Closing Recap

Monday, September 30, 2024

U.S. stocks did nothing until late day, falling briefly on Fed comments to lows around 2:30 PM EDT before surging to close near the highs, ending the month and quarter near record highs. Major averages managed to hold their monthly gains, now up 10 of the last 11 trading months and the S&P posted its 5^th straight month of gains (its first positive September since 2019) as reduced interest rate hopes from the Federal Reserve and dovish Fed commentary keeps the rally in stocks alive. In sector news, it was relatively quiet with defensive sectors such as Utilities (XLU), Healthcare (XLV) seeing the best returns on Monday while Consumer Discretionary (XLY) saw the biggest declines behind weakness in automobiles (GM, F) after STLA issued a cautious auto outlook, and cruise lines after CCL guidance disappointed. More dovish commentary on rate cuts as Chicago Fed’s Goolsbee said in a speech today that the “Fed is cutting rates because economy has normalized”; noted the “most important thing about rate cuts is process of easing” and said, “there will be a lot of rate cuts”. More happy words for U.S. markets after the Fed cut rates by 50-bps two weeks ago.  Still, lots of potential market catalysts this week such as several jobs’ reports as we get JOLTs on Tuesday, ADP Payrolls Wednesday, Jobless Claims Thursday and the Nonfarm payroll report on Friday. There are potential port strikes at midnight, Middle East increased tension headlines and aftermath in Southeast after Hurricane Helene.

Fed Powell spoke today as well saying the U.S. economy seems poised for a continued slowdown in inflation that will allow the Federal Reserve to cut its benchmark interest rate and “over time” reach a level that is no longer holding back activity, speaking at the National Association of Business Economics’ annual meeting; his first comments on monetary policy since the Federal Open Market Committee lowered the policy rate by 50 basis points on Sept. 18. “Disinflation has been broad-based, and recent data indicate further progress toward a sustained return to 2%,” the Fed’s targeted inflation level, Powell said. “If the economy evolves broadly as expected, policy will move over time toward a more neutral stance,” Powell said. Stocks slid for a moment after further comments by Powell noting, the “Fed is not in a hurry to cut rates quickly, will be guided by data and the rate cut process will play out “over some time” with no need to go fast “…but markets quickly rebounded.

Investors watching for the possibility of a potential labor outage as a dockworkers’ strike threatens to close ports on the East and Gulf coasts beginning this week. The 45,000 members of the International Longshoremen’s Association have threatened to strike this week which could shut down 36 ports from Maine to Texas that handle about half the goods shipped into and out of the United States.  The current labor agreement is set to expire at Midnight on Tuesday and the ILA has said that it will not work without one; union leadership disclosed on Sunday morning that it is preparing to picket immediately. The parties are still very far apart on terms, including a 77% wage hike over 6 years and a total ban on port automation.

In Asian markets, The Nikkei Index tumbled 1,910 points or 4.8% to settle at 37,919, after surging last week in part on new PM Ishiba being seen backing the BoJ’s policy normalization plans, while the Shanghai Index surged 248 points, or over 8% to 3,336 (biggest gain since 2008) ahead of its Golden weeklong holiday, and the Hang Seng Index jumped 501 points to 21,133. China markets skyrocketed after the Guangzhou city government said in a notice on Sunday that all restrictions on home purchases would be removed, effective from Monday. They said it will no longer examine home buyers’ qualifications and will stop limiting the number of homes that can be bought per household.

• The U.S. added 2.9M barrels of oil to the Strategic Petroleum Reserve in September, marking the ninth monthly increase so far this year. There are now 382.6M bbl in the stockpile, the highest monthly total since early December 2022, according to Department of Energy data released Monday. There are currently 143.3M bbl of sweet crude and 239.2M bbl of sour crude in the reserve.
• The dollar index (DXY) edges higher +0.4% to 100.85 and Treasury yields jumped especially on the short end of the curve after Fed Chair Powell expressed confidence on a soft landing. The 10-year reaches 3.80%, almost erasing September losses. The 10-year yield declined 54-bps to 3.798% this quarter and down for 5-straight months (down more than 118-bps from 52-week high 4.987% 10/19/23. The 2-yr yield fell -107-bps this quarter to 3.648%, also down 5-straight months and more than 157-bps off 52-week highs 5.218% on 10/18/23. Both were already up ahead of the speech but accelerated as Powell spoke at the NABE annual meeting. Powell says that the economy is in solid shape and "we intend to use our tools to keep it there." He said housing services inflation is likely to cool down at a slower pace than previously expected. Bitcoin prices end the month on sour note falling just shy of -4% to $63,400, but up 7% on the month.

• In Chinese Electric Vehicles: NIO shares outperformed after unveiling a cash injection worth 13.3 billion yuan ($1.9 billion) from existing shareholders. A group of strategic investors – including Hefei Jianheng New Energy Automobile Investment Fund Partnership, Anhui Provincial Emerging Industry Investment Co., and CS Capital Co. — has definitive agreements to invest 3.3 billion yuan in cash for newly issued shares of Nio Holding Co. XPEV, LI also saw strength today following the 8% spike in China’s Shanghai Index overnight on stimulus measures for the country.
• In Cruise Lines: CCL shares fell as Q3 EPS and revs topped consensus, but provided a downbeat outlook for yields in Q4; Q3 revs rose 15.2% to $7.896B topping ests $7.819B, as passenger ticket revenue increased 15.2% to $5.34B; said sees Q4 net yields in constant currency up about 5%, which is below the current FactSet consensus of 5.8%; though raised its guidance for FY24 net yields to 10.4%from 10.25%.
• Lodging sector was broadly lower with HLT, MAR, Hyatt (H) all down over 2% late day.

• In Utilities: Keybanc updated its price targets higher for CMS, CEG, DTE, DUK, ETR, FE, WEC, and XEL for its updated set of operating assumptions and the Company’s outlook for 2024 and beyond. The firm remains Overweight on all names as it believes the sector continues to have significant growth runway ahead of it. Given that the interest rates environment is likely to become more accommodative and cyclical risks are likely to rise, believes the sector will have sustained momentum through 2024.
• In MLPs/Midstream: Jefferies noted that Central banks are cutting rates, bond yields are falling, and in turn, Canadian midstream equities are moving higher. They updated bond yield assumptions embedded within valuation framework to align with the latest outlook and rolling models forward to 2026. PTs are increasing 8% on avg. across the sector, however, with insufficient upside to PT downgraded ENB as continue to see greater opportunity in midcap names.

• In Insurance: MMC said it will acquire McGriff Insurance Services, a provider of insurance broking and risk-management services, through a combination of cash and debt financing for $7.75 billion. McGriff had $1.3 billion in revenue for the trailing twelve months ended June 30, Marsh & McLennan said. HRTG shares tumbled after being named in 60 minutes segment last night; Whistleblowers claim insurance companies shortchanged some Florida homeowners after Hurricane Ian https://tinyurl.com/5n84dfmz

• BBIO completes enrollment of fortify, phase 3 registrational study of bbp-418 in limb-girdle muscular dystrophy type 2i/r9 (lgmd2i/r9); topline data readout from interim analysis expected in 2025.
• PRME said it signed a research collaboration and license agreement with BMY, where the drugmaker will invest $55 mln in PRME’s equity while PRME will also receive $55M upfront payment, with potential for over $3.5B in milestones.
• LPTX announced that enrollment of 188 patients has been completed in the randomized controlled Part B of the DeFianCe study evaluating DKN-01, Leap’s anti-Dickkopf-1 (DKK1) antibody, in combination with standard of care bevacizumab and chemotherapy as a second-line treatment for patients with advanced colorectal cancer.

• BAX shares slipped after saying late Sunday that its North Cove facility in Marion, North Carolina, was affected by flooding following Hurricane Helene and is currently closed.
• CVS shares rose on reports Hedge fund Glenview Capital has taken a large position in the company, pushing for changes. The slated meeting, between CVS and hedge fund Glenview Capital Management, comes amid signs investors are turning restless with the company – WSJ https://tinyurl.com/2jc2z5yn
• German medical packaging device maker Gerresheimer shares fell after cutting its forecasts for 2024 and 2025 saying now sees organic revenue growth of 3-4% in 2024 and 7-10% in 2025, compared to a previous outlook of 5-10% and 10-15% growth, respectively, affected by flooding at the Morganton vial plant in the U.S. caused by Hurricane Helene.

• In Ag Machinery: DA Davidson said they reviewed August Ag and Outdoor Power Equipment dealer same-store sales (SSS) data, in dollars as opposed to other data which comes in units. Net/net, both types of dealers saw Y/Y same-store-sales declines. Ag Equipment SSS (affects DE and CNH on DADA’s coverage list) were down 23% Y/Y. Outdoor Power Equipment dealer SSS (mainly affects TTC) were down 9%.

• Satellite-TV provider DirecTV said Monday it has agreed to acquire EchoStar’s (SATS) video distribution business, which includes Dish TV and Sling TV in a debt exchange transaction. The deal confirms recent media reports from the Wall Street Journal and others. Under the terms of the deal, DirecTV will pay a nominal $1 and assume Dish DBS’ net debt of about $9.75 billion. The move "will benefit U.S. video consumers by creating a more robust competitive force in a video industry dominated by streaming services owned by large tech companies. https://tinyurl.com/4kw5s942
• CHTR was downgraded from Peer Perform to Underperform at Wolfe Research saying as competition expands faster and further, Wolfe fears that the debate about whether "competition is peaking" will yield to "how far is down for cable’s terminal share?" it reduces its 2030E industry cable sub forecasts by another 3M (-4%) and reflect more caution in its MT ARPU & margin forecasts due to modest dis-inflationary pressure from convergence
• DIS upgraded to Buy from Neutral at Seaport Global, positive about the media giant’s streaming business though noted some temporary weakness in the company’s parks business.
• GOGO said will buy Satcom Direct which will receive $375 mln in cash and 5 mln GOGO shares, and up to additional $225 mln in payments tied to certain performance thresholds over the next four years.
• VZ and Vertical Bridge today announced they have entered into a definitive agreement for Vertical Bridge to obtain the exclusive rights to lease, operate and manage 6,339 wireless communications towers across all 50 states and Washington, D.C. from subsidiaries of Verizon for approximately $3.3 billion, including certain commercial benefits. The transaction is structured as a prepaid lease with upfront proceeds of approximately $2.8 billion in cash.

• BL was upgraded to Overweight at Morgan Stanley and raised PT to $70 saying the company remains the category leader within its core Financial Close market, but now trades at a >35% discount to peers.  Morgan said believes management will revise their margin targets up at Investor Day on November 19^th.
• TTEC shares jumped after announced that its Board of Directors has received an unsolicited, preliminary, non-binding proposal letter, dated September 27, 2024, from TTEC founder, Chairman and CEO Kenneth Tuchman, to take the Company private at a proposed purchase price of $6.85 per share.

• NVDA slipped after Bloomberg reported on Friday, citing people familiar with the matter, that Chinese regulators have been discouraging companies from purchasing Nvidia’s H20 chips.
• SMCI will commence a 10-for-1 stock split after the stock market closes on Monday and begin trading on a post-split basis Oct. 1.
• ON, STM, NXPI, WOLF underperformed in the semi sector as these leveraged to auto industry, which saw its 4^th lowered outlook this morning with STLA falling on weak guidance (followed Mercedes, BMW, Volkswagen last week).