Closing Recap

Tuesday, June 04, 2024

U.S. stocks were choppy all afternoon, dropping initially after data showed more weakness in the economy as job openings in the U.S. fall to 3-year low as labor market cools off, ahead of key private payroll data tomorrow morning and nonfarm payroll data on Friday. Stocks pared losses midday, ripped late afternoon like the prior two-day afternoon spikes, pulled back again briefly before edging higher into the close in another volatile trading session. Stocks did not react to the sharp pullback in Treasury yields over the last 2 days with the 10-yr yield down about -20 bps during that stretch. Recession fears have been renewed given the latest bout of weaker economic data, coming ahead of next week’s FOMC meeting (where no changes are currently expected). Expectations for a September rate reduction now stand around 65%, versus below 50% last week given yesterday’s softer manufacturing report. Sector leaders today were mostly defensive/interest rate sensitive such as REITs, Healthcare, and Consumer Staples. Some signals/concerns about the market are showing as Bank of America Securities noted its clients were net sellers of US equities for the fifth consecutive week, resulting in a total outflow of $5.7B; the biggest exodus since last July “and the fourth-largest outflow in our data history since 2008.” They noted institutional and hedge fund clients were major contributors to this sell-off, while retail clients emerged as net buyers after two weeks of selling. In another strategy call, Stifel continues to forecast the S&P 500 corrects about -10% to ~4,750 before the end of Q3 2024. They said, “the no-landing (albeit with soft growth) scenario…with stickier-than-expected inflation (a moderate form of stagflation) places constraints on the Federal Reserve which outweigh their preference to ease.” Oil companies were the biggest losers in the S&P for a second day as oil prices dropped to 4-month lows, weighing on shares of XOM, CVX, COP, etc. while Smallcaps (Russell 2000) tumbled over 1%. Materials (XLB) also underperformed amid weakness in metals on slowing economic growth concerns. REITs the top S&P sector +1% amid the sharp pullback in Treasury yields, helping dividend paying sectors, as Utilities (XLU) also pushed off the lows this afternoon.

• April factory orders +0.7% vs. consensus +0.6% and March +0.7%; factory orders ex-transportation +0.7% vs March +0.4% (prev +0.5%); factory orders ex-defense +0.4% vs March +0.9%; computers/electronics products orders +0.6%, vs March +0.4%; nondurables orders +0.8% vs March +0.7%; April nondefense cap orders ex-aircraft revised to +0.2% from +0.3%; April shipments unrevised at +0.4%; inventories/shipments ratio 1.45 months’ worth vs March 1.47 months.

• Treasury yields slumped for a second straight day, falling to lowest levels in 2-months (10-yr yield lows 4.31%, down 30 bps off last week high of 4.61%) after data showed that job openings fell more than expected in April, down 296,000 to 8.059 million on the last day of April, the lowest level since February 2021 (a softening of jobs market). Treasury yields fell sharply on Monday after data showed that U.S. manufacturing slowed for a second straight month in May.
• The U.S. dollar ends little changed after falling overnight to its lowest against the euro, sterling, and Swiss franc since mid-March, ahead of key nonfarm payrolls report later this week. The dollar index (DXY) extended losses versus the yen after U.S. job openings fell more than expected in April to the lowest in more than three years, fell to 104. The yen rose to a three-week peak against the greenback, as Bank of Japan officials warned they are keeping a close eye on the currency, and a Bloomberg report said it could soon discuss reducing bond purchases.

• BOOT said consolidated same-store sales up 1.4% in the first 9 weeks of Q1; same-store sales up 0.8%, e-commerce comps up 6.7% in first 9 weeks of Q1 as saw broad-based improvement across departments.
• CTRN said now expects comparable sales to rise in the low- to mid-single-digit percentage range, below its previous guidance for mid-single-digit growth; said Q1 sales rose 3.7% at $186.3M and rose 3.1% on a comparable stores’ basis.
• DBI shares tumbled as Q1 EPS $0.08 missed the $0.12 estimate on revs $746.6M vs. est. $741.6M; reaffirms its full-year guidance of net sales growth in the low-single digits and adjusted diluted EPS of $0.70-$0.80 (est. $0.76).
• In Consumer Staples: Food sector was strong, with KHC, PEP, KO, CAG, MDLZ shares all up over 1% by midday, while CPB shares were little changed ahead of earnings tomorrow morning. Cannabis producer Green Thumb Industries (GTBIF) has expressed interest in merging with Boston Beer (SAM), the maker of Sam Adams lager, per WSJ, seeking to discuss a potential combination.

• In Cruise lines: RCL shares rise as the cruise liner making new all-time highs, while CCL, NCLH all outperform.
• In streaming space (NFLX, DIS, PARA), the Canadian Radio-Television and Telecommunications Commission (CRTC) announced today they require online streaming services to contribute to Canada’s broadcasting system; the CRTC is requiring online streaming services to contribute 5% of their Canadian revenues to support the Canadian broadcasting system.

• In Transports: Trucking/LTL stocks outperformed, as SAIA provided Q2 LTL operating data saying April 2024, LTL shipments per workday increased 18.0%, LTL tonnage per workday increased 7.6% and LTL weight per shipment declined 8.8% to 1,332 pounds. In May 2024, LTL shipments per workday increased 18.6%, LTL tonnage per workday increased 9.8% and LTL weight per shipment declined 7.4% to 1,345 pounds. Shares of ODFL outperformed behind positive analyst comments/upgrade while trucking group in general was strong.
• In Aerospace & Defense: HEI was upgraded from Underweight to Equal Weight at Morgan Stanley and raised tgt to $225 from $178 as continues to see a strong backdrop for commercial aftermarket helping to support HEI’s above peer valuation. BA CEO David Calhoun said today the Board is prepared to make decisions as he is set to step down at the end of the year, he told Reuters on the sidelines of an aviation conference in Berlin on Wednesday, adding that the decision on his successor is up to the board.
• Industrials: SWK downgraded to Equal Weight from Overweight at Barclays (cut tgt to $86 from $100) as thinks the company’s sales are likely to remain "sluggish" through 2025, given the need for further inventory reduction and a subdued consumer spend environment. The firm also downgraded ALLE to Underweight from Equal Weight with a price target of $116, down from $122 saying thinks the company’s high U.S. greenfield commercial construction exposure will weigh on its sales, and that stable trends in the institutional side will not be strong enough to offset this. UBS notes PRIM is the top pick in Machinery, Engineering and Construction as see upside from earnings growth and multiple expansion and says CGNX to pick in EEM sector as see oppty to own high-quality growth at a discount. CNM shares tumbled after the Q1 profit missed consensus expectations noting costs rose due to an increase in personnel expenses along with higher facility and other distribution costs.
• In Metals & Materials: copper prices slipped pressuring shares of copper producers/miners such as FCX, SCCO, TECK as prices of the metal dip below the mark of $10,000 a metric ton for first time in three weeks; gold miners tumbled behind a drop in gold and precious metals.

• In P&C Insurance (ALL, TRV, LNSL, AFG): BMO Capital said it trimmed Q2 EPS ests given heightened QTD catastrophe/storm activity. The firm said based on discussions with insurance experts, BMO estimate YTD 2024 U.S. catastrophe losses are tracking at 55-60% of the same period in 2023, which recall were nearly 2x above historical levels. BMO’s Q224 EPS estimate changes range from ~60% at the high end for Allstate (ALL) which has a large Home business, and ~1% for Kinsale (KNSL) and American Financial Group (AFG) at the low end.

• BBIO reported long-term results from a study of its drug called infigratinib for the treatment of achondroplasia, a form of dwarfism.
• FGEN announced FDA clearance of investigational new drug application for FG-3165, a Galectin-9 targeting monoclonal antibody, for the treatment of patients with solid tumors.
• HQY posted Q1 results ahead of street with revenue of $288M vs. $278M est. and EBITDA of $117M vs. $103M est. with strong operating momentum with solid HSA account adds and enhanced yield product uptake; raised if FY25 rev outlook to $1.16B-$1.18B from $1.14B-$1.16B prior and EBITDA of $454M-$474M from $438M-$458M prior.
• ILMN announced that its Board of Directors approved the spin-off of GRAIL, with when-issued trading expected to begin ~6/12/24, with a distribution date of 6/24/24. ILMN shareholders will receive one share of GRAL for every six shares of ILMN common stock held at the close of business on 6/13/24.
• SRRK presented data as SRK-181 showed notable activity in combination with pembrolizumab in PD-1 resistant patients with melanoma and clear cell carcinoma, said BMO.
• VKTX shares rose initially then reversed sharply lower; reported 52-week data based on biopsy results from patients with non-alcoholic steatohepatitis (NASH) in a mid-stage study saying the drug candidate, VK2809, helped patients achieve NASH resolution with no worsening of fibrosis or scarring of liver tissue (those treated demonstrated NASH resolution ranging from 63% to 75%, compared with 29% for placebo).

• CORZ shares jumped after Bloomberg reported cloud computing provider CoreWeave has made an all-cash bid to buy the bitcoin miner for $5.75/share on Monday https://tinyurl.com/3et2s7aw
• CSCO announced it plans to invest $1 billion in startups that are working on what it calls “secure and reliable” artificial intelligence services, part of a push to be a bigger player in AI technology.
• GTLB reported a solid F1Q, as revenue growth of 33% Y/Y surpassed the Street’s roughly 31% forecast citing a relatively consistent macro backdrop and raised its FY25 guidance by more than the 1Q beat.
• PTC and PCOR downgraded to Neutral from Buy at Mizuho in engineering software sector – take a cautious view and move to the sidelines. The firm noted they recently assumed coverage of the engineering software sector, which is exposed to the current slowdown in the construction and manufacturing verticals. Mizuho said in this uncertain environment, expectations for a meaningful recovery remain muted at present and could stay that way well into 1H25.
• SentinelOne (S) was upgraded from Hold to Buy at Canaccord but lower tgt to $23 from $28, saying they view as a long-term secular winner due to the company’s positioning as a data-driven security platform, which is facilitated by its roots in Endpoint Security and a strong position in mid-market Enterprise.

• AVGO positive mention at Bernstein as they name ‘Best Idea’ pitch deck saying the case for Broadcom includes a materially de-risked core business in the near term; one of the best AI stories in the industry bridging the gap; likely upside to current VMware expectations; best in class financial and operational performance; attractive valuation.
• INTC launches its next generation Xeon server processors in a bid to regain data center market share; reveals its Gaudi 3 AI accelerator chips will be priced much lower than its rivals’ products.
• NVDA tgt to $1,275 from $1,180 at Mizuho and raise ests as believe NVDA continues to see strong opportunities with its Hopper platform and Blackwell B100/200in Q324-Q125 and now 3nm/Rubin announced at Computex for 2026.
• QCOM is gearing up for a potential PC sales revival w/ its Snapdragon X series processors, which will power new AI PC models set to launch in mid-June – Digitimes reported.