Mid-Morning Look

Tuesday, November 26, 2024

U.S. stocks putting in a mixed day early as the S&P 500 and Nasdaq outperform after lagging over the last week while the Russell 2000 and Dow Industrials (recent outperformers) are sliding with weak market breadth by 2:1 margin decliners leading advancers. Seeing mega cap tech stocks holding major averages higher with gains in AAPL, AMZN, GOOGL, META, MSFT, NFLX and NVDA. Big swings in currency markets as the US dollar rises more than 1.5% vs. the Mexican Peso (20.60), +0.6% vs. the Canadian dollar (above 1.40) as standout movers after President-elect Donald Trump pledged to issue big tariffs on the country’s biggest trading partners. Trump said he would impose a 25% tariff on imports from Canada and Mexico and outlined “an additional 10% tariff, above any additional tariffs” on imports from China. The comments weighed on the Mexican peso which dropped to 2-year lows while the greenback hit over 4-year highs vs. the Canadian dollar. The headlines also impacting specific sectors such as auto stocks are falling, and steel makers are also active. Retailers another big story with several movers on earnings as BBY, KSS, ANF sliding on results. Obesity drugmakers are also active following Biden admin new rules and drug data from AMGN which has shares sharply lower. Busy morning of economic data in manufacturing, confidence and housing data.

• U.S. S&P CoreLogic 20-City house price index dipped -0.4% to 333.6 in September after falling -0.3% to 334.8 (was 334.7) in August. It is the weakest since May. Also, these are the first back-to-back monthly declines since December 2023 – January 2024. July’s 335.8 is the record peak. The 12-month clip slowed to 4.6% y/y from 5.2% y/y and was as high as 7.5% y/y early in February and March and a record 21.3% y/y from April 2022.
• Richmond Fed composite manufacturing index -14 in Nov vs -14 in October and Richmond Fed manufacturing shipments index -12 in Nov vs -8 in October.
• November consumer confidence index 111.7 (consensus 111.3) vs October revised 2.1 (previous 108.7); The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—increased by 4.8 points to 140.9. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions— ticked up 0.4 points to 92.3.
• US Oct single-family home sales -17.3% vs Sept +7.0% (prev +4.1%); Oct home sales in the Northeast jumped +53.3%, Midwest +1.4%, South fell -27.7%, and West -9.0%. Oct new home supply 9.5 months’ worth at current pace vs Sept 7.7 months; homes for sale at end of Oct 0.481M units vs Sept 0.471M units.

• Auto makers (F, GM, STLA) with weakness as President-elect Trump vowed additional tariffs on China as well as US neighbors Canada and Mexico. The automakers import vehicles to the US from China and have factories in Canada and Mexico. Trump said he would enact a 25% tariff on products from Mexico and Canada and slap an additional 10% tariff on goods coming into the U.S. from China. In Ev’s, RIVN announced it has received conditional commitment from the U.S. Department of Energy for a loan of up to $6.6B. If finalized, the loan would support the construction of Rivian’s next facility in Stanton Springs North.
• Aerospace & Defense: LHX was upgraded to Buy from Hold at Argus saying ongoing geopolitical tensions are creating a favorable backdrop for the company. Going forward, Argus expects L3Harris to benefit from its record backlog, existing government contracts, and cost/ productivity enhancements. HUBB was downgraded from Buy to Hold at Deutsche Bank after shares gained 24% since their upgrade just a few months ago. WWD shares jumped following a Q4 beat and management’s FY25 outlook was 2.5% the Street’s EPS estimate as the China on-highway revenue headwind is proving to be more manageable than anticipated. SAIC was upgraded to OW from EW at Wells Fargo noting they reduced price targets on federal IT names as it sees pressure on federal spending from here…but says the risk/rewards look attractive with 40%-50% upside in the status quo defense spending scenario.

• ARWR +19%; after announced a global license and collaboration agreement with SRPT for multiple clinical and preclinical programs. Upon closing, Arrowhead will receive $825M immediately, including an upfront payment and an equity investment at a 35% premium, and will receive an additional $250M paid over five years
• EXAS +9%; after the company’s colon cancer screening test, Cologuard Plus, receives 16% higher pricing for government-backed Medicare plans for those aged 65 years and older, compared with its original version.
• LLY +4%; along with NVO after the New York Times reported that obesity drugs would be covered by Medicare and Medicaid under a new Biden Admin proposal.
• PSTX +225%; said Roche will acquire its U.S. collaboration partner in a cash deal worth up to $1.5B, with Roche paying $9 per share in cash and stockholders will also receive a non-tradeable contingent value right for up to $4 per share based on achievements.
• SJM +9%; raises annual profit forecast and beats Q2 results estimates on resilient demand for their packaged and frozen foods as well as price hikes on their coffee products; now sees FY25 EPS $9.70-$10.10, up from $9.60 to $10.00 saying price hikes helped overall quarterly margins rise to 39% from 37.4% a year earlier.
• SMTC +17%; as reported a beat and strong guide on data center strength which was primarily driven by Fiber products; FQ325 (Oct) beat (+1.6% revs) and strong FQ425 (Jan) outlook, with a $250.0M revenue guidance midpoint (+5.6% q/q) coming in +8.7% higher.
• WWD +9%; following a Q4 beat and management’s FY25 outlook was 2.5% the Street’s EPS estimate as the China on-highway revenue headwind is proving to be more manageable than anticipated.

• AMGN -12%; after the company said a mid-stage trial of its weight-loss treatment MariTide showed up to 20% average weight loss at 52 weeks. Analysts were expecting the treatment to achieve an average weight loss of about 20% to 24% after one year of treatment, making it competitive with LLY’s Zepbound
• BBY -7%; posted a Q4 top and bottom line miss and cut its annual comparable sales to decline between 2.5% and 3.5%, vs. prior view for a decline between 1.5% and 3%; lowered the top end of year EPS view and cut its FY24 revenue view to $41.1B-$41.5B from $41.3B-$41.9B.
• KSS -20%; shares tumbled as CEO Tom Kingsbury said to step down on January 15, 2025, and the department store trimmed its full-year sales outlook (for 3^rd time this year) to range of 7% to 8%, compared to its prior forecast of a drop between 4% and 6% citing weakness in its apparel and footwear businesses.
• LESL -27%; after the outdoor supplies and sporting goods company reported Q4 adj EPS $0.02 vs est. $0.11, adj EBITDA $43Mm vs est. $57.6Mm on sales $397.9Mm vs est. $405.2Mm, all missing estimates while guiding lower.
• RGTI -11%; after prices 50M shares at $2.00 in registered direct offering.
• STLA -4%; along with weakness in autos GM, Ford and others as President-elect Trump vowed additional tariffs on China as well as US neighbors Canada and Mexico. The automakers import vehicles to the US from China and have factories in Canada and Mexico.
• ZM -7%; Q3 earnings delivered another modest beat and raise, like last quarter, at ~1.3% revenue beat vs. midpoint guide, and raised full year by 0.5% (slightly more than the beat); shares dropped as analysts noted these rates of beats remain below levels that were common in the couple prior years (FY23-24).