Closing Recap

Thursday, April 25, 2024

US equity futures took a hit overnight following disappointing guidance from META and a disappointing report from IBM. One strike not great, two strikes hmmm, three strikes buckle up for a bumpy ride. Today’s third strike was a reported +3.7% US core PCE advance versus a projected +3.4%. The qtr/qtr GDP advance was softer, at +1.6% versus the expected +2.5%, so the Fed has some thinking to do. Perhaps tomorrow’s data will help. Overall, investors remain a bit more cautious with the Fear & Greed Index still in the Fear range at 37 versus 33 a week ago, but 69 (Greed) just a month ago. Separately, the AAII weekly bull-bear survey saw bulls fall from 38.3% to 32.1% last week. Neutrals jumped from 27% to 33.9%. Unsurprisingly, early breadth was heavily in favor of decliners at almost 9:2. Small caps were fairly in-line early with IWM -1.33% versus SPY -1.27% and QQQ -1.55%. Sector-wise, Communication and Technology were leading S&P sector ETFs lower while Materials and Utilities were least bad in a sea of red. 

With META taking a big hit today, @bespokeinvest highlighted an interesting early divergence with QQQ -1.2% but SMH +1.6% at the time (ended -0.6% and +1.9%); not something we see often. Speaking of META, @bespokeinvest notes today is looking set to be the third time since 2018 the stock will lose over $100B of market cap in a single day. On a separate topic, @charliebilello notes the April 2024 value of $2,840 makes a new record high monthly mortgage payment required to buy the median-priced home for sale in the US, a 92% rise over the past four years. On a volatile day, @DataTrekMB points out the Nasdaq 100 relative price volatility has been climbing relative to the S&P, with the ratio between the QQQ and S&P now 37%. Investors have been relatively better rewarded for the volatility but may not want to watch the day-to-day. 

Heading into the final hour of trading, stocks were off their lows and breadth had improved to about 2.7:1, still favoring decliners. Small caps had given up some relative performance and trailed both the Nasdaq and S&P with IWM -0.65% versus SPY -0.45% and QQQ -0.6%. On a sector basis, Materials (XLB, +0.70%), Energy (XLE, +0.30%), Industrials (XLI, +0.3%) and Utilities (XLU, +0.35%) had all moved into the green to lead the S&P sector ETFs. Communications (XLC, -3.725) remained the primary laggard on the back of META’s -11% performance, while Healthcare (XLV, -0.7%) and Real Estate (XLRE, -0.5%) were also soft. Value outperformed but the Russell 1000 Value still faded -0.43%. Its Growth counterpart was another victim of the META slide at -0.97%, despite gains in some other large-cap tech names like NVDA, MRVL AAPL and AMD.

• Weekly Jobless Claims fell to 207,000 from 212,000 last week and below consensus 215,000; the 4-week moving average fell to 213,250 from 214,500 prior week; continued claims fell to 1.781M from 1.796M prior week and the US insured unemployment rate unchanged at 1.2%.
• March Pending Home sales index +3.4% (consensus +0.8%) to 78.2 and were up +0.1% from March 2023

• As was the case in crude, gold futures rode the rollercoaster today with an initial slide following the economic data releases and later recovery, though finished off the highs. The June futures settled at +$4.10/oz, or just +0.18%, to $2,342.50. Slower growth on one side and higher inflation readings on the other are not a recipe for the multiple Fed cuts investors had embedded in their forecasts just a couple months ago. As we have said before, the future is murky so expect more volatility as the Fed, and investors, try to find clear signals to establish a direction in rates and underlying growth.

• In Car Rental: HTZ swung to a wider Q1 loss of (-$1.28) vs. est. loss (-$0.45) while revs rose 2% to $2.08B topping $2.04B estimate; said Direct operating expenses were up 3% y/y; said it now plans to sell 30,000 EVs in 2024 as part of disposition plan, an increase of 10,000 vehicles from its original target.
• In Auto Retail: ORLY Q1 comps come in light at 3.4% vs cons 4%, revs in line and EPS slight miss, $9.20 vs consensus $9.29; SAH reports Q1 adj EPS $1.36 vs consensus $1.30 and revenue $3.38B vs consensus $3.45B.

• In Restaurants: CMG reported Q1 EPS of $13.37 exceeded consensus by $1.68 driven by stronger comps (including MSD traffic growth) and restaurant margins, as well as almost $0.50 benefit from lower tax rate while raised 2024 comp guidance, implying upside to Q2.
• In Food & Beverages: KDP Q1 revs of $3.5B tops est. $3.4B and EPS $0.38 above $0.35 estimate while Q1 net sales of refreshment beverages and coffee in U.S. up 4.3% and 2.1%, respectively, and international net sales up 11.8%; Nestle (NSRGY) reported a 1.4% rise in organic sales growth in Q1, missing the consensus of 2.9% while prices rose 3.4% in the period, well down from the nearly 10% last year; UL reported Q1 underlying sales growth of 4.4% and a 2.2% rise in volume growth; said it expects full-year underlying sales growth within its multiyear range of 3% to 6%. MNST was downgraded to Neutral from Overweight at JP Morgan citing cost pressures and weaker low-end consumer and was double downgraded to Sell from Buy and cut tgt to $46 from $65 saying while they still view Monster as a great company, it no longer sees it as a high growth story.

• Appliance retailer WHR shares fell as RBC Capital noted significantly weaker core MDA NA margins were masked by interest/sundry gains, restructuring exclusions (vs. RBC’s ests.), and better trends in SDA/LatAm, with the maintained FY’24 NA margin guide now looking like even more of a stretch.

• In Insurance: WTW Q1 EPS $3.29 beats Street while lower segment revs which outpaced lower expenses; maintained its 2024 guidance of mid-single digit organic growth, a 22.5-23.5% adjusted operating margin, $15.40-17.00 of operating EPS, and (unquantified) FCF margin expansion; BFH reported a Q1 miss driven by higher provision (-$1.25/share), higher share count (-$0.02/share), and higher tax rate (-$0.10/share), partially offset by higher net revenues.

• ALGN reported 1Q revenue/EPS that were 2%/9% above consensus; raised its 2024 revenue guidance by 2% to 6-8%, based on 1Q results, its 2Q guide of $1.03-$1.05B (Street $1.03B), and improved outlook over the balance of the year.
• AZN Q1 sales coming in 7% ahead of expectations with broad based strength across the product franchise including Oncology, Cardiology, Rare Disease and Respiratory.
• BMRN reported in-line 1Q total revenue and a non-GAAP EPS beat on lower OpEx ($649mn and $0.71 vs. consensus of $651mn and $0.61).
• BMY Q1 revs $11.87B topped $11.48B estimate though sales of cancer drug Opdivo was $2.08B missing ests; cut its FY24 outlook due to deal expenses, maintains rev outlook; says targeting $1.5B cost savings by end of 2025, to be reinvested into innovation.
• MRK 1Q results beat helped by Keytruda Strength and raises guidance; lower SG&A Drives EPS Beat $2.07 (vs. $1.90); forecasts FY adj EPS $8.53 to $8.65, forecast $8.44 to $8.59; Raises FY24 revenue view to $63.1B-$64.3B from $62.7B-$64.2B, vs. consensus $63.83B.

• In Rails: UNP posted better-than-expected Q1 earnings and said its profitability outlook is gaining momentum with strong service product, improving network efficiency and solid pricing while they plan to resume buybacks in Q2.
• In Package Delivery: UPS upgraded from Hold to Buy with $170 tgt at HSBC Holdings citing improved confidence in UPS’s ambitious 2026 targets are a potential catalyst: For 2026, HSBC’s forecast is 9% below the company’s organic adj. OP target while consensus is 10% lower. Recall that UPS did not meet its 2023 targets outlined in 2021.

• In Industrials: AOS posted a Q1 profit beat amid price hikes and demand for its water heaters and treatment products as sales in North America, which accounted for 75% of its total sales in 2023, rose 2,% to $766.3 million; reaffirmed its earlier forecast for full-year profit between $3.90-$4.15 per share. EME shares jump following earnings and raises FY24 EPS view $15.50-$16.50 from $14.00-$15.00 and upped rev guidance. GWW shares fell early on EPS miss and lower revs $4.24B vs. $4.39B and said gross margins fell 50bps to 39.4%.

• In Chemicals: SHW was upgraded to Overweight from Sector Weight with $400 tgt at Keybanc as expects SHW to continue taking share in architectural paint, where it benefits from a secular shift from DIY to the Pro channel.

• Meta’s MarQ CAPEX came in at $6.7B (-15% QoQ and 19% below BofA), but mgmt raised 2024 guidance from $30-37B to $35-40B driven by AI investment, and w/ CAPEX expected to increase in 2025; supportive AMD, ANET, NVDA.
• In Advertising: WPP posted a -1.6% decline in organic revenues citing less spending from tech clients; but said expect to see growth in the second half and sees Q2 being little better than Q1; recall rivals OMC, IPG each reported underlying revenue growth in their latest results while PUB posted 5.3% organic rev growth.

• IBM confirms agreement to acquire HCP for $35 per share in cash, while IBM shares fell on results/guidance as EPS beat by about $0.09 on better margins (rose 100bps to 54.7% vs. the Street 54.1%) while revs fell a bit short, a function of Consulting (+2% FXN vs. the Street +6%) while Software did a bit better (+6% vs. the Street +5%); guidance unchanged.
• NOW forecast Q2 subscription revenue in range of $2.525B-$2.53B below estimates of $2.540B saying businesses are spending cautiously in tough economy; comes after better Q1 results.
• SNPS announces broad EDA and IP collaborations with TSM for advanced node designs.

• In semi equipment: TER forecasts Q2 profit and revenue above estimates after beating analysts’ expectations for Q1 results as benefits from strong demand for its chip-testing equipment used by memory and networking chips; sees Q2 EPS 64c-84c on revs $665M-$725M, both above consensus of $0.60 and $636.6M respectively. LRCX delivered a solid beat and raise, with growth expected to accelerate into C2H; NAND recovery is off to a good start with two consecutive quarters of 25-30% sequential growth as per TD Cowen.
• In RFID chips: PI shares jumped as reported Q124 results and provided Q224 guidance ahead of expectations while the ongoing adoption of RFID continues with key 2024 customer deployments on track (Walmart and UPS).