JaguarAnalytics Weekly Callouts – May 5
Equity Investor Risks
Goldman Sachs – “One measure of risk represents the gap between what is currently priced and what the valuation of shares might be should a different outcome materialize. From a portfolio strategy perspective, we are focused on both what assumptions appear to be reflected in current prices and what risks investors may be overlooking. One aspect of the election that investors are overlooking relates to the timing of when a winner will be determined. If the margin of victory in certain swing states is narrow, as was the case in both 2016 and 2020, then recounts are likely. In 23 states – including the swing states of Arizona, Michigan, and Pennsylvania – provisions exist for automatic or mandatory recounts if the margin between the top two candidates is within certain parameters, typically 0.5%.”
“The volatility market does not appear to be pricing the risk of a prolonged election (Exhibit 1). Regardless of which candidate ultimately wins, the prospect of a close election has investment implications for fund managers.”
Election Basket
Wolfe Research – “Below, we provide our 2024 election baskets based on potential policy changes. Our long and short stock baskets consist of potential winners/losers under a GOP Trifecta. Note, these are stocks we expect to out/under perform in the days and weeks postelection and not necessarily over the intermediate term. Overall, a Trump win would likely lead to the most incremental upside for Financials and Traditional Energy.”
Natural Gas
RBC Capital – “Today’s gas price strength above $2/MMBtu is reflective of a few factors, and something we think is a signal that we can in fact grind out of the recent lows. Solidifying above the $2/MMBtu level despite rescomm demand dwindling is reflective of producers sticking to their lower production plans, power demand moving higher, and an eye towards improved, albeit still low today, LNG feedgas volumes. It’s not really about today’s storage number, as today’s weekly natural gas storage report for the week ending April 26 revealed a 59 Bcf injection, which was in line with the median consensus estimate of 58 Bcf. This leaves total gas in underground storage at 2.484 Tcf, which is closer, but still well above this time last year and outside of the five-year range. Thus, it remains indicative of a very loose market amid shoulder season demand and low LNG feedgas volumes, despite more rationalized production, but from here we think we can grind higher out of the low recent range.”
Consumer Uncertainty
Goldman Sachs – “Consumer-facing segments of healthcare have remained tough to navigate. Dental was the worst performing segment in HC this week, lagging again after updates from STMN, NVST, and XRAY flagged greater end-market pressure on demand especially in implants and equipment. Implants in North America and Europe were an area of softness, with STMN pointing to headwinds from higher interest rates and NVST/XRAY noting lower end-market growth. STMN’s revenue miss for North America prompted concerns about a prolonged impact of consumer softness in that market. Of note, ALGN has now underperformed by ~7% since its 1Q earnings despite a revenue beat, a guidance raise and highlighting a stable case outlook — price action in the stock (and the group broadly) has aligned more closely with the direction of the consumer confidence index (see Ex 9) which this week dropped well below expectations to its lowest level since July 2022. In Animal Health, we fielded increased investor debate on IDXX’s lowered guidance which still contemplates improvement in visits after only a modest reduction in the outlook, esp. as April vet visits were softer vs. March per latest VetSuccess data (-3.1% vs. -1.8%).”
Home Improvement Spend
Morgan Stanley – “We hosted an expert call on Home Improvement demand with Abbe Will, Senior Research Associate and Associate Project Director of the Remodeling Futures Program at Harvard’s Joint Center for Housing Studies. The call focused on the Leading Indicator of Remodeling Activity (LIRA), published by the Harvard Joint Center for Housing Studies. LIRA is driven by a variety of industry, housing, and macroeconomic conditions including Home Improvement Retail Sales (HIRS), Housing Starts, Existing Home Sales (EHS), and Home Price Appreciation (HPA). The indicator produces -6.6% home remodeling industry decline in ’24 vs. +5% average historical growth. Growth is expected to decelerate through most of ’24 on a rolling 4Q basis, and modestly improve in Q1’25 (-2.6%).”
Macau
JPMorgan – “The National Immigration Administration (NIA) of China introduced six measures to streamline entry/exit process for mainlanders (Table 1) to take effect from May 6th (right after May Day holiday), and we see that three of those could prove meaningful for Macau gaming industry.”
• Much easier, faster processing. Residents from 20 big cities (including Beijing, Shanghai, Guangzhou, Shenzhen, etc.) can now update/reissue travel documents (such as HK/Macau visa) entirely online, without having to visit the Public Security offices.
• Special multi-entry visa. Mainlanders who participate in exhibitions, seek medical treatments or perform art activities can now apply for “other” visa type that allows multiple-entry visits for one year.
• Multi-entry visa for Hengqing Group Tour. Macau will have its first-ever multi-entry tour visa with mainland, for the “Hengqin-Macau Tour Group.” Those who join the Group can travel back and forth between two cities multiple times within 7 days, if traveling together with the Group.
Bank Honor Roll
KBW – “KBW is pleased to announce its flagship 2024 Bank Honor Roll, comprising 18 elite, high-performing banks with the strongest and/or most consistent earnings growth over the past decade. The 18 banks that comprise this year’s Honor Roll, are SRCE, AX, BANF, TBBK, BAC, BVFL, CCB, CFB, ESQ, FCNCA, GCBC, MGYR, NBHC, NBN, NECB, CASH, PLBC, and PFBC. The KBW Bank Honor Roll members outperformed the BKX and KRX as well as the S&P 1500 Financials Index over a longer timeframe. Over the three-year period between 2020 and 2023, the KBW Bank Honor Roll members gained 19.3% compounded annually, compared to the BKX and KRX’s three-year CAGRs of -0.6% (19.9% outperformance) and 5.0% (14.3% outperformance), respectively. KBW Bank Honor Roll members also outperformed the S&P 1500 Financials and the S&P 1500 Index, which posted CAGRs of 8.3% and 8.1%, respectively, over the same time period.”
Trucking
BofA – “Heavy duty (Class 8) truck orders of 15.6K units in April decreased 1.8K units M/M and increased 30% Y/Y against an easy comp. On a SAAR basis, orders of 200K are below replacement demand (250K units) for a second consecutive month (March 206K) and trending below the strong order trends: 6-month SAAR of 290K. This is a sign that the headwinds in the freight market are weighing on purchasing activity – see Exhibit 1 – as spot freight rates vs truck order trends converge. That said, two months of 200K SAAR print does not appear “that bad” or severe enough to fundamentally correct overcapacity – suggesting soft order trends ahead following carrier commentary his earnings season. A clear message through earnings season is from BofA’s Ken Hoexter’s Transport coverage. Key public transport carriers are struggling to start the year (YTD: KNX -18%, JB Hunt -18%, ODLF -10% vs SPX +5%) with a difficult earnings season. These public carriers are customers (i.e., buyers) of trucks. KNX cited soft demand and excess capacity persist in the truckload space preventing the ability to recover ongoing cost inflation or attain appropriate utilization levels. JB Hunt maintained its capex guide for 2024 between $800mn to $1bn (-44% YoY) – partly citing the fleet is refreshed into 2024.”
Cloud Capex
Morgan Stanley – “The recent management commentary, earnings results, and guidance from Meta Platforms (META), Microsoft (MSFT), and Alphabet (GOOG) all pointed to a notable step-up in capex in calendar year 2024 given the need to scale AI and technical infrastructure to meet the growing demand for Cloud and AI products. Our cloud capex tracker now points to 44% Y/ Y growth in 2024, up from +26% Y/Y in our prior outlook, a notable acceleration from just 2% Y/Y cloud capex growth in 2023 and the strongest cloud capex growth since 2018. This implies that collectively, the top 10 global could players (ex-AMZN) are spending an incremental $52B Y/Y on capex in 2024, or $172B total, more than what this cohort spent incrementally on capex from 2018- 2023.”
Data Center Leasing
BMO Capital – “Data center leasing set yet another new high in 1Q, fueled by hyperscale demand driven by generative AI investments, and is further magnified by dwindling availability and power shortages. Across markets tracked by datacenterHawk, Q1 global net absorption of ~2,000MW was up from ~1,600MW in 4Q and ~600MW in 1Q23. Net absorption in six U.S. tier 1 markets of 1,459MW was an all-time high, above the 1,204MW/379MW in 4Q23/1Q23 and the prior TTM average of 821MW. In 1Q, NoVA led the market with 473MW of net absorption, down from 601MW in Q4, but it represents the second highest leasing quarter ever in any market and is above the TTM average of 311MW. Other top markets included net absorption in Atlanta of 412MW, above its prior TTM average of 179MW, and Chicago with 254MW (prior TTM average of 33MW) rounded out the top three U.S. markets. Phoenix (243MW) also saw notable strength. Internationally, leasing was led by Frankfurt and London.”
