Closing Recap

Monday, December 27, 2021

Equity Market Recap

·     All was mostly quiet on the news front today, but stocks still extended their year-end rally as the S&P 500 set a new intraday record high for the first time in more than a month while closing at a record high for the second consecutive session and 69^th time this year, a total that only trails 1995’s 77 record closes for the most of any calendar year. This now marks a 4-day winning streak for each of the four indices listed above with the S&P and Nasdaq both enjoying their third day gaining at least 1% over this short stretch. Today also marked the Dow’s first close above the 36K level since November 16 and all eleven S&P sectors were green as optimism has broadly swept over markets yet again. This leg higher came despite surging Covid cases forcing mass flight cancellations and affecting several cruise liners as large-cap tech names paced the push higher today with semiconductor names particularly strong. The SOXX ETF hit a new record high today to bring its YTD gain above 46%, more than doubling the overall Nasdaq’s yearly performance. Energy stocks were also among the market leaders as oil prices shook off overnight weakness on the cancellations as investors believe the Omicron variant will have a limited impact on global demand next year.

·     Stock/sector news; Travel names (AAL, DAL, UAL, RCL, NCLH, RCL, EXPE) slide after rising Covid cases cause mass flight cancellations and affects cruise operations, casinos (PENN, WYNN, CZR, MGM) also lower as part of the reopen trade; DIDI rolls as its lockup expires today and after indefinitely prohibiting employees from selling; SOXX Semis ETF hits record high as the space outperforms with FTNT, ANET, KLAC also hitting ATH, among S&P leaders with AMD, NVDA, XLNX, MPWR; MCD, YUM, DPZ trade at all-time highs in fast food; GDDY spikes after Starboard took a stake worth ~ $800M according to the WSJ; BBIO plunges over 70% to a record low after its Ph3 trial failed to meet endpoint

Economic Data:

·     Holiday Retail Sales (Nov. 1 – Dec. 24) increased +8.5% YoY (vs est. +7.4%) and +10.7% vs 2019 according to MasterCard SpendingPulse, the largest annual increase in 17 years

·     Dallas Fed Texas manufacturing index of general business activity 8.1 in December vs 11.8 in November; Dallas Fed Texas manufacturing output index 26.7 in December vs 27.4 in November

Commodities, Currencies & Treasuries

·     Oil prices advanced with WTI Crude gaining $1.78, or 2.41%, to settle at $75.57/barrel. This increase came despite demand fears stemming from rising cases and travel cancellations over the holiday weekend, but investors are hoping the milder Omicron variant will have a limited impact on 2022 demand and the UK also announced it will not impose any additional Covid-related restrictions prior to the end of the year. Gold prices were slightly lower, losing $2.90, or 0.2%, to settle at $1,808.80/oz to come off Thursday’s highest settlement in over a month.

Sector News Breakdown

Consumer

·     Auto sector; The 180-day lock-up period for DIDI investor expired today, though the company has indefinitely blocked employees from selling shares, and UBER said it is not planning to sell its 11.9% stake; FSR filed a $2B mixed securities shelf on Thursday; GT launched a new tire optimized for EVs

·     Consumer Staples; Barron’s said sales of canned, ready-to-drink cocktails have nearly doubled this year with BUD, DEO, BFbenefitting and taking share from hard seltzers (SAM); Whole Foods (AMZN) orders have dropped after adding a $9.95 delivery fee for all users; CHD completed its $580M acquisition of TheraBreath that was announced Nov. 29

·     Casinos, Gaming, Lodging & Leisure sector; Bank of America lowered their price target on WEBR to $17 from $20 due to more muted demand trends and continued gross margin pressure, but maintained its Buy rating as it continues to trade at a discount to leisure peers; TOUR executives announced intentions to use personal funds to purchase up to $2M of the company’s ADS; Spiderman: No Way Home (DIS, SONY, AMC) became the first film to top $1B in box office sales since the pandemic

Energy

·     E&P and Majors; APA signed a $3.5B deal with Egypt’s Ministry of Petroleum to develop oil concessions in the Western Desert through its JV with Chinese company Sinopec, and the deal is retroactive to April 1, 2021 and will recoup nearly $900M of backlogged costs to the JV; CEI entered into a loan agreement with an investor for $25M to redeem all series C redeemable convertible preferred stock, extinguishing ~46% of outstanding preferred stock; SWX has confirmed that an affiliate of Carl Icahn extended its tender offer to acquire any and all outstanding common shares of the Company for $75.00 per share in cash

·     Utilities & Solar; AZRE filed an offering of up to $250M; FCEL reached a favorable settlement agreement with South Korean POSCO Energy that confirmed its exclusivity to sell its differentiated platform technology throughout Asia; ENPH began shipping its IQ8 microinverters

Financials

·     Bank movers; Stephens raised their PT on AUB to $44 from $42 after raising estimates due to the recently announced $100M share repurchase authorization, closure of 16 branches by March, and sale of 21.5K Visa (V) Class B common stock

·     FinTech, Consumer Finance & Services; FDS acquired CUSIP from SPGI for $1.925B; SAN extended the expiration date of its tender offer to buy the outstanding SC shares it does not already own to Wednesday at 5PM after originally being set to expire last Thursday; MA reported holiday sales increased 8.5% from last year; FMCC total mortgage portfolio grows at an annualized rate of 12.0% in November, according to the company’s monthly volume statistics

Healthcare

·     Pharma movers; South Korea issued emergency use approval to PFE for Pavloxid, its Covid oral antiviral pill; Switzerland approved JNJ vaccine as booster for adults and purchased 7M additional doses of the MRNA booster; RHHBY said the FDA has granted Emergency Use Authorization to its COVID-19 at-home rapid test that can be used by people as young as 14

·     Biotech movers; BBIO shares fell afer its Phase 3 trial to treat transthyretin amyloid cardiomyopathy didn’t meet its primary endpoint at month 12; STRO received $40M upfront as part of its deal to license its STRO-002 in China; Pardes Biosciences (PRDS) begins trading after going public via SPAC with FSII; UTHR resubmitted its new drug application for Tyvaso DPI, which targets the treatment of pulmonary arterial hypertension and pulmonary hypertension, to the FDA after the agency said in October that only a single deficiency prevented approval; SRNE announced its rapid Covid test COVISTIX detects all Covid variants including Omicron, and Mexico executed its second contract for 10M tests; Mizuho sees favorable risk-reward in ARQT and multiple upcoming catalysts; CELU received Fast Track designation from the FDA for its cell therapy in development for the treatment of AML

·     MedTech Equipment; MBOT announced collaboration with SYK to develop the LIBERTY Robotic System for neurovascular applications; LUCD was a new Buy with a $12 PT by Ascendiant on likely catalysts and a large market potential

·     Healthcare Services; CI reaffirmed its FY22 adj operating EPS forecast of at least $20.35, representing 10% growth; INNV was downgraded at Barclays to EW due to the uncertainty timing around the resolutions of CMS sanctions announced on Thursday; Truist lifted its PT on MPW and lowered theirs on SBRA, OHI, NHI

Industrials & Materials

·     Aerospace & Defense; CVU Q1 EPS 10c on revs $30.8M vs est. $24.8M, still sees full-year revenue greater than $100M

·     Transports; AAL, DAL, UAL, ALK, LUV, JBLU shares were lowered after cancelling over 1,000 flights today and more than 3,000 over the weekend; CCL, NCLH, RCL also slipped after Covid cases were detected on board of several cruises

·     Industrials, Machinery, Metals & Materials; BMO raised their price targets on ARGTF, WPM after their silver streaming agreement that will contribute to funding the Blackwater project; an OI subsidiary entered into a definitive agreement to sell Cristar TableTop for ~$95M, and the company reaffirmed its Q4 adj EPS guidance for 30c-35c; Morgan Stanley resumed CNHI at OW with a $24 PT as it will become a pure-play ag equipment company with strong industry tailwinds, underappreciated sales drivers, idiosyncratic margin levers, an attractive relative valuation, and an upcoming catalyst at its CMD on Feb. 22 after the Iveco spin-off on Jan. 1

Technology, Media & Telecom

·     Internet; Starboard has taken a stake of about 6.5%, or nearly $800M, in GDDY and plans to push it to boost its performance; Bank of America resumed DOYU at Underperform and HUYA at Neutral after their merger was terminated amid regulation headwinds; KeyBank was positive on FB due to the popularity of the Oculus VR headset as a gift this year, evidenced by the app being the top overall app on Christmas Day in the US and a top-5 entertainment app on in 14 countries

·     Semiconductors; Rosenblatt named SGH as one of their top three long ideas for 2022 and upped their PT to $100 from $75 as the company has transitioned from a specialty memory module supplier to a holding company with diversified growth businesses, improved the revenues and margins of companies they have acquired, and they expect another beat and raise quarter; GFS amended their Wafer Supply Agreement with AMD to be worth $2.1B of silicon wafers from 2022-2025 from $1.6B from 2022-24

·     Software movers; Truist lowered their PT on EVBG to $85 from $185 to reflect the company’s disappointing initial 2022 growth framework of 20-23% after its CEO stepped a few weeks ago, but maintain their Buy rating on stable long-term growth opportunities, intact market leadership, and on the belief that sentiment has over indexed to the negative after falling 40% from the CEO departure

·     Hardware, Components & Services; VUZI announced an agreement with VZ to deliver augmented reality with 5G and edge computing technologies

·     Media & Telecom movers; CSSE filed for a common stock offering of up to $100M; NWSA announced it has bought back stock as part of its $1B repurchase program and acquired Base Chemicals, known for its pricing data and insights for the world’s most important base chemicals, from SPGI, INFO for $295M in cash; BMO initiated CTV at Outperform with a $13 PT due to its video-native ad server seeing accelerated adoption