Closing Recap

Wednesday, August 12, 2020

Equity Market Recap

·     U.S. stocks with a strong showing on Wednesday, as the Dow, S&P and Nasdaq Composite all recover sharply after yesterday’s late day swoon took markets lower, as the S&P 500 index trades above its February closing record high of 3,386 (intraday record high stands at 3,393.52) but couldn’t hold above. In the new world of “what goes down must go up”, the tech heavy Nasdaq Composite, which recorded its first 3-day losing streak since early March (over 5-months) on Tuesday, surged throughout the session to rise as much as 2.3% back above the 11,000 level on no specific news, more a factor that investors once again take advantage on any meaningful pullback. The strength was led by large cap tech, including semiconductors as AMD, QCOM and NVDA among top three gainers in the S&P, all semi chip names as the Philly semi index (SOX) rises over 3.3% at new all-time highs 2,229. Transports extend gains as the Dow Transport Index rises for an 11^th straight session led by gains in FDX (52-week highs), while TGT, LOW, PG, HD, and KMX among 52-week highs in the consumer space. TSLA the story of the day, surging as much as 14% merely on the news of an announced 5 for 1 stock split as tech outperformed after its recent pullback. The stalemate between Republicans and Democrats on a relief stimulus bill drags on with no near-term compromise apparent. Momentum was clearly back to the upside with the same drivers lifting markets including: vaccine hopes, improving COVID-19 cases, better economic data, Fed continues to help markets and stimulus plan expectations – offsetting the China trade tensions. The slowdown in economic activity is likely to continue as states put more restrictions in place to control the virus, and the momentum to return to full employment could fade as consumers remain cautious, Boston Federal Reserve President Eric Rosengren said Wednesday. Oil prices edge higher on bullish inventory, Treasury yields also edge higher and gold prices finish higher after posting its biggest one day decline in over 7-years yesterday. Late day, House speaker Pelosi, senate democratic leader Schumer say in statement that Mnuchin made overture to meet on coronavirus aid but showed no sign of movement on size of prospective relief.

Economic Data

·     Consumer Price Index (CPI) for July MoM rose 0.6% vs. est. 0.2% and core prices (ex food & energy also rose 0.6% vs. est. 0.2%; on a YoY basis, CPI headline rose 1% vs. est. 0.7% and core CPI rose 1.6% vs. est. 1.1%; real earnings all private workers -0.6%% vs. June -2.1%

Commodities

·     Gold prices rose $2.70 or 0.1% to settle at $1,949.00 an ounce, holding after falling over 4% yesterday for its biggest one day decline in over 5-months (off highs $1,961 and lows $1,874.20 an ounce). Oil prices edged higher following a round of bullish weekly inventory data from the EIA and API as inventories and production both declined, as WTI crude rises $1.06 or 2.55% to settle at $42.67 per barrel (the settlement was the highest, based on the front-month contracts, since March 5), while Brent prices rise 2.09% to $45.43 per barrel.

Currencies & Treasuries

·     The U.S. dollar slipped mid-morning and remained lower the remainder of the day as the euro moved back above the 1.18 level – rising after a brief slide yesterday vs. the buck. The USD-Canadian dollar fell to near six-month lows of 1.3227, down from overnight highs of 1.3348. Treasury yields edged higher, breaking out of a recent trading range as the dollar bounced, economic data outperformed and investors bailed on Treasuries as stocks add recent rallies. The U.S. Treasury sold $38B in 10-year notes at a yield of 0.677% vs. 0.681% when issued prior, with the bid-to-cover at 2.41 vs. 2.62 prior auction and indirect bidders were awarded 65.4% of the auction and directs received 19.8% of auction.

Sector News Breakdown

Consumer

·     Auto sector; TSLA announced a 5 for 1 stocks split as the shares skyrocketed throughout the day, rising over 14%; Guggenheim said they are more positive on the auto dealer group as see room for further potential earnings upside revisions and multiple expansion driven by: 1) a robust used car demand backdrop; 2) sustainability of recent pricing and margin tailwinds; 3) strong operating leverage as sales rebound with significant permanent cost reductions being realized; and 4) potential for longer-term omni-channel-driven share gains and margin benefits – upgraded AN to buy with $69 tgt and upped price tgts on LAD to $275 from $233 and KMX to $114 from $106 despite their premium valuations versus the group/history; RACE tgt raised to $265 from $180 at Morgan Stanley as think Ferrari is entering a higher phase of growth and a tech transition that takes investor thinking beyond the limits of luxury goods comps; Credit Suisse positive on MGA saying continue to see as a defensive supplier, well positioned to capitalize on a recovery in global auto industry volume; UBER CEO said Wednesday that he could shut down the company’s ride-hailing operations in its home state of California after being told he must treat drivers as employees in the state

·     Retailers; TGT was added to analyst focus list at JPMorgan as a growth idea saying the bull case evidence mounts on Target with share gains across the box and apparel looking dramatically different from the dept store/mall competition; AEO was upgraded to overweight at JPMorgan as see the story at a positive multi-year inflection point with Aerie’s double digit top/bottom-line profile reaching scale at $1B revenues and AE brand store closures representing a positive catalyst; SMRT files for bankruptcy protection, considering potential sale of its ecommerce business and related intellectual property; says evaluating all strategic alternatives

·     Consumer Staples; Icahn Enterprises L.P. (IEP) said it sold approximately 14.7M shares pursuant to HLF’s Nutrition’s self-tender offer, though remains the Company’s largest shareholder with approximately 20.5M shares, representing approximately 15.5% of the outstanding shares; PFGC mixed quarter as Q2 adj EPS loss (86c) vs. est. loss (25c) but sales of $5.8B better than $5.4B est;

·     Restaurants; RRGB shares slip as sales have continued to gradually recover, RRGB is still lagging peers, with QTD SSS down ~35%, says hurt by higher beef costs and said is configuring its restaurants to accommodate for higher capacity partly by adding patio space; EAT Q2 EPS beats, misses on sales and said Q2 co-owned comparable sales declined 36.7% in FQ4 vs -35.9% consensus as comp sales were down 32.2% at the Chili’s chain and fell 66.7% at the Maggiano’s chain – restaurant margin came in at 6.4% of sales vs. 2.2% consensus and 14.9% a year ago; For July, Knapp-Track estimated comps for casual dining were down 27.1% including a down 26% traffic and down 1.1% check as per Bank America

·     Housing & Building Products; HD and LOW estimates and tgt raised at Truist heading into earnings numbers; low interest rates continue to be a boon for builders as the MBA weekly data showed mortgage purchase index rises 2.0%, refinancing index increases 9.1% as the average 30-year mortgage rate falls 8 bps to 3.06%; Lumber futures top $700, extending rally to record; BLDR shares hit record highs after being included in the S&P MidCap 400 index

Energy

·     Energy stocks rise with bounce in oil: OPEC said that world oil demand will fall by 9.06 million barrels per day (bpd) this year in a monthly report, more than the 8.95 million bpd decline expected a month ago. Oil prices have collapsed as the coronavirus curtailed travel and economic activity. "Crude and product price developments in the second half of 2020 will continue to be impacted by concerns over a second wave of infections and higher global stocks," OPEC said in the report. OPEC stuck to its forecast that in 2021 oil demand would rebound by 7 million bpd but said the view was subject to large uncertainties

·     Inventory data: the API reported that U.S. crude supplies dropped by -4.4M barrels for the week ended Aug. 7, showed gasoline stockpiles declined by -1.3M barrels, while distillate inventories were down by -2.9M barrels; the EIA said this morning Crude inventories fell by -4.5M barrels in the last week to 514.1 million barrels, crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.3M barrels in the last week, gasoline stocks fell by -0.7M barrels in the week to 247.08M

·     E&P sector; RDS plans to buy a 50% stake in Indian-based Narayan Energy’s up to $9 billion planned petrochemical project, a source familiar with the matter said, according to Reuters; SWN said it would acquire MR in an all-stock transaction in which Montage shareholders will receive 1.8656 shares of Southwestern for each Montage share/SWN also commenced a registered underwritten public offering of 55m shares; TOT upgraded to Outperform at CIBC; Argus lifts PXD pt to $132 from $109 and reaffirms Buy rating due to company’s balance sheet strength and attractiveness as an acquisition target

·     Utilities, Alternative Power & Solar; PLUG 30.675M share Spot Secondary priced at $10.25; PEIX shares jumped after quarterly results came in well above consensus estimates utility prices recover after underperformance yesterday as defensive names rally with riskier assets today; CNX upgraded by Piper from Neutral to Overweight; NEE tgt raised to $310 from $295 at Argus

·     Refiners; MPC was upgraded to outperform and tgt upped to $43 at Cowen as believe the market is underappreciating the capitalization improvement as a result of the Speedway sale. Additionally, they see upside potential, agnostic to refining margins, beyond the sale from closing the opex gap to peers plus accretive opportunities for corporate restructuring

Financials

·     Bank movers; large cap banks (MS, JPM, WFC, C, BAC) failed to follow through from yesterday’s rally with interest rates rising off multi-month lows, along with a dip in regional banks (FITB, PNC, USB) as a recovery in Treasury yields off lows helps boost the sector; LMND guidance falls shy of consensus in inaugural report following last month’s IPO with Q3 revs seen $14M-$15M vs. est. $15.2M and year $86M-$88M vs. est. $89M; WSJ reported that GS is looking to buy GM’s credit card unit as it looks to double down on its consumer banking arm

·     Asset managers out with monthly Assets under management (AUM) data: LAZ preliminary AUM approximately $222.5B as of July 31 as it included market appreciation of $4.5B, net outflows of $1.4B and foreign exchange appreciation of $4.7B; WDR reports preliminary AUM $67.8B as of July 31 as compared to $65B on June 30; TROW reports preliminary AUM $1.28T at July 31; AB monthly AUM data increased to $623 billion during July 2020 from $600 billion at the end of June as the 3.8% increase was due to market appreciation and firm wide net inflows; APAM July AUM data totaled $127.8 billion; BEN reported preliminary month-end assets under management of $1,428.2 billion at July 31, 2020, compared to $622.8 billion at June 30, 2020 (increase of about $797B due to acquisition of Legg Mason); IVZ preliminary month-end assets under management (AUM) of $1,195.3 billion, an increase of 4.4% versus previous month-end

Healthcare

·     Pharma movers; PFE and BNTX report preliminary data from their BNT162 mRNA-based covid-19 vaccine candidate study were published in Nature – data show candidate BNT162b1 was administered in a dose that was well tolerated and granted dose dependent immunogenicity; PACB 19.43M share Secondary priced at $4.47; OMER 6.9M share Secondary priced at $14.50; large cap pharma names MRK, ABBV, LLY, JNJ, PFE advance

·     Biotech movers; MRNA announced a supply agreement with the U.S. government for an initial 100M dose of its COVID-19 vaccine as the award covers up to $1.525B for the initial doses and contains an option for the government to buy up to an additional 400M dose; REGN said the FDA granted priority review to its biologics license application for evinacumab in patients with an ultra-rare inherited form of high cholesterol; TRVN 21.7M share Spot Secondary priced at $2.30

·     Medical equipment and devices; SWAV reported Q2 results which beat Street numbers, including sales of $10.3M vs. $8.3M, respectively as business recovered at a nice pace from the April trough with June average daily sales running at nearly twice the rate in April; CEMI jumped after its partner LumiraDX gets FDA emergency use authorization for its LumiraDx SARS-CoV-2 RNA STAR teset.

·     Healthcare services and providers; CVET posted better-than-expected quarterly profit and revenue, helped by higher sales in its prescription management business while saying it saw a recovery in market demand in May and June

Industrials & Materials

·     Industrial & Machinery; MTZ was upgraded to Buy from Neutral at UBS and raise tgt to $56 from $40 saying their detailed segment research and modelling support our view that the market underestimates the resiliency of EBITDA over the next 1-2 years; DE was downgraded to hold from buy at Deutsche Bank following the recent rally in shares; LNDC shares slide after weaker FY21 revenue guidance of $530M-$550M vs. est. $590M after slightly better Q4 results

·     Transports; Dow Transports on track for its 11th straight day of gains, up another 1.6% moving back above the 11K level as it nears record highs of 11,359 reached on Jan 17th – UPS, FDX shares have surged of late (both 52-week highs) on rising home deliveries while truckers, rails and even airlines have found solid footing

Technology, Media & Telecom

·     Internet; JMIA shares plunge after the e-commerce marketplace reports a Q2 GMV decline partially attributed to a business mix shift as quarterly revs narrowly beat and marketplace revenue rose 38% Y/Y to €23.6M – GMV dropped 13% to €228M with the sharpest contraction in phone sales and said expects GMV softness to continue through 2020; GRUB rises after Just Eat Takeaway.com’s H1 revenue was up 44% Y/Y to €1.03B with the pandemic tailwind driving double-digit growth in its main markets (Just Eat agreed to buy GRUB in June); big cap Internet based names outperformed today (NFLX, FB, AMZN, GOOGL)

·     Software movers; OMCL has agreed to acquire Pharmaceutical Strategies Group’s (PSG) 340B Link business for $225M in cash; SYNC Q2 continued to see headwinds in Portal/Advertising while Zimbra Enterprise and Cloud ID software businesses saw double digit growth; UPLD 3.5M share Secondary priced at $34.00; COUP was downgraded at Evercore/ISI following +97% upside move essentially telling clients the stock is ahead of itself here; TUFN shares surged after posting a smaller than expected quarterly loss

·     Media & Telecom movers; LBTYA agreed to buy Sunrise Communications Group AG for 5 billion Swiss Francs ($5.45 billion) in cash, funded from existing cash and debt; they are offering CHF110 for each of the Swiss telecommunications company’s shares https://on.mktw.net/2XNLHDx ; the recent news that college football conferences Big Ten and Pac-12 cancelling their fall sports seasons puts lots of money ion in TV Ads at risk;

·     Hardware & Component news; EPAM was upgraded to OW from EW & Raise PT to $349 from $246 at Morgan Stanley while demand for EPAM’s digital services remains resilient, driving upside to estimates in 2Q20; VIAV reported in-line top-line FQ4 results, with an earnings beat largely driven by opex efficiency; CSCO to report earnings after the close tonight