Mid-Morning Look

Tuesday, September 17, 2024

U.S. stocks jumping on the open, with the Dow Jones Industrial Average making a new all-time high and the S&P 500 approaching its all-time best levels of 5,669.67, on track for a 7^th day of gains as investors continue to buy stocks heading into the Wednesday FOMC interest rate meeting. Expectations have grown for a 50bps cut over the last week, with today’s data showing better retail sales, industrial production, and housing data as the economy humming along – but markets still calling for aggressive rates, while stock markets push all-time highs. After lagging yesterday, tech is leading today behind MSFT after a big stock buyback headline, further gains in Ma6 7 stocks (TSLA, AMZN, META surging) and software strength. Chip names get a boost again as well. Crypto prices rebound as Bitcoin approaches $60K again. Defensive sectors, which have been among the strongest sectors of the year in the S&P (Utilities, Consumer Staples, Healthcare), are the laggards this morning with more “risk on” attitude for Wall Street. Absolutely no concerns, or fear heading into the FOMC meeting (also have Bank of England meeting Thursday and Bank of Japan Friday) with expectations full for rate cuts. The Smallcap Russell 2000 is also outperforming on rate cut hopes, up more than 1%. Bottom-line, tomorrow cannot come soon enough so we can stop talking about a 25bps or 50bps cut for tomorrow and instead start talking about a 25bps or 50bps at the following meeting!

• August Industrial production climbs 0.8% m/m, topping consensus est. for rise of +0.2% (and vs. July’s (-0.9%), while U.S. Aug motor vehicle assembly rate climbed to 11.03M units/yr from July 9.40M units/year; August capacity utilization use rate 78.0% vs. consensus 77.9% and vs July 77.4%. U.S. Aug industrial output ex cars/parts +0.3% vs July -0.5%.
• July Business Inventories rose +0.4% vs. consensus +0.3% and vs June +0.3% as July inventory/sales ratio 1.37 months’ worth vs June 1.38 months; U.S. July business sales +1.1% vs June unchanged (prev -0.1%).
• September NAHB Housing market index rises to 41 vs. consensus 40 and above prior 39 in August (which was weakest of year); September index of current single-family home sales 45 versus 44 in August (previous 44); September index of home sales over next six months 53 versus 49 in August (previous 49).

• In Steel sector: STLD guides Q3 EPS $1.94-$1.98 vs. est. $2.10; says underlying steel demand remains steady; says Q3 profitability from steel operations expected to be meaningfully lower than sequential Q2 results; NUE guides Q3 adj EPS $1.30-$1.40 vs. est. $1.81; said the largest driver for the expected decrease in earnings in Q3 as compared to Q2 is the decreased earnings of the steel mills segment, due primarily to lower average selling prices.
• In Autos: in auto retail/dealers, Wedbush noted KMX Auto Finance (CAF) securitization trust data for the month of August reported yesterday indicates a new post-pandemic-lockdown peak of delinquencies plus extensions, and another jump in losses; CVNA was reinstated w/ Buy and $185 PT at Bank America saying thinks the leading seller of used cars Online is well positioned for sustained long-term growth, in a fragmented $800B+ market that is recovering.
• In Cruise lines (CCL, NCLH, RCL, VIK), Susquehanna said checks suggest that global supply and demand for the cruise lines remains favorable, with the recent slew of newbuild orders unlikely to negatively skew the industry’s pricing dynamic for 2025. The firm looks to CCL’s Q3 results later this month for the next read on industry demand into 2025, with CCL’s formal update on FY25 likely a December/Q4 event.

• ACIU +2%; said it will receive the second ReTain-related milestone payment (CHF 24.6 million) under its agreement with Janssen Pharmaceuticals, Inc. (Janssen), a Johnson & Johnson company.
• BOOM +18%; as Steel Connect, Inc., which beneficially owns approximately 9.8% of the outstanding shares of BOOM, issued a letter noting on May 31, 2024, they made a proposal to acquire all the remaining shares of DMC that they do not already own for $16.50 in cash which represents an approximately 51% premium.
• CMP +25%; after guides Q3 adjusted EPS loss (-$1.01) vs. consensus loss ($-0.74) and sees Q3 revenue $202.9M, vs. consensus $197.77M; narrows 2024 revenue view to $900M-$910M from $900M-$920M while raises FY24 adjusted EBITDA view to $215M-$225M from $200M-$210M.
• GEV +3%; as several analysts raise price tgts and was upgraded to Buy at Bank America (tgt to $300) after the company announced it is adding incremental capacity for Power and is continuing to see robust demand in Electrification.
• HPE +5%; upgraded to Buy from Neutral at Banc America with $24 tgt as they expect margins to improve from cost cuts, HPC margin recovery, cost synergies from JNPR acq, AI demand from Enterprise/Sovereign.
• INTC +2%; shares rose for a second day after making several key announcements today regarding IFS, AWS, CHIPS Act funding, and its $10B cost-savings initiatives.
• MSFT +2%; board approves a new share buy-back plan of up to $60B and raised its quarterly dividend by 10% to $0.83.
• TDOC +10% after Jefferies raised tgt to $10 saying BetterHelp web traffic returned to growth in July/Aug after 12 consecutive months of y/y decline (this in contrast to Q3 cons calling for BH rev -11% and tot rev -4.5%).

• GD -1%; early weaken in defense contractor stocks LMT, NOC, RTX as well after reports of Ukraine’s allies are starting to talk about how the fight against Russia’s invasion might end, raising concerns in several other Western capitals that these efforts could lead to Kyiv being forced into a premature cease-fire
• SEDG -5%; was downgraded to Underperform at Jefferies and cut tgt to $17 from $27 citing significant headwinds in Europe from persistently high inventory levels and Chinese competition, as well as stiff competition in the U.S., and sees more downside to the stock as estimates are revised lower.
• VSAT -3%; was downgraded to Neutral from Overweight at JP morgan following last week’s news that United Airlines will shift 1000+ mainline aircraft from existing IFC providers (including VSAT) to Starlink