Closing Recap

Tuesday, April 28, 2020

Equity Market Recap

·     U.S. stocks were mixed as the Dow Jones Industrial Average advanced for a 5^th straight session, and the S&P 500 made it a 3^rd straight day of gains (only 15% off all-time highs) led behind financials and travel related stocks, while the tech heavy Nasdaq Composite lagged following weakness in mega-cap names ahead of big earnings this week (GOOGL tonight, MSFT, AMZN, FB, AAPL later this week). First-quarter S&P 500 earnings are expected to be down 14.8% from a year ago, a dramatic U-turn from the 6.3% year-on-year growth seen on Jan. 1, according to Refinitiv data. The Russell 2000 outperformed again as SmallCaps continue to play catch up and are seen to reap more benefits from the state-by-state easing of shutdown restrictions. News of several U.S. states opening their economics last week, and several others announcing plans for starting businesses up later this week got the blood flowing for travel, leisure, casino, restaurant and retailers – all names that have been hit the hardest from the coronavirus related business forced closures. At the same time, profit taking occurred in the “stay-at-home” beneficiaries including tech ATVI, ZM, NFLX, AMZN, e-health like TDOC, food and grocer names.

·     Stocks ended off their best levels as plunging consumer confidence curbed investor hopes for a near-term economic revival. The Conference Board said on Tuesday its consumer confidence index dropped to a reading of 86.9 this month from a downwardly revised 118.8 in March. The tech heavy Nasdaq Composite declined after touching earlier highs of 8,830 (rising as much as 1%) while remains well off the 6,631 low on 3/23 in a V-shaped recovery over the last month. Treasury prices remain strong as yields pull back, oil prices rebound after declines of 15% earlier but still end lower by 3% and gold prices dip for a third session. Hopes of easing lockdowns in major European cities helped those markets push higher, shrugging off the chaos in oil markets and the rising bad debt among European banks. In coronavirus news, the U.S. reported more than 1 million COVID-19 cases as per John Hopkins with New York and New Jersey making up about 40% of the total, though results improved today from prior days in cases and hospitalizations.

Economic Data

·     U.S. April consumer confidence index 86.9 (below consensus 87.9) vs. March revised 118.8 (previous 120.0) while the present situation index 76.4 in April vs. March revised 166.7 (previous 167.7) and the expectations index 93.8 in April vs. March revised 86.8 (previous 88.2)

·     March advance trade deficit of goods widened to (-$64.2B) from (-$59.9B) in prior month and below the (-$55.0B) estimate; Imports fell 2.4% in March to $191.866b from $196.627b in Feb. and exports fell 6.7% in March to $127.647b from $136.741b in Feb.

·     Richmond Fed’s April manufacturing survey plunged to -53 vs. +2 last month and worse than expected decline of (-41) as shipments fell to -70 after 13 the prior month, new order volume slowed to -61 after 0 the prior month and order backlogs fell to -42 after -8 the prior month

Commodities

·     Oil prices fall, but a strong recovery off morning lows, but WTI crude still ended the session lower by 44c or 3.4% to settle at $12.34 per barrel (off highs $13.69 and lows $10.04). Prices slumped another 20% overnight to $10 per barrel and there is still 20 days to go until the June settlement date. Weighing on prices remains fears over a lack of storage and a reshuffling of contracts by United States Oil Fund USO. Also today, Texas energy regulators will next week vote on a controversial proposal to reduce the state’s oil output after delaying it on concerns of legal challenges. The vote follows a motion submitted by Texas Railroad Commissioner Ryan Sitton, who has already been vocal about the need for curtailments to address historically low oil prices.

·     Gold prices recover off lows, ending the day down by -$1.60 to settle at $1,722.20 an ounce (well off earlier lows of $1,704.10 an ounce), its 3^rd straight days of declines as U.S. states have begun reopening parts of their economic, giving markets hope and paring back defensive safe havens.

Currencies & Treasuries

·     Treasury prices resumed their upward momentum, with the yield on the benchmark 10-year yield falling about 5 bps to 0.61% after hitting its best levels in two weeks yesterday around 0.66%. The economic data continues to be awful for the U.S., with no sign of improvement through the next few weeks as states are only starting to bring back workers and open businesses. The U.S. dollar recovered off its lows but still ended down overall, sliding modestly against the euro and British Pound as the slowing economy still taking its toll on the U.S. dollar, although the U.S. still seen stronger than peers.

Sector News Breakdown

Consumer

·     Autos; GM, F, FCAU are targeting May 18 to resume some production at their U.S. factories after shutting down plants in March due to the coronavirus outbreak, helping lift shares; HOG shares rise despite reporting motorcycle sales fell 17.7% Y/Y in Q1 to 40,439 units. Sales in the U.S. fell 15.5% to 23,732 units and sales in EMA were off 28.4% to 7,730 as the pandemic impacted demand in both regions/gross margin fell 10 bps to 29.0% of sales/revs beat but shipments imply higher than expected inventory & cutting div & buyback; RACE was downgraded to underperform at Jefferies saying with no visibility on F1 improving, ROIC not returning to 2017 level before 2023 and 1-2% FCF/div yields, investors not paid enough to wait and test resilience; Ford (F) to report earnings after the close

·     Retailers; OLLI was upgraded at Wells Fargo and raise tgt to $80 from $39 saying looks well positioned to benefit from substantial COVID-19 related government stimulus/ one of the few retailers open, has a lower income customer base; ROST upgraded to buy at Davidson noting almost 40% of revenue mix is located in the Southeast portion of the U.S. where states are likely to open sooner and women’s category has recently turned positive

·     Consumer Staples; PEP reports revenue beat on stronger organic revenue lifting shares early; BGS upgraded to neutral at Credit Suisse as several elements of his negative thesis have reversed in the COVID-19 environment; KDP EPS/sales beat and 2020 guide unchanged; TSN, HRL and other meat producers rose after President Trump ordered US meat plants to remain open during the pandemic after recent closures

·     Housing & Building Products; DHI rises as revenue better, net sales -11% MTD in April, net orders up 20%, withdraws guidance; FND was downgraded at Raymond James and lower estimates but still believe the current crisis, while certainly a significant near-term challenge, provides a material longer-term market share opportunity; FIX reported 1Q20 EPS of $0.48, which came in above consensus of $0.41/adjusting for the $0.09 direct COVID-19 impact called out, 1Q20 EPS would have exceeded consensus by 39%

·     Casino & Leisure movers; campers/RVs active (WGO, THO, LCII, CWH) after the RV Industry Association’s March 2020 survey of manufacturers found that total RV shipments ended the month with 30,288 units, a decrease of 20.3% from the 38,015 units shipped in March 2019; in theme parks, SIX was upgraded to overweight at Wells Fargo and downgraded FUN; Fewer than half of Americans plan to go to sports events, concerts, movies and amusement parks when they reopen to the public until there is a proven coronavirus vaccine, according to a Reuters/Ipsos opinion poll (DIS, SIX, SEAS, LYV)

Energy

·     Energy stocks with a nice recover mid-morning, as stocks turned higher along with the price of oil and investors looked to add to beaten stocks. Prices had recovered after oil prices dropped over 15% overnight amid the bleak outlook for energy demand even as more countries move to restart their economies during the coronavirus pandemic; some movers on earnings included APY rising on Q1 results; FANG was upgraded to buy at Roth Capital; in power space, ENPH will replace CLB in the S&P MidCap 400, and Core Laboratories will replace AKRX in the S&P SmallCap 600; MLPs rise as the Alerian MLP index up around 2%; refiners (VLO ) bouncing ahead of busy week of earnings/expected to disappoint, expected to show losses as fuel demand has dropped by roughly 25% in the U.S. and about 30% worldwide as the coronavirus pandemic has kept billions of people from traveling. U.S. refineries have throttled back production, operating at roughly two-thirds of capacity

Financials

·     Financial earnings movers; CINF shares slide as falls short of profit estimates for the first time in at least eight quarters with results hurt by weakness in life insurance subsidiary and also hit by a fall in after-tax property casualty underwriting income; AB Q1 adjusted EPS of 64c topped the 54c estimate while net revenue of $874.2M fell 12% Q/Q and rose 9.9% Y/Y (missed est. $886.4M) while shares of other asset managers TROW and WDR also rise post earnings results; consumer finance names outperformed with strong gains for ADS, COF, SYF, DFS; TCF, CATY rise on earnings results; in REITs; biggest US mall owner SPG prepares to reopen 49 properties; QTS 1Q20 results were broadly better than expected, driven by another strong quarter of leasing and a record backlog, which drove mgmt. to reiterate 2020 guidance

Healthcare

·     Pharma movers; Dow components PFE and MRK each report earnings; MRK Q1 EPS and sales beats while lowered its 2020 guidance (revenue of $46.1-$48.1bn vs. prior of $48.8bn-$50.3bn ) and EPS as well given COVID-19 headwinds and F/X; PFE revenue beat & reaffirms guidance, no buybacks planned in 2020; taking steps to scale up some manufacturing ops; OCUL rises after Dextenza met all prespecified primary endpoints in a Phase 3 trial of patients with itchy eyes tied to allergic conjunctivitis; VRTX downgraded at RBC Capital on valuation while remain bullish on the company’s fundamentals, with high growth prospects for its core cystic fibrosis franchise, strong adoption of launching drug Trikafta, good insulation from COVID-19; JNJ downgraded to neutral at UBS on risk/reward

·     Biotech movers; BPMC announced this am that the VOYAGER trial did not meet the primary endpoint of an improvement in progression-free survival (PFS) for avapritinib versus regorafenib; shares of DCPH seen as a beneficiary of the failed BPMC data (as shares jumped); SNDX rises after the company presented Phase 1 data for its menin inhibitor SNDX-5613 and said the FDA granted orphan drug status to SNDX-5613 to treat certain leukemia patients; MRNA rises after submits request to FDA to start human testing for mid-stage study of mRNA-1273, its experimental vaccine against the novel coronavirus; REGN downgraded to neutral at Citi

·     Medical equipment and devices; EW was downgraded to equal-weight from overweight by Wells Fargo saying the gap between the company’s Sapien 3 valve’s low risk indication and new growth drivers will lead to slower revenue growth and a contraction in the multiple; QTNT reported very strong final study performance data for its SARS-CoV-2 antibody test/expects to complete the CE marking process and the submission of the FDA emergency use authorization; RTIX rises after amendment to sale of OEM business provides co more time to satisfy obligations; ISRG was downgraded at Piper given the stock’s valuation and pressure likely on the capital front, we expect shares to be range-bound; VRAY and ZBH both downgraded to neutral at Guggenheim; WAT falls as profit and sales for the first quarter fell, mostly due to the coronavirus containment measures in China (sales $465M down from $514M YoY and est. $491M)

·     Healthcare services and providers; SDC rises announces plans to reopen its SmileShops in May in U.S., Canada, Germany and other countries as local governments begin to lift business restrictions/also granted U.S. patent for its SmileShop intellectual property; DGX rises as launches COVID-19 antibody test which can be purchased online (also upgraded to OW at Morgan Stanley); CNC mixed Q1 as EPS miss and maintains year profit but raises revenue outlook; UHS suspends dividend, buyback program after Q1 profit drops 40% as the company incurred higher expenses not directly related to its core operations due to the decline in market values on some of its investments.

Industrials & Materials

·     Industrial & Machinery; Dow component CAT Q1 EPS miss, does not provide FY20 guide; says Q2 to be more impacted than Q1; Dow component MMM said net sales beat, will start reporting monthly sales information in May; suspends buyback & withdraws guidance; CR Q1 EPS/revs both miss estimates while cuts year profit, sales and free cash flow view; ABB Operational EPS of $0.30, falling 2% from the same quarter a year ago and orders were 4% lower, but were above consensus views; SSD shares surge after earnings result and upgrade at Davidson to buy; CMI, ROK among other industrials rising following earnings results

·     Transports; airlines outperform (ALK, DAL, UAL); LUV reports earnings and announces offering of 55mm shares & $1B of converts; UPS 1Q adj EPS $1.14 vs. est. $1.23 on revs $18B while suspends buybacks for 2020 (cuts FY buyback tgt by about $783Mm), sees 2020 CAPEX about $1B below prior view/operating income came in at $1.12B vs. $1.32B consensus as the U.S. domestic package segment fell short; CNI reports top/bottom line beat, withdraws 2020 guidance, maintains dividend/1Q operating ratio 65.7% vs. 69.5% YoY

·     Metals & Materials; Cleveland Research lowers estimates for MOS on long-term pricing concerns, keeps neutral rating; PPG said EPS better, does not issue Q2 guidance, expects customer demand levels to be severely impacted; CE posts EPS beat but pulls guidance on expectation of sharp decline in demand; PKG beat & comments that demand remains strong

·     Aerospace & Defense; BA shares rolled late morning after the WSJ reported the plane maker faces criminal and civil scrutiny into years of widespread quality-control lapses on its 737 max assembly line; separately, BA said it will reopen its 787 Dreamliner operations in South Carolina, with most workers returning May 3 or May 4 and executives and managers returning earlier. Operations were temporarily suspended April 8 due to coronavirus shelter-in-place orders; ERJ was downgraded at Credit Suisse while HII cut to neutral and cut estimates for the company to reflect milestone risk from COVID-19 and higher interest expense

Technology, Media & Telecom

·     Internet; AMZN active after a senator is pushing the Justice Department to open a criminal antitrust investigation into the company after a Wall Street Journal report detailed the company’s use of third-party seller data to develop its products; GOOGL the next “FAANG” name to report earnings tonight after the close

·     Semiconductors; NXPI posts guidance ahead on better the feared auto revenues; IDCC entered into multi-year, worldwide, non-exclusive, fixed-fee patent license agreement with Huawei investment & holding which covers sale of certain of Huawei’s 3g, 4g and 5g terminal products; AMKR solid beat in the back end test world; guide is better than feared

·     Software movers; PCTY will replace MDP in the S&P MidCap 400, and Meredith will replace DO in the S&P SmallCap 600; ZM not turning to ORCL cloud to help manage its coronavirus-related demand surge/says that "millions" of meeting participants and about 7M gigabytes of data per day are routing through Oracle; PI shares jumped after Q1 beat

·     Hardware & Component news; FFIV reported FQ2 revenue 4% above consensus, and guided for FQ3 revenue 2% above consensus driven by accelerating software momentum; XRX falls early after profit muss and pulls outlook for the year; ROKU was downgraded to neutral at Guggenheim saying with lockdown orders expiring, we see incremental investor interest in ideas that have underperformed to date and that can benefit from this dynamic; HLIT falls as withdraws previously issued full-year guidance while reports Q1 rev of $78.4M and EPS loss (10c) missing the $85M/5c profit estimate and guides Q2 revs $62M-$77M vs. $97M est.; AVT, CGNX other movers on earnings and guidance