Mid-Morning Look

Monday, August 26, 2024

U.S. stocks opened higher, but technology tumbled on the open in a bout of profit taking after a massive run in stocks. The Dow Jones Industrials Average touched a new all-time intraday high, while the S&P and Nasdaq declined behind weakness in technology (XLK), the biggest drag in the S&P (while almost all other sectors are higher). The Nasdaq 100 (QQQs) came into the day roughly 5% off their all-time highs and 13% off the recent bottom, while the S&P 500 (SPX) is less than 1% off all-time highs in the final week of trading for August (rallied roughly 10% from the August 5 panic low).  World stock markets turned cautious on Monday as optimism that U.S. interest rates are coming soon was tempered by concern over increased tensions in the Middle East, with oil prices rising over 1.5%. Israel and Hezbollah traded rocket salvos and airstrikes on Sunday, stirring worries about possible oil supply disruptions if the conflict escalated (both Brent and WTI crude prices jumped). Last Friday, Federal Reserve chief Jerome Powell said the time had come to start easing policy and emphasized the central bank did not want to see further weakening in the labor market, which boosted stocks higher all day. Bitcoin touched $65,000 for the first time in about three weeks, aided by reviving demand for dedicated US exchange-traded funds amid signs that the Federal Reserve is set to loosen monetary policy. The crypto rose 1.2% to $65,030 on Monday before dipping back to $63,500, while gold inched toward a fresh record. U.S. listed China stocks getting crushed today behind a -30% decline in PDD shares on revenue miss. @charliebilello tweeted: “Last 10 Years…U.S. Tech stocks $XLK: +530%; Chinese Tech stocks $CQQQ: -13%”. @bespokeinvest tweeted “advancers are outnumbering decliners in the S&P today by ~4 to 1 yet the index is down, and the Nasdaq is down 1%+. All the mega-caps are red.”

• Dallas Fed Texas manufacturing index of general business activity -9.7 in August vs -17.5 in July; Dallas Fed Texas manufacturing output index 1.6 in August vs -1.3 in July.

• In IT Hardware: TD Cowen trims its CY24 PC outlook to +3%, maintain server view at +7%. The firm said the PC market grew 2% Y/Y during C1H24 despite the macro. Expect shipments to improve further in C2H on seasonality and Win11 upgrades but trim estimates modestly, leading to our new CY24 +3% Y/Y view. In Servers, we maintain our CY24 unit forecast of +7% Y/Y as C1H shipments were in line at +7%, and we expect C2H is on track given improving AI accelerator chip supply. Also in IT Hardware: TD Cowen with quarterly preview saying investor sentiment remains mixed on the IT HW space, noting checks indicate enterprise storage demand is trending slightly below expectations, AI server supply is improving & PCs are seeing seasonal growth. Into the print setups, TDCowen is tactically cautious on PSTG, slightly positive on DELL as it benefits from traditional server spending, neutral on NTAP . Looking past the print, TDCowen likes NTAP
• In Energy: Stocks got an overall boost behind a spike in oil following Middle east Tensions this weekend between Hezbollah and Israel and Libya headlines that its eastern-based government said on Monday that all oil fields are closing, halting production and exports. PBR was upgraded to Overweight from EW at Morgan Stanley saying the outlook for compelling total return in place as the stock is down 17% since its peak earlier in 2024 and has been flat over the past five months. In utilities, XEL was upgraded to Buy at Argus on data center potential and solid dividend growth.

• FCX +2%; strength in metals and mining names as well early with STLD also higher in the S&P.
• FSLR +5%; solar stocks extend last week’s gains on hopes that expected upcoming interest rates will help boost industry as shares of ENPH, ARRY, CSIQ, SHLS also push higher.
• PBR +6%; was upgraded to Overweight from EW at Morgan Stanley saying the outlook for compelling total return in place as the stock is down 17% since its peak earlier in 2024 and has been flat over the past five months.
• XPEV +7%; after a filing showed CEO insider buy as He Xiaopeng bought 1.4M Ads’ at avg $7.02 each; increases holding to 18.8%.

• COIN -2%; cryptocurrency and blockchain-related companies fall as bitcoin dips
• DQ -7%; shares stumbled after reporting Q2 results, as revs fell -65% y/y to $219.9M, well below the $333M estimate and reported a net loss of $119.8M vs. profit $103.7M y/y.
• ELF -8%; underperforms in the Beauty sector.
• GH -11%; as files for common stock offering late Friday of up to $400M.
• PDD -28%; as the Temu retail owner reported Q2 revs of 97.06 bln yuan ($13.64 bln), missing ests of 100 bln yuan and said looking ahead, revenue growth will inevitably face pressure due to intensified competition and external challenges; also noted that sales and marketing expenses jumped 48% in Q2.
• SEDG -7%; as announces leadership transition plan as Zvi Lando steps down as CEO and Ronen Faier, previously Chief Financial Officer, appointed interim CEO; Ariel Porat, senior VP finance, appointed CFO as part of company’s previously announced CFO succession plan.
• W -1%; was downgraded to Hold from Buy at Argus noting the company’s muted prospects due to decelerating home sales trends, with Q2 revenue for Wayfair having fallen 170bps and missing estimates.