Mid-Morning Look

Tuesday, December 17, 2024

Ahead of the FOMC central bank policy meeting tomorrow afternoon, where a 25bps cut is widely anticipated, U.S. stocks are pulling back as the Nasdaq retreats from record highs with market breadth negative again. The relentless rally in tech stocks pushed the gauge to a fresh all-time high on Monday as AAPL/GOOGL/AMZN/TSLA/AVGO all reached new record highs. Chip giant and AI leader NVDA has been noticeably absent in the rally, falling for the 4th straight day and 8 of last 9, dipping below its 100dma support of $128 before paring losses. Energy (XLE) extends monthly slide on the open, down 1% now (and down -10% in December so far) while WTI crude oil drops over -2% back below $70 per barrel. Bitcoin prices set new record highs topping $108,000 this morning, up every week since the election in November. Economic data was mixed as retail sales were stronger for November, while industrial production unexpectedly fell vs. expectations of a +0.4% rise.  Markets await the FOMC as the Federal Reserve kicks off its two-day rate-setting meeting today. While the rate cut is “baked in”, the bigger question is whether the resilience of the economy will lead the central bank to take a more cautious approach to policy easing going forward. Benchmark Treasury yields rose above 4.444% (have since pared gains), having settled at 4.397% Monday. In stock news, managed care names (UNH, HUM, CVS) tumble again, semis (NVDA, AMD) slide after rallying Monday, solar stocks (SEDG, SHLS) rebound on positive broker comments, and Materials (XLB) are down a 12^th straight day. The Dow Jones Industrial Average is down for the 9^th straight day led by weakness in healthcare stocks (UNH). Nine of eleven S&P sectors trading lower thus far (staples and healthcare up slightly).

• November Industrial Production fell -0.1% vs. consensus +0.3% and vs Oct -0.4%; Nov capacity use rate fell to 76.8% (consensus 77.3%) from Oct 77.0% (previous 77.1%); Nov manufacturing output +0.2% (consensus +0.5%) vs Oct -0.7% (previous -0.5%); cap use 76.0% vs Oct 75.9%.
• December NAHB Housing market index 46 (consensus 47) versus 46 in November (previous 46); current single-family home sales 48 versus revised 48 in November (previous 49); index of home sales over next six months 66 versus revised 63 in November (previous 64); index of prospective buyers 31 versus 32 in November (previous 32).
• Oct Business Inventories +0.1% (consensus +0.1%) vs Sept unchanged (prev +0.1%) while Oct inventory/sales ratio 1.37 months’ worth vs Sept 1.37 months; U.S. Oct business sales unchanged vs Sept +0.3% (prev +0.3%).

• Machinery & Construction: Morgan Stanley upgraded the industry view to Attractive from In-Line saying they see three debates dominating 2025 stock performance: 1) equipment cycle positioning, 2) valuations, and 3) Trump presidency implications. The firm said it prefers exposure to NA Commercial Vehicles, followed by a troughing Ag OE cycle, but sees US Non-Resi/Construction OE’s as most challenged. MSCO upgraded WSC, CNH, and TKR to Overweight from EW as “value” plays while remain OW on CMI, PCAR, WAB, DE, and MLM and Underweight CAT, TEX, LECO, and DCI.
• In Solar/Alternative Energy: SEDG was double upgraded to Buy from Sell at Goldman Sachs with $19 tgt believes estimates are now finally bottoming for SEDG. Goldman notes its Buy thesis comes on the heels of being negative on SEDG for the better part of the past year, as the US resi solar cycle churned through a challenging downturn, and Europe solar demand (as well as inventories) proved to have more downside than it anticipated. SHLS was upgraded to Overweight at Morgan Stanley citing increased confidence in the earnings outlook heading into 2025.
• In Energy: KOS shares bounced after walking away from its plan to buy West Africa-focused Tullow Oil saying it does not intend to make a firm offer for Tullow at this time. The announcement comes less than a week after KOS revealed it was in early talks for an all-share acquisition of Tullow. In Research, Wells Fargo downgraded APA to Equal Weight from Overweight (tgt to $25 from $42) as the firm favors gas equities in 2025, saying the favorable fundamentals for gassy exploration and production companies s are well known but still favorable. Wells upgraded both AR to Equal Weight from Underweight and EOG to Overweight from Equal Weight with a price target of $150, up from $147.

• EHTH +29%; shares jumped after forecasts FY loss $12.0M to profit $3.0M, vs. est. loss $30.7M and raised its FY total rev to $500-$520M from prior view $470M-$495M
• KOS +11%; after walking away from its plan to buy West Africa-focused Tullow Oil saying it does not intend to make a firm offer for Tullow currently. The announcement comes less than a week after KOS revealed it was in early talks for an all-share acquisition of Tullow.
• PFE +4%; said it sees FY EPS of $2.80-$3.00 vs consensus estimates of $2.88 per share and forecasts 2025 revenue in the range of $61B-$64B vs. estimates of $63.26B; expects an additional $500M in savings in 2025 from an ongoing cost realignment program.
• QUBT +22%; as quantum computing stocks extend gains; announced that the Company has been awarded a prime contract by the National Aeronautics and Space Administration’s (NASA) Goddard Space Flight Center.
• RMTI +14%; entered a supply pact with a provider of dialysis products and services.
• SHLS +14%; was upgraded to Overweight at Morgan Stanley citing increased confidence in the earnings outlook heading into 2025.
• TSLA +2%; Mizuho upgraded to OP with $515 PT as believes Tesla’s autonomy software stack is improving towards broad commercialization, sees a loosening regulatory framework positioning the autonomous segments for upside

• AVGO -6%; pulling back after surging over more than 30% last few days on earnings to record highs.
• EVGO -27%; after an affiliate of LS Power Equity Partners to sell 23M shares of stock, priced at $5.00 per share (LS Power owns 195.8 mln shares for 66.5% stake).
• HUM -3%; as pressure continues in managed care/Medicaid names.
• NUE -2%; sees Q4 EPS of $0.55-$0.65 below consensus of $0.87 (follows lower guidance from comp STLD the day prior in steel sector) saying they don’t expect a sequential increase in earnings of the raw materials segment in Q4.
• NVDA -3%; falling for the 4th straight day and 8 of last 9.
• RVPH -43%; as 12M share Spot Secondary priced at $1.50