Market Review: October 21, 2024
Closing Recap
Monday, October 21, 2024
Index |
Up/Down |
% |
Last |
DJ Industrials |
-344.31 |
0.80% |
42,931 |
S&P 500 |
-10.69 |
0.18% |
5,853 |
Nasdaq |
50.45 |
0.27% |
18,540 |
Russell 2000 |
-36.38 |
1.60% |
2,239 |
U.S. stocks finished lower to kick off the week, with the S&P 500 and Nasdaq volatile early before bouncing off lows and drifting higher to pare losses, but the Russell 2000 index tumbled sharply as a spike in Treasury yields and the dollar weighed on interest rate sensitive sectors such as Utilities, REITs, Telecom, and Homebuilders in Smallcaps. The NYSE breadth was more than 3.5:1 decliners leading advancers, as just about every S&P sector was down today (tech was the only one to manage a gain as AAPL, AMD and of course NVDA with solid gains boosts the XLK +0.47%). Today felt like more of the calm before the storm ahead of a heavy dose of corporate earnings as around 114 of the S&P 500 are expected to report this week. The Dow Jones Industrial Average fell over -300 points despite a 3% pop in Dow component Boeing (BA) on positive labor talk headlines, while the Dow Jones Transports declined behind weakness in UPS after a Wall Street downgrade. Stocks markets come into the big earnings week with lofty expectations, as major averages have climbed 6-straight weeks, so a little caution warranted heading into big earnings tomorrow (GM, GE, KMB, LMT, MMM, RTX, SHW, VZ tomorrow morning).
Commodities, Currencies & Treasuries
- WTI crude oil rose $1.34 or 1.94% to settle at $70.56 per barrel while Brent crude gained $1.23 or 1.68% to settle at $74.29 per barrel (after falling more than 7% last week). Gold prices rose $8.90 to settle at $2,738.90 an ounce (after hitting all-time highs of $2,755.40 an ounce earlier. U.S. natural gas futures claw back some of last week’s losses as Nymex front month gas contract settles +2.4% at $2.314/mmBtu.
- Strength in the US dollar and Treasury yields partially weighed on stocks, as the greenback extended its recent advance following recent U.S. economic data that suggests the Fed may be patient in cutting rates the next few months while investors positioned for the Nov. 5 presidential election. The dollar is up three straight weeks following better jobs data, and a string of somewhat “hotter” inflation reports. Markets are pricing in a 91.7% chance for a cut of 25 basis points (bps) at the Fed’s November meeting, with an 8.3% chance of the central bank holding rates steady (just a month ago, there was a 50% chance of a 50-bps cut!). The yield on benchmark U.S. 10-year notes rose over 10-bps to 4.177, more than a 3-month high of 4.172%.
Macro |
Up/Down |
Last |
WTI Crude |
1.34 |
70.56 |
Brent |
1.23 |
74.29 |
Gold |
8.90 |
2,738.90 |
EUR/USD |
-0.0049 |
1.0816 |
JPY/USD |
1.25 |
150.76 |
10-Year Note |
0.103 |
4.178% |
Sector News Breakdown
Retail, Consumer Staples & Restaurants:
- KIRK said their Kirkland’s Home and BYON to revitalize Bed Bath & Beyond brand with neighborhood store strategy through new strategic partnership.
- GOOS was downgraded to Sell from Neutral at Goldman Sachs saying they see a less attractive risk/reward relative to other companies in its brands and apparel sector, driven by a competitive category backdrop, signs of normalizing brand momentum and engagement, and a slowing global luxury backdrop and a choppy China.
- RH was upgraded to Outperform from Neutral at Wedbush saying they came away positive after management meetings, more confident in the building momentum in the company’s extraordinary product transition.
- TGT shares slipped after Oppenheimer had removed it from its top pick’s status in Food Retail/Discount Store checks and adding COST back to top picks reflecting their "expectations for continued strong top-line momentum, the potential for incremental membership gains following member verification efforts, and potential margin benefits related to new efficiencies."
- VFC shares fell after being added to negative catalyst watch at JP Morgan ahead of earnings as they anticipate downside to Consensus Q2 & FY25 topline/EPS estimates.
- WRBY upgraded to Buy from Neutral at Goldman Sachs and raised PT to $18 from $15 saying while they acknowledge elevated valuation, it sees several emerging tailwinds within WRBY’s business, including the scaling of insurance partnerships into next year, some green shoots in the vision care market, and strengthening active customer growth.
Leisure, Gaming & Lodging:
- In Airlines/Online Travel: LUV shares active after both Bloomberg News and CNBC reported Sunday that activist investor Elliott Investment Management and Southwest Airlines are in talks to settle their months-long battle, with a potential deal that would give Elliott representation on the budget airline’s board. In discount airlines, SAVE shares jump after the low-cost carrier said it received added months to refinance its 2025 debt. The deadline for the airline to refinance about $1.1 billion in debt has been pushed back from Monday to late December, Spirit said in an 8-K filing (shares if discount airlines JBLU, ULCC down in reaction). ALK said expects Q3 results at higher end of previous eps guidance, including 13 days of Hawaiian’s results: strong revenue trends and advanced bookings continuing into Q4.
- In Loding & Online Travel: HLT was downgraded from Buy to Hold at Melius saying hotel stocks are moving much faster than estimates, prompting downgrade Hilton to Hold. EXPE was mentioned positively in Barron’s this weekend saying shares could be a profitable buy for investors, especially after a report this week (by Financial Times 10/16) that UBER had investigated purchasing the company.
- In Casinos & Gaming: SRAD upgraded to Overweight from Neutral at JP Morgan and raised its year-end 2025 price target to $15 from $12 following its recent investor meeting at G2E in Las Vegas with SRAD CFO, Craig Felenstein, and SVP of Investor Relations & Corporate Finance, Jim Bombassei.
- In Leisure sector: HTZ was downgraded to Underweight from Neutral at JP Morgan and remove price target as lowers estimates to account for softer travel trends and possible faster churn of vehicle fleet (pressuring depreciation higher and hence EBITDA lower), and as financial leverage is high, the company May face litigation costs associated with its prior bankruptcy that were not previously considered in its valuation analysis. CWH was downgraded to Neutral from Overweight at JP Morgan on another round of estimate cuts impacting 2H24, lack of visibility as to the timing and degree of recovery in depressed new and used RV prices presently pressuring near-term estimates.
Banks, Brokers, Asset Managers:
- In Bank News: AUB to acquire smaller rival SASR in an all-stock deal worth $1.6 billion, the companies said; Sandy Spring shareholders will receive 0.900 shares of Atlantic Union for each held, valuing the lender at $34.93 apiece based on Atlantic’s last close. U.S. banks are considering more aggressive cuts to interest payments for corporate depositors as they seek to protect profit margins after the Federal Market cut lending rate, the Financial Times reported. In Research, INDB double upgraded to Strong Buy from Market Perform at Raymond James with a $74 price target as profitability set to improve and upgraded HBCP to Outperform with a $50 price target following the better-than-expected Q3 report. SFNC upgraded to Overweight from Equal Weight at Stephens after reported an EPS beat driven by stronger net interest income and margin trends as deposit pricing pressure continues to ease.
- In REITs: Raymond James with several changes as downgraded CSR to Market Perform from Outperform without a price target, cut ESS to Market Perform citing the uncertainty surrounding the success of Proposition 33 hitting California ballots in November, which aims to repeal rent control limits set forth in the Costa Hawkins Act; upgraded MAA to Strong Buy from Market Perform with a $175 price target citing record demand for apartments in the Sun Belt for the upgrade. And upgraded NXRT to Outperform from Market Perform with a $50 price target citing the resurgent institutional demand for well-maintained workforce-housing assets in 2024 for the upgrade. Separately, REXR was downgraded to Neutral from Buy at Bank America and cut tgt to $49 from $66 citing a slower-than-expected demand recovery in its Los Angeles markets. PLD was downgraded to Neutral at Goldman Sachs as expects near term industrial market softness will lead to negative estimate revisions, which would prevent meaningful multiple expansion.
Biotech & Pharma:
- In Managed care: HUM shares bounced after late Friday, Bloomberg reported CI had revived efforts to combine with its smaller rival Humana Inc. after merger talks fell apart late last year, according to people familiar with the matter.
- In Healthcare Services: KVUE shares jumped after the WSJ reported activist investor Starboard Value has built a stake in consumer-products company, seeking changes that would boost the Tylenol maker’s stock price.
- GILD was upgraded from Market Perform to Outperform at Leerink and raised tgt to $96 from $74 saying believes Gilead has an opportunity to add to the HIV momentum with data read-outs from their diverse portfolio of longer-acting HIV treatments. Any success here has an outsized impact on GILD’s valuation.
- NVO once-daily pill to treat type 2 diabetes has shown it cuts the risk of heart attacks and strokes in patients by up to 14%, according to a new trial. Rybelsus is an oral form of semaglutide, the active ingredient in the company’s blockbuster Ozempic and Wegovy diabetes and weight-loss drugs and was tested in the trial on diabetic patients who also suffered from established cardiovascular disease and/or chronic kidney disease.
- SRPT was initiated Buy and $165 PT at Jefferies saying following Elevidys’ recent label expansion in DMD neuromuscular disease, the firms doctor checks suggest the gene therapy can exceed cons of $2.1B in 2025 and produce robust cash flows through 2029.
Industrials & Materials
- In Transports: ODFL were both downgraded to Hold from Buy at Stifel saying LTL stock valuations have risen back to near historical peaks despite the ongoing freight trough, more challenging volume comps and little momentum from Q324 intra-quarter trends. UPS was downgraded to Underweight at Barclay’s and maintained $120 PT saying near-term earnings could be pressured by a still weak parcel demand backdrop, but long-term pressures from AMZN, non-union FDX competition and limited dividend growth paint a relatively tough outlook for UPS shares.
- In Aerospace & Defense: BA and the union representing 33,000 striking workers reached a tentative agreement on a new contract. Striking machinists at Boeing will vote on Wednesday on a new contract proposal, including a 35% pay hike over four years, that could end a five-week-strike. LDOS gets $331M contract from US Army; CACI awarded $805M task order to provide engineering support and Technology to U.S. Navy’s NavalX Office. LHX, LDOS, LMT, GD among defense names hitting 52-week highs today.
- In Industrials: Sandvik (SDVKY) shares fell as the metal cutting and mining equipment maker’s Q3 EBIT came in at 5.38 billion Swedish crowns ($511.05 million) missing a mean forecast of 5.68 billion crowns by analysts.
- In Lithium Sector: PLL downgraded to Underweight at JP Morgan on its expectation that muted lithium fundamentals will continue to pressure earnings, offsetting the otherwise positive cash cost improvements expected over the next several quarters at NAL as spodumene production ramps up to full capacity.
- In Metals & Mining: Gold and silver miners (AEM, NEM, HMY, GOLD, GATO, PAAS) advanced as gold prices setting new all-time highs today of above $2,755 an ounce and silver at highest levels since 2012, boosted by uncertainties around the U.S. election, ongoing Middle East tensions and expectations of major central banks’ rate cuts.
Technology
- NVDA among semis that helped keep the Nasdaq higher.
- APH and DELL added to positive catalyst watch at JP Morgan and LITE, QCOM placed on negative catalyst watch saying into the earnings prints, it envisions a challenging set up for more than 50% of the coverage companies heading into the print, highlighting its bearishness relative to elevated expectations. JPM notes valuations across the coverage universe are elevated relative to historical averages led by expectations around a “Soft landing” increasing investor optimism around a cyclical recovery as well as unchanged outlook in relation to robust AI spending.
- Stifel said its latest cyber industry survey results were stronger for ZS, S, and PANW, improved for CYBR, NET, VRNS and Splunk, relatively stable for FTNT, TENB, RPD, DDOG, and weaker/worse for CRWD, CHKP, OKTA. By product category, IoT/OT Cybersecurity and DevSecOps joined Cloud/Identity/Endpoint as top priorities for the first time
- APP shares jumped after Bank America raised its PT to $210 as "believes that the Q223 launch of Axon 2.0, AppLovin’s AI engine, ushered in a growth and profitability transformation, which markets and the Street have been slow to recognize"
- FTNT was named the new top pick at Morgan Stanley based on upward revisions potential and valuation discount. The firm said expects strong network security demand in 2025/26 due to ramping firewall refresh cycle given 4-5-year replacement and rising network traffic/threats; sees 20-30% upside to consensus 2026 FCF estimates.
- GTLB upgraded to Buy with $70 tgt at Needham saying the company has broadened its offering and anticipates sustained ultimate strength as a result of product innovation such as Duo Pro Enterprise and Dedicated.
- LUMN rises after announcing a partnership with META to significantly increase the Facebook parent’s network capacity and help drive its AI ambitions. The expanded network will provide dedicated interconnection for Meta’s infrastructure, strengthening and increasing the company’s ability to lead in AI development.
- NOW downgraded to Equal weight from Overweight but raised tgt to $960 from $900 at Morgan Stanley on valuation, but noted checks suggest stable demand, driven by healthy cross-sell activity and early Pro Plus excitement.
- SCWX to be acquired by Sophos in $859M all cash deal paying $8.50 per share.
Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.