Closing Recap

Thursday, May 16, 2024

More intraday record highs for major U.S. averages, as the Dow, S&P and Nasdaq saw early gains but failed to hold, slipping into the bell to end at the lows and snap the 10-day win streak for the “SPY”. The Dow Jones Industrial Average hits 40,000 for the first time ever, posting its 18th record high of 2024, and now having doubled from its pandemic low in 2020, but ended lower below 39,900. The S&P hit a record high for the 24^th time this year (finished under 5,300) before fading alongside a pullback in stocks late behind weakness in semiconductors ahead of AMAT earnings tonight. Despite the ongoing rally in U.S. stocks this month amid recent signs of slowing economic growth (housing data, retail sales yesterday, manufacturing prints), and slightly better CPI, PPI inflation data this week (boosting Fed rate cut hopes), Fed members remain cautious on rate cuts. Just in the last 2-days, Richmond Fed President Thomas Barkin said the April retail sales number still means spending was growing at a "good" pace even if not a "great" one; Cleveland Fed President Loretta Mester said she still regarded progress on inflation this year as "disappointing" and, pointing to a recent rise in public expectations about near-term inflation; and NY Fed President Williams said in Reuters interview: "I don’t see any indicators now telling me … there’s a reason to change the stance of monetary policy now." But that has not changed the sentiment of U.S. stock markets, which have been higher most of the month. At the close of today, ten of eleven S&P sectors were up on the year, with the biggest gainers this year being Utilities (XLU) the surprise up over 14% YTD, Communications (XLC) +13.5% YTD, Financials (XLF) +12.5% YTD, Energy (XLE) +12% YTD and 10% gains for Industrials (XLI) and Technology (XLK) – lone decliner REITs (XLRE) -3% YTD.

Dow Jones Bloomberg stat: One of the oldest US stock market indexes, Dow Jones Industrial Average, just blew through a new historic milestone, touching 40,000 for the first time. It took the benchmark almost 42 months to set the 10,000-point milestone, the fastest among previous stretches. The index needed about 908 trading sessions to hit 40,000, much shorter than the 999 sessions it took to first reach 30,000 from 20,000. That’s a lot faster compared to more than 5,000 trading days to reach 20,000 from 10,000. The Dow Jones first touched 10,000 in March 1999.

• Philadelphia Fed business conditions for May reported at 4.5, below consensus 8.0 and April 15.5; prices paid index 18.7 vs April 23.0; new orders index -7.9 vs April 12.2; employment index -7.9 vs April -10.7 and the six-month business conditions for May 32.4 vs April 34.3.
• US April housing starts rose +5.7% to 1.36M unit rate (est. 1.42M rate) vs March -16.8% (1.287M-units); April single-family starts -0.4% to 1.031M unit rate; multifamily +30.6% to 329,000-unit rate. U.S. April housing permits fell -3.0% to 1.44M unit rate vs. est. and prior read of 1.485M-unit rate.
• U.S. April export prices +0.5% vs. est. +0.4% and vs March +0.1% while April import prices +0.9% above consensus +0.3% and vs March +0.6% (prev +0.4%); the April Y/Y import prices +1.1%, export prices -1.0%.

• WTI crude rose $0.60 to settle at $79.23 per barrel and Brent Crude futures settle at $83.27/bbl, up $0.52 or 0.63% (has been firmly wedged between $81 and $85 so far this month). U.S. natural gas futures climbed about 3% to a 15-week high of $2.495/mmBtu on Thursday on a smaller-than-expected storage build and another drop in output.
• Treasury yields end near highs after several economic data points; the 10-yr was around 4.38%, off morning lows around 4.31% while the 2-yr yield rose 5.5 bps to 4.79%.

• DDS Q1 EPS $11.09 topped consensus $9.63 on in-line revs of $1.55B, while comparable store sales decreased (-2%); said retail gross margin was 46.2% and inventory was down 2%.
• GOOS shares jumped as Q4 revs $358M topped consensus $316.4M on better earnings of $0.19 vs. est. $0.07; Q1 Ebit $40.1M tops est. $22.4M and margins better as Q4 EBIT margin 11.2%, vs. est. 6.52%.
• UAA shares fall as guides FY25 revenue to be down at a low double-digit percentage rate, vs ests for up 2% and guided year EPS $0.18-$0.21 vs. est. $0.59 saying is facing lower wholesale channel demand and inconsistent execution across its business; announces restructuring plan; board approves restructuring plan and announces $500M buyback.
• In Mattress Retail: Piper noted April mattress sales at -5% improved slightly from March; said retailers forecast Memorial Day weekend at +3%-4%, and they forecast overall Q2 to be flat to +LSD%. TPX continues to take share as the new Adapt product line appears to be performing exceptionally well; said for SNBR, app downloads have improved in May following a weak April and for LEG, Piper remains concerned on full year sales guidance in bedding.

• In Metals: SBOW shares rise after Crescent Energy (CRGY) agreed to acquire SBOW in $2.1B deal (confirmed overnight story by Bloomberg). SBOW’s largest shareholder Kimmeridge Energy had also made a similar bid earlier this year but later withdrew the offer https://tinyurl.com/3rvu8jx4  
• In Transports: The Baltic Dry Index, which tracks rates for ships carrying dry bulk commodities, slipped to its lowest level in nearly two weeks, falling 72 points, or 3.81%, to 1,817 as was weighed down by weaker rates across all segments (Capesize, Panamax and Supramax shipping vessels). Goldman lowers FY2025 estimates for Buy-rated FDX to reflect additional conservatism on the pace of freight/parcel volume recovery as the restock cycle seems to remain slow to come by; WERN approves up to 5M share buyback; ZTO rises after reported estimate-beating earnings. And said it’s shoring up profitability by keeping loss-making parcels outside of its network, as price competition heats up.
• In Energy: Reuters reported CVX is set to launch the sale of its remaining UK North Sea oil and gas assets, in a move that would Mark the U.S. energy giant’s exit from the ageing basin after more than 55 years. Reuters confirmed the planned divestment comes as Chevron prepares for the $53B acquisition of rival HES. EOG downgraded from Buy to Hold at Truist and cut tgt to $136 from $163 saying some of its historical prestige has been removed as the focus has shifted towards shareholder return and other similar strategies employed by its peers. CTRA was upgraded to Buy at Truist as forecast Coterra on pace to potentially generate $2.5B+ FCF in 2025 setting up a solid shareholder return story; the firm also downgraded OXY to Hold from Buy; In refiners, VLO was downgraded to Hold from Buy at Argus noting the company’s lower first-quarter earnings reflected a weaker performance within the Refining business.
• In Oil Services: DO announced a 2-year extension for 7G drillship Ocean BlackHawk at a clean $480k/d with OXY in the US GoM; SDRL said it entered into a definitive agreement to sell three Jack-up rigs–the West Castor, the West Telesto and the West Tucana –and its 50% equity interest in the joint venture for cash proceeds of $338M.
• Utility & Solar: Utility (XLU) strength continues with only 1 down day in May so far (5/10), best performing sector in S&P in 2024 +15%. In Solar, Roth MKM noted this afternoon the Department of Treasury released updated domestic content (DC) guidance. Many were expecting proposed rules, but RothMKM received updated guidance instead. The firm said FSLR remains the key beneficiary in its coverage universe, while the tracker vendors—NXT, ARRY, FTCI—likely can’t benefit as easily. Said initial industry work and checks suggest trackers can’t meet the DC ITC adder requirements without having a US made cell. Said RUN/NOVA appear to be winners as well with storage.

• In Mortgage Industry: RDFN says Pending Home sales fell 4.3% from a year earlier during the four weeks ending May 12, the biggest decline in roughly three months; Inventory is losing momentum, too, as would-be sellers stay put to Hang onto their low mortgage rate. New listings rose 10% year over year, but they were essentially flat from a week earlier; median U.S. home-sale price is up 4.7% year over year to a record $386,951, and the median monthly mortgage payment is sitting at $2,858, just $26 shy of the all-time high set in April.
• Banks/Brokers: HOOD said funded customers at end of April were 24.0M; Assets Under Custody (AUC) at end of April were $123.3B, down 5% from March but up 59% y/y and net deposits were $4.9B in April vs. $1.4B y/y; Crypto daily average revenue trades 400,000 vs. 200,000 y/y and equity daily average revenue trades 1.8M, +29% y/y.
• In Asset managers: TD Cowen said they remain bullish on Asset Managers, both the Alts (consensus view) and the Traditionals (non-consensus), particularly should interest rate expectations further ease. For the Alts, KKR remains their top Alt selection followed by ARES and APO and IVZ & JHG are top picks in Asset managers and contrarian calls.
• In Exchanges: CME plans to launch bitcoin trading to expand its portfolio, the Financial Times reported on Thursday saying the exchange has been holding discussions with traders who want to buy and sell bitcoin on a regulated marketplace, the newspaper said, citing three people with direct knowledge of the talks. Note shares of COIN down possibly on the Bitcoin trading headlines.
• In Credit Cards: Jefferies noted April Credit Monitor which showed seasonally lower DQs/NCOs for most card issues and better than expected seasonal trends for DFS, COF and BFH. They highlight that DQs are showing signs of having potentially peaked in Jan ’24 emphasized by the Y/Y% change in DQs decreasing to 67bps from 74bps in March. For DFS, COF and BFH, the M/M DQ change of -11bps, -25bps and -20bps was a significant improvement over the seasonal avg. of -3bps, -8bps and 0bps, respectively.

• BMY disclosed that its CAR-T cell therapy Breyanzi received FDA accelerated approval for the treatment of adult patients with 3L follicular lymphoma. Breyanzi is already indicated in SLL and CLL and is awaiting mantle cell lymphoma.
• JNJ shares rose for the 9th day in a row.
• LLY reported that its experimental weekly insulin worked as well as daily basal insulin products in two late-stage studies, paving the way for the drug to compete with a similar weekly insulin developed by NVO, STAT News reported.
• IONS announced positive topline data from the HALOS Phase 1/2a open-label study of ION582 in Angelman syndrome. ION582 was safe and well tolerated in the study and showed encouraging and consistent benefits in individuals living with Angelman syndrome, with the most robust improvements observed in key areas.
• JNJ to pay $850M in cash to acquire privately held Proteologix, a biotech focused on bispecific antibodies focused on immune-mediated diseases.
• RHHBY said its Genentech unit reports positive phase Ib results for its dual GLP-1/GIP receptor Agonist CT-388 in people with obesity; said over 24 weeks, a once-weekly subcutaneous injection of CT-388 achieved a clinically meaningful and statistically significant mean placebo-adjusted weight loss of 18.8% (p < 0.001) (data weighed on shares of other obesity drug manufacturers LLY, NVO, VKTX).

• In Healthcare Services: GDRX was upgraded from Market Perform to Outperform at Raymond James with $10 tgt following the company’s inaugural investor day where it leaves incrementally positive on the stock given GDRX’s reaccelerating revenue, improving margins, more focused business strategy, and attractive valuation.
• In Health Insurance: TRUP was upgraded from Neutral to Buy at Bank America and raised tgt to $49 from $35 saying insurance is a cyclical industry where pricing is a lagging function of loss trends; Bank America said expects material improvement in operating margins and the company may begin over-earning.

• In Networking: Dow component CSCO reported a good 3QFY24 (April), beating estimates (off a low bar) and guiding Q4/FY25 modestly above the Street estimate, despite continued inventory digestion that will pressure Networking revenue though 1HFY25.
• In Telecom: ASTS shares jumped after saying entered into a commercial agreement with AT&T (T) to provide their first space-based broadband network direct to everyday cell phones. SPIR shares dropped after Q1 revenue results were weaker than expected, coming in below the low end of its guidance (missed its midpoint by $2.3M).
• In Digital Advertising: MGNI, TTD shares extend gains after moving late Wednesday after NFLX announced new programmatic ad partners, naming MGNI as SSP partner. NFLX shared that it will make some advertising inventory available programmatically through TTD, GOOGL’s DV360, and MGNI later this summer.
• In Software: PANW and IBM announced a broad-reaching partnership to deliver AI-powered security outcomes for customers. As part of this expanded partnership, Palo Alto Networks has agreed to acquire IBM’s QRadar SaaS assets, including QRadar intellectual property rights, subject to customary closing conditions. BLKB slips after rejected a $4.3 bln takeover offer from private equity firm Clearlake Capital, saying it significantly undervalued the co.
• In Semiconductors: AMAT reports earnings after the close in equipment sector; CRUS was downgraded from Buy to Hold at Benchmark as shares approach fair value following the firm’s latest beat and raise earnings report – said appreciates the new content growth at Apple and remain upbeat on the migration to laptops but says current share price is reflecting these incremental BOM gains; several analysts positive NVDA into results later this month; INTC was upgraded to Peer Perform from Underperform at Wolfe noting sentiment/expectations low, and the stock now down 38% year-to-date. The sector opened higher but rolled into the close with big declines in the likes of SMCI, AVGO, ASML.