Mid-Morning Look: October 10, 2024

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Mid-Morning Look

Thursday, October 10, 2024

Index

Up/Down

%

Last

DJ Industrials

-85.93

0.20%

42,426

S&P 500

-14.18

0.24%

5,777

Nasdaq

-57.49

0.31%

18,235

Russell 2000

-20.43

0.93%

2,180

 

 

U.S. stocks opened lower following a higher-than-expected CPI inflation print, but major averages quickly rebounding as Fed speakers thus far (Goolsbee) remain dovish about outlook for inflation and rate cuts. No major moves in Treasury or currency markets post CPI data which came in “hotter” than expected in both headline and core than expected. The dollar is holding a recent rally and the 10-yr yield, while volatile post CPI, is at 4.08% (where it started pre-data). In bond markets, we get a $22B 30-year bond auction at 1pm EST after tepid 3-year and 10-year auctions this week. Chinese stocks inched up on Thursday ahead of a weekend press briefing from the country’s finance minister, as the central bank launched a facility to make it easier to buy shares. Energy and utilities were early leaders (after lagging most of the week), while other sectors were mostly lower to start the trading day. Sectors that benefitted last month from aggressive rate cuts expectations into year-end (after the 50-bps cut in Sept) such as solar, Smallcaps, and housing, are seeing the most weakness the last few days given the strong jobs number last week. Earnings season unofficially gets underway tomorrow with bank earnings WFC, JPM and BK.

Economic Data

  • Consumer Price Index (CPI) for September came in “hotter” than expected as headline CPI M/m rise +0.3% vs. est. +0.2% (in-line with prior +0.3% reading) and Y/Y rose +3.3%, above estimate and prior reading of +3.2%. The more important core CPI (excludes food & energy) rose +0.2% M/M to vs. est. +0.1% (prior +0.2%) and Y/Y rose +2.4% vs. est. +2.3% (down from +2.5% prior).
  • Main Contributors to Change for CPI included: In September, shelter costs rose 0.2% vs. 0.5% in August. Rent increases slowed and house rent fell during the month. Food increased by 0.4% in September, while Energy fell by 1.9% in September, after a 0.8% decline in August.
  • Weekly Jobless Claims climbed to 258,000 in the latest week above consensus 230,000 and vs. 225,000 prior week; the 4-week moving average climbed to 231,000 from 224,250 prior week and continued claims climbed to 1.861M from 1.819M prior week (prev 1.826M) – 18th straight week above 1.8M.

 

 

Macro

Up/Down

Last

WTI Crude

1.85

75.09

Brent

1.16

77.74

Gold

17.10

2,643.10

EUR/USD

-0.0006

1.0933

JPY/USD

-0.73

148.56

10-Year Note

0.025

4.092%

 

Sector Movers Today

  • In Defense: HII was downgraded from Outperform to Peer Perform at Wolfe Research saying with continued challenges of attrition, contractual slips and some performance issues which could come to a head this quarter, Wolfe is lowering its rating to Peer Perform and cutting its 2024 FCF estimate by ~$280M (45%) given the slip out of the next multi-year block buy for VCS and Columbia submarines. Wolfe upgraded LHX to Outperform from Peer Perform with a $300 price target saying they now have better confidence in a turning point in the company’s relative growth in sales and earnings as well as mid-teens free cash flow growth.
  • In Ag Chemicals: UBS downgraded shares of NTR to Neutral from Buy and cut PT to $51 from $66 saying they expect a weaker Ag market outlook to remain an overhang for NTR in the medium term. They previously believed NTR’s stock could re-rate back towards historical levels as potash markets stabilized. UBS upgraded LXU to Buy from Neutral noting nitrogen markets are benefitting from a tighter S/D and higher gas spreads, but LXU stock has lagged (CF stock up 25% vs LXU 11% over last 3 months). UBS thinks normal seasonality and Q3 downtime mask an earnings improvement that will become visible in 2025e.
  • In Solar: NOVA initiated at Buy and $15 PT at Jefferies saying they consider this one of the best turnaround stories in clean energy following a 70% increase to its FY24-26 cash guide. This comes after a significant cash burn in ’23 and should reassure investors regarding the $2B of maturities coming due between ’26-’28. Bank America maintained their cautious view on solar sector (ENPH, FSLR, SEDG) noting the pace of interest rate declines remains uncertain, and potential election-driven volatility could further impact the sector, which is heavily reliant on federal incentives.

 

Stock GAINERS

  • AMZN +1%; after Prime Day event strong; positive industry data.
  • CELH +12%; Stifel positive comments today, mentions “In conversations with brand owners and retailers, we generally heard a more upbeat tone on convenience store category sales that are anticipated to improve in 2025”
  • CVS +1%; upgraded to Overweight from Equal eight at Barclay’s and raised PT to $82 from $63 saying they went three-for-three in important Medicare releases over the past two weeks.
  • GXO +13%; Reuters reported the company is exploring a potential sale after receiving takeover interest. GXO, spun off from trucking company XPO in 2021, is working with a financial adviser to field acquisition interest from suitors
  • HRTG +6%; seeing rally in Property & Casualty names such as ALL, EG, UVE, HRTG as impact of Hurricane Milton in Tampa area hits hard, but not wind speed and flood surge many had forecasted, breathing sigh of relief for region.
  • MOS +5%; among top gainers in S&P 500; Co had fertilizer plants near Tampa in path of storm, but damage thus far less than anticipated for region.

 

Stock LAGGARDS

  • AESI -9%; said it expects Q3 revenue to fall below prior guidance due to higher plant operating expenses; said it now expects revenue of between $300M-$310M for the quarter vs. et. $318M.
  • DAL -1%; after guiding Q4 revs $13.9B-$14.2B, largely below expectations of $14.22B in anticipation of slower travel spending against the backdrop of the upcoming U.S. presidential election; DAL also guided FY adj EPS $1.60-$1.85 as midpoint was above expectations of $1.71.
  • DPZ -1%; posted a smaller-than-expected Q3 U.S. same-store sales growth of 3% compared to expectations of 3.6%, trimmed its FY sales growth forecasts to ~6% vs. prior estimate of 7% rise and reported Q3 int’l comp sales of 0.8% in Q3, compared with expectations of a 2.94% rise (Q3 EPS beat/sales missed).
  • ETWO -15%; shares tumbled on results as Q2 results mixed with EPS in-line, Ebitda better but revs $152.2Mm missed est. $154.82Mm; guides FY total revs $607-617Mm below est. $632.97M EBITDA low end of $215-225M.
  • INDV -18%; shares tumbled after lowering its FY net revenue view to $1.13B-$1.17B, from prior $1.15B-$1.22B and estimate of $1.18B and sees adjusted operating profit $260M-$280M, from $285M-$320M.
  • PFE -2%; after its former executives Ian Read and Frank D’Amelio decided “not to be involved” in Starboard Value’s activist campaign against the drug company.
  • PYPL -2%; downgraded to Market Perform from Outperform at Bernstein but raised PT to $80 from $75 after a “tactical” upgrade in July, saying now the stock path appears to be more uncertain from these levels due.
  • SWKS -2%; CRUS downgraded to EW from Overweight at Barclays (PT to $120 from $140) and downgraded SWKS to UW from EW (PT to $87 from $115) in semis.
  • TD -5%; after the WSJ reported overnight that the Canadian bank is expected to pay about $3 bln in penalties as part of a settlement with U.S. regulators and prosecutors over charges it failed to properly monitor money laundering.
  • TXG -27%; after reported preliminary Q3 rev of about $151.7M, missing analysts’ estimates of $162.2M

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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