Closing Recap

Monday, November 18, 2024

U.S. stocks rebounded on Monday after posting their worst weekly returns in over 2-months, as nearly all eleven S&P sectors finished higher, led by strong gains in Energy (behind oil bounce), Communications, Consumer Discretionary, and Utilities, while Healthcare continued to lag after sharp declines last week on RFK announcement as nomination for HHS Department head. Tesla (TSLA) shares jumped on the prospect of favorable policy changes from the incoming Trump administration, while energy stocks recovered as oil prices climbed following 4% declines last week. Rising expectations that the Federal Reserve will slow the pace of policy easing after Powell comments and uncertainty over the impact of Trump’s cabinet appointments led to the S&P 500 and the Nasdaq logging their worst weekly losses in more than two months last week. Attention turns to retailers this week with earnings from WMT, TGT, LOW, TJX and others are expected in the next few days. The other big story this week will be NVDA, which reports earnings Wednesday night for the AI/chip giant and could lead the next direction of semiconductor and technology stocks.

In an interest note, Morgan Stanley strategist Michael Wilson, well known for his bearish views on US equities in recent years, has an outright bullish outlook for 2025. The strategist expects the S&P 500 to end next year around the 6,500 level, up 11% from Friday’s close, with gains driven by improving economic growth and further Federal Reserve interest-rate cuts. He previously had a target of 5,400 for the benchmark in mid-2025. Note Wilson turned bullish in May when he boosted his target for the S&P 500 to 5,400 points from 4,500.

Stat of day: With 462 or 92% of the firms in the S&P 500 index having reported earnings thus far, results are showing a robust third quarter. Profits in Q3 overall were up 6.8% from a year earlier on 5% revenue growth. Eight of the 11 sectors have positive earnings growth, with four at double-digit rates. Three sectors are showing declining earnings, with one falling at double-digit rates. Earnings of energy (-24%) firms are the weakest among the eleven sectors. Industrial (-9%) and materials (-7%) firms are also showing declining earnings from a year earlier- OpCo desk

• November NAHB Housing market index 46 (consensus 43) versus 43 in October (previous 43); index of current single-family home sales 49 versus 47 in October (previous 47); index of home sales over next six months 64 versus 57 in October (previous 57); index of prospective buyers 32 versus 29 in October (previous 29).

• December gold prices rose $44.50 to settle at $2,614.60 an ounce, snapping its 6-day losing streak. Treasury yields quietly pulled back off morning highs of 4.49%, but still held above 4.4% for the 10-year. The U.S. dollar (DXY) declines around -0.4% after surging in recent weeks but did advance against the Japanese yen rising 0.25% to 154.70 after snapping a four-session rise against the Japanese currency after Finance Minister Katsunobu Kato warned authorities would take action to combat excessive exchange-rate moves. The euro rises back near the 106 level after touching 105 last week.

• In Restaurants: SHAK shares fell over -2% for a 4th straight day and posted its 8th consecutive daily decline in dining sector; CBRL was upgraded to Buy from Hold at Argus noting management reaffirmed FY25 guidance last and results are due on December 4 which they see as evidence to confirm the turnaround plan is on track.

• In Cruise lines: VIK price tgt raised to $50 from $39 at Stifel and raise out-year estimates by ~4.5% ahead of their Q324 earnings report on November 19th. Stifel gets the sense booking patterns remain healthy and believes VIK hasn’t witnessed any deterioration for their 2025/2026 itineraries.

• In Defense: the sector was crushed last week with NOC, GD, RTX, LHX, LMT tumbling in defense stocks while contractors/gov’t IT consultants BAH, CACI, LDOS, KBR, TDG also tumbled on fears of deep cuts in fiscal spending under the Trump administration. This weekend, Vivek Ramaswamy, who will Co-lead the government efficiency initiative with billionaire Elon Musk, said Federal contractors should expect “massive cuts” in what they can charge once President-elect Donald Trump’s government efficiency drive is underway – Bloomberg. PLTR shares tumbled after hitting record highs on Friday and came into the day top S&P sector performer YTD.
• In Transports: Goldman Sachs initiates coverage of two railcar leasing companies as they continue to look for strong lease rate growth and robust secondary market activity as North America manufacturing rebounds amidst a declining rates environment. Buy GATX and initiate Neutral on TRN as we prefer GATX’s exposure to international railcar lease fleet, aircraft spare engine lease fleet, and lower non-lease business exposure vs. TRN. In rental car, CAR was downgraded to Neutral from Buy at Northcoast. In airlines, SAVE filed for bankruptcy.
• In Industrial/Housing: WSJ reported that a new player in building products distribution, QXO is making a bid for BECNaccording to people familiar with the matter. Beacon has a market value of about $6.2B, with its share price up around 14% so far this year.

• In Insurance: GL authorizes $1.8B stock repurchase (replaces prior $1.3B authorization); MBI was upgraded to Outperform from Market Perform at KBW Inc. with a price target of $9, up from $6.50 post the Q3 earnings and last week’s news that the First Circuit denied the request for a rehearing regarding the PREPA lien appeal, effectively upholding the June favorable PREPA ruling that established the bondholders’ lien on $8.5B of net revenues (up from $2.5B previously determined by a lower court). UFCS was upgraded to Neutral from Underweight at Piper as believe the company’s efforts to improve underwriting and catastrophe risk management are coming to fruition, and we believe this trend will continue.
• In Payments/Services: FOUR will replace RCM in the S&P MidCap 400 effective prior to the opening of trading on Wednesday, November 20. TowerBrook Capital Partners and Clayton, Dubilier & Rice will acquire R1 RCM in a transaction expected to be completed on or about November 19
• In Real Estate: RDFN was downgraded to Sell at Goldman Sachs driven by a weak US housing market, intensifying agent commission pressures and weaker than expected Real estate Services gross margins. Lower 12m target to $6.5 (from $6.0). RDFN separately notes nearly three-quarters of U.S. residents who earn less than $50,000 per year sometimes, regularly or greatly struggle to afford their regular mortgage or rent payments,

• BMO Capital noted the AASLD’s The Liver Meeting is being held in San Diego this week and they are digging into some MASLD/MASH data ahead of Tuesday’s hotly anticipated presentations for NVO, VKTX. BMO notes thus far, BMO has seen enthusiasm for MDGL’s recently approved Rezdiffra with some exploring the potential of combinations in earlier clinical studies.
• ACRS shares jumped after the company announced an exclusive license agreement with Biosion for worldwide rights to BSI-045B, a potential best-in-class, clinical-stage, novel anti-TSLP monoclonal antibody, and BSI-502, a potential best-in-class, pre-clinical stage, novel bispecific antibody.
• BIIB was downgraded to hold from buy at Needham, which said it does not see a meaningful source of upside for the stock in the next 12 months
• LLY shares extend losses in obesity sector amid pullback in pharma/biotech, down 25% from all-time highs.
• MRNA was upgraded to Buy from Hold at HSBC while lowered price tgt to $58 from $82 saying that if Moderna’s existing key pipeline products manage to launch successfully and RSV-vaccine recommendation pressure eases, there could be attractive upside potential for the stock.
• NGNE shares fell after saying it discontinued further development of a high dose of its gene therapy for Rett syndrome after a patient reported a potentially life-threatening side effect.
• NTLA reported promising early-stage results from gene editing therapy for a rare disease called transthyretin amyloidosis; co currently conducting late-stage study for patients with transthyretin amyloidosis with cardiomyopathy, a type of the disease where heart muscles stiffen and weaken.
• NVO said it has launched its popular obesity drug Wegovy in China, the world’s second-largest pharmaceuticals market where it estimates more than 180 million people live with obesity. LLY secured approval for its weight-loss drug in China in July but has yet to launch it.
• RGNX initiates pivotal phase of affinity Duchenne® trial of RGX-202 gene therapy and reports positive functional data; favorable safety profile observed with no serious adverse events; FDA alignment achieved for affinity Duchenne program, BLA expected in 2026.
• SNDX announced that the FDA approved REVUFORJ, Revumenib, for relapsed or refractory acute leukemia with KMT2A translocation in adults and pediatric patients.

• CMAX filed for Chapter 11 bankruptcy in Texas on Sunday: listed debts of $693M and assets of $390M.
• CVS said it will appoint four new board members after discussions with Glenview Capital Management, which has been pushing for changes at the company to help improve its operations. The four appointments include Glenview CEO Larry Robbins and will bring the total size of the board to 16 (also upgraded to OW at Wells Fargo).
• HIMS shares jumped after the company added former FDA official Deb Autor to its board.
• HSIC shares advanced after Reuters reported activist investor Ananym Capital pushes for changes at Henry Schein.
• TWST shares jumped after Q4 revs $84.7M topped the $82.2M estimate and reported a smaller-than-expected quarterly loss; guided year revs $367M-$377M vs. est. $371.4M.

• HPE was upgraded from Outperform to Strong Buy at Raymond James and raised tgt to $29 from $23 as expects an in-line quarter on December 6, with risk from the federal vertical coupled with improved growth in FY25. Further, Raja expects the Juniper deal to close on schedule and catalyzes stock multiple expansion.
• RBLX said that it is implementing new safety measures for users under 13, including permanently removing the ability to message others outside games on its platform. However, under-13 users can still message others in-game with parental consent.

• MPWR was upgraded from Hold to Buy w/ $660 PT at Loop Capital as ^40% pullback from the 52-week high, triggered by investors coming to the realization MPWR May not retain 100% PMIC market share with NVDA’s AI GPU systems; and the lumpiness in NVDA’s orders have created an L shaped pattern in MPWR’s 2H FY24 Enterprise Data revenue. Separately, Keybanc said they believes MPWR will lose significant market share on Blackwell with the ramp of GB200/B200, as Hopper PMIC overheating issues have persisted on Blackwell.
• WOLF announces Gregg Lowe terminated as President & CEO and as a Member of the Board and names current Chairman Thomas Werner Appointed Executive Chairman as they search to identify Permanent CEO.