Closing Recap

Thursday, September 12, 2024

The rally continues! A strong week so far for major averages as the Nasdaq, S&P 500 rise 4 straight days, making the first few “weak” days of the month a distant memory (very similar to August) with the Nasdaq now up over +5.1% this week and the S&P +3.4%. Even the Smallcap Russell 200 played catch-up, outperforming on the day, all ahead of next week’s FOMC policy meeting where a 25-bps cut is widely expected. Catalysts this week including the CPI and PPI August inflation reports did little to raise concerns for investors, with data mostly in-line with expectations while the ECB cut rates 25-bps this week as expected as well. Technology (XLK) outperformed again today, rising over 1% as the SOX index moves back to 4,900 (helped by NVDA) after falling -12% last week. Investors continue to “buy the dip” following last week’s sharp declines to start the month and markets continue to react positively, even in what is normally one of worst trading months of the year historically. Major averages finished near the highs of the day at the close yet again heading into the final trading day of the week tomorrow. Oil prices rebounded, gold touched new all-time highs, Treasury yields edged higher, Bitcoin prices rose, and the dollar slipped. In political news, Donald Trump said he would not debate Kamala Harris a second time on his Truth Social account. For the fun stat of the day, Bespoke Invest tweeted: “Today is the 176th trading day of 2024 and the S&P 500 is up 17.6% YTD. Last year on the 176th trading day of the year, the S&P 500 was up 17.7% YTD.” Bespoke also noted “yesterday was the 52nd time since 1990 that the S&P 500 was down at least 1% intraday and closed higher than 1% on the day.”

• Weekly Jobless Claims climbed to 230,000 from 228,000 prior week (in-line w consensus); the 4-week moving average climbed to 230,750 from 230,250 the prior week; continued claims climbed to 1.850M from 1.845M prior week (in-line w consensus) and the US insured unemployment rate unchanged at 1.2%.

• Gold prices closed near record highs, as December futures jumped $38.20 or over 1.5% to settle at $2,580.60 with precious metals prices riding to highs alongside another rally in stocks (4^th straight day in a row).
• Treasury yields edged slightly higher most of the day with the 10-yr around 3.68%. The U.S. Treasury sells $22B 29-year 11-month bond at high yield 4.015%, as the bid-to-cover ratio 2.38, non-comp bids $31.02M, with Primary dealers taking 15.66% of U.S. 29-year 11-month bond sale, direct 15.66% and indirect 68.68%. The dollar index (DXY) slipped on the day to 101.50 with the euro holding above the 1.10 level all week.

• In Beverages: DEO was upgraded to Buy from Neutral at Bank America saying after a challenging two years, with c30% consensus EPS downgrades and shares falling c40%, the firm believes the worst is behind. Goldman Sachs notes their latest Beverage Bytes survey shows beverage sales trends (alcohol and non -alcoholic) were below expectations through the summer — weighed down by poor weather, an earlier start to the school year, and increased concerns over the health of the US consumer. The firm favors Buy-rated STZ (sustained strong momentum behind Modelo and potential shelf space gains), MNST (potential top-line reacceleration in 2H24), and TAP (resilient shelf space gains).
• In Beauty: ELF price tgt lowered to $150 from $235 at TD Cowen but Reiterate Buy as analyze the L-T thesis on the stock pullback saying they believe the growth engine remains in-tact but acknowledge that this year will likely grow at +30-40% levels vs last year’s +77% and FY23’s +48%.

• In Apparel: OXM shares declined after reported Q2 adj EPS of $2.77 missing the $3.00 consensus on revs $305M missing the Street est. $438.18M and cut its fiscal-year for revs to $1.51B-$1.54B, down from prior guidance of $1.59B-$1.63B; CURV shares declined after priced an 8M share stock offering at $4.00.
• In Home Furnishing: LOVE Q2 revenue of $156.6M topped estimates of $155.1M and guided FY25 revenue between $700M-$735M above average estimates of $722M, lifting shares.
• In Specialty Retail: jewelry retailer SIG reported better Q2 results as sales fell -7.6% y/y to $1.49B just missing the $1.50B estimate but EPS of $1.25 topped the $1.14 estimate, while same-store sales fell (-3.4%) to beat expectations of a (-4.1%) decline. For the quarter to date, the company said same-store sales have turned positive.

• In Utilities: Mizuho said they maintain Outperform ratings on EIX, PCG, and SRE and view the current selloff as an overreaction to recent CPUC ALJ recent recommendation. The firm noted on Tuesday, a CPUC ALJ issued a surprising recommendation to change the cost of capital mechanism that derives a lower ROE AND should take effect for 2025. This newer mechanism, that uses a reduced "adjustment ratio", would lower ROEs for all four CA opcos by 42 bps and instead of starting in the next cost of capital cycle (2026) should begin in 2025. While a negative, Mizuho says the ruling does provide a small bright spot that it enables utilities the ability to update their cost of debt annually.

• Wells Fargo says TPG, SF, APO, BX are top picks in broad Asset manager & Broker initiation (coverage picked up on 23 names – says rate cuts generally + but valuation warrants selective approach. By sector, alt Managers (Sub-sector rank #1) – Best kept secret in Fins now largely known; WELLS recommends selectivity with Stock calls – OW: TPG, APO, BX, BRDG and Underweight BAM. Wealth Brokers (Sub-sector rank #2) – Prefer diversified name – Expect SCHW and LPLA to remain range bound due to elevated idiosyncratic uncertainty currently; are Overweight rated on SF, RJF. Independent M&A Advisors (Sub-sector rank #3) – Table set, meal better satisfy, and order rank is MC, EVR, LAZ, HLI (HLI rated UW on valuation and preference for pure-play advisory names. Traditional Asset Managers (Sub-sector rank #4) – Reasonable valuations but positive catalysts generally lacking, outside BLK (OW rated on BLK and UW rated on IVZ)

• In Exchanges: Citigroup announced a pair trade, Overweight CME and Underweight CBOE, saying both are levered to the higher-volatility backdrop Citi expects to see through year end; but the firm sees a better fundamental picture for CME here given positive leverage to rates and equities; and compelling commodity story whereas CBOE is reliant on the index franchise. Citi believes the discount is being driven by competitive concerns at CME which are overblown in its view.

• Franklin Resources, Inc. (BEN) reported preliminary month-end assets under management of $1.68 trillion at August 31, 2024 compared to $1.66 trillion at July 31, 2024. This month’s increase in AUM reflected the impact of positive markets, partially offset by long-term net outflows of $6.3 billion.
• Invesco Ltd. (IVZ) reported preliminary month-end assets under management (AUM) of $1,751.8B, an increase of 1.1% versus the previous month-end. The firm delivered net long-term inflows of $2.4B in the month. Non-management fee earning net inflows were $0.9B and money market net outflows were $6.4B.
• Lazard (LAZ) reported that its preliminary assets under management as of August 31, 2024, totaled approximately $244.3B. The month’s AUM included net outflows of $7.5B, market appreciation of $2.8B and foreign exchange appreciation of $3B.
• T. Rowe Price Group, Inc. (TROW) reported preliminary month-end assets under management of $1.61 trillion as of August 31, 2024. Preliminary net outflows for August 2024 were $5.3B.
• Victory Capital Holdings, Inc. (VCTR) reported Total Assets Under Management (AUM) of $173.8 billion, Other Assets of $4.9 billion, and Total Client Assets of $178.8 billion, as of August 31, 2024. For the month of August, the average Total AUM was $171.1 billion, average other Assets was $4.9 billion, and average Total Client Assets was $176.0 billion.
• Virtus Investment Partners, Inc. (VRTS) reported preliminary assets under management (AUM) of $180.5 billion and other fee earning assets of $2.6 billion for total client assets of $183.1 billion as of August 31, 2024. The increase in AUM from July 31, 2024, primarily reflects market performance and positive net flows in retail separate accounts, partially offset by net outflows in institutional accounts and open-end funds. Preliminary average AUM for the month was $175.6 billion.

• MPW announced that it had reached a global settlement agreement with a) Steward Health Care System – a key tenant that went bankrupt, b) its secured lenders and c) the unsecured creditors committee (UCC). The settlement agreement involves 23 hospitals which will remain following the anticipated “Space Coast” transaction.
• PCH was upgraded to Buy from Neutral at Bank America and raised tgt to $51 citing their 20%-plus underperformance YTD. The firm noted fundamental catalysts may be lacking N-T, but PCH offers 20%+ total upside potential even as it sees lumber pricing, the product to which PCH has the most exposure, at a trough for reasons it discusses in the report.
• RC mentioned cautiously in Barron’s noting shares of BXMT have been down since December after the REIT cut its dividend payout by 24% in July. Barron’s notes things are worse at Ready Capital. As a mortgage REIT, it makes small loans to owners of modestly priced multifamily apartment buildings. The loans haven’t done well lately. Ready Capital reported net losses in 2024’s first two quarters.
• SPG was downgraded to Hold from Buy at Stifel with $159 tgt saying currently, consensus estimates imply y/y 2025E FFO growth of -2.6%, which compares to Stifel’s estimated growth of -3.1%. Consensus estimates show the Mall REIT sector at -1.9% next year, with broader REITs estimated to grow at 4.4%. Notes debt refinancing to be a negative FFO headwind.

• FULC shares tumbled over -60% after saying its experimental oral drug, losmapimod, to treat a genetic muscle disorder failed to meet the main goal in a late-stage study; the company adds it will suspend future losmapimod development.
• MRNA shares dropped after saying they aim to reduce its R&D budget by about 20% over the next three years, cutting to $3.6B-$3.8B in 2027 from $4.8B in 2024 and now expects sales between $2.5B-$3.5B next year, below analysts’ forecast of $3.74B; MRNA said it is discontinuing five programs in its pipeline and slowing some late-stage studies of treatments for latent and rare diseases to achieve the cost savings.
• RLMD shares rose after Mizuho noted form 4s were filed with the SEC disclosing insider share purchases from C-Suite management (CEO and CFO) and two board members (Chairman and a director).
• SMMT shares rose after announced that the company accepted offers from multiple leading biotech institutional and individual investors to purchase an aggregate of approximately 10.35M shares of the company’s common stock at $22.70 per share, the closing price on Wednesday.

• In Trucking: TD Cowen said that TL carriers are seeing signs of a peak season, better gains on sales and lower fuel prices which May lead to an upside in Q3 for TL stocks (KNX, SNDR, and WERN) if trends continue. LTL carriers continue to price rationally despite more anecdotes of deteriorating industrial demand.
• In Tanker Sector: Jefferies downgraded both NAT, TEN to Hold from Buy noting the group has pulled back with spot rates moving off peak levels, but highlights that rates remain historically strong, and it expects crude tanker rates to trend higher as Oct approaches, while product rates will likely follow closer to December. The overall Baltic Dry index, which factors in rates for Capesize, Panamax and Supramax shipping vessels, lost 36 points, or 1.8%, to 1,927.
• In Chemicals: DOW provides update on Q3 guidance as expects Q3 revenue of $10.6B, down from prior forecast of about $11.1B saying the lowered outlook is due to a significant unplanned event that occurred in late July at ethylene cracker in Texas and higher input costs and margin compression in Europe.
• In Autos: Chinese electric vehicle makers NIO, LI, XPEV declined after the Financial Times reported the EU rejects Chinese EV makers’ bid to avert hefty tariffs.
• In Metals & Mining; Gold miners AU, AEM, GFI, GOLD, NEM shares all surged as gold prices touched new all-time highs today on rising interest rate cut expectations by the Fed.

• In Advertising: IPG was downgraded to Sell from Neutral at UBS and cut tgt to $29 from $34 saying they think consensus has not fully factored in the impact of account losses such as the recent Amazon media loss. UBS thinks a decline in revenues will impact IPG margins as staff incentives are already low vs history (2.7% in 2023 vs 4.2% 5 yr average).
• In Software: MSFT said it is cutting 650 jobs in its Xbox unit, the third such layoff this year as the company tries to rein in costs and integrate its massive $69 billion acquisition of Activision Blizzard Inc. Unity (U) shares bounced after officially discontinued its contentious runtime fee — opting to return to a subscription model. Under the new structure — Unity Pro will see an 8% price increase, while Unity Enterprise will experience a 25% hike. FTNT shares slipped after the Cybersecurity company confirmed it suffered a data breach after a threat actor claimed to steal 440GB of files from the company’s Microsoft SharePoint server.
• In Networking: NTGR shares jumped after raised Q3 revenue view to $170M-$180M from $160M-$175M saying guidance reflects the above-referenced litigation settlement, as well as the earlier than anticipated launch of its next generation 5G mobile hotspot in the third quarter which was previously expected to occur in the fourth quarter of 2024.

• MU with a rough day after Exane BNP Paribas double downgraded Micron to Underperform from Outperform and slashed tgt to $67 from $140 saying while some investors correctly anticipate downside risk to near-term results, Micron will underperform its artificial intelligence peers through 2025 as high bandwidth memory capacity oversupply leads to a faster than expected market correction of conventional DRAM selling prices. Also, MU tgt was also lowered to $125 from $160 at Raymond James and trimmed estimates to reflect slower near-term volume growth in non-HBM DRAM and NAND markets, as reiterated by management at recent investor conferences.