Mid-Morning Look

Wednesday, June 05, 2024

U.S. stocks rise following mixed economic data points, a central bank rate cut, and some solid earnings in tech space overnight, as major averages once again not far from all-time highs. The Nasdaq outperforms, rising around 1% and back above 17K behind technology again as CRWD, HPE earnings results help sentiment and the non-stop rally in semiconductors keeps pushing prices higher (NVDA, ASML, ARM and equipment stocks AMAT KLAC this morning as SOX index +2.8%). Economic data mixed as more softness seen in labor markets with ADP private payrolls coming in short of expectation for May and April revised slightly lower (follows weak JOLTs data yesterday), helping market case for FOMC rate cuts in future to help the economy, However, at 10:00 AM, the ISM Services report was much stronger, while showed prices paid ease. In Central Bank news, the Bank of Canada (BoC) cut its key policy rate by 25 bps to 4.75%, its first cut in four years, and said more easing was likely if inflation continued to ease. The BoC joins Sweden’s Riksbank and the Swiss National Bank in bringing down rates and comes ahead of tomorrow’s European Central Bank (ECB) meeting, where a cut is on the table. "With further and more sustained evidence underlying inflation is easing, monetary policy no longer needs to be as restrictive," Governor Tiff Macklem said. U.S. 10-year Treasury yield reached a low of 4.295% after the ADP data, lowest since April 5, but has since bounced on the ISM report, now back above 4.34% (still down from last week highs of 4.61%). The dollar, Bitcoin, gold prices are all higher. Even oil prices saw a small bounce after falling for a fifth consecutive session Tuesday and extending losses to fresh four-month lows. Technology is the early leader for S&P (XLK +0.85%) and Communications (XLC +0.65%), but all other sectors are lower. Within less than 1% of a record include: the Nasdaq, S&P 500, Euro Stoxx 600 and Nasdaq 100.

• S&P Global May final composite PMI at 54.5 (vs flash 54.4). S&P Global May final services PMI at 54.8 (vs flash 54.8).
• ISM non-manufacturing sector for May rises to 53.8 in May topping consensus 50.8 and above the 49.4 in April; business activity index 61.2 in May (consensus 53.0) vs 50.9 in April, inflation component, the non-manufacturing prices paid index 58.1 in May vs 59.2 in April and new orders index 54.1 in May vs 52.2 in April.

• In Telecom: AT&T (T) said it resolved an issue that had prevented making some calls to other wireless carriers last night. Earlier, AT&T, Verizon and T-Mobile said they were all experiencing issues with some calls between carriers. Some customers in multiple states had said they were unable to make calls, prompting the FCC to investigate. Softbank (SFTBY) shares active after Bloomberg reported Elliott Management has built a sizable stake in SoftBank Group Corp. and is pushing the Japanese investment firm to launch a $15 billion buyback. SYTA, a global developer and vendor of Push-to-Talk (PTT) over Cellular (PoC) handsets and accessories, today announced its partnership with JD Telecom.
• Vaccine stocks: PFE and partner BNTX note updated covid vaccines targeting JN.1- and KP.2 variants confers better immune response versus older vaccine against emerging variants; said prepared to initiate supply of either jn.1 vaccine or kp.2 covid vaccine immediately upon approval. MRNA notes it is prepared to submit for approval a covid vaccine targeting either JN.1 or KP.2 variant; notes it is prepared to supply the US market by mid-August 2024. NVAX notes JN.1 vaccine generates broad neutralizing responses for JN.1 -lineage subvariants in non-clinical models.

• CRWD +4%; reported that total Q1 ARR of $3.65B, rose +33.4% y/y and exceeded the Street’s ~33% estimate, exceeded street operating income estimates by 4% and FCF forecasts by 3%; for Q2, sees revs of $958.3-$961.2Mm topped est. $954.43Mm and raised year guidance.
• DDD +22%; after the 3D printing firm said it inked largest contract award in its history, worth nearly $250M over 5-years, which will support manufacturing of clear dental aligners.
• GWRE +16%; reported significantly higher ARR ($828M vs $818M) and raised its full-year ARR, revenue, EBIT, and cash flow guidance, though FY24 ARR outlook didn’t capture the full FQ3 beat.
• HPE +13%; as beat Q2 revenues by 6% amid strong AI server revenues ($900M vs $400M last quarter), while EPS also beat though gross margins were pressured and HPE’s other businesses all came in below consensus expectations; did not roll forward its revenue or EPS beat for the remainder of the year.
• NVAX +19%; after vaccine update; notes JN.1 vaccine generates broad neutralizing responses for JN.1 -lineage subvariants in non-clinical models.
• SFIX +33%; jumped after results and guidance as posts smaller EPS loss and sees Q4 revs $312-322Mm vs est. $306.57Mm, adj EBITDA $5-10Mm vs est. $3.565Mm; sees FY revs $1.33-1.34B vs est. $1.307B and adj EBITDA $25-30Mm vs est. $14Mm
• WKME +42%; after SAP enters into an agreement to acquire WKME at $14.00 per share; an equity value of ~$1.5B.

• CPB -2%; Q3 sales rose 6% y/y to $2.37B vs. est. $2.34B on better earnings ($0.75 vs. $0.70) and boosted its annual net sales growth view to 3%-4%, compared with its previous range of a fall of -0.5% to a rise of 1.5%, but sees FY adj EPS $3.07-$3.10, vs. prior forecast $3.09-$3.15.
• DLTR -5%; Q1 results missed as EPS $1.43/$4.17B vs. est. $1.44/$4.24B; Q1 sales rose 5.9% y/y, Q1 enterprise comp sales +1% vs. +4.8% y/y, and est. +2.33% saying Q1 comp sales came in below expectations because Easter was especially challenging this year; announces review of strategic alternatives for Family Dollar unit.
• MDGL -9%; along with weakness in ETNB, AKRO as companies developing therapies for metabolic steatohepatitis (MASH), a liver disease, are falling after data abstract from a trial of LLY’s experimental GLP-1 drug tirzepatide to treat patients with the disease.
• MED -12%; was downgraded to Underperform from Neutral at DA Davidson saying after a meeting with the company, the firm pushed out its sequential flattening of revenue to Q125 from Q424, which lowered its 2025E sales to -5% from +2% Y/Y and its EPS by 29% while adding for the GLP-1 offering begin in July, later than June expectation.
• MNMD -13%; as psychedelic stocks slide (CMPS, CYBN, ATAI) as the FDA held a Psychopharmacologic Drugs Advisory Committee (PDAC) AdCom meeting for Lykos’ MDMA for PTSD which failed to get backing from US regulatory advisers to treat post-traumatic stress disorder.
• RIOT -8%; after short seller Kerrisdale with short report saying Riot Platforms, "does a far better job playing energy arbitrage games and issuing stock than generating shareholder value by mining crypto.”
• SPWH -11%; on larger quarterly loss amid weak sales and comps as Q1 adj EPS loss (-$0.47) vs. est. loss (-$0.35); Q1 revs fell -8.7% y/y to $244.24M vs. est. $249.48M; Q1 comp same store sales decreased (-13.5%) vs. est. loss (-11.7%).
• THO -2%; shares slumped early after posting better Q3 results (EPS $2.13 vs. est. $1.85/revs $2.80B vs. est. $2.73B) but lowered FY24 EPS view to $4.50-$4.75 from $5.00-$5.50 (est. $5.19) and lowers FY24 revenue to $9.8B-$10.1B from $10.0B-$10.50B (est. $10.17B).