Closing Recap

Tuesday, July 09, 2024

U.S. stock markets endured another choppy trading session that saw the S&P 500 and Nasdaq touch fresh record highs but failed to make a meaningful move for a second straight day as markets await key consumer price index (CPI) inflation data on Thursday. Today’s Fed Chairman Powell appearance before the Senate Banking Committee lasted a little over two hours, with no surprising headlines, not sending any signals on timing of any rate cut, though many economists said they were more confident in their forecasts for a September reduction. Fed Chair Jerome Powell said the U.S. is “no longer an overheated economy” with a job market that has cooled from its pandemic-era extremes and in many ways is back where it was before the health crisis – leading to rising hopes of rate cuts. Thursday’s data will be a big indicator as to the next move and the timing of cuts. While the S&P and Nasdaq touched new all-time highs, the Smallcap Russell was down on the day and the Dow Jones Industrials lagged. Tech was again the market leader earlier before flipping lower, while financials/big banks enjoyed big gains (GS, C, JPM, BAC, MS) ahead of CPI inflation data and the start of bank earnings this Friday with JPM, Citi, WFC reporting. Lots of large cap names made 52-week highs today including AAPL, AMAT, COST, CRWD, GOOGL, LLY, and WMT among them.

In an interesting stat relative to the strength in the Mag7 technology space from a tech trading desk today (AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA): “We’ve talked a lot about the continued lack of breadth in the market right now and the massive move of the Mag7 relative to every single index. The index volatility remains very muted given the Mag7 accounts for ~33% of the SPX and 43% of the NDX. The last time all Mag7 components closed in the red was April 30th of this year, SPX was down 1.58% that day, NDX down 1.92%, and the VIX was +6.68%. Also, @Mr_Derivatives noted “$SPY is up 35 of the last 46 days now. $SPY is up 10 of the last 12 weeks. And 28 of the last 37 weeks. $SPY is up 8 of the last 9 months. $SPY is up 14 of the last 16 years. (Factoring in dividend). Wild times and incredible bullishness into election uncertainty.

• U.S. EIA raises forecast for 2024 U.S. oil production by 10,000 bpd, now expects output to grow by 320,000 bpd y/y to 13.25M bpd; EIA raises forecast for 2025 U.S. oil production by 60,000 bpd, now expects output to grow by 520,000 bpd y/y to 13.77M bpd; EIA keeps forecast for 2025 U.S. oil demand unchanged at 20.6 mln bpd, 200,000 bpd growth y/y.
• Treasury yields edged modestly higher following a 10-yr auction and comments from Fed Chair Powell. U.S. sells $58B 3-year notes at high yield 4.399% (vs. 4.407% when issued prior as the 3-year notes bid-to-cover ratio 2.67, as Primary dealers take 14.78% of U.S. 3-year notes sale, direct 21.26% and indirect 63.97%.

• In Mattress retail (TPX, SNBR, PRPL), Wedbush noted that recent mattress checks with retailers and industry contacts indicate that y/ y bricks-and-mortar unit sales trends slowed materially in June, and it estimate units declined high single digits y/y for the month.
• In Restaurants: broad weakness in casual diners/restaurants CMG, MCD, PZZA, DPZ, EAT, DRI; CMG price tgt was raised from $65.40 to $70 at Stifel and maintains Buy after review of mobile location data suggests CMG’s Q2 traffic performance was strong, so it raised its SRS projection to 10% (Street 8.8%). Stifel believes CMG is improving throughput during peak periods, which has supported solid traffic performance.
• In online retail: CHWY was downgraded to Hold from Buy at Argus noting shares have outperformed over the past quarter, rising 48% compared to flat results for the Russell 2000 index and Argus expects trading volume and volatility to increase due to a shift in stock ownership. JMIA shares surged after Benchmark initiated at Buy and $14 tgt based on belief that benefiting from multiple fundamental tailwinds Africa offers sizable and fast-growing end markets for ecommerce and JMIA presents investors with a unique investment opportunity to participate.
• In Consumer Staples/Food: CELH shares tumbled early after Morgan Stanley noted that the energy-drink maker’s year-over-year sales growth has continued to slow, pointing to NielsenIQ data.

• In the RV Industry: Keybanc noted preliminary domestic retail unit sales came in -14.6% y/y in May (N.A. -15.6% y/y), and based on average revision trends, sees May fully revised N.A. retail ~-LDD y/y. largely in line to a bit softer than its checks here), implying below normal seasonality. Said April U.S. headlines were revised +409 bps to -6.7% y/y, with March +221 bps to -11.9% (+667 bps total). THO preliminary THO unit retail declined low-twenties% y/y and WGO preliminary unit retail declined high-twenties% y/y. CWH dealer-level SS units data shows May preliminary +HSD y/y.

• In Transports: truckers weak after UBS/JP Morgan downgrade shares. CHRW was upgraded to Neutral from Underweight at JPMorgan (put CHRW on its list of stocks that were more attractive after Q124 earnings) and the firm downgraded ARCB to Neutral from OW saying screens poorly on risk/ reward again this quarter and is still materially below 2025 consensus estimates and cut WERN and HTLD to Underweight from Neutral in trucking. UBS also downgraded shares of HTLD and WERN to neutral from Buy saying they believe that a recovery in truckload rates will be pushed out to 2026, which is counter to consensus expectations of an upturn in 2025.
• In rails, TD Cowen modestly lowers Q2 estimates for the U.S. Rails (CSX, NSC, UNP – with small tgt changes), as volumes QTD were slightly below prior estimates and included a mix headwind that was somewhat offset by a drop in diesel.
• In Aerospace& Industrials: HLIO shares fell after the company put its CEO on leave following an investigation of potential violation of co’s code of business conduct and ethics and appointed Sean Bagan as interim president/CEO in addition to CFO role. BA announced June deliveries of 44 commercial jets including 34 737 max, for highest monthly total in 2024 and has now delivered 175 airplanes during first half of 2024.
• In Chemicals: CC was upgraded to Buy from Neutral at UBS and raised tgt to $30 as believes the market has become too negative on the stock (down 22% over last 1.5 months vs XLB down 5%) and see potential for the stock to outperform as investors look towards a more normal level of earnings in TiO2 and favorable demand/price drivers.

• For Investment banks, Goldman Sachs said they are cautiously optimistic on improving backdrop for investment banking revenues but believe the recent multiple rerating has resulted in full valuations. For the quarter, is most ahead of Street EPS for PWP, PJT, FCN and EVR; and see downside risks to EPS at LAZ, MC.
• KBW recommends investors take an overweight position heading into Q2 in BAC, WBS, SNV, CADE, UMBF, FNB, PFS, EBC and AMTB and an underweight position in HBAN, SOFI, and BHLB (all sorted by average daily trading volume) saying further confirmation of NII inflection will be evident in Q224 results, and KBW doesn’t see a mass shift in 2024 NII guidance, especially since company guides were trued-up to the forward curve in April.

• In REITs: REG was upgraded to Outperform in Shopping Center REITs at Mizuho saying following Shopping Centers’ YTD underperformance, sees a favorable setup into 2H24 with earnings upside and improving ssNOI among the catalysts. SLG was upgraded to Sector Perform from Underperform at Scotia and raised tgt to $53 from $43 saying midtown New York City has been a more active office market than others and expects continued leasing progress will support valuation and sentiment on the stock,
• In Insurance: AGO was upgraded from Market Perform to Outperform at KBW and raised tgt to $92 from $87 after the mortgage insurer announced the merger of its two primary U.S. insurance subsidiaries, and in connection a $300M special dividend (capital release) to the Holdco. PFG was upgraded to Strong Buy from Market Perform at Raymond James as sees the company’s revenue growth accelerating as it becomes a "one-stop shop" for business solutions.

• KYMR said SNY is taking steps to expand ongoing Phase 2 trials of its targeted protein degrader KT-474 in skin conditions hidradenitis suppurativa (HS) and atopic dermatitis (AD).
• MASI guided prelim Q2 revs $496M vs. est. $493.6M.
• PFE Chief Scientific Officer and R&D Chief Mikael Dolsten is leaving the company after 15 years. The search for his successor is expected to last until early next year, the pharma giant said.
• PRLD announces clinical collaboration with Merck to evaluate PRT3789 in combination with KEYTRUDA (pembrolizumab) in patients with SMARCA4-mutated cancers.
• QURE shares jumped as announces updated 24 months’ follow-up data from its ongoing early-stage study of its experimental therapy to treat Huntington’s disease; said patients receiving high-dose of the therapy showed 80% slowing of disease progression at 24 months, assessed by a scale that measures symptoms of the disease.
• Pharmacy benefits managers (CVS, CI) shares fall early after the FTC said middlemen have outsized influence on U.S. drug prices.

• Telecom Services: Goldman Sachs previews sectors saying they expect soft Q224 results from cable stocks driven by headwinds from the end of the Affordable Connectivity Program (Sell CHTR) and look for mixed results from wireline stocks (Buy FYBR). In IT services, company commentary suggests relatively in-line results and Goldman sees idiosyncratic upside in IBM, GLOB. Expects solid results from Datacenter stocks with upside to 2024 metrics. Buy DLR.
• Semiconductors: the Philly semi-index (SOX) takes out the prior June record high of 5,792.86, topping 5,800 for the first time ever on more buying. Price tgts raised at KeyBanc saying in analog space, improving bookings momentum they observed last quarter in China has not sustained as the auto market continues to correct; traditional server demand has begun to see a meaningful recovery, while gen AI demand remains robust; Most positive for NVDA (PT to $180), CRUS (PT to $155), MU (PT to $165), MPWR (PT to $975), MRVL (PT to $95), mixed for AMD (PT to $220), and negative for QCOM (PT to $225), ON (PT to $85), and LSCC.
• In “AI” sector: TEM research embargo ends as the recent IPO was initiated coverage by several Wall Street firms with Buy equivalent ratings from Stifel ($45 tgt), Loop Capital ($48 tgt), Morgan Stanley ($44 tgt), JP Morgan ($42 tgt), TD Cowen ($50 tgt), Bank America ($41 tgt), and Needham ($47 tgt). ARLO shares surged after announced its AI-powered subscription service has surpassed a milestone of 4M paid accounts.
• Other tech mover: NOW extended yesterday -5% declines, falling further after Guggenheim had downgraded shares on Monday; GLW added to yesterday gains following its raised guidance. ORCL shares tumbled late afternoon after the information reported Musk’s xAI and Oracle have ended talks to expand an existing arrangement under which xAI rents specialized Nvidia AI chips from the tech giant. Instead, xAI is buying chips to build a data center on its own.