Closing Recap

Tuesday, February 27, 2024

Index	Up/Down	%	Last
DJ Industrials	-96.49	0.25%	38,972
S&P 500	8.67	0.17%	5,078
Nasdaq	59.05	0.37%	16,035
Russell 2000	27.06	1.36%	2,056

 

 

 

 

 

 

 

 

 

U.S. stocks “chopped” for a second straight day before a push to close at the high as the waiting game for the PCE inflation data on Thursday remains in the forefront of traders’ minds with most of Q4 earnings season behind us now. The PCE is expected to have advanced 0.3% M/M in January, up slightly from the 0.2% increase seen in December, while on a Y/Y basis, PCE is likely to have gained 2.4%, compared with a 2.6% rise in the previous month. There were no market concerns despite more “hawkish” Fed commentary overnight from KC Fed President Schmid who in his first major speech, advocated for patience in cutting rates, citing above target inflation and the job market remaining robust. Schmid also said that further disinflation would need to come from services, and wage growth also likely needed to moderate. Stocks bounced between gains and losses early, but the moves were narrow again, led by defensives with Utilities up the most (the worst performer in 2024), while energy stocks slipped the most. After “AI” news ripped stocks higher last week post NVDA earnings/guidance, crypto has since stepped up as the next sector leader, with Bitcoin hitting over 2-year highs above $57,000 today. Biotech also hitting best levels since January 2022 with several big movers in recent days on drug data (see below). Technology got a pop late day led by AAPL shares after the company said they are winding down electric car plans, ending decade-long project as they shift many car project workers to generative “AI” effort.

 

Still concerns about government shutdown, but eased after today: House Speaker Mike Johnson said he was "very optimistic" that Congress would reach an agreement to avert a government shutdown while continuing to pursue talks on Ukraine and pressure the administration on border policy, following a White House meeting Tuesday with other congressional leaders and President Biden. House and Senate leaders have been working to negotiate the details of 12 funding bills totaling $1.6 trillion for federal agencies, which have been operating on temporary extensions since Sept. 30

 

In data, several sectors have participated in 2024, but still big tech leading: while many sectors have participated for the 15 out of 17-week rally for major averages, @KobeissiLetter noted the “Nasdaq 100 index has added ~$1.6 trillion in market cap in 2024 thus far. But here’s the crazy part: Just 4 companies have accounted for a whopping 95% of that YTD market cap gain. Nvidia, Meta, Microsoft, and Amazon have added a total of $1.5 TRILLION in market cap in 2024. That’s more than the entire value of Australia’s stock market. The remaining 97 companies have added just $75B in market cap.”

• Home prices in the 20 biggest U.S. metros rose for the 11th month in a row and hit a record high amid a persistent shortage of resale homes for sale. The S&P CoreLogic Case-Shiller 20-city house price index rose 0.2% in December compared to the previous month.  Home prices in the 20 major U.S. metro markets were up 6.1% in the last 12 months ending in December.
• February Consumer Confidence index 106.7 below consensus 115.0 while January revised to 110.9 (previous 114.8).
• Richmond Fed factory index -5 vs. est. -9; services revenues index -16 in Feb vs +4 in January; shipments index -15 in Feb vs -15 in January.

• U.S. Treasury yields fell initially following a 7-year auction results, adding to early losses after a batch of soft economic data kept the Federal Reserve firmly on track to cut interest rates by the summer or later (pushing out expectations for 2 months now). U.S. consumer confidence slid in February after three straight monthly increases to 106.7 this month from a downwardly revised 110.9 in January. Treasury yields rebounded late day.
• The U.S. sold $42B in 7-year notes at high yield 4.327% vs. 4.329% when issued prior with bid-to-cover ratio 2.58, and primary dealers take 15.6% of U.S. 7-year notes sale, direct 14.83% and indirect 69.57%. Treasury yields pulled back from highs after the auction following first stop through for 7Y since October.
• The fed funds futures market has priced in a 67% chance of a rate cut at the Fed’s June policy meeting, down from roughly a 75% probability seen last week (recall that rate futures were betting on easing in March two to three weeks ago and that is all but out the window).

 

Macro	Up/Down	Last
WTI Crude	1.29	78.87
Brent	1.12	83.65
Gold	5.20	2,044.10
EUR/USD	-0.0007	1.084
JPY/USD	-0.13	150.56
10-Year Note	0.016	4.315%

 

• In Auto Retailers: AZO reported better-than-expected Q2 profit (EPS $28.89 vs. est. $26.28), helped by a DIY trend among customers wanting to keep their older cars while revs rose 4.6% to $3.86B topping the $3.84B estimate; shares of AAP, ORLY, GPC, and others bounced in reaction initially.
• In Used cars: CARG Q4 results beat both top- and bottom-line estimates, but shares fell as Q1 guidance was softer than expected, with CARG’s Digital Wholesale business set to take several quarters before returning to profitable growth (revenue was guided in the range of $201M-$221M, below consensus of $239M, and adj. EBITDA was guided to $41M-$49M, below consensus of $49M).

• Mattress retail: shares of TPX, LEG moved higher after Wedbush and Truist both noted new anti-dumping duties positive for LEG and to a certain extent TPX. The Department of Commerce announced its affirmative preliminary determination that mattresses from 12 countries are likely being sold in the US at less than fair value, setting the stage for a round of stiff duties that should stifle imported mattresses and give a boon to domestic manufacturers.
• Consumer Electronics: IRBT shares fell on a larger than expected Q4 loss and guided FY24 adjusted EPS loss (-$3.73-$3.30), wider than analysts’ estimates of (-$2.49) and sees H1 rev to drop in high-teens to low-20s pct range y/y and sees only mid-single-digit pct improvement y/y in H2.
• In Department Stores: Macy’s (M) reports mixed Q4 results as EPS topped views and sales slightly below and reports Q4 comparable sales down 5.4% on an owned basis and down 4.2%; shares reversed early gains after Q1 guidance fell well short of consensus (adjusted EPS 10c-16c, below consensus 46c on light sales).
• In Grocers: KR was upgraded from Underweight to Equal Weight at Wells Fargo and tgt upped to $50 saying key industry issues seem to be bottoming after food retail has been plagued by weakening pricing and poor unit volumes. The firm said they expect unit volumes in food retail to improve as the price elasticity headwind diminishes and March 2023 Snap cuts lap. SFM was double upgraded from Underperform to Buy at Bank America and raised tgt to $70 from $30 as higher multiple reflects SFM’s shift Id a higher store growth rate, higher sustained gross margin Outlook and unique specialty position in Food Retail.
• In Food: SJM Q3 EPS and sales topped consensus ($2.48/$2.23B vs. est. $2.27/$2.22B); UL was downgraded from Equal Weight to Underweight at Morgan Stanley saying while thinks mgmt strategy looks sensible, it is unclear what will drive a further re-rating over the next twelve months.

• In Online travel/Hotels: EXPE said on Monday it was cutting about 1,500 jobs globally, or about 9% of its total workforce, as part of its "organizational and technological transformation."
• In Leisure/Boating (BC, MCFT, MBUU, PII): Keybanc said January’s -16.3% y/y boating data was below normal seasonality (+LSD sequentially vs +high teens% normal) while December was revised slightly higher (-2.6% y/y vs -5.5% y/y prior). Said BC retail ~in-line vs ind. (-16.7% y/y) Ski/Wake: Category -17.0% y/y, MBUU softer, MCFT slightly stronger Pontoon: Category -16.3% y/y; PII slightly stronger.

• In Refiners: DK reported a wider Q4 EPS loss while revs beat; SUN was downgraded to Neutral following recent outperformance at Citigroup (+6% vs AMZ) since the NuStar (NS) deal announcement.
• In Utilities and Solar: CEG shares jumped (among best performers in the S&P 500 index) after guiding FY24 op profit in the range of $7.23-$8.03 topping consensus estimates of $6.38; SPWR shares fell on CEO exit.

• In Lending: TREE posts Q4 adj EPS $0.28 well above consensus of $0.04 while noted the company exited businesses that no longer fit with its strategy, reduced complexity as well as headcount; guidance was weaker as sees Q1 revs $158M-$168M (est. $165.2M) and year revs $650M-$690M vs. est. $715.6M; AAN reported a drop in Q4 sales, with lower average ticket sizes causing sales to fall as loss widened to (-$0.41) from (-$0.19) y/y and below ests for loss (-$0.03); guided FY24 revs $2.06B-$2.16B vs. est. $2.2B and EPS loss (-$0.10 to profit $0.25) vs. est. $1.09.
• In Banks: HBAN was upgraded from Neutral to Buy at Davidson saying its balance sheet is asset sensitive and a higher for longer rate environment is expected to lead to stronger NII growth/forward curve is no longer forecasting 6 rate cuts in 2024 and the first-rate cut has been pushed out to May or June vs March. Davidson downgraded CMA to Neutral from Buy saying its balance sheet is slightly liability sensitive making it difficult to outperform in a higher for longer rate environment.

• LGND shares jumped as benefits from Q4 beat and better guide (FY24 EPS $4.25 -$4.75 vs. est. $4.27); but also holds sizable stake in VKTX shares as on 2/9 had disclosed ownership of 6.07MM shares of Viking Therapeutics Inc (VKTX), 7.9% of the company after recent 13D/A http://tinyurl.com/2p9uyjcb
• VKTX shares surged after announced positive results from a Phase 2 trial of its weight-loss drug VK2735, a GLP-1 receptor agonist that is developing in both injectable and oral form as a treatment for obesity and diabetes. The trial met all primary and secondary endpoints, showing statistically significant reductions in body weight at all doses compared to placebo. Patients receiving weekly doses of the drug lost up to 14.7% of their body weight from baseline after 13 weeks. "Up to 88% of patients in VK2735 treatment groups achieved >=10% weight loss, compared with 4% for placebo," the company said in a statement. (shares of ALT jumped over 20% as well)
• TMDX shares jumped after Q4 results beat with EPS $0.12 above est. loss (-$0.03) on revs $81.2Mm topping est. $68.51Mm and guides FY revs $360-370Mm vs. est. $330.23Mm.

• In Telehealth: HIMS shares jumped after Q4 beat and upward guidance for Q1/year; Q4 EPS $0.01 vs. est. loss (-$0.02); Q4 revs $246.6M vs. est. $245.82; sees Q1 revenue $267M-$272M, vs. est. $251.26M and Q1 adjusted EBITDA $22M-$27M; sees FY24 revenue $1.17B-$1.2B vs. est. $1.1B.

• Shares of JOBY, ACHR, LILM shares were active after LMT’s Sikorsky unit unveiled plan to build, test, fly hybrid-electric vertical takeoff & landing demonstrator; Sikorsky innovations & GE aerospace finalizing designs to build hybrid-electric power systems testbed with a 600kw electric motor.
• ATSG reported a Q4 miss with another negative margin quarter and 2024 EBITDA guidance came in weak, with management guiding to $506M relative to consensus of $592M and 2024 EPS guidance was for $0.55 to $0.80, down from the consensus of $1.58.
• LUNR said communications with spacecraft Odysseus to end on Tuesday morning, cutting short mission to 5 days from expectations of 7 to 10 days. The decline follows Monday -34% drop after saying its craft tipped over on landing, limiting communications and recharging of batteries via solar power.

• In Telco/Media: ROKU was downgraded from Equal Weight to Underweight at Wells Fargo and cut tgt to $51 saying WMT is ~1/3rd of ROKU’s Device sales/net adds, but the retailer is set to acquire VZIO for its SmartCast O/S and believes it will likely pressure net adds by 2025-26, and WMT likely moving its on CTV from the ROKU O/S to SmartCast. Towers slipped for a second day after earnings/guidance from AMT/SBAC. SONY to cut about 8% or about 900 PlayStation jobs. CNBC reported that WBD halted talks of a possible acquisition of PARA after several months, while Skydance Media is still doing due diligence on a potential transaction http://tinyurl.com/4ck2ux47
• In Software: WDAY reported better FQ4 results, albeit a smaller than typical beat (subscription revenue and backlog beats were lower than prior quarters) and provided softer FQ1 cRPO growth guidance of 17.5-18.5%. ZM delivered Q4 operating margin above consensus expectations, post a better-than-expected F4Q (2% top-line beat, FYE Jan.) driven by Enterprise, which saw uptick in $100K customers in F4Q (79 net adds +34% q/q) announced a $1.5B share buyback, while FY25 revenue guidance was below consensus.
• In Gaming Software: Unity (U) shares fell initially after disappointing financial guidance and the company unveiled more details about its turnaround plan; guided Q1 revs $415M-$420M below ests $534M and Ebitda guidance of $45M-$50M below consensus forecast of $112M.

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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.