Mid-Morning Look

Monday, June 24, 2024

U.S. stocks opened slightly lower before investors “bought the dip”, as ten of eleven S&P sectors are in the “green”, with the prior few weeks leader Technology (XLK) is the lone sector in the “red”. Semiconductors (SOX) fell nearly 2% this morning adding to last week’s pullbacks (after record highs on 6/18) but have already recovered much of those losses. Investors await a few potential market moving catalysts this week, with the Fed bank stress tests Wednesday after the close, then Q1-final GDP data Thursday morning, the Trump/Biden Presidential debate on Thursday night, and then the potentially pivotal PCE/core PCE inflation data on Friday morning (the Fed’s preferred inflation gauge). In macro news, markets were on alert for Japanese intervention as the dollar tested the 160-yen barrier after central bank comments overnight. Minutes of the central bank’s last policy meeting showed there was much discussion about tapering its bond buying and raising rates. Early leaders include Utilities (XLU), Financials (XLF) and Energy (XLE), all up over 1%. Federal Reserve Bank of Chicago President Austan Goolsbee, in the lone Fed speaker out this morning so far, said he is still looking for inflation to cool further as part of the process that would open the door to a rate cut. The Dow is hitting one-month highs, as the index outperforms the Nasdaq and S&P.

• In Fintech: Goldman Sachs assumed coverage of 4 FinTech stocks and upgraded AFRM to Buy, while downgrading PYPL to Neutral. The firm assumed coverage of SQ at Buy and MQ at Neutral. On AFRM, they expect its premium valuation to be supported by sustained strong growth in its consumer credit offering at the same time as it manages credit outcomes. 12m target, $42. On SQ, they see continued margin and revenue outperformance in its merchant business, cost containment, and gradual upside from its Cash App – all driving attractive risk/reward at current valuation levels.
• In Materials: In the lumber space (LPX, WY, RYAM, IP), According to Random Lengths, the Framing Lumber Composite fell $5 w/w to $375 (Elements estimate: $381) and the OSB Composite fell $44 w/w to $361 (Elements estimate: $345). For next week, RBC Capital forecasts that the RL Framing Lumber Composite will decrease $11 w/w to $364 and that the RL OSB Composite will fall another $29 w/w to $332. In containerboard (WRK, GPK, IP), Citigroup noted Containerboard prices rise +$30-40/ton in June, largely as expected – Friday after market P&PW published June Containerboard prices +$30-40/ton, reflecting partial realization of outstanding $50/ton+ price hikes. – Positive PKG. Boxboard prices reported by P&PW Friday were unchanged across the board, as expected. Neutral GPK.
• Goldman Sachs highlights Presidential Election Considerations heading into first debate on Thursday between Trump and Biden. Firm said Medicare Advantage Managed Care (CVS, HUM, UNH) have been discussed as potential Trump beneficiaries given greater debates about the outlook for the MA program under a second Biden term. Goldman also said ACA Beneficiaries (HCA, THC, UHS, OSCR, CNC). Rising Trump odds could be a headwind for Hospitals sentiment where the group’s YTD outperformance and elevated multiples have led to increased investor discussions that the stocks are not discounting the potential risks of the ACA “subsidy cliff” on HC procedure volumes in 2025.

• ALNY +28%; shares surged after announcing results of the highly anticipated Phase 3 HELIOS-B study of Vutrisiran in ATTR-CM. The study achieved 28% and 33% reduction in composite of all-cause mortality and recurrent cardiovascular events in both overall population (HR 0.718, p-value 0.0118, n=654) and in the monotherapy.
• ALT +20%; shares rose after pemvidutide data at the ADA meeting as new body composition data from the Phase 2 MOMENTUM trial show lean mass accounted for only 22% of weight lost in pemvidutide-treated patients.
• ARGX +8%; after saying the FDA has approved Vyvgart Hytrulo to treat adults with chronic inflammatory demyelinating polyneuropathy; the company on Friday said Vyvgart Hytrulo has been approved as a once weekly 30- to 90-second subcutaneous injection.
• BUD +3%; was upgraded to Buy from Neutral at UBS saying the beer maker is at the cusp of a significant free cashflow inflection and its $15B of excess cash can support accelerated cash returns.
• CNK +3%; was upgraded to Buy from Neutral at RothMKM and raised price tgt to $26 from $19 driven by: 1) meaningful box office improvement; 2) the company’s debt reduction plans; and 3) a likely reintroduction of capital returns.
• RXO +13%; as UPS agreed to sell its freight-brokerage business, Coyote Logistics, to RXO for $1.025 billion in cash. RXO said the acquisition will result in “annualized cost synergies” of at least $25 million.
• TDOC +8%; said its predictive AI-modeling leads to increased engagement among diabetes members, driving additional A1c reduction, new research shows.
• VSTO +2%; agreed to sell its sporting products and ammunition business to Czechoslovak Group for about $2 billion. Vista said the amended deal with CSG increases the cash consideration payable to its stockholders by $2.00 per share of Vista Outdoor common stock to $18.00 in cash, a 12.5% increase.

• DXCM -2%; sell on the news event after insulin/diabetes names pull back after ADA meeting this weekend (TNDM).
• GTHX -27%; shares dropped after its drug, Trilaciclib, failed to meet the main goal of a late-stage study in patients with a type of breast cancer that spreads to other parts of the body.
• NVDA -3%; as the pullback in semiconductors continues from last week after hitting all-time highs for the SOX index last Tuesday 6/18 at 5,792.86 (down around 5,450 this morning); AI plays open weak ARM, SMCI, DELL, etc.
• RMD -12% and INSP -13%; data showed Eli Lilly’s (LLY) drug tirzepatide (sold as Zepbound for weight loss) reduced obstructive sleep apnea severity. Citi downgraded ResMed after the SURMOUNT study showed that between 40%-50% of patients on tirzepatide had obstructive sleep apnea remission.