Mid-Morning Look

Wednesday, October 02, 2024

U.S. stocks opened lower, initially adding to Tuesday declines, but already bouncing as the S&P (SPX) moves back above the 5,700 level. Bonds, gold and the U.S. dollar all rallied on Tuesday as investors retreated to “haven” plays after Iran fired a barrage of missiles at Israel, while the latter said it would retaliate. Tensions have not eased as oil prices remain higher and the Middle East remains on high alert. Some top stories/sector movers this morning include: 1) weakness in autos (again) as Ford (F) reported weaker sales for Q3 and TSLA missed delivery expectations numbers; 2) managed care firm HUM tumbles over -20% as the insurer faces $3 billion hit to revenue over lower Medicare star ratings according to STAT news and Stephens downgraded noting the 8-K disclosed prelim 2025 MA STAR results with only ~25% (~1.6M lives) of its members being in 4+ STAR plans for plan year 2025 (payment year 2026) vs ~94% in prior year; 3) US listed China stocks extend last week rally after China stimulus measures boosted the Shanghai index last week 8% Monday before starting its week-long Golden Week holiday and The Hang Seng jumped 6% overnight; 4) and retailers falling after Nike (NKE) reported a miss on quarterly revenue and withdrew its outlook for the year. WTI crude futures are rising 3% topping $72 per barrel. ADP Private Payrolls showed employment increased by 143,000 private sector jobs in September, above the expected 120,000 jobs estimated by economists while the August payrolls change revised to +103,000 from +99,000. There also remain concerns as the East Coast Port could hurt retailers and manufacturers in sectors that are heavily reliant on seaborne trade.

• In Aerospace & Defense: shares of defense companies NOC, LMT, GD, RTX, LHX, BA climbed for a second day after Israel vowed retaliation for massive Iranian missile attack on Tuesday. In Defensive technology/services, BAH was downgraded from Neutral to Underweight at JP Morgan saying it sees less upside vs the group right now as the firm upgraded SAIC to Overweight with $170 tgt saying the April investor day emphasized plans to transition SAIC towards higher value work and while this process remains in the early stages, last quarter’s results showed the company is making progress. JOBY shares rose after Toyota said to invest $500M in Joby Aviation.
• In Transports: East Coast Port Strike impact: Goldman Sachs notes look for the East Coast Port strike to potentially impact $4.9 billion per day of international trade, cause shipments to be diverted to the West Coast or air freight and have a temporary impact on freight inflation. Potential beneficiaries: West Coast trade facilitators including UNP and JBHT; and air freight alternatives, including FDX and UPSKey to watch: diversion of trade to west coast. Key to watch: rising network inefficiencies could weigh on transport margins.

• HUM -15%; shares tumbled after saying the total members enrolled in its highly rated Medicare Advantage plans for people aged 65 years and above have reduced for 2025; HUM has about 1.6 million, or 25%, of its members currently enrolled in plans rated 4 stars and above for 2025, down from 94% in 2024
• JOBY +20%; after Toyota said it will invest another $500 million in Joby Aviation to support certification and commercial production of Joby’s electric air taxi.
• LPLA -3%; after saying the Board of Directors has terminated the company’s President and Chief Executive Officer, Dan H. Arnold, effective immediately, for violating LPL’s commitment to a respectful workplace.
• NKE -7%; reported Q1 results with a miss on top line due to weakening sales trends in both DTC and wholesale, offset by a gross margin and SGA beat leading to EPS upside of $0.70 vs. est. of $0.52, while withdrew annual guidance.
• TSLA -5%; after reporting deliveries of 462,890 units in Q3, missing ests of 469,828 units, produced 469,796 units in Q3, compared with 410,831 vehicles in Q2 and said delivered 439,975 units of Model 3 sedan and Model Y crossover, and 22,915 units of other models including Cybertruck, Model S and Model X vehicles.