Mid-Morning Look

Friday, April 12, 2024

U.S. stocks open lower following negative reactions to bank earnings/outlook commentary from JPM and WFC, while investors are also expressing some caution into the weekend amid increased geopolitical uncertainty. Oil prices jumped, U.S. stocks slipped, while safe-haven plays bonds/gold prices rise after the WSJ reported a U.S. official with knowledge of the matter said Thursday that American intelligence reports indicate an Iranian retaliatory strike within days, “possibly on Israeli soil” as opposed to Israeli interests elsewhere. The 10-year yield fell 10-bps below 4.5%, gold record new all-time highs +1.6% above $2,410 an ounce in flight to safety amid increased Iran/Israel tensions. Economic data overnight in China was positive for metals/miners with copper prices/stocks jumping. Markets saw a notable uptick in University of Michigan inflation expectations rising to 3.1% prelim April for 1-yr outlook vs. final March 2.9% and 5-yr inflation outlook to 3% from March 2.8% reading: pushing stocks even lower. Markets got a small taste of earnings this week with banks today, but picks up steam next week with some large caps out (GS, AXP, BAC, BK, JNJ, MS, UNH, UAL, NFLX) before the bombardment begins. The CBOE Volatility index (VIX) showing some concerns, extending gains now up over 18% to 17.70, taking out yesterday high of 17.61 (highest since mid Feb 2/13 of 17.94).

• University of Michigan surveys of consumers sentiment prelim April 77.9 (below consensus 79.0) and vs final March 79.4; current conditions index prelim April 79.3 vs. March final 82.5 and expectations index prelim April 77.0 vs. final March 77.4
• Inflation portion of UoM sentiment not what markets wanted to see as University of Michigan surveys of consumers 1-year inflation outlook prelim April 3.1% vs final March 2.9% and University of Michigan surveys of consumers 5-year inflation outlook prelim April 3.0% vs final March 2.8%.

• In Networking: ANET was double downgraded to Sell from Buy at Rosenblatt saying they view Ethernet as a long-term winning technology, but Arista may not benefit as much as would be needed to support the current stock price or higher. The stock trades at 40x 2025 EPS, on low-to-mid-teens growth forecasts, because most people believe Arista will be a large AI beneficiary. CSCO resumed coverage with Neutral at Citigroup and $52 tgt but opens positive catalyst watch while firm initiated CIEN with a Sell rating and $44 tgt saying the benefits from AI networking traffic are still years out.
• In Metals: Gold miners (AEM, NEM, GOLD, KGC) extend gains as gold prices surge to new all-time highs again, topping $2,400 an ounce for the first time, despite another spike in the U.S. dollar (DXY +0.4% to 105.70) after hotter inflation data this week (CPI). Copper stocks (FCX, SCCO, TECK) were higher early as data showed China copper imports rose 16% in March from a year earlier; Three-month copper rose above $9,540/ton on the London Metals Exchange, surpassing the 14-month peak of $9,523 touched on Tuesday.

• FCX +1%; along with gains in SCCO, TECK as copper stocks higher early as data showed China copper imports rose 16% in March from a year earlier; Three-month copper rose above $9,540/ton on the London Metals Exchange, surpassing the 14-month peak of $9,523 touched on Tuesday.
• GL +15%; defended itself against allegations from short sell Fuzzy Panda, saying it intends to explore “all means of legal recourse against the parties responsible” after a short-seller report sent shares down -53% on Thursday.
• NEM +4%; along with AEM, GOLD, other gold miners as gold prices make another new high, topping $2,400 an ounce as adds to March/April rally.
• NVO +1%; after a committee of the European Medicines Agency said Friday that a popular weight-loss drug doesn’t increase the risk of suicide. The EMA had been reviewing the so-called GLP-1 receptor agonists, including Ozempic and Wegovy from Novo Nordisk, since July 2023.
• OXY +2%; as energy/oil related stocks jump given the bounce in crude on Mideast tensions.
• STT +5%; as Q1 EPS and revs topped consensus with revs rising to $3.14B from $3.1B y/y and above ests $3.06B saying the increase in revenue reflected higher fee revenue, which was partially offset by lower NII.

• ANET -6%; double downgraded to Sell from Buy at Rosenblatt saying they view Ethernet as a long-term winning technology, but Arista may not benefit as much as would be needed to support the current stock price or higher.
• APLD -6%; Q3 revenue $43.3M below consensus est. $47.9M on wider than expected Q2 EPS loss (-$0.52); said encountered several challenges in quarter that impacted their financial performance due to facility power outages in our datacenter hosting business.
• CTVA -2%; was downgraded to Neutral from Overweight at JPMorgan saying 2024 is likely to begin slowly for Corteva as crop chemical de-stocking continues in South America and Europe.
• NRIX -6%; priced upsized underwritten public offering of 10.2M shares of its common stock at $15.00 per share.
• ROKU -2%; said they identified a second data incident, which impacted additional user accounts.
• XPEV -8%; Chinese electric vehicles were pressured (LI, NIO, XPEV) after Senator Sherrod Brown of Ohio said late yesterday” I’m calling for a complete ban on Chinese electric vehicles in America. We cannot allow China to bring its government-backed cheating to the American auto industry."
• ZTS -7%; after the WSJ reported that the company’s arthritis drugs for dogs and cats (sold as Librela for dogs and Solensia for cats) have come under scrutiny over possible side effects  https://tinyurl.com/kav9cj6c