Closing Recap

Wednesday, December 04, 2024

U.S. stocks do it again, another day and another record high for the S&P 500, Nasdaq and Dow which continue to show no let up in its end of year surge. The S&P 500 (SPX) advanced for the 11th time in the last 12-trading days in what continues to be a massive/remarkable market rally that saw the S&P 500 post its 55^th record high of 2024, led by Technology strength. Today also marked the 12^th straight day in which S&P futures (SPUZ) recorded a higher high then the day prior (yesterday failed to do so during normal hours but jumped above just after hours to keep the streak alive), with a higher high every day since 11/18 of 5,933. The same big names have been pushing major averages the last few days, namely tech (XLK +3% WTD) with record highs for AMZN, NFLX joining the likes of AAPL, META records earlier this week. Economic data was mixed with in-line ADP payroll data and weaker manufacturing, helping keep a 25bps rate cut in December by the Fed in play. Fed Chairman Jerome Powell, in his interview with Andrew Sorkin at the NYT Dealbook Summit this afternoon noted, as per @NickTimiraos, “We wanted to send a strong signal that we were going to support the labor market if it continued to weaken.” “The economy is strong, and it’s stronger than we thought it was going to be in September.” Powell also said on a path to more neutral rates over time, though downside risks are less than thought, Fed can afford to be cautious in finding neutral. It was another day of slow melt-up for major averages on light volume as SPY total volume was just over 31M shares just a day after SPY posted its lowest volume day since May 27, 2005 (ex: 4 holiday related days) at 26.9M shares). Bitcoin was a bright spot as well, surging late day above $98,500 making another run at 100K late day. The Dow Jones Industrial Average closed above 45,000 for the first time (had traded above three times the last week intraday).

• U.S. Factory orders ex-transportation for October rose +0.1% vs Sept +0.1% (prev +0.1%); factory orders ex-defense +0.3% vs Sept -0.5%; Durables orders revised to +0.3% from +0.2%; Oct nondurables orders +0.1% vs Sept -0.1%; U.S. Oct inventories/shipments ratio 1.46 months’ worth vs Sept 1.46 months.
• The Institute for Supply Management (ISM) nonmanufacturing purchasing managers index (PMI) slipped to 52.1 last month after surging to 56.0 in October, which was the highest level since August 2022 (ests were for 55.5). The new orders measure fell to 53.7 from 57.4 in October; prices paid measure little changed at 58.2 and the services employment slipped to 51.5 from 53.0 in October.
• Weekly MBA data showed U.S. mortgage market index +2.8% in the latest week; the purchase index climbs 5.6% and the refinance index falls 0.6% after the average 30-year mortgage rate falls 17 bps to 6.69%.
• Fed Beige Book report showed economic activity climbed slightly in most districts; the climb in electricity demand was driven by rapid expansions in data centers and was reportedly planned to be met by investments in renewable generation capacity in coming years; prices climbed only at a modest pace across Federal Reserve districts.

• Feb gold prices rose $8.30 to settle at $2,676.20 an ounce (high of day $2,682 and low $2,654.20). Crypto/Bitcoin friendly news as President-elect Donald Trump stated: "I am delighted to announce the nomination of Paul Atkins to be the next Chairman of the SEC. Paul is a proven leader for common sense regulations. He believes in the promise of robust, innovative capital markets that are responsive to the needs of Investors, & that provide capital to make our Economy the best in the World. He also recognizes that digital assets & other innovations are crucial to Making America Greater than Ever Before.

• In Discount Stores, DLTR reported better results with Q3 adj EPS $1.12 vs. consensus $1.08; Q3 revs $7.56B vs. consensus $7.44B; while continues to reiterate its commitment to completing its formal review of strategic alternatives for the Family Dollar business segment (DG reports earnings tomorrow). In toy retailers, MAT shares jumped after saying at Morgan Stanley conference would expect to raise prices to offset impact from tariffs, and said had a strong black Friday, expect to grow in Q4 (also boosted shares of HAS).
• In Food & Restaurants: CPB shares slumped after reporting Q2 sales of $2.77B vs. est. $2.8B, though EPS of $0.89 topped the $0.87 estimate amid cost savings; names insider Mick Beekhuizen as new CEO, effective Feb. 1, 2025, replacing Mark Clouse, co’s CEO for six years. HRL reported Q4 results mostly in-line while guided Fy25 sales $11.9B-$12.2B, below consensus of $12.23B citing weak demand for its products and lower turkey prices (shares of other food co’s CAG, GIS, HSY, KHC, MDLZ declined in sympathy). CMG said to boost prices to offset inflation, as Chipotle confirms an approximate 2% price boost nationwide.

• In EV’s, TSLA and VFS saw strength, LCID, RIVN seen more impacted as California pushes back on potential removal of EV tax credit. California to offer incentives for EV buyers if federal tax credit repealed. Lucid and Rivian are seen more materially impacted due to less flexibility on vehicle pricing since they are still producing negative gross margins. Tesla and VFS least affected due to economies of scale and lower cost production in Vietnam, respectively.

• In Utilities: Keybanc downgraded DTE to Sector Weight as it seeks to reduce exposure to regulatory concerns in Michigan, though continues to be viewed as a fundamentally strong utility with an attractive portfolio of businesses. ETR was also downgraded to Sector Weight at Keybanc on valuation while the firm upgraded PNW to Overweight as it sees the AZ regulatory environment improving structurally going forward. NNE signed a memorandum of understanding with the Department of Energy’s to test its prototype micro-reactors at the Idaho National Laboratory.
• In LNG Sector: NFE was upgraded to Hold from Sell and tgt raised to $11 from $7.60 based on the company de-risking its near-term liquidity and debt maturity situation via a recent equity raise and debt refinancing agreement. Stifel said LNG, GLNG, NFE are among companies with direct LNG exposure and current upside potential from healthy prices, which have been steadily rising since hitting a low of around $8/mmbtu in February. In the past several weeks, prices in both Asia and Europe have drifted above $15/mmbtu.

• In Crypto: IREN announces $300M convertible senior notes offering due 2030; HUT enters sales agreement to offer up to $500M in stock; joins other Bitcoin miners such as MARA, CORZ in recent week to sell stock/notes raising cash following lead of MSTR which has been doing for months to buy Bitcoin. HOOD said its November assets under custody grew over 15% from October to $190 billion, crypto notional volumes rose 400% from October to over $30 billion in November and said it plans to release its full November operational data next week.

• NVAX said to sell its Czech Republic manufacturing facility to Novo Nordisk (NVO) for $200M and expects to reduce annual operating costs by ~$80M.
• RLMD shares tumbled after saying its depression treatment, REL-1017, is unlikely to meet the main goal of a late-stage trial, according to an independent data monitoring committee’s analysis.
• RVMD 14.13M share Secondary priced at $46.00.

• DCGO signs contract in Mississippi with major hospital system to provide adult and pediatric remote cardiac monitoring services
• UNH CEO of UnitedHealthcare (a division of UNH), Brian Thompson, was fatally shot in the chest Wednesday morning outside the Hilton hotel in Midtown, the NY post reported. Brian Thompson, 50, was at the hotel at around 6:46 a.m. when a masked man fired at the CEO and fled eastbound on 6th Avenue.

• In Truckers/Logistics: Barclay’s noted November LTL volumes came in soft at ODFL and SAIA, with XPO trending closer to in line with expectations; ODFL yield update indicates solid pricing environment despite continued demand challenges; GXO announced Malcolm Wilson to retire as CEO in 2025 while Bloomberg reported the co plans to remain an independent company, spurning acquisition offers announced in October as the supply-chain services provider prepares to replace its chief executive officer. ODFL reported LTL tons per day for November of -8%, LTL shipments per day -6.8% and LTL weight per shipment -1.2%. XPO reported LTL tonnage per day decreased -4.0%, as compared with November 2023, attributable to a y/y decrease of -4.2% in shipments per day.
• In Industrials/Aerospace: LUNR shares slipped after pricing an upsized offering of 9.523M shares of common stock at $10.50 per share. In heavy duty machinery (CMI, PCAR), monthly Class 8 heavy duty truck N.A orders fell -8.8% Y/y in November to 33,500 but were up sharply from 28,300 vehicles in October (a m/m basis). PLTR shares dropped this afternoon after the WSJ reported OpenAI Partners with Anduril Industries on defense technology for drone-countering systems, marking a shift from its previous stance against military work. GD authorizes repurchase of 10M shares.
• In Homebuilders: the group was generally weak with hefty declines for DHI, KBH, LEN, TOL, BZH and others. Treasury yields jumped earlier to highs of 4.28% for the 10-yr after economic data, possibly weighing on the group initially, but have since come back to lows below 4.2% though group remained under pressure.

• In Security Software: OKTA shares rose as reported Q3 results of $665M and $0.67 above street expectations for $649.8M and $0.58 while its "remaining performance obligation" (RPO) grew to $3.7B, up 19% YoY; Okta raised 4Q FY25 guidance to revenues of $667-$669M (vs. est. $650M) and EPS of $0.73-$0.74 (vs. est. $0.66).
• In Data Storage: PSTG shares jumped after announced its first design win with a Top 4 Hyperscaler in recent weeks, which stole the show from 3Q results and was in line with CEO Charlie Giancarlo’s expectation for securing a design-win during the year. Management said anticipates meaningful revenue contribution in FY27 when the Hyperscaler shifts to double-digit Exabyte production deployments, following field trials in FY26. BOX reported mixed Q3 results as revenue was in-line while billings growth was muted, FY25 revenue and operating margin guidance inched higher and NRR was stable QoQ and is believed to have troughed.
• In Video game Software: UBSFY said it has decided to discontinue development on XDefiant, its free-to-play first-person shooter title, and will close its San Francisco and Osaka production studios and ramp down production in Sydney, leading to job losses. Bank America noted US mobile gaming IAP -2% YY in Oct + Nov, 4Q likely flattish QQ, deviating from past seasonality; see risk to Street 4CQ ests; said for TTWO, risk to 4CQ mobile as tracking below Guide, Match Factory stable; EA: 4CQ tracking inline, BofA F25 Mobile below guide and for both APP , gaming IAP thru Nov tracks slightly below Street.
• In Media: ROKU shares rally, extending recent gains after Needham in a report today suggested that there are several categories of potential purchasers including streamers (NFLX, etc.), CTV ad buyers (TTD, etc.), retailers (Target, etc.), and LLMs (large language models) hungry for billions of new data points daily (AMZN/AWS, MSFT/OpenAI, GOOGL/YouTube/Gemini, etc.).

• ACMR was downgraded to Hold from Buy at Needham following the addition of ACM Shanghai and ACM Korea to the U.S. Entity List, creating an overhang.
• KLAC reiterated guidance for the DecQ but said the recent round of China restrictions could be an incremental headwind of ~$500M in 2025.
• MCHP extended prior day losses; on Tuesday shares fell -7% after indicating Q3 revenue is expected to be at the low end of prior guidance.