Mid-Morning Look

Thursday, December 19, 2024

U.S. stocks are trying to recover after yesterday’s post FOMC policy meeting, where the Fed cut rates by 25-bps as expected, but its outlook for 2025 showed 50 bps of cuts in 2025 disappointed, down from their prior forecast of four cuts in September while the Fed also forecast end-2025 PCE inflation at 2.5% versus 2.1% in September and core seen at 2.5% versus 2.2%. Less rate cuts and higher inflation did not sit well with investors on Wednesday as stocks sunk sharply but seeing a slight bounce this morning. The large cap tech/Mag 7 names strong early (AAPL, AMZN, GOOGL, META, NFLX, NVDA, TSLA), which have been the market leaders thus far in December. The Dow Jones Industrial Average looks to snap its 10-day losing streak (longest since 1974) with market breadth positive early after 13 straight negative days for the S&P. Treasury 30-year yield climbs to highest since early May, last up 8.8 bps at 4.747% while the 10-yr yield surges to 4.565% (up from 3.74% just a month ago). The US dollar rose against the Yen, + 1.67% to 157.40 after the Bank of Japan kept interest rates unchanged and its Governor offered few clues on how soon it could push up borrowing costs, sending the Yen and bond yields tumbling on fresh doubts over the near-term chances of a rate hike. As widely expected, the nine-member board maintained its short-term policy rate at 0.25%, but hawkish board member Naoki Tamura dissented and proposed, unsuccessfully, to raise interest rates. BOJ Governor Kazuo Ueda reiterated the Central bank’s resolve to keep raising rates from their current very low levels if the economy and prices move in line with its forecasts. In stock news, semiconductors slip behind weak guidance from Micron (MU), Darden (DRI) rises on results in restaurants and both LW and CAG decline in the food sector on weaker outlooks. Bitcoin erases early gains, back around $100,000. Gold prices slides amid the strong dollar and Treasury yields.

• Weekly Jobless Claims fell to 220,000 from 242,000 prior week (vs. est. 230,000) as the 4-week moving average climbed to 225,500 from 224,250 prior week; continued claims fell to 1.874M from 1.879M prior and vs. est. 1.890M; the US insured unemployment rate unchanged at 1.2%.
• November Existing Home Sales rose 4.8% M/M to 4.15M unit rate (above consensus 4.07M) and above Oct 3.96M (prev 3.96M); Nov inventory of homes for sale 1.33M units, 3.8 months’ worth; the national median home price for existing homes $406,100, +4.7% from Nov 2023.
• Philadelphia Fed Survey for December was weaker with higher inflation as overall headline was negative -16.4 vs. estimate up 3; showed prices-paid index 31.2 vs 26.6 prior month, Fed new orders index at -4.3 vs 8.9, prices-received at 7.3 vs 14.3; Fed employment index at 6.6 vs 8.6.

• In Quantum Compute: IONQ was initiated new Buy w/ $50 PT at DA Davidson as believes IonQ represents a compelling pure-play investment positioned to capitalize on quantum computing’s rapid growth, driven by increasing inadequacy of classical computing for solving complex problems. Benchmark raised its price tgt to $50 from $20 on IONQ saying the quantum computing landscape is developing quickly and gaining the attention of an increasingly diverse investor base. Note shares of other names in sector (RGTI, QMCO, QUBT) have surged over the last few weeks.
• In Cyber Security: SentinelOne (S) was upgraded to Buy in cybersecurity 2025 outlook at Jefferies while CYBR remains top pick where it expects the Co. to guide to a low-20s ARR growth for next year (Street at 20%) and trend toward mid-20s throughout the year. The firms LT all-stars for the group are CRWD, which continues to have few viable alternative vendors in identity, and PANW, which should continue to show that its platformization strategy is driving share gains.
• In Memory/DRAM: MU shares dropped after reported an in-line NovQ with REV/EPS of $8.71B/$1.79 and guided to a weaker than expected FebQ top line at $7.9B (cons $8.97B) and GMs at 38.5% below est. 41% with continued weakness in PC/handset markets. Data center and HBM trends remain strong but weakness in PC and phone markets are putting downward pressure on memory pricing, especially in NAND. WDC fell in reaction and was downgraded to Hold at Benchmark as sees a growing number of concerns including softening NAND pricing driven by customer inventory adjustments in consumer markets, continued expected slowness in NAND chip demand in industrial and auto markets.

• DRI +15%; Q2 adj EPS and revs top consensus as Comparable sales rose +2.4% vs. +2.8% y/y and vs. est. +1.45% while raised FY25 total sales forecast to $12.1B, above its prior range of $11.8B-$11.9B considering results of full-service restaurant operator Chuy’s which it agreed to buy back in July.
• KBR +7%; on report activist investor Irenic Capital Management has built a stake in government contractor KBR and plans to push the company to separate its segment that serves the private sector, https://tinyurl.com/42pwtjks
• KMX +4%; after reported its first quarterly sales rise in more than two years, as Q3 revs +1.2% y/y to $6.22B topping ests $6.04B on better EPS of $0.81 vs. est. $0.61; Q3 Total wholesale vehicle-unit sales increased 6.3% from the year-ago quarter and used-vehicle average retail selling price declined -3.9%.
• MESO +34%; FDA approved its cell therapy, Ryoncil, for treating graft-versus-host disease (GVHD); is approved to treat pediatric patients aged two months and older whose GVHD symptoms have not responded to standard steroid therapy
• SHCO +64%; after saying it received an offer from a new third-party consortium to buy company for $9/share.
• TRIP +11%; to buy its controlling shareholder, LTRPA in merger agreement as the implied share price for the acquisition of TRIP shares from Liberty Tripadvisor is $16.21, totaling about $435 million. Upon merger, TRIP plans to retire about 27 million shares of Tripadvisor common stock currently held by Liberty TripAdvisor.

• HIMS -9%; after FDA says LLY weigh loss drug shortage resolved.
• LEN -2%; as posted Q4 EPS of $4.06 missed consensus of $4.19 and revenues fell -9% y/y to $9.9B while due to the lower volume and an increase in incentive activity due to higher mortgage rates, Q4 gross margin of 22.1% was 210bp lower yoy, 110bp lower than the Refinitiv forecast of 23.2%.
• LW -14%; after naming company insider Michael Smith as new CEO, replacing Thomas Werner effective Jan. 3 while the co also lowered its year sales outlook to $6.35B-$6.45B from prior $6.6B-$6.8B after posting Q2 sales down -8% to $1.6B; approves $250M share buyback
• MU -17%; reported an in-line NovQ with REV/EPS of $8.71B/$1.79 and guided to a weaker than expected FebQ top line at $7.9B (cons $8.97B) and GMs at 38.5% below est. 41% with continued weakness in PC/handset markets.
• VRTX -12%; after saying that its sciatica drug suzetrigine reduced pain compared to baseline but did not outperform a placebo in a Phase 2 study, raising doubts about the medicine’s potential in the lucrative market for treating chronic pain.
• WS -17%; after Q2 revenue dropped 9% from the year-ago quarter, hurt by lower volumes and selling prices.