Closing Recap

Tuesday, July 16, 2024

U.S. stocks finished higher in another remarkable trading day! Positive market breadth again for broader averages (4:1 advancers over decliners) led behind a massive 5-day surge in the Smallcap Russell 2000 index, while the Dow Jones Industrial Average made a fresh all-time high near 41K (led behind Transport strength) and the S&P 500 Index advanced for the 10^th time in 11 trading days (only one down day in July) as only the tech heavy Nasdaq lagged. In the final minutes of trading, S&P futures (Spuz) made it a 10^th straight day of new intraday record highs to 5,721.25 (taking out prior day 5,718.75 high). Just incredible market action day after day, with new pockets of strength arising amid another +3.4% move for the Smallcap Russell 2000 index (up about 11% in 5-day stretch since CPI data), while Financials, Healthcare hit record highs yesterday and Industrials new highs today behind another jump in Dow Transports (rising over 1,000 points in 5-days, over 400 points today). Tough to find any pieces of negative news or information to weigh on stock market sentiment as even defensive plays are seeing strength.

Gold back around new highs, and interest rate sensitive sectors/high dividend payers (REITs, Telecom, Housing, Consumer lending/finance) seeing big upside moves on rising bets of multiple rate cuts by the Fed this year, starting in September. Technology took a mild breather today amid a small rotation out of the best performing S&P sector over the last 18 months heading into earnings season, looking in some big profits. Back to Smallcaps, Bespoke invest tweeted earlier: “The Russell 2,000 $IWM is trading up ANOTHER 1%+. If the index closes higher by 1% today, it will be just the fifth time since 1979 that it has had a five-day streak of 1%+ gains.” (it achieved that mark) Notable stock market indicators showed the Fear and greed index at 63/100 or in “greed” level while for Bitcoin, crypto fear and greed index also 65/100. Bitcoin also rose, now up 12% the last 2-days around $65,000 as all systems are go for Wall Street right now. Just how strong was today< Well as of 3:30, Nasdaq with 450 new 52-week highs vs. only 30 new 52-week lows and the NYSE with 399 new 52-week highs vs. only 4 new 52-week lows. Strength across the board with little to no pockets of weakness anywhere…how long can this last (8 months and counting)?

• June import prices were unchanged M/M (better vs. est. -0.1%) and vs May upwardly revised (-0.2%) from prior (-0.4%) while June export prices tumbled (-0.5%) vs. consensus (-0.1%) and vs May -0.7% (prev -0.6%). U.S. June year-over-year import prices +1.6%, export prices +0.7%.
• May Business Inventories rose +0.5% vs. consensus +0.4% and compared to April +0.3%; May inventory/sales ratio 1.37 months’ worth vs April 1.37 months; May business sales unchanged vs April +0.2% (prev +0.3%); May retail inventories ex-autos unrevised at unchanged (prev unchanged).
• July NAHB Housing market index 42 (consensus 43) versus 43 in June; July index of current single-family home sales 47 versus 48 in June; July index of home sales over next six months 48 versus 47 in June; July index of prospective buyers 27 versus 28 in June.

• U.S. WTI crude oil futures settle fell -$1.15 or 1.4% to settle at $80.76 per barrel, falling for a third consecutive session after bearish economic data out of China on Monday, including lower refinery activity, continue to raise demand concerns. brent crude futures settle at $83.73/bbl, down $1.12, or 1.32%. Nymex natural gas front month settles +1.4% at $2.188/mmBtu after yesterday’s drop to a more than two-month low.
• Aug gold prices jumped $38.90 or 1.6% to settle at $2,467.80 an ounce (hitting earlier highs of $2,470.20 and nears the record set on May 20. The precious metal has looked strongly bullish in the short-term on growing expectations that the Federal Reserve will begin cutting U.S. interest rates in September, after recent economic data points.
• The U.S. dollar edged slightly higher, but Treasury yields slipped to lows late day with the 10-yr below 4.17%.

• In Discount Stores/Online: big day for consumers/shoppers as Amazon (AMZN) kicks off its 2-day Amazon Prime days with big discounts across various products. Note competition responding, and includes Walmart (WMT) Deals, Target’s (TGT) Circle Week, and TikTok Shop’s Deals for You Days. In research, DLTR was downgraded to Neutral from Overweight at Piper Sandler. SHOP was upgraded to Buy from Neutral at Bank America and raised tgt to $82 from $78 as believes the company has turned a corner on balanced growth and margin under new CFO Jeff Hoffmeister.
• In Restaurants: SBUX downgraded to In Line from Outperform at Evercore ISI as sees lower earnings given the realization that recent and near-term same-store sales growth, both in the U.S. and China, will be lower than expected. YUM was downgraded to In Line from Outperform at Evercore ISI and tgt cut to $145 from $160 largely due to incremental disappointment about Taco Bell trends recently. SG was upgraded to Equal Weight from Underweight at Morgan Stanley with $25 tgt saying valuation is now closer to a level justified by MSCO’s current projections, and risk-reward skew is more balanced on its numbers. (prior rating based on concerns about n-t KPIs, 2) automation path and 3) l-t profitability.

• In Energy/Oil: TD Cowen previews quarter for major oil, saying they see upside to EQNR Q2 EPS while it should benefit from supportive global gas prices; has downside to CVX EPS though positive TCO/Permian updates could dull equity impacts; they said investors seem concerned about the commodity environment; firm said top pick XOM could see some weakness as downstream prices fall before oil, though views any weakness as buying opportunity.
• In Precious Metals: Gold producer GOLD said its gold and copper production rose sequentially in Q2, helped by increased production at Turquoise Ridge in Nevada and expansion at the Porgera mine in Papua New Guinea; total preliminary output was 948,000 ounces of gold for the quarter ended June 30, up from 940,000 ounces in the first quarter; said its quarterly copper production was also up at 43,000 tonnes, compared with 40,000 tonnes in the first quarter.
• In Steel Sector: JP Morgan downgraded EAF to Underweight in Q2 preview for sector, saying they anticipate results in-line/above conservative mid-quarter guides for companies that provided and likely below consensus for companies didn’t as 2Q demand/pricing eased meaningfully. Given weaker-than-usual seasonal activity with buyers in a ‘holding pattern’, they anticipate downbeat 3Q comments. The firm cut price targets on NUE, X and raised for STLD.
• In Utilities/Solar/Clean Energy: HASI and TPIC top picks into clean energy earnings at JP Morgan as the firm said it expects volatility to generally continue as investors juggle strong underlying power demand with headwinds such as utility-scale project delays, still fragile residential demand, geopolitics and the US election. Utility stocks rebound after getting smacked 2.5% yesterday as sector (XLU), while names like CNP rebound shares after tumbling Monday, under pressure in Texas, where Gov. Greg Abbott called for investigations as customers remain without power days after Hurricane Beryl.
• In Forest & Paper sector (BCC, GEF, GPK, IP, LPX, PKG, PCH, RYN, WY): Truist lowered wood ests on pricing; raise containerboard and boxboard given price increases; In aggregate, Q2 was a mixed paper bag (pun intended) for paper/forest products with better containerboard demand and pricing, relatively stable boxboard demand and pricing, and weaker wood products demand and pricing. As a result of the announced price increases and modestly improving demand, Truist is raising its boxboard price forecasts and assume producers can successfully implement $30/ton of their announced increases in July for URB and August for CRB, CUK, and SBS cupstock.

• BAC Q2 profit fell as its income from interest on loans shrank; Q2 EPS $0.83 vs. $0.88 a year earlier and vs. $0.80 estimate; net interest income (NII) fell -3% to $13.7 billion; raises quarterly dividend by 8%; said Q2 provision for credit losses was $1.5B; said sees Q4 NII about $14.5B, ahead of analyst estimates for $14.33B.
• MS Q2 EPS $1.82 tops $1.65 as profit increased 41% y/y to $3.08B (prior $2.2B), revenue rose 12% y/y to $15.02B vs. est. $14.3B; Q2 Investment banking revenue rose 51% y/y to $1.62B, while wealth management revenue rose 2% to $6.79B (vs. est. roughly $6.8B); Q2 net new assets fell to $36.4B from $89.5B y/y; Q2 equity underwriting revenue jumped 56% to $352M, fixed income underwriting surged 71% to $675M and advisory revenues also climbed 30% to $592M.
• PNC Q2 EPS $3.39 vs. est. $2.98 as revs rose to $5.41B from $5.29B (and vs. est. $5.41B); Q2 tangible book value per share $89.12; Q2 Average deposits came in at $417.2B, down from $425.7B; Q2 net interest income (NII) was $3.3B and on quarter, NII rose by $38M, reflecting higher yields on interest-earning assets; said Q2 provisioned $235M for credit losses, compared with $146M a year prior; said net interest income and net interest margin increased [on quarter], marking the beginning of our growth trajectory towards expected record NII in 2025.
• SCHW reported mostly in-line Q2 results (EPS $0.73/$4/69B vs. $0.72/$4.68B), while noting Q2 bank deposits fell 17% year over year to $252.4B and net interest revenue also fell, dropping 6% to $2.16B for the quarter.
• SFBS Q2 EPS $0.92 vs. est. $0.91; Q2 net Interest Income (NII) $105.9M vs. $101.3M last year; Q2 provision for loan loss $5.4M vs. $6.7M last year and Q2 net interest margin (NIM) 2.79% vs. 2.93% last year.
• STT Q2 EPS $2.15 tops $2.03 estimate on better revs rising 2.6% y/y to $3.19B vs. $3.15B; ending balance for the provision for credit losses totaled $145M, up from $136M y/y; said Q2 rev beat helped by rise in fees and NII as fee revenue increased 2% in higher mgmt fees/FX trading services while net interest income increased 6%.

• In Asset Managers: OWL agreed to acquire the business of alternative credit manager Atalaya Capital Management for $450 million; said the closing purchase price consists of $350 million in Blue Owl equity and $100 million in cash, with the potential for up to $350 million of earnout consideration in the form of equity.
• In Insurance: AIZ announced that it expects its Global Housing segment to record approximately $46M pre-tax, or $36M after-tax, of reportable catastrophes for second quarter 2024, with no single event expected to exceed $15M in pre-tax losses; said catastrophe losses driven by five storm events. PGR said Q2 combined ratio reported 91.9%, vs. est. 94%, Q2 net premiums earned $17.21B, vs. est. $17.07B and Q2 net premiums written $17.90B, vs. est. $17.58B.

• SILO said it enters into a global exclusive licensing agreement to further develop, manufacture and commercialize the Alzheimer’s drug SPC-14.
• SNDL said it plans to cut more than a hundred jobs as part of a restructuring aimed at improving operational efficiency and positioning the company for future growth; cuts will result in more than $20 million in annualized cost savings.
• STAT News notes that Trump VP running mate, Senator JD Vance of Ohio, has a history of investments in health care companies, offering a window into how he may view the biopharma industry. Vance has invested in biotech startups developing new therapies, companies that aim to aid in drug discovery, health data companies, and health tech platforms. https://tinyurl.com/eburmbnf

• In Healthcare Services: COO was upgraded to Buy at Jefferies and raised tgt to $115 saying views COO as best-positioned to take share in CLs for the foreseeable future driven by daily SiHy trade-ups, significant increases in supply starting in F25, and leadership in myopia mgmt.

• In IT Services & Consulting: EPAM was upgraded to Buy from Hold at Jefferies and raised tgt to $237 from $202 as believes the co is well-positioned to capitalize on artificial intelligence, saying the company operates on the leading edge of technological change and has a reputation for executing complex systems engineering projects. IBM was added to Evercore ISI tactical outperform list into earnings.
• In Software: Mizuho made a few ratings changes: DDOG was upgraded to Outperform from Neutral and raised tgt to $155 from $135 as believes DDOG appears to be solidifying its position as a clear leader in the observability market with multiple product areas at scale and newer products growing rapidly. PLTR was downgraded to Underperform from Neutral at Mizuho saying while the company has performed generally well in recent quarters, they remain concerned by the lack of visibility into Palantir’s business. Lastly ZS was downgraded to Neutral from Outperform at Mizuho saying they are not confident that ZS can continue to close large, transformative deals at a steady pace, particularly given the macro environment coupled with what it believes is an increasingly competitive SASE market.