Closing Recap

Wednesday, May 08, 2024

US equity futures trended mostly sideways overnight with little conviction but rolled into the open despite no meaningful economic releases. Gold and oil also moved lower ahead of the US equities cash open. Stocks quickly began to recover after the open, but sentiment remains shaky with the Fear and Greed Index showing 39 (Fear). That’s up modestly from last week’s 33, but still well off the 62 (Greed) reading of a month ago and 57 a year earlier. By mid-morning, large-cap indices had briefly climbed back to green, but breadth remained 3:2 in favor of decliners. SPY and QQQ each gained about +0.1% as large-caps outperformed small-caps with IWM -0.6%. S&P sector ETFs were split with Utilities, Communications, Technology and Energy all in the green, while Real Estate, Consumer Discretionary and Health Care led the laggards lower.

In items of note today, @tEconomics highlights US mortgage rates fell for the first time in five weeks with the average 30-year fixed on conforming loans slipping by 11 basis points to 7.18%. On earnings, @bespokeinvest points out the average stock reporting this week has opened higher by 0.61% but slid by 0.91% from open to close in what appears to be a continuation of trend so far this earnings season. On gold, @KobeissiLetter notes world central banks set a new net purchase record in Q1, saying central banks bought 290 tons of gold in Q1 versus the prior record of 286 tons in Q1 2023. @LizAnnSonders notes consumption is still the driving force behind rising GDP estimates (earlier Atlanta Fed GDP Now Q2 moved from 3.31% to 4.18%) and, in case anyone was confused, @RyanDetrick notes a recent poll indicating people view money as more important than ever as money climbed the list of very important “values” while patriotism, religion, having children and community involvement all declined.

Heading into the final hour of trading, major indices had once again tested a rally and were beaten back at or near the unchanged level. Breadth held at about 3:2, still favoring decliners and IWM continued to underperform at -0.6% versus SPY and QQQ both finishing flat. Growth and value were split, with value the outperformer. The Russell 1000 Value was +0.07% versus its Growth counterpart -0.19%. Sector-wise, Utilities (XLU, +1%), Financials (XLF, +0.5%) and Technology (XLK, +0.25%) were the big S&P sector ETF gainers, while Real Estate (XLRE, -0.75%), Consumer Discretionary (XLY, -0.35%) and Materials (XLB, -0.43%) were leaders to the downside. We continue to work through a volatile earnings season but have heard from the majority of the larger non-retail names. In the short term, all eyes will be on next week’s CPI and potential impacts on Fed policy. Currently, the market is pricing in a 90% probability of no change in rates in June, with about a 30% probability of a cut in July.

• March wholesale inventories unrevised at -0.4% (consensus -0.4%) while U.S. March wholesale sales -1.3% vs Feb +2.0% (prev +2.3%); U.S. March stock/sales ratio 1.35 months’ worth vs Feb 1.34 months.

• After hitting an overnight level to mark the lowest since March 11th, June WTI crude futures rallied through morning and settled with a gain of $0.61/bbl, or +0.78%, to $78.99. Though the EIA stats showed a draw of 1.36M versus expectations of a draw of 1.43M, futures continued to gain after the data. Comments attributed to the Israeli defense minister indicating, “this might be a hot summer” as the mission in the North has not been completed no doubt provided incremental support. Brent similarly finished higher by $0.42/bbl, or +0.51%, to $83.58. On the demand side, we did see the Atlanta Fed GDPNow Q2 number tick higher to 4.18% from 3.31% and various Fed speaker commentary has been fairly in-line if not slightly more dovish. That said, all will be re-evaluated with next week’s CPI print.

• In Ride Sharing/Food Delivery: LYFT Q1 profit and revs topped estimates ($59.5M profit on revs $1.28B) and forecasts Q2 gross bookings between $4.0B-$4.1B vs. est. $3.96B and adj core profit between $95M-$100M vs. est. $81.1M; however, shares of UBER declined following its results and guidance as Q1 gross bookings $37.65B, missed est. $37.97B and forecasts Q2 gross bookings $38.75B to $40.25B, below consensus est. $40.04B.

• In Food & Beverages: SAM was upgraded from Sell to Hold at Deutsche Bank saying based on recent trends, remains cautious fundamentally heading into the peak summer selling season but sees more balanced long-term risk/reward; BUD 1Q profit beat brings a positive read across the sector and benefits beer peers as showed a margin beat supported by the benefits of a more positive commodity backdrop and operating leverage. GO shares tumbled as Q1 EPS missed and lowered FY24 adjusted EPS view to $0.89-$0.95 from prior $1.14-$1.20 and revs $4.3B-$4.35B vs. est. $4.34B; MNST launches $3B stock buyback.
• In Restaurants: DIN profit and sales miss, as consumers express price sensitivity; said Q1 Applebee’s comparable same-restaurant sales dropped -4.6%, compared with the FactSet consensus of a -2.7% decline, while IHOP same-restaurant sales fell -1.7% to miss expectations of a -0.7% drop. BROS jumps on Q1 results as Q1 Adj. EPS of $0.09 was above consensus of $0.02 on system SSS growth of 10.0% and company owned SSS growth of 10.9% (vs. consensus of 3.8% and 3.8%, respectively).

• In Boating: MCFT shares slipped as reported a beat for Q1 EPS and sales but guided FY24 adjusted EPS 96c-$1.05 well below consensus $1.60 and sees FY24 revenue $360M-$365M below consensus $405.59M as just the latest of many boating related stocks that have slumped this earnings season on results (shares of MBUU, BC, HZO moved in reaction).
• In Lodging & Travel: CHH reported mixed Q1 results with EPS topping views and revs falling short while raised its FY EPS forecast to $5.35-$5.65 vs. prior view $5.19-$5.49 (est. $5.67), as Q1 RevPAR fell -5.9% y/y to $45.24; TRIP shares fell after results and saying its "Special Committee has determined that at this time, there is no transaction with a third party that is in the best interests of the Company and its stockholders;" RRR reported a more or less in-line 1Q, impacted by hold, against elevated expectations; but the company reassuringly denied competitive disruption in the Locals market

• In E&P: OXY Q1 total production falls 4% to 1.17 mln barrels of oil equivalent per day (boepd), affected by third-party outage in eastern Gulf of Mexico and said expects Q2 total production to be between 1.23 million and 1.27 million (boepd). PR posts +4% oil beat owing to continued positive well results and efficiency gains, while capex largely met while better realizations offset modestly higher cash costs to drive a significant financial beat; FY24 vol guide rose +2%.
• In Materials: LPX Q1 adj. EPS of $1.53 topped consensus of $1.12 while net sales rose by 24% to $724M and raised its full year forecast for consolidated adj. core profit to the range of $655M-$685M from earlier view $495M-$525M.
• In Chemicals: LYB shares jumped after said announced formal launch of strategic review of European assets of its olefins & polyolefins and intermediates & derivatives business units.

• In FinTech/Payments: UPST shares decline after Q1 adj EBITDA loss down -35% y/y to $20.3M and said sees Q2 revenue of about $125M vs. est. $140.8M; for the second half expects revenue from fees about $300M. AFRM reported better Q3 EPS and revs (rose 51% y/y to $576.2M vs. est. $548M while guides Q4 revs $585M-$605M vs. est. $569M as op mgn rises 14%, though shares sunk. NVEI was downgraded from Overweight to Neutral at JP Morgan. FLYW shares as Q1 results better but guidance weak as guides Q2 revs $99.0M-$108.0M, below est. $107.4M and adj EBITDA $1M to $4M below est. $4.6M.

• CYTK said phase 1 CK-586 study met primary, secondary goals.
• ELAN outperforms after Q1 results top consensus.
• LLY; the FDA has set June 10 as the date for an advisory committee to meet about Eli Lilly’s Alzheimer’s candidate donanemab.
• PFE has agreed to settle more than 10,000 cases about cancer risks related to the now discontinued heartburn drug Zantac, Bloomberg News reported on Wednesday.
• TEVA and MedinCell said phase 3 efficacy results from SOLARIS trial study met its primary endpoint achieving clinically meaningful and statistically significant reductions across all TEV-‘749 dose groups versus placebo.

• TMCI shares fell over 50% this morning after cutting its full-year revenue guidance to $201M-$211M from prior $220M-$225M view, citing competitive headwinds (at least four analysts downgraded the shares this morning).
• INSP shares fell after results; RBC Capital noted co delivered a Q1 beat that was modest on sales but substantial on EPS while raising FY24 guide by 100bps to 25-27% y/y to be realized in 2H’24 (said stock trading down substantially due to a modest U.S. Q1 miss even though INSP called out enhanced seasonality).
• NVRO delivered a modest Q1’24 beat on sales and a substantial beat on EPS due to better-than-expected gains from its restructuring efforts, but FY24 sales guidance was held intact despite beat due to shift in sales from Q2 to Q1.
• PEN delivered a Q1 beat on sales/EPS, delivering strong y/y margin improvements, while reiterating its 2024 guidance

• In AI space: ALAB posted Q1 revenue of $65.3M (+29.2% q/q), above estimate; and Q224 raise, with a $72.0M implied revenue midpoint (+11.0% q/q), +13.2% above its prior $64.0M estimate.
• In Video games: EA said Q4 revenue of $1.67B on a bookings basis trailed consensus estimate of $1.77B while guided Q1 bookings $1.15B-$1.25B vs. est. $1.44B and FY25 bookings between $7.30B-$7.70B vs ests of $7.76B.
• In IT Services, Hardware/Components: SONO reported a wider Q1 loss of (-$0.56) vs. est. (-$0.46) but revs of $253M topped the $247M estimate; NTNX upgraded from Market Perform to Outperform at Raymond James with $72 tgt, increases its estimates saying they have gained a better appreciation for Nutanix’s opportunity to gain share from VMware following its acquisition by AVGO; ANET Q1 EPS $1.99 topped ests of $1.74 on better revs of $1.57B, with better guide of $1.62B-$1.65B vs. est. $1.62B helped lift shares.
• In AdTech: DV shares tumbled over 30% after cutting its year forecast, prompting at least two analyst downgrades; PUBM shares bounce however as Q1 results beat on top and bottom line; shares of competitor IAS declined in reaction to the DV guidance (IAS reports on May 9^th).
• In Security Software: QLYS reported mostly in-line quarterly results while guided 2Q to $147.5-$149.5M below street expectations for $150M and EPS is expected to be in the range of $1.27-$1.35; cuts full year guide to $601.5-$608.5M, down from prior guidance of $600M-$610M. ZS shares tumbled after the company stated in a security update: "Zscaler is aware of a public X (formerly known as Twitter) post by a threat actor claiming to have potentially obtained unauthorized information from a cybersecurity company. There is an ongoing investigation we initiated immediately after learning about the claims.
• In Software: CFLT forecast FY2024 adj. net income and revenue above Street’s expectations; TWLO Q1 earnings topped expectations by $0.20 and beat revenue estimates but offered disappointing Q2 revs of $1.05B-$1.06B below est. $1.08B; ZI shares fell after forecasting revenue and profit in the current quarter that trailed Wall Street’s expectations; TOST shares rise after its results/guidance. PWSC shares jumped as the WSJ reported Bain pursues takeover of the education-software provider which could be valued at around $6B including debt https://tinyurl.com/3akzjvnm

• CRUS a bright spot as Q4 EPS of $1.24 topped Wall Street’s highest estimate on better revs and guidance; sees Q2 revenue $290M-$350M vs. consensus $302.7M and guides Q2 GAAP gross margin is forecasted to be between 49%-51%.
• POWI posted a slight Q1 beat and Q2 raise; Q1 revs/EPS came in +1.9%/ +$0.07 above estimates, and Q2 rev guidance midpoint +14.5% q/q (+1.4% vs its prior est.), while Stifel says the inventory correction largely in the review mirror.
• QCOM said on Wednesday that the U.S. Commerce Department had revoked one of its export licenses for sanctioned Chinese telecoms firm Huawei.