Closing Recap

Thursday, April 18, 2024

The S&P 500 (SPX) posted its first 5-day losing streak since the beginning of the year (12/28-1/4) as markets couldn’t hold early gains! The last 6-day losing streak for the S&P, you must go back to October 2022 (10/5-10/12). U.S. stocks edged higher all morning led by strength in several sectors, but markets topped out around the European close (11:30 AM ET), giving up gains before sliding late day, taking out the overnight lows and marked an 8^th straight day of lower lows for S&P futures (Spuz). A big fade took the wind out the sails for investors as stock markets have been unable to hold any bounce for most of April after 5-straight months of “dip buying” being rewarded. The combination of Treasury yields pushing to 5-month highs, rising oil prices (down this week but off 5-month highs), soaring mortgage rates (30-yr fixed back near 7.5%), lower interest rate cut bets by the Fed given higher inflation (CPI 3 months of rising prices), and Middle East/war tensions were enough to scare investors into earnings season which started this week. The roll comes after major averages recently hit fresh record highs, but the S&P is now down about 5% from those levels. Markets are now pricing in a total of 42 basis points in interest rate cuts from the Fed by the end of this year, down from more than 160 basis points in cuts expected in January! Meanwhile tensions in the Middle East not easing after the head of the Iranian Nuclear Protection and Security Corps Ahmad Haqtalab said on Thursday that Iran has identified Israeli nuclear facilities and has its "hand on the trigger" to target them if Israel attacks Iran’s nuclear centers, according to the Iranian state news agency Tasnim. The big earnings coming next week in tech with likes of MSFT, META, GOOGL, TSLA, INTC, but first NFLX results tonight and Dow components PG, AXP tomorrow morning.

• Weekly Jobless Claims unchanged at 212,000 vs. consensus 215,000 and from 212,000 prior week; the 4-week moving average unchanged at 214,500 from 214,500 prior week (previous 214,250); continued claims climbed to 1.812M vs. consensus 1.810M from 1.810M prior week.
• March Existing Home Sales fell -4.3% y/y to 4.19M unit rate vs. consensus 4.20M and down from Feb 4.38M; March inventory of homes for sale 1.11M units, 3.2 months’ worth; the national median home price for existing homes $393,500, +4.8% from March 2023.
• March leading economic indicators (LEI) fell (-0.3%) vs. consensus drop of (-0.1%); Feb leading economic indicators revised to +0.2%.
• U.S. 30-yr fixed rate mortgages 7.10% April 18 week, highest since December, vs 6.88% prior week.

• In Car Rental: CAR tgt to $183 from $202 and HTZ to $6 from $10 in car rental earnings preview at Deutsche Bank saying as Q1 earnings approach, they believe results are likely to confirm what all relevant data points have been pointing to since January: it will be a weak quarter across the board, but one that it strongly believes will prove to be the trough of the post-Covid correction cycle.

• In Retail: BJ was downgraded from Buy to Hold at Loop Capital (tgt to $80 from $85) after mgmt talks, lowering estimates for merchandise same-store sales and gross margin and said assumes merchandise comp flat in FQ1 on top of +6% in FQ1:23. IBTA 6.56M share IPO priced at $88.00 opened at $117, well above marketed range of $76-$84 for $577.3M total raise (WMT owns about 8.3% stake, roughly 2.7M shares). JWN shares popped late day after the WSJ reported the Nordstrom family is weighing taking retailer private https://tinyurl.com/ycxjcxjc
• In Consumer, Food & Beverages: NAPA downgraded to Equal Weight from Overweight at Barclay’s saying industrywide inventory destocking will continue to weigh on its growth outlook and visibility in the near term. In beauty, L’Oreal (LRLCY) said Q1 like-for-like sales +9.4%, vs. est. +6.61%, helping beauty stocks (EL, ELF).

• In Theme Parks: B Riley upgraded SIX to Buy from Neutral and reiterated Buy ratings on FUN, PRKS but reduce ests as weather expected to adversely impact Q124 attendance; the firm lowered Q1 estimates across the board with an expectation of some additional attendance pressures later in the quarter. KeyBanc said data tracking Disney (DIS) and Universal (CMCSA) theme parks showed y/y declines in all Universal Studio parks, and LSD growth at Disney parks as California parks continue to experience more difficult comparisons vs. last year.

• In Homebuilders: DHI shares jump as Q2 revs rose 14% to $9.11B, above ests $8.15B and vs. $7.97B y/y; raised its FY24 rev outlook to $36.7B-$37.7B from prior $36B-$37.3B, citing current market conditions and results for the first half of the year; said had 45,000 homes in inventory, of which 27,600 were unsold, as of March 31.
• In MLPs/Pipelines: WMB downgraded to Underperform at Wolfe research saying it is a great company, not a great value; KMI reported Q124 adj EBITDA of $2,137M, in line with Street estimates of $2,133M and reiterated its 2024 budget.
• In Oil Services: BKR tgt to $43 from $40, HAL to $50 from $45 and NOV to $25 from $24 at Morgan Stanley as they upgrade oilfield services industry’s outlook to attractive saying strong oil prices and liquefied natural gas related activity have made it change the oilfield services’ industry outlook to attractive. Adds North America activity is nearing a cyclical trough and international onshore and offshore are still in the upcycle.

• CMA Q1 net income fell 59% to $131M but EPS topped ests; expects NII to fall for the full year.
• KEY Q1 EPS of $0.20 misses the $0.22 estimate while net interest income (NII) was down 19.9% to $886M and said net interest margin (NIM) from continuing operations shrinks to 2.02% from 2.47%.
• OZK better results as Q1 EPS $1.51 vs est. $1.46 on NII $376.934Mm vs est. $368.07Mm, credit loss provision $42.923Mm, tangible BV per common shr $37.62.
• SNV Q1 adj EPS $0.79 missed the $0.99 estimate on weaker revs $537.7M vs. est. $547M; Net interest income slipped 13% y/y citing lower average earnings assets and higher funding costs.

• In Consumer Finance/Lending: ALLY Q1 adj EPS of $0.45 topped the $0.33 consensus as Q1 consumer auto applications were a record 3.8Mm, driving $9.8B of origination volume; provision for credit losses rose to $507M from $446M y/y but down from $587M in Q4; DFS posts big EPS beat of $3.53 vs est. $2.95 driven by higher revenue (+$0.56/share), lower expenses (+$0.01/share), and lower after-tax impact from preferred (+$0.01/share), slightly offset by higher taxes (-$0.01/share).
• In Financial Services: EFX shares dropped on mixed Q1 results, and weaker guide as sees Q2 revs $1.41-1.43B below est. $1.44B and adj EPS $1.65-1.75 vs est. $1.87; sees FY revs $5.67-5.77B vs est. $5.783B; Q1 results missed consensus’ estimates on lower Employer Svcs. sales & more muted mortgage inquiries.

• CERE said its experimental Parkinson’s disease drug tavapadon improved symptom control in patients when tested as an add-on therapy to levodopa, the standard of care, in a late-stage study.
• ITCI shares slumped after 6.85M share Secondary priced at $73.00.
• In Managed Care: ELV Q1 beats as adj EPS $10.64 tops est. $10.53 on mostly in-line revs of $42.3B amid higher premiums in its commercial plans and lower-than-expected medical costs which was 85.6% for the first quarter and raises FY24 adjusted EPS view to greater than $37.20 per share vs. prior view of EPS ‘greater than’ $37.10.
• In Life Sciences: the group was weak after German lab supplies maker Sartorius (SOAGY) posted Q1 results that missed expectations for order intake and revenues as order intake came in at 826.3M euros ($882.82M), while revenues reached 819.6M euros; company reported a (-6%) sequential decline in Bioprocessing Solutions order intake (equating to a 10% miss vs. expectations); shares of DHR, RGEN, AVTR, WAT, MTD, A, TMO were volatile.
• In Hospitals: HCA, THC, UHS shares fell after TD Cowen with cautious comments following March hospital survey saying survey weakens dramatically, reigniting medical-trend debate – 305 hospitals report only +1.0% yty March revenue growth; far weaker than February’s +11%.

• In Rails: CSX reported another in-line quarter despite several headwinds that emerged during the quarter including the Baltimore port outage; softer truck market; weaker domestic coal; a deterioration in operating metrics; and poor weather in Q1, but still managed to reiterate its guidance.

• In Chemicals: Deutsche Bank upgraded WLK to Buy from Hold and raising price target to $174, upside of 17% noting stock outperformance has occurred despite weak fundamentals in each of Westlake’s its commodity chains – chlor-alkali / PVC, ethylene / polyethylene, and epoxy. DBAB downgraded CBT to Hold from Buy saying there is a modest 3% upside potential to their upwardly revised $95 price target. LIN was upgraded to Buy from Neutral with an unchanged price target of $510 at Mizuho as believes LIN’s defensiveness and consistency in growing EPS should lead to market outperformance. CF and JERA announce joint development agreement to develop greenfield low-carbon ammonia production capacity in the United States.

• In Cable & Telecom: JP morgan with negative catalyst watch call on CHTR as remain Neutral but are cautious into 1Q24 results next week due to persisting broadband competition, weaker organic broadband trends, and ACP overhang. NBA’s exclusive TV rights negotiating window with ESPN (DIS), Warner (WBD) expected to pass without a deal, CNBC Reported
• In Online dating: MTCH was downgraded to equal-weight from overweight at Morgan Stanley citing concerns over Tinder saturation and execution and does think that the valuation appears attractive with a >2.5:1 risk-reward skew.

• ZM was upgraded to a Buy rating at Rosenblatt with a $75 target driven by a refocused channel strategy, yielding partnerships like Avaya, momentum in Zoom Phone and CCaaS, as well as a healthy balance sheet that supports share repurchase ($1.5B) generated by better than 30% FCF margins.
• ZS was upgraded to overweight from sector weight at Keybanc with $220 tgt given its more constructive view on the competitive landscape, positive channel and survey feedback, catalysts to SASE adoption post-Ivanti, ongoing firewall weakness, and SASE an increasing priority and a more favorable risk/reward.

• MU shares got a lift after Bloomberg News reported the chip maker is on track to receive over $6B in grants from U.S. Commerce Department to help pay for domestic chip factory projects.