Closing Recap

Friday, May 31, 2024

U.S. stocks surged in the final 30-minutes of trading to end near highs, still closing out the week with negative returns, but posting big gains for the month of May. Smallcaps outperformed early before fading while the Dow Jones Industrial Average partially rebounded nearly 600 points after falling 2,000 points from its all-time highs last week above 40,000. Most sectors finished in the “green”, led by gains in Energy (XLE +2.5%), REITS (XLRE +1.96%), Utilities (XLU +1.78%), Healthcare (XLV +1.46%), and Financials (XLF +1.52%) with breadth positive by more than 3:1 advancers leading as investor attention turned (even Tech XLK finished near higher after falling -1.5% earlier). The Nasdaq posted a 275-point bounce off afternoon lows to close strong into the weekend. Still, there were a few chinks in the armor of large cap tech this week with DELL shares dropping nearly 20% after saying expects adj gross margin rate to decline about 150 basis points in fiscal 2025 and guided EPS $1.65 plus/minus 10c vs. est. $1.84 (results weighed on PC names/data center AI plays). The day prior it was Salesforce (CRM), among the biggest software companies tumbling -20% after lowering guidance which crushed that sector (overnight MDB tumbles on lower guidance as well). The Philadelphia Semiconductor index (SOX) fell nearly 3% at worst around 4,988 to a 10-day low before rebounding above 5,100 late day (after hitting record highs 5,343.68 this past Tuesday 5/28). Still, the Nasdaq Comp posted a 6.88% gain for the month of May, while the S&P rose 4.84% MTD, the Russell 4.46% and the Dow +2.36% MTD, helped with the late day spike in stocks.

This morning, the April PCE inflation data was reported in-line with estimates and prior month readings, sending Treasury yields lower (10-yr lows sub 4.5% after Wednesday hit highs of 4.64%) after the data. The personal consumption expenditures (PCE) price index rose 0.3% last month, data showed, matching the unrevised gain in March. Later, the Chicago May PMI fell to lowest level since May 2020, reported at 35.4 vs. est. 41.1 and marks the third reading under 40 in 20 months and only 1 reading above 50 (Nov of last year) during that stretch. With the attention this week mostly on inflation data (PCE Q/Q yest and M/m data today), next week focus is back to jobs: The JOLTS Job openings data is on Tuesday (es.t 8.3M vs. 8.5M prior), ADP private payrolls Wednesday (est. 179K vs. 192K prior), Jobless Claims Thursday and the May Nonfarm payroll report on Friday (est. 175K vs. 178K prior).

• The overall April PCE price index +0.3%, in-line with March +0.3% and consensus and on a Y/Y basis, PCE price index +2.7% in-line with consensus and vs March +2.7%. The April core PCE price index +0.2% vs March +0.3% (and est. +0.3%) and Y/Y core +2.8%, in-line with consensus and March +2.8%.
• Chicago PMI falls to lowest levels since May 2020, reported at 35.4 vs. est. 41.1 and marks the third read under 40 in 20 months and only 1 read above 50 (Nov of last year).
• Weaker China economic data overnight as China May Manufacturing PMI at 49.5 vs 50.5 consensus; China May Services PMI at 51.1 vs 51.5 consensus.
• Japanese economic data for April was mixed as the jobless rate remained at 2.6% in April; Japan’s industrial production fell more-than-expected by -0.1% MoM (+1.5% expected) to see annual growth at -1.0%, up from -6.2% YoY. Japan retail sales rose a stronger-than-expected 1.2% MoM to lift the annual rate to 2.4% YoY.

• Gold prices fell -$20.70 to settle at $2,345.80 an ounce despite a drop in the dollar and Treasury yields, falling on the week but managed its fourth straight monthly gain rising 1.8%.
• Treasury yields were volatile at the tail end of the week, with the benchmark 10-yr hitting highs 4.64% midweek and the 2-yr 5%, but pulled back the last few days on in-line PCE inflation data to around 4.5% for the 10-yr. Yields for both the 2-year and 10-year Treasury notes finish the month lower — maintaining a general downtrend as the 2-year note finished the month down 0.152 percentage points to 4.891%, while the 10-year fell 0.171 percentage points to 4.512%. The 2-year yield has fallen for five out of the past seven months.

• In Department Stores, after dreadful results and guidance from KSS yesterday sunk shares, JWN overnight reported a healthy top line beat but missed GM, citing timing and operational pressures while maintained 2024 comparable sales forecast of a 1% drop to a 2% rise and annual EPS of $1.65 to $2.0; also warned of an uncertain economy and said consumers were resilient but selective.
• In Broadline/Clubhouse: COST reported modest EPS upside to Q3, growing EPS +10% on an underlying basis led by continued strength in comps in all regions, notably led by discretionary sales; Q3 comps, EBIT, and EPS were above consensus expectations, but valuation concerns pressured shares, as per analysts. Gross margins missed by 6 bps, while SG&A beat by 20 bps and drove the operating margin beat.
• In Beauty: ULTA posted top-and-bottom-line beat on in-line comps, lower margins, but better SG&A but was followed by a lower guide as cuts FY24 EPS view to $25.20-$26.00 from $26.20-$27.00 (est. $26.33), cuts FY24 revenue view to $11.5B-$11.6B from $11.7B-$11.8B (est. $11.7B), lowers FY24 SSS growth to 2%-3% from 4%-5% and operating margin to 13.7%-14.0% from 14.0%-14.3%.
• In Beverages: SAM shares jumped late day after the WSJ reported Japanese whisky-maker Suntory is in talks to acquire Boston Beer, the American brewer known for its Samuel Adams brand https://tinyurl.com/mwybzw4u . Jefferies said taking estimates broadly lower following poor/extreme weather during the Memorial Day weekend, noting this past weekend saw severe weather across the central and eastern US, totaling 61% of the country. As a critical consumption weekend, accounting for 4.6%+ of all volumes in ’23, we anticipate volumes were negatively impacted. We tweak our US estimates lower for C2Q across our Beer (TAP, STZ, SAM) and Soft Drink (KO, PEP, KDP, MNST, CELH) coverage. But continue to favor PEP, STZ, MNST, CELH and KDP.

• In Online Travel/Leisure: ABNB positive mention in Barron’s online saying travel stocks hit some turbulence this past week, but article notes ABNB might be a place to seek shelter from the storm. 5In car rental, Bloomberg reported HTZ is exploring options to raise financing weeks after the company’s new chief executive officer pledged to get the company back on track following a failed bet on electric vehicles.

• In HVAC: TD Cowen said they favor LII, TT, JCI, and CARR, in that order, raising tgt on JCI to $82, LII to $550, TT to $375 saying they are bullish on the North American residential HVAC upcycle, following 2023’s overcorrection. The HVAC stocks are near 52-week highs, but investor discussions suggest controversy over whether homeowners will opt for resi HVAC component repairs vs system replacements.

• IONS announced positive results from the Phase 3 OASIS-HAE and OASIS plus studies of Donidalorsen in patients with hereditary angioedema (HAE) demonstrating significant and sustained reduction in mean monthly HAE attack rates and continued attack rate improvement of >90% with one year of treatment for both monthly or every two-month dosing ahead of the EAACI conference
• PFE long-approved Pfizer drug Lorbrena showed the daily pill decreased disease progression in non-small cell lung cancer by 81% over five years.
• RARE said its potential treatment for glycogen storage disease type 1a, DTX401, had resulted in a statistically significant and clinically meaningful reduction in daily cornstarch intake after 48 weeks, which was the study’s primary endpoint; said the Phase 3 trial also reached its key secondary endpoints.
• REGN and SNY said the FDA extended the target action date for the priority review of the supplemental biologics license application for its lung disease treatment Dupixent by three months.
• VEEV shares slid as Q1 revenue and EPS were above guidance, but FY25 revenue growth guidance was lowered modestly to 10%-11% from 12%, primarily to reflect lower services revenue.

• In Cyber Security: SentinelOne (S) shares declined as reported 1Q FY25 results of $186.4M and break-even EPS of $0.00 topping Street estimates for $181M and an EPS loss of $0.05 while gross margins to 78.9% from 77.1% in 4Q FY24 and 75.1% in the year ago period, but offered 2Q revenue guidance of $197M which was below street estimates for $199M and lowered the guidance range floor for the full year by $4M to $808M. ZS shares jumped as reported billings of $628m (+30%) above the Street at 21%, and revenue of $553m (which increased 32% y/y) versus prior revenue guidance of $535m.
• In Software: MDB shares tumbled as delivered revenue and margins (including Atlas growth of +32% Y/Y) ahead of consensus, but the beat was much lower and lowered its FY25 growth to 12-13% (vs consensus of 15%) as saw weaker-than-expected workload growth. ASAN shares rose with Q1 $3.9M top-line beat on 13% y/y growth with upside driven by SMB stability and technology seat expansions; quarterly revenue jumps 13% to $172.4M and forecasts FY25 revenue between $719M-$724M, vs. the mid-point of estimates of $719.3M. PD shares jump after Q1 earnings beat and announced stock buyback.

• MRVL Q1 sales were slightly above consensus on AI strength with EPS in line, while FQ225’s sales and EPS guide were slightly above; Carrier/enterprise/consumer (~23% sales) down ~70% Y/Y combined in FQ1 (Apr).
• QCOM tgt raised to $245 from $180 at Bank America saying opportunities in computing, a China recovery and the prospect of AI-equipped handsets have pushed Qualcomm shares up +45% YTD, vs Nasdaq’s +12%, but the firm says they think there’s further upside potential.
• QCOM tgt was raised to $240, MU tgt to $155, WDC tgt to $90 and STX tgt to $110 at Mizuho as they see upcoming catalysts with Computex in Taiwan on June 3-7 and MU earnings on June 26. Says they believe the next key driver for AI will be at the edge as OEMs start to push AI on-device capabilities for both handsets and PCs.
• US officials have slowed the issuing of licenses to chipmakers such as Nvidia Corp. and Advanced Micro Devices Inc. for large-scale AI accelerator shipments to the Middle East, according to people familiar with the matter, while officials conduct a national security review of AI development in the region.