Closing Recap

Wednesday, October 02, 2024

Jitters ahead of a potential response from Israel continued to pressure US equity futures and support oil overnight and a slightly better US ADP Employment report pushed equities down further pre-market. By late morning, equity futures were back in the green and breadth was just about flat, though still slightly in favor of decliners as small caps modestly underperformed. IWM was -0.13% versus SPY +0.08% and QQQ +0.38%. On a Fear and Greed basis, we continue to register Greed at 68/100, flat to last week and slightly up versus 62/100 a month ago, but well above last year’s 28/100 (Fear). Sector-wise, despite a few others briefly crossing to green, only Technology and Energy maintained gains while Consumer Staples, Real Estate and Consumer Discretionary led the decliners. Today marks day two of the East Coast/Gulf Coast dock workers strike so we’d expect to see rising concern and volatility around consumer sectors as uncertainty grows on potential supply and margin impacts.

In datapoints of note today, while hardly a stunning accomplishment, unless the market really rolls today it will be the least-bad first two trading days to begin a month since July. On housing, from @bespokeinvest, September was the best month for mortgage apps since January. Bespoke also shared that natural gas has now gone over two years without a new 52-week high, marking the fifth longest streak on record. On the US bond market, @charliebilello notes the market has gained 8% over the past five months, marking the best five-month gain since 1995. He also notes the dividend yield on the S&P 500 has dipped to just 1.27%, to tie with Q4 2021 as the lowest since 2000.

Heading into the final hour of trading, US equities were holding onto slim gains with SPY +0.09% and QQQ +0.2%. Small caps continued to underperform with IWM -0.1%, leaving breadth still tilted slightly in favor of decliners. The sector picture also hadn’t changed much with Technology (XLK, +0.8%) and Energy (XLE, +1%) the only sectors in the green and Consumer Staples (XLP, -0.92%) and Consumer Discretionary (XLY, -0.84%) leading the decliners. Growth outperformed value with the Russell 1000 Growth gaining 0.23%, while its Value counterpart slipped by 0.11% thanks to weakness in HUM, NFE, CAG and NKE.

• US mortgage market index -1.3% to 292.3 in week ended Sept 27 according to weekly data by the Mortgage banks Association; purchase index climbs 0.7% to 149.3; refinance index falls 2.9% to 1,099.5 in Sept 27 week as the average 30-year mortgage rate climbs 1 bp to 6.14% in Sept 27 week.

• WTI crude futures gained overnight amid ongoing fears around the timing and scope of an Israeli response to yesterday’s missile attack from Iran. Though there were few meaningful changes in production expectations out of OPEC+, the combination of anticipated rising production beginning December 1st and today’s EIA crude oil inventory report showing a build versus a projected draw was enough to push futures lower into midday with no incremental news out of Israel. With no rally to be seen, the November contract closed near the low but still managed a small gain of $0.27/bbl, or +0.39%, to $70.10. Brent similarly added just $0.34/bbl, or +0.46%, to $73.90.

• In Food & Beverages: CAG reported a top and bottom line miss for Q1 (EPS $0.53 vs. est. $0.60) and said Q1 EBIT margin was 14.4% representing a 247-bps decrease and adj operating margin was 14.2% representing a 244-bps decrease; reaffirms FY guidance of $2.60-$2.65 and organic net sales of down -1% to flat vs FY24. Food processor LW shares slip as Q1 results topped consensus but implements restructuring plan, curtailment of production lines while cuts FY25 EPS view to $4.15-$4.35 from $4.35-$4.85 (est. $4.48), affirms FY25 revenue view of $6.6B-$6.8B.

• In Leisure: Gun related stocks SWBI, AOUT, RGR active after U.S. unadjusted criminal background checks fell 3.9% to 2.17M in September, according to data from the FBI’s National Instant Criminal Background Check System (NICS). Compared to a year earlier, background checks increased 2.9% from 2.1M

• In Natural Gas E&P: RRC was upgraded from Underweight to Equal Weight at Barclays with $34 tgt saying sees the risk/reward more balanced as stock’s relative valuation vs AR has compressed by more than half-turn, trading at ~0.4x premium on 2025-2026 EV/EBITDX versus gas peers at today’s strip compared to 1x premium six months ago. In addition, sees two potential drivers of upside from 1) a flexible 2025 program; and 2) an increased focus on opportunistic buybacks. EQT forecasts pretax charges $165M-$185M for employee-related costs; said job cuts part of integration following Equitrans purchase; plans to cut workforce by about 15%
• In Transports: East Coast Port Strike impact: Goldman Sachs notes look for the East Coast Port strike to potentially impact $4.9 billion per day of international trade, cause shipments to be diverted to the West Coast or air freight and have a temporary impact on freight inflation. Potential beneficiaries: West Coast trade facilitators including UNP and JBHT; and air freight alternatives, including FDX and UPSKey to watch: diversion of trade to west coast. Key to watch: rising network inefficiencies could weigh on transport margins.
• In Refiners: JP Morgan upgraded PARR to Overweight from Neutral and downgrade PBF to Neutral from OW in refiner sector update, lowering 2H24/FY25 ests. JPM remains Overweight on VLO and PSX based on relative defensiveness and better upside to price targets within the large cap group, while it expects N-rated MPC to underperform given an upcoming normalization of its best-in-class return of capital program.
• In Industrials: Deutsche Bank placed a "Catalyst Call: Sell" on shares of DOV as believes consensus earnings forecasts will need to come down in the next few weeks and a "Catalyst Call: Sell" on shares of CARR as believes the company’s 2025 consensus forecasts will need to come down once it moves its F&S business to discontinued operations. They also placed a "Catalyst Call: Buy" on ROK noting shares have continued to underperform and thinks new CFO Christian Rothe "could bring a fresh, more conservative perspective." ENVX shares jumped after announced that it commenced shipping EX-1M battery cell samples from its new Agility Line in Malaysia last week.
• In Materials: MTRN shares fell after cut FY24 PS to $5.20-$5.40 range, from the $5.60-$5.90 outlook from the Q2 call and well below original guidance of $6.10-$6.50 established on the Q4:23 call; RPM shares hit 52-week highs after missed results as EPS beat estimates, but revs fell -2.1% y/y to $1.97B

• In Banks: MTB was upgraded from In Line to Outperform at Evercore ISI and raised tgt to $210 as Evercore expects gradually abating CRE credit concerns, improving fundamentals, and accelerating capital return to present incremental upside to the stock’s valuation.

• In Managed Care: HUM shares tumbled after saying the total members enrolled in its highly rated Medicare Advantage plans for people aged 65 years and above have reduced for 2025; HUM has about 1.6 million, or 25%, of its members currently enrolled in plans rated 4 stars and above for 2025, down from 94% in 2024. Star rating details for 2025 are expected to be formally released by Centers for Medicare & Medicaid Services on or around Oct. 10.
• In Insulin Sector: RBC initiated TNDM with an Outperform and $65 PT saying it sees significant upside potential driven by earnings revision and multiple expansion. RBC projects earnings upside driven by Mobi adoption, CGM integration, and Type 2 indication expansion to aid new patient adds and pump renewals.

• In Telecom: Fiber network owner Zayo Group and private equity firm TPG are competing to purchase fiber and wireless assets of CCI in a deal that may be valued at about $10 billion. https://tinyurl.com/3af3mb3d
• In Media: CMCSA’s NBCUniversal and CHTR announce renewal agreement that maximizes customer value by combining linear video and direct-to-consumer streaming. The new multi-year partnership includes continued carriage of NBCUniversal’s broadcast and cable networks and Peacock Premium for Spectrum Video customers at No Additional Cost. Charter will soon provide Spectrum TV Select video customers up to $65 per month of retail direct-to-consumer streaming value, including Peacock, Disney+, ESPN+, Paramount+, AMC+, BET+, ViX, Max and Discovery+

• In Software: Dow component CRM was upgraded to Outperform at Northland and raised tgt to $400 from $270 saying their checks indicate Agentforce has minimally caught up with MSFT.