Mid-Morning Look

Wednesday, November 06, 2024

U.S. stocks open with massive gains as the S&P 500 and the Dow open at record levels, while futures tied to the small-cap Russell 2000 index surged as much as 6% on bets of business-friendly policy after election results showed Donald Trump will become the 47th President of the United States, beating out Vice President Kamala Harris after winning 4 battleground states (North Carolina, Georgia, Wisconsin, and Pennsylvania) and getting the required 270 electoral votes. There are so many big sector movers on the election results, especially as the GOP looks to maintain the House of Representatives and now have majority of the Senate as well. Tariff news also playing a part with US listed China stocks down this morning amid fears of escalation in tensions with China as import duties, including a 10% universal tariff on imports from all foreign countries and a 60% tariff on imports from China. The U.S. dollar surged (on track for biggest one day gain since 2020) with the Euro falling over 2% below 1.07 and Treasury yields spiking with the 10-yr at 4.45% and Bitcoin spiked as high as $75,000. Sector movers plentiful given the impact of the Presidential election (and Senate House races) with details below. On the downside, seeing interest rate sensitive (such as homebuilders) and high dividend paying sectors (utilities and REITs) lagging behind the spike in Treasury yields w 10-yr at 4.47%. Gold prices -2.72% at $2,675 an ounce (off recent record highs $2,801.80 last week). A very strong start to the day and month for US stocks.

• Homebuilding stocks (LEN, TOL, KBH, BZH, DHI, etc.) a sector worth watching following the sharp spike in Treasury yields after the benchmark 10-yr yield rose as much as 18 basis points to 4.471%, its highest since July. Higher mortgage rates make home loan payments more expensive and can push many buyers out of the housing market.
• In Crypto: Bitcoin prices hit fresh record highs around $75,000 overnight before paring gains as crypto related stocks gain with Bitcoin (MSTR, MARA, COIN, CLSK, RIOT), because Trump embraced digital assets during his campaign after a major push by the industry.
• In Defense stocks: LMT, GD, RTX, LHX shares advanced with some analysts noting Trump’s policy document, which emphasizes reviving the U.S. defense industrial base. The consensus view is that the European defense sector will react negatively to a Trump victory given Trump’s ambition to rapidly broker peace in Ukraine, while Harris is viewed more as a status quo candidate.
• Medicare and Hospital Operators impact from election: Barclay’s noted a potential Republican sweep improves the Medicare reimbursement outlook but introduces uncertainty for the ACA. Specifically, Barclay’s expects near-term focus on the scheduled expiration of ACA enhanced subsidies at the end of 2025, which is most impactful for ACA market leader CNC and hospital bellwether HCA. Most Positive for Medicare Stocks: HUM, CVS, UNH, ALHC, AGL. Most Negative for ACA / Hospital Stocks: CNC, MOH, HCA, UHS, THC, CYH. With a red wave, the enhanced subsidies are now at higher risk of expiration (BARC thinks 50-75% chance) but remain a top Democratic priority and key negotiating point for any legislative package that needs their support. If subsidies expire, BARC estimates a loss of 3.2M members, or a 15% decline from current ACA membership of 21.4M.

• CVS +11%; after announced former UNH exec Steve Nelson to head up Aetna; 3Q largely consistent with preannouncement, with Medicare Benefit Ratio of 95.2% (also consistent with neg pre).
• CXW +21%; along with rival prison operator GEO as Trump’s promised crack down on illegal immigration could boost demand for detention centers.
• DFS +17%; as consumer finance names rally (SYF) as well as KBW Inc. noted COF deal increased probability of merger approval and for SYF, firm says has significant exposure to late fees and gets relief if late rule is delayed or goes away and lower Regulatory risk.
• MRCY +18%; following better Q1 results as Q1 EPS $0.04 vs. est. loss (-$0.08); Q1 revs $204.4M vs. est. $181.772M; Q1 adj EBITDA $21.5M vs. est. $13.6M.
• QLYS +20%; shares surged after reported Q3 results of $153.9M and $1.56 compared to consensus estimates for $150.7M and $1.33 while gross margins fell slightly to 82.6% from 83.5%, and mgmt raises 4Q and FY24 guidance – raised full year guidance to $602.9M-$605.9M with EPS of $5.81-$5.91.
• TSLA +12%; one of the biggest individual stock beneficiaries to Donald Trump victory as 47^th President given his campaigning for him and may play a role in Trump cabinet in some capacity.

• CELH -6%; reports a top and bottom-line miss, as revs fell -31% y/y to $265.7M vs. est. $267M and a -96% plunge in Ebitda y/y.
• CURLF -21%; Cannabis stocks slip (CURLF, TCNNF, TLRY, CGC, GRWG) after Florida voters rejected a ballot measure to legalize recreational marijuana.
• EXAS -28%; following below-consensus 3Q and reduced 4Q outlook amid lower demand at primary care offices, impact of hurricanes, a slower ramp-up for new reps, and transitional challenges on ExactNexus; cuts FY24 revenue view to $2.73B-$2.75B from $2.81B-$2.85B prior and adj EBITDA view to $310M-$320M from $335M-$355M.
• FIVE -8%; was downgraded to Underperform at Bank America saying it does not see a clear path to a turnaround in comps and expects continued margin deleverage on lower sales and incremental tariff costs.
• FSLR -12%; Oil majors such as CVX, XOM, COP advanced while U.S. renewable energy/solar names FSLR, ENPH, SEDG, RUN, NOVA tumbled as Trump’s presidential campaign laid out an energy policy platform centered around maximizing U.S. fuel and power output, in part by dismantling the current admin’s efforts to fight climate change.
• IRBT -27%; after quarterly results, guidance disappoints and record restructuring changes.
• SMCI -24%; after Q2 sales forecast fell short of consensus expectations and the firm said it could not predict when it would file official financial statements for the previous fiscal year.
• SWIM -15%; reported a miss and lower guide as Q3 EPS $0.05 vs est. $0.07, adj EBITDA $29.8Mm vs est. $27.9Mm on sales $150.5Mm vs est. $152.3Mm; guides FY sales $500-510Mm vs prior $495-525Mm.
• TNGX -34%; shares fell after saying one of its PRMT5 inhibitors failed to reach a threshold for clinical efficacy in a cancer trial.