Mid-Morning Look

Tuesday, October 01, 2024

U.S. stocks are pulling back after closing out September on a strong note, near record highs for the S&P and Dow and big gains for the Nasdaq. Markets seeing a bit of profit taking early after closing September with a 5^th straight month of gains for the S&P and Dow and now both up 10 of last 11 months heading into the final quarter of 2024. Increased tensions in the Middle East pressuring markets on reports that the United States has indications that Iran is preparing to imminently launch a ballistic missile attack against Israel and the U.S. is actively supporting defensive preparations to defend Israel against this attack https://tinyurl.com/y2n5zbmu . The U.S. dollar strong early, +0.3% to 101.10, while Treasury yields fall (10-yr dips to 3.71%) in flight to safety following the Iran/Israel headlines. Also seeing a bounce in oil prices and energy stocks following the White House/Iran headlines (and gold rebounding). Also not helping market sentiment, weaker S&P Global manufacturing commentary as numbers were in-line with consensus, but the report noted “output and new orders both fell at sharper rates in September amid demand weakness and political uncertainty. Meanwhile, employment decreased at the strongest pace since the start of 2010.” The ISM report was better, showing prices paid falling and new orders edging higher, but employment weaker. The big sector news is the dockworkers strike/potential impact on the economy and retailers. Note some 45,000 union workers walked off the job at seaports on the U.S. East and Gulf Coasts at midnight. The International Longshoremen’s Association (ILA) union, which represents dockworkers across 36 ports on the U.S. East Coast and the Gulf of Mexico, remains deadlocked with the U.S. Maritime Alliance employer group on wage issues. Every day the strike continues is a hit to the supply chains from everything to clothes, goods, medical products and in turn could lead to higher prices/inflation. Early weakness to kick off the month so far, same action we saw in August and September before finishing higher both months.

• S&P Manufacturing PMI Final Actual 47.3, in-line with forecast and previous (both at 47.0). The report indicated, “Output and new orders both fell at sharper rates in September amid demand weakness and political uncertainty. Meanwhile, employment decreased at the strongest pace since the start of 2010 if the COVID-19 pandemic period is excluded. More positively, business confidence ticked higher amid optimism that new business will pick up following the Presidential Election. Meanwhile, the rate of input cost inflation softened but remained marked.
• ISM U.S. manufacturing activity index reported at 47.2 in September vs. consensus 47.5 and vs 47.2 in August; prices paid index 48.3 in September below consensus 53.5 and vs 54.0 in August while new orders index 46.1 in September vs 44.6 in August and employment index 43.9 in September vs 46.0 in August.
• Aug construction spending -0.1% (consensus +0.1%); US Aug construction spending -0.1% (consensus +0.1%) to $2.132 trln, vs July -0.5% (prev -0.3%); US Aug private construction spending -0.2%, public spending +0.3%.

• In Life Science Tools: Citigroup upgraded BIO to Buy and downgraded both HOLX (to neutral) and CRL (to Sell) in Q3 earnings preview. Heading into Q3, Citi said it expects the key focus to be on Q4 exit rates and implications for 2025, a year in which it again expects slightly below-LRP growth for the group. BIO upgraded as it sees guidance largely derisked and core valuation attractive; HOLX cut to Neutral as it anticipates 2025 guidance to be below consensus, and CRL cut to Sell as it sees price/volume headwinds that are likely to drive downside to 2025/26.
• In Food & Beverages: BUD upgraded to Buy from Neutral at Citigroup and opened a “positive catalyst watch saying although weakness in the U.S. and a slowing Mexico mean Citi’s Q3 volume ests are below consensus, ongoing cost control in the U.S. means the company is on track to deliver fiscal 2024 organic EBITDA growth above its 4%-8% guidance range. The WSJ reported PEP is in advanced talks to buy tortilla-chip maker Siete Foods for over $1B, The Wall Street Journal reported citing people familiar with the matter. The company had also drawn takeover interest from private-equity firms and other food companies in a competitive bidding process. In Food, MKC reported a top and bottom-line Q3 beat and raised both profit and revenue forecast for the year. UNFI reported Q4 EPS and sales beat as well.
• U.S.-listed shares of Chinese EV’s rise after monthly delivery data: BYDDF said it delivered 419,426 units in September, up 46% y/y (first time delivered of 400K EVs), LI delivered 53,708 vehicles during the month, a 49% y/y increase that brought its third-quarter deliveries to nearly 153,000. NIO and XPEV also posted strong numbers, with NIO delivering 21,181 vehicles last month, up 35% y/y, and XPeng delivering 21,352 for a 16% increase. NIO also said it set a new quarterly record with 61,855 deliveries in the third quarter.

• LVS +2%; rises with WYNN, MLCO, MGM in casinos after Macau’s gaming revenue rose 15.5% y/y in September, as casinos gear up for one of China’s biggest holidays. Gross gaming revenue (GGR) reached 17.25 billion patacas ($2.2 billion) for the month, according to data released by the Gaming Inspection and Coordination Bureau.
• NOC +2%; along with gains of defense stocks LMT, LHX, RTX, and others on escalation of tensions in Middle East.
• PINS +4%; Goldman Sachs added PINS to the October Conviction List, saying they believe the social media/eCommerce platform is well positioned continue to compound topline growth at a mid-to-high teens percentage pace and drive steady adjusted EBITDA margin expansion of ~300bps/year for the next 5 years.
• ROKU +2%; MoffettNathanson upgraded to Neutral from Sell saying Roku can enhance their financial results due to an improving mix of ad revenues and continued focus on cost management and free cash flow generation.
• UNFI +25%; shares jumped after reported Q4 EPS and sales beat.
• XOM +2%; along with other energy stocks as oil prices rise on fears of escalation in Middle East (APA, MRO, HAL, COP among leaders in the S&P 500 index)

• FSLY 6%; was downgraded to Market Perform from Strong Buy at Raymond James, primarily on valuation noting shares have recovered and are now close to previous $8 tgt.
• HPQ -3%; Citigroup downgraded HPQ, CDW to Neutral from Buy citing a more cautious view on PC recovery in 2H’24
• IGMS -22%; after its Chief Executive, Scientific and Medical Officers stepped down amid a pivot to focus exclusively on autoimmunity while pausing development of cancer programs, JPMC, Truist downgrade’s today.
• STTK -42%; shares tumbled after scrapping SL-172154, its lead program, and shedding about 40% of its workforce following the failure of an early study in blood disorders.
• ZIM -7%; shares fell after dockworkers walked out of every major port on the US East and Gulf coasts, marking the beginning of a strike.