Closing Recap
Tuesday, October 22, 2024
Index |
Up/Down |
% |
Last |
DJ Industrials |
-6.71 |
0.02% |
42,924 |
S&P 500 |
-2.77 |
0.05% |
5,851 |
Nasdaq |
33.12 |
0.18% |
18,573 |
Russell 2000 |
-8.20 |
0.37% |
2,231 |
Another day, another rally! U.S. stock futures are up overnight, and we rally, futures are down overnight, and we rally, futures are flat, and we rally. That has been the common theme the last few weeks and today was no different as the S&P declined overnight, and we again rallied off the open, closing well off the lows before slipping in the final minutes of the day. With the late day pull, the S&P posted its first back-to-back decline since the first week of September (3-6th). Since the onset selloff to kick off September, U.S. stocks are up 6-straight weeks heading into uncertain times, with the heart of earnings season this week into next (over 300 S&P companies report during that span) and of course the Presidential election the first week of November. There are also several ongoing wars, but outside of the oil/energy markets has not impacted stocks markets. The resiliency of the stock market given the massive rally this year (S&P, Nasdaq +20% YTD) after a superb 2023 has been nothing short of magnificent, but at what point to investors heed caution? The Fed cut rates by 50-bps in September, a move normally seen of desperate times, with expected cuts calling for another 75 bps in November and December immediately after. However, since then, jobs data has come in strong and inflation data has perked up with the last few data points showing a climb in prices. Treasury yields and the dollar have since reacted, rising firmly the last 3-4 weeks, but stocks keep pushing higher in broad based fashion as utilities, financials, industrials, all joining technology at more than 20% gains this year so far (only energy and REITs are up less than 10% YTD). Regarding today’s action, another slow melt up off the lows sprinkled in with a handful of important earnings results (recaps of major movers below), and plenty more on deck this week!
Economic Data
- Richmond Fed composite manufacturing index -14 in Oct vs -21 in September; Richmond Fed manufacturing shipments index -8 in Oct vs -18 in September; services revenues index +3 in Oct vs -1 in September.
Commodities, Currencies & Treasuries
- U.S. WTI crude oil futures settle at $72.09/bbl, rising $1.53 or 2.17%, adding to early gains on continued tension in the Middle East and reports that a drone fired by Hezbollah over the weekend had hit the private residence of Prime Minister Benjamin Netanyahu, who wasn’t there at the time. Tension continued with Hezbollah firing rockets at Tel Aviv ahead of the arrival of Secretary of State Antony Blinken, who’s in Israel seeking a ceasefire plan for Gaza.
- Gold prices rose $20.90 to settle at a new all-time closing high of $2,759.80 an ounce, continuing to push higher despite rally in the dollar/treasury yields while silver at the best levels since 2012. The 10-year yield built slightly on the day prior 10-bps gains, adding another 2bps to end around 4.2% after hitting highs of 4.22% amid the relentless rally in yields, ironically since the Fed cut rates by a massive 50-bps in September (now up over 55bps since then). The Euro falls below $1.08 for first time since early August as the dollar keeps ushing higher.
Macro |
Up/Down |
Last |
WTI Crude |
1.53 |
72.09 |
Brent |
1.75 |
76.04 |
Gold |
20.90 |
2,759.80 |
EUR/USD |
-0.0013 |
1.0802 |
JPY/USD |
0.17 |
150.99 |
10-Year Note |
0.02 |
4.202% |
Sector News Breakdown
Retail, Consumer Staples & Restaurants:
- In Consumer Goods: KMB shares fell as adj Q3 EPS $1.83 beat ests $1.70 but revs fell -3.5% y/y to $4.95B missing the $5.05B estimate as personal care sales fell 2% to $2.6B and consumer tissue sales were down 2% to $1.5B; reiterated its guidance for adjusted EPS growth but, lowered its growth outlook for organic sales to increase by 3% to 4% from with previous guidance of mid-single digit percentage growth. In Tobacco: PM Q3 net revs $9.91B topped est. $9.66B and EPS of $1.91 above $1.82 estimate saying within the company’s smoke-free business, net revenue jumped 17% organically and gross profit increased by 20% (raised its Fy24 adj EPS view to $6.45-$6.51 from $6.33-$6.45 prior)
- In Retailers: DECK was downgraded to Neutral from Buy at BTIG saying sees the stock’s risk/reward as balanced after its channel checks picked up a slower start to the holiday for Ugg and likelihood that any upside stems more from wholesale than direct-to-consumer. NKE extended its exclusive clothing partnership with both the National Basketball Association and the Women’s National Basketball Association. WMT will start delivering prescriptions to US homes in as little as 30 minutes, a move that’s intended to grab a bigger slice of online spending and compete against AMZN. CNBC reported COST will offer PTON bike+ in 300 of its U.S. stores for $1,999, and on Costco.com for $2,199, compared to the typical price of $2,495.
Homebuilders, Building Products, Home Furnishing:
- In Homebuilders: the sector falls a second day, dropping 3% on Monday behind a spike in Treasury yields making mortgage rates rise while today earnings results/margin comments from PHM, NVR disappoint. PHM guided Q4 margins to 27.5-27.8%, below expectations around 28.5-29%, which followed a Q3 beat. NVR reported a mixed Q3 on EPS slight miss and revenue beat, while sale slower avg sales prices and rise in cancellation rates.
Autos, Leisure, Gaming & Lodging:
- In Autos: GM beat and raise as Q3 adj EPS $2.96 vs. est. $2.43; Q3 revs $48.8B tops est. $44.6B; self-driving taxi unit, Cruise, recorded an operating loss of $400M in Q3, smaller than the $700M loss y/y; lifts annual pre-tax profit forecast to between $14B-$15B vs $13B-$15B prior projected in July.
- In Auto Parts/Dealers: GPC shares fell after mixed Q3 as EPS a wide miss ($1.88 vs. est. $2.42) but sales of $5.97B were better but sharply lowered its adj EPS outlook for the year to $8.00-$8.20 from $9.30-$9.50 (est. $9.36) and narrows its FY24 revenue view to up 1%-2% from up 1%-3%.
- In Leisure Products: PII shares tumbled after Q3 adj EPS $0.73 missed the consensus est. $0.88; Q3 revs $1.72B misses consensus $1.768B; lowers FY24 adjusted EPS view to down 65% from down 52%-62% and cuts FY24 revenue view to down 20% from down 17%-20%.
- In Lodging: Wells Fargo previewed sector, saying they expect in-line 3Q EBITDA for HLT and MAR, but see downside risk for Hyatt (H); For Q3, Wells expects RevPAR to be at the low-end of company guides, w/ mixed commentary on Q4 given weather/election disruption. Net unit growth remains strong, which continues to support premium valuations, but a lot is priced in.
Energy
- BOOM shares tumble in oil equipment space after slashing its 3Q24 revenue and EBITDA guidance to $152 million (from $158-168 million) and $5 million (from $15-18 million), respectively, citing weaker-than-anticipated results out of its Arcadia and DynaEnergetics businesses due to macroeconomic challenges.
- DUK was downgraded to Sector Weight in utilities at Keybanc saying following a successful multi-year restructuring process, and several constructive regulatory outcomes across its core jurisdictions, DUK is now trading at a slight premium to peers.
- SU Elliott sees more upside at Suncor, almost doubles stake to nearly $3B – Reuters reported. Two years after first pressing for changes at Canada’s Suncor Energy, Elliott is so convinced that ongoing improvements will yield a higher share price that it has nearly doubled the size of its investment. Elliott now owns a stake of nearly $3B in the company.
- In Nuclear: NNE shares fell after registers 1.4M Units at $21.45/Unit; weighed on shares of other nuclear related plays that have surged in recent weeks (OKLO an example)
- In Solar: ENPH to report tonight; Citigroup upgraded FSLR to Buy from neutral saying the stock appears to be pricing-in impact of Q3 guidance cut, lower than expected countervailing duties (CVDs), Trump presidency chance, while Citi downgraded CSIQ to Sell from Neutral on uncertainty around PV module business in US, the only profitable market for modules. On U.S. elections, Citi says FSLR should benefit in either outcome: under Trump, FSLR could pull back momentarily but then recover, while under Dems, FSLR could see a sharp recovery
Banks, Brokers, Asset Managers:
- BOKF 3Q EPS $2.18, consensus $1.98 – Clean credit and margin expansion drove results.
- CADE Q3 adj EPS $0.73 vs est. $0.64 on NII $361.5Mm vs est. $364.54Mm; credit loss provision $12Mm; lower provision, core expense control, solid fees drove trends.
- CATY Q3 EPS $0.94 vs. est. $0.95; Q3 Net interest margin increased to 3.04% from 3.01% in Q2; Q3 total deposits increased by $170.9M, or 3.5% annualized, to $19.94B.
- SFBS Q3 EPS $1.10 vs. consensus $0.97; Q3 NII $115.1M vs. $99.7M prior; said dollar interest margin increasing by $9.2 million, a 35% annualized linked quarter increase, and net interest margin expanded five basis points to 2.84%.
- WTFC 3Q EPS $2.47. Solid organic trends with core funded growth. Outlook for higher NII is the key.
- ZION Q3 EPS $1.37 tops est. $1.17 on NII $620Mm vs est. $613.31Mm; Q3 Net interest margin rose to 3.03% in Q3, from 2.93% y/y; Q3 provision for credit losses fell to $5 mln from $46 mln a year earlier; Core trends were strong, with favorable revenue trends and controlled expense management as key highlights.
Bitcoin, FinTech, Payments:
- FI Q3 EPS and revs topped consensus while narrows FY24 adjusted EPS view to $8.73-$8.80 from $8.65-$8.80, raising the lower end, encouraged by strong spending that has helped it post higher-than-expected earnings.
- GPN was downgraded to Market Perform from Outperform at Bernstein and cut tgt to $112 from $135 saying they acknowledged the stock’s undemanding valuation, but struggles to see upside catalysts over the next few months
Insurance & Services:
- RLI Q3 EPS $1.31 vs. consensus $1.00 and revs $470.0M vs. consensus $417.6M; Q3 Net premiums earned $389.5M, +22% y/y, and Net premiums written $401.5M, +20% y/y.
- SIGI Q3 adj EPS $1.40 vs est. $1.65, adj op Inc $85.7Mm on net premiums written $1.158B vs est. $1.126B; Q3 adj ROE 12.1%, combined ratio 99.5%; raised dividend by 9%.
- WRB Q3 recap by RBC saying “Q3 steady result with solid combined ratios despite elevated catastrophe losses (Hurricane Helene drive). Rate increases tracking like Q2 with management noting that they are on pace or above loss trends. Reserve releases were again marginal, although the core loss ratio improved on a y/y basis.”
- In Payroll: Jefferies upgraded PCTY to Buy from Hold in payroll sector preview and raise tgt to $200 from $145 and raise price tgts for ADP to $290 from $260, DAY to $65 from $55, PAYC to $170 from $155, PYCR to $15 from $13 saying their thesis on the SMID payroll group has been that market saturation, full employment, and peak yields would make it challenging to drive growth at historical levels. Over the course of 2024, growth and margin expectations reset across the board and the stocks underperformed vs IGV. The combination of more reasonable expectations and valuation multiples makes them more constructive on the group.
Biotech & Pharma:
- CRVS was upgraded to Outperform at Mizuho and raised PT to $12 from $3.50 after significantly raising its estimates for lead asset Soquelitinib in lead indication peripheral T-cell lymphoma/PTCL, where it is now meaningfully above consensus, having included a new prevalent population contribution (vs. an incident-only population, prior).
- IMUX shares jumped after the company said an independent data monitoring committee has recommended continuing its late-stage trial for an experimental multiple sclerosis drug vidofludimus calcium without changes.
- REGN drops after court rejects request for temporary injunction for Eylea generic and AMGN said it is launching biosimilar of eye drug Eylea after U.S. appeals court ruling in Regeneron patent case.
- SGMO said the U.S. FDA has agreed that data from ongoing early-mid-stage study can serve as the primary basis for accelerated approval of its experimental gene therapy to treat Fabry disease
Healthcare Services & MedTech movers:
- In Medical Equipment: IRTC shares jumped after announced that the U.S. FDA has granted clearance for its 510(k)-submission related to prior design changes made to the Zio AT device via letter to file. DGX Q3 adj EPS topped consensus on better revs of $2.49B saying earnings were boosted by robust demand for its diagnostic tests.
- In Medical Research: MEDP shares dropped on mixed Q3 (EPS beat, revs missed) and guides FY revs $2.09-2.13B vs est. $2.138B and EBITDA $450-470Mm vs est. $444.25Mm, sees FY EPS $11.71-12.09 vs est. $11.56 (guidance weighed on shares as well as other CRO stocks such as CRL, ICLR, etc.)
- In Life Sciences: DHR Q3 adj EPS $1.71 tops consensus $1.57 on better revs of $5.8B vs. est. $5.59B; said sees Q4 revenue down low-single digits and backs FY24 revenue view down low-single digits; shares fell despite the beat after saying they are not seeing large improvement in demand from smaller biotech’s and that the smaller co’s "rationalize their therapeutics programs and remain cautious with investment"
- In Hospitals: HCA tgt raised to $395 from $365, THC to $195 from $175, and UHS to $275 from $255 at Wells Fargo saying they expect hospitals to report attractive Q3 results. The firm surveyed 25 hospital execs about the operating environment. Highlights include expectation for 2H24 growth acceleration followed by more normalized growth in 2025. Overall, fundamentals appear likely to remain healthy and WELLS is increasing tgts.
Industrials
- Dow component MMM shares rise on beat and raise; Q3 adjusted EPS $1.98 vs. consensus $1.90 and revs $6.3B vs. est. $6.06B; raised the lower end of its full-year adjusted profit forecast to be between $7.20 and $7.30 per share, compared with its previous forecast of $7.00 to $7.30 per share, anticipating a boost in consumer spending.
- AOS missed Q3 revenue and profit estimates, hurt by lower sales of its water heaters in North America and China, sending its shares lower initially; also lowered 2024 adj EPS to $3.70-$3.85 below prior view $3.95-$4.10 per share.
- In E&C Sector: PWR remains Citigroup top pick in sector earnings preview followed by MTZ and ACM and upgraded FLR calling it a good longer-term outlook/nuclear upside. Overall, Despite their E&C stocks on average outperforming the S&P500 YTD (up ~39% vs. S&P +23%), they say they still see further upside to our preferred E&Cs given continued healthy E&C end market demand trends (we model ’25 book/bill =>1 for E&Cs) and ongoing self-help initiatives/optionality supporting EPS growth.
Aerospace & Defense
- GE Q3 EPS $1.15 vs. consensus $1.14 and revs $8.94B vs. est. $9.02B; Q3 adjusted free cash flow +5.2% y/y to $1.81B; raises FY adj EPS to $4.20-$4.35 from $3.95-$4.20 (est. $4.24) and guides FY adj free cash flow to $5.6B- $5.8B, from $5.3B-$5.6B; also raises FY adj operating profit $6.7B-$6.9B.
- HXL Q3 adj EPS $0.47 vs. est. $0.46; Q3 sales rose 8.8% y/y to $456.5M vs. est. $456.9M; Q3 adj operating income $52.9M vs. est. $56M; Still sees sales $1.90B-$1.98B vs. est. $1.92B.
- LMT Q3 results topped views, and raised its year EPS and sales outlook, but shares dipped early as many defense contractors trading at record highs into quarterly results; sees full-year sales of $71.25 billion, slightly above the midpoint of its earlier forecast of $70.50 billion to $71.50 billion.
- RTX reports Q3 adj EPS $1.45 above consensus $1.34 as revs of $20.09B tops consensus $19.85B; raises 2024 forecasts for the second time as sees year EPS between $5.50-$5.58, vs its prior range of $5.35-$5.45 and revs in the range of $79.25B-$79.75B vs. prior forecast of $78.75B-$79.5B.
Materials, Metals & Mining
- In Chemicals: SHW slips as Q3 profit estimates miss (EPS $3.37 vs. $3.54 est.) due to lower sales at two of its segments and said expects Q4 consolidated net sales to be flat to up a low-single digit percentage compared to last year
- In Metals: Steel producer NUE shares fall as Q3 adj EPS $1.49 vs. consensus $1.47; Q3 revenue $7.44B vs. est. $7.28B; expects earnings in Q4 to decrease compared to Q3 EPS of $1.05 (Q4 EPS consensus $1.44) saying the largest driver is the decreased earnings of the steel mills segment caused by lower average selling prices and decreased volumes. Copper producer FCX Q3 profit beat helped by higher copper prices, though copper production in the quarter fell to 1.05 billion recoverable pounds from 1.09 billion recoverable pounds.
Internet, Media & Telecom
- In Telecom: VZ shares were lower after mixed quarterly results as revs of $33.3B came in just shy of estimates, while EPS of $1.19 topped estimates by a penny and customer additions also were above projections.
- SAP rises as Cloud revs 27% c/c vs 25% last q and cloud ERP growth of 36% c/c vs 33% last q; Margins came in a 26.1% vs street closer to 23.5% due to big license beat (-14% vs street at -30%) and lower R&D; guide for 2025 was raised
- LOGI shares fell as solid beat with better GMs but revised guide only in line with street and investors worried about sustainability of margins and inventory build into holiday season
Semiconductors:
- COHR was downgraded from Buy to Neutral at Rosenblatt with $105 tgt noting shares are up 126% YTD because of its leadership in Datacom transceivers for AI, a strong new CEO, and the potential for the Telecom and Industrial businesses to improve. RBLT believes Coherent will be a long-term AI winner, and the stock looks good for investors with a three-year time horizon but foresees FY25 headwinds that may disappoint more bullish expectations.
- WOLF shares fell after Reuters reported German automotive supplier ZF will no longer take part in a planned chip plant in the German state of Saarland, putting the project on the brink of collapse, the Handelsblatt newspaper reported on Tuesday. U.S. chipmaker Wolfspeed wanted to build the $3-billion chip plant and a research and development center in Germany, poised to start in 2027, with ZF to chip in $185 million for a stake. WOLF got good news later as Jana Partners noted they hold a significant stake and forecasts significant upside saying the company can unlock value by separating devices unit.
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.