Closing Recap

Monday, July 01, 2024

Historically a strong month for stocks markets, July is off to another good start following stellar returns for the 1H’24 (1H’24, the S&P 500 jumped 14.48%, the Dow rose 4.72% and the Nasdaq surged 18.13%), as the Nasdaq and S&P 500 closed near their best levels of the day. The Nasdaq has not had a down July since 2007, and the first two months of July are usually among the best of the year. Canaccord noted that since 1957, when the SPX has gained 10% or more, the SPX has been positive in the July through December period 17 out of 21 times (81% positive) with a median gain of 9.64%. Today started weak but finished strong as the CBOE Volatility index (VIX) ended near lows of 12.17 after rising over 4% earlier, while Smallcap stocks (IWM) underperformed along with several interest rate sectors (homebuilders, consumer discretionary names) as Treasury yields hit one-month highs around 4.5%.

U.S. stocks likely on track for a choppy, uneventful period amid a slower micro-related week with U.S. markets closed Thursday for Independence Day (while stock markets will close at 1pm Wed). There are a few macro data points in focus this week with ISM Manufacturing today, and then slew of jobs data including JOLTS (Tues), ADP payrolls, ISM Services + FOMC Meeting minutes (Wed), and Nonfarm payrolls (Fri) all due. Also of note, corporates are now in their blackout window heading into start of earnings season in mid-July.

As we kicked off the 2H’24, reminder we closed the first half of the year with the SPX up 15%, NDX up 17%, and Semis up 31% YTD while RTY up 1% and IWM up 1.7%. Obviously the first half was all about AI, Mag 7 and Semis while software has been left far behind. @KobeissiLetter tweeted” Nvidia, $NVDA, made history again: Nvidia accounted for an incredible 30% of S&P 500’s entire gain in the first half of 2024. The S&P 500 has rallied by 717 points this year and Nvidia accounted for 218 of those points. To put this into perspective, the 2nd largest contributor was Microsoft, $MSFT, with 64 points”. @KobeissiLetter also noted: “The S&P 500 hit 31 all-time highs in the first half of the year, its 2nd highest number of all-time highs in 25 years. This is also the 6th best first half in the history of the stock market. By comparison, the highest number of new records in the first half was seen in 1995, at 44 new all-time highs.

• May construction spending slips (-0.1%) vs. consensus +0.2%; May construction spending -0.1% (consensus +0.2%) to $2.140 trln, vs April +0.3% (prev -0.1%) and May private construction spending -0.3%, public spending +0.5%.
• ISM U.S. manufacturing activity index 48.5 in June (vs. consensus 49.1) and vs 48.7 in May; prices paid index 52.1 in June vs 57.0 in May; new orders index 49.3 in June vs 45.4 in May and employment index 49.3 in June vs 51.1 in May.
• Overnight, Chinese Caixin Manufacturing PMI rose to 51.8 (highest since May 2021 and 8th month of contraction) which was in contrast with the official Manufacturing PMI of 49.5 (2nd straight month of contraction).
• European manufacturing PMIs beat estimates in the Eurozone (45.8), France (45.4), Germany (43.5), and Italy (45.7) but are still in contraction.

• The Nymex front month natural gas futures settle down 4.7% at $2.478/mmBtu, fresh 6-week lows.
• Aug gold prices dip -$0.70 to settle at $2,338.90 an ounce.
• U.S. Treasury yields extend rise as the 10-year yield hits fresh one-month high, last up 13.8 bps 4.49% and since last Thursday’s debate, the 10-year yield has had its third largest two-day increase since April 11th (+19 bps).
• The Japanese Yen is at its lowest level (161.73) since 1986 against the U.S. Dollar, losing 53% of its value from the 2011 peak while the buck slipped against the euro above 1.07.

• Housing related: FND shares lipped early following a short report call from SprucePoint Capital early saying FND is struggling, and its challenges are intensifying in part due to "ballooning" capex from new store openings. Shares of homebuilders BZH, MTH, PHM, KBH, DHI, LEN tumble in homebuilders amid rising Treasury yields (mortgage rates).
• In Ammo/gun data (RGR, SWBI, AOUT): the monthly U.S. unadjusted criminal background checks fell 3.8% to 2.05M in June, the lowest in 11 months, according to data from the FBI’s National Instant Criminal Background Check System (NICS). Compared to a year earlier, background checks decreased 9.6% from 2.26M. https://gyazo.com/fc1b18538daed143a4e398539f736dfe
• Chinese autos with monthly June data lifting some stocks early as NIO said it delivered 21,209 vehicles in June 2024, representing an increase of 98.1% y/y and delivered 57,373 vehicles in the second quarter of 2024, representing an increase of 143.9% y/y; LI said it delivered 47,774 vehicles in June 2024, up 46.7% y/y; this brought the Company’s second-quarter deliveries to 108,581, increasing 25.5% y/y; XPEV delivered 10,668 Smart EVs in June, representing a 24% increase y/y and up 5% over the prior month. EV leader TSLA hit 5-month highs extending recent gains.

• In Aerospace & Defense: BA agreed to buy SPR for $37.25 per share in an all-stock deal that values the company at $4.7B. Separately, reports this weekend said the US Justice Department has told Boeing Co. that it will charge the planemaker with fraud, leaving the company to choose between pleading guilty or taking the risk of going to trial.
• Strong coal space (ARCH, AMR, BTU, HCC) soaring; Anglo American suspended production at its Grosvenor steelmaking coal mine in Australia following an underground fire.
• In Utilities: NEP was downgraded to Sector Perform from Outperform at RBC Capital saying they see a challenging road ahead for NEP, with insufficient growth from wind repowering’s and the looming ~$3.7B CEPF liabilities post-2026. Ultimately, believes the model will not be able to sustain a long-term 5-8% dividend growth, forcing a dividend cut. CEG, AEP, CCJ and others strength early after the WSJ reported Tech companies scouring the country for electricity supplies have zeroed in on a key target: America’s nuclear-power plants. The owners of roughly a third of U.S. nuclear-power plants are in talks with tech companies to provide electricity to new data centers needed to meet the demands of an artificial-intelligence boom. https://tinyurl.com/46b8uea5

• In Consumer Finance: TD Cowen said SYF, SLM and OMF were named top picks in Q2 preview, while also Buy-rated on DFS, FCFS, UPBD and PRG and Sell-rated on CACC and NAVI, with several price tgt changes.

• SAVA shares drop after saying its board is forming a committee to direct an investigation into two of its senior employees, amid probes by U.S. regulators for allegedly submitting false data to get millions of dollars in public funds for research into a drug to treat Alzheimer’s disease.
• TEVA weak as the FTC has opened an investigation into Teva Pharmaceuticals, citing the company’s refusal to take down about two dozen patents for its asthma and COPD inhalers – Washington Post.
• TFX upgraded to Overweight at Piper as believes that UL sales in the physician’s office are starting to find a bottom (probably Q3) and that the franchise will be less of a revenue headwind starting in ’25.
• Radionetics Oncology announced the formation of a strategic relationship with LLY "to take forward" Radionetics’ proprietary G protein coupled receptor targeting small molecule radiopharmaceuticals. Under the terms of the agreement, Radionetics received a $140M upfront cash payment.

• AMD among worst performers in S&P amid early weakness in semis as SOX before the index pared losses/rebounded.
• In the media space, CNBC reported late day that PARA leaders are having discussions with several companies to explore merging Paramount+, its money-losing streaming service. WBD has an interest in merging Max and Paramount+ as a joint venture, according to people familiar with the matter. https://tinyurl.com/4nkjrs7s
• META was charged by EU antitrust regulators for failing to comply with landmark tech rules as they took aim at the U.S. company’s newly introduced pay or consent advertising model, already the target of privacy regulators and activists’ ire.
• NVDA: Reuters reported this morning that French antitrust regulators are planning antitrust charges against Nvidia.
• SNOW was added to Americas Conviction List at Goldman Sachs lifting shares saying they see an attractive entry point for a company that focuses on data storage and analytics. Increasing use cases for Snowflake’s data will enable the next phase of the artificial intelligence revolution platform and eventually the application phase.