Closing Recap

Thursday, August 29, 2024

At least small caps finished higher. U.S. stocks reversed overnight declines into this morning’s economic data and better GDP along with benign jobless claims supported gains beyond the open. A soft pending home sales report allowed equities further room to the upside. Mid-morning breadth expanded to about 2.3:1 favoring advancers. Small caps held gains with IWM +0.75% sandwiched between SPY +0.69% and QQQ +1.18% despite NVDA in the red. The Fear and Greed Index rose back to 61/100 (Greed) from 51 (Neutral) yesterday and 48 (Neutral) a week ago. By later in the morning, only Consumer Staples and Real Estate were in the red amongst S&P Sector ETFs, while Consumer Discretionary, Technology and Industrials led the gainers.

In data points of interest today, US pending home sales declined 5.5% mo/mo as contract signings fell to an all-time low despite lower mortgage rates. Also on the subject of home sales, @charliebilello notes 57% of US mortgage holders are at rates below 4% and 86% are below 6%. Many will just stay in their homes with the current mortgage rate at 6.5%. For example, one real estate agent stated many potential sellers won’t list homes until rates dip back to 5%. As investors await the next Fed meeting, @KobeissiLetter reminds that large caps gained an average of 9.4% within the first 6 months of a rate cut and +15.6% within the first 12 months. Small caps added and average of 14.2% and 26.6% over the first 6 and 12 months, respectively. That said, if a recession occurred large caps slid an average of 24% and small caps down an average of 16% in the 12 months post-cut. At least today’s GDP data favors the upside scenario.

Heading into the final hour of trading, stocks had faded hard and were hovering around unchanged though breadth remained solidly in favor of advancers as small caps outperformed. IWM gained +0.88% versus SPY -0.02% and QQQ -0.13%. Energy (XLE, +1.22%), Industrials (XLI, +0.93%) and Financials (XLF, +0.80%) led the gainers among the S&P Sector ETFs, while Technology (XLK, -0.76%), Real Estate (XLRE, -0.55%) and Consumer Staples (XLP, -0.43%) paced the decliners. Value and growth split with value the outperformer as the Russell 1000 Value gained +0.47% versus its Growth counterpart slipping -0.35%. Tomorrow we get yr/yr Core PCE and US Consumer Spending data, so those likely will drive sentiment for the day.

• US Core PCE Prices Advance climbed +2.8% versus previous +2.9% and forecast +2.9%.
• US Initial Jobless Claims actual 231k versus previous 232k and estimate 232k.
• US Advance Goods Trade Balance actual -102.7B versus previous -96.56B and estimate -97.8B.
• US Retail Inventories Ex-Auto Advance gained +0.5% versus previous +0.2%.
• US Wholesale Inventories mo/mo Advance rose +0.3% versus previous +0.2% and forecast +0.3%.
• US Pending Home Sales Change mo/mo actual -5.5% versus previous +4.8% and forecast +0.2%.

• October WTI crude futures were flattish much of the overnight session, but rallied into the economic releases, then kept going before profit taking ate into some of the gain. The October contract still settled +$1.39/oz, or +1.87%, to $75.91 as better GDP gave demand support and comments on output cuts from Iraq and oil-loading halts in Libya dented fears of excess supply, at least in the very near term. Brent similarly gained 1.64%, or +%1.29/bbl, to settle at $79.94.

• In Footwear & Apparel: BIRK Shares stumbled following today’s earnings, an EPS and sales miss. Birkenstock’s CEO forecasts increasing consumer demand for the brand but on a macro level the consumer is probably challenged. DLTH Shares rallied following an EPS and sales double beat this morning and raised FY24 revenue guidance.
• In Apparel Retail: GAP Shares were -1% when they were halted slightly before 10am as the retailer attempted figure out why their earnings, scheduled for after the close, were prematurely released at 9:15am. Q2 EPS $0.54 vs est $0.40 on revs $3.7B vs est $3.63B; Q2 total comp sales +3%, est. +2.87%; boosts outlook for year gross margin and operating income for FY24.
• In Specialty Retail: DG Shares lost 25% after a double earnings miss and a shocking FY24 EPS cut to $5.50-$6.20 from $6.80-$7.55%. On the conference call CEO Todd Vasos said that Dollar General’s core customers were feeling “financially constrained,” but DG was taking “the decisive action to further enhance our value and convenience offering.” Peer DLTR fell 9% in sympathy. BBW shares soared over 20% in the morning session following an EPS & revs double beat this morning.

• On eVTOL: JOBY Joby Aviation said to ink deal with Virgin Atlantic, TechCrunch reports

• In Energy: SHEL – Shell plans to reduce by 20% its oil and gas exploration and development workforce, company sources per Reuters.
• In Defense: LMT Pentagon to withhold $5M from Lockheed for each F-35 delivered; withheld funds to be released when full capability achieved. In another PR, LMT announced the U.S. Army awarded the Javelin joint venture a $1.3B contract.
• SW Smurfit WestRock announces ICSID award in Venezuela dispute more than $468.7M.
• In Steel: X Nippon Steel and rivals are lobbying Japan government to consider measures to curb China steel imports, per Nippon’s Vice Chairman Mori. Nippon steel sticks to plan to close U.S. steel acquisition by end-2024.

• reaction to y’day’s intraday news that SCOTUS had decided to keep the Biden student debt relief program on hold
• In Crypto: IREN Shares of the bitcoin miner sharply increased following y’day’s earnings report and Buy reiterations from Cantor and HCW with Cantor saying Iris Energy “is on its way to becoming one of the most scaled Bitcoin miners.”
• In Insurance: JVRVR Insurance Insider reports that James River is in talks to sell its fronting subsidiary to a private equity firm

• GRFS Shares moved higher after Bloomberg reported that Brookfield (BAM) was in talks with sovereign funds to join Grifols bid.

• AAPL In a mid-afternoon story, the WSJ reported that Apple in Talks to Join OpenAI Funding Round, Sources Say; to invest in OpenAI, a move that would cement ties to a partner integral to its efforts to gain ground in the artificial-intelligence race. GOOGL shares moved into negative territory on the news.
• SSYS Shares fell after today’s earnings report; the 3D printer maker drastically lowered its FY24 guidance.
• AILE Shares of the small-cap de-SPAC lost more than half their value following a pre-market Hindenburg Research negative report, stating that the company is “an artificial intelligence SPAC with artificial partners and artificial revenue.” Hindenburg’s other negative target.
• SMCI has regained some lost ground today, including a $55 swing (+13%) in the pre-market from 4am lows to 9am highs. In a midday note, BofA changed its rating on SMCI to “under review” because of the delay in the company’s 10-K. SMCI shares are trading +2.50% as the close nears.
• BILL Shares moved higher after a second group of insiders reported buying stock this week.
• CRM Shares faded from overnight and pre-market highs as investors continued to digest last night’s Salesforce earnings. The myriads of analyst notes were generally positive, lauding the earnings beat and AI strategy, many price target increases and no ratings changes. Most agreed that the stepping down of CFO Amy Weaver will not negatively affect the company.
• TIXT Short report firm Bearcave Research published a new note entitled: The Five Biggest AI Losers.
• SCWX Shares of SecureWorks soared following news Dell Technologies is again exploring its possible sale after unsuccessful earlier attempts to find a buyer for the U.S. cybersecurity firm, according to people familiar with the matter per Reuters
• META SPOT Instagram reportedly explores real-time integration of Spotify per Fortune.

• SSNLF NOK Nokia Oyj’s mobile networks assets are drawing preliminary interest from suitors including Samsung Electronics Co. amid increasing pressure to find new growth in the troubled telecom equipment sector, people with knowledge of the matter said per Bloomberg.