Closing Recap

Friday, December 22, 2023

Stocks advanced on the last day of trading ahead of the Christmas holiday, giving Bulls the gift that keeps on giving, 8 straight weeks of gains for major averages as fresh data figures indicated that inflation has continued easing. Interest rates remain the dominant force on Wall Street, seeing massive gains the last week after the Fed turned more dovish, joining the expectations from Wall Street for rate cuts in 2024 (the Fed said sees 75-bps in cuts in ’24, vs. mkts baking in 7-cuts). For Friday, the official start of the “Santa Claus” rally (defined as the last 5 days of the year + first two of next), there were additional signs of slowing inflation allowing the S&P 500, Nasdaq, and Dow push higher (8-week of gains for S&P is thew most since Nov 2017). Meanwhile, Treasuries extended their rally as yields tumble further on rate cut expectations (10-yr down over 100-bps from Oct highs). November PCE inflation, the Fed’s preferred inflation measure, falls to 2.6%, below expectations of 2.8% while core PCE inflation falls to 3.2%, below expectations of 3.3%. This is the lowest PCE inflation number since May 2021.

Interest rate cuts remain the key market driver as @KobeissiLetter tweeted saying the "Fed pivot" is an understatement: Markets are now pricing-in an 86% chance that rate cuts will begin in March 2024. The base case now shows SEVEN interest rate cuts in 2024. 3 weeks ago, the Fed said that markets were "premature" in calling for rate cuts. Last week, the Fed said that they see 3 rate cuts in 2024. Markets are pricing-in more than DOUBLE the amount of rate cuts that the Fed is guiding.” It appears all driven-on rate cuts as inflation data points show continued inflation deceleration but signs this week of a weaker consumer was evident with Fed-Ex (FDX) miss and lower guidance and Nike (NKE) softer revenue outlook last night that sent shares lower by -11%. Dow Transports rose back above 16K after dropping earlier in the week on FDX earnings/lower guide pushed the index to lows of 15,721 – truckers/freight names doing heavy lifting this week ODFL up 9 of last 10 days. Nearly all eleven S&P sectors finished higher on Friday (discretionary down on NKE), led by gains in defensive sectors including Consumer Staples, Healthcare, REITs, and Utilities. We also saw increased M&A activity in the Biotech and Software sectors.

• Personal Spending for November rose +0.2% m/m below the est. +0.3% while November Personal Income rises +0.4%, in-line with consensus views and above the prior month of +0.2%. Real Personal Spending rose 0.3% vs. est. 0.3%.
• Durables goods order fell sharply (-5.4%) in November, compared with the 1.7% increase expected and the -5.1% decrease (revised from -5.4%) in October. Durables ex-transportation orders +0.5% (vs. est. +0.1%) and vs Oct (-0.3%) vs. previous unchanged. Nov Durables ex-defense orders +6.5% vs Oct -6.4% (prev -6.7%). Nov Durables shipments +1.0% vs Oct (-0.8%); Nov nondefense cap shipments ex-aircraft (-0.1%) vs Oct -0.1%.
• University of Michigan surveys of consumers sentiment final Dec jumps to 69.7 from final Nov-F of 61.3 and slightly above the consensus 69.4; current conditions index final Dec 73.3 vs prelim Dec 74.0 and final Nov 68.3 and expectations index final Dec 67.4 vs prelim Dec 66.4 and final Nov 56.8.
• University of Michigan surveys of consumers 1-year inflation outlook final Dec steady at 3.1% vs prelim 3.1% and final Nov 4.5% and the 5-year inflation outlook final Dec 2.9% vs prelim 2.8% and final Nov 3.2%.
• Single-family new home sales tumbles -12.2% in Nov to 590K vs. est. 690K and vs Oct -4.0%; Nov home sales Northeast +3.1%, Midwest +25.0%, South -20.9%, and West -5.1%; new home supply 9.2 months’ worth at current pace vs Oct 7.9 months and the median sale price $434,700, -6.0% from Nov 2022 ($462,300).

• Natural gas for January delivery settled higher by 1.5% at $2.610/MMBtu, adding to yesterday’s gains and rising 4.8% this week, snapping a six-week losing streak.
• Gold prices surged advanced $17.80 to settle at $2,069.10 an ounce (off earlier highs $2,083 an ounce); gold prices rose a little less than 2% on the week.
• The US dollar was weaker all morning before paring losses mid-to-late day and finish flat on day around 101.80 for the dollar index (DXY) as the euro held just above the 1.10 level. The dollar hit 5-month lows this morning before bounce.
• Treasury yields were little changed on the day but fell on the week; the 10-yr yield is now down over 33-bps the last 2-weeks since the Fed pivot on rates to more aggressive cuts in 2024; the 10-yr yield is also down 108-bps from the Oct 19 high of 4.987%. The 2-yr yield dropped -11.7 bps this week to 4.338%.

• NKE impact: shares of American and European sportswear makers and retailers dropped after a disappointing revenue forecast from industry giant Nike, with shares of FL, UAA, VFC, ONON, DECK, ASO, DKS, HIBB lower.
• In Food sector: AVO reported a soft Q4’23 result, but headwinds were concentrated in its international farming operations according to Lakestreet, noting the avocado marketing/distribution segment, which closely compares with Calavo, company reported improved pricing, significantly higher YoY EBITDA, and an improved pricing outlook into Q1’24 (they remain buy on CVGW). LMNR reported an in-line Q4’23 in its seasonally weak period but noted favorable lemon supply/demand conditions first highlighted on the Q3’23 call have continued into FY24.

• In Energy: Berkshire Hathaway bought more OXY stock in recent days, purchasing 5.2M shares and bringing its total ownership to 243.7M shares, for a 27.7% stake, according to a form 4 filing with the SEC. EQNR said it has agreed to sell its assets in Azerbaijan to state-owned energy firm SOCAR, including interests in the ACG oilfield and the BTC pipeline for an undisclosed price. VTLE announced the acquisition of additional working interests in producing assets associated with the recent asset acquisition from Henry Energy LP, Moriah Henry Partners, and Henry Resources for $55M.
• In Industrials: CMI said it expects to book a $2.04 billion charge to settle allegations from U.S. regulators that some of its engines, particularly those used in pick-up trucks, failed to comply with the emissions-certification and compliance process. The S&P Industrials sector also hit all-time highs today.
• Hydrogen related names (CEG, FCEL, PLUG) shares active on reports billions of dollars in hydrogen-industry subsidies from President Biden’s climate law will come with stringent environmental safeguards, raising concerns that strict rules will stifle production. Under the proposed rules laid out Friday, the new clean-hydrogen tax credit won’t benefit existing nuclear power plants, which is a blow to reactor owners such as CEG that lobbied for inclusion. Administration officials said it could change when the guidelines are finalized. http://tinyurl.com/4epfc4jy .

• ALPN is moving towards a more streamlined, pure-play povetacicept story following its amended agreement with ABBV on acazicolcept (ALPN-101) according to Opco which saw no negative readthrough via the announcement.
• ALVR shares plunged after saying they will discontinue three late-stage studies evaluating its antiviral cell therapy posoleucel and will review options that may include potential sale of the company. The decision comes after analyses by three independent committees showed that the studies were unlikely to meet their main goals.
• IONS said the FDA granted approval to Wainua (eplontersen) a subcutaneous injectable therapy for a rare disease called ATTR-polyneuropathy and AZN will begin selling the therapy Jan-2024 and Ionis is responsible for physician education/patient support. AZN paid IONS $200M upfront, $485M in milestones, $2.9B in sales milestones.
• JAZZ announced that JZP150 did not meet its primary or key secondary endpoints in a Ph2 trial in PTSD, and it will likely not move forward with the program.
• SRPT submits efficacy supplement to expand the ELEVIDYS label to include DMD Patients without restriction to age or ambulatory status.
• THRX to be acquired by Concentra Biosciences for between $3.90-$4.05 in cash per share http://tinyurl.com/ycy87t39 .

Technology

·     Video gamer makers/publishers in China tumble (TCEHY, NTES, BILI) as Chinese regulators announced a wide range of rules aimed at curbing spending and rewards that encourage video games. The National Press and Publication Administrations published the new draft rules. Online games will now be banned from giving players rewards if they log in every day.

· In Media: LGF/a is launching its studio business as a separately traded public company valued at $4.6 billion. The new company, which includes the motion picture group and one of the world’s most valuable film and television libraries, will be combined with Screaming Eagle Acquisition Corp., a SPAC http://tinyurl.com/3zuz5t4m .

· Semiconductors extend strong gains early: The Philly semi-index (SOX) rises but failed to close above its intraday best 4,161.92 – having surged 63% so far in 2023, on track for its best year since 2009 with big winners: NVDA +235% YTD, AMD +115% YTD, AVGO +100% YTD – MU +14% this month and 77% YTD.

· In Software: shares of ANSS surge after Bloomberg reported the company is working with advisers to weigh its options, including a sale, after receiving takeover interest, citing people familiar with the matter http://tinyurl.com/2pewjjd4 . Oppenheimer noted recent large software M&A appear less bound to valuation ratios due to volatile pre/post pandemic comps, but rather 2021 levels, which would put a range of $400 in play. Reuters reported this afternoon that it was SNPS is in talks to acquire ANSS http://tinyurl.com/mryvx3du .