Mid-Morning Look

Monday, December 16, 2024

U.S. stocks broadly higher to kick off the week after ending mixed on Friday, as strength in tech again boosting major averages. New day, same results as a handful of heavily weighted stocks in the S&P 500 and Nasdaq continue to keep major averages steady/higher as Technology (XLK), Communications (XLC) and Consumer Discretionary (XLY) the early winners (up +2.7%, +3% and +6.45% month-to-date respectively) thanks to gains in AAPL, AMZN, GOOGL, META, NFLX, and TSLA, with all hitting all-time highs several times in recent days (though NVDA hits 2-month lows, as investors rotate into AVGO, MU which boost semis). Note roughly 31-32% of the S&P 500 is concentrated on 7-stocks so as long as mega cap tech names continue their meteoric rise, major averages remain afloat. On the flip side, Materials (XLB) come into the day with a 9-day losing streak and Industrials (XLI) down 6-straight days and Energy (XLE) down 6 of last 7 days. Market sentiment remains strong ahead of this week’s FOMC policy meeting where a 25-bps cut is widely expected. Markets are also generally strong the last 2-weeks of December (Santa Claus rally) and investors have shown zero fear despite high stock market valuations and geopolitical uncertainty. Europe was lower on PMI data and credit rating cut on France while Asia also slipped overnight following underwhelming economic data. The focus this week is on the Fed’s anticipated 25-bp rate cut during Wednesday’s policy meeting, as inflation is seen sufficiently contained to support further easing. Treasury yields have surged over the last three weeks (10-yr 4.38%), but again no impact on stocks. Bitcoin prices reach new all-time highs above $106,000 as risk assets continue to surge.

• S&P Global December flash manufacturing PMI at 48.3 (vs 49.7 in November), S&P Global December flash composite PMI at 56.6 (vs 54.9 in November) and S&P Global December flash services PMI at 58.5 (vs 56.1 in November).

• In Healthcare Facilities: USPH upgraded from Neutral to Buy at Bank America and raise tgt to $115 from $100 as it sees a path of recovery from the recent labor pressure. In addition, the company is back in the acquisition mode, an important element of the company’s growth story. In Hospitals, UHS was downgraded to Neutral from Buy at Goldman Sachs (tgt to $198 from $228), and THC to Neutral from Buy (tgt to $140 from $196) saying amid rising policy uncertainty, with a wide range of potential outcomes, the firm is taking a more cautious view on healthcare providers, while upgrading LFST to Buy from Neutral as believes LifeStance’s continued operational execution will continue in 2025.
• In Telecom & Media: NFLX was downgraded from Buy to Hold at Loop Capital but raised tgt to $950 from $800 saying reasons they upgraded the stock almost 16 months ago are largely factored into the stock and the shares are now approaching fair value. Morgan Stanley assumes Overweight on T (Top Pick) and TMUS as sees growth driving outperformance, led by product leadership in fiber at T and wireless at TMUS, while downgrading CMCSA to EW from Overweight as expects cable to face challenging broadband trends and EBITDA growth in ’25.

• AVGO +9%; building on Friday +24.43% gains after earnings/guidance results lifted shares.
• CPRI +5%; shares bounced on a report in Women’s Wear Daily that the company is exploring the sale of Versace, Jimmy Choo, saying bankers and would-be buyers are talking about what comes next for the brands.
• EWTX +14%; said an experimental drug designed to prevent muscle damage achieved the primary goal of a study involving participants with Duchenne muscular dystrophy, a rare neuromuscular disorder.
• HON +3%; after saying it’s considering strategic options, including the possible separation of its aerospace business, a month after Elliott Investment Management called for a breakup of the industrial group.
• MSTR +3%; after being added to the Nasdaq-100 Index effect before the market opens on Dec. 23.
• TER +4%; was upgraded to Overweight at JP Morgan as improvements in the VIP ASIC TAM, Memory TAM, as well as Mobility TAM will in aggregate put the company in a much better position to achieve its 2026 targets.
• VRDN +26%; said its drug, veligrotug, helped to significantly relieve symptoms when tested in patients with chronic thyroid eye disease (TED) during a late-stage trial; the company plans to submit a marketing application for U.S. approval in the second half of 2025.

• ENVX -9%; after saying CFO Farhan Ahmad has left the company and that a search is underway for his successor.
• F -3%; was downgraded to Underperform at Jefferies on broad concerns ranging from inventory overhang to looming strategic decisions on European presence and a widening Gap between warranty provisions and related cash outflows.
• FHTX -3%; said it will discontinue independent development of its experimental drug, FHD-286, to be used in combination with chemotherapy medication in patients with a type of blood cancer after an early-stage trial (the ORR) did not meet the company’s threshold to continue development by Foghorn alone.
• SMCI -3%; after the announcement that the stock is to be removed from the Nasdaq 100 in the annual reconstitution of the index.
• STLD guided Q4 EPS $1.26 to $1.30, below est. $1.62 saying profitability from the company’s steel operations is expected to be meaningfully lower than sequential Q3 results, based on lower average realized pricing, seasonally lower shipments, and an unplanned outage at the Company’s Butler Flat Roll Division.