Mid-Morning Look

Wednesday, September 04, 2024

U.S. stocks opened sharply lower, but bounced on the open, with the S&P 500 (SPX) managing to hold above the 5,500 level as markets await key economic data later this week. Treasury yields fell, while investors waited on key jobs data on Friday for clues on the size of an expected interest rate cut at the Federal Reserve’s policy meeting this month. Stocks sold off sharply on Tuesday, which was blamed in part on weak manufacturing data, as investors worry that the U.S. may be facing an imminent recession. The 2yr yield at a 16-month low, down about -10bps to 3.79% (10-yr yield slumped as low as 3.77% following the JOLTs job data at 10:00 AM). So, the question is, are markets more concerned about a slowing economy (meaning weak eco data is bad for the stock market), or are they more excited about the potential of aggressive rate cuts, maybe a 50-bps cut in September (meaning weaker jobs/growth data seen positive for markets). Guess we will find out at the end of the week after the Nonfarm payroll data. In Central bank news, the Bank of Canada cuts rates for third consecutive month, says “expect further cuts”. WTI crude back down -1.35% to $69.40 per barrel after spiking earlier on OPEC+ headlines (back near overnight lows of $69.19). Earlier, news wires cited delegates saying OPEC+ is discussing a possible delay to an oil output increase planned for October, after prices crashed on Tuesday. Several stocks down on earnings including DLTR in discount retail (miss and lower guidance), ZS, ASAN, PD all fall on results in tech; HRL guidance weighs on food space and Medicaid names lower (CNC, MOH) on comments at conference today. Stocks are currently at the highs of the morning as the S&P up 30-points off the lows. Semiconductors seeing a 1% bounce after the SOX fell -7.75% on Tuesday.

• The U.S. international trade deficit widened 7.8% in July to $78.8 billion from $73 billion in the prior month, the Commerce Department said Wednesday (vs. est. would widen to a seasonally adjusted $79.1B). U.S. July goods deficit $103.13B, services surplus $24.34B; July exports +0.5% vs June +1.7%, imports +2.1% vs June +0.6%. U.S.-China July trade deficit $30.12B vs June deficit $22.80B.
• July factory orders rose +5.0% vs. consensus +4.7% and vs June -3.3%; July factory orders ex-transportation +0.4% vs June +0.1% (prev +0.1%); July factory orders ex-defense +5.1% vs June -3.5%; U.S. July nondurables orders +0.8% vs June unchanged; July inventories/shipments ratio 1.45 months’ worth vs June 1.46 months.

• In Crypto/Bitcoin: Bitcoin prices remain weak, extending last week’s declines falling as low as $55,500 before paring losses, weighing on shares of crypto related names/miners (COIN, MSTR, MARA, CLSK, HUT, RIOT). CIFR released its August operations update saying it mined 151 Bitcoin during the month of August, a m/m decrease from 169 Bitcoin in July. In Bitcoin miners, Needham initiated coverage on: CORZ with a Buy and $16 tgt believe the company’s first customer agreement with CoreWeave is a unique deal among peers and offers attractive economics and terms; WULF with Buy and $6 tgt as believes WULF will be early to market in bringing a 100MW+ site online for HPC. (Neutral on IREN).
• Metals & Minng: AA was upgraded from Peer Perform to Outperform at Wolfe Research with $36 PT following weakness in shares over the past month even as aluminum prices have risen ~6% since it moved to Peer Perform. FCX was upgraded from Neutral to Buy at UBS w/ $55 PT saying believes the fundamental outlook for copper remains compelling & positioning is cleaner after the Q3 price correction. Says FCX is the most liquid copper pure play with high correlation (5yr R2 0.87x) and offers beta (5yr 2.4x) to copper upside. U.S. Steel (X) would close mills and likely move its headquarters out of Pittsburgh if the $14.9 billion buyout by Nippon Steel collapses, the Wall Street Journal reported on Wednesday citing an interview with the company’s CEO. TECK was upgraded to Buy from Neutral at UBS with a price target of C$78, up from C$76 saying the stock’s risk/reward has improved following the commodity price consolidation.
• In Online Travel/Lodging: ABNB was downgraded to Hold from Buy at Argus citing the company slowing room nights growth while also warning that growing competition, soft demand, fewer extended visits, and increased marketing spending are likely to harm the company’s near-term earnings. BKNG was downgraded to Hold from Buy at Jefferies and trims tgt to $4,200 from $4,350 saying sustainability of room night growth is the key debate for online travel, following disappointing guidance for the second half of 2024 and softer demand in July. Its top-down industry model suggests growth will moderate further over the next three years, which causes it to take estimates below consensus.

• AMD +2%; as appoints former NVDA executive Keith Strier as senior vice President of global AI markets; he will be responsible for expanding the company’s AI vision, AMD said in a statement.
• GTLB +20%; reported 2Q w/ rev growth of 31% above Street at 27% & FY guide was raised from 27% to 28% at high-end while billings w/ 42% growth well ahead of Street & highest since 1Q24, led by enterprise strength & Ultimate wins.
• NDAQ +3%; was double upgraded to Buy from underperform at Bank America and raise tgt to $90 from $53 saying mgmt has assembled a collection of wide-moat and high-growth businesses in software and information services.
• SG +7%; was upgraded from Hold to Buy at TD Cowen and raised PT to $43 from $31 saying believes mgmt. has implemented the right drivers to sustain 2024’s same store sales strength into 2025, as sales are a clear outperformer in a challenged industry backdrop.
• TSLA +4%; among leaders in the S&P and Nasdaq this morning.

• ASND -16%; after the company cut its FY24 revenue guidance for Skytrofa to €220M-€240M from €320M-€340M prior and experienced a revenue growth reversal in Q2 (€26M; -58% Q/Q; -25% YoY) on an unexpected net price cut.
• ATHA -73%; shares tumbled after saying its experimental drug, fosgonimeton, failed to meet the main goal in a mid-to-late-stage trial in patients with mild-to-moderate Alzheimer’s disease.
• COIN -3%; crypto stocks fell again after Bitcoin touched a one-month low around $55,500 amid a wider retreat from riskier investments in global markets due to fears about the economic outlook.
• CNC -6%; Medicaid names (CNC, MOH) underperform broader managed care (HUM, UNH); CNC affirmed adj EPS guidance at Wells Fargo conference (spoke 8:45 AM) while also forecasts Medicaid membership leveling off around 13M.
• DLTR -16%; shares tumble on results as Q2 adj EPS $0.67 missed consensus $1.04 and Q2 revenue $7.37B below consensus $7.49B; said expect to close an additional 45 during remainder of Fy24; cuts FY24 adjusted EPS view to $5.20-$5.60 from $6.50-$7.00 (est. $6.55) and cuts FY24 revenue view to $30.6B-$30.9B from $31B-$32B.
• HRL -9%; after Q3 sales fell to $2.898B from y/y $2.963B (and below est. $2.95B), while EPS of $0.37 was a penny ahead of the $0.36 consensus; narrowed its 2024 EPS view to $1.57-$1.63 from prior guidance of $1.55-$1.65 and lowered FY24 sales view to $11.8B-$12.1B from prior $12.2B-$12.5B.
• PD -2%; on mixed results, highlighted by a 3rd straight qtr of 10% ARR growth, but shares tumbled as FY/25 revenue guidance was lowered (to $463M-$467M from $471M-$477M) due to timing issues associated with enterprise deals taking longer to close and the lagging impact of attached one-time professional services revenue.
• SMCI -2%; downgraded to Equal Weight from Overweight at Barclays and cut tgt to $438 from $693 citing the company’s poor gross margin in the June quarter and the annual filing delay that evidenced several fundamental risks.
• STWD -4%; 17.5M share Spot Secondary priced at $19.72; $345.1M gross proceeds.
• ZS -16%; shares tumbled as reported strong Q4 results, beating estimates behind execution and better than expected GTM productivity, with a record quarter for new/upsell billings, but was overshadowed by an uneven FY25 billings outlook, which implies a deceleration in 1HFY25 before rebounding in 2H.