Mid-Morning Look

Friday, November 15, 2024

After months of upward stock market price action, including monstrous gains last week following the Presidential election outcome and FOMC 25 bps rate cut, U.S. stocks are taking a breather, on track for weekly declines as investors book profits the last two days, reassessing the Fed rate cut cycle after Powell commentary, higher inflation readings and a surge in the dollar and Treasury yields impact sentiment. Following a strong round of economic data this morning, the 10-year yield jumped to 4.5%, its highest levels since June while the dollar rebounded, looking to make it a 6^th straight day of gains. Empire NY Fed Manufacturing surges to 31.2 reading vs. -11.9% prior month and consensus flat; retail sales headline also tops consensus and import/export prices also well above consensus. Data strong across board not going to help case for aggressive rate cuts from the Fed most likely.

Stocks started to pullback late Thursday after Fed Chairman Powell, just a week removed from dovish commentary at the FOMC meeting, was less dovish saying there is no need to hurry rate cuts with economy strong. Boston Fed President Susan Collins echoed those comments overnight saying the Fed could eventually need to slow down the pace of rate cuts and said it was too soon to say whether that should happen next month. A December cut is “certainly on the table, but it’s not a done deal, she said. Note the Nasdaq 100 (QQQ) is down a 5th straight day, though only -2.35% in that span as major averages still not far off all-time highs reached just last week. Early weakness in technology (SOX down a 5^th day), healthcare again tumbles (fear of impact RFK Jr will have on industry as head of HHS) and communications while energy and financials climb. Interest rate sensitive sectors down such as homebuilders amid spike in Treasury yields/mortgage rates.

• U.S. Oct import prices +0.3% above consensus (-0.1%) and vs Sept (-0.4%), U.S. Oct non-petroleum import prices +0.2%, year-over-year +2.2%, Oct export prices +0.8% vs. consensus (-0.1%) and Sept (-0.6%); U.S. Oct petroleum import prices +1.2% vs Sept -7.8%
• Oct. Retail sales climb 0.4% m/m topping the consensus est. +0.3% while Oct Retail Sales Ex-autos +0.1% vs. consensus +0.3% and vs Sept +1.0%; Oct gasoline sales +0.1% vs Sept -0.9%, Oct cars/parts sales +1.6% vs Sept +0.2%, Retail Sales Ex-autos/gasoline +0.1% vs Sept +1.2% (prev +0.7%).
• U.S. Oct industrial output dropped (-0.3%), in-line with consensus and vs Sept (-0.5%) as Oct mining output +0.3% (sept -1.9%), utilities output +0.7%. The Oct capacity use rate 77.1% (consensus 77.2%) vs Sept 77.4% (previous 77.5%). Oct manufacturing output -0.5% (consensus -0.5%) vs Sept -0.3% (previous -0.4%).

• In Consumer Finance: Monthly net charge off and delinquency data released: 1) COF reported charge-offs for October of 5.82% vs. 5.08% y/y and delinquencies 4.61% vs. 4.48% y/y. 2) DFS Oct 30+ day card delinquency rate was 3.87%, up +26 bps y/y, better than +43 bps y/y in Sept and +64 bps y/y in Aug. The m/m increase of +3 bps is better than normal seasonality (avg +8 bps ’17-’19) as per Wells Fargo; 3) JPM reported charge-offs for October of 1.62% and delinquencies 0.87%. 4) SYF October metrics improvements YoY in NCOs rates. Oct NCO rate 6.4% vs KBW 4Q est. 6.6%, Delinquency rate 4.9% vs KBW 4Q est. 4.8%.
• In Midstream/Pipelines: UBS raises ests and price tgts for ENB– to C$68 from C$63; LNG from $265 to $232; KMI to $33 from $30; MPLX to $55 from $51; OKE to $132 from $112; TRGP to $246 from $182; TRP to C$77 from C$71; WES to $37 from $40; and WMB to $70 from $55 as expects the Trump administration to provide tailwinds through looser permitting and taxation to encourage drillers to produce more and to lower dependence on foreign oil. UBS says higher volumes (oil, gas and NGL) are always a positive for Midstream companies.
• In Aerospace & Defense: sector pressured for a second day, with more weakness in defense (NOC, LMT, GD) and IT Defense consulting companies (BAH, CACI, LDOS, KBR) on fears of deep cuts in fiscal spending under the Trump administration. Elon Musk’s SpaceX is preparing to launch a tender offer in December that will sell existing shares in the business at about $135 each, while artificial intelligence start-up xAI has raised $5 billion at a valuation of $45 billion, reports the Financial Times. ASTS shares slumped following Q3 results as loss of EPS (-$1.10) wider than est. (-$0.21) on revs $1.1Mm vs est. $24.13Mm; a positive, Blue Origin signed a multi-launch deal with satellite communication company.

• BABA erases gains; beat Q2 profit expectations citing an acceleration in growth in its cloud business unit. Alibaba touted robust growth in gross merchandise volume for its Taobao and Tmall Group businesses during the festival, along with a record number of active buyers.
• DIS +3%; adds to Thursday gains after better earnings lifted share price.
• DPZ +2%; shares bounced after Warren Buffett’s Berkshire Hathaway revealed it owned 1.28 million Domino’s shares worth about $549 mln as of Sept. 30 as per quarterly filing.
• FCEL +24%; said it will reduce 13% of its workforce as part of a global restructuring of its operations in the U.S., Canada and Germany as they aim to reduce operating costs by nearly 15% in fiscal year 2025.
• POOL +2%; shares rose early after Warren Buffett’s Berkshire Hathaway said in quarterly filing it has made new investments POOL in Q3 as owned 404,000 Pool shares worth about $152 mln, as of Sept. 30.

• AMAT -7%; posted FQ424 EPS that was 6% ahead on revenue that beat by 1%, and guided FQ125 EPS 1% above on the midpoint of revenue 1% below; forecasts Q1 net sales about $6.75B-$7.55B, as midpoint is below est. $7.25B.
• ASTS -16%; slumped following Q3 results as loss of EPS (-$1.10) wider than est. (-$0.21) on revs $1.1Mm vs est. $24.13Mm; a positive, Blue Origin signed a multi-launch deal with satellite communication company.
• MRNA -6%; as vaccine names extend losses from prior day on RFK Jr. heading up HHS in Trump Admin.
• OKLO -18%; following earnings results this morning.
• ULTA -2%; after Warren Buffett’s Berkshire Hathaway revealed in quarterly 13F filing it sold most of its shares in the cosmetics retailer (96.5%), a holding it originally acquired in the previous quarter.