Closing Recap

Tuesday, October 08, 2024

U.S. stocks rallied as technology stocks surged (XK +1.87%), lifting the Nasdaq over 250 points with mega cap tech better to buy all day, while Energy stocks tumbled (XLE -2.63%) amid a sharp pullback in oil prices. Markets volatile the last few days after stocks surged on Friday to close out last week with gains following good jobs data; erased it all yesterday on Hurricane Milton impact, rising Treasury yields/dollar sinking interest rate sensitive names and on surging oil prices amid Middle East tensions…but gained it all back again today as the market resiliency remains remarkable. After the CBOE Volatility jumped over 17% on Monday, the VIX slipped over 5.1% today as markets can’t hold losses for more than 1 day. In fact, the last time the S&P declined back-to-back days was the 4-day losing streak to start September (9/3-9/6). Several Fed speakers again today, mostly dovish talk about expectations of more rate cuts to come in months from most, but one of the more interesting comments was from the Fed’s Bostic who warned that a possible risk is that the economy is too strong and could hamper policy recalibration. Volatility in Asia overnight and Europe failed to dent optimism in the U.S. (Hang Seng fell over 2,000 points or 9%) as investors continue to see rotation as major averages remain not far from record highs. Today, Technology took the reins along with strength in Consumer Discretionary, Financials and Communications. Markets still await key inflation data on Thursday with September CPI and Producer Prices (PPI) on Friday.

Stock markets are keeping a close eye on Hurricane Milton, which as of this writing is about 500 miles southwest of Tampa and is expected to make landfall late Wednesday as a Category 3 storm on Florida’s Gulf Coast. The storm was downgraded from a Cat. 5 overnight to a Cat. 4 on Tuesday morning.  “If the storm stays on the current track, it will be the worst storm to impact the Tampa area in over 100 years,” the National Weather Service in Tampa warned, adding, “Milton continues to pose a potentially catastrophic threat to parts of the west Florida coast.” Milton has strengthened with max sustained winds of 150 mph. It is considered a strong Category 4 hurricane. The impact and storm surge could have devastating consequences for the State, impacting residents, small businesses, corporations.

• The US NFIB small-business optimism was little changed in September. The National Federation of Independent Business optimism index edged up 0.3 point to 91.5 after declining in August by the most in more than two years.

• U.S. WTI crude oil futures settle at $73.57/bbl, tumbling -$3.57 or 4.63% while Brent crude fell -$3.75 or 4.63% to settle at $77.18 per barrel on a bout of profit taking after its recent run. Prices pared some losses in volume spike midday after reports of Israel considering attack on Iranian energy facilities but ending weaker on day.
• The EIA said it expects U.S. oil demand to rise to 20.5M barrels per day (bpd) next year, down from its previous forecast of 20.6M bpd. U.S. demand forecast for 2024 was unchanged at 20.3M bpd, according to the EIA report. World oil demand is expected to grow to 104.3M bpd next year, about 300,000 bpd below prior forecasts, EIA said. It expects demand to be about 103.1M bpd this year, a 20,000-bpd reduction on prior forecasts.
• Treasury yields were slightly higher, adding to recent gains this afternoon after the U.S. Treasury auctioned $58B in 3-year notes at a yield of 3.878% vs. 3.871% when issued prior (prior auction was 3.44%), as the bid-to-cover was 2.45 vs. prior auction at 2.66; Primary dealers took 19.17% of the notes, direct 23.97% and indirect 56.87%.
• The U.S. dollar index (DXY) was little changed on the day, with little movement in the euro and Japanese yen on the day. The Canadian dollar weakened to a seven-week low against the buck as the price of oil fell 4% and investors reassessed the outlook for Federal Reserve interest rate cuts. The Loonie was trading 0.4% lower at 1.3665 to the U.S. dollar.

• In Mattress Retail (TPX, SNBR, PRPL), Keybanc said industry data for Q2 points to ongoing industry challenges, but sequential improvement from Q1. Mattress industry data for Q224 was released this evening by industry association ISPA. In Q224, according to ISPA, dollars increased 2.5%, following the 1.5% decline in Q1. Looking ahead, firm expects to see continued sequential improvements in demand trends, but still see risk to consumer spending for next 2-3 quarters.
• U.S. listed China stocks (retailers/technology) tumbled after China said it’s confident in reaching its economic targets this year and promised to further support growth, although it held back in unleashing more major stimulus in a disappointment to investors (shares of FIX, KWEB, BIDU, PDD, JD, BILI, MLCO, NTES, NIO, LI, XPEV as well as US stocks that have a large presence in China and advanced recently on stimulus like EL, NKE, YUMC, WYNN fell as well).

• In Autos: Bloomberg reported China is investigating whether to raise tariffs on European large-engine vehicles (MBGYY, VWAGY, BMWYY) and will start collecting levies on brandy, escalating a trade spat after the European Union decided to impose tariffs on Chinese electric vehicles. GM hosted its 2024 investor day. UBER said it will roll out an AI assistant powered by OpenAI’s technology to help drivers transition to electric vehicles, as part of its efforts to lower emissions. UBER has advocated a shift to EVs for several years and has pledged $800 million to support its driver partners’ switching entirely to EVs by 2040

• In HVAC Industry: Jefferies said they anticipate beat and raise quarters from LII, TT and CARR in the sector noting that EPA regulations allow existing refrigerant systems (R410a) to be sold in ’25 as long as they were produced in ’24, raising the potential for pre-build. Firm also notes that a ’24 prebuild would boost 2H24 volumes and EPS for LII, TT and CARR.
• In Multi Industry: HON plans to spin off its Advanced Materials business as it continues to simplify its strategic focus; HON said it is planning a tax-free spinoff of the business as an independent, U.S. publicly traded company, with completion targeted for the end of 2025 or early 2026.
• In Aerospace & Defense: BA managed to deliver a small number of 737 MAX jets after a strike by machinists shut down the Renton, Wash., factory that builds the planes. But deliveries are expected to slow substantially as the walkout stretches into its second month. The jet maker delivered 33 planes last month, including 28 737s. That’s down from 40 jets overall in August and 32 737s.
• In Cement: CX upgraded from SP to Outperform at RBC Capital and PT to $6.50 from $9 saying following a period of share price underperformance, RBC is upgrading its recommendation as believes Cemex looks more attractive from a risk/reward standpoint compared to its May initiation, following credit rating upgrades and SCAC asset divestments.

• WFC was upgraded from Peer Perform to Outperform w/ $65 PT at Wolfe Research saying they downside to consensus across its rate-sensitive coverage, and WFC is no exception as its 2025/2026E EPS is -3% / -9% below the street. However, risk is better reflected in the multiple, with shares trading at 1.0x-turn discount vs Wolfe’s target P/E, the most significant discount in its bank / broker coverage.

• Bitcoin miners remain weak (MARA, RIOT, CLSK, BITF, WULF, CORZ) as The Block noted Bitcoin miner revenues continue to decline in September as network hash rate rises. Bitcoin network’s hash rate increased monthly over Q2, reaching 643 exahashes per second (EH/s) in September, a 2% rise from August, according to a report from JPMorgan. Meanwhile, miners saw their earnings per EH/s drop by 6% month-over-month to an average of $42,100.

• Insurance stocks rebounded after tumbling on Monday amid fears of Hurricane Milton impact on Florida, as the storm surge is expected to hit on Wednesday; shares of P&C names were under fire on Monday ALL, CB, PGR, TRV, as well as Florida focused insurers such as HRTG, UVE, HCI and reinsurers like EG, ACGL, RNR.
• In Consumer Lending: OMF was downgraded to Equal Weight from Overweight at Barclays and reiterated its underweight on BFH in consumer lending, while upgraded UWMC to Equal Weight from UW but remain UW rated on RKT in mortgage lending. Barclays said thinks positive DQ trends in 2H (E.G., decelerating second derivative) should continue for the prime card issuers. The firm said it maintains its preference for balanced business models (PFSI), however recognize the outlook is incrementally more positive.

• SAVA said it made decision to enter settlement with U.S. SEC and pay $40M penalty; SEC had charged SAVA and its two former executives for misleading claims about results from clinical trials of Alzheimer’s drug.
• SIGA said it would supply its therapy for mpox in Morocco as part of a contract in response to a request from the country’s health ministry for protection against any potential outbreak of the disease.
• In Life Sciences: WAT was upgraded to Buy from Hold at Jefferies with $415 PT saying following recent channel checks, they have increased conviction that the LCMS replacement cycle is now underway. Says Agilent (A) will also benefit, but prefers WAT due to mix (China generics, India), emerging growth drivers (GLPs, PFAS) and focus no NASD or DGG).

• DOCU shares rose after S&P Dow Jones Indices said that the company will join the S&P Midcap 400 Index before trading opens Oct. 11, replacing MDU and MDU Resources Group will replace CHUY in the S&P SmallCap 600.
• In Networking Equipment picks, Citigroup said ANET, CIEN top picks; raises ests/PT to $460 for ANET and raises its CY24 growth outlook for Big Four cloud data center CAPEX from 40% to 50% Y/Y, based on the strength of 1H data center spends, and positive company commentary and guidance.
• In Video Gaming: RBLX shares fell after short-seller Hindenburg Research was cautious noting the co has reported net losses every quarter since becoming a public company, with last twelve months (LTM) losses totaling $1.07 billion. Its stock trades at 8.6x sales, a 57% premium to gaming peers. Hindenburg also noted their research indicates that Roblox is lying to investors, regulators, and advertisers about the number of “people” on its platform, inflating the key metric by 25-42%+ https://hindenburgresearch.com/roblox/

• QCOM and SYNA were both downgraded to Sector Weight from Overweight at Keybanc and made several estimate and price target changes as their quarterly supply chain findings were mixed. In analog, most end markets are weak; however, Keybanc said it is seeing indications auto is getting closer to a bottom. Traditional server and AI strength is sustained, with Blackwell on track to launch in Q4 without further delays. Finally, feedback on the iPhone 16 launch appears to be better than feared, but not great either. Said key findings are most positive for NVDA, AMD; mixed for AVGO; and negative for MPWR, MU, MRVL, and INTC.
• SIMO provided prelim Q3 guidance saying sequential revenue growth is expected to be above the midpoint of its original guidance range of $205M to $216M, which the company issued on August 2, 2024. Gross margin (non-GAAP) is expected to be in the upper half of the company’s original 46.0% to 47.0% guidance range.
• SMCI shares gave back some of yesterday rally. Investors Business Daily noted when HPE hosts an investor event Thursday showcasing its artificial intelligence prowess, Bank of America expects its "liquid cooling" technology for AI servers in data centers to be highlighted. Article noted Meanwhile, Super Micro Computer (SMCI) is among companies that are making liquid-cooled AI data center systems running the latest Nvidia chips.
• In Semicap/Storage preview: TD Cowen said they are increasing CY24 WFE estimate from $94B to $98B in 2024 & slightly reducing their 2025 forecast from $110B to $108B. They expect NAND WFE to grow ~50% to $13B next year, though see this to be C2H25 weighted as field work indicates continued spending discipline by suppliers. They expect DRAM WFE to reach a record of $23B (+15% Y/Y) driven by HBM & server DDR5.
• Aug’24 Semiconductor Industry Association (SIA) posted its 9^th straight month of double-digit semis growth YoY. August total semis sales +28% YoY, ex-memory sales +8% YoY, memory sales +148% YoY, with MoM total/ex-mem sales +15%/+4% YoY. Total semis units/ASPs +3%/+24% YoY, ex-memory units/ASPs +6%/+2% YoY, memory units/ASPs +9%/+108% YoY. Total semis units/ASPs +1%/+13% YTD, ex-memory units/ASPs -4%/+7% YTD, memory units/ASPs +9%/+73% YTD