Mid-Morning Look

Tuesday, April 02, 2024

U.S. stocks suffering the first notable broad market pullback since the middle of March, as nearly all S&P sectors (sans Energy and Utes) are sharply lower, with risk assets sold (Bitcoin down over 5% below $66K), following a bevy of negative data points/market headlines this morning. A day full of negative news thus far, with managed care/insurers tumbling (HUM, UNH, ELV) after said late Monday that 2025 payment rates for Medicare Advantage plans will be largely identical to a January proposal the insurance industry had argued was too low. Homebuilders (TOL, LEN, KBH) shares tumbled, pressured by a spike in Treasury yields/analyst comments/downgrades in space. Apparel retail/luxury names fall behind lower guidance from PVH overnight sinking shares. Electric vehicle names fall (TSLA, RIVN) after Delivery/production estimates disappoint. Interest rate sensitive names (lending, dividend payers, etc.) pressured after the ISM data yesterday raised fears of less rate cuts this year by the Fed/prompting a jump in Treasury yields/the dollar. The one constant bright spot in recent weeks is precious metals, as gold prices hit another fresh record high nearing $2,300 an ounce as investors flee to safety. The CBOE Volatility Index (VIX) hits 2-week highs back above 15.0

US Treasury 10-year yield spike again, hitting the highest since late November above 4.4%, last up 5 bps at 4.37% after jumping nearly 13-bps the day before on strong ISM Manufacturing data/jump in prices paid data. From market calls of interest rate cuts on track for June (mkt still seeing at least 3 in remainder of 2024 as of last Friday on mostly in-line PCE data), markets quickly changing tune in recent days of less/no cuts, prompting a recent spike in Treasury yields and the dollar and raising some concern for a stock market that is eagerly awaiting rate cuts this year.

• Factory Orders M/M for Feb rose 1.4% vs. consensus +1.0% and vs January (-3.8%); nondurables orders +1.6% vs Jan -0.8%; total manufacturing inventories +0.3% vs Jan -0.1%; Feb inventories/shipments ratio 1.47 months’ worth vs Jan 1.49 months.

• In Cannabis: the Florida Supreme Court approved the proposed amendment for adult use cannabis to be placed on the 2024 General Election ballot. While a favorable ruling had been largely anticipated, the decision will be well-received, given the revenue potential from a state that already generates close to $2 bn in annualized revenue from medical cannabis alone. Come November, to pass, the ballot initiative will need 60% voter approval according to a Wedbush report: shares of MSOS, TCNNF, CURLF, TLRY, CGC, ACB among movers.
• In Food & Beverages: BF/B was upgraded to Neutral at Citigroup, noting they have been Sell-rated since its February 2023 initiation, with its thesis centered on an expected slowdown in the spirits category after the large acceleration post COVID, with high inventory levels at the distributor and consumer level as well as weaker macro conditions. MKC was upgraded to Buy from Hold at Argus with an $88 price target saying the company can reverse the weak volumes in certain regions while noting that it should also benefit from new products, enhanced packaging, and its ability to narrow the pricing gaps with private-label brands.

• CHX +8%; as SLB agreed to acquire oilfield service provider CHX in an all-stock deal, where ChampionX shareholders will receive 0.735 SLB shares for each share of ChampionX https://tinyurl.com/2v3wp3df
• NEM +1%; as gold miners rise following spike in gold prices to new record highs.
• PSX +2%; among leaders in S&P/energy complex after spike in WTI crude oil to November highs above $85.
• ROIV +7%; announced that an autoimmune drug it acquired from PFE succeeded in a Phase 2 trial as it blocks two proteins, including TYK2, a hot target for industry in the last couple years; Roivant also said it would spend up to $1.5 billion on a share buyback program.
• UPS +1%; extends gains after winning USPS contract from FDX announced the day prior.

• BMEA -13%; downgraded from Overweight to Neutral at JP Morgan and slashed tgt to $14 from $51 on the heels of Q4 results (per share loss of $0.98) and preliminary data from the COVALENT-112 study (BMF-219 for T1D).
• GOEV -36%; after posted 4Q23 results that included revenue generation from delivering vehicles to its first commercial customers, issued lackluster full-year 2024 revenue guidance of $50-100M vs. est. $153M estimate and 2024 cash outflow guidance while raised a going concern doubt.
• GRTS -48%; after announced 21.6Mm shares, including 13.3Mmn pre-funded warrants, for $32.5M as offering price of $1.50 represents ~36% discount to stock’s last sale. Accompanying warrants to buy up to an additional 21.6Mm shares expiring in one year, are exercisable immediately with exercise price of $1.65.
• HUM -13%; among weakest medical insurers after CMS said late Monday that 2025 payment rates for Medicare Advantage plans will be largely identical to a January proposal the insurance industry had argued was too low (HUM underperformed UNH, CNC, others as they are more leveraged to Medicare rates).
• MSTR -7%; as cryptocurrency-linked companies fell after a strong rally in March and YTD following increased demand for dedicated US exchange-traded funds. Bitcoin prices fell over 6% below $66,000.
• PVH -21%; as a beat on top and bottom line for Q4 was overshadowed by weaker guidance as sees FY24 op mgn approx flat vs 10.1% and EPS $10.75-11.00 vs est. $12.08; sees Q1 revs approx -11% (-3% from sales of Heritage Brands) vs est. -3.7% and EPS approx $2.15 vs est. $2.59.
• TSLA -5%; as reported Q1 deliveries 386,810 well below consensus around 449K, as analyst estimates had fallen in recent weeks with lows calling for just above 400K (so missing worst ests); decline in volumes in Q1 partially due to early phase of production ramp of updated model 3 at Fremont factory and factory shutdowns.
• VEEV -6%; issued an 8-K reiterating total revenue and adjusted operating income guidance (for both F1Q and FY25) as well as disclosing that Brent Bowman will be exiting as CFO effective immediately, to be succeeded in the interim by former CFO Tim Cabral.
• VERV -41%; shares tumbled after pausing its enrollment of its early-stage study testing its gene editing therapy called VERVE-101 after a patient enrolled in the study experienced a severe drug-related adverse event (saw a rise in levels of a problem-causing liver enzyme and abnormally low levels of blood platelets).