Mid-Morning Look

Monday, January 22, 2024

U.S. stocks surge to start the week as the S&P 500, Dow Jones Industrials, and NASDAQ-100 extended last week closing all-time highs as bull-market momentum continues. Not much to say other than investors showing zero concern or fear despite the massive run up in US stock markets since the end of October, basically a straight line move higher amid hopes of aggressive rate cuts by the Fed in 2024. Next wave of economic data this week includes the first reading of fourth-quarter GDP and the Federal Reserve’s preferred inflation gauge in Core PCE. Headlining earnings results this week include NFLX, TSLA, PG, GE, HAL, MMM, AXP, VZ, UAL, TXN, T, IBM, CMCSA, DOW, INTC, and others. Bond yields retreated slightly as the 10-year U.S. Treasury note edged below 4.09%. Very few pockets of weakness, but U.S.-listed Chinese stocks (BABA, BIDU, JD) mirror declines in China while Hong Kong’s Hang Seng approached its lowest close since 2009, but the Nikkei 225 closed at a fresh multidecade highs. In lone piece of US data today, Dec leading economic indicators fell (-0.1%) vs. est. (-0.3%). No Fed commentary this week, in their “blackout period” ahead of FOMC meeting next week. NYSE with 145 new 52-week highs vs. only 24 new 52-week lows as breadth more than 4:1 advancers leading decliners.

• In Chemicals: Stifel downgraded shares of LIN, Air Liquide (AIQUY), and Givaudan (GVDNY) all to Hold from Buy saying chemical sentiment indicators have started to improve from a low level, which Stifel expects to continue. Volume should start to get better, but low margins might stay for longer. 2024 company guidance will be cautious, in Stifel’s view. Said defensive stocks have limited upside and it reduces its rating for Air Liquide, Givaudan, and Linde to Hold. Morgan Stanley upgraded IFF to Overweight and raise tgt to $90 saying its downgrade cycle (excl. M&A) has come to an end alongside bottoming of the consumer cycle.
• Freight and Logistics: TFII upgraded to Outperform from Sector Perform at Scotia and downgrade CAE to SP from OP as reviews its top ideas for 2024 based on the risk/reward and assuming a soft landing. Scotia has tempered its 2024 expectations to below consensus due to uncertainties, while trimming its multiples in a few cases. JBHT was upgraded to Buy at UBS saying its Q423 EPS report provided evidence their intermodal margin has likely reached bottom and the 80 bp sequential improvement (vs Q3) points to potential for gradual improvement in 2024.

• ENPH +7%; along with gains in FSLR as solar names top gainers in the S&P 500.
• M +3%; Arkhouse Management and Brigade Capital Management, the investment firms that disclosed a $21/share bid for Macy’s (M) last month, are now threatening to go directly to shareholders with their $5.8B offer rejected by the company. http://tinyurl.com/yx8282jx
• NS +14%; SUN agreed to acquire NS in $7.3B all-equity transaction where NuStar holders will receive 0.400 Sunoco common units for each NuStar common unit http://tinyurl.com/nha2dk8j
• NSC +3%; Bernstein upgraded UNP to Outperform from Market Perform with a $280 price target calling it a top-quality franchise and NSC upgraded to Outperform for its turnaround story.
• RUM +25%; said it has struck up a partnership with digital-media company Barstool Sports as Rumble users will get access to all Barstool Sports content on the platform.
• SGMT +135%; said its experimental fatty liver disease drug, denifanstat, met the main goal of a mid-stage trial, significantly reducing symptoms of the disease including fat accumulation, inflammation, and fibrosis compared to placebo.
• WDC +4%; Morgan Stanley names WDC as its top picks, replacing NVDA, raising its tgt to $73 from $52 saying separation of HDD and NAND business will unlock material value.

• AMD -4%; was downgraded to Market Perform on valuation at Northland as believes AMD’s shares reflect much higher Al revenue in CY27.
• ASTL -6%; after reported an incident at its coke-making plant at the weekend.
• BA -2%; after the regulator recommended door plug inspections on another 737 model after many of the aerospace company’s 737 Max 9 aircraft were grounded following a mid-flight blowout of a panel earlier this month.
• ELF -6%; downgrade to EW at Morgan Stanley on the stock being appropriately valued after a striking run-up.
• GILD -9%; after a Phase III trial testing Trodelvy in certain lung cancer patients failed to improve overall survival (Gilead bought Trodelvy-maker Immunomedics in 2022 for $21B).
• RILY -3%; after Bloomberg reported U.S. authorities are investigating B. Riley Financial’s deals with a client who was linked to a securities fraud. B. Riley said in a statement that it was unaware of any SEC investigation. http://tinyurl.com/mppey2me