Closing Recap

Tuesday, August 31, 2021

Equity Market Recap

·     It was a slow steady climb off the lows for the S&P 500 and Nasdaq, nearly closing at new record highs again, but a late day pullback dragged stocks barely into negative territory on the final trading day of the month. Still, the S&P 500 extended its monthly winning streak to seven (best streak since Jan ’18), as major averages posted strong gains overall for August. Tech again was a leader (mega cap names again), along with media stocks, healthcare services and pockets of energy, while transports were among the biggest decliners as the index fell over 1% amid weakness in rails. There was some weakness overnight as China non-manufacturing PMI falls into contraction, along with some slight noise in the tech space (ZM earnings, GOOGL/AAPL Korea headline noise), but the lingering effects of Fed dovish comments have markets in decidedly risk-on mode. Outside of a handful of tech related earnings this week (CRWD, AMBA tonight), the markets focus will be the monthly non-farm payrolls on Friday, where consensus is for 750k. Data today was disappointing but no impact on financial markets as the Chicago PMI data missed views (still a generally strong reading), but prices paid spiked to highest since 1979, while consumer confidence came in well below consensus views as inflation expectations edged up. After today’s action, the S&P 500 index rises roughly 3% for the month, the Nasdaq up 4% MTD, the Dow +1.2% MTD and the Russell +1.9%.

·     Stocks/sector movers: ZM plunges despite a strong quarter as its disappointing 2H outlook pulls shares back below $300; outperforming sectors include pharmacies/healthcare services with WBA leading the S&P and Dow and CVS, RAD jumping and media names DISCA, VIAC, CMCSA, FOX, though athletic apparel NKE, UAA, SKX stands out as underperformers after MScience was negative on LULU; APPS surges after being added to the S&P MidCap 400 and Canaccord upgraded to Buy with a PT 85% above yesterday’s close; on other earnings, DBI, CHS slump despite both posting beats and AMWD plummets on its miss; semis pullback from yesterday’s all-time high as NXPI drops after its CEO and CFO reported selling 153k shares for $34.5M and equipment names falling on reports TSM is seeking lower prices for supplies.

·     Mega Cap tech stocks were among the leaders for August, helping push the S&P and Nasdaq to record highs on more than half the days of the month. The Nasdaq outperformance on Friday when Fed Chief Jay Powell gave a dovish Jackson Hole performance, and yesterday when the 10-year yield dipped below 1.3%, indicates rates still have a strong influence on growth. GOOGL rises over 7% this month (up 8-months in a row), TSLA +7.4% for month (up 3-straight months), FB rises over 6.5% for August (6-month win streak), MSFT also up over 6.5% on month (3-month win streak), AAPL +4.7% for Month (3-month win streak) and AMZN +3.8% for August.

·     In vaccine news: The two officials in charge of leading the FDA’s review of coronavirus vaccine applications will leave the agency this fall, according to an internal email announcing the departures, obtained by STAT News, citing displeasure over vaccination process. Gruber, director of the FDA’s Office of Vaccines Research and Review, will exist at the end of next month, while Krause, OVRR deputy director, will depart in November, the author notes. The moves come as COVID-19 boosters and children’s shots are being considered by the regulator.

Economic Data:

·     Chicago PMI for August at 66.8 below estimate 68.0 and previous 73.4; Prices Paid, meanwhile, rose to the highest level since December 1979; Order Backlogs tumbled 14.1 points

·     July Consumer Confidence drops to a 6-month low at 113.8 vs. 123.0 consensus and 128.9 prior revised from 129.1; the present situation index 147.3 in august vs July revised 157.2; expectations index 91.4 in august vs July revised 103.8 (previous 108.4); 1-year consumer inflation rate expectations 6.8% in august vs July revised 6.6%

·     U.S. single-family home prices in 20 key urban markets rose in June from a year earlier at the fastest pace on record, according to the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas gained 19.1% through the 12 months ended in June, from an upwardly revised 17.1% the previous month, marking the largest annual price increase in the survey’s 20-year history. On a month-to-month basis, the 20-city composite index rose 1.8% from May. This was in line with estimates from economists polled by Reuters.

·     China non-manufacturing PMI falls into contraction. Non-manufacturing PMI much weaker than expected at 47.5 vs. cons at 52.0 and July’s 53.3. First contraction in non-manufacturing since Mar-20. Manufacturing PMI fell to 50.1 from 50.4 led by weakness in new orders and new export orders and vs. cons at 50.2. Composite PMI weakened to 48.9 from 52.4 given drag from services

·     June FHFA House Price Index: +1.6% vs. +1.8% consensus and +1.8% prior

Commodities, Currencies & Treasury’s

·     Oil prices close out the day and month lower, falling -$0.71 or over 1% to settle at $68.50 per barrel, and posted its biggest monthly loss since October 2020 (roughly 7.4%) as investors weighed the prospect of additional OPEC+ production. Economic data from China, meanwhile, showed the impact from the delta variant outbreak in August, also weighing on demand concerns. Oil markets also still feeling the impact of Hurricane Ida as a total of 1.705 million barrels per day of oil production and 2.107 billion cubic feet per day of natural gas output remain shut in the U.S. side of the Gulf of Mexico following evacuations at 278 platforms due to Hurricane Ida, the Bureau of Safety and Environmental Enforcement (BSEE) said. The shut-ins are equivalent to 94% of crude and natural gas output suspended. Busy today tomorrow that will include an OPEC+ meeting and the release of weekly EIA data on US oil inventories.

·     Gold prices rise $5.90 or 0.3% to settle at $1,818.10 an ounce, closing out the month almost unchanged, as precious metals held up well as Treasury yields remain depressed and the Fed remains dovish about the timeframe on bond asset purchase tapering.

·     It was a slow climb off lows for the dollar, back to near flat around 92.66 for the dollar index (DXY – low 92.39) as the euro slips back to the 1.18 level and the dollar/yen around the 110 level. Treasury yields a slow move off lows, back above the 1.30% level for the 10-year (highs 1.3155), but the dovish Fed continues to keep a lid on dollar/yields. Bitcoin prices edge lower, trading down around the $47,000 level while Ethereum outperforms up around $3,400 late day.

Sector News Breakdown

Consumer

·     Retailers; DBI posts Q2 sales to $817.3M (+66.9%) vs est. $751.2M, adj EPS 56c vs est. 24c, same-store sales +84.9% vs. est. 62.2%; CHS falls on margin concerns, while Q2 EPS 21c on sales $472.1M vs est. $407.5M, sees Q3 sales growth 18-22% (below views of +28%) with full-year sales growth now +32-35% vs prior view of +28-34%; FNKO was upgraded from Hold to Buy with a $25 pt at Jefferies the 2021 Virtual Licensing Expo as they are increasingly confident in med-term 10%+ growth and business trajectory; Wells’ top picks remain CPRI, GPS, VSCO, TPR, HBI, though they see a trickier setup for the sector into 2H given potential near-term lost sales from tightening supply, rising inflationary pressures, and uncertainties around Covid; Allbirds (BIRD) filed for an IPO of up to $100M of its Class A common stock and reported FY20 net revenue $219.3M from $126M in 2018 and net losses of $14.5M in FY19 and $25.9M in FY20; SQBG files for chapter 11 bankruptcy; lists up to $500M of assets, liabilities

·     Auto sector; YNDX said it would buy UBER’s stakes in their joint foodtech, delivery and self-driving businesses, and increase its stake in a mobility-focused joint venture as part of a $1 billion deal; HYZN price tgt raised 50% to $15 from $10 at Wedbush saying he is getting "increasingly confident" about the California-based hydrogen mobility company’s potential in the hydrogen trucking market; VLDR partners with MOV.AI, which provides developers with tools to create autonomous robots, to provide automation solutions like navigation and obstacle avoidance to robot manufacturers; HYLN says it will be unveiling an improved model of its Hybrid system at the American Clean Transportation Expo in Long Beach, California today; ZEV enters a multi-year agreement with REVG’s subsidiary Collins Bus to make all-electric Type A school buses

·     Housing & Building Products; GNRC price tgt raised by more analysts as Hurricane Ida has resulted in 1+ million people without power in Louisiana and Mississippi. There were more than one million people without power in Louisiana and 60,000 in Mississippi on Tuesday, according to poweroutage.us, which tracks outage reports from utilities; AMWD shares fell following a quarterly miss on earnings (sales $442.6M missed $461M est.), which also dragged down shares of other building products names FBHS, MAS

·     Consumer Staples; BYND won a favorable ruling in a legal case with Don Lee Farms. The co-manufacturer was terminated by Beyond Meat after failing to meet the company’s standards for quality and safety; PFGC is moving into the S&P MidCap 400 following its planned acquisition of CORE, while taking CORE’s place in the SmallCap 600 is THS which is being displaced in the Midcap 400 by PFGC; BGC announced an agreement to sell their Portland manufacturing facility and redirect production to other in house/third party facilities in efforts to optimize the supply chain

·     Gaming & Casino; FUBO receives approval to offer online sports wagering from Iowa racing and gaming commission; Raymond James named UP as a new Outperform with a $10 PT as they see 15%+ long-term revenue growth and 10%+ long-term EBITDA growth given the company is a leader in the growing on demand private aviation marketplace and its membership-based model with solid retention rates and predictable revenue; Berenberg said short-term concerns for ELY are overblown since its business continues to outperform prior expectations, and they raise their PT to $40 from $38, now implying 41% upside; ELYS shares got a pop after saying it has received its Washington DC sports betting license.

Energy

·     Energy stock movers; The OPEC+ joint technical committee (JTC) expects the oil market to remain in a 0.9 million barrel per day (bpd) deficit this year, but hit a surplus of 2.5 million bpd in 2022 as the group raises production, a document seen by Reuters showed. The JTC expects global oil demand to grow by 5.95 million bpd this year, in line with its previous forecast, and by 3.28 million bpd next year. OPEC + meet on Wednesday at 1500 GMT to set policy.

·     Oil slipped on Tuesday as OPEC and allies geared up for a meeting on Wednesday amid calls from the United States to pump more crude, although Brent still traded well above $70 per barrel. Prices were also under pressure from concerns that power outages and flooding in Louisiana after Hurricane Ida will cut crude demand from refineries.

·     E&P and Majors; Oil stocks slip as OPEC+ looks likely to boost oil production in a meeting on Wednesday, and amid concerns that power outages and flooding after Hurricane Ida will hit demand from refineries; OXY initiated Buy and $35 tgt at Citigroup saying it is firmly on the deleveraging path with forecast FCF of $7 B and $4.8 B in 2022/23 at $65 and $55 WTI; Goldman Sachs said raise 2H21 US land rig count forecast on the back of encouraging company commentary and given our constructive oil price outlook – Prefer Buy-rated HAL over Sell-rated HP as its exposure to the remaining upside in US drilling activity is complemented with its leverage to improved US frac pricing in late-2021 or early-2022, thereby supporting a credible and attractive free cash flow profile in 2022 and 2023. Top pick in international markets: Buy-rated BKR (on CL).

·     Solar and utilities; in solar (FSLR, SEDG, SPWR), Reuters reported The Biden administration plans to make federal lands cheaper to access for solar and wind power developers after the clean power industry argued in a lobbying push this year that lease rates and fees are too high to draw investment and could torpedo the president’s climate change agenda; in utilities ETR rebounded a bit after dropping yesterday given its the power supplier to most of the New Orleans area

Financials

·     Bank & Brokerage movers; WFC shares slipped midday after Bloomberg reported the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau have warned Wells Fargo that it may face new sanctions over the pace in fulfilling compensation for prior settlements and shoring up its controls; HOOD rebounded off losses following the double dose of negative news yesterday: 1) that PYPL may start a stock trading feature and 2) that SEC Chair Gensler said that payment for order flow has "an inherent conflict of interest" and that a full ban of payment for order flow is "on the table" – VIRT, SCHW were also hit on the report yest; in research, BXS and CADE both upgraded at Raymond James following yesterday’s announcement that Cadence reached a settlement with the DOJ and the Office of Comptroller of the Currency to settle allegations related to an alleged violation of fair lending laws in Houston, Texas (firm sees as one of (if not the final) hurdles in BancorpSouth gaining final regulatory approval for CADE deal); Seaport initiated BHLB with a Buy rating and $30 price target, and they are taking a longer-term view of the name as their 2021 and 2022 EPS estimates are below consensus, but they see skewed risk-reward and new management in a “show me” stage

·     Bitcoin, FinTech & Payments; SQ plans to announce a paid subscription offering called Invoices Plus, which will offer sellers a set of advanced features, including some that had previously been available with the free invoicing software service, according to TechCrunch.

·     Consumer Finance; ADS upgraded to Buy from Neutral at Bank America with $121 tgt as we think risk/reward is very attractive at current levels. Since 06/04/21, ADS shares have declined 23% vs. a +8% return for the S&P 500. We think investor concern around the Delta variant and potential for the LoyaltyOne spin-off to underwhelm have pressured ADS shares

Healthcare

·     Pharma movers; ACIU rises after saying its experimental Alzheimer’s therapy semorinemab slowed patients’ rate of cognitive decline in a study; GLPG said Co-Founder and Chief Executive Onno van de Stolpe will retire and will remain as CEO until a successor is found; AZN said the FluMist Quadrivalent intranasal influenza vaccine is now available in the U.S. for the flu season; in cannabis, CGC rises on patent news earlier for system and method for an improved personal vaporization device; ENDP downgraded at Piper after a court ruling determined that EGRX with its marketing application for Vasopressin did not infringe patents related to the Vasostrict marketed by the company.

·     Biotech movers; MESO downgraded to Hold at Jefferies as await outcomes from MSB’s upcoming face-to-face meetings with the review team at OTAT regarding remestemcel in SR-aGvHD. While view on the timelines for approval for Mesoblast’s major opportunities are unchanged, removed the adult acute steroid-refractory graft versus host disease, or SR-aGVHD, from his forecasts; NVAX rises after CDC says U.S. trial participants for co’s covid-19 vaccine count as fully vaccinated two weeks after dosing

·     MedTech Equipment; ABT with lots of positive analyst commentary after its Amulet LAA Closure Device demonstrated that in comparison to BSX’s first-generation Watchman device it was superior for the primary endpoint of LAA closure and non-inferior for the primary endpoints of safety and effectiveness. The LAA market has evolved as an alternative treatment for patients who have non-valvular atrial fibrillation (AF); BTIG said it is most positive on long-term growth prospects for GMED and JNJ in the spine industry saying its survey of U.S. surgeons indicates they would see the most market share gains in the coming years while MDT is poised to lose share; INSP said a CMS panel has unanimously approved a recommendation to increase the previously proposed reimbursement for Inspire procedure performed in Ambulatory Surgical Centers (ASCs). Piper notes this is important because earlier this year CMS proposed to reduce the facility payment for Inspire procedures from ~$24,300 to ~$17,500 in the ASC setting, effective 1/1/22

Industrials & Materials

·     Aerospace & Defense; TXT was upgraded to Outperform at Cowen and raise tgt to $95 for bizjet momentum and longer-term potential from 1) extended bizjet vigor, 2) FLRRA production potential, and 3) an underappreciated eVTOL play; Collins Aerospace, a RTX business has signed a definitive agreement to acquire privately held FlightAware, a leading digital aviation company providing global flight tracking solutions, predictive technology, and analytics; SPCE shares initiated Buy and $33 tgt at Jefferies as think the attractive long-term setup for SPCE is boosted by supply ramping with additional spaceships driving capacity to 660 flights per year by 2030; EADSY picks off a BA customer with an order for 36 single-aisle planes valued at $4.9B at list prices from U.K. leisure carrier Jet2

·     Transports; airlines rebound (UAL, AAL, DAL, LUV) after being a drag on markets Monday despite the U.S. State Department raising its travel advisory alert for Canada to a "level 4 – do not travel" status amid the ongoing COVID-19 pandemic, it said in a statement on Tuesday. Separately, the airline industry recovery took another step back with system sales decelerating for the fifth straight week. Sales were down 61.5% vs. 2019 for the week ending August 22 vs. -58.9% last week, per tracking by Bank of America/firm notes some stabilization in demand as domestic and int’l tickets sold were both flat compared to last week at down -29.3% and -46.1%, respectively; RLGT posted preliminary fiscal 4Q results that topped expectations; in rails, CNI shares spiked and KSU slipped after Bloomberg reported the Surface Transportation Board (STB) rejects voting trust on CNI deal saying it is not clear Trust would be in public interest

·     Metals & Materials; for the steel, sector (X, NUE, STLD), Citigroup notes that signs are emerging that US steel prices are now in the 8th or 9th inning of the COVID-recovery rally as flat steel prices are 50% above previous all-time highs; in paper/containerboard, UBS sees potential Q3 risk from Hurricane exposure (IP, WRK, PKG) noting Hurricane Ida made landfall in southeastern Louisiana on 8/29. Weather is an important factor for pulp-based, herein kraftliner, costs as heavy rain can restrict access to forest land thereby driving up wood prices. IP, PKG and GPK each have roughly 25% of capacity in Louisiana. Assuming current projections, Ida will turn northeast over MS, AL, TN, and KY through Wednesday. All five states combined include ~50% of both IP and PKG packaging capacity. Conversely, WRK is notably less exposed to the region

Technology, Media & Telecom

·     Internet; NTES reported Q2 revenue of RMB 20.53bn vs. cons RMB 20.54bn. Online game services net revenue came in at RMB 14.53bn vs. cons RMB 14.31bn. Online game services gross profit came in at RMB 9.61bn vs. cons RMB 9.23bn and online game services gross profit margin came in at 66.1% vs. cons 64.2%; South Korea approved a bill banning major app store operators such as GOOGL and AAPL from forcing their payment systems on software developers, effectively stopping them from charging commissions on in-app purchases; SPOT’s latest personalized experience, Blend, is rolling out of beta to Spotify free and premium users globally; AMZN rises for the 7^th time in 8-session around its 50-day MA resistance around 3,459 (shares have rebounded well above its breach of the 200-day MA off 3,282 just 2-weeks ago); SNAP outperformed following positive comments by Cleveland research today

·     Semiconductors; TSM will be in talks with its equipment and materials suppliers about lowering prices for next year by 15%, striving to cut its costs, according to industry sources. The foundry will be seeking an at least 15% cut in prices offered by its equipment and materials suppliers for 2022 (equipment names were lower AMAT, KLAC, LRCX) https://bit.ly/2Y1Uogj ; NXPI shares slide after filings showed Insiders Sell More Than $34.5 Million of Shares Peter Kelly, EVP and CFO, had the largest sale, worth $28.7 million

·     Hardware, Software movers; ZM shares tumble over 15%, dropping below $300 per share after guiding Q3 sales $1.015B-$1.02B, only slightly above the Street at $1.01B and EPS slightly below at $1.07-$1.08 vs. est. $1.09; APPS was upgraded to buy from hold at Canaccord saying the mobile-services platform operator has gotten stronger and improved its value proposition since the firm downgraded the stock in December/separately, stock will be added to the MidCap 400; Production of the upcoming Apple (AAPL) Watch has been delayed in large part due to the complicated designs of the new smartwatch, Nikkei Asia reported; CRWD shares have risen 15% the last few days into earnings in cyber security play (after strong PANW results last week) – earnings are expected after the close.

·     Media & Telecom movers; media names (VIAC, DISCA) were among the top gainers in the S&P 500; VG rises early after a report that activist Jana Partners is asking the company to explore alternatives, including a sale of all or parts of the telecom company https://bit.ly/3BjDHeO