Mid-Morning Look

Tuesday, September 03, 2024

U.S. stocks under pressure early to kick off trading in September, which followed a big rally late Friday, as weakness in Energy (XLE), Technology (XLK) and Materials (XLB) all down over 2% on plunging oil, weakness in semiconductors (SOX -4%) and China slowing growth fears weighing on commodities. Attention will likely turn to jobs data this week, with ADP Private Payrolls and JOLTs Job openings on Wednesday, weekly jobless claims on Thursday and the Nonfarm payroll report on Friday. U.S. Treasury yields edge lower after S&P manufacturing PMI data was better, pushing the 10-year yield last down 6.5 basis points to 3.846%. Oil prices tumbling with Brent Crude tumbling more than 4% below $75 a barrel, erasing 2024 gains and WTI crude down over 3% on reports of deal imminent to restart Libyan oil flows. August finished mostly higher for U.S. stocks after a rough start to the month, but LizAnn Sonders tweets, “September has historically been the worst performing month for the S&P 500…since 1928, it’s finished higher only 43% of time with an average decline of 1.2%”…so something to think about, especially heading into the election in November. Energy is the biggest drag in the S&P down over 2.5% at its 200dma support of $88.90. Notable weakness to kick off September, much like the first few days of August; will it continue, or rebound like it has since last October?

• August ISM Manufacturing PMI: 47.2 vs. 47.5 consensus and 46.8 prior; prices paid index 54.0 in August (consensus 52.5) vs 52.9 in July, Ism U.S. manufacturing new orders index 44.6 in August vs 47.4 in July, Ism U.S. manufacturing employment index 46.0 in August vs 43.4 in July.
• July construction spending -0.3% (consensus -0.1%) to $2.163 trln, vs June unchanged (prev -0.3%); Us July private construction spending -0.4%, public spending +0.1%.

• In EV monthly China sales data: China auto sales numbers for August 2024 were released: LI delivers 48,122 vehicles in August, up 37.8% year-over-year, Zeekr delivers 18,015 vehicles in August, up 46% year-over-year, XPEV delivers 14,036 Smart EVs in August, up 3% year-over-year, NIO delivers 20,176 vehicles in August, 128,100 vehicles year-to-date. TSLA sales in China logged their best month for the year so far in August, selling more than 63,000 cars after a hefty 37% jump from July, but probably still down from August last year when it sold 64,694. However, BYD (BYDDF), the world’s biggest EV maker, said its China passenger vehicle sales surged 35% in August y/y to a record monthly high of 370,854.
• In Beverages: STZ estimates lowered at RBC Capital following preliminary channel work saying they estimate that August depletions growth was in the low-single digits, which brings its overall depletion estimate down to 4%. This level is consistent with scanner data. However, RBC notes the relationship between scanner data and STZ’s depletions has changed and believes STZ’s depletion Gap relative to scanner has collapsed entirely. KOF upgraded from Neutral to Buy at Goldman Sachs saying they expect Coke FEMSA to grow EPS on average by 14% P.A. from 2023 to 2026E, with a 34% average EBITDA-to-cash conversion translating into a 5% free-cash flow yield (for 2024E) and a good 4% dividend yield.
• In Steel Sector: US Steel (X) shares fell after Vice President Kamala Harris joined President Joe Biden in declaring the company should remain domestically owned and operated yesterday. Separately, Keybanc said after preliminarily expect September U.S. ferrous scrap pricing to ease $10-$20/t m/m, depending on the grade, amid mill cancellations, prospective outage activity, reduced shredder feed prices, muted export mojo, and ample supply. STLD was upgraded to Buy from Neutral at UBS with a 12% higher PT of $145/share as thinks HRC prices have passed the trough and should rise further into 2025E, helped by lower imports and says steel price momentum is the single biggest driver of steel equities.

• ADSK +2%; upgraded to Neutral from Sell and raise price target to $295 from $225 at Goldman Sachs noting the shares have underperformed since Goldman initiated with a Sell on January 21, 2021.
• LUV +2%; was upgraded to Outperform from In-Line at Evercore ISI, and raised the tgt to $35 from $30 citing the airlines transition to capacity discipline, new revenue initiatives and strong underlying fleet value. Separately, Reuters reported that Elliott Investment Management now holds 10% of LUV’s common stock
• PCVX +44%; after posting positive topline data from a Phase 1/2 study of VAX-31; based on the strength of the results from the study, the company has selected VAX-31 to advance to an adult Phase 3 program.
• SHLS +20%; after the US International Trade Commission issued a preliminary ruling that SHLS’ patents are infringed by nearest competitor Voltage. If affirmed in a final ITC ruling expected late this year, Voltage would no longer be able to import its product into the U.S.
• SMCI +3%; said late Friday it won’t file its annual financial report while a special board committee reviews internal controls, confirming a statement earlier this week that sent the shares on their worst drop in almost six years.
• TSLA +1%; after Reuters report saying the EV maker plans to produce a six-seat variant of its Model Y car in China from late 2025, two people with direct knowledge of the matter said. Separately data showed tesla sales in China logged their best month for the year so far in August, selling more than 63,000 cars after a hefty 37% jump from July (but own y/y).
• U +10%; Unity upgraded to overweight from equal-weight at Morgan Stanley, saying they see clear potential for upward revisions in the video-game tool maker’s Create business and greater stability in the Grow segment.

• CME -2%; was downgraded to Underperform from Neutral with a $177 price target at Bank America saying it now faces a 3-front battle with BGC Partners, Cboe Global Markets, and Intercontinental Exchange and that the intensifying competition could lead to market share losses and pricing headwinds.
• COIN -4%; Bitcoin -1.8% below $58,000, dragging crypto names lower HUT, MARA, RIOT, MSTR, etc.
• DYN -35%; after saying Chief Medical Officer Wildon Farwell is stepping down from the role; the company also announced clinical data from the Phase 1/2 trial of DYNE-251 in Duchenne muscular dystrophy.
• FCX -6%; weakness in metals & mining on China growth fears following economic data
• NVCR -4%; after saying CEO Asaf Danziger will retire at year end and finance chief Ashley Cordova, will succeed him as the next CEO (Danziger has served as NVCR’s CEO since 2002).
• SPHR -3%; downgraded to Sell with a $40 price target at Benchmark, driven by concerns over scalability, high production costs, and a potentially underwhelming profitability outlook.
• X -4%; after Vice President Kamala Harris joined President Joe Biden in declaring the company should remain domestically owned and operated yesterday.