Closing Recap

Wednesday, November 20, 2024

U.S. stocks rallied in the final 30-minutes of trading Wednesday erasing earlier weakness after a combination of increased geopolitical tensions between Russia and the West along with weak earnings/guidance from retailing giant Target (TGT) weighed on sentiment, while investors eyed upcoming earnings from AI chip powerhouse Nvidia (NVDA), and Bitcoin hit a new record high. Safe-haven assets such as gold and government bonds got a lift after news of Ukraine launching U.S.-made ATACMS missiles into Russia, and with Russia announcing it had lowered the threshold for nuclear action. Bonds later reversed as yields edged higher following a terrible bond auction. All three main indexes finished lower, driven by consumer discretionary, technology and communication services stocks, while Energy and Healthcare stocks rebounded. The CBOE Volatility index (VIX) was up more than 10% most of the day above the 18.00 level as the stakes are high heading into NVDA earnings which carry lofty expectations. The options market implies a move of almost 9% in either direction in the $3.6 trillion stock. Not a ton of earnings left this quarter, but some biggies after the bell along with NVDA include PANW and SNOW in software then tomorrow morning DE in industrials.

Federal Reserve Governor Michelle Bowman earlier today expressed caution with the U.S. central bank cutting interest rates while inflation continues to run above the Fed’s 2% goal, adding a bit more color to her call for a cautious approach to further rate reductions. “It’s concerning to me that we’re recalibrating policy, but we haven’t yet achieved our inflation goal,” Bowman said at an event in Florida. Asked about the effect of changes to immigration policy on inflation and low-wage labor, Bowman urged a patient and cautious approach.

Macro/Geopolitical concerns remain. Overnight, Reuters reported that Russian President Putin is willing to discuss a ceasefire in Ukraine with President-elect Trump, although Russia rejects major territorial concessions and insists that Ukraine abandon plans to join NATO. However new reports arose this morning that Ukraine’s armed forces fired British cruise missiles at military targets inside Russia for the first time. The strikes using Storm Shadow missiles were approved in response to Russia deploying North Korean troops in its war against Ukraine, Bloomberg reported.

Stat of the day: @charliebilello noted “Including dividends, the S&P 500 is currently up over 25% in 2024. That sounds abnormally high but is actually much more common than you might think. The S&P 500 has finished with a total return above 25% in 26 out of 96 years since 1928. That is 27% of the time. How many times did the S&P 500 end the year down 25% or more? Only 5 (5% of all years).”

• Gold prices climbed for a third consecutive session to mark a one-week high as December gold rose $20.70 or 0.78% to settle at $2,651.70 an ounce, as investors looked to safe-haven instruments amid mounting geopolitical unease fueled by escalating Russia-Ukraine tensions. Oil prices reversed earlier gains as WTI crude fell -$0.52 or 0.75% to settle at $68.87 per barrel and Brent fell -$0.50 to $72.81 per barrel. Nymex front month settles up 6.5% at $3.193/mmBtu as natural gas futures rise for a fourth straight session as the market braces for a turn in the weather and the start of the storage withdrawal season.
• Bonds fell/yields rise after soft auction. Treasury yields were in a tight trading range, getting a little bump around 1:00 after the U.S. sold $16B 20-year bond at high yield 4.680% (above when issued prior of 4.65% -3point tail 2^nd largest in auction history), with a weak bid-to-cover ratio 2.34, as primary dealers take 22.61% of U.S. 20-year bond sale, direct 7.92% (lowest on record) and indirect 69.47%.

• In Off price Retail: TJX Q3 EPS $1.14, topped consensus $1.10 and revs $14.06B topped consensus $13.95B. Total inventories as of November were $8.4B, compared to $8.3B at the end of the third quarter of FY24. Consolidated comparable store sales increased 3% in Q3, but guided Q4 EPS $1.12-$1.14, below consensus $1.18.
• Specialty Retail: CHWY was double upgraded from Underperform to Buy at Bank America and raised tgt to $40 from $24 saying shelters are still taking in more pets on a net basis and YoY pet spend is negative, per BAC aggregated credit & debit card data. However, adoption trends have steadily improved since the start of ’24 & pet spend appears to have bottomed out.
• In Consumer Products/Foods: LWAY said its Board of Directors has rejected the revised unsolicited proposal made on November 15 by Danone North America PBC (DANOY) to acquire all the shares of Lifeway that it does not already own for $27.00 per share. In beauty, ELF shares tumbled late morning following a “short” report from Muddy Waters.
• In Restaurants: Thompson Street Capital Partners, the PE owner of Freddy’s Frozen Custard & Steakburgers is exploring a sale of the fast-casual restaurant chain that could value it at more than $1B, including debt Reuters reported. The news comes a few days after Blackstone $BX struck a deal to buy sandwich chain Jersey Mike’s for about $8B, including debt. Sycamore Partners acquired Playa Bowls in September.

• In Building Products: AZEK reported Q4 earnings beat and above-consensus guidance as Q4 sell-through was up high-single-digits, and the comments on the call on demand and channel inventories were constructive; guides FY25 revenue $1.51B-$1.54B vs. consensus $1.53B and sees FY25 adjusted EBITDA $400M-$415M vs. est. $411.1M.
• In Home Furnishings: WSM shares jumped as Q3 adj EPS $1.96, topped est. $1.76, announced a new stock buyback authorization of $1B and raised FY24 guidance to reflect higher net revenue trends and higher operating margin expectations; narrows FY24 revenue view to down 1.5%-3% from down 1.5%-4%. LZB Q2 results came in above expectations at the EBIT line, primarily driven by higher-than-expected sales (strong Labor Day period) and delivered improved y/y conversion rates, average ticket, and design sales.

• In Casino/Gaming: GLPI was upgraded from Hold to Buy at Deutsche Bank and raised tgt to $54 PT saying coupled with the dividend yield, offers a compelling mid to high teens return, with what it believes to be limited downside risk. In short, DBAB believes the choppy domestic gaming environment lends to investors seeking exposure through more risk averse avenues, within which it believes GLPI firmly falls.

• In MLPs/Pipelines: DTM said that it has reached an agreement to acquire a portfolio of three FERC-regulated natural gas transmission pipelines from OKE for $1.2B. The pipelines have a total capacity of more than 3.7 Bcf/d with approximately 1,300 miles across seven states in the attractive Midwest market region.
• In Industrials (URI, ETN, WCC): October US Architecture Billings Index (ABI) rises to 50.3 vs 45.7 in September: Opco notes With the exception of also registering a 50.3 in January 2023, this is the first month the ABI has exceeded 50 in the past two years. From February 2021-September 2022, the ABI had been above 50 for 20 consecutive months. That period followed a significant lull during the majority of pandemic-impacted 2020.
• In Solar: SEDG was upgraded from Sell to Neutral at Guggenheim saying the decline in SEDG’s stock price has brought the stock close to GUGG’s previous target of $10. Although GUGG is making some additional revisions to its model, at this point it regards the stock as fairly valued at approximately ten times its 2026 EBITDA estimate.
• In Aerospace & Defense: AVAV was upgraded to Buy from Hold at Jefferies as likes the acquisition of BlueHalo as it rounds out AVAV’s portfolio, diversifying the business across attractive defense technology. The WSJ reported late afternoon that BA CEO Kelly Ortberg told employees the once mighty manufacturer has serious culture problems and can’t afford another mistake.
• In Transports: ZIM boosted its adjusted Ebitda guidance for the full year and beat third-quarter expectations; DAL said it expects 2025 revenue to grow by mid-single-digit pct as it strengthens its bet on premium travel, is targeting profit per share to increase 10% in next 3 to 5 years and forecasts 2025 capacity growth 3%-4%. In rails (CSX, NSC, UNP), The Association of American Railroads reported U.S. rail traffic for the week ending November 16, 2024 was 516,886 carloads and intermodal units, up 3.2% compared with the same week last year. Total carloads for the week ending November 16 were 223,659 carloads, down 5.6% compared with the same week in 2023, while U.S. weekly intermodal volume was 293,227 containers and trailers, up 11.1% compared to 2023.
• In Paper & Packaging: PKG announced to customers that it is raising linerboard prices by $70/ton as of Jan 1, 2025 and semi-chem medium prices by $90/ton. This is in keeping with the strength the company has seen on the demand side, and persistently high (though no longer rising) costs. Now the big question will be if the others, especially those with more third-party sales (including IP and SW), make similar moves.

• In Insurance: LMND was upgraded to EW from UW at Morgan Stanley after Investor Day takeaway, where mgmt laid out an ambitious plan to accelerate growth, with ten times the business from $1B in premiums to $10B over the next several years. Further, the company is aiming to achieve GAAP net profit exiting 2027.
• In credit cards: Visa (V) and MA remains weak; MA down 6 of last 7 trading days as Senators warn Visa, Mastercard credit card practices can’t last. Senator Durbin said Visa and Mastercard control 83% of credit cards used by consumers and commonly charge between 1% and 3% in interchange fees – By comparison, retailers in Europe pay 0.3% for swipe fees, which is up to 10 times less than what Visa and Mastercard charge retailers in the U.S.
• In Crypto: Bitcoin touched new all-time highs boosting shares of COIN as well as Bitcoin miners and others; MSTR sold a larger-than-expected $2.6 billion of bonds that converts into stock, giving the cryptocurrency-buying software company more cash to purchase bitcoins. The convertible bond offering increased in size by almost 50%, from a previous $1.75 billion, the company said Wednesday, signaling strong investor demand.

• AZN upgraded to Neutral from Sell at UBS following 24% decline in shares over 3 months amid China government investigations and disappointing data on Dato-DXd lung potential.
• AZTA will replace ENV in the S&P SmallCap 600 effective prior to the opening of trading on Monday, November 25.
• HOTH announced it bought up to $1 million in bitcoin as a treasury reserve asset.
• NAMS announced topline data from the Company’s Phase 3 TANDEM clinical trial, meeting all co-primary endpoints, including the obicetrapib-ezetimibe fixed dose combination achieving an LS mean reduction of 48.6% (p < 0.0001) compared to placebo at day 84 (shares fell).
• PFE named company veteran Chris Boshoff, who led the drugmaker’s cancer research and marketing for more than a year, as its R&D chief, WSJ reported. Boshoff will take on the role as chief scientific officer starting Jan. 1
• SAGE said the FDA cleared its application to start human trial for ST-503; SGMO plans to initiate enrollment of patients in the early-to-mid stage study for ST-503 in mid-2025.
• VKTX presented results from a mid-stage trial of its experimental liver disease drug, VK2809, at a medical conference. The detailed data shows patients treated with the drug had a 44% to 57% improvement in fibrosis or scarring of liver tissue vs 34% for placebo.

• In Medical Equipment: QDEL shares slipped after Carlyle Group (CG) sells the remaining 12% stake as announced pricing ~8.26M share secondary offering by the private equity firm (8.26M share Spot Secondary was priced at $35.60). INSP shares upgraded to Buy from Neutral at Bank America and raised its PT to $255 from $220 saying the key change in thesis has turned the corner on profitability and margin upside seems durable.
• In Contract Research Organizations (CRO) Sector: Deutsche Bank said they recommend that investors take advantage of the recent dislocation, notably in ICLR, IQV, TECH, TMO, DHR post-election results. The firm said President Elect Trump’s nomination for Robert F. Kennedy Jr to head the Health and Human Services (HHS) department has exacerbated pressure on healthcare stocks. CROs and Tools have been the most dislocated stocks over the last several weeks. DBAB’s coverage is trading (13%) below the group’s 5-year average forward P/E multiple, and all are in oversold territory (RSI < 30).

• In Media: CMCSA announced its plans to create a new publicly traded company comprised of a portfolio of NBCUniversal’s cable TV networks, including USA Network, CNBC, and MSNBC. SpinCo’s CEO will be Mark Lazarus, current Chairperson of NBCUniversal Media Group while Anand Kini, now NBCUniversal’s CFO, will be SpinCo’s finance chief and chief operating officer. ROKU shares fell after TTD announced Ventura, an innovative new streaming TV operating system (OS). The Trade Desk will partner with smart TV original equipment manufacturers (OEMs) and other streaming TV aggregators to deploy Ventura. NFLX hit new record highs again.
• In Internet: WIX rises as Q3 EPS $1.62 tops est. $1.51; Q3 revs $444.67M vs. est. $457.9M; raises FY24 revenue view to $1.757B-$1.764B from $1.747B-$1.761B, also boosts full year bookings outlook to $1.822B-$1.832B, or 14-15% y/y growth, compared to previous guidance of $1.802B-$1.822B or 13-14% y/y growth. GLBE shares jumped on earnings and guidance (Q3 revs +32% y/y to $176M vs. est. $169.5M).
• Comm & Equipment: KEYS shares rose after Q4 results beat on the top and bottom lines and is set to return to top-line growth in FQ125, after five consecutive quarters of declines and -9% YoY growth in F2024. FLEX will replace AZTA in the S&P MidCap 400, effective prior to the opening of trading on Monday, November 25. FN was downgraded from Neutral to Sell at B Riley saying they believe the trend of unbundling Nvidia’s (NVDA) GPU platforms will adversely impact FN’s optics business.