Closing Recap

Monday, August 31, 2020

Equity Market Recap

·     U.S. stocks finished the final trading day of August mixed, as technology stocks again outperform broader markets, with the Nasdaq Composite setting another all-time record high. The S&P 500 however snapped its 7-day win streak (slipping in the final minutes to erase gains) as financials and energy stocks lagged markets. The Nasdaq Composite was the leader rising for the 9th time in the last 11-sessions, setting another record all-time high with no end to the rally in sight as large cap giants continue to defy odds by making new highs on a daily basis. Apple Inc. (AAPL) led Nasdaq gauges higher after its stock split 4-for-1, while Tesla (TSLA) jumped as much as 12% on its first day of trading after a 5-1 stock split. The S&P 500 (5^th straight monthly advance) and Dow end August up about 7% while the Nasdaq was up 9% (up 30% YTD). The Dow Jones Industrial Average led losses after its components were revamped, with MSFT and WMT among the worst performers after China said it could block a possible sale of short-video app TikTok.

·     The same market catalysts have been lifting stocks on a daily basis as the Fed remains dovish, the dollar continues to plunge, coronavirus cases have slowed dramatically and economic data has been showing improvement – all leading to the S&P 500 surging more than 50% from its March trough, climbing every month since and totally fully erasing 2020’s bear market loss with consecutive all-time highs for six straight sessions heading into today. The Fed continues to provide fuel for the market amid their fiscal and monetary policies introduced to combat the Covid-19 pandemic – forcing investors only equities for growth. The S&P posted gains in all but four trading days this month, rising roughly 7.25% for August. While the UK was closed for a holiday on Monday, European markets saw a lackluster day of trading, as the Stoxx Europe 600 index dropped 0.6% to 366.31, with the German DAX down 0.7% and the French CAC 40 down 1.1%. For the month, the Stoxx 600 was up around 3%.

Commodities

·     Oil prices erased earlier gains as WTI crude slipped 23c or 0.5% to settle at $42.74 per barrel after the EIA said U.S. oil output rose 4.2% in June versus May. U.S. oil output rose 420,000 barrels per day in June to 10.436 million barrels a day, the U.S. EIA said in a monthly report. Production remained far below April levels of 11.99 million bpd. The news overshadowed positive economic data overnight out of China that initially boosted commodity prices.

·     Gold futures inched higher, as December gold rose $3.70 or 0.2% to settle at $1,978.60 an ounce, getting a boost as the dollar hit 2-year lows, but price dipped a modest (-0.4%) for the month (snapping a 5-month winning streak). Prices have been strong, getting renewed attention last week after the Federal Reserve said it is shifting to a policy of average inflation targeting which would effectively see them end the practice of pre-emptively hiking interest rates to stave off inflation.

Currencies & Treasuries

·     The U.S. dollar touched a more than two-year low (falling below the 92 level) and posted a fourth straight month of losses following the U.S. Federal Reserve’s policy shift on inflation announced last week. The dollar index is down 1.25% for the month (down 1.5% vs. the euro) and marks the longest run of monthly losses since the summer of 2017. Fed Chairman Powell last week outlined an accommodative policy change that is believed could result in inflation moving slightly higher and interest rates staying lower for longer. The Japanese yen weakened by about 0.5% to around 105.85 per dollar after having climbed to 104.195 on Friday after Japan’s Shinzo Abe’s announced his resignation as prime minister for health reasons. The Canadian dollar strengthened to seven-month highs against its broadly weaker U.S. counterpart. Treasury yields ended the month on a down note, but only after hitting multi-month highs Friday. The 10-year yield dipped back below 0.7% after highs around 0.75%.

Sector News Breakdown

Consumer

·     Retailers; general weakness in apparel/retail today after good gains last week with RL, CPRI, PVH, DDS, KSS, M falling; GME rises after RC Ventures reports 9% stake in 13D filing (co-founder Ryan Cohen reports 9% stake in GME as of Aug. 18 on belief they were undervalued); RGS shares down after earnings miss

·     Housing & Building Products; TOL and TMHC positive mentions in Barron’s noting each recently raised its exposure to the entry-level home market, look like better bets in the near term, noting both have rallied by a more modest amount year to date than DHI and MTH

·     Consumer Staples; UTZ and special purpose acquisition company Collier Creek Holdings completed their business combination, forming Utz Brands Inc., which began trading today on the NYSE; BYND was upgraded to neutral from sell at Citigroup citing underperformance vs the S&P 500 since initiation on July 10, and her positive view of the new direct-to-consumer site announced Aug. 27; SAM tgt raised to $1,000 from $735 at UBS as its Hard Seltzer Pulse Check survey showed significant increase in consumers (increase to 43% from 35% in May-20) who drink Hard Seltzer on a regular basis

·     Restaurants; New Jersey said restaurants statewide will be able to open for indoor dining beginning this Friday at 25% capacity and with social distancing between tables; tgt prices were raised at Guggenheim upping BJRI to $49 from $31, BLMN to $19 from $15, CAKE to $36 from $30, DNKN to $89 from $77, DPZ to $461 from $450, DRI to $119 from $96, and MCD to $241 from $215 as now see a justifiable case for premium multiples relative to historical ranges on 2021’s Ebitda outlooks; SBUX a positive mention in Barron’s calling it a stock to add to your portfolio as shares rose this week after a Stifel analyst’s upgrade, citing the coffee chain’s ability to adapt during Covid

·     Leisure and Gaming; BYD and FanDuel Group launch sports betting in Illinois; RST entered into a definitive agreement to be acquired by Cambium Learning Group. Rosetta Stone shareholders will receive $30 per share in cash in deal valued at about $792M; PENN slips after big run in the month of August – hit ATHs ($57.93) on 8/21 and has been cooling off since; SIX, WYNN, MAR, LYV among the “reopen trades” pulling back after strong gains last week; in auto and electric vehicle industry sector; TSLA surges as much as 12% as begins trading after adjusted for 5 for 1 stock split; NIO secondary offering priced at $17.00; WKHS enters into strategic agreements with Hitachi and Hitachi cap America; towable/RV stocks CWH, WGO, THO were under pressure

Energy

·     Energy stock movers; refiners underperform broader markets with weakness in HFC, PSX, MPC early on, but overall energy complex remains pressured, failing to bounce with oil prices trading around 5-month highs (though impact from Tropical storm Laura was minimal to refineries). Oil prices rose early after data showed a stronger-than-expected pickup in China’s service sector. In utilities & Solar; FSLR tgt raised to $95 from $63 at Argus viewing it as well positioned in the solar industry based on its solid balance sheet, and focus on cadmium telluride technology, which should provide a cost advantage relative to more commoditized technologies like polysilicon; utility stocks were up only modestly on the day with Treasury yields steady.

Financials

·     Bank movers; banks just can’t gain traction, getting a boost late last week as treasury yields hit their best levels in months, boosting hopes of better margins, but today, big banks again among top laggards in the S&P and Dow (JPM, V, GS); KKR is in final talks to sell Epicor Software to a group led by private-equity firm Clayton Dubilier & Rice LLC (CDR) for ~$4.7B, including debt, reported the WSJ https://bit.ly/3lr7ECB ; online trading brokers SCHW, AMTD and Robinhood all announced technical issues earlier in the trading session.

Healthcare

·     Pharma movers: the chief of the FDA is willing to bypass the full federal approval process in order to make a COVID-19 vaccine available as soon as possible. The comments come a week after the FDA allowed emergency use of convalescent plasma to treat COVID-19 patients; AIMT shares surge after Nestle announced it would be acquiring the remaining ~74% equity ownership it does not currently own, for $34.50 cash/share, representing a 174% premium to its prior closing price, in a roughly $2.6B deal https://on.mktw.net/31GRAob ; AKCA jumps as IONS to acquire remaining 24% of common stock it does not already own for $18.15 per share (59% premium to Friday’s close) for a total transaction value of $500M; ACST shares plunge after late stage study for treatment of high levels of blood fat failed to meet main goal; ALXN rises after NVS reported Phase 2 results for a blood-disease medicine as an add-on therapy to an Alexion treatment.

·     Biotech movers; NVAX reached an agreement with the government of Canada to supply up to 76 million doses of NVX-CoV2373, Novavax’ COVID-19 vaccine; LPCN shares fell after saying FDA needs additional time to complete its review of Tlando’s new drug application; BCRX said the FDA has granted Orphan Drug designation for its oral Factor D inhibitor, BCX9930, for the treatment of paroxysmal nocturnal hemoglobinuria; AXSM reports development plans of AXS-05 for Alzheimer’s disease agitation; MRNA shares slid after reports over the weekend that the U.S. government’s DARPA probes the company’s vaccine patents

·     Healthcare services and providers; PINC upgraded to buy from neutral at Guggenheim and establishing a PT of $37 saying while PINC will experience disruption in F21 owing to recent contract renewals and Covid-19, we believe much of these dynamics have been embedded into investor expectations

·     MedTech and Equipment; ABT has trials underway for its rapid COVID-19 test to determine whether it could effectively be used on asymptomatic people, CEO Robert Ford told CNBC late Friday; CRMD said the FDA has accepted its application seeking marketing approval for its product, Defencath; QDEL rebounds well off the $135 lows last Thursday after $ABT news hit the COVID testing sector

Industrials & Materials

·     Transports; Dow Transports near the lows erase earlier gains after earlier touching 52-week highs of 11,377.89 (all-time highs remain higher at 11,623 in Sept 2018) – UPS one of few components higher in Dow transports while most airlines down over 3%; SAVE said it sees Q3 average daily cash burn at the lower-end of forecast of $3M and $4M and said Q3 operating revenue will be slightly better due to expectations of higher average fares; CSX was upgraded to Overweight at Barclay’s and $93 tgt as now see a more favorable set-up citing several factors

·     Metals & Materials; VNTR rises after HUN agreed to sell its stake in Venator Materials PLC to funds advised by SK Capital Partners, LP – HUN will sell about 42.5 million shares of Venator Materials for about $100 million as the deal also includes a 30-month option for the sale of about 9.5 million remaining shares held by Hunstman at $2.15 per share; the USTR said it will maintain exemption from tariffs for certain steel product imports from Mexico, more consultations planned in December

Technology, Media & Telecom

·     Internet; NFLX DAU growth has decelerated in August to ~+16-17% and is now ~4% pts below peak April levels according to JPM and said download growth has been declining on a global basis since June, running between roughly -30% Y/Y and -10% Y/Y in July & August, w/QTD DLs down -20% Y/Y; AMZN touched record intraday all-time highs; group strong again

·     Semiconductors: Philly semi index (SOX) slip early as semi’s again lag in strong tech tape – but AMD outperforms; on Tuesday NVDA CEO is expected to give a presentation on the company’s latest innovations in gaming and graphics. It is likely that Nvidia will unveil its GeForce RTX 3000 series of cards at the event and detail the RTX 3080 successor to the RTX 2080, according to Seeking Alpha; on Wednesday INTC will hold its Tiger Lake Virtual launch event to unveil more details on the eleventh-generation laptop-grade processors

·     Software movers; MSFT, ORCL, which have been linked as possible buyers of TikTok, saw weakness early on reports China’s new rules around tech exports mean ByteDance’s sale of TikTok’s U.S. operations could need Beijing’s approval; MSFT tgt raised from $225 to $240 at Mizuho as believe Azure demand trends have remained very good, and are encouraged by signs of increasing monetization of Microsoft 365/Office 365, and Teams acting as a facilitator; BIGC falls after Morgan Stanley initiated coverage with $52 tgt and underweight saying at current levels, BIGC is trading at 60x CY21 EV/S and 2.8x growth-adjusted on our base case estimates, making it the most expensive growth asset in SaaS; ZM earnings tonight

·     Media & Telecom movers; AT&T Inc. (T) shares active after reports late Friday it is taking a fresh look its DirecTV business, exploring a deal for a service wounded by cord-cutting as the co and its advisers at Goldman Sachs Group Inc. have been in talks with private-equity suitors about the satellite TV unit https://on.mktw.net/3jph0Nl ; shares of DISH were active on news; AMC has signed a definitive agreement to sell nine theater locations in Latvia, Lithuania and Estonia to UP Invest for EU65m, or about $77M