Closing Recap

Thursday, September 19, 2024

Enthusiasm was bubbling over on Wall Street Thursday, as yesterday’s late day pullback following the FOMC first rate cut since 2020, an outsized cut of 50-bps usually reserved for difficult market times, was stopped in its tracks, as stocks surged overnight and extended throughout the trading day with a 3% spike for the Nasdaq (at its peak) and the S&P and Dow both closing at new all-time highs. The rally was broad with a market breadth 4:1 margin with advancers leading, but heavily market weighted tech stocks certainly played a big role (XLK +3% XLY +2.5% XLC +1.7%). The Dow topped 42,000 for the first time, the Nasdaq pushed back above 18,000 for the first time in about a month and the S&P 500 (SPX) topped 5,700, while the Smallcap Russell 2000 outperformed as well. Markets feel the Federal Reserve’s 50 basis point interest rate cut this month will encourage monetary easing across emerging markets in coming months and push stocks even further. While the S&P 500 and Dow Jones Industrial Average each closed at fresh all-time highs, the Nasdaq, which outperformed rising +3% or over 500 points topping 18,100 midday, is still less than 600 points off its all-time highs of 18,671 on July 11^th.

Any caution warranted? Well, the U.S. central bank’s decision to cut interest rates by 50bps leaves open the risk of a resurgence in inflation, a former Kansas City Federal Reserve president said on Thursday. “They are gambling that they have inflation under control,” Thomas Hoenig told the Reuters Global Markets Forum. Interesting times for sure as Fed Chairman Powell repeatedly talked about how the economy was strong in his Q&A the day prior, despite delivering the aggressive rate cut (not normally seen as a move during strong times historically). Bespoke invest tweeted: “The Russell 2000 is up 7 days in a row. That’s the longest winning streak since March 2021, and there hasn’t been an 8-day winning streak since February 2019.” Market momentum remains strong, and no fear in sight with CBOE Volatility index (VIX) falling again under 17. BMO Capital Markets on Thursday said it was raising its S&P 500 target for 2024 to 6,100 from 5,600. Lots of optimism!

In other central bank news, the Bank of England said it would hold interest rates steady following its initial cut in August, even after the U.S. Federal Reserve opted for a jumbo rate cut the day before. The Monetary Policy Committee voted by 8 to 1 to hold, with the dissenting member voting for a 25-bps cut. A “gradual approach” to monetary easing remained appropriate, with services inflation remaining “elevated,” the committee said. Tonight, we get the Bank of Japan (BoJ) central bank meeting as market consensus is for them to stand pat, more in a wait-and-see mode after surprising with a rate cut recently. Note tomorrow is both triple witching and a major rebalance of S&P indexes and Nasdaq 100.

• August Existing Home Sales reported at 3.86M unit rate, down -2.5% vs. consensus 3.90M vs July 3.96M (prev 3.95M); Aug inventory of homes for sale 1.35M units, 4.2 months’ worth; the August national median home price for existing homes $416,700, +3.1% from Aug 2023.
• The Philadelphia Fed factory index rose to 1.7, slightly above consensus est. 0.0, while Fed prices-paid index 34.0 vs 24.0, Fed employment index at 10.7 vs -5.7, prices-received at 24.6 vs 13.7, new orders index at -1.5 vs 14.6.
• The Q2 current account balance (-$266.8B) vs. consensus (-$260.0B) and vs Q1 balance (-$241.0B).

• In Restaurants: Olive Garden and LongHorn Steakhouse parent DRI reported Q1 EPS of $1.75 missing the $1.83 consensus estimate citing weaker traffic, with revs of $2.757B missing the $2.8B estimate, but backed guidance for the full year. Q1 same-restaurant sales were down (-1.1%) vs. est. decline of (-0.3%). Darden also announces delivery partnership with UBER set to begin with its Olive Garden restaurants in late 2024. CBRL also reported a top and bottom line Q4 miss while guided midpoint of Fy25 revs in-line with consensus.
• In Discount Retail: FIVE downgraded to Underweight at JP Morgan with $95 price target saying recent fieldwork is pointing to Q3-to-date same-stores-sales through mid-September being down low-single-digits, with August comps down low-single-digit; dollar stores DG, DLTR were lower, underperforming broader market strength.
• In Convenience Stores: MUSA and CASY both downgraded to Underweight from Neutral at JP Morgan saying valuation looks stretched.

• In Homebuilders: seeing strength in homebuilders again, with several hitting all-time highs again amid the aggressive 50-bps rate cut yesterday by the Fed, potentially bringing mortgage rates lower and increase demand for housing; note LEN expected to report earnings after the close tonight (KBH next week).

• In Ride Hailing/Food Delivery: DASH was upgraded to Buy from Neutral at BTIG saying its checks signal continued strength, while touting under-appreciated longer-term drivers.
• In Movie Theatres: The largest theater chains including AMC, Regal, CNK will invest more than $2.2B over the next three years to upgrade theaters in the U.S. and Canada. Improvements will be made by the eight biggest theater chains in the region, representing over 21,000 screens and 67% of box office sales – says the National Association of Theatre Owners.

• In Metals & Mining: U.S. Steel (X) forecasts Q3 adj. EBITDA $300M the mid-point of prior forecast $275M to $325M and compared to consensus of $305.8M, while forecasts Q3 adj EPS $0.44–$0.48 vs. est. $0.41 saying they are experiencing a softening demand environment in Europe.
• In Chemicals: Goldman Sachs modestly lowers its FY24-26 EBITDA estimates for Chemical stocks (TROX, LYB, WLK, DOW, OLN) to reflect a weaker volume outlook driven by lower Chinese consumption and softer than expected volume/pricing mix, plus the recent decline in oil is leading to some inventory destocking
• In Lithium sector (ALB, LIT, ALTM, LAC, SQM): Keybanc provides an update on lithium production and consumption trends in China in August 2024. The firm said lithium producers in China continue to lower their output given the declines in lithium prices and demand is accelerating into the seasonally stronger Q4. Lithium production (carbonate and hydroxide) in China fell 5% m/m but rose 32% y/y. YTD lithium production in China is up 36%, higher than both domestic EV sales (+35%) and NEV production (+28%).

• In Insurance: ALL announced estimated catastrophe losses for the month of August of $272M or $215M, after-tax, including favorable reserve re-estimates for prior period events. Catastrophe losses for August include 15 events estimated at $306M, with approximately $75Mn related to a hail event in Calgary, Canada. Total catastrophe losses for July and August were $814M or $643M, after-tax.
• In Mortgage REITs: Raymond James said given the recent appreciation of some mortgage REITs and potential impacts of expected lower interest rates, they adj ratings, estimates, and price targets. With lower rates likely to drive increasing investment opportunities for SAFE, they upgraded to Outperform while downgraded LFT and NREF to Market Perform, as it believes the risk-reward is more balanced at current valuations. Raymond James is increasing price targets on ABR, FBRT, KREF, MFA, and RWT given expected benefits of lower rates, such as increasing new investment opportunities.
• In FinTech/Credit Cards: MA said its Mastercard SpendingPulse forecasts U.S. retail spending ex: Auto, to grow 3.2% YoY, from Nov 1 through Dec 24. PYPL making 52-week highs as lower borrowing costs/low rates seen a boon to lending, card related stocks which were broadly higher (SQ, AFRM etc.). Bloomberg reported WMT plans instant bank payments, cutting out card networks; partners with FI for upgraded pay-by-bank option (weighed on shares of V, MA).
• REITs in general slipped as Treasury yields climbed despite the Fed announcement of a 50-bps rate cut yesterday. Real estate stocks are among the worst-performing stocks in the S&P 500, despite the broader market rising to an all-time high and topping its key 5,700 level. Shares of VTR, SBRA, AMT, CCI, O, WELL were among top decliners.
• Crypto related stocks jumped following the 50-bps rate cut by the Fed boosted risk appetite, adding to the recent momentum in the space as Bitcoin rose over 5% topping $63,000. Shares of MSTR, COIN advanced along with digital asset miners RIOT, MARA, CLSK, and others.

• EWTX shares soared as reported top-line data from its Ph1 + Ph2 studies in HCM, with patients in the Ph2 CIRRUS-HCM Part A seeing a 67% mean reduction in resting LVOT pressure gradient (LVOT-G) and a 55% mean reduction in provokable (Valsalva) LVOT-G were observed in patients receiving the 100 and 200 mg single doses.
• HALO downgraded to Neutral from Overweight at JP Morgan on valuation saying after a bumpy start to the year from a stock performance standpoint, shares have strongly outperformed YTD and are now up 69% this year vs the NBI and XBI up 11% and 13%, respectively.
• VNDA shares dropped after saying the FDA declined to approve its stomach paralysis drug, Tradipitant, suggesting that Vanda conduct additional studies; VNDA plans to submit separate marketing application for Tradipitant to prevent vomiting during motion sickness later this year.

• In Medical Equipment: QDEL assumed coverage to Neutral (up from Sell prior) at UBS and PT to $50 (from $42) saying they see outsized margin expansion opportunities balanced with limited growth upside across portfolio. AXNX noted a jury agreed that its R15 neurostimulation system did not infringe MDT patents related to its own devices, which are used to treat incontinence and overactive bladder.
• In Medical Supplies: ABT was initiated at Buy at Piper and $131 PT saying while execution has been strong, shares have underperformed YTD due to the ongoing NEC litigation, which has been an overhang. Piper doesn’t see much top-line risk associated with the litigation, and it believes the Street is already pricing potential damages into the stock.
• In the Insulin sector: TNDM shares rose after saying its insulin pump t:slim X2, was cleared for use with LLY’s fast-acting insulin Lyumjev® in the European Union. The pump is currently cleared for use with Lilly’s Humalog and NVO’s Novolog/NovoRapid U-100 insulins globally.

• In Car Rental: Baclay’s launches coverage of the public US car rental stocks as CAR initiated Equal Weight ($105 PT) and HTZ at Underweight ($3 PT) saying the rental car industry at crossroads, determining whether ’21-’23 strength enduring; they see pricing discipline & asset utilization improvements as sticky, but must be proven; said they are below consensus on ’25 amid elevated depreciation, pricing q’s on potential overfleeting.
• In Rails: UNP says it sees annual share repurchases of $4B to $5B over the next three years starting in 2025, said expect annual capital investments of roughly $3.5B to $3.7B over next three years; forecasts revenue (ex: fuel surcharge revenue) to grow faster than volume (excluding coal) over next 3 years.

• In Media & Advertising: Wells Fargo initiated LAMR with an Equal Weight and $132 tgt saying Digital OOH stands to gain share as it’s currently a $3B market vs ex-OOH digital at ~ $240B and TV at ~$65B while they assumed/downgraded CCO to Equal Weight w/ $1.75 PT (from $2.75) as thinks Europe-N is facing challenges to transact, and without inorganic deleveraging it’s tough to see a rerating. Deleveraging thesis pushed out.