Closing Recap

Monday, September 16, 2024

U.S. stocks saw gains outside of some slight weakness in technology stocks, as market participants showing zero fears/concerns heading into this week’s key catalyst, the Federal Open Market Committee (FOMC) interest rate policy meeting on Wednesday. Markets are torn between a 25 or 50 bps cut, but the one constant is that aggressive cuts are coming in the remainder of 2024. Technology (XLK), which helped pace S&P sector gains last week amid a 10% rebound in semis (SOX), was the worst performer in the S&P today (-0.38%) led by shares of Apple (AAPL) amid cautious analyst comments related to its iPhone 16 pre-order sales concerns (see below), which weighed on specific chip suppliers (ARM, QRVO, SWKS) in the phone model. Top sector leaders today were Financials (XLF), Energy (XLE), and Utilities (XLU) which remains the top sector gainer on year (+25% YTD), trading at all-time highs (amid low aggressive rate cut expectations making dividend paying stocks more attractive). The main market focus is the midweek FOMC rate meeting, along with the Bank of England meeting on Thursday and the Bank of Japan on Friday ac central banks take center stage. Market breadth was positive again, with nine of eleven S&P sectors positive. Treasury yields dropped further along with a further decline in the dollar while Bitcoin also ended lower. Gold prices slipped but remained just off all-time highs and oil prices advanced. No major earnings this week, economic data picks up steam late week. The 10-Year Treasury yield falls to new 52-Week low of 3.622% late day and the 1-month Treasury bill now yielding sub 5% for first time since May 2023. The Dow closed at a new record high, and the S&P 500 made it a 6^th straight day of gains.

• The U.S. dollar edged lower as the “carry trade” unwind continues, as the Japanese yen hit its highest level in more than a year vs. the buck (139.76 low before bouncing back above 140), as market participants increasingly expected an oversized rate cut by the Federal Reserve later this week. The move below 140 represented a further drop from the 140.285 end-December low it struck on Friday to levels last seen in July 2023. The Fed’s Sept. 17-18 meeting is the highlight of a busy week that also has the Bank of England and Bank of Japan announcing policy decisions on Thursday and Friday, respectively. Markets now have a 50% chance for either 25 or 50bps on Wednesday.
• Treasury yields have been falling in the run-up to the highly anticipated Fed meeting, particularly as odds stack up for the Fed to get aggressive with a half-point rate cut. Benchmark 10-year yields are down 30 basis points in about two weeks while the shorter-term two-year yields, more closely linked to monetary policy expectations, were around 3.55% and down from roughly 3.94% two weeks ago.

• In Retail: DECK announced approval of six-for-one forward stock split and proportionate increase in authorized common stock; TGT said it is offering consumers savings all season long starting with Target Circle Week, Oct. 6-12, for those who want a head start on holiday shopping and preparing to hire approximately 100,000 additional seasonal workers. UAA price tgt raised to $11 at BMO Capital saying the company’s “Achieve More by Doing Less” mantra could drive “powerful earnings ahead” and in a “blu-sky” scenario shares could climb to about $16.

• In Real Estate/Services: ZG was upgraded from Neutral to Outperform at Wedbush and tgt raised to $80 from $50 saying in addition to the potentially positive catalyst of lower mortgage rates for Zillow’s core brokerage business, Wedbush sees Zillow’s software and services (S&S) initiatives adding to potential upside risk to its estimates.
• In Homebuilders: UBS said they remain Buy rated on LEN and KBH into FYQ3 (June-Aug) financial results, noting since reporting FYQ2 earnings in mid-June, mortgage rates declined ~60bps through FYQ3 and by an additional ~30bps in Sept. Firm says this pull-back in rates has reinvigorated homebuyer activity, corroborated by recent commentary from TOL stating that July was the strongest sales month in its FYQ3 (May-July) with continued strength in Aug.

• In Cruise lines: RCL announces proposed offering of senior unsecured notes to refinance existing indebtedness; CCL earnings preview at Deutsche Bank saying they anticipate that CCL will report FQ3 (August) results within the next two weeks and believes market expectation is for another beat and raise on all key metrics.
• In Casinos & Gaming: Jefferies lowered price tgts in several names (CZR to $51 from $60, GDEN PT $31 from $32, MGM to $51 from $58, LVS to $44 from $45, RRR to $66 from $71 and WYNN to $81 from $87 and said CZR, CHDN are top picks saying mgmt meetings from casino names brings three takes which shape our stock picks: 1) Growth clarity remains a differentiator above all other conditions, 2) Valuation support is assigned by the market to growth-driven stories, 3) M&A would be a valuation catalyst for undervalued names, no deals appear imminent in our view.
• In Leisure products (boating, motorcycle, RVs), Keybanc said following discussions with 30+ leisure vehicle dealers and industry participants, the firm continues to see a softer retail market underpinned by softer Consumer Confidence; broadly, its August checks pointed to softer trends vs July with dealer sentiment remaining largely negative to close out the summer. For RVs (CWH, WGO, THO), August checks point to slightly softer y/y trends vs July (est. ~-MSD% for July, with August down ~-HSD% by its est.); for Marine (BC, MCFT, MBUU), checks suggest a sequential slowdown vs July [July -HSD%, with August showing evidence of sequential slowing (it ests. August down ~-low-teens%) and for ORV, some dealers noted PII rebates helped/are helping them clear through aged inventory in August – overall, KEYB notes checks point to sequential slowdown in August vs. June/July (KEYB ests. August down ~-HSD-LDD%).

• In Oil Services & Services: SLB mentioned positively in Barron’s this weekend saying the world’s leading oil-services company, with operations in 100 countries, is “worth a fresh look”.  Mizuho lowered their commodity price outlook for 2H2024 to 2027+ and reduced NAV-based PTs by ~7%. They say they remain constructive on the U.S. Oil & Gas sector fundamentals despite lowering 2024/25 EBITDA estimates by ~5%/10%, respectively. Upgrade DK to Neutral from Underperform given improved SOTP clarity
• In Utilities: AEE was upgraded to Outperform, and SO downgraded to Neutral (on valuation) at Mizuho noting shares of AEE currently trade at a ~1% P/E discount to the electric utilities group, and Mizuho believes shares can re-rate to a high-single-digit premium. Additional MISO transmission project awards could provide CAPEX upside by year-end. DUK said Piedmont Natural Gas reaches rate case agreement with key consumer and industrial groups in North Carolina.

• In FinTech/Payments: UPST announces proposed private offering of $300,000,000 of convertible senior notes due 2029; AFRM shares edged higher this afternoon as announced that Affirm is now available to eligible users checking out online and in-app with Apple Pay (AAPL) on iPhone and iPad.
• In Monthly credit card Master Trust data: COF reported charge-offs for August of 5.82% vs. 4.55% y/y; and delinquencies 4.35% vs. 4.09% y/y; DFS said credit card charge-off rate 2.48% at August end and credit card delinquency rate 1.67% at August end, much improved from the prior month; JPM reported charge-offs for August of 1.64%, and Delinquencies 0.84%. BAC credit card delinquency rate was 1.43% at August end and NCOs rate were 2.46% in August.
• In Consumer Finance: BTIG downgraded shares of SYF and ALLY to Neutral from Buy following "cautious management updates" last week from Synchrony and other prime lenders. The firm said that while Synchrony is likely the safest, it now has less confidence in credit improvement and purchase volumes due to prime consumer deterioration.

• ASND shares jumped after saying a trial of its experimental treatment for a genetic growth disorder achieved its primary objective; said children in its trial treated with TransCon CNP demonstrated annualized growth velocity superior to a placebo. It also demonstrated statistically significant improvement in other growth parameters. Shares of BMRN declined in sympathy which has a competing drug which was considered superior to the ASND until data was reported.
• AZN immunotherapy Imfinzi, given both before and after surgery, improved survival rates in patients with bladder cancer, results that could reshape how muscle-invasive bladder tumors are treated. The company’s anti-PD-L1 checkpoint inhibitor cut the risk of death by 25% compared to treating patients before surgery with chemotherapy alone.
• BHVN was initiated with a Buy and $57 tgt at Jefferies noting the stock has pulled back ~36% since March this year predominately due to delays/underwhelming initial IgG degrader data. While firms say it does see some risk in N-T read-out & acknowledge Co has high cash burn, at ~$38, it thinks there’s upside for investors.
• BNTX was upgraded to Neutral from Underweight at JP Morgan and raised tgt to $125 from $91 after the company presented multiple updates on its oncology pipeline and JPMorgan is "particularly impressed" by some of the Phase II and Phase I/II data that has been coming out for BNT327/PM8002, the anti-VEGF-A/PD-L1 bispecific.
• INCY presented phase 1b dose expansion data for their CDK2i (INCB123667) in advanced solid tumors (N=205). In PROC (N=37), the ORR was 24.3% across 3 doses. 50mg BID had the highest ORR at 31.3%, but the company noted the 125mg QD (N=10, ORR=20%) data is still maturing.
• NCNA shares surged after saying final data from the study of its asset NUC-7738 in combination with pembrolizumab in patients with metastatic melanoma showed a prolonged progression free survival, a positive disease control rate and a favorable safety profile.
• NUVL (at ESMO conference) shares rose after providing development updates for zidesamtinib and NVL-655 and now expect data from both pivotal studies in 2025. In addition, NUVL plans to initiate ALKAZAR for 1L treatment of ALK+ NSCLC patients in 1H25.
• PFE experimental drug on Saturday showed promise in cancer-related condition (cachexia) that causes weight loss and weakness. On Saturday, Pfizer reported the experimental antibody not only helped cancer patients with cachexia regain some weight versus placebo, but that it also seemed to increase their muscle mass and activity levels.
• ZNTL announces FDA has lifted partial clinical hold on Azenosertib studies and clears resumption of all clinical studies; says on track to meet 2024 data guidance; to resume Azenosertib study activities immediately.

• GH shares fell after competitor/rival EXAS released performance data from a study of its blood-based colon cancer screening test candidate.

• In Materials, Metals & Mining: AA announced that it has entered into a binding share purchase and subscription agreement with Saudi Arabian Mining Company, or Ma’aden, under which Alcoa will sell its full ownership interest of 25.1% in the Ma’aden Joint Venture to Ma’aden for approximately $1.1 billion. Paper and packing stocks got an afternoon pop (IP, PKG, SW) after reports Cascades announces $40/ton Linerboard, $70/ton Medium Price.
• In Industrials: Stifel noted according to recent (AHRI) U.S. heating and cooling equipment shipment data for July showed that total shipments of residential water heaters (residential gas water heater shipments + residential electric water heater shipments) decreased 5.5% m/m and increased 14.6% y/y while total shipments of commercial water heaters (commercial gas water heater shipments + commercial electric water heater shipments) decreased 15.9% m/m and increased 10.0% y/y.
• In Chemicals: MOS said its potash and phosphate operations sustained disruptions that are now expected to reduce Q3 production volumes and shipments/problems include failing electricity, equipment and bad weather that are expected to reduce potash production and shipment volumes by 200-300K metric tons and phosphate by 80-110k. Mizuho modestly reduced ests on DOW, LYB, CE following DOW’s cautious presentation on 9/12, and somewhat cautious meetings recently with LYB , and the relatively bearish World Chemical Forum this week.

• In Software: sector remains strong after ORCL results two weeks ago boosted the industry (though ADBE guidance weighed on its shares last week); NOW trades to new all-time highs around $900.

• Citigroup cut estimates and lower TPs by ~10% on the big 3 AMAT in semi equipment, and downgraded both MKSI and NVMI to Neutral and upgraded ENTG to Buy to add to defensive picks list of KLAC and TER Citigroup said it now sees modest 2025 WFE growth of +5% (~$106B) led by a 10% increase in leading-edge logic (mature down Y/Y), memory -8% Y/Y with domestic China DRAM down international up), and NAND recovery pushed out to 2H25
• INTC was officially awarded up to $3B in direct funding under the CHIPS and Science Act for the Secure Enclave program from the Biden Administration.
• LPL upgraded from Equal Weight to Overweight at Morgan Stanley saying LCD TV pricing power should make a comeback in the sector as China begins significant production cuts, the short cycle is clearly turning.
• LSCC appoints Ford Tamer as its new CEO, effective immediately (replaces Esam Elashmawi, who has served as Interim CEO since June 2024) and reaffirms the guidance it provided on July 29, 2024.