Closing Recap

Wednesday, May 01, 2024

Stocks rallied on Powell/Fed, but gave it all back in late day sell-off! U.S. stocks surged as Fed Chairman Powell didn’t say anything today that disturbed markets, staying the course of interest rate policy remaining data dependent, not causing waves and allowed a relief rally for markets into another busy night of earnings. Given today’s reaction, it appears markets were likely anticipating a bit more “hawkish” tone given the strong of higher inflation readings – but that was not the case as they appear to stay “higher for longer” on rates and not talk hikes. Prior to the FOMC announcement (keeping rates steady), markets were mixed following a handful of earnings results impacting several sectors. Stocks came off their high’s late day in a bout of profit taking given big earnings/key jobs data in coming days.

Comments by Fed Chairman Powell were in-line with most expectations, but it appeared markets grabbed onto his comments on jobs mkt – noting quits, hiring rates have normalized (likely referring to today’s JOLTs data) and said he thinks “it’s unlikely that the next policy rate move will be a hike”. That took a little fear out of markets which had been cautious of late following higher inflation readings from the CPI, PCE and yesterday ECI reports. Market expectations are still expecting a rate cut possibly in November as per fed fund futures. Again, Powell continued to reiterate that it will all be data dependent.

Today highlights from prepared text of FOMC policy meeting showed, the Federal Reserve leaves key overnight interest rate unchanged in 5.25-5.50% range, notes recently there has been lack of further progress toward 2% inflation target. The Fed said will slow the decline of balance sheet by cutting Treasury redemption cap to $25B per month from $60B starting June 1 while maintaining mortgage-backed securities (MBS) redemption cap at $35B per month. The Fed said they do not expect will be appropriate to cut rates until it has gained greater confidence inflation is moving sustainably toward 2%. Fed said economic activity continues to expand at solid pace, job gains have remained strong, unemployment rate has remained low.

NYSE breadth had advancers outpace decliners by more than 2:1 margin with most sectors higher given the afternoon push higher. Big tech jumped behind AMZN (on earnings), AAPL, GOOGL, MSFT, META all "green" helping, but semiconductors fell sharply as the Philly semi-index (SOX) dropped as low as 4,480, down around 4% at worst before rebounding back above 4,600 on the afternoon rally – before fading again (off March 8th intraday 52-week highs 5,217.83). Results and guidance from AMD, SWKS, SMCI put a hurting on the group early (tonight earnings from QCOM, QRVO). Consumer products were weak, led by SBUX, EL, and CLX tumbling on results and lower guidance. Healthcare services slammed behind CVS miss/lower guide, while PFE rises on earnings. A very mixed picture of economic data this morning ahead of the FOMC policy meeting as ADP private payrolls were higher, but JOLTs weaker, ISM Manufacturing weaker, while its prices’ paid component was notably higher.

• S&P Global April final manufacturing PMI at 50.0 (vs flash 49.9).
• U.S. JOLTS job openings reported at 8.488M in March vs. Feb 8.813M and ests. 8.68M. The quit rate, often viewed as a barometer of consumer expectations, has dipped to 2.1% of the workforce, from 2.5% a year ago.
• ISM U.S. manufacturing activity index 49.2 in April below consensus 50.0 and below 50.3 in March; however, the inflation portion, prices paid index rises to 60.9 in April vs. consensus 55.0 and 55.8 in March; new orders index 49.1 in April vs 51.4 in March and employment index 48.6 in April vs 47.4 in March.
• March construction spending fell -0.2% below consensus +0.3% and vs. Feb unchanged (prev -0.3%); March private construction spending -0.5%, public spending +0.8%.

• In Restaurants: SBUX shares fall after Q2 profit and sales fell short of consensus (EPS $0.68 vs. est. $0.79; Q2 revs fell to $8.56B vs. est. $9.13B) on weak Q2 global comparable store sales declined (-4%) vs. est. +1.45%, driven by a (-6%) decline in comparable transactions (shares downgraded at Deutsche Bank after results). YUM posts Q1 drop in global same-store sales (KFC restaurants down 2%, at Pizza Hut down 7%), hurt by choppy consumer demand for its brands while Q1 sales of $1.6B missed the $1.71B estimate; said worldwide same-store sales down (-3%) vs expectation of growth of +0.34%. WING, another name that was hurt in the restaurant sector on earnings, despite top/bottom/comp sales beats.
• In Food Sector: MDLZ reported a 1Q EPS beat with in-line organic revenue growth of +4.2% while mgmt.-maintained guidance for the year but acknowledged turbulence from heightened promo in U.S. biscuits, ERP conversion in Mexico, continued volume pressure in 2Q. KHC missed Q1 sales expectations at $6.41B vs. $6.43B estimate as inflation-hit consumers trims on higher prices of its premium lunch combos; reported in-line Q1 EPS but noted a volume drop in its North America segment by -3.7% from prior year drop of -6.5%, but sees volumes turning positive in 2H24.
• In Consumer Products: in beauty, EL forecasts FY organic net sales -1% to -2%, below prior +6% to +8% and guided Q4 adj EPS $0.19-$0.29 vs. est. $0.77 saying annual organic sales can slip more than previously expected due to continued softness in mainland China’s prestige beauty space (sees FY sales to fall 1%-2% vs prior view 1% drop to 1% rise); In products, CLX reported lower sales amid lower volume in the latest quarter, and stretched its outlook for the fiscal year.
• In Retail: DLTR was upgraded to Overweight at KeyBanc with $150 tgt as expects fundamentals to accelerate into 2H and believes Family Dollar is at a critical fork in the road, with turnaround or divestiture necessary over the next 2-3 years. In Home Furnishings: LEG shares tumbled as cuts dividend, posted Q1 top and bottom-line miss (revs fell -10% y/y), while reiterated its projections for 2024 adj EPS $1.05-$1.35 on sales between $4.35B-$4.65B.

• In Autos: TSLA shares weak initially after reports that the automaker cut roughly 500 jobs from Supercharger, the business that handles Tesla’s network of public charging stations. The Information first reported the Supercharger team cuts that include senior director Rebecca Tinucci, citing a memo from CEO Elon Musk. TM reported April 2024 U.S. sales of 211,818 vehicles, up 13.7% on a volume basis.
• In Lodging & Leisure: in hotels, MAR raised full year earnings guidance and now expect to return between $4.2B to $4.4B to shareholders in 2024; In cruise lines, VIK 64M share IPO opened at $26.15 after priced at $24.00 as the deal size was increased to 64M shares from 53M shares and priced within the $21.00-$25.00 range; NCLH forecasts FY adj. EBITDA about $2.25B vs. prior view about $2.2B had cruise Q1 passenger cruise days 6.11M, vs. est. 6.13M; said continues to experience strong consumer demand; shares fell initially after Q1 revs grew 20.2% to $2.19B but below the consensus of $2.23B; noted passenger ticket revenue rose 20.8% to $1.46B versus expectations of $1.51B.
• In Casino/Gaming: CZR Q2 EBITDAR missed estimates on several one-offs for a second straight quarter, with Las Vegas the major culprit with low hold and low volumes; Truist noted Q1 EBITDAR was-4%/-7% below us/Street, with low hold in Vegas (well-known but hard to model) and poor Jan weather in Regionals; BYD was downgraded to Hold from Buy at Argus as project a mid-single-digit increase in revenue in 2024, even though earnings should rise modestly.

• In Utilities: EIX reported results relatively in line with estimates, while maintaining 2024 guidance that was below consensus; interest expenses are expected to be a near-term headwind. Longer term, EIX maintained its 2025 outlook of $5.50-$5.90. PEG reported 1Q results ahead of our estimates and in line with consensus EPS, while maintaining 2024 guidance and the 5-7% long-term EPS growth rate. PCG confirmed WSJ report late yesterday that they are nearing a deal to sell a multibillion-dollar stake in its fleet of power plants to investment giant KKR.
• In MLPs: OKE reported 1Q24 Adjusted EBITDA of $1.44 billion compared to our consensus of $1.47 billion; EPD posted a slight beat ($2.5B vs $2.4B estimate) on ‘Nat Gas’ outperformance and left its FY24 growth CAPEX outlook unchanged ($3.25B-3.75B).

• In Banks: Bancorp NYCB shares rose after charge-offs and provisions for potential loan losses declined in Q1 from the previous three months, helping ease commercial-property concerns; guides 2025 EPS $0.35-$0.40 vs. est. $0.28 and said is targeting significantly higher profitability and higher capital levels by the end of 2026. FITB was upgraded to Overweight from Neutral at JP Morgan saying with higher long- and medium-term rates, banks should benefit from higher reinvestment yields on their fixed rate securities and loan portfolios.
• In Lending and Servies: BFH was downgraded to Hold from Buy at Argus on challenging environment and regulatory issues; noted following a Q1 earnings miss and probable challenges to revenues related to lower consumer spending and potential changes in regulations on credit card fees, they have become less constructive on the shares.
• In Payments and FinTech: SQ shares fell after NBC News reported Federal prosecutors are examining financial transactions at Block, owner of Cash App and Square noting internal documents indicate Block processed crypto transactions for terrorist groups and Square processed transactions involving nations subject to economic sanctions https://tinyurl.com/y5zj7dv3 ; MA Q1 EPS $3.31/$6.35B revs top ests $3.22/$6.33B noting healthy consumer spending as gross dollar volume +10% y/y (cc), operating expenses +9% y/y, switched transactions +13% y/y and cross border volumes +18% v +17.1%; GPN forecast better-than-expected profit for 2024 of $11.54-$11.70 (est. $11.59) after EPS beat.
• In Crypto: Bitcoin and other crypto extend declines after tumbling in April, falling as low as $56,500 this morning before paring losses, weighing on shares of COIN (ahead of earnings this week), RIOT, MARA, CLSK, MSTR and others.

• BXP reported 1Q24 FFO of $1.73, which beat consensus ($1.72) while mgmt reduced FY24 FFO/share guidance by $0.06 or ~0.8% to a range of $6.98-$7.10 ($7.00-$7.20 prior).
• ESS Q1 core FFO beat consensus (+2%), and management increased 2024 Core FFO guidance by over 1% at the midpoint (+0.4% vs. consensus); increase is being largely driven by lower cash delinquency and higher other income growth.
• EXR reported a $0.01 quarterly beat and management affirmed its FY24 Core FFO guidance. We view the quarterly beat and intact outlook to be favorable in a difficult environment and think expectations were low heading into the print
• INVH Q1 core FFO beat expectations, and management affirmed 2024 same-store growth and Core FFO guidance.
• KRG Q1 FFO of $0.50 was in line with consensus, though results included ~$2M of lease term fee income (~$0.01) that we suspect was not included in consensus; mgmt raised its FY24 FFO guidance by 1% at the midpoint.
• PSA reported 1Q24 Core FFO of $4.03 which missed consensus of $4.11, though management affirmed its FY24 outlook and maintained the assumptions underlying its full-year outlook.
• UDR Q1 FFO was in line with consensus and the midpoint of management’s quarterly guidance range. However, management increased 2024 FFOA guidance by 0.8% at the midpoint

• JNJ said it is moving forward with a $6.475 billion proposed settlement of tens of thousands of lawsuits alleging that its baby powder and other talc products contain asbestos and cause ovarian cancer; the settlement would allow it to resolve the lawsuits through a third bankruptcy filing of a subsidiary company, LTL Management.
• PFE forecasts FY adj EPS $2.15 to $2.35, above prior view $2.05 to $2.25 banking on cost cuts and better-than-expected demand for its COVID antiviral treatment and vaccine; still sees FY revs $58.5B-$61.5B; but forecasts operating cash flows significantly below typical levels.

• In MedTech: SYK reported organic net sales growth of 10% y/y despite a tough comp of 13.6% and the quarter having one less selling day; Q1 results, delivering a +3% sales and +6% EPS surprise led by strength in both MedSurg and Orthopedic. TMDX Q1 results comfortably cleared Street targets, with revenue improving 19% from 4Q and raised 2024 revenue guidance to $390-400M from $360-370M, taking projected growth to 61-66% from 49-53%. CVRX shares tumbled, downgraded at JP Morgan, William Blair after disappointing Q1 results and lowered 2024 guidance. IDXX shares tumbled after lowering its 2024 profit and revenue outlook after Q1 rev miss. CDNA upgraded at Craig Hallum lifts shares.

• In Uranium: shares of CCJ, URA, UUUU, NXE, UEC rise early after Bloomberg reported overnight the Senate passes Russian Uranium Import Ban, Sending to Biden. White House has called for a long-term ban on Russian imports; the bill allows for import waivers until 2028; retaliation feared – https://tinyurl.com/3bsx5p89
• In Aerospace & Defense: HI shares drop after Q2 revs $785.3M vs. est. $810.69M; cuts FY24 adj EPS view to $3.30-$3.50 from $3.60-$3.95 (est. $3.70) and lowers FY24 revenue view to $3.23B-$3.3B from $3.28B-$3.44B (est. $3.33B) citing reduced volumes stemming from lower-than-expected orders.
• In Chemicals: DD shares rose after Q1 adj EPS $0.79 vs. est. $0.65; Q1 revs $2.93B vs. est. $2.81B; guides Q2 EPS and revs above views ($0.84/$3.03B vs. est. $0.65/$2.81B) and raises FY24 adjusted EPS view to $3.45-$3.75 from $3.25-$3.65 and boosts FY24 revenue view to $12.1B-$12.4B from $11.9B-$12.3B. ASH Q2 sales of $575M with adj EBITDA of $126M compares to Street $572M as mgmt noted that sales volume on a consolidated basis increased modestly.
• In Materials: OI shares slip as 1Q EPS 45c tops 38c estimate but guides 2024 EPS $1.50-$2.00 vs $2.38 Street, largely on weaker vols. Jefferies noting aluminum, potash, methanol, lithium has likely troughed, so they near-term a relative benefit for Buy-rated AA, MEOH, NTR and ALB and for more structural shifts, their favorites are FCX and CTVA.
• In Industrials: GNRC shares higher as Q1 profit and revs topped consensus ($0.88/$889M vs. est. $0.72/$885M), helped by higher sales of its residential standby generators in North America

• In Media: PARA and CHTR agree to continue talks on contract renewal; SIRI was upgraded to Neutral from Sell at Goldman Sachs with $3.25 tgt following recent underperformance (-46% YTD vs S&P 500 of +6%), though continues to hold many of the same fundamental concerns that it had when it firsts went Sell-rated.
• In Software/Hardware: DOCN to replace AGTI in the S&P SmallCap 600 effective prior to the opening of trading on Tuesday, May 7.

• AMD reported an in-line MarQ and guided JunQ to $5.7B (est. $5.4B), with DC AI and Compute remaining strong but PC/Gaming softer; JunQ DC DD% q/q with AI GPU guided slightly higher to >$4B for C24E (prior >$3.5B), slightly below optimistic Street expectations of $6-10B, and JunQ PC up LSD% q/q, Gaming/Embedded down ~30%/flat q/q.
• SMCI mixed results as posted a slight miss vs consensus for Q3 revs of $3.85B vs. est. $3.95B while posted guide up for Q4 top line and a solid beat/raise on EPS driven by tax benefit and relatively strong gross margin in FQ324; gross margins were guided down in Q4 (2ppts y/y and flat q/q); raises FY24 rev view to $14.7B-$15.1BB, from prior $14.3B-$14.7B.
• SWKS reported an in-line MarQ and guided JunQ to $900M (below est. $1.02B), down 14% q/q, with Handsets down 20%+ q/q and Broad Markets (BM) up modestly q/q; posted softer than seasonal trends into JunQ with Mobile inventory correction; TD Cowen noted a major headwind into F2025 is a now expected ~10% content loss at Apple (iPhone 16).