Mid-Morning Look

Thursday, August 15, 2024

What stock market fear, as VIX plunges below 15 from 65 in 2-weeks? After starting August off with three-straight market down (aggressive) days, its been all blue skies since, as U.S. stocks extend recent rally and on track for a 6^th straight day of gains for the S&P 500 and Nasdaq, nearly recovering all of its August declines following a round of good economic data this week, and strong earnings results from retailing giant and Dow component Wal-Mart (WMT) as shares hit record highs. Stock markets have rallied the last 2-days following tamer/in-line PPI and CPI inflation readings, but got another boost today as July retail sales topped consensus, easing recession fears and as investors are now fully counting on a 25bps rate cut in September and still 100-bps of cuts by year end. The Euro slides -0.5% at $1.0956 after topping 1.10 this week for the first time in 2024 as the dollar rallies on good economic data and Treasury yields spike, with the 10-yr up about 10-bps off morning lows (sending gold lower). The CBOE Volatility index (VIX) falls over -5% to 15.30 – lowest since 7/24 and off highs above 65 level on August 5^th. Very positive comments about the consumer from WMT following a double beat on Q2 and raised FY25 outlook saying that it’s gaining market share from higher-income consumers hunting for deals and company said they are not experiencing weaker consumer overall. Back to data, retail sales–a measure of spending at stores, online and in restaurants–rose a seasonally adjusted 1% last month from the month before, a pick up from June and above consensus. Biggest gains coming from Smallcap Russell 2000 up over 2% on rate cut expectations, but many growth sectors seeing early strength including tech, industrials, and consumer discretionary while defensive utilities and REITs lag. The Dow Jones Industrials back above 40K on WMT, CSCO, and NKE strength.

• Weekly Jobless Claims fell to 227,000 in latest week from 234,000 prior (consensus 235,000), while the 4-week moving average to 236,500 from 241,000 prior week and continued claims fell to 1.864M from 1.871M prior (est. 1.875M) and the U.S. insured unemployment rate unchanged at 1.2%.
• Philadelphia Fed business conditions August fell -7.0 vs. consensus +6.0 and vs July 13.9 for one of the few negative data points today as prices paid index August 24.0 vs July 19.8, new orders index August 14.6 vs July 20.7, employment index August -5.7 vs July 15.2 and the six-month business conditions August 15.4 vs July 38.7.
• NY Fed’s Empire state current business conditions index -4.7 in August vs. consensus -6.0 and vs. -6.6 in July as new orders index -7.9 in August vs -0.6 in July, prices paid index +23.4 in August vs +26.5 in July, employment index at -6.7 in August vs -7.9 in July, and six-month business conditions index +22.9 in August vs +25.8 in July.
• July import prices better rising +0.1% vs. consensus decline (-0.1%) and vs June unchanged while July export prices +0.7% vs. consensus unchanged and vs June (-0.3%); U.S. July petroleum import prices +0.5% vs June -2.0% and U.S. July year-over-year import prices +1.6%, export prices +1.4%.
• U.S. July Industrial Production declined (-0.6%), double the consensus for decline of (-0.3%) and sharply down from June +0.3% (previous +0.6%); capacity utilization rate tumbles to 77.8% from June’s 78.4% and below consensus 78.5%. U.S. July industrial output ex cars/parts -0.2% vs June +0.3%.
• June inventory/sales ratio 1.38 months’ worth vs May 1.38 months; June Business Inventories +0.3% (consensus +0.3%) vs May +0.5% (prev +0.5%); U.S. June business sales -0.1% vs May unchanged (prev unchanged); U.S. June retail inventories ex-autos unrevised at +0.2% (prev +0.2%).
• August NAHB Housing market index 39 below consensus 43 and compared to 41 in July; the NAHB August index of current single-family home sales 44 versus revised 46 in July (previous 47); August index of home sales over next six months 49 versus 48 in July (previous 48); lastly August index of prospective buyers 25 versus 27 in July (previous 27).

• In Insurance: PGR was upgraded to Buy at Goldman Sachs and raised tgt to $262 from $230 as they look for higher than expected policies in force (PIF) growth driven by its competitive position and advertising efficiency – supported by its better profitability vs. peers. ALL tgt raised to $204 from $199 at Goldman as well as continues to recommend Allstate given its view for an “underappreciated profitability inflection” in 2025. Separately, ALL estimated catastrophe losses for the month of July of $542M or $428M, after-tax; said catastrophe losses for July include 20 events estimated at $587M with initial loss estimate of $226M from hurricane beryl. GSHD was downgraded to Hold from Buy at TD Cowen and lowered tgt to $94 from $98 saying while the company’s 1H24 performance has been solid, with core revenues up 17% y/y and total revenues up 12%y/y, much of this appears priced into the stock.
• The U.S. government will save $6 billion in the first year from new prices the Biden administration has negotiated down by as much as 79% on 10 top-selling prescription drugs for the Medicare health program for older Americans. CMS agreed negotiated price for 30- day supply for CY2026 for many drugs today noting when negotiated prices go into effect in 2026, people enrolled in Medicare prescription drug coverage would save estimated $1.5B: Drug cut savings include:
• CMS rate cut proposal details: AZN Farxiga at $178.50, agreed to negotiated price for 30-day supply for CY 2026; MRK’s Januvia is $113.00 (down 79%), agreed to negotiated price for 30-day supply for cy 2026; BMY Eliquis at $231, agreed to negotiated price for 30-day supply for cy 2026, JNJ’s Janssen’s Stelara is $4,695, agreed to negotiated price for 30-day supply for cy 2026; For Pharmacyclics’ Imbruvica is $9,319, agreed to negotiated price for 30-day supply for cy 2026; JNJ’s Xarelto is $197.00, for AMGN agreed to negotiated price for 30-day supply for cy 2026 for Enbrel $2,355; NVO’s insulin products slashed by 76%. Drugs overall face cuts of between 68% and 38%.

• ASTS +22%; announces new direct-to-cellular tie-up with VZ where the telecom giant commits $100M to partnership to enable AST SpaceMobile to target 100% coverage of continental U.S. from space on premium 850 MHz cellular spectrum.
• CSCO +7%; Q4 results beat along with upbeat commentary regarding orders, AI, and Security; product orders grew 14% y/y, 6% excluding Splunk, which was up relatively sharply q/q; security orders were positive ex: Splunk citing the segment as driving nine-figure deals in FQ4 as well as strength in to FY25.
• HOOD +5%; was upgraded to Buy from Hold at Deutsche Bank and raise tgt to $24 from $21 joining Buy-rated SCHW within DBAB’s e-brokers, and it sees over 20% upside potential for both stocks over the next 12 months
• LITE +13%; reported Q4 results modestly above management guidance and consensus estimates while F1Q25 guidance was roughly in line with consensus expectations and announced a new 800G Cloud Provider win on last night’s call).
• NKE +4%; as Pershing Square’s William Ackman built new stakes in NKE during second quarter, according to regulatory filing, revealing Ackman’s hedge fund owns 3.04 mln class B shares of co.
• ULTA +10%; shares rose after a quarterly filing showed Warren Buffett’s Berkshire Hathaway acquired a sizeable stake in the cosmetics store chain worth $185.4M.
• WMT +6%; trade to all-time highs following a double beat after Q2 and raised FY25 outlook for +4.75% for sales, up from 4.00%. U.S. comparable sales ex-fuel beat estimates (+4.3% vs. +3.4%) and better Sam’s comps +5.2%, helped by higher units and transactions.

• SIGA -37%; after saying prelim analysis shows most mpox patients in a trial for co’s antiviral drug tecovirimat in Democratic Republic of Congo did not recover more quickly than those given placebo, which meant the drug failed in the study’s main goal; said study suggests tecovirimat provides clinical benefit in patients treated early/severe disease.
• SNOW ; stake was dissolved by Berkshire Hathaway according to latest quarterly filing and was downgraded to equal weight from overweight at Wells Fargo, slashing tgt to $130 from $200 saying sees near-term challenges due to rising competition from peers such as Databricks and larger rivals like CRM
• SPIR -32%; after notifying the SEC that its 10-Q filing for the quarter ended June 30 will be late.
• TITN -14%; cuts FY25 adjusted EPS view to 0c-$0.50 from $2.25-$2.75 and guides Q2 adj EPS around $0.17 on sales $634M, below consensus $0.60/$696M saying lower commodity prices and sustained high interest rates, along with mixed growing conditions have negatively affected farmer sentiment resulting in lower agriculture equipment sales.