Mid-Morning Look

Monday, July 15, 2024

U.S. stocks with a strong start to kick off the trading week, as markets react favorably to the improved odds outlook for Donald Trump to win the presidency this November after he survived an assassination attempt on Saturday, lifting stocks and the dollar, reviving risk appetite as U.S. equity futures climbed. Former President and Republican presidential candidate Donald Trump, 78, was shot in the ear in an assassination attempt during a campaign rally in Pennsylvania on Saturday but is “doing well” according to campaign as we head into the Republican National Convention this week in Milwaukee, WI (7/15-7/18). Stock markets will divide their attention between the start of earnings season this week and the U.S. election. The convention will bring the formal nomination of President Trump as the Republican candidate and should see the naming of his VP.

Smallcap strength continues rising over 1.5%, extending gains after the Russell 2000 Small-cap index (hits highest levels since Jan 2022) was up 6% last week, its biggest weekly % gain since week ended November 3, 2023, amid rising interest rate cut expectations by the Fed after cooler CPI data last Thursday. Defensive utility sector (XLU) dramatic underperformance vs. other sectors today falling about -2%, while Materials (XLB) lag given weaker China GDP data overnight weighing on metals/mining as well as weakness in U.S. listed China stocks (BABA, BIDU, PDD). Several sectors are seeing broad moves amid implications of election outlook, (see details below). Nasdaq continues massive 2024 outperformance vs. others, rising +0.8% after logging its sixth consecutive weekly gain on Friday and has been up in 10 of the last 11 weeks into earnings season. The S&P remains on track for its 9^th winning session in last 10 days.

• China’s economy grew much slower than expected in Q2, rising 4.7% in April-June, official data showed, its slowest since the first quarter of 2023 and missing a 5.1% forecast in a Reuters poll. It also slowed from the previous quarter’s 5.3% expansion. Of particular concern was the consumer sector, with retail sales growth grinding to an 18-month low.

• Solar sector tumbles: shares of ARRY, ENPH, FSLR, RUN, NOVA, SEDG, among those weak on day despite the broader stock market lift off; moves comes after President Trump odds of winning election surge after surviving an assassination attempt this weekend (current White House admin seen as very “green” friendly” – vs. Trump pro energy/oil). Separately, ARRY was upgraded to Buy at Citigroup noting shares are down >40% this year, likely on fears of project pushouts, unexpected CFO change, potential NT margin pressure due to freight costs, and ASP declines. Deutsche Bank previews sector saying FSLR its top pick as sees more upside on top of a stellar performance in Q2 >>one of the very few actionable names in the space, strong growth and perfectly positioned in the U.S. The firm said needs to see interest rates cuts and to be post-election for names like RUN to gain more traction.
• In REITs: In Towers: SBAC was downgraded to Equal Weight from Overweight at Wells Fargo with $220 PT saying valuation is attractive but sees no near-term catalysts on the horizon. CXW, GEO shares rise in private prison operator sector as a failed assassination attack over the weekend boosted former Trump’s bid to return to the White House. AHH downgraded to Hold from Buy at Jefferies saying although continues to have strong occupancy in office (93.6%) and retail (95.4%), firm expects the former will see pressures from natural attrition causing SS NOI growth to moderate to LSD in ’25. BMO upgraded UDR to Outperform from Market Perform and $45 target price, as it continues to favor coastal multifamily REITs heading into Q224 earnings.
• Bitcoin prices surged and stocks rallied after former President Donald Trump’s odds of retaking the White House jumped following an assassination attempt on Saturday. Bitcoin rebounded above $62,000 for the first time since the beginning of July (hit highs above $63,200, rising over 9%). Cryptocurrencies rallied in response to Trump’s odds jump. He is viewed as a more crypto-friendly candidate than President Joe Biden. Trump’s odds of retaking the White House jumped to 66% on Predict It, from about 60% prior to the shooting at Saturday’s rally. (COIN, CLSK, HUT, MARA, MSTR, RIOT surge).

• DJT +35%; after a failed assassination attack over the weekend boosted the former US president’s bid to return to the White House. Several sectors that are seen as benefitting from Trump in office saw strength early today including big oil (while solar names slipped), prison stocks (GEO, CXW), crypto (Bitcoin, COIN, MSTR).
• GS +1%; touches record highs earlier following its earnings results.
• HUM +2%; Managed care stocks (UNH, CI, ELV, HUM) another sector benefitting from increased odds that former President Trump may win in election given the events this past weekend (managed care industry been in fight with current White House administration over drug pricing).
• MSTR +9%; as crypto group spikes on Bitcoin price rising 9% to $62,800, highest in 2 weeks.
• SLDB +13%; was upgraded to Overweight from Neutral at JP Morgan and raised tgt to $15 from $10 noting post the label expansion for Sarepta’s Elevidys, the door appears wide open for potential accelerated approval pathways for SGT-003 in Duchenne muscular dystrophy in the U.S., pending positive momentum in the SGT-003 Phase 1/2 study.
• TSLA +6%; adds to last week’s gains following recent delivery production data.

• BIDU -5%; as U.S. listed China stocks tumble after weaker China GDP reading overnight weighs on several stocks (BABA, NTES, PDD, NIO, XPEV etc.)
• BURBY -18%; said its CEO to leave immediately and named former Coach boss Joshua Schulman to replace him. Burberry said the luxury market was proving more challenging than expected as comp store sales tumbled in all regions except Japan in its first quarter.
• CELH -10%; weakness in food & beverages as TD Cowen lowered tgts for many names (CELH to $68 from $85), KLG, MNST, TAP citing “sharply” slowing sales growth and expectations for easier comps in 2H24 due to last year’s Snap cutbacks no longer look so easy given sequential deterioration in sentiment.
• CZR -1%; downgraded to Negative from Neutral at Susquehanna with a $33 price target given its opinion it has “over-yielded” its properties over the past three years, leading to a competitively inferior set of assets in LV (vs. MGM) and regionally vs. PENN without any relevant digital prospects to offset.
• M -14%; terminates discussions with Arkhouse and Brigade saying the revised proposal lacks certainty of financing, remains non-actionable and does not provide compelling value. The retailer reiterates Board and Management’s commitment to shareholder value creation and confidence in “a bold new chapter” strategy.
• SEDG -13%; solar sector under pressure (ENPH, NOVA, FSLR) following election outlook given events this weekend; also company said its reducing its work force by 400 employees due to a buildup in inventory and a drop in revenue