Mid-Morning Look

Tuesday, June 18, 2024

U.S. stocks open higher, trading mixed as the S&P 500 index looks to extend its record high closes in 2024 to 31 days while the Nasdaq looks to make it a 7^th straight day of record closing highs in what has been a massive upward momentum move for U.S. stocks in recent weeks, led by large cap tech. Mixed economic data today as U.S. industrial-production pickup in May was the sharpest in 10 months and above consensus while Retail Sales for May rose +0.1%, but was less than economists forecast. Markets await more commentary from a slew of Federal Reserve officials later in the day, but the general message in recent weeks has been “waiting for more data, likely rates higher for longer, but rate cuts are still expected in 2024”. The Philadelphia Semiconductor index (SOX) made another record high topping 5,750 and now up 12% in June, 36% YTD after a +40% jump in 2023 with big gains in NVDA, QCOM, MU, TSM and equipment names. U.S. Treasury yields fell (10-yr down 2bps to 4.26%) after data showed retail sales grew less than expected last month, keeping the Federal Reserve on track to lower interest rates this year. At the front end of the curve, the two-year yield dropped -3 6bps to 4.72%. Energy (XLE) is leading the S&P early up over 1.5% as oil prices have edged back above $80 per barrel for WTI, while Utilities (XLU) and Consumer Discretionary (XLY) are declining. Expect choppiness into a rare mid-week stock market closure on Wednesday with a holiday. CMG, HLT, COST, WMT, CL among stocks hitting all-time highs in consumer space and AVGO, ANET, AMAT, MU, QCOM, ORCL, LRCX in tech space. Bitcoin prices slip over -2% to $65,000 while the dollar and Treasury yields dip and gold edges higher.

• Industrial Production rises +0.9% vs. consensus +0.3% and vs April unchanged while Capacity Utilization rate was 78.7% vs. consensus 78.6% and vs April 78.2% (previous 78.4%). May mining output +0.3% (vs. April -0.7%), utilities output +1.6% (vs. April +4.1%). U.S. May motor vehicle assembly rate climbed to 11.19M units/year from April 11.15M units.
• April Business Inventories rose +0.3%, in-line with consensus +0.3% and vs March -0.1%; April business sales +0.3% vs March -0.2% (prior -0.1%) and U.S. April retail inventories ex-autos unrevised at +0.3% (prev +0.3%).

• In Metals & Mining: in the aluminum Sector (AA, CENX, RIO), Reuters reported Global aluminium producers have offered Japanese buyers’ premiums of $185 to $190 per metric ton for July-September primary metal shipments, up 25% to 31% from the current quarter, three people directly involved in quarterly pricing talks said. Copper stocks (FCX, SCCO) have been weak as copper prices dropped are now down about 15% from May record highs, continued their downward trajectory on the back of stronger USD headwinds and still weak macro data out of China. Chinese macro data showed industrial production growing at 5.6% y/y (vs. 6.0% cons.) and fixed asset investment up 4.0% YTD (vs. 4.2% cons.).
• In Homebuilders: LEN reported Q2 EPS $3.45 vs. est. $3.24; Q3 revs rose 9.6% y/y to $8.77B vs. est. $8.57B on slightly better deliveries of 19,690 (KBW est. 19,294) and Gross margin of 22.6%, +10 bps Y/Y. Orders of 21,293 homes were also slightly better while guidance includes deliveries of 20,500-21,000. U.S. home prices rose 0.3% month over month in May–the smallest increase on a seasonally adjusted basis since January 2023, per a new report from RDFN. Prices climbed 7.2% from a year earlier, but annual growth showed signs of plateauing. New listings rose 0.3% month over month in May on a seasonally adjusted basis and climbed 8.8% from a year earlier, though -20% below pre-pandemic.
• In Grocers: KR was upgraded to Outperform at BMO Capital and raise tgt to $60 from $58 noting the stock has pulled back on fear of increasing price investments across the space, but the firm believes KR’s positioning in the industry allows it to continue managing the competitive environment with stable GM%. Additionally, BMO sees the pending KR-ACI deal as a win-win under either a deal or no-deal scenario. Carrefour (CRRFY) shares fell to 4-year lows after the French finance ministry requested a fine for alleged abusive practices by the group toward its franchisees.

• ITCI +7%; reported positive results from a second, Phase 3 clinical trial seeking to expand the use of its antipsychotic medicine Caplyta to patients with major depressive disorder.
• KR +2%; was upgraded to Outperform at BMO Capital and raise tgt to $60 from $58 noting the stock has pulled back on fear of increasing price investments across the space, but the firm believes KR’s positioning in the industry allows it to continue managing the competitive environment with stable GM%.
• LZB +16%; as Q4 adj EPS $0.95 tops est. $0.70 on sales $554Mm vs est. $516.44Mm, and guides Q1 sales $475-495Mm vs est. $475.65Mm, saying expect Q1 to be lowest sales and margin quarter of the year.
• MU +5%; trading all-time highs and helping lift semis ahead of earnings next week, was added to Bank America US 1 list, brokers raise ests and tgt toward the upper end of the guidance range on better memory pricing.
• OXY +2%; amid strength in energy stocks today and after Berkshire Hathaway bought 2.9Mm shares more of OXY on June 13, 14, and 17 for about $173Mm, according to an SEC form 4 filing and now owns 255.3M shares.
• RKLB +8%; signs a 10-launch deal with Japanese Earth observation company Synspective; its largest launch agreement for its Electron rocket.
• SILK +25%; after agreed to be acquired by BSX for $27.50 per share in a deal valued at just under $1.2 billion, representing a 27% premium over the closing price of $21.67 a share on Monday https://tinyurl.com/ja4e5xf5

• MRNA -4%; extending recent slide, as vaccine maker down an 8th straight day and -14% in that span.
• NEE -3%; after the renewable utility said it intends to sell $2 billion of equity units.
• PM -1%; after the company stopped online sales of its popular nicotine pouch brand Zyn in the US after an affiliate received a subpoena in the District of Columbia.
• URGN -7%; prices underwritten public offering of 5M ordinary shares at a price to public of $17.50 per ordinary share.
• ZNTL -23%; after the company said the FDA placed partial clinical holds on three of its cancer treatment studies for its drug, Azenosertib, and said they are working with the regulator to resolve as quickly as possible.