Closing Recap

Tuesday, April 30, 2024

US equity futures faded modestly overnight after some lackluster guidance from several companies after the close yesterday, then took a big pre-market dip on stronger employment cost data. The Q1 ECI rose 1.2% versus an expected +1.0% and Q4’s +0.9% with benefit costs gaining 1.1% versus last quarter’s +0.7%. Early breadth was strongly in favor of decliners by almost 3:1, as small caps lagged early with IWM -1.09% vs SPY -0.32% and QQQ -0.36%. Sector-wise, Healthcare was the early leader and lone gainer across S&P sector ETFs (thank you LLY), while Energy, Consumer Discretionary and Materials paced the decliners and ranged from -1% to -1.4%. Investors continued to hold a cautious stance as the Fear and Greed Index remained in the Fear zone at 44 but is up slightly versus 39 a week ago. That’s still a big dip versus the 69 (Greed) reading just a month back and 59 (Greed) a year earlier.

In interesting factoids today, @charliebilello notes the Case-Shiller 20-City Home US Price Index hit another all-time high in February with all cities measuring an increase year/year. Meanwhile, @bespokeinvest highlights the expectations component of the Consumer Confidence report has only been below its current level twice in the last ten years. They also note google searches for the term, “stagflation” has jumped to levels not seen since 1H22. On the wage inflation data, @Kobeissiletter notes per the NY Fed, wage inflation is sticky around 5%, more than twice the Fed’s long-term 2% inflation goal. Higher-for-longer continues to look here-to-stay for a bit. Lastly, on that 2% inflation target, @RBAdvisors opines today’s Employment Cost Index is the latest indicator suggesting that goal may be a “pipe dream.”

Heading into the final hour of trading, stocks were near the daily lows and breadth had expanded to more than 7:2 in favor of decliners. Small caps continued to underperform with IWM -2.1% versus SPY -1.4% and QQQ -1.7%. Healthcare continued to be the lone gainer amongst S&P sector ETFs (XLV +0.05%), while Energy (XLE, -2.8%), Consumer Discretionary (XLY, -2.2%) and Materials (XLB, -1.7%) held their ground as leading decliners. Value and growth were equally soft with both the Russell 1000 Growth and Value each -1.12%. We get another big round of earnings after the close (AMZN, AMD), but really all eyes will be on the Fed commentary tomorrow. No rate move is expected for May and the implied probabilities at this point really don’t see a move coming until November/December, so perhaps hawkish comments will not be met with any surprise.

• Chicago PMI data was very weak, reported at 37.9 (worst since Nov 2022) below consensus of 45.0 and prior 41.4 reading.
• April Consumer Confidence index 97.0 below consensus 104.0 in another weak reading.
• S&P CoreLogic home price metric bounced 0.9% to 320.0 for the February 20-City index, a record high level, after dipping -0.1% to 317.0 (was 317.1) in January. The annual rate of appreciation accelerated to 7.3% y/y from 6.6% y/y. The 10-City measure climbed 1.0% to 336.0 after dipping fractionally to 332.7 (was 332.8) previously; index is up 8.0% y/y from 7.4% y/y.
• Dallas Fed Texas service sector revenue index 0.3 in April vs 4.0 in March and index of general business activity outlook -10.6 in April vs -5.5 in March.

• June WTI crude futures gained overnight but followed US equities lower after a hotter employment cost report and fears of a more hawkish Fed. It was a bit of a rollercoaster session, finally settling off the low, but -$0.70/bbl, or -0.85%, to $81.93. Brent similarly faded $0.54/bbl, or -0.61%, to settle at $87.86 as investors face renewed talk of higher-for-longer US rates. Though early headlines indicated OPEC April output fell by 100,000 bpd, today’s move was all about the demand fears absent Fed rate cuts. More on the Fed later this week.

• In Food & Beverage: KO Q1 adj EPS $0.72 beats $0.70 est. as Unit case volume +1% vs. est. +1.27%and adj organic revenue rose +11% vs. est. +6.13%; said now expecting organic sales growth of 8% to 9%, up from the previous range of 6% to 7% while maintains annual comparable EPS (non-GAAP) growth of 4% to 5%; raised forecasts on strong global demand for sodas/juices. TAP 1Q beat net sales ($2.6B/est. $2.5B), underlying EBITDA ($476M vs. est. $418M), and underlying EPS ($0.95 beats the $0.74 estimate) while maintained 2024 guidance, but 1Q, on strike-related shipment timing, is expected to be the best y/y period. 1Q variable costs were improved, and fixed cost leverage was strong; SYY mixed with EPS beating/sales miss while saying higher volumes improved Sysco’s gross margin, though they also contributed to a 5.5% increase in operating costs.

• ETN raises full-year 2024 adj profit forecast to $10.20-$10.60 from prior range of $9.95-$10.35 after Q1 beat ($2.40 vs. $2.29) as reports 8% y/y rise in Q1 revenue at $5.94B vs. est. $5.91B
• FLS Q1 results were well above expectations with its 9th consecutive quarter of +$1B bookings; the Q1 beat was driven by both topline and margins (>30% Gross Margin a welcome development).
• PCAR Q1 revs $8.74B beat consensus of $8.24B, but guidance of U.S. and Canada heavy-duty truck retail sales in 2024 to range from 250,000 to 290,000 trucks, lower than previous forecast of 260,000 to 300,000 trucks weighed on shares.
• TT Q1 adj EPS and revs topped consensus; raises annual profit forecast on resilient demand for HVAC systems from commercial buildings as sees 2024 adj EPS $10.40-$10.50 vs. prior $10.00-$10.30.
• In Transports, more weak results in trucking sector after several disappointments last week, as ARCB shares fall on both a top and bottom line Q1 miss; followed results from ODFL, LNX, SAIA last week that disappointed; CHRW to report later this week.

• HUBB posted slight beats on EPS and revs for Q1 and anticipates full year 2024 total sales growth of 8-10% and organic net sales growth of 3-5%, as compared to full year 2023.
• Defense company LDOS boosted its FY 2024 profit and revenue forecasts on strong weapons demand amid rising geopolitical tensions as now sees 2024 EPS of $8.40-$8.80 vs prior view of $7.50-$7.90 and revs $16-$16.4B from $15.7-$16.1B.

• In Uranium: CCJ Q1 adj EPS C$0.13, vs. est. C$0.37 as 2024 outlook remains solid; financial discipline and strong cash position result in focused debt reduction; operationally, segments performing to plan; attributes of baseload nuclear power attracting tech sector investment.

• In FinTech/payments: PYPL Q1 EPS missed but net revs rose 9.4% y/y to $7.7B vs. est. $7.51B as total payment volume was $403.9B, +14% y/y above est. $392.9B and guidance for EPS growth to grow by "mid to high single-digit percentage" in 2024 versus 2023 levels. Up from prior view where forecast EPS to remain in line.
• In Lending: TREE shares jump as reported Q1 revs $167.8M topping $162.8M estimate and raised its FY24 view to $690M-$720M from prior view $650M-$690M and guided Q2 revs above views as well at $175M-$190M vs. est. $168M.
• In Financial Services: MSCI upgraded to Neutral from Underperform at Bank America and raised tgt to $525 from $425 saying the recent stock pullback is pricing in an "unlikely worst-case scenario" and sees pending upside support from buybacks.

• BRX Q1 results and 2024 guidance raise were a strong start to shopping center REIT earnings driven by +19.5% blended lease spreads and sequentially stronger occupancy. FY24 same property NOI growth near top of subsector at new 3.50% -4.25% range (+88bps at midpoint); SSNOI growth of 5.9% y/y represents a solid uptick from 3.1% last quarter.
• LTC Q1 FFO per share was in line and management’s quarterly guidance provided prior but missed consensus.
• NTST reported a $0.01/share 1Q24 beat vs. consensus and mgmt tweaked the midpoint of its FY24 AFFO guidance higher by 0.4% by lifting the low end of the range by $0.01/share.
• SUI reported 1Q24 Core FFO above consensus estimates, but lowered 2024 North America SS NOI growth guidance to 5.2% due to softer-than-expected RV results.

• HRMY said it has acquired privately held Epygenix Therapeutics for an initial $35 million in cash in a deal that adds a rare epilepsy franchise to its pipeline of central-nervous-system assets.
• INCY Q1 revs well below consensus after both Jakafi and Opzelura miss, mgmt maintains guidance; Q1 Jakafi revenue $572M vs $633M est. Q1 Opzelura revenue $86M vs $102M est. Maintains Jakafi net product revenues FY24 guide $2,690-$2,750M.
• NRXP shares fell after saying its experimental suicidal bipolar depression drug reduced risk of suicide by 33%, which was not statistically significant, in a mid-to-late-stage trial comparing it to generic drug lurasidone.
• WGS shares jumped as Q1 revenue $62.42M, vs. consensus $49.46M; raises FY24 revenue view to $235M-$245M from $220M-$230M (est. $226.1M) and raises FY24 adjusted gross margin profile view to at least 60% from at least 50%; said GeneDx drove robust 91% Y/Y whole-exome and genome test volume and drove much higher-than-expected margins.
• Cannabis stocks surged (MSOS, CGC, TLRY, CRLBF, CRON, GRWG, GTBIF, TCNNF) after reports the U.S. Drug Enforcement Administration will move to reclassify marijuana as a less dangerous drug, The Associated Press has learned. The DEA’s proposal, which still must be reviewed by the White House Office of Management and Budget, would recognize the medical uses of cannabis, and acknowledge it has less potential for abuse than some of the nation’s most dangerous drugs.

• MED shares tumbled as Q1 adj EPS $0.66 missed ests $0.78 on better revs $174.74Mm vs. est. but Q2 guidance was below consensus for EPS/revs (Q2 revs $150-170Mm vs est. $175.1Mm).
• Hospital operator THC Q1 beats and boosts FY adj. EPS forecast to range of $8.37-$9.41 from previous forecast of $5.76-$6.90 and raises FY revenue view to $20B-$20.4B vs. prior $19.9B-$20.3B.
• WMT said it is shutting down Walmart Health, which offered primary care, labs, and other services across 51 locations, as well as its telehealth service Walmart Health Virtual Care.

• In Towers & Telecom: SBAC Q1 results were below expectations, with consolidated organic growth in line but lower Domestic organic growth; adjusted EBITDA and AFFO/share also missing. AMT stronger results in towers with Q1 adj Ebitda beat $1.85B vs. $1.77B and raises FY adj EBITDA to $7.12B-$7.23B, from $7.08B-$7.19B (est. $7.1B).
• In Media: ROKU announced plans for a new data-driven TV streaming partnership with TTD to equip advertisers with better planning, buying, and measurement of TV streaming media; PARA announced that Bob Bakish, President, and CEO, is stepping down from his role as CEO and from the Board of Directors and posted mixed Q1 results. WSJ reported that CMCSA’s NBCUniversal is planning to pay average of ~$2.5B/year to broadcast package of NBA games; Warner’s TNT’s currently pays $1.2B; ESPN is set to retain its NBA rights, albeit at an annual bill of ~$2.6B (vs. $1.5B now)

• IT shares dropped after mixed Q1 results as EPS beat but revenues fell short of consensus ($1.47B vs. $1.49B) and guided 2024 revs at least $6.2B vs. est. $6.29B and EPS at least $10.90 (below est. $11.38).
• PRFT shares rose after Bloomberg reported is considering a potential sale https://tinyurl.com/bderzf5t
• ST shares jumped after Q1 adj EPS beat on higher revs and guided CQ2 about in-line with consensus while saying it had reached a cooperation and information sharing agreement with activist investor Elliott; appoints Martha Sullivan as interim President and CEO as Jeff Cote to retire from role.

• AMKR reported mixed Q1 results with earnings beat but softer than seasonal revenues on continued industry headwinds (end-market softness, inventory digestion, & ongoing geopolitical dynamics).
• LSCC reported in-line 1Q results and guided 2Q lower on continued weakness in FPGA markets, as inventory destocking headwinds continue to linger; said continues to see a 2H recovery, as inventory headwinds dissipate and new product ramps from Nexus and Avant contribute incremental revenues.
• NXPI posted solid 1Q results and guided 1Q slightly above. 1Q results reflect in-line demand in auto and comm infra, while industrial & IoT was slightly below, and mobile was slightly above. 2Q revenue is expected to be flat q/q, largely in line with consensus, which likely reflects signs of stabilization and bottoming cyclical demand in industrials.