Mid-Morning Look

Friday, July 12, 2024

After one of the worst selloffs of the year for large cap stocks, the Nasdaq and S&P 500 index are posting strong bounces, looking to make up 8 of last 9 trading days heading into the start of earnings season next week. Big banks kicked things off this morning with Citi (C), JPM and Wells (WFC) all falling initially after results (details below). WFC tumbles the most following an NII miss and expense guide. After surging yesterday over 3.5% the Russell 2000 index is adding to gains amid rising hopes that the Fed will cut rates in September and further later in 2024 after yesterday’s tame CPI report. Today, however, saw a much “hotter” producer price index (PPI) inflation reading, well above consensus while the prior month was upwardly revised. Stocks shook the data off as the rally commenced on the open with the tech heavy Nasdaq rising over 100-points. U.S. consumer sentiment falls to eight-month low as inflation worries persist – again markets shake off data, looking to buy the Thursday dip. The Dow Jones Industrial Average moved to within 100-points from 40k, below the ATH of 40,077. After a one day near -2% drop for the Nasdaq, investors are back into buying the tech heavy space with semis (SOX) leading the bounce (NVDA, ARM).  Despite yesterday’s declines in S&P and Nasdaq, major averages remain on track for weekly advances while the Russell 2000 on track for more than a 5% gain on the week in big catchup move.

• University of Michigan surveys of consumers sentiment prelim July 66.0 (consensus 68.5) vs final June 68.2; current conditions index prelim July 64.1 (consensus 66.3) vs final June 65.9; expectations index prelim July 67.2 (consensus 69.8) vs final June 69.6; 1-year inflation outlook prelim July 2.9% vs final June 3.0% and surveys of consumers 5-year inflation outlook prelim July 2.9% vs final June 3.0%.

• In Chemicals: Citigroup provided a chemicals preview saying they see a challenging lithium market ahead with the most weakness in lithium for Q2 and the balance of the year, with continued spot/index price declines and few signs of supply cuts. ALB ests cut at Citi, revised -12% downward, and it takes a negative short-term view on the quarter, while maintains constructive end-market view on electronics and flavors & fragrances – DD and IFF are its #2 and #3 picks. RBC Capital lowered Q2, FY24, FY25 estimates for DOW, LYB, OLN, WLK, CE and EMN saying expectations of a steeper recovery in 2H24 have become somewhat muted due to a generally sluggish macro. IPAR was upgraded to buy from Hold at Jefferies saying shares are oversold after dropping 17% year-to-date.
• In Autos: TSLA was downgraded to Sell from Neutral at UBS and cut tgt to $197 saying it is increasingly difficult to justify valuation. The firm said TSLA has always had a premium attached to it for other future growth initiatives, but notes this premium has widened of late, UBS believes, on AI enthusiasm. In auto suppliers, Citigroup opened 30-day upside watches for BWA and APTV on expectations for improving sentiment, and a 30-day downside view on MGA on elevated Q2 consensus and guidance risk. Electric vehicle stocks EVGO, CHPT, RIVN seeing early strength.

• BK +4%; on results as Q2 adj EPS $1.51 vs. est. $1.43; Q2 net interest margin 1.15%, Q2 adj revs $4.60B vs. est. $4.52B; said other total fee and other revenue $3.57B; Q2 Return on equity 12.7%.
• DECK +1%; announced a 6 for 1- stock split announcement.
• ERIC +4%; reported better-than-expected Q2 sales and profitability saying a new 5G patent licensing deal was signed during Q2, lifting licensing revenue to 3.9B Swedish kronor ($371.6M) and keeping it on track to deliver SEK12B-SEK13B of licensing revenue this year; Q2 sales fell 7.1% in the quarter to SEK59.85B topping est. SEK58.58B.
• EVGO +13%; along with solid gains in QS, CHPT, RIVN as electric vehicle names outperform.
• FAST +5%; reported in-line Q2 EPS $0.51/sales rose 1.8% y/y to $1.92B, while Q2 operating profit margins came in at 20.2%, down from 21% a year ago.
• TECK +4%; after Sky News reported that RIO is studying a refreshed list of takeover targets including Teck after the collapse of rival BHP’s bid for Anglo American (NGLOY). Sky said Rio had drawn up detailed proposals for a potential bid for Teck, which included approaching banks for financing a deal.

• JPM -2%; after mixed results as charge-offs rose $820 million in 2Q to $2.2 billion, as more credit cards were opened, and credit conditions continued to normalize.
• META 2%; as a handful of large cap tech extend Thursday weakness.
• T -2%; said it learned of the data breach on April 19 (related to 2022 data), and that it was unrelated to its earlier security incident in March. The most recent compromise of customer records was stolen from the cloud data giant SNOW during a recent spate of data thefts targeting Snowflake’s customers.
• WFC -7%; Q2 EPS $1.33 tops est. $1.29 on revs $20.69B vs. est. $20.28B; Q2 net interest income fell -9% to $11.92B, below est. $12.12B due to the impact of higher interest rates on funding costs; Q2 net interest margin 2.75%.