Mid-Morning Look

Tuesday, October 08, 2024

U.S. stocks are rebounding after pulling back on Monday as investors continue waiting game for inflation data on Thursday (CPI) and Friday (PPI) and the unofficial start of earnings season. So far, today has been more of an unwind of the prior week actions, as the biggest winners since last week including oil prices (WTI crude +10% in over a week) and China US listed stocks (massive rally since stimulus measures announced 2-weeks ago) saw the biggest declines while Tech leads the way higher. Energy (XLE) and Materials (XLB) saw the biggest downward pressure this morning following the lack of additional stimulus provided by China overnight, while Technology (XLK), Healthcare (XLV) and Financials (XLF) ahead of earnings on Friday from WFC, JPM, and others were the biggest advancers. Utilities (XLU) look to rebound. Treasury yields are extending recent gains, with the 10-year up around 4.05% and the 2-yr at 3.99%, not exactly what markets had been expecting following the 50-bps rate cut by the FOMC in September, as recent jobs data showed the economy is strong, reducing expectations of overly aggressive rate cuts heading into the end of the year (now just 25 bps cut seen in November and no view for a 50-bps cut). US crude futures fall over $3 per barrel today, the dollar dips, and Treasury yields stay high. Meanwhile the action in Asia overnight was astounding: The Shanghai Index closed the day +4.59% after reopened following week-long holiday and the Index is up +29% since Sept 13th. The Hang Seng index in Hong Kong tumbled -9.41% or 2,172 points for the largest % move lower since Oct of 2008 (but index is still up +20.4% since Sept 13^th). The volatility came after China said it’s confident in reaching its economic targets this year and promised to further support growth, although it held back in unleashing more major stimulus in a disappointment.

• The US NFIB small-business optimism was little changed in September. The National Federation of Independent Business optimism index edged up 0.3 point to 91.5 after declining in August by the most in more than two years.

• In Payments: AFRM was upgraded to Buy from Neutral at BTIG with a $68 price target saying it compares favorably against AXP on the same metrics. While the technology is different, the financial models of the two are very similar. BTIG in turn downgraded AXP to Sell from Neutral saying fundamentals are more likely to get worse than better, yet expectations for rapid improvement continue to climb. Separately, HSBC downgraded AXP from Buy to Hold saying positive including an attractive economic model, manageable credit risk, an aspirational brand are “priced in”.
• In Consumer Lending: OMF was downgraded to Equal Weight from Overweight at Barclays and reiterated its underweight on BFH in consumer lending, while upgraded UWMC to Equal Weight from UW but remain UW rated on RKT in mortgage lending. Barclays said thinks positive DQ trends in 2H (E.G., decelerating second derivative) should continue for the prime card issuers. The firm said it maintains its preference for balanced business models (PFSI), however recognize the outlook is incrementally more positive.
• In Food & Beverages: PEP reported mixed results and lower guide as Q3 core EPS $2.31 vs. consensus $2.29 and revs $23.32B vs. consensus $23.76B; sees at least 8% core constant currency EPS growth for FY; now expects a low-single-digit increase in organic revenue (previously approximately 4% organic revenue growth); beer company SAM announced its Board authorized a $400M buyback increase. STZ downgraded from Buy to Hold at TD Cowen saying they see more downside than upside risk to estimates, lower PT to $270 from $300. TDCowen also downgraded BUD to Hold from Buy to reflect equal-weighted risk-reward to 2025 estimates.

• DOCU +5%; after S&P Dow Jones Indices said that the company will join the S&P Midcap 400 Index before trading opens Oct. 11, replacing MDU and MDU Resources Group will replace CHUY in the S&P SmallCap 600.
• HON +2%; plans to spin off its Advanced Materials business as it continues to simplify its strategic focus; HON said it is planning a tax-free spinoff of the business as an independent, U.S. publicly traded company, with completion targeted for the end of 2025 or early 2026.
• PEP +0.5%; posted mixed results and lower guide as Q3 core EPS $2.31 vs. consensus $2.29 and revs $23.32B vs. consensus $23.76B; sees at least 8% core constant currency EPS growth for FY; now expects a low-single-digit increase in organic revenue (previously approximately 4% organic revenue growth).
• SAVA +22%; after saying it made decision to enter settlement with U.S. SEC and pay $40M penalty; SEC had charged SAVA and its two former executives for misleading claims about results from clinical trials of Alzheimer’s drug.
• SIMO +2%; provided prelim Q3 guidance saying sequential revenue growth is expected to be above the midpoint of its original guidance range of $205M to $216M, which the company issued on August 2, 2024. Gross margin (non-GAAP) is expected to be in the upper half of the company’s original 46.0% to 47.0% guidance range.

• BABA -7%; as U.S. listed China stocks tumbled after China said it’s confident in reaching its economic targets this year and promised to further support growth, although it held back in unleashing more major stimulus in a disappointment.
• MPC -7%; weakness in energy sector on lower oil, but refiners seeing the biggest hits so far (VLO, DK, PSX)
• RBLX -5%; after short-seller Hindenburg Research was cautious, saying their research indicates that Roblox is inflating key metrics and has reported net losses every quarter since becoming a public company https://hindenburgresearch.com/roblox/
• SAGE -1%; after announced disappointing topline results from a study to evaluate the efficacy of a treatment in patients with mild cognitive impairment or mild dementia due to Alzheimer’s Disease (AD); said Phase 2 trial didn’t demonstrate a statistically significant difference from the baseline in participants treated with dalzanemdor versus the placebo.
• SMCI -6%; giving back some of yesterday outperformance.