Closing Recap

Friday, February 09, 2024

Index	Up/Down	%	Last
DJ Industrials	-54.64	0.14%	38,671
S&P 500	28.70	0.57%	5,026
Nasdaq	196.95	1.25%	15,990
Russell 2000	30.29	1.52%	2,009

 

 

 

 

 

 

 

 

 

US equity futures gained overnight, then popped on initial headlines indicating a downward December CPI revision from +0.3% to +0.2%. As the market digested the rest of the report indicating December Core CPI remained unrevised at +0.3% and Q4 core CPI remained unchanged at a 3.3% annualized increase, futures faded with S&P futures bouncing off the unch level and Nasdaq back to only about +0.1%. Not much to see here. By mid-morning, indices were back on the rise but breadth was fairly neutral with just a slight lean in favor of advancers. IWM was the outperformer versus both the S&P and Nasdaq for a bit but the Nasdaq quickly regained its leadership position. Sector-wise, Technology, Communications and Consumer Discretionary were the only groups in the green early, while Consumer Staples, Real Estate and Energy were primary laggards. Fear and Greed continued to gain, now at 77 in Extreme Greed territory versus 70 a week earlier.

 

In interesting data, @enriqueabeyta brings us back to earth quickly noting the Russell 2000 had a big performance shift from outperforming the S&P 100 by 10+ percentage points over five weeks to underperforming by 10+ percentage points over a similar span and the only other times we’ve seen that pattern were October 1987, spring 2000 and April 2021. Not an encouraging statistic. On a more upbeat note, @bespokeinvest highlights through yesterday we’re up to a 73% EPS beat rate so far in earnings season, with a 64% revenue beat rate. Lastly, on valuation spreads, @JeremyDSchwartz notes large cap value is trading at .56 to large cap growth versus historical closer to .70 and small caps are trading at about .70 to large caps versus historical about 1.07. Something to consider if you believe in reversion to the mean.

 

Heading into the final hour of trading, stocks were off highs but still enjoying solid gains. Breadth had expanded to nearly 2:1 favoring advancers., Sector gainers broadened, but Technology (XLK, +1.35%) and Consumer Discretionary (XLY, +0.73%) were still leaders with AMAT, ETSY, AMZN and FSLR relative outperformers. Stand-outs to the downside included Energy (XLE, -1.5%) and Consumer Staples (XLP, -1%) with DVN, COP, CAG, PEP and TSN the largest relative underperformers. IWM gained 1.45% to outperform both QQQ and SPY late, while growth outperformed value. The Russell 1000 growth gained 1.04% versus its Value counterpart down by 0.05%; no doubt a reflection of recent earnings results/guidance.

• March WTI crude futures yo-yo’d a bit, but finished with a gain of $0.62/bbl, or +0.81%, to $76.84. Brent crude similarly gained $0.56/bbl, or +0.69%, to $82.19. No revision to December or Q4 Core CPI likely buoyed demand hopes, while questions about transit in the Red Sea and no incremental headlines solidifying anything close to a lasting ceasefire agreement in Gaza also continued to provide support.

 

Macro	Up/Down	Last
WTI Crude	0.62	76.84
Brent	0.56	82.19
Gold	-9.20	2,038.70
EUR/USD	0.0008	1.0784
JPY/USD	0.01	149.32
10-Year Note	0.015	4.185%

 

• In Retail/Footwear: ADDYY was initiated Overweight and EU218 tgt at Barclay’s and PUMSY initiated EW and EU42 tgt as firm expects the operating environment to remain challenging in 1H 2024 as consumers remain cautious and selective in their athleisure spending, but brands with strong product pipelines should still be able to grow by taking market share. PLCE tumbled lowers Q4 revenue view to $454M-$456M from $460M-$465M and said Q4 adj operating loss is expected to be (9.0%)-(8.0%) of net sales, vs, prior of +2%-3% and said working with its advisors and lenders to obtain new financing to support operations.
• In Consumer Products: NWL shares fall on guidance as co expects FY24 net sales to decline in the range of 5% to 8% vs. est. of 5.50% drop due to choppy demand and sees year EPS $0.52-$0.62 below ests $0.79 while reported FY23 gross margin of 28.9% compared with 30% in the prior year.

• In Gaming: Online Sports Betting stocks (DKNG, FLUT, CZR, MGM, PENN) in focus ahead of Super Bowl Sunday weekend with expected gambling figures to crush prior records (CNBC noted $23.1B expected to be bet by American on the Super Bowl this year – in various ways). Regional casino BYD generated $339M of land-based EBITDAR, +9% vs +8% vs consensus expectations based across its three segments, including Locals 5% above consensus, Downtown +11%, and MW&S +10% and Stifel said operating margins trends remain healthy.

• In Industrials: TEX shares fell as reported 4Q EPS of $1.88 topping consensus on mostly in-line revs while gross margin of 21.5% missed by 150 bps, while SGA of 12.0% was 80 bps higher, leading to 9.5% operating margin, 230 bps below Keybanc estimate and TEX took $1,285M in orders, down 5% y/y.
• In Water Services: ZWS was downgraded to Neutral from Buy at Mizuho (says prefers PNR shares) saying its favorable thesis has largely played out, and it now sees a more balanced risk/reward. The stock has outperformed over the past month (+19% vs S&P 500 +5%).
• In Natural gas E&P: ARC Resources (AETUF) was upgraded to Outperform at BMO Capital citing the recent share price weakness and the company’s lower exposure to softer natural gas prices saying the Attachie project remains on-track and on-budget and should materially boost free cash flow when it comes online at the end of the year.
• In Utilities: DUK plans to decommission energy-storage batteries produced by Chinese battery maker CATL at one of the nation’s largest Marine Corps bases due to pressure from Congress and will phase out CATL products at its civilian projects, the company confirmed to Reuters. FE shares advanced early following earnings results.
• In Aerospace: JOBY received FAA approval for propulsion certification plan as all structural, mechanical, and electrical system certification plans now accepted by FAA.

• In FinTech/Payments: AFRM Q2 results were significantly better than expectations including GMV & revs well above high end of the guide, and guided next quarter and year revs above views, but shares sank initially; ADYEY was upgrade to Outperform at KBW and Outperform at TD Cowen based on rising estimates & valuation noting Adyen put to rest prior concerns on growth compression & competitive commoditization. PYPL was downgraded to Hold from Buy at Argus after issued disappointing EPS guidance for Q124 and 2024 as recently-announced innovation efforts take time to meaningfully add to EPS.

• SYBX said it will cease operations and reduce its workforce by more than 90%, retaining only certain employees to assist in the strategic review and assist in the discontinuation of the study.

• In Drug Distributors: CAH was upgraded to Buy from Hold at Argus and raise ests saying they are is benefiting from its COVID-19 vaccine distribution and strong demand for its generics program amid an uncertain economy and a cautious consumer.
• In Medical Equipment: ILMN forecast 2024 core business revenue to be nearly flat, compared with FY 23 dragged by subdued demand for its genetic testing tools and diagnostics products.

• In Content Delivery: NET shares soared and analysts raise price tgts after Q4 beat and mostly in-line guide with revenue of $362.5M vs. est. 353.1M steady at 32% y/y growth, and EPS beating by $0.03 with 11.0% operating margin, 14% free cash flow margin. Upside in the quarter was driven by a large U.S. Dept. of Commerce deal ($33M ceiling value, 3-year contract) and largest renewal in Company history (3-year, $60M total contract).
• In SaaS Sector: BILL Q2 results ahead of the Street with revenue upside materializing in transaction revenue and float income while TPV was nicely ahead of the Street on an absolute basis (15% upside) and positively surprised on a per customer basis and FY24 top-line guidance was raised, but Keybanc noted there were three GTM challenges shared. PROS posted better Q4 top-line results on subscription strength, though EBITDA came in a touch lower and issued lower initial 2024 subscription revenue growth guidance of ~13% (vs. cons. 15.6%).
• Software: RAMP delivered a roughly in-line F3Q to its positive pre-announcement, with impressive underlying RPO growth. F3Q RPO accelerated to 34% y/y, up from 26% the prior quarter.
• Comm & Networking: MSI Q4 results featured upside to all key metrics, and 2024 guidance while one analyst noted the appearance of a declining backlog (-2% y/y as reported) may cause caution.

• PI reported in line with its Jan 16 prelim numbers and guided Q1 above (guides Q1 revs $72-75Mm vs est. $70.84Mm, adj EBITDA $3.0-4.5Mm vs est. $0.7145Mm, adj EPS $0.08-0.13 vs est. $0.02).
• SYNA Q2 results beat as Enterprise continues to see weak demand and undergo inventory destocking, while core IoT has bottomed and is expected to grow 18% q/q in FQ3; guided Q3 revs $220M-$250M below consensus $245.29M).
• WDC said last night it is unable to file its Q4 report on time due to errors in Flash Ventures’ equity interests reporting and recording; adds it is still in the process of completing its assessment of errors.

_________________________________________________________________

Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.