Closing Recap

Friday, September 06, 2024

It was a rough day/week on Wall Street! U.S. stocks declined sharply to end the week, with the S&P registering a 5-day decline of over -4.2%, posting its first 4-day losing streak since mid-April in the process (was 6-day streak between 4/12-4/19). The Nasdaq dropped over -5.7% on the week, its worst since April, led by a more than -12% decline in the semi-SOX index (was weighed down by AVGO after earnings disappointed last night). Note September is historically one of the worst monthly returns for the S&P 500 and the start to month is proving that thus far. Markets dropped overnight following the Broadcom (AVGO) results but managed to bounce following the weaker August jobs report this morning which showed jobs gained +142K m/m, below estimate. +165K, while also showing notable downward revisions to both June and July. While the data boosted expectations of a more aggressive Fed, with market hopes for a 50-bps cut in 2-weeks, it also renewed concerns of a recession, as the economy appears weaker than some expected (also recall back-to-back months of weaker ISM Manufacturing). There was straight selling pressure throughout Friday, with no meaningful bounces into the weekend, taking out key technical levels along the way. And as @bespokeinvest noted, “This has been the worst 4-day start to a month since…last month. S&P 500: 4 days into September: -4.23%, 4 days into August: -5.11%.” Will markets rebound like they did in August? Or extend losses into the month?

Stocks got a brief (very) bounce off lows late morning after Federal Reserve Governor Christopher Waller said “the time has come” for the U.S. central bank to begin a series of interest rate cuts this month and said “if the data suggests the need for larger cuts, then I will support that as well. I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate.” Note that rate cuts are now widely “baked-in” to market expectations, so is the risk now to the downside remains the question? The picture wasn’t much better in Europe as the Stoxx 600 was down -1.1% for its worst daily fall since August 5, while Britain’s FTSE 100 down -0.9%; Germany’s DAX down -1.6%, France’s CAC 40 down -1.2%; Spain’s IBEX down -1%, Euro Stoxx index was down -1.5%. Risk assets were broadly lower on Friday/the week with Bitcoin falling over -3.7% to $54,000 in what has been a sharp pullback in the crypto space (-8.5% MTD).

Today was the last day for Fed members to speak ahead of their “blackout period” amid their upcoming FOMC policy meeting in 2-weeks. Attention next week could turn back to inflation with August CPI and PPI data due Wednesday and Thursday respectively, though inflation fears have eased in recent months as the PCE gets close to the Fed’s 2% target. At this point, recession fears and strength of the economy are more pressing concerns for investors.   

• @KobeissiLetter tweets: "For anyone not keeping track: There have only been 6 upward jobs revisions since January 2023. Meanwhile, there have been 13 downward revisions with many of these reports being revised down TWICE. Market confidence in labor market data is deteriorating."

• Federal Reserve Governor Christopher Waller on Friday said "the time has come" for the U.S. central bank to begin a series of interest rate cuts this month, adding that he is open-minded about the size and pace of those reductions. "If the data supports cuts at consecutive meetings, then I believe it will be appropriate to cut at consecutive meetings," Waller said in remarks prepared for delivery at the University of Notre Dame. "If the data suggests the need for larger cuts, then I will support that as well. I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate."
• Friday’s employment report continues to underscore the risks of an undesirable slowdown in hiring if the Federal Reserve keeps interest rates too high for too long, said Chicago Fed President Austan Goolsbee. Doing so could jeopardize a long-sought "soft landing," in which the Fed uses interest rates to bring inflation down without a recession. "If you’re going to have a soft landing, you can’t be behind the curve," said Goolsbee. "It’s very clear what’s happening in the economy. Inflation is way down. We’re not overheating. And there are definite warning signs of things over-cooling."

• Gold prices slip -$18.50 to settle at $2,524.50 an ounce, off earlier highs of $2,559.80
• The U.S. dollar hit a one-month low just above 142 versus the yen before paring back, and a one-week low against the euro following weaker U.S. jobs data. The dollar index (DXY) hit a low of 100.55 before rebounding back to 101.25.
• The 10-year yield declined 20bps to 3.710% this week, biggest weekly drop in 5-weeks, down 4-straight days and down seven of the past 10 weeks; the 2-yr yield declined 27.5 bps to 3.651% this week (new 52-week low), down two of the past three weeks and also down for four consecutive trading days.

• GCO said Q2 sales fell slightly and that it expects sales to decline less than expected in FY25; Q2 comparable e-commerce sales increased 8%, while comparable store sales fell 4%; said it expects FY25 sales to fall 1% to 2% from its prior outlook for a decline of 2% to 3%.
• ZUMZ reported Q2 N.A. sales/comps up 10.4%/5.9%, while Q2 sales/adj. EBITDA/adj. EPS above consensus, exceeding guidance as QTD sales as of 9/2 up 6.8%; Q3 sales/EPS guide above/below consensus.

• In Leisure: BOWL shares rose after results; reported Q4 revenues and AEBITDA of $284M and $83M above estimates as same-store sales for 4Q24 of +6.9% came in well above as well with all three months seeing positive growth; also provides above same-store sales guidance.
• Convenience Stores: Seven & I (SVNDY) rejected a $38.7B takeover proposal from Alimentation Couche-Tard Inc. as too low and fraught with regulatory risk while signaling a willingness to consider a sweetened offer – Bloomberg.
• In Guns & Ammo: SWBI reported Q1 results that showed they saw softer than anticipated demand for firearms

• In EEMI space, CARR upgraded to Peer Perform from Underperform at Wolfe Research as now sees a more favorable bear/bull range of $60-97, with base case upside of 11%; ETN was upgraded to Peer Perform from Underperform as continue to see the path to significant 2025 outgrowth; and downgraded FTV to Peer Perform.
• In the E&C Sector: KBR was downgraded from Buy to Hold at TD Cowen with an unchanged price target, given a less-rich catalyst roadmap and emerging risks limit upside to Street estimates. KBR’s outyear guide implies a 10-11% EBITDA CAGR from 2023-2027, but consensus has penciled in closer to 20% over that time frame.
• In Metals & Mining: U.S. Steel (X) shares bounce after tumbling this week after reports the White House is close to announcing that President Joe Biden will block the $15 billion deal with Japan’s Nippin Steel. Note yesterday in CNBC interview with CLF CEO, he noted was still in market for US Steel. Reuters reported Mining companies VALE and BHP, together with their joint venture Samarco, may soon reach an agreement with Brazilian authorities to pay around 100 billion reais ($17.87 billion) for the collapse of a dam in the city of Mariana.
• Heavy Duty Trucks (CMI, PCAR, ALSN): Truist noted Class 8 preliminary truck August orders were 16,400 — up 22% month-over-month and down 16% year-over-year on a preliminary basis. Medium-duty net orders fell slightly below ACT’s expectations at 17,300 units — up 22% m/m and down 16% y/y on a preliminary basis.
• In Coal sector: B Riley raised tgt on CEIX from $103 to $109 and lowered in ARCH from $198 to $188, AMR from $374 to $336, METC from $21 to $19 and HCC from $92 to $90 in coal space saying with the PLV benchmark ($184.5/Mt) well below their previously cited marginal cost estimate of $225/Mt, it believes increased production cuts are nearing. Also said believes that the risk/reward for investors is compelling, especially as there remains a shortage of high-quality met coal supply projects.
• In Energy: BE was downgraded from Buy to Hold at Jefferies given uncertainty on backlog, expiration of ITC, in its current form, in ’24, and minimal transparency around SK.

• In FinTech: PYPL upgraded its rewards program for debit card users with a 5% cash back offer. Users of the PayPal debit card, offered through MA will receive 5% cash back on up to $1,000 in selected category spending per month. Previously, PayPal had in-app cash back offers at select merchants.

• GSK announced positive headline results of MATINEE, the phase III clinical trial evaluating Nucala, a monoclonal antibody that targets interleukin-5, IL-5, in adults with chronic obstructive pulmonary disease, COPD.
• ITCI upgraded from Neutral to Overweight at Piper and raise tgt to $92 from $68 saying feedback from Piper’s survey of 25 psychiatrists was suggestive of a patient/prescription (Rx) volume footprint for Caplyta as adjunctive treatment for major depressive disorder (MDD) that is like the one that ABBV is carving out for Vraylar in this setting.
• TVTX said the FDA has granted full approval to FILSPARI (sparsentan) on the September 5 PDUFA date of the sNDA.
• VOR said that its CRISPR-augmented stem cell transplant, which is designed to protect healthy cells from the toxic effects of anti-cancer medicines, showed early evidence that it can delay relapse in patients with an aggressive form of leukemia.

• GWRE advanced on earnings as Q4 results showed ARR 1% above, subscription and support revenue 2% above, and FCF 37% above consensus; in-line FY25E ARR guidance.
• IOT reported Q2 rev growth of 37% (no Q/Q deceleration) above Street at 32%, w/ upside coming in stronger than 1Q as large customer activity & multi-product adoption drove out-performance & the $100k+ net new customer metric had a strong bounce-back vs. 1Q.
• SMAR guided FY adj. EPS $1.36-$1.39; above ests. of $1.33 following Q2 EPS and revs beat, which followed a prior day report by Reuters saying that Private equity consortium including Vista Equity Partners and Blackstone are in talks to acquire company.

• MBLY shares fell on reports INTC is said to explore the sale of part of its stake in Mobileye, noting the chipmaker could offload some of its 88% holding in Mobileye on the public market or via a sale to a third party https://tinyurl.com/5fcd45sp
• QCOM has explored the possibility of acquiring portions of INTC’s design business to boost the company’s product portfolio, according to two sources familiar with the matter, Reuters reported
• SMCI was downgraded to Neutral from Overweight and tgt to $500 from $950 at JP Morgan which reflects a near-term view that here is a not a clear rationale for new investors stepping into Supermicro shares while uncertainty exists around regaining compliance with regulators that is critical beyond the unchanged business fundamentals.
• In Other chip news, the Biden administration said it plans to impose export controls on critical technologies including quantum computing and semiconductor goods, seeking to align key allies in a US-led push to thwart advancements in China and other adversarial nations.