Closing Recap

Monday, April 15, 2024

U.S. stock markets tumbled all day, adding to last week losses as stubbornly high U.S. inflation, lower rate cuts expectations, surging Treasury yields, and the possibility of an expanding war in the Middle East took its toll. U.S. stocks dropped below some key technical support levels today as the S&P 500 (SPX) crashed below its 50dma support of 5,115 as stocks finish at afternoon lows, while Smallcaps back to underperformance amid rising Treasury yields and lower rate cut expectations with the Russell 2000 falling below its 100dma support around 1,988 (after breaking its 50dma support around 2,042 last week). The Nasdaq 100 QQQ’s also fell below its 50dma support of $438 as several levels being tested at the same time. Another pop in Treasury yields, with the 10-yr topping 4.64%, up 14-bps to highest since November on stronger retail sales data did not help interest rate sensitive sectors (utilities, REITs) and certainly not helping market case for rate cuts by the Fed anytime sooner (especially given the hotter inflation readings recently). The pullback began a few weeks back, off all-time highs for the Nasdaq and S&P as inflation readings have disappointed Wall Street, lowering expectations for rate cuts (down from three expected cuts prior). Markets are also heading into earnings season for the first quarter after banks reported uninspiring results last week (though GS was solid today). Tomorrow morning, we get earnings from UNH and JNJ in the Healthcare space (both Dow components). Stocks accelerated afternoon losses after reports that Israel’s military chief of staff said there will be a response to Iran’s launch of so many missiles, drones towards Israeli territory as geopolitical risks intensify. The CBOE Volatility Index (VIX) spiked this afternoon, hitting highs of 19.46 topping last Friday high of 19.20 as investors starting hedging bets further.

• March Retail Sales ex-autos rose +1.1% (vs. est. +0.4%) and vs February; March cars/parts sales -0.7% vs Feb +2.5%, Retail Sales Ex-autos/gasoline +1.0% vs Feb +0.5% (prev +0.3%) and March Retail Sales Ex-autos/gas/building materials/food services +1.1% (cons +0.4%) vs Feb +0.3%.
• U.S. April housing market index 51 in-line with consensus 51 and prior month; April index of current single-family home sales 57 versus 56 in March, April index of home sales over next six months 60 versus 62 in March and April index of prospective buyers 35 versus 34 in March (previous 34).
• Feb Business Inventories rose +0.4%, in-line with consensus +0.4% and vs January unchanged; Feb business sales +1.6% vs Jan -1.0% (prev -1.3%); Feb retail inventories ex-autos unrevised at +0.4% (prev +0.4%).
• US credit card delinquency rates are now at their highest on record, according to the Philadelphia Fed last week; in Q4 2023, more credit card balances were 30+ and 60+ days past due compared to any other period in history; the percentage of credit card balances at least 30 days past due is now ~3.5%; total credit card debt has skyrocketed in recent months and is now at a record $1.3 trillion.

• Gold prices settle at $2,383 an ounce, rising $8.90 and reversing off earlier losses (lows $2,340.20) as the rhetoric between Iran/Israel ramps up. Meanwhile the dollar and Treasury yields advanced given stronger U.S. economic data (retail sales) and recent higher inflation readings (CPI).
• The Japanese yen weakens to a fresh 34-year low near 153.70/USD while the 30yr touches 4.75% for the first time in 5 months and 10-yr at 4.65%. 10-year Treasury yields have risen by more than 45bp so far this month. After today’s hotter-than-expected retail sales number, traders aren’t pricing in a full rate cut until November.

• In Food & Beverages: STZ was upgraded to Buy from Hold at Argus noting shares are trading at 18.6-times Argus’s revised FY25 earnings estimate; however, they think a higher multiple is warranted, given the company’s prospects for strong sales and earnings and management’s plans to increase beer output. BRFS was upgraded to Overweight at JP morgan supported by the accelerating international market, which is contributing to an improved outlook with good earnings momentum ahead of Q124, where it is now+13.3% ahead of the street.

• In Leisure Products: MBUU downgraded to MP from OP at Raymond James saying their shift to neutral stance is in response to the loss of Tommy’s Boats, one of MBUU’s largest dealers, which last week filed a civil complaint alleging breach of contract among other transgressions, seeking compensatory and punitive damages.

• In Credit Card monthly charge off/delinquency data: AXP preliminary USCS card member loans 30 days past due loans as a % of total 1.4% at March end vs 1.5% at Feb end; JPM said credit card delinquency rate 0.79% at March end vs 0.80% at Feb end and that credit card charge-off rate 1.49% in March vs 1.58% in Feb.; Citigroup (C) said credit card charge-offs 2.90% in March vs 2.27% in Feb and credit card delinquency rate 1.47% at March end vs 1.49% at Feb end.
• In REITs: MPW said it received $1.1B of cash proceeds from the sale of a majority interest in five Utah hospitals through a newly formed JV ($886M) and secured debt placed in conjunction with the transaction ($190M); CLPR was double downgraded to Underperform from Outperform at Raymond James after unexpected office lease termination and its concerns of potential impacts yet to come, saying the negative outcome subsequently created a loan covenant violation with the property’s mortgage lender.
• In FinTech: AVDX was downgraded to Sell at Goldman Sachs citing limited upside to revenue trends over the next year and risk of multiple compression if revenue growth into 2025 disappoints, while remains constructive on payment technology stocks with focus on continued resilience in consumer spending and reasonable valuations for the group. Buy TOST, MA, GPN, and BILL.

• MRNS shares tumbled as disclosed that its interim analysis of its Phase III RAISE trial did not meet pre-defined stopping criteria, with the enrollment completed at 100 patients with topline results expected summer of 2024; also provided preliminary 1Q net product revenues for ZTALMY of $7.4M-$7.6M (vs. $6.75M consensus).
• NMRA shares slide after disclosing its Phase 1 trial of NMRA-266 has been placed on clinical hold after pre-clinical safety issues arose in animal studies; the company said it is working with the FDA to evaluation the potential to resolve the clinical hold. 
• NVAX noted hedge fund Shah Capital recommends appointment of two new independent directors, Suresh Katta and Venkat Peri, to Novavax board. Shah Capital owns approximately 6.7% of the outstanding common stock.
• ONVO announces positive phase 2 results for FXR314 in metabolic dysfunction-associated steatohepatitis showing both reduction in liver fat content and strong safety and tolerability compared to placebo.
• RARE said it reported observing side effects in some patients in a phase 1/2 study of GTX-102, a treatment for a genetic disorder that affects the nervous system.
• RVPH said previous financial statements for FY22, interim financial statements qtr ended sept 30, 2022, no longer be relied upon; interim financial statements for quarterly periods in FY2023 should no longer be relied upon.

• In MedTech Research: ITGR upgraded from Neutral to Buy at Bank America and raised tgt to $135 from $105 saying they should benefit from the emergence of pulsed field ablation (PFA) to treat atrial fibrillation. MASI was upgraded to buy from Hold at Stifel and raised tgt to $170 from $148 as sees potential upside to announced plan to spin-off its consumer business, which includes its consumer health and audio products.

• U.S. defense firms remain well bid early (GD, NOC) on growing geopolitical risks due to conflict in the Middle East after a retaliatory attack by Iran on Israel over the weekend.
• In Suppliers: SPR is limiting overtime and hiring as production declines due to lower output of 737 MAX jets, Reuters reported late Friday, citing Spirit AeroSystems spokesperson Joe Buccino.

• In Lithium/Chemicals: PLL shares rise after saying that the North Carolina Department of Environmental Quality’s Division of Energy, Mineral, and Land Resources has issued an approval of our mining permit for the construction, operation, and reclamation of the proposed Carolina Lithium project in Gaston County, North Carolina.
• In Industrials: Prysmian (PRYMY) has proposed to acquire Encore Wire (WIRE) for $290.00 per share in cash for a total enterprise value of approximately €3.9 billion, representing a multiple of 8.2x EV/2023A EBITDA and 6.3x EV/2023A EBITDA, including run-rate synergies. https://tinyurl.com/5xjmydrs

• BLKB shares rose after Clearlake Capital said it delivered a letter to Blackbaud’s Board containing a non-binding proposal to acquire all its outstanding shares for $80 per share; Clearlake reports an 18.2% stake in BLKB. https://tinyurl.com/mwmmdbke
• CRM is in advanced talks to acquire data-management software provider INFA the WSJ reported this weekend, according to people familiar with the matter. Informatica has a market capitalization of more than $11 billion after a 43% run-up in its shares this year as traders bet on a deal. The price being discussed is below Informatica’s current share price of $38.48, according to the Wall Street Journal https://tinyurl.com/3ta6ndzb
• CSCO upgraded from Neutral to Buy at Bank America and raise tgt to $60 from $55 as expects Networking to start normalizing and see renewed growth driven by Cisco’s share gains in Ethernet-based AI buildouts of hyperscalers; expects Security growth to accelerate with the help of firewall stabilization.
• REZI agreed to buy SNPO for about $821 million; Resideo said it will pay $10.75 a share in cash for Snap One, a 32% premium to Friday’s closing price of $8.14. Resideo said the transaction, which it expects to complete in the second half of the year is worth about $1.4 billion including debt.