Closing Recap

Friday, February 23, 2024

U.S. stocks were mixed on Friday but still coasted to weekly gains for the S&P 500, Dow, and Nasdaq Composite, rising the 16^th time in last 18 trading weeks after having its 5-week winning streak snapped last Friday; the Nasdaq and Dow also up WTD while the Russell was down about -0.8% WTD. Major averages recorded new all-time highs this week as the now third largest company by market capitalization NVDA, (behind AAPL, MSFT) reported a beat and raise quarter Thursday, topping the loftiest of expectations and giving further fuel to the “AI” growth story in tech. The rally in semis (SOX +2% MTD and 8.4% YTD) boosted investor sentiment and overshadowed the recent rally in Treasury yields and pushed out expectations of interest rate cuts by the Fed. After this week’s gain, the Dow Jones Industrials topped 39K for the first time, the Nasdaq closed above 16K and the S&P 500 above 5,100 as the Bull case rolls on. The Bloomberg Dollar Spot Index posted its first weekly loss this year, while oil prices slipped and gold advanced.

Three top Federal Reserve officials said late Thursday that the US central bank is still on track to cut interest rates this year — just not anytime soon. Fed Vice Chair Philip Jefferson and Governor Lisa Cook said they are optimistic inflation is still cooling despite a blip in January but made clear they want more evidence. Federal Reserve Governor Christopher Waller said last night January’s jump in consumer prices warrants caution in deciding when to start cutting interest rates, though he still expects reductions to begin later this year.

Investors poured cash into money market funds at the fastest pace on record in the first weeks of the year and funneled another $15 billion into equities in the week to Wednesday, Bank of America said. The report showed the equity market rally is broadening beyond the mega caps, as U.S. small cap funds logged their largest weekly inflow in the week to Wednesday since June 2022, at $5.1 billion. In the latest week, as the S&P 500 hit record highs, investors put $15.2 billion into bonds, including $10.2 billion into investment-grade bond funds, which logged a 16th straight week of inflows, the longest such stretch since October 2021, BofA said.

• Weekly rig data shows, according to Baker Hughes (BKR), that the U.S. rig count is up 5 from last week to 626 with oil rigs up 6 to 503, gas rigs down 1 to 120 and miscellaneous rigs unchanged at 3.
• Gold prices jumped $18.70 to settle at $2,049.40 an ounce, assisted by a notable decline in Treasury yields on Friday, while the dollar continued to ease after starting the year with a more than 3% advance. The dollar index (DXY) was flat on day just below 104 but posts its 1st weekly decline in 2024; it has bounced from a five-month low of 100.61 on Dec. 28.
• U.S. Treasury yields fell from multi-month highs, with the 10-year yield down over -7bps to 4.255% and 2-year yield slipped from a 2 � month high back below 4.7%. The three-year, five-year, and seven-year notes all dropped from nearly three-month peaks. The shift in Fed outlooks to a less aggressive easing path has been priced in over the last few weeks after CPI/PPI data and Fed speaker commentary. Comments from Fed officials all week suggested the U.S. central bank will take its time in cutting interest rates, waiting to see the data.

• In EV Sector: NIO was downgraded to Underweight at JP Morgan noting its share price slipped by 34% YTD, underperforming broader China autos’ – 18% or MXCN -5% as attributes to the weakness to the company’s slow sales in January and investor concern on the company’s sales and earnings momentum in 2024. RIVN was double downgraded from Buy to Sell at UBS and slash tgt to $8 from $24 as sees material risk to outer-year expectations.
• In Auto Parts: FOXF shares tumbled after a disappointing Q4 print and initial ’24 guidance that came in well shy of its/Consensus expectations as sees FY net sales $1.53-1.68B vs est. $1.737B and adj EPS $2.30-2.60 vs est. $4.79.

• In Apparel: ROST upgraded from Sell to Neutral at UBS and raise tgt to $142 from $85 as now sees less risk to ROST’s long-term earnings outlook citing: 1) Macro headwinds have faded; 2) it has more conviction in its view ROST and other Off- Price retailers will continue to take market share over Department Stores; and 3) ROST has more margin expansion potential than previously thought.
• Online Retail: MELI tumbled as reported better-than-expected fourth-quarter sales but missed earnings expectations because of what the company described as a pair of one-off tax hits.

• In Casino/Gaming: DKNG upgraded to Overweight from Equal Weight at Barclays and raise tgt to $50 from $41 saying the U.S. digital gaming market still has significant growth ahead and is less concerned over recent wave of competition and expects incremental momentum for DraftKings from new partnerships and acquisitions.
• In Leisure: LYV reported record 4Q AOI of $117mm, compared consensus $114mm, with y/y improvement driven by Ticketing and Sponsorship/Advertising. Management noted that supply/demand is at record levels globally, and guided 2024 AOI to be up double digits with AOI compounding at a double-digit rate next several years.

• E&P Sector: EOG reported in-line Q423 earnings and a 2024 guide that came in slightly less capital efficient than it and the Street expected as announced $6.2B capital plan to grow oil production 3% and total production 7%. CTRA reported strong Q423 beat on all three production streams on materially lower-than-expected capex, 2024 guidance that features oil production slightly better than consensus on materially lower-than-expected capex. CVE was upgraded to Buy from Neutral at UBS as sees materially higher shareholder returns once CVE hits its net debt target of $4B in 2H24, for which it is not getting appropriate credit, in its view.
• Pipelines: CQP upgraded from Sell to Hold at Stifel citing the fall in unit price since the firm’s downgrade in November. Notes the partnership took down its annual distribution of $4.13/unit in 2023 to 3.25/unit at the midpoint in 2024 as it starts to build cash to fund the equity component of the Sabine Pass expansion.

• In Credit Cards: Consumer spending is getting worse: Total credit/debt card spending per HH was down 1.0% y/y in the week ending Feb 17, according to BofA aggregated card data. Retail ex auto spending per HH came at -1.9% y/y in the week ending Feb 17.
• In Financial Services: INTU reported FQ2 revenues in-line with expectations, driven by a miss in Consumer revenue offset by strength in SBSE and guided FQ3 revenues above consensus and reiterated its FY24 guidance. LZ reported strong 4Q23 results with revenue coming in 1% above consensus, EBITDA coming in $3M above the high end of guidance, while the midpoint of 2024 EBITDA guidance is 5% above consensus. The U.S. Federal Trade Commission said it had filed a complaint against HRB for deleting consumers’ tax data and requiring them to contact customer service when they downgrade to more affordable online products.
• In Lending: RKT Q4 adj EPS topped consensus driven by higher revenue, GOS margins and lower expenses while the forward guide is modestly better than expectations.

• COLD reported a 4Q23 AFFO beat that was $0.02 ahead of consensus, driven primarily by an unexpected increase in NOI from warehouse services that boosted the margin to 6.1%. However, management’s initial FY24 AFFO guidance of $1.32-$1.42 missed consensus by 5.5% at the midpoint.
• DRH Q4 adjusted EBITDA beat expectations and adjusted FFO was in line with expectations. RevPAR growth slightly decreased and continued expense headwinds resulted in a significant, but not unexpected, decrease in hotel EBITDA margins and hotel EBITDA y/y. Notably, management reintroduced annual guidance, which missed adjusted EBITDA and adjusted FFO expectations by ~1%.
• VICI reported in-line 4Q23 AFFO of $0.55, though management issued initial FY24 AFFO guidance of $2.22-$2.25, which is slightly below consensus of $2.25 at the midpoint (-0.7%). Notably, guidance does not include any future or pending investments.

• GMAB upgraded to Outperform at BMO Capital post earnings, incrementally more confident in GMAB’s ability to diversify its business longer-term, which currently relies heavily on Darzalex revenues from JNJ.
• VRTX receives positive CHMP opinion for Kalydeco for the treatment of infants with cystic fibrosis aged 1 month and older.

• Healthcare Technology: HCAT reported Q423 results with revenues topping consensus by ~2.1%, though adjusted EBITDA came in ~23% lower than expected and FY24 revenue guidance came in ~5.2% below current consensus but its FY24 adjusted EBITDA guidance came in 9.2% above.
• Health Facilities: AIRS shares tumbled after short seller Fuzzy Panda Research reveals short position in company.

• In Building Products: FND reported 4Q23 results ahead of estimates with $0.34 EPS (-46% y/y, $0.24) with stronger revenue and favorable below-the-line items with lower interest expense and tax rate, though the 4Q23 comparable sales decline meaningfully.
• In Lithium: PLL reported a surprise Q4 EPS loss of (-$1.32) vs. est. $0.45 profit and challenging qtr citing a downward adjustment to 3Q23 revenue. BTIG said they model flattish lithium price this year before pricing starts to recover next year, averaging $16k-$18k per ton and downgraded PLL to neutral under this challenging backdrop.

• LUNR shares jumped after its lander, nicknamed Odysseus, reached the moon at 6:23 p.m., the first private spacecraft to land on the lunar surface intact.
• KTOS 16.67M share Secondary priced at $18.00.

• In Telco/Cable: CABO was down over -9% after Q4 revs $411.8M missed the $415.8M estimate and showed decelerating growth in average revenue per user, rising 2.7%, a smaller increase than in other recent quarters. Tower stocks AMT, SBAC advanced ahead of earnings next week.

• In Fiber Optic/Networking: AAOI shares tumbled, downgraded from Buy to Neutral at B Riley after the company provided a surprisingly weak Q1 outlook as sees Q1 EPS loss (33c)-(28c) vs. est. loss (-$0.01) and revs $41M-$46M, below consensus $66.18M while Q4 disappoints on revenues due to a 100G price cut.

• AXTI was upgraded from Neutral to Buy at B Riley as believes AI/ datacenters could drive multiple expansion. More specifically, the company is one of the leading suppliers of InP, which is a key building block for EML (electro-absorption modulated laser), which, in turn, is a key optical component to build datacenters.
• INDI reported Q4 results, which missed, and guided Q1 well below, citing broad-based weakness within the auto market resulting in inventory destocking across its auto customers. INDI also disclosed a program cancelation at a U.S. OEM in an ADAS program but believes this will be offset by other wins at the same OEM over the MT.
• OLED Q4 results missed revenue and GM estimates while CY24 guide is also below consensus expectations as introduced their 2024 revenue guide range of $625M-$675M implying a 13% Y/Y revenue increase at the midpoint.