Closing Recap

Friday, October 18, 2024

On the heels of a mixed day yesterday when stocks couldn’t hold early gains, we tried again today and fared much better. China stimulus hopes following soft Q3 growth pushed Asia markets higher and US futures followed early. We didn’t see any market-moving inflation data today, but we heard from multiple Fed speakers so anything could happen. Stocks dipped on profit taking early but rebounded a bit to hold gains mid-morning. Breadth held up well at about 3:2 favoring advancers as small caps hugged the unchanged line but underperformed (IWM +0.01%, SPY +0.24% and QQQ +0.75%). S&P sector ETF performance was mixed with Communications and Technology leaders to the upside, while Energy and Financials were the only two sectors in the red early. On sentiment, the Fear and Greed Index continued to register Greed, at 73/100 versus 74 (Greed) a week ago, 60 (Greed) a month ago and 30 (Fear) last year.

In noteworthy data today, on oil @KobeissiLetter notes the US in 2024 generates net exports of about 2.0Mm bpd versus net imports of as much as 13.4Mm bpd in 2006. The US currently pumps more than 13.4Mm bpd versus about 5.1Mm bpd in 2006. Kinda makes you wonder about the SPR, though. Though the opinion battle over the state of the economy, and what it means for the Fed, will continue, @RBAdvisors highlights consensus economic forecasts are begrudgingly moving higher. Witness the Atlanta Fed GDPNow at +3.4% for Q3.

Following gains into early afternoon, stocks held near highs into the final hour of trading. Breadth expanded slightly to a bit better than 3:2 still favoring advancers as only Energy (XLE, -0.72%) held in the red among S&P Sector ETFs. Communications (XLC, +0.89%), Real Estate (XLRE, +0.71%) and Health Care (XLV, +0.63%) led the remaining groups higher. Small caps continued to underperform with IWM -0.07% versus SPY +0.43% and QQQ +0.70%. Growth and value both enjoyed gains, with growth the outperformer. The Russell 1000 Growth gained 0.69% versus its Value counterpart at +0.19%.

• November WTI crude futures slid into the open and never really gained much traction, settling lower by $1.45/bbl, or -2.05%, to $69.22. Traders pointed to concerns related to slowing Chinese economic growth on the demand side and potential for some easing risk in the Middle East on the supply side. Brent also slid by $1.39/bbl, or -1.87%, to $73.06.

• In agriculture: Shares of Lamb Weston Holdings (LW) traded as high as +10% following news that activist fund Jana Partners owns a 5% stake and will push for all-things potato company to explore a sale. On the negative side shares of ADM, BG and MGPI fell after Raymond James published a negative piece on the sector. Regarding MGPI specifically, the ingredient maker’s shares lost 25% after a “breathtaking” (per Lake Street) pre-announcement following their earnings release last night.
• In retailers: BBWI CEO Gina Boswell purchased $177K worth of stock in the slumping retailer.

Homebuilders, Building Products, Home Furnishing:

• In Home Improvement Retail: Keybanc said Q4 Home Improvement Contractor Survey points to sluggish trends for home improvement professionals (HD, LOW) as respondents’ expectations for NT growth was flat, while next-year growth expectations softened sequentially but remain positive. Looking ahead, Pros continue to be worried about consumer confidence, labor, and ability to pass price on to the customer

• In the auto-supply sector: Shares of ALV rallied after the company reported a slight revenue beat and affirmed guidance which lifted much of the beaten down sector: APTV .
• In the auto sector: Stellantis (STLA) to sell, shutter its Arizona Proving Grounds, a large proving grounds testing facility encompassing 4,000 acres between Phoenix and Las Vegas in Yucca, Arizona amid cost-cutting efforts.

• In the oil patch: Brazil’s Petrobras (PBR) confirms sale of diesel with renewable content to Vale (VALE). Shares of SLB were lower following an EPS beat and revs miss this morning; heightened buybacks will continue but slowing international growth with some customers added uncertainty.

• In Consumer Finance: ALLY shares rose initially on earnings, but later slipped as its provision for credit losses rise to $645M in Q3, reflecting higher net charge-offs as the company warned credit challenges intensified over Q3 as borrowers struggled with high inflation; Q3 consolidated net charge-offs climb to 1.50% in Q3 from 1.31% a year ago.
• In Banks: WAL Q3 EPS of $1.80 missed consensus of $1.88 on better revs $823.1M; Q3 net interest margin 3.61% vs. 3.67% last year; Provision for credit losses totaled $33.6M for the third quarter 2024, compared to $37.1M; said expects NII decline in Q4.
• In Insurance: Erie Indemnity Company (ERIE) was the target of a “short report” published by Spruce Point Management in the pre-market.
• In crypto: The Fed’s Christopher Waller said DeFi can be a complement to centralized finance as these technologies can improve efficiency in traditional financial activities, speaking at the Vienna Macroeconomics Workshop on Friday. He also views DeFi as a substitute for centralized finance since it allows individuals to trade assets without intermediaries.
• In investing: Wamco (BEN) clients are quizzed by DOJ as Ken Leech probe ramps up; Fidelity (private), SEI Investments (SEIC) among firms asked for information; authorities haven’t indicated the firms are also being probed.
• In banking: Shares of Comerica (CMA) were higher after an earnings beat this morning and a positive Q4 guide & the resumption of buybacks in Q4.
• In taxation: HRB shares moved lower in late afternoon trading on news that the US FTC rejects motion to disqualify administrative law judge in HRB case.
• In credit cards: American Express (AXP) beat EPS but missed sales estimates and raised estimates; however, the street focused on uncertain revenue growth leading to a down day.

• In big pharma: Bloomberg reports that Sanofi (SNY) set to sign consumer health deal with PE firm Clayton, Dubilier & Rice this weekend; Sanofi’s board scheduled to meet soon to discuss deal per sources. Roche (RHHBY) received FDA approval for the first companion diagnostic to identify patients with gastric and gastroesophageal junction cancer eligible for targeted treatment with vyloy.
• CVS lowered Q3 EPS guidance for the fourth time this year to $1.05-$1.10 below consensus of $1.70 and named longtime executive David Joyner as new CEO, replacing Karen Lynch, who is stepping down. Current Chairman Roger Farah will become executive chair.
• ELV was downgraded to Hold from Buy at Argus.

• Veterans dept. Investigating Acadia Healthcare (ACHC); Several federal agencies are investigating whether the large chain of psychiatric hospitals held patients without medical justification per The NY Times.
• Shares of Humana (HUM) briefly spiked in the late afternoon after M&A chatter website Betaville said they heard that HUM had received a takeover bid, information that is always best viewed as very unconfirmed

• AAPL iphone 16 sales soar 20% in China debut as demand returns, reported Bloomberg; latest generation outperforms predecessor in first three weeks; Apple has at times struggled to gain momentum in a key market
• BABA along with other China stocks rally (BIDU, PDD, JD) after President Xi Jinping vowed to support the tech sector. A slew of central bank statements also boosted optimism
• DDOG upgraded to Buy at UBS and raised tgt to $150 after its latest industry checks that point to green shoots of a potential 2H spending improvement as well as potential strong medium-term growth for the AWS/Azure cloud infrastructure sector.
• GLBE was downgraded to Equal Weight at Morgan Stanley saying given its recent strength (+23% since Q124 EPS on 5/20 which happened to mark a YTD trough vs peer that have appreciated by +14% over the same duration) and multiple expansion, risk-reward has become more balanced
• TSM; The US State Department is investing whether $TSM has been making AI or smartphone chips for Chinese tech giant Huawei in what would be a breach of US export rules – The information reported
• Meta Platforms (META) loses bid to dismiss Massachusetts attorney general’s teen social media addiction lawsuit.
• Nokia (NOK) shares rallied following an EPS beat last night, positive forward guidance, changes to its group leadership team and upgrades from Danske Bank and Handelsbanken.
• U.S. judge granted Google’s (GOOGL) request to temporarily pause injunction ordering app store reforms in epic games case – Google spokesperson.