Mid-Morning Look

Friday, June 21, 2024

U.S. stocks are mixed on this option expiration Friday, with the Dow Jones Industrials leading on the day/week after underperforming the prior week, while the Nasdaq and S&P 500 pullback from recent record highs Tuesday amid profit taking in tech leaders and semiconductors, as the strong group takes a breather. Note index rebalancing combined with triple with option expiry is causing a lot of random movement. As the S&P 500 recently hit yet another new record high (31x now in 2024), all credit must be given to technology stocks and specifically to Nvidia and the other mega caps that have been driving it higher. Treasury yields bounce following better PMI data (and are higher on the week) while the U.S. dollar extended gains vs. rival currencies, mostly the euro after the PMI data beat (follows weaker flash PMI readings in Eurozone overnight). Existing Home Sales data fell M/M but mostly in-line with record prices and a jump in inventory, while LEI data was weak yet again. There are a few standouts in the biotech space after data with SRPT, GILD, moving higher while insulin stocks in focus ahead of weekend ADA conference. Crypto stocks are weaker as Bitcoin drops to 5-week lows before paring losses.

• Existing Home Sales for May fall -0.7% M/M to 4.11M unit rate vs. consensus 4.10M and vs April 4.14M; inventory of homes for sale jumped in May, up 6.7% month-to-month and 18.5% higher than May of last year; May national median home price for existing homes $419,300 (a record high price in the Realtors’ recording), +5.8% Y/Y.
• Leading Economic Indicators (LEI) falls (-0.5%) vs. consensus (-0.3%); only two of the last 27-months have been positive (Feb of 2024 and Feb 2022).

• In Autos: used car retailer KMX reported Q1 revs fell -7.5% y/y to $7.11B missing the est. $7.2B and down from $7.69B a year ago while an about 33% dip in Q1 profit, as lower margins from vehicles sold continued to impact the used-vehicle industry; said Q1 retail used unit sales decreased 3.1% and comparable store used unit sales decreased 3.8% from prior year’s Q1. HTZ increased its previous offering and now plans to raise $1 billion through senior secured notes (had unveiled its plans to raise $750 million through a two-part note offering on Thursday).  In Chine electric vehicles (LI, NIO, XPEV), Prime Minister Justin Trudeau’s government is preparing potential new tariffs on Chinese-made electric vehicles to align Canada with actions taken by the US and European Union, Bloomberg reported.
• In Semiconductors: Philly semi index (SOX) fell as low as 5,482 after hitting record highs 5,792 on Tuesday, pulling back the last few days on profit taking behind drops in NVDA, ARM, AVGO, QCOM, MU and other big winners in 2024 (prices have since pared losses but still down over -1%); MU ests raised at Wolfe ahead of 6/26 earnings report saying near-term conditions are not the reason for our bullish view but rather the company’s EPS power longer-term – and see a plausible case to $20 EPS, with our $200 PT reflecting 10x that EPS power. STM announces completion of its 2021 share buy-back programs and launch of a new 3 year $1,100M share buy-back plan in 2024.
• In Crypto: Bitcoin prices fell as low as $63,200, the lowest level in 5-weeks before paring losses, dragging down other crypto names/miners (COIN, MARA, RIOT, CLSK, IREN); MSTR tgt was raised to $1,880 from $1,450 at TD Cowen following last week’s convertible notes offering, MicroStrategy has acquired another 12,000 bitcoins for $786M at an average price of $65,883; HUT price target raised to $17 from $12 at Benchmark.

• CTLT +3%; moves higher after SRPT Elevidys label expansion – earlier, RBC Capital said “believes this takes a binomial risk off the table (that Elevidys could be pulled from the market) and helps to firm up Catalent’s downside valuation.
• FDS +3%; among top gainers in the S&P after reported Q3 adj EPS $4.37 topping the $3.90 consensus on in-line revs of $552.7M and raises 2024 adjusted EPS view $16.00-$16.40 from $15.60-$16.00 (est. $15.98).
• GILD +3%; after late-stage study showed its injectable drug, lenacapavir, was more effective in preventing HIV infection in women versus its existing daily pill Truvada.
• NKE +1%; was upgraded to Outperform from Perform at Oppenheimer and raise tgt to $120 from $110 and was also mentioned positively in Barron’s saying shares of the athletic shoemaker have fallen, but the arrival of the Olympics could signal that a turnaround is set to begin.
• SPR +4%; after Reuters reported BA is nearing a deal to acquire Spirit AeroSystems (SPR) after its former subsidiary made substantial progress in separate talks with EADSY over a transatlantic breakup https://tinyurl.com/23smw2tp
• SRPT +37%; the FDA approved an expanded indication for its Duchenne muscular dystrophy (DMD) treatment Elevidys which was approved for ambulatory and non-ambulatory people, ages 4 and above, w/confirmed mutation in DMD gene

• CME -2%; downgraded to Underweight from Neutral at JP Morgan and cut tgt to $187 from $206 noting that FMX is entering the U.S. interest rate futures market in late summer and will compete with CME in its flagship futures contracts; firm sees FMX as a credible new entrant.
• COIN -4%; along with weakness in other crypto names MARA, RIOT, IREN, CLSK, HUT, MSTR as Bitcoin prices slip to 5-week lows around $63,200 this morning.
• NOC -1%; downgraded to Market Perform from Outperform at Bernstein with a $477 price target saying the catalysts for investors will come later and the B-21 program will lose money on low-rate initial production contracts through 2030.
• NVDA -3%; further pullback after Thursday decline in AI related plays/tech leaders with shares of SMCI, DELL, ARM, MU, QCOM among movers to the downside.
• PLTR -4%; downgraded to Sell from Neutral at Monness Crespi with $20 tgt citing the stock’s “gluttonous valuation” for the downgrade following a “dismal” earnings season for enterprise software.
• SWBI -13%; Q4 EPS and revs topped consensus, while CEO noted despite the highly competitive environment in traditionally slower summer season, co expects to continue growing on overall healthy demand in fiscal 2025.
• TREE -3%; d a unit hacked; stolen data being offered on dark web per Bloomberg noting that Snowflake (SNOW) had notified the company of the potential breach.