Closing Recap

Wednesday, March 20, 2024

Another day, another new high for the S&P! As expected, U.S. stock markets were volatile following the FOMC rate meeting where the Fed kept rates unchanged, as well as their outlook which still calls for 3 rate cuts in 2024. Stocks jumped initially on the 2:00 FOMC release and added to those gains as Chairman Powell’s press conference rolled on. Powell said on the Jan and Feb inflation prints: "They haven’t really changed the overall story, which is that of inflation falling gradually…I don’t think that story has changed." Powell noted it is still likely in most people’s view that we will have rate cuts this year but depends on economic data (again the Fed stresses forward data, but stocks continue to react to hopes of cuts – still at least 3 months out according to fed futures). The S&P 500 Index (SPX) reached a fresh intraday new high hitting 5,225, rallying throughout the press conference. Just another incredible run for U.S. stocks despite the Fed policy meeting providing no meaningful changes or commentary other than they appear to stay the course for 3 cuts this year and will keep a watchful eye on upcoming data. Overall, the risk appetite in the current market backdrop feels like it’s at all-time highs, with “AI” stocks soaring, along with crypto as Bitcoin hitting recent record highs and equities extending gains (broadly) even as rate cuts are priced out. Amazing times. Just a massive late day squeeze, especially in interest rate sensitive sectors (solar, lending, banks, materials, small caps).

• The Japanese yen weakened to a fresh 2024 low against the dollar and also hits a lowest level against the euro since 2008 following the recent Bank of Japan central bank policy moves the day prior (ended its negative interest rate era, as rates are positive again for the first time since 2016 after the BOJ delivered its first-rate hike in 17 years at Tuesday’s meeting; said it will continue its JGB purchases at broadly the same amount as before).

• In Food & Restaurants: CMG announced a 50 for 1 stock split, sending shares higher; GIS reported a smaller-than-expected drop in Q3 sales (fell -1% vs. est. -3.1%) and beat profit estimates (EPS $1.17 vs. est. $1.05) citing steady demand for its high-priced food products as gross margin expanded 100 bps.
• In Specialty Retail: SIG shares slumped after results/guidance as sees FY25 sales between $6.66B-$7.02B below consensus of $7.17B and Q1 sales between $1.47B-$1.53B vs. est. $1.61B and expects annual same store sales to decline between 11% and 7%; raises share buyback plan.
• In Golfing/leisure: MODG shares rose after South Korean newspaper The Chosun Daily reported that the golf equipment company could be up for sale. https://tinyurl.com/45d3rkyc. MODG later responded to the market speculation/Korean report saying in a statement late day “While it is our long-standing practice not to respond to market rumors and speculation, in light of today’s unusual market activity, coupled with a recent media report originating in Korea regarding discussions of a potential sale of the Company or its golf equipment business, we confirm that we are not aware of any such discussions.”

• In E&P Sector: JP Morgan upgrades AR to Overweight from Neutral and downgraded EQT to Neutral as it sees a better near-term risk-reward in AR shares given lower balance sheet leverage, more attractive 2025 FCF/EV valuations at strip, and its higher torque to attractive liquids fundamentals. The firm does view the EQT-ETRN merger in a positive light given the potential to significantly lower EQT’s long-term NYMEX breakeven to below $2.00 per Mcfe from $2.55 per Mcfe today and its previous standalone target of $2.30 per Mcfe.

• In Crypto: RIOT was upgraded to Overweight from Neutral at JP Morgan noting Riot is slated to energize 9 EH/s over the next few months, and an additional 10 EH/s in 2H24, which could bring its total hashrate to 31.5 EH/s by year end (notes shares have declined 31% over the last month, vs a 2% increase in bitcoin, due to a combination of stagnant hashrate growth, equity dilution and broader industry profit taking.)
• In Insurance: PUK declared a cash dividend for 2023 and reported an 8% rise in its annual operating profit, amid upbeat policy sales across its key markets; posted annual adjusted operating profit of $2.89 billion on a constant exchange rate basis, up from $2.72 billion last year, and compared with an LSEG estimate of $2.85 billion.
• In REITs: EQIX mentioned negatively by short seller Hindenburg Research saying their investigation revealed that Equinix manipulates its accounting for AFFO, the key profitability metric for REITs (said they estimate this metric was overstated by at least 22% in 2023 alone) https://hindenburgresearch.com/equinix/

• BNTX -4%; posted Q4 results that fell sharply to miss expectations, hurt by inventory write-downs by COVID-19 vaccine collaboration partner PFE; Q4 net profit dropped to EUR457.9M ($496.5M) and missed consensus of EUR2.37; Q4 revs sank 65.4% to EUR1.48B ($1.60B), below the consensus of EUR1.84B; guided lower.
• FEMY said 24% of women in the severe male factor cohort of the trial became pregnant after using FemaSeed, with a majority becoming pregnant after just their first FemaSeed procedure.
• HQY Q4 revenue and EBITDA came in at the upper end of February pre-announced ranges while FY25 guidance, mgmt raised the MP of its EBITDA outlook by ~1% (to $448M; est. $446M), while reaffirming its revs $1.14-1.16B.
• NYXH announced top line data from their U.S. DREAM pivotal sleep apnea trial. Encouragingly, the data hit the trial’s primary endpoints (AHI and ODI), which will allow Nyxoah to file its fourth (and final) PMA module, and the company expects FDA approval in late-2024/early-2025 (shares of INSP down in sympathy, has STAR trial).
• SLRN announced positive early-stage study data of its experimental drug, lonigutamab, to treat thyroid eye disease saying the drug helped in reducing eye swelling within three weeks after first dose with no serious adverse events and plans to conduct mid-stage study testing drug in second half of this year.
• TSHA reported Q4 earnings, full-year revs $15.45M topping $14.5M estimate and issued an update on the Phase 1/2 AAV-based gene therapy, TSHA-102 for Rett syndrome.

• In Industrials: Mizuho raised price tgts on ETN ($340 from $300) and HUBB ($450 from $370) saying their proprietary Utility Capital Spending Survey update points to a robust level of spending anticipated over the next several years, with the aggregate spend between 2024-2027 growing by a sum of $17B or ~14% since Mizuho’s update ~one year ago. ROK said sees FY results around low end of current guidance for EPS, sales – previously forecast FY24 EPS $12.00-$13.50 and FY24 revenue up 0.5%-6.5% (ests. $1.22 and $9.23B).
• In Paper & Forest Products: IP was upgraded to Buy at Citigroup following the naming of Andy Silvernail as CEO; Mr. Silvernail formerly served as CEO of IDEX (2011-20) and joins from KKR, where he was an executive advisor noting Mr. Silvernail is an outsider and a potential change agent; Truist reiterated Buys on BCC and LPX noting the US Census Bureau and Department of Housing and Urban Development released its monthly new residential construction report for February, including single-family housing starts, which increased 12% m/m (+~35% y/y), positive for Wood Products & Timber. AMCR CEO Ron Delia’s announced retirement and reaffirmed FY24 guidance.

• In Media: the WSJ reported Private-equity firm Apollo Global Management has made an $11B offer to buy Paramount Global’s (PARA) film and TV studio, according to people familiar with the situation. The bid comes as an independent committee of the company’s directors is reviewing another offer from Skydance Media to merge with all of Paramount, which also owns CBS, Nickelodeon, and other cable networks. https://tinyurl.com/45cvx7xf
• In Online Servies: PDD shares jumped as reported stronger-than-expected revenue as it ramped up its overseas expansion; Q4 adj EPS $2.40 tops consensus $1.61; Q4 revenue $12.52B vs. est. $11.14B; Q4 results beat driven by robust user growth and sales on its global platform, Temu.

• INTC and the White House announce preliminary terms for up to $8.5B in direct funding under CHIPS and Science act; Intel would also have the option to draw upon federal loans of up to $11B.
• SMCI announced an underwritten public offering of 2M shares at a public offering price of $875.00 per share.
• MBLY announces expanded contract from Volkswagen to bring new automated driving functions to series production; will provide driving assistance software to Volkswagen’s luxury brands such as Audi, Bentley, Lamborghini, and Porsche.
• AVGO was reinstated Overweight and $1,405 tgt at Barclay’s saying the company joins BARC’s preferred names this year as another way to play the 2nd Wave of AI via a best-in-class data center silicon portfolio.