Mid-Morning Look

Monday, February 05, 2024

Index	Up/Down	%	Last
DJ Industrials	-358.34	0.92%	38,296
S&P 500	-31.63	0.64%	4,926
Nasdaq	-125.04	0.80%	15,503
Russell 2000	-40.78	2.07%	1,922

 

 

U.S. stocks taking a breather after major averages posted their 4-straight week of gains last Friday and the S&P 500 and Nasdaq are up 13 of the last 14 weeks in massive move since October. Interest rate sensitive sectors such as REITs (XLRE) and utilities (XLU) down over -1.5% early as Treasury yields move higher behind Fed Chairman Powell comments last night while Materials (XLB) -2% on China market concerns hitting the sector and Consumer Discretionary (XLY) weak -2.2% (behind MCD, TSLA weakness). Futures lower after Friday’s rally (SPX and NDX have finished in the green 13 out of the last 14 weeks) as the focus over the weekend was on Fed Chairman Powell’s interview on 60 mins (largely in-line with recent FOMC comments) as he suggested again the likely time for the first interest rate cut would be the middle of the year, a few months before the election (and not in March as markets had expected). Market expectations have now been lowered to only a 20% chance of a rate cut in March, down from 60% odds just a week ago. In earnings this morning, Dow component CAT posted quarterly beat lifting machinery names, while MCD results were mixed as comp sales fell short weighing on shares. U.S. Treasury yields rose on Monday (10-yr to 4.15%), with interest rate sensitive two-year yields reaching four-week highs (4.46%), after Federal Reserve Chairman Jerome Powell continued to push back against the prospect of near-term rate cuts and gained more traction after hotter inflation data from ISM services report (prices paid jumped). Weakness out of the gate to start the week as only the Healthcare (XLV) sector is in the green and NYSE breadth nearly 8:1 decliners leading advancers.

• ISM report on U.S. non-manufacturing sector shows PMI 53.4 in January vs. consensus 52.0 and vs 50.5 in December; ISM non-manufacturing business activity index 55.8 in January vs 55.8 in December; prices paid index 64.0 in January vs 57.4 in December; new orders index 55.0 in January vs 52.8 in December and ISM non-manufacturing employment index 50.5 in January vs 43.8 in December.

 

 

Macro	Up/Down	Last
WTI Crude	-0.68	71.60
Brent	-0.52	76.81
Gold	-18.40	2,035.30
EUR/USD	-0.005	1.0734
JPY/USD	0.22	148.59
10-Year Note	0.123	4154%

 

• In Restaurants/Food: MCD reported better Q4 adj EPS $2.95 vs. est. $2.82, but revs of $6.418 below est. $6.45B and weaker global comp sales rising +3.4% vs. est. 4.79% as results pinched by weak demand in its Middle East, China, and India business divisions. MCD said the international Developmental Licensed Markets segment’s comparable sales were up 0.7% vs est. of 5.5% growth. SBUX files three-part senior notes offering, size not disclosed. TSN Q1 results topped estimates ($0.69/$13.26B vs. est. $0.41/$13.27B), while said it expects sales to be "relatively flat" in FY24 vs. year ago period and sees FY capex $1B-$1.5B. CHEF mentioned positively in Barron’s noting the stock could deliver 25% returns for investors, saying wealthy diners are still spending on Wagyu beef, stone crab, and other upscale menu items at restaurants even as food prices rise.
• In Semiconductors: AI related chip plays keeping the sector strong with more gains early in NVDA, SMCI. NVDA price tgt was raised to $800 from $625 at Goldman Sachs and increases its FY2025/26 non-GAAP EPS (excl. SBC) estimates, on average, by 22% as GSCO reflects recent industry data points indicative of robust AI server demand and improving GPU supply. GFS was downgraded to Neutral from Overweight at JPMorgan and cut tgt to $56 from $65. ON reports Q4 revenue $2.02B vs. est. $2.0B and adj EPS $1.25 vs. est. $1.21 (better than comps MCHP and WOLF last week in the SiC sector) and adj gross margin 46.7% vs. 48.4% y/y (est. 46.5%), while Q1 EPS guide of $0.98-$1.10 is below consensus $1.10 but better than comps last week. NXPI earnings are expected tonight (another auto related semi).

 

• CTLT +11%; to be acquired by Novo Holdings, the controlling shareholder of NVO for $16.5B in cash, or $63.50 per share, a 16.5% premium to Friday’s close and 39% premium since CTLT strategic review. http://tinyurl.com/kzd3u7wf
• EL +13%; shares rise on quarterly beat and restructuring headlines as announced to lay off 3%-5% of workforce or about 3,000 jobs and forecasts restructuring costs $500M-$700M before taxes (news overshadowed weaker guidance as sees Q3 adj EPS $0.36-$0.46 below the $0.81 consensus).
• ELAN +6%; after Merck Animal Health to acquire Elanco’s Aqua business for $1.3B in cash as the acquisition is expected to be completed by mid-year 2024, subject to approvals.
• EVBG +18%; announced it entered into a definitive agreement to be acquired by Thoma Bravo for $1.5 Billion as Everbridge shareholders to receive $28.60 per share in cash.
• FDMT +83%; after saying 6-month Phase II data for 4D-150 (high dose, N=20) demonstrate strong efficacy, including 89% reduction in injections, 63% injection-free patients, and <2 letters ΔBCVA between 4D-150/Eylea.
• HAYN +6%; agreed to be acquired by a unit of Spanish stainless-steel maker Acerinox in an all-cash deal with an enterprise value of about $970 million, with holders to receive $61 a share in cash under the deal.
• ON +7%; Q4 revenue $2.02B vs. est. $2.0B and adj EPS $1.25 vs. est. $1.21 (better than comps MCHP and WOLF last week in the SiC sector) and adj gross margin 46.7% vs. 48.4% y/y (est. 46.5%), while Q1 EPS guide of $0.98-$1.10 is below consensus $1.10 but better than comps last week.

 

• BA -2%; after saying it found more mistakes with holes drilled in the fuselage of its 737 Max jet, a setback that could further slow deliveries on a critical program already restricted by regulators over quality lapses.
• CYTK -5%; disclosed that on January 29, Ching Jaw, Senior Vice President & CFO, informed the company that he would be resigning his office and employment, effective February 23 to attend to a personal health condition.
• MCD -3%; reported better Q4 adj EPS $2.95 vs. est. $2.82, but revs of $6.418 below est. $6.45B and weaker global comp sales rising +3.4% vs. est. 4.79% as results pinched by weak demand in its Middle East, China, and India.
• QLYS -11%; as Morgan Stanley notes on May 1st, Microsoft will retire Defender’s Vulnerability Assessment solution powered by Qualys, transitioning customers to its own VM solution for Defender.
• TSLA -5%; tgt to $225 from $295 and lower ests at Piper as now think TSLA will deliver 1.93M vehicles in 2024, vs. our previous estimate of 2.18M.
• ZS -5%; after operating chief Dali Rajic resigned, according to a Securities Exchange Commission filing. The cloud security company didn’t disclose on Friday who will be replacing Rajic.

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.