Mid-Morning Look

Friday, December 22, 2023

U.S. stocks starting the official Santa Claus rally strong with gains across the board following another round of decelerating inflation data. The Santa Claus rally is defined as the last 5 days of the year + first two of next as Bob Pisani notes the average S&P gains is +1.3% during this stretch historically. Stocks are adding to strength (now on track for 8-straight weeks of gains for the S&P, Dow, and Nasdaq) as prices fell in November for the first time in more than three years, the latest sign inflation is easing and moving towards the Federal Reserve’s target. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, declined -0.1% from the previous month, its first decline since April 2020. It rose 2.6% on the year (less than forecast). Excluding the volatile categories of food and energy, prices rose 0.1% over the month and 3.2% from a year earlier. 10:00 AM data showed improved sentiment, in-line inflation expectations and much weaker new home sales. Nearly all eleven S&P sectors were higher again on strong breadth with Consumer Discretionary (XLY) lagging on a weaker outlook for Dow component NKE last night while Energy, Utilities, and REITs were among leaders. So in the week, the inflation data and calls for aggressive rate cuts in 2024 by the Fed has trumped the weaker outlooks from Nike and Fed-Ex this week (both good reads into consumer spending) as investors continue to chase performance into year end. There were also several big M&A related news items moving stocks in healthcare and software (see below). Treasury yields remain lower (10-yr down -110 bps since Oct highs) and the dollar extends declines, boosting precious metals.

• Personal Spending for November rose +0.2% m/m below the est. +0.3% while November Personal Income rises +0.4%, in-line with consensus views and above the prior month of +0.2%. Real Personal Spending rose 0.3% vs. est. 0.3%.
• Durables goods order fell sharply (-5.4%) in November, compared with the 1.7% increase expected and the -5.1% decrease (revised from -5.4%) in October. Durables ex-transportation orders +0.5% (vs. est. +0.1%) and vs Oct (-0.3%) vs. previous unchanged. Nov Durables ex-defense orders +6.5% vs Oct -6.4% (prev -6.7%). Nov Durables shipments +1.0% vs Oct (-0.8%); Nov nondefense cap shipments ex-aircraft (-0.1%) vs Oct -0.1%.
• University of Michigan surveys of consumers sentiment final Dec jumps to 69.7 from final Nov-F of 61.3 and slightly above the consensus 69.4; current conditions index final Dec 73.3 vs prelim Dec 74.0 and final Nov 68.3 and expectations index final Dec 67.4 vs prelim Dec 66.4 and final Nov 56.8.
• University of Michigan surveys of consumers 1-year inflation outlook final Dec steady at 3.1% vs prelim 3.1% and final Nov 4.5% and the 5-year inflation outlook final Dec 2.9% vs prelim 2.8% and final Nov 3.2%.
• Single-family new home sales tumbles -12.2% in Nov to 590K vs. est. 690K and vs Oct -4.0%; Nov home sales Northeast +3.1%, Midwest +25.0%, South -20.9%, and West -5.1%; new home supply 9.2 months’ worth at current pace vs Oct 7.9 months and the median sale price $434,700, -6.0% from Nov 2022 ($462,300).

• Video gamer makers/publishers in China tumble (TCEHY, NTES, BILI) as Chinese regulators announced a wide range of rules aimed at curbing spending and rewards that encourage video games. The National Press and Publication Administrations published the new draft rules. Online games will now be banned from giving players rewards if they log in every day. Shares of US based U, EA, RBLX also fell in sympathy.
• Hydrogen related names (CEG, FCEL, PLUG) shares active on reports billions of dollars in hydrogen-industry subsidies from President Biden’s climate law will come with stringent environmental safeguards, raising concerns that strict rules will stifle production. Under the proposed rules laid out Friday, the new clean-hydrogen tax credit won’t benefit existing nuclear power plants, which is a blow to reactor owners such as CEG that lobbied for inclusion. Administration officials said it could change when the guidelines are finalized. http://tinyurl.com/4epfc4jy .

• KRTX +47%; BMY reached a deal to buy neuroscience-drug developer KRTX for $14 billion. Under the terms, Bristol would pay $330 a share in cash, a 53% premium from yesterday for Karuna and its experimental schizophrenia drug now up for U.S. government approval. http://tinyurl.com/3sduf2as .
• LGF +2%; is launching its studio business as a separately traded public company valued at $4.6 billion. The new company, which includes the motion picture group and one of the world’s most valuable film and television libraries, will be combined with Screaming Eagle Acquisition Corp., a SPAC http://tinyurl.com/3zuz5t4m
• NEM +2%; gold miners rally (GOLD, AEM) with gold prices jumping over 1% on weaker dollar.
• OXY +2%; as oil prices bounce and Berkshire Hathaway bought more OXY stock in recent days, purchasing 5.2M shares and bringing its total ownership to 243.7M shares, for a 27.7% stake, according to a form 4 filing with the SEC.
• RKLB +25%; said it won a $515 million US government contract – announced on 12/21 that it had entered into an agreement with a United States government customer to "design, manufacture, deliver, and operate" 18 space vehicles.
• THRX +9%; to be acquired by Concentra Biosciences for between $3.90-$4.05 in cash per share http://tinyurl.com/ycy87t39 .

• CEG -2%; on reports billions of dollars in hydrogen-industry subsidies from President Biden’s climate law will come with stringent environmental safeguards.
• CMI -3%; said it expects to book a $2.04 billion charge to settle allegations from U.S. regulators that some of its engines, particularly those used in pick-up trucks, failed to comply with the emissions-certification and compliance process.
• FL -4%; shares of American and European sportswear makers and retailers dropped after a disappointing revenue forecast from industry giant Nike, with shares of FL, UAA, VFC, ONON, DECK, ASO, DKS, HIBB lower.
• NKE -12%; posted slightly softer than expected top-line results amid a difficult macro as margin expansion and timing shifts in SG&A items led to a solid EPS beat but lowered guidance and warned of slowing 2H’24 revs.
• NTES -16%; falls along with Video gamer makers/publishers in China tumble (TCEHY, BILI) as Chinese regulators announced a wide range of rules aimed at curbing spending and rewards that encourage video games.