Closing Recap

Thursday, June 13, 2024

U.S. stocks finish mixed/well off afternoon lows, as the Dow Jones Industrial Average, Dow Transports, and Smallcap Russell 2000 underperformed the S&P 500 and tech heavy Nasdaq amid a “hawkish” Fed outlook the day prior at its FOMC meeting, cutting expected rate cuts to one 25-bps this year from prior view of two, and after another round of softer inflation/weak jobs. Much like yesterday, technology (XLK) outperformed as big gains in mega tech (NVDA) helped offset weakness in most other sectors as NYSE breadth was little less than 2:1 decliners leading advancers with biggest declines in Industrials (XLI), Energy (XLE) and Communications (XLC). The Philly semi-index (SOX) was up around 1.5% at 5,600, above yesterday’s record highs 5,543, as chip stocks continue to lead the markets higher (helped overnight by AVGO better results, strength again in NVDA, SMCI today).

Amazingly, U.S. stocks are still holding at/near record highs for the S&P and Nasdaq despite Federal Reserve officials dialing back their expectations for interest-rate cuts this year at yesterday’s FOMC meeting, though Chair Jerome Powell kept the door open for more as he emphasized the new forecasts represented a conservative approach. 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 projection. Recall Fed Fund futures had anticipated between 5-6 rate cuts to start the year!

In a quick reminder that tech markets remain very bullish/euphoric despite many of the predictions to start the year not panning out when related to economic data as @simon_ree noted “7 rate cuts to 1 for 2024 => bullish big tech; Higher than expected inflation => bullish big tech; Lower than expected inflation => bullish big tech; GDP growth accelerating => bullish big tech; GDP growth decelerating => bullish big tech; Rising bond yields => bullish big tech; Falling bond yields => bullish big tech; Higher for longer => bullish big tech; War => bullish big tech; Regional bank failures => bullish big tech.” Obviously extreme sarcasm from the “tweet”, but not too far off the mark midway through 2024 as nothing remotely has dented the optimism in the “AI” tech growth trade with the likes of NVDA, AVGO, DELL, GOOGL, ARM, and other AI plays leading markets daily.

In Emerging markets, Argentine assets rallied as investors drew comfort from the Senate’s passing of President Javier Milei’s economic reform bill, while Mexico’s peso jumped 1% against the dollar. Argentina’s Senate approved a sprawling bill on late Wednesday, key to the libertarian president’s economic reform plans. The Argentine peso jumped 5% while shares of several stock names rallied in reaction (BBAR, CEPU, GGAL, YPF).

• Weekly Jobless Claims climbed to 242,000 in latest week (highest since August of 2023) and above consensus 225,000; the 4-week moving average climbed to 227,000 Jun 8 week from 222,250 prior week and continued claims climbed to 1.820M (highest level since Nov 2021) in latest week and above consensus 1.798M from 1.790M prior week; the U.S. insured unemployment rate unchanged at 1.2%.

• In Restaurants: PLAY shares stumbled after results as Q1 results missed top/bottom lines with adj EPS $1.12 vs est. $1.70, adj EBITDA $159.1Mm vs est. $179.23Mm and revs $588.1Mm vs est. $621.26Mm; TD Cowen said top picks in space are BROS, SHAK and DPZ with several price targets as BROS tgt to $50 from $46, CAVA $95 from $90, CMG $3,600 from $3,500, DPZ $610 from $580, DRI $170 from $190, FWRG $21 from $25, SG $31 from $26 and WING $450 from $430. Keybanc trimmed its DRI FY24E and FY25E EPS and PT to $170 as it sees slight downside to estimates relative to consensus based on its proprietary/third-party data sources.
• In Consumer Products: KMB was double upgraded to Buy from Underperform at Bank America with $160 tgt (from $115) saying following KMB’s volume inflection in Q1 after two years of volume declines, the firm sees the beginning of a longer-term improvement taking hold in-line with the company’s initiatives from its March 2024 Investor Day. TSN shares slid midday after the WSJ reported the co suspended its Chief Financial Officer, John Tyson after DWI arrest- WSJ. CELH shares snapped its 5-day losing streak after dropping to lowest levels since mid-Fed

• In Leisure: gym owner PLNT said to buy back shares under a $500M authorization, and now forecasts year adj net to increase 4%-6%, compared to the prior forecast 6% to 8%.

• In Aerospace & Defense: BA slipped after Reuters reports co investigating new quality problem on some undelivered 787 jets. BA price tgt raised to $200 from $180 at Bank America saying the company has somewhat de-risked 2024 expectations after the late May announcement about burning cash and remains uniquely positioned in the robust air traffic demand environment, but turning around operations could take time; LDOS gets $738M US air force cybersecurity contract. SPCE board approved a 1-for-20 reverse split of the company’s common stock. TMUS selected by U.S. Navy for $2.67B 10-year contract.
• In Metals: Gold miner GFI lowered its gold production guidance for the year to between 2.2M and 2.3M ounces of gold, down from a previous target of 2.33M to 2.43M ounces citing worse-than-expected impacts from winter weather in Chile. Gold prices/miners pressured early after the Federal Reserve projected just one interest rate cut this year. U.S. listed shares of gold miners after Federal Reserve projects just one interest rate cut in 2024 (AEM, NEM, GOLD). CLF shares declined for the 9th straight day of losses in metals sector.
• In Chemicals: RBC Capital provided 2H preview as believes that 2H24 will be a pivotal period for chemicals and packaging names with the potential for more H2 downside risk rather than upside surprises. RBC said most companies continue to see significant demand headwinds and trough earnings levels from Q323 continuing through Q224. RBC continues to favor stocks under coverage that are benefiting from company-specific price/cost and share gain benefits (AXTA, SHW, CTVA cost reduction programs (CE, AXTA, FMC, LYB), portfolio actions (LYB, DD, BALL, GPK).
• In Industrials: GNRC shares dropped after being downgraded to Neutral from Buy at Janney after rally in shares; ROP was downgraded to Peer Perform at Wolfe saying valuation is now in line with history vs vertical software peers, and it does not see as much potential upside to estimates in the medium-term compared to what it saw in 2022/23.

• In P&C/Reinsurance (ACGL, EG, RNR): Jefferies with thoughts into what is expected to be an active hurricane season saying early estimates suggest the likelihood of a major hurricane making US landfall this season is 62% vs. the 20th century avg. of 43%. This is due to: 1) sea surface temperature where storms typically form at historic highs; 2) weather pattern shifting to La Ni�a from El Ni�o and 3) the Bermuda high could be located farther west this year.
• In Fintech/Payments: EBAY said it will launch Venmo as a payment option in a continued push to expand ways to pay and invest in digital natives (Venmo owned by PYPL).
• In Insurance: WRB downgraded from Buy to Neutral w/ $83 PT at Goldman Sachs as expects WRB to continue to be conservative with AY loss ratio picks amidst uncertain claim cost trends. Separately, WRB raises quarterly dividend by 9% to 12c per share, declares special dividend of 50c per share, and Board of Directors has approved a 3-for-2 common stock split to be paid in the form of a stock dividend.

• PFE disclosed that its Phase 3 CIFFREO trial studying a Gene Therapy for the treatment of ambulatory patients with Duchenne muscular dystrophy did not meet its primary endpoint of improvement of motor function among boys 4 to 7 years of age (news helped send shares of SRPT higher which has competing DMD drug).
• RGEN said current CEO Tony Hunt transitioning to Executive Chair effective Sept 1, Olivier Loeillot will succeed Hunt the role of President and CEO.
• VANI rises early after FDA has lifted clinical hold placed on early-stage human trial evaluating its implant, NPM-119, for treating type 2 diabetes.
• XNCR announced it will regain exclusive worldwide rights to plamotamab, a CD20 x CD3 bispecific T-cell engager, which Xencor advanced through Phase 1 clinical development in hematologic cancers.
• Managed care stocks (UNH, ELV, HUM) bounced this afternoon after the WSJ reported the federal government plans to redo this year’s quality ratings of private Medicare plans, a move that would deliver hundreds of millions in additional bonus payments to insurers next year.

• ADBE expected to report earnings tonight.
• GLW was downgraded to EW from OW; PT to $38 at Morgan Stanley following a rally in shares noting they left GLW’s headquarters tour with a greater appreciation for GLW’s long-term competitive differentiation and expertise.
• SMCI outperformed in the AI chip space, outperforming several names.
• Citigroup noted May notebook shipments increased 15% MoM, ahead of their expectations driven by strength in the consumer and commercial segments; raised 2Q24E notebook forecast from up 5% QoQ to up 12% QoQ, above normal seasonality of up 10% given the strong May results (AMD, INTC).