Market Review: September 24, 2024

Closing Recap

Tuesday, September 24, 2024

Index

Up/Down

%

Last

DJ Industrials

83.57

0.20%

42,208

S&P 500

14.36

0.25%

5,732

Nasdaq

100.25

0.56%

18,074

Russell 2000

3.72

0.17%

2,224

 

 

 

 

 

 

 

 

 

U.S. stocks and most commodities finished higher after the People’s Bank of China (PBoC) unveiled a raft of measures aimed at stimulating the Chinese economy, which further boosted global stock market sentiment. U.S. stocks opened in positive territory, pulled back over the next hour (SPX dipped just below 5,700 before recovering), but as has been the playbook, rallied the remainder of the day to finish at fresh all-time highs for the S&P 500 and Dow Jones Industrial Average. Market gains were led by sectors seen to benefit from an improved Chinese economy including Industrials, Materials, and Discretionary (casinos, and luxury retailers with exposure to China) while Financials, Utilities, and Healthcare lagged. The China stimulus package included an imminent reduction in the RRR for major banks by 50bps to 9.50% with heavy hints of a follow on move of the same magnitude before the year is out, relending facilities to allow commercial banks to lend to funds to support stock prices, and a reduction in existing mortgage rates. The PBoC also cut the 7day RR by 20bps from 1.70% to 1.50%. Asian markets’ reaction was overly positive as the Nikkei Index advanced 216 points to 37,940, the Shanghai Index surged 114 points or 4.15% to 2,863, and the Hang Seng Index jumped 753 points to 19,000.

 

Stocks traded in a narrow range all afternoon, as markets continue to await key economic data later this week including GDP data on Thursday and monthly PCE and core PCE inflation data Friday as well as income and spending data.  Overall, stock markets just keep climbing (even during historically weak periods), but market data gives mixed signals as @KobeissiLetter notes: Current situation: 1. Stocks are rising like a “soft landing” has happened, 2. Gold is rising like we are in a major economic crisis, 3. Bonds are falling like the Fed is done cutting rates, 4. Real estate prices are rising like rate cuts just started, 5. Oil prices are falling like demand is disappearing, and 6. Natural gas prices are rising like demand is growing. Nothing adds up here.”

Economic Data

  • September Consumer Confidence index drops to 98.7 from August upwardly revised 105.6 (previous 103.3) and came in below the consensus for 104 reading.
  • Richmond Fed composite manufacturing index drops to -21 in Sept vs -19 in August while Richmond Fed manufacturing shipments index -18 in Sept vs -15 in August.
  • S&P CaseShiller CoreLogic data showed US July 20-metro area home prices +5.92% (consensus +5.9%) from year ago vs +6.5% in June; July home prices in 20 metro areas +0.27% seasonally adj (consensus +0.4%) vs +0.47% in June and July 20-metro area home prices non-adjusted +0.04% vs +0.61% in June.
  • U.S. home prices +0.1% in July from June; U.S. home prices index 425.2 in July; U.S. home prices +4.5% in 12 months through July – as per US regulator.

Commodities, Currencies & Treasuries

  • Treasury markets were under pressure initially, as the 10-year yield interestingly (until today) has been “higher” every day since the Fed cut rates last Wednesday, rising as much as 15 bps from 3.65% up to 3.81% high this morning. But after the weaker economic data, bonds have rallied and yields easing with the 10-yr back to 3.73%. This afternoon, saw an average auction as the U.S. Treasury sold $69B of notes at high yield 3.520%, in-line with the when issued prior as the bid-to-cover ratio 2.59 below prior 2.62% and primary dealers take 12.79% of U.S. 2-year notes sale, direct 19.62% and indirect 67.59%. Note 5- and 7-year auctions follow on Wednesday and Thursday.
  • U.S. WTI crude oil futures rose $1.19 or 1.69% to settle at $71.56 per barrel while Brent Crude futures settle at $75.17/bbl, rising $1.27, or 1.72% as commodity prices benefit from news of China stimulus to boost its economy. Gold making new record highs yet again, up another $24.50 of over 0.9% to settle at $2,677.00 an ounce, as commodities got a big boost behind China stimulus measures boosting the space.
  • The U.S. dollar index (DXY) slumped again, falling back near par as the euro and yen climb further. The dollar was weak heading in the Fed meeting on expectations of rate cuts and has continued the downward momentum since on expectations of more aggressive rate cuts in coming months.

 

Macro

Up/Down

Last

WTI Crude

1.19

71.56

Brent

1.27

75.17

Gold

24.50

2,676.00

EUR/USD

0.0052

1.1164

JPY/USD

-0.18

143.41

10-Year Note

-0.002

3.736%

 

Sector News Breakdown

Retail, Consumer Staples & Restaurants:

  • Luxury retailers such as Burberry (BURBY), Kering SA (PPRUY), LVMH (LVMUY), Richemont (CFRUY) and US based RL, TPR, and others in sector benefitting from the China stimulus measures meant to boost its economy. Beauty names with exposure to China such as EL also so a bounce in shares.
  • In Food & Beverages: Danone (DANOY) offered to buy all the outstanding shares of LWAY that it doesn’t already own for about $283.4M; as of August 6, Danone had about 14.8 million outstanding shares, of which about 23%, or 3.45 million, are already owned by Danone, a Paris-based food and beverage company. https://tinyurl.com/43tdfpra
  • In Restaurants: SBUX downgraded to Underperform from Hold at Jefferies and cut tgt to $76 from $80 saying while the new CEO suggests necessary strategic change is now on the table, BAML believes execution will be challenged as issues like ops, culture, value perception and tech take time to fix.
  • In Warehouse: WMT was upgraded to Buy at Truist and raised tgt to $89 from $76 noting Wal-Mart continues to gain share across income levels, due to its focus on price, convenience and assortment. Says the combination of accelerating share gains, the scarcity value of an offensive and defensive mega-cap and a structurally more profitable company should command a far higher-than-historical valuation. Truist also downgraded COST to Hold from Buy saying changes like the shift towards scanning IDs on entry and packaging changes to their chickens could add some sales headwind.

Homebuilders, Building Products, Home Furnishing:

  • In Home Improvement Retail: LOW was upgraded to Outperform at Oppenheimer (remain Perform rated on HD) and raised tgt to $400 from $335 as assumes a somewhat more constructive stance on home improvement retail and shares of leading chains. Prospects for demand trends within home improvement retail and at leading operators will gradually solidify and return to normalized expansion algorithms as lower lending rates spur improved housing activity. Both HD and LOW each touched 52-week highs today.

Autos, Leisure, Gaming & Lodging:

  • In Electric Vehicles: Chinese EVs NIO, LI, XPEV all jumped following China central bank stimulus action; TSLA adds to recent gains ahead of October 10th Robotaxi event, upside momentum, and into monthly delivery data.
  • In RV/Towable sector: THO reported Q4 EPS $1.68 on sales $2.53B topping consensus $1.30/$2.47B; but guides FY25 EPS $4.00-$5.00 well below consensus $6.35 and guides FY25 revenue $9.0B-$9.8B below consensus $10.45B; said anticipate that the RV market will continue to be challenging throughout our fiscal year which ends on July 31, 2025
  • In Auto Retail: AZO miss across the board as Q2 EPS $51.58 missed consensus of $53.53, while revs were in-line with ests at $6.2B; margins weaker for Q2 at 52.5% vs. est. over 53% and overall comparable sales +0.7% vs. +4.5% y/y (est. +1.45%) and Domestic comp sales +0.2% vs. +1.7% y/y, (below est. +1.15%).
  • In Ride Sharing: Raymond James initiates coverage in sector with a Strong Buy and $90 PT for UBER saying its view that the Uber AV narrative will swing from perceived risk from Robotaxi (est. ~2% of bookings in Top U.S. 25 markets assuming Waymo 1P at 20% market share) to tailwind. They also initiated DASH at Outperform and $155 PT while Neutral rated on CART and LYFT.
  • In Casino & Gaming: LNW shares fell after saying it had received an order from the US District Court for the District of Nevada granting gambling machine manufacturer Aristocrat a preliminary injunction relating to L&W’s Dragon Train game. Shares of Casino operators rise on China’s stimulus plans as China unveils wide-ranging stimulus measures to boost its flagging economy – shares of MLCO, WYNN, LVS which have substantial casino properties in Macau, leading to major dependence on Chinese customers for revenue rallying.

Energy

  • In Energy: The U.S. Federal Trade Commission is expected to greenlight U.S. oil producer CVX purchase of HES as soon as this week, two people familiar with the matter said, leaving XOM challenge to the $53 billion deal as its final hurdle, Reuters reported. https://tinyurl.com/35s28u3y . Redburn downgraded both XOM and BP to Neutral saying a deteriorating demand outlook, especially in China, coupled with robust non-OPEC+ supply growth means Redburn thinks OPEC+ will need to further delay the unwind of voluntary cuts. Redburn lowers its 2025+ oil price assumption from $80 to $75/bbl to reflect a looser market with higher spare capacity.
  • In Power/Nuclear/Utilities: TLN price tgt raised to $210 from $165 at Oppenheimer saying believes the continued need for reliable power and the increased appetite demonstrated by the hyperscalers could provide a multi-year tailwind to TLN. In Utility, HE 54.05M share Spot Secondary priced at $9.25 for $500M in gross proceeds as the company raised equity to fund part of Maui wildfire settlement. Shares of SO, SRE, PPL, NI, GEV, CMS, AEE among Utilities making new 52-week highs today.

Financials

  • In Credit Cards: Visa (V) shares slipped after Bloomberg News reported that the US Justice Department is set to file a lawsuit as soon as Tuesday accusing the payments company of illegally monopolizing the US debit card market.
  • In REITs: Banc America downgraded ESS to Neutral from Buy but raised tgt to $321 from $307; lower estimates are offset by lower cap rates saying data suggests Coastal markets have weaker job opening trends than the Sunbelt as well as a softer-than-expected job market. INVH also downgraded to Neutral saying lease rate growth is underperforming its peer (AMH), is concerned that supply would remain a pain point in 2025, and INVH may have overpromised on 2H24 results.

Biotech & Pharma:

  • BIIB and partner UCB said their experimental lupus treatment met the main goal of a late-stage trial; said the drug, dapirolizumab pegol, when given along with other standard of care treatments, showed significant reduction in disease activity compared to placebo
  • BLUE announced several initiatives to reduce cash operating expenses by 20% when fully realized in 3Q25, including a 25% reduction in its workforce. The company noted there have been 41 patient starts across BLUE’s portfolio, up from 27 in mid-August, with an anticipated 40 patient starts in 4Q24
  • BNTX was upgraded to Overweight from Equal Weight at Morgan Stanley as they add sales for BNT327 (PDL1-VEGF bispecific) for cancer to its model (2035 risk adjusted sales of €5.1B or ~63% of total revs) and its PT goes to $145 from $93. Post COVID the company has been investing to develop an Oncology pipeline.
  • REGN shares fall a second day after yesterday a judge denied motion for injunction in a patent case with AMGN Amgen – today was downgraded at Leerink.
  • WVE reported preliminary results from an early study of its RNA-based treatment for Duchenne muscular dystrophy amenable to exon 53 skipping.

Healthcare Services & MedTech movers:

  • In Hospitals (CYH, HCA, THC, UHS): TD Cowen notes August 2024 hospital revenue growth of +4.3% y/y decelerated (-560bps) seq (-430bps net seq calendar drag). Removing an est. (170bps) y/y calendar headwind, adjusted growth was +6.0% y/y and decelerated (130bps) seq. The 3-month avg unadjusted and adjusted were both down (50bps) seq.
  •  In Medical testing/Equipment: NEO said a new version of its RaDaR molecular residual disease (MRD) test has cleared the feasibility stage, and that patent litigation brought by NTRA regarding the NeoGenomics RaDaR 1.0 test has been resolved.

Industrials & Transports

  • In Industrial/Power: shares of GNRC along with E&C stocks MTZ, PWR, and home improvement retail (LOW, HD) shares active – watching potential tropical cyclone (PTC 9), expected to become major hurricane before approaching Florida gulf coast Thursday.
  • In Machinery: DE shares active after Donald Trump said yesterday in Pennsylvania if elected President, would look to put tariffs on the company if they moved to manufacturing business to Mexico. He said yesterday, “I’m just notifying John Deere right now, if you do that, we’re putting a 200% tariff on everything you sell into the US." CNH was upgraded to outperform from market perform at Raymond James

Aerospace & Defense

  • In Aerospace & Defense: AIR reported Q1 EPS beat of $0.02, top-line growth of 20% y/y (6% organic), OEM aero distribution was a standout, USM was lower, while Government offerings returned to strong growth. TGI was double downgraded from Buy to Underperform at Bank America and tgt cut to $12 from $17 saying positive changes are being overshadowed by TGI’s reliance on uncertain aircraft production rates by Boeing and Airbus. HII Reiterate Buy at TD Cowen but lowering expectations again, into the Q3 print as pared its C24 FCF by $500MM, as it’s unlikely that HII will finalize contracts by 12/31 for the 17 submarines under negotiation with the Navy.

Materials, Metals & Mining

  • In Metal stocks such as copper (FCX, SCCO, TECK), aluminum (AA, CENX), iron ore (CLF, VALE, BHP, RIO) and gold miners (AEM, NEM, GOLD) on China’s stimulus measures
  • In Chemicals: Ag chemical NTR was downgraded to Equal Weight from Overweight at Wells Fargo and cut tgt to $50 from $62 saying ahead of Q3 results, the firm see risks of lower crop prices setting the stage for muted earnings growth in 2025, with significant bifurcation within the sector.

Internet, Media & Telecom

  • In Internet: SNAP announced plans to integrate GOOGL’s Gemini AI into the Snapchat AI chatbot; shares of Chinese Internet related names BIDU, PDD, JD, NTES and others all rallying behind China stimulus measures.
  • In Music: SPOT shares got a bounce after TikTok is closing its music service, just two years after parent company ByteDance set its sights on taking on streaming giants Spotify and Apple Music. TikTok Music will close Nov. 28, the company said Tuesday on its website. GOOGL’s YouTube Premium subscribers are reporting price hikes around the globe. YouTube is telling Premium subscribers outside the US that they’ll be paying more for the service soon, social media users began reporting over the weekend https://tinyurl.com/37xtpcp6 (WMG, SPOT, UMG moved in reaction)
  • In Media: John Malone’s media company LBRDA said Monday it was considering an all-stock merger with CHTR. A merger would consolidate two public companies in which Malone holds significant interests. He holds a 49% voting stake in Liberty Broadband; Liberty in turn has a 26% interest in CHTR https://tinyurl.com/56bmnhay . In video games, Benchmark noted Former Rockstar Games technical director, Obbe Vermeij, suggested that a decision on whether to delay GTA 6 (TTWO) might not be made until May 2025, around four months before its anticipated release

Hardware & Software movers:

  • CRM was upgraded to Overweight from Equal Weight at Piper and raised PT to $325 from $268 based on a favorable risk-reward given the potential for FCF per share to double to $20+ by F2029 (CY28) from $9.65 in F2024 (CY23), even if top-line growth remains at subdued levels of 8-9%.
  • JAMF announced the appointment of David Rudow as CFO, replacing Ian Goodkind, effective November 28th; also reaffirmed Q324 and 2025 guidance.
  • SMAR to be acquired by Blackstone and Vista Equity Partners for $8.4B as Smartsheet shareholders to receive $56.50 per share in cash; to get termination fee of $500M if deal terminated under some conditions.
  • SNOW announces proposed private placement of $2.0B of convertible senior notes; said expects to use net proceeds from offering to pay cost of capped call transactions.

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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.