Closing Recap

Thursday, December 05, 2024

US equity futures traded slightly lower overnight and had only jobless claims as a real potential catalyst on the economic release calendar this morning. With minimal earnings and only one Fed speaker on the calendar today, we could be starting to settle into a holiday feel for the market. On a sentiment basis today, the weekly AAII bull-bear spread came in at 17.6 this week versus -1.5 last week as bulls climbed from 37.1% to 48.3% while bears dipped from 38.6% to 30.7%. Meanwhile, today’s Fear & Greed Index held at 57/100 (Greed) versus 63 (Greed) last week, but 47 (Neutral) a month ago. Early breadth favored decliners by almost 3:2 as small caps underperform with IWM (-0.75%) versus SPY (-0.10%) and QQQ (-0.11%) while Consumer Discretionary (+0.80%), Financials (+0.54%) and Utilities (+0.50%) were early outperformers among S&P sector ETFs, while Industrials (-0.79%), Health Care (-0.88%) and Materials (-1.51%) led the underperformers with six sectors gaining versus five declining.

In data of note today, @charliebilello notes the S&P 500 P/E ratio is 32% higher than the average since 1989 at 26x versus the average of 19.7x. He also notes the S&P 500 has gained more than 29% in 2024. Since 1928, the S&P has climbed more than 25% a surprising 27% of the time. On Bitcoin, @bespokeinvest mentions that Bitcoin not only has risen above $100k, but it also has set a record ratio of 37 versus gold. On VIX, @DataTrekMB notes the current mark of 13 is well below its long-term average of 19.5, but that bull markets always carry low volatility. They also mention 84 of the 100 lowest VIX closes came during the first two years of Trump’s first term in 2017-2018.

Heading into the final hour of trading, US equity indices were modestly lower with breadth a little better than 3:2 still in favor of decliners and small caps continuing to underperform. Sector performance remained fairly evenly split with five S&P sector ETFs higher versus six lower. Consumer Discretionary (+1%), Energy (+0.76%) and Utilities (+0.7%) were leading gainers, while Industrials (-1.05%), Health Care (-1.1%) and Materials (-1.2%) paced the decliners. Growth and value were both in the red with growth the outperformer. The Russell 1000 Growth was down just 0.03% versus its Value counterpart at -0.3%. Stocks ended at the lows while still holding in a narrow range all day.

• The U.S. Oct trade deficit narrowed to -$73.8B from Sept deficit -$83.8B and vs. consensus deficit -$75.0B-; Oct goods deficit $98.67B, services surplus $24.83B; Oct exports -1.6% vs Sept -1.0%, imports -4.0% vs Sept +3.1%; Oct exports $265.72B vs Sept $270.02B, imports $339.56B vs Sept $353.81B.
• Challenger announced layoffs rebounded 2.1k to 57.7k in November after dropping -17k to 55.6k in October. On a 12-month basis, projected job cuts slowed to a 26.8% y/y pace, halving the prior 50.9% y/y clip. Challenger reported "downstream cuts to Automotive suppliers and parts manufactures (8.2k), as well as ongoing cuts in Consumer and Industrial Manufacturing (2.8k), with Technology (6.6k) also seeing a high number of layoffs.

• After a relatively uneventful overnight, January WTI crude futures slumped on OPEC+ headlines indicating the unwinding of output cuts after Q1, but firmed again with confirmation group overall output cuts of 3.65Mm bpd would be extended until the end of 2026. Despite the roller coaster action, futures settled just $0.24/bbl lower, or -0.35%, at $68.30. Brent also finished modestly lower, down $0.22/bbl, or -0.30%, at $72.09.

• In Discount Stores: DG Q3 net sales $10.18B, slightly above est. $10.14B while lowered its FY net sales outlook to range of about 4.8% to 5.1%% vs prior outlook of about 4.7% to 5.3%, which included the impact of hurricane related expenses, while laid out a plan to open more stores as well as remodel old one’s next year. FIVE shares jumped after Q3 comps accelerated to +0.6% (above guidance and expectations) on much better Q3 earnings and sales and raised yearly sales to $3.84B-$3.87B vs. prior $3.73B-$3.8B.
• In Food & Beverage: BF shares rallied after beating top and bottom line Q2 results, backed its FY25 organic net sales view up 2%-4% and lowered FY25 capital expenditures view to $180M-$190M from $195M-$205M; said a boost from int’l mkts will help it generate organic net sales and organic operating income in fiscal 2025.
• In Specialty Retail: SIG shares declined after Q3 sales fell -3.1% to $1.35B, below consensus $1.37B and lowered its full-year projections, as now expects sales between $6.74B-$6.81B (vs. prior $6.66B-$7.02B) and adj EPS to $9.62-$10.88 (vs. prior $9.90-$11.52).

• In Ride Hailing: UBER and LYFT shares tumbled after Google’s Waymo unveiled plans to expand its robotaxi service to Miami, raising fears about heightened competition in the rideshare market. Waymo said it will start testing its car in Florida city next year, with plans to offer its Waymo robotaxi service in 2026.
• In Autos: Ford (F) was downgraded from Peer Perform to Underperform at Wolfe Research saying 2024 has been a year to forget for autos but expects continued headwinds and uncertainty for the industry in 2025, which should result in revenue and even earnings down YoY for traditional automakers and many suppliers. Wolfe also upgraded MBLY to outperform in driver-assistance sector, MGA upgraded to Peer Perform from Underperform in auto suppliers and downgraded ALLY in auto lending on stocks valuation. In global tires, Bernstein downgraded Pielli (PLLIF) to Underperform and upgraded Continental AG (CTTAY) to Market Perform in global tires outlook saying 2025 will be another tough year in autos but sees continuing structural tailwinds. In EV charging, CHPT beat Q3 revenue estimates and guided Q4 revenues in-line with consensus estimates.

• In Industrials: Barclays adjusted ratings in the U.S. multi-industry group as part of a slightly brighter demand 2025 outlook as upgraded GTES to Overweight from EW, upgraded ITW and ROK to EW from Underweight and downgraded both OTIS and ROP to Underweight. Stocks favored by Barclays include CARR, FTV, GEV, PH, GTES; less favored are ALLE, OTIS, ROP, SWK. In distributors, FAST reported November net sales were down 1.5% from last year to $590.755M and that daily sales were up 3.4% to $29.538M.
• In Airlines: LUV raised its Q4 forecast for revenue per available seat miles, benefiting from improved pricing and a rebound in domestic travel demand as now sees range between 5.5% and 7%, compared with its prior expectation of between 3.5% and 5.5%. AAL forecasts Q4 adj EPS $0.55-$0.75, above prior view $0.25-$0.50, now expects Q4 TRASM to be about flat to up 1% and forecasts Q4 CASM-ex up about 5%-6%, from prior up about 4%-6%. Reuters reported the US Department of Transportation said it was seeking public comment on whether airlines should be required to pay passengers cash compensation when flight disruptions are caused by carriers.
• In Metals, Materials, Chemicals: Mantle Ridge withdraws nomination for five board candidates to APD, now only nominating its remaining four candidates for co’s board. Gold miner GOLD shares fell after Reuters reported that the country of Mali has issued an arrest warrant for its CEO Mark Bristow, a warrant document seen on Thursday by Reuters showed.
• In Aerospace & Defense: AVAV shares fell on mixed results as Q2 EPS $0.47 misses the $0.67 estimate and Ebitda also missed though revs of $188.5M beat; income from operations of $7M declined from $25.2M y/y citing increase in SG&A expense; reaffirmed prior fiscal 2025 outlook.

• In Crypto: Bitcoin finally topped the $100,000 level overnight, rising above $103,500 this morning, boosting crypto related stocks following President-elect Trump’s nomination of Paul Atkins to be next SEC regulator (seen as crypto friendly). However, prices were unable to hold the $100K level, falling to $99K late day and paring gains/reversing several Bitcoin related stocks COIN, MSTR, MARA, CLSK, etc.
• In FinTech/Payments: FI shares declined after President-elect Donald Trump tapped Fiserv CEO Frank Bisignano late on Wednesday to head the Social Security Administration. FOUR was downgraded to Neutral at Bank America and Hold at Benchmark a day after President-elect Donald Trump tapped FOUR CEO Jared Isaacman to lead NASA.
• Financial Servies/Technology: TOST downgraded to Neutral from Buy at DA Davidson and lower tgt to $38 from $44, following management’s commentary on 2025 margin expansion at an investment conference. Toast’s CFO relayed that mgmt expected more modest expansion in adjusted EBITDA margins in 2025 as compared to 2024.
• In Insurance: PFG was downgraded to Underweight at Morgan Stanley saying fundamentals do not support PFG’s current premium valuation vs peers and post its investor day, the company’s long-term outlook appears to be under pressure due to slower growth in Principal Global Investors (PGI) and Principal International (PI). WTW was upgraded to Strong Buy from Outperform at Raymond James noting mgmt has successfully executed on its "Grow, Simplify, and Transform" strategy over the last three years, which has led to accelerating organic revenue growth, the realization of $450M in cost savings, and adjusted operating margin expansion.
• In Brokers & Exchanges: CME announces $2.1B annual variable dividend and $3B share repurchase program; HOOD price tgt raised by several Wall Street analysts after mgmt outlined the strategic direction of the platform over the next ~decade at inaugural Investor Day on Wednesday and expanded commentary on NT product/geo priorities. Bloomberg also reported HOOD will expand into Asia next year, with its local headquarters to be in Singapore. TW reported total trading volume for the month of November 2024 of $48.8 trillion. Average daily volume (ADV) for the month was $2.35tn, an increase of 30.5% y/y. Excluding the impact of the ICD acquisition, which closed on August 1, 2024, total ADV for the month of November was up 14.9% YoY.

• LLY said it would invest $3 billion to expand a recently acquired manufacturing facility in Kenosha County, Wis., to meet growing demand for its diabetes and weight-loss medicines.
• TARA shares surged after saying patients in the intravesical trial studying its investigational cell-based therapy TARA-002 to treat non-muscle invasive bladder cancer have shown high complete response rates for up to six months, and as high as nine months for some patients.
• UNH shares tumbled a day after the murder of UnitedHealthcare CEO Brian Thompson on Wednesday in Manhattan. both UnitedHealth and rival CVS removed photos of their leadership teams from their websites after the shooting. Thompson was killed in an attack police called targeted as he was about to enter the Hilton hotel for the company’s annual investor conference.
• In Medical Tools: Goldman Sachs upgraded BRKR to Neutral from Sell, while downgraded MRVI, NAUT to Sell, and VCYT to Neutral saying they expect 2025 to be the final year of transition for the Tools industry, while likely marking a low point in growth for CROs and for the Diagnostics industry to grow into their expanded multiples, but have the opportunity for further outperformance on the back of continued strong volume growth and the emergence of improving financial profiles.
• In Dental Services: PDCO cut its FY25 adjusted EPS view to $2.25-$2.35 from $2.33-$2.43 (est. $2.30) saying guidance assumes North American and international end market conditions consistent with current market conditions; also announces review of strategic alternatives.

• Cloud Software: After CIO Survey, Keybanc raised price tgts on SNOW to $210 from $185, MDB to $375 from $330, AVDX to $13 from $12 and TEAM to $315 from $260 saying IT budgets in 2025 are now expected to grow 3.9%, up 70 bps from the June 2024 expectation that they’d grow 3.2%. 2024 IT budget growth also ticked up slightly, although not by as much, from 2.8% in KEYB’s last survey up to 3.1%.
• Security Software: Sentinel One (S) shares tumbled as posted a strong FY3Q with net New ARR of ~$54M coming in just above guidance, ARR grew 29% y/y to $859M and Revenue grew 28% to $211M, both modestly ahead while NG Operating Margin of (5%) was below due to a one-time legal fee; guidance was mixed with ARR/Revenue raised, while FY4Q OM was light of consensus.
• More Software: NCNO shares tumbled after mixed guidance and incremental churn expected in nCino Mortgage; F4Q25 revenue of $139.5M-$141.5M (consensus $143.8M), up 14% y/ y at the midpoint, subscription revenue of $122.5M-$124.5M (consensus $143.8M), and FY25 rev guidance $539.0M-$541.0M (prior $538.5M-$544.5M).
• Computer Hardware: HPE was upgraded to Overweight at Morgan Stanley and raised tgt to $28 from $23 saying they see the pending acquisition of JNPR as a catalyst for rerating the stock, given opportunity for earnings upside and multiple rerating (said biggest risk to thesis is that Juniper acquisition doesn’t close).