Closing Recap

Tuesday, September 24, 2024

U.S. stocks and most commodities finished higher after the People’s Bank of China (PBoC) unveiled a raft of measures aimed at stimulating the Chinese economy, which further boosted global stock market sentiment. U.S. stocks opened in positive territory, pulled back over the next hour (SPX dipped just below 5,700 before recovering), but as has been the playbook, rallied the remainder of the day to finish at fresh all-time highs for the S&P 500 and Dow Jones Industrial Average. Market gains were led by sectors seen to benefit from an improved Chinese economy including Industrials, Materials, and Discretionary (casinos, and luxury retailers with exposure to China) while Financials, Utilities, and Healthcare lagged. The China stimulus package included an imminent reduction in the RRR for major banks by 50bps to 9.50% with heavy hints of a follow on move of the same magnitude before the year is out, relending facilities to allow commercial banks to lend to funds to support stock prices, and a reduction in existing mortgage rates. The PBoC also cut the 7day RR by 20bps from 1.70% to 1.50%. Asian markets’ reaction was overly positive as the Nikkei Index advanced 216 points to 37,940, the Shanghai Index surged 114 points or 4.15% to 2,863, and the Hang Seng Index jumped 753 points to 19,000.

Stocks traded in a narrow range all afternoon, as markets continue to await key economic data later this week including GDP data on Thursday and monthly PCE and core PCE inflation data Friday as well as income and spending data.  Overall, stock markets just keep climbing (even during historically weak periods), but market data gives mixed signals as @KobeissiLetter notes: Current situation: 1. Stocks are rising like a “soft landing” has happened, 2. Gold is rising like we are in a major economic crisis, 3. Bonds are falling like the Fed is done cutting rates, 4. Real estate prices are rising like rate cuts just started, 5. Oil prices are falling like demand is disappearing, and 6. Natural gas prices are rising like demand is growing. Nothing adds up here.”

• Richmond Fed composite manufacturing index drops to -21 in Sept vs -19 in August while Richmond Fed manufacturing shipments index -18 in Sept vs -15 in August.
• S&P CaseShiller CoreLogic data showed US July 20-metro area home prices +5.92% (consensus +5.9%) from year ago vs +6.5% in June; July home prices in 20 metro areas +0.27% seasonally adj (consensus +0.4%) vs +0.47% in June and July 20-metro area home prices non-adjusted +0.04% vs +0.61% in June.
• U.S. home prices +0.1% in July from June; U.S. home prices index 425.2 in July; U.S. home prices +4.5% in 12 months through July – as per US regulator.

• U.S. WTI crude oil futures rose $1.19 or 1.69% to settle at $71.56 per barrel while Brent Crude futures settle at $75.17/bbl, rising $1.27, or 1.72% as commodity prices benefit from news of China stimulus to boost its economy. Gold making new record highs yet again, up another $24.50 of over 0.9% to settle at $2,677.00 an ounce, as commodities got a big boost behind China stimulus measures boosting the space.
• The U.S. dollar index (DXY) slumped again, falling back near par as the euro and yen climb further. The dollar was weak heading in the Fed meeting on expectations of rate cuts and has continued the downward momentum since on expectations of more aggressive rate cuts in coming months.

• In Food & Beverages: Danone (DANOY) offered to buy all the outstanding shares of LWAY that it doesn’t already own for about $283.4M; as of August 6, Danone had about 14.8 million outstanding shares, of which about 23%, or 3.45 million, are already owned by Danone, a Paris-based food and beverage company. https://tinyurl.com/43tdfpra
• In Restaurants: SBUX downgraded to Underperform from Hold at Jefferies and cut tgt to $76 from $80 saying while the new CEO suggests necessary strategic change is now on the table, BAML believes execution will be challenged as issues like ops, culture, value perception and tech take time to fix.
• In Warehouse: WMT was upgraded to Buy at Truist and raised tgt to $89 from $76 noting Wal-Mart continues to gain share across income levels, due to its focus on price, convenience and assortment. Says the combination of accelerating share gains, the scarcity value of an offensive and defensive mega-cap and a structurally more profitable company should command a far higher-than-historical valuation. Truist also downgraded COST to Hold from Buy saying changes like the shift towards scanning IDs on entry and packaging changes to their chickens could add some sales headwind.

• In RV/Towable sector: THO reported Q4 EPS $1.68 on sales $2.53B topping consensus $1.30/$2.47B; but guides FY25 EPS $4.00-$5.00 well below consensus $6.35 and guides FY25 revenue $9.0B-$9.8B below consensus $10.45B; said anticipate that the RV market will continue to be challenging throughout our fiscal year which ends on July 31, 2025
• In Auto Retail: AZO miss across the board as Q2 EPS $51.58 missed consensus of $53.53, while revs were in-line with ests at $6.2B; margins weaker for Q2 at 52.5% vs. est. over 53% and overall comparable sales +0.7% vs. +4.5% y/y (est. +1.45%) and Domestic comp sales +0.2% vs. +1.7% y/y, (below est. +1.15%).
• In Ride Sharing: Raymond James initiates coverage in sector with a Strong Buy and $90 PT for UBER saying its view that the Uber AV narrative will swing from perceived risk from Robotaxi (est. ~2% of bookings in Top U.S. 25 markets assuming Waymo 1P at 20% market share) to tailwind. They also initiated DASH at Outperform and $155 PT while Neutral rated on CART and LYFT.
• In Casino & Gaming: LNW shares fell after saying it had received an order from the US District Court for the District of Nevada granting gambling machine manufacturer Aristocrat a preliminary injunction relating to L&W’s Dragon Train game. Shares of Casino operators rise on China’s stimulus plans as China unveils wide-ranging stimulus measures to boost its flagging economy – shares of MLCO, WYNN, LVS which have substantial casino properties in Macau, leading to major dependence on Chinese customers for revenue rallying.

• In Power/Nuclear/Utilities: TLN price tgt raised to $210 from $165 at Oppenheimer saying believes the continued need for reliable power and the increased appetite demonstrated by the hyperscalers could provide a multi-year tailwind to TLN. In Utility, HE 54.05M share Spot Secondary priced at $9.25 for $500M in gross proceeds as the company raised equity to fund part of Maui wildfire settlement. Shares of SO, SRE, PPL, NI, GEV, CMS, AEE among Utilities making new 52-week highs today.

• In REITs: Banc America downgraded ESS to Neutral from Buy but raised tgt to $321 from $307; lower estimates are offset by lower cap rates saying data suggests Coastal markets have weaker job opening trends than the Sunbelt as well as a softer-than-expected job market. INVH also downgraded to Neutral saying lease rate growth is underperforming its peer (AMH), is concerned that supply would remain a pain point in 2025, and INVH may have overpromised on 2H24 results.

• BLUE announced several initiatives to reduce cash operating expenses by 20% when fully realized in 3Q25, including a 25% reduction in its workforce. The company noted there have been 41 patient starts across BLUE’s portfolio, up from 27 in mid-August, with an anticipated 40 patient starts in 4Q24
• BNTX was upgraded to Overweight from Equal Weight at Morgan Stanley as they add sales for BNT327 (PDL1-VEGF bispecific) for cancer to its model (2035 risk adjusted sales of €5.1B or ~63% of total revs) and its PT goes to $145 from $93. Post COVID the company has been investing to develop an Oncology pipeline.
• REGN shares fall a second day after yesterday a judge denied motion for injunction in a patent case with AMGN Amgen – today was downgraded at Leerink.
• WVE reported preliminary results from an early study of its RNA-based treatment for Duchenne muscular dystrophy amenable to exon 53 skipping.

•  In Medical testing/Equipment: NEO said a new version of its RaDaR molecular residual disease (MRD) test has cleared the feasibility stage, and that patent litigation brought by NTRA regarding the NeoGenomics RaDaR 1.0 test has been resolved.

• In Machinery: DE shares active after Donald Trump said yesterday in Pennsylvania if elected President, would look to put tariffs on the company if they moved to manufacturing business to Mexico. He said yesterday, “I’m just notifying John Deere right now, if you do that, we’re putting a 200% tariff on everything you sell into the US." CNH was upgraded to outperform from market perform at Raymond James

• In Chemicals: Ag chemical NTR was downgraded to Equal Weight from Overweight at Wells Fargo and cut tgt to $50 from $62 saying ahead of Q3 results, the firm see risks of lower crop prices setting the stage for muted earnings growth in 2025, with significant bifurcation within the sector.

• In Music: SPOT shares got a bounce after TikTok is closing its music service, just two years after parent company ByteDance set its sights on taking on streaming giants Spotify and Apple Music. TikTok Music will close Nov. 28, the company said Tuesday on its website. GOOGL’s YouTube Premium subscribers are reporting price hikes around the globe. YouTube is telling Premium subscribers outside the US that they’ll be paying more for the service soon, social media users began reporting over the weekend https://tinyurl.com/37xtpcp6 (WMG, SPOT, UMG moved in reaction)
• In Media: John Malone’s media company LBRDA said Monday it was considering an all-stock merger with CHTR. A merger would consolidate two public companies in which Malone holds significant interests. He holds a 49% voting stake in Liberty Broadband; Liberty in turn has a 26% interest in CHTR https://tinyurl.com/56bmnhay . In video games, Benchmark noted Former Rockstar Games technical director, Obbe Vermeij, suggested that a decision on whether to delay GTA 6 (TTWO) might not be made until May 2025, around four months before its anticipated release

• JAMF announced the appointment of David Rudow as CFO, replacing Ian Goodkind, effective November 28^th; also reaffirmed Q324 and 2025 guidance.
• SMAR to be acquired by Blackstone and Vista Equity Partners for $8.4B as Smartsheet shareholders to receive $56.50 per share in cash; to get termination fee of $500M if deal terminated under some conditions.
• SNOW announces proposed private placement of $2.0B of convertible senior notes; said expects to use net proceeds from offering to pay cost of capped call transactions.