Closing Recap

Monday, March 18, 2024

US equity futures enjoyed overnight gains heading into the new week with S&P futures +0.40% and Nasdaq futures +0.79% early. With no big economic releases coming today and expectations firmly set for no rate change from the Fed later this week, perhaps investors are taking a moment to enjoy a low-expectations day. By mid-morning, stocks had added to gains and were holding near highs for both the S&P and Nasdaq. Small caps were underperformers with the IWM -0.28% versus SPY +1.02% and QQQ +1.63%. Early breadth favored advancers by about 1.3:1. Sector-wise, it was green across the board. Communications, Technology and Consumer Discretionary were the leaders, while Real Estate, Utilities and Energy lagged.

On the data side today, BTIG noted that last week the S&P 500 failed to surpass the prior week’s high for the first time this year, while also highlighting the semi sector is one to watch as the SOX has generated negative returns in April in 8 of the last 10 years. Also on technology, @bespokeinvest notes technology has the most negative ten-day advance/decline line of the 11 S&P sectors. On a more positive note, Goldman boosted its 2024 real GDP growth forecast to 2.4% from 2.1% on a Q4/Q4 basis and +2.7% on a full-year basis. Lastly, ahead of the Fed this week, @RBAdvisors notes credit spreads are very narrow, which doesn’t suggest the Fed should be rushing to cut rates. Investors seem to agree, with a 99% probability of no change priced in for March.

US equities were modestly off highs but remained strong heading into the final hour of trading. Breadth expanded a bit and held just shy of 3:2 in favor of advancers. Small caps continued to underperform as IWM remained lower by about 0.2% versus SPY +0.78% and QQQ +1.23%. All S&P sector ETFs showed gains with little change in leadership. As outperformers included Communications (XLC, +2%), Consumer Discretionary (XLY, +0.76%) and Technology (XLK, +0.5%) versus underperformers Real Estate (XLRE, flat), Health Care (XLV flat%) and Utilities (XLU, +0.45%). As one may expect from sector leadership, growth outperformed value with the Russell 1000 Growth +1.12% vs. its Value counterpart +0.34%.

• April WTI crude futures blasted higher to a four-month high as stronger demand hopes emerged for the US (better recent economic results) and China (better factory output and retail sales) and lower exports from Iraq and Saudi Arabia supported the supply side. WTI futures settled +1.68/bbl, or +2.07%, to $82.72, while Brent similarly gained +$1.55/bbl, or +1.82%, to settle at $86.89. The moves pushed both to technically overbought levels. Also lending support was commentary from the US Energy Secretary that year-end stockpiles in the US SPR will match or exceed levels prior to the sales two years ago. Natural gas prices rose 4.8c, or 2.9%, to settle at $1.703 per million British thermal units (mmBtu). On Friday, the contract closed at its lowest since Feb. 27.
• Treasury 5-year yield climbs to 4.367%, highest since the end of November while the 10-year yield topped 4.34% ahead of the FOMC rate meeting results/commentary in two days. The dollar index (DXY) edged higher, rising 0.15% topping the 103.50 level. The JPY/USD Japanese yen was flat around 149 level into BOJ rate decision tonight.

• March NAHB Housing market index 51 above consensus 48 and vs. 48 in February; index of current single-family home sales 56 versus 52 in February (previous 52); index of home sales over next six months 62 versus 60 in February (previous 60); index of prospective buyers 34 versus revised 32 in February (previous 33)

• XPEV announced plans to launch a line of cheaper electrical vehicles under a different brand name, media outlets reported Saturday as models of the brand to be launched within the next month will be priced between 100,000 yuan and 150,000 yuan ($14,000-$21,000).
• FSR said it would pause production of its electric vehicles for six weeks and raise up to $150Mm in funding by selling convertible notes as the startup tries to navigate a cash crunch; said none of its Ocean SUVs were produced in January and its manufacturing partner MGA, opens new tab made about 1,000 vehicles between 2/1-3/15.
• NSANY and TM said Friday after market close that they would study ways to work together on EVs, their core parts and software, the WSJ reported.
• HTZ announced that Gil West, former COO of DAL and GM’s (GM) Cruise unit, will become CEO effective April 1, at which time he will join the Board. West will succeed Stephen Scherr, who has decided to step down as CEO.

• In Retailers: JOAN files for chapter 11 bankruptcy; said it will receive commitments for about $132M in new financing after agreement with majority of its financial and industry stakeholders; will go private and no longer be listed on Nasdaq or other stock exchanges.

• In Oil Sector: XOM said it found new oil in the waters off Guyana, the South American nation neighboring Venezuela where major oil discoveries have been made recently. TELL said Oct�vio Sim�es has resigned as CEO of the LNG developer, just after saying it would not renew or extend his employment term beyond June 5.

• In Banks & Brokers: RILY shares slumped after saying late Friday it was working with auditors to complete and file its annual report "as soon as reasonably possible" as grace period for its 10-K filing ended. NYCB was downgraded to Underperform from Market Perform at Raymond James and establish a fair value estimate of $3 to reflect its view that credit costs are likely to impair earnings for the next several years, as incremental disclosures in the bank’s 10-K suggest that several years of earnings will be needed to support the balance sheet remix.
• In REITS: Evercore upgraded PGRE from Underperform to In Line as the current valuation seems to imply that most of the downside risk has now been priced in. INVH downgraded from Outperform to In Line at Evercore noting that since the start of 2024, INVH has been the best performing stock within the residential sector. Raymond James upgraded ESS to Outperform, EQR to Market Perform and downgraded AIRC to MP and NXRT to Underperform in multi-family sector.

• SILO announced that it has filed a provisional patent application titled ‘Methods and Combinations for Managing Pain’ with the United States Patent and Trademark Office (USPTO).
• TSVT said an FDA advisory committee meeting backed the expanded use of Abecma, the gene therapy it sells with partner BMY; the panel voted 8-3 that Abecma showed a favorable benefit/risk profile for patients with triple-class exposed relapsed or refractory multiple myeloma based on results from a pivotal Phase 3 KarMMa-3 study.

• In Industrials: TEX was downgraded to Neutral from OW at JP Morgan given it sees limited upside to Street estimates in 2024/25 as it indexes higher (vs. OSK) to Europe, which remains weak and notes the stock has outperformed the SPX and its peer OSK since Jan’22 (up 38% vs OSK up 6% and SPX up 11%).
• In Aerospace & Defense: BA shares slide early after Bloomberg reported a Federal grand jury in Seattle has issued subpoena over the Jan. 5 blowout of a Boeing door plug on an Alaska Airlines flight; ERJ reported results and said both its aircraft deliveries and revenue to grow in 2024, but said continues to face challenges in the supply chain, which negatively impacted the 2023 results; EH said they began selling its EH216-S model flying taxi on e-commerce platform Taobao for 2.39 mln yuan ($332,060) (as per Reuters) after gained safety approval certification from China’s aviation authority in October.
• In Waste Sector: Jefferies raised price tgt in the sector saying WM (tgt to $256 from $230), WCN (tgt to $217 from $195) and GFL (tgt to $51 from $46) should see the most upside in waste, raise tgts also on RSG to $225 from $213 saying the Renewable Natural Gas (RNG) opportunity for the waste players remains underappreciated. Jefferies estimate RNG projects can add 10-15% to base earnings, lift margins 100-200bps, with 30-40% higher EBITDA vs mgmt’s expectations and believes this is not being reflected in consensus or buyside ests or in current share prices.
• In Containers & Packaging: Morgan Stanley initiated BALL, CCK at Equal Weight and AMBP initiated at Underweight saying they see favorable long-term secular tailwinds driving steady volume/EPS growth in 2023-26 for can producers given their exposure to the relatively attractive beverages end market and multiple drivers supporting aluminum can share gains. Sees downside risk to the companies’ (BALL & AMBP) outlook for low- to mid-single-digit volume growth in 2024 and a lack of positive catalysts to support a re-rating in the stocks.

• In Software/IT Services: HCP shares rose on reports it has been considering options including a sale, people with knowledge of the matter said according to Bloomberg late Friday. https://tinyurl.com/2whxndap ; SAIC shares stumbled after mixed Q4 as EPS $1.43 misses $1.46 consensus on better revs $1.74B (though was down -12% y/y) vs. est. $1.64B; raised year sales view, but mid-point of EPS view below consensus.
• In Cable: CHTR was upgraded to Outperform at Bernstein saying while they acknowledge that Charter has a clear set of challenges to navigate near-term, they believe that the market has more than priced in these risks given the potential persistence of the risks. Currently, trading at 5-year low multiples, they expect the stock to rebound meaningfully as risks play out throughout ‘24 and into ‘25, shifting mid-term risks to s-t headwinds to mitigate. In telco, AT&T (T) mentioned positively in Barron’s this weekend saying the stock is boring and cheap, focusing on its core telecoms businesses and paying down debt while offering a healthy dividend.
• In online Services, Reuters reported CC Capital is one of the suitors in talks to take Soho House (SHCO) private, Anirban Sen of Reuters reports, citing people familiar with the matter. The talks with CC Capital have been on and off since late last year, and a deal is uncertain, sources told Reuters https://tinyurl.com/3zxdcyct

• TSM is looking at building advanced packaging capacity in Japan, according to Reuters citing two sources familiar with the matter, a move that would add momentum to Japan’s efforts to reboot its semiconductor industry.