Closing Recap

Wednesday, January 24, 2024

Fresh record intraday highs for the S&P 500 and Nasdaq 100 on Wednesday, but markets finished on the lows in a bout of profit taking! Gains early were led by the usual suspects semiconductors on AI optimism, as well as earnings from NFLX boosting shares. U.S. business activity picked up in January as inflation cooled a bit while China cuts bank reserves to defend markets and spur economic growth. Overall, “the trend is your friend” with markets making new all-time highs every day this week in what has been a massive squeeze higher into key data, big earnings, and the FOMC meeting results next week! The S&P 500 index (SPX) traded above 4,900 for the first time ever, as the same names are still doing most of the heavy lifting for broader averages. MSFT’s bounce took it above $3 trillion valuation today, NVDA surges for a 12^th time in 14 trading days (lifting the semiconductor index (SOX) to new records highs AMD, ASML, surge), GOOGL traded above its all-time high levels, META another name at all-time highs, and of course NFLX jumping 12% after its earnings results. AAPL (also $3 trillion mkt cap) and AMZN are also higher on the day as tech and communications sectors leading in 2024 (after leading in 2023). Milestones being made this week as Charlie Bilello tweets: "The S&P 500 crossed above 4,900 today for the first time. It took 757 days to go from 4,800 to 4,900, the longest Gap between 100-point milestones since March 2000-May 2013 – took (4,790 days to get from 1,500 to 1,600) which follows the Dow hitting the 38,000 level for the first time this week. Big catalysts in coming days with GDP data tomorrow morning and the ECB policy meeting, the PCE inflation data Friday all before next weeks FOMC meeting. Stocks ended off their highs late in the day as Treasury yields hit intraday highs. How long will this upside momentum continue remains the question?

In central bank news: The Bank of Canada (BoC) held its key overnight rate at 5% and said while underlying inflation was still a concern, the bank’s focus is shifting to when to cut borrowing costs rather than whether to hike again. The news followed the Bank of Japan holding rates steady yesterday at its meeting and comes ahead of the European Central Bank (ECB) meeting results tomorrow (no changes expected). The FOMC meeting is next week, while we get GDP data tomorrow and PCE inflation data on Friday. Note a pickup in inflation could derail markets’ current belief that the Fed would bring inflation down to target without a recession. The Wall Street Journal expect 4Q U.S. GDP data tomorrow to show growth slowing to 2% from 4.9% in the 3Q, with core annual PCE inflation Friday still above the Fed’s target, at 3%.

Warning signs remain, but stock markets keep surging: From the WSJ, "from fuel and groceries to hotels and airline tickets, [US] consumers are putting more purchases on credit cards—and taking longer to pay them off. The four biggest U.S. banks reported higher credit card spending in 2023 compared with the previous year. In fact, since 2020, credit-card spending has steadily increased at three of the four…unpaid balances surpassed 2019 levels for the first time, showing that consumers are putting more purchases on cards and taking longer to pay off their bills than they were before the pandemic."

• The U.S. dollar also rose after the PMI numbers, but the Dollar Index (DXY) remained in negative territory, falling 0.45%, with sharp declines vs. major rivals. The euro posted its biggest move in a month, back above the 1.09 level. The weaker 5-yr bond auction added to the bounce in the dollar (which had hit 7-week highs on Tuesday). Bitcoin prices rebounded about 2% back to $40K but remains around 20% from its January highs.

• MNRO Q3 adj EPS $0.39, in-line on light sales $317.7M (vs. est. $325M) and comp sales fell -6.1% vs. +5.6% y/y.
• STLA was downgraded to Hold from Buy at HSBC saying Stellantis looks to have been slower to prepare for a more normal” trading environment – that gives cause for concern High inventories, declining market share and rising incentives are all fueling the bear case. Cut TP from EUR24 to EUR22.
• UBER downgraded to Hold at Gordon Haskett.

• In Consumer Products: KMB posted weaker-than-expected Q4 earnings as adj EPS of $1.51 missed the $1.54 consensus while sales rose to $4.97B from $4.964B a year ago, also below the $4.989B consensus. The Consumer Staples sector (XLP) was among the worst performers in the S&P today, reversing strength yesterday after PG results and guidance lifted consumer product names.

• In Alternative Energy: PLUG was downgraded to Underperform at BMO Capital and cut tgt to $2.50 from $3.50 and lowering estimates despite positives from annual update call that sparked 31% rally. Solar names extend losses to start 2024 as Treasury yields rise.
• In Refiners: SUN upgraded to Buy from Hold at Citigroup and raise tgt to $65 following several cash flow accretive transactions; notes the January 11th transactions drive ~25% of the target price increase; the NS acquisition drives the remaining ~75% increase.

• EWBC reported a solid Q4, but guidance for 2024 was below Wedbush’s prior expectations as End of period loan growth was guided to 3% – 5% (Wedbush had previously expected 6%), net interest income was guided to decline 4% to 6% driven by rate cuts (it had previously expected a 1% decline).
• FHN announces $650m share repurchase program, declares cash dividends on common and preferred stock. Was also upgraded to Buy at UBS as thinks FHN is well positioned to return capital to shareholders given their strong capital position, near-TBV stock valuation and mgmt’s stated goals of deploying excess capital above 11% CET1.
• HBCP downgraded to Neutral from Overweight on valuation at Piper.
• WBS upgraded to Overweight and $65 tgt saying for the company today it sees a growing stable of differentiated businesses, which should translate not only into above peer growth in 2024, but more importantly, with levers to pull in any rate or economic backdrop.

• BIIB downgraded to Neutral from Buy at UBS and cut tgt to $276 from $311 citing Leqembi ramp progressing slower than it’d expected saying it does not expect a major sales inflection in 2024.
• CYTK downgraded to Neutral from Buy at UBS but raised tgt to $92 from $61 saying its prior bullish thesis on Phase 3 outcome played out.
• KURA agreed to sell 8.7 mln shares, including ~7.3 mln pre-funded warrants, in PIPE (private investment in public equity) for $150 mln gross proceeds; purchase price of $17.25 represents 28.5% premium to stock’s last close.
• THTX shares fall after saying the U.S. FDA has declined to approve the new, more concentrated formulation of its fat reduction drug Egrifta SV (the treatment is already approved in the U.S. to reduce excess abdominal fat in HIV-infected patients with a rare condition called lipodystrophy).
• VRTX downgraded from Hold to Sell at Canaccord as the new target represents >10% downside from current levels.

• In Pharmacy retail: WBA is evaluating options, including the sale of Shields Health Solutions, a specialty pharmacy business it purchased three years ago valued at $4B, according to Bloomberg http://tinyurl.com/2j2d2d8y .
• In MedTech: ISRG reported Q4 sales of $1.93B above ests $1.89B helped by strong demand for some surgeries; Q4 adj EPS $1.60 tops est. $1.48 as instruments and accessories revenue increased 22% in the period on the back of 21% growth in procedure volume from its da Vinci systems and a pricing benefit.
• In Healthcare Services: FIGS was upgraded to Equal Weight from Underweight at Barclays based: on 1) inventory inflecting positively in 3Q23 and should continue to get better in 4Q23 and FY24; 2) improving brand heat based on our checks; and 3) increasing revenue contribution from high-growth segments.
• In Life Sciences: Barclays downgraded the Life Sciences and Tools industry view to Neutral from Positive on valuation saying the overall market is expected to decline LSD in ’24 with a 2H weighting, driven by a broader recovery in the broader Biopharma end market. Street estimates are still coming down across most of the group, ultimately making the stocks more expensive. Also downgrades TMO and DHR to EW from OW in conjunction.

• In Defense: GD reported higher Q4 sales (+8% at $11.67B vs. est. $11.39B), helped by strong demand for the company’s aerospace unit and its marine systems business, while EPS of $3.64 was above last year, but below the $3.68 estimate. Sales jumped nearly 15% in the company’s marine-systems unit and 12% in the aerospace division.

• In Chemicals: DD shares tumbled after warned of an earnings shortfall, guiding Q1 adj EPS to $0.63-$0.65 from $0.84 y/y and consensus of $0.88 and sees sales falling to $2.8B-$3.02B, below the consensus $3.04B; also issued prelim Q4 operating EBITDA about $715M, vs. est. $744.9M; lower guide due to inventory destocking and continued weakness in China led to lower volumes (shares of EMN, DOW, HUN moved in reaction).
• In Fertilizer sector: MOS downgraded to Neutral from Buy at Mizuho and cut tgt to $34 from $42 while lowering ests saying with the ag complex under pressure due to declining crop prices that will likely impact farmer’s net income, Mizuho doesn’t believe this is the right time to be positive on fertilizer stocks.
• In Steel producer STLD Q4 EPS $2.61 missed est. $2.66 but revs $4.2B above est. $4.14B; Q4 steel operations was $365Mm, representing a 24% sequential decline, based on seasonally lower long product steel shipments, and flat rolled steel metal spread compression; says market dynamics are in place to support increased demand across operating platforms in 2024.

• In Telecom: AT&T (T) shares dropped after earnings miss and lower guidance as sees FY24 adjusted EPS $2.15-$2.25, below consensus $2.46 and FY24 adjusted EBITDA up 3%; added 526,000 net monthly bill-paying wireless phone subscribers in Q4, surpassing expectations for 495,830 additions.
• In China: US listed China stocks bounce a second day after China cut the amount of cash that banks must hold as reserves as hopes for more stimulus from Beijing are also supporting positive sentiment. China also tripled individual investment quotas under the cross-boundary Wealth Management Connect Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area, the Chinese Central bank said (Shanghai Index rose 1.8% overnight).
• In Internet: EBAY said it will cut about 1,000 jobs, or 9% of its full-time workforce, to better position the company for future sustainable growth; SQSP was upgraded to Market Outperform at JMP Securities with $40 tgt with Google Domains contributing to revenue as domains are renewed, JMP believes its above-consensus estimates call for organic high-single-digit bookings and revenue growth in 2024, ex-Google Domains’ contribution.

• In Hardware: IBM expected to report earnings after the close.
• In Electrical parts/Equipment: APH posts Q4 net sales of $3.33B topping ests $3.15B and EPS $0.82 beats by a nickel noting sales bounce driven by growth in commercial air, defense, automotive and IT datacom markets, as well as contributions from acquisition program. TEL also rises on earnings as EPS and revs top views while said anticipates revenue growth in artificial intelligence applications through 2024.
• In IT Services: EPAM was downgraded to Underweight at Morgan Stanley saying trading at 24x CY25E consensus EPS, believes EPAM figures remain elevated against a challenged macroeconomic backdrop, particularly as it has yet to see signs of an inflection across digital engineering IT budgets.
• In the 3D sector: DM announced an additional $50M cost-reduction plan that includes a 20% workforce reduction designed to align its cost structure to current market dynamics.

• ASML Q4 net profit rose 9% to 2.0B euros ($2.2 billion) on sales of 7.2B euros, topping expectations of a 1.87B euros net profit on revenue of 6.9B; registered orders of more than 9 billion euros in the quarter – more than triple third-quarter levels – but kept its outlook for flat sales growth in 2024.
• TXN shares slump as Q4 EPS $1.49 vs. est. $1.47; Q4 revs $4.08B vs. est. $4.12B; forecasts Q1 revs $3.45B-$3.75B, below consensus $4.09B and sees Q1 EPS $0.96-$1.16 vs. est. $1.41; said chip inventory builds up in its key markets with initial signs of weakness in the automotive sector.