Closing Recap

Friday, April 09, 2021

Equity Market Recap

·     U.S. stock moved steadily higher throughout the day (on light volume again), with the S&P 500 surging late day to another new all-time best (above the 4,100 level) as investors continue to pile into global equities daily, exhibiting no fear again after the massive 6-month surge (CBOE Volatility index sinks to lowest levels since last Feb, dropping below the 17 level). This week’s gains (S&P rising for the 6^th time in last 7-days), came on light volume as the five lowest volume days of the year occurred this week. Markets ignored another inflationary signal this morning after the March producer price index (PPI) jumped over 4% on a YoY basis, the biggest number since 2011, as MoM figures came in well above consensus views as well (March CPI data expected next Tuesday). Several Fed members over the last few weeks have acknowledged the chance of rising near-term prices – but many have eased market fears that long-term inflation remains under control (prompting more buying of U.S. stocks). Treasury yields jumped initially on the PPI data but eased, while gold and oil prices dipped on the day. Next market catalyst is the start of earnings season next week, kicking off with big bank earnings. As mentioned, volume has been abysmal all week as Monday had 10.1B shares (4th lowest of the year), Tuesday 9.7B shares (3rd lowest of the year), Wed 9.5B shares (2nd lowest of the year), and Thursday 9.4B shares (lowest of the year).

·     In one of the more astounding stats in a while: Reuters noted that Bank America said $576 billion had gone into equity funds in the past five months, beating the combined $452 billion inflows seen in the last 12-years. Goldman Sachs noted there have been $576B worth of equity inflows in the past 22 weeks. There have been $4B worth of inflows per day, every day, during the each of the 148 trading days since the inflows started during the first week of November (positive vaccine developments and US election). With the Fed keeping rates at historic lows for over a decade now, the stock market remains the only game in town – prompting more buying daily – especially as the Fed has maintained their stance of continued accommodation (despite manufacturing, jobs, confidence, and housing data points surging).

Economic Data

·     Producer Price Index (PPI) data was delayed by roughly 30 minutes this morning after outage at BLS – but when numbers came out, they were “hotter” than expected for headline and core PPI prices. Producer Prices MoM final demand rose 1.0% vs. est. 0.5% and prior reading of up 0.5%, while core prices (ex food & energy) MoM rose 0.7% vs. est. 0.2%; On a YoY basis, PPI final rose 4.2% vs. est. 3.8% (and prior 2.85), while core PPI YoY for 3.1% vs. est. 2.7% (prior 2.5%)

·     The decline in the number of mortgages in active forbearance plans continues for the sixth straight week and represents the largest drop in six months, according to Black Knight’s Forbearance Tracker. The number of active plans fell by 228K in the week ended April 6

·     Wholesale inventories revised to +0.6% vs. est. +0.5% and Feb wholesale sales fell -0.8% vs. January +4.4% (prior +4.6%)

Commodities, Currencies & Treasuries

·     Oil prices edged lower in rangebound session, as WTI crude fell -$0.28 or 0.47% to settle at $59.32 per barrel (closing the week lower by more than 3%) while Brent dipped -$0.25 to 0.4% to close the week at $62.95 per barrel. Rising inventories from major producers and concerns over a mixed picture on the COVID-19 pandemic’s impact on fuel demand has moved prices. The Baker Hughes (BKR) weekly oil rig data was unchanged from the prior week at 337, as the overall rig count rose 2 rigs to 432 as gas rigs inched higher by 2 to 93. Gold prices could not muster a rebound despite the bounce in equities/pullback in Treasury yields, as June gold fell -$13.40 or 0.8% to settle at $1,744.80 an ounce – but still ended the week with a 1% advance.

·     It looked like Treasury yields were going to rise all day following the “hawkish” PPI inflation data this morning, raising inflation concerns, with the 10-year yield topping weekly highs of 1.685% around the open – but yields slipped the remainder of the day. The U.S. dollar was little changed throughout the day after profit taking ensued this week following a 2.5% advance in March.

Sector News Breakdown

Consumer

·     Retailers; LEVI tgt raised by a few analysts (UBS, Guggenheim) as Q1 adj. EPS of $0.34 was above the $0.25 estimate, with continued expansion in e-commerce (total digital +41%) and also raised its 1H EPS view to 41c-42c vs. est. 30c; for OSTK Piper said they believe it is the most mispriced stock under coverage universe, and presents tremendous risk/reward for investors with a 1 to 2+ year time horizon (see solid value in both the tZero blockchain trading platform and the nascent GSA contract that should ramp meaningfully over time); BBY shares remained strong after the company announced earlier this week it is testing a new membership program called Best Buy Beta, which will offer members free shipping on all orders (along with free tech support and other benefits) with membership fee is $199.99/year

·     Auto sector; DAN upgraded to Overweight and $32 tgt at Barclay’s saying it is well-positioned for commercial vehicle and off-highway electrification, and light vehicle ice threat is less than feared; China’s retail sales of passenger cars rose 69% Y/Y to 5.09M vehicles in Q1, strongest quarterly growth in recent decades, returning to pre-pandemic levels, the WSJ reported. Last year, Q1 sales contracted 42% Y/Y due to COVID-19; Truist noted Web Scrapes of CPRT and IAA’s online auctions show volumes accelerate to end the cy1q; raising ests.; electric vehicle stocks extend recent declines as some of the optimism over the Green Tidal Wave recedes and the ongoing global chip shortage weighs on sentiment (NIO, CHPT, FSR, LI, KNDI, BLNK, RIDE, NKLA)

·     Restaurants & Consumer Staples; PM upgraded to overweight from neutral at JPMorgan and raise tgt to $105 from $81 and downgraded British Tobacco (BTI) to Neutral from overweight in tobacco sector; CHUY downgraded to Hold from Buy, price target remains $45 at Stifel; WDFC shares tumbled following its Q2 miss and despite raising year guidance; CLX shares slipped on the day, overnight NY Times reported there less than 1 and 10,000 chance of getting Covid from surfaces (follows April 5th, when CDC’s Walensky had said the CDC updated guidance for cleaning facilities, disinfecting, says risk of Covid infection from surfaces is extremely low)

·     Casinos, Gaming, Lodging & Leisure sector; in cruise lines, CCL was upgraded to Buy/Outperform at both Argus ($33 tgt) and Credit Suisse ($40 tgt) as think the improvement in bookings reflects strong pent-up demand for cruise vacations as coronavirus vaccines are rolled out; HOG was upgraded to Buy at Northcoast with the belief the company is poised to exceed FY21 earnings expectations and believe the setup beyond 1Q21 is attractive; WWE shares rise ahead of two day WrestleMania event this weekend – Capacity set at 25,000 fans for each night of show at Raymond James Stadium – first live event since pandemic shutdown

Energy

·     Energy stock movers; rebound early for commodity/energy related names after underperforming most of the week amid the rotation into tech; Cowen downgraded SOI and lowered their price targets on BKR, SLB, TS, HAL as they see upside in oilfield services as the world returns to pre-pandemic levels of oil demand and global OFS revenue; IO was awarded an exclusive agreement for 3D multi-client programs offshore Kenya; Bloomberg reported TOT is poised to move forward with a $5.1B plan to tap more than 1B barrels of crude oil from Uganda and ship it across east Africa by pipeline; shares of PSXP and ET stayed higher after the U.S. Army Corps of Engineers said it will allow Energy Transfer’ Dakota Access (DAPL) oil pipeline to keep running, after an environmental permit was scrapped last year.

·     Utilities & Solar; JKS reported Q4 earnings per ADS 11c vs est. 48c on revs $1.44B vs $1.38B, solar module shipments +27% YoY, and see Q1 revs $1.18-1.3B vs est. $1.25B; Mizuho initiated Neutral ratings on AEE ($83 tgt), ES ($89 pt), and WEC ($94 tgt); SWX filed an at-the-market equity offering for up to $500M

Financials

·     Bank movers; industry kicks off earnings season next week with many of the big banks reporting with SCHW on Tuesday, FRC, GS, JPM, WFC on Wednesday, BAC, BLK, C, TFC, USB on Thursday and ALLY, BK, CFG, MS, PNC, STT on Friday April 16^th; Reuters reported that U.S. investment firms BlackRock (BLK), State Street (STT) have expressed interest in buying Credit Suisse’s asset management unit

·     Brokers & Exchanges and Services; Loop raised their Q1 estimates on CBOE on better pricing and NDAQ on better trading activity, pricing, and index trends, which resulted in slightly higher price targets for both; Jefferies increased their estimates on SCHW, IBKR to reflect strength in trading activity with record account growth and a constructive market backdrop, sec lending, margin balances, and rising interest rates; JMP upgraded SCHW to Outperform with an $80 price target, seeing more room to run after the stock has risen 26% YTD as rising interest rates and the fundamentals, such as adding more retail accounts YTD than all of 2020, support the stock’s move higher; JMP also said they are choosing to be more tactical, saying virtually all business performed well in Q1 as record capital markets activity, an active M&A backdrop, elevated transactional activity, engagement in both retail and institutional trading, and rising interest rates provided tailwinds, downgrading EVR and MC to Market

·     Banks; Wedbush said their conversation with a commercial real estate company forecasted office rents could fall 30-40% by the end of the year, office building values could fall faster as operating costs are fixed, and that there could be a wave of office foreclosures later in the year, and the banks under their coverage with the most exposure to office space include CVBF with over 11% of all loans, HMST, SBNY, BKY, CATY, PACW, NYCB with more than 8% of their total loans, and BPFH, PB, EWBC in the 7% range; Bank of America upgraded VCTR and BSIG to Buy; BTIG raised their price target on SSSS to $20 and reiterated its Buy ratings after its stake in recent IPO COUR boosted its NAV, though this increase has not been reflected in the share price

·     Consumer Finance; Evercore initiated Outperform ratings on ALLY with a $55 target and SYF with a $49 target, and ADS at In-line with a $116 target; KREF commenced a preferred stock offering with a $25/share liquidation preference; IMXI March remittances were a record of about 3.1M transfers (+23.3% YoY ), driven by a +105.2% rise in its digital platform and a +17.8% increase in its core markets; Credit Suisse raised its target on SQ to $290 from $270

·     Bitcoin; NCTY said it was issuing 8.3M shares to buy 2,000 units of AvalonMiners bitcoin mining machines, with a total has rate of about 100PH/S; Canaccord named MSTR as a new Buy with a $920 target; Bitcoin investment firm NYDIG Bitcoin Strategy Fund raised $100M in growth capital from insurance companies Starr, Liberty Mutual, and existing strategic investors like New York Life and MassMutual, and named Mike Sapnar, the CEO of TransRe, as its new Global Head of Insurance Solutions to accelerate a bitcoin-driven innovation in the P&C industry

·     REITs; Piper upgraded ESS to OW as only about 10% of its NOI comes from major urban markets, so their shift towards suburbs provides exposure to a wider swath of renters; Wedbush raised their pt on NRZ to $13 as they say the company’s NewRez deserves a high premium to book value and its MSR holdings should recover in 2021; CXP commenced a strategic review process; Morgan Stanley is pounding the table to buy SPG ahead of earnings

Healthcare

·     Pharma movers; BNTX and PFE popped midday as they request regulatory agencies expand emergency use of their covid-19 vaccine to adolescents; ITRM shares fell after the FDA said it has postponed an advisory committee meeting to discuss the company’s new-drug application for oral sulopenem because the agency needs more time to review the company’s materials; RUBY presents initial clinical results from the ongoing phase 1/2 clinical trial of rtx-240 in advanced solid tumors at the American association of cancer research virtual annual meeting; KMPH announced amended license agreement with Gurnet Point Capital affiliate following FDA approval of Azstarys; RPHM 6.25M share IPO priced at $15.00; VECT 7.5M share IPO priced at $17.00; TXMD wins approval for oral hormone replacement therapy in U.K. and Belgium

·     Biotech movers; PRVB shares tumbled after the FDA said it had identified deficiencies in the marketing application for its experimental drug, teplizumab, intended for delay or prevention of clinical type 1 diabetes; AFMD shares rose after announcing its upcoming AACR presentation of initial data from its Ph1 study of cord blood-derived natural killer cells pre-complex with innate cell engager AFM13; AMRS 19.05M share Spot Secondary priced at $15.75

·     Healthcare services and providers; HQY agreed to acquire Further, a provider of health savings accounts and the nation’s ninth largest HSA custodian overall for $500M; skilled nursing stocks weaker initially (OHI, SBRA, ENSG) as CSFB noted that the CMS issued proposed rules for the FY22 payment updates for skilled nursing facilities (SNFs) and hospice providers last night. This payment update will be effective starting October 1, 2021. Firm noted the SNF rate update was below expectations, and CMS is considering a potential negative rate adjustment in the coming years to ensure PDPM is budget neutral, which would be detrimental to the industry

·     MedTech and Equipment; OM prices 2.5 mln shares sold by co and 3.4 mln shares by certain of its stockholders at $53.50 per share; ZBH upgrade from Market Perform to Outperform w/ $200 pt at Northland as checks (on salesforce/products and docs) indicate path to mid-single digits

Industrials & Materials

·     Industrial & Machinery; HON upgraded to Buy from Hold at Deutsche Bank with $244 tgt noting it has been the worst performer in the multi-industry group year-to-date despite attractive end-market exposures; JCI to acquire Silent-Aire, a global leader in hyperscale data center cooling and modular critical infrastructure solutions, in an all-cash transaction valued at up to $870M; GE tgt raised to $17 from $15 at UBS despite the strong stock performance as remain constructive

·     Aerospace & Defense; BA asked some operators of its 737 MAX jet to fix a potential production issue related to an electrical power system in the aircraft, prompting some airlines to remove MAX jets from its schedule. Boeing said it wants 16 of its customers to check and verify "that a sufficient ground path exists for a component of the electrical power system"; EADSY delivered 72 commercial aircraft in March to 34 customers, including Delta Air Lines, American Airlines, British Airways and German carrier Deutsche Lufthansa and has now delivered 125 aircraft so far this year; AAL said it has temporarily removed 17 of its most recently delivered Boeing 737 max aircraft after notification from Boeing; in defense sector, Cowen said with the economy & domestic air travel picking up, they favor stocks positioned to offer positive Q1 color on cyclical prospects including bizjet leader GD, commercial recovery plays HWM (PT to $40 from $32), SPR, TDG ($650 from $630), and MOGA (also raised tgts on BA, BDRBF, CRS, HII, HON, LHX and TXT

·     Metals & Materials; RIO reached a binding agreement with TRQ over funding for expansion of the massive Oyu Tolgoi copper-gold mine in Mongolia; Rio and Turquoise Hill will restructure debt payments of up to $1.4 billion with lenders; in chemicals, BMO said still favor CTVA (target price rises to $52) and FMC on robust multi-year growth trajectories and self-help initiatives, also prefer CF and NTR in the fertilizers (short-term pressures aside), and SQM and ALB in lithium, while see MEOH having attractive valuation; BCC was downgraded to Neutral at Davidson after a strong run in the name since the firms February 24th upgrade (+41% vs S&P 500 +6%) but notes upside potential for estimates remains with commodity prices continuing to push higher

Technology, Media & Telecom

·     Internet; GOOGL tgt raised to $2,500 from $2,400 at Argus as see Alphabet as one of the tech industry’s leaders, along with Facebook, Apple, Amazon, and Microsoft; no specific news in large cap Internet, but group again seeing broad market strength with big gains in AMZN, though social media names were modestly weaker (FB, SNAP, PINS); AMZN warehouse workers in Alabama were defeated on Friday by a more than 2-to-1 margin in a major win for the online retailer, but the union trying to organize workers said it will challenge the results, citing election interference

·     Semiconductors; modest profit taking in chip names that saw record highs earlier in the week for the Philly semi index (SOX) earlier this week; Mizuho adjusted estimates and tgts for some names (QCOM, QRVO, SWKS) as expect a stale consensus to move down – also expect a 2H rebound, and we are raising our PT for SWKS and QRVO; UCTT 3.18M share Secondary priced at $55.00; TSM March revenue up 13.7% y/y to NT$129.13B; said Jan-March revs rose 17% on year

·     Software movers; Barclay’s previewed software space earnings, lowers tgts on CDAY, DDOG, PAYC and said see positive setups for LPSN and LSPD, while cautious on TDC as VAR Survey shows an okay Q1, but lots of excitement for the future – says sector remains somewhat trapped between its high valuation levels and the excitement of ongoing estimate increases; Oppenheimer downgraded CHKP and TUFN while remains most constructive over the LT on CRWD (endpoint/edge tailwinds, legacy installed-base displacement, Humio acquisition, upsell opportunities), OKTA (large IAM opportunity, legacy installed-base displacement, international expansion, nascent G2K penetration, expansion into adjacent opportunities in CIAM/PAM/IGA), and PANW (strong execution, aggressive M&A, growing end-to-end leverage, cloud evolution).  

·     Media & Telecom movers; in cable, CHTR and ATUS downgraded to Neutral at Citigroup and maintain Buy ratings on CMCSA, LBRDA saying three recent developments give them pause regarding future broadband growth for cable firms: faster annual fiber upgrades, wireless home broadband ambitions, and risks from government policy direction; FUBO said it has acquired the exclusive live streaming rights to the Qatar World Cup 2022 Qualifying matches of South American Football Confederation; AAPL has hired a former WarnerMedia executive to beef up its original film production, as part of a broader effort by the iPhone maker to ramp up the programming selection on its Apple TV+ streaming service, theinformation reported