Closing Recap

Monday, December 18, 2023

Index	Up/Down	%	Last
DJ Industrials	0.86	0.00%	37,305
S&P 500	21.37	0.45%	4,740
Nasdaq	90.89	0.61%	14,904
Russell 2000	-2.71	0.14%	1,982

 

 

 

 

 

 

 

 

 

U.S. stocks continue to defy calls for a pullback after 7-straight weeks of gains, in what has been a very broad-based rally on rising hopes/expectations of lower interest rates in 2024. Today’s gains were widespread again, led by 1% advances for Communications, and Consumer Staples, while REITs and Utilities lagged. The mega cap leaders of 2023 AMZN, GOOGL, META, NFLX, NVDA outperformed, lifting major averages in what has been an incredible rally off the October lows of 4,122 on 10/27 to around 4,800 today (for Spuz) in a seasonal rally. The Nasdaq QQQ is getting close to its all-time highs from late 2021 at 408.71 in this march higher. @KobeissiLetter tweets: "For all the technical analysts out there: The S&P 500 is now trading with a DAILY RSI of ~81, by far the most overbought level in years. The last time the daily RSI was at 81+? On September 2nd, 2020, the day before the S&P 500 fell 11% in 3 weeks. Since the October 27th low, the S&P 500 is up 16% in 36 trading days. Pullbacks have become nonexistent in this market."

 

Just how hot has the stock market been? CNBC David Faber noted that 71% of the S&P has hit 20-day highs in the last week – notes that has only happened 6 times since 1957. Meanwhile the SPX is now more than 8% higher than where it was when the Fed started hiking rates in March 2022 – heading into an expected rate cut cycle by the Fed in 2024! Fed fund futures expectations are for more than a little over 5 rate cuts in 2024 (implied rate by year end 3.919% – 5.636 cuts), still more than the recent Fed pivot comments when they said they saw 75-bps cuts next year. It is important to remember Fed funds called for 4 rate cuts in 2023 when they actually raised rates 4 additional times in 2023! Hasn’t exactly been a spot-on forecast of late, but markets continue to push higher, on track for 8-straight weeks of gains for Wall Street heading into the Christmas holiday weekend (markets closed Monday). Reminder the Bank of Japan policy meeting tonight – USD/JPY +0.58% at 143, up 9% YTD but down -3.5% MTD.

 

Economic Data

·     NAHB Housing market index 37 (consensus 36) versus 34 in November (previous 34); NAHB December index of current single-family home sales 40 versus 40 in November (previous 40).

 

Commodities, Currencies & Treasuries

·     Oil prices settle at $72.47 per barrel, up $1.04, 1.46% for WTI crude, while Brent Crude futures settle at $77.95/bbl, up $1.40, 1.83%. Gold prices rose $4.80 to settle at $2,040.50 an ounce, while the U.S dollar index (DXY) was little changed around the 102.50 level and Treasury yields stayed in a tight range all day, with the 10-yr ending around highs at 3.96% but below 4%.

 

 

Macro	Up/Down	Last
WTI Crude	1.04	72.47
Brent	1.40	77.95
Gold	4.80	2,040.50
EUR/USD	0.0026	1.092
JPY/USD	0.81	142.96
10-Year Note	0.028	3.956%

 

 

Sector News Breakdown

Consumer

Autos:

·     In Electric vehicle sector: BLNK rises after billionaire Kenneth Griffin’s Citadel hedge fund takes a 0.4% stake in BLNK, according to a regulatory filing. FREY receives shareholder approval for redomicile from Luxembourg to the U.S. NIO rises after entering into an agreement to receive $2.2 bln in cash from Abu Dhabi-based investor CYVN Holdings, which has already invested over $1 bln in Nio earlier this year. CYVN will own about 20.1% of Nio’s total outstanding shares after the investment closes. https://tinyurl.com/yjwbw4m5

 

Retail, Consumer Staples & Restaurants:

·     CPNG said it plans to buy the assets of Farfetch Holdings to broaden its access to the global personal luxury goods market; deal would provide Farfetch with $500 million in capital.

·     VFC tumbled after saying it is investigating "unauthorized" activity on some of its information technology (IT) systems detected on Dec. 13 that stole personal data of customers.

 

Homebuilders, Building Products, Home Furnishing:

·     In Building Products: PGTI +9%; announced an agreement to be bought by DOOR in a cash and stock deal valued at $3 billion. Where PGT shareholders will receive $41 for each share held, made up of $33.50 a share in cash and $7.50 a share worth of Masonite stock. https://tinyurl.com/vwutz3yw

 

Leisure, Gaming & Lodging:

·     In Lodging: BVH announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the previously announced agreement for the Company to be acquired by HGV for $75.00 per share in cash. Also, WH asked its shareholders to reject CHH’s $7.8B takeover offer announced in October, citing regulatory review of up to 24 months and lower valuation. Last week, Choice launched a hostile bid for Wyndham after the New Jersey-based hotel repeatedly rebuffed the overtures.

 

Energy, Industrials and Materials

·     In Solar: SPWR shares tumbled after saying it has substantial doubts about its ability to continue as a going concern, according to a filing by the company. In Research, Goldman Sachs upgraded CSIQ to neutral from Sell with $16 tgt, downgraded SPWR to Sell from Neutral predicated upon its view that ASP declines, driven by increased competition from MAXN, will pressure margins and set up SPWR for a challenging 2024, SEDG downgraded to Sell with $77 tgt based upon its view that the correction in the European solar market is just beginning and upgraded NOVA to Buy and higher $17 tgt amid growth inflection in 2024 in the resi solar market.

·     In Energy: After underperformance the last few weeks (and year in general), energy stocks seeing a rebound behind a jump in oil prices (XLE outperforms); BP said it had temporarily stopped tankers from sailing through the vital shipping thoroughfare after a series of attacks on vessels in the region by Yemen’s Houthi forces. The decision affects tankers that BP owns as well.

·     In Steel sector: Japan’s Nippon Steel to buy U.S. Steel (X) in a deal worth $14.9B, including debt; the per-share offer of $55 represents a 40% premium to U.S. Steel’s closing stock price on Dec. 15 https://tinyurl.com/4t3ue5zx; CLF shares rose after saying it will re-focus capital allocation priorities towards more aggressive share buybacks under existing share repurchase authorization after Japan’s Nippon Steel agreed to buy U.S. Steel (X).

·     In Agribusiness/Protein sector: BMO Capital said in a reversal from where we started last year, they are more optimistic about our Protein coverage saying PPC is their favorite ag/protein idea, and raise target to $32, more optimistic about the chicken margin outlook. The firm downgraded ADM to Market Perform, lower 2024 EPS, and reduce the target to $80 as soy crush and ethanol margins face greater headwinds than we anticipated and lower tgt and ests on BG

·     In Chemicals: TROX upgraded to Outperform from MP at BMO Capital with $18 tgt saying they expect 2024 will mark the inflection point for TROX with the end of destocking and at least modestly improving demand for the industry and potentially more for Western producers.

 

Financials

Banks, Brokers, Asset Managers:

·     In Brokers/Banks: Citigroup (C) reported charge-offs for November of 2.21% and delinquencies 2.86%. NYCB was downgraded to Market Perform at KBW noting it has been a great stock since the SBNY deal (+70% vs BKX/KRX +20%), but the narrative is becoming more complicated with credit/expenses entering the equation. MTB was downgraded to Hold from Buy at Deutsche Bank n strong relative stock performance YTD (and in 2022) and as further meaningful outperformance in the near/medium term seems unlikely.

·     In Canadian Banks: Bank America upgraded CM to Neutral from Underperform and upgraded BMO, RY to Buy as sees lower risk of tail risk events for the Canadian economy and consumer given declining interest rates while downgraded TD to Neutral from Buy with a price target of C$88, down from C$90 as sees TD’s relative balance sheet positioning as less of a differentiating factor and its talks with investors indicate growing concern about management execution driven by the failure to complete the First Horizon acquisition and an uncertain succession plan.

·     In FinTech: AFRM downgraded to Underweight at Morgan Stanley citing the +79% appreciation over the last month and +383% YTD, saying risk-reward appears skewed to the downside at current levels even with pending strength through a seasonally strong holiday period.

·     In Insurance: Wells Fargo provides 2024 outlook, saying top picks are ACGL, RNR, EG and PGR on the P&C side, AJG on the brokers and RGA and CRBG within life, continue to favor P&C over life; upgrade PGR to overweight tgt $176 as believes they should return to PIF growth in 2024; and downgrade CB to equal weight due to a more cautious approach on commercial lines sector.

 

Healthcare

Biotech & Pharma:

·     ARQT said the FDA approved another formulation of Zoryve to treat seborrheic dermatitis in patients 9 years and older.

·     CKPT shares tumbled after the FDA issued a complete response letter to a biologic license application for cosibelimab, its experimental treatment for a type of skin cancer.

·     GPCR shares tumbled after saying that its experimental GLP-1 pill demonstrated a 1% lowering of blood glucose and slightly more than 3% weight loss relative to a placebo in a 12-week study involving participants with type 2 diabetes — results that are preliminary but don’t quite match a competing oral drug under development by LLY.

·     ILMN said it will sell its Grail unit, after a federal appeals court on Friday found the $7.1B acquisition in 2021 to be anticompetitive. Illumina said it will divest Grail and will not appeal the court’s decision.

·     LNTH and PNT shares fall amid results of SPLASH study on prostate cancer; the results of a Phase 3 readout for PNT2002, a lead candidate as a second-line option for prostate cancer met its primary endpoint https://tinyurl.com/2fn495a9

·     MIRM shares fall after saying its experimental adjuvant therapy, Livmarli, to treat a type of liver disease did not meet main and secondary goals in mid-stage study.

·     TEVA Initiate at Buy at HSBC Holdings saying as the new management team sets a clear strategy, HSBC sees Teva as lowly rated, with potential for its innovative medicine division to become a driver of growth and margin improvement.

 

Technology

Internet, Media & Telecom

·     SHOP was downgraded to MP from OP at JMP Securities as shares near $80 price tgt, though says Shopify has tremendous momentum, with the company gaining share with enterprise and offline merchants, while its dominant position with new merchants continues.

·     SNAP upgraded to Buy from Neutral at Guggenheim and raised tgt to $23 from $9 saying expects overall digital advertising demand will accelerate in 2024, with this incremental strength supporting above consensus revenue growth for the industry.

 

Semi’s, Hardware & Software movers:

·     AAPL is pausing sales of Apple watch series 9 and Apple watch ultra 2 from Apple.com starting December 21, & from Apple retail locations after Dec 24; said should order stand, Co to continue to take all measures to return Apple watch series 9, Apple watch ultra 2 to customers ASAP.

·     ADBE and Figma mutually agree to terminate their merger agreement, originally announced on September 15, 2022, as both agree based on a joint assessment that there is no clear path to receive necessary regulatory approvals from the EC and the UK CMA.

·     AYX enters into a definitive agreement to be acquired by Clearlake Capital Group and Insight Partners for $4.4B, with stockholders to receive $48.25 per share in cash.

·     EBIX shares tumbled after filing for Chapter 11 bankruptcy protection in North Texas court; the company lists both estimated assets and liabilities in the range of $500M-$1B.

·     SMH Philly semi-index (SOX) declines for the first decline in 8-days.

·     In Research: CRM was upgraded to Outperform at Wolfe Research saying its core thesis is that growth has bottomed and should stay double digits (upside from pricing, product cycles, AI), the commitment to margin leverage is real, leadership is stable while M&A if it happens will be responsible. Raymond James upgraded CHKP to Outperform from Market Perform, raise tgt to $175, and introduced 2025 estimates and downgraded PANW to Market Perform from Outperform after incredible run-in shares.