Closing Recap

Friday, June 28, 2024

US equities trended higher overnight ahead of another round of PCE and US Consumer Spending data this morning, then eased a bit following mostly in-line results. Core PCE mo/mo was the lowest since November 2023, and y/y the lowest since March 2021. That said, while personal income growth was a bit better than forecast, personal spending growth was a bit light of expectations potentially indicating a more cautious stance from consumers. From a Fed-watcher’s perspective, today’s data didn’t change much. Implied probabilities continued to reflect 90% expectation of no change at the July meeting, while the September meeting probabilities shifted only slightly more toward a cut (67% post-data versus 64% pre-data). After fading back to almost unchanged, the major indices enjoyed a bounce into and beyond the open, supported by a better June Michigan sentiment report and slightly lower one-year and five-year inflation expectations versus the prior month. By mid-morning, breadth favored gainers by just more than 2:1 as Technology, Financials and Industrials led the S&P sector ETF winners. Consumer Discretionary and Utilities were the only S&P sector ETFs in the red. Meanwhile, small caps were outperforming. Sentiment-wise, the Fear and Greed Index remained Neutral today at 48/100 versus 46/100 (Neutral) yesterday, 39/100 (Fear) a week ago, 54/100 (Neutral) a week ago and 76/100 (Greed) a year earlier. 

In notable data items today, @charliebilello points out the Nasdaq Composite took just a month to move from $17,000 to $18,000 and has tripled over the past seven years after holding flat from about 2000-2017. He also notes Core PCE moved down to 2.6% in May, pushing the Fed Funds Rate to 2.7% above Core PCE, the most restrictive monetary policy since September 2007. Separately, @KobeissiLetter notes US consumers have exhausted their savings, saying $2.3T of accumulated savings have been depleted by Americans since August 2021 and consumer credit card debt has spiked. On S&P performance, @RyanDetrick notes when the S&P 500 is up double digits at mid-year, the full year has never finished lower and has been up 25.1% on average with the rest of the year higher almost 83% of the time. Lastly, in honor of last night’s rather unusual debate, odds of winning the election for the top three now stand at about 60% Trump, 21% Biden and 11% Newsom. No word on Newsom’s handicap or driving distance on the links.

Heading into the final hour of trading, US stocks had faded to red. Breadth held very slightly in favor of advancers as small caps remained the outperformers with IWM +0.4%. QQQ -0.5% and SPY -0.4% were indicative of the softer large-cap performance on the day. Sector-wise, Energy (XLE, +0.4%), Real Estate (XLRE, +0.8%) and Financials (XLF, +0.34%) all remained higher, while Utilities (XLU, -1.12%) and Consumer Discretionary (XLY, -1.11%) led the rest of the sector ETFs lower. Value outperformed growth, but both were down modestly. The Russell 1000 Value was lower by about 0.20% versus its Growth counterpart at -0.28%. A banner first half of the year for U.S. stocks: S&P 500: +14%, Nasdaq: +18% and the Dow: 4%.

• The May personal saving rate 3.9% vs April 3.7%. May personal income rose +0.5% (vs. consensus +0.4%) and vs April +0.3%, while May Personal Spending rises +0.2% (vs. consensus +0.3%) and vs April +0.1%. May real consumer spending +0.3% vs April -0.1% (previous -0.1%).
• University of Michigan surveys of consumers sentiment final June 68.2 (consensus 65.8) vs preliminary June 65.6 and final May 69.1; the current conditions index final June 65.9 vs prelim June 62.5 and final May 69.6; and the expectations index final June 69.6 vs prelim June 67.6 and final May 68.8.
• University of Michigan surveys of consumers 1-year inflation outlook final June 3.0% vs prelim 3.3% and final May 3.3% while the 5-year inflation outlook final June 3.0% vs prelim 3.1% and final May 3.0%.
• Chicago PMI Manufacturing reported at 47.4 vs. est. 40.0 and well above the prior month reading of 35.4 as prices paid at a slower pace; new orders fell at a slower pace; employment fell at a slower pace.
• Chicago PMI Manufacturing reported at 47.4 vs. est. 40.0 and well above the prior month reading of 35.4, prices paid at slower pace; new orders fell at slower pace; employment fell at slower pace.

• After hitting two-month highs yesterday, August WTI crude futures finished the week on a down day, falling -$0.20/bbl, or -0.24%, to $81.54. The recent gains have broadly been attributed to ongoing geopolitical tensions/growing travel increasing gasoline and jet fuel demand (jet fuel demand hit a post-pandemic high this month). In fact, TSA posted that yesterday was the 5th busiest day ever for TSA with 2.92Mm people screened at airports across the US and expectations do not include a slowdown through the July 4th holiday period. Today’s price action may be a bit of pushback from investors concerned about the supply-side of the equation as OPEC+ prepares to begin raising production this Fall if the market remains stable. We did hear some data from EIA today indicating US oil and petroleum products demand hit the highest level since December 2023, but also that US crude oil production also hit the highest since December 2023, so perhaps a bit of a wash there. Brent diverged slightly today to settle +$0.02/bbl, or +0.02%, to $86.41.
• The 10-year yield ended around the highs of the day at 4.34%, up 8.5bps this week, up 15bps this quarter, and up about 48bps this year (but was down -17bps on the month). Though the 10-yr yield is off 64.5bps from its 52-week high of 4.987% hit Thursday, Oct. 19, 2023, but up 52.4bps from 52 weeks ago.

• In Consumer Staples/Food & Beverages: KRUS shares slid as Q3 sales $63.1M vs. est. $65.4M & now sees FY24 sales $235M-$237M, down from prior view $243M-$246M; Q3 comp restaurant sales up about +0.6% and operating profit about 20% of sales. Beauty space remains weak as EL shares tumbled early for the 4th day of losses a day after L’Oreal (LRLCY) lowered its growth outlook in the beauty sector.
• In Uniform industry: Goldman Sachs said its Q2 uniform rental sentiment survey reveals weakening growth outlook, they lower their organic revenue growth forecast for Buy-rated CTAS due to decelerating revenue growth expectations among smaller businesses. They continue to expect Neutral-rated VSTS to decline low-single-digits over the near-term due to service quality issues, low price realization, and reduced sales force productivity.

• In Industrials: AYI estimates raised but was downgraded to EW from Overweight at Wells Fargo saying with capital deployment and non-residential demand are two key overhang uncertainties that they think make it too difficult to argue for multiple expansion at this juncture. In Metals, early strength in industrial metals (AA, CENX, STLD, CLF). In autos, TSLA topped $200 for the first time since February before fading back below.
• In Energy: US regulators approve Louisiana LNG plant over climate objections. The Federal Energy Regulatory Commission (FERC) has granted authorizations for Venture Global’s CP2 LNG Project in Louisiana, the first LNG project to secure a construction authorization since the Biden Administration paused project permitting in January. Shares of pipeline, MLP and nat gas names saw movement early.

• In REITs: prison stocks higher after Wedbush noted ICE announced an official RFP for a contract detention facility to support its Newark, New Jersey field office. GEO’s Delaney Hall facility, which is in Newark and currently sits idle, has been previously used for ICE detention in the past, and could be a strong fit for ICE’s request, in Wedbush’s view. In data center REITs, DLR was upgraded to Overweight from Neutral at JP Morgan and raise tgt to $175 from $150 saying sees the company as a substantial beneficiary of cloud and AI demand for data center capacity.

• CARM shares rallied early after the drug developer said it chose its first in vivo CAR-M development candidate under its partnership with MRNA.
• ESPR shares rise after retaining rights to receive all potential future milestones of up to $300M based on commercial performance from its exclusive European licensee, Daiichi Sankyo Europe.
• PTCT said the CHMP has issued a negative opinion on the renewal of the conditional marketing authorization of Translarna™ for the treatment of nmDMD. This opinion follows the return of the previously issued negative opinion by the European Commission for re-review.
• PTGX will replace WIRE in the S&P SmallCap 600 index, effective July 3, S&P Dow Jones Indices said.
• RCKT shares declined after the FDA declined to approve its gene therapy to treat a rare and severe pediatric disorder that causes the immune system to malfunction. FDA issued a Complete Response Letter (CRL), asking for limited additional information related to certain processes for the gene therapy to complete its review.
• SPRY said the European Medicines Agency (EMA) recommended the approval of its needle-free emergency treatment for allergic reactions.
• In Healthcare Facilities: ACCD shares tumbled as Q1 results in-line while FY25 revenue guidance lowered from +16-20% to +11-15%, though no change to EBITDA (+$15-20mn) as customer acquisition costs have gotten too high, primarily in faster growing segments driven by usage fees (VPC/EMO/other).

• In Optical/Networking: INFN to be acquired by NOK in a $2.3B deal to scale up optical network; deal price of $6.65 per share represents a premium of 26.4% to Infinera’s closing price of $5.26 on Thursday. NOK will pay 70% of the purchase price in cash and the rest in stock, expects to save 200M euros ($213.88M) in costs. https://tinyurl.com/y4jb2zp4
• In Media: Shares of Trump related stocks DJT, and PHUN which was hired by Trump’s 2020 presidential re-election campaign to build a phone app, are both rising following Donald Trump performance at the debate.
• In Internet: GOOGL was downgraded from Buy to Neutral at Rosenblatt with $181 tgt, seeing multiple areas of transitional risk, stepping back for a little while to see how the company handles it. Areas of risk include the AI’s impact on search — including the likely at least transitionally negative impact on search ad revenues of layering in AI Overviews.
• In Handsets: AAPL smartphone shipments in China surged by 39.6% in May from the same month a year prior, according to data from the China Academy of Information and Communications Technology (CAICT) released on Friday.