Mid-Morning Look

Friday, September 13, 2024

U.S. stocks are rising again on Friday, led by outperformance in Smallcaps, with no weakness all wee kas the S&P 500 and Nasdaq remain on track for a 5^th straight day of gains (and essentially erasing all last week’s losses). Sentiment overwhelmingly positive/euphoric into next week’s FOMC interest rate policy meeting. The Smallcap Russell 2000 index outperforms for a second day, moving back above its 50-day moving average resistance ahead of next weeks expected FOMC rate cut (most seeing 25 bps cut but comments from WSJ Timiraos and former Federal Reserve Bank of New York President William Dudley saying there is scope for a half-point rate cut at the central bank’s meeting next week). Coming into today, the S&P 500 index SPX has gained 3.46% over just the last four trading days — helped by Nvidia (NVDA) jumping 15.9% over that time — and leaving the main equity barometer just 1.3% shy of its mid-July record high. Significant strengthening in the JPY (vs. the USD) in recent weeks, with the current 142 rate (USD/JPY) vs the July 10th peak at 162 (no concern for US markets yet). After this week we have both CPI/PPI inflation and jobs data all in the rear-view mirror. Conference season is also slowly coming to an end and now we get the start of Investor and Analyst days (ORCL last night, WDAY and CRM next week in software). Headlines this morning are focused on ADBE and ORCL as the latter’s 2029 targets are being applauded while former guidance falls short of Wall Street consensus pressuring shares. Gold prices ripping to record highs, dollar slips and oil on track for first weekly advance in over a month after Hurricane Francine impacted production.

• University of Michigan surveys of consumers sentiment prelim Sept reported at 69.0 vs. consensus 68.5 and vs final Aug 67.9; current conditions index prelim Sept 62.9 (consensus 61.5) vs final Aug 61.3 and expectations index prelim Sept 73.0 (consensus 71.0) vs final Aug 72.1.
• University of Michigan surveys of consumers 1-year inflation outlook prelim Sept 2.7% vs final Aug 2.8% while University of Michigan surveys of consumers 5-year inflation outlook prelim Sept 3.1% vs final Aug 3.0%.

• In Restaurants: According to BAC aggregated credit and debit card data, on a one-year basis, aggregate restaurant spending growth was up m/m at +3.4% in August vs -3.9% in July. Spending growth at restaurant chains accelerated from -3.4% in July to +0.9% in August while spending at independent restaurants accelerated from -4.1% to +4.3%. Spending at small and mid-sized coffee chains accelerated to +17.0% y/y in August vs +12.0% in July. Said QSR and PZZA spend growth accelerate as QSR ex-pizza y/y spend growth accelerated from -2.9% in July to +0.1% in August. Pizza spend growth improved dramatically to +0.4% in August vs -6.9% in July.
• In Home Furnishing Retail: RH shares jumped after reported 2Q results that missed demand growth guidance by 200 bps, met sales growth guidance and met margin guidance; these results appear to have exceeded bearish buy-side expectations while margins came in slightly better than consensus expected. Q2 demand comps (I.E. orders) of +7% y/y slightly missed +9-10% guidance, but sequentially improved on building product launches with July +10% & Aug +12%. RH also reduced its FY24 outlook, but less than feared by the sell side (boosted shares of comps W, WSM, BYON early).

• ORCL +2%; raised its FY26 revenue target to >$66B (vs. consensus at $64.5B); while somewhat expected after comments last week that forward rev view would have to go higher, ORCL management surprised investors by introducing an FY29 revenue target of >$104B (and 20% EPS growth), significantly above consensus of $89B.
• RH +19%; shares jumped after reported 2Q results that missed demand growth guidance by 200 bps, met sales growth guidance and met margin guidance; these results appear to have exceeded bearish buy-side expectations while margins came in slightly better than consensus expected.
• UBER +6%; and Waymo LLC announced an expansion of their existing partnership to make the Waymo Driver available to more people via Uber. Beginning in early 2025, Waymo and Uber will bring autonomous ride-hailing to Austin and Atlanta, only on the Uber app.
• UPWK +7%; shares advanced after CNBC reported activist Engine Capital takes 4% Upwork stake and is pushing for a shakeup to the board of the freelance marketplace operator.

• BA -2%; U.S. West Coast factory workers walked off the job early on Friday after overwhelmingly rejecting a contract deal, halting production of the planemakers strongest-selling jet (workers’ first strike since 2008).
• GRMN -6%; was downgraded to Underweight from Equal Weight at Barclay’s and cut tgt to $133 from $181 on valuation noting shares have climbed ~40% YTD (Nasdaq: +14%) supported by multiple drivers including strong execution, robust cash generation and impressive earnings results over the most recent quarters.
• MRNA -2%; three analysts downgraded (Opco, JPM, Jefferies) after the company said it aims to reduce its research and development budget by about 20% over the next three years; MRNA also lowered its annual revenue guidance for 2025.
• PDD -3%; shares of the Temu owner fell after the Biden administration announced steps on Friday to crack down on a trade loophole favored by Chinese retailers to send over cheap packages into the US.
• SMWB -14%; as 3.5M share Spot Secondary priced at $7.85.