Closing Recap

Friday, August 23, 2024

The rally in U.S. stocks non-stop, as overly dovish commentary from Fed Chairman Powell helped spark another rally on Wall Street, raising hopes for aggressive rate cuts as soon as September and boosting shares of interest rate sensitive sectors (Smallcaps, lending, banks, solar, biotech), allowing stocks to close with weekly gains. Coming into the day, U.S. stocks had closed higher 9 of the last 11 days, with big wins along the way on rate cuts expectations; so today’s commentary and outlook wasn’t necessarily a surprise, but still welcomed by investors as Treasury yields tumbled (2-yr -10bps) and the dollar sunk to 8 month lows, while gold jumped and Bitcoin spiked this afternoon (up over 5% topping $63K) as investors increased riskier bets. Political uncertainty heading into the November election has not been a concern for investors thus far, with both the RNC and DNC conventions behind us, and Presidential debates between Trump and Harris are next up. In other political news, RFK Jr. officially suspended his campaign today and announced he was endorsing Donald Trump. The story of the day was Smallcaps as the Russell 2000 surged as much as 3.4% at one point before paring gains on the confirmation from Fed Chairman Powell of the pivot to lower rates and kept option open to aggressive cuts (dependent on data). NYSE breadth overwhelmingly positive by more than 6:1 margin for advancers over decliners as all eleven S&P sectors closed notably higher (Staples lagged). However, in an interesting note, RothMKM strategist Darda noted late day, “Fed Chair Powell confirmed what RothMKM already knows (and was already priced in): the time has come for the Fed to shift toward easing policy. The S&P 500 remains incredibly optimistic about future growth and earnings prospects, but this was also the case in July 1990, March 2000, October 2007, and February 2020. He notes the exceptionally high level of confidence on Wall Street that a few modest rate cuts toward the end of the year will preserve the soft landing is inconsistent with recent business cycle history.”

• The dollar index (DXY) tumbled -0.8% to lowest levels since late December under 101, as the Japanese yen climbs over 1.4% to session high 144.25 versus dollar, British Pound continues gains climbing 1% against the US dollar above $1.32 and the Canadian dollar strengthened to a four-month high (C$1.351) as Federal Reserve Chair Jerome Powell signaled the start of interest rate cuts and preliminary domestic data showed retail sales rising in July.
• U.S. Treasury yields fell after Federal Reserve Chair Jerome Powell gave his strongest signal yet that interest rates are coming down most likely at the next policy meeting in September, as the benchmark 10-year yield fell 6 basis points (bps) below 3.80% (finished above), while the 20-yr yield dropped 9bps to 3.91%.
• Gold prices rebounded following yesterday’s profit taking, rising $29.60 to settle at $2,546.30 an ounce to close the week (just off recent record highs of $2,570.40), as the dollar dipped and Treasury yields slipped as the Fed further cements view that rate cut cycle will begin in September (was widely expected, but still moved in reaction to Powell today). Gold managed a +0.4% gain on the week, silver rose 3.5% and copper gained about 1.6% on the week. Bitcoin jumped, rising over 5% to $63,700 in more risk taking this afternoon with stocks pushing back near record highs for the S&P.  

• In Food: Nestle (NSRGY) said its CEO of eight years will be replaced by current Latin America CEO Laurent Freixe as of Sept. 1; Schneider’s surprise exit was announced late on Thursday following a board meeting.
• In Restaurants: CAVA shares rose after beat on comp, margin & ultimately EBITDA and all components of ’24 guidance were raised, with comp up LDD in 2H24.  RRGB shares tumbled on wider Q2 loss and Ebitda miss while lowers FY adj. EBITDA to $40.0M-$45.0M from prior $60M-$70M; sees FY restaurant level operating profit of 11.0% to 11.5%.
• In Footwear & Softlines: Piper assumed coverage of 11 names under the Footwear, Softlines and Global Brands; with Overweight: ONON ($52 PT), CROX ($170 PT), WWW ($18 PT), WRBY ($18 PT), and RVLV ($30 PT). Neutrals are: NKE ($80 PT), LULU ($250 PT), DECK ($1,000 PT), FL ($30 PT), SHOO ($45 PT), and ETSY ($56 PT). Transfer CHWY, upgrading to OW.
• Specialty Retail: WRBY upgraded to Market Outperform and $20 tgt at JMP Securities saying they believe consensus estimates for Warby Parker Inc.’s 2025 and 2026 top and bottom lines are too low, given early signs of PCE mix-shift toward corrective eyeglasses, WRBY’s consistent market share dynamics, and anticipated operating leverage.

• In Autos: UBER and GM’s Cruise unit to deploy autonomous vehicles on the Uber platform; Uber and cruise plan to launch partnership next year with a dedicated number of chevy bolt-based autonomous vehicles. LYFT was upgraded from Reduce to Neutral at Nomura with $13 tgt noting shares are down -22% YTD, based on its 22 August closing price, while peer Uber’s is up 19% and the S&P 500 has gained 18%. During this time, the cost cuts and operational overhaul executed by Lyft’s management to focus on improving profitability and staunching cash burn have started to show results.
• In Leisure Activity: MODG was downgraded to Underperform at Raymond James citing the recent deterioration in sales at its namesake chain of high-tech driving ranges; PTON was downgraded to Neutral at JP Morgan and tgt cut to $5 from $7 as return to growth in CF Subs & Revenue remains challenging, & visibility is limited given secular & macro pressures.

• In Aerospace & Defense: RKLB said former LMT CFO Kenneth Possenriede has been appointed to the board; TDY secures $114M contract to enhance missile defense systems. In defense (LMT, LHX, GD), President Biden announces a new military aid package for Ukraine. Biden notes the package includes air defense missiles, counter-drone equipment, anti-armor missiles and ammunition.
• In Energy: Baker Hughes provided weekly rig data: U.S. oil rig count unchanged at 483, down 29 yoy; nat gas rigs down 1 to 97; horizontal rigs up 3 to 524; Gulf Of Mexico Rig Count Unchanged; Permian +3, Eagle Ford -1, Williston -2, Haynesville +1 In Week Ending Aug 23.

• In Financial Services: INTU reported a strong FQ4 revenue and EPS beat, driven primarily by QB Desktop and Credit Karma. Moreover, INTU’s FY25 revenue guidance was broadly in-line while adj. EPS guidance came in modestly ahead of consensus estimates. Management reiterated its LT growth of 15-20% for Small Business and lowered LT growth expectations for Consumer and Credit Karma. Said expects Q1 revenue growth of 5% to 6%, below expectations of 13.1% and expects transition of QuickBooks desktop products to a recurring subscription model to lower Q1 revenue by about $160M.
• Mortgage lending stocks saw gains on Powell noting turn to lower rates with likes of RKT, SLQT, TREE, rising; real estate services names like ZG and RDFN also surged. Homebuilders also another massive push higher, with record highs for many names in big surge for TOL, DHI, KBH, MTH, PHM, others.
• In Insurance: Barron’s was positive on shares of reinsurer EG noting for insurers, it’s all about getting appropriately paid for risk. And for investors, reinsurer Everest Group looks like a risk worth taking. Everest is the world’s fourth-largest property and casualty reinsurer and has one of the lowest price/earnings ratios in the S&P 500.
• In Asset Managers: LPLA with July metrics as advisory and brokerage assets at end July were $1.53 trillion, an increase of $31.5B, or 2.1%, compared to end June; total net new assets for July were $9.0B, translating to a 7.2% annualized growth rate; Cash balances were flat m/m.

• JAZZ announced top-line results from the Phase 3 open-label, single-arm trial in Japan evaluating the safety and efficacy of cannabidiol oral solution as an adjunctive treatment for seizures associated with Lennox-Gastaut syndrome, Dravet syndrome or tuberous sclerosis complex. The trial did not meet the primary efficacy endpoint but said numeric improvements were observed in the primary and several secondary endpoints.
• MRNA received approval from the Ministry of Health, Labour and Welfare, MHLW, in Japan for a partial change application for an updated formulation of its COVID-19 mRNA vaccine Spikevax, targeting the SARS-CoV-2 variant JN.1.

• In Metals & Mining: Gold Fields (GFI) lowered its annual output forecast a 2nd time this year citing unusually harsh winter conditions which hurt a planned ramp-up of production at a new mine in Chile; now sees 2024 output between 2-2.15 mln ounces of gold vs 2.2–2.3 mln ounces estimated in June (7% lower); said profit slumped 30% to $320.7M in 1H.
• In Chemicals: WLK upgraded to Outperform from Sector Perform at RBC Capital citing PEM earnings at trough; continued strong HIP performance; and strong capital deployment into M&A. RBC believes HIP and PEM should see stronger demand as potential future rate cuts benefit B&C activity.

• In Online Services: IQ was downgraded to Hold from Buy at Benchmark citing muted 2Q results and, more importantly, reduced visibility on membership growth which would further compromise their confidence in earnings and FCF projections. BIDU was downgraded from Outperform to Market Perform at Bernstein and tgt cut to $97 from $130 saying the stock to trade sideways on greater disruption and less visibility of future success: Bernstein expects more disruption to the near-term Search results and any limited signs of success in next few quarters.

• BILL reported Q4 results, delivering revenue of $343M (vs. $328M consensus) as standalone TPV grew 9% Y/Y. Revenue beat in FQ4 was in line with prior quarters’ average but NRR declined to 92% vs 111% in FY23. Management provided FY25 guidance (rev growth ~10-12% Y/Y) decelerating from 22% growth in FY24 and came in below consensus.
• WDAY delivered solid FQ2 results, slightly exceeding both subscription revenue and backlog estimates. While management kept FY25 subscription revenue guidance unchanged, the company lowered the mid-term guide to 15% growth given the tough macro backdrop and raised its op. margin target to 30% in FY27 (from 25.3% in FY25); would sharply increase profitability over the next three years and Adjusted operating margin will reach 30% by end of 2027.
• IT Services, Communications & Networking: UI shares dropped after Q4 revenue of $507.5M missed consensus of $511.6M while EPS of $1.74 narrowly beats estimate of $1.73. CTSH sued Indian tech company INFY in Texas federal court on Friday, accusing Infosys of stealing trade secrets related to its healthcare insurance software