Mid-Morning Look

Wednesday, September 11, 2024

After opening near the overnight highs, recovering initial losses post CPI data at 8:30 AM, stock markets with quick roll to start the day. S&P futures (Spuz) sold off on the open, down -1% to 5,447 (off highs 5,507.50) below yesterday Spuz low 5,448.25 but still above Monday low 5,405.25. U.S. stocks slipped initially after the August consumer price index (CPI) inflation reading, which showed a slight increase in core CPI M/M to +0.3% vs. prior +0.2%, while headline CPI Y/Y dipped to +2.5% below estimates of +2.6% and prior month +2.9%, as fed fund futures look to lock in a 25-bps interest rate cut by the Fed next week (as appears the aggressive 50-bps cut off the table most likely for time being). Technology (XLK) was the early (and only) S&P sector in the “green” behind strength in semis as SOX rose as much as +1% led by NVDA, ARM, AMD among others (but has since reversed), while financials extend yesterday declines, with the XLF down over -1% as market raise credit concerns following commentary by ALLY yesterday about retail credit conditions. Broad market so far as Materials, Energy, Industrials, Consumer Staples, REITs, Healthcare, and Consumer Discretionary all down over 1%, but financials, led by big banks (BAC, JPM, GS) seeing heavy selling pressure for a second straight day. The U.S. dollar rates extended Monday’s rally with Treasury yields making YTD lows this morning across much of the curve following lower oil (though bouncing today) and equities with banks taking the brunt of the pressure amidst headlines from financials industry conference that struck a more cautious tone. Next up on catalyst front, August producer price index (PPI) tomorrow morning and the European Central Bank (ECB) policy meeting with a 25bps cut expected.

• US mortgage market index +1.4% to 233.7 in week ended Sept 6 according to week Mortgage banks Assoc data; US mortgage purchase index climbs +1.8% to 138.6 in Sept 6 week; US mortgage refinance index climbs 0.9% to 757.8 in Sept 6 week and the average 30-year mortgage rate falls 14 bps to 6.29%, lowest since Feb 2023.

• In Transports: Railroads CNI lowered its 2024 and 3-year EPS growth targets due to the impact of the Labour uncertainty, subsequent work stoppage, Alberta wildfires, and weakness in Forestry and Metals; the company also flagged a delayed recovery in Intermodal and an overall weaker 2024-26 outlook. In Airlines, ULCC said that it now expects adjusted pretax margin to be between a decline of 2% and 0% in the period, reflecting a 3.5%-point improvement compared with the midpoint of the prior guidance (previously, it expected margin to contract between 3% and 6%).
• In Consumer Finance: Early weakness in financials (XLF down over -1%), carrying over from the prior day comments at Barclays conference from ALLY. Bank America noted that shares of the credit sensitive consumer finance names were weaker the day prior (Tuesday) following ALLY cautious commentary on retail auto credit, which they see as a buying opportunity, saying comments on its auto portfolio are idiosyncratic and not reflective of the overall consumer. Notably, BAML’s stocks that have direct auto exposure (COF and OMF) are not seeing the same trends. Many Wall Street analysts defended ALLY on the sharp pullback as well as other consumer finance names.
• In Solar: strength in the sector (ARRY, ENPH, FSLR, NOVA, RUN) saw strength early following results of last nights Presidential debate between Donald Trump and Kamala Harris. Media labels Kamala Harris as winner of Presidential debate last night vs. Donald Trump, lifting sectors such as solar which the Democratic nominee favors more “green” energy.

• FSLR +6%; as solar stocks rose after media labels Kamala Harris as winner of Presidential debate last night vs. Donald Trump, lifting sectors such as solar which the Democratic nominee favors more “green” energy.
• PLAY +6%; better Q2 adjusted profit of $1.12 on better revs $557.1M, boosted by latest menu rollout as EBITDA of $152M exceeded consensus by $11M as stronger restaurant margins and lower G&A more than offset softer comps.
• PLCE +50%; posts Q2 adjusted profit of $0.30 compared to a loss of (-$2.12) y/y as gross margin rise of 960 basis points to 35%, owing to lower expenses but comp sales fell (-7.2%).
• ULCC +7%; the discount airline said that it now expects adjusted pretax margin to be between a decline of 2% and 0% in the period, reflecting a 3.5%-point improvement compared with the midpoint of the prior guidance (previously, it expected margin to contract between 3% and 6%).
• VKTX +3%; initiated at Overweight and $80 tgt at JP Morgan and places the stock under a positive catalyst watch ahead of the phase 1 data readout for the oral-2735 drug at Obesity Week (Nov. 3-6), which they say could point to a highly competitive profile impressive tolerability), and it thinks is under appreciated.
• WSM +3%; was upgraded to Buy at Jefferies saying their analysis of the trajectory for West Elm Kids, Emerging Brands, and B2B, alongside expectations for a slight housing recovery moves its C’25 & C’26 estimates above consensus.

• CTLP -7%; following earnings; Q4 EPS $0.03 missed est. $0.05 on revs $72.7Mm vs est. $75.93Mm, driven by a surprising slowdown in transactions, specifically in June.
• DBI -17%; lowers FY24 adjusted EPS view to $0.50-$0.60 from $0.70-$0.80 (est. $0.75) and lowers FY24 revenue view to flat to low-single digits from low-single digits.
• GME -14%; posted a surprise quarterly profit, but revenue fell more than 30% to $798.3M vs. consensus of $895.7M; Q2 Hardware and Accessories net sales fell -24% y/y to $451.2M and Software net sales fell -48% y/y to $207.7M.
• RLAY -16%; A 28.57M share Secondary priced at $7.00.
• RTO -19%; shares fell after guiding adjusted operating margin about 15.5% (vs. estimate 16.2%) and said it sees North America adjusted operating margin about 17.2% (vs. est. 18.5%).
• VRA -5%; cuts FY25 forecasts to $410M from prior $460M-$480M and EPS to about $0.10 from prior $0.54-$0.62 after Q2 wholesale revenue declined owing to weaker demand from inflation-weary customers.