Closing Recap

Thursday, August 22, 2024

U.S. stocks opened higher, looking like another melt day higher after rising 9 of the last 10 trading days, but once selling began around 10:00 AM, it never let up! It’s been nearly two straight weeks of upward momentum, bouncing off the sharp 3-day pullback to kick off August, but major averages have surged since on easing inflation fears, signs of an improving economy, rising rate cut expectations from the Fed, and on earnings season results. The next catalyst, and the one all have been waiting for this week is Fed Chairman Powell commentary tomorrow at noon at the annual Jackson Hole Fed Symposium. The S&P 500 index snapped its 12-day streak of higher lows, after breaking yesterday’s 5,591.57 low (which it didn’t recover late day). Stock selling accelerated following a late morning report in the Financial Times that Taiwanese Foreign Minister Lin Chia-lung and Joseph Wu, Taiwan’s national security adviser, have been in the Washington area this week for talks with the US administration, citing people familiar with the matter. The exact location and timing of the talks, which are known as the “special channel,” were unknown, said the report. That added to some geopolitical fears and gave stock markets, that have seen several days of upward momentum, a reason to take profits, especially ahead of the Powell speech tomorrow.

In Fed speakers: Federal Reserve Bank of Boston President Susan Collins said it will soon be appropriate to begin cutting interest rates to help preserve a still-healthy labor market. Officials should move gradually when they begin easing, Collins said, emphasizing she’s not seeing any “big red flags” in the economy. The Boston Fed chief said she’s focused both on “preserving that healthy labor market while we continue to bring inflation down.” Federal Reserve Bank of Philadelphia President Patrick Harker said in CNBC interview the job market is softening but off very high levels; re: rate cuts- used the term “methodically”- wouldn’t commit to 25 or 50 but comments seem to point to 25- dependent on remaining data prior to Sept meeting.

• July Chicago Fed National Activity Index at -0.34 vs -0.09 Prior and June revised to -0.09 from 0.05. 28 of the 85 monthly individual indicators made positive contributions, while 57 indicators affected the index negatively.
• U.S. S&P Global August flash services PMI at 55.2 (vs 55.0 in July), U.S. S&P Global August flash composite PMI at 54.1 (vs 54.3 in July), and U.S. S&P Global August flash manufacturing PMI at 48.0 (vs 49.6 in July).
• July Existing Home Sales rose 1.3% to 3.95M unit rate (vs. consensus 3.93M) and vs June 3.90M; U.S. July inventory of homes for sale 1.330M units, 4.0 months’ worth; U.S. July national median home price for existing homes $422,600, +4.2% from July 2023.

• Treasury yields bounced off near August lows, with the 10-yr yield rising over 8bps to 3.87% (off overnight lows sub 3.8%) as traders’ position ahead of tomorrow’s Powell speech. The U.S. dollar bounced for the first time in 5-days ahead of Fed Chairman Powell comments on rates and the economy tomorrow afternoon (DXY bounced +0.5% to 101.60). The Canadian dollar edged lower against its U.S. counterpart, pulling back from a four-month high, as the greenback notched broad-based gains and a work stoppage at Canada’s top two railroads threatened to disrupt the domestic economy.

• In Home Furnishings: WSM mixed Q2 as EPS $1.74 tops the $1.60 estimate but revs of $1.79B fell from $1.86B y/y and was below ests $1.81B; Q2 Same-store sales fell (-3.3%) worse than the est. (-2.5%) drop; lowers FY revs view to minus 4.0% to minus 1.5%, vs, prior down 3% to up 3%; lowers op margin to 17.4%-17.8%, from prior view 17.6%-18.0%.
• In Warehouse/Clubs/Discount: BJ shares slumped as Q2 EPS/revs topped consensus and Q2 comp club sales increased by 3.1% y/y but lowers FY24 merchandise gross margin forecast to remain flat y/y vs prior expectations to improve about 20 basis points, while maintained FY24 EPS range of $3.75-$4.00 despite Q1 beat; Q2 Membership fees $113.1M, +9.1% y/y.
• Consumer Staples: EL was upgraded to overweight at Piper and tgt raised to $114, coming away from earnings more comfortable with current valuation levels and having stronger conviction in updated forward estimates. UL was double upgraded to Buy from Underperform as believes that organic growth will reach a CAGR of 4.6% in 2024-27E on the back of stronger underlying growth, separation of Ice Cream will be beneficial for growth, and local competition in EM and more private label competition challenges are well understood.

• In Autos: Auto retailers weaker after AAP said it would sell its WorldPac unit to private equity firm CG for $1.5 billion in cash, but cuts FY24 EPS view to $2.00-$2.50 from $3.75-$4.25 (EST. $3.55), lowers FY24 revenue view to $11.15B-$11.25B from $11.3B-$11.4B (est. $11.29B) and cuts FY24 comp store sales view to (1%)-0% from 0%-1% (Q2 results missed); shares of AZO, ORLY, GPC, SAH, LAD and others were active on the day.
• In Leisure/Gyms: PTON guides FY25 revenue $2.4B-$2.5B (est. $2.69B), FY adj EBITDA $200M-$250M (est. $113.5M) and sees connected fitness subscribers 2.68M-2.75M (est. 3.0M); shares moved higher as quarterly sales unexpectedly grew for the first time in over two years, to $643.6M from $642.1M (above est. $628M) while quarterly loss narrowed to $30.5M from $241M y/y.
• Ride Sharing: Chinese autonomous-driving company WeRide has postponed its plan for a U.S. initial public offering, days before Chinese regulatory approval lapses, Bloomberg reports, citing people with knowledge of the matter.

• In Industrials: The July U.S. Architecture Billings Index (ABI) up ticked to 48.2 from June’s 46.4 but remained below the 50 thresholds as Architecture firms continued to experience a billings slowdown.
• In Transports: The Association of American Railroads reported U.S. rail traffic for the week ending August 17, 2024. For this week, total U.S. weekly rail traffic was 516,819 carloads and intermodal units, up 8% compared with the same week last year. Total carloads for the week ending August 17 were 231,081 carloads, up 1% compared with the same week in 2023, while U.S. weekly intermodal volume was 285,738 containers and trailers, up 14.3% compared to 2023.

• SCHW declined after TD said it had set aside $2.6 billion for fines for weaknesses in its anti-money-laundering practices. It plans the sale of 40.5 million shares of common stock in Charles Schwab (SCHW) at $61.65, reducing its ownership interest in the wealth-management company to about 10% from more than 12%.
• DB shares rose after announces saying it has reached settlements with nearly 60% of plaintiffs in a long-running case alleging the German lender underpaid for its acquisition of Postbank more than a decade ago. The German lender said the settlement would allow it to release 430M euros in provisions for the case.
• In Insurance: GSHD downgraded to Market Perform from Outperform at BMO Capital, predicated upon near-term view that profit margins could come under incremental y/y pressure as Goosehead leans into its improved hiring strategy.
• In REITs: Barclays lowered its occupancy and rent assumptions for 2H’24 Self-Storage REITs following seasonal demand that was softer than its expectations. Barclay’s projects continued but narrowing y/y declines in occupancy and rates. Barclays updated its forecasts, maintaining its Overweight rating on PSA and EXR and its Equal Weight rating on CUBE and NSA

• LQDA announced that it is suing in US District Court to challenge the recent decision of the US FDA to grant 3-year new clinical investigation exclusivity to Tyvaso DPI, delaying the final approval of Liqudia’s Yutrepia until 5/23/25.
• In Hospital Providers (CYH, HCA, THC, UHS): TD Cowen said July 2024 hospital revenue growth of +9.9% y/y accelerated +880bps seq (+460bps net seq calendar pickup) and removing an est. +260bps y/y calendar tailwind, adjusted growth was +7.3% y/y and accelerated +420bps seq; the 3-month avg unadjusted was +21bps seq, adj was +94bps.
• In Life Sciences: Agilent (A) reported a strong 3Q24, with revenue and EPS coming in significantly above expectations while raised the midpoint of their previous FY24 top-line guidance by $15mn and raised the midpoint of prior EPS guidance by $0.03, respectively.

• BIDU reports flat Q2 revenue of 33.93B yuan (es.t 33.55B yuan) as a sluggish economy weighed on advertiser spending; said Q2 net income fell 8% to 7.4B yuan, above ests of 6.45B yuan.

• OPRA Q2 revenue of $109.7M was ahead of consensus of $108.7M while adj. EBITDA of $26.6M also beat consensus of $24.5M; Q3 revenue guidance of 17% y/y growth was in line with consensus while adj. EBITDA guidance was raised ahead of the street; full year guidance was raised to reflect 17% y/y growth and was in line with consensus.
• SentinelOne (S) upgraded to Overweight from Equal Weight at Wells Fargo and raised tgt to $29 from $19 as believes the co is gaining market share at the expense of CRWD, following the global outage in mid-July and believes the shares gains will likely continue, as SentinelOne has the strongest pipeline in its reseller survey.
• SPT was downgraded to Underweight at KeyBanc and reducing ests with a $28 downside price target following a deeper look into the Company’s first half performance and what it might mean for its ability to reaccelerate revenue growth in 2025 up to the Street’s liking.
• ZM delivered a ~1% revenue beat, slight w/ recent trends and representing 2% y/y rev growth. Op income beat by ~10%, also ~in-line with typical beats; OM contracted by 80bps (vs 230bps expansion in prior year; nudged the FY25 rev guide higher by $20Mn (vs $10Mn beat in qtr) w/ FY revenue guide revised one ppt higher to 3% y/y.
• ZUO Q2 adj EPS $0.19 vs est. $0.10, adj op Inc $25.6Mm vs est. $18.82Mm on revs $115.4Mm vs est. $112.6Mm; guides Q3 revs $115-117Mm vs est. $115.11Mm, adj op Inc $20.5-21.5Mm vs est. $20.34 and adj EPS $0.11-0.12 vs est. $0.10; sees FY revs $455.5-461.5Mm vs est. $454.58Mm, adj op Inc $90-93Mm vs est. $81.03Mm.
• In EDM Sector: SNPS FQ3/FQ4 sales a touch above consensus estimates while pf-EPS came in 5%/1% above as Operating Margin expands on improving operating leverage.

• WOLF reported JunQ in line and guided the SepQ flat q/q (below consensus up 7% q/q), with weak I&E (Industrial) demand and GMs down (900bps below consensus); MVF 200mm device utilization improving to ~25% in the SepQ, autos EV product mix up from 20% in SepQ’23 to ~65% in SepQ’24, a positive, but GMs have trended down ~1500bps over the same 4-quarter window, with underutilization, Industrial margin headwinds, China SiC competition, and potential Auto EV OEM pushouts.