Mid-Morning Look

Wednesday, June 12, 2024

U.S. stocks on an absolute tear, ripping to new all-time highs for the S&P and tech heavy Nasdaq following a softer-than-expected (tamer) CPI inflation report for May, boosting hopes of a Fed rate cut sooner than later to further bolster the economy. The Nasdaq still going up over 1.6% topping 17,600 (tops prior record high 17,345.05 yesterday) while the S&P 500 (SPX) tops 5,400 for the first time ever, led by relentless buying in Technology, as Apple (AAPL) the latest stock soaring on AI hype, though the Philly semi index (SOX) still making new highs topping 5,530 (+28% YTD). Defensive utilities, healthcare, and consumer staples are lagging, while tech, communications, discretionary, industrials ripping. Interest rate sensitive sectors such as homebuilders and REITs as well as biotech, solar seeing some of the biggest upside moves early.

Reactions post CPI: Stock markets surged (Spuz ATH to 5,447), Treasury yields tumbled (10-yr hit low below 4.28%), the dollar dropped as well vs euro, yen, etc.; gold prices jumped over 1%; oil prices broadly higher and Bitcoin prices +3% above $69,300 as investors continue to flood into riskier assets all on hopes the Fed will begin easing rates this year. Fed swaps fully price in quarter-point rate cut in November. The lower-than-expected headline and CPI core readings for May have boosted market expectations of rate cuts and sent stocks surging to fresh record highs. Is the market getting ahead itself remains the question, but for now, there is still zero fear. The US Inflation Rate (CPI) has moved down from a peak of 9.1% in June 2022 to 3.3% today. ORCAL helping the Nasdaq on earnings/guidance, AAPL follow through strength after AI comments this week ripping shares and markets await TSLA shareholder meeting tomorrow. Just massive risk taking early across several asset classes.

• In Utilities/Solar: NEE, NEP both downgraded to Neutral from Buy at Mizuho after NEE hosted analysts and investors in New York for their 2024 Analyst Day event the day prior/believes shares at current levels are reflective of the risk-reward profile. Ladenburg downgraded ETR to Neutral from Buy based on valuation and cut tgt to $109.50 from $117. Says on a 52-week basis, Entergy has outperformed the regulated electrics universe of 36 utility stocks by 12%.
• In Transports: FDX announced a workforce reduction plan in Europe as part of its ongoing measures to reduce structural costs; plan will impact between 1,700 and 2,000 employees in Europe across back-office and commercial functions. In trucking sector, Susquehanna reduced price tgts on XPO, SAIA, ODFL on a slightly slower than expected underlying volume backdrop; but remain constructive on LTL names XPO, ODFL, SAIA and LTL-adjacent TFII as believe the valuation compression since mid-April more than compensates for nearer-term macro and competitive risks.
• In Electric Vehicles: TSLA shares active ahead of shareholder day/vote tomorrow. Fisker (FSRN) issues voluntary recalls to address software issues via over-the-air updates in North America and Europe; issuing a voluntary safety recall for a total of 11,201 Fisker oceans across U.S., Canada, and Europe. China EV names weak early (LI, NIO, XPEV) after the European Commission said on Wednesday it would set provisional duties of up to 38.1% on imports of Chinese electric vehicles, a move likely to draw possible retaliation from China.

• AFRM +13%; adds to the previous day’s gains after unveiling Apple Pay product availability later this year.
• CASY +16%; reported fourth-quarter earnings per share that came ahead of estimates.
• KVYO +5%; was upgraded to Overweight from EW at Barclay’s and raise tgt to $29 from $25 saying Klaviyo sticks out as a top growth asset that has not been properly rewarded for its healthy execution (-18.7% YTD vs IGV -0.3%).
• MREO +15% and RARE announced new longer-term fracture rate and bone mineral density (BMD) data from their Phase 2 ORBIT study of setrusumab (anti-sclerostin mAb) in osteogenesis imperfecta (OI, rare bone disease).
• NEM +1%; as gold miners benefit from spike in gold following “tamer” CPI data, lifting gold prices.
• ORCL +12%; missed on total quarterly revenue but saw continued strength in its cloud infrastructure business with RPO growing 44% Y/Y to $98B and mgmt indicated double-digit revenue growth for FY25 well ahead of consensus.
• RNA +21%; said its experimental drug delpacibart braxlosiran, to treat a genetic muscular disorder facioscapulohumeral muscular dystrophy, showed functional improvement in patients enrolled in an early-to-mid-stage study
• RBRK ; reported a strong first quarter as a public company, highlighted by Subscription ARR of $856MM (+46% Y/Y) and Cloud ARR of $606MM (+104% Y/Y), while mgmt noted strong demand for the high-end Enterprise Edition, which includes all the security capabilities of the platform.

• MRNA -3%; as healthcare/vaccine names lag broader market strength.
• NEE -1%; downgraded to Neutral from Buy at Mizuho after NEE hosted analysts and investors in New York for their 2024 Analyst Day event the day prior/believes shares at current levels are reflective of the risk-reward profile
• NIO -2%; along with LI, XPEV after the European Commission said on Wednesday it would set provisional duties of up to 38.1% on imports of Chinese electric vehicles, a move likely to draw possible retaliation from China.
• PARA -2%; was downgraded to Underweight with $9 tgt at Wells Fargo noting with no potential deal beyond an National Amusement sale, PARA is back to fundamentals: low-6xs EV/ EBITDA = $9/share; says the process has caused internal disruption, further weakening PARA when it needs to pivot.

Syndicate:

• ATAT 10M share Secondary, priced at $16.90.
• PROK 53.72M share Secondary, priced at $2.42.
• NVGS 7M share Spot Secondary, priced at $15.00.