Mid-Morning Look

Thursday, April 25, 2024

U.S. stocks tumble amid a flurry of negative catalysts and interest rate developments following economic data, as major U.S. stock averages giving back much of this week’s gains. U.S. GDP expanded by 1.6% in the first quarter, below the economist forecast of 2.4% and well below the prior reading of 3.4%. Coupled with the weakening economy, inflation data surged which was not a welcome sight for those banking on Fed rate cuts later this year. The Q1 Core PCE, the Fed’s favored measure of inflation, was reported +3.7% above consensus +3.4% (prior +2.0%), Q1 GDP deflator +3.1% vs. consensus +3.0% (prior +1.6%). The data comes ahead of the more up-to-date March PCE data tomorrow morning along with personal income/spending. The 10-year Treasury yield climbed to 4.74% (highest since early November) after fed futures now forecast no rate cuts this year by the Fed, a sharp contrast to the 5-6 cuts markets were counting on to start the year and the Fed’s 3-cut forecast earlier. If the data was not disappointing enough, technology stocks taking it on the chin after META reported a beat for Q1, but shares tumbled over 15% after forecasting higher spending and capex for AI development (hitting other big tech/social media names). There were plenty of positive earnings results this morning (Dow component MRK, CMG in restaurants, TER in semis), but also plenty of disappointments (Dow component CAT in machinery, ADYEY in payments, IBM in hardware, and bad leisure products results/comments from HOG, BC, HXO). Next up, earnings results from GOOGL and MSFT tonight after the close looking to boost beaten up tech. All eleven S&P sectors were down and NYSE breadth about 10:1 decliners leading advancers.

• Weekly Jobless Claims fell to 207,000 from 212,000 last week and below consensus 215,000; the 4-week moving average fell to 213,250 from 214,500 prior week; continued claims fell to 1.781M from 1.796M prior week and the US insured unemployment rate unchanged at 1.2%.
• March Pending Home sales index +3.4% (consensus +0.8%) to 78.2 and were up +0.1% from March 2023.

• In Pharma/Biotech: ABBV said its drug, Rinvoq, for treating a type of inflammatory skin condition showed superior efficacy to REGN and SNY’s Dupixent in a late-stage head-to-head study. AZN Q1 sales coming in 7% ahead of expectations with broad based strength across the product franchise including Oncology, Cardiology, Rare Disease and Respiratory. BMRN reported in-line 1Q total revenue and a non-GAAP EPS beat on lower OpEx ($649mn and $0.71 vs. consensus of $651mn and $0.61). BMY Q1 revs $11.87B topped $11.48B estimate though sales of cancer drug Opdivo was $2.08B missing ests; cut its FY24 outlook due to deal expenses, maintains rev outlook; says targeting $1.5B cost savings by end of 2025, to be reinvested into innovation. MRK 1Q results beat helped by Keytruda Strength and raises guidance; lower SG&A Drives EPS Beat $2.07 (vs. $1.90); forecasts FY adj EPS $8.53 to $8.65, forecast $8.44 to $8.59; Raises FY24 revenue view to $63.1B-$64.3B from $62.7B-$64.2B, vs. consensus $63.83B.
• In Leisure products: in cruise lines, RCL boosted its annual profit forecast for a second time this year after Q1 revs rose 29% y/y to $3.73B (vs. est. 43.69B) on strong demand and higher prices; Boating space weak as HZO lowered its FY net income view to $2.20-$3.20 from prior range of $3.20-$3.70 after missing Q1 results and BC shares fell after in-line Q1 results but guided Q2 EPS and revs below views ($1.85-$2.05 vs. est. $2.04 and revs $1.5B-$1.6B vs. est. $1.61B); in motorcycles, HOG shares tumble as revs fell -3% y/y to $1.73B but topped consensus saying the decline was driven by the decrease in wholesale shipments and lower global pricing; said Motorcycle shipments declined about 7% to 57,700 from 62,200.

• HCP +4%; as IBM confirms prior reports, they will buy HCP in a deal valued at $6.4 billion, paying $35 per share.
• MRK +2%; 1Q results beat helped by Keytruda Strength and raises guidance; lower SG&A Drives EPS Beat $2.07 (vs. $1.90); forecasts FY adj EPS $8.53 to $8.65, forecast $8.44 to $8.59; Raises FY24 revenue view.
• NGLOY +13%; on reports BHP is weighing a possible acquisition of Anglo American (NGLOY), Bloomberg reported last night https://tinyurl.com/ms4hmvn6 ; Separately, Anglo American is considering a sale of its De Beers diamond unit and has held discussions with potential buyers, a separate process from BHP’s takeover bid https://tinyurl.com/2s3umvtw  
• PI +15%; shares jumped as reported Q124 results and provided Q224 guidance ahead of expectations while the ongoing adoption of RFID continues with key 2024 customer deployments on track.
• TER +8%; forecasts Q2 profit and revenue above estimates after beating analysts’ expectations for Q1 results as benefits from strong demand for its chip-testing equipment used by memory and networking chips.

• CAT -8%; Q1 revs of $15.8B misses the $16B estimate (Q1 EPS beat) and said expects Q2 sales to decline and turn flat annually as demand for construction equipment eased.
• HOG -15%; as revs fell -3% y/y to $1.73B but topped consensus saying the decline was driven by the decrease in wholesale shipments and lower global pricing; said Motorcycle shipments declined about 7% to 57,700 from 62,200.
• HTZ -17%; swung to a wider Q1 loss of (-$1.28) vs. est. loss (-$0.45) while revs rose 2% to $2.08B topping $2.04B estimate; said Direct operating expenses were up 3% y/y.
• IBM -8%; confirms agreement to acquire HCP for $35 per share in cash, while IBM shares fell on results/guidance as EPS beat by about $0.09 on better margins (rose 100bps to 54.7% vs. the Street 54.1%) while revs fell a bit short, a function of Consulting (+2% FXN vs. est. +6%) while Software did a bit better (+6% vs. the Street +5%); guidance unchanged.
• LUV -9%; cut its annual capacity forecast and now expects available seat miles to be up about 4% from previous estimate of about a 6% growth; said to exit certain airports as loss widens, revenue falls short.
• META -13%; tumbles as reported beats for Q1 results but shares sunk behind rises expenses and capex saying sees FY24 Total Expenses $96B-$99B (from $94B-$99B); said continues to expect operating losses for reality labs to increase meaningfully y/y; sees year capex for 2024 $35B-$40B up from prior $30B-$37B.
• MNST -3%; downgraded to Neutral from Overweight at JP Morgan citing cost pressures and weaker low-end consumer and was double downgraded to Sell from Buy and cut tgt to $46 from $65 saying while they still view Monster as a great company, it no longer sees it as a high growth story.
• NOW -5%; forecast Q2 subscription revenue in range of $2.525B-$2.53B below estimates of $2.540B saying businesses are spending cautiously in tough economy; comes after better Q1 results.
• WHR -9%; after results as RBC Capital noted significantly weaker core MDA NA margins were masked by interest/sundry gains, restructuring exclusions (vs. RBC’s ests.), and better trends in SDA/LatAm, with the maintained FY’24 NA margin guide now looking like even more of a stretch.