Closing Recap

Tuesday, May 28, 2024

US equities moved higher overnight, but pared gains after failing to break through resistance pivots on both S&P and Nasdaq futures. Commodities also gained early as gold, silver and oil all snapped back. The pre-market economic calendar was quiet again but does get more active later in the week with jobless claims, GDP, and Core PCE data ahead. After a quick trip into negative territory, and despite Kashkari comments reinforcing a higher-for-longer view on rates, investors generally seemed content to wait for the data later in the week and kept large-cap indices around the unchanged level early. Breadth, too, was flattish early as small caps also trended sideways along the unchanged line. By mid-morning, not much had changed with US equities remaining largely flattish with an upside bias. Energy, Technology, Utilities and Communications were the only S&P sector ETF gainers, while Health Care, Consumer Staples and Financials led the remaining groups lower.

Data-wise today, @charliebilello notes on housing the Case-Shiller 20 Home Price Index hit another record high with all 20 cities showing rising prices for March over the past year. Affordability remains near record lows. Also on home prices, @RBAdvisors notes home prices haven’t risen this fast in the last ten years aside from the immediate post-pandemic period. Separately, @KobeissiLetter highlights for the first time since the pandemic, more BBB-rated borrowers have negative credit outlooks than positive outlooks in the US. Lastly, it’s worth noting Consumer Confidence edged up in May to 102 versus an estimated 96 and prior 97.5 (revised). The confidence spread (present minus expectations) contracted slightly, but remains at healthy, non-recessionary levels.

Heading into the final hour of trading, US equities were lower but off the lows of the day. Breadth was close to 2:1 favoring decliners as both large and small caps were in the red. IWM was -0.2% and underperforming versus SPY -0.15% and QQQ off just 0.01%. Sector-wise, Energy (XLE, +1.25%) and Technology (XLK, +0.07%, thank you NVDA and AMD) were the only two S&P sector ETFs on the plus side, while Health Care (XLV, -1.4%), Industrials (XLI, -1.3%) and Financials (XLF, -1.2%) were the largest losers on the day. Growth outperformed value, which isn’t much of a surprise given the sector ETF leaders and laggards. The Russell 1000 Growth was +0.16% versus its Value counterpart -0.85%. This would have been a different market today without a few of the large semi names moving higher and a rally in oil to lift energy.

• U.S. home prices +0.1% in March from February and U.S. home prices +6.7% in 12 months through March.
• U.S. S&P CoreLogic 20-City home price index climbed 1.6% to 325.1 in March, stronger than forecast, after rising 0.9% to 320.1 (was 320.0) in February. This is a new record high, eclipsing that set in February. The 12-month pace accelerated to 7.4% y/y from 7.3% (was 7.3%) y/y. The 10-City composite index rose 1.7% to 341.8 in March after the 1.0% increase to 336.2 (was 336.0) previously.

• July WTI crude futures followed Friday’s gains with another strong session, settling up $2.11/bbl, or +2.71%, at $79.82. Brent similarly gained and enjoyed a third straight up day +$1.12/bbl, or +1.35%, to finish at $84.22. In fact, a portion of today’s WTI gains was attributed to catch-up buying relative to Brent gains yesterday. Further support came from a slightly softer Dollar, trader speculation around OPEC+ extending current production quotas at the upcoming meeting this weekend, ongoing geopolitical factors, and expectations for a robust driving/travel season as Summer gets going.

• In Other Retail/eCommerce: SE shares dropped after Indonesia’s antitrust agency accused e-commerce platform Shopee’s local unit of violating anti-competition rules by directing customers to use certain delivery services. sporting goods retailer VSTO rejects unsolicited indication of interest from MNC Capital, which had expressed interest in acquiring Vista Outdoor in an all-cash transaction for $37.50 per Vista Outdoor share, as the board said it believes there is significantly more value in the Revelyst business than MNC credited in its indication of interest. GME announced late Friday it completed the ATM offer first announced on 5/17, selling ~45M shares over the last several days for a total of $933.4MM. Those 45M incremental shares increased the total shares outstanding by about 15%.
• In Food & Beverage: SYY upgraded from Neutral to Buy at Guggenheim with $85 tgt saying it is making significant investments in its Salesforce to leverage unique capabilities in specialty categories and Own Brands to drive profitable share gains in a challenging macro backdrop. It has also conservatively framed potential local case growth and share repurchase activity establishing achievable out-year targets. CELH shares underperformed, Stifel raised price tgt to $95, but lowered ests think reported sales in 2Q24 could again be impacted as the PepsiCo system adjusts the amount of Celsius inventory it holds and think increased promotional allowances and reduced freight efficiencies could result in 2Q24 gross margin below 51.0% in 1Q24.

• In Autos: in Suppliers, ALV was upgraded from Neutral to Buy at UBS and raise tgt to $141 from $102 saying solid top line outperformance to light vehicle production (9%-pts in FY23, 6%-pts in Q124), an outlier vs peers in margin expansion (+170bps FY24/23 expected) and a solid balance sheet has driven shares up c15% YTD (+20% vs the sector). All in all, UBS thinks ALV has a solid equity story on a ST/MT/LT time horizon, both in absolute and relative terms. In Autos: the Financial Times reported TM has unveiled plans for a new generation of internal combustion engines, betting on a continued need for older technologies even as car buyers shift towards TSLA and other EVs. TSLA shares fell after Glass Lewis this weekend recommended that shareholders reject a proposal to reinstate CEO Elon Musk’s pay package worth some $56 billion when it was awarded in 2018.
• In Cruise/Travel: ABNB was upgraded from Neutral to Outperform at Wedbush with $165 tgt as thinks investors should take advantage of this period of relative weakness and see potential upside to near- term estimates following disappointing Q2 guidance that it views as conservative given positive travel data points thus far in Q2. In Cruise lines, NCLH was upgraded to Buy at Mizuho and raised tgt to $24 as sees upside to earnings from a favorable industry supply backdrop (LSD percentage annual supply), incremental cost controls specific to NCLH, and a reorganization of itineraries helping to drive greater yields and operating leverage than expected. VIK quiet period ends as Wall Street initiates coverage with at least five Buy/Overweight ratings ($37 high PT) and 2 holds.

• In MLPs/Pipelines: ET entered into a definitive agreement to acquire WTG Midstream Holdings LLC in a transaction valued at about $3.25B from affiliates of Stonepeak, the Davis Estate and FANG. Consideration for the transaction will be comprised of $2.45B in cash and approximately 50.8M newly issued Energy Transfer common units.
• In Trucking/Logistics: EXPD and FWRD both upgraded to Peer Perform from Underperform at Wolfe Research as the firm said they have seen a significant improvement in ocean spot rates in Q2 and expects freight forwarders to benefit in the near term. It is not clear how sustainable this improvement is, but all freight forwarders should benefit in the next couple of quarters. In Airlines, LUV was downgraded from Buy to Hold at Argus saying with employee costs high and aircraft deliveries delayed, the road to recovery is likely to take longer than anticipated.
• In Aerospace & Defense Suppliers: Keybanc raised price tgts for TDG to $1,440 from $1,325, ATI to $66 from $58, HWM to $90 from $70 and USAP to $36 from $30 and increases its 2024-2025E EPS on the covered names within the report amid stronger pricing/margins, absent SPR, for which it is cutting numbers. TD Cowen downgraded TGI to Hold from Buy and cut tgt to $14 from $19.5 for moderated cash flow due to pared 737/787 ramp plans and expected lower military results, as well as divestiture overhangs.

• In Banks/Advisors: HBAN was upgraded to Overweight at JP Morgan with $18 tgt saying the onshoring benefits to the company’s primary markets appears to not only be much more of a needle-mover than JPMC expected, but the timing of these benefits is also coming sooner than expected. In Canadian banks, BNS Q2 adjusted EPS C$1.58 vs. C$1.69 last year and Q2 revenue C$8.35B vs. C$7.91B last year; Q2 Provisions for credit losses increased to C$1B from C$709M y/y. AMPL shares dropped after announced that its CFO, Chris Harms, was no longer with the Company. Keybanc noted the timing of the release, late on a Friday before a long weekend, and in almost terse language, certainly raised eyebrows.
• In FinTech: the WSJ reported PYPL plans to build an ad sales business around data generated from users and tracking purchases and has hired former Uber ad boss Mark Grether as PayPal Ads SVP. FUTU was upgraded to Overweight at JP Morgan and raised tgt to $92 from $62 as sees upside risk to Futu’s EPS due to strong client growth, asset flow and transaction volume and says analysis suggests positive correlation between PE multiple and its new client growth.

• ARCT shares rose after announcing positive development for Cystic Fibrosis Program; said to present new Phase 1B interim data for ARCT-032 at European Cystic Fibrosis Conference on June 7, 2024.
• CORT shares rose after saying that that GRACE, the Phase 3 trial of its proprietary selective cortisol modulator relacorilant in patients with hypercortisolism (Cushing’s syndrome), met its primary endpoint.
• CTMX was upgraded from Neutral to Overweight at Piper and raised tgt to $3.50 from $2.25 following initial data for CX-904 (EGFRxCD3 TCE), as thinks there is enough in this dataset to believe that masking is improving the therapeutic window, unmasking is generating an active TCE and that the early activity in pancreatic cancer could be confirmed.
• INSM shares surged after their experimental drug successfully reduced lung problems among patients with an airway disease in a closely watched Phase 3 trial; said phase 3 study achieves primary endpoint for both dosage strengths of brensocatib; said brensocatib well-tolerated at both dosage strengths.
• JNJ said it had agreed to acquire the rights to an experimental skin disorder treatment from privately held Numab Therapeutics for about $1.25 billion; J&J will acquire Numab’s unit for the global rights to the drug, called NM26.
• MDRX said to explore strategic alternatives, announce leadership changes, and reaffirm 2024 guidance.
• MRNA shares fell, snapping its 10-day winning streak.
• MRUS said the combo of its experimental drug petosemtamab with the checkpoint inhibitor Keytruda shrank tumors in 62% of patients with head and neck cancer, according to an interim analysis of an ongoing mid-stage clinical trial.
• SRPT downgraded to Sector Perform at RBC Capital and cut tgt to $142 from $157 saying with the June 21st Elevidys PDUFA rapidly approaching, still expects significant share upside on the broadest label with substantial $2.6B peak annual U.S. sales potential, but notes shares having appreciated ~+50% in the last six months.
• VERA said the FDA granted Breakthrough Therapy Designation to Atacicept for the treatment of IgAN.
• In Medical Equipment: NDSN said it will acquire Atrion (ATRI) for $460 per share in cash, which represents a total transaction enterprise value of ~$800 million; the deal is expected to expand Nordson’s medical portfolio into new markets and therapies. https://tinyurl.com/ev5fz8fr

• In Phones: AAPL shares rise after reports smartphone shipments in China were 52% higher in April than a year ago to 3.495M units from 2.301M a year earlier, extending a rebound seen in the previous month, according to data from a research firm affiliated the Chinese government. Apple’s shipments in China increased by 12% in March, marking a significant improvement from the first two months of 2024, when the company experienced a 37% slump in sales.
• In Software: CRWD mentioned positively by Morgan Stanley saying it could be the next $100B cybersecurity company as they move to “top pick” and raise tgt to $422 from $372; said expects strong Q1 results next week & additional catalysts including potential S&P 500 inclusion (early June) and Sep Analyst Day targeting $10B+ ARR by CY28. ZS was downgraded from Buy to Neutral at Rosenblatt with $190 tgt ahead of earnings this week and believes current FY25 consensus billings and revenue estimates May be too high and have adjusted its projections accordingly.
• In Semiconductors: The Philly semi-index (SOX) rises as high as 5,340 (above prior 5,255 on 5/23) led by usual suspects with NVDA, AMD, ARM among leaders and chip equipment names; TXN shares rallied on report of activist Elliott taking $2.5B stake – CNBC’s David Faber reported.