Closing Recap

Wednesday, December 02, 2020

Equity Market Recap

·     Stocks finished mixed in what was another strong rebound on Wall Street off earlier weakness. Stocks in the U.S. were lower initially, with profit taking hitting names but as remains the case, the weakness was again short lived. It was another day of positive vaccine headlines as well along with upbeat commentary from Fed Chairman Powell, Treasury Secretary Mnuchin and Senate/House leaders out of Washington on the near-term prospects of additional stimulus measures, which was enough to lift stocks off lows. Stock futures pared losses last night after the UK became the first to grant emergency-use authorization for a Covid-19 vaccine, clearing a shot to be distributed by PFE and partner BNTX in limited numbers within days. The two-shot vaccine is also being reviewed by the FDA in the U.S., where a similar authorization could come later this month and a rollout before the end of the year. Between vaccine headlines, stimulus hopes, momentum clearly remains up into the holiday season.

·     Markets also remain hopeful of “some” sort of stimulus deal as talks and conversations have ramped up over the last few days in Washington. U.S. House Majority Leader Hoyer said today he is hopeful of coronavirus aid deal ‘in the next few days’ but does not cite progress yet on a compromise – wants house to pass stimulus bill before Dec. 10. Follows news yesterday, of a new bipartisan coronavirus relief proposal with a $908 billion price tag. The topper were headlines late day as Speaker Pelosi and Senator Schumer called on Mitch McConnell to enter negotiations using the bipartisan framework unveiled yesterday as a basis – boosting markets late day.

·     Commodity prices jump as oil rises and gold extends its recent bounce, while the euro extends yesterday gains to fresh 2 1/2 year highs vs. the dollar, topping the 1.21 level (weaker ADP data and rising stocks over the last few weeks reducing appetite for the buck). Treasury yields rise despite a weaker than expected ADP private payroll report. The U.S. Centers for Disease Control and Prevention shortened the recommended quarantine period to seven to 10 days for people in the U.S. who have been exposed to the new coronavirus, updating its guidance to reflect scientific findings on the time it takes for infections to develop.

·     Contra-indicators showing signs of consolidation/correction: The latest Investors Intelligence survey for the week ended Dec. 1 shows a persistently high percentage of bulls, ticking up to 64.7% from 64.6% the week before. Bears dropped by 50 basis point to 16.7%, the lowest since September 2018. The CNN Fear & Greed index hit 93 intraday yesterday and now sits at 86 today.

Economic Data

·     U.S. private payrolls rose less than expected in November according to ADP, adding 307K, below the 475K estimate amid Covid-19 infections and business restrictions, adding to signs of slowing economic activity (Oct payrolls revised to 404K from 365K prior)

Commodities

·     Oil prices finished higher in what was a strong day for commodities ahead of a key production meeting tomorrow (which was delayed by two days) with OPEC+ members as they look to agree on output levels. WTI crude rose 73c or 1.64% to settle at $45.28. OPEC is working to gain consensus on a deal to delay a planned increase in production as the global market recovery remains fragile. Meanwhile, supply data was mixed as the EIA said U.S. crude oil stockpiles fell modestly last week, while gasoline and distillate inventories surged as refiners slowed production amid weakening demand. Crude inventories fell by 679,000 barrels in the week to Nov. 27, much less than analysts’ expectations for a 2.4 million-barrel drop. Gold prices gained a second session, as Fed gold rose $11.30 or 0.6% to settle at $1,830.20 an ounce, again helped as the dollar hits lower lows for a 6th day (over 2-year lows).

Currencies & Treasuries

·     U.S. Treasury yields advanced, adding to Tuesday’s 9 bps move as the market continued to mull the possibility the Federal Reserve could start purchasing more longer-term debt to ensure rates stay low. The benchmark 10-year yield edged higher to 0.96% as a further push in the U.S. Congress for a new stimulus package to deal with the economic fallout from the coronavirus pandemic sparked a sell off in Treasuries that sent yields soaring on Tuesday.

·     The U.S. dollar index (DXY) posted a 6^th consecutive session of lower lows, falling to more than 2-year trough amid a weaker private payrolls report and ahead of the Nonfarm payroll report Friday. The euro trade to more than 2-year highs as well above the 1.21 level while the buck continues to have a hard time, though holds in a relatively narrow range vs. the yen (another perceived safe-haven currency).

Sector News Breakdown

Consumer

·     Retailers; KSS was upgraded to Buy from Hold at Deutsche Bank as yesterday’s announcement of a partnership with Sephora may add up to $1b in incremental sales once fully rolled out; HAS was downgraded to market perform at BMO with $90 tgt as investment thesis has quickly played out, sending shares past their target price; TLRD emerges from Chapter 11 after completing restructuring, eliminating $686M in debt from its balance sheet; WMT will eliminate their $35 shipping minimum on Walmart.com orders for WMT+ members starting Friday in an attempt to make their subscription service more competitive with AMZN; Ahead of earnings next week, Telsey remains bullish and raises their pt on GME, while Piper remains bullish on ULTA and LULU, and BTIG said they are buyers of LULU on expectations of earnings beat with a strong outlook in addition to Black Friday sales providing optimism for QTD commentary; Needham raises their price target on SFIX to a street-high $46 on the company’s positioning; Following yesterday’s completion of its core business spinoff, AAN was initiated at Neutral by Bank of America, Market Perform by Raymond James, and Sector Weight by Keybanc, and downgraded to Hold by Truist; SQBG announces relaunch of broad review of strategic alternatives

·     Auto sector; WKHS shares fell after Trucks.com reports of further delays in the U.S. Postal Service process to award contracts for new mail trucks – WKHS is one of three teams left competing for the contract https://bit.ly/2VrRE7n ; GPC double-downgraded to Underperform from Buy on valuation at Bank America, which now appears stretched as see more upside in AAP and ORLY; Ford (F) COO says Bronco sport’s launch ahead of schedule and shipping now, bronco on track for spring availability next year; LI announces secondary offering of 47M American depositary shares which follows delivery update of 4,646 Li ONEs in November, +25.8% MoM; FSR filed to offer up to 27.8M shares (weakness broadly in EV space after LI, FSR file to sell shares); LYFT said rides in November were down about 50% from the same period a year ago, and now expects Q4 revenue growth to be at the "lower end" of the previously provided guidance range

·     Housing & Building Products; HOME reported strong 3Q performance with EPS ahead on margins and 44% comps in line with pre-announced numbers, as compares are tough next year; RH tgt raised to $520 from $435 at Cowen saying they are comfortable owning shares into the print given stronger Sept/Oct sales trends but Street mis-modeling share count and heightened expectations could yield muted upside

·     Consumer Staples; MO reaffirmed yearly guidance; Citigroup downgraded CCEP and BUD to neutral and upgraded HEINY to buy at Citigroup in European beverages sector; SJM announced the closing of the Crisco sale and adjusted FY21 Net sales and EPS as a result; CHD announced the acquisition of Zicam cold remedies for $530mil, 5.9x FY21e sales and 13.9x PF EBITDA

·     Restaurants; PLAY was downgraded to hold at Truist saying remains a "COVID recovery story", but after a strong move in the stock (+74.6% since 6/11), believe investors can find greater recovery opportunities in BUY-rated DIN, DENN and DRI Raymond James raised tgt prices on TXRH to 88 from 82, RUTH to 20 from 16, FRGI to 14 from 13.50, DRI to 120 from 115, CHUY to 27 from 25 and BLMN to 22 from 21 saying industry sales trends could begin to normalize through Q2 of 2021, with a stronger recovery in H2 on vaccine distribution

Energy

·     Energy stocks were the top gainers in the S&P 500 most of the day, as oil rebounded and investors await a pact from OPEC+ oil producers on output, while Britain’s approval of a COVID-19 vaccine fuels hopes for a demand recovery. Among majors, XOM, CVX jumped along with E&Ps APA, DVN, OXY, FANG, refiners VLO, MPC, DK and services SLB, HAL

·     Inventory data; the API showed a surprise build of 4.15M barrels of oil for the week ending Nov. 27; gasoline inventories show a build of 3.4M barrels, distillate inventories show a build of 334K barrels and Cushing inventories show a draw of 132K barrels. The EIA said crude stockpiles fell -0.7M barrels vs. -2.4M consensus, gasoline rose a greater +3.5M barrels vs. +2.4M consensus, and Distillates unexpectedly rose +3.2M barrels vs. -0.2M consensus

·     Alternative Power, Utilities & Solar; FCEL 34.25M share Spot Secondary priced at $6.50 and also said preliminary FQ4 revenues $16M-$17.5M, below analyst consensus $18.5M; ED 7.2M share Spot Secondary priced at $76.85; NOVA downgraded to neutral at Credit Suisse; SRE said it would acquire all the outstanding shares of IEnova it does not already own, exchanging 0.0313 Sempra shares for each IEnova share. The deal implies a share price of 82 Mexican pesos, or about $4.09

Financials

·     Brokers and Bank movers; financials were among the biggest gainers in November; CME reported average daily volume of 19.3M contracts in November, up from 15.4M in October; RY Q4 EPS C$2.27 on C$11.09B vs estimated C$2.07 on C$10.7B, and provision for credit losses C$427M is less than expected C$791.3M; IBKR was upgraded to buy at Compass Point saying account growth, trading, and margin balance continue to outperform expectations; in services, ACIW shares active after Bloomberg first reported activist investment firm Starboard Value LP urges co’s board to explore options including a sale

·     Consumer Finance; V (Visa) reported November US payment volume +6% YoY, but slowed in Europe on Covid-related restrictions, and Wells Fargo separately said that they would use any stock weakness around the spending report as an opportunity to build positions in the stock; PYPL CEO Schulman said he expects the use of digital currencies to go mainstream as more merchants embrace a "digital first" approach to payments, according to comments he made at the Web Summit conference today.

·     REITs; FBR Capital downgraded APLE, CLDT, SVC and XHR from Buy to Neutral following a strong rally in the shares in Nov. noting RevPAR has effectively stalled at -50%+/- since July and recent COVID resurgence could further stall a recovery; REXR priced a public offering of 6M shares at $47.40 for expected gross proceeds of $284.4M

Healthcare

·     Pharma movers; PFE and BNTX have won permission for emergency use of their COVID-19 vaccine in Britain, with two doses three weeks apart required for protection; VNDA rises as the FDA approves its drug Hetlioz (tasimelteon) as a treatment for night-time sleep disturbances associated with Smith-Magenis syndrome, a rare neurodevelopmental disorder; ALNA 10.4M share Spot Secondary priced at $1.25; OVID shares fell after saying its Phase III Neptune clinical trial of OV101 for the treatment of Angelman syndrome failed to meet its primary endpoint; MESO rises as the FDA designates Mesoblast Limited’s Phase 3-stage Ryoncil for Fast Track review for the treatment of acute respiratory distress syndrome (ARDS) due to COVID-19; RETA 2M share Spot Secondary priced at $140.85

·     Cannabis sector; group outperformed (ACB, CGC, TLRY, APHA) after the United Nations Commission voted to remove cannabis and cannabis resin from Schedule IV of the 1961 Single Convention of Narcotics Drugs, removing it from the same category as heroin. The vote was passed by 27 to 25 with one abstention and comes after a recommendation from the World Health Organization. At the same time, the pot decriminalization bill advances to house floor vote for expected Friday vote.

·     Biotech movers; MRNA active after MRK said it has sold its stake in MRNA in Q4 2020, after benefiting from a surge in the stock price of the COVID-19 vaccine developer this year (MRK had invested $50 mln in MRNA in 2015 and increased its investment in 2018); BGNE 1.512M share Spot Secondary priced at $225.00; COGT 10.256M share Secondary priced at $9.75; NTLA 4.795M share Secondary priced at $36.50

·     Healthcare services and providers; PDCO reported revenues of $1.55B (vs. cons of $1.41B) with Dental revs of $632M (vs. $548M cons) and Animal Health revs of $914M (vs. $865M cons), but not providing year guidance; HQY downgraded to Sector Weight at KeyBanc with the Company’s share price up 40%+ (vs. 8% for the S&P 500) since the announcement of a COVID-19 vaccine on November 9, also noting it faces a potentially less friendly regulatory (post-election) environment for HSAs, an uncertain private health insurance environment, and low interest rates; SYNH 6M share Spot Secondary priced at $61.90

·     MedTech and Equipment; IRTC falls following an update from the Centers for Medicare and Medicaid Services posting permanent codes for reimbursement late yesterday; ABT announced its next-generation, sensor-based glucose monitoring technology, FreeStyle Libre 2, received approval by Health Canada for adults and children (4 and older) with diabetes; Goldman Sachs initiates coverage on Life Sciences Tools and Diagnostics stocks with TMO, PKI and DHR top ideas as believes the sector will continue to outperform the overall market due to the combination of resilient business models and multiple secular growth tailwinds (BRKR lone sell rating)

Industrials & Materials

·     Metals, Industrial & Machinery; VALE says it expects to produce 315M-335M metric tons of iron ore in 2021, missing a previously lowered 2020 target of at least 310M mt after producing 300M-305M mt; continued strength in the metals space, feeling after effects of strong China manufacturing data the day prior and stimulus hopes domestically

·     Transports; JBLU 36.5M share Spot Secondary priced at $14.40 sending shares lower; airlines got an early boost after U.S. Senators said on Tuesday that airlines would receive $17 bln for four months of payroll support (comes as part of the new $908 bln bipartisan Senate COVID-19 relief proposal); UPS imposed shipping restrictions on some large retailers such as GPS and NKE this week, an early sign that the pandemic-fueled online shopping season is stretching delivery networks to their limits, the WSJ reported

·     Aerospace & Defense; BA shares active after Reuters reported RYAAY is close to placing an order for dozens of additional Boeing 737 MAX jets – also, Dow Reuters reported the 737 MAX staged its first post-grounding flight with media on board today; SPCE set a new test-flight window opening on Dec. 11, after pausing preparations last month due to COVID-19 restrictions imposed by New Mexico; ATI said it will be exiting standard stainless sheet production by mid-FY21 and will focus on execution of its high-value strategy, primarily in aerospace and defense

Technology, Media & Telecom

·     Internet; not much news in space, but online mega caps have remained strong over the last few weeks with social media names leading; SPOT outperformed on the day; COHU raises Q4 revenue forecast in the range of $195 mln to $200 mln from prior outlook of $176 mln to $192 mln driven by share gains for co’s RF tester and accelerating demand from automotive segment

·     Semi’s and Software movers; CRM will acquire WORK where Slack shareholders will receive $26.79 in cash and 0.0776 shares of Salesforce stock for each Slack share, representing an enterprise value of approximately $27.7B; PLTR downgraded to Underweight at Morgan Stanley with a $17 price target noting shares are up 155% since coming public with little change in the fundamental story and the risk/reward is now "decidedly negative"; ZI 12.5M share Secondary priced at $45.00; AMBA rises as partners with Amazon Partners on AWS Panorama SDK

·     Media & Telecom movers; FUBO shares rose 10% as acquired Balto Sports, marking the company’s first move into the online sports wagering market; terms of the deal were not disclosed; LBTYA upgraded to buy at Goldman Sachs with higher $33 tgt, updating model after the company’s completed acquisition of Sunrise Communications Group; RNG and Vodafone Business announced a strategic partnership that seeks to transform business communications and collaboration; DISCA to launch streaming service in January for $4.99 per month, Verizon customers get year free; VZ was upgraded to Buy at MoffettNathanson, which is seeing attractive valuation ahead of some expected nice mix-shifting on its unlimited plans.

·     Hardware & Component news; NTAP beats Street expectations for Q2 rev and adj. EPS, helped by strength in its cloud and memory business and said it sees both Q3 adj. profit and rev above analysts’ estimates; BOX posted a q3 EPS and rev beat but shares slipped as forecasts Q4 below views and narrowed its FY 2021 sales guidance as mid-point $768.5M missed est. $769M; HPE Q4 EPS and revs topped consensus and said that it expects FY 2021 adj. eps to be in the range of $1.56 per share to $1.76, up 10% on-year at the mid-point