Weekend Update #174
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As investors traversed the second week of calendar 2024's second quarter, they were met by a cautious market still deliberating over the timing and pace of future interest rate policy. Market participants saw the S&P and the Nasdaq indices continue to slip from its all-time highs as economic data readouts and news of increasing geopolitical conflict headlined the trading period. Reports on the Consumer and Producer Price Indices dominated much of the week's dialog, leading many to be fearful that hot inflation numbers could not only delay rate cuts, but also bring further rate hikes into the fold. As general sentiment over a higher-for-longer approach becomes more and more ingrained in the market – a deviation from the initial six rate-cutes priced in to start 2024 – participants await the heart of earnings season in the coming weeks, looking to gain color on individual performance and expectations.
On Tuesday, April 9, the NFIB announced the Small Business Optimism Index levels for March, with readouts falling below Street estimates. Measuring at 88.5, March's reading was the 27th consecutive month below the historic 50-year average and the lowest level dating back to 2012. Similarly, the Federal Reserve Bank of New York released their March 2024 Survey of Consumer Expectations early this week. In it, the data highlighted the highest average perceived probability of debt delinquency amongst consumers since the onset of the COVID-19 pandemic. A comprehensive analysis of the New York Fed's survey can be found within the Weekend Update.
On April 10, the Bureau of Labor Statistics published March's Consumer Price Index data. The report highlighted larger than expected increases for both the headline and core figures, on month-over-month and year-over-year bases. In March, the Core Consumer Price Index rose 0.4% from February and advanced 3.8% from one year prior – metrics that were elevated over the market's expectation. Similarly, Headline CPI rose 0.4% in the month and 3.5% from March 2023. The report, which added to the line of hot CPI data that has kicked off 2024, adds further kindling to fearful flames that efforts to tame inflation may be stalling. Federal Reserve officials have remained adamant that they would like to see continued evidence of sustainable price-pressure cooling before initiating a rate-cutting cycle, and while CPI is not the Federal Reserve's preferred measure of inflation, the repetition of hot readings to start the year deviate from this plan. Following Tuesday's CPI report, the Bureau of Labor Statistics also released March's Producer Price Index data on April 11. In the publication, PPI was measured at 0.2% month-over-month, below consensus estimates.
Turning to company specific news, a handful of major financial institutions kicked off earnings season, with JPMorgan Chase, Wells Fargo, and Citigroup all reporting earnings to finish the week. While JPMorgan Chase and Wells Fargo both reported better than expected earnings due to the maintenance of elevated lending rates, expectations of heightened interest on deposits muted the growth outlook for the rest of 2024, contributing to investor caution at the culmination of the week.
Geopolitically, the world turned its eyes to violent escalations in the Middle East, as United States intelligence reported mid-week that the Iranian government in Tehran was preparing an attack on Israeli soil. Threatening countless lives and a global response, the ramifications and reverberations of Tehran's actions present concern worldwide. As trading ended Friday, markets were sent forcefully downward on such fears, and all will closely watch for news and developments throughout the region in the coming days.
Weekly Performance
S&P 500 5,123.41 -1.46%
Nasdaq 16,175.09 -1.62%
Dow Jones 37,983.24 -2.45%
Thank you Blue Room Analyst AIDAN FETTERLY
Rising tensions in the Middle East which may force the United States to take a more active role in the conflict, weighed heavily on market performance. Like the S&P 500, Fund One performance tapered off towards the end of the week. We will continue to monitor each holding carefully to determine where our exposures lay in the event that the situation escalates.
For the week, one of our biggest contributors to performance was our short position in RV manufacturer and distributor Thor Industries. We reduced our position last month after the company reported disappointing results and warned of a deteriorating outlook which was inline with our forecast. With this most recent pullback in share price, we closed the remaining position.
One of our detractors to performance was Sweetgreen, the salad restaurant chain. The stock is up nearly 80% since we initiated a position in February and we feel that the sell-off of 10% this week was related to profit-taking after the massive run-up in share price. We still believe that Sweetgreen has more upside from these levels based on our forecast for new store growth and continued improvement in restaurant-level profitability.
Thank you Blue Room Investing President JOHN FENLEY
Reshma Kewalramani — Chief Executive Officer and President
Good afternoon, all. We are very pleased to announce that we've entered into a definitive agreement to acquire Alpine Immune Sciences for $65 per share in cash in a transaction valued at approximately $4.9 billion.
Alpine brings to Vertex, its lead asset, povetacicept or pove, a Phase 3 ready molecule in IgA nephropathy or IgAN. Pove is also a molecule that holds a pipeline in a product potential in a number of other serious immune renal diseases and cytopenias. Protein engineering and immunotherapy expertise, along with a strong talent and culture aligned with Vertex's focus on innovation and serving patients.
We see this acquisition of Alpine as just the right fit, with just the right assets at that, just the right phase of development, where Vertex can add value. Vertex's capabilities can accelerate pove's development in IgAN and other indications, while Alpine adds protein engineering and immunotherapy expertise to Vertex.
We are excited to work with the Alpine team and together advance pove into Phase 3 in IgAN and bring it to more patients faster. As many of you know, Jeff Leiden, My predecessor and Executive Chairman at Vertex, the Vertex Executive Team and I, have continued to work together over the past four years on external innovation and business development.
Jeff is uniquely experienced in immunology and working on medicines with pipeline and the product opportunity, having brought HUMIRA to Abbott via the NOL acquisition.
Let me now turn over the call to Jeff and ask him to provide additional color on this opportunity and most importantly, the science behind povetacicept and the protein engineering and immunology expertise at Alpine.
Jeffrey Leiden — Executive Chairman
Thanks, Reshma. Good afternoon, all. I'm really happy to be here today and to share my thoughts about the Alpine acquisition and our excitement behind the science and the product. One of the keys to Vertex's success over the years is a mindset that embraces both internal and external innovation.
And you can see that reflected in the pipeline today with about 40% of our clinical stage pipeline derived from partnerships, in licensing of assets and acquisitions, including deals with CRISPR, Moderna and Semma.
When evaluating R&D opportunities, external or internal, we're looking to create first-in-class or best-in-class medicines for serious diseases in areas of high unmet need. And when considering acquisitions, we're equally focused on the R&D pipeline, the science and the people. In Alpine, we see extraordinary strength across all of these dimensions.
Specifically, and as Reshma will discuss in greater detail, the key elements that lead to our enthusiasm and our conviction to acquire Alpine are first, Phase 3 ready pove with best-in-class potential in IgAN. Second, pipeline in a product potential in multiple serious immune renal diseases and cytopenias. Third, Alpine's protein engineering and immunology expertise. And lastly, talented people and a great corporate cultural fit.
— Press Release —
April 8, 2024
The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the March 2024 Survey of Consumer Expectations, which shows inflation expectations remained unchanged at the short-term horizon, increased at the medium-term horizon, and decreased at the longer-term horizon. Labor market expectations were also mixed.
While expectations about earnings growth and an increase in the unemployment rate were unchanged, respondents were more pessimistic about losing their job and finding a new job.
Finally, although household finance perceptions and expectations were largely unchanged, the perceived probability of missing a minimum debt payment rose to its highest level since the onset of the COVID-19 pandemic.
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For the third consecutive month, median one-year ahead inflation expectations remained unchanged at 3.0% in March. In contrast, the median three-year ahead inflation expectations increased to 2.9% from 2.7%, whereas the median five-year ahead decreased to 2.6% from 2.9%. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) rose at the one- and three-year ahead horizons and remained unchanged at the five-year ahead horizon.
Median inflation uncertainty — or the uncertainty expressed regarding future inflation outcomes — was unchanged at the one-year ahead horizon, rose slightly at the three-year ahead horizon, and declined marginally at the five-year ahead horizon.
Median home price growth expectations were unchanged for the sixth consecutive month at 3.0%. The series has remained within a narrow range of 2.8% to 3.1% since June 2023.
In 2002, Catalyst Pharmaceuticals (Catalyst) was founded in Coral Gables, Florida, a suburb of Miami. While Coral Gables has since become one of the glitziest neighborhoods in the United States, with an average home value of more than $20 million, in the early 2000’s the tranquil suburb was considerably more modest, serving as a family-oriented college town – hosting the University of Miami.
Catalyst was founded by Patrick J. McEnany. From 1991 to 1997, Mr. McEnany was Chairman and Chief Executive Officer of Royce Laboratories, Inc. Following the merger of Royce into Watson Pharmaceuticals in 1997, Mr. McEnany served as President of the wholly-owned Royce Laboratories subsidiary and Vice President of Corporate Development for Watson Pharmaceuticals. In addition to his role at Royce, Mr. McEnany also served as Vice Chairman and Director of the National Association of Pharmaceutical Manufacturers.
The initial focus of Catalyst was the development and commercialization of prescription drugs for the treatment of addiction. In the early 2000s, Catalyst specifically sought to pioneer a drug for the treatment of cocaine addiction – an issue particularly pressing in Miami. In December 2004, the FDA accepted the company’s IND for CPP-109, a product candidate based on the chemical compound gamma-vinyl-GABA, commonly referred to as vigabatrin. Catalyst was granted an exclusive worldwide license from Brookhaven National Laboratory to multiple patent and patent applications relating to the use of vigabatrin for the treatment of a wide variety of substance addictions.
In November 2006, Catalyst debuted on the NASDAQ exchange under the ticker CPRX as it was preparing a larger pivotal Phase II study for CPP-109 for the treatment of cocaine addiction. Catalyst offered 3,350,000 shares of common stock at a price of $6.00, implying a market value of $20 million. The first day of trading, the stock finished the day at $6.14 per share.
Sentiment moved sideways for the fourth straight month to 77.9 in April, as consumers perceived few meaningful developments in the economy. Since January, sentiment has remained remarkably steady within a very narrow 2.5 index point range, well under the 5 points necessary for a statistically significant difference in readings.
Consumers perceived little change in the state of the economy since the start of the new year. Expectations over personal finances, business conditions, and labor markets have all been stable over the last four months.
However, a slight uptick in inflation expectations in April reflects some frustration that the inflation slowdown may have stalled.
Overall, consumers are reserving judgment about the economy in light of the upcoming election, which, in the view of many consumers, could have a substantial impact on the trajectory of the economy.
Median One-Year and Long-Term Inflation Expectation Rates
Year-ahead inflation expectations ticked up from 2.9% last month to 3.1% this month, lifting just above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations also edged up, from 2.8% last month to 3.0% this month. They have been within the narrow 2.9-3.1% range for 29 of the last 33 months. Long-run inflation expectations remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.
April 11, 2024 BLUE ROOM Meeting 147
Thursday
April 11, 2024
12 PM
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Hello Blue Room,
Today's let's use the recent total eclipse as a prompt. Did you see the eclipse? If so, please have pictures to share with the team, and tell us about your experience. If you didn't see the eclipse, you can still discuss your impression or talk about any other pivotal topic.
Thank you,
Min
THE TOTAL ECLIPSE
PATH IN AIRBNB BOOKINGS
APRIL 8, 2024
Insight brought to Blue Room by Analyst NICK PEART.
The orange dots depict the Airbnb booked listings during the eclipse.
Airbnb Bookings Surge During Eclipse, But 2024 Travel Looks Weak
Twenty-five percent of Airbnb guests in the US with bookings for Sunday night were booked for a stay in the eclipse’s path of totality spanning the Southern and Eastern US, according to data provided by the short-term rental company on April 5. Listings in the path where a total solar eclipse can be viewed were nearly 90% booked, the company said, with Buffalo, Cleveland and Stowe, Vermont, among the markets seeing the highest occupancy.
The occupancy rate for some of these 88,000 listings on Sunday and Monday far exceeded that of major 2023 holidays like Memorial Day, Labor Day and Fourth of July weekend and is an outlier for what is usually a slow month, according to analytics firm AirDNA. Including listings on Expedia Group-owned Vrbo, the eclipse bookings are bringing a 174% jump in revenue per available nights, as hosts were also able to price their listings higher than the same period last year.
While the surge is observed in only a small fraction of the more than 7.7 million listings Airbnb has globally, it shows the American consumer is still willing to spend on unique travel experiences.
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