Closing Recap

Thursday, August 15, 2024

Another unrelenting rally pushed U.S. stocks higher again, with the S&P 500 and Nasdaq logging their 6^th straight day of gains, while the Smallcap Russell 2000 outperformed rising 2.4% and the Dow gained behind better earnings results from WMT and CSCO boosting retail and tech. Just how strong has this 6-day rally been, well Nasdaq is now about flat on month after the mass 3-day selloff to start August, the SMH semi ETF is +17% last six days (rose about 5% today) – best stretch since November 2022, the Nasdaq 100 QQQ is up over 7.5% in 6-days while energy, discretionary, industrials, financials also follow. From fears of a recession, opinions the Fed needs to cut 50 bps or even 75 in September cause of the weak jobs number just 2-weeks ago (about the Fed being behind curve) and VIX fear index spiking to 65 on August 5^th – we have had a massive 180 about face since, as stocks have closed at the highs almost every day this week (little pull on the close today though) following a large trend move higher and now up for the month!

Soft landing talk, lower rate outlook from the Fed, inflation steady/slight deceleration, economic data improves this week (eases recession fears), strong comments about the consumer from Wal-Mart today, and dip buyers after August 3-day decline to start month were all responsible for the mkt lift off. Just about any piece of news that Bulls could have asked for the last 2-weeks has occurred and market reaction has been favorable since, moving back above the key technical support levels that were broken earlier in month. Fear was rampant 2-weeks ago with CBOE Volatility index surging to highs not seen in multiple years above 65, but has since cratered back to 15 as risk appetite surges. Plenty of geopolitical overhangs remain with tensions between Iran/Israel and ongoing Ukraine/Russia on top of the political election daily headlines into November, but none has mattered in recent days. Note the SPY now +7.6% in 8 trading days off the 8/5 low to $550 – the $565.16 prior ATH from 7/16 now just 2.75% away. Philly semi index (SOX) rises 3.5% back above 5,100 up over 8.5 on the week now (pares monthly loss to -2.4% and back above the 100dma level around 5,077). Dow Transports rise 1.2% or 200 points to 15,600, above the 200dma of 15,440 today helped today by retail sales data and WMT commentary on the consumer. Every sharp pullback for 9 months has been bought aggressively; this last “sharper” dip has thus far proved to be no different.

While market sentiment/reaction the last few days has investors all Bulled up again with surging stock prices, there were again several that warned of caution/data points of concern: 1) Billionaire investor Leon Cooperman notes “thinks U.S. is heading toward financial crisis”- CNBC interview; 2) Piper with a bold call today saying 2024 looks reminiscent of 1970 and 2001 recession years; 3) credit card charge-off/delinquency data continues to rise (BAC, COF data higher): 4) Credit card balances rose 2.4% to a record-high $1.14 trillion in the second quarter of 2024 —a 48% increase since the first quarter of 2021, per the Fed.

• Weekly Jobless Claims fell to 227,000 in latest week from 234,000 prior (consensus 235,000), while the 4-week moving average to 236,500 from 241,000 prior week and continued claims fell to 1.864M from 1.871M prior (est. 1.875M) and the U.S. insured unemployment rate unchanged at 1.2%.
• Philadelphia Fed business conditions August fell -7.0 vs. consensus +6.0 and vs July 13.9 for one of the few negative data points today as prices paid index August 24.0 vs July 19.8, new orders index August 14.6 vs July 20.7, employment index August -5.7 vs July 15.2 and the six-month business conditions August 15.4 vs July 38.7.
• NY Fed’s Empire state current business conditions index -4.7 in August vs. consensus -6.0 and vs. -6.6 in July as new orders index -7.9 in August vs -0.6 in July, prices paid index +23.4 in August vs +26.5 in July, employment index at -6.7 in August vs -7.9 in July, and six-month business conditions index +22.9 in August vs +25.8 in July.
• July import prices better rising +0.1% vs. consensus decline (-0.1%) and vs June unchanged while July export prices +0.7% vs. consensus unchanged and vs June (-0.3%); U.S. July petroleum import prices +0.5% vs June -2.0% and U.S. July year-over-year import prices +1.6%, export prices +1.4%.
• U.S. July Industrial Production declined (-0.6%), double the consensus for decline of (-0.3%) and sharply down from June +0.3% (previous +0.6%); capacity utilization rate tumbles to 77.8% from June’s 78.4% and below consensus 78.5%. U.S. July industrial output ex cars/parts -0.2% vs June +0.3%.
• June inventory/sales ratio 1.38 months’ worth vs May 1.38 months; June Business Inventories +0.3% (consensus +0.3%) vs May +0.5% (prev +0.5%); U.S. June business sales -0.1% vs May unchanged (prev unchanged); U.S. June retail inventories ex-autos unrevised at +0.2% (prev +0.2%).
• August NAHB Housing market index 39 below consensus 43 and compared to 41 in July; the NAHB August index of current single-family home sales 44 versus revised 46 in July (previous 47); August index of home sales over next six months 49 versus 48 in July (previous 48); lastly August index of prospective buyers 25 versus 27 in July (previous 27).

• December gold prices rose $12.50 or 0.5% to settle at $2,492.40 an ounce
• The U.S. dollar held gains, pulling back from a seven-month peak the prior day, after U.S. retail sales data eased fears of a recession risk and dampened expectations for aggressive interest-rate cuts. U.S. retail sales rose more than expected in July, easing recession fears prompting markets to dial back expectations for a 50-basis-point rate cut next month.
• The euro fell -0.35% versus the dollar at $1.0973 after reaching $1.10475, its highest level this year, on Wednesday, as markets digested U.S. inflation numbers.
• The Japanese yen was at 149.10 per dollar, off the seven-month high of 141.675 per dollar touched during last week’s market carry trader concerns and well beyond the 38-year lows of at the start of July.

• China Retail: BABA shares drop on mixed results as Q1 adjusted EPS $2.26 topped consensus $2.13, but Q1 revenue $33.47B was below the consensus $34.81B (Q1 revs rose 4% y/y to 243.24B yuan (or $33.47B) below consensus est. 249.85B yuan); Income from operations was RMB35,989M (US$4,952M), a decrease of 15% or RMB6. JD shares popped early reported revenue and adjusted earnings per American depositary receipt that exceeded Wall Street expectations.
• Other big movers on news/results: NKE strong as Pershing Square’s William Ackman built new stakes in NKE during second quarter, according to regulatory filing, revealing Ackman’s hedge fund owns 3.04 mln class B shares of co. TPR posted better-than-expected earnings and revenue, though some negative impact to full-year guidance related to the suspension of share repurchases due to Tapestry’s proposed acquisition of the Versace, Jimmy Choo, and Michael Kors company Capri (Q4 EPS $0.92/$1.59B vs. est. $0.88/$1.57B). ULTA shares rose after a quarterly filing showed Warren Buffett’s Berkshire Hathaway acquired a sizeable stake in the cosmetics store chain worth $185.4M. DDS shares tumbled after quarterly results fell short with EPS $4.59 below consensus $5.97 and revs $1.49B vs. est. $1.53B and comp sales fell -3%.

• In Food & beverages: PPC was downgraded to Neutral from Buy at Bank America saying incremental share upside appears difficult from here given increasingly difficult U.S. profitability comparisons in the second half of 2024, an improved supply situation as measured by egg sets which could put downward pressure on chicken pricing. KR price cuts part of bid to get $24.6B merger approved with ACI; doubles price cuts for Albertsons stores to $1B, Bloomberg reported late day.

• In Autos: GM signs landmark solar power deal for three assembly plants after announcing a 15-year renewable energy purchase agreement with Northstar clean energy for three gm assembly plants.
• In Food Delivery/Ride Hail: GRAB reported Q2 revenue of $664M missing the consensus estimates of $673.3M while saying sales from the food delivery business grew 11% to $356M missing the Wall Street est. of $362.1M.
• In Prisons: GEO, CXW shares were weak after NY Post reported Kamala Harris’ promise to close private ICE detention centers ‘on day one’ could dump thousands of convict migrants onto US streets . Vice President Kamala Harris’ past pledge to “absolutely” close all privately run immigration detention centers could mean releasing roughly 29,000 illegal migrants into American communities — including some 7,000 convicted criminals https://tinyurl.com/455wvy23

• In FinTech/Payments: ADYEY reported higher net profit and strong revenue growth for 1H’24, as net profit rose to 409.6M euros from 282.2M euros y/y and topping forecast of 399.7M, while Ebitda rose to 423.1M from 320.0M euros; said continues to see net revenue growing annually in a percentage range from the low 20s-high 20s, up to and including 2026; results/guidance helped other fintech names SQ, PYPL, etc.
• In Insurance: PGR was upgraded to Buy at Goldman Sachs and raised tgt to $262 from $230 as they look for higher than expected policies in force (PIF) growth driven by its competitive position and advertising efficiency – supported by its better profitability vs. peers. ALL tgt raised to $204 from $199 at Goldman as well as continues to recommend Allstate given its view for an "underappreciated profitability inflection" in 2025. Separately, ALL estimated catastrophe losses for the month of July of $542M or $428M, after-tax; said catastrophe losses for July include 20 events estimated at $587M with initial loss estimate of $226M from hurricane beryl. GSHD was downgraded to Hold from Buy at TD Cowen and lowered tgt to $94 from $98 saying while the company’s 1H24 performance has been solid, with core revenues up 17% y/y and total revenues up 12%y/y, much of this appears priced into the stock.
• In Credit Cards: COF July domestic credit card net charge-offs rate 5.79 % (vs. 4.478% y/y), auto net charge-offs rate 5.97%, 30+ day performing delinquencies rate for auto 2.11% at July end and 30+ day performing delinquencies rate for domestic credit card 4.28% at July end (vs. 3.95% y/y). Separately, balances on credit cards rose by $27 billion to $1.14 trillion in the second quarter, and auto loan balances increased by $10 billion to $1.63 trillion, per the Fed. BAC credit card delinquency rate was 1.42% at July end and credit card charge-off rate was 2.34% in July. AXP said card member loans net write-off rate-principal only 2.1% at July end.

• CMS rate cut proposal details: AZN Farxiga at $178.50, agreed to negotiated price for 30-day supply for CY 2026; MRK’s Januvia is $113.00 (down 79%), agreed to negotiated price for 30-day supply for cy 2026; BMY Eliquis at $231, agreed to negotiated price for 30-day supply for cy 2026, JNJ’s Janssen’s Stelara is $4,695, agreed to negotiated price for 30-day supply for cy 2026; For Pharmacyclics’ Imbruvica is $9,319, agreed to negotiated price for 30-day supply for cy 2026; JNJ’s Xarelto is $197.00, for AMGN agreed to negotiated price for 30-day supply for cy 2026 for Enbrel $2,355; NVO’s insulin products slashed by 76%. Drugs overall face cuts of between 68% and 38%.
• SIGA shares tumbled after saying prelim analysis shows most mpox patients in a trial for co’s antiviral drug tecovirimat in Democratic Republic of Congo did not recover more quickly than those given placebo, which meant the drug failed in the study’s main goal; said study suggests tecovirimat provides clinical benefit in patients treated early/severe disease.
• VXRT initiated coverage with an Outperform rating at Oppenheimer and a $4 tgt saying its bullish thesis is driven by its optimism on VXRT’s differentiated oral vaccine platform as well as two key programs that VXRT is advancing—oral norovirus vaccine and oral COVID-19 vaccine—both of which present attractive opportunities.

• In Aerospace & Defense: SPIR shares fell after notifying the SEC that its 10-Q filing for the quarter ended June 30 will be late. HEI shares bounced after Warren Buffett’s Berkshire Hathaway revealed a new stake of 1.04M shares in the latest quarterly filing. BA shares bounce after saying it signed deal with El Al Israel Airlines for 31 737 MAX aircraft worth $2.5B. ASTS shares jumped after announces new direct-to-cellular tie-up with VZ where the telecom giant commits $100M to partnership to enable AST SpaceMobile to target 100% coverage of continental U.S. from space on premium 850 MHz cellular spectrum.
• In Steel Sector: NUE was upgraded to Overweight from Equal weight at Morgan Stanley and cut tgt to $176 from $187 saying on 2025 estimates, NUE is now trading at a discount to STLD on a relative EV/EBITDA basis (0.99x vs 1.11x) and its relative premium on a P/E basis is below the 5-year average (1.13x vs 1.23x). The firm also said it prefers NUE to CLF given the muted auto output/demand it is forecasting in 2H24.

• Computer Hardware: DELL reiterated Overweight and added to analyst focus list at JP Morgan raising tgt to $160 saying the AI Server revenue opportunity remains large and estimates in relation to the AI Server TAM are likely to increase with robust Cloud CAPEX forecasts being revised higher. SCSC was downgraded from Outperform to Market Perform at Raymond James noting shares hover near its price target following a 20%+ run year-to-date that now pushes most valuation metrics to multiyear highs while core end markets remain generally soft.
• Security Software: SNOW company stake was dissolved by Berkshire Hathaway according to latest quarterly filing and was downgraded to equal weight from overweight at Wells Fargo, slashing tgt to $130 from $200 saying sees near-term challenges due to rising competition from peers such as Databricks and larger rivals like CRM. Keybanc provided earnings preview for sector: saying checks on PANW were solid and about consistent with last quarter, while checks with ZS were again strong this quarter. CRWD checks were soft, but interestingly, partners did not attribute it to the outage. OKTA checks with a few partners were mixed and generally in line. RBRK channel feedback was positive, ransomware a driver, cons. estimates appear conservative, and positive peer results (CVLT).
• Semiconductors extend their weekly gain to up over 9.4%, rising over 4% today behind NVDA, ARM, AMD, QCOM and ahead of AMAT earnings tonight as the Philly semi index (SOX) pares monthly loss to -1.5% and moves firmly back above its 100dma resistance level around 5,077). Wall Street stocks jumped after stronger-than-expected U.S. retail sales data soothes recession worries, which boosted sentiment on several sectors. MU shares jumped as hedge funds Soros Fund Management and Third Point both report share stakes in the company according to quarterly filings.