Closing Recap

Thursday, August 13, 2020

Equity Market Recap

·     U.S. stock slipped, with the S&P 500, Dow and even tech strong Nasdaq Composite failing to hold strong gains, sliding mid-afternoon in what was a choppy day of trading. The S&P 500 traded back above the all-time closing high 3,386 levels (high of 3,387) though just came up short of the all-time intraday-high above 3,393 in February. Treasury markets were volatile as yields rose to 1-month highs in some cases (10-year above 0.7%) after weak 30-year Treasury auction results showed dismal demand despite higher when issued yields. Ironically, gold and silver prices jumped despite the spike in yields and the dollar in a bit of a-disconnect (though futures later turned lower). The turn in the stock market came around 1:00 PM ET, about the time if the Treasury auction that saw yields jump, gold jump and stocks began the late day slide. The Dow also found weakness in CSCO after a weaker revenue outlook, though software stocks held up well. Economic data showed improvement as weekly jobless claims were 963K, not a good number, but was the first time claims were below 1 million in 22-weeks, while continuing claims were 15.486M. At the same point, Washington remains deadlocked on another stimulus package as the White House and Democrats have been bickering for weeks now. The Dow Transports snapped their 11-day winning streak (which was the longest since 1992) on profit taking. The Philly semiconductor index (SOX) pulls back from record highs yesterday, led by a drop in MU after Deutsche Bank downgrades. AAPL led markets again, getting ever so close to the $2 trillion market cap headline moving within the $20B of that levels on another day of strength (announced “Apple One” subscription bundle). China and the U.S. to meet this weekend to discuss the current trade deal while Washington seems no closer to a stimulus deal.

Economic Data

·     Weekly jobless claims continue to show improvement as claims fell to 963K from prior week of 1.186M and marked the first drop below the 1 million mark in 22-weeks (est was 1.1M); continued claims fell to 15.486M from 16.09M prior and the 4-week moving average fell to 1.252M from 1.339M prior week; US insured unemployment rate fell to 10.6% from 11%

·     Import prices for July rose +0.7%, slightly better than the 0.6% estimate, but down from June up 1.4%; Export prices rose +0.8% vs. est. 0.4% rise and vs. June 1.4% gain

Commodities

·     Oil prices slide along with a pullback in broader stock markets, as WTI crude dropped 43c or 1% to settle at $42.24 per barrel while Brent dips 47c or 1.03% to $44.96 per barrel. Prices prior had largely held steady after the International Energy Agency lowered its 2020 oil demand forecast following unprecedented travel restrictions and data showing a decline in U.S. inventories provided some support. Gold prices made a late day spike, as December gold rose $21.40 or 1.1% to settle at $1,970.40 an ounce, despite a bounce in the dollar off lows (gold futures turned lower after settlement, erasing strong gains prior).

Currencies

·     The U.S. dollar index (DXY) fell to its lowest levels this week (92.92) as the euro extended recent gains (traded as high as 1.1864 before paring gains) as the ongoing impasse in Washington over additional stimulus for the U.S. economy to cope with the virus pandemic. However, the dollar rebounded mid-afternoon as stocks pared gains. The dollar had recently rebounded off 2-year lows, while the NASDAQ and S&P 500 move back to record highs. Trump accused congressional Democrats yesterday of not wanting to negotiate over a U.S. coronavirus aid package as Republican and Democratic negotiators traded blame for a five-day lapse in talks over relief legislation. The dollar shrugged off better-than-expected U.S. jobless claims data (and recent data that has been improving – but still a ways to go).

Bond Market

·     Treasury yields jumped following a weak 30-year auction and as traders continue to pour money into global stock markets, and out of defensive, safe-haven related assets as stocks pushed near all-time highs again. The U.S. Treasury sold a record $26B in new 30-year bonds at a yield of 1.406% vs. when issued yield of 1.382% with the bid-to-cover (demand) at 2.14% vs. 2.50% prior auction and indirect bidders awarded 59.8% and directs 11.9%. The auction concluded the $112B August refunding after good 3- and 10-year auctions the prior two-days, but a weak 30-yr today. The 10-year yield topped the 0.7% level for the first time since July 6^th, the 30-yr above 1.42% (4 bps pike after the weak auction) and the 2-yr held at 0.16%.

Sector News Breakdown

Consumer

·     Auto sector; TSLA momentum higher continues after surging over 13% on Wednesday on the mere news of a 5 for 1 stock split announcement; ride hailing space active after LYFT delivered 2Q results in-line with consensus for the most part, but July (and early August) trends are pointing to 3Q results below current consensus – said rideshare rides were down -70% y/y in May but were -61% in June and -54% YoY by July – did says has improved positioning towards reaching profitability; NKLA confirms that it is open to collaborating with Hyundai on hydrogen technology even after prior proposals from founder Trevor Milton to the South Korean automaker were rejected; VRM shares tumble as Q2 EPS and res were better than expected but the more rapid-than-expected decline in ASPs led to 3Q revenue guidance that fell short of consensus; Daimler AG (DDAIF) will pay around $1.5 billion as part of agreements it reached with U.S. authorities to settle proceedings related to diesel emissions.

·     Retailers; TPR beats Q4 sales estimates ($715M vs. est. $663M), helped by recovery in China and surge in online orders for its Coach handbags while also posted a smaller-than-expected loss (not providing guidance) – a little boost for luxury names (CPRI, RL); FOSL said Q2 online sales more than doubled at its own websites, while it rose 20% at third-party marketplaces and expects significant improvement in online sales in H2 (sees Q3 net sales to decline 35%-45% compared to last year, vs 48% decline in Q2); RVLV net sales declined -11.8% in 2Q, ahead of estimates and net sales returned to positive growth in June while Q2 revs of $142M topped the $119M estimate, prompting an upgrade to strong buy at Raymond James; BBY tgt raised to $127 at Piper as see both near- and long-term positive catalysts for fundamentals

·     Consumer Staples; EL was upgraded to outperform from perform at Oppenheimer as see a more rapid profit recovery than previously envisioned driven by the Chinese consumer, a resilient skincare category, and accelerated online growth; SPTN shares slide as Q2 revenue of $2.21B missed the $2.26B estimate, though was up 9.4% YoY while raised its year outlook

·     Restaurants; Piper said for the restaurant industry that domestic checks for July and an early read on August highlight sequentially improving trends across the industry as they reiterate their narrowed focus list including CMG, DRI, MCD and WING shares; FAT shares surge after agreeing to acquire Johnny Rockets for $25M; EAT shares were higher early, coming into the day with a 7-day win streak, including a 14.5% jump yesterday after better earnings results

·     Casino & Leisure movers; PENN shares rise after being initiated buy and $60 tgt at Goldman Sachs, positive on a rebound in regional gaming while also sees Penn being able to leverage Barstool Sports’ embedded customer base and content creation engine to quickly take share in sports betting; AMC said it would reopen its doors in more than 100-locations on August 20 by celebrating 100 years of operations with "movies in 2020 at 1920 prices" (all seats 15c)

Energy

·     Energy stocks active given the IEA forecast after saying it sees global crude demand for 2020 at 91.1M barrels per day, down 140K bpd from a previous projection and reflecting a fall of 8.1M bpd Y/Y; also revised down its 2021 global oil demand estimate by 240K barrels per day to 97.1M bpd; several analysts also out with rating changes in group.

·     E&P sector; NBR was downgraded to sell from neutral at Goldman Sachs and cut tgt to $45 from $65 as anticipates negative free cash flows for the company in 2021 and 2022 while cutting respective EBITDA estimates by 16% and 15%; SWN was upgraded to Equal Weight at Wells Fargo to reflect the improved FCF outlook following the MR deal while downgraded NBL to Equal Weight given the pending acquisition by CVX; XEC was upgraded to Overweight at Piper saying while expectations into 2Q20 results were exceedingly low, the group for the most part did a good job defining the forward path; OXY was upgraded to neutral from underweight at JPMorgan after underperformance vs. the group 

Healthcare

·     Pharma & Biotech movers; AZRX has enrolled the first three patients in its Phase 2b OPTION 2 clinical trial to investigate lead candidate MS1819 in cystic fibrosis patients with exocrine pancreatic insufficiency; TGTX announces FDA acceptance of new drug application for umbralisib as a treatment for patients with previously treated marginal zone lymphoma and follicular lymphoma; JNJ to supply EU with 200m vaccine doses; AZN set to start making 400 million COVID-19 vaccines for Latam early in 2021

·     Medical equipment and devices; TMO terminates its deal to buy QGEN as the minimum acceptance threshold to its tender offer were not met as QGEN 8% stake holder Davidson Kempner Capital Management LP considered TMO deal to be "inadequate" (prior deal terms were $13.38B deal offer); VREX was downgraded to perform at Oppenheimer as F3Q revenue declined 13% y/y to $171M, missing their $176M estimate, as COVID pressured elective medical procedures, while some industrial verticals stayed fairly steady

·     Healthcare services and providers; SDC posted an 82% plunge in Q2 revenue as sales of its teeth aligners were hit due to the COVID-19 pandemic – Stifel noted gross margin and case volume trajectory concerns may overwhelm a quarter that should have straightened things out; EHC said July home health admissions fell due to covid-19 cases resurgence & corresponding suspension of elective procedures in some states; ONEM shares jump as reported revenue, membership, care margin and adjusted EBITDA at or above the high end of the company’s forecast and Q3 guidance crushed consensus estimates while launches service for National employers; MOH shares active after Axios reported unsealed lawsuit alleges Molina overbilled for children’s mental health

Industrials & Materials

·     Industrial & Machinery; Dow component MMM said total sales increased 29% in health care, 9% in consumer, and 6% in safety and industrial in July; July sales rose 6% to $2.8B, organic local currency sales rose 3%; in the machinery sector, JPMorgan downgraded DE (to underweight on valuation) and OSK (to neutral) while upgraded CNHI to overweight; ROP said it reached a definitive agreement to acquire Vertafore in an all-cash transaction of $5.35B; WCC rises after reported a solid Q2 EPS beat of $1.04, topping the 67c estimate saying Anixter merger positively impacted sales by over 10%

·     Transports; Dow Transports came into today with an 11-day winning streak – longest since 1992; ZTO falls despite Q2 revs rising 18% Y/Y to RMB6.4B (US$906.2M); and Adj. net income increase of 5.7% Y/Y to RMB1.45B (US$205.7M) as lower guidance weighed on shares – lowers its FY20 adjusted net income RMB4.8B-RMB5.2B; Deutsche Bank positive on transports saying – Net/net while we have been very positive on transport equities, even we are surprised by how strong things are – and all the above-mentioned data points signal a very strong 3Q reporting season, which is likely to be characterized by surging demand, limited capacity, and higher prices (firm top picks remain KNX, SAIA, XPO, UNP and CSX).

·     Metals & Materials; ATI was downgraded to Market Perform at Cowen saying it faces an extended de-stock from excessive downstream aero Ti inventory, & incrementally pricing pressure will intensify from challenged competitors in spot markets, while the firm also cut CRS to MP as expect downward revisions to continue as faces an extended de-stock from excessive jet engine inventory, & incrementally, pricing pressure will intensify

Technology, Media & Telecom

·     Internet; broad strength early in the Internet sector as large cap GOOGL, FB, NFLX, SNAP, TWTR all strong early gains as tech again leads; BEKE 106M share IPO priced at $20.00; online travel stocks extend gains with BKNG rises for an 8^th straight session early while EXPE also exhibits continued strength; SPT 6M share Secondary priced at $27.50; ETSY shares jumped after being positive mention as new pick by Motley Fool newsletter

·     Semiconductors; The Philly semiconductor index (SOX) pulls back from record highs yesterday, led by a drop in MU after Deutsche Bank (also weighed on WDC, STX); MU was downgraded to hold from buy at Deutsche Bank with $48 tgt saying extensive checks with the supply chain following Western Digital’s recent lackluster guidance left him feeling more negative on the supply-demand balance for the memory sector in the next several quarters; NVDA outperformed as Raymond James upped its tgt to $500 ahead of earnings next week

·     Software movers; AZPN shares spike after strong beat and guidance as Q4 adjusted EPS $1.54/$199.3M topped the est. $1.17/$176.57M; guides FY21 adjusted EPS $4.78-$5.32 vs. est. $3.64 and revenue $704M-$754M, well above the consensus $600.43M; PING shares fell as reported F2Q results that were slightly ahead of its July 6 preannouncement but there were some surface level disappointment in F3Q revenue guidance; Apple pulled "Fortnite" from the App Store after Epic Games began offering a new way to make in-app purchases that bypassed the controversial 30% fee charged by Apple’s and Google’s app stores

·     Hardware & Component news; networking stocks weak after CSCO reported Q4 results that came slightly ahead of the Street (below seasonal norms), but guidance for 1QFY21 was below consensus as sees Q1 EPS 69c-71c vs. est. 76c and revs to fall (9%-11%) for Q1, below the estimate of down (-7.15%); Bloomberg reported that AAPL is readying a series of bundles that will let customers subscribe to several of the company’s digital services at a lower monthly price dubbed "Apple One" and is planned to launch as early as October alongside the next iPhone line; CACI rises early after Q4 EPS and revs beat as contract awards in Q4 FY20 totaled $3.4 billion, with over 55% for new business to CACI