Mid-Morning Look

Friday, October 11, 2024

Another day, more strength, another record high for the S&P 500 index, topping 5,800 for the first time ever (and pushing higher) and on track for its fifth consecutive winning week amid a rally in banks after earnings from JPM, WFC lift the sector, as major averages bounce back after slipping the day prior on higher CPI inflation data. This morning, the producer price index (PPI), a measure of wholesale inflation, came in mixed as y/y figures rose more than expected but m/m was better/in-line. Michigan Consumer sentiment data was weaker, but nothing matters right now as stock market enthusiasm/euphoria (pick your fav phrase) continues to be overly bullish heading into Q4 results. Fed interest rate cut expectations have pared back over the last week on better economic data, but that hasn’t slowed the optimism. Ten of eleven S&P sectors are trading higher with biggest gains in financials, industrials, REITs, and Materials. U.S. listed China stocks paring losses, moving to highs ahead of a closely watched fiscal stimulus update from Beijing on Saturday. Even Bitcoin, which lagged this week is up over 3% nearing $62K as investors in full “risk-on” mentality heading into the weekend and heart of earnings season. The CBOE Volatility index (VIX) down on day but holding above 20 level, but still no broad concern despite lowered rate cut expectations, election uncertainty, and multiple wars overseas (in addition to the potential impact in the South after Hurricanes Helene/Milton) – even after a massive YTD run for global stocks (SPX +21% YTD, Nasdaq +21% YTD and Dow +12.5% YTD).

• University of Michigan surveys of consumers sentiment prelim Oct 68.9 below consensus 70.8 and vs final Sept 70.1; the current conditions index prelim Oct 62.7 (consensus 64.3) vs final Sept 63.3 and the expectations index prelim Oct 72.9 (consensus 75.0) vs final Sept 74.4.
• University of Michigan surveys of consumers 1-year inflation outlook prelim Oct 2.9% vs final Sept 2.7%, while the University of Michigan surveys of consumers 5-year inflation outlook prelim Oct 3.0% vs final Sept 3.1%.

• AEHR +8%; shares jumped after results/guidance; Q1 adj EPS $0.07 vs est. $0.02 on revs $13.119Mm vs est. $12.17Mm; reiterates FY guide revs at least $70Mm vs est. $71.2Mm and pre-tax margin at least 10%.
• FAST +6%; on results as Q3 EPS $0.52 was in-line with estimates; Q3 sales rose 3.5% y/y to $1.91B vs. est. $1.9B; Daily sales $29.8M, +1.7% y/y, vs. est. $29.7M; Operating income $388.1M, +0.4% y/y.
• JPM +5%; Q3 profit dropped -2% to $12.9B after the bank set aside more money to cover potential loan defaults (set aside $3.11B for likely credit losses vs. $1.38B y/y), while rising interest payments and investment banking revenue (rose +31%, double its previous guidance of 15%); also raised its forecast for net interest income (NII).
• SYM +12%; entered into commercial agreements with Walmart de México y Centro América (WalMex), to implement Symbotic’s industry-leading warehouse automation systems in two of the retailer’s locations near Mexico City.
• UBER +8%; Bank America noted that while investors may see little change to potential competition from Tesla Robotaxi long-term (5+ years), last night’s event lasted only 19 minutes with less concrete details & timelines than feared for Uber, in its view (shares of LYFT also rising in sympathy).
• WFC +5%; Q3 EPS of $1.52 topped consensus of $1.28 while revs miss at $20.37B vs. est. $20.42B; net interest income, the difference between what it earns on loans and pays out for deposits, falls 11% to $11.69B in Q3 vs. est.  $11.88B but offset by 2% better fees while expenses came in line.

• QRVO ; downgraded to Equal Weight from Overweight at Morgan Stanley saying they see limited upside near term around a weaker Android supply chain and weak broad market conditions, which is limiting the gross margin recovery that it has been looking for.
• ROCK -5%; cuts FY24 adj EPS to $4.11-$4.25 from $4.57-$4.82 and lowers FY24 revs to $1.31B-$1.33B from $1.38B-$1.42B, reflecting primarily the impact of ongoing market headwinds in both the Renewables and Residential businesses.
• STLA -2%; after saying CEO Carlos Tavares would retire in 2026 and announced wide management changes.
• TSLA -7%; made several key announcements around its Robo-Taxi vision as they unveiled its Cybercab (robotaxi) and Robovan, and showcased progress with Optimum. However, the consensus among analysts Friday was that while the event was high on pomp and circumstance, it under-delivered on details.
• VST -3%; along with weakness in CEG other IPP stocks; Morgan Stanley noted yesterday PJM indicated it would propose a 6mo delay in the auction currently planned for December. Morgan Stanley said they think this could be net negative for near-term auction results but positive medium term and could increase demand for behind-the-meter nuclear deals.