Closing Recap

Monday, December 02, 2024

U.S. stocks continue to keep pushing higher, led by gains in mega cap tech today as the Nasdaq rose nearly 1% to new all-time highs, joining the S&P 500 also posting another record, while the Smallcap Russell 2000 underperformed large caps with NYSE market breadth negative despite the S&P gains. Outside of the big gains in mega cap tech (AAPL, AMZN, GOOGL, META, MSFT, NVDA, NFLX, TSLA), including a big rebound in semis (SOX +2.62%), markets focused on retailers following Black Friday sales data and ahead of today’s Cyber Monday expectations. In CEO news, INTC Pat Gelsinger retired (Bloomberg noted was pushed out), while auto company STLA shares fell following news of its CEO departure. Defensive and interest rate sensitive sectors such as Utilities and REITs saw the biggest declines (both down over -1.7% on the day). In Europe, a government collapse in France is on the brink after far-right and left-wing parties said they would vote a no-confidence motion against Prime Minister Michel Barnier – the vote is expected on Wednesday. The news, along with better US economic data, sunk the euro vs. the greenback. Manufacturing data dominated today, but the remainder of the week focuses on jobs with the Oct JOLTS tomorrow w/ est. 7.475M (prior 7.443M), then ADP private payrolls Wednesday with est. 150K (prior 233K), the Jobless Claims on Thursday and the Nonfarm payroll report on Friday with ests for 200K for Nonfarm (vs. prior 12K) and private (vs. prior -28K).

There remain several market uncertainties related to 1) the aggressiveness of future Fed rate cuts (after 75bps worth last few months) following stronger economic data, 2) the potential tariff impact from incoming Trump administration on economy/inflation/dollar, 3) Trump elected appointees for various cabinet positions being approved by Washington (RFK Jr., Hegseth, Patel), 4) European economy slowdown, France gov’t issues, 5) stronger U.S. dollar on better data, and 6) higher PE’s for stocks are all failing (thus far) to disrupt the “Santa rally” as the S&P 500 and Nasdaq each touched new all-time highs today, as FOMO, momentum continues to lead markets higher.  

Federal Reserve Governor Christopher Waller said he was leaning toward favoring a cut in interest rates at the central bank’s meeting later this month, though he also said he could be open to arguments for holding rates steady. The Fed cut its benchmark short term rate by a combined 0.75 percentage point at its last two meetings, to a range between 4.5% and 4.75% last month. The Fed’s next meeting is Dec. 17-18. “Policy is still restrictive enough that an additional cut at our next meeting will not dramatically change the stance of monetary policy and allow ample scope to later slow the pace of rate cuts, if needed, to maintain progress toward our inflation target,” Waller said in remarks prepared for delivery at a conference in Washington on Monday – WSJ.

• ISM U.S. manufacturing activity index 48.4 in November above consensus 47.5 and vs 46.5 in October; the prices paid index 50.3 in November vs 54.8 in October; new orders index 50.4 in November vs 47.1 in October and the employment index 48.1 in November vs 44.4 in October.
• Oct construction spending +0.4% above consensus +0.2% to $2.174 trln, vs Sept +0.1% (prev +0.1%); Us Oct private construction spending +0.7%, public spending -0.5%.

• The euro dropped almost 1% vs. the US dollar on growing concerns about a possible gov’t collapse in France, which would stall plans to curb a growing budget deficit. The buck also bounced on stronger manufacturing data and ahead of key jobs data later this week. France’s far-right National Rally President Jordan Bardella said his party would likely back a no-confidence motion in the coming days unless there were a "last-minute miracle".

• In Autos: STLA shares fell after saying CEO Carlos Tavares resigned Sunday, after nearly four years of leading the company saying the board had accepted the resignation, effective immediately. Stellantis said its search for a new CEO is underway and will be concluded in the first half of 2025. TSLA Reiterate Buy and lifting target price to $411 from $287 at Stifel as believes buying shares requires vision and patience, and the willingness to accept volatility and notes TSLA is clearly not just an automaker. Separately, TSLA was upgraded to Buy at Roth MKM and raised tgt to $380 saying catalysts should drive valuation.
• In China EVs: BYDDF said November total vehicle sales rose 67.8% y/y to 506,804 units vs. 301,903; and Jan-Nov Total Vehicle Sales 3.76M units vs. 2.68m units a year ago. LI said that it delivered 48,740 vehicles in November 2024, up 18.8% y/y. As of November 30, 2024, Li Auto had delivered a total of 441,995 vehicles in 2024, with cumulative deliveries reaching 1,075,359. NIO said it delivered 20,575 vehicles in November 2024, representing an increase of 28.9% y/y; deliveries consisted of 15,493 vehicles from the Company’s premium smart electric vehicle brand NIO, and 5,082 vehicles from the Company’s family-oriented smart electric vehicle brand ONVO. XPEV said it delivered 30,895 Smart EVs in November 2024, representing growth of 54% y/y and 29% m/m; deliveries of XPENG MONA M03 exceeded 10,000 units for the third consecutive month since its launch.

• GAP upgraded from Neutral to Overweight at JP Morgan and raised tgt to $30 and raise its FY25 EPS to $2.30 (above Street at $2.14) and FY26 EPS to $2.53 (above Street at $2.28) based on +3.1% revenue growth and ~40bps of annual operating margin expansion to 7.9% margins by 2026 (vs. Street 7.6%).
• KSS was downgraded to Neutral from Buy at Guggenheim citing deterioration in traffic, down 3% in Q3, which was more pronounced during the important back-to-school season while also notes step-down in comparable sales and deterioration in cash flow generation at the company.
• Deutsche Bank said checks showed: Black Friday checks in Illinois, New York, New Jersey, and Missouri highlighted performance relatively in-line with expectations, making US optimistic that retailers will meet and/or beat Q4 guidance. By category, DBAB believes beauty and footwear stood out as strongest this year, while the coldest Black Friday weekend in over 25 years spurred demand for seasonal goods that have lagged starting in mid-September. Outperformers, include Sephora, Bath & Body Works, Alo, Vuori, Walmart, Off-Price, and Dick’s Sporting Goods. Meanwhile, J.C. Penney, Kohl’s, and Target displayed softer trends.

• In Energy: PCG launched a $1.2B common stock and $1.2B preferred stock offerings, sending shares lower while defensive utilities in general were among the weakest S&P sectors given the rotation back into mega cap tech today. Energy another sector pressured with oil stocks broadly lower; nat gas names fall on lower prices.
• In Aerospace & Defense: some of the biggest winners over the last few weeks have been space/drone related names but saw some big profit taking on Monday with big declines in ACHR, ASTS, LUNR, JOBY, RKLB, UAVS, UMAC on no particular news other than a massive run-up in the sector.
• In Containerboard/Paper sector: Truist noted Fastmarkets RISI reported that Pratt Industries (private) announced price increases of $70/ton for linerboard and $90/ton for medium effective January 6, 2025. Meanwhile, Cascades announced $30/ton linerboard and $30/ton medium price increases effective January 1, 2025. Truist said they believe these announcements to be positive for PKG, IP and GEF.
• In Transports: For airlines (AAL, DAL, UAL), the U.S. Transportation Security Administration said it screened 3.08M airline passengers on Sunday, the highest number ever on a single day. The record travel coincides with the peak day of the Thanksgiving travel season. Airlines for America had projected U.S. carriers would fly more than 31M passengers over the holiday period, up from nearly 29M passengers during the same period in 2023.

• In Financial Services: TOST was downgraded to Neutral from Buy at Goldman Sachs, cutting the restaurant software company citing an elevated valuation and limited visibility following a recent rally. SQ named best idea for 2025 at Bernstein saying they see several catalysts for the stock into 2025 including Square GPV (#1 KPI) acceleration, significant EBITDA growth (30%) from continued efficiency gains, likely lower regulatory scrutiny and potential for S&P inclusion at some point. Also notes valuation is deeply attractive at 25x 2026 GAAP PE.

• BITF provides November 2024 production and operations update as achieved an operating hashrate of 12.8 eh/s in November; also upgraded nearly 19,000 t21 miners to s21 pro miners with delivery anticipated in December and January; November mining operations generated 204 Bitcoin compared to 236 in October.
• CORZ said to offer $500 million convertible senior notes due 2031.
• IREN announced it has increased its installed capacity from 21 EH/s to 28 EH/s (15 J/TH efficiency) following the energization of its Childress Phase 3 substation
• MARA announces proposed private offering of $700M of zero-coupon convertible senior notes to buy more Bitcoin.
• MSTR CEO Michael Saylor tweeted on “X” "MicroStrategy has acquired 15,400 BTC for ~$1.5B at ~$95,976 per #bitcoin and has achieved BTC Yield of 38.7% QTD and 63.3% YTD. As of 12/2/2024, we hold 402,100 $BTC acquired for ~$23.4B at ~$58,263 per bitcoin. $MSTR"
• XRP, a token linked to Ripple Labs Inc., has vaulted rivals to become the third-largest cryptocurrency in a $100 billion rally. In the process its market capitalization topped $137 billion, up from less than $30 billion on November 5, when Donald Trump emerged victorious in the US presidential election.

• NVCR shares jumped after saying its cancer therapy helped extend the lives of patients with a form of advanced pancreatic cancer when combined with chemotherapy in a late-stage study. Treatment and chemotherapy helped patients live for an average of 16.20 months, compared to 14.16 months for those treated with only chemo.
• OLMA announces new clinical trial collaboration and supply agreement with NVS in frontline metastatic breast cancer as well as $250M equity private placement.
• PTCT said it entered a licensing deal with a unit of NVS for up to $2.9 billion for its experimental drug PTC518 being developed for Huntington’s Disease Program; PTCT to receive $1B in cash at closing, eligible to receive up to $1.9B in milestone payments.
• VYGR initiated at Buy and $12 tgt at Citigroup saying the company’s proprietary TRACER platform for next-generation AAV capsids has established Voyager as a leader in the CNS gene therapy space and as a preferred BD partner for pharma.

• ISRG upgraded to Overweight from Equal Weight as strong Dv5 placements to drive upside to Street installed base expectations (consensus is at +14% in CY25, roughly in-line with history), while its work on system payback curves points to several potential new areas
• SYK upgraded to Overweight from Equal Weight, anxious around ortho volumes, but work suggests that even if industry growth has been backlog driven, there’s still a $1-2B remaining, underscoring growth in 2025 (while street is already normalizing SYK hip & knee growth to +7%).
• TNDM upgraded to Overweight from Equal-weight (PT unchanged at $45), as thinks valuation has compressed too far (sub-2x sales) and it sees upside risk from type-2 expansion in 2025 (TAM roughly grows +100%).
• GMED upgraded to Overweight from Equal weight (PT $100) with merger concerns now well behind us and above market growth expected to continue.
• EMBC upgraded to Equal-weight from Underweight, with the now discontinued and some upside risk from GLP-1 pen needles.
• GKOS downgraded to Underweight from Equal weight as while it thinks iDose is a great product with a long-term trajectory, it is struggling to get relative upside from here vs its other stocks on the current valuation.
• NVRO downgraded to Underweight from Equal weight despite trading around all-time lows as it expects SCS demand to remain soft and see little room for cost cutting.
• In Ortho: FMS was upgraded to Neutral at Bank America on key fundamentals having past the inflection point & on increased confidence on 2025 targets delivery. The firm notes 2 analysis in the report: 1) change of reimbursement (end of exchanges) and 2) launch of new dialysis machine 5008X in the US.

• In CDN Sector: AKAM was upgraded to Outperform from Perform with a $120 price target at Oppenheimer saying they believe CDN is now a more attractive market as it has consolidated from six players to three following the shutdown of Edgio, removing another price competitor, and volumes and pricing are improving based on its channel checks. FSLY also upgraded to Outperform from Perform at Oppenheimer with a $12 price target saying the co should benefit from Edgio’s bankruptcy at that same time that Internet volumes and pricing are improving
• NBIS shares jumped after raising $700M in private placement from investors including NVDA; Nebius to issue 33.33M Class A shares at a price per share of $21.00/share.
• ZBRA was upgraded to Equal Weight from Underweight at Morgan Stanley and raised tgt to $400 from $305 with the view that underlying demand trends are improving, and as a result see minimal downside to FY25 estimates, removing negative catalysts.

• ASML says long-term, our scenarios for demand in semiconductor industry are not expected to be impacted by new US export restrictions – Reuters.
• MRVL said it expands strategic collaboration with AMZN’s AWS to enable accelerated infrastructure for ai in the cloud.
• KLIC initiates a new $300M share repurchase program.
• SMCI shares bounced after saying no restatement of reported financials expected; said special committee didn’t find evidence of pattern or practice of co shipping incomplete products at or near qtr ends to recognize revs.
• Reuters reported the U.S. will launch on Monday its third crackdown in three years on China’s semiconductor industry, curbing exports to 140 companies including chip equipment maker Naura Technology Group, among other moves, said two people familiar with the matter.