Closing Recap

Friday, November 15, 2024

For the first time in November, stocks sank and there was no dip buying on this option expiration Friday. Selling pressure was persistent throughout the day as investors digested less dovish comments from the Fed, stronger economic data, reduced expectations of aggressive rate cuts, rising inflation data points (PPI) and potential political impact on new Trump administration cabinet selections to markets. Tech stocks sank as @bespokeinvest tweeted that “The Nasdaq 100 has fallen all five trading days this week. Have to go back to August 2nd, 2019, during President Trump’s first term to find the last time this happened.” The Philadelphia Semiconductor index (SOX) hits over two-month lows, falling over 3.4% at 4,835 after tumbling below 200dma support above 5,015. The selling wasn’t relegated to just Technology as Healthcare (XLV) declined -5.55% this week amid fears the impact RFK Jr. will have on the Pharma, vaccine, and food industry after being named as the Health and Human Services (HHS) director under Trump. Defense and IT Spending were also impacted by the selection of Elon Musk and Vivek Ramaswamy in Department of Government Efficiency, where they look to slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.

Fed impact on markets: Stocks started the weekly pullback late Thursday after Fed Chairman Powell, just a week removed from dovish commentary at the FOMC meeting, was less dovish saying there is no need to hurry rate cuts with economy strong. Boston Fed President Susan Collins echoed those comments overnight saying the Fed could eventually need to slow down the pace of rate cuts and said it was too soon to say whether that should happen next month. A December cut is “certainly on the table, but it’s not a done deal, she said. Note if the Fed does pause the rate cutting process and this is blamed for a slump in stock markets, it could inflame tensions even more between the incoming Trump administration and the Fed, further undermining market confidence.

Healthcare (XLV), Biotech (XBI), vaccine stocks (MRNA, PFE, BNTX, GSK, SNY, NVAX), and food companies (CPB, K, GIS, CAG) all declined sharply for a second straight day after President-elect Donald Trump announced on Thursday he has selected Robert F. Kennedy Jr. to lead the Department of Health and Human Services (oversees FDA, CDC), the United States’ top health agency. RFK Jr, has been a vocal opponent of US government vaccine policy, questioning the number of jabs given in childhood. Over posts on social media platform X and interviews in recent weeks, Kennedy has indicated his priorities include addressing what he calls the “chronic disease epidemic” of conditions including obesity, diabetes and autism, and reducing chemicals in food. However, Kennedy has not outwardly called for a ban on any jabs, saying in an interview with NBC News last week that he has no plans to “take away vaccines”.

• U.S. Oct import prices +0.3% above consensus (-0.1%) and vs Sept (-0.4%), U.S. Oct non-petroleum import prices +0.2%, year-over-year +2.2%, Oct export prices +0.8% vs. consensus (-0.1%) and Sept (-0.6%); U.S. Oct petroleum import prices +1.2% vs Sept -7.8%
• Oct. Retail sales climb 0.4% m/m topping the consensus est. +0.3% while Oct Retail Sales Ex-autos +0.1% vs. consensus +0.3% and vs Sept +1.0%; Oct gasoline sales +0.1% vs Sept -0.9%, Oct cars/parts sales +1.6% vs Sept +0.2%, Retail Sales Ex-autos/gasoline +0.1% vs Sept +1.2% (prev +0.7%).
• U.S. Oct industrial output dropped (-0.3%), in-line with consensus and vs Sept (-0.5%) as Oct mining output +0.3% (sept -1.9%), utilities output +0.7%. The Oct capacity use rate 77.1% (consensus 77.2%) vs Sept 77.4% (previous 77.5%). Oct manufacturing output -0.5% (consensus -0.5%) vs Sept -0.3% (previous -0.4%).
• China Oct Retail Sales: 4.8% y/y vs 3.8% consensus (and above prior 3.2%); China Oct Industrial output 5.3% y/y vs 5.6% consensus (and 5.4% prior); China Oct House Prices: -0.5% m/m vs -0.7% previous; -5.9% y/y vs -5.8% previous; Fixed asset investment rose 3.4% in the January-October period year-on-year, versus an expected 3.5% rise. It grew 3.4% in the January-September period.
• On Wednesday, we learned that total credit card debt has surged to a brand-new record high of 1.17 trillion dollars, according to a new report on household debt from the Federal Reserve Bank of New York. Credit card balances rose by $24 billion in the third quarter of 2024 and are 8.1% higher than a year ago. Meanwhile, total student loan debt has reached a brand-new record high of 1.61 trillion dollars

• Gold prices slipped again on Friday, posting its biggest weekly decline in over three years (down over 4%) as expectations of less aggressive interest rate cuts by the U.S. Federal Reserve lifted the dollar, making gold more expensive for other currency holders. December gold fell -$2.80 to settle at $2,570.10 an ounce. Markets now see a 62% chance of a 25-basis-point rate cut in December, down from 83% the day before.
• Oil prices dropped -$1.68 or 2.45% to settle at $67.02 per barrel, around the lows of the day while Brent Crude futures settle at $71.04/bbl, down $1.52, or 2.09%, both adding to weekly losses. A combination of a surging dollar, signs of waning Chinese demand and a possible slowing of the U.S. Federal Reserve’s interest rate cut path.
• Treasury yields hit their highest levels since July with the 10-yr topping 4.5% after this morning’s better than expected round of data. However, prices picked up steam and yields pulled back the remainder of the day. Note the 10-year Treasury yield has risen around 60 basis points this year. Bitcoin prices jumped despite broad stock market weakness, rising another 2% moving back above $90,000.

• In Food & Restaurants: Food stocks extend declines with weakness in KO, PEP, CAG, CPB, GIS, HSY, KDP, KHC, MDLZ, SJM, THS among others (several hitting 52-week lows) as RFK Jr named head of HHS – Kennedy has indicated in recent months his priorities include addressing what he calls the "chronic disease epidemic" of conditions including obesity, diabetes and autism, and reducing chemicals in food. DPZ shares bounced initially after Warren Buffett’s Berkshire Hathaway revealed it owned 1.28 million Domino’s shares worth about $549 mln as of Sept. 30 as per quarterly filing.

• In Solar: SEDG downgraded from Equal Weight to Underweight at Morgan Stanley and slash tgt to $9 from $23 as foresees an elongated path back to profitability due to deteriorating demand in Europe and strong pricing competition from low-cost Chinese manufacturers selling product into the market. MSCO also downgraded MAXN from Equal Weight to Underweight w/ $4 PT, underpinned by strong competition in Europe from low-cost suppliers, key customer attrition in the US residential solar market, and an increasingly uncertain path for DOE funding for its US manufacturing facility.
• In Utility and Alt Energy: BE was upgraded to overweight at Piper after the company announced Thursday that it has signed a supply agreement with AEP for up to 1 GW of fuel cells. FCEL said it will reduce 13% of its workforce as part of a global restructuring of its operations in the U.S., Canada and Germany as they aim to reduce operating costs by nearly 15% in fiscal year 2025 and protect its competitive position amid slower-than-expected investments in clean energy.

• In Consumer Finance: Monthly net charge off and delinquency data released: 1) COF reported charge-offs for October of 5.82% vs. 5.08% y/y and delinquencies 4.61% vs. 4.48% y/y. 2) DFS Oct 30+ day card delinquency rate was 3.87%, up +26 bps y/y, better than +43 bps y/y in Sept and +64 bps y/y in Aug. The m/m increase of +3 bps is better than normal seasonality (avg +8 bps ’17-’19) as per Wells Fargo; 3) JPM reported charge-offs for October of 1.62% and delinquencies 0.87%. 4) SYF October metrics improvements YoY in NCOs rates. Oct NCO rate 6.4% vs KBW 4Q est. 6.6%, Delinquency rate 4.9% vs KBW 4Q est. 4.8%. 5) BAC credit card delinquency rate was 1.52% at October end and credit card charge-off rate was 2.39% in October.
• In Lending/Mortgage: RKT was upgraded from Underperform to Neutral at Bank America with $15 tgt as it views valuation as much more balanced at current levels. Rocket is now trading at ~18x 2025e EPS, still above the peer average, but well below its September peak of ~35x.

• AKYA shares tumbled after lowered its FY24 revenue forecast to $80M-$85M from prior $96M-$104M range, the third straight quarter it lowered guidance citing a muted near-term outlook and said they no longer believe it will achieve cash flow breakeven in Q424.
• BLUE was downgraded at both Bank America and JP Morgan to reflect its view that the company’s key product launch (Lyfgenia for Sickle Cell) will ramp slower & achieve lower peak revenue, both key model sensitivities.
• EYEN said it will discontinue a late-stage study for its experimental drug-device combination after it failed the main goal of slowing the progression of the condition, sending shares plunging.
• MRK said the European Medicines Agency’s Committee for Medicinal Products for Human Use recommended expanded approval of its blockbuster cancer drug Keytruda in certain patients with a rare cancer of the lining around the lungs
• TMO authorizes $4B of share repurchases

• Uranium names were active (CCJ, UEC, UUUU) after Russia said it has imposed restriction on the export of enriched uranium to the U.S. after Washington imposed a ban on imports of Russian uranium. Russia is the world’s top supplier of enriched uranium and about 24% of the enriched uranium used by U.S. nuclear power plants comes from the country (up from 12% in 2023 as per Reuters).
• In Industrial: Stifel initiates coverage of electrical & mechanical engineering & construction (E&C) companies, including EME Buy and $600 PT, FIX Buy and $524 PT, ECG Buy and $71 PT and LMB Buy and $108 PT saying they the group as a way to play: 1) secular growth in cloud and AI data centers, 2) on-shoring of manufacturing in the US, and 3) a tight trade labor market. For EME, we like the scale and positioning to win large, higher-margin projects and capabilities around sharing of best practices across its subsidiaries. For FIX, like the leading modular construction business, focus on non-union markets, and outsized data center & manufacturing exposure.
• In Homebuilders: group was pressured as mortgage rates rise after the yield on the 10-year Treasury jumped above 4.5%, its highest levels since June following strong economic data, lowering prospects of an aggressive FOMC cutting interest rates sharply in coming months – shares of KBH, BZH, LEN, TOL moved lower.
• In Aerospace & Defense: sector pressured for a second day, with more weakness in defense (NOC, LMT, GD) and IT Defense consulting companies (BAH, CACI, LDOS, KBR) on fears of deep cuts in fiscal spending under the Trump administration. Elon Musk’s SpaceX is preparing to launch a tender offer in December that will sell existing shares in the business at about $135 each, while artificial intelligence start-up xAI has raised $5 billion at a valuation of $45 billion, reports the Financial Times. ASTS shares slumped following Q3 results as loss of EPS (-$1.10) wider than est. (-$0.21) on revs $1.1Mm vs est. $24.13Mm; a positive, Blue Origin signed a multi-launch deal with satellite communication company.

• Semiconductor equipment stocks slumped after AMAT posted FQ424 EPS that was 6% ahead on revenue that beat by 1%, and guided FQ125 EPS 1% above on the midpoint of revenue 1% below; forecasts Q1 net sales about $6.75B-$7.55B, as midpoint is below est. $7.25B (shares of LRCX, KLAC fell in sympathy).
• In Seis: SMCI stock has been in a tailspin since Ernst & Young dumped the server maker as an audit client. After Ernst & Young walked away, all eyes should be on its previous auditor. The risks include Nasdaq delisting – WSJ reports.