Closing Recap

Friday, July 19, 2024

U.S. stocks closed out the day lower, adding to weekly declines for the Nasdaq Composite and S&P 500, though the Dow Jones Industrial Average and Russell 2000 finished with weekly gains despite tumbling on Friday. No major economic data this week, and Fed speakers go into their “blackout period” ahead of the FOMC meeting July 31^st, but the start of earnings season kept investors engaged. The week started strong for Smallcaps, adding to last week’s gains on rising rate cut hopes by the Fed in September, allowing financials, healthcare, and industrial sectors to play catch up vs technology and hit all-time highs before fading late week. Gold prices tumbled over 2% after hitting record highs this week as well. The homebuilder index saw record highs this week led by better earnings from DHI, and lower rate cut hopes. The 2024 market leader, semiconductors (SOX) hit record highs of 5,931 last Thursday, but found itself down over 7% or 600 points from those levels today, led by profit taking after earlier in the week soft guidance from ASML as well as reports the current Biden administration is threatening to impose stricter curbs on the exports of chipmaking equipment to China and after Presidential Republican nominee Donald Trump suggested Taiwan might need to pay for its own defense in an interview with Bloomberg. In the end, the S&P 500 posted its worst 3-day loss since October (but still only roughly around 3%).

The story of the day was the cyber security incident from Crowdstrike (CRWD), whose shares were pressured after a program update by the company led to major IT outages worldwide. The outage disrupted business operations for airlines, banks, telecommunications providers, healthcare systems, and more while key services for Microsoft and Amazon were also down. CrowdStrike said the outage was caused by a defect in a single content update for Windows hosts and that they identified the issue and deployed an isolated fix to resolve the problem. Many companies were still dealing with issues late this afternoon as many were unsure when the issue would be resolved.

• August gold prices tumbled -$57.00 to settle at $2,399.10 an ounce, down 2.3% today as the dollar gained and profit taking kicked in following bullion’s all-time peak hit earlier this week, fueled by rising expectations of U.S. interest rate cuts in September.
• The dollar edged higher on Friday, as a worldwide cyber outage that hit banks, airlines and broadcasters unsettled investors, although volatility in the currency market remained contained. The yen has also gained after suspected official buying last week from Japanese authorities, and wariness of more of the same was in the mix on Friday.
• Bitcoin prices meanwhile rallied all day/week, rising around 5% around the $67,000 level, surging all week and not far off its record $73,500 levels earlier this year.

• In Restaurants: SBUX shares jumped this afternoon after the WSJ reported Elliott Investment Management has built a sizable stake in Starbucks, and the activist has been pushing the coffee giant privately on ways to boost its stock price, according to people familiar with the matter. https://tinyurl.com/2yczzxtk
• In Food: Bloomberg reported Unilever (UL) said to start sale talks for £15 billion ice cream unit; article noted Advent, Cinven, CVC, KKR among potential suitors for unit.

• In Auto suppliers: ALV shares fall after Q2 sales slipped -1.1% to $2.61B, missing the $2.73B estimate while net profit rose $138M, missing the $176M estimate and cut its full-year guidance as now expects 2024 organic sales growth of around 2% from around 5% previously, an adjusted operating margin of around 9.5%-10% from 10.5% previously.
• In Gambling/Casinos: JMP noted RSI, MGM, and CZR take iGaming share in Q224; DKNG and FLUT’s FanDuel down marginally. The firm said same-store iGaming revenue was up 25% in June, compared to +27% in May and 23% in April. State-reported data from CT, MI, NJ, and DE highlighted that DraftKings remained the number-one iGaming operator in the U.S. at 26%, despite market share declining 49 bps QoQ. FanDuel lost the most market share in the industry MoM but only declined 34 bps from Q124. iGaming revenue for the two largest companies declined 2% QoQ.

• In Oil/Oil Services: HAL Q2 adj EPS $0.80, in-line with consensus as revs $5.83B miss consensus $5.95B. North America revenue in Q2 was $2.5B, a 3% decrease sequentially while Q2 international revenue was +3% sequentially to $3.4B; SLB Q2 EPS $0.85 topped the $0.83 estimate saying revenue rose 13% to $9.14B, as its international segment rose 18% to $7.45B, from a year earlier while N.A. revs fell -6% due to lower drilling and reduced sales of production systems. HES and OXY shares fell late day after reports the FTC probes executives over OPEC communications per Bloomberg.
• In Chemicals: PPG reported essentially in-line Q2 EPS of $2.50 as overall volume was flat Y/Y while issued lower Q3 guidance of EPS $2.10-$2.20 vs. consensus $2.28 and guides Q3 organic sales growth flat to up low single digits; cuts FY24 adj EPS view to $8.15-$8.30 from $8.34-$8.59 and lowers FY24 organic sales growth view.
• In Utilities/Alt Energy: HE shares jumped as the utility firm and other defendants agreed to pay more than $4 bln in settlement amount, as per a Bloomberg report. The company and other defendants face multiple lawsuits from residents, the county of Maui and shareholders over Maui wildfires in 2023. PLUG shares fell as 78.74M share Spot Secondary priced at $2.54. EIX was downgraded to Neutral from Buy at UBS due to investors’ risk aversion to wildfires and their frequency this year in California and below average 6% EPS growth (6.5% average) that is impacted by the debt carrying cost of unrecovered wildfire claims paid.
• In Solar: SPWR shares tumbles after saying late yesterday it will pause some operations, including deactivating lease and power purchase agreements from its own sales platform and halting new product shipments. SPWR to stop countersigning new agreements and will be unable to support installation services for shipments in transit or already delivered, according to an online communication seen by Reuters. Other solar names active as well (ARRY, ENPH, FSLR, CSIQ, SEDG, NOVA) after Donald Trump commented on the current White House admin “green” policies.

• FITB Q2 EPS $0.81 vs. est. $0.85; Q2 Net interest income fell 5% to $1.39 billion, slightly below analyst forecasts; Noninterest income slid 4% to $695M; sees FY24 revenue down ~2% y/y; sees FY24 net interest income down 2%-4%; noninterest income stable to down 1%; Average loans & leases down ~3%.
• HBAN Q2 EPS $0.30 vs. est. $0.28; Q2 revs $1.82B vs. est. $1.81B; Q2 net interest income decreased 3% from the year-ago quarter to $1.31B, net interest margin lower as 2.99% from 3.20%, was mainly driven by higher cost of funds, given the higher interest rate environment; Q2 provisions for credit losses increased to $100M from $92M.
• MCB Q2 EPS $1.50 vs. est. $1.57; Q2 revs $67.7M vs. estimate $67.9M; Q2 net interest margin expanded 4 basis points to 3.44% from 3.40% in Q1.
• RF Q2 profit fell -14% y/y as EPS of $0.52 tops ests $0.48 while revs $1.7B missed the $1.76B estimate; Q2 net interest margin 3.51% vs. 4.04% last year while Q2 net interest income (NII), the difference between what a bank earns on loans and pays out on deposits, fell 14% to $1.2B in the quarter and sees Q3 NII flat to +2% q/q.
• WAL Q2 EPS $1.75 vs. est. $1.71; Q2 total deposits $66.24B, tangible book value per share $48.79, book value per share $54.80; Q2 net interest margin 3.63% vs. est. 3.44%, Q2 net interest income (NII) $656.6M, vs. Bloomberg est. $620.8M; provision for credit losses $37.1M

• In Insurance: TRV Q2 core EPS $2.51 vs. est. $2.11 and revs rose 12% y/y to $11.28B vs. est. $11.34B; said Q2 consolidated combined ratio up 6.3 points to 100.2%; Q2 book value per share of $109.08, up 14% over June 30, 2023; adjusted book value per share of $126.52, up 10% over June 30, 2023; Q2 net premiums written a record $11.12B, +7.7% y/y; said Q2 underlying combined ratio 87.7% vs. 91.1% y/y; Q2 catastrophe losses $1.51B, +1.9% y/y.
• In Financial Services: WNS was downgraded to Neutral at JP Morgan noting Q1 results were in-line with estimates but included a surprisingly steep decline in Travel trends (OTA clients) which coupled with the upcoming Healthcare client transition in FQ2 creates a trickier path to achieving FY25 guidance (the firm said prefers names that offer higher upside over the next few quarters (such as G).
• In REITs: FR reported Q2 FFO at 66c vs Street at 0.64c, driven by better operating expenses and higher leasing activity. Overall, while core SS-NOI growth was a bit lower than we anticipated, Mizuho said cash leasing spreads remained strong and importantly management made progress on two key pillars of our positive thesis.

• LLY rebounds from recent losses after competing Roche data hit shares of obesity drugs; company said its weight-loss drug tirzepatide has received approval from Chinese regulators. Tirzepatide is the active ingredient in the U.S. drugmaker’s diabetes drug Mounjaro, also approved in China, and weight-loss drug Zepbound.
• SGRY shares jumped after Bloomberg reported last night that the company is exploring options including a potential sale and is working with a financial adviser to gauge buyer interest, the report added.
• For Healthcare Services: A widespread outage to Microsoft systems took down computers in health systems around the globe, leading many to cancel non-urgent medical appointments and surgeries as they encouraged patients to make plans for disrupted travel and delays in care. The issue stemmed from a software update from the cybersecurity firm CrowdStrike, which disabled computers running Microsoft Windows.

• In Security Software: CRWD shares among the top stories today after an update glitch by the company caused a global IT outage via MSFT cloud servers, shutting down flights across the globe and causing other disruptions. CrowdStrike says it wasn’t a cyberattack, and a fix has been deployed. “The issue has been identified, isolated and a fix has been deployed,” CEO Kurtz said in a statement on X. The comments came after widespread reports of technical issues, with many Microsoft users around the world facing an error screen known as the “blue screen of death. Shares of competing cyber security stocks such as Sentinel (S), CYBR, PANW, FTNT, and others rallied in reaction.
• In IT Services: ACN was upgraded to Buy from Neutral at UBS with tgt saying they see opportunity for multiple expansion as the market anticipates accelerating revenue growth amid AI optionality. While UBS appreciate concern about the pace of IT spending it believes the change in the business mix should drive higher and more durable growth. A day after INFY shares rallied on earnings results in Indian IT sector, today WIT missed quarterly revenue estimates due to weak demand in Europe and Asia-Pacific, saying revs fell -3.8% to 219.64B rupees ($2.63B) for the quarter ended June, below analysts’ estimates of 225.9B rupees, and said clients remain cautious as global demand for IT services continue to be sluggish.