Market Review: September 06, 2024

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Closing Recap

Friday, September 06, 2024

Index

Up/Down

%

Last

DJ Industrials

-410.34

1.01%

40,345

S&P 500

-94.99

1.73%

5,408

Nasdaq

-436.83

2.55%

16,690

Russell 2000

-40.65

1.91%

2,091

 

 

 

 

 

 

 

 

 

It was a rough day/week on Wall Street! U.S. stocks declined sharply to end the week, with the S&P registering a 5-day decline of over -4.2%, posting its first 4-day losing streak since mid-April in the process (was 6-day streak between 4/12-4/19). The Nasdaq dropped over -5.7% on the week, its worst since April, led by a more than -12% decline in the semi-SOX index (was weighed down by AVGO after earnings disappointed last night). Note September is historically one of the worst monthly returns for the S&P 500 and the start to month is proving that thus far. Markets dropped overnight following the Broadcom (AVGO) results but managed to bounce following the weaker August jobs report this morning which showed jobs gained +142K m/m, below estimate. +165K, while also showing notable downward revisions to both June and July. While the data boosted expectations of a more aggressive Fed, with market hopes for a 50-bps cut in 2-weeks, it also renewed concerns of a recession, as the economy appears weaker than some expected (also recall back-to-back months of weaker ISM Manufacturing). There was straight selling pressure throughout Friday, with no meaningful bounces into the weekend, taking out key technical levels along the way. And as @bespokeinvest noted, “This has been the worst 4-day start to a month since…last month. S&P 500: 4 days into September: -4.23%, 4 days into August: -5.11%.” Will markets rebound like they did in August? Or extend losses into the month?

 

Stocks got a brief (very) bounce off lows late morning after Federal Reserve Governor Christopher Waller said “the time has come” for the U.S. central bank to begin a series of interest rate cuts this month and said “if the data suggests the need for larger cuts, then I will support that as well. I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate.” Note that rate cuts are now widely “baked-in” to market expectations, so is the risk now to the downside remains the question? The picture wasn’t much better in Europe as the Stoxx 600 was down -1.1% for its worst daily fall since August 5, while Britain’s FTSE 100 down -0.9%; Germany’s DAX down -1.6%, France’s CAC 40 down -1.2%; Spain’s IBEX down -1%, Euro Stoxx index was down -1.5%. Risk assets were broadly lower on Friday/the week with Bitcoin falling over -3.7% to $54,000 in what has been a sharp pullback in the crypto space (-8.5% MTD).

 

Today was the last day for Fed members to speak ahead of their “blackout period” amid their upcoming FOMC policy meeting in 2-weeks. Attention next week could turn back to inflation with August CPI and PPI data due Wednesday and Thursday respectively, though inflation fears have eased in recent months as the PCE gets close to the Fed’s 2% target. At this point, recession fears and strength of the economy are more pressing concerns for investors.   

Economic Data

  • Weaker jobs report/downward revisions: August Nonfarm payrolls climb +142K m/m, below est. +165K while July downwardly revised +89,000 (from +114,000), June down to +118,000 (from +179,000); August private sector jobs +118,000 (vs. est. +139,000) and the August unemployment rate falls to 4.2% from 4.3%. August labor force participation rate 62.7%. Average hourly earnings climb 0.4% m/m above est. +0.3%.
  • @KobeissiLetter tweets: "For anyone not keeping track: There have only been 6 upward jobs revisions since January 2023. Meanwhile, there have been 13 downward revisions with many of these reports being revised down TWICE. Market confidence in labor market data is deteriorating."

Fed Speakers

  • Federal Reserve Bank of New York President John Williams said Friday that a better-balanced economy has opened the door to cutting rates, with the full course of action to be determined by how the economy performs. “With the economy now in equipoise and inflation on a path to 2%, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate,” Williams said in the text of a speech. “The stance of monetary policy can be moved to a more neutral setting over time depending on the evolution of the data, the outlook, and the risks to achieving our objectives,” he said.
  • Federal Reserve Governor Christopher Waller on Friday said "the time has come" for the U.S. central bank to begin a series of interest rate cuts this month, adding that he is open-minded about the size and pace of those reductions. "If the data supports cuts at consecutive meetings, then I believe it will be appropriate to cut at consecutive meetings," Waller said in remarks prepared for delivery at the University of Notre Dame. "If the data suggests the need for larger cuts, then I will support that as well. I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate."
  • Friday’s employment report continues to underscore the risks of an undesirable slowdown in hiring if the Federal Reserve keeps interest rates too high for too long, said Chicago Fed President Austan Goolsbee. Doing so could jeopardize a long-sought "soft landing," in which the Fed uses interest rates to bring inflation down without a recession. "If you’re going to have a soft landing, you can’t be behind the curve," said Goolsbee. "It’s very clear what’s happening in the economy. Inflation is way down. We’re not overheating. And there are definite warning signs of things over-cooling."

Commodities, Currencies & Treasuries

  • U.S. crude oil futures settle at $67.67/bbl, down -$1.48, or 2.14% (falling nearly 8% this week), its lowest settlement since June 2023 while Brent crude futures settle at $71.06/bbl, down -$1.63, or 2.24%. Nymex Natural Gas for Oct. delivery gained 14.80 cents per million British thermal units, or 6.96% to $2.2750 per million British thermal units this week.
  • Gold prices slip -$18.50 to settle at $2,524.50 an ounce, off earlier highs of $2,559.80
  • The U.S. dollar hit a one-month low just above 142 versus the yen before paring back, and a one-week low against the euro following weaker U.S. jobs data. The dollar index (DXY) hit a low of 100.55 before rebounding back to 101.25.
  • The 10-year yield declined 20bps to 3.710% this week, biggest weekly drop in 5-weeks, down 4-straight days and down seven of the past 10 weeks; the 2-yr yield declined 27.5 bps to 3.651% this week (new 52-week low), down two of the past three weeks and also down for four consecutive trading days.

 

Macro

Up/Down

Last

WTI Crude

-1.48

67.67

Brent

-1.63

71.06

Gold

-18.50

2,524.50

EUR/USD

-0.0029

1.1081

JPY/USD

-1.04

142.40

10-Year Note

-0.033

3.701%

 

Sector News Breakdown

Retailers

  • COST said August total comparable sales +5%, estimate +5.1% and U.S. comparable sales excluding fuel, currencies +6.7%, vs. estimate +6.2%; August net sales $19.93B, up 7.1%.
  • GCO said Q2 sales fell slightly and that it expects sales to decline less than expected in FY25; Q2 comparable e-commerce sales increased 8%, while comparable store sales fell 4%; said it expects FY25 sales to fall 1% to 2% from its prior outlook for a decline of 2% to 3%.
  • ZUMZ reported Q2 N.A. sales/comps up 10.4%/5.9%, while Q2 sales/adj. EBITDA/adj. EPS above consensus, exceeding guidance as QTD sales as of 9/2 up 6.8%; Q3 sales/EPS guide above/below consensus.

Homebuilders, Building Products, Home Furnishing:

  • Interest rate-sensitive homebuilders stocks LEN, PHM, KBH rose after Aug payrolls report misses expectations, sending yields lower initially. Markets pricing in about 50/50 odds of 25 or 50 basis points rate cut at Fed’s Sept meeting; lowering rates leads to decline in mortgage rates, potentially benefiting homebuilders.

Leisure, Gaming & Lodging:

  • In online travel: BKNG initiated Hold and $4,100 tgt at Truist saying its well-positioned for the secular growth of global travel but notes decelerating macro leisure growth in what is now year five of the current lodging cycle influences rating; EXPE was initiated at Hold as well at Truist with $148 tgt saying presents a turnaround story in progress.
  • In Leisure: BOWL shares rose after results; reported Q4 revenues and AEBITDA of $284M and $83M above estimates as same-store sales for 4Q24 of +6.9% came in well above as well with all three months seeing positive growth; also provides above same-store sales guidance.
  • Convenience Stores: Seven & I (SVNDY) rejected a $38.7B takeover proposal from Alimentation Couche-Tard Inc. as too low and fraught with regulatory risk while signaling a willingness to consider a sweetened offer – Bloomberg.
  • In Guns & Ammo: SWBI reported Q1 results that showed they saw softer than anticipated demand for firearms

Energy, Industrials and materials

  • In the Waste sector, SRCL and WM merger clears HSR following pull and refile. The merger has also received antitrust clearance from Portugal & confirmation from UK CMA that it has no further questions.
  • In EEMI space, CARR upgraded to Peer Perform from Underperform at Wolfe Research as now sees a more favorable bear/bull range of $60-97, with base case upside of 11%; ETN was upgraded to Peer Perform from Underperform as continue to see the path to significant 2025 outgrowth; and downgraded FTV to Peer Perform.
  • In the E&C Sector: KBR was downgraded from Buy to Hold at TD Cowen with an unchanged price target, given a less-rich catalyst roadmap and emerging risks limit upside to Street estimates. KBR’s outyear guide implies a 10-11% EBITDA CAGR from 2023-2027, but consensus has penciled in closer to 20% over that time frame.
  • In Metals & Mining: U.S. Steel (X) shares bounce after tumbling this week after reports the White House is close to announcing that President Joe Biden will block the $15 billion deal with Japan’s Nippin Steel. Note yesterday in CNBC interview with CLF CEO, he noted was still in market for US Steel. Reuters reported Mining companies VALE and BHP, together with their joint venture Samarco, may soon reach an agreement with Brazilian authorities to pay around 100 billion reais ($17.87 billion) for the collapse of a dam in the city of Mariana.
  • Heavy Duty Trucks (CMI, PCAR, ALSN): Truist noted Class 8 preliminary truck August orders were 16,400 — up 22% month-over-month and down 16% year-over-year on a preliminary basis. Medium-duty net orders fell slightly below ACT’s expectations at 17,300 units — up 22% m/m and down 16% y/y on a preliminary basis.
  • In Coal sector: B Riley raised tgt on CEIX from $103 to $109 and lowered in ARCH from $198 to $188, AMR from $374 to $336, METC from $21 to $19 and HCC from $92 to $90 in coal space saying with the PLV benchmark ($184.5/Mt) well below their previously cited marginal cost estimate of $225/Mt, it believes increased production cuts are nearing. Also said believes that the risk/reward for investors is compelling, especially as there remains a shortage of high-quality met coal supply projects.
  • In Energy: BE was downgraded from Buy to Hold at Jefferies given uncertainty on backlog, expiration of ITC, in its current form, in ’24, and minimal transparency around SK.

Financials

  • In Crypto: sector weak again as falling for a 9th straight day below $148 (was at $210.85 highs on day streak started) as crypto weak Bitcoin -9% in September already. Barclays upgraded shares of COIN and HOOD while initiated MSTR at Overweight and $146 tgt saying for public company investors looking for bitcoin exposure, Barclay’s sees MSTR as the best strategy available. HOOD (tgt raised to $20 from $18) & $COIN (tgt cut to $169 from $206) both upgraded to Equal Weight from Underweight noting that over the past year, the business models at both Coinbase and Robinhood have matured and while risks remain for both models, there is also potential sales catalysts from new products and regulation. Bitcoin miner CORZ said that Denise Sterling has decided to step down from her role as Executive Vice President and CFO effective May 1, 2025.
  • In FinTech: PYPL upgraded its rewards program for debit card users with a 5% cash back offer. Users of the PayPal debit card, offered through MA will receive 5% cash back on up to $1,000 in selected category spending per month. Previously, PayPal had in-app cash back offers at select merchants.

Biotech & Pharma:

  • LLY, VKTX, and other obesity related drugs extend recent declines with broader markets.
  • GSK announced positive headline results of MATINEE, the phase III clinical trial evaluating Nucala, a monoclonal antibody that targets interleukin-5, IL-5, in adults with chronic obstructive pulmonary disease, COPD.
  • ITCI upgraded from Neutral to Overweight at Piper and raise tgt to $92 from $68 saying feedback from Piper’s survey of 25 psychiatrists was suggestive of a patient/prescription (Rx) volume footprint for Caplyta as adjunctive treatment for major depressive disorder (MDD) that is like the one that ABBV is carving out for Vraylar in this setting.
  • TVTX said the FDA has granted full approval to FILSPARI (sparsentan) on the September 5 PDUFA date of the sNDA.
  • VOR said that its CRISPR-augmented stem cell transplant, which is designed to protect healthy cells from the toxic effects of anti-cancer medicines, showed early evidence that it can delay relapse in patients with an aggressive form of leukemia.

Hardware & Software movers:

  • CRM said it would buy Own Company, a provider of data protection and management solutions, for $1.9 billion in cash to accelerate growth of its data security and privacy products.
  • GWRE advanced on earnings as Q4 results showed ARR 1% above, subscription and support revenue 2% above, and FCF 37% above consensus; in-line FY25E ARR guidance.
  • IOT reported Q2 rev growth of 37% (no Q/Q deceleration) above Street at 32%, w/ upside coming in stronger than 1Q as large customer activity & multi-product adoption drove out-performance & the $100k+ net new customer metric had a strong bounce-back vs. 1Q.
  • SMAR guided FY adj. EPS $1.36-$1.39; above ests. of $1.33 following Q2 EPS and revs beat, which followed a prior day report by Reuters saying that Private equity consortium including Vista Equity Partners and Blackstone are in talks to acquire company.

Semiconductors:

  • AVGO shares tumbled as reported above-consensus Q3 results due to strength from its AI business and VMware, but guided FQ424 gross margin lower due to the ramp of its AI accelerator business (18% of F24E sales); guided Q4 AI revenue of about $3.5B, up from the about $3.15B, but forecasts overall Q4 revs about $14.0B below consensus $14.13B. The pullback in AVGO weighed on the semi sector as the SOX fell over -4.5% below its 200dma support.
  • MBLY shares fell on reports INTC is said to explore the sale of part of its stake in Mobileye, noting the chipmaker could offload some of its 88% holding in Mobileye on the public market or via a sale to a third party https://tinyurl.com/5fcd45sp
  • QCOM has explored the possibility of acquiring portions of INTC’s design business to boost the company’s product portfolio, according to two sources familiar with the matter, Reuters reported
  • SMCI was downgraded to Neutral from Overweight and tgt to $500 from $950 at JP Morgan which reflects a near-term view that here is a not a clear rationale for new investors stepping into Supermicro shares while uncertainty exists around regaining compliance with regulators that is critical beyond the unchanged business fundamentals.
  • In Other chip news, the Biden administration said it plans to impose export controls on critical technologies including quantum computing and semiconductor goods, seeking to align key allies in a US-led push to thwart advancements in China and other adversarial nations.

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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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