Closing Recap

Thursday, December 23, 2021

Equity Market Recap

·     Stocks were in cruise control higher throughout the holiday shortened week, with the S&P 500 index (SPX) coming within 4-points of its all-time highs of 4,743 reached in late November before sliding into the close in what was another broad-based rebound. Defensive sectors saw some profit taking after outperformance last week, while cyclicals, technology and small caps dominated this week’s gains as market breadth improved throughout. Bespoke noted that the Nasdaq posted its 5th straight weekly move of at least 2.5%, its longest streak since October 2011, rising over 3.3% (and erasing all last week’s -2.95% decline); the S&P 500 rising over 2.2% on the week (erasing last week -1.94% decline), Russell 2000 up 2.25% after falling 2% last week. No continued follow-thru market weakness despite the Fed changing its stance to a more “hawkish” outlook on rates, as softening Omicron variant fears helped pushed the reopen trade all week amid advances in CCL, EXPE, LYV as well as hotel stocks trading at or near record highs (HLT, MAR, H), as companies have been able to pass off higher costs to consumers thus far.

·     Stock & Sector movers: there were several M&A stories: QDEL shares sink after acquiring OCDX in a deal worth ~$6B at $24.68/share, a premium of ~25% from yesterday close; SGMS jumps after withdrawing its offer to acquire the remaining 19% of SCPL shares it does not own, sending that stock lower; CROX tumbles to 5-month lows after acquiring private peer HEYDUDE for $2.5B; vaccine names struggle again after the FDA approves MRK oral antiviral pill to treat Covid; for the month of December, MRNA has now lost ~30%, BNTX more than 25%, and NVAX has declined about 15%; casinos LVS, WYNN, MLCO soar after Macau’s review of its gaming industry was positive according to Morgan Stanley; NKLA rockets higher after tweeting that it made its first customer delivery night; TSLA momentum continues as it leads the S&P again to continue its strong rebound after closing below $900 on Monday for the first time since October in EVs; media names VIAC, DISCK, DISH, CMCSA among S&P leaders, several REITs DLR, PSA, SBAC, AMT, EXR, ARE, BXP notably among biggest decliners; hotels HLT, H making new record highs.

·     Interesting stats this week: 1) TikTok topped Google as the most visited website in 2021 – New research shows video-sharing app first topped the charts in February and has generally stayed No. 1 since August, according to Cloudflare https://on.wsj.com/3H5kxvX ; 2) Global search interest for "NFT" for non-Fungible Token surpassed "crypto" and "Bitcoin" for the first time ever this week, according to tweet from Google Trends.

Economic Data:

·     Weekly jobless claims reported at 205K, in-line with consensus; the 4-week moving avg rose to 206,250 from 203,500 prior week; continued claims fell to 1.859M in latest week from 1.867M prior week; the U.S. unemployment rate unchanged at 1.4%

·     Personal Income for November rose +0.4%, in-line with estimates (vs. +0.5% in Oct), while Personal Spending rose +0.6% (vs. +1.4% in Oct), also in line with economist estimates; increase of $97.4 billion in spending for services and a $7.4 billion increase in spending for goods.

·     Inflation readings showed: PCE Price Index for Nov rises +0.6% MoM (in line w/consensus) and vs. upwardly revised +0.7% from +0.3% (hottest figures since 2008), while on YoY basis, PCE Price Index +5.7% (in-line) vs. +5.1% in October (revised) – both highest since 1982 – as energy prices increased 34.0% and food +5.6%; Core PCE Price Index MoM rose +0.5% vs. +0.4% consensus and rises +4.7% YoY vs. 4.5% consensus

·     Durable Goods Orders for Nov rises +2.5% vs. est. +1.5% as Oct revised to +0.1% from -0.5%; Durable Goods Ex Transportation rises +0.8% vs. est. +0.5% and Oct revised to +0.3% from +0.5%; Durables ex-defense orders +2.0%, & nondefense cap orders ex-aircraft -0.1% vs. est. +0.6%

·     New Home Sales for November rise 12.4% to 744K (but below est. 770K), improved from last month’s downwardly revised figure of 662K from 745K, or down -8.4%

·     University of Michigan Sentiment Dec-F reported at 70.6 vs. est. 70.4 and Nov-F 67.4; current conditions index final Dec 74.2 vs prelim Dec 74.6 and final Nov 73.6; the consumers expectations index final Dec 68.3 vs prelim Dec 67.8 and final Nov 63.5

Commodities, Currencies & Treasury’s

·     Oil prices tracked U.S. stocks higher in yet another day of “risk-on” trading, as WTI crude gains $1.03 or 1.42% to settle at $73.79 per barrel, closing out the abbreviated trading week with a gain of roughly 4%. Brent crude rose $1.56 or 2.07% to settle at $76.85 per barrel. Fear eased throughout the week as data showed the worst effects of the omicron variant appear to be less serious than the prior strain. Bullish weekly inventory data yesterday also helped the bull case for oil this week, along with a declining dollar. The weekly Baker Hughes (BKR) rig count rose 7 to 586 in latest week, with oil rigs up 5 to 480 and gas rigs up 2 to 106 (overall, the U.S. rig count is up 238 from last year count of 348, with oil rigs up 216 and gas rigs up 23). Gold prices gained $9.50 or 0.5% to settle at $1,811.70 an ounce, getting a boost from the declining dollar as precious metal prices closed at their best level in just over a month.

Currencies & Treasuries

·     Risk assets jumping across the board all week, with Bitcoin also playing catch-up, moving back above the $50,000 level midday (off lows around $48,400), while Ethereum also rebounded back above $4,000 (off lows $3,920). As stocks extended gains all day, the U.S. dollar sunk to lows, erasing overnight gains as easing fears of fallout from the Omicron coronavirus variant supported higher risk currencies. Treasury yields remain depressed, with the 10-year topping out around 1.5% today, off weekly lows around 1.35%. Upbeat news on the vaccines helped boost investors’ appetite for risk, lifting stocks and pushing U.S. Treasury yields higher.

Sector News Breakdown

Consumer

·     Auto sector; NKLA surged after saying on Twitter overnight that more deliveries were to come, posting photos of a previous event; TSLA surged all day with momentum buyers adding to yesterday’s gains – the company disclosed in a regulatory filing overnight that its CEO Musk sold another $333.6M in common stock on December 22nd after exercising option for 2.1M shares; KXIN reached a strategic partnership agreement with Beijing Shencheng Biotechnology which agrees to purchase 10,000 customized new energy trucks from Kaixin over the next 5 years valued at around $250 million; NIO named new addition to the fresh money list at Deutsche Bank, calling it an attractive buying oppty heading into the New Year.

·     Casinos, Gaming, Lodging & Leisure sector; SGMS announced that it has withdrawn its previously announced July 15, 2021 all-stock offer to acquire the remaining 19% equity interest in SCPL that it does not currently own; AMC announced it has reached lease agreements and plan to reopen theatres in the Los Angeles and Chicago market; casino stocks WYNN, MLCO, LVS advanced as the result of the 45-day forum held in Beijing to address regulatory oversight, gambling license limitations and employee welfare issues seen as positive by Morgan Stanley.

Financials

·     Bank movers; TFC files for mixed shelf of up to $17.9 bln; RJF client asset under administration of $1.22T in November declines from $1.23T in the prior month; financial assets under management of $196.4B also falls 1% in November, though elevated by 20% from the same period a year ago; BANR board authorized repurchase of up to 1.7M shares of Banner’s common stock; STNE shares jumped midday after a report that the company hired a bank and a law firm to consider strategic alternatives https://bit.ly/3mqgaUo

Healthcare

·     Vaccine movers; NVAX said data show broad immune responses against Omicron, citing broad response with two doses, more with three; said third dose of nvx-cov2373 produced a 9.3-fold igg rise and a 19.9-fold ace2 inhibition increase after booster dose; a third shot of the Covid-19 vaccine from AZN and the University of Oxford is shown to boost protection against the highly transmissible Omicron variant, according to a pair of laboratory studies from researchers at the University of Washington and Oxford; GILD’s Veklury (remdesivir) is effective at reducing the risk of COVID-19 hospitalization according to data published in the New England Journal of Medicine.

·     Also, People infected with the Omicron variant of coronavirus are between 50% to 70% less likely to be admitted to the hospital than those who caught earlier strains, according to a new U.K. study that adds to a growing body of evidence of Omicron’s reduced severity in populations with high levels of immunity. The analysis from England, published Thursday by the U.K.’s Health Security Agency, follows studies in Scotland and South Africa that also pointed to a substantially lower risk of hospitalization with Omicron than with more established variants, including Delta

·     Pharma & Biotech movers; TEVA announces launch of first-to-market generic version of Narcan® (naloxone hydrochloride nasal spray), in the U.S.; ENDP announced an agreement for Paladin Labs to commercialize XCOPRI in Canada; ALLK rebounds after plunging 89% on Wednesday after its Phase 3 trials of lirentelimab in EOE and EG/ED failed – shares upgraded at SMBC saying its short thesis played out; GSK and VIR antibody-based COVID-19 drug is being studied as a possible treatment for hospitalized patients in a large British study looking into coronavirus therapies, researchers said. The RECOVERY trial will test Sotrovimab as the Omicron variant spreads

·     MedTech Equipment; QDEL agreed to acquire OCDX for $24.68 per share of common stock for total equity value of nearly $6B, the companies announced/QDEL expects to generate an estimated $90M cost synergies by year three in the combined company https://on.mktw.net/3JdPpMN

·     Healthcare Services; LH announces as agreement to acquire Personal Genome Diagnostics Inc., paying $450 mln in cash at closing and up to an additional $125 mln on achieving future performance milestones; ABC, CAH, MCK, the three largest U.S. drug distributors announced on Wednesday an extension to a key Jan. 2 deadline for cities and counties to join a proposed $21 billion settlement resolving claims that the companies fueled the nation’s opioid epidemic; INNV shares slid after saying the Centers for Medicare & Medicaid Services (CMMS) suspended new enrollments at its Colorado centers because of deficiencies detected in a focused audit.

Technology, Media & Telecom

·     Overall just another massive “risk” on trading day for tech, with semiconductors outperforming, as the Philly semi-index (SOX) rises over 1% led by MU after good earnings earlier this week and equipment names with AMAT, LRCX, KLAC extending gains; In Internet; JD slides after Tencent Holdings (TCEHY) said it would pay a $16.4 billion dividend to shareholders after reducing its stake in the e-commerce company to a little over 2% from the current 7% in a sale of about 457 mln shares; software names were mostly mixed.

·     Software movers; ZNGA, UBSFY have been among the first big, publicly traded gaming companies to say they are experimenting with the strategy. Electronic Arts Inc. (EA), Playtika Holding Corp. (PLTK) and others are also looking into NFTs’ potential use for engaging players, according to a WSJ report. The report notes game makers are increasingly selling virtual weapons and gear as NFTs, extending the trendy digital deeds’ reach but rankling some playershttps://on.wsj.com/3sznVey