Market Review: October 11, 2024

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Closing Recap

Friday, October 11, 2024

Index

Up/Down

%

Last

DJ Industrials

409.74

0.97%

42,863

S&P 500

34.98

0.61%

5,815

Nasdaq

60.89

0.33%

18,342

Russell 2000

45.99

2.10%

2,234

 

 

 

 

 

 

 

 

 

U.S. stocks closed at/near highs for the 3rd time in last 4-days as upside momentum continues heading into Q4. Wall Street with another solid day, led by Smallcaps as the Russell 2000 rises over 2%, while the S&P advanced for a 5th straight week led by financials after better bank earnings, and tech rallied behind strength in mega cap names, semis and software pushing the Nasdaq higher. Wall Street analysts/strategists has been overly bullish the last few weeks, and markets have been responsive, with the S&P 500 hitting its 45th record high of the year Friday, trading and closing above 5,800 (SPX) while the Dow Jones Industrial Average also made a new all-time high! Investors and global stock markets showing zero fear despite reduced FOMC interest rate cut expectations as the economy continues to show firmer footing (though CPI, PPI inflation this week worth watching going forward with little bounces). Markets hoping for additional China stimulus as the country’s finance minister noted a fiscal stimulus update from Beijing on Saturday. The “AI” trade has come back into play the last few weeks with shares of NVDA, ARM, AVGO, DELL, VRT and other related plays seeing continued strength. Among the day’s top stories, TSLA shares sunk after its long-awaited robotaxi event failed to impress (while UBER, LYFT jumped); JPM, WFC lead banks higher after earnings boost sentiment.  Insurers rebounded late week despite hurricanes. The CBOE Volatility index (VIX) ends down on the day, but up 7% in the week and 23% in October so far. September and October months are usually the volatile months for equities, but thus far the market has been on a tear with SPY making ATH again!

Economic Data

  • September producer prices (PPI) inflation rises to 1.8% Y/Y, above expectations of 1.6% while core PPI inflation (ex: food & energy) rises to 2.8%, above expectations of 2.7% on a Y/Y basis (and above prior month upwardly revised +2.6% from +2.4%). Headline PPI on M/m basis was unchanged vs. est. for +0.1% rise and core PPI M/m rises +0.2%, in-line with expectations.
  • University of Michigan surveys of consumers sentiment prelim Oct 68.9 below consensus 70.8 and vs final Sept 70.1; the current conditions index prelim Oct 62.7 (consensus 64.3) vs final Sept 63.3 and the expectations index prelim Oct 72.9 (consensus 75.0) vs final Sept 74.4.
  • University of Michigan surveys of consumers 1-year inflation outlook prelim Oct 2.9% vs final Sept 2.7%, while the University of Michigan surveys of consumers 5-year inflation outlook prelim Oct 3.0% vs final Sept 3.1%.

Commodities, Currencies & Treasuries

  • U.S. Treasury yields moved higher this week, but steady today as investors digest back-to-back inflation reports (CPI and PPI) that came in a bit higher than expectation. The unchanged reading in the producer price index for final demand last month followed an unrevised 0.2% gain in August, but y/y prices rose. The 10-year yield falls slightly today but gains 9.2 bps this week, to 4.072%, snapping a seven-day winning streak, but completing its first four-week run since April; the 2-year yield rises to 3.940% on week. Note Treasury markets are closed on Monday for Columbus Day.
  • Oil prices dipped on Friday with WTI crude -$0.29 or 0.38% to $75.56 pr barrel but closed with weekly gains for both WTI and Brent as investors weighed supply disruption concerns in the Middle East against Hurricane Milton’s impact on fuel demand in Florida. Crude spiked earlier this month after Iran launched more than 180 missiles against Israel on Oct. 1, raising the prospect of retaliation against Iranian oil facilities (Israel has yet to respond).  Natural gas prices fell -7.77% this week to settle at $2,632M Btu, erasing much of last week’s gains.
  • For Interest rates: The futures market also showed about 49 bps of easing this year, down from more than 50 bps earlier this week. It priced in almost 100 bps of Fed cuts in 2025, which was a sharp drop from the roughly 200-250 bps of reductions estimated prior to last Friday’s better U.S. nonfarm payrolls report, which reset Fed easing expectations.
  • Bitcoin prices with a +6% rebound to $63,250, boosting shares of COIN, and MSTR along with good rebounds in miners CLSK, MARA, RIOT and WULF among others. December gold prices rose $37.00 to settle at $2,676.30 an ounce and managed a weekly advance despite weakness earlier this week amid a surging dollar and Treasury yields – Gold settles positive for the fifth consecutive week. Canadian dollar fell for an 8th day vs the buck.

 

Macro

Up/Down

Last

WTI Crude

-0.29

75.56

Brent

-0.36

79.04

Gold

37.00

2,676.30

EUR/USD

0.0008

1.0943

JPY/USD

0.51

149.07

10-Year Note

-0.015

4.079%

 

Sector News Breakdown

Autos & Leisure:

  • TSLA shares tumbles; made several key announcements around its Robo-Taxi vision as they unveiled its Cybercab (robotaxi) and Robovan, and showcased progress with Optimum. Some details included: 1) Plans to start fully autonomous unsupervised driving in Texas and California in 2025 (with Model 3 and Model Y); 2) Unveiled its new Robo-Taxi vehicle, which it plans to start producing in 2026, sell for less than $30,000, and have operating costs of ~30-40 cents / mile; and 3) Revealed its Robovan (for up to 20 people or transporting goods).  Overall, the event clarified Tesla’s vision and timeline for its Robo-Taxi, but shares fell after analyst noted it lacked details. Morgan Stanley analyst Jonas said he had been looking for on quantifiable data on the improvements to Tesla’s Full Self-Driving, known as FSD. Jonas was also expecting strategy on the business for a supervised and unsupervised ride-sharing service.
  • UBER was a beneficiary of the TSLA event after concern for months. Citigroup said it continues to believe Uber is well positioned to benefit from AVs given the size and scale of its driver supply and MAPCs globally and it notes its more recent partnership announcements, including Waymo in Austin and Atlanta beginning in ’25, as tailwinds. Bank America noted that while investors may see little change to potential competition from Tesla Robotaxi long-term (5+ years), the event lasted only 19 minutes with less concrete details & timelines than feared for Uber, in its view.
  • RACE upgraded to Overweight from Neutral at JP Morgan as believes its record pricing and backlog levels provide excellent visibility into its future growth. Average delivery times for a Ferrari car currently average 24-30 months, significantly higher than the typical wait time of around 18 months, and its recently launched models are 20-30% pricier than its predecessors.
  • STLA said CEO Carlos Tavares would retire in 2026 and announced wide mgmt changes. The moves came after the owner of brands including Peugeot, Fiat, Jeep and Ram last week cut its 2024 profit forecast, with an estimated cash burn of up to 10 billion euros ($11 billion) this year and signalled possible reductions to its dividend/share buybacks.
  • In Casinos & Gaming: FLUT shares tumbled late Friday after a report out of The Guardian saying Treasury officials in the United Kingdom are understood to be weighing proposals, put forward by two influential thinktanks and backed by one of the Labour party’s top five individual donors, to double some of the taxes levied on online casinos and bookmakers.

Energy

  • Analysts lowering ests and price tgts heading into Q3 earnings. Susquehanna lowered tgts on HAL to $42 from $46, NE to $40 from $47, NOV to $22 from $26, OIS to $5 from $5.50, PTEN to $10 from $13, RIG to $7 from $8 and SLB to $60 from $70 in oilfield services as sees Q3 U.S. drilling and completions activity to go down from Q2. Firm said sees downward trend due to low natural gas prices, delays in activity due to E&P mergers, drilling efficiencies and a focus on returns and cash flow and expects tempered growth in the oilfield services sector in the U.S. and internationally. Stifel reduced estimates for BKR, LBRT, SLB, HAL, PTEN now projecting about flat U.S. activity through 2025, and, in general, it sees limited near-term catalysts for stocks outside of robust FCF and cash returns to shareholders.
  • In Independent Power Producers (VST, TLN, CEG): Morgan Stanley noted yesterday PJM indicated it would propose a 6mo delay in the auction currently planned for December. Morgan Stanley said they think this could be net negative for near-term auction results but positive medium term and could increase demand for behind-the-meter nuclear deals.

Banks, Brokers, Asset Managers:

  • JPM shares rose; Q3 profit dropped -2% to $12.9B after the bank set aside more money to cover potential loan defaults (set aside $3.11B for likely credit losses vs. $1.38B y/y), while rising interest payments and investment banking revenue (rose +31%, double its previous guidance of 15%); EPS reported at $4.37 vs. est. $4.01; also raised its forecast for net interest income (NII) to $92.5 billion up from prior view of $91 billion.
  • WFC Q3 EPS of $1.52 topped consensus of $1.28 while revs miss at $20.37B vs. est. $20.42B; net interest income, the difference between what it earns on loans and pays out for deposits, falls 11% to $11.69B in Q3 vs. est.  $11.88B but offset by 2% better fees while expenses came in line; total avg. deposits $1.34 trillion, and provision for credit losses $1.07B, vs. est. $1.34B; for guidance, notes FY24 NII to be down ~9% (vs. prior view low end of down -7-9%), while they also note FY24 expenses to be ~$54bn (unchanged from prior guide).
  • BAC Berkshire Hathaway filed a form 4 disclosing the sale of 3.9mn/4.0mn/1.6mn shares on 10/8, 10/9, 10/10 on BAC shares. This takes their stake below the 10% reporting threshold and creates some uncertainty around whether they are still reducing their stake until the next 13F filing.
  • Trust Banks: BK Q3 adj EPS $1.52 topped consensus est. $1.42 on better revs rising 5% y/y to $4.65B vs. est. $4.55B; Q3 Net Interest income rose 3% y/y to $1.05B vs est. $1B and Net interest margin (NIM) 1.16% vs est. 1.13%; Q3 provision for credit losses $23M; Fee revenue was up 5% at $3.40 billion primarily reflecting higher market values, net new business and higher foreign exchange revenue.
  • Investment Advisors: BLK assets under management hit a record high of $11.48 trillion in Q3, vs $9.10 trillion a year earlier and $10.65 trillion in Q2 while beating on top and bottom line for Q3 (EPS $11.46 tops consensus $10.33 and Q3 revenue $5.2B vs. est. $5.01B). BLK’s total net inflows hit a quarterly record of $221.18 billion, up from $2.57B y/y.

Bitcoin, FinTech, Payments:

  • In Payments: AFRM upgraded from Equal Weight to Overweight w/ $52 PT from $40 at Wells Fargo marking the third analyst upgrade of the week (Morgan Stanley upgraded to EW with $37 PT on 10/9 and BTIG upgraded to Buy with $68 PT on 10/8. Wells said AFRM has clearly demonstrated its right to win incremental eComm checkout share for years to come. With GAAP profitability on the horizon, the valuation case has finally become palatable. Wells Fargo also downgraded FLYW from Overweight to Equal Weight saying while bulls may argue that the ‘bad news’ is in the rear-view, the firm can’t rule out a continuation of negative headlines, with Canada’s updated cap on int’l students for ’25-’26 and a new wave of potential cuts in Australia being examples (both unexpected).

Managed Care (recaps of Medicare Advantage star ratings announced Thursday night):

  • Thursday night, CMS released 2025 Star Ratings, which impact the 2026 plan year. Centers for Medicare & Medicaid Services scores health plans between one to five stars, with five being the highest performing, and the rating affects bonus payments to insurers
  • TDCowen noted: CMS released 2025 Star Ratings, which impact the 2026 plan year and show that CVS had ~89% of its membership in plans rated 4 stars or higher, with 70% of membership in 4.5-star plans (vs. 46% in year prior). This confirms TD Cowen’s upgrade analysis and reaffirms its confidence in CVS’s MA turnaround.
  • Stephens noted: CVS and ALHC are slated to be beneficiaries from the Medicare Advantage ‘star ratings’ for 2025, which were reported late on Thursday. Stephens says ALHC and CVS have the highest percentage of 4+ STAR-rated enrollees, at ~95% in 2024 for ALHC and ~87% for CVS. CI’s 4+ STAR membership in 2025 was stable at ~69%, while UNH saw moderation to ~63%/~38% from ~80%/~49%, respectively. CNC and MOH clocked in at 0%.
  • Cantor noted: HUM was not successful in its appeal, and we believe this will cause pressure on the stock as investors question 2026 earnings. Cantor sees a $3B headwind to 2026. Investor focus for the STARS release was heavily on HUM; the final ratings came in at 26% bonus eligible in 2025, down from 94% in 2024. In the final scores released today, all 4 plans (5216, 5619, 6622, 0028) remained at score 3.5, and are not bonus eligible
  • Truist noted: the Centers for Medicaid and Medicare Services (CMS) released MA plan Star ratings for 2025 (payment year 2026). Key takeaways include a sizable decline in membership in 4+ Star plans at HUM, consistent with last week’s 8-K, industry leading performance from CVS, a strong improvement in 3.5+ Star membership at CNC and overall membership weighted average Star rating for the industry of 3.92 in 2025 vs 4.07 in 2024.
  • Jefferis notes: ratings for HUM plans match the company’s previous disclosure but issues go beyond the previously addressed call center problems. Says members in ELV’s plans rated 4+ fell 10% while those in CNC plans rated 3.5+ rose to 45% from 19% last year. Said UNH faces a 9% year over year drop in membership for 4+ star contracts
  • RBC Capital noted: Medicare Advantage star rating data confirming HUM’s bonus miss for 2026 and lower ratings for the industry broadly, and expect ample stars discussion on third quarter calls, including additional details on remediation efforts for Humana and impact on membership growth for UNH. Says CI remains a haven amid Medicare turbulence, with solid performance year- to-date.

Industrials & Materials

  • In Industrials: AOS lowers FY24 EPS view to $3.70-$3.85 from $3.95-$4.10 (est. $4.06) and cuts FY24 revenue view to $3.8B-$3.9B from $3.97B-$4.05B (est. $3.99B) and guided Q3 results below views saying they expect q/q improvement in North America water heater volumes in Q4; but project the softness in China will persist the remainder of 2024. ROCK cuts FY24 adj EPS to $4.11-$4.25 from $4.57-$4.82 and lowers FY24 revs to $1.31B-$1.33B from $1.38B-$1.42B, reflecting primarily the impact of ongoing market headwinds in both the Renewables and Residential businesses. FAST shares rise on earnings results. GNRC shares jumped late day after Donald Trump if he wins Nov. 5 election, he’ll allow cost of home generators purchased between Sept. 2024 and 31 August 2025 to be tax deductible.
  • In Agriculture: U.S. farmers produced even more corn than expected this year, the U.S. Department of Agriculture said. USDA predicted farmers will harvest 15.203B bushels of corn this autumn, with an average yield of 183.8 bushels per acre. That was up from its September forecast for 15.186B bushels, with a yield of 183.6 bpa. Analysts surveyed by Reuters had expected small declines to 15.155B bushels and 183.4 bpa.
  • Aluminum stocks AA, CENX advance after aluminum prices jumped as Emirates Global Aluminum said bauxite exports from its subsidiary Guinea Alumina Corporation are suspended by customs; Guinea is the world’s No.2 bauxite producer, after Australia. Bauxite is refined into alumina
  • In the Lithium sector: SQM was downgraded to Neutral from Overweight at JP Morgan as now sees lithium chemical prices trading at the low and narrow range of $10-11k/t LCE for an extended period of three years. JPM thinks the recent 23% SQM rally over the last 30 days was fueled by a broad China stock market rally and improving sentiment.

Technology

  • U.S. listed China stocks (BABA, BIDU, JD, PDD, etc.) paring losses, moving to highs ahead of a closely watched fiscal stimulus update from Beijing on Saturday. China’s finance ministry will detail plans on fiscal stimulus to boost the economy at a highly expected news conference.
  • The European Commission said it had sent a request for information to PDD’s shopping website Temu under the Digital Services Act (DSA), asking Temu for information on steps it was taking to stop illegal products being sold on its platform. Temu must provide the requested information by 21 October 2024.
  • FROG shares rose after Bloomberg reported the company has attracted preliminary takeover interest from potential suitors, citing people with knowledge of the matter said.
  • In Video games: The U.S. videogame industry fall 7% in August compared with the same period a year ago, driven by a 36% decline in consumer spending on hardware, according to projections form Circana. The hardware decline may reflect Microsoft and Sony Group’s plans to release new variations of their current generation consoles for the holiday season.

Semiconductors:

  • AEHR shares jumped after results/guidance; Q1 adj EPS $0.07 vs est. $0.02 on revs $13.119Mm vs est. $12.17Mm; reiterates FY guide revs at least $70Mm vs est. $71.2Mm and pre-tax margin at least 10%.
  • LSCC announced the resignation of its Chief Financial Officer (CFO), Sherri Luther, effective immediately, to pursue a new opportunity. Lattice Corporate Vice President, Corporate Controller Tonya Stevens was appointed interim CFO.
  • MBLY was downgraded to Neutral from Buy at Mizuho, lowered ests and PT to $13 from $30 citing slowing auto sales and increasing competition. Mizuho said they see challenges for MBLY with weaker EyeQ and SuperVision (SV) expectations, and limited catalysts over the next 12-18 months.
  • NVDA PT raised from $135 to $150 at Goldman Sachs and maintains Conviction Buy following management meetings with Jensen Huang (Founder, President & CEO), Colette Kress (EVP, CFO) and Stewart Stecker (IR). GSCO increases its FY2026/27 revenue and non-GAAP EPS (excl. SBC) estimates, on average, by 7% and 8%, respectively.
  • QRVO downgraded to Equal Weight from Overweight at Morgan Stanley saying they see limited upside near term around a weaker Android supply chain and weak broad market conditions, which is limiting the gross margin recovery that it has been looking for.
  • WOLF shares jumped after Roth MKM said after checks, they heard according to sources at ISCRM in Raleigh last week confirmed Wolfspeed is in final negotiations to supply 200mm wafers to a few major third-party customers. RothMKM said they expect announcements shortly.
  • In Auto semi stocks: Morgan Stanley cautious as they revise down auto semi forecasts for ADI, TXN, ON and NXP to now model LSD% y/y declines to LSD% y/y growth w/ the expectation that auto semi customers are likely to continue to destock in the coming Q’s (favors ADI). Morgan Stanley said semis are entering a period of stagnation due to inventory destocking, ASP pressure and slower content growth… forecast flat y/y growth in 2025.

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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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