Closing Recap

Monday, June 24, 2024

Stocks ended on lows in a lackluster start to the trading week! U.S. stock market action on Monday was a reversal of the prior 2-weeks movement, as a handful of large cap mega tech stocks that pushed the S&P 500 and Nasdaq to record highs just a week ago (6/18) seeing extended profit taking since, with semiconductor giants (NVDA, AVGO, ARM) among those falling for at least a 3^rd straight day and weighed on the Nasdaq. @bespokeinvest noted, “it’s been 2 years since NVIDIA $NVDA last had three straight 3%+ declines. (June 9th, 10th, and 13th, 2022).” At the same time, NYSE breadth was positive (reversal of prior 3 weeks) with most S&P sectors higher on the day outside of technology and consumer discretionary, led by gains in energy and financials which hit a 1-month high. Shares in big U.S. banks climbed for their biggest one-day percentage gain in three weeks, kicking off a week in which Federal Regulators announce results of annual stress test. Riskier assets such as Bitcoin also saw sharp declines, falling over 4% around the $60,000 level.

Today’s action looked like more of a waiting game, with several potential high profile potential catalysts on the horizon including: the Fed bank stress tests Wednesday after the close, then Q1-final GDP data Thursday morning, the Trump/Biden Presidential debate on Thursday night, and then the potentially pivotal PCE/core PCE inflation data on Friday morning (the Fed’s preferred inflation gauge). Market leaders to start the week were Energy (XLE), with the biggest daily returns led by major and oil service/equipment/E&P stocks while the recent market leader, technology (XLK) saw continued profit taking after several record highs were reached early last week.

So outside of the massive “AI” demand hope trade tats has pushed technology shares higher in 2024, and markets assuming next move by Fed will be cuts in the Fall, what else has driving the biggest stocks higher? Well @KobeissiLetter noted “S&P 500 stock buybacks hit $237 billion in Q1 2024, the 3rd highest amount in history. This is up 10% year-over-year and 8% compared to Q4 2023. The surge is largely due to the 20 largest companies in the S&P 500 which accounted for 51% of all buybacks. There have only been two quarters in history with more stock buybacks, Q4 2021 and Q1 2022. Total share repurchases are set to surpass $1 trillion for the first time ever in 2024.

• Treasury yields were little changed while the U.S. dollar slipped as markets await key inflation data later this week with GDP on Thursday and the PCE data on Friday, sprinkled in with some Fed speaker’s mid-week.
• Brent Crude futures settle at $86.01/bbl, up 77 cents, 0.9%, while WTI crude oil settle at $81.63/bbl, rising $0.90, or 1.11% as energy prices continue their recent ascent into the peak summer driving season.

• In Food & Beverage: BUD was upgraded to Buy from Neutral at UBS saying the beer maker is on the cusp of a significant free cashflow inflection and its $15B of excess cash can support accelerated cash returns. CMG no bounce after shares dropped 6% Friday on the back of a risk-off day and the USDA’s suspended inspections of avocados and mangoes imported from violence-plagued Mexican state of Michoacán. The news sent avocado prices from Mexico up ~50% over the last 5 days, raising concerns around CMG’s restaurant margin.

• In Autos: Auto shares led a rally in European stocks after the European Union and China agreed to start talks about proposed electric vehicle tariffs; AZO files for two-part senior notes offering; size not disclosed; several auto dealers (GPI, LAD, SAH) had said the recent CDK cyberattack had disrupted business applications and processes at U.S. operations that rely on its systems.
• In the Leisure Sector: gym owner PLNT was upgraded from Hold to Buy at TD Cowen and raised the tgt to $92 from $66 calling planet Fitness an early turnaround play, with a compelling catalyst path & upside to valuation.

• In Solar: Piper noted they attended the Intersolar conference in Munich along with >100K other individuals. Piper said its cautious optimism into the event was misplaced as European distributor sell through is expected to decline annually in ’24 (Netherlands bad, Germany flat/down, France good but political uncertainty rising), the inverter destock process May drag well into 2025 for SEDG, and ENPH’s European recovery May be more measured.
• In Aerospace/Transports: UPS agreed to sell its freight-brokerage business, Coyote Logistics, to RXO for $1.025 billion in cash. RXO said the acquisition will result in “annualized cost synergies” of at least $25 million. WERN was downgraded to Negative from Neutral at Susquehanna with a price target of $27, down from $32. BA suppliers (SPR, HXL, ATI, CRS) shares active on reports as a plant operated by Leonardo in southern Italy will be closed for four months because of the knock-on effects of the crisis faced by Boeing, the Italian defense and aerospace group said on Monday. Airbus CEO noted engine supply situation has significantly degraded over the last months; notes Rolls-Royce engines delayed for a330 but not a350; CEO notes supply chain is improving but not at a uniform pace (added to supplier weakness).
• In Industrials: In HVAC, CARR was upgraded from Neutral to Buy at Citigroup and raised tgt to $74 which reflects several key assumptions including 1) CARR will be done/mostly done with its transformation entering 2025, leading to an alternative pure play” HVAC company with an improving multiple; 2) Viessmann weakness is a known headwind, and CARR synergies related to Viessman/wider productivity initiatives could largely compensate/offset, and core CARR markets should grow mid-single digits over the next couple years.
• In Materials: In the lumber space (LPX, WY, RYAM, IP), According to Random Lengths, the Framing Lumber Composite fell $5 w/w to $375 (Elements estimate: $381) and the OSB Composite fell $44 w/w to $361 (Elements estimate: $345). For next week, RBC Capital forecasts that the RL Framing Lumber Composite will decrease $11 w/w to $364 and that the RL OSB Composite will fall another $29 w/w to $332. In containerboard (WRK, GPK, IP), Citigroup noted Containerboard prices rise +$30-40/ton in June, largely as expected – Friday after market P&PW published June Containerboard prices +$30-40/ton, reflecting partial realization of outstanding $50/ton+ price hikes. – Positive PKG. Boxboard prices reported by P&PW Friday were unchanged across the board, as expected. Neutral GPK.

• In Regional banks: into earnings, Citigroup said BPOP, FHN highlighted as being well-positioned for continued upside in regional banks and believe the profitability horsepower and discounted valuations at EWBC and WAL are being overlooked. SNV was upgraded to Overweight from Equal Weight at Barclay’s and raised tgt to $46 from $39 saying "now is the time to re-engage" shares given the bank’s focus on building capital and improving its earnings run rate. Heading into this Wednesday Fed Stress tests for banks, KBW said they expect both Citi (C) and MTB’s SCB to go down by 40bps and 50bps, respectively, to 3.9% and 3.5% due to balance sheet shifts, while saying two names that could surprise with higher SCBs are KEY and TFC. WAL outperformed after Jefferies also positive following CFO meeting.
• In Fintech: Goldman Sachs assumed coverage of 4 FinTech stocks and upgraded AFRM to Buy, while downgrading PYPL to Neutral. The firm assumed coverage of SQ at Buy and MQ at Neutral. On AFRM, they expect its premium valuation to be supported by sustained strong growth in its consumer credit offering at the same time as it manages credit outcomes. 12m target, $42. On SQ, they see continued margin and revenue outperformance in its merchant business, cost containment, and gradual upside from its Cash App – all driving attractive risk/reward at current valuation levels.

• ALT shares rose after pemvidutide data at the ADA meeting as new body composition data from the Phase 2 MOMENTUM trial show lean mass accounted for only 22% of weight lost in pemvidutide-treated patients — less lean mass lost than semaglutide, tirzepatide, and retatrutide. At 48 weeks, patients receiving pemvidutide achieved mean weight losses of 10.3%, 11.2%, 15.6% and 2.2% at the 1.2 mg, 1.8 mg, and 2.4 mg doses and placebo, respectively:  statement
• ALNY shares surged after announcing results of the highly anticipated Phase 3 HELIOS-B study of Vutrisiran in ATTR-CM. The study achieved 28% and 33% reduction in composite of all-cause mortality and recurrent cardiovascular events in both overall population (HR 0.718, p-value 0.0118, n=654) and in the monotherapy (HR 0.672, p-value 0.0162, n=395). The study also demonstrated statistically significant improvements across all secondary endpoints in both the overall and monotherapy populations. (Shares of IONS and NTLA rallied in reaction and BBIO shares declined). Evercore/ISI had noted previously that implications for BBIO: ~50% of investors believe a -11-25% stock move if HELIOS-B hits all endpoints and ~40% investors think BBIO would trade +26-50% if HELIOS-B outright fails.
• ARGX shares advanced after saying the FDA has approved Vyvgart Hytrulo to treat adults with chronic inflammatory demyelinating polyneuropathy; the company on Friday said Vyvgart Hytrulo has been approved as a once weekly 30- to 90-second subcutaneous injection. TD Cowen noted Vyvgart Hytrulo was approved w/ broad label for CIDP (best case) and notes the annual price per patient for Q1W dosing ($450k/year) is ~2x the gMG price.
• BMY said the FDA has granted accelerated approval for Krazati in combination with cetuximab as a targeted treatment option for adult patients with KRASG12C -mutated locally advanced or metastatic colorectal cancer, or CRC, as determined by an FDA-approved test.
• BNTX and DualityBio receive FDA fast track designation for antibody-drug conjugate candidate BNT324/DB-1311 in prostate cancer.
• GTHX shares dropped after its drug, Trilaciclib, failed to meet the main goal of a late-stage study in patients with a type of breast cancer that spreads to other parts of the body; said the study didn’t demonstrate a statistically significant treatment effect in the intent-to-treat population. The drug and chemotherapy helped increase lives of patients by an average of 17.4 months, compared to 17.8 months for patients who received chemotherapy and placebo in study.
• NVO said it will spend $4.1B to build a U.S. facility to fill injection pens for its hugely popular weight-loss treatment Wegovy and diabetes drug Ozempic.

• Goldman Sachs highlights Presidential Election Considerations heading into first debate on Thursday between Trump and Biden. Firm said Medicare Advantage Managed Care (CVS, HUM, UNH) have been discussed as potential Trump beneficiaries given greater debates about the outlook for the MA program under a second Biden term. Goldman also said ACA Beneficiaries (HCA, THC, UHS, OSCR, CNC). Rising Trump odds could be a headwind for Hospitals sentiment where the group’s YTD outperformance and elevated multiples have led to increased investor discussions that the stocks are not discounting the potential risks of the ACA "subsidy cliff" on HC procedure volumes in 2025.
• In the Insulin/Diabetes sector: Oppenheimer highlighted data over the weekend at this weekend’s American Diabetes Association meeting. Noted PODD presented positive pivotal SECURE-T2D data in Type 2 diabetes for its Omnipod 5 system. With the label expansion now with FDA, PODD has taken a key step to accelerating its expansion into the under-penetrated T2 market; this opportunity, along with the expanding rollout of Omnipod 5 OUS and the recently launched connection to DXCM’s G7 are new drivers for PODD looking ahead. DXCM provided more details on its upcoming OTC CGM launch, Stelo; the pieces are in place for a fast launch out of the gate. TNDM highlighted drivers near-term (Mobi now with G7), medium-term (Mobi Tubeless, T2) and longer-term (patch pump), along with increasing confidence on pharmacy channel access for Mobi

• In IT Services: Goldman Sachs initiates coverage of the IT Services sector with a selectively positive view. Initiate at Buy IBM $200 tgt (improving strength in software portfolio, share gains in services) and GLOB (exposure to fast-growing end markets) and Initiate at Sell: TWKS, TASKThe firm said customers are currently spending more on AI infrastructure than IT Services, weighing on the shares, but GSCO believes Generative AI should eventually be a net positive for the sector, and remain most bullish on stocks positioned to be structural market share gainers in the evolution of Generative AI.