Closing Recap

Monday, December 13, 2021

Equity Market Recap

·     U.S. stocks slipped on Monday, pulling back off record highs and ending at the lows of the day, failing to extend last week solid market gains. The pullback in stocks came amid profit taking and positioning ahead of the FOMC meeting later this week (and other key central bank meetings) where asset tapering is expected to pick up steam, along with commentary on inflation, the economy, jobs, and the omicron variant impact. Defensive sectors paced the gains with staples, healthcare and utilities rising, while tech, consumer discretionary, industrials and materials leading the declines. The rally over the last week has been narrow, led by large cap tech. Goldman’s Sachs equity strategist noted AAPL, MSFT, NVDA, TSLA, GOOGL account for 51% of the returns since April – historically periods of sharply declining market breadth are followed by weak returns and deeper than avg drawdowns – they recommend owning high growth, high margin stocks. Travel-related stocks fell, with the fast-spreading variant accounting for around 40% of COVID-19 infections in London and at least one death in the United Kingdom.

·     Big week for central bank policy meetings and remains the market focus: the European Central Bank, the U.S. Federal Reserve (FOMC) and the Bank of England are all due to meet and possibly signal a tightening of policy in the face of strong inflation. The Fed is likely to announce tapering of bond purchases earlier than previously expected, while the ECB could provide more detail on how it will unwind its Pandemic Emergency Purchase Program, due to end in March.

·     Meanwhile, President Joe Biden is expected to speak with Senator Joe Manchin as Democrats struggle to overcome differences on a $1.75 trillion spending package. Months of disagreement have held up the "Build Back Better" bill, leading the chair of Congress’ large progressive Democratic caucus to voice exasperation today. U.S. Representative Pramila Jayapal criticized an analysis of the bill released on Friday by the nonpartisan Congressional Budget Office at the request of Senate Republicans, which found that the bill would add $3 trillion to the federal budget deficit over the next decade if all its programs ran that long.

·     Stock and sector movers: AAPL set an ATH of $182.13 before pulling back, falling just short of the $3 trillion market cap markets were waiting for; WFC, JPM, C stumble as Treasury yields tumble, weighing on banking and insurance names which tend to benefit on rising rates; CCL, NCLH, BKNG, WYNN, DAL downside action for “reopen” sectors as Omicron worries arise in Europe with first death; consumer discretionary KSS, M, JWN among top decliners in the S&P 500; GME hits 8-month lows below $140 a shares as old “meme” stocks lose momentum (AMC, KOSS, EXPR); defensive staples CAG, KR, PG, CLX higher as investors rotate into defensive food and staples stocks; crypto leveraged stocks slide as Bitcoin, Ethereum tumble to lowest levels since October.

Commodities

·     Oil prices fell on Monday, as WTI crude dips -$0.38 or 0.53% to settle at $71.29 per barrel amid new concerns about the Omicron coronavirus variant and doubts around the effectiveness of vaccines against it were weighing on prices. OPEC kept its full-year 2022, 2021 world oil demand growth forecasts unchanged in its monthly report, while raises Q1 world oil demand forecast by 1.11 million bpd to 99.13 mln bpd. OPEC keeps forecast for 2022 non-OPEC supply growth unchanged. Gold prices register a modest gain of $3.50 or 0.2% to settle at $1,788.30 an ounce, moving back near 3-week highs despite a bounce in the dollar, as investors position themselves ahead of this week’s FOMC policy meeting.

Currencies & Treasuries

·     Treasury yields tumble, with the 10-year down over 6 bps to 1.42%, continuing the pullback the last 2-weeks, pulling back from the 1.7% highs after the Fed Chair Powell turned hawkish on the economy admitting their “transitory” inflation call was not correct. Crypto assets fall to October lows as the two largest cryptocurrencies that account for more than half of the entire crypto market cap (Bitcoin and Ethereum) both tumbles, leading other crypto assets and stocks leveraged to it (MSTR, COIN, MARA, RIOT, SI). Bitcoin fell below the $46,000 level late day while Ethereum dropped below $3,700 and Litecoin below $150.

·     The U.S. dollar edged higher ahead of several central bank meetings led by the Federal Reserve results Wednesday, with investors expecting the FOMC to announce it will wrap up its bond purchases sooner than expected, as they look for clues on timing of interest rate increases next year. Other bank meetings this week include the European Central Bank, Bank of Japan, Bank of England, Swiss National Bank, and Norges Bank. The euro dropped given expectations that the Fed will tighten policy more quickly than the dovish ECB. The British pound dipped after Prime Minister Boris Johnson said on Sunday Britain faced an Omicron "tidal wave". 

Sector News Breakdown

Consumer

·     Auto sector; this morning, the White House launched an electric vehicle charging action plan, designed to progress the Country towards the President’s goal of 500k chargers nationwide, and 50% of EV sales share by 2030 (BLNK, CHPT among charging station stocks); RIVN was awarded Motor Trend Truck of the Year for its R1T; LCID will be added to the Nasdaq-100 Index, effective market open on Monday, Dec 20

·     Housing & Building Products; Zelman upgraded shares of homebuilders KBH and MTH to Buy from Hold; TMHC approves to repurchase of up to $250M of the company’s common stock; OPEN mentioned favorably in Barron’s saying shares could get a lift if more and more people choose the ease and certainty of a digital home sale – notes Zillow’s (ZG) exit from the iBuying business last month was a wrecking ball for the other companies in this new industry, which make online, all-cash purchases of homes by the thousands; ZEV announces strategic EV Battery Partnership; LEN tgt raised to $134, DHI to $115 at KBW saying affordability is a key risk for the housing market in 2022 as home prices increased by an average of 15% year-over-year in 2021

·     Retailers; DLTR filed a lengthy response to activist investor Mantle Ridge’s plan to replace its entire board and their hopes to install their own leadership at the company; LVMUY mentioned positively in Barron’s saying the company is expected to generate revenue of more than $69.5 billion in 2021, up 38% from last year’s depressed results and 15% from 2019’s pre-pandemic level; GIL acquired 100% thru one of its subsidiaries equity interests of Phoenix Sanford, LLC, the parent company of Frontier Yarns for a total cash consideration of approximately $168 million; FIGS rebounds early after reaffirming guidance following CFO retirement last Friday; GME shares fell to 8-month lows below $140 a shares as old “meme” stocks have lost momentum (AMC, KOSS, EXPR, BBBY) and all moved sharply lower

·     Consumer Staples & Restaurants; KO upgraded to Overweight from Neutral and tgt upped to $63 at JPMorgan as think Coca-Cola will benefit from economies re-opening and is well positioned to reaccelerate organic growth toward the top-end of its long-term 4-6% range; Clearlake Capital Group L.P. agreed to sell Proven Brands Inc. and KTB Foods Inc. to HAIN for about $259 million; SBH to provide 2-hour delivery through DASH partnership; SG initiated with Buy/Outperform ratings at JPM ($36 tgt), RBC ($40 tgt), Morgan ($39 tgt), OPCO ($41 tgt), and Goldman ($48 tgt)

·     Casinos, Gaming, Lodging & Leisure sector; HOG gains after its electric motorcycle subsidiary, LiveWire, announces a merger with special purpose acquisition co AEA-Bridges Impact Corp (IMPX) that will take the unit public in a deal with an enterprise value of about $1.77B (expected symbol LVW for LiveWire); in casinos (WYNN, MGM, MLCO), Bernstein noted Macau GGR for the second week of December was down 12% w/w (ADR MOP 229mm vs. 260mm). Visitation into Macau has seen some softening as the latest available weekly visitation (arrivals and departures, Dec 2-8) was 47,300 daily and 18% lower than the prior week

Energy

·     Energy stock movers; OPEC kept its full-year 2022, 2021 world oil demand growth forecasts unchanged in its monthly report while raises Q1 world oil demand forecast by 1.11 million bpd to 99.13 mln bpd saying they expect Omicron variant impact on demand to be mild and short lived. Overall, raises 2022 forecast for global demand for its crude by 200,000 bpd to 28.8 million bpd

·     E&P and Majors; SWN Stakeholders to sell 63.9 mln shares, which is about 7.1% of Co’s free float; SU forecast higher capital expenditure and production for 2022 as the Canadian energy company bets on the recovery in crude and gas prices from pandemic lows – estimates 2022 spending to be C$4.7 billion ($3.68 billion), higher than its 2021 forecast of between C$3.8 billion and C$4.5 billion

·     Utilities & Solar; PNM upgraded to Overweight at Wells Fargo while downgraded NWE to Equal Weight as take advantage of events over recent weeks (i.e. NWE’s disappointing EEI update & NM’s denial of the AGR merger stipulation) to swap small cap electric ideas; solar stocks (FSLR, SPWR) slipped late day after Bloomberg reported California proposes deep cut to rooftop solar incentives and also proposes grid connection charge for solar systems

Financials

·     Bank movers; economic-sensitive bank stocks fall, tracking Treasury yields and broader markets in early trading as the benchmark 10-year notes slip 4.8 basis points at 1.44%. U.S. stocks edged lower on Monday on lingering worries about the Omicron variant ahead of a Federal Reserve meeting later this week; UBS penalties slashed by around $3B in French tax case; SIVB continues expansion into technology investment banking with the acquisition of MoffettNathanson LLC, a New York-based independent sell-side research firm (no financial details)

·     Consumer Finance; NAVI announces new $1 billion share repurchase authority; NVEI through its subsidiary Simplex, is rolling out branded Visa debit cards to its partners across the European Economic Area and United Kingdom, following a partnership with Visa.

·     Bitcoin news; Crypto assets fall to October lows as the two largest cryptocurrencies that account for more than half of the entire crypto market cap (Bitcoin and Ethereum) both tumble over 4%, leading other crypto assets and stocks leveraged to it (MSTR, COIN, MARA, RIOT, SI); IREN initiated overweight and $30 tgt at JPMorgan saying it is a cheap way to play the digital gold rush, adding that the company offers an attractive risk/return profile

Healthcare

·     American Society of Hematology Annual Meeting (ASH) being held Dec.11-14: some highlights include: 1) BLUE said its study data showed a sustained clinical response to a treatment for sickle-cell anemia; 2) RHHBY announced updated data from their p2 CITYSCAPE NCSLC trial for their anti-TIGIT tiragolumab. This data matters heading into p3 readouts in 2022 for the asset across multiple solid tumor types; 3) IGMS slides after updated NHL Phase I data from IGM-2323 (CD20 x CD3 pentameric IgM) which demonstrated clean safety with very low rates of CRS but modest ORR across all patients and lack of a clear dose-response weigh on stock; 4) SGMO Additional data from the Sanofi-partnered SAR445136 sickle cell disease (SCD) program presented at the American Society of Hematology; 5) ALVR issued update on posoleucel, a multi-virus-specific T-cell product, in the prevention setting for patients undergoing allogeneic stem cell transplant; 6) XFOR updated interim results from mavorixafor’s Phase 1b trial in Waldenström’s macroglobulinemia; 7) IMGO updated P2 single-agent bomedemstat data in R/R myelofibrosis (MF) and 2L+ essential thrombocythemia (ET) at this weekend’s ASH meeting; 8) EDIT reported positive preclinical data showing that its proprietary AsCas12a gene editing was able to reduce solid tumors; 9) XFOR tumbles after presents new clinical and scientific data at 2021 ASH supporting broader potential for Mavorixafor in the treatment of primary immunodeficiencies

·     Pharma movers; ARNA to be acquired by PFE for $100 per share in cash, in a deal valuing Arena at $6.7 billion, the companies said as shares rise around 90% https://on.mktw.net/3GDAn0O ; LLY and FHTX said they will collaborate to develop new cancer medicines using Foghorn’s proprietary Gene Traffic Control platform as LLY will make an upfront payment of $300M in cash to Foghorn and invest $80 at $20 a share, a nearly 67% premium to Friday’s closing price; in research, PFE was upgraded to Buy and $60 tgt at UBS on the expectation that significant upward revisions of estimates for 2022/2023 are coming in the near-term, while downgraded MRK to neutral and cut tgt to $76 from $98 given two of MRK’s potential key growth drivers (islatravir for HIV, molnupiravir for COVID) have had recent negative updates and we see no positive value-inflecting catalysts in the event path in 2022; BMY announces dividend increase and additional $15 billion share repurchase authorization

·     Biotech movers; NVAX applied for emergency use for its COVID-19 vaccine in the United Arab Emirates; ONCT reports updated interim data from its ongoing early- to mid-stage study testing its experimental antibody, zilovertamab, with another cancer medication, ibrutinib, in patients with mantle cell lymphoma (MCL) and chronic lymphocytic leukemia; Nasdaq Biotechnology Index a new look on December 20, before the market opens when 129 securities will be added and 21 securities will be deleted as part of the annual reconstitution https://bit.ly/3oPbbOH

·     MedTech Equipment& Services; GMED upgraded to Buy from Underperform at bank America as expect enabling tech to continue to drive share gains in 2022. The recent 8% pullback (vs flat S&P) over the last month on NUVA acquisition reports and Omicron concerns provides a particularly attractive entry point; CYH was upgraded to Buy from underperform at Bank America saying in its current form, the Build Back Better (BBB) plan has the potential to drive about half of the EBITDA lift that the Affordable Care Act (ACA) did but in our view remains an underappreciated catalyst

Industrials & Materials

·     Industrial & Machinery; group was among weakest early following concerns about Biden stimulus plan passage given current inflation market concerns; FLOW to be acquired by Lone Star for $86.50 per share in cash, in a deal valued at about $3.8B, as transaction values includes assumption of debt (FLOW closed at $85.63 on Friday); ACM announces the initiation of a dividend program, extending its commitment to consistently return substantially all available cash flow to stockholders

·     Transports; Ryder (R) to buy whiplash for about $480M in cash; DAL said it will make investments in Virgin Atlantic, Aeromexico and LATAM as the partner airlines transform their businesses to emerge from the global pandemic stronger and more resilient; HA boosted its Q4 revenue and earnings outlook, saying that demand for travel on Hawaiian Airlines has been better than expected; GXO upgraded to Buy from Hold at Loop Capital

·     Metals & Materials; Lithium prices are rising at their fastest pace in years, setting off a race to secure supplies and fueling worries about long-term shortages of a vital ingredient in the rechargeable batteries that power everything from electric vehicles to smartphones (shares of LTHM, ALB among lithium producers); VALE said its subsidiary Vale Canada has signed a deal to sell its 50% stake in steelmaker California Steel Industries to NUE for $400 million; TRQ said it has made an offer to the Government of Mongolia in conjunction with $RIO which would see the erasure of loans owing by a Mongolian-owned shareholder in a bid reset its relationship with the country’s government.

Technology, Media & Telecom

·     Semiconductors; Wells Fargo positive on the electronic design automation (EDA) and semiconductor design intellectual property (IP, or SIP) sectors saying they are among the least understood (and most underappreciated) sub-sectors within the half-trillion-dollar market for chips and chip-making tools – outline two key trends that should continue to benefit the EDA/IP industry (positive on CDNS and SNPS); INTC will invest 30 billion ringgit ($7.10 billion) in a new facility to expand manufacturing capabilities for its advanced semiconductor packaging technologies; MKSI upgraded to Buy from Neutral at Citigroup and raise tgt to $190 from $160 as the analyst updated rankings post SEMICON West and into 2022; Citigroup noted November notebook shipments were up 10% MoM, above Citi’s expectation of up 6% MoM, due to improved demand from the enterprise end market.

·     Software movers; SAP upgraded to Buy from Neutral at UBS saying SAP’s 2025 plan requires a 23% cloud revenue CAGR from 2021-25, some way ahead of the 16-19% guided to for 2021; RNG announces $100M share buyback; MSFT files debt securities shelf; PANW and DDOG both announced in Nasdaq 100 inclusions

·     Hardware, Components & Services; CMBM downgraded to Neutral at JPMorgan despite the strong top-line growth opportunities, led by broad connectivity investments and deployments by service providers across regions; COMM Downgrade to Neutral at JPMorgan as positive bias on the top-line opportunity is balanced by execution risk, which we have underappreciated over the past year; NATI upgraded to Neutral at JPMorgan on valuation and 2022 rebound; although long-term concerns around transformation remain; NTAP Upgrade to Overweight at JPMorgan as see the company well positioned for a transition towards higher growth opportunities while leveraging its leading position in the Enterprise storage market; GPRO upgraded to Overweight at Wedbush as thinks various drivers are firmly in place to drive growth in the coming quarters

·     Media & Telecom movers; for cable, UBS lowers cable broadband estimates again (CHTR, CMCSA, ATUS) to reflect limited visibility in customer activity along with growing competition from telco fiber and fixed wireless