Closing Recap

Wednesday, September 11, 2024

Wall Street witnessed another astounding stock market rally following early weakness, as stock market “dips” continue to get bought and investors continue to be rewarded. U.S. stocks enjoyed strong back-to-back “V” shaped recovery days as U.S. equities bounced after falling initially following mixed CPI data and additional weakness in financials, amid outperformance in technology shares as semiconductors rebounded further (+8.4% this week so far for the SOX after falling -12.2% last week). The rebound today in the S&P was impressive yet again, going from a near September low (hit 5,406.96 vs. 5,402.62 low on Monday) to a new high on the week, topping its 50-day moving average resistance of 5,506 in the process (high around 5,550). Technology did most of the “heavy lifting” rising over 3.33% (XLK) while other sectors lagged, with the Nasdaq bouncing over 600-points from its lows to highs and the S&P 500 more than 150 points off its lows to highs. A truly remarkable rebound in stocks.  Next catalysts are tomorrows PPI inflation data (does it matter after today’s CPI) and the ECB rate meeting were a 25-bps cut is expected.

Defensive sectors saw the most weakness amid the rotation back into high beta sectors like Technology as defensive food stocks (GIS, HSY, CAG) tumbled, as well as ongoing weakness in energy amid falling oil prices this month.  Financial commentary and slightly hotter m/m CPI inflation have raised some concerns for investors/stocks markets, with big banks (BAC, GS, JPM), and consumer finance stocks (COF, SYF, OMF) sliding in the last two days. The onset of concern came yesterday after auto lender ALLY shares tumbled after warning that credit challenges have intensified in this business over the quarter, as their CFO noted borrowers “have been struggling with cost of living and now are struggling with an employment picture that’s worse.” He said overdue payments on car loans and charge-offs were higher than expected in July and August, and Ally will likely have to increase loan-loss reserves. This has raised a short-term “red flag” for markets.

Nick Timiraos of the WSJ (aka the “Fed whisperer”) noted details of CPI report; said “core inflation was 3.2% in August (the lowest since April 2021) but +0.28% from July, a touch higher than expected due to a firm shelter reading. The 6-month annualized core CPI rate decelerated to 2.7%, the lowest since March 2021. The 3-month annualized rate was 2.1%.” Headline CPI slowed to 2.5% in August, the lowest since February 2021. The six-month annualized rate fell to 2%, which is the lowest since September 2020.” Overall, it appears investors were disappointed with the CPI report as it lessened the chances of more aggressive rate cut by the Fed in 2024, and now only a 25-bps cut is seen next week vs. hopes of 50-bps prior (also futures had forecasted up to 100bps of rate cuts in 2024, that is now down to 75bps).

• US mortgage market index +1.4% to 233.7 in week ended Sept 6 according to week Mortgage banks Assoc data; US mortgage purchase index climbs +1.8% to 138.6 in Sept 6 week; US mortgage refinance index climbs 0.9% to 757.8 in Sept 6 week and the average 30-year mortgage rate falls 14 bps to 6.29%, lowest since Feb 2023.

• U.S. Treasury sells $39B 9-year 11-month notes at high yield 3.648%, awards 74.43% of bids at high vs. 3.662% when issued prior as the bid-to-cover ratio 2.64, with Primary dealers take 10.25% of U.S. 9-year 11-month notes sale, direct 13.71% and indirect 76.05%. U.S. Treasuries rallied overnight, fell after the CPI data and then rallied again as yields ended little changed. The two-year yield hit its lowest level since 2022 to 3.55%, the lowest since September 2022.

• In Retail: DBI lowers FY24 adjusted EPS view to $0.50-$0.60 from $0.70-$0.80 (est. $0.75) and lowers FY24 revenue view to flat to low-single digits from low-single digits. PLCE posts Q2 adjusted profit of $0.30 compared to a loss of (-$2.12) y/y as gross margin rise of 960 basis points to 35%, owing to lower expenses but comp sales fell (-7.2%). VRA cuts FY25 forecasts to $410M from prior $460M-$480M and EPS to about $0.10 from prior $0.54-$0.62 after Q2 wholesale revenue declined owing to weaker demand from inflation-weary customers. GME shares fell as the video game retailer posted a surprise quarterly profit, but revenue fell more than 30% to $798.3M vs. consensus of $895.7M; Q2 Hardware and Accessories net sales fell -24% y/y to $451.2M and Software net sales fell -48% y/y to $207.7M.
• In Restaurants: PLAY shares rallied as reported better-than-expected Q2 adjusted profit of $1.12 on better revs $557.1M, boosted by latest menu rollout as EBITDA of $152M exceeded consensus by $11M as stronger restaurant margins and lower G&A more than offset softer comps.
• In Home Improvement Retail: WSM was upgraded to Buy at Jefferies saying their analysis of the trajectory for West Elm Kids, Emerging Brands, and B2B, alongside expectations for a slight housing recovery moves its C’25 & C’26 estimates above consensus and market share is ~60 bps higher vs. 3 yrs ago with selling margins ~850 bps above pre-COVID.

• In Refiners: Neste (NTOIY) shares fell after the refiner cut its margin outlook for its biofuel business to between $360-$480 per tonne of biofuel, down from $480-$580 per tonne seen in July and well below the $600-$800 seen in February; said now expects renewables-based sales volumes in 2024 to be about 3.9M tonnes instead of the 4.4M it had predicted prior.
• In Solar: strength in the sector (ARRY, ENPH, FSLR, NOVA, RUN) saw strength early following results of last nights Presidential debate between Donald Trump and Kamala Harris. Media labels Kamala Harris as winner of Presidential debate last night vs. Donald Trump, lifting sectors such as solar which the Democratic nominee favors more “green” energy.

• In Brokers: MS downgraded to Neutral from Buy at Goldman Sahcs as believes other stocks are better positioned to benefit from the capital markets recovery, and it sees downside risk to its 2025E wealth NII and 40bps of wealth margin downside (lower target to $105 from $122. Separately, Goldman upgrades EVR to Buy from Neutral as it thinks its business investments, including best-in-class banker hiring, make it well-positioned to benefit from a banking recovery, especially in M&S (raise 12M target to $276 from $246).

• NVO shares bounced as Amycretin, an experimental Novo Nordisk obesity pill that targets both amylin and GLP-1 receptors, spurred significant weight loss in a Phase 1 study, the company announced yesterday. Over three months, a daily dose resulted in 10.4% loss in weight; those who took two pills lost 13.1% of their body weight. By comparison, the people taking placebo experienced only 1.1% weight loss. Saxenda, also a Novo Nordisk drug, resulted in a 5.8% BMI decrease in children aged 6 to 12 — compared to a 1.6% decrease in the placebo group.
• NVS downgraded to Neutral from Buy at Bank America and lower its price objective to CHF110 from CH120 following c12% outperformance vs the European pharma sector since early 2023 through a series of positive Phase III catalysts (NATALEE, Pluvicto PSMAfore, Iptacopan C3G/IgAN and Scemblix 1L CML) and successive earnings beats
• REGN and SNY said its Dupixent drug achieved significant improvements for the treatment of two skin diseases; said that the drug met the primary and all key secondary endpoints evaluating its investigational use in adults with moderate-to-severe bullous pemphigoid.
• RLAY 28.57M share Secondary priced at $7.00.
• SUPN downgraded to Neutral from Overweight at Piper and cut PT to $36 from $41 saying the sizable uptick in prescription growth for Qelbree that Piper expected amid the back-to-school season has not quite come to pass.
• TERN 11.91M share Spot Secondary priced at $10.50.
• VKTX initiated at Overweight and $80 tgt at JP Morgan and places the stock under a positive catalyst watch ahead of the phase 1 data readout for the oral-2735 drug at Obesity Week (Nov. 3-6), which they say could point to a highly competitive profile impressive tolerability), and it thinks is under appreciated.
• Manage care stocks fell (HUM, UNH, ELV), with the Presidential debate named as possible reason for weakness.

• Lithium producers ALB, ALTM, LAC, SQM shares soared after China CATL says it plans to adjust lithium carbonate production in Yichuan based on recent market conditions (easing oversupply concerns). Reuters noted UBS said CATL had suspended its huge lepidolite mine which boosted lithium futures prices and some global companies’ shares. The report adds suspensions could cut ~8%, or around 5,000-6,000 metric tons, of China’s monthly lithium carbonate production.
• In Chemicals: Keybanc noted both OLN, WLK moderate negative regarding preliminary anti-dumping determination saying they believe the announcement is a negative read for both as the proposed countervailing subsidy rates will not affect South Korea, the largest exporting country. Keybanc had earlier expected OLN and WLK to each see ~$75M-$150M annualized EBITDA benefit from import duties on epoxy resins in the U.S. and EU.
• In Industrials/Metals: NUE shares fell to lowest levels since May 2023, down 6 of last 7 days as steel names lag aluminum names (AA, CENX up over 5% each) and copper (FCX +2%); RTO shares fell after guiding adjusted operating margin about 15.5% (vs. estimate 16.2%) and said it sees North America adjusted operating margin about 17.2% (vs. est. 18.5%).

• In Telecom: CHTR was upgraded to Neutral from Sell at Citigroup with an unchanged target price of $350 saying valuation has receded to an EV/EBITDA of ~6.4x, the core broadband operating environment for Q3 seems stable with prior commentary, and ACP retention seems to be going better than expected for the category.
• In Media: SHOP and SPOT added to Wells Fargo Signature Picks List at Wells Fargo and removed DIS, more cautious given increasing prospects for a prolonged consumer recession that can drag on Parks earnings.  ROKU shares were strong early after Cleveland Research out positive saying Q3 momentum strong and outlook more constructive.
• In Software: MSFT shares jumped above $420 this afternoon in a strong rebound after breaking below its 200dma support of $411.90 this morning (hit lows of $409.58) as technology lifted the broader stock market. SentinelOne (S) hired former WDAY CFO Barbara Larson as its new financial chief, replacing Dave Bernhardt, effective immediately.