Closing Recap

Thursday, December 19, 2024

U.S. stocks were higher most of the day before a late day pullback erased earlier gains, closing near the lows for a second straight day. Stocks fell on Wednesday after the FOMC policy meeting threw cold water on expectations of aggressive rate cuts in 2025 but couldn’t muster a big rebound today. Strength in large cap tech names (again) AAPL, AMZN, GOOGL, NFLX, NVDA helped keep major averages steady. However, riskier and speculative assets/stock sectors saw heavy selling pressure with crypto falling sharply again (Bitcoin back under $100K), quantum computing names, which have exploded higher this month saw big declines today (QMCO, QUBT, RGTI); drone and space names (ACHR, JOBY, UAVS) saw pullbacks as well as interest rate sensitive sectors such as homebuilders tumbled behind weaker LEN earnings and surging Treasury yields. After yesterday’s 74% surge in the Volatility Index (VIX) above 28, prices dropped 15% today to around 23 (yesterday’s move was its 2nd largest daily jump in history). The Dow Jones Industrial Average managed to snap its 10-day losing streak (longest since 1974) behind gains in Boeing and Nvidia, but the streak of negative market breadth advanced to 14-days with a greater number of S&P 500 components closing lower than those closing higher. Materials (XLB) sector weakness continues, down for a 14^th straight day, off about -10% in December (only behind XLE Energy weakness -12.5% MTD). Treasury yields saw another spike, along with a further bounce in the dollar, while gold prices declined.

Few items to watch the next few days: 1) Triple witching option expiration tomorrow afternoon could increase volumes and volatility in markets, 2) the November PCE inflation data (Fed’s preferred measure of inflation) is at 8:30 AM ET Friday morning. Nov PCE is expected to rise +0.2% m/m (prior +0.2%) and y/y to rise +2.5% (prior +2.3%). The Core PCE for November is expected to rise +0.2% (prior +0.3%) and Y/y est. +2.9% (prior +2.8%). Also expected to see November personal income rise +0.4% and spending to rise +0.5%. 3) The 3^rd item was U.S. Congress with two days to avert a partial government shutdown and demanded lawmakers abolish the nation’s debt ceiling. Late day, several news reports indicated a deal was reached, as the spending bill would suspend the debt ceiling until January 2027, which is what President-elect Trump had been asking for.

• Weekly Jobless Claims fell to 220,000 from 242,000 prior week (vs. est. 230,000) as the 4-week moving average climbed to 225,500 from 224,250 prior week; continued claims fell to 1.874M from 1.879M prior and vs. est. 1.890M; the US insured unemployment rate unchanged at 1.2%.
• November Existing Home Sales rose 4.8% M/M to 4.15M unit rate (above consensus 4.07M) and above Oct 3.96M (prev 3.96M); Nov inventory of homes for sale 1.33M units, 3.8 months’ worth; the national median home price for existing homes $406,100, +4.7% from Nov 2023.
• Philadelphia Fed Survey for December was weaker with higher inflation as overall headline was negative -16.4 vs. estimate up 3; showed prices-paid index 31.2 vs 26.6 prior month, Fed new orders index at -4.3 vs 8.9, prices-received at 7.3 vs 14.3; Fed employment index at 6.6 vs 8.6.

• The U.S. Treasury sold $22 billion in indexed 5-year notes at a high yield of 2.121%. The bid-to-cover ratio for these notes was 2.10, and non-competitive bids amounted to $106.78 million. In this auction, primary dealers received 25.42% of the notes, direct bidders took 23.15%, and indirect bidders were allocated 51.43%. Of the amount tendered, primary dealers’ accepted bids constituted 20.55%, direct bidders received 64.41% of their bid amount.
• In commodity prices, February gold slides falls -$45.20 or around 1.7% to settle at $2,608.10 an ounce as a stronger dollar and rising Treasury yields weighed on prices. NYMEX WTI Crude January futures settle at $69.91 a barrel, down 67 cents, 0.95% while Brent Crude futures settle at $72.88/bbl, down 51 cents, or 0.69%. U.S. natural gas futures jumped about 6% to a 23-month high on lower output in recent days, an increase in the amount of gas flowing to liquefied natural gas (LNG) export plants to an 11-month high, and early forecasts for more cold weather in January. Front-month gas futures rose 21.0 cents, or 6.2%, to settle at $3.584 per million British thermal units.

• In Auto Retail: KMX shares jumped early after reported its first quarterly sales rise in more than two years, as Q3 revs +1.2% y/y to $6.22B topping ests $6.04B on better EPS of $0.81 vs. est. $0.61; Q3 Total wholesale vehicle-unit sales increased 6.3% from the year-ago quarter and used-vehicle average retail selling price declined -3.9%.
• In Restaurants: DRI Q2 adj EPS and revs top consensus as Comparable sales rose +2.4% vs. +2.8% y/y and vs. est. +1.45% while raised FY25 total sales forecast to $12.1B, above its prior range of $11.8B-$11.9B considering results of full-service restaurant operator Chuy’s which it agreed to buy back in July.
• In the Food Sector: LW shares tumbled after naming company insider Michael Smith as new CEO, replacing Thomas Werner effective Jan. 3 while the co also lowered its year sales outlook to $6.35B-$6.45B from prior $6.6B-$6.8B after posting Q2 sales down -8% to $1.6B; approves $250M share buyback. CAG reported Q2 EPS and sales beat but lowered its FY adj EPS view to $2.45-$2.50 from $2.60-$2.65 prior and forecasts FY organic net sales near midpoint of 1.5 %-flat saying expect the business to be impacted by two headwinds in the back half (inflation and forex).

• In Building Products/Tools: SWK was upgraded to Outperform from Neutral at Mizuho, moving to one of their Top EE/MI Picks saying the setup represents one of the more attractive, non-consensus risk/rewards heading into 2025 as trades at 20%+ discount vs Building Products/Tools peers and 40% discount vs EE/MI. RH was upgraded to Outperform from Market Perform at Telsey Advisors with a price target of $500, up from $485 based on the company’s better-than-expected demand trends in Q3 and so far in Q4, which points to market share gains as furniture demand remains soft.

• Online travel: TRIP to buy its controlling shareholder, LTRPA in merger agreement as the implied share price for the acquisition of TRIP shares from Liberty Tripadvisor is $16.21, totaling about $435 million. Upon merger, TRIP plans to retire about 27 million shares of Tripadvisor common stock currently held by Liberty TripAdvisor. BKNG PT raised to $6,000 from $5,400 at Mizuho saying remains constructive into 2025.

• In Utility and Nuclear: OKLO was initiated with an Outperform rating and a price target of $26 at Wedbush saying believes the company is in a solid spot to provide long-term recurring revenues while reducing many pain points within nuclear projects. Adds the AI Revolution is driving significant demand for clean energy to power AI initiatives… putting OKLO (in) a great position to capitalize on this elevated demand. NWE was double upgraded to Overweight from Underweight at Barclay’s saying the company’s announcement of a 50MW data-center customer in 2027 provides multiple positives to its fundamental setup, including an improved earnings trajectory, reduction in regulatory lag, and improved affordability. AEE and EXC shares rose after the companies got verbal approval of their multi-year integrated grid plans and adjusted multi-year rate plans by the Illinois Commerce Commission (ICC) as per Guggenheim.

• In FinTech/Payments: AFRM Affirm upgraded to Buy from Hold at Jefferies and raised tgt to $82 predicated on recent growth trends, upside to consensus GMV ests, margin expansion, credit performance, rate tailwinds, and relative valuation. SQ was upgraded to Outperform from Perform at Oppenheimer with a $115 price target saying recent investments in product and sales should drive accelerated Gross Payment Volume at Square.
• In Cards/Consumer Finance: SYF was double upgraded to Overweight from Underweight at Morgan Stanley and tgt to $82 from $40 as adds EPS upside from late fee rule preparatory actions and says its base case now assumes the CFPB’s late fee rule does not go through. Morgan Stanley also upgraded BFH to Overweight from Underweight and tgt to $76 from $35 as adds EPS upside from late fee rule preparatory actions and notes that its base case now assumes the CFPB’s late fee rule does not go through.

• BMY was added to Analyst Focus List, Reiterate Overweight w/ $70 PT at JP Morgan saying the drug maker is in the midst of a major new launch (Cobenfy in schizophrenia) with a much-improved long-term competitive environment.
• MESO said the FDA approved its cell therapy, Ryoncil, for treating graft-versus-host disease (GVHD); is approved to treat pediatric patients aged two months and older whose GVHD symptoms have not responded to standard steroid therapy.
• PRTA announced results from the Phase IIb PADOVA study conducted by partner Roche (RHHBY) investigating prasinezumab in 586 people with early-stage Parkinson’s disease, treated for a minimum of 18 months while on stable symptomatic treatment; study misses primary endpoint.
• REGN announced positive Phase 2 results for two novel monoclonal antibodies targeting distinct domains of Factor XI.
• SGMO reached a license agreement with Astellas, under which Sangamo will receive a $20 million upfront license fee.
• VRTX shares fell after its sciatica drug suzetrigine reduced pain compared to baseline but did not outperform a placebo in a Phase 2 study, raising doubts about the medicine’s potential in the lucrative market for treating chronic pain.

• In Aerospace Research: RBC Capital made several changes as they upgraded aero parts supplier HXL to Outperform from Sector Perform saying while they can appreciate there is downside to 2025-2026 estimates, and it is early to have high conviction in the aerospace OE recovery, it believes HXL is one OE stock that does not yet reflect potential upside. ACHR targets early 2025 for eVTOL aircraft production from its Georgia facility.
• In Defense Research: GD was downgraded to Sector Perform from Outperform at RBC Capital and cut tgt to $290 from $330, lowering its 2025-2026 Aerospace margin expectations due to the slower delivery ramp and does believe the defense exposure will continue to be a headwind until it gets better visibility of defense under Trump 2.0. RTX was upgraded to Outperform from Sector Perform at RBC Capital and raise tgt to $140 saying the company’s diversification between defense and commercial is an asset heading into 2025.
• In Gov’t Defense Services: VVX was downgraded to Sector Perform from Outperform at RBC Capital and lower tgt to $58 saying with the incoming Trump presidency, believes the government services sector, and VVX specifically, could be caught in the crosshairs of the DOGE, and VVX’s exposure to international DoD operations adds incremental risk. KBR rises on report activist investor Irenic Capital Management has built a stake in government contractor KBR and plans to push the company to separate its segment that serves the private sector, https://tinyurl.com/42pwtjks . LDOS awarded a $987M contract to provide critical engineering and sustainment services for Foreign Military Sales customers of the U.S. Air Force’s F-16 Fighting Falcon. The F-16 has been procured by over 25 nations around the world, supporting a global fleet size of approximately 2,200 active aircraft. PLTR said it extended a contract with the U.S. Army in an agreement worth up to $618.9M. The new agreement is expected to operationalize data across the Army. Palantir plans to continue offering data and artificial intelligence support to the Army, which it has done since 2018, it said.

• In Quantum Compute: IONQ was initiated new Buy w/ $50 PT at DA Davidson as believes IonQ represents a compelling pure-play investment positioned to capitalize on quantum computing’s rapid growth, driven by increasing inadequacy of classical computing for solving complex problems. Benchmark raised its price tgt to $50 from $20 on IONQ saying the quantum computing landscape is developing quickly and gaining the attention of an increasingly diverse investor base. Note shares of other names in sector (RGTI, QMCO, QUBT) have surged over the last few weeks, but pulled back today.
• In Software: ZM was upgraded to Buy from Hold and raise PT to $100 from $85 at Jefferies as sees the potential for an inflection, driven by 1) AI monetization; 2) enterprise workflows integration; and 3) potential for shareholder returns. Jefferies also downgraded NICE to Hold from Buy; move to the sidelines as believe the Street is overly optimistic regarding cloud growth in ’25.
• In IT Services & Consulting: ACN shares rose as Q1 EPS $3.59 top est. $3.42; Q1 revs rose 9% y/y to $17.69B vs. est. $17.15B; Q1 Operating margin 16.7% vs. 15.8% y/y; lowers FY EPS forecast to $12.43-$12.79 from prior $12.55-$12.91 but raises FY25 revenue growth forecast range to 4% to 7%, compared with earlier expectations of 3% to 6%.

• The Semi index (SOX) held up relatively well despite the sharp drop in MU shares after weak guidance (which impacted WDC, LRCX), as NVDA regained upward momentum after weeks of lagging.