Mid-Morning Look

Thursday, November 21, 2024

U.S. stocks are trading mixed as investors digest the handful of key earnings results in tech overnight (NVDA, SNOW, PANW, BIDU, PDD) and industrials this morning (DE) and a busy round of economic data. The FOMO or adrenaline trade has kept major averages around all-time highs for weeks, with hopes for more rate cuts by the Fed, less regulation with president-elect Trump taking the reigns in January and hand over fist buying in AI replated plays and crypto with Bitcoin hitting new highs daily this month. At what point do investors take their foot off the gas remains the question? Stocks opened higher but quickly reversed lower as technology shares are seeing the brunt of selling pressure (GOOGL, META, AAPL, AMZN). Treasury yields back off a bit with the 10-yr below 4.4%, but mortgage rates for the 30-year remain above 7% as the first set of rate cuts by the Fed has failed to push those rates lower. Spot gold prices rose for the fourth consecutive day, helped by safe-haven demand. Signs of rising geopolitical risks have increased this week after Ukraine fired U.S. and British missiles at targets inside Russia and said on Thursday that Russia fired an intercontinental ballistic missile in an attack on a Ukrainian city. Bitcoin topped $98,000 this morning for new highs and boosted other crypto names but has since pared gains (MSTR went from +15% above $540 to “red” on the day). NVDA results were mixed as Q3 revenues came in above buyside expectations (+94% y/y to $35.1B vs. consensus $33.0B), driven by strong Hopper demand as $30.8B Data Center revs (+17% q/q, +112% y/y) exceeded expectations but the Q4 revenue guide came in modestly below ($37.5B vs. consensus $36.5B), coupled with April Q gross margins guided to ~71-72.5% in support of the initial Blackwell ramp (below consensus of 73.2%). Other top earnings included PANW, SNOW and DE. Smallcaps showing strength early with the Russell 2000 up over +0.5% and market breadth favoring advancers by 2:1 margin.

• November Philadelphia Fed factory index with negative -5.5 reading vs. est. +8.0 as the new orders index slipped to 8.9 vs 14.2, prices-received at 14.3 vs 17.9 prior, Fed future index at 56.6 vs 36.7, prices-paid index 26.6 vs 29.7 and the Fed employment index at 8.6 vs -2.2.
• Existing Home Sales for October rose 3.4% y/y to 3.96M unit rate (vs. consensus 3.93M), vs Sept 3.83M (prev 3.84M); Oct inventory of homes for sale 1.37M units, 4.2 months’ worth; the national median home price for existing homes $407,200, +4.0% from Oct 2023.
• Oct Leading Economic Indicators (LEI) fell (-0.4%) vs. consensus (-0.3%).

• In Crypto: another day and another new all-time high for Bitcoin as well as several crypto related trading stocks (MSTR, COIN, MARA, etc.) with Bitcoin hitting highs above $98,000 and is up over 40% since the election as the Trump administration is expected to relax regulations and be crypto friendly. MSTR extending gains on Bitcoin popping to record highs above $98K and after it announced an almost 50% increase in planned sales of convertible senior notes, to $2.6 billion, to fund purchases of more Bitcoin.
• In Beauty: ELF issues statement on short-seller report allegations (from Muddy Waters) saying they are without merit and that the company is fully confident in financial statements. ULTA was downgraded from Outperform to Market Perform at William Blair predicated on the view that coming off a hard reset of expectations at the analyst day, October 16, consensus 2025 comp and operating margin appear still optimistic and embed expectation of an early-2025 inflection in the beauty category, which it believes is unlikely.
• In Engineering and Construction (E&C) Sector: President-elect Donald Trump intends to revive the construction of the Keystone XL pipeline on his first day in office—just like President Biden shut it down on his first day in office, Politico reported. The 1,200-mile pipeline, developed by TC Energy, was supposed to carry some 800,000 bpd of Canadian heavy crude to U.S. refineries (names like TRP, MTZ, PWR among names to watch).

• BJ +4%; reported Q3 adj EPS $1.18 above est. $0.93 as Q3 revs rose +3.5% y/y to $5.1B vs. est. $5.12B; said Q3 membership fees rose 8.4% y/y to $115.0M and said will make its first membership fee increase in seven years effective Jan. 1, 2025 (also raised low end of year EPW view to $3.90-$4.00 from $3.75-$4.00).
• DE +5%; after better results, but weak guidance; Q4 EPS $4.55 vs. est. $3.93 and Q4 net income fell -47% y/y to $1.25B while forecasts 2025 net income $5.0B-$5.5B, vs. est. $5.83B and said expects net sales to fall about 10% to 15% across all its machinery segments.
• DFH +12%; after being added to the &P Smallcap 600 index Nov. 25, replacing HAYN which is being sold to North American Stainless.
• MSTR +10%; rose as much as 15%, extending gains on Bitcoin popping to record highs above $98K and after it announced an almost 50% increase in planned sales of convertible senior notes, to $2.6 billion, to fund purchases of more Bitcoin (shares pulled back after highs around $540).
• SNOW +23%; after posted Q3 adj EPS $0.20 topping the $0.15 est. on revenue of $942M beating the forecasts of $899M and y/y revs $734M; Q3 product revenue jumped 29% to $900M and guided Q4 product revs $906M-$911M vs. est. $882M; Q3 RPO/cRPO bookings growth accelerated.

• GOOGL -5%; after the Justice Department asked a federal judge on Wednesday to force Google to sell off its Chrome browser and be prevented from giving preferential access to its search engine on devices that use its Android mobile operating system.
• KURA -36%; shares fell after announcing a collaboration with Japan’s Kyowa Kirin to develop and commercialize blood cancer therapy drug ziftomenib; Kura to get upfront payment of $330 mln and up to $1.2 bln in total milestone payments as part of deal (shares fell as announced partnership vs. takeout).
• PDD -8%; after the Temu owner posted Q3 revenue rise of 44% y/y of 99.35 bln yuan ($13.72B) below ests 102.65 bln yuan and earned an adjusted 18.59 yuan per vs. est. 19.58 yuan; the rev growth of 44% this quarter compared to sales growth of 86% and 131%, respectively, in the second and first quarters this year.
• WMG -8%; Q4 EPS of $0.08 missed ests of $0.28, though revs of $1.63B topped the $1.59B consensus helped by growth in recorded music category; said EPS decline is on net income falling 69% to $48M; also attributes the fall to restructuring costs, higher interest expense and impact of exchange rates on debt.