Closing Recap

Tuesday, April 16, 2024

U.S. stocks end slightly lower amid some late day volatility that saw a pop and roll following commentary from Federal Chairman Powell. The Fed leader said in an appearance late Tuesday that the central bank may need to keep rates higher for longer than previously thought and that "it’s likely to take longer than expected to achieve that confidence" that inflation is falling toward the Fed’s 2% target. Powell’s comments followed those of Federal Reserve Vice Chair Philip Jefferson earlier in the day, who signaled in a speech that an imminent interest rate cut will not be forthcoming if inflation persists. So, with the Fed awaiting further clues of inflation and the economy as they remain “data dependent” they say, attention turns to the Middle East with tensions between Iran/Israel intensifying, as well as corporate earnings. The Dow outperformed after UNH jumped on better earnings and affirmed guidance, while banking stocks remained mixed after results (BAC, BK, NTRS slid on earnings, MS advanced). Faster-than-expected growth in the Chinese economy (GDP) in the first quarter was offset by weakness in industrial production/retail sales. Treasury yields rose as the 10-yr was at 4.65% (off highs 4.7%), as interest rate sensitive names saw the biggest drops on day as solar names down between 2%-4% (ARRY NOVA SEDG FSLR) and well as REITs (XLRE) -1.35% and Utilities (XLU) -1.08% along with energy (XLE) down -1% as oil prices pare back after spiking this weekend. The Smallcap Russell 200 also underperformed large caps. The S&P broke below its 50-day MA of 5,116 yesterday but would need to break 5,000 for it to get to -5% drawdown and is currently on day 12 since its recent 52-week high.

• March industrial output rose +0.4%, in-line with consensus +0.4% and Feb +0.4%; March mining output fell -1.4% while utilities output +2.0%. Capacity Utilization use rate 78.4% vs. consensus 78.5% and Feb 78.2%. U.S. March manufacturing output +0.5% (consensus +0.3%) vs Feb +1.2% (previous +0.8%); cap use 77.4% vs Feb 77.1%.
• Fed Vice Chair Philip Jefferson says inflation that proves more stubborn would warrant a longer period of interest rates at their current setting. He doesn’t refer to rate cuts as a base case, as he did on Feb. 22 as noted by the WSJ’s Nick Timiraos. Timiraos also noted Jefferson says the Fed staff is expecting core PCE to print at 2.8% for March, and for headline to print at 2.7% (a touch higher than what the sell-side forecasts have penciled in).

• June gold prices rose +$24.80 an ounce, or +1.04%, to settle at $2,407.80, once again shaking off another spike in Treasury yields and a bounce in the dollar following lower rate cut expectations by the Fed as investors look to haven assets given Middle East tensions, but also as gold breaks out after hitting new highs recently. The 10-yr yield hit highs above 4.7% before paring gains, but still ended higher.
• Brent Crude futures settle at $90.02/bbl, down 8 cents, 0.09%, while WTI Crude May futures settle at $85.36 a barrel, down 5 cents, 0.06%. Oil dips (but finished off worst levels) as easing concern about supply risks and a rapidly escalating conflict after Iran’s weekend attack on Israel offset data showing China’s economy grew faster than expected in the first quarter. Israeli Defense Forces spokesperson Hagari underlined that Iran’s drone and missile attack over the weekend will not go unpunished, vowing that Israel would respond to the strikes.

• In Retail: Ibotta (IBTA), the digital marketing company backed by WMT said it was looking to raise about $551M in an upsized IPO offering as now plan to sell a combined 6.56M shares, nearly one million more than its previous offering seeking a valuation of $2.5B and to price the stock between $76-$84 per share. In Footwear, Dr. Martens (DRMTY) shares tumble after CEO Wilson plans to step down and warned that its outlook for fiscal 2025 is challenging, and that earnings could plummet from what it expects to report for the year ended March 31. Adidas (ADDYY) delivers better-than-expected performance in the first quarter and increases its full-year guidance; says in Q1, currency-neutral revenues increased 8% versus prior year level; in Euro terms, company’s revenues grew 4% to EUR 5.458B (2023: EUR 5.274B); Adidas also raised 2024 guidance following the better Q1 results as forecasts FY operating profit about eu700M, forecast about eu500M- shares of NKE bounced on results.

• In Casino/Gaming: DKNG was initiated at a new Buy and $60 price target at Goldman Sachs as expects DraftKings to compound revenue at 20%+ as it continues to benefit from healthy growth in existing states, as well as future state legalizations across OSB & iGaming and sees 2-3% upside to Street Revenue in 2024/2025 & 3-4% upside to Street Adj. EBITDA.
• In Leisure: gym owner PLNT appointed Colleen Keating as the company’s CEO, effective June 10 as Craig Benson will resign as Interim CEO but will continue to serve on the board.

• In Industrials: HON downgraded to Hold from Buy at Deutsche Bank; In Agriculture preview, Oppenheimer said they are expecting the most difficult comps of the year in 1Q across most of our Ag names noting AGCO remains an out-of-consensus top pick among the equipment names as they integrate the TRMB JV into our estimates and firm raises tgt on CTVA reflecting increased conviction in the 2025 EBITDA margin.
• In Metals: SBOW said Kimmeridge Energy Management has withdrawn its proposal to combine its gas-producing assets in South Texas with SilverBow Resources; GOLD prices slumped as reported lower-than-expected preliminary gold production of 940K ounces for Q1 hurt by planned maintenance and sequencing at its mines, below analysts’ estimates of 984K ounces, according to LSEG data. MT downgraded to Hold from Buy at Deutsche Bank in the steel sector citing weak growth prospects. FCX, SCCO, AA, and other industrial metals decline early following softer China Industrial Production data overnight.

• BAC Q1 adj EPS $0.83 topped est. $0.77 on slightly better revs $25.82B vs. est. $25.46B; net interest income (NII) slid 3% to $14B due to higher deposit costs and modest loan growth, Q1 investment banking fees jumped 35% to $1.6B; Q1 sales and trading revenue rose 2% to $5.2B with equities contributing a 15% jump and FICC -4%; said they set aside $1.3B in provisions in the first quarter, up from $931M a year ago
• BK Q1 adjusted EPS $1.29 vs. est. $1.19; Q1 revs $4.53B vs. est. $4.39B; Q1 tangible book value per share $25.44; Assets under custody or administration jumped 5%, to $48.8 trillion; noninterest expenses grew 2%, to $3.18 billion; announces new $6B share repurchase program; reiterates forecast of 10% drop year-over-year in net interest income (NII) for 2024.
• ENV shares jumped late day after Reuters reported that the wealth management firm was exploring options that could include a potential sale after receiving takeover interest and is working with an advisor.
• MS Q1 EPS $2.02 vs. est. $1.66 and revs rose 4% y/y to $15.18 top consensus $14.46B; FICC sales & trading rev $2.49B above ests. $2.33B, with weaker net interest income (NII) of $1.80B vs. est. $1.9B; Wealth management net new assets fell 13% y/y, the third consecutive quarter of y/y declines; Q1 investment banking revenue was up 16% y/y to $1.45B; its wealth management unit generated $6.88B in Q1 up 5% (makes up 45% total Q1 revs)
• NTRS shares dropped after Q1 EPS/revs missed consensus (96c/$1.65B below consensus $1.44/$1.75B), said incurs a $189.4M loss on the sale of certain debt securities, as it repositions its portfolio.
• PNC Q1 net interest income missed estimates and EPS beat and revs miss for Q1 and said sees Q2 net interest income down about 1% vs. q1 and most recent and sees q2 core noninterest expense up 2%–4% vs Q1 while sees Q2 revs stable.
• WTFC to acquire MCBC in an all-stock transaction as the aggregate purchase price to Macatawa shareholders is currently estimated to be approximately $510.3M, or $14.85 per share. As of December 31, 2023, MCBC had approximately $2.7Bin assets, $2.4B in deposits and $1.3B in loans.

• ITCI shares rose after revealed positive topline results from a study evaluating lumateperone met the primary endpoint as an adjunctive therapy to antidepressants to treat major depressive disorder; said topline results from its second Phase 3 study is anticipated late in the second quarter.
• LEGN shares fell after partner JNJ Q1 sales of Carvykti came in below estimates at $157M vs. analyst view of $200.5M according to Reuters.
• PACB shares tumbled after saying it sees Q1 revenue below expectations due to the increasing number of customers delaying instrument purchases, softness in consumable shipments; cuts 2024 annualized run-rate operating expenses guidance by $50M to $75M vs. 5% operating expense growth; says unlikely to meet rev guidance of at least $500M in 2026.

• In Healthcare Services, HIMS downgraded from Buy to Hold at Jefferies and cut tgt to $15 from $17 noting since the IPO, the mkt has been concerned about many things, including barriers to entry, durability of growth, pricing, and ability to leverage marketing spend – thinks has done a good job executing but says expectations have caught up to reality, limiting potential upside to numbers.

• In Internet: BIDU said the number of users of its Ernie ChatGPT-style chatbot has doubled in recent months to 200 million and more than 85,000 enterprise clients. In Research, IAS downgraded to EW from OW at Morgan Stanley (tgt to $12 from $18), APP tgt to $70 from $55, positive on TTD/DV and cautious on YELP saying they are focused on three key themes across ad tech that it will be monitoring as it hears from the companies over the next two weeks: the mobile app ad ecosystem, cookie deprecation, and CTV; GRPN filed an 8K which confirmed that its Q124 revenues and adjusted EBITDA had both come in “close to or above the high end of its guidance.

• In Hardware: SNX upgraded to Buy at UBS and raised tgt to $145 from $115 as it expects growth to accelerate in FY24 and FY25 to 6%, which is not priced in by the market and says following the removal of the Apollo share overhang and deployment of a $2B buyback authorization, UBS expects SYNNEX shares to re-rate higher.
• MITK Q1 adj EPS $0.14 missed the $0.18 estimate on revs $36.9Mm vs est. $39.02Mm; sees Q2 revs $46-47Mm vs est. $45.27Mm; reit FY guide revs $180-185Mm vs est. $181.81Mm and adj op mgn 30.0-31.0%.
• SKIL announces Jeffrey R. Tarr’s decision to retire from his role as CEO while forecasts 2025 GAAP revs $530M-$550M vs. est. $579M and 2025 adj. EBITDA $105M to $110M, vs. est. $123.5M.

• AMD introduced a new series of processors for commercial mobile and desktop AI PCs; said the new Ryzen Pro 8000 series and 8040 series processors will be available later this quarter. The 8000 series are for desktop PCs while the 8040 series are for notebook PCs. NVDA said it is expanding RTX professional graphics offerings with new Nvidia ampere architecture-based GPUs for desktops: Nvidia RTX a400 & Nvidia RTX a1000.
• AMD upgraded from Hold to Buy at HSBC Holdings and raised tgt to $225 from $180 while raising its 2024/2025 EPS estimates by 7%/25% to reflect its revised estimates for AI GPU revenue along with better performance from the non-AI segments.
• SMCI price tgt was raised to $1,500, maintains Buy at Loop Capital as they continue to gain confidence in both its net-bullish Gen AI server industry posture and SMCI as an increasing leader in the need for both complexity and scale.