; testing services revenue is expected to be in the range of $60 million to $61 million, an increase of approximately 26% y/y

• In Industrial/Machinery: MRC announces actions to strengthen its capital structure; launches term loan b financing to fund repurchase; forecasts Q3 revenue of about $797M vs. est. $798.4M; launching $350M term loan b financing with expected term of seven years. Keybanc noted CARR, TT are favored following HVAC checks, more neutral on LII, WSO saying demand appears generally in line with its expectations.
• In Transports: airlines (AAL, DAL, UAL, LUV, JBLU, ALK) seeing buying interest early following the 5% drop in oil prices overnight; Ryder (R) authorizes new share repurchase program of up to 2.0M shares by Oct 2026
• In Papers & Packaging: AMBP was upgraded from Equal Weight to Overweight at Wells Fargo citing improving can fundamentals and a positive attractive risk/reward.
• In Housing: Homebuilders MTH upgraded to Neutral from Underperform (tgt to $195 from $160) and DHI upgraded to Neutral from Underperform (tgt to $165 from $130) both at Wedbush. ARHS was downgraded to Hold from Buy in home furnishings at Craig Hallum saying their work points to Arhaus seeing sluggish demand and new written orders as robust product rollouts from RH coupled with more aggressive pricing actions from key peers has hurt conversion.

• In IT Services: Ingram Micro Holding Corp. (INGM) set terms for its initial public offering (IPO) which could be valued at as much as $5.42 billion. The company said 18.6M shares will be offered in the IPO, including 11.6M shares from the company and 7M shares from a selling stockholder. The stock is expected to be priced between $20-$23 a share.

• U.S. weighs capping exports of AI Chips From NVDA and AMD to Some Countries. The US government is considering placing restrictions on a country specific basis for the export of high-end chips that can be used for AI centers. This would provide the government more freedom in determining which countries have access to this technology and some believe this could ease restrictions in places like the UAE and Saudi Arabia. Yahoo Finance reported.
• DELL said it would soon begin shipping devices featuring NVDA’s Blackwell artificial intelligence accelerators, demonstrating that production of the chip is back on schedule.
• INTC and AMD said they are forming a group to help make sure software works across their chips, responding to a rising challenge from ARM.
• MBLY downgraded to Sector Perform from Outperform at RBC Capital Markets (tgt to $11 from $24) given uncertainty on Western OEM wins on premium products like SuperVision in the next 6-12 months and is also worried about more near-term negative headlines on its Chinese OEM customers.
• WOLF shares jumped after reports the chipmaker is set to receive $750 million in government grants for its new North Carolina silicon carbide wafer manufacturing plant facility. The U.S. Commerce Department said the preliminary funding required WOLF "to take additional steps to strengthen its balance sheet to better protect taxpayer funds. Wolfspeed plans to expand its silicon carbide device manufacturing facility in Marcy, New York, and increase its production capacity by nearly 30%. Both projects are part of its previously announced $6B capacity expansion plan.