Closing Recap

Monday, December 16, 2024

U.S. stocks surge again, as the nonstop rally in large cap tech/consumer discretionary into year end pushed the Nasdaq to fresh record highs and gets the S&P 500 back near its all-time best. Bitcoin also hit a new record high above $107,500 as the chase for end of year performance pushes the winners higher, while the losers remain weak.  It has been the same names lifting stock markets in December thus far, with record highs in names like AAPL, AMZN, GOOGL, META, NFLX, TSLA, which are more heavily weighted in the S&P 500 and Nasdaq, explaining the outperformance in major averages. Semiconductors jumped as well today behind AVGO (another AI play) hitting record highs after earnings last week sent shares soaring along with MU ahead of earnings this week (though NVDA hit 1-month lows). Overall, it was just another slow, steady grind higher for U.S. stocks, a common them this month as investors await the FOMC policy meeting Wednesday (25-bps cut expected), along with a Bank of Japan meeting, and some more inflation data points (PCE) later this week.

The Dow Jones Industrial Average fell for the 8th straight day, led by declines again in managed care giant UnitedHealth (UNH), which is down about 17% this month so far. Momentum related sectors are seeing the bulk of the volumes recently including large cap tech (Mag 7), AI related names (AVGO, SOUN AI), quantum computing names (IONQ, RGTI, QBTS, QUBT), drone names (UAVS), aerospace names (ACHR, ASTS, JOBY, LUNR, RKLB), and crypto/Bitcoin names (COIN, MSTR, MARA, WULF, CLSK, IREN), while Materials (XLB) falls for an 10^th straight day, and Energy (XLE) was down over -2%, falling for the 7^th time in last 8 days. Other notable downside sectors include solar (SEDG, FSLR, NOVA, ENPH) and US listed China names (BABA, BIDU, NTES, PDD) and more recently managed care stocks with UNH, ELV, HUM, CI, CVS tumbling. It’s been all about election driven momentum the last few weeks on hopes for looser regulation and lower taxes as Goldman Sachs noted “US equities logged +$186 billion worth of inflows over the last 9 weeks, the largest inflow on record. Money has been flowing into US equities since the 2024 election. … this is the largest 9-week inflow since $144 Billion since February 2021.”

• S&P Global December flash manufacturing PMI at 48.3 (vs 49.7 in November), S&P Global December flash composite PMI at 56.6 (vs 54.9 in November) and S&P Global December flash services PMI at 58.5 (vs 56.1 in November).
• China’s November activity data underwhelmed, as retail sales rose only 3.0% YoY, decelerating from 4.8% YoY in October and well short of 5.0% consensus. Industrial production was 5.4% YoY, up 5.8% year to date. China fixed-asset investment 3.3% vs 3.5% est., jobless rate 5.0% vs 5.0% est. Chinese home prices fall at slower pace in ‘fragile’ recovery.
• Moody’s lowered France’s rating to Aa3 from Aa2, placing it three notches below the highest grade. This follows the ousting of the previous prime minister by far-right leader Marine Le Pen over a budget dispute. The CAC 40 underperforms its regional peers after Moody’s cut.

• February gold prices slipped -$5.80 to settle at $2,670 an ounce (off earlier highs of $2,683.40) as markets awaited the Federal Reserve’s policy meeting, where a third rate cut (100bps this year in total) and clues on the 2025 outlook are expected. Bloomberg’s dollar index snapped a six-day gain while US Treasuries and equity futures edged higher. Bond investors, expecting the Federal Reserve to cut interest rates this week, are bracing for the central bank to scale back its easing in 2025 in anticipation of higher inflation under the Trump administration, which has pushed Treasury yields higher in recent week with the 10-yr up at 4.4%.
• Oil prices reversed early gains, as WTI crude ended lower by -$0.58 or 0.81% to settle at $70.71 per barrel while Brent dipped -$0.58 or 0.78% to settle at $73.91 per barrel.

• In Building Products: Jefferies downgraded shares of EXP, MAS and SUM to Hold from Buy (and lower price tgts) saying in a low growth environment and likely softer 1H25 in resi, the firm is picking its spots & downgrading MAS, EXP, and SUM to a Hold. The firm notes MLM & VMC are very ownable Trump winners & will likely benefit from HSD pricing & easy weather comps while favorite longs in resi are BLD, FBIN, AZEK, idiosyncratic longs that offer reasonable value.

• The S&P 500 energy index was down 1.6%, as oil prices eased from the highest levels in several weeks. Oil prices down on weakness in consumer spending in China, world’s largest oil importer; also, investors paused buying ahead of the U.S. Federal Reserve’s interest rate decision (CVX, XOM, APA, PSX, DVN among top S&P 500 decliners).

• In REITs: CBRE was upgraded from Neutral to Overweight with a 2025 year-end price target of $163, initiated CIGI Neutral, and remain Neutral CWK still carrying greater risk around its story due to leverage and it re-organizing some of the ways in which is approaches the business (it would like to see more progress here) and CIGI’s valuation appearing more fair and perhaps having less participation in the recovery of capital markets and larger transactions than peers.
• In Consumer Finance: COF reported charge-offs for November of 6.08% vs. 5.19% y/y and delinquencies 4.57% vs. 4.55% y/y; DFS credit card charge-off rate 2.41% at November end and the credit card delinquency rate was 1.77% at November end.; JPM reported charge-offs for November of 1.64% and delinquencies 0.87%; BAC reported charge-offs for November of 2.64% and delinquencies 1.51%

• BMY was upgraded to Buy at Jefferies on new launch momentum, $70 tgt as think Cobenfy can become $10B + drug (we’re bullish on SCZ launch & AD Psychosis and Bipolar1), and are getting increasingly more confident that Milvexian could hit on non-inferiority in AF + work in SSP/ACS.
• CKPT said the FDA approved the company’s drug Unloxcyt for treatment of a type of cancer of the outer layer of the skin.
• EWTX shares rise as announces positive topline results from the CANYON Phase 2 Trial of Sevasemten in individuals with Becker muscular dystrophy; the trial met primary endpoint of reduction in circulating levels of creatine kinase (CK), a biomarker associated with skeletal muscle damage, in the largest Becker interventional trial to date.
• FHTX to discontinue the development of FHD-286 in combination with decitabine in patients with relapsed and/or refractory AML after an early-stage trial (the ORR) did not meet the company’s threshold to continue development by Foghorn alone; to prioritize investment into proprietary pipeline and LLY collaboration programs.
• VRDN said its drug, veligrotug, helped to significantly relieve symptoms when tested in patients with chronic thyroid eye disease (TED) during a late-stage trial; the company plans to submit a marketing application for U.S. approval in the second half of 2025.
• ZYME was upgraded from Neutral to Overweight at JP Morgan on the heels of its R&D Day last week. Overall, JPMC left the R&D event more confident in its Oncology and autoimmune diseases pipeline, with two distinct TCE and ADC progressing in the clinics.

• In MedTech: EW was upgraded to Buy from Neutral at Bank America and raise PT to $90 from $82 saying the stock path in 2025 skews higher given several potential catalysts and strategic value in TAVR and notes EPS has been reset for spin/deal dilution and can grow double digits.

• In Metals sector: STLD guided Q4 EPS $1.26 to $1.30, below est. $1.62 saying profitability from the company’s steel operations is expected to be meaningfully lower than sequential third quarter results, based on lower average realized pricing, seasonally lower shipments, and an unplanned outage at the Company’s Butler Flat Roll Division further reducing volume by an estimated 50,000 tons. GLNCY was upgraded to Outperform at BMO Capital saying the recent pullback in Glencore’s share price presents an excellent opportunity to gain exposure to the company.
• In Aerospace & Defense: AXON will be added to the Nasdaq-100 Index effect before the market opens on Dec. 23; drone makes stocks picking up volatility in recent days (UAVS, UMAC, ONDS). AVAV shares jumped after the US Government Accountability Office (GAO) denied the protest filed in September, which challenged the Department of the Army’s award of contract to AeroVironment related to its Switchblade dive-bombing drones. 

• In Hardware & Equipment: AME was upgraded from Neutral to Buy at Bank America and raise tgt to $225 PT from $195, raising its 2025 estimates further above consensus on macro tailwinds. Bofa sees more potential M&A upside only one deal year-to-date versus five-year average spend of $1.2B/year. KEYS upgraded to Overweight at JP Morgan and raised tgt to $200 PT from $170, led primarily by its expectations for a broadening out of the demand drivers along with a cyclical recovery through 2025 in end-markets.
• In Security Software: OKTA was upgraded to Overweight, reiterate $100 PT at JP Morgan noting Okta reset expectations with a conservative initial look at FY26 revenue growth this quarter and now the risk/reward is attractive in JPMC’s view as it sees Identity moving up the priority stack.
• In Cloud Software: MDB was downgraded from Neutral to Sell with $220 tgt at Monness saying not only is MongoDB Atlas mired in a protracted growth slump and void of the powerful tailwind implicit in the industry’s gen AI propaganda, but the company is wrestling with a go-to-market transition, and the CFO decided to call it quits last week.
• In Storage: NTAP was upgraded to Overweight at JP Morgan and raised tgt to $160 from $150, led by its expectations of acceleration in revenue growth helped by improving IT budgets towards datacenters and Storage infrastructure in preparation of Enterprises looking to leverage AI use cases, as well as continued share gains from the recent pace of innovation from NetApp relative to its product portfolio.
• Quantum computing technology stocks surged with IONQ rising after Morgan Stanley raised PT to $37 due to further enthusiasm for quantum technologies while notes broader sector momentum with peers like RGTI, QBTS, QUBT also surging in quantum tech

• In Semi-equipment: TER was upgraded to Overweight at JP Morgan as improvements in the VIP ASIC TAM, Memory TAM, as well as Mobility TAM will in aggregate put the company in a much better position to achieve its 2026 targets and potentially hit the higher-end of it, which in the backdrop of the shares trading at only 18x its updated 2026 EPS forecast leaves ample room for upside on the share price.
• European semiconductors: LOGI downgraded to Neutral from Buy; lower ASML estimates further for its CY25E revenue/EPS estimates to the low-end of ASML’s 2025E guidance, reflecting weakness in Logic. In Euro semis, top pick for 25E: ASMI, IFX, BESI 2025 is the time to reengage with semis, given significant underperformance in H2’24. Bofa downgrades LOGI from Buy to Neutral; recently upgraded BESI from Neutral to Buy.
• AVGO shares jumped over 10%, adding to Friday’s gains after earnings/guidance last week lifted shares.
• SMCI shares tumbled after the company delayed filing its earnings, extended declines early Monday after a report said it’s looking to shore up its finances by raising fresh capital.