Closing Recap

Tuesday, August 11, 2020

Equity Market Recap

·     U.S. stocks finish lower (erasing big gains earlier) as the Nasdaq Composite posted its first 3-day losing streak since early March and gains in the S&P and Dow evaporated in the final hour of trading after U.S. Senate McConnell said stimulus aid talks are in a stalemate and that the two sides didn’t speak today. Prior to the late day roll, the S&P 500 came within 10-points of its February record closing high (of 3,393), led by gains in financials, energy, industrials and discretionary while with defensive utilities, REIT, staples lagged in what was largely a “risk-on” day. Gold prices posted their largest one-day percentage loss in nearly five months as investors focused attention on a rally in U.S. Treasury yields and a climb in stocks as December gold fell $93.40, or 4.58%, to settle at $1,946.30 an ounce. Oil prices erased gains late day as well.

·     Global stock markets jumped overnight after Russian President Vladimir Putin said Moscow has registered the first vaccine in the world against the novel coronavirus, marking a milestone in the global fight against the pandemic. Scientists at the Moscow-based Gamaleya Institute have employed military testing, accelerated clinical evaluations and shortened test trial times in an attempt to be the first with the vaccine, which Russia hopes to use in a mass vaccination rollout at home and export abroad. President Trump, in addition to several weekend executive actions that included a payroll tax holiday, said he is "very seriously" considering a capital gains tax cut, which would "create a lot more jobs.

·     The Nasdaq Composite battled between gains and losses most of late-morning/early afternoon before succumbing to selling pressure late afternoon following a cautious call on Apple (AAPL) from Evercore/ISI which noted that the year-over-year decline in China smartphone shipments accelerated to 35% in July, which was "surprising" given that most were expecting an improved rate of change. With today’s decline, the Nasdaq Composite losing streak extended to 3-days, its longest since March 5^th-March 9^th. In political news, Joe Biden said according to CNN that he has made his VP pick, and could announce as soon as today.

·     Leisure, travel, casino, restaurant, retail, lodging names surged initially after the Russian vaccine news; travel names such as cruise lines (RCL, CCL, NCLH), hotels (MAR, HLT, H), online travel (EXPE, BKNG, TRIP), casinos (WYNN, LVS, MGM), theme parks (SIX, SEAS) are just some of the few that have seen massive revenue hits due to COVID-19 lockdowns. At the same point, vaccine names chasing a COVID-19 vaccine (NVAX, MRNA, INO) fell on the news.

Economic Data

·     Producer Price Index MoM for July rises 0.6% vs. est. rise of +0.3% while and core PPI prices (ex: food & energy) rises 0.5% vs. expected increase of +0.1%; PPI on a YoY basis, July PPI falls (-0.4%) vs. estimate decline (-0.7%) and core YoY reported at 0.3% vs. estimate unchanged

Commodities

·     December gold prices plunged -$93.40, or 4.6% to settle at $1,946.30 an ounce, its biggest one day percentage loss since March as expectations of a U.S. stimulus deal boosted risk appetite and prompted investors to take profits from bullion’s run to a record high, as well as hopes for a slowing of the COVID-19 virus after Russia vaccine news. Gold prices retreated from last week’s record of $2,072.50, while silver plunges -13.4% to $25.24 per ounce, platinum dropped 4.7% to $940.08, and palladium slid 4.7% to $2,116.33.

·     Crude oil prices erased earlier gains (traded to highs $42.94) as WTI crude slid 33c or 0.79% to settle at $41.61 per barrel, now more than $3 off last week 5-month highs above $45 per barrel, sliding ahead of inventory data tonight (API) and tomorrow (EIA). Prices had originally advanced on stimulus and demand recovery hopes.

Currencies & Treasuries

·     U.S. Treasury yields saw their biggest jump in weeks, with the benchmark 10-year yield rising as much as 7 bps to highs of 0.65%, the 2-yr up 2 bps to 0.15% (off recent record lows of 0.10%) and the 30-yr up 7 bps to 1.33% as investors rotated out of defensive, safe haven and winning trades on news of a possible vaccine for the coronavirus in Russia. The U.S Treasury sold $48B in 3-yr notes at a yield of 01.79% (vs. W/I yield 0.176% ahead prior to auction) with the bid-to-cover (demand) at 2.44 (in-line w prior auction) and indirect bidders awarded 57% and directs 12.3%. The auction one of a record selling week, with the Treasury set to sell $38 billion in 10-year notes tomorrow and $26 billion in 30-year bonds on Thursday as part of its quarterly refunding.

·     The U.S. dollar fell from one-week highs, but recovered late day as the dollar index (DXY) finished higher above 93.50, with the euro pulling back below 1.175 after earlier highs above 1.18 as investors flocked to currencies that benefit from an improving global market outlook. The euro rose after the ZEW survey of economic sentiment rose to 71.5 from 59.3 the previous month, far exceeding a forecast for 58.0 in a Reuter’s poll of economists.

Sector News Breakdown

Consumer

·     Retailers; NLS rises after Q2 results topped views with revs of $114M topping the $69M estimate as Q2 Direct Segment sales increased 142% and Retail Segment sales increased 68% from last year; GOOS posted Q1 EPS loss better than views on higher revs, but were down sharply on YoY basis; in mattress space, CSPR Q2 sales topped views but warned they have been impacted by industry-wide capacity constraints which have led to increased delivery times for certain of our products through our e-commerce platform; QRTEA 2Q results were some of the strongest in recent years, driven by the favorable e-commerce secular trends according to KeyBanc; WMT will offer same-day delivery using Instacart in four markets across California and Oklahoma as part of a pilot, CNBC reported; BBBY June net sales -7% (includes digital +80% and stores -25% with 22% fewer stores open) and cash flow was positive/July total net sales grew 2% y/y

·     Consumer Staples; SYY shares slipped after reported a loss for Q2 and said sales plunged 43% as restaurants and other outlets pulled back on orders with consumers sheltering in place at home – said total volumes within its U.S. broadline operation fell about 42% in the latest quarter YoY; KR says it will expand its Kroger Ship program to offer an extended ship-to-home assortment through a marketplace offering of third-party sellers; IFF reported Q2 adj. EPS above views but local currency sales growth of -4% in Q2 was slightly worse than revenues at the interim update; GO strong quarter as top & bottom line beat and comps of 16.7% ahead of Cowen s Street high 15% estimate and EBIT margin also ahead as headwinds smaller than expected

·     Restaurants; among one of the top performing sectors on the day as the sectors that have been hardest hit from the COVID-19 pandemic outperformed today on positive vaccine news out of Russia – lifted shares of casual dining related names

·     Housing & Building Products; HD tgt to $285 from $260, LOW to $160 from $150 and TGT to $135 from $120 in Q2 Preview at Morgan Stanley as they expect upside across the board with TGT leading and WMT lagging/QTD trends, 2H’20 comps and 2021 EPS are the next metrics to watch. LOW is crowded but offers the most favorable risk/reward skew; FND 5.686M share Spot Secondary priced at $67.60; HHC was upgraded at Piper saying they think they are a prime beneficiary from the accelerating demand for homes; HDS agreed to sell its construction and industrial business White Cap, to private-equity firm Clayton Dubilier & Rice for $2.9B cash

·     Casino & Leisure movers; leisure, casino, lodging names surged on the day after Russian President Vladimir Putin said Moscow has registered the first vaccine in the world against the novel coronavirus; travel names such as cruise lines (RCL, CCL, NCLH), hotels (MAR, HLT, H), online travel (EXPE, BKNG, TRIP), casinos (WYNN, LVS, MGM), theme parks (SIX, SEAS) are just some of the few that have seen massive revenue hits due to COVID-19 lockdowns

·     Auto’s; UBER and LYFT shares pressured early after late Monday, a judge ruled the two hail riding companies must classify their drivers as employees due to a new California law, a decision that threatens the business models of the ride-hailing giants and could upend the gig economy, which relies heavily on contractors; NIO shares jump after reports deliveries rose 190.8% YoY in Q2 to 10,331 vehicles, inclusive of 8,068 ES6s and 2,263 ES8s, while total revs rose 146.5% YoY

Energy

·     Energy stocks; were among the top gainers in the S&P after Brent oil futures in London topped $45 a barrel, heading for their strongest close in five months, as shares of major oils (CVX, XOM), services (HAL, SLB) were among top gainers; OXY posted its fourth straight quarterly loss hit by $6.6 bln impairment charge as Q2 EPS loss was ($1.76) and revs slipped 34% to $2.98B – said its oil and gas production will fall 13% in current qtr, and another 5% in Q4; adds shale output from its operations will drop 37% this year in the Permian Basin

·     Refiners & MLPS; NGL shares slump as reported Q1 FY21 net loss of $35.3M vs. net profit of $8M YoY as Q1 total revenue slumps ~55% to $844.4M below views of $1.25B as results were impacted by COVID-19 pandemic and significant commodity price volatility; Morgan Stanley lowered price tgts on DK, HFC, PBF, PSX and VLO while raise MPC tgt as they are cautious on the pace of margin recovery and resulting negative revision risk.

·     Utilities & Solar; Wells Fargo said YTD, small cap electric/gas utilities have provided a total return of (22%), lagging the S&P Utilities of (3%), giving them the opportunity to upgrade the higher quality names within the small caps to Overweight from Equal Weight raising OGS in the LDC sub-sector and PNM on the electric side. The firm downgraded two of the better performing small caps, yieldco NEP and water utility SJW to Equal Weight from Overweight; ED was downgraded at KeyBanc as they believe that Governor Cuomo’s recent announcement of an investigation into ED’s slow response to outages from Tropical Storm Isaias and raising the issue of the possibility of revoking the Company’s franchise in NY will likely create an overhang on the shares in the NT; overall, the utility sector one of few decliners, as investors rotate into riskier, underperforming sectors – while at the same time, rising yields also weighing on dividend paying sectors

Financials

·     Bank movers; big banks (JPM, C, BAC, WFC) and regional players (PNC, USB, ZION, FITB) rallying as Treasury yields bounce out of recent trading range – 10-yr yield up nearly 6 bps to 0.635%; in service, KFRC rises following better earnings and guidance after the close and an upgraded at William Blair citing the company’s increasingly expanding technological infrastructure as a result of the pandemic and worldwide shutdowns.

·     Brokers; Robinhood joined the rest of brokerage industry by publishing monthly trading data, saying it saw 4.3M daily average revenue trades (DARTs) in June, outperforming all of the publicly traded, incumbent brokerage firms. TD Ameritrade (AMTD) was the next highest monthly total at 3.84M DARTs, Interactive Brokers (IBKR saw 1.8M DARTs, followed by Charles Schwab (SCHW) and E-Trade (ETFC) at 1.8M and 1.1M, respectively – Seeking Alpha

·     REITs; MAC reports smaller-than-expected adj. loss per share and also tops Q2 estimates for funds from operations while saying it collected ~66% of rent due in July, up from ~58% in June; REIT space in general rising with the bounce in pandemic related hard hit sector recovery given Russia vaccine news; DRE tgt to $42 from $31.50, EGP to $144 from $120 and PLD to $110 from $91 in industrial REITs at Morgan Stanley saying stronger demand for bulk warehouses driven by COVID social distancing and accelerated shift to e-commerce was a key topic during 2Q20 earnings…but prints were strong across the board; RWT was upgraded to strong buy at Raymond James and adds to favorite list while upping tgt to $10

Healthcare

·     Pharma movers; BMY Phase III CheckMate -577 trial evaluating Opdivo as a therapy for patients with resected esophageal or gastroesophageal junction cancer met its primary endpoint of disease-free survival; PFNX agreed to be acquired by LGND at $12 per share, equivalent to $438M in equity value; additionally, Ligand will pay $2 per share or $78M as a Contingent Value Right in the event a predefined regulatory milestone is achieved by December 31, 2021; CPRX falls after saying top-line results of late-stage study of Firdapse in patients with an autoimmune neuromuscular disease called anti-MuSK antibody positive myasthenia gravis did not replicate the positive results observed in a 2017 proof-of-concept study; in cannabis, TLRY slides on disappointing earnings as posted Q2 EPS loss (65c) on revs $50.4M vs. est. $55M

·     Biotech movers; EQ rises as announced positive interim data from the first two cohorts of the Phase 1b open label, dose escalation portion of the EQUATE study of itolizumab in acute graft-versus-host disease (aGVHD); with positive vaccine news in Russia overnight, shares of other vaccine makers were pressured this morning (MRNA, NVAX); BNTX said it has enough capital to fund operations for the next two years, and that it’s positioned to seek a regulatory review of its Covid-19 vaccine as soon as October; MRSN said the FDA grants fast track designation for its XMT-1536 treatment in patients with platinum-resistant high-grade serous ovarian cancer; FENC falls as announced that it received a Complete Response Letter from the FDA regarding its marketing application seeking approval of Pedmark; FIXX fell after saying its pheNIX trial for adult patients with PKU is taking longer than anticipated due to the pandemic

·     Medical equipment and devices as well as Services; NSTG posted a strong 2Q, with better than expected GeoMx revs, better than expected nCounter performance (the bigger surprise), and commentary on academic lab activity that, while still cautious, was a bit more positive in tone than what has been offered by several peers according to Stifel; STAA shares dropped after a negative short call from short seller JCap

Industrials & Materials

·     Industrial & Machinery; HON downgraded to sector perform from outperform at RBC Capital saying the company was likely to lag in a cyclical rebound saying it remains in the throes of protracted downturns in both its commercial aerospace business, and its oil and gas businesses and they see few catalysts over the near-term; overall though, a further rally in industrial related names on theme that US economy improving with CAT, DE, CMI outperforming

·     Transports; airlines stocks surge again (AAL, DAL, UAL, LUV, JBLU) on both the Russian vaccine news as well as building on Monday’s rally, when Transportation Security Administration data showed airline passenger numbers were improving; MESA shares rallied after earnings prompting an upgrade to buy at Deutsche Bank

·     Metals & Materials; NUE was downgraded to hold from buy at Argus in the steel sector noting shares have risen 63% from their lows earlier this year and are approaching their $50 tgt; PAAS was downgraded to hold from buy at Deutsche Bank; silver and gold miners rumbled (AEM, GOLD, AUY, NEM, KGC) as gold and silver prices tumble on vaccine news, flight to riskier assets, a rebound in the dollar and profit taking

·     Chemicals; PPG shares rise after saying July sales -7% yr/yr, sequentially better than June and now sees 3Q sales down 6-11% yr/yr ex Fx, now sees 3Q op margin decrements 10-15%; CTVA was upgraded to Overweight with a $31 PT at KeyBanc saying volatility in crop prices and FX obscured significant positives related to CTVA’s LT growth story; NTR reported 2Q20 beat, adjusted EPS of $1.45 vs. est. $1.35 and adjusted EBITDA of $1.72 as potash and nitrogen was stronger than expected, while Retail was weaker

Technology, Media & Telecom

·     Internet; large cap tech names saw early weakness, especially some of the biggest “stay-at-home” beneficiaries during the pandemic as news of an approved vaccine in Russia lifted the overall market (AMZN, NFLX slipped initially); online travel names BKNG, EXPE, TRIP rise on the vaccine news and reports of improved travel figures; TWTR shares popped after the company said it recognizes that it’s really important for the durability of our business that we have non-ad revenue streams

·     Software movers; CSOD reported a solid Q2 with 9.2% Y/Y organic revenue growth (up from 7.2% last quarter), and guided for Q3/2020 below consensus expectations, partly due to deferred revenue write-downs; ZI reported a strong Q2 as a publicly traded company, beating consensus with 40% revenue growth and a 49.5% operating margin while billings growth weighed on shares; RNG shares jump after announcing Alcatel-Lucent partnership

·     Media & Telecom movers; TME posted better than expected 2Q20 results, with total revenue of ¥6.93 billion and adjusted EPS of $0.10, topping the Street’s ¥6.85 billion and $0.09, respectively as revenue upside was mainly driven by stronger growth of online music paid subs (47.1M vs. the Street’s 46.2M) and sales of digital albums; media space in general outperformed, led by big gains in DISCA, VIAC, FOXA was upgraded to overweight at Wells Fargo saying core ads are improving and matter less as political crowd-out happens in H2