Closing Recap

Thursday, November 21, 2024

US equity futures had a bit of overnight fade before recovering back to gains into the open. All eyes were on NVDA earnings after the close last night and most investors expected that event to guide the market today. NVDA did not disappoint, mostly. The quarter was a beat, but the revenue guidance fell a bit short of some expectations. In the end, it was good enough and almost more of a non-event so there was much rejoicing, or at least a sigh of relief, and the market could enjoy one less bit of uncertainty. Maybe it wouldn’t be a big up-day catalyst, but at least it wasn’t a big down-day catalyst. But it didn’t last long, and futures retreated to negative territory within the first ten minutes of trading in what looked to be a volatile day. On the sentiment front, the AAII bull-bear spread dipped from 21.5 last week to just 8.1 this week with bulls slipping from 49.8% to 41.3% and bears gaining from 28.3% to 33.2%. Meanwhile, the Fear and Greed Index was 55/100 (Neutral) versus 58 (Greed) a week ago and 70 (Greed) last month. By mid-morning, equities were mixed with breadth favoring advancers by 2:1 as Smallcaps outperformed, with IWM (+0.91%) versus SPY (+0.02%) and QQQ (-0.27%). On a sector basis, Industrials (+1.14%), Energy (+0.94%) and Financials (+0.76%) were early outperformers among S&P sector ETFs, while Consumer Discretionary (+0.16%), Health Care (-0.16%) and Communications (-1.08%) paced the underperformers with nine sectors gaining versus only two in the red.

In data of note today, there’s no question the bar for NVDA was high going into earnings and everything has a price, but as @charliebilello notes the revenue performance stands out: Q3 NVDA revenues +94% versus META +19%, AMD +18%, MSFT +16%, GOOGL +15%, NFLX +15% and AMZN +11%. When Satisfaction equals Performance minus Expectations, though, that expectations piece can make it hard to please. On the post-election market bump, @DataTrekMB notes fund investors added $47B in equities in the week following the election. Looking ahead, @DataTrekMB also adds they are positive on US stocks through year-end given US sector correlations to the market overall. On gold, @KobeissiLetter notes global central banks’ gold ownership share has doubled over the past ten years and now stands at 13% of total gold reserves, marking the highest since the 1990’s. Lastly, @RyanDetrick points out that small caps have beaten QQQ over the past year and he expects it to continue.

Heading into the final hour of trading the markets were back near highs despite many of the big tech names holding in the red. NVDA and NFLX were standout gainers on the big tech side. Breadth remained strongly in favor of advancers at about 5:2 as small caps continued to outperform with IWM +1.79% versus SPY +0.73% and QQQ +0.54%. Ten of eleven S&P sector ETFs enjoyed gains led by Financials (XLF, +1.5%), Industrials (XLI, +1.35%) and Utilities (XLU, +1.6%). The sole decliner was Communications (XLC, -0.25%) with GOOGL the big underperformer at -5.1%. On a growth versus value basis, value held the upper hand today. The Russell 1000 Value gained 1.28%, while its Growth counterpart added $0.42% so still winners all around. Smallcaps outperformed and Bitcoin hit new highs of $98,500.

• November Philadelphia Fed factory index with negative -5.5 reading vs. est. +8.0 as the new orders index slipped to 8.9 vs 14.2, prices-received at 14.3 vs 17.9 prior, Fed future index at 56.6 vs 36.7, prices-paid index 26.6 vs 29.7 and the Fed employment index at 8.6 vs -2.2.
• Existing Home Sales for October rose 3.4% y/y to 3.96M unit rate (vs. consensus 3.93M), vs Sept 3.83M (prev 3.84M); Oct inventory of homes for sale 1.37M units, 4.2 months’ worth; the national median home price for existing homes $407,200, +4.0% from Oct 2023.
• Oct Leading Economic Indicators (LEI) fell (-0.4%) vs. consensus (-0.3%).

• WTI crude futures for January gained $1.35/bbl, or +1.96%, to $70.10 on renewed fears the Ukraine/Russia war could continue to escalate after Ukraine fired British Storm Shadow missiles into Russia and Russia retaliated with an intermediate-range ballistic missile today. Though US crude inventories have climbed for three consecutive weeks, concerns on the supply side revolve around potential damage to Russian energy infrastructure, should Ukraine choose to target it specifically. Brent similarly gained $1.42/bbl, or +1.95%, to $74.23.

• In Retail: group looked to rebound after weakness Wednesday on TGT -20% drop on earnings and lower guidance; today warehouse BJ reported Q3 adj EPS $1.18 above est. $0.93 as Q3 revs rose +3.5% y/y to $5.1B vs. est. $5.12B; said Q3 membership fees rose 8.4% y/y to $115.0M and said will make its first membership fee increase in seven years effective Jan. 1, 2025 (also raised low end of year EPW view to $3.90-$4.00 from $3.75-$4.00). In footwear, ONON was upgraded to Strong Buy from Outperform at Raymond James with raised PT of $63.

• In Engineering and Construction (E&C) Sector: President-elect Donald Trump intends to revive the construction of the Keystone XL pipeline on his first day in office—just like President Biden shut it down on his first day in office, Politico reported. The 1,200-mile pipeline, developed by TC Energy, was supposed to carry some 800,000 bpd of Canadian heavy crude to U.S. refineries (names like TRP, MTZ, PWR among names to watch).
• In Aerospace and Defense: Goldman Sachs resumed coverage of the US-listed Aircraft Lessors amid a strong industry backdrop, which we think should continue into 2025. AL resumed coverage at Buy and $65 PT and AER resumed Buy and $119 PT as expect the profitability of the current fleet to improve due to higher lease rates and financing costs that are flattening or even declining slightly amidst positive industry backdrops.
• In Industrials/Machinery: Ag giant DE Q4 EPS $4.55 vs. est. $3.93 and Q4 net income fell -47% y/y to $1.25B while forecasts 2025 net income $5.0B-$5.5B, vs. est. $5.83B and said expects net sales to fall about 10% to 15% across all its machinery segments. In PVC and commercial products, ATKR with mixed results and guidance.

• In Canadian banks: Barclays downgraded TD to Underweight from Equal Weigh, National Bank of Canada (NTIOF) was downgraded to EW from Overweight while upgraded BNS to Equal Weight from UW and upgrade Royal Bank of Canada (RY) to Overweight from EW. Overall Canadian Bank Q424 earnings should see seasonal headwinds, and the impact from lower rates though asset management should help fee revenue.
• In Insurance: ALL October Catastrophe loss $286M; said Hurricane Milton contributes $102M to Allstate catastrophe losses in Oct and Hurricane Helene reserve estimates add $144M to catastrophe losses in Oct. In P&C Sector, Janney downgraded shares of TRV, THG on valuation after strong 22-month returns.
• In Commercial Property (BXP, BMR, COR, FSP): Prices for offices in U.S. central business districts fell another 18.7% in October from a year ago, putting their three-year drop at 50.7%, according to MSCI’s latest RCA commercial property-price index. Nationally, all property prices were down only 1.5% from a year ago.

• KURA shares fell after announcing a collaboration with Japan’s Kyowa Kirin to develop and commercialize blood cancer therapy drug ziftomenib; Kura to get upfront payment of $330 mln and up to $1.2 bln in total milestone payments as part of deal (shares fell as announced partnership vs. takeout).
• NVS raised its midterm sales guidance on revenue growth saying it now expects annual currency-adjusted sales to grow by 6% through 2028, previously guided for at least 5%. It anticipates its 2024-2029 annual sales growth at 5% and expects mid-single digit sales growth after 2029. NVS also announced it is buying gene therapy and neuroscience biotech Kate Therapeutics in a deal worth $1.1 billion in upfront and milestone payments.
• SAGE was upgraded to Sector Perform at RBC Capital noting with yesterday’s announced failure of key pipeline drug dalzanemdor in Huntington’s disease and discontinuation of the program, RBC’s thesis on potential stock downside into and through the data readout has played out.
• ZYME said the FDA has granted accelerated approval for its experimental treatment for biliary tract cancer.

• In Edge Compute Sector: Oppenheimer noted the three edge compute companies (AKAM, FSLY, NET) all reported weak quarters and issued anemic guidance, due to weakness in CDN. Regardless, the firm thinks the Edgio CDN bankruptcy and shutdown of its infrastructure is a positive, as $300M of revenue will mostly transfer to AKAM, FSLY, AWS. At the same time, edge compute is becoming a larger portion of revenues for all three and AI does increase demand for this. A TikTok shutdown remains a risk, but don’t see it happening in 2025.
• In US listed China stocks: PDD shares fell after the Temu owner posted Q3 revenue rise of 44% y/y of 99.35 bln yuan ($13.72B) below ests 102.65 bln yuan and earned an adjusted 18.59 yuan per vs. est. 19.58 yuan; the rev growth of 44% this quarter compared to sales growth of 86% and 131%, respectively, in the second and first quarters this year. Also noted that topline growth further moderated q/q amid intensified competition and ongoing external challenges. BIDU reported a -3% decline in Q3 revs at 33.56 billion yuan ($4.64 billion), which compared with the 33.43-billion-yuan average estimates; net income climbed 14% to 7.63 billion yuan versus a consensus estimate of 4.67 billion yuan.
• In Media: WMG Q4 EPS of $0.08 missed ests of $0.28, though revs of $1.63B topped the $1.59B consensus helped by growth in recorded music category; said EPS decline is on net income falling 69% to $48M; also attributes the fall to restructuring costs, higher interest expense and impact of exchange rates on debt.

• In Cloud Software: SNOW shares surged over 20% after posted Q3 adj EPS $0.20 topping the $0.15 est. on revenue of $942M beating the forecasts of $899M and y/y revs $734M; Q3 product revenue jumped 29% to $900M and guided Q4 product revs $906M-$911M vs. est. $882M; Q3 RPO/cRPO bookings growth accelerated

• Stifel provides Analog, Connectivity and Processors NVDA derivative calls: read-throughs from Nvidia’s Oct Q Results & Jan Q Outlook saying their take: Incrementally positive for MTSI, SMTC and SITM somewhat mixed for MPWR; and a more neutral NT impact but positive LT impact on AI/Data Center networking-oriented companies (ALAB, CRDO, MRVL and to a lesser extent, MXL).