Closing Recap

Friday, May 10, 2024

U.S. stocks opened higher on Friday looking to add to weekly gains, moved lower around 10:00 AM after a hotter inflation segment of the University of Michigan sentiment, then subtly moved back into positive territory to end the day mixed, not entirely unexpected ahead of next weeks key CPI and PPI inflation reports as investors continue to wait for more clues about rates. U.S. consumer sentiment hit six-month lows according to data, the latest in a strong of disappointing and weaker economic reports that has boosted hopes it might lead to rate cuts by the Fed sooner than later. However, the re-acceleration of inflation/prices the last few months is making that a more difficult stance for the Fed. Note Fed Chair Jerome Powell has suggested two possible paths that could prompt earlier rate cuts: One is that inflation moderates, regardless of what happens to the labor market; the other is if the labor market unexpectedly weakens. Data in the coming week may suggest that both paths are at play. While U.S. markets gave up early gains following the reversal after the University of Michigan inflation expectations figures, Europe continues to outperform as Europe’s Stoxx 600 rose 0.7%, Britain’s FTSE 100 posted another record up 0.7%, Germany’s DAX up 0.4%, France’s CAC 40 gains 0.3%, and Spain’s IBEX up 0.5%. Earnings season is finally slowing down, but there are still a few key results next week including Wal-Mart (WMT), Home Depot (HD), Cisco Systems (CSCO) and a few others. Federal Reserve Bank of Minneapolis President Neel Kashkari said Friday that the U.S. has an ongoing home supply issue that was being complicated by the high rates currently being imposed by the central bank. Chicago Federal Reserve President Austan Goolsbee on Friday said he believes U.S. monetary policy is "relatively restrictive," meaning that borrowing costs are putting downward pressure on inflation. Increased supply, including on the labor side, makes it difficult to interpret if strong job gains and economic growth indicate any worrisome overheating, he said at an event in Minneapolis. Fed Governor Michelle Bowman said in interview that she doesn’t forecast rate cuts warranted this year. The Dow managed to extend its winning streak to 8 days (about 1,700 points during stretch) while other major averages were mixed. For the week, the S&P 500 gained 1.85%, the Nasdaq climbed 1.14%, and the Dow climbed 2.16%.

• Inflation position of UoM hotter: University of Michigan surveys of consumers 1-year inflation outlook prelim May 3.5% vs final April 3.2% and University of Michigan surveys of consumers 5-year inflation outlook prelim May 3.1% vs final April 3.0%.
• The U.S. federal budget surplus in April increased from a year earlier as a boost in tax receipts outpaced a rise in outlays, the Treasury Department said on Friday. The surplus last month was $210 billion, up 19% from the $176 billion surplus in April 2023. Outlays rose 23% to $567 billion. Receipts increased 22% to $776 billion due to higher tax revenue from individuals and businesses. Economists polled by Reuters had expected a surplus of $244 billion in April.

• In Auto Suppliers: LEA was upgraded to Overweight at Morgan Stanley saying after a ~11% sell-off since the beginning of April, believes the stock has a much more commensurable risk-reward relative to its other OW’s, driving the upgrade.
• In EV Charging: BLNK reported a smaller-than-expected loss of (-$0.17) while revs rose 73% y/y to $37.57M vs. est. $33.73M; said achieved record first quarter revenues of $38M with gross margin of 36%.

• In Mattress Retail: Wedbush noted US mattress imports plummeted 47% in March, hitting a five-year low of 293k units, in what is the first tangible evidence that preliminary anti-dumping duties are having their intended effect in reducing low-cost imports into the US. -Firm said they believe that TPX OEM business and lower-end Sealy brand should benefit.
• In Retail: VSCO guided Q1 EPS $0.7-$0.12 vs. est. loss (-$0.03) and said sees Q1 revs down 3%-4% vs prior forecast of decline of 4%-6% driven by improving trends in stores and digital business; reaffirms annual sales and adj operating income forecast; said sees Q1 operating income $35M-$40M above prior forecast range of $10M-$35M. XPOF shares tumbled late day after the company announced its board removed Anthony Geisler and suspended him indefinitely as CEO, effective immediately.
• In Leisure: PLNT was downgraded from Buy to Hold at Stifel and cut tgt to $70 from $80 despite the company reporting Q1 comps, revenue, and earnings ahead of Stifel’s estimates, with membership growth in line with its projection. Moreover, the company announced plans to raise the price of its Classic membership to $15/month this summer.

• In Utilities: The XLU hit new 52-week highs again as the defensive sector seeing unusual strength the last few weeks (7day win streak for XLU); in research, Dominion (D) was upgraded to Neutral at Bank America and raised tgt to $54 following the utilities completion of a lengthy business review and restructuring process in early March, that has seen the company shed non-core assets, fortify its balance sheet, de-risk its offshore wind project, and simplify its strategy.
• In Metals: gold miners rise behind another jump in precious metal prices; AU said its Q1 production rose on higher recovered grades and despite weather disruptions and backed its full-year guidance; increase was mainly driven by higher grades recovered and offset a lower volume of metric tons processed.
• In Industrials: MMM was upgraded to Buy from Hold at HSBC and raised tgt to $115 saying the company’s Q1 earnings showed initial signs of an inflection in growth and margin gains from the restructuring and the firm expects a return to growth from the improving macro environment, cost savings, and a balance sheet reset. Separately, MMM mentioned positively in Barron’s online saying the company is leaner and ready to grow. it’s time to buy the stock. https://tinyurl.com/49vydtpz

• In Financial Services: HRB traded to new all-time highs after quarterly results beat with revs $2.19B vs. est. $2.14B and issued an upbeat 2024 outlook.

• ITOS shares jumped after earnings results and said Belrestotug + dostarlimab exceeded pre-defined efficacy criteria for clinically relevant activity observed in an interim assessment of Phase 2 GALAXIES Lung-201.
• MGNX shares tumbled after the drug developer reported five deaths in a mid-stage trial of its investigative therapy for prostate cancer, prompting several analyst downgrades.
• MRNA said the FDA has informed them that due to administrative constraints, the agency will not complete its review of mRNA-1345 by the PDUFA date of May 12, 2024; the agency has indicated it expects to complete the review by end of May.
• NVAX shares surge; signed a licensing agreement with SNY that includes commercializing a combined COVID-19 and flu shot, in which the firm will receive $500M in upfront payments as well as $700M in development, regulatory and launch milestones.
• RAPT was downgraded to Equal Weight from Overweight at Barclay’s saying they are positive on a path off clinical hold; however, it sees a difficult set-up to overcome incomplete AD data with limited capital in hand for next study.
• RLAY was upgraded to Overweight at Barclay’s citing attractive catalyst path in 2H24 including high-impact data update in breast cancer; where it sees a positive risk /reward, and attractive valuation.

• In Medical Equipment: MTD shares jumped after Q1 adj EPS $8.89 easily topped estimates of $7.65; and raised 2024 adj profit per share in the range of $39.90-$40.40, above previous range of $39.60 to $40.30 per share.
• In Medical Testing/Research: CDNA shares hit 52-week highs after the company raised guidance for full year 2024 revenue which is expected to be in range of $274M-$282M and Q1 results beat.
• Healthcare Services: PGNY shares downgraded to sector weight from overweight at Keybanc after Q1 revenue missed consensus estimates saying they are becoming weary as more questions arise on visibility into revenue and customer trends. NTRA shares jump as Q1 broadly beat w/ $3M of + FCF while revs grew 38% above the 32% est., margins of 56.7% beat 49.7% consensus, Signatera vols grew 17% QQ (62% YY) above the 54% est. and guidance was raised (revs, margins, FCF).

• In Gaming/Video: Unity (U) shares dropped as reported Q1 revenue in-line with expectation and adjusted EBITDA significantly above, issued Q2:24 guidance and maintained FY:24 guidance.
• In AI Space: SOUN delivered its FY1Q24 results featuring beats on the top and bottom lines as the company continues to see demand for its voice AI products pick up in Automotive and Restaurants.
• In Internet: SQSP was upgraded from Neutral to Buy at Mizuho and raised tgt to $50 from $34 saying believes the company can deliver significant upside to consensus estimates and that Squarespace has several growth levers that Mizuho believes underappreciated and misunderstood by most investors. YELP adjusted Ebitda guidance for the full year missed.
• In Software: OpenAI will reportedly announce an artificial intelligence-powered search engine for its flagship chatbot ChatGPT on Monday, per Forbes. FROG shares fell as Q1 Cloud revenue growth of 47% y/y was slightly above its view for growing mid-40%’s, but narrowly missed the Street expectations after Q1 EPS/revs narrowly topped expectations.
• In Fober Optics: AAOI shares dropped as Q1 results came in below consensus (40.67B revs vs. $43.5B est.) and even more disappointing was the Q2 outlook (sees Q2 revenue $41.5M-$46.5M vs. est. $57.19M on wider loss).
• In Content Delivery: AKAM shares tumble as Security and Compute delivered a beat-and-raise for the quarter, but a broad-based slowdown in Delivery traffic growth (especially media and gaming) and cost optimization efforts by a large customer (as well as FX) resulted in FY revenue/operating margin guidance lowered by ~2%/150 bps.
• In Storage: DBX added 35K net paying users in 1Q24 (up from a decline of 50K users in 4Q23), representing a key positive data point; reported results above Street expectations with total rev of $631.3mn (+3% y/y) vs consensus of $629.1mn and said ended Q1 with 18.16mn paying users (+35K Q/Q).
• In Semiconductors: MKSI reported upside Q1 results and guided to similar sales in Q224; said expects Q224 Semiconductor segment revenue to be slightly down, with a recovery in capital equipment spend expected to return gradually in the second half of 2024. TSM said April sales t$236.02B, +59.6% y/y and says Jan-April sales t$828.67B, +26.2% y/y; INDI reported weaker-than-expected first-quarter results and provided an outlook.