Market Review: October 23, 2024

Closing Recap

Wednesday, October 23, 2024

Index

Up/Down

%

Last

DJ Industrials

-409.94

0.96%

42,514

S&P 500

-53.79

0.92%

5,797

Nasdaq

-296.48

1.60%

18,276

Russell 2000

-17.70

0.79%

2,213

 

 

 

 

 

 

 

 

 

US equity futures were softer again overnight and continued to fade into the open with no economic news to act as a catalyst and mixed earnings. Mid-morning breadth was almost 3:1 in favor of decliners as small caps again underperformed. IWM dipped 0.60% versus QQQ -0.43% and SPY -0.31%. Amongst S&P sector ETFs, gainers and losers were split roughly in half with early leaders Real Estate and Utilities, while Consumer Discretionary and Health Care paced the laggards to the downside. So now the wait to see whether there is another afternoon recovery scenario to support the Fear and Greed Index holding at the Greed level (67/100) versus 69 (Greed) last week and 65 (Greed) last month, but 25 (Extreme Fear) a year ago. Equities continuing to slide into midday was not a particularly optimistic sign.

 

On the data front, the latest estimate for Q3 real growth from GDPNow is 3.4%, marking what would be the fastest US growth rate in a year. On the S&P 500, @DataTrekMB notes the S&P has a nice long-run record of outperforming the “rest of the world” equities (an average outperformance of 8 percentage points over any 12-month period since 2009). They also see room for this streak to continue as capital is welcomed and more effectively deployed in the US. On sector performance, @bespokeinvest highlights Health Care as the weakest sector ETF over the past week (-1.1%) and Tech as the only sector ETF up over 1% in the same period. On housing, @KobeissiLetter notes the average rate on a 30-year mortgage is now officially back above 7%, having moved consistently higher (up over 50bps) since the Fed’s 50bps cut. With that, TLT is down nearly 10% from its high just more than a month ago.

 

It took a late bounce, but stocks were off their lows heading into the final hour of trading. Breadth had expanded to almost 5:1 favoring decliners, but small caps were now more in-line with other indices. IWM traded -0.85%, with SPY -0.92% and QQQ -1.56%. Real Estate (XLRE) and Utilities (XLU) were the lone holdouts in the green among S&P Sector ETFs, while Technology (XLK, -1.4%) and Consumer Discretionary (XLY, -1.5%) were the primary decliners. Of course, both growth and value were lower for the day, but value was a heavy relative outperformer. The Russell 1000 Value was down just 0.39% versus its Growth counterpart at -1.77%.

Economic Data

  • U.S. Sept Existing Home Sales fell -1% M/M to 3.84M unit rate (consensus 3.86M), vs Aug 3.88M (prev 3.86M); U.S. Sept inventory of homes for sale 1.39M units, 4.3 months’ worth; U.S. Sept national median home price for existing homes $404,500, +3.0% from Sept 2023.
  • Fed Beige Book prepared at the Federal Reserve bank of New York based on information collected on or before October 11, 2024, showed: on balance, economic activity was little changed in nearly all districts since early September, though two districts reported modest growth. Despite elevated uncertainty, contacts were somewhat more optimistic about the longer-term outlook. Inflation continued to moderate with selling prices reportedly increasing at a slight or modest pace in most districts.

Commodities, Currencies & Treasuries

  • Yields and the Dollar strengthened, and gold slipped despite no real change in the underlying outlook. Election uncertainty remains in play, as does the unease around conflicts in the Middle East, but December gold futures fell $30.40/oz, or -1.1%, to $2,729.40. Traders also attributed the day’s move to regular profit taking following four consecutive days of intraday all-time highs (amid a six-day winning streak) and a 33% year-to-date gain entering today. On a Fear and Greed basis, gold remains in the Greed column at 92/100 versus last week’s 77 (Greed) and last month’s 88 (Greed).
  • WTI December crude futures slipped overnight and, despite one early rally attempt, never gained much traction, settling down $0.97/bbl, or -1.35%, to $70.77 and marking the first decline in the last three sessions. Weekly EIA data showed a crude inventory build well ahead of expectations (up over 5Mm barrels), so certainly that did not help. Also on the supply side, anticipation of an Israeli strike on Iran’s oil fields appears to have dissipated and we are back to expecting an oil glut. The demand side, of course, will play out as investors continue to wrestle with potential Fed cuts, recession odds and soft-landing potential along with China stimulus measures. Brent also slid, finishing down $1.08/bbl, or -1.42%, to $74.96.

 

Macro

Up/Down

Last

WTI Crude

-0.97

70.77

Brent

-1.08

74.96

Gold

-30.40

2,729.40

EUR/USD

-0.0012

1.0785

JPY/USD

1.54

152.60

10-Year Note

0.03

4.236%

 

Sector News Breakdown

Retail, Consumer Staples & Restaurants:

  • In Restaurants & Dining: MCD shares tumbled after the CDC reported ten people have been hospitalized and one older person in Colorado has died after E. coli infections linked to consuming McDonald’s quarter pounder hamburger (shares of beef supply names such as TSN were down as well in sympathy); SBUX shares declined after the company suspends its annual forecast, given CEO transition coupled with the "current state of the business; said Q4 comparable store sales declined 7%, net revenues declined 3% to $9.1B (below forecasts), guides prelim Q4 adj EPS $0.80 below est. $1.03, but did raise its dividend.
  • In Food & Beverages: KO better Q3 results on EPS $0.77 above $0.74 est. and revs $11.9B topping consensus $11.6B as global unit case volume down 1%; still sees 2024 adjusted eps up 5%-6% vs $2.69; sees 2024 comparable currency-neutral eps up 14%-15%. MKC reaffirmed long-term growth objectives for net sales of 4%-6%, EPS of 9%-11%;

Auto, Leisure, Gaming & Lodging:

  • In Lodging: HLT Q3 results mixed as EPS of $1.92 beat ests but revs $2.87B below $2.91B estimates as System-wide comparable RevPAR increased 1.4%; the hotel operator lowered the upper end of its annual room revenue growth forecast to be between 2% and 2.5%, compared with its prior view of 2% to 3% noting some U.S. consumers cut back on domestic travel spending amid a drop in disposable income; also lowers FY24 net income outlook to $1.41B to $1.43B, from $1.53B to $1.56B (MAR, CHH, H shares dipped initially in sympathy).
  • In Leisure: RV/Towable sector second straight day of weak results as WGO earnings dropped -82% y/y vs. analysts’ expectations for a -44% y/y loss while revenue dropped 6%, to $720.9M but just above the consensus view around $719M; guided 2025 adjusted EPS $3.00-$4.50, below consensus $5.35 as anticipates total North American RV wholesale shipments in the range of 320,000 to 350,000 units. (follows softer report from PII the day prior). PTON strength today attributed to David Einhorn mention who presented today at the Robin Hood Investors Conference.

Energy

  • In Solar: ENPH shares stumble on miss and lower guide; Q3 EPS $0.65 vs. est. $0.77; Q3 revs $380.87M vs. consensus $392.11M; guided Q4 revenue $360.0M-$400.0M below consensus $437M and guides Q4 adj operating expenses $81M-$85M (solar space remains pressured SEDG, RUN, NOVA, etc.). Separately, shares of foreign solar names DQ, JKS, CSIQ saw early strength on reports the US Commerce Department is considering reducing tariffs on the sector.
  • In Utility: GEV slides as the company misses Q3 core profit estimates ($243M vs. est. $276.2M est.), hurt by incremental contract losses related to offshore wind as its Wind segment core loss widened to $317M vs core loss of $225M a year earlier and said orders in company’s wind segment decreased, hurt by lower onshore wind equipment orders outside of North America. NEE Duane Arnold nuclear plant in Iowa may be restarted, as U.S. demand for electricity swells amid development of "power-hungry data centers," by major tech companies – Bloomberg.

Financials

  • In Real Estate Services: CSGP downgraded to Sector Perform at RBC Capital and cut tgt to $83 post earnings noting core bookings declined 34% y/y and Homes.com bookings moderated to $1M in Q324 from $55M in 1H24 despite the elevated investments.
  • In Crypto: COIN was initiated with a Neutral rating and $185 price target at B Riley noting Coinbase is the industry leader and a trusted platform for institutions and individuals to invest and transact in the growing digital currency economy, and views Coinbase as a unique company in the capital markets sector but see shares range bound here. B Riley also initiated DeFi Tech (DEFTF) at Buy and C$5 PT saying the co is building financial products that bridge the Gap between traditional financial companies, such as banks and brokerage firms, and the emerging ecosystems of digital currencies. Bitcoin prices dropped for a 3rd consecutive day to $66,500 weighing on miners and other crypto names.
  • In FinTech: PYPL announced an expanded collaboration with GPN aimed at transforming checkout experiences. This partnership will see Global Payments offer their U.S. merchants enhanced PayPal and Venmo branded checkout solutions and accelerated guest checkout through Fastlane by PayPal
  • In Financial Services: UPWK guides Q3 prelim revs $194M vs. est. $181.7M and announces organizational changes to drive continued profitable growth; sees about $60M in annual cost savings advances.

Biotech & Pharma:

  • AMLX was upgraded from Neutral to Buy at Bank America and raised tgt to $10 from $4.20 based on its view on the prospects of avexitide, a drug it is developing to control blood sugar. Amylyx acquired avexitide from Eiger Pharma this summer and it already has shown positive phase 2 results.
  • ANRO shares plunged following news a Phase 2 study of the company’s ALTO-100 failed to meet its primary endpoint.
  • BSX reported better-than-expected profit and sales in its third-quarter results, and gave robust earnings guidance
  • TMO raised the lower end of its annual profit forecast (the third time raising this year) but maintained its annual revenue forecast in the range of $42.4 billion to $43.3 billion after better Q3 results.

Transports

  • In the Maritime sector: Stifel downgraded ASC, STNG, INSW to Hold from Buy in tanker names and downgraded GNK, SBLK in the dry bulk sector as the market finds its new level next year in Shipping preview. The firm said for the better part of the past four years, most shipping segments have been strong, following a multi-year period of weakness; but believe most shipping segments are headed toward a rate pause, which should drag asset values lower.
  • In Truckers/Logistics: ODFL reported Q3 drop in profit and revs citing lower volumes because of weak freight demand. ODFL handled a total of 2.2 million tons of shipments in the third quarter, down 3.2% from the year earlier and overall revs fell -3% y/y to $1.47B. KNX reported late day before the close (early earnings release it appears).

Aerospace & Defense

  • In Aerospace & Defense: BA shares fell after the planemaker reported a quarterly loss of $6 billion amid a crippling strike by over 33,000 workers (EPS loss -$10.44 for Q3); reported Q3 revs fell -1% y/y to $17.84B. CEO Kelly Ortberg in a letter lays out turnaround plan, stresses on need for improving performance in defense business and its 737 and 777 programs. GD reported results as 3Q operating income is 4% below consensus with margins missing at Gulfstream. Funded aerospace B2B was < 1x, which looks light of investor expectations, especially in the context of lighter than expected deliveries.

Materials, Metals & Mining

  • In Chemicals: Paint maker AkzoNobel (AKZOY) missed expectations for Q3 revenue and earnings as China’s weak real estate market weighs on the sales of its decorative paints (2nd paint maker to miss in 2 days with SHW disappointing on Tuesday; PPG missed EPS last week). ESI shares jumped late day after a Bloomberg report indicated the chemicals maker is noted to explore a sale.
  • In Industrial Metals: AA was upgraded to Buy from Hold at Argus; also, Aluminium prices rose to their highest in almost 20 days on Wednesday as news of alumina shortages triggered systematic buying from funds. Gold miners took a breather after a big run as gold prices fell over -1% following record highs earlier in the day.
  • In Paper & Packaging: PKG shares advanced after IP announced 5 box plant closures & 650 headcount reductions this past week as it looks to reduce costs by ~$1.2B in the next 2-3 years.

Internet, Media & Telecom

  • AAPL shares fell after TFI International analyst Ming-Chi Kuo noted a total of about 10M iPhone 16 orders were cut in Q424-1H25. There is no proof that Apple Intelligence can boost iPhone shipments in the short term. The analyst later clarified saying “to avoid misunderstanding, the order cancellation of 10M units refers to the total order cancellation in three quarters (from Q424 to Q225).”
  • ALTR shares jumped on a Bloomberg News report late day that Siemens AG is in talks about a potential deal to acquire the company, citing people familiar with the matter. On Tuesday, Reuters had reported that ALTR is exploring a sale, and that potential bidders include rival design software makers such as PTC, and CDNS
  • MGNI signed a two-year extension with DIS which will now use MGNI’s services to monetize college football games on live streams on ESPN. The co will now support Disney in expanding monetizing ad-supported inventory in Brazil, Chile, Colombia, Mexico, Peru, and Argentina.
  • SNAP was upgraded to Outperform from Market Perform at JMP Securities with a $17 price target saying with Snap set to roll out Simple Snapchat and launch Sponsored Snaps, it will see an inflection in impression growth.
  • VRT shares fell after Q3 adj EPS $0.76 beat est. $0.69; Q3 revs $2.07B vs. consensus $1.98B; raises year EPS and rev outlook but Q4 guidance mixed as sees Q4 adjusted EPS 80c-84c, vs. consensus 75c while mid-point of Q4 revenue $2.12B-$2.17B below consensus $2.15B.
  • Bank America raised price tgts on EBAY, DASH, CART given data suggesting solid meet/beat Q3 results and/or a good start for Q4. October MTD update: BSM observed sales data mixed for eCommerce; Amazon/Etsy slowed m/m; eBay accelerated. MTD data suggests Delivery remains strong with DASH and CART trends accelerating.
  • Worldwide IT spending is expected to total $5.74 trillion in 2025, an increase of 9.3% from 2024, according to the latest forecast by Gartner, Inc. "Current spending on generative AI has been predominantly from tech companies building the supply-side infrastructure for GenAI," said John-David Lovelock, Distinguished VP Analyst at Gartner.

Semiconductors:

  • NVDA CEO Huang said today that a design flaw with its latest Blackwell AI chips, which impacted production, has been fixed with the help of longtime Taiwanese manufacturing partner TSM. The CEO dismissed media reports which said the production delay caused tensions between the firms as "fake news."
  • QCOM shares fell after ARM said it is cancelling an architectural license agreement that allows QCOM to use intellectual property to design chips, Bloomberg News reported. ARM has given QCOM a mandated 60-day notice of the cancellation of the licensing agreement, the report said.
  • Analog semiconductors (ON, NXPI, WOLF) get a lift after TXN Q3 print better than feared as Auto surprisingly grew from strength in China and non-Industrial segments recover, driving higher Q3 GM.
  • STX delivered a beat-and-raise earnings report driven by robust Nearline drive demand from Cloud customers. Adding to this was a demand uptick in Enterprise/OEM customers; shares however ended lower

_________________________________________________________________

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.