Mid-Morning Look

Tuesday, January 07, 2025

U.S. stocks were holding gains overnight/this morning, boosted by tech stocks after updates at the CES trade show from NVDA which helped boost sentiment, but a handful of economic data points showed a surge in job openings and a stronger ISM services report coupled with a jump in prices paid (inflation), sending U.S. stocks lower as the S&P 500 (SPX) failed to top 6,000. Following the data, Treasury yields spiked (10-yr 4.69%), along with a bounce in the US dollar as traders no longer fully price in Fed rate cut before July according to fed fund futures. The S&P 500 (SPX) pulled back below its 50-dma support around 5,951 following the market pullback as fears of higher inflation, and stronger services further reduces market hopes for an aggressive Fed to cut rates in 2025. Next mkt catalysts include the FOMC Meeting minutes tomorrow, ADP private payroll tomorrow and Nonfarm payrolls Friday before the unofficial start of earnings seasons kicks into gear next week with big bank earnings.

• The U.S. trade deficit widened in November, as the trade gap increased 6.2% to $78.2 billion from a revised $73.6 billion in October (ests were for trade deficit widening to $78.0B from the previously reported $73.8B in October). Imports rose 3.4% to $351.6 billion. Goods imports surged 4.3% to $280.9 billion. They were driven by a $3.7 billion increase in industrial supplies and materials, with crude oil imports rising $1.0 billion.
• ISM report on U.S. non-manufacturing sector PMI rises to 54.1 in December above consensus 53.3 and above 52.1 in November; the prices paid index (inflation) jumped to 64.4 (22-month high) in December vs 58.2 in November; new orders index 54.2 in December vs 53.7 in November and employment index 51.4 in December vs 51.5 in November.

• In Banks: BAC was upgraded from Neutral to Buy at UBS and raised tgt to $53 from $43 saying the bank is an overlooked beneficiary of Basel 3 endgame “softening.” Not only would BAC benefit from a less onerous final capital rule, but it has the strongest inclination among the money centers to buy back stock today. Goldman Sachs said they are looking for improving loan growth, strong NII improvement, fixed rate asset re-pricing, an upward sloping curve, potential de-regulation, and a more friendly bank M&A environment to drive upside for regional bank stocks with top picks TFC, RF, KEY, CFG, FITB, HBAN, and FCNCA. Additionally, they upgrade ZION to Buy (from Neutral) as we see a path to ROTCE improvement. Also, downgrade CMA to Neutral as we think fundamentals are improving at a slower rate vs. peers.
• In Restaurants: BLMN and DIN both downgraded to Equal Weight (from OW) at Barclays while the firm upgraded both BROS and SHAK to Overweight (from EW) as expects more of the same in ’25, with growth to prevail over value, led by fast casual, with comps & inflation moving favorably. Deutsche Bank said they are cautiously optimistic on the restaurant sector into 2025 with expectations for improving sales trends and moderate cost pressures, while valuations are undemanding. UBS said they have a more optimistic view on the restaurant sector sales outlook for ’25 as they anticipate the US macro backdrop and industry environment modestly improve as CMG, DPZ, DRI remain top picks in 2025 while downgraded DIN to Neutral from Buy with a $32 tgt. Oppenheimer upgraded CAKE to Outperform and downgraded BJRI to Perform while establish 2025 “top picks” as YUM, DRI, SHAK; saying the overall outlook for underlying restaurant fundamentals is improving into 2025; however, OPCO also flags recent FX rates as EPS headwinds for multi-nationals.
• In Media: DIS was upgraded from Neutral to Buy at Redburn and raised tgt to $147 from $100 saying after years of cord-cutting pressures, Disney is finally at a point where streaming profit growth will more than offset linear TV declines – signaling the end of a structural headwind that has curtailed Disney share price appreciation. PARA and CMCSA announced the renewal of their comprehensive distribution agreements to continue delivering Paramount’s leading portfolio of broadcast, entertainment, news and sports brands across Xfinity platforms. ROKU was named a top pick for 2025 at Needham saying the two most important upside valuation drivers in 2025 will be connected TV (CTV) ad growth, and industry consolidation which ROKU benefits both from.

• ENVX +25%; after saying it received a sizable pre-paid purchase order from a Silicon Valley-based global technology leader in Artificial Intelligence (AI) and immersive technologies.
• GETY +46%; along with gains in SSTK after the two companies agreed to combine in a merger of equals transaction. The combined company, which would have an enterprise value of approximately $3.7B, will be named Getty Images Holdings, Inc and will continue to trade on the NYSE under the ticker symbol “GETY”
• MRNA +9%; along with other vaccine makers PFE, NVAX, CVAC amid increasing concerns around bird flu that could be contributing to the vaccine makers’ recent share gains.
• MU +5%; after NVDA CEO said at CES last night that Micron was providing memory for GeForce RTX 50 Blackwell family of gaming chips.
• NARI +20%; SYK agreed to acquire NARI for ~$4.9 bln in an all-cash for stock transaction (funded by cash on hand and debt), paying $80 per share, confirming a prior report on Monday by Reuters.
• ULTA +2%; after provided a trading update and mgmt change as Dave Kimbell to retire as Ulta Beauty CEO and Kecia Steelman appointed President and CEO of Ulta Beauty; for Q4, the company now anticipates comp sales will modestly increase, with operating margin above the prior 11.6%-12.4% range.
• UNF +31%; after the WSJ reported CTAS and made a $5.1B takeover offer for the provider of workplace uniforms and protective work gear, offering to acquire all UNF outstanding common and Class B shares for $275 per share in cash (a 62% premium to yesterday close). https://tinyurl.com/398y4txa (companies late confirmed deal offer)

• PLTR -5%; among top S&P 500 decliners for a second day; was initiated at underweight and $60 price target on Monday by Morgan Stanley saying success is more than priced in at the current multiple premiums.
• SLRN -33%; shares slid after presented updated Phase 2 results for lonigutamab that competes directly with VRDN-003 in TED as a subcutaneous (SC) therapy.
• SYK -2%; after confirms to acquire NARI for ~$4.9 bln in an all-cash for stock transaction (funded by cash on hand and debt), paying $80 per share, confirming a prior report on Monday by Reuters.
• TOL -1%; interest rate sensitive stock sectors such as homebuilders (PHM, LEN, DHI) pulled back following the spike in Treasury yields after the 10:00 economic data.
• TSLA -3%; was downgraded to Neutral from Buy at Bank America while raising its tgt to $490 from $400 saying since their upgrade in April of 2024, news flow and investor sentiment have shifted more positively and catalysts around future growth drivers have been more fully recognized.