Closing Recap

Monday, June 17, 2024

U.S. stocks are setting record highs daily following more big gains in technology leaders, pushing the S&P 500 index and Nasdaq Comp to fresh record highs (6^th straight record for the Nasdaq) on Monday. No major earnings this morning, only one manufacturing economic data point that showed modest improvement from the prior month (but still weak), and a few Fed speakers saying the same thing – higher for longer on rates, but at least one rate cut is expected this year was all that was going on today. Fed’s Harker said this afternoon in prepared text that two or no cuts in 2024 remain possible amid uncertainty while expects slowing, above trend growth and unemployment uptick. S&P 500 utilities sector (XLU) falls to a six-week low. Tech stocks have been on an absolute tear higher for more than a year now as the SOX semi-index rises 34% YTD after jumping over 40% in 2023 (led by NVDA, AMD, ARM, AVGO, QCOM), while AAPL is now up ~10% since June 7, just before the co unveiled a long-awaited AI strategy, integrating “Apple Intelligence” tech across its suite of apps including Siri and bringing OpenAI’s chatbot ChatGPT to its devices. The Nasdaq added more than 1% today, up 7% this month and nearly 18% YTD. Even underperforming Smallcaps bounced today along with the Dow, but it remains the same stock names boosting broader markets daily. The S&P 500 year-end price tgt was raised for a third time this year alone by Goldman Sachs from $5,200 to $5,600 on mega-cap tech earnings and expanding P/E reflecting investor enthusiasm for AI. The U.S. dollar (DXY) is consolidating its gains at the start of another big week for central bank meetings both in G10 and Emerging markets. Risk assets continue to soar late day, though breadth on the NYSE saw only a slight edge for advancers then decliners and both the NYSE and Nasdaq saw more 52-week lows than highs as @zerohedge noted “5 stocks account for 60% of the S&P’s YTD return”.

• China’s industrial production for May falls short of expectations (+5.6% vs. the Street +6.2%) and property investment exhibits softness too while retail sales were a bright spot (+3.7% vs. the Street +3%).
• China’s new home prices fell at the fastest pace in more than 9-1/2 years in May, with the property sector struggling to find a bottom despite government efforts to rein in oversupply and support debt-laden developers. Prices were down 0.7% in May from the previous month, marking the 11th straight M/M decline and steepest drop since October 2014.

• The U.S. dollar index (DXY) was down -0.2% around 105.30 as the Euro rebounds from the six-week low of $1.0675 touched last week following news of a snap parliamentary election in France. The euro was up 0.3% to $1.0732 on Monday. European markets have been under pressure after President Emmanuel Macron called for a snap election following a trouncing of his ruling centrist party by Marine Le Pen’s in the European parliament elections. After tumbling last week, Treasury yields rebounded on Monday with the 10-yr up about 7-bps to 4.28%. US Treasury 2-year/10-year yield curve last at -49.1 bps vs -48.6 bps late Friday (most inverted level since mid-March).

• In Auto Parts/Suppliers: Citigroup said while GM have significantly outperformed supplier stocks this year, latest datapoints suggest it’s still too soon to reverse that stance (say relatively less constructive on LEA, MGA and more constructive ALV, BWA, GT). Three points: 1) Recent supplier top-line updates have sounded more cautious (LEA); 2) Citi’s newly released Q2TD proprietary trim-mix data showed a slight decline in its supplier content index, to 106.1 from 106.4 in Q1, led mostly by STLA, suggesting heightened GoM risk for suppliers exposed to Stellantis NA; (3) This morning, S&P cut its H2 global LVP forecast by a sizable 1.1%, with Europe cut ~2% and NA ~1%.

• In Consumer Electronics: BBY was upgraded to Buy from Neutral at UBS and raise tgt to $106 from $85 as believe the shares offer a compelling risk reward to invest behind several potential paths to outperformance; said BBY’s restructuring efforts should lead to significant earnings torque as comps improve.
• In Discount/Online Retail: OLLI upgraded from Neutral to Overweight at JP Morgan with $105 tgt saying it is trading at a 13.8x turn discount relative to its pre-pandemic multiple and sees lateral competitive disruption opportunity as potential catalyst for OLLI to accelerate pace of same-store-sales growth & unit growth. BYON announced structural changes to its leadership team and broader organization with the elimination of Co-Chief Executive roles and expansion of Executive Chairman role and elimination of dual Chief Merchant roles.
• In Food & Beverages: KDP upgraded from Sell to Hold at Truist and raise tgt to $34 from $27 as believes its concerns, including overoptimistic expectations for a rebound in the coffee segment, have played out (coffee segment down ~2% YoY) and are reflected in the current valuation. SBUX mentioned positively in Barron’s saying shares looks oversold after soft demand and increased competition in China contributed to a 6% international decline in same-store sales in Q2.

• In Building Products and Construction Materials: Zelman with a few ratings changes as they downgraded IBP from Hold to Sell and downgraded BLDR to Hold from Buy while upgraded TREX from Hold to Buy and BECN from Sell to Neutral. OC was reinstated Neutral and $187 tgt at Goldman Sachs saying following the $3.9B acquisition of Masonite, view reflects expectations for continued execution of company-specific initiatives while the new home construction and repair & remodel backdrop remain more volatile.

• In Utilities/Water: Primo Water Corp. (PRMW) and BlueTriton Brands Inc., the parent of Poland Spring and Deer Park water brands, announced Monday an agreement to merge, which would create a water giant with $6.5 billion in annual revenue. PEG was upgraded to Buy from Neutral at Guggenheim with $82 tgt.

• In monthly credit card Master Trust data: BAC credit card delinquency rate was 1.38% at May end vs 1.39% at April end and credit card charge-off rate was 2.46% in May vs 2.49% in April. COF May domestic credit card net charge-offs rate 6.13% vs 6.07% in April and the 30+ day performing delinquencies rate for domestic credit card 4.13% at May end vs 4.23% at April end. The 30+ day performing delinquencies rate for auto 5.40% at May end vs 5.24% at April end. DFS credit card delinquency rate 1.64% at May end vs 1.68% at April end and credit card charge-off rate 2.40% at May end vs 2.35% at April end. JPM credit card delinquency rate 0.82% at May end vs 0.81% at April end and the net charge-off rate 1.53% in May vs 1.48% in April.
• In Insurance: BHF was upgraded to market perform from underperform after recent weakness at KBW noting it has been weak YTD at -23% vs +8% for the life group and annuity focused peers JXN +38%, CRBG +33%, EQH +21%, and LNC +16% noting underperformance has largely been driven by weaker capital generation/uncertainty over ongoing FCF trends.
• In Consumer Lending: AAN shares jumped as the company agreed to a takeover by IQVentures for an enterprise value of approximately $504 million, or $10.10 per share, representing a 34% premium to its closing share price.

• AVTE shares tumble as much as -90 after announces 24-week topline results from the phase 2b portion of IMPAHCT evaluating AV-101 for the treatment of pulmonary arterial hypertension; said AV-101 did not meet the primary endpoint of change in pulmonary vascular resistance (PVR) for any of the studied doses.
• BNTX said the FDA placed partial clinical hold on multicenter, first-in-human phase 1 clinical (nct05653752) trial sponsored by Medilink as the company has taken actions to pause enrollment of new patients in U.S. and address FDA requirements
• FATE was upgraded from Neutral to Overweight w/ $6 PT from $4 at Piper noting Fate is focusing development of iPSC-derived cell therapies in autoimmune diseases, and recently dosed the first SLE patient in the Phase I study of FT819 (CD19 CAR-IT) with preliminary data late this year.
• GRFS said the FDA has approved its drug Yimmugo to treat primary immunodeficiency disorder (PID). The drug is a ready-to-use solution of the antibody immunoglobulin G for intravenous administration.
• INAB shares rebounded as Mizuho defended saying they were surprised by INAB’s sell-off (-32% vs XBI -2% intraday) and believe it’s overdone, particularly after yesterday’s better-than-expected one-year INB-100 data at EHA.
• MIRM shares rose after reported positive interim results from two Phase 2b studies evaluating volixibat.
• MRNS said a trial of its intravenous ganaxolone for the treatment of refractory status epilepticus failed to meet a co-primary endpoint of demonstrating rapid cessation of status epilepticus, a type of seizure.
• NRIX provided an update on NX-5948’s ongoing Phase Ia dose escalation which was focused on r/r CLL and reported a consistent 69.2% ORR, inclusive of higher doses (50-450 mg) and double the number of evaluable patients (26 vs.10 prior). Piper said notably, activity was observed regardless of prior treatments or mutational status and continues to look competitive with BGNE’s 72% ORR within its dose-escalation.
• TAK said its experimental drug Soticlestat to treat epileptic disorders failed to meet the main goal in two late-stage studies; the data tanked shares of OVID (in 2021, Takeda secured the global rights to the drug from OVID by making an upfront payment of $196M while Ovid was also eligible to get up to an additional $660M in milestone payments)
• ZYME said it won FDA approval to begin studies of ZW171, a bispecific antibody targeting mesothelin-expressing cancers; said it plans to begin clinical development of ZW171 this year, adding that it expects to file for regulatory approval to begin studies of ZW171 in non-U.S. jurisdictions in the second half.
• In Autoimmune sector: Piper said that there’s significant investor interest around CAR-Ts in autoimmune, and there were several datasets (CABA and KYTX) at EULAR which were presented on Friday that received a lukewarm reception from investors. However, they also had an oral presentation from the academic Schett Lab on Saturday at EHA that continued to show strong data across lupus and other two other autoimmune indications. Longer-term, they think ALLO could differentiate on clinical durability and reduced lymphodepletion with its ALLO-329, the first CD19/CD70 dual targeted CAR-T, for autoimmune disease that is planned to start Phase 1 in 1H ’25. Wells Fargo said they think shares are overreacting to KYV-101’s relapse at the 50M dose in a high BMI pt and would be buyers of CABA and KYTX.

• In steel stocks, STLD guided Q2 EPS $2.64-$2.68 below consensus view of $2.98 saying earnings from company’s metals recycling operations are expected to be higher than sequential Q1 results and earnings from company’s steel fabrication operations are expected to be in line with sequential Q1 results (followed lower NUE guidance Friday in steels). U.S. Steel (X) forecasts Q2 adj. EBITDA $425M at the bottom end of prior view $425M-$475M (est. $443.6M) and forecasts Q2 adj EPS $0.76-$0.80 vs. consensus $0.77 and down from prior quarter of $0.82; said target reflects stable domestic flat-rolled steel demand, while its tubular segment’s performance is being hurt by challenging market conditions.
• In Gold miners, NEM was upgraded to Buy from Neutral and tgt to $50 from $40 at UBS because 1) it remains constructive on the gold price (2025 forecasts ~30% ahead of consensus and says 2) NEM has materially underperformed the gold price & gold peers (~60% since 2019) due in part to poor performance vs guidance.

• In Lithium: Lithium miners ALB and ALTM mentioned positively by Keybanc saying with destocking largely having played out, now sees potential recovery in lithium prices likely pushed out to 2025. While lithium prices are likely to improve later than they initially expected, they remain upbeat on the outlook for both and believe strong downstream demand and pullback in new capacity growth should translate to healthy sales volumes and price recovery.

• In Software: ADSK shares jumped after activist investor Starboard Value disclosed a more than $500 million stake in the company and said it was suing the design software maker to delay its annual meeting after a recent accounting probe that tanked the company’s share price. Starboard said it has "significant concerns" over Autodesk’s operations, governance and accountability to investors.
• In Electronic Equipment/Parts: GLW mentioned positively in Barron’s Tech Trader column highlighting Corning’s position in the AI trade; notes the co’s CEO believes a turnaround is possible due to improvements in underlying businesses and new opportunities, such as AI, and predicts Corning can boost annual revenue by at least $3B by 2026, potentially as much as $5B, on top of the $13.6B reported in 2023.
• In Semiconductors: Commercial Times reported TSM is likely to raise 3nm foundry price by 5% or higher, while advanced packaging prices will also be raised by 10-20% in 2025; MU price tgt raised by several analysts; just continued outperformance from late last week for AVGO (now the 8th largest company in the S&P 500 and just ahead of LLY which is at $843B. Next up would be Berkshire at $875B), SMCI, QCOM, and many others.