Market Review: October 07, 2024

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Closing Recap

Monday, October 07, 2024

Index

Up/Down

%

Last

DJ Industrials

-398.51

0.94%

41,954

S&P 500

-55.13

0.96%

5,695

Nasdaq

-213.95

1.18%

17,923

Russell 2000

-19.70

0.89%

2,193

 

 

 

 

 

 

 

 

 

U.S. stocks slipped during a lackluster/quiet trading day as major averages pulled back following Friday’s gains, extending losses late day as technical levels broke down but S&P (SPX) still holding around the 5,700 level. The jobs number Friday boosted market sentiment/lessened fears of a recession for the U.S. economy, but it also reduced chances of aggressive rate cuts by the Fed into the final two meetings of the year (Nov rate cut probability now 85% for 25bps cut and 0% chance for a 50bps cut), lifting the US dollar and Treasury yields to best levels since early August.  That bounce in yields/the dollar weighed on sectors that had been benefitting from lower rate expectations including Smallcaps, Homebuilders, Solar, and dividend paying sectors (while oil prices are jumping, raising inflation fears). However, broader sentiment on Wall Street remains positive after Goldman Sachs made their third upgrade to S&P 500 forecasts this year. They now expect the S&P 500 to reach 6,000 in three months’ time, versus 5,600 previously, and 6,300 in 12 months’ time, versus 6,000 previously.

 

The early part of the week has been a waiting game recently, and it appears to be the case again this week with the start of earnings season coming on Friday as well as key inflation reports on Thursday (CPI) and Friday (PPI). U.S. market also watching Hurricane Milton which reached Category 5 status earlier this morning according to the NHC as it is expected to reach FL coast as a major Hurricane by Wednesday (at least Cat 3). Several sectors including restaurants, retailers, boating stocks, insurance companies were among some of the weakest names today on Hurricane impact fears (while shares of GNRC soared on the day). This comes as parts of North Carolina, Georgia, and Tennessee are still feeling the impact of Hurricane Helene over a week ago. In Asia, Chinese markets reopen tomorrow after its week-long Golden Week holiday. One of the few upside standouts in a “sea of red” in tech was NVDA, rising as much as 4% above $130 in semiconductors before paring gains, while other large cap tech saw weakness (AAPL, AMZN, GOOGL, MSFT, NFLX, TSLA).

 

Commodities, Currencies & Treasuries

  • After surging between 8%-10 last week, both WTI crude and Brent oil prices jumped again today, as Brent topped $80 per barrel for the first time since August (rose $2.88 or 3.69%) and WTI crude gained $2.76 or 3.71% to settle at $77.14 per barrel, amid the increased Middle East conflict Israel/Lebanon/Iran. Last week, Brent rose more than 8% and WTI advanced by more than 9% week-on-week, the most in more than a year. Rockets fired by Iran-backed Hezbollah hit Israel’s third-largest city, Haifa, early on Monday. A surface-to-surface missile from Yemen at central Israel on Monday was intercepted, the Israeli military said. Israel, meanwhile, looked poised to expand ground incursions into southern Lebanon on the first anniversary of the Gaza war that has spread conflict across the Middle East.
  • December gold prices slipped -$1.80 to settle at $2,666.00 (off earlier highs $2,679.20 an ounce); Bitcoin prices topped $64,000 before paring gains; the U.S. dollar index (DXY) slipped after surging last week and Treasury yields saw broad gains, with the 10-yr topping 4% for the first time since early August and the 2-yr also around 4% as investors readjusted their views for the path of interest rates from the Federal Reserve after last weeks job report.

 

Macro

Up/Down

Last

WTI Crude

2.76

77.14

Brent

2.88

80.93

Gold

-1.800

2,666.00

EUR/USD

0.0008

1.0984

JPY/USD

-0.78

147.93

10-Year Note

0.037

4.018%

 

Sector News Breakdown

Consumer Retail

  • In Online Retail: AMZN was downgraded to Equal Weight from Overweight at Wells Fargo (ahead of Prime Day this week) and cut tgt to $183 from $225 saying Amazon’s positive estimate revision story faces multiple headwinds. Web Services strength alone is not enough and there is limited visibility into a resumption of positive estimate revisions until the July 2025 guidance.
  • In Footwear/Apparel Retail: DECK was downgraded from Buy to Neutral at Seaport Global as less HOKA and UGG momentum suggests less upside potential. For Q225, DECK didn’t provide guidance, but it should be known that this is an especially tough comparison. CURV shares tumbled as much as -30% after Chief Creative Officer Elizabeth Munoz-Guzman was terminated, as per 8K filing earlier.
  • In Sporting Goods Retail: VSTO, which split itself into ammunitions and outdoor goods businesses, agreed to sell both divisions for a total of about $3.4 billion. Vista will sell its outdoor goods unit Revelyst to Strategic Value Partners in an all-cash transaction at an enterprise value of about $1.13 billion

Consumer Staples & Restaurants:

  • In Beauty Sector: COTY was upgraded to Buy from Hold at Jefferies with a price target of $12, up from $11 saying with the shares down 28% YTD, sees a "unique opportunity" to buy a beauty company at less than 10-times EBITDA and says premium fragrance remains the best performing category in beauty and that Coty is less exposed to China.
  • In Beverages: STZ was downgraded to Neutral from Buy at Bank America and cut tgt to $255 from $300 saying reflecting on tepid beer volume growth, they pause to consider that slower growth reflects more than just the macroeconomic environment; luxury wine company NAPA shares surged after agreeing to be acquired by private-equity firm Butterfly Equity in an all-cash deal valued at about $1.95 billion as Duckhorn shareholders will receive $11.10 a share in cash and following the completion of the transaction it will become a privately held company. PEP earnings tomorrow morning.
  • In Food Sector: HSY downgraded at both UBS and Bernstein to Hold equivalent ratings. UBS said downgrade to neutral primary driver centers on a view that Street estimates for 2025 look particularly optimistic given continued input cost pressures (namely cocoa) coupled with a demand backdrop that remains uncertain/challenging. Bernstein cut HSY to MP from OP as believes a volume recovery may be more sluggish than previously expected due to weigh loss drug headwinds. Bernstein also upgraded CPB to Outperform from Market Perform as believes the soup and broth categories could benefit from higher weight loss drug usage.

Homebuilders, Building Products, Home Furnishing:

  • Homebuilder LEN downgraded to EW from OW and KBH to underweight from EW at Wells Fargo. For KBH, said sees better value elsewhere in homebuilding and believes KBH could lag its builder peers in the next phase of the cycle while for LEN, said it is favorably positioned in homebuilding, but its near-term setup is complicated by a few idiosyncratic dynamics that can no longer be ignored. Wells also upgraded MHK to Equal Weight from UW in flooring.

Autos, Leisure, Gaming & Lodging:

  • In Casinos & Gaming: WYNN, LVS, MGM, MLCO shares rose initially on better-than-expected Macau gross gaming revenue for the Golden Week Holiday, which began Oct. 1. In addition, Wynn received a commercial gaming operator’s license in the United Arab Emirates.
  • In Autos: AAP maintain cautious view at Mizuho following departure of 2 key execs. In Mizuho’s view, such changes signal that the company’s turnaround efforts remain in the very early stages of what could be a 3–5-year process. LCID said it produced 1,805 vehicles, delivered 2,781 vehicles in Q3. In used cars, the Manheim Used Vehicle Value Index (MUVVI) fell to 203.0, a decline of 5.3% from a year ago, while the non-adjusted price in September decreased by 0.1% compared to August (shares of KMX, CVNA tend to move on data).

Banks, Brokers, Asset Managers:

  • In Banks: CMA was downgraded to Underperform from Neutral at Bank America and cut tgt to $52 from $55 as believes the positive rate trade underpinning Comerica has run its course with shares now trading above the high-end of their historical trading range. WAL was upgraded to Buy from Hold with $101 PT at Deutsche Bank ahead of earnings in regional banks saying both CMA and WAL have high expectations into the qtr, WBS as having medium expectations and NYCB and ZION as having low expectations.
  • In Consumer Spending/Finance: JP Morgan with several changes as they downgraded AXP to Neutral from Overweight while upgraded ALLY to Overweight from Neutral. JPMC’s upgrade of ALLY reflects the opportunity created when sentiment swings so rapidly while saying its downgrade of AXP represents the asymmetric risk associated with a stock trading near the high-end of its valuation range with limited upside to estimates.
  • In Insurance: insurance weak, led by reinsurers such as EG ahead of Hurricane Milton impact; Florida-focused insurers slump in early trading as Milton intensifies into a category 4 hurricane with big declines in the likes of HRTG, UVE, HCI as Florida prepared for its largest evacuation since 2017’s Hurricane Irma. Insurers have been liable for billions of dollars in claims due to weather-related disasters in recent years. TRV, CB, ALL also pressured ahead of Milton impact.
  • Asset manager OWL said it would buy digital infrastructure fund manager IPI Partners for about $1 billion, as it looks to expand into the growing data center market.

Biotech & Pharma:

  • GILD was upgraded to Overweight from Equal Weight at Wells Fargo and raised tgt to $100 from $78
  • HIMS will replace VGR in the S&P SmallCap 600 effective prior to the opening of trading on Wednesday, October 9. JT Group is acquiring Vector Group in a deal expected to close soon pending final conditions.
  • HUM was downgraded at both TD Cowen and Jefferies to Hold from Buy after MA Star ratings last week.
  • IART upgraded from Sell to Neutral at BTIG saying it’s not a fundamental change in its view of the company at this point but with shares below ~7x NTM P/E, a level it did not think would be possible, valuation has simply become so inexpensive it’s difficult to see significant downside from here.
  • NTLA announces initiation of Haelo phase 3 study of ntla-2002, an investigational in vivo Crispr gene editing treatment for hereditary angioedema (HAE).
  • PFE shares edged higher after activist investor Starboard Value has taken a roughly $1 billion stake in the drug maker and wants the struggling drugmaker to make changes to turn its performance around, according to people familiar with the matter. Pfizer had a market value of about $162 billion as of Friday, the WSJ reported.
  • SRRK shares surged over 200% after reports Apitegromab meets primary endpoint in Phase 3 SAPPHIRE study in patients with Spinal Muscular Atrophy (BHVN rises after rival SRRK genetic disease drug meets main goal in late-stage trial). SRRK can now submit its application for regulatory approval in the first quarter of next year.

Aerospace & Defense

  • AER leased, purchased and sold 226 assets in the third quarter 2024 and signed financing transactions for approximately $10.5B; AerCap holdings NV – repurchased 5.5M shares at $91.03 per share.
  • Barnes (B) agreed to be acquired by private-equity firm APO in an all-cash transaction that values it at about $3.6 billion, with holders to receive $47.50 per share in cash, a 4.9% premium to the stock’s last close Reuters last week reported that Apollo was in talks to buy Barnes, citing people familiar with the matter.
  • RKLB said it had been selected by NASA to complete a study for retrieving rock samples from Mars and bringing them to Earth for the first time (financial details of the contract were not disclosed).
  • Price target changes into Q3 earnings in commercial aerospace at TDCowen: CRS $175 (Prior $125), GE $200 (Prior $180), HEI $270 (Prior $230), HEI $230 (Prior $195), HWM $110 (Prior $85), LHX $250 (Prior $230), MOG $219 (Prior $208) and TDG $1,500 (Prior $1,400). TD Cowen said they favor large cap aero aftermarket plays & a few SMid aero OE stocks into the Q3 prints.

Industrials, Materials, Metals & Mining

  • In Lithium sector: ALTM shares jumped after weekend reports RIO expressed interest in acquiring the U.S. lithium producer, the two companies confirmed in separate statements on Monday. No financial specifics were disclosed. Rio Tinto said that there is no certainty that any transaction will be agreed to. https://tinyurl.com/4ew7r2na  
  • In Chemicals: APD shares jumped as Activist investor Mantle Ridge has built a more than $1B stake in Air Products and plans to push for improvements at the industrial gas manufacturer, according to people familiar with the matter. https://tinyurl.com/5n7dh8wz (shares upgraded to Outperform at Evercore/ISI on news). DD was downgraded to Underweight at Barclays after recent bullishness has lifted shares to multi-year highs, and thinks the next few quarters offer more uncertainty and limited buyback support against full valuation, driving underperformance. Keybanc downgraded both SHW and CE to Sector Weight from Overweight in chemicals Q3 preview saying outlook mostly includes flat-to-down revisions, reflecting generally stagnant demand trends, and deceleration in the automotive end market – and expects an uninspiring 2H24 from an earnings perspective.
  • In Industrial components: AME was downgraded to Sell from Hold at TD Cowen; GNRC was upgraded to Positive from Mixed view at OTR Global citing channel checks showing that U.S. residential standby generator dollar sales increased year-over-year in Q3 and that the 2024 outlook is for continued growth. Also, shares of GNRC, PWR, MTZ, HD, LOW remain active as Hurricane Milton is expected to intensify rapidly and impact the west coast of Florida as a major hurricane (currently projected landfall Wednesday near Tampa).

Internet, Media & Telecom

  • In Media: NFLX was downgraded to Underweight at Barclays saying its premium valuation is predicated on revenue growth being at least in LDDs for some time which the firm thinks will get more difficult and growth algorithm will come with tradeoffs. Separately, NFLX was upgraded to Overweight at Piper into earnings saying the company is a clear leader in streaming and said there are still levers to be pulled in the ads-free business.
  • In Internet/Retail: BABA was upgraded to Outperform from Neutral at Macquarie PT $145 up from $79.70 and upgraded PDD to Outperform from Neutral at Macquarie with PT $224, up from $126. GOOGL shares dipped late day after a U.S. judge ordered Alphabet’s Google to overhaul its mobile app business to give Android users more options to download apps and to pay for transactions within them, following a jury verdict last year for “Fortnite” maker Epic Games.

Hardware & Software movers:

  • In Hardware: AAPL was assumed coverage at Hold (down from Buy) at Jefferies saying they are constructive on the co’s LT capabilities in a consumer AI offering but believes that a lack of material new features and limited AI integration mean high market expectations for iPhone 16 sales (5%-10% unit growth) are unlikely to be met.
  • In Optical/Networking: CIEN was downgraded to Neutral on valuation at JP Morgan noting shares of Ciena have increased +49% YTD vs S&P 500 increasing +21%, as believes the EPS upside is more limited relative to the upside embedded in the shares at 27x NTM P/E. GRMN was downgraded to Underweight from Equal Weight at Morgan Stanley and cut tgt to $138 from $155 noting that shares are trading near all-time highs while the company’s revenue and gross profit set to decelerate nine points in 2025.
  • In Electrical Equipment/Components: VRT as initiated at Buy and $125 PT at Jefferies noting Vertiv has a leading share in the liquid cooling market, and JEFF is bullish on its leverage to growing data center/processing power demand.
  • In Software: Barclays upgraded shares of ESTC, DT, and BASE to Overweight and downgraded CXM to Underweight saying they continue to see an uneven performance for its software names, due to the combination of macro remaining mixed, and uncertainty on how GenAI will impact the space. However, this does not mean that there are no new opportunities. In the vertical SaaS sector, Barclays upgraded TYL to Overweight and downgraded INTA to EW while saying they like the set-ups on CHKP, CYBR, VRNS, and would watch VM names TENB and RPD.

Semiconductors:

  • MBLY downgraded to Underweight from Neutral at JP Morgan saying they expect the lower confidence in the volume ramp associated with SuperVision following replacement by an in-house solution at Zeekr as well as still limited ramp with Western OEMs to lead investor perception of Mobileye to move to an auto supplier with leverage to higher growth ADAS market, albeit closer to maturity in relation to both ADAS penetration as well as penetration of Mobileye.
  • NXPI upgraded to Buy from Neutral at UBS and raise PT to $285 from $275 noting NXP has outperformed the analog sub-sector YTD, up 6% vs peers down 7% on average, but despite this the shares have de-rated during that same period, trading at a c40% discount to peers vs c30% at the start of the year and c15% 10-year historical average, likely driven by concerns around weakness in Auto, with NXP the most exposed of the group at 56% of revenues.
  • SMCI shares jumped after saying it had recently deployed more than 100,000 GPUs with liquid cooling solution (DLC) for some of the largest AI factories ever built; also unveils new suite of direct liquid cooling products for servers, including cooling towers and management software.
  • Goldman reduced forward estimates for the Analog, MCU and Power semiconductor suppliers in our coverage universe including ADI, MCHP, NXPI, ON and TXN as they reflect renewed weakness across the Automotive and, to a lesser extent, Industrial and Consumer end-markets.

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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