Mid-Morning Look

Friday, December 20, 2024

U.S. stocks volatile on this busy option expiration Friday, with prices falling initially overnight on news of a rejected gov’t spending bill to avoid a government shutdown this weekend, tariff threats from President-elect Trump on the EU and fear ahead of this morning’s PCE inflation data. S&P futures hit overnight lows of 5,866 and Nasdaq futures fell more than 1.5% before the 8:30 AM data showed the Nov core PCE inflation reading improved slightly and came in better than economist estimates, leading to a rebound for major averages, now trading in positive territory and highs of morning. Now markets are in middle of choppy trading morning, digesting data, earnings, and news out of Washington as we head into the holiday Christmas week.

The risk-off mood persisted overnight, weighing on European markets on the threat of Trump tariffs on the EU and the risk of a US government shutdown. U.S. President-elect Donald Trump said that the European Union may face tariffs if the bloc does not cut its growing deficit with the United States by making large oil and gas trades with the world’s largest economy. Meanwhile the federal government dashed toward a holiday shutdown Friday, after the Republican-led House late Thursday rejected the spending package with 38 GOP lawmakers joining nearly all Democrats in voting against the bill. The Trump backed stop gap funding bill failed in the House 235 to 174; the spending bill would’ve also suspended the debt ceiling for 2 years.

In stocks news, lots going on this morning as well with a big decline for shares of Wegovy and Ozempic obesity drug maker NVO plunging after results from its long-awaited CagriSema results showed its next-gen obesity drug candidate weigh loss results were not as good as the company had anticipated. In retail, Dow component NKE reported better quarterly results, sending shares higher initially overnight before reversing lower on cautious CEO comments. In transports, FDX shares jumped on its results and news of a LTL business spinoff, but lower guidance reversed the gains.

Probably the biggest surprise of the week remains the December FOMC announcement on Wednesday where the committee changed its view on future federal funds rate to only twice in 2025, down from four cuts anticipated at the time of the September FOMC meeting, and one less the consensus expectation ahead of the December meeting. Cleveland Fed President Beth Hammack, in explaining her dissenting vote at this week’s Central bank meeting, said rates should be held steady until there’s more progress in cooling inflation. That news has boosted the US dollar, and Treasury yields in recent days while weighing on gold and crypto prices as Bitcoin prices are down from $108K record highs to lows around $92K this morning.

• Excluding food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings being 0.1% point below the forecast. The annual core inflation reading was the same as in October while the headline rate rose 0.1 percentage point.
• The readings reflected a small increase in goods prices and a 0.2% rise in services prices. Food and energy prices both posted 0.2% gains as well. On a 12-month basis, goods prices have fallen 0.4%, but services have risen 3.8%. Food prices were up 1.4% while energy fell 4%.
• Personal income rose 0.3% after having jumped 0.7% in October, falling short of the 0.4% estimate. On spending, personal expenditure increased 0.4%, one-tenth of a percentage point below the forecast. The personal saving rate edged lower to 4.4%.
• University of Michigan surveys of consumers 1-year inflation outlook final Dec 2.8% vs prelim 2.9% and final Nov 2.6% and the 5-year inflation outlook final Dec 3.0% vs prelim 3.1% and final Nov 3.2%
• University of Michigan surveys of consumers sentiment final Dec 74.0 (consensus 74.0) vs preliminary Dec 74.0 and final Nov 71.8; current conditions index final Dec 75.1 vs prelim Dec 77.7 and final Nov 63.9 and expectations index final Dec 73.3 vs prelim Dec 71.6 and final Nov 76.9.

• In Asset Managers/Investment Advisors: KBW said it is shifting its preferences in the M&A Independents space, downgrading LAZ to MP and upgrading EVR and MC to Outperform; within Traditional Asset Managers, KBW continues to recommend OP-rated BLK and remain cautious on BENsaid the pieces continue to fall into place for capital markets activity to see a strong rebound off 2024’s levels, with Strategics and Sponsors both re-engaging.
• In Industrials: Barclays said they see a negative read for CARR and TT after November Builds data as the November Builds data is slightly weaker than October y-o-y, the T3M Orders data declined -46%, and November orders declined -41%. T3M Builds down -21% y/y, T3M orders decrease -46% y/y; backlog continues to shrink. JCI was upgraded to Buy from Hold at Argus as expects its recent transformation to a pureplay provider of comprehensive solutions for commercial buildings to result in more consistent sales growth and margin improvement. ENVX shares bounced after saying ships first EX-2M samples to mobile phone customers manufactured in its Malaysian Fab 2 plant.

• CLW +17%; after Bloomberg reported Brazil’s Suzano is exploring an offer for them Clearwater, citing people with knowledge of the matter. The Brazilian company is working with an adviser as it seeks to reach a deal, though an agreement hasn’t been reached and it’s possible one won’t be struck https://tinyurl.com/mpkh3ru2
• ENVX +13%; after saying ships its first EX-2M Samples to Mobile Phone Customers
• HUMA +63%; FDA granted full approval of its bio-engineered human tissue product for adults with arterial injury.
• LLY +6%; as shares of other obesity stocks seeing strength on the NVO weakness including ALT, AMGN, VKTX)
• OXY +3%; Warren Buffett’s Berkshire Hathaway increased its stake in OXY purchasing about $409.2M in shares over the last three days in a filing; The filing revealed that Berkshire acquired 8.9M shares of Occidental Petroleum between Dec. 17 and Dec. 19, 2024.

• GALT -51%; after saying its experimental drug, Belapectin, to treat a fatty liver disease called metabolic dysfunction associated steatohepatitis (MASH) failed to meet the main goal in a clinical trial of reducing esophageal varices or enlarged veins in the esophagus that can lead to bleeding.
• NKE -2%; reported Q2 top-and-bottom-line beat, with broadly better sales, above-Street GM and nicely better SG&A, but mgmt was cautious on the conference call as co said it sees Q3 revenue down low-double digits, Q3 gross margin down 300-350 basis points.
• NVO -19%; results from its long-awaited CagriSema results. The next-gen obesity drug candidate led patients to lose 20% of their weight at 68 weeks in a late-stage study when looking at all participants, including those who dropped out. It led to 23% weight loss when considering only the participants who stuck with treatment. The company had earlier projected weight loss of about 25%. The news lifted shares of other obesity drug makers LLY, VKTX, ALT, AMG, GPCR.
• ODFL -6%; along with weakness in other LTL freight players such as XPO after FDX announced spinoff of business.
• X -5%; became the 3^rd steel producer to issue lower guidance this week (STLD, NUE as well), saying it expects 4Q’24 EBITDA to be ~$150m, below its original guidance of ~$225-275M and consensus of $266M and forecasts Q4 adj EPS loss (-$0.25-$0.29) vs. est. $0.16.