Market Review: February 17, 2021

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Closing Recap

Wednesday, February 17, 2021





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Equity Market Recap

·     Wall Street finished mostly in the red on Wednesday, with the tech heavy Nasdaq leading losses in a bout of profit taking but finished well off the worst levels. Investors sold rich multiple growth companies with Treasury yields rising and signs of inflation picking up, but losses were limited (as major averages finished only slightly off recent record highs). Defensive staples, and healthcare were among the top gainers along with a further bounce in financials amid rising yields and energy stocks amid the deep freeze in Texas curtailing refiner capacity. Oil prices advanced along with the dollar while gold closed at its lowest since June. Fear that rising Treasury yields could eventually curb economic growth by increasing borrowing costs for companies and individuals weighed early, but investors shook off concerns by day’s end. Earnings still in full swing with another busy night expected but attention turns to Washington DC tomorrow as the CEOs of Robinhood, Reddit, Citadel and Melvin Capital, along with Keith Gill aka "Roaring Kitty," will testify in a hearing tomorrow on Capitol Hill about the recent market mania which saw a massive, short squeeze send stocks soaring (note many of them have pulled back 80-90% off highs such as GME, AMC, KOSS, NOK, EXPR). Data on Wednesday showed U.S. retail sales rebounded sharply in January after households received additional pandemic relief money from the government, suggesting a pick-up in economic activity after the restraints imposed by a fresh wave of COVID-19 infections late last year. Other data showed inflation pressures building up at the factory gate, with producer prices posting their biggest gain since 2009 in January.

·     Sector and stock movers: Bitcoin new records up 7.5% above $52,400 lifting blockchain and bitcoin investing firm names (MARA, GBTC); stay-home beneficiary SHOP stumbles despite strong YoY growth after saying it expects slower revenue growth as vaccines are distributed; WING plunges after missing on eps, rev, while DENN slides on its wider-than-expected loss in restaurant earnings; CAR beats estimates but falls after announcing an offering and in some profit-taking as shares closed yesterday green over the past year and more than 600% off March lows even as rev -37% YoY, while KAR plummets after missing on eps and guidance; LSCC, RNG both slide despite their earnings, guidance beats, while SEDG outperforms a weak solar sector on its own beat-and-raise; busy day of 13g filings highlighted by VZ, CVX leading the Dow after Berkshire revealed $8.6B and $4.1B stakes in the respective companies; WFC spiked in the morning after the Fed reportedly approved the bank’s overhaul plan, while rising treasury yields boost banks (JPM, GS, CMA, CFG, RF 52-week highs); cannabis sector CGC, ACB, HEXO sees some profit-taking into TLRY earnings tonight and after SNDL filed a shelf registration to issue up to $1B of securities

·     Fed’s Rosengren said today that “if inflation becomes a problem "the Fed will take care of it" – which the markets didn’t seem to like. Still, Rosengren said the 10-year treasury increase points to anticipation that the economy will do better in the second half of the year and that inflation is still too low (despite the jump in PPI, retail sales, recent surge in oil and other commodity prices). Rosengren also said there is definitely "froth" in some parts of the market, but I’m concerned less about financial stability until the economy is closer to full employment”.

Economic Data

·     Retail Sales month-over-month for January reported at 5.3%, well above the 1.1% estimate; retail sales ex autos rose 4.9% vs. est. up 1%; retail sales ex autos and gas jumped 6.1% vs. prior month down -2.5%; and retail ex gasoline rose 5.4%

·     Producer Price index (PPI) MoM for January jumped 1.3% vs a 0.4% estimate (largest advance since the index began in December 2009), while core prices (ex-Food/Energy) rose 1.2% vs a 0.2% estimate, raising inflation fears; on a YoY basis, Jan PPI YoY rose +1.7% vs. +0.9% consensus

·     U.S. January industrial output +0.9% vs. est. +0.5% and Dec revised to +1.3% from 1.6% prior; capacity use rate 75.6% vs. est. 74.8%; manufacturing output +1.0% vs. est. +0.7%


Commodities, Currencies and Treasury’s

·     Oil prices rose $1.09, or 1.82% to settle at $61.14 per barrel, while Brent gained 99c or 1.56% to settle at $64.34, as WTI extended gains after surpassing the $60 per barrel level for the first time in a year as a cold snap and power crisis took out a third of U.S. crude production. Some 3.5 million barrels a day of American output has been halted, according to reports, as a cold blast freezes well operations and cuts power across the central U.S. More cold weather being forecast kept prices moving higher on the day. Weekly API data on U.S. inventories due tonight.

·     Gold prices tumbled amid a stronger dollar, with April futures down -$26.20 or 1.5%to settle at $1,772.80 an ounce, its 4th straight day of declines (sends gold miners AEM, NEM, GOLD lower) and lowest levels since late June. Gold futures form "death cross" as the 50-day moving average price for most-active gold futures crossed below the 200-day moving average, pointing to a potential longer-term downtrend.

·     Treasury prices stabilized after a recent pullback that saw yields rise to their best levels in over a year. Yields jumped (10-yr touched highs of 1.33%) following better retail sales data and rising inflation prices in the form of PPI, but then reversed lower. The 10-year U.S. Treasury note was 1.275% late day, down from 1.298% late Tuesday. Faster growth (better retail sales) could translate to higher inflation, which would erode the purchasing power of bonds’ fixed payments and could eventually lead the Federal Reserve to lift short-term interest rates. The U.S. Treasury sold $27B in 20-year notes at a yield of 1.92% vs. 1.897% when issued prior, as the bid-to-cover (demand) was 2.15, indirect bidders were awarded 54.9% of the auction and 16.02% to directs.






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Sector News Breakdown


·     Retailers; group generally lower on profit taking and inflation fears despite a stronger 5.3% jump in retail sales in January (probably helped by stimulus checks); UAA downgraded to hold from buy at Argus noting the company has been hurt during the pandemic by the restrictions on high school, college, and other team sports, having posted a FY20 loss and still continuing to restructure its operations; LZB 3Q adj EPS $0.74 vs. est. $0.70 on sales $470.2Mm vs. est. $468.4Mm, network written comps +6.3%; guides 4Q sales +34-39% vs. est. +32.5%; CRMT reports FQ3 revenue growth of 22.2% Y/Y to $228.3M beating estimates by $11M as same-store revenue growth was up 16.9%

·     Auto sector; QS said it made 4-layer multilayer cells and plans to build a pre-pilot line facility in San Jose, California/says it plans to increase the number of layers for the cells, aiming subsequently for 8 to 10 layers by year end; KAR shares tumble after (downgraded at Truist and Guggenheim) after the company’s Q4 earnings miss and below-consensus guidance (shares of CPRT, IAA, LKQ move in sympathy); GPC slips after in-line Q4 rev of $4.3B as Q4 industrial parts group’s revenue fell 3.3% to $1.4B; Ford (F) pledged to go all-electric in Europe by 2030

·     Consumer Staples & Restaurants; WING tumbles after top and bottom-line miss, System-wide sales increased 26.5% to $502.5M and domestic same-store sales increased 18.2%; DENN Q4 EPS of $-0.05 was a penny below consensus on preannounced SSS growth of -32.9%, including -34.9% at co-owned and -32.8% franchised units

·     Leisure and Gaming; lodging stocks weaker after CHH EPS and revs missed and HLT also weak on top and bottom line miss, pressure for rest of industry (MAR, H, WH, ABNB); CHH Q4 EPS 51c on revs $193.4M vs. est. 64c and $207M; in gaming, BYD Q4 adj EPS 46c vs. est. 39c; Q4 revenue $635.9M vs. est. $632.26M; Midwest & South achieves record fourth-quarter adjusted Ebitda and margins; theme park operator FUN posted Q4 results as revs of $33.88M fell -86% YoY but topped ests with Q4 net loss of $105.45M but sets a confident tone for 2021



·     Energy stock movers; earnings mover CRK 4Q adj EPS $0.14 vs. est. $0.10, qtrly total oil and gas sales $274.8M, produced 111.1B cubic ft of natural gas equivalent in 4Q20, and plan to spend $510-550M in 2021 on drilling and completion activities; CLR Q4 adj EPS loss (23c) was wider than est. loss (8c) on revs $837.64M vs. est. $774.85M as FY20 total production averaged 300,090 Boepd, and its guide of $1.4B spending was above consensus $1.3B and company’s previous $1.2-1/3B range based on $40-45/bbl, though it should have minimal impact to overall volumes and the volume mix looks increasingly weighted to natural gas, consistent with the company’s shift in capital allocation 2H20; DVN reported a breakeven Q4 as EPS 0c missed est. 3c on revenue $1.28B vs. est. $1.15B as oil production averaged 156k barrels/day (+7% vs Q3), and the company raised its dividend to 19c from 11c and its 2021 oil production view to 280k-300k barrels/day, seeing 2021 upstream capital budget of $1.6-1.8B; EQT posted a Q4 EPS 23c vs ($4.61) loss YoY, adj EPS (2c) loss vs est. (27c) loss on revs $1.25B (+24% YoY) vs est. $891.3M, and sees FY21 EBITDA $1.85-1.95B, capex $1.1-1.2B, FCF $500-600M, with sales volume 1,620-1,700 Bcfe which would be about flat vs FY20

·     Energy news research; ET will acquire ENBL in an all-equity transaction valued at approximately $7.2 billion with ENBL common unitholders to receive 0.8595 ET common units for each Enable common unit; CVX moved higher after Berkshire revealed a $4.1B stake in a regulatory filing; RBC downgraded USAC to Sector Perform with a $16 pt from Outperform as they expect 2021 cash flow to remain stable with strengthening gas prices and improving gas demand, which is reflected in the stock’s current valuation; Aquawolf, a TUSK subsidiary, was awarded a 3-year contract by a major utility to provide engineering and design services with $40M in revenue over the contract term; Credit Suisse revised their 2021 and 2022 refining estimates upwards given the vaccine rollout and falling cases and upgraded CVI to Neutral with a $23 pt from Underperform with a $16 pt on a favorable view of the company’s Wynnewood renewable diesel project, and PARR to Neutral as one of the biggest beneficiaries from air travel’s return and their belief that widespread distribution of the vaccine should get the company back on track for positive FCF generation; Credit Suisse additionally bumped their price target on Neutral-rated DCP to $24 after the company provided initial 2021 EBITDA guidance of $1.12-1.26B on what Credit Suisse believes to be conservative commodity prices and G&P volume outlooks

·     Utilities & Solar; SEDG Q4 EPS 98c vs. est. 86c on Q4 revs $358.1M vs. est. $356.25M, seeing Q1 revs $385M-$405M vs. est. $377.9M with Q1 non-GAAP gross margin of 34% to 36%; NI reported Q4 EPS 34c vs est. 33c on revs $1.21BB vs est. $1.54B, and they reaffirmed their FY21 adj EPS guidance range $1.28-1.36, and now expect to make capital investments of $1.9-2.1B in 2021, and see 7-9% in CAGR EPS growth from 2021-2024; ES posted in-line Q4 adj EPS 85c on revs $2.23B vs est. $2.12B and sees FY21 EPS $3.81-3.93 vs est. $3.90; CNP shares slipped following Energy Transfer’s acquisition of ENBL, which will result in an exchange of CenterPoint’s investment in Enable in an at market, unit-for-unit transaction.



·     Insurance; AIG reported Q4 adjusted EPS 94c vs. est. 93c, Q4 catastrophe losses $545M, Covid-related catastrophe costs $178M, adj ROE +6.7%, net investment income $3.96B vs $3.59B YoY, net premiums written $5.57B, adjusted book value per share $57.01, loss ratio 70.2% and general insurance combined ratio 102.8 vs 99.8 YoY; GNW Q4 EPS 34c topped est. 22c, though shares fell after the firm’s President and CEO said the company doesn’t believe that China Oceanwide financing for their proposed merger "will occur in the near-term if at all," though they have received multiple expressions of interest in its U.S. mortgage insurance operations as the current merger is delayed indefinitely; PGR reported January EPS 95c vs 52c for Jan 2020, monthly net premiums $4.10B (vs $3.61B YoY), and net premiums earned $3.95B (vs $3.58B YoY); UFCS posted Q4 EPS loss of ($1.30), wider than expected ($0.85c) loss, though sales $310.9M beat est. $273M; NMIH posted Q4 EPS 59c vs est. 50c on revs $109.9M vs est. $104.2M; ATH Q4 adj EPS $2.85 vs est. $2.25 on revs $8.64B (+165.36% YoY) vs est. $1.52B; MCY posted Q4 EPS $1.38 vs est. $0.69 on revs $1.072B vs est. $932.26M; MMC shares gained after Berskhire Hathaway disclosed a new $499M stake in the company

·     Services; WIX Q4 EPS loss (3c) was narrower than est. (11c) loss on revs $282.53M (+38% YoY, est. $270.22M) as net premium subscriptions added +185k in the quarter (+107%), creative subscription ARR +24% to $878M, and they see FY21 rev $1.27-1.29B vs est. $1.26B; TNET posted Q4 adj EPS 44c (est 26c) on revs $1.1B, seeing Q1 adj EPS $1.16-1.39 (est. $0.91) on revs +2-4%, and guides FY adj EPS $3.35-3.90 (est. $3.71) with rev growth +8-11%; Susquehanna upgraded BKI to Positive from Neutral, calling the disconnect between the stock performance and the S&P 500 Index an opportunity; in banking, WFC outperformed after Bloomberg reported Fed officials have privately signaled to Wells that they have accepted its proposal for overhauling risk management and governance

·     REITs; INVH reported 4Q20 core FFOPS of $0.32, in-line with consensus on revs $464M vs est $460.5M, same store average occupancy 98.1% (+210bps YoY) as same store NOI +4.3% YoY, and Mizhuo says these results confirm their thesis for the stock as a top pick and JPMorgan says that the in-line guidance could be conservative and that apartments REITs like the name remain attractive; VNO Q4 FFO 66c vs. est. 64c on revs $376.4M vs. est. $365M, a net loss of ($209.1M) for the quarter vs profit $193.2M YoY, and collected 95% of rent from tenants, including 97% from office and 88% from retail tenants; QTS posted Q4 FFO 78c on revs $143..9M vs ests. 72c on $140M, and they guide FY21 FFO $2.92-3.04 (est. $2.95) on rev $599-613M (est. $602M); RPAI Q4 FFO 20c narrowly missed est. 20c as revs $107.2M narrowly beat est. $106.8M, and the guide FY21 operating FFO 76-84c, missing est. 86c

·     Consumer Finance; Goldman initiated coverage on UWMC at Neutral with a $10.50 price target as they see the company benefiting from the secular shift from the traditional retail loan officer model to the broker channel, and they should continue gaining market share in the space to a projected 45% market share in 2023 from ~35% last year (and 7% in 2014), but cyclical trends in mortgage with upside bias and a possible squeeze in margins makes risk/reward balanced at these levels; Deutsche raised its target on SQ to $330 from $255, saying that the name is an even bigger recovery story this year than last year with significant future upside potential in FY21 from stimulus, improving volumes, and ramping services, and they raised their 4Q20 rev estimates after Bitcoin’s recent strength but lowered GPV and gross profit estimates due to Covid headwinds; Barclays says that PYPL is well-positioned to exploit new permutations of the payments value chain at physical POS stations as consumers alter the way they pay given the company’s robust consumer rewards program, including one through Venmo



·     Pharma movers; PFE has not yet delivered to the European union about 10 million covid-19 vaccine doses that were due in December, EU officials said, leaving it about one-third short of the supplies it had expected by now from the U.S. company as per Reuters; VIR rises after the co and GSK announced an expansion of its coronavirus collaboration to advance new therapeutics for influenza and other respiratory viruses. As part of the deal, GSK to increase its equity investment in VIR by $120M and making an upfront $225M payment; BHC upgraded to outperform at RBC Capital as believe Bausch will transform materially over the near to mid-term with coincident re-rating and critical deleveraging driving value creation; ALT rises after saying the FDA clears its Investigational New Drug application for a Phase 1 clinical trial of AdCOVID, a single-dose, intranasal COVID-19 vaccine candidate; RDHL said the first patient was dosed in its U.S. Phase 2/3 study of orally administered RHB-107, an investigational new drug for patients with symptomatic Covid-19 who do not require hospital care; SNDL filed a shelf registration with the SEC to issue up to $1 billion of securities over time

·     Biotech movers; ORTX and AVRO both defended by analysts today following sharp pullback yesterday on news BLUE suspended its lentiviral gene therapy program for sickle cell disease due to two reported serious adverse events (each have their own lentiviral gene therapy platforms); IMUX said its lead asset, IMU-838, a selective oral DHODH inhibitor, has shown evidence of clinical activity in hospitalized patients with moderate Covid-19; NKTR announces collaboration with SFJ Pharma for bempegaldesleukin in head and neck cancer/to receive up to $150M in funding

·     Healthcare services and providers; SDC said WBA is the latest retail partner to carry its innovative, category-disrupting oral care line; CRL to acquire Cognate BioServices, a premier, cell and gene therapy contract development, and manufacturing organization, for ~$875M in cash (also announced top and bottom line beats); HQY 5M share Spot Secondary priced at $80.30; HSIC reported 4Q results, with revenue of $3.17B (vs. $2.89B cons), with each segment ahead of expectations, while EPS was ($1.07 ex. items vs. $0.99),

·     MedTech and Equipment; Agilent (A) reported fiscal 1Q21 revenue of $1,548mn which beat FactSet consensus of $1,440mn and EPS of $1.06 beat consensus of $0.90 and expects 6.5-8% organic revenue growth in FY21 as non-GAAP EPS guidance was set at $3.80 to $3.90 versus consensus of $3.71 (was upgraded to Buy at Bank America); EXAS 4Q results yielded no big surprises given the January pre-announce, and mgmt is still holding off on full-year outlooks; FLDM shares rise on positive Banyan recommendation


Industrials & Materials

·     Industrial & Machinery; KRNT rose as reported strong 4Q20 (Dec) earnings results and delivered a better-than-expected outlook for March and 2021; RBC and RXN both upgraded to Overweight at Keybanc after the companies announced an agreement wherein Rexnord will spin-off its PMC business, which will immediately combine with Regal Beloit in a Reverse Morris Trust transaction

·     Transports; CAR reported a narrower-than-expected fourth-quarter loss and said it reined in costs/said it ended 2020 with $1.3 billion in liquidity and that it continues to be "in a strong position to fund the purchase of our 2021 fleet appropriately; MESA upgraded to Buy from underperform at Bank America saying it is a large beneficiary of US government support to the airline industry, as it was used to refinance high cost debt.

·     Metals & Materials; ECL 4Q20 came in below expectations and the 1Q outlook was also a bit lower than expected given the incremental COVID-19 lockdowns; LODE shares surge as announced transactions securing rights to a majority equity stake in Linico Corp., a lithium-ion battery recycling company; Copper prices eased as the higher dollar prompted profit-taking, but low inventories and optimism about demand prospects due to stimulus and growth supported sentiment.


Technology, Media & Telecom

·     Internet; SHOP quarterly revenue nearly doubled and topped estimates but said it expects slower revenue growth this year from 2020 on vaccine rollouts/Q4 revs $977.7M topped the $910.2M est. (prior year was $505M); CHGG files to sell $800M in common stock; Internet giants such as AMZN, GOOGL and online travel names BKNG, EXPE outperformed weaker tech

·     Semiconductors; ADI posted a top and bottom line beats (EPS $1.44 vs. est. $1.32) helped by growth across all B2B markets and a record quarter for the industrials business, while guidance also topped consensus; CREE upgraded to Buy and up tgt to $160 at Citigroup as believe that over the next 12 months the stock will positively react to any governmental or industry news regarding increases to electric vehicle (EV) penetration or restriction on emissions on internal combustion engines; LSCC another beat/raise with all segments contributing to Q/Q growth as the macro recovery continues along with strong execution on margin expansion continued as GM exceeded expectations by 60 bps; DIOD reported better-than-exp 4Q20 results & provided 1Q21 guidance above the prior consensus view; Lidar specialist AEye says it is merging with CF Finance Acquisition Corp. III (CFAC), a special purpose acquisition company; MOSY shares fell after entered into a definitive agreement with institutional investors for almost 1.5 million shares at $5 each, with the proceeds to be used for working capital and to repay debt

·     Hardware & Software movers; RNG reported strong 4Q20 results, beating consensus revenue (by +5%) and earnings (by +$.02) as total revenue (grew +33% y/y) with subscription (+34% y/ y), reflecting an acceleration from the first 3 quarters of 2020 and higher Q21 guidance; CSOD reported better than expected 4Q financial results with solid 4Q bookings as the company successfully navigated difficult HCM demand throughout 2H20 while also provided initial 2021 guidance ahead of estimates as it makes progress from the integration of Saba; PS holders should vote against sale to Vista Equity, proxy advisor ISS says in new report; GRMN Q4 rev of $1.35 bln and adj. EPS of $1.73 topped estimates driven by robust growth in the marine, fitness and outdoor segments and guides 2021 EPS and revs also above consensus views

·     Media & Telecom movers; VZ rises as Berkshire reveals $8.6 billion stake as disclosed in a regulatory filing; Alden Global Capital LLC, which already owned a 32% stake, reached an agreement to buy the rest of Tribune Publishing (TPCO) for $17.25 a share, valuing the company at around $630 million. The deal still requires shareholder approval ; NWSA said it will develop a subscription platform, share advertising revenue through Google’s ad technology services, build out audio journalism and develop video journalism by YouTube


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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