Closing Recap

Tuesday, August 27, 2024

U.S. stocks finish higher in another listless trading day, with markets edging up all afternoon following a weaker open, as investors await earnings results from NVDA Wednesday afternoon, GDP data Thursday morning and key PCE inflation data Friday. There was little to talk about outside of a handful of better economic data points, as consumer confidence hit 6-month highs given improving inflation data points. The U.S. dollar fell further (on track for worst monthly return since Nov 2022), Bitcoin prices sliding, and Treasury yields edged higher. After falling the most on Monday, Technology (XLK) was the top sector, gaining +0.6% along with financials (XLF), while Energy (XLE) fell over 0.9% and Utilities (XLU), down -0.79%. After hitting morning lows 5,018.83, the semi-index (SOX) jumped over 1.25% above 5,16 as stocks continue to find resilience as any/every pullback met with additional buying since the August 5th lows. Smallcap Russell 2000 underperformed, falling -0.75%.

• US June 20-metro area home prices +6.5% (consensus +6.0%) from year ago vs revised +6.9% in May (previous +6.8%) — S&P CoreLogic case-Shiller. June home prices in 20 metro areas +0.4% seasonally adj (consensus +0.3%) vs revised +0.4% in May (previous +0.3%)- June 20-metro area home prices non-adjusted +0.6% vs May unrevised +1.0%. On a three-month running average ending in June, prices nationally were 5.4% higher than they were in June 2023.
• U.S. FHFA house price index dipped -0.1% to 424.5 in June after an unchanged 424.8 (was 424.6) in May, with the latter a record high level. It is only the second monthly drop, along with the -0.1% slip in January, since August 2022.
• August Richmond Fed factory index falls -19 vs. est. -14; Richmond Fed services revenues index -11 in Aug vs +5 in July and the Richmond Fed manufacturing shipments index -15 in Aug vs -21 in July.

• The dollar index (DXY) was down 0.3% at 100.50, after dropping to an eight-month low this week; DXY has fallen -3.3% thus far in August, on track for its biggest monthly decline since November 2022. The British Pound hit its highest since March 2022 at $1.3246.
• December gold prices dipped -$2.30 to settle at $2,552.90 an ounce, holding off recent record highs.
• U.S. Treasury sells $69B 2-year notes at high yield 3.874%, with bid-to-cover ratio 2.68, as Primary dealers take 11.93% of U.S. 2-year notes sale, direct 19.11% and indirect 68.96%.
• The rate futures market has attached a 29% probability that the Fed will raise rates by 50 bps, down from 37% late on Friday, according to LSEG calculations. About 100 bps of cuts in 2025 are priced in by futures traders.

• In Restaurants: DNUT reinstated with a $13 PT and inline rating at Evercore/ISI saying after shutting its CPG operation and selling a majority stake in Insomnia Cookies (retained 34% minority interest), Krispy Kreme is a streamlined business that is focused on delivered fresh daily donuts. CAVA shares slipped after the company in a regulatory filing on Monday disclosed Artal International’s divesture of 6M CAVA shares worth around $732M. Also, CEO Brett Schulman filed to sell 201,504 shares, Director Xenohristos filed to sell 98,490 shares.
• Discount Retailers: Piper with an earnings preview noting looking forward, both DG and DLTR have increased risk in 2025 from the Overtime Rule change. Meanwhile, OLLI should see benefits in 2025 from ongoing BIG store closures. Among the discount retailer names in Piper’s coverage – all scheduled to report over the next 1.5 weeks – it most prefers OLLI. The WSJ reported that WMT is extending its competition with AMZN deeper into the logistics arena by opening its fulfillment services to merchants who want to fill orders from customers on platforms outside the retailer’s own marketplace.

• In Home Improvement/Products: ENR was upgraded from Hold to Buy at Truist and tgt to $40 from $30 saying there are two reasons why the stock continues to trade at a meaningful discount to its consumer staple peers. First, the longstanding investor bias against the battery category was exacerbated by COVID-related volatility over the past two years. Second, the high leverage ratio (5.0x) during a period of rising interest rates. AMWD shares fell after results as Q1 adj EPS $1.89 below consensus $2.40; Q1 revenue $459.1M vs. consensus $479.6M; sees FY low single-digit decline in net sales y/y. Construction materials VMC, MLM were notable weaker for a second straight day, with some attributing weakness to AMWD results, while others hearing American Road & Transportation Builders Association (ARTBA) awards may have disappointed.

• In Autos: CHPT said it has partnered with Daimler Buses to integrate its telematics and charge management systems with Mercedes-Benz and Setra brand buses. XPEV priced the first model of its budget sub-brand MONA from $16,813 on Tuesday. The MONA M03 electric hatchback coupe is Xpeng’s most affordable model and will compete with other EVs priced in the 100,000-150,000-yuan ($14,035-$21,052) range.
• In Casinos/Gaming: The NFL sued DKNG in New York federal court on Monday, accusing the sports-betting giant of refusing to pay what it owes for using NFL player likenesses on non-fungible tokens.
• In Online travel/Lodging: TCOM shares rose as Q2 adj EPS $1.00 topped est. $0.74 and Q2 revs $1.8B vs. consensus $1.79B; said looking ahead, dedicated to leveraging potential of AI to revolutionize the travel industry.

• In Industrial Metals & Mining: CLF was upgraded from Neutral to Buy at Seaport with a $16.50 PT based on a tactical call around the current steel price cycle and mounting supply-side response; said disciplined and robust supply-side response is still percolating through the market and will become more evident in the near term, in their view. Copper prices are higher, rising to their highest in nearly six weeks on rising expectations of an imminent interest rate cut in the United States, a weaker dollar and signs of improving demand in top consumer China (FCX, SCCO shares were active).
• In Industrials/Transports: Transports were pressured, with FDX shares falling for the 1^st time in 12 trading days; Wells Fargo lowered estimates ahead of earnings next month to reflect weaker B2B trends on softer economic data. In ag machinery, shares of CNHI, DE, AGCO were under pressure.

• In Asset Managers: Barclay’s initiated coverage on several names with BLK at OW ($985 tgt), initiate at Equal-weight for AB ($35 tgt), IVZ ($18 tgt) and VCTR (tgt $58) and underweight rated on BEN ($20 tgt), TROW ($99 tgt) and VRTS ($206 tgt) saying they see the traditional asset managers facing the most meaningful industry-wide headwinds. The firm said while market growth and/or outperformance can lead to rapid AUM growth at times, competitive and mix shift mutual funds to ETFs, active to passive) can make organic revenue growth (fee rate + net organic flows) hard to come by.
• In Credit Cards (MA, V, COF, AXP): Blomberg reported that Canadian credit card holders carried over C$4,300 ($3,200) in balances on average in the second quarter, marking the highest level since the onset of the global financial crisis in 2007, according to Equifax Canada.

• PODD announced its Omnipod 5 Automated Insulin Delivery System is now indicated for use by people with type 2 diabetes (ages 18 years and older) in the U.S., making it the first and only AID system FDA-cleared for both type 1 and type 2 diabetes management.
• RHHBY said that the European Commission has approved PiaSky following a Phase III study which showed that PiaSky achieved disease control for a rare blood disorder known as paroxysmal nocturnal haemoglobinuria and was well tolerated when administered every four weeks via subcutaneous injection.
• TRIB announced that it has received substantial additional orders for TrinScreen HIV. As a result of this strong demand and the successful scaling of production capacity, the Company is now increasing its expected 2024 sales revenue for TrinScreen HIV to approximately $10M, up from $8M previously.
• Cannabis sector pressured early (MSOS, CRON, CGC, ACB, TLRY, GRWG) after the Drug Enforcement Administration said hearing on the proposal to reclassify marijuana to a Schedule III drug will take place on Dec. 2, after the U.S. presidential elections

• In AI: Worldwide spending on artificial intelligence (AI), including AI-enabled applications, infrastructure, and related IT and business services, will more than double by 2028 when it is expected to reach $632B, according to a new forecast from the International Data Corporation (IDC)
• In Semiconductors: all eyes await earnings results from NVDA on Wednesday 8/28 after the close; SMCI shares tumbled after short seller Hindenburg research notes they took a short position in shares citing fresh evidence of accounting manipulation https://hindenburgresearch.com/smci/ (shares pared losses after falling as much as 10%).
• In Telco: Worldwide smartphone shipments are forecast to grow 5.8% year over year in 2024 to 1.23B units, according to the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker. The 12% growth in Q1, followed by 9% growth last quarter, has brought improved optimism about how 2024 will play out in the second half of the year.
• CRTO announced that CEO Megan Clarken has informed the Board of Directors of her intention to retire within the next 12 months. Clarken will continue to serve as CEO until her successor is named, at which time she will also step down from the Board. Clarken has also agreed to remain with Criteo in a senior advisor role.
• LUMN shares fell after short seller Kerrisdale Capital noted they were short shares saying despite 400% stock rise in recent weeks, AI can’t save this dying, over levered legacy telecom. The newly announced deals won’t reverse worsening sales and margin trends amid a staggering debt burden.
• SONY shares rose after the game console maker raised the price of its PlayStation 5 (PS5) games console in Japan by about 20%, as it will cost 79,980 yen ($551) or 72,980 yen for a version without a disk drive from Sept. 2.
• In social media: META CEO Mark Zuckerberg says senior Biden administration officials pressured Facebook to “censor” some COVID-19 content during the pandemic and vowed that the social media giant would push back if it faced such demands again. In a letter to Rep. Jim Jordan, the Republican chair of the House Judiciary Committee, Zuckerberg alleges that the officials, including those from the White House, “repeatedly pressured” Facebook for months to take down “certain COVID-19 content including humor and satire.”