Closing Recap

Wednesday, June 12, 2024

U.S. stock markets could do no wrong this morning, led by technology leaders AAPL (making new all-time highs), surging a second day after its WWDC event this week talking up “AI”, ORCL at record highs after earnings/guidance, AVGO rises ahead of earnings tonight, MSFT as remains largest mkt cap company and of course NVDA. The surge in stocks came after lower-than-expected headline and core CPI readings for May boosted market expectations of FOMC interest rate cuts adding to the euphoric market outlook. Is the market getting ahead itself remains the question, but for now, there is still zero fear. Overall U.S. CPI moved down to 3.27% YoY in May from 3.36% in April (US inflation has now been above 3% for 38 straight months), while the Core CPI (ex-Food/Energy) moved down to 3.41% YoY from 3.62% last month (lowest since April 2021). Treasury yields tumbled (10-yr hit low below 4.25%), the dollar dropped over 1% vs. the euro while gold prices gained. Risk assets in focus as Bitcoin prices back near $70K as Fed swaps fully price in quarter-point rate cut in November. Interest rate sensitive sectors saw biggest upside moves this morning on lower yields/rate cut hopes including homebuilders, REITs, biotech and solar which count on cheap financing. While major averages remain strong, internals are concerning as @JasonGoepfert tweeted: “The S&P 500 is on track for a new high, even though…More NYSE issues are hitting 52-week lows than highs, More NYSE issues are declining than advancing, more NYSE volume is flowing into losers than winners.” This shows the continued trend going on two years that a handful of market leaders continue to do the heavy lifting. New record highs for the Nasdaq and S&P 500!

At 2:00 PM, the Federal Reserve held interest rates steady as expected in its policy meeting statement at 5.35%-5.5%, while pushed out the start of rate cuts to perhaps as late as December, as the FOMC median forecast shows 25 bps rate cuts in ’24 vs 75 bps and median forecast shows 100 bps rate cuts in ’25 vs 75 bps. The markdown in the outlook for rate cuts, from 75-bps reductions seen in the Fed’s March projections, was made despite the central bank’s acknowledgement in its new policy statement of “modest further progress” towards its 2% inflation target. Recent progress has been slow, and Fed officials now project a slightly higher end-of-year inflation rate of 2.6% versus the 2.4% anticipated as of March (so more “higher for longer” outlook for rates. At the end of the day, inflation forecasts moved higher for PCE, and cut outlook pushed out – but markets still held gains despite Powell comments/policy text, though did roll sharply off the highs in last 30-minutes. The Dow Jones Industrial Average was weak as 25 of the 30 Dow stocks are down on the day and 11 of them were down over 1%.

• May CPI: Energy costs declined 2%, energy commodities 3.5%. Services 0.2% which is a big deal and housing 0.3%, shelter 0.4% and the policy sensitive owners’ equivalent rent at 0.4%. The 3mo avg pace in owners’ equivalent rent has slowed to 4.8% in contrast to the year ago rate of 5.7%.

• U.S. Treasury yields tumbled with the benchmark 10-yr hitting lowest levels since April 1^st around 4.25% (down from 4.40% yesterday) after the CPI inflation reading came in softer than expected, raising expectations for a rate cut from the Federal Reserve in the coming months. U.S. consumer prices were unchanged in May following a 0.3% increase in April and below the 0.1% increase forecast. Yields edged higher off lows following the FOMC meeting comments.
• The dollar index (DXY) tumbled -0.9% to lows 104.30, after hitting a four-week high of 105.46 on Tuesday, tumbling after the consumer price index (CPI) May totals came in softer than expected, raising bets for Fed rate cuts. The Euro gained vs. the U.S. dollar to $1.0848, up 1% midday, after dropping to $1.07195 on Tuesday, the lowest since May 2. The euro has been under pressure after far-right parties gained ground in European Parliament elections, prompting French President Emmanuel Macron to call a snap election in his country, to be held in two rounds on June 30 and July 7. The dollar pared losses late. August gold settles +$28.20/oz, or +1.21%, to $2,354.80 on dollar/yield weakness.

• In Retail: TGT raises the quarterly dividend by 1.8% to $1.12 a share; GME said it raised around $2.14 billion in a share sale, with the videogame retailer saying it may use the proceeds for mergers and acquisitions. Shares declined early after climbing 22.8% on Tuesday for the biggest gain since June 6. BIRK was downgraded to Neutral at Goldman Sachs. ASO was downgraded at UBS and Wells Fargo following results the day prior. CASY reported fourth-quarter earnings per share that came ahead of estimates. VRA tumbles following earnings results and guidance.

• In Utilities/Solar: NEE, NEP both downgraded to Neutral from Buy at Mizuho after NEE hosted analysts and investors in New York for their 2024 Analyst Day event the day prior/believes shares at current levels are reflective of the risk-reward profile. Ladenburg downgraded ETR to Neutral from Buy based on valuation and cut tgt to $109.50 from $117. Says on a 52-week basis, Entergy has outperformed the regulated electrics universe of 36 utility stocks by 12%. Solar stocks surged on low interest rate hopes following the CPI report earlier, with outsized gains in ENPH, SEDG, RUN, NOVA, etc.
• In Transports: FDX announced a workforce reduction plan in Europe as part of its ongoing measures to reduce structural costs; plan will impact between 1,700 and 2,000 employees in Europe across back-office and commercial functions. In trucking sector, Susquehanna reduced price tgts on XPO, SAIA, ODFL on a slightly slower than expected underlying volume backdrop; but remain constructive on LTL names XPO, ODFL, SAIA and LTL-adjacent TFII as believe the valuation compression since mid-April more than compensates for nearer-term macro and competitive risks.

• In Crypto: Several Bitcoin miners met with former president Donald Trump at Mar-a-Lago on Tuesday night, according to Matthew Schultz, executive chairman at crypto mining company CleanSpark Inc. Trump told attendees that he loves and understands cryptocurrency, adding that Bitcoin miners help to stabilize energy supply from the grid. RIOT says 15% trigger in Bitfarms’ poison pill is in direct conflict with established legal and governance standards.
• In FinTech & Payments: AFRM shares add to the previous day’s gains after unveiling Apple Pay product availability later this year. "This will enable those users checking out online or in-app with Apple Pay on iPhone and iPad to be able to apply to pay overtime with Affirm.”

• In weight loss space (NVO, LLY), Michigan’s largest insurer to drop weight-loss drug coverage. Blue Cross Blue Shield of Michigan will drop coverage GLP-1 obesity drugs in fully insured large group commercial plans starting in January citing consideration of their “efficacy, safety and access, and cost,” a spokesperson said – Bloomberg reported.
• RARE and MREO announced new longer-term fracture rate and bone mineral density (BMD) data from their Phase 2 ORBIT study of setrusumab (anti-sclerostin mAb) in osteogenesis imperfecta (OI, rare bone disease). The 14-month data point to a large, sustained 67% reduction in annualized fracture rate.
• RGNX announced Chief Operating Officer Curran Simpson was named as CEO, effective July 1 as incumbent CEO Kenneth Mills to step down after 15 years at the helm.
• RNA shares jumped after saying its experimental drug delpacibart braxlosiran (AOC 1020), to treat a genetic muscular disorder facioscapulohumeral muscular dystrophy, showed functional improvement in patients enrolled in an early-to-mid-stage study (showed greater than 50% reduction in DUX4-regulated genes associated with the disorder).

• In Media & Telecom: PARA was downgraded to Underweight with $9 tgt at Wells Fargo noting with no potential deal beyond an National Amusement sale, PARA is back to fundamentals: low-6xs EV/ EBITDA = $9/share; says the process has caused internal disruption, further weakening PARA when it needs to pivot. TMUS notable weakness in strong tape, pulling back after hitting record highs this past Monday.
• In Hardware, IT Services & Consulting: AAPL extends prior day gains to new highs, leading the Nasdaq, S&P and Dow as the next tech mover pushing markets; RBRK reported a strong first quarter as a public company, highlighted by Subscription ARR of $856MM (+46% Y/Y) and Cloud ARR of $606MM (+104% Y/Y), while mgmt noted strong demand for the high-end Enterprise Edition, which includes all the security capabilities of the platform.
• In Online/Internet: KVYO was upgraded to Overweight from EW at Barclay’s and raise tgt to $29 from $25 saying Klaviyo sticks out as a top growth asset that has not been properly rewarded for its healthy execution (-18.7% YTD vs IGV -0.3%).
• In Semiconductors: Philly semi index (SOX) new record highs topping 5,500 (tops prior record high of 5,379.49) as investors/PMs continue to chase winners/performance; attention turns to AVGO with earnings tonight. AAPL iPhone suppliers saw big gains after rally in shares with SWKS, TSM, QRVO all jumping.