Closing Recap

Friday, December 20, 2024

Stocks finish the week strong, boosted by inflation data and Fed commentary, but still finished with weekly losses after Wednesday’s selloff. U.S. stocks got a big boost mid-morning following an interview on CNBC with Chicago Fed President Austan Goolsbee who said he now projects a shallower rate-cutting path in 2025 than he had previously, but added he still believes the U.S. central bank’s policy rate will fall a “judicious amount” next year. His comments boosted a stock market that had already rebounded from overnight losses following a “tamer” PCE inflation report at 8:30 AM which showed a dip from the prior month. The inflation data and several Fed comments helped offset concerns about a potential government shutdown into this weekend after the Republican-led House late Thursday rejected the spending package with over 30 GOP lawmakers joining nearly all Democrats in voting against the bill. However late day, U.S. House speaker Johnson said they have a unified agreement among Republicans to move forward on spending deal. Macro tensions also weighed on sentiment after President-elect Donald Trump said that the European Union may face tariffs if the bloc does not cut its growing deficit with the United States by making large oil and gas trades with the US. Don’t forget the normal market exuberance into the “Santa Claus” rally helping markets as well!

What a great day for market breadth with advancers surging about 4:1 over decliners, snapping a string of 14 days of negative market breadth for the S&P 500! Materials (XLB) rose over +1%, its first up day in December snapping its 14-day losing streak in what has been a brutal month for S&P sectors not named Tech (XLK), Communications (XLC) or Consumer Discretionary (XLY). All eleven S&P sectors jumped today with the biggest moves in Tech (XLK), Healthcare (XLV), REITs (XLRE) and Financials (XLF). Still, with today’s big gains, many sectors are down sharply on the month; Materials (XLB) -9.7%, Energy (XLE) -12%, REITs (XLRE) -8.9%, Utilities (XLU) -7.8% and Industrials (XLI) -6.9%.

In stocks news, shares of Wegovy and Ozempic obesity drug maker NVO plunged after its long-awaited CagriSema study showed its next-gen obesity drug candidate weigh loss results were not as good as the company had anticipated. In retail, Dow component NKE reported better quarterly results, sending shares higher initially overnight before reversing lower on cautious CEO comments. In Transports, FDX shares jumped on its results and news of a LTL business spinoff, but lower guidance pared gains. Speculative sectors such as quantum computing (IONQ, QMCO, QUBT, RGTI), nuclear (OKLO, VST, SMR) saw renewed strength after a brief pullback. Cruise lines among the best stocks after CCL earnings/guidance topped views.

Probably the biggest surprise of the week remains the December FOMC announcement on Wednesday where the committee changed its view on future federal funds rate to only twice in 2025, down from four cuts anticipated at the time of the September FOMC meeting, and one less the consensus expectation ahead of the December meeting. Cleveland Fed President Beth Hammack, in explaining her dissenting vote at this week’s Central bank meeting, said rates should be held steady until there’s more progress in cooling inflation. That news boosted the US dollar, and Treasury yields in recent days while weighing on gold and crypto prices.

• Excluding food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings being 0.1% point below the forecast. The annual core inflation reading was the same as in October while the headline rate rose 0.1 percentage point.
• The readings reflected a small increase in goods prices and a 0.2% rise in services prices. Food and energy prices both posted 0.2% gains as well. On a 12-month basis, goods prices have fallen 0.4%, but services have risen 3.8%. Food prices were up 1.4% while energy fell 4%.
• Personal income rose 0.3% after having jumped 0.7% in October, falling short of the 0.4% estimate. On spending, personal expenditure increased 0.4%, one-tenth of a percentage point below the forecast. The personal saving rate edged lower to 4.4%.
• University of Michigan surveys of consumers 1-year inflation outlook final Dec 2.8% vs prelim 2.9% and final Nov 2.6% and the 5-year inflation outlook final Dec 3.0% vs prelim 3.1% and final Nov 3.2%
• University of Michigan surveys of consumers sentiment final Dec 74.0 (consensus 74.0) vs preliminary Dec 74.0 and final Nov 71.8; current conditions index final Dec 75.1 vs prelim Dec 77.7 and final Nov 63.9, and expectations index final Dec 73.3 vs prelim Dec 71.6 and final Nov 76.9.

• The Fed’s preferred inflation measure was 2.4%, up from 2.3% in October, but below the expected 2.5%. The core reading keeps October’s 2.8% pace, while economists forecast 2.9%. It is the last PCE report before the next Fed meeting, when policymakers are expected to keep interest rates unchanged. Yields and the dollar deepen early losses.
• In commodities, U.S. WTI crude oil futures settle at $69.46/bbl, up 8 cents, or 0.12%, bouncing late afternoon to erase earlier losses. Front Month Nymex Natural Gas for Jan. delivery gained 16.40c or 4.58% to $3.7480 per million British thermal units., up 4-straight days (up 16% in that stretch) to a new 52-week high.
• February Gold prices extended gains on Friday, rising +$37 an ounce or +1.42%, to $2,645.10 supported by a softer dollar and Treasury yields after U.S. economic data indicated a slowdown in inflation, although the Federal Reserve’s hawkish interest rate outlook took prices down on the week overall.
• Bitcoin was volatile again, down from record highs above $108,000 this week to lows around $92K this morning before trading near $97,500 late day. Bitcoin was hurt by the Federal Reserve’s Wednesday comments indicating fewer interest-rate cuts in 2025, which have dampened the mood for the equity market as well (until today).

• In Restaurants: SBUX workers’ union representing over 10,000 baristas at restaurants said its members will strike at stores in Los Angeles, Chicago, and Seattle for five days starting Friday, citing unresolved issues over wages, staffing and schedule. EAT was upgraded Brinker to Equal Weight from Underweight at Morgan Stanley and raise tgt to $115 from $70 saying recent data suggest Brinker continues to perform very well and the upward estimate revision cycle is not done.; also says the company deserves due credit for the Chili’s turnaround. MDLZ, KHC, PEP all touched 52-week lows this morning before all bounced and finished higher.

• In Cruise lines: CCL shares jumped on strong results as Q4 revenue of $5.94B topped ests $5.93B citing solid demand for sea-based vacations while EPS of $0.14 was above the $0.08 estimate; CEO said 2025 is shaping up to be another banner year, with yield growth expected to far outpace historical growth rates.

• In U.S. Oil majors: Warren Buffett’s Berkshire Hathaway increased its stake in OXY purchasing about $409.2M in shares over the last three days in a filing; The filing revealed that Berkshire acquired 8.9M shares of Occidental Petroleum between Dec. 17 and Dec. 19, 2024. CVX and XOM rebounded with broader markets snapping their respective losing streaks of 8 days and 11-down days.

• In Brokers & Alt Managers: ARES and TW both upgraded to Outperform from Market Perform at KBW Inc. saying the capital markets fundamental backdrop for 2025 is undoubtedly favorable, but valuations are also much more demanding leaving less room for error. KBW is also shifting preferences into 2025, upgrading ARES/TW concurrent with its Outlook, while its top 2 picks for the brokers into 2025 are SCHW and LPLA. In Exchanges, KBW is sticking with its Outperform on NDAQ (thesis unchanged) and is keeping EPS estimates relatively unchanged for ICE
• In Asset Managers/Investment Advisors: KBW said it is shifting its preferences in the M&A Independents space, downgrading LAZ to MP and upgrading EVR and MC to Outperform; within Traditional Asset Managers, KBW continues to recommend OP-rated BLK and remain cautious on BENsaid the pieces continue to fall into place for capital markets activity to see a strong rebound off 2024’s levels, with Strategics and Sponsors both re-engaging.
• In Insurance: WTW was upgraded to Buy from Hold at Jefferies with $382 PT in insurance brokers saying improved fundamentals warrant narrowing valuation gap while noting Franchise Pick into 2025 is ALL; other top picks are AXS among Bermudians, WTW among insurance brokers and PLMR among Specialty insurers. In life insurance, Jefferies said EQH, UNM and RGA are top picks into 2025.

• GALT shares fell after saying its experimental drug, Belapectin, to treat a fatty liver disease called metabolic dysfunction associated steatohepatitis (MASH) failed to meet the main goal in a clinical trial of reducing esophageal varices or enlarged veins in the esophagus that can lead to bleeding.
• HUMA shares soared after the FDA granted full approval of its bio-engineered human tissue product for adults with arterial injury.
• IONS announced Olezarsen approval in familial chylomicronemia syndrome, or FCS (no requirement for genetic diagnosis), which is IONS’ first independent commercial launch.
• In Healthcare research:
• BIIB was downgraded to MP from Outperform at BMO Capital (with $164 tgt) on expectations of slower-than-expected Leqembi revenue growth, continued erosion of the MS business, lower-than-expected growth of the Rare Disease portfolio, and more limited opportunities for high-value catalysts near term.
• EXEL was downgraded to MP from Outperform at BMO Capital saying they see limited upside to the story in 2025 beyond zanzalintinib’s (multi-kinase inhibitor) readout in colorectal cancer (CRC) where it sees a balanced risk/reward.
• MRK was downgraded to Market Perform from Outperform at BMO Capital driven by commercial overhangs (namely the Gardasil franchise in China), and the need for additional clarity on how the company plans to fill the Keytruda Gap with IRA negotiation and biosimilars on the horizon.

• In Industrials: Barclays said they see a negative read for CARR and TT after November Builds data as the November Builds data is slightly weaker than October y-o-y, the T3M Orders data declined -46%, and November orders declined -41%. T3M Builds down -21% y/y, T3M orders decrease -46% y/y; backlog continues to shrink. JCI was upgraded to Buy from Hold at Argus as expects its recent transformation to a pureplay provider of comprehensive solutions for commercial buildings to result in more consistent sales growth and margin improvement. ENVX shares bounced after saying ships first EX-2M samples to mobile phone customers manufactured in its Malaysian Fab 2 plant.
• In Steel Sector: U.S. Steel (X) became the 3^rd steel producer to issue lower guidance this week (STLD, NUE as well), saying it expects 4Q’24 EBITDA to be ~$150m, below its original guidance of ~$225-275M and consensus of $266M and forecasts Q4 adj EPS loss (-$0.25-$0.29) vs. est. $0.16.
• In Paper & Packing: CLW shares jumped after Bloomberg reported Brazil’s Suzano is exploring an offer for them Clearwater, citing people with knowledge of the matter. The Brazilian company is working with an adviser as it seeks to reach a deal, though an agreement hasn’t been reached and it’s possible one won’t be struck https://tinyurl.com/mpkh3ru2

• In Towers & Telecom: Bloomberg reported last night that TPG is in advanced talks to buy CCI’s fiber business for approximately $8B, Bloomberg reported citing people familiar with the matter. A deal for the fiber and wireless assets could be announced within weeks.
• In Software: UK’s competition watchdog, the Competition and Markets Authority (CMA) said chip design software maker SNPS $35 billion acquisition of ANSS could raise competition concerns; could reduce innovation and lead to higher prices but that it could approve the deal if those concerns are resolved