Closing Recap

Friday, May 24, 2024

US equities trended slightly higher overnight ahead of the long weekend. With little on the economic calendar, volume was light and early volatility was minimal. The University of Michigan Sentiment reading came in a little above expectation and the inflation outlook was generally in-line, giving equities a small boost shortly after the open. Though equities were higher this morning, the Fear and Greed Index slipped back to 53 (Neutral) today from 64 (Greed) a week ago but was still well ahead of last year’s 38 (Fear) reading. Mid-morning breadth favored advancers by almost 5:2. In a reversal from yesterday, small caps were the early outperformers with IWM +0.70%, QQQ +0.65% and SPY +0.37%. Early sector performance saw Real Estate and Health Care as the only S&P sector ETF’s in the red, while Communications, Consumer Discretionary and Utilities paced the gainers. From a Fed standpoint, the market appears to have given up on a July cut, with the probability now looking about 10% versus 90% no change. September is now slightly tilted toward being the first cut but even that is just 51.4% implied cut, so the good news is expectations are relatively low for aggressive Fed cuts.

In data of interest today, @bespokeinvest notes the Atlanta Fed GDP Now forecast for Q2 has consistently been above 3.3% since the end of April, ticking back up to 3.5% today. On the Fed, Goldman pushed its rate cut timing out to September, joining many other forecasters, though the implied probability remains underwhelming. In case you were wondering where the money has been moving, housekeepers in Palm Beach are now so in demand that salaries often top $150,000 and come with health benefits and sometimes a 401(k) with bidding wars now common among new mansion owners. Speaking of housing/mansions, @charliebilello notes the 30-year mortgage rate 3 years ago was 3% and the average new home in the US stood at $427k. Today the average new home price is $506k, but the 30-year mortgage rate is 7%, resulting in an 87% rise in the monthly payment.

Heading into the final hour of trading, stocks held near highs. Small caps continued to perform well but had been overtaken by the Qs. IWM was +0.92% vs QQQ +1.03%, but still ahead of SPY at +0.68%. Breadth expanded to better than 2.8:1, still in favor of advancers and Health Care (XLV, -0.35%) was the sole decliner of the S&P sector ETFs. Communications (XLC, +1.26%), Consumer Discretionary (XLY, +0.9%) and Utilities (XLY, +0.9%) continued to lead the gainers. Growth outperformed value, but both enjoyed solid gains. The Russell 1000 Growth added +0.80% versus its Value counterpart at +0.48%. As earnings slow to a trickle and traders get into a Summer mindset, expect volume to be light (has already begun) and swings to be even more data-driven as investors continue to dissect every Fed rate-cut scenario and implied timing shift. For the week, Dow Jones Industrial Average ends down 2.3%, S&P 500 flat, Nasdaq up 1.4% extending weekly gain to 5-weeks.

• University of Michigan surveys of consumers 1-year inflation outlook final May 3.3% vs prelim 3.5% and final April 3.2% while surveys of consumers 5-year inflation outlook final May 3.0% vs prelim 3.1% and final April 3.0% (improving inflation data points from prior helped boost market sentiment).
• University of Michigan surveys of consumers sentiment final May 69.1 vs. consensus 67.5 and vs preliminary May 67.4 and final April 77.2; current conditions index final May 69.6 vs prelim May 68.8 and final April 79.0; expectations index final May 68.8 vs prelim May 66.5 and final April 76.0.

• July WTI crude futures reversed a four-day losing streak to settle at +$0.85/bbl, or +1.41%, at $77.72 on light volume ahead of the long weekend. Brent similarly gained, settling +$0.76/bbl, or +0.93%, to $82.12. Recent weakness in WTI generally has been attributed to concerns that the Fed’s higher-for-longer stance will pressure economic growth and thus, oil demand. Also in play is some concern about gasoline demand as the “driving season” begins. Recent data showed average US gasoline demand was down a little more than 1% week/week for the week ended May 18, so all we really know is people haven’t jumped the gun to get an early start on Summer driving.

• In Autos: TSLA has cut output of its best-selling Model Y electric car by a double-digit percentage number at its Shanghai plant since March, according to industry data and a source says Reuters; LCID said it would reduce workforce by 6%, or around 400 employees, to cut costs as part of a restructuring plan and expects to incur about $21M-$25M in charges relayed to layoffs.

• In Homebuilders: CVCO posted Q4 EPS of $4.03 which was below consensus estimate of $4.51 while total sales of $420M were below last year’s $476M level and Q4 total shipments were 12% lower YoY. Wedbush says for bears, thinks the YoY shipment decline versus a 15% YoY gain in industry shipments in CQ124 May be the main talking point/margins.
• Aerospace & Defense: BA extends losses early after saying yesterday it burned through nearly $4 billion in the year’s first quarter; BAH rises after results and guidance; Q4 EPS $1.33 tops $1.23 estimate on revs $2.77B vs. est. $2.72B; Sees FY25 revenue growth 8%-11%, vs. consensus $11.48B.

• In Payments: Wedbush initiated coverage on several names: initiated Outperform on TOST ($30 tgt) citing robust location expansion in the U.S. as well as nascent overseas success; OP rated on CINT ($5 tgt) saying is well positioned to generate low single and mid-teens revenue growth for 2024/2025; OP rated on GDYN ($13 tgt) citing outsized exposure to the retail and tech, media, and telecom verticals; OP rated on HURN ($110 tgt) citing outsized exposure to healthcare and education, two verticals undergoing disruptive change and Neutral on FLYW, FOUR.
•  In Crypto: The SEC approved applications from Nasdaq, CBOE, and NYSE to list exchange-traded funds (ETFs) tied to the price of ether (ETH), potentially paving the way for the products to begin trading later this year.
• In Credit Cards: COF and WMT announced they have ended the agreement that made Capital One the exclusive issuer of Walmart Consumer Credit Cards. In 2019, Capital One and Walmart introduced the Capital One Walmart Rewards Credit Card Program.

• IMCR shares slid on a negative market reaction to highly anticipated initial Phase 1 data for IMCR’s PRAME-targeting bispecific asset, IMC-F106C/brentafusp, in the second line and beyond (2L+) setting for treatment of metastatic cutaneous melanoma. Mizuho said they suspect market disappointment relates to a 13% objective response rate/ORR reported for brentafusp — far short of the current standard of care.
• LEGN revealed its ASCO abstract yesterday, as BMO said it demonstrates Carvykti’s superiority vs SoC, suggesting that Carvykti’s profile will be attractive to physicians/patients as a 2L+; firm notes LEGN is trading at ~10% discount compared to its price prior to Cartitude-4 readout, pointing to low investor confidence in Carvykti’s penetration in early lines.
• LLY: the WSJ reported Eli Lilly will spend $5.3 billion to boost manufacturing capacity for its hot-selling anti-obesity drug Zepbound and cousin diabetes drug Mounjaro.
• MRUS revealed its ASCO abstract yesterday; BMO Capital noted the petosemtamab in 1L head and neck cancer is the headline with petosemtamab + pembrolizumab combination delivering a 60% ORR, albeit in 10 patients and limited median follow-up (1.35 mo); the response rate is consistent with BMO’s upside case.
• NVO said its Ozempic slashed the risk of death in patients with type 2 diabetes and chronic kidney disease by 20%. It cut cardiovascular-related deaths by 29% and lowered the risk of major heart complications by 18%.
• VSTM released its ASCO abstract for initial Phase 1/2 RAMP 205 data for lead asset avutometinib plus defactinib (A+D) in combination with gemcitabine and Nab/paclitaxel (gemAbraxane) in first-line pancreatic cancer; posted an 83% (5/6) objective response rate/ORR in the first dosing cohort, which compares to a 23% ORR benchmark for gemAbrax.
• In Medical Research: GH shares jumped after FDA advisors recommended the approval of its blood test to detect a cancer that begins in the colon or rectum; the news pushed shares of EXAS lower as tests for colorectal cancer include stool-based tests such as the company’s Cologuard, but blood-based tests are more convenient notes Reuters.

• DOMO shares tumbled after the results as Q1 adj EPS loss (-$0.33) worse than est. loss (-$0.23) while Q1 revs $80.1M vs. est. $79.49M; but guided Q2 EPS loss (26c-30c) on revs $76M-$77M, below consensus loss (-$0.08)/$79.6M.
• MU owes NLST $445 million in damages for violating Netlist’s patent rights in memory-module technology for high-performance computing, a U.S. jury said on Thursday. The jury also concluded that Micron infringed the patents willfully, which could lead to a judge multiplying the damages by up to three times.
• NVDA most advanced AI chip it developed for the China market has got off to a weak start, with abundant supply forcing it to be priced below a rival chip from Chinese tech giant Huawei, Reuters reported.
• In Software: WDAY delivered solid FQ1 results, but the subscription revenue and backlog beats were lower than expected and management lowered FY25 subscription revenue guidance to $7.7B-$7.725B from $7.725B-$7.775B.
• In Media & Telecom: GCI was upgraded from Sell to Neutral at Citigroup and raise tgt to $3.60 from $1.95 based on more robust revenue trends within the digital segment as believes these trends pave the way to grow the topline in 2025. LGF reported Q4 adj EPS $0.27 vs. est. loss (-$0.11) and $0.21 last year; Q4 revs $1.12B vs. est. $1.07B as shares tumble. Reuters reported GOOGL invested $350M in India’s Flipkart for minority stake in latest funding round.
• In Analog Semiconductors: MCHP and NXPI both upgraded to Buy at Mizuho, maintain Neutral on TXN, WOLF and stay Buy on ALGM and ON saying believes after 2-3 years of underperformance, the Analog group now has baked in the 2023-24E slowdown, and could start catching up with the SOX, in particular as inventories peak and utilization gets cut across the supply chain despite the overhang of increasing fab capacity and supply.
• In Ad Tech: MGNI was upgraded from Neutral to Buy at Bank America and raise tgt to $15 from $13 on increased confidence that it will become the leading supply-side tech solution in CTV advertising (mid-teens grower medium term), as the industry transitions to more automated (programmatic) ad execution, a technology MGNI specializes in. CRTO was upgraded to Outperform from Market Perform at BMO Capital, raise ests and tgt to $45 from $31 given recent execution and more meaningful growth opportunities from the Retail Media and Performance Media segments going forward.