Closing Recap

Wednesday, December 11, 2024

Christmas appears to be coming early for investors as major stock averages are at/or near all-time highs as the FOMO upside buying momentum on Wall Street continues! The large cap mega tech names again led the charge with all-time highs today for AAPL, AMZN, GOOGL, META, NFLX, TSLA boosting Tech, Communications and Discretionary as the Nasdaq Composite topped 20,000 for the first time ever (first crossed 10,000 on 6/10/20). In fact, December strength remains solely in those three sectors, as Consumer Discretionary (XLY) is up about 6.4% this month, Communications (XLC) +3.63% and Technology (XLK) +2.41%, while other sectors see broad declines with Energy (XLE) -5.37% MTD, Materials (XLB) -4.38% MTD, REITS (XLRE) -4.36%, Utilities (XLU) -6.39%, Industrials (XLI) -3.69% and Healthcare (XLV) -3.58%. Bespoke Invest noted S&P 500 breadth finished positive today, ending the longest streak of negative breadth readings (7 days) since Christmas Eve 2018″. Just a massive run today as the November CPI inflation data was in-line with estimates, keeping the outlook for another FOMC rate cut next week, heading into PPI data tomorrow morning. There have been plenty of potential market risks/land mines that investors have ignored or sidestepped such as turmoil in France gov’t in Europe, China tensions amid Trump tariff fears/weaker economy, tariff fears with Mexico/Canada, inflation has been steadily rising the last few months, and fears of a potential interest rate pause after the Fed is widely expected tu cut rates next week (bringing year total to 100bps in cuts). Just a truly remarkable time for markets with stocks at record highs, oil rebounding, gold prices surging the last few days not far from record highs and Bitcoin back above $100,000.

• The U.S. government posted a $367 billion budget deficit for November, up 17% from a year earlier, as calendar adjustments for benefit payments boosted outlays by some $80 billion compared to the same month in 2023, the Treasury Department said. Receipts and outlays also were record highs for the month of November, with receipts up 10% to $302 billion, and outlays up 14% to $669 billion.

• Gold prices jumped sharply for a 3^rd straight day, with February gold rising $38.30 or 1.4% to settle at $2,756.70 an ounce (up about 3.7% this week). Prices jumped after the CPI print came in line with expectations, boosting the likelihood of a Federal Reserve rate cut next week, while investors awaited U.S. Producer Price Index (PPI) data tomorrow for further direction on monetary policy. Traders currently predict a 96% chance of a further 25-basis-point cut at the Fed’s Dec. 17-18 meeting, compared with an about 86% chance seen before the inflation report.
• Bitcoin surged all day, rising as much as +4.4% above $101,100 before paring gains, boosting the crypto sector with miners, holders with MSTR, COIN, MARA, CLSK, IREN all pushing higher.
• Treasury yields edged higher, with the 10-yr at 4.25%, despite a strong 10-year auction. The U.S. Treasury sold $39B in 10-year notes at a yield of 4.235%, vs. the 4.252% when issued prior with a strong bid-to-cover ratio of 2.70 as Primary dealers take 10.51% of U.S. 9-year 11-month notes sale, direct 19.5% and indirect 69.99%

• Online retailer SFIX shares jumped after reported better Q1 print and management also lifting FY25E guidance modestly in the process; active customers slightly ahead of consensus, while revenue and adj. EBITDA were both solidly above, although both active clients and revenue were still down in the double-digits year-over-year.
• In Sporting Goods: SPWH shares jumped, upgraded to Buy from Neutral at B Riley following quarterly results, which the firm said demonstrates meaningful sequential improvement (and far better than feared, driven by upside in the most important category, Hunt), gross margin increasing Y/Y (refined assortment is working to reduce soft goods liquidation risk), and dipped their toes back in unit expansion.
• Lifestyle brands/Sportwear: Stifel upgraded shares of WWW and FOXF while also notes their selection bias favors share gainers with momentum (BIRK, ONON, SKX), inflecting legacy players with margin recapture opportunities (FOXF, UAA, VFC, and WWW), and those with undemanding valuations and margin drivers (COLM and LEVI). Stifel remains cautious on uninspiring growth and full valuations (HBI, KTB), notes tariff risk is a specter for some (YETI, KTB) but contained for most and said stocks with potential for a sentiment shift and commensurate re-rating include Buy-rated FOXF and Stifel’s top pick, Buy-rated VFC.
• In Restaurants: PLAY shares declined after 3Q comp store sales and EBITDA were reported below expectations as demand trends remain challenged in a tough consumer spend env’t – Q3 EBITDA $68.3Mm vs est. $73.9Mm on revs $453Mm vs est. $465.54Mm, comps -7.7%; also announced CEO transition.
• In Food & Beverage: MDLZ announces $9B share repurchase and said they remain committed to an acquisition strategy that is focused on “bolt on assets”. The buyback and headlines pushed shares of HSY lower, which on Monday rallied 10% on Bloomberg report that Mondelez had noted to explore takeover of Hershey.
• In Grocers: ACI and KR terminate their $25B merger pact a day after a Washington judge blocked the deal, finding the takeover would lessen competition for US grocery shoppers; ACI authorizes $2B share buyback program following the termination of deal while is seeking billions in damages from Kroger.

• In Ride Hailing: UBER, LYFT shares fell, weighed down after GM said last night decided to move on from its Cruise driverless ride-hailing service. Bernstein said this morning "While this removes a key downside risk to GM cash flows, it also dismantles one of the company’s key strategic pillars and differentiators". Management did not provide a clear answer on the pending Uber AV relationship that was announced a few months ago, but Bernstein’s read of the situation is that this partnership won’t materialize for now

• In Energy: XOM provided outlook as announces plans to 2030 that build on its unique advantages saying it will be investing $27-$29B of cash CAPEX in 2025 and $28-$33B annually in 2026-2030; expects $20B in earnings, $30B in cash flow under 2030 plan; said elements of plan include adding $7B more in structural cost savings vs. Q3; plans for a further $20B of share repurchases in 2026; said by 2030, plans to deliver an additional $9B in upstream annual earnings potential. Natural gas producers AR, RRC, EQT outperformed in energy complex.
• In Papers, Packaging and Containers: Bank America double downgraded AMBP from Buy to Underperform, largely because it prefers other beverage can makers (CCK, BALL both buy rated) and noted foreign exchange (FX) is a potential 2025 risk given the current USD/Euro exchange rate of ~$1.05. Bank America also double upgraded AMCR to Buy from Underperform to Buy, expecting more relative return and catalysts and sees synergy guidance with BERY ($650M in total, ex. one-time cash benefits) as conservative by ~$50-100M+.
• Defense stocks (LMT, GD, NOC) along with government defense service names (CACI, SAIC, LDOS, KBR) dropped after a report that "A draft version of the 2025 National Defense Authorization Act (NDAA) would cap new F-35 acquisitions at 48 aircraft until the US Department of Defense addresses what lawmakers call “long-standing challenges” to aircraft availability and mission readiness rates. The 48-aircraft limit would be substantially lower than the Pentagon’s request for 68 jets in 2025.

• TROW reported preliminary month-end assets under management of $1.67 trillion as of November 30, 2024. Preliminary net outflows for November 2024 were $6.4B, which includes a portion of the previously disclosed sub-advisory redemption.
• VCTR reported Total Assets Under Management (AUM) of $179.7 billion, Other Assets of $4.3 billion, and Total Client Assets of $184.0 billion, as of November 30, 2024.

• Shopping Center REITs: Mizuho said sees PECO, REG seen as net winners in Shopping center REITs and believe the sector is a low-risk, fairly priced alternative for investors in a broader REIT sector facing higher interest rates, as well as tenant credit, tariffs, labor and over-supply questions.
• In Data Center REITs: Mizuho said they remain Bullish on data centers in FY25 while are neutral on towers (AMT); said they see a solid FY25 for data centers, even after outperforming YTD by 16pp, driven by strong bookings and improving pricing power. As raise PT for DLR to $211 from $170 and increase EQIX PT to $1,094 from $971 as modestly lower estimates but are still above the Street and see upside to MRR growth and margins in FY25.
• In Triple Net Sector: Deutsche Bank initiating coverage of the Triple Net REIT sector with coverage of 4 stocks: ADC (Buy, $88 price target), EPRT (Buy, $38 price target), O (Hold, $62 price target) and NNN (Hold, $46 target price) saying they have a neutral view of the sector as believe that rates likely remain a headwind for the group. The Triple Net REITs coverage all have strong liquidity profiles as well which supports increased acquisition activity.

• CADL shares surged after saying its cancer therapy CAN-2409 met the main goal of a late-stage trial in patients with a type of prostate cancer; showed a statistically significant improvement in disease-free survival vs radiation alone.
• QTTB shares tumbled as announced topline results from the SIGNAL-AA Phase 2a signal finding clinical trial evaluating bempikibart, or ADX-914; while the results from its Signal-AD trial in atopic dermatitis demonstrated promising findings in Part A but didn’t meet primary endpoint in Part B.
• RCKT 13.2M share Spot Secondary priced at $12.50.
• RLAY said its lead drug candidate to treat a type of locally advanced breast cancer, RLY-2608, helped patients live for about 11.4 months on average without the disease getting worse.
• SLRN disclosed that its Phase 2b/3 trial of izokibep did not meet its primary endpoint in its study for Uveitis. The company continuing to focus on development of subcutaneous lonigutamab in TED, with the initiation of its Phase 3 scheduled for 1Q25.
• SPRB shares tumbled as announced topline results from its CAHmelia-204 study of tildacerfont in adult CAH and its CAHptain-205 study of tildacerfont in adult and pediatric CAH. The clinical trial did not achieve the primary efficacy endpoint of the absolute change in daily GC dose from baseline at week 24.

• In MedTech, Citigroup upgraded GKOS to Buy, downgrading BLCO and LUNG to Neutral and Neutral/High Risk, opening a Positive Catalyst Watch on ZBH, and entering 2025 with Top Picks: BSX (Farapulse, Watchman; adding to Citi Focus List) and PODD (type 2 opportunity), removing GEHC (China headwinds). Wells Fargo also with industry note, saying top picks for 2025 are ALC, ATEC, DXCM, ISRG, MASI and NVCR. In addition, they upgraded MMSI and PEN to Overweight from Equal Weight and downgraded RXST from Overweight to Equal Weight. Wells said the Trump healthcare (HC) nominations create uncertainty which will likely lead to HC underperformance. Medtech is best positioned within HC due to its “under the radar” status. Expect M&A to pick up.
• In Life Sciences, Citigroup upgraded QDEL to Buy and MTD to Neutral, and downgraded ILMN and FTRE to Neutral. Citi said heading into 2025, investor appetite for Tools/CROs remains light from conversations, however it sees pockets of areas to be more constructive such as bioprocessing where the recovery is underway.
• In Dental sector: PDCO entered into a definitive agreement to be acquired by Patient Square Capital, as Patterson shareholders will receive $31.35 in cash per share in a transaction value of approximately $4.1B, including the refinancing of Patterson’s receivables facilities (other dental stocks HSIC, XRAY were also active).
• In Medical Equipment: FIGS shares bounced after the co received an acquisition bid from private equity firm Story3 Capital Partners that values the medical-apparel maker at over $1B, the WSJ reported. The firm offered $6 per share for the common shares of Figs that it does not already hold https://tinyurl.com/3em32be5

• In Internet: GOOGL released the first version of its Gemini 2.0 family of artificial intelligence models on Wednesday. Gemini 2.0 Flash, as the model is called, is available in a chat version for users globally while an experimental multimodal version of the model is available to developers.
• In Enterprise Software: JP Morgan downgraded shares of AI (to Underweight from Neutral), CXM (to Neutral from OW), and PD (to Underweight from neutral) based on our expectations of stock performance relative to the rest of our coverage. For PD, see several crosscurrents at play, which makes it difficult to underwrite the long-term success of the company’s multi-product platform play at this point. For AI, while understands that C3.ai is going after a massive and rapidly evolving opportunity around Artificial Intelligence, it thinks its uneven and subpar growth-plus-margin performance leaves a lot to be desired. For CXM, sees a balanced risk/reward.

• Semiconductors (SOX) rebounded over 3%, erasing all of yesterday’s drop with broad strength in technology helping push the Nasdaq about 20,000. The Philadelphia Semi Index pushed back above the 200dma of 5,055 after tumbling yesterday; NVDA rose over 3% as reclaims its 50dma of roughly $139.