Mid-Morning Look

Thursday, March 28, 2024

U.S. stocks holding at record highs, still showing no concern ahead of the Fed’s preferred inflation data point tomorrow morning (the core PCE for Feb), while major U.S. markets are closed Friday in observance of Easter. This morning, we got a plateful of data points, including stronger GDP with downticks in PCE inflation (a Q4 look so little backward looking), strong spending, a slightly better jobless claims data point, and improving sentiment data (UoM) with inflation expectations down ticking. The lone negative data point was Chicago PMI manufacturing, which tumbled well below consensus again. Overnight, Fed Governor Christopher Waller said that recent disappointing inflation data affirms the case for the U.S. central bank to hold off on cutting its short-term interest rate target, but he did not rule out trimming rates later in the year. Waller said he wants to see more progress on inflation before supporting rate cut and need at least couple months of data to be sure inflation is heading to 2%. Still no concern after Waller comments. Markets are holding “flattish” on this final day of the month and quarter, but major averages tracking good returns for March and very impressive returns for the quarter: Coming into the last day of quarter the S&P 500 is up 10% YTD, the Nasdaq +9.25%, the Dow +5.5%, and the Russell 2000 Smallcap +4.3% YTD. The market remains in camp for three rate cuts by the Fed in 2024 (still down from 6 cuts when we started the year), so tomorrow PCE data will be important.

• Weekly Jobless Claims fell to 210,000 from 212,000 last week and vs. consensus 212,000 as the 4-week moving average fell to 211,000 from 211,750 prior week and continued claims climbed to 1.819M from 1.795M prior week; the U.S. insured unemployment rate unchanged at 1.2%.
• The University of Michigan Sentiment consumers sentiment final March reported at 79.4 above consensus 76.5 and vs preliminary March 76.5 and final Feb 76.9; current conditions index final March 82.5 vs prelim March 79.4 and final Feb 79.4. The UoM 1-year inflation outlook final March 2.9% vs prelim 3.0% and final Feb 3.0% and the 5-year inflation outlook final March 2.8% vs prelim 2.9% and final Feb 2.9%.
• Chicago PMI for March falls to 41.4 from 44.0 prior and below consensus of 46.0, weakens for fourth straight month in March and has been below the 50 breakeven level for most of the last year and a half.
• Feb Pending Home sales index +1.6% vs. consensus +1.5% and down -7.0% from Feb 2023.

• In Autos: STLA said it is ready to cut more than 3,000 jobs in Italy, a local union says; TSLA delivery estimates cut at both RBC and Deutsche Bank. RBC Capital reduces Q1 deliveries estimates for Tesla to 446K from 500K, which is also about 3% below consensus citing registration data and app downloads. DBAB now expects ~414k units, down from 427k units prior, due to weaker than expected sales in China in the last few weeks of March. DBAB also cut its full year deliveries estimate to ~1.9M units (consensus: ~2.06M units).
• In Software: CXM posted better-than-feared Q424 results but remained somewhat cautious for FY25E as reaffirmed its FY27E targets ($1B+ subscription revenue) and increased its buyback by $100M (has ~$143M left to repurchase, which it expects to use this year). BRZE Q4 revenue topped the high-end of guidance by $6M and grew by 33% year-over-year (30% organic), cRPO growth came in at 31%, which was flat sequentially, while guides FY25 EPS below consensus, revs in-line. PLTR was downgraded to Sell at Monness Crespi citing valuation due to “unprecedented gen AI hype cycle.” TTWO announced it has entered into a definitive agreement with Embracer Group to acquire Gearbox for $460Mm.

• EL +5%; upgraded from Neutral to Buy at Bank America and raise tgt to $170, expecting meaningful growth off what appears to be bottoming sales and EPS and said savings targets and innovation efforts signal a clear effort to adapt to the reality of a smaller China/Hainan.
• RH +16%; handily missed 4Q sales and EPS and guided to 2024 EPS that seems to imply something around $9.00 vs Consensus $11.50, but while 1Q revenues were guided below consensus, they did speak to seeing “demand” trends that improved to +mid-single digit range in 1Q.
• RILY +3%; disclosed it had secured an extension from lenders to deliver its audited 2023 financial statements; the co has extended time until April 29 under its existing credit agreement with Nomura Corporate Funding Americas and did not incur additional fees due to the extension.
• XLO +164%; after announces exclusive license agreement with GILD to develop and commercialize its cancer therapy XTX301; XLO will receive $43.5M upfront and will also be eligible for additional milestone payments of up to $604M; XLO to reduce its headcount by 15 employees, about 21% of its current workforce.

• MLKN -15%; shares tumbled after results and guidance disappoints as Q3 adj EPS $0.45 beats by a penny but adj op mgn 6.7% on revs $872.3Mm below est. $909.5Mm and sees Q4 net sales $880-920Mm vs est. $961.38Mm and adj EPS $0.49-0.57 vs est. $0.68.
• MSTR -2%; after Kerrisdale Capital tweeted that they were short shares and long Bitcoin saying “Crypto trades often get carried away and $MSTR is no exception. The BTC price implied in $MSTR shares is now over $177k, an unjustifiable 2.6x the spot price of BTC.”
• SNX -2%; 10.5M share Spot Secondary (upsized from 9M) priced at $109.00.
• TSLA –2%; after delivery estimates cut at both RBC and Deutsche Bank. RBC Capital reduces Q1 deliveries estimates for Tesla to 446K from 500K and DBAB now expects ~414k units, down from 427k units prior, due to weaker than expected sales in China in the last few weeks of March.