Market Review: February 25, 2021

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Closing Recap

Thursday, February 25, 2021





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Equity Market Recap

·     Ugly day on Wall Street as several moving parts led to massive volatility in equity markets, with attention on: surging Treasury yields (10-yr briefly topped 1.6%, rising as much as 20 bps today aloe at one point), rising commodity prices (oil 13-month highs), dovish Fed comments (Bullard, Bostic after Powell yesterday), mixed economic data (jobs better, housing weak), a deluge of corporate earnings, more short-squeeze mania driving stocks (GME, KOSS, AMC), Bitcoin prices staying elevated around $50K (gold tumbling), spiking volatility (VIX surges) and a tech bloodbath (amid those rising inflation concerns), all highlight today’s action. Dividend yields for U.S. equities stand around 1.5%, now even with the 10-year (vs. 3x higher than bond yield just 6-months ago), wiping out the strong advantage that the stock market has held over bonds during the pandemic. It appears there is a concern that despite the Fed saying they are not going to do anything about interest rates, the level of inflation might get away from them, and could have a market impact.

·     The Nasdaq took the brunt of the market plunge (falling over 3% late day) as rising fears of soaring stock valuations again a factor amid the latest surge in long-term rates. The 10-year Treasury yield pushed past 1.5% to above 1.6% before easing back, ending up about 16 bps to 1.55%. Despite Fed speaker after Fed speaker saying they expect rates to remain low and inflation not being a concern, the market is watching yields and speculating just how much of a rise in rates the stock market will take before showing its displeasure to the Fed.

·     The benchmark Treasury note jumped above 1.50% for the first time in over a year after investors showed tepid demand for $62 billion of 7-year notes (yields had been inching higher into the auction). The 10-year note yield climbed as much as 20 basis points to highs above 1.6% (briefly), following “weak” 7-year note auction results as after it tailed by 4.2 basis points, the most in the auction’s history. The tail is the gap between the highest yield the Treasury sold in the auction and the yield before the auction began. The global rise in bond yields (UK, Germany along with U.S.) now is being driven by a surge in U.S. Treasury yields on expectations of stronger growth and higher inflation from the $1.9 trillion of fiscal stimulus proposed by President Biden.

·     Fed speakers dovish…again! St. Louis Fed President James Bullard said earlier the rise in the 10-year is appropriate and the FOMC won’t be so pre-emptive on containing inflation this time around. Fed’s Bostic the latest to try and allay investor fears about rising yields saying “not worried about rise in bond yields, rates remain low from a historic perspective – clear that monetary policy needs to focus on the immediate term, not expecting a need to think about tapering for a while" and job market repair "going to take a while," safe to think it will continue into 2022 (both follow dovish comments from Fed Chair Powell in testimony the last 2-days).

·     January Reddit “meme” short squeeze names (GME, KOSS, AMC, BBBY, NOK, BB) saw massive volume and buying late Wednesday that carried into markets overnight/this morning and grabbing attention of the media once again – but as day progressed, several of those stocks gave up big gains and turned negative in some instances. Bitcoin prices quietly move back above the $50K level, while gold prices tumble over 1% but oil prices rise.

·     Other top sector/story movers: TWTR continues recent run, now up over 50% in February after unveiling new long-term strategies, and sees its revenue doubling by 2023; MRNA another standout to the upside after its earnings and boosting its vaccine production forecast; Semis AMD, LRCX, AMAT, AVGO notably weaker than overall markets as NVDA shares plunge despite a strong earnings report; BKNG shares also declined despite beating expectations, giving up some recent gains (rallied more than 20% over the past month into its report), NCLH wider-than-expected EPS loss weighs cruises RCL, CCL as reopen names reverse course after recent rally; other earnings movers include LB rising after beat-and-raise quarter, BBY plummeting on comp sales miss, PZZA, DPZ sharply falling on EPS misses.

Economic Data

·     U.S. Preliminary Q4 GDP (2nd estimate) +4.1% vs. est. 4.2% and +4.0% previous estimate which reflects upward revisions to residential fixed investment, private inventory investment, and state and local government spending that were partly offset by a downward revision to PCE; PCE price index +1.6% vs. +1.5% previous estimate and core PCE price index +1.4% vs. +1.4% estimate

·     US jobless claims fell to 730,000 in latest week, much improved from prior week 841,000 and consensus of 838,000; the 4-wk moving avg fell to 807,750 from 828,250 prior week; continuing claims fell to 4.419M in latest week (vs. est. 4.467M) from 4.520M prior week and U.S. insured unemployment rate fell to 3.1% from 3.2% prior

·     Durable Goods orders for January rose +3.4% vs. est. +1.1% and vs. Dec +1.2%; Durables ex-transportation orders +1.4% vs. est. +0.7%; and durables ex-defense orders rose +2.3% vs. December +1.4%; durables shipments +2.0% vs. Dec +2.1%

·     Pending home sales index for January fell -2.8% vs. est. for unchanged though pending home sales rose +13.0% from Jan 2020



·     Oil prices extend gains, as WTI crude rises $0.31 or 0.49% to settle at $63.53 per barrel, outperforming other commodity markets and broader markets. Gold futures decline a third straight drop, as April futures fell -$22.50 or 1.3% to settle at $1,775.40 an ounce as U.S. Treasury yields extend their climb to the highest level in a year and dent the demand for safe-haven investments. Overall prices for precious metals such as silver and platinum also came under pressure).






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10-Year Note





Sector News Breakdown


·     Retailers; GME, EXPR, BBBY, DDS all surged initially as traders showed renewed interest in high short-interest names late yesterday into today; LB posted a strong earnings beat with EPS $3.03 topping est. $2.91 on in-line revs $4.81B, comp sales +10% YoY (+22% at BBW, -3% at VS) with operating margin expansion at both VS and BBW, and guides Q1 EPS 35-45c (est. 12c); BBY reported Q4 adj EPS $3.48 vs est. $3.45 on revs $16.94B vs est. $17.24B, enterprise comps +12.6% that missed +14.5% estimate, guided enterprise comps Q1 +20% and FY22 -2% to +1%, sees Q1 and FY22 enterprise adj gross margin down slightly from FY21, and at least $2B in share repurchases in FY22; SHOO 4Q adj EPS $0.27 vs. est. $0.21 on revs $353M vs. est. $344.7M and did not provide guidance; RVLV posted Q4 EPS 26c vs. est. 11c on revs $140.8M vs. est. $135.28M, gross margin 56.0% (+305bps YoY) and its highest-ever Q4 gross margin, international net sales +24% YoY, domestic net sales -10% YoY, and BTIG, KeyBanc, and Guggenheim each reiterated their bullish stance and raised their price targets in response to the beat

·     Retailer research; Bank of America downgraded DG to Neutral and lowered their target to $215 from $245 as they expect comps to inflect negatively in 1Q22 and issued a double downgrade on DLTR to Underperform from Outperform with a new $95 target from $123 on wage, freight, and traffic recovery headwinds that could pressure earnings and valuation as comps decelerate; UBS upgraded ODP to Neutral with a $43 target from Sell as they believe that upside is now balanced with downside with potential coming from a recovery in office supplies demand, though risks also include permanent shifts away from working in office settings; OSTK was upgraded to Buy at Bank of America and Wedbush reiterated their Outperform rating as they believe that consensus expectations for a sequential revenue decline of roughly 20% in Q1 are dramatically low and set it up for upside, the company’s expansion into Canada could add 10% or more to already robust revenue growth, and the company is well positioned to grow its top line by double digits; The Wall Street Journal reports that HAS will create a separate operating division around Dungeons and Dragons and Magic: The Gathering; Gordon Haskett downgraded TJX to Hold with a $68 pt, but Bank of America, Bernstein, and Loop each reiterated their positive stance on improving comps in yesterday’s earnings; NKE was upgraded to Buy with a $158 pt at HSBC

·     Housing & Building Products; U.S. 30-yr fixed rate mortgages 2.97% Feb 25 week vs 2.81% prior week according to Freddie mac 9rising rates could begin to impact homebuilders if they keep rising – LEN, TOL, MTH, PHM, KBH); W (Wayfair) posted Q4 adj EPS $1.24 vs est. $0.86 on rev $3.67B (+45% YoY) vs est. $3.76B, adj EBITDA $263.2M vs. est. 183.4M and ($180.2M) loss YoY and the stock was upgraded to Equal-Weight by Morgan Stanley

·     Consumer Staples; BUD posted Q4 EPS and sales above views; SAFM posted big EPS and sales beat as reported a $9.5 million profit in the three months ended Jan. 31 compared with a $38.6 million loss a year earlier (net sales $909.3M vs. est. $843.2M); TWNK reported better than expected 4Q results with sales and EBITDA above consensus expectations; SJM Q3 EPS $2.45 beat est. $2.23 on Sales (org +7.7 vs. est. 5.2%) and SD&A and margins slightly below; KDP Q4 EPS missed on higher SG&A but otherwise right in line as FY21 guide of EPS growth 13-15% and Rev +3-4% is what mgmt was communicating during the qtr; OpCo said they are buyers of the recent dip in COST (-10% YTD vs S&P 500 +3%) and the weakness creates an attractive entry point for investors with shares now trading at levels consistent with historical troughs on a relative P/E basis; Cleveland Research raised their Q4 comps and EPS on ULTA

·     Restaurants; DPZ misses on earnings and sales as Q4 EPS of $3.46 per share, missed expectations of $3.89 and sales of $1.357B also trailed analysts’ projections; PZZA missed on earnings expectations for 4Q as EPS of 40c missed the 48c estimate as it invested in labor bonuses and benefits on in-line sales; CHUY downgraded at BMO Capital as investment case is less persuasive at current valuation as we believe risk/reward has become more balanced following recent share price outperformance

·     Leisure and Gaming; GMBL shares rallied after Citron research suggested, “It is opinion of Citron that GME next move is obvious and easy to justify stock price. They should buy GMBL. Listen to your customers…they like to gamble and they like video games” (GMBL later responded after a Reuters report that the company has had talks in the past with GameStop about a collaboration, but not on an acquisition); cruise lines mixed as NCLH reported a fourth straight wider-than-expected quarterly loss, but revenue that beat expectations but said bookings have been "strong" for future periods; SEAS shares jump after posting smaller-than expected EPS loss on better revs as theme park names have shown some resiliency (SIX jumped on recent results too); CHDN Headlines slightly bested consensus, with EBITDA of $79.2M (consensus $78.6M) on sales of $278.2M (consensus $272.0M), Online Wagering posted another solid quarter against 45% handle growth; casinos slide (LVS, MGM, WYNN) as they generated a Nevada gaming win of $761.8M in January to improve from the $683.7M mark in December but fall about 27% below last year’s level.



·     Energy news; energy stocks have been buoyed by prices touching 13-month highs on all sorts of catalysts (improving demand, falling dollar, stimulus hopes, OPEC+ cooperation); Texas state legislators on Thursday begin digging into the causes of deadly power blackouts that left millions shivering in the dark as frigid temperatures caught its grid operator and utilities ill-prepared for skyrocketing power demand

·     Refiners; Wells raised their price targets on refiners, believing they have another leg to go in the post-Covid recovery with demand showing signs of recent improvements as cases decline and vaccines are rolled out, and names VLO as their new Top Pick in the sector with the greatest upside potential to their new price target along with MPC; Mizuho downgraded PSXP to Neutral after recent Schedule 13D amendment suggests PSX is preparing to take it private ex-DAPL which limits upside; PARR reported Q4 EPS loss ($1.41) vs est. ($1.27) loss on revs $715.5M (-49% YoY) vs est. $689.7M

·     E&P sector; PDCE reported Q4 EPS $1.10 which beat consensus $0.88 on revs $278.56M, missing est. $388.14M, expects Q1 total production to decline 0-5% vs this past quarter, FY21 total production 190-200k boe/day and 64-68k barrels of crude oil/day, and its multi-year outlook is focused on a return of capital initiatives and includes share buybacks and an expectation to commence dividend payouts mid-2021; WLL Q4 adj EPS $1.46 on revs $212M vs. est. $191.5M, sees 2021 production 82-88 MBOE/day, oil production 48-52 MBOE/day, and CAPEX $228-252M; QEP reported a Q4 adj EPS (4c) loss vs est 6 profit on revs $200.2M vs est $224.8M, production in Permian basin w4.2M BOE, total production 7.4M BOE; APA announced that it will restart US drilling activity and confirmed a two-rig exploration and appraisal program with focus on year-end FID in Suriname on a $1.1Bn budget funded down to $45/ bbl; MKM downgraded XEC to Neutral from Buy; HCC Q4 adj EPS loss (63c) vs est. (32c) on revs $212.3M vs est. $186.8M, adj EBITDA $9.15M (-77% YoY) vs est. $19.2M, and coal output 1.76M tons (-2.9% YoY);

·     Alternative Power & Solar; NOVA posted a Q4 EPS loss (96c) was wider than est. loss (31c) on revenue $38M vs. est. $42.8M, raised FY21 adj. EBITDA view to $80-85M from $77-83M and FY21 customer additions view to 55-58k from 42-48K; Credit Suisse upgraded RUN to Outperform, reversing their downgrade from January as the stock’s -20% decline over the past 2 weeks provides attractive risk-reward, and they also downgraded PNW to Neutral from Outperform given a slower rollout of renewable capex as management looks to reduce potential rate impact by delaying new projects so that the timing of cost recovery better coincides with expected fossil fuel savings, meaning their clean energy plan appears more back-end loaded in the coming decade; Janney upgraded AGR to Buy and raised their price target to $55 from $44; PLUG reported a Q4 EPS loss ($1.12) vs est. (11c) loss and (7c) loss YoY on revs negative $316.3M (est. $87.2M, $91.7M YoY) which were impacted by a previously announced $456M in costs; HCC plunges to YTD lows after reporting a larger than forecast Q4 loss and keeping its FY 2021 guidance suspended

·     Utilities; AEP Q4 EPS 87c beat est. 79c on revs $3.6B which missed est. $4.24B and sees FY21 EPS $4.55-4.75 which sandwiches the $4.65 estimate; PCG Q4 adj EPS 21c matched consensus expectations on in-line revs $4.75B and they see FY21 EPS $0.95-$1.05 (est. $1.22), Adj EPS loss between (38c)-(52c); SRE Q4 adjusted EPS $1.90 vs. est. $1.60 on revenue $3.17B (+7.7% YoY) vs est. $3.12B, and reaffirmed its FY21 EPS guidance of $7.50-8.10; CNP posted Q4 EPS 27c on revs $2.05B vs estimates for 20c on $2.35B and raised its FY21 EPS view to $1.24-1.26; ORA posted Q4 adj EPS $0.39 vs est. $0.35 on revs $179.4M (-6.8% YoY) vs est. $182.8M and forecasts FY21 rev $640-675M (est. $707M) and adjusted EBITDA $400-410M; OGE announced Q4 EPS 27c (est. 29c) on revs $485.4M (est. $562.62M) and seed FY21 EPS $1.76-1.86, below expected $2.19; AES Q4 EPS 48c slightly beat est. 44c and revs $2.56B came in below consensus $2.78B and its FY21 EPS forecast $1.50-1.58 bracketed $1.56 estimate; WTRG Q4 EPS 46c vs est. 45c on sales $492.92M vs est. $558.3M and sees FY21 EPS $1.64-1.69 (est. $1.67); SJI Q4 EPS $0.62 vs est. $0.54 on revs $1.54B; AWK reported Q4 EPS 80c, slightly above 79c estimate, on revs $923M, below $963.9M estimate, and is expecting FY21 EPS $4.18-4.18 (est. $4.24),



·     Bank movers; S&P 500 financial index, S&P 500 banks index hit record highs; JPM said 1q trading revenue strength driven by equities so far, trading rev. up meaningfully in 1q but could change; overall banks still seeing massive interest as rate environment ticking higher; COLB downgraded to Neutral largely based on valuation that considers leveraging COLB’s excess; in exchanges, CME upgraded to Overweight at Wells Fargo based on the potential for a volume recovery in 2021 and beyond which should be driven by an acceleration in economic growth and higher interest rates

·     Insurance; PFG said it expects 2021 non-GAAP operating EPS to increase 18%-20% Y/Y on a reported basis, implying a $5.83-$5.93 range based on $4.94 reported in 2020 – and expects non-GAAP operating EPS growth of 8%-10% when excluding significant variances in both periods

·     Consumer Lending and Finance; TREE better Q4 results and guides Q1 revs $260M-$270M vs. est. $240M; WEX downgrade from Outperform to Peer perform at Wolfe as suspect valuation has priced in much of the upside we contemplated in our bull case particularly after a mixed 4Q print and uncertain near-term outlook.



·     Vaccine news; PFE and BNTX have initiated the evaluation of a third dose of their COVID-19 vaccine, to study the effect of a booster on new SARS-CoV-2 variants. The study will draw on participants of its Phase 1 study in the U.S., who will be offered the opportunity to receive a booster of the current vaccine six to 12 months after receiving their initial two doses; MRNA said they’ve shipped 60m doses globally & ~55m doses to the US; looking at approaches for boosters including variant specific boosters; looking at a strategy that includes a 3rd dose of Modena’s C-19 candidate; if they needed to dedicate their entire 2022 capacity, they could supply up to 2.8b dose in the fiscal year 2022

·     Pharma movers; MRK to acquire PAND for $60 per share in cash, more than twice Pandion’s current share price in a deal valued at abut $1.85B (PAND closed at $25.63 on Wednesday); AQST said it expects to resubmit its new-drug application for Libervant buccal film to the U.S. FDA around the end of the second quarter after receiving further guidance from the agency; ADMS 12.5M share Spot Secondary priced at $4.40

·     Biotech movers; BCRX slides after posts $4 mln rev in Q4, a 89% decrease from 2019 and reports a loss of 34c, wider than analysts’ average estimate of a loss of 25c; RCEL 2.795M share Spot Secondary priced at $21.50; ICPT Q4 revs light at $83.5M vs. est. $85M on larger EPS loss; CLVS files for mixed shelf of up to $200M; SRPT announces FDA approval of AMONDYS 45(TM) (casimersen) injection for the treatment of Duchenne Muscular Dystrophy (DMD) in patients amenable to skipping Exon 45

·     Healthcare services and providers; TDOC 4Q beat and in-line 2021 revenue guidance though 2021 guidance for US paid membership implies ~2% growth (~5% ex-temporary roll-offs at 2020-end), representing a meaningful deceleration vs the 2020 COVID year; AMED posted a modest 4Q beat and provided in-line initial 2021 guidance; HCA purchasing 80% of Brookdale’s Home health, hospice and outpatient therapy biz; SDC says it plans to launch its teeth straightening services in the Netherlands; NEO downgraded at Raymond James as the fundamental outlook and M&A potential are fairly well understood in the market and, given these dynamics, and believe the current valuation offers limited near-term upside

·     MedTech and Equipment; in diabetes space, TNDM rises on strong 4Q results (revs $168M vs. $140M cons) and providing ’21 guidance above street consensus ($600M to $615M vs. $564M cons); TRHC downgraded at Piper as lack conviction in TRHC’s ability to execute on what they believe is an aggressive, and back-half weighted, FY21 guide as see headwinds to revenue and adjusted EBITDA targets


Industrials & Materials

·     Industrial & Machinery; PWR 4Q adj EPS $1.22 tops $0.99 estimate on revs $2.91B vs. est. $2.92B and guides FY21 revs $11.95-12.35B above est. $11.91B; LII downgraded to underperform from neutral at Credit Suisse as the stock already commands a premium peer valuation, and do not expect the gap to further widen in 2021 as residential growth rates are "at peak" (said favors JCI, CARR, TT); CLH Q4 Adj EPS 63c vs estimate 38c on rev $796.2M (-8.6% YoY) vs estimate $801.3M;

·     Transports; stocks slide after Dow Transport index touched record highs the day prior; Railroads CNI upgraded to outperform from in-line, downgraded CP and NSC to in-line at Evercore/ISI; UAL to issue and sell up to 37M shares of stock “at the market offerings”; airlines, which have been the biggest gainers over the last week on vaccine hopes/reopen trade, falls today in profit taking


Technology, Media & Telecom

·     Internet; TWTR speaking at investor day as announced three long-term goals: sees at least double total annual revenue from $3.7 billion in 2020 to $7.5 billion or more in 2023, sees double development velocity by the end of 2023 and expects to reach at least 315 million MDAU in Q4 2023 (recall SNAP recently spiked on positive investor day highlights/goals); Online travel stocks active as BKNG reported Q4 adjusted EBITDA of a $38M loss (est. -$61M), while gross bookings of $7.3B declined 65% y/y, in slightly better than the 68% decline assumed by the Street; EXPE upgraded to buy from Hold at Argus and setting a price target of $188 after recently reported increased bookings in January, and appears on track to post above-peer-average earnings growth in 2021, recovering from its sharp losses in 2020; FAANG names playing a little catch up today with gains in AAPL, AMZN, FB early after underperformance vs. broader market)

·     Semiconductors; NVDA tgt raised by several analysts (Needham street high $800) after reported a strong JanQ and guided to a BIG AprQ rev/EPS of $5.3B/~$3.26, with continued strength in gaming (JanQ data center was up 97% y/y with MLNX and Ampere ramps, and gaming 67% y/y with higher DT/NB GPUs with RTX 30 Series ramps as per Mizuho); NXPI upgraded from Neutral to Buy with $225 tgt at Citigroup as recommend investors increase leverage to the cycle and NXP has higher than average leverage to semiconductor cycles (upturns and downturns), especially given NXP’s high (48% of 4Q20 revenue) exposure to the automotive industry; Mizuho upped tgts on and ests for MU, WDC, reiterating Buy and raising PTs on MU to $100, WDC to $80 and INTC to $70 after checks in the memory and PC supply chain; PLAB downgraded to Hold at Stifel as do not see any new catalysts for the name and admittedly, the margin profile is weaker than we thought going in after earnings

·     Software, Hardware, Storage movers; ESTC delivered 3Q21 results that exceeded expectations on the top and bottom lines as continued to innovate and upsell, growing the business 39% YoY; PSTG Storage handily beat consensus with revenue of $503Mwhile the midpoint of the FY22 revenue guide of 14% – 15% is slightly ahead of consensus; NTNX delivered $11.8M upside to our ACV billings estimate (vs. last quarter at $18M) and improving leverage, beating EBIT by $23.6M as per KeyBanc; NTAP among top decliners in the S&P after Q3 profits despite a rise in revenue in the period (80 vs. $1.21 comp year ago) and net income was $182M vs. $277M YoY

·     Media & Telecom movers; VZ and AT downgraded to perform from outperform mainly on valuation at Oppenheimer as C-Band Auction results were released, and the quiet period should end March 10. VZ bid $45.4B or ~$13M per license. T won 1,621 licenses for $23.4B compared to our $20B forecast. Opco said think VZ bid aggressively to catch up with TMUS’s 5G network quality. TMUS spent $9.3B for 142 licenses, likely coverage gaps. Positively, TMUS already has a large swath of 2.5GHz spectrum and it plans to have 5G nationwide coverage with mid-band by year-end. Surprisingly, Cable (CHTR, CMCSA) and DISH 4Q adj EPS $1.04 vs. est. $1.02 on revs $6.874B vs. est. $6.885B, domestic streaming subs 19.2Mm +71% YoY, qtrly global streaming subs +56% to nearly 30Mm; qtrly global streaming and digital video revs +71% to $888Mm; said it expects to reach as many as 75 million global streaming subscribers by the end of 2024; NLSN slides following mixed guidance, overshadows Q4 beat


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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