Closing Recap

Friday, April 23, 2021

Equity Market Recap

·     Rally mode for stocks…all day long! U.S. stocks rallied from the word “go” today, rising on the open, only to make fresh highs throughout the day and erasing all of Thursday’s capital gains tax headline related losses in another remarkable day for Wall Street. President Biden’s capital gains proposal, which was reported first by Bloomberg, showed a doubling of the capital gains tax rate for those earning $1 million or more, to 39.6% – which hit stocks hard. A few reports this morning noted this was part of his “American Families Plan” and should come as no surprise, while other expect Congress to settle on a more modest increase, potentially around 28%. Regardless, the headlines brought the reality of the proposal to life. It made no difference today as nearly all S&P sectors outperformed with the index setting another intraday record, surpassing the prior closing high of 4,191 while the Dow Transports jumped over 1.5% above the prior record highs of 15,142 in another day of upward momentum buying. Technology paced the gains as the Nasdaq Composite erased all of Thursday’s declines, while the Dow Jones lagged on weaker-than-expected earnings/guidance results from AXP and INTC, but still managed a new intraday record. Next week will be the busiest of the period with ~36% of the SPX is scheduled to report led by Tech, Healthcare & Industrials (AAPL, FB, F, BA, AMD, MCD, MA, MRK, MSFT, V, XOM).

·     A few interesting data points/headlines/notable thoughts as markets rebound: 1) according to one report, 45% of all companies’ earnings reports discuss inflation, according to @Sentieo with many of them are stating they will be raising prices, like P&G, KMB (at what point does this hit the consumer); 2) there lots of highs or “peaks” right now including stimulus checks, Fed accommodation, some historic economic data, peak US vaccination pace & trough tax rates – what more can keep the gravy train going? 3) still no fear with the CBOE Volatility index (VIX) remaining not far off record lows.

·     Warnings signs? U.S. equity funds received their lowest inflows in seven weeks in the week ended April 21, pressured by rising coronavirus cases, which have cast doubts over global economic recovery. According to Refinitiv Lipper data, U.S. equity funds took in $878 million in the week, the lowest since the week ended March 3. Also, Goldman Sachs noted that there has been a record +$616 Billion worth of equity inflows in the past 5 months, annualizing at +$1.5 Trillion. ~$4B of new money demand per day, every day. This typically slows down in May.

·     Small businesses still having trouble finding people to work: Dow Jones reported Democrats on Capitol Hill are pushing for the White House to propose making jobless benefits more generous permanently as part of the antipoverty package President Biden is expected to roll out next week (Excessive unemployment payments have obviously screwed up the supply and demand for labor. The problem employers have is that they can’t compete against unemployment when someone is making 50-100% more than they normally would).

·     Housing industry continues to be hot as Redfin (RDFN) noted U.S. housing supply shortage intensifies, driving prices up 18% year over year, redfin says; median home-sale price increased 18% YoY to $344,625 — an all-time high; study covers more than 400 U.S. metro areas during the 4-week period ending April 18; 45% of homes sold for more than their list price, an all-time high, as reported by Dow Jones (economy continues to surge).

·     Sentiment remains strong: Optimism over the short-term direction of the U.S. stock market remained elevated above 50% in the latest American Association of Individual Investors (AAII) Sentiment Survey. AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, slipped 1.1 percentage points to 52.7%. Bearish sentiment declined 4.1 percentage points to 20.5%. Neutral sentiment increased 5.2 percentage points to 26.8%.

Economic Data:

·     Markit Manufacturing PMI 60.6, vs. expected 61.0, highest in series history going back to May 2007, vs final March 59.1; Markit Services PMI 63.1 vs. expected 61.5 and last 60.4; Markit U.S. manufacturing flash input prices index for April at highest since July 2008, 78.0 vs final March 74.8; flash composite PMI for April at 62.2, highest in series history going back to October 2009

·     New Home Sales showed March single-family home sales 1.021M unit annual rate vs. est. 886K and Feb 846K unit rate; March single-family home sales +20.7% vs. Feb -16.2%; new home supply 3.6 months’ worth at current pace vs. Feb 4.4 months; median sale price $330,800, +0.8%

Commodities

·     Oil prices end higher, rising $0.71 or 1.16% to settle at $62.14 per barrel, but ended up sliding 1.6% for the week on persisting coronavirus concerns as infections surged to record levels in India, adding to fears of slowing demand. Gold prices edge lower, as June gold drops -$4.20 or 0.2% to settle at $1,777.80 an ounce, finishing the week flattish after touching 2-month highs mid-week. Gold prices were buoyed by a sliding dollar and steady Treasury prices, offset by renewed interest for riskier assets offset. The euro extending its gains against the U.S. dollar, rising to best levels since early March while the JPY/USD hit a seven-week lows. Treasury yields were little changed after economic data helped support the Dollar, with the 10-year note up 2 basis points. Copper futures scored a third-straight weekly gain to notch their highest finish in more than nine years, with the Biden administration’s plans to improve U.S. infrastructure.

Sector News Breakdown

Consumer

·     Retailers; MAT easily topped Q1 estimates as sales in the North America segment rose 67% during Q4, driven by growth in driven by growth in several segments (stocks slipped late day on profit taking); SWIM 20M share IPO priced at $19.00; SKX rises to over 5-year highs after Q1 revenue and profit topped analysts’ estimates amid a 20.2% jump in international business sales, while also guided 2021 sales above estimates (guides FY sales $5.8-5.9B vs. est. $5.6B); Cowen raises tgt on YETI to $91 and DKS to $93 saying incoming data suggest consensus expectations are conservative beyond 1Q and says clear winners from Feb-April checks: DKS, UAA, YETI, COLM, RL, PUMA, DECK, LULU, FL; NKE in focus as Star Gymnast Simone Biles is leaving the co for her own performance line at GPS’s Athleta, which is a partnership she says more closely reflects her values; SWIM 20M share IPO priced at $19.00

·     Auto sector; Citigroup noted that they view Mobileye’s (a division of INTC) Q1 results as a positive read-through to the Q1 supplier revenue growth-over-market setup, consistent with the conclusions from our recent AutoTech trim-mix datasets (APTV, MGA, VNE); nice rebound for electric vehicle names (BLNK, CHPT, FSR, KNDI)

·     Consumer Staples; KMB falls Q1 EPS $1.80 misses the $1.93 est. on softer revs of $4.7B vs. rest. $4.97B and cut FY21 adjusted EPS view to $7.30-$7.55 from $7.75-$8.00 (est. $7.75) and also lowers FY21 organic sales growth view to 0%-1% from 1%-2% – reflects significantly higher input cost inflation and lower sales volumes; KHC downgraded to Neutral from overweight with $41 tgt at Piper saying with its 44% share increase since September, coupled with broad surges in commodity cost inflation, now consider the risk/reward to be unattractive near-term; SAM shares jump as Q1 earnings crushed estimates (EPS $5.26 vs. est. $2.61 on revs $545.1Mm vs. est. $477.3Mm) saying its Truly brand outgrew the hard seltzer category by nearly 2X or 50 percentage points, resulting in a share increase of 6.5 percentage points; COTY outlined a plan to boost its luxury skincare, fragrance and cosmetic lines with contributions from Gucci and Burberry and reaffirms guidance

·     Casinos, Gaming, Lodging & Leisure sector; CCL tgt raised to $18 from $14, and RCL tgt to $61 from $50 at Morgan Stanley but stay underweight on both, stay cautious Cruise stance as caution: (1) don’t extrapolate near-term booking figures given surveys do not point to a permanent demand step up, (2) supply growth is high, (3) leverage is elevated, (4) margin expectations look high, and (5) recovery PEs are well above pre-Covid levels; HOG downgrade from to Underweight at Morgan Stanley with $38 tgt as believe the market is underappreciating the secular challenges ahead; IMAX was upgraded to Outperform at Wedbush and raising price target to $26 calling it a COVID recovery story; OLO and DASH sign multi-year agreement, settle and dismiss contract dispute

Energy

·     E&P and Majors news; energy stocks were the biggest laggards in the S&P 500 this week; Baker Hughes (BKR) reports U.S. rig count down 1 to 438 rigs with oil rigs slipping 1 to 343; in oil services, SLB Q1 adj EPS 21c vs. est. 19c; Q1 revs $5.2B vs. est. $5.09B; qtrly north America revenue of $972 mln decreased 17% sequentially; pretax segment op margin 12.7% vs. 10.4%; GLNG reported a beneficial ownership stake of 18,627,451 shares or about 9.01% in NFE

·     Energy research; MRO upgraded to Outperform with $15 pt at Wolfe Research on the back of its FCF strength, 2022 FCF/EV Yield at 14% that ranks amongst the top of the oil-focused peers and reduced concerns over the balance sheet and inventory duration; Raymond James downgraded RRC, SWN saying they have meaningfully outperformed their gassy peers while upgraded a few names they like into the quarter that they believe have more room to run (CLR, XEC); in pipelines, ENLC upgraded to Buy at UBS as see the co sporting modest EBITDA growth in ’22 post bottoming out in ’21 in contrast to broad investor expectation of a flat to down trajectory.

·     Utilities & Solar; FE positive mention at RBC after earnings saying they view the DPA as a constructive step forward and could even be incrementally positive – otherwise, think investors will focus on the soundness of the governance plan which plays a critical part in narrowing a 3-turn valuation discount to utility peers; DTE and NI both downgraded to in-line from outperform at Evercore/ISI following the outperformance compared to Power and Utilities peers, and sees limited upside in the near-term for both

Financials

·     Bank movers; SIVB with Q1 earnings beat ($10.03 vs. est. $6.78) and said due to strong earnings growth and an improving economic outlook, increased its growth expectations for 2021; RF reported Q1 EPS 63c vs est. 48c, revs $1.61B vs est. $1.55B, though NII $967M missed est. $987.5M; ABCB recorded Q1 EPS $1.66 vs est. $1.15 on sales $221.6M vs est. $260.93M; PBCT 1Q adj EPS $0.37 vs est $0.34, NII $385.9Mm vs est $397.8M; INDB purchased EBSB for $1.2B and posted Q1 EPS $1.26 vs est. $1.09; FHB posted Q1 EPS 44c that matched consensus on revs $173M that came in below the $181.47M consensus; UBSI Q1 EPS 83c and rev $283.53M both topped estimates; OZK Q1 EPS $1.14 and revs $266.75M both rose YoY and bested consensus of 86c on $257.6M;

·     In bank research, BPRN was upgraded to OW at Piper after reporting Q1 EPS 70c and NII that bested expectations; Credit Suisse raised their SBNY price target to $270 after the banks earnings on Wednesday; Following yesterday’s update from SCHW on their TD integration and surge in recent activity, Citi and Wells raised their price targets on the stock; JPMorgan upgraded GCMG to OW on fundraising improving this year in separate accounts and private market funds

·     Consumer Finance; AXP reports lower Q1 revenue, falling 12% to $9.06B, below the $9.17B estimate as spending and loan volumes declined, while also noted a forex adj 50% slump in travel and entertainment-related spending (EPS did beat for the quarter); HTH Q1 EPS $1.46 topped est. $1.01 on revs $523.3M vs est. $467.7M as the beat reflected a significant increase in its mortgage origination segment;

·     Finance research; Wolfe initiated Outperform ratings on INTU with a $475 pt on accelerating SMB growth, a successful tax season, and Credit Karma outperformance, PAYC with a $450 pt on macro tailwinds that include improving employment trends, revenue retention from its expanded product portfolio, and the timing of its move up-market as larger business see an accelerated recovery, and PCTY with a $200 pt as another beneficiary of macro employment tailwinds, upside to fees and retention rates, and a reacceleration in sales rep hiring; Following Wednesday’s earnings, Barclays lifted their target on DFS to $132 from $111, and BMO upped theirs by $1 to $106, along with raising their estimates on SLM on their report, though they say they prefer SC, ALLY, SYF, COF to either name; Raymond James initiated recent SPAC FOA at Outperform with a $15 target as they expect growth in mortgage purchase volumes, the company’s unique products, and its larger investment portfolio to drive earnings growth

·     Fintech Bitcoin news; Bitcoin prices dropped below $50k for the first time since March 8, touching lows of $47,814; LMFA launched its digital strategy that included purchasing up to $2m in digital assets such as Bitcoin and Ethereum; RBC listed GPN, NCR, FOUR, MA, V (Visa) as their top five payments ideas into earnings and said they expect results to be in line or above expectations given the recovery from the pandemic

·     REITs; Raymond James reinitiated coverage on retail REITs FRT, CDR, KIM at Market Perform and RPT, ROIC, BFS at Outperform; RBC raised their target on OW-rated SITC to $17 from $15 after the company beat estimates yesterday and revised guidance upward

Healthcare

·     Pharma movers; JNJ vaccine being reviewed today – note its Covid-19 vaccine could be back in circulation this weekend depending on a recommendation Friday by a federal advisory panel (maybe with new restrictions) – comes after its one-shot dose was put on hold last week after reports of rare blood-clot conditions in a handful of recipients; RAIN 7.353M share IPO priced at $17.00; IMPL 5.33M share IPO priced at $15.00

·     Biotech movers; INO plunges after saying the U.S. government had stopped funding for a late-stage study testing its COVID-19 vaccine candidate, due to the increasing availability of authorized shots in the country – U.S. will continue to fund the completion of the ongoing mid-stage study; CHRS announces toripalimab achieved primary endpoints of progression free survival and overall survival in interim analysis of phase 3 clinical trial in first-line esophageal squamous cell carcinoma; ANAB rises as the FDA approves the co’s partner GSK marketing application for drug, Jemperli, to treat endometrial cancer as they will receive $20 mln milestone payment upon FDA approval and 8%-25% royalty on global net sales

·     MedTech Equipment; QDEL plunges as guides Q1 revenue $374M-$376M below the consensus $465.7M saying the quarter was marked by the lack of a respiratory season, noting influenza revenues for Q1 are expected to be $5M, compared with $79.6M YoY

Industrials & Materials

·     Industrial & Machinery; AGCO unveils a new capital return framework to include an annual special dividend of $4.00 per share in addition to regular quarterly dividend payments and stock buybacks; HON posted top and bottom line Q1 beats as a sales miss by the industrial conglomerate’s aerospace business was offset by beats in all other business segments, while boosted its year EPS/sales view with FY21 organic sales growth view to up 3%-5% from up 1%-4%

·     Metals & Materials; CE posted stronger than expected Q1 earnings and raising full-year earnings guidance to $12.50-$13.50 from its prior outlook of $11.00-$11.50 (Q1 net sales rose 23% Y/Y to $1.8B, as overall 15% higher more than offset a 3% volume decline); SON said will raise price for all paperboard tubes, cores by minimum of 6%, effective with shipments in U.S. and Canada, on or after May 24, 2021; Reuters reported Chilean regulators have settled a high stakes dispute over reserves data with top lithium producer ALB defusing a spat that may have led to the suspension of the company’s permit to expand its operations in Chile

Technology, Media & Telecom

·     Internet; SNAP Q1 revs grew 66% to $770M, above the $743M estimate and beats views for user growth while the improved Android version of its popular messaging app Snapchat attracted more users – said daily active users (DAUs) rose 22% YoY to 280M vs. est. 275.3M; Jidu Auto, an electric-vehicle venture between BIDU and Chinese automaker Geely, aims to plough 50 bln yuan ($7.7 bln) into producing smart cars over the next five years its CEO told Reuters; SPOT is reportedly planning to introduce a competing paid podcast subscription service to AAPL, the WSJ reported – Spotify’s offering will reportedly differ from Apple’s by not charging a fee, nor taking a revenue cut; earnings next week for FB, TWTR in social media space

·     Semiconductors; INTC Q1 results came in above views, but shares dipped as forecasts Q2 profit below estimates after lower-than-expected Q1 data center chip sales (sees Q2 EPS of $1.05 vs. estimates of $1.09, but revs guidance $17.8B above $17.55B est.); STX Q3 beats were offset by revenue guidance that met estimates at the midpoint while sales were flattish on the year at $2.73B and gross margin dipped to 27.4% from 28% YoY; SLAB rises after SWKS agreed to buy its infrastructure and automotive business in deal valued at $2.75B in cash

·     Software; RNG downgraded to Perform at Oppenheimer and removing our $480 price target saying 1Q earnings should be strong, but risks are on the horizon; VRSN reported 1Q21 rev in-line with consensus and adj. EBITDA above with consensus. 2021 guidance was in line with consensus ests on the top-line and slightly below on the bottom line; Wolfe research-initiated coverage on a ton of software names, with Outperform ratings on NOW, ZEN, DCT, ASAN, COUP, ADBE, TWLO, ZM, SMAR, MSFT, DOCU, PLAN, CRM, HUBS, CDAY, WDAY, PAYC and ZI