Mid-Morning Look

Tuesday, September 10, 2024

U.S. stocks opened higher, looking to add to yesterday’s broad-based gains following sharp declines the weak prior on softer jobs data, but major averages are quicky paring those gains as the S&P 500 (SPX) fails to break back above the 5,500 level and stocks slipped. Oil prices sliding further, dragging down the Energy sector (XLE -1%), while financials lagging amid weakness in banks and consumer finance, as commentary from ALLY on NIM and credit challenges in auto lending are weighing on several stocks (COF, SYF, CACC). Software stocks got a boost following strong quarterly results from ORCL overnight as shares jumped by over 12%. Markets positioning themselves ahead of three key potential catalysts in the next few days, starting with the first Presidential debate tonight at 9:00 ET between Donald Trump and Kamala Harris, then consumer price index (CPI) inflation data Wednesday morning and producer price index (PPI) data on Thursday morning, and the European Central Bank (ECB) policy meeting Thursday morning, where a 25-bps rate cut is widely expected. Reminder the FOMC policy meeting is next week, with expectations from 25 to 50bps cuts (tomorrow’s CPI data could give a clearer picture). The U.S. dollar edges higher, Treasury yields near lows (10-yr under 3.7%), gold is flattish around $2,535 an ounce, and oil prices are sliding.

In Banking news, The Federal Reserve is walking back a plan to raise the amount of capital America’s biggest banks are required to hold after intense pushback from the banking industry. The regulator now plans to require big banks to increase the reserves they hold against losses by 9%, according to prepared remarks by Michael Barr, vice chair at the Federal Reserve, which regulates the country’s biggest banks. Earlier proposals would have increased them by an estimated 20%. Banks holding less than $250B in assets — meaning most banks in the country outside of the very biggest — now won’t be subject to most of the new capital rules, except for lenders with large trading operations. An additional capital charge for the biggest banks because of their size and systemic importance will also be recalibrated, according to the prepared speech.

• In Auto Research, Deutsche Bank resumes coverage of US Autos & Auto Technology (17 stocks) including automakers and suppliers, with Buy rating and top pick on TSLA ($295 tgt), with Hold ratings on GM, Ford, and other buy ratings include VC and ALV in auto suppliers, but hold rated on other names saying in the face of growing uncertainty about industry production, pricing, powertrain mix, and politics, they take a neutral stance on the group despite low valuations, opting to be more tactical as it progresses through the rest of the year and into 2025. Separately, Wells Fargo trimmed its price targets for Ford (F) to $9 and to $33 for GM
• In Chemicals: MEOH was downgraded to Equal Weight from Overweight at Barclays and cut PT to $44 from $56 saying while there is high strategic merit in acquiring OCI’s assets, there are questions around operating reliability, increased leverage and investor rotation. NTR was downgraded to Neutral from Buy at Goldman Sachs and cut tgt to $53 from $69 saying amidst a broader decline in crop prices, farmer incomes, and credit conditions, they see Nutrien Financial presenting increased risk to Retail EBITDA over the next 12-24 months.
• In Food Related: AVO shares surged as Lakestreet noted the company reported better results behind a 36% increase in per-unit avocado prices and improvements in its cost structure, driving a dramatic EBITDA/FCF improvement and subsequent debt reduction; CVGW shares rise on mostly better results as Q3 adj EPS $0.57 vs est. $0.43, adj EBITDA $13.5Mm vs est. $14.55Mm on revs $179.6Mm vs est. $178.55Mm and doubled its quarterly dividend to $0.20; LMNR Q3 avocado operations outperform and continued improvement across the lemon business despite still weak pricing led to a dramatic YoY improvement and solid beat.

• BABA +2%; following inclusion on China’s mainland stock exchanges after the company upgraded its Hong Kong listing to primary status last month.
• BOOT +8%; reports August comp store sales up 6%, and preliminary Q2 comps up 4%; said sees comp store sales for first two weeks in Sept up 8.2%.
• CNTA +8%; after the drug developer gave interim data from an early trial of its experimental therapy in acutely sleep-deprived healthy volunteers.
• ORCL +13%; delivered a strong FQ1 (EPS and revs beat), driven by strength in its cloud infrastructure business with RPO growing 53% Y/Y to $99B, and announced the AWS partnership while also reiterated double-digit revenue growth guide for FY25 (vs. cons at 9%), with total and OCI revenues expected to accelerate each quarter.
• TSLA +3%; the European Union will lower proposed final tariffs on TSLA to 7.8%, from 9%; separately, Deutsche Bank resumed coverage with Buy and $295 tgt calling it their top pick in overall neutral stance in auto space.
• VRDN +14%; shares rose after drug trial results for VRDN-001 achieved all primary and secondary endpoints (for active thyroid eye disease); said BLA submission anticipated in 2H of 2025 as planned.

• ALLY -17%; after CEO comments at Barclays Conference saying credit challenges have intensified due to high inflation and weakening employment. Retail auto credit challenges are evident in increased delinquencies and non-performing loans; shares of SYF, COF, CACC also falling in sympathy on comments.
• BMMYY -10%; shares slid after forecasting automotive Ebit margin 6% to 7%, below prior forecast 8% to 10%; the guidance from BMW weighed on the auto sector, with shares of MBGGY, STLA, POAHY and others weaker.
• HPE -7%; said it seeks capital raise to fund $14B acquisition of Juniper Networks as commenced a $1.35B (27 mln shares) 3-yr mandatory convertible preferred stock offering.
• HPP -7%; said it suspends common stock dividend starting in Q3 to preserve capital.
• IONS -8%; announces pricing of a public offering of 11.5M shares at $43.50 per share.
• RBRK -6%; despite better results; reported its Q2 earnings, which featured top and bottom-line beats, with a beat on annual recurring revenue – ARR – growth and a guidance raise, but shares declined.