Market Review: October 25, 2024

Closing Recap

Friday, October 25, 2024

Index

Up/Down

%

Last

DJ Industrials

-259.96

0.61%

42,114

S&P 500

-1.73

0.03%

5,808

Nasdaq

103.12

0.56%

18,518

Russell 2000

-10.58

0.48%

2,208

 

 

 

 

 

 

 

 

 

U.S. stocks started the day ripping higher, erasing weekly losses for the Nasdaq as technology did most of the leading early behind strength in large caps and semiconductors. The rally lasted for a few hours as it appeared stocks would continue to push higher, making it a 7th straight week of gains for the S&P and Nasdaq…but it was not. Stocks ended up losing steam early afternoon as eight of the 11 S&P sectors turned “red” outside of the tech related ones (XLK, XLY, XLC) which did keep the Nasdaq weekly win streak intact now at 7-weeks. There was no specific story that pared market gains other than we are less than two weeks from the election and we are heading into the busiest earnings week of the quarter with over 33% S&P companies reporting including mega caps Apple, Amazon, AMD, Microsoft among the biggest. While the S&P and Nasdaq have been stronger, the Dow Jones Industrial Average posted its 5th straight day of losses as headlines/earnings from components Boeing, McDonald’s weighed on the index this week. Still, stock market strength continues to amaze, despite political uncertainty as well as a recent spike in yields and rates (the 10-yr yield has risen nearly 60-bps since the Fed cut rates back in September). UBS noted since September 16, 10-year Treasury yields have increased by 60 bps (3.6% to 4.2%) and expectations for terminal Fed rates have risen by 70 bps (2.7% to 3.4%). While conventional wisdom holds that higher rates would be a headwind for markets, the S&P 500 has returned 3.1% over this period, with 2.9% from higher stock multiples. Stocks markets remained steady in the final hour heading into the weekend. Regarding earnings data: FS Insight tweets: “Of the 138 companies that have reported so far (28% of the S&P 500): Overall, 78% are beating estimates, and those that “beat” is beating by a median of 6%. Of the 21% missing, those are missing by a median of -6%. On the top line, overall results are beating estimates by a median of 2% and missing by a median of -3%, and 59% of those reporting are beating estimates.” Next week dominated by earnings – but also steady stream of jobs and inflation data on the economic calendar as well.

Economic Data

  • Sept. Durable goods orders fall (-0.8%) m/m vs. est. (-1.0%). Sept Durables ex-transportation orders +0.4% (cons -0.1%) vs Aug +0.6% (prev +0.5%). U.S. Sept Durables ex-defense orders -1.1% vs Aug -1.3% (prev -0.2%). U.S. Sept gen. Machinery orders -0.2%, electrical equipment unchanged, defense aircraft/parts -23.7%. Us Sept nondefense cap orders ex-aircraft +0.5%, (cons +0.1%) vs Aug +0.3% (prev +0.3%).
  • University of Michigan surveys of consumers sentiment final Oct 70.5 (consensus 69.0) vs preliminary Oct 68.9 and final Sept 70.1; the current conditions index final Oct 64.9 vs prelim Oct 62.7 and final Sept 63.3 and the expectations index final Oct 74.1 vs prelim Oct 72.9 and final Sept 74.4.
  • University of Michigan surveys of consumers 1-year inflation outlook final Oct 2.7% vs prelim 2.9% and final Sept 2.7% while the University of Michigan surveys of consumers 5-year inflation outlook final Oct 3.0% vs prelim 3.0% and final Sept 3.1%.

Commodities, Currencies & Treasuries

  • Gold prices slip -$5.70 to settle at $2,754.60 an ounce, but did make a new all-time high of $2,772.60 an ounce mid-week despite Treasury yields and the dollar hitting 3-month highs. Bitcoin prices dropped to session lows below $67,000 after the WSJ reported the federal government is investigating Cryptocurrency company Tether for possible violations of sanctions and anti-money-laundering rules, according to people familiar with the matter. Tether CEO Ardoino commented on “X” regarding the WSJ report noting there was no indication that tether is under investigation (Bitcoin prices pared losses following his comment).
  • U.S. crude oil futures settle at $71.78/bbl, up $1.59, or 2.27% (up 4.5% on the week) and Brent Crude futures settle at $76.05/bbl, up $1.67, or 2.25%. Front-month gas futures for November delivery on the New York Mercantile Exchange rose 3.8 cents, or 1.5%, to settle at $2.560 per million British thermal units (mmBtu), their highest close since Oct. 11 for a second day in a row. That put the front-month up about 13% this week after it fell about 22% over the prior three weeks.
  • Investors are pricing lower odds of a hold in the next Fed meeting, while inflation and labor data due next week could still change expectations. On the CME’s FedWatch tool, odds of a hold are priced at 2%, from nearly 20% earlier this month. Most bets are on a 25-basis-point interest rate cut. September PCE inflation is due Thursday, followed Friday by October payrolls.

 

Macro

Up/Down

Last

WTI Crude

1.59

71.78

Brent

1.67

76.05

Gold

5.70

2,754.60

EUR/USD

-0.0023

1.0803

JPY/USD

0.30

152.12

10-Year Note

0.014

4.216%

 

Sector News Breakdown

Autos:

  • In Auto Retailers: AN Q3 earnings missed estimates (adj EPS $4.02 vs. est. $4.36) and revs fell -4% y/y to $6.58B from $6.89B (est. $6.695B) amid continued fallout from a software outage. The co said earnings were hit by the cyberattack at dealership-software company CDK Global that created disruption for car sellers across the U.S. over the summer.
  • In Autos: Mercedes (MBGYY) will step up cost cuts after earnings halved in the third quarter hit by tepid demand and fierce competition in China, it said on Friday. The luxury carmaker cut its full-year profit margin target twice during the third quarter, joining a growing number of European rivals blaming a weakening Chinese car market for falling profits.

Retail, Consumer Staples & Restaurants:

  • Footwear apparel: sector strong today behind better earnings from both DECK and SKX (lifts ONON, FL, others). DECK raised its annual sales forecast to +12% from the prior +10% on the back of strong demand for its brands UGG boots and Hoka running shoes. DECK said Q2 Hoka sales jumped 35% in the quarter, while the UGG banner saw a 13% rise; gross margins rose to 55.9% compared to 53.4% a year earlier. SKX an early winner as Q3 sales rose 16% to $2.35 billion and beat Wall Street estimates of $2.31 billion and adjusted earnings of $1.20 a share also topped forecasts, but shares ended lower
  • In Luxury Retail: CPRI shares tumbled by nearly half after a federal judge blocked the pending $8.5 billion merger of U.S. handbag and accessories maker TPR, a victory for the U.S. Federal Trade Commission in an industry. The FTC argued that the merger would eliminate fierce head-to-head competition between the top two U.S. handbag makers and create a massive company with the power to unfairly raise prices for consumers.
  • In Home Retail: BYON was downgraded from Neutral to Underperform at Bank America and cut tgt to $6 from $12.50 a day after shares fell -30% after disappointing Q3 results (Q3 revs -17% y/y) and an “Investor Event” that left US uncertain on the timing and potential for turnaround efforts underway. In appliances, WHR shares give back some of prior day advances post earnings after overseas competitor Electrolux (ELUXY) missed Q3 results delivering a loss of 249 million Swedish crowns ($23.6 million) as the business continues to hold back group earnings in the face of high costs and competition from WHR and China.
  • In Food & Beverages: SAM was downgraded to Hold from Buy at Jefferies after earnings overnight as the firm thought Truly, beer, and cider declines would improve this summer, but says they got worse. Meanwhile, Twisted is slowing and Boston Beer’s other growth avenues are limited. Stifel downgraded food companies KHC to Hold from Buy (tgt to $38 from $43) and SJM to hold from Buy (tgt to $125 from $135), lowered estimates, standing near consensus, noting that its downgrade reflects a lack of near-term catalyst, softer volume recovery relative to peers, and potential for greater reinvestment requirements to improve volume growth.
  • In Restaurants: MCD shares dropped further on Friday after the CDC reported that as of October 24, 75 people infected with the outbreak strain of e. Coli o157:h7 have been reported from 13 states and that 22 people have been hospitalized. TXRH shares advanced early following quarterly results that topped consensus.
  • In Consumer Products: CL posted Q3 earnings that beat expectations on better sales which were driven by a ‘healthy balance’ of volume growth and higher pricing, Colgate said. The co lifted its full year guidance and now expects net sales growth of between 3% and 5%, versus 2% to 5% previously. Shares fell following its North American sales miss.

Leisure, Gaming & Lodging:

  • In Casinos & Gaming: BYD reported better than expected results, with total adjusted EBITDA of $358M (vs est. $339M), by segment: Locals EBITDA was $96.4M, Downtown EBITDA was $16.5M, and Midwest & South EBITDA was $197M. LVS said it is set to invest $8 bln in Singapore to expand its Marina Bay Sands resort.
  • In Online Learning: COUR shares tumbled after Q3 results topped expectations on revenue, operating income/margin, and free cash flow, but disappointment was driven by a second guide down in 2024 revenue, offset by better adjusted EBITDA/profitability for the year.

Energy

  • In Midstream/MLPS: Morgan Stanley upgraded TRP to Overweight from Underweight, initiated coverage on SOBO at Underweight, resumed coverage of ENB at EW, and downgraded PAA/PAGP to EW from OW and WES to UW from EW in sector call. The firm said following a four-year recovery in midstream stocks that has largely but not fully normalized valuations (with midstream outperforming the S&P 500 in three of four years), they believe the midstream bull market has entered its next phase, where further re-rating becomes concentrated around growth.

Financials

  • In Banks: NYCB shares fell after weaker Q3 results as net interest income $510M missed ests of $521M, loans missed estimates and NIM was 1.79% vs. Bloomberg est. 1.94%; also, Q3 provision for credit losses misses estimates.
  • Insurance stocks were weaker, led by declines in HIG as Q3 core EPS $2.53 missed est. $2.54 and PFG Q3 adjusted EPS $1.78 missed consensus $2.02. HIG fell as core EPS missed estimates, driven mainly by lower-than-expected underwriting results at the property and casualty division, particularly in Hartford Financial’s commercial segment. For PFG, Reported EPS of $1.76 included $(0.30) of unfavorable assumption review impacts, $(0.09) of unfavorable variable investment income (VII).

REITs:

  • In Apartment REITs: Mizuho raised price tgts for AVB to $239 from $194, CPT to $129 from $108, EQR to $78 from $64, ESS to $325 from $266, MAA to $163 from $130 and UDR to $47 from $38 ahead of Q324 earnings, and tweaks its 2024/25 estimates and highlight what it sees as a relatively higher bar for Coastal/lower bar for Sunbelt Apartment REITs, given fuller valuations and broader ownership for the former and "non-zero" guidance cut risk and lingering supply headwinds for the latter.
  • In Data center REITs: DLR shares surged to record highs after reported better results and signaled artificial intelligence (AI) demand for data centers continues; boosted lower end of 2024 core FFO guide to $6.65-$6.75 from $6.60-$6.75 (the report boosted shares of comp EQIX which reports next week).

Healthcare Services & MedTech movers:

  • In Pharma: BMY shares fell after Citigroup downgraded to Neutral from Buy (PT to $55 from $75) saying expected growth pressure from Eliquis, Co’s blood thinner drug, makes them incrementally more cautious after a 56% price cut following negotiation over prescription drugs in mid-August.
  • In Obesity, Insulin/Diabetes Sector: VKTX shares surge a second day after rising over 21% on Thursday on earnings and ahead of Obesity week in 1st week of November. BMO Capital said today "read-throughs from Viking’s oral Ph1 VK2735 and injectable Ph2 data could be the most impactful." In diabetes, DXCM shares fell on slightly better Q3 results gut guidance disappointed investors. Insulin companies (DXCM, PODD, ABT) saw weakness after Bloomberg reported AAPL tested an app this year to help people with prediabetes manage their food intake and make lifestyle changes
  • In Medical Equipment: EW reported Q3 TAVR sales largely in line with consensus but shares initially sold off a bit after market as management provided guidance for "below normal" Q4 growth. Also, EW reiterated 5%-7% 2024 TAVR sales growth guidance, with Q4 below-trend growth reflecting selling day headwinds, hurricane impacts, and a one-time rebate to a distributor in China.
  • In Hospitals: UHS shares fell despite reporting a good quarter that beat revenue, EBITDA and adjusted EPS estimate by 2%, 6%, and 10% respectively. Adjusted EPS beat consensus by 1%. Solid strong same-facility revenue per admission trends in both the acute and behavioral segments strong, which led to solid EBITDA growth in both segments. HCA Q3 profit of $4.88 missed consensus estimate of $4.97 per share and the hospital operator said expects some ongoing impact in 2025 from Hurricane Helene on its North Carolina facilities.
  • In Medical Research: Septerna (SEPN) prices offering of 16M Shares at $18.00; Septerna Has Granted Underwriters Option for Additional 2.4M Shares; Septerna Sees Gross Proceeds at $288.0M. Shares opened at $23.50 after pricing the offering at $18.
  • In Managed Care: CNC shares popped as Q3 adj EPS of $1.62 topped expectations of $1.36 and the company said it remained confident in its full-year outlook for adjusted earnings of more than $6.80 a share.

Industrials & Materials

  • In Homebuilders/Building Products: Tough week for homebuilders as the XHB declined -7.2% on the week after earnings (PHM, NVR fell on results) as well as a further jump in Treasury yields. TOL was upgraded to Outperform from Neutral at Wedbush and raised its PT to $175 from $148 saying believes the recent pullback in the shares due to rising mortgage rates has created a buying opportunity in the name. Wedbush also upgraded TMHC to Outperform as thinks the better-than-expected gross margin in FQ324 and TM’s long term gross margin outlook (circa 24%, in line w/recent results) are catalysts to raise its EPS estimates and PT. Floor maker MHK shares tumbled on lower revs, falling -1.7% y/y to $2.72B citing weak demand for its flooring and ceramic products.

Aerospace & Defense

  • BAH raised its FY revenue and earnings as now expects FY adj EPS of $6.10-$6.30 vs prior forecast of $5.80-$6.05 and rev growth of 11%-13% vs prior expectation of 8%-11% growth. The guidance followed earnings results as revenue rose 18% to $3.15 billion from growth in both the federal defense and civil markets (est. $2.97 billion).
  • JOBY 40M share Spot Secondary priced at $5.05
  • LHX Q3 EPS $3.34 vs. est. $3.26; Q3 revs $5.29B vs. est. $5.28B; Q3 book-to-bill of 1.4x, solid organic growth, and while continuing to improve margins as we make progress toward the financial framework; now expect to reach the overall target savings of $1 billion a year early

Materials, Metals & Mining

  • In Chemicals: OLN guided Q4 adj EBITDA midpoint at $185M vs. $250M consensus after reported SepQ24 adj. EBITDA of $160M vs. $182M consensus (was inclusive of $110M one-time impact from hurricane Beryl disruptions, which were $9.4M more than earlier guided). TROX Q3 EBITDA missed by 7% & guided Q4 below estimates as $128M vs $159M consensus; reported Q3 adj. EBITDA up 23% Y/Y (on +12% TiO2 volume) to $143M vs. est. $154M consensus noting that Europe & Asia Pac were softer than expected in September.
  • In Metals: BHP said it has reached a $29.93B final settlement with Public Authorities in Brazil for reparation of Samarco’s Fundão dam failure. A federal judge in Brazil had ruled in February that BHP and VALE and their joint venture, Samarco, must pay up to 47.6 billion reais in damages for the 2015 dam collapse, in a decision still subject to appeal.

Technology

  • AAPL was downgraded to Underweight from Sector Weight at Keybanc with a $200 price target saying the firm’s consumer survey disproves one major bull case that the iPhone SE is not purely additive to iPhone sales. In addition, the analyst cites data points surrounding U.S. iPhone upgrades for the downgrade.
  • APPF beat on top and bottom line as revenue growth of 24% during Q3 was better-than-feared resulting in a $6.6M top-line beat and cost mgmt contributed to even faster profit growth that rose by triple-digits y/y resulting in a $0.26 EPS beat; guided FY24 revenue $786M-$790M, vs. consensus $778.84M.
  • EVLV shares tumbled after saying it is launching an internal investigation into its sales practices as it believes certain sales to one of its largest "channel partners" were subject to extracontractual terms and were withheld from co’s audit committee. Also said certain employees also "engaged in misconduct" in connection with those sales.
  • INTC will invest more than $28 billion to construct two new chip factories in Ohio, the company said on Friday, in a latest step to build out its contract manufacturing business and better compete with TSM
  • WDC reported an in-line SepQ with rev of $4.10B, while guiding the DecQ to $4.30B/$1.80 (just below consensus of $4.35B/$1.95) with 38% GMs (cons. 38.5%) with higher NAND costs. Nearline HDD demand remains strong at 141EB, up 14% q/q as HDD ASP flattish q/q, AI strength remains with enterprise SSD and Ultra SMR demand, NAND capex potentially up y/y in C25E post very low C24 Capex, with return to consumer/client demand and node transitions.

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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.