Closing Recap

Wednesday, September 25, 2024

The waiting game continues as investors endure another listless trading afternoon with the S&P and Nasdaq finishing little changed, though the Dow and Russell were weaker ahead of key economic data tomorrow morning. Q2 Final GDP tomorrow est. +3%, Q2 Consumer Spending est. +2.9%, Core PCE for Q2 est. +2.8% (the more recent Aug core PCE data is Friday) all due at 8:30 AM along with Jobless Claims. Later Thursday morning is Pending Home Sales for Aug and KC Fed manufacturing as well. The Dow Jones Industrials pulled back about 300 points from record highs the day prior, led by weakness in AMGN, CVX, and BA, while the Smallcap Russell 2000 Index also lagged as investors rotated back into Technology (XLK) as semiconductors rallied alongside large cap tech META, MSFT, and TSLA. Utilities (XLU) extend gains to record highs and now up 26% YTD, while the biggest drags in the S&P today were Energy (XLE), Financials (XLF), and Healthcare (XLV). Precious metals rise early, with another record high for gold prices (hit highs $2,694.90 an ounce) before paring gains. Overall, stock markets remain very complacent with Volatility index (VIX) falling to lowest levels since end of August approaching 15 to the downside. Market expectations are firmly baked in for: more aggressive rate cuts by the Fed, that inflation expectations are anchored, and the lower rates will help the lagging employment market. No concerns yet heading into U.S. Presidential election either, and/or increased tensions in the Middle East (Israel/Lebanon) and no slowdown in Europe (Russia/Ukraine conflict). Today was another low volume day as markets brace for more impactful economic data tomorrow.

• The U.S. dollar index (DXY) was broadly higher vs. rival currencies, as the euro dipped about -0.4% to $1.1137 while the buck gained against the Japanese yen by around 1% up to 1.4460.
• The US Treasury sold $70B in 5-year notes at high yield 3.519%, in-line with when issued prior as the bid-to-cover ratio was 2.38, and primary dealers take 11.46% of U.S. 5-year notes sale, direct 18.23% and indirect 70.31%.

• Auto Dealers were upgraded at Morgan Stanley: GPI, AN, PAG were all upgraded to Overweight from Equal Weight, while ABG, LAD, SAH all upgraded to Equal Weight from Underweight saying they are less cautious on auto dealers. Prices tgt raised for GPI to $430 from $285, LAD to $310 from $255, PAG to $180 from $115, SAH to $58 from $40, AN to $200 from $145 and ABG to $240 from $190. Morgan Stanley said the dealers have proven resilient with strategic M&A, cost execution, and recurring Parts & Service profit.
• TSLA price target was raised to $310 from $300 at Piper and said is increasing its delivery estimates after examining intra-quarter sales data. For FY24, Piper expects Tesla to deliver ~1.75M units, an increase of ~23,500 units vs its previous estimate. Piper remains Overweight, ahead of Tesla’s Robo-taxi unveiling on October 10th.

• In Beverages: STZ PT raised to $309 from $295 at Barclays after making estimate changes in beer industry saying considering what remains a challenged U.S. beer category, the firm lowered industry volume assumptions by 100 basis points for 2024 and 2025. The summer selling season did little to course correct the U.S. beer industry, with Constellation’s guidance update in early September validating the muted picture painted by scanner data.
• In Food Sector: TSN downgraded from Neutral to Underweight at Piper saying they see more downside risk that does not look priced in. The firm said cattle costs likely get worse before they get better and sees downside risk to unusually favorable beef pricing. Leading indicators point to downside risk to chicken pricing from increasing market supply, and its boost from major chicken efficiencies in early F24 has also largely run its course. In food distribution, Jefferies raises ’25 EPS estimates across the board and continue to prefer SYY, USFD and PFGC saying they compare & contrast Fs distribution to other services industries that have consolidated and believe share gains are likely to accelerate.
• Retail Sales: Adobe forecasted they expect 2024 US online holiday spend of $240.8B, up 8.4%; expect sales for 2024 cyber week, a 5-day period representing 16.9% of full season, to be $40.6B, up 7.0%; expect 2024 holiday season buy now, pay later sales of $18.5B, up 11.4%; said traffic to retail sites from GenAI chat bots doubled in 2024.

• US mortgage market index +11.0% to 296.1, highest since July 2022, in week ended Sept 20, the Mortgage Bankers Association reported. The mortgage purchase index climbs 1.4%, mortgage refinance index climbs 20.3% to 1,132.9 as the U.S. average 30-year mortgage rate falls 2 bps to 6.13% in Sept 20 week.

• In Ride Sharing/Food Delivery: A federal judge on Tuesday declared unconstitutional a New York City law requiring food delivery companies to share customer data with restaurants. U.S. District Judge Analisa Torres in Manhattan ruled in favor of DASH, UBER and Grubhub saying the law violated the First Amendment by improperly regulating commercial speech. Separately, DASH was upgraded to Overweight from Sector Weight at Keybanc with $177 PT after Mobility and Delivery survey. The firm said the survey showed continued consumer intent to increase ride-sharing usage, which it believes bodes well for Overweight-rated UBER and Sector Weight-rated LYFT and walked away encouraged that DASH’s gains in food delivery and growing traction in grocery can sustain MT growth.
• In Casino & Gaming: LNW upgraded to buy at UBS on de-railed share price noting valuation upside compensates for risks. FLUT outlines long-term growth plan saying it expects to more than double its core profit by 2027 and announces up to $5bn share repurchase program authorization.
• Cruise Lines CCL, NCLH, RCL, VIK pressured as Tropical storm Helene forces Royal Caribbean, Carnival, others to make itinerary changes. "Maximum sustained winds are near 35 mph (55 km/h) with higher gusts. Strengthening is expected during the next few days, and the system is forecast to become a hurricane on Wednesday and continue strengthening on Thursday as it moves across the eastern Gulf of Mexico," it added.

• Oil Services: Wells Fargo upgraded oilfield services co BKR to overweight from Equal Weight citing its diversified business model while lowered price targets on peers HAL and SLB to reflect a more muted macro-outlook. Despite a lift Tuesday on China stimulus news, oil prices have been trending lower since the spring. – per Cramer Investing Club Newsletter
• In Latin American Oil & Gas: JP Morgan upgraded PBR to Overweight due to its supportive FCF and discounted valuations, with PBR, PRIO, and Vista as top picks within their LatAm Oil & Gas coverage. Conversely, they downgraded shares of EC to Underweight due to operational setbacks and margin contractions, which are pressuring estimates downward. Finally, recent negative developments, including weak 2Q24 results, Brent weakness, and production growth disappointments, are already reflected in current valuations in our views.
• Utilities (XLU) remain strong, hitting new all-time highs this week as AI drives a surge in power demand. XLU is up over 26% YTD and the top performer in the S&P 500.
• In Transports: railroad UNP was downgraded to In Line from Outperform at Evercore/ISI and cut tgt to $247 saying there appears to be "little upside left" after the stock has been a top performer for the last three months. The firm took down Q3 and Q4 earnings estimates to reflect lower fuel surcharges and unfavorable mix.
• In Industrials: Shares of GNRC, PWR, MTZ, HD, LOW watching as the National Hurricane Center on Wednesday said it expects Hurricane Helene to strengthen into a Category 3 or stronger storm before it makes landfall along Florida’s Big Bend Coast on Thursday. Florida Gov. Ron DeSantis and Georgia Gov. Brian Kemp have declared states of emergency as Helene draws closer to the Gulf Coast and President Biden approved major disaster declarations for the Federal Emergency Management Agency to assist both states.

• In FinTech/Payments: GPN was downgraded by a few analysts (BTIG, William Blair, and Seaport Global) after the company said at its Investor Day yesterday said 2025 was being declared a "transition year". BTIG noted the lack of clarity on the company’s ability to accelerate growth in FY26/FY27 leaves the stock in "no man’s land" for at least the next several quarters. PYPL late day said it enables accounts to buy, hold & sell Cryptocurrency.

• CLDX shares declined following 52-week results for barzolvolimab in chronic spontaneous urticaria.
• EBS disclosed that it has secured about $400 million for this year and next for its portfolio of smallpox and monkeypox vaccine products.
• MRK phase 3 KEYFORM-007 studying its PD-L1 and LAG-3 did not meet its primary endpoint of overall survival (OS) in microsatellite stable (MSS) metastatic colorectal cancer (mCRC), with the study not demonstrating an improvement in OS compared to SoC at the final pre-specified analysis MRK.
• TSVT and partner BMY said they would be discontinuing enrollment in its ongoing Phase 3 KarMMa-9 study studying Abecma in combination with lenalidomide vs. monotherapy in NDMM. Management noted the improved treatment landscape in NDMM as a driver of the change, which is expected to drive $80M in cost savings in the near term.

• In Alzheimer’s Sector: Stifel said they think both ALEC and VIGL offer compelling risk/reward plays ahead of AL002 Alzheimer’s data coming in Q4. Because of the lackluster launch of BIIB’s lecanemab, Alzheimer’s stocks have been out-of-favor, and Stifel said hasn’t seen the typical "run up" trade for ALEC and VIGL, which are sitting at ~$175MM/$100MM diluted EVs, respectively.

• META kicked off its annual Connect conference at its California headquarters on Wednesday, introducing entry-level Quest 3s mixed reality headset at $299.99 and said Quest 3s to go on sale Sept 25 and hit shelves Oct 15; shares rallied following commentary on AR glasses among other products.
• HPE was upgraded to Overweight from Equal Weight at Barclays and the price target on the stock was boosted to $24 from $20 as believes that HPE will continue to grow its AI server revenues, improve in storage, and it likes the accretion from the JNPR deal.
• NOW, OKTA shares pressured as Piper noted earlier this morning, the FBI conducted a raid on Carahsoft headquarters in Reston, VA. In a statement, the FBI confirmed the raid but declined to provide any further comment. Given Carahsoft is one of the largest IT solution providers to the U.S. government and the timing of the raid is very close to the end of the federal fiscal year, they said they believe this has the potential to disrupt deals in the pipeline. Based on their analysis of publicly disclosed federal contracts, they note that NOW and OKTA have the highest portion of federal contract dollars sourced through Carahsoft in their coverage
• PRGS shares rally on earnings as Q3 adj EPS of $1.26 topped consensus $1.14 and revs rose +1.7% y/y to $178.7M vs. est. $176M; said Q3 Software License revenue $57.9M, +14% y/y; guided FY24 EPS $4.75-$4.85 vs. est. $4.76 and revs sees $745M-$755M vs. est. $730M; guided Q4 EPS $1.15-$1.25 vs. est. $1.28.
• SAP shares sunk after Bloomberg reported the company and others were being investigated by U.S. officials for potentially conspiring to overcharge government agencies over the course of a decade. Justice Department lawyers since at least 2022 have been looking at whether SAP illegally conspired with product reseller Carahsoft Technology to fix prices on sales to the U.S. military and other parts of the government https://tinyurl.com/4s8x7ake

• NVDA CEO Jensen Huang completed a trading plan adopted earlier in the year, Barron’s reported yesterday. Huang grossed $713M through stock sales executed by his Rule 10b5-1 trading plan, an average price of $118.83 per share, according to Lin.
• Oppenheimer initiated on semi-caps with ONTO and UCTT at Outperform, CDNS at Underperform, and ICHR, KLAC at Perform ratings. They said their bullish thesis is that scarcity leads to profits: AI compute demand doubles every six months, but hardware performance only every two years, creating a severe, structural shortage of advanced semiconductors and the tools needed to make them.