Mid-Morning Look

Thursday, January 11, 2024

U.S. stocks volatile early, trading higher initially overnight into the 8:30 AM CPI inflation report, declined after the data came in “hotter” than expected, rallied on the open led by technology shares again and has since fallen sharply, back around yesterday lows as investors question what it means for future rate cuts. The S&P 500 (SPX) traded briefly above its all-time closing which high stands at 4,796.55, a level last seen on Jan. 3, 2022 – traded near yesterday lows and has since cut those losses in half in another “buy the dip”. The two big stories today are: 1) December consumer prices (CPI) came in hotter-than-expected, dampening expectations of an early start to interest-rate cuts. Data showed the headline CPI rose 3.4% in December on a yearly basis versus a 3.2% increase expected and core CPI, excluding volatile items like food and energy, rose 3.9% y/y versus expectations of a 3.8% increase. The data pushed Treasury yields higher. 2) Bitcoin and other crypto related assets are surging after the SEC approved 11 exchange-traded funds (ETFs) that invest directly in Bitcoin last night, broadening access to the cryptocurrency. Bitcoin prices topped $49,000 this morning (highest levels since Dec 2021) following the news before paring gains. Smallcaps underperform with the Russell 2000 tumbling more than large caps. With CPI behind us, next up is the December PPI tomorrow at 8:30 and bank earnings. NYSE breadth more than 4:1 decliners leading advancers, with all eleven S&P sectors in the red.

• Shelter inflation was up 6.15% YoY in Dec, down from 6.51% in Nov and the lowest since July 2022. Rent inflation was up 6.47% YoY in Dec, down from 6.87% in Nov and the lowest since July 2022. The annual increase in consumer prices has cooled from a peak of 9.1% in June 2022.
• Weekly jobless claims fell to 202K from 203K prior week and vs. consensus 210K; the 4-week moving average fell to 207,750 from 208,000 prior week; continued claims fell to 1.834M from 1.868M prior and vs. consensus 1.871M; the US insured unemployment rate fell to 1.2% from 1.3% prior week.

• In Utilities: AEP was downgraded to Neutral from Buy at Mizuho following a challenging rate decision in WV, the latest regulatory misstep by AEP in a yearlong streak of challenging decisions, which include the failed KY Power sale to Algonquin, a negative decision in Texas on plans to construct renewable generation, and a tough rate decision in OK. BMO Capital upgraded SO to Outperform from Market Perform and raise tgt to $77, SRE to Outperform from Market Perform with $84 tgt while downgraded LNT to Market Perform from Outperform as sees better risk-adjusted opportunities within the high-quality compounders bucket.
• In Lithium sector: Deutche Bank downgraded ALB from Buy to Hold and lowered its price target by $20 to $135 as believes a more cautious view over the near-to-medium term is prudent given the uncertainty and volatility in lithium prices. DBAB downgraded LAAC to Hold as views Cauchari-Olaroz as being a de-risked producing asset, being a JV with Ganfeng Lithium, and acknowledge further potential value could be unlocked with the Pastos Grandes basin. Lasty, DBAB downgraded SQM to Hold as believes the current terms of the proposed MoU are not favorable to SQM in the medium to long-term – coupled with their more neutral approach of the Lithium industry for 2024 and onwards.
• In Asset Managers: Monthly assets under management data: 1) AB preliminary assets under management increased 4% to $725B during December 2023 from $696B at the end of November. 2) APAM preliminary assets under management as of December 31, 2023, totaling $150.2B. 3) BEN preliminary month-end assets under management (AUM) of $1.46 trillion at December 31, 2023, compared to $1.41 trillion at November 30, 2023. 4) IVZ preliminary month-end assets under management (AUM) of $1,585.3B, an increase of 2.8% compared to the previous month-end. 5) LAZ preliminary assets under management as of December 31, 2023 totaled approximately $246.7B from $233.9B end. 6) TROW preliminary month-end assets under management of $1.45 trillion as of December 31, 2023. Preliminary net outflows were $9.4B for December 2023, and $28.3B for the quarter-ended December 31, 2023. 7) VCTR assets under management of $166.6B as of December 31, 2023, and average assets under management for December of $163.5B. 8) VRTS preliminary assets under management of $172.3B as of December 31, 2023.

• INFY +3%; reported better than feared Q3/FY24 results while also narrowing FY/24’s C/C revenue growth guidance (raising lower end by 50 BPTS and lowering upper end by 50 BPTS as well).
• MARA +2%; big gains in crypto initially, as Bitcoin related stocks such as COIN, HUT, MSTR, RIOT surged after the SEC approved 11 exchange-traded funds (ETFs) that invest directly in Bitcoin, broadening access to the cryptocurrency. Bitcoin prices topped $49,000 this morning following the news (BTC and stocks have since pulled back).
• NFLX +2%; is seeing strong growth of its advertising-based plan, having recently eclipsed 23M global monthly active users, up from >15M just over two months ago – Variety reported.
• TROW +2%; among top gainers in the S&P after monthly AUM data.

• C– 2%; said it recorded a $1.3 billion reserve build in q4 related to increases in transfer risk associated with exposures outside the U.S.; $1.7B charge to operating expenses in quarter (reports earnings tomorrow). Financials in general pressured on CPI report.
• HTZ -6%; after saying it will sell about 20,000 of its electric vehicles (EVs) from its U.S. fleet, about one-third of its global EV fleet, citing higher expenses related to collision and damage.
• KBH -3%; as Q4 EPS $1.85 vs. est. $1.69 and Q4 revs fell -14% y/y to $1.67B vs. est. $1.62B (both above consensus) but lowered its F2024 revenue target to $6.4B-$6.8B from $6.5B-$7.0B driven by a slightly lower community count growth (12% vs. prior of 15%) and the order shortfall in F4Q.
• SPWR -9%; downgraded to Neutral from Positive at Susquehanna and lowered the price target to $4, primarily given the slow recovery in California and the company’s relatively higher exposure to the market.
• SWN -2%; CHK to acquire rival SWN for $7.4 billion through a deal that would create one of the largest US natural gas producers. Chesapeake will pay $6.69 per share http://tinyurl.com/y5yjwpaz