Closing Recap

Tuesday, September 10, 2024

U.S. equity futures were flattish overnight for the S&P and down slightly on the Nasdaq with no significant economic reports ahead to guide traders. Implied probabilities are pricing in a whopping 73% likelihood of a 25bps cut next week ahead of the CPI tomorrow. Early breadth favored decliners by a little more than 3:2 as small caps underperformed with IWM -0.76% versus SPY +0.02% and QQQ +0.35%. Technology, Utilities and Real Estate led the gainers amongst S&P sector ETFs, while Energy, Financials and Materials were the largest decliners. By midday, stocks had rolled to red, and oil was hitting lows. Breadth remained consistent, at just over 3:2 in favor of decliners.

In data of note today, with a Fed meeting coming next week, a recent poll indicated 54 of 71 economists see the Fed as unlikely to cut rates by 50bps at any of its remaining meetings this year while 65 of 95 economists see three cuts of 25bps (per @financialjuice). Separately, on insurance costs, @charliebilello highlights what we all feel in our wallets; car insurance rates are up 95% over the past ten years while the average US family health insurance premium has climbed 314% since 1999. Ahead of tomorrow’s CPI report, @RBAdvisors reminds us of small business pricing intentions bottomed out in April and they tend to lead the CPI. Lastly, on a sector note, @DataTrekMB points out US large cap financials have outperformed the S&P 500 by just over 8 points in the past year, but previous mid-cycle performance has been even better so there could be room to go.

Heading into the final hour of trading, stocks were near highs with Nasdaq futures testing resistance pivots and small caps down only modestly. Breadth had recovered to just a slight tilt still in favor of decliners as SPY and QQQ gained +0.30% and +0.73%, respectively, compared to IWM -0.30%. Sector-wise, Real Estate (XLRE, +1.60%), Technology (XLK, +1.08%) and Consumer Discretionary were at the top of the S&P sector ETF leader board, while Energy (XLE, -1.8%) and Financials (XLF, -1%) remained the largest decliners. Value and growth split today, with the growth the outperformer. The Russell 1000 Growth gained 0.85% versus its Value counterpart -0.29%.

• October WTI crude futures faded overnight, tried to recover, then slid into the afternoon to close slightly off the lows but still -$2.96/bbl, or -4.31%, to $65.75 (marking the lowest since December 2021). Despite shut-ins from Tropical Storm Francine, investors’ concerns on both the demand and supply sides drove futures lower again. Brent similarly rolled $2.65/bbl, or -3.69%, to settle at $69.49, the first time below $70/bbl and the lowest close since December 2021
• OPEC slightly cut its forecast for oil-demand growth after delaying its planned output hikes last week in a bid to support sinking prices. OPEC said it expects demand to grow by 2.03 million barrels a day this year and 1.74 million barrels a day in 2025, from 2.11 million and 1.78 million barrels a day previously. Total demand is estimated to reach 104.2 million barrels a day in 2024 and 106 million the following year.
• Treasury prices advanced further while Treasury yields tumbled to fresh 2024 lows, as the 10-year yield hit 3.64% (down -5.5 bps) and the 2-yr yield dropped about 7-bps to below 3.6% after the Treasury sale of $58 billion 3 Year Notes was very good as the yield at 3.440% is more than one-and-a-half basis points below the market.

• In Food Related: AVO shares surged as Lakestreet noted the company reported better results behind a 36% increase in per-unit avocado prices and improvements in its cost structure, driving a dramatic EBITDA/FCF improvement and subsequent debt reduction; CVGW shares rise on mostly better results as Q3 adj EPS $0.57 vs est. $0.43, adj EBITDA $13.5Mm vs est. $14.55Mm on revs $179.6Mm vs est. $178.55Mm and doubled its quarterly dividend to $0.20; LMNR Q3 avocado operations outperform and continued improvement across the lemon business despite still weak pricing led to a dramatic YoY improvement and solid beat.
• In Beverages, Exane BNP Paribas upgraded BUD to Outperform from Neutral with a EUR 69 price target and downgraded CCEP to Neutral from Outperform, making changes in the European beverages space, saying the current depressed valuations are not without reason but that the macro conditions may offer some relief.

• In Autos: BMW shares slid after forecasting automotive Ebit margin 6% to 7%, below prior forecast 8% to 10%; the guidance from BMW weighed on the auto sector, with shares of Mercedes (MBGGYStellantis (STLA), Porsche (POAHY) and others weaker.
• In electric vehicles (EVs), the European Union will lower proposed final tariffs on TSLA, and slightly trim rates for other electric vehicles from China after considering submissions by the companies, Reuters reported. Tesla’s proposed tariff rate will drop to 7.8%, from 9%, while for BYD (BYDDF), there was no change to its 17% tariff. For Geely, the new rate would be 18.8% from the previous 19.3%.
• In Auto Research, Deutsche Bank resumes coverage of US Autos & Auto Technology (17 stocks) including automakers and suppliers, with Buy rating and top pick on TSLA ($295 tgt), with Hold ratings on GM, Ford, and other buy ratings include VC and ALV in auto suppliers, but hold rated on other names saying in the face of growing uncertainty about industry production, pricing, powertrain mix, and politics, they take a neutral stance on the group despite low valuations, opting to be more tactical as it progresses through the rest of the year and into 2025. Separately, Wells Fargo trimmed its price targets for Ford (F) to $9 and to $33 for GM

• In Chemicals: MEOH was downgraded to Equal Weight from Overweight at Barclays and cut PT to $44 from $56 saying while there is high strategic merit in acquiring OCI’s assets, there are questions around operating reliability, increased leverage and investor rotation. NTR was downgraded to Neutral from Buy at Goldman Sachs and cut tgt to $53 from $69 saying amidst a broader decline in crop prices, farmer incomes, and credit conditions, they see Nutrien Financial presenting increased risk to Retail EBITDA over the next 12-24 months.
• In Aerospace & Defense: BA is pushing back plans to ramp up production of its 737 MAX jet as Reuters reported that Boeing recently informed its suppliers to prepare for a rate of 42 737 MAX jets a month by March 2025. Prior guidance called for that rate in September 2024. GEV was initiated at Outperform and $210 tgt at Bernstein saying the largest player in aircraft propulsion and consistently delivers the highest margins can win through more OE or more aftermarket, which ties GE’s positioning for three stages of success. PLTR tgt was raised to $50 from $30 at Banc America as views Palantir’s capabilities, technology and path forward facing a "fundamental misunderstanding" and contends that the upcoming S&P 500 inclusion "provides a watershed moment for institutional investors to revisit
• In Industrials: JCI was upgraded from Neutral to Buy at bank America and raised tgt to $80 from $70 citing a combination of data center exposure, valuation, and a forthcoming new CEO. MTRX shares surge over 20% initially following earnings overnight, moving back above 200dma of $10.73 earlier.
• In Metals & Mining: in gold miners, AU said it will buy Egypt-focused smaller rival Centamin in a $2.5 billion stock and cash deal, the companies said on Tuesday, as the U.S.-listed global miner expands its operations in Africa
• In Uranium: Kazatomprom, the world’s top uranium producer, obtained an exploration license for a new site at its Budenovskoye deposit in Kazakhstan; the co said the new block, Budenovskoye 5, holds promise for further development. Uranium resources at the site are est. at more than 18,000 metric tons.

• In Insurance: Truist reiterate its Buys on KNSL, WRB, SKWD, PLMR, BRO, and WTW based on its view that casualty lines should support growth: 1) the aggregate statutory data shows increased adverse development in older accident years, a catalyst for pricing; 2) social inflation is at record levels and should persist, according to new Swiss Re report; 3) moderating interest rates should support long-tail casualty pricing; 4) general liability pricing is running up 5% in Q3, at the higher end of the recent range.
• In Consumer Finance: shares of ALLY declined after CEO comments at Barclays Conference saying credit challenges have intensified due to high inflation and weakening employment. Retail auto credit challenges were evident in increased delinquencies and non-performing loans (comments weighed on CACC and WRLD as well); company also issued softer NIM outlook which weighed on shares of COF, SYF as well.

• ALC was upgraded to Outperform at RBC Capital to reflect increased confidence around medium term growth and margin expansion. The firm said the European Society of Cataract and Refractive Surgery conference (6-10th Sept) reassured US that the Ophthalmology segment remains robust and attractive and supports RBC’s positive view on the European players.
• ARWR said it won FDA breakthrough-therapy designation for its proposed Plozasiran therapeutic in a rare genetic disease that prevents the body from digesting fats.
• CDMO quarterly revenue and EBITDA both missed, but RBC Capital noted bookings came in well ahead of estimate ($66M actual vs RBC $36M and Avid’s $35.5M LTM average), while mgmt reaffirmed $160-168M FY25 revenue guidance.
• CRVS initiates registrational phase 3 clinical trial of Soquelitinib for patients with relapsed/refractory peripheral T-Cell Lymphoma.
• IONS announces pricing of a public offering of 11.5M shares at $43.50 per share.
• VRDN shares rose after drug trial results for VRDN-001 achieved all primary and secondary endpoints (for active thyroid eye disease); said BLA submission anticipated in 2H of 2025 as planned.

• BABA was added to the Stock Connect program that links the Shanghai and Shenzhen bourses to the Hong Kong exchange starting Tuesday.
• GOOGL Alphabet’s (GOOGL) Google lost its fight against a 2.42B euro ($2.7B fine levied by EU antitrust regulators seven years ago, one of several fines meted out to the company for various anti-competitive practices
• HPE said it seeks capital raise to fund $14B acquisition of Juniper Networks as commenced a $1.35B (27 mln shares) 3-yr mandatory convertible preferred stock offering.
• META was initiated at Buy and $600 tgt in new coverage at DA Davidson saying sees Meta as a top pick within the mega-cap space, with a combination of emerging leadership in the most important future technology platforms and an attractive relative valuation.

• RBRK shares declined following quarterly results; reported its Q2 earnings, which featured top and bottom-line beats, with a beat on annual recurring revenue – ARR – growth and a guidance raise, but shares declined.
• SKIL posted 2Q revenue and adj. EBITDA ($132M/$28M) above consensus expectations ($131M/$24M) despite tighter budgets and decreased upgrade/renewal linearity and management reiterated the FY25 outlook (rev: $510-$525M/adj. EBITDA: $105-110M.

• IQE said it sees it annual profit to be at lower end of analysts’ estimates as some of its markets were slower to recover from a supply glut; its chip wafers are used in iPhone’s facial recognition sensors, expects full year adj core profit to be at lower end of est. range of 11.1M pounds to 16.6M pounds.