Mid-Morning Look

Monday, September 16, 2024

U.S. stocks opened lower but quickly bounced/paring losses as the Dow Jones Industrial Average hit fresh all-time intraday highs, taking out its prior intraday high of 41,585.21 on 8/30/24 (its all-time closing high stands at 41,563.08 (also on 8/30). The S&P 500 index and Nasdaq Composite look to make it a 6^th straight day of gains as enthusiasm reigns into the Wednesday FOMC central bank policy meeting where fed futures are now showing a 50% chance (roughly) of either a 25 or 50 bps interest rate cut (the larger cut outlook increased late last week). The main market focus is the midweek FOMC rate meeting, along with the Bank of England meeting on Thursday and the Bank of Japan on Friday. Gold prices are making a new record high daily now, topping $2,600 an ounce as the dollar falls along with Treasury yields on rate cut expectations, while Bitcoin prices pressured early, falling over 2% to $58,275 after gains last week. Broad market strength to start the week with Financials, Materials and Energy rarely leaders.  Apple (AAPL) shares lagging on iphone 16 sales concerns (see below), which is weighing on specific chip suppliers in the model. Economic data this morning strong, with NY Fed manufacturing topping views. Note starting today, the S&P futures contract (Spuz) roll in effect from Sep (ESU) to Dec (ESZ) – futures remain marginally lower overnight, and the spread between S&P 500 (SPX) cash will be back to roughly 60 points (the September contract should expire within the week).

• In Pipelines/MLPs: at Morgan Stanley, OKE upgraded to OW from EW, KMI to EW from UW and downgraded ENLC, WES to EW from OW and cut WKC to UW from EW in MLPs/Pipelines and upgrade GTLS to OW in broad energy sector update. The firm said in 3Q, Energy has lagged the market by ~10%. Softening oil prices, slowing inflation, and potential interest rate cuts all present headwinds for performance. In this backdrop, they remain selective & continue to prefer defensive sub-sector positioning (Midstream, Majors). Favor gas over oil in E&P.
• In Consumer Staples: in consumer products, CL was downgraded to Underweight from Equal-Weight at Wells Fargo as sees CL on the cusp of organic sales growth normalizing toward peers, toothpaste market share reverting, and margin expansion slowing, just as some quality names trade at wide discounts to past vs CL. In Food, Nestle (NSRGY) was downgraded from Equal Weight to Underweight at Morgan Stanley saying believes that 2025 P/E based valuation already prices in Nestle’s traditional premium. SFM was upgraded to Outperform at Evercore ISI, saying it has increased appreciation for the natural and organic food retailer’s sales and margin drivers after meeting with executives last week.
• In Retail: DECK announced approval of six-for-one forward stock split and proportionate increase in authorized common stock; TGT said it is offering consumers savings all season long starting with Target Circle Week, Oct. 6-12, for those who want a head start on holiday shopping and preparing to hire approximately 100,000 additional seasonal workers. UAA price tgt raised to $11 at BMO Capital saying the company’s “Achieve More by Doing Less” mantra could drive “powerful earnings ahead” and in a “blu-sky” scenario shares could climb to about $16.

• ASND +17%; shares jumped after saying a trial of its experimental treatment for a genetic growth disorder achieved its primary objective; said children in its trial treated with TransCon CNP demonstrated annualized growth velocity superior to a placebo. It also demonstrated statistically significant improvement in other growth parameters.
• BLCO +14%; shares advanced after the Financial Times reported this weekend that one of the world’s largest contact lens suppliers is exploring a sale as a way out of a messy separation from its heavily indebted parent company. The article noted that BLCO is working with an advisor to find potential buyers.
• LSCC +12%; appoints Ford Tamer as its new CEO, effective immediately (replaces Esam Elashmawi, who has served as Interim CEO since June 2024) and reaffirms the guidance it provided on July 29, 2024.
• NCNA +154%; shares surged after saying final data from the study of its asset NUC-7738 in combination with pembrolizumab in patients with metastatic melanoma showed a prolonged progression free survival, a positive disease control rate and a favorable safety profile.
• NUVL +27%; after providing development updates for zidesamtinib and NVL-655 and now expect data from both pivotal studies in 2025. In addition, NUVL plans to initiate ALKAZAR for 1L treatment of ALK+ NSCLC patients in 1H25.
• ZNTL +37%; announces FDA has lifted partial clinical hold on Azenosertib studies and clears resumption of all clinical studies; says on track to meet 2024 data guidance; to resume Azenosertib study activities immediately.

• CL -2%; was downgraded to Underweight from Equal-Weight at Wells Fargo as sees CL on the cusp of organic sales growth normalizing toward peers, toothpaste market share reverting, and margin expansion slowing, just as some quality names trade at wide discounts to past vs CL.
• GH -10%; shares fell after competitor/rival EXAS released performance data from a study of its blood-based colon cancer screening test candidate.
• MOS -3%; said its potash and phosphate operations sustained disruptions that are now expected to reduce Q3 production volumes and shipments/problems include failing electricity, equipment and bad weather that are expected to reduce potash production and shipment volumes by 200-300K metric tons and phosphate by 80-110k.
• UPST -9%; announces proposed private offering of $300,000,000 of convertible senior notes due 2029.