Closing Recap

Wednesday, November 13, 2024

US equity futures traded lower overnight ahead of this morning’s CPI report. Ahead of the data, Fed watchers saw a bit better than a 60% probability of another 25bps cut from the Fed in December and an implied rate of 3.914% for December 2025. Fortunately for the bulls, both mo/mo and yr/yr Core CPI came in precisely in-line with forecasts, prompting a relief rally bump back to green in the futures. Supercore CPI moved up slightly versus the prior month on a yr/yr basis but was slightly better on a mo/mo basis, so was easily digested by the market initially. The implied probability for a 25bps Fed cut in December also bounced, moving up to about 77% and the December 2025 implied rate dipped to 3.802%. But despite the Fear and Greed Index continuing to register Greed (today was 67/100 vs 58/100 (Greed) a week ago and 74/100 (Greed) a month ago), profit takers emerged, and markets opened lower. By mid-morning, stocks were mixed with breadth favoring advancers by 1.3:1 as Smallcaps outperformed, with IWM (+0.81%) versus SPY (+0.03%) and QQQ (-0.22%). S&P sector ETFs were almost evenly split between gainers and losers with Real Estate, Consumer Discretionary and Industrials leading the outperformers and Health Care, Technology and Energy pacing the underperformers.

In data of note today, @jsblokland notes the gap between the Fed target rate and headline US inflation remains well above 2%, something that historically doesn’t happen often. The last time was in 2000, but the total debt to GDP for the US was 80 percentage points below the current level. On mortgage rates, @teconomics notes the average contract interest rate for a 30-year fixed conforming in the US rose for the third consecutive week to 6.86%, marking the highest level since mid-July. On auto insurance rates, @charliebilello quantifies what we all feel in our bank accounts, auto insurance rates in the US have risen by 53% over the past three years, marking the largest three-year spike since 1975-1978. Separately, on broader inflation, he notes the US Core CPI has been above 3% for 42 consecutive months, the longest period of elevated inflation since the early 1990’s in the US. Lastly, on the potential for even higher equity valuations, @DataTrekMB highlights that institutional investors currently have 19% allocation to cash, similar to the 2004-present average and leaving potential for valuations to rise even further should investors decide to put more of that cash to work in US equities.

Heading into the final hour of trading, investors were probably just searching for an exit after today’s ride lower, then higher, then back to about unchanged. Breadth reversed to favor decliners by 1.3:1 as small caps slipped to underperformers with IWM (-1%) versus SPY (+0.02%) and QQQ (-0.20%). S&P sector ETFs were eight up to three down with Energy (XLE, +0.8%), Real Estate (XLRE, +0.8%) and Consumer Discretionary (XLY, +0.75%) leading the gainers while Technology (XLK, -0.49%), Health Care (XLV, -0.16%) and Utilities (XLU, -0.20%) were in the red. The swing in Energy was among the most noticeable as it followed the commodity prices on today’s roller coaster. Both growth and value were roughly flat with a slight edge to the growth side. The Russell 1000 Growth was +0.09% versus its Value counterpart at +0.03% with NTRA, SPOT, MDB and CAR the largest growth outperformers.

• WTI December crude futures slid early but rallied to settle +$0.31/bbl, or +0.46%, to $68.43. The initial roll back below $67/bbl (lowest level in two months) was driven primarily by demand fears as OPEC cut its global demand growth forecast for the fourth time on expected China softness. Others noted expectations of supply growth in excess of demand growth for perhaps the next several years, but it wasn’t enough to keep futures down after in-line CPI data in the US prompted more confidence in rate-cut hopes for December and an eventual risk-on feel for much of the day. Brent also managed a gain of $0.39/bbl, or +0.54%, to $72.28.

• COTY downgraded to Hold from Buy at TD Cowen saying shares could be range bound in the near-term given the slowdown in U.S. mass beauty and the potential for prolonged pressure at the U.S. drug channel
• HNST boosted its full-year adjusted Ebitda guidance and beat Q3 revenue estimates.
• ONON was upgraded by two firms on Wall Street (BTIG and Williams) after earnings the day prior.
• THS approves $400M share repurchase authorization

• In Gaming/Casino: FLUT delivered a solid Q3 result and raised FY24 guidance as generated EBITDA of $450M, exceeding consensus expectations by 27%, including a 10% beat from its ex-U.S. segments. Management increased guidance outside the U.S., and its Q424 implied U.S. guidance was better than expected. LNW reported fiscal Q3 results that aligned with expectations and reaffirmed its FY2025 AEBITDA guidance of $1.4 billion. In OSB betting (DKNG, PENN, FLUT, CZR), Louisiana is considering a major tax increase on sports betting revenue as Rep. Roger Wilder’s new bill, HB 22, proposes raising the tax rate from 15% to 51% and removing promotional deductions.
• In Autos: RIVN and Volkswagen launch a joint venture with an expanded and revised $5.8 billion agreement size, up from the previous $5.0 billion estimate. The JV’s six investment tranches align with specific milestones, including a $1 billion loan targeted for 2026 and a $460 million equity investment in 2027. TSLA said it was recalling 2,431 Cybertruck electric pickup trucks in the United States as loss of drive power could increase the risk of a crash, in its sixth such move this year.

• In Industrials: Evercore ISI downgraded several names, lowering CAT, ITW and ESAB to Underperform from In Line and cut ETN to In-Line from Outperform, while upgraded PCAR, TKR and CMI to Outperform from In-line saying a Trump win and "Red sweep" requires less caution but not broad bullishness with the current starting point challenging. The firm said they favor small caps and domestic oriented stories over global players with less compelling valuations.
• In Aerospace: RKLB shares surged after reported revenue at the high-end of its prior guidance, while also delivering better-than-expected Adj. EBITDA loss and announced it recently signed a launch contract with a confidential customer for its initial revenue-generating Neutron launches slated to begin in 2026. SPIR shares jumped after entering into an agreement to sell its maritime business for $241 million (5.8x trailing twelve months revenue) and said intends to eliminate debt through sale proceeds. ACHR said it may offer, sell shares of Class A common stock of up to $70M from time to time.
• In Transports: SAVE shares tumbled after a report the U.S. carrier is preparing to file for bankruptcy protection, while the company said it is in talks with creditors.

• In Crypto miners: HOOD crypto expands offering with Solana (sol), Pepe (pepe), Cardano & XRP for U.S. customers; MARA Q3 revs $131.6M misses $151.7M estimate on wider Q3 EPS loss (-$0.42) and reports 63% rise in hosting and energy costs due to deployment and energization of more crypto mining rigs; WULF posted a top-line & EBITDA miss as mining came in lighter than expected; Q3 adj EBITDA $6Mm vs est. $11.2Mm on revs $27.1Mm vs est. $34.28Mm; HUT Q3 EPS $0.01 improved from loss (-$0.10) y/y and revs jump 101% to $43.74M above ests $34.6M as mined 234 bitcoin during the quarter with an average revenue per coin of $61,025, compared to the mining cost of $31,482; HIVE EPS loss improved while revs slip y/y to $22.65M vs. est. $25M and mined 340 bitcoin during the quarter, with a total bitcoin holding of 2,604 coins.
• In Lending: RKT shares fell as 3Q adjusted earnings per share of $0.08 missed est. $0.09 due to weaker GOS margins and volumes while the 4Q revenue guide is ~15% lower than current Street estimates at the midpoint.

• BNTX to Acquire Biotheus to Boost Oncology Strategy; to pay $800 million to acquire 100 percent of the issued share capital and up to $150 million in potential milestone payments.
• BRTX reported preliminary data from ongoing mid-stage study testing BRTX-100, its lead cell therapy candidate to treat chronic lumbar disc disease.
• ETNB prices upsized public offering of 11.46M shares at $8.50 each
• SYRS shares tumble -80% after announces topline data from select-mds-1 phase 3 trial of tamibarotene in higher-risk myelodysplastic syndrome with rara gene overexpression; select-mds-1 did not meet its primary endpoint; said to discontinue study and review full data set

• NTRA reported beat and raise as 3Q revenue rose 63.9% y/y to $440M, topping ests $362M on narrower EPS loss while raised their FY24 revenue guidance to $1.61B-$1.64B, from previous expectations of $1.49B-$1.52B and raised gross margin expectations to 58% to 61%, from previous expectations of 54% to 56%.
• PGNY reported a top- and bottom-line miss, driven by patients longer to progress through their treatment and, therefore, consuming fewer treatments overall, resulting in lower-than-expected revenue and profitability; cut FY rev and EBITDA guide; Q3 revs and EBITDA also light of expectations; sees FY revenue $1.14B-$1.15B down from prior $1.17B-$1.2B and lowers FY adjusted Ebitda to $189M-$194M from $199-$209M.

• In Cable: CHTR agreed to buy its biggest shareholder LBRDA in an all-stock deal, the companies said on Wednesday. Under the terms of the agreement, each holder of Liberty Broadband Series A common stock, Series B common stock, and Series C common stock will receive 0.236 of a share of Charter common stock per share of Liberty Broadband common stock held, with cash to be issued in lieu of fractional shares. Each holder of Liberty Broadband Series A cumulative redeemable preferred stock will receive one share of newly issued Charter cumulative redeemable preferred stock per share of Liberty Broadband preferred stock held.

• IAS Q324 revenue was 3.5% below Street, driven by softness in Retail/CPG volume growth and lower than-expected monetization; Q4 guidance implies continued revenue headwinds as the midpoint is 6.5% below Street revenue but 1.5% ahead on adj. EBITDA.
• ZI shares slide as

• SMCI said it is unable to file its quarterly report on form 10-Q for the quarter ended Sept. 30, 2024, in a timely manner, amid its ongoing delay in filing an annual report.
• SWKS posted in-line results but softer guidance on a weaker than expected recovery in Broad Markets, though Mobile was perhaps better than feared, particularly after recent results from QRVO.