Closing Recap

Friday, September 13, 2024

What a week for U.S. stocks, as major averages did nothing but rally for five straight days, nearly erasing all last week’s losses as the S&P 500 and Dow knocking on the door of all-time highs! Stocks were buoyed as the dollar weakened, Treasury prices advanced (yields fell), pushing the S&P 500 to within 30 points of its all-time highs, and the Dow less than 100 points from its record, all ahead of next week’s FOMC policy meeting. It is widely anticipated that the Fed will cut rates 25bps next week, though markets have bounced in recent days on rising hopes of a 50-bps cut after Federal Reserve Bank of New York President William Dudley saying there is scope for a half-point rate cut. This afternoon, futures tied to the Fed’s policy rate now reflect about a 47% chance that the Fed will cut its policy rate, currently in the 5.25%-5.50% range, by half of a percentage point. That’s up from about 28% on Thursday. The increased chances of a more aggressive cut boosted the Smallcap Russell 2000 the most today, rising 2.49%. The Dow Jones Industrial Average hit an intraday high of 41,533.83 off all-time intraday high of 41,585.21 on 8/30/24 (its all-time closing high stands at 41,563.08 (also on 8/30). The S&P 500 index (SPX) hit an intraday high of 5,636.27 this afternoon, with its all-time intraday high standing at 5,669.67 on 7/16/24 (all-time closing high is 5,667.20 also on 7/16).

Just how aggressive has this rally been on the week, well the Nasdaq Composite hit highs of 17,719 today, a more than 1,000-point bounce since last Friday (9/6) lows of 16,668.57! The Semiconductor index (SOX) helped a lot, rising just shy of 10% on the week, recovering most of last week’s -12% decline, helped by a 15% rebound in NVDA shares this week. The Software sector also advanced along with much of the Mag-7 stocks. Utilities were the best sector on the day at +1.4% and the best performing sector on the year (+23.6% YTD), with the Financials (XLF) next best +18.35% YTD, while Technology (XLK) is +14.5% YTD. All eleven S&P sectors were in the “green” today, with breadth running over 4:1 margin advancers leading. In a bit of a red flag, a U.S. Treasury official noted interest costs on public debt top $1 trillion for the first time for 2024 fiscal year to date.

After this week we have both CPI/PPI inflation and jobs data all in the rear-view mirror. Conference season is also slowly coming to an end and now we get the start of Investor and Analyst days (ORCL last night, WDAY and CRM next week in software). Looking ahead to next week, FOMC policy meeting on Wednesday (9/18) the main focus, but other important data points include: Tuesday (9/17) US Retail Sales for Aug, Industrial Production data; On Wednesday the Bank of Canada policy meeting, UK CPI; on Thursday (9/19), Bank of England policy meeting, Philly Fed Survey and Existing Home Sales, and Friday 9/20) is option expiration (quad witching), Bank of Japan policy meeting.

• University of Michigan surveys of consumers sentiment prelim Sept reported at 69.0 vs. consensus 68.5 and vs final Aug 67.9; current conditions index prelim Sept 62.9 (consensus 61.5) vs final Aug 61.3 and expectations index prelim Sept 73.0 (consensus 71.0) vs final Aug 72.1.
• University of Michigan surveys of consumers 1-year inflation outlook prelim Sept 2.7% vs final Aug 2.8% while University of Michigan surveys of consumers 5-year inflation outlook prelim Sept 3.1% vs final Aug 3.0%.

• Oil prices opened higher, only to reverse and finish lower on the day; but still managed to rise on the week for the first time in over a month (+1.45% WTD) amid output disruptions in the U.S. Gulf of Mexico after Hurricane Francine forced evacuations and production platforms. In the end, U.S. WTI crude oil futures settle at $68.65 per barrel, down -$0.32 or 0.46% while Brent crude settle at $71.61 per barrel, down -$0.36 or 0.5%.
• Treasuries rallied and the dollar fell after fresh US data kept investors guessing on the size of an expected rate cut from the Federal Reserve next week. The policy-sensitive two-year Treasury yield dropped five basis points, and the dollar retreated 0.3%, falling for a third day. Bitcoin prices saw strength at the tail end of the week, nearing $60K for the first time this month up over 1% for the month (still up over 40% YTD).
• The U.S. dollar fell on Friday to its lowest level in nearly nine months against the Japanese yen after media reports once again fueled speculation the Federal Reserve could deliver a super-sized 50-basis-point interest rate cut at its policy meeting next week. The euro, meanwhile, rose 0.08% versus the greenback to $1.1083.

• In Restaurants: According to BAC aggregated credit and debit card data, on a one-year basis, aggregate restaurant spending growth was up m/m at +3.4% in August vs -3.9% in July. Spending growth at restaurant chains accelerated from -3.4% in July to +0.9% in August while spending at independent restaurants accelerated from -4.1% to +4.3%. Spending at small and mid-sized coffee chains accelerated to +17.0% y/y in August vs +12.0% in July. Said QSR and PZZA spend growth accelerate as QSR ex-pizza y/y spend growth accelerated from -2.9% in July to +0.1% in August. Pizza spend growth improved dramatically to +0.4% in August vs -6.9% in July.

• In Ride Sharing/Food Delivery: UBER and Waymo LLC announced an expansion of their existing partnership to make the Waymo Driver available to more people via Uber. Beginning in early 2025, Waymo and Uber will bring autonomous ride-hailing to Austin and Atlanta, only on the Uber app.
• In Cruise Lines (CCL, NCLH, RCL, VIK): Bank America said according to BAC aggregated credit and debit card data, monthly cruise spending in August increased +14.8% year-over-year and +34.2% vs 2019. This month’s sequential acceleration of +2.5% from July was also meaningfully ahead of the 2015-2019 average of down -7.6%

• In Utilities/Power: Jefferies initiated VST at Buy ($99 PT) and named top pick in initiation of Constructive on Power sector along with Buy rating on TLN ($226 PT) and start coverage on PEG, NRG, CEG with Holds saying all have strong tailwinds but these are priced into the stocks already. Notes December 2024 PJM auction is the biggest sector risk around re-regulation. Notes over the past year public IPPs have outperformed the S&P 500 +77%, led by TLN +135%, VST 100%, NRG +75%, and CEG at ‘only’ +40% – but says there are still opportunities in VST . GEV initiated with an Outperform and $245 tgt at BMO Capital saying its recent spin-off from GE already producing results consistent with strategy to take significant costs out of business driving improved EBITDA margin outlook reflected in BMO’s estimates.

• In Brokers & Asset Managers: IBKR named top pick in Brokers and Asset Managers at UBS saying they see 26% upside in shares calling it a rapidly growing firm (>20% account growth per anum) that delivers best in class profitability, with PT Margins in excess of 70%.
• In Financial Services: Barclays raised price tgts on several Business services for: DNB to $12 from $11, EFX to 4380 from $300, FICO to $2,150 from $1,800, MCO to $570 from $500, MSCI to $700 from $650, SPGI to $610 from $550, TRU to $105 from $80 and VRSK to $310 from $275 following its consumer conference noting companies issued cautious optimism around impending rate cuts and a generally resilient and still "employed" consumer base.

• XHR was upgraded to Overweight and SHO upgraded to Equal Weight at Wells Fargo saying they are among the strongest ’25 EBITDA & FFO/share growth rates among peers, aided by the renovation/ rebranding of the Grand Hyatt Scottsdale & Andaz Miami Beach, respectively, and among the lowest P/FFO and EV/EBITDA per units of growth.
• RLJ was downgraded to Underweight at Wells Fargo saying despite giving RLJ the benefit of a smaller EV/EBITDA discount to peers than achieved historically, RLJ has the 2nd lowest share price return expectation in WELLS’s coverage, resulting in an Underweight. Near term, Wells views RLJ as a show-me story following a relatively large guidance cut in Q2.

• AVIR said its experimental antibody drug bemnifosbuvir for treating Covid-19 failed to show statistically significant reduction in the number of patients who required hospitalization or died, versus a placebo.
• AZN was downgraded to Sell from Hold at Deutsche Bank and cut tgt saying the company’s TROP2 asset datopotamab is not going to be the next breakthrough in lung cancer and thinks a difficult December FDA panel for datopotamab, coupled with downside risk into fiscal 2025 guidance means the stock’s risk/reward has now become "challenging".
• EBS announced an agreement to Settle Securities Class Action Litigation; Emergent will pay $40M, which will be substantially paid from insurance proceeds, to settle claims brought on behalf of stockholders who purchased Emergent’s common stock between March 10, 2020, and November 4, 2021.
• GEHC shares slipped as 15M share Spot Secondary (upsized from 10M shares) priced at $86.00 for gross proceeds of ~$1.3B. GE, which became an independent Co in April after General Electric completed its three-way split, to exchange GEHC shares for debt held by Morgan Stanley.
• LLY resumed coverage with a Buy, $1060 PT at Citigroup driven by increased tirzepatide forecasts (near to medium term) based on latest reported sales, script trends, and guidance, and raised expectations for pipeline asset orforglipron
• MRNA extends prior day declines after being downgraded by at least three Wall Street firms; JP Morgan cut to Underweight and tgt to $70 from $88 saying while the reset to Moderna’s long-term guidance should not come as a surprise, JPMorgan is still lowering estimates (was also downgraded at Jefferies and Oppenheimer)
• RHHBY mixed analyst comments as: Deutsche Bank downgraded to Sell and cut tgt saying the company has late and largely undifferentiated assets in obesity, while Bank America upgraded to Buy as believe the EPS downgrade cycle (FY25E EPS down c30% in last 3 years) has troughed with its FY25E EPS now c3% ahead of consensus.
• In Cannabis sector (MSOS, CRON, GTBIF, CURLF): Marijuana Moment reported that “six U.S. States report setting new monthly marijuana sales records: Connecticut, Maine, Maryland, Michigan, Missouri and New York reported hitting their highest-ever monthly cannabis sales numbers, led by surging summer adult-use sales.”

• In Transports: UAL announced that they will be adding SpaceX’s Starlink internet on over 1,000 planes, increasing on-board WiFi speeds by up to 100x; Starlink will be offered at no additional cost to passengers.
• In Metals & Mining: Gold miners surging again with gold prices as shares of NEM, AUY, GOLD, AEM.

• In Media/Advertising: DJT shares jumped late afternoon after Donald Trump said he has no intention of selling shares in the social-media company; TTD price tgt was raised to $115 at Wedbush saying CTV Political Spend Overlooked; remain Outperform rated. The firm noted estimates for total U.S. political spending growth are in the mid-teens range versus the 2020 election cycle with Magna at the low end (+10% vs. 2020) and AdImpact at the high end (+19%).

• ADBE reported a good quarter as FQ3 net new Digital Media ARR of $504M beat mgmt’s ~$460M guidance by more than it expected which includes a return to Y/Y net new Creative Cloud ARR growth for the first time in 4 quarters. But Q4 net new Digital Media ARR guidance was below its/consensus estimates, sending the shares 9% lower.
• ORCL raised its FY26 revenue target to >$66B (vs. consensus at $64.5B); while somewhat expected after comments last week that forward rev view would have to go higher, ORCL management surprised investors by introducing an FY29 revenue target of >$104B (and 20% EPS growth), significantly above consensus of $89B and annual EPS growth of greater than 20% versus the consensus of ~16% (shares jumped as much as 8% before fading all day).
• GRMN was downgraded to Underweight from Equal Weight at Barclay’s and cut tgt to $133 from $181 on valuation noting shares have climbed ~40% YTD (Nasdaq: +14%) supported by multiple drivers including strong execution, robust cash generation and impressive earnings results over the most recent quarters.
• SMBW shares fell after pricing a 3.5M share Spot Secondary priced at $7.85.
• UPWK shares advanced after CNBC reported activist Engine Capital takes 4% Upwork stake and is pushing for a shakeup to the board of the freelance marketplace operator.