Closing Recap

Monday, July 15, 2024

U.S. stocks were higher all day before a late day selloff narrowed gains, with continued upward momentum seen as the S&P 500 index made an intraday high for 9-straght days now, with nothing able to derail this massive market chase. In July so far, the Nasdaq is up about 5% (+22.5% YTD) while the Smallcap Russell 2000 catches up rising 7% this month (+6% YTD). Midway through the month, only one downside day to show for the S&P 500 (SPX) heading into heart of earnings season the next 3-weeks, with high expectations built in especially for chip makers and AI growth stocks. Stock markets were all bulled up this morning, reacting favorably to the improved odds outlook for Donald Trump to win the Presidency this November over Joe Biden after he survived an assassination attempt on Saturday, lifting stocks and the dollar, reviving risk appetite as U.S. equity futures climbed. Markets now await the start of the Republican National Convention this week in Milwaukee Wisconsin where Trump named Ohio Senator JD Vance as his Vice President running mate late this afternoon. There was a little more rotation today as both the Healthcare and Financials sectors hit record highs (GS record high post earnings), with Energy the biggest mover to the upside today and Utilities the biggest decliner (-2.5%). Smallcaps extended their gains with the Russell 2000 up a 4^th day. Stocks pulled back off earlier highs but stayed higher, with the S&P and Nasdaq Comp rising for the 9^th time in the last 10-trading days as any/every dip continues to get bought!

Fed Chair Powell spoke today at an Economic Club of Washington, D.C. event, not giving any new indications on the policy path in his interview with David Rubenstein. Powell declined to answer a question on the path of interest rates. He repeated he will not be giving “any signals” on the timing of rate actions. Powell did say the U.S. economy has “performed remarkably well” over the last couple of years, though it has cooled off a bit. Questions about the Fed chair’s future have been debated by amid the potential return of Donald Trump as president, given the former leader’s long history of criticizing Fed policy actions.

So just how strong have the last 2 months of trading been? Well @Mr_Derivatives tweeted that “$SPY is up 38 of the last 50 days. 7 of those 12 red days were very mild red. So essentially the bears only had 5 of the last 50 trading days to show for.” That has been some run for the Bulls, with little to no fear along the way as the VIX remains weak (though perked up this afternoon as stock prices pulled back off the highs).

• China’s economy grew much slower than expected in Q2, rising 4.7% in April-June, official data showed, its slowest since the first quarter of 2023 and missing a 5.1% forecast in a Reuters poll. It also slowed from the previous quarter’s 5.3% expansion. Of particular concern was the consumer sector, with retail sales growth grinding to an 18-month low as deflationary pressures forced businesses to slash prices on everything from cars to food to clothes

• Beauty/Department Stores: Macy’s, Inc. (M) terminates discussions with Arkhouse and Brigade saying the revised proposal lacks certainty of financing, remains non-actionable and does not provide compelling value. The retailer reiterates Board and Management’s commitment to shareholder value creation and confidence in “a bold new chapter” strategy. EL shares broke just below the $100 level – lowest levels since 2017.
• Online Retail: big week for retail/shopping discounts as Amazon (AMZN) Prime Day will begin on July 16th & last 48 hours, with millions of deals and expanded same-day shipping offerings. Competition responding, and includes Walmart (WMT) deals, Target’s (TGT) Circle Week, and TikTok Shop’s Deals for You Days
• Food & Beverages: sector was weaker after TD Cowen lowered price tgts for CELH, KLG, MNST, TAP (raised for KO) citing “sharply” slowing sales growth and expectations for easier comps in 2H24 due to last year’s Snap cutbacks no longer look so easy given sequential deterioration in sentiment among U.S. low-income consumers, the rise in value-seeking consumption patterns, and unusual declines in indulgent snacking. Into 2Q, they view FRPT, BRBR, ABI, and KO as well positioned due to their resilient brands and/or international exposure.

• In Casinos & Gaming: CZR downgraded to Negative from Neutral at Susquehanna with a $33 price target given its opinion it has "over-yielded" its properties over the past three years, leading to a competitively inferior set of assets in LV (vs. MGM) and regionally vs. PENN without any relevant digital prospects to offset.
• In Leisure: shares of firearm and ammunition stocks SWBI, RGR, POWW, and others saw early strength as market anticipated Donald Trump’s chances of winning back the White House increased after the former U.S. President was shot in the ear during his election rally in Pennsylvania on Saturday (less gun control view vs. Democrats).
• In Travel & Lodging: for ABNB, Bank America noted AirDNA estimates Airbnb June nights grew 9.5% y/y vs 16% in May, with ADRs down 1% vs +1% in May (Data indicates nights booked growth decelerated in June).

• Monthly credit card charge-off and delinquency data released today: BAC credit card charge-off rate was 2.60% in June and credit card delinquency rate was 1.41% at June end. JPM reported charge-offs for June of 1.6% and delinquencies 0.82%. Citigroup Inc (C) credit card charge-offs 2.47 % in June and delinquency rate 1.36% at June end.

• In staffing, CTAS was downgraded to Sector Perform from Outperform at RBC Capital saying Uniform Rental and Facility Services revenue growth could moderate with macro and employment growth slowdown. In addition, CTAS’s weak job postings are also likely an early indicator for growth moderation.
• In Info Services: into earnings seasons for Q2, Jefferis said they are most positive on TRU and EXPN relative to consensus expectations, while it is more neutral on EFX and FICO saying credit remains tight, and the pace of recovery in mortgage and employment continues to disappoint. Deutsche Bank raised estimates on ratings agencies SPGI and MCO on strong issuance trends but kept estimates for most other names intact.

• In Towers: SBAC was downgraded to Equal Weight from Overweight at Wells Fargo with $220 PT saying valuation is attractive but sees no near-term catalysts on the horizon.
• CXW, GEO shares rise in private prison operator sector as a failed assassination attack over the weekend boosted former Trump’s bid to return to the White House.
• AHH downgraded to Hold from Buy at Jefferies saying although continues to have strong occupancy in office (93.6%) and retail (95.4%), firm expects the former will see pressures from natural attrition causing SS NOI growth to moderate to LSD in ’25; also forecast negative FFO/share growth next year (-2.9%) due to $895M of interest rates swaps expiring by YE25.
• BMO upgraded UDR to Outperform from Market Perform and $45 target price, as it continues to favor coastal multifamily REITs heading into Q224 earnings.

• GMAB upgraded to Outperform from Sector Perform on valuation at RBC Capital noting shares have fallen 50% from the 2022 peak on dampened hopes for prospects post-Darzalex. However, Genmab remains one of the most successful European biotechnology companies with eight approved medicines using Genmab technology.
• LXEO said it received positive results in Phase 1/2 trials for its LX2006 treatment for Friedreich ataxia cardiomyopathy, a type of heart disease.
• SLDB was upgraded to Overweight from Neutral at JP Morgan and raised tgt to $15 from $10 noting post the label expansion for Sarepta’s Elevidys, the door appears wide open for potential accelerated approval pathways for SGT-003 in Duchenne muscular dystrophy in the U.S., pending positive momentum in the SGT-003 Phase 1/2 study.
• SCNI announced successful in-vivo preclinical study results of its innovative anti IL-17A/F VHH antibody fragment as a local, first of its kind, intralesional biological treatment for the large and underserved population of patients suffering from mild to moderate plaque psoriasis.

• In MedTech: BAX downgraded to underweight from EW at Morga Stanley saying while shares are optically cheap, the firm worries that mid-term street expectations of margins getting back to 2019 levels (17-18%) are ambitious given the different business composition and cost environment. Morgan Stanley also downgraded STAA to UW from EW as sees risk to the Chinese consumer (in part following the warning from Zeiss and its local analysts’ downgrade of Aier) and Street expectations for a meaningful growth acceleration in 2025/26 seem unrealistic at this point.
• In dialysis: Politico reported this weekend that the Federal Trade Commission is investigating DVA and FMS, the two largest dialysis providers in the U.S., over allegations they illegally thwart smaller competitors. The investigation focuses on how the companies make it difficult for the physicians who work in their clinics to leave for rivals and start new businesses, the sources told the website.
• In LifeSciences & Tools: TD Cowen previews the sector saying the pace/size of the growth recovery is being questioned given mixed data points since 1Q. The sentiment is very negative w/ current set ups like pre 2Q/3Q’23. The firm said labs are making progress w/ many attractive ideas. DHR, AVTR, TMO, NTRA, GH, EXAS, WGS stand out for 2Q.

• Deutsche Bank did election projection outlook in multi-industry/machinery saying they believe a Trump victory would bring a continuation of lower corporate tax rates, increased protectionism, a continued focus on infrastructure investment, and a resurgence of US fossil fuel production. They said given Trump’s protectionist nature, investors may also seek out companies with higher US exposure (SYM, CTOS, HUBB, LII, OSK, BMI, ZWS) and beneficiaries of a continued focus on manufacturing/supply chain ‘re-shoring’ (E.G. ROK).

• In Chemicals: RBC Capital lowered price tgts on fertilizer stocks NTR to $60 from $70, CF to $85 from $90 and MOS tgt to $30 from $32 ahead of Q2 results, views as another mixed quarter with nitrogen and phosphate prices that performed better than expected, but producers likely only partially benefited given forward sales (mainly nitrogen) and production issues (mainly phosphates), while potash prices drifted lower.
• In Metals & Mining: CLF agreed to buy Canadian steelmaker Stelco Holdings Inc. for about C$3.85 billion ($2.8 billion), in the company’s first major move after losing out in its bid for United States Steel Corp. (X) last year. TECK was resumed/upgraded to Outperform from Market Perform at BMO Capital with a C$85 tgt from C$45 saying the company is "significantly different" with completion of the coal separation and construction of the QB2 copper mine. GLNCY resume coverage/downgraded to MP from OP at BMO Capital saying near-term shareholder returns are likely limited by the EVR transaction, but this should change through 2025 where they forecast a solid yield of 5.5%.

• EA was downgraded to Neutral from Buy at Citigroup saying since fiscal Q424 results, shares have risen ~15% on optimism around the upcoming release of College Football. They note they have three concerns: 1) potential weakness at Apex Legends, 2) potential crowding out from GTA IV’s release in CY Q425, and 3) macro risk if spending moderates.
• SNX was upgraded to Outperform from Sector Perform at RBC Capital and raised price target to 140 (from $135) as it believes stock pullback offers an attractive risk/reward opportunity.

• ON downgraded to Neutral from Buy with a price target of $77, down from $85 as believes the company’s silicon carbide exposure will hurt its multiple. The silicon carbide market, which represents 12% of On’s 2024 sales, is experiencing not only slowing growth but lower pricing which should eventually lead to lower margins as well.
• TSM said it is expected to report a 30% rise in second-quarter profit on Thursday; TSM is set to report a net profit of T$236.1B ($7.25B) for the quarter ended June 30 – the estimate compares to the 2023 Q2 net profit of T$181.8B.
• Global smartphone shipments rose 6.5% in the second quarter, driven by Samsung Electronics (SSNLF) and Apple (AAPL), w/ Apple iPhone rising 1.5% and Samsung advancing 0.7% preliminary data from IDC showed on Monday, but a full recovery in demand is yet to come around as it remained challenged in some markets.
• Citigroup downgraded shares of AEIS, COHU, VECO while moved KLAC to its #1 pick and TER top SMID idea in the U.S. semi equipment sector post SEMICON West conference as believe the equipment group is in late Phase 2 stage following 11%/24% YTD outperformance relative to SOX/SP500 respectively. Citi maintains its 2025 base case WFE of $120B (Street $116B) with a bull case of $130B on a step up in spend by the China Big Fund. Citi downgrades AEIS in components, VECO in SMID OEMs, and COHU in back-end to better align with its late Phase 2 stage cyclical view.
• Morgan Stanley raised price tgts on QCOM to $220 from $172, SWKS to $118 from $97 and QRVO to $138 from $122 to reflect enthusiasm for AI and a stronger smartphone shipment outlook. The edge AI story is starting to take shape with the launch of Apple intelligence in 2H2024, which is predicted to be the killer app and trigger a strong smartphone upgrade cycle. Morgan sees a larger AI opportunity initially for Apple, given their ability to proliferate AI features across applications, but still expects AI features to migrate to Android as well.