Futures recover, Broadcom soars, RH pops, UnitedHealth under pressure
I’m all out of creative juices this morning and full of sinus congestion instead. Which we are not going to acknowledge because we have three Christmas parties and my husband’s birthday in the next 48 hours. And so we press on.
Friday the 13th: Futures are indicating a recovery from yesterday’s sell-off. Yes, we are only a few decimal points from all-time highs, but under the hood there are signs of exhaustion. Yesterday was the 9th day in a row that more stocks fell than rose on the S&P 500. This is the longest run of bad breadth since 2001, according to Jim Reid at Deutsche Bank. “So ex-tech,” Reid wrote in his morning note, “The market is losing some momentum even if the aggregate moves are still small.” Something to keep an eye on. Next week is the Fed’s rate decision and while they are widely expected to cut rates, certainly inflation data from this week suggests it is still far from target casting doubt on how aggressive they can be.
Fireworks: Shares of Broadcom are ripping higher up nearly 20% and poised to open at a record high. The chipmaker reported better than expected profit and said that artificial intelligence revenue more than tripled, increasing 220%. This puts Broadcom on track to become a trillion-dollar company, joining the likes of Nvidia, Amazon, and Microsoft. The real excitement came when Broadcom said they see the market opportunity for their AI chips to be as big as $60-90 billion by 2027, compared to $15-20 billion in 2024. Raymond James isn’t convinced you should buy the stock here. “At 33x FY25E P/E, we are reluctant to chase the stock at current levels and continue to prefer NVDA, MRVL, AMD, MU, and SemiCaps on data center AI theme,” wrote Srini Pajjuri in a note to clients. Nevertheless, Broadcom’s outlook and rally is lifting the entire tech sector this morning.
Distress never looked so good: Shares of Restoration Hardware owner are popping 14% right now and poised to open at two-year high. RH posted better than expected sales at its namesake brand and said that demand remains robust despite “the worst housing market in 30 years.” This has defied bearish bets against the company, more than 10% of the shares outstanding are short. But not everyone is convinced. “Total cash burn grew to $96 million in the quarter,” says W. Andrew Carter at Stifel, “Results did not alleviate concerns over inventory with purchases +30.5% with cash burn increasing and the gross margin performance trailing our below-the-street estimate,” he wrote in a note to clients.
Under pressure: Ever since the CEO of UnitedHealthcare was assassinated on December 4th, there has been an awakening around the American healthcare system. This morning the CEO of UnitedHealth (the parent of UnitedHealthcare), Andrew Witty, wrote an op-ed in the New York Times condemning the killing but also acknowledging the failings of the American healthcare system. “We know the health system does not work as well as it should, and we understand people’s frustrations with it,” wrote Witty. It also appears to be a big problem for shareholders. Shares of UnitedHealth are down 15% since the shooting and is the one reason for the Dow Jones Industrial Average being on its worst losing streak since April. Other insurance companies like Cigna and Elevance have also come under pressure. In addition to intense online criticism, there was a bipartisan bill proposed that would seek to break up some of these companies. Something to watch if you invest in the sector.
Bulk buys: Investors aren’t quite sure what to do with Costco’s quarterly results. Profit beat expectations but wholesale revenue was a little short. The stock is flat in the pre-market. There was a lot to like. Same-store sales excluding gasoline were up 7% while online sales increased 13%. Keep in mind, Costco is near an all-time high and trading at ~60x earnings so it might take a lot more than just continued excellence to move the needle.
