Closing Recap

Friday, March 08, 2024

Index	Up/Down	%	Last
DJ Industrials	-68.20	0.18%	38,723
S&P 500	-33.66	0.65%	5,123
Nasdaq	-188.26	1.16%	16,085
Russell 2000	-2.04	0.09%	2,082

 

 

 

 

 

 

 

 

 

US equity futures moved generally sideways overnight with no big news and earnings from MRVL and AVGO with guidance that wasn’t good enough to incrementally boost bullish sentiment after a strong market day Thursday. Economic data to the rescue: while US nonfarm payrolls beat expectations (not so great for Fed watchers), the prior two months’ data was revised lower and unemployment came in above expectations on in-line labor force participation (better for Fed watchers as rising unemployment something the Fed wants to see to help battle inflation, so better for the rate-cut camp). Futures gained and there was much rejoicing, for a while. Mid-morning breadth was almost 3:1 in favor of advancers as indices held near highs. IWM was the outperformer at +1.25% as small caps led versus both SPY and QQQ at about +0.55%. Early S&P sector leaders were Real Estate, Communications and Technology all up at least +0.75% versus Consumer Staples the leading laggard at -1%. Health Care, Materials, Energy and Utilities were also in the red early. By midday, both the S&P and Nasdaq had sold the strength and crossed back to red with SPY -0.15% and QQQ -0.7%.

 

In data of interest today, Goldman Sachs this morning noted the US equity market’s top ten stocks now comprise 33% of the S&P 500’s market cap. That said, those top stocks are trading at much lower valuations versus the top names during the tech bubble peak. The top ten are at similar valuations to the top names during the 1970’s but have much better ROEs and profit margins. Also, on the S&P 500, @bespokeinvest notes we have now gone 86 trading days without even a 2% pullback for the S&P. Separately, the Philly Semiconductor Index hasn’t traded within 3% of its 50dma since early November and there have only been four other streaks of at least 80 trading days since 1994. On a separate note, @charliebilello highlights total US Consumer Credit gained 2.5% over the past year, marking the slowest growth rate since April 2021.

 

Heading into the final hour of trading, stocks were off their lows but still softer on the day. Breadth maintained a lean toward advancers but had retreated to about 1.3:1 as small caps held modest gains. IWM was flat versus SPY -0.59% and QQQ -1.44%. Sector-wise, Real Estate (XLRE, +1.18%), Utilities (XLU, +0.25%) and Financials (XLF, +0.17%) were the afternoon leaders while laggards included Technology (XLK, -1.49% with NVDA and AVGO each losing more than 5.5%) and Consumer Staples (XLP, -0.79% as COST dipped by more than 7%). As implied by the sector breakdown, value outperformed growth by a wide margin with the Russell 1000 Value +0.28% versus its growth counterpart at -0.56%.

 

• April WTI crude futures finished the week on a losing note, settling lower by $0.92/bbl, or -1.17%, to $78.01 and locking in a loss for the week overall, as well. Brent similarly weakened today, settling -1.06%, or -$0.88/bbl, to $82.08. Today’s economic reports did little to allay ongoing uncertainty, with the recognition that what’s good for rate-cut hopes may not be so good for the oil demand picture. Additionally, the restart of the Keystone Pipeline, which had been suspended earlier in the week, may have added to the pricing pressure in futures into the weekend.

 

Macro	Up/Down	Last
WTI Crude	-0.92	78.01
Brent	-0.88	82.08
Gold	20.30	2,185.50
EUR/USD	-0.0009	1.0939
JPY/USD	-0.98	147.05
10-Year Note	-0.005	4.087%

 

• In Warehouse: COST shares fell initially after quarterly sales fell short of consensus (revs rose 5.7% y/y to $58.44B vs. est. $59.04B), but comp sales topped expectations, trending slightly positive, positive traffic drove most of the comp. E-comm sales expanded.
• In Footwear: GCO shares fell early on guidance as expects FY sales to fall 2%-3% and is targeting adjusted EPS from continuing operations of 60 cents a share to $1.00 a share, below the $1.87 a share that analysts expected after posting quarterly results shy of consensus views.

• In Sporting Goods/Stores: SWBI as Q3 EPS profit fell but topped consensus while revs rose 6.5% to $137.5M vs. est. $133.6M; higher costs and expenses offset 6.5% revenue growth.

• In Oil stocks: PBR shares tumbled as Bank America downgraded to Neutral noting the company decision overnight not to announce extraordinary dividends heightens the risk perception at PBR and suggests that PBR could be pivoting to an agenda more focused on growth (leading to higher CAPEX and M&A). DKL announced ~3.2M units at $38.50 for $120M raise as the offering priced at 13.6% discount to last sale. AMPY shares tumbled late day after saying they are aware of reports of an oil sheen off the coast of Huntington Beach, California. Currently, they said they have no indication that this sheen is related to our operations.
• In MLPs/Pipelines: JP Morgan upgraded KNTK to Overweight and downgraded KGS, HESM to neutral saying they favor mid-streamers with leverage to oily basins and/or tighter infrastructure backdrops (namely Permian G&P) as well as those possessing full value chain integration, dominant franchises/footprints, and financial flexibility. In this analysis, GEI CN and KNTK rank at the top as JPMC sees each’s high quality business profiles and cash flows underappreciated at current trading levels.
• In Aerospace & Defense: ASLE shares slid after reported 4Q sales and adj-EBITDA of $94.4m and $6.0m, respectively, during 4Q, which was meaningfully below guidance as the timing of asset sales again was delayed. Overall Asset Management sales, which include the company’s whole asset sales business, declined 5% y/y.

• FIGS was downgraded to Perform at Oppenheimer, increasingly concerned that internal and external challenges, which have impacted trends at the company lately, are likely to persist, longer than initially anticipated.
• GPCR said its year-end cash balance of $467.3M is expected to fund operations and key clinical milestones through 2026 and that data from its mid-stage obesity drug trial is on track for the second quarter of 2024.
• GRFS shares bounced off record lows after its auditor KPMG signed off on its accounts saying it believes Grifols’ accounts for the year ending on 31 December 2023 give a “true and fair view, in all material respects, of the consolidated equity and consolidated financial position of the Group.” Prices had tumbled after short-seller Gotham City Research’s publication of a report on January 9 that raised questions about the firm’s debt to earnings ratio.
• LLY shares slid after saying the FDA delayed a decision on whether to approve its experimental treatment donanemab for patients with early Alzheimer’s disease and will hold a meeting of outside experts to discuss its safety and efficacy; LLY said no date has been set yet for the advisory committee meeting (news lifts shares of BIIB)
• TEVA upgraded to Neutral from Underweight at JP Morgan taking a more balanced approach to its ratings (which have been negatively skewed) saying while they remain cautious on portions of TEVA’s core business, it sees an increasingly favorable catalyst path with TL1A and olanzapine LA.

• DOCU reported strong Q4 results w/ billings of $833.1mn (+13% y/y) well ahead of consensus from renewal strength & new customer growth; provided strong margin guidance with gross margins estimated to be 81.0% to 82.0% and operating margins estimated to be 26.5% to 28.0% above the Street estimates of 81.7% and 24.2%, respectively.
• DOMO reported slightly better-than-expected FQ424 results, despite what it referred to as a challenging macroeconomic environment, with revs flat with last quarter, subscription revenue of $71.9M up 2% y/y, down from 3% last quarter, and billings growth of 1% flat q/q.
• GWRE delivered top-line results that were largely in-line with expectations, outlook for the year increased on ARR, but declined on total revenue, driven by the company’s focus on shifting implementation work to SI partners. The company raised its FY24 ARR guide by $5M at the midpoint and remains on pace to accelerate FY25 ARR growth to 16%-17%, driven by ramps that are largely accounted for in existing backlog.
• IOT posted a stronger-than-expected quarter with accelerating net new ACV growth driven by ongoing momentum in enterprise as the company highlighted strength in the core with both telematics and vehicle safety ARR growth accelerating, along with positive datapoints on international and new products.

• AVGO reported a strong JanQ and reiterated its F24E guide of $50B, though now includes ~$10B+ contribution from AI vs prior ~$8B. AVGO noted: 1) Networking/AI was the F24E driver, growing to $10B+ of revenues in F24E(Oct), up ~2.5x y/y from ~$4B with custom silicon BUT noted Storage was down mid-20% y/y, wireless FLAT. AVGO also reiterated F24E $50B rev guide, up 40% y/y with VMware at ~$12B while saying FY24E Semis ex-AI weaker with softer Storage/Broadband/Industrial, but AI/Networking up 35% y/y.
• MRVL reported mixed results with tailwinds in data center and AI and headwinds elsewhere both accelerating; guided Q1 revenues down a substantial ~-19% q/q and well below consensus ($1.15B vs. est. $1.375B) as DC/AI tailwinds (up slightly q/q) were insufficient to offset expectations for steep drops in Carrier (-50% q/q), Enterprise Networking (-40% q/q) and Consumer (-70% q/q).
• TSM reported Feb sales -16% MoM, but Feb sales growth accelerated to +11% YoY vs +7.9% YoY in January; Jan and Feb 2024 sales account for 68% of Q1 CSS sales i.e. tracking slightly ahead.

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.