Mid-Morning Look

Thursday, June 20, 2024

U.S. stocks opened at new highs as the Nasdaq tries to make it an 8^th straight day of record highs and the S&P looking to close at a record high for the 32^nd time this year as the rush into high growth “AI” related tech plays continues to fuel market excitement. For today there was no apparent reason outside of the continued momentum in tech for the overnight outperformance (outside of possible upbeat central bank sentiment after the Swiss National Bank cut rates) that carried us higher initially. Three other central banks including the Bank of England, Norway and Brazil banks all kept rates steady. Tech boomed again early as the Philly semi-index (SOX) neared 5,800 level at fresh record highs (risen over 34% since April lows) with more gains early in NVDA as well as SMCI, and AMD (though the SOX has since slipped into negative territory). ACN shares rose after reporting solid new bookings while DELL and SMCI shares jumped after they announced will provide the servers for the supercomputer being built by xAI. So just how crazy is this “AI” euphoria that has boosted big tech stocks, namely NVDA which today, increases its lead as the world’s most valuable listed company (topped AAPL on Tuesday) puts the market capitalization of the U.S. chip maker above the entire value of the U.K. and French stock markets, Deutsche Bank strategist Jim Reid noted! Although stocks opened strong, they have since pulled back, with option expiration and index rebalances coming up tomorrow. Note Smallcaps continue to lag as @LizAnnSonders noted “Only 1% of members in Russell 2000 at a new 52-week high as small caps continue to struggle to gain traction.” On the data front, housing, Philly Fed were both weaker.

• Weekly Jobless Claims fell to 238,000 in latest week from 243,000 prior and vs. consensus 235,000; the 4-week moving average climbed to 232,750 from 227,250 prior week; continued claims climbed to 1.828M from 1.813M prior week and the U.S. insured unemployment rate unchanged at 1.2%.
• Housing Starts data weak for May, falling (-5.5%) to 1.277M unit rate vs April +4.1% and below consensus 1.370M, while Building Permits fell (-3.8%) to 1.386M from 1.44M April unit rate and consensus of 1.45M; May single-family starts (-5.2%) to 982,000-unit rate; multifamily (-6.6%) to 295,000-unit rate.
• The Q1 Current Account balance actual (-$237.6B), worst since June 2022 as compared to forecast (-$206.8B) and the previous reading of (-$194.8B).

• In Aerospace & Defense: for BA, families of the victims of two fatal 737 Max crashes are asking the Justice Department to seek to fine Boeing Co. nearly $25 billion, saying the company committed “the deadliest corporate crime in U.S. history.” JOBY said the FAA has authorized the use of the air-taxi maker’s in-house software operating system, known as ElevateOS, to perform tasks such as managing pilot workload and matching passengers with aircraft like ride-hailing apps (targeting launch of commercial air taxi operations as soon as 2025). SPR was downgraded to Hold from Buy at Benchmark. given the assumption of a Boeing ($BA) takeout is at least partially baked into the stock at this point.
• In Consumer Staples: In grocers, KR topped Wall Street estimates for quarterly same-store sales, rising +0.5% vs. est. +0.13%, benefiting from more customers to its outlets for lower-priced groceries; still forecasts FY CAPEX $3.4B to $3.6B, est. $3.62B and reaffirmed FY guidance. In Food, Piper cut its 2024 outlook on KHC citing weaker momentum on Lunchables (hurt by negative social media) and Capri Sun and from disruptions in Brazil from severe floods and said does not expect KHC to make up for lost sales.
• In Computer Hardware & Equipment: DELL and SMCI shares jumped early after AI startup xAI’s founder Elon Musk says SMCI and DELL are supplying server racks for co’s supercomputer. Dell CEO Michael Dell says in a post on X co is building “AI factory” with NVDA for xAI, supplying half of the racks for the AI startup. In the EMS sector, JBL shares rose initially after results, but reversed lower after commentary on call saying they are recovering slower than they had anticipated and noted auto (which was strong) now weakening.

• DELL +2%; and SMCI shares jumped +6% early after AI startup xAI’s founder Elon Musk says SMCI and DELL are supplying server racks for co’s supercomputer.
• DRI +2%; Q4 adj EPS $2.65 vs. est. $2.62 and sales rose 6.8% y/y to $2.96B vs. est. $2.97B, raises quarterly dividend by 6.9% to $1.40, and same-restaurant sales were flat on a total-company basis, ticking 4% higher at LongHorn Steakhouse but falling within the Olive Garden; guides FY sales $11.8B to $11.9B, EST $11.93B.
• GILD +4%; said its long-acting HIV drug superior to daily pill Truvada in study. Reported a late-stage study of its injectable drug, lenacapavir, which showed superior efficacy in preventing HIV infection in women compared to co’s existing daily pill Truvada; said there were zero incidents of HIV infection among women who received lenacapavir.
• HROW +12%; after the company said it has successfully manufactured the first commercial-scale process performance qualification batch of its eye drug Triesence after having been on the FDA shortage list for over five years.
• KBH +3%; with better results and guidance vs. peer LEN from Monday, as Q4 results exceeded company guidance across the board due to an improvement in cycle times and low-level pricing power in most communities; Q4 EPS of $2.15 topped consensus estimate of $1.78.
• OCUL +16%; was upgraded from Hold to Buy at TD Cowen and raised tgt to $11 from $7 saying the SOL-1 enrollment is going great due to the experienced team and strong KOL support, and TDCowen believes it should be successful.
• WRK +5%; after S&P Dow Jones Indices said Tuesday that Smurfit WestRock — the new company formed via the merger of Smurfit and WestRock — will be included in its indexes.

• DJT -8%; after the SEC declared effective a regulatory filing that could dilute shareholders on Tuesday.
• GMS -6%; after Q4 EPS missed consensus; EPS of $1.93 vs. est. $2.05.
• JAZZ -4%; said its experimental drug, suvecaltamide, to treat essential tremors did not meet the main goal in a mid-stage; said some numerical improvements were observed on main and secondary goals of the study in patients, but these were not “statistically significant.
• JBL -7%; shares rose initially after results, but reversed lower after commentary on call saying they are recovering slower than they had anticipated and noted auto (which was strong) now weakening.
• SMTGY -27%; after saying it now expects sales of between 1,550M-1,700M euros (vs. prior 1.95.-2.22M euros) and operating EBITDA of between 80M-130M euros (down from prior view 220M-290M euros weighing on the sector.
• WGO -3%; reported EPS and revs below consensus for Q3 (EPS $1.13 vs. est. $1.30 and revs falling -12.7% y/y to $786M vs. est. $805.3M), while adj EBITDA declined -40% y/y to $58M, vs. est. $63.6M on weaker operating income -46% y/y.