Closing Recap

Thursday, January 07, 2021

Index	Up/Down	%	Last
DJ Industrials	211.73	0.69%	31,041
S&P 500	55.65	1.48%	3,803
Nasdaq	326.69	2.56%	13,067
Russell 2000	38.96	1.89%	2,096

 

Equity Market Recap

·     It was another incredible day on Wall Street as the S&P 500, Dow Industrials and Russell 2000 Smallcap index all add to yesterday’s closing highs while the Nasdaq Composite outperforms, rising more than 2.5% and topping the 13,000 level for the first time as technology paced a generally broad-based gain. Stocks found strength after Congress certified Joe Biden’s Presidential victory overnight (after protests in Washington delayed the process yesterday), and President Trump pledged an orderly transition of power, easing investor concerns. There has been no fear in this market, with soaring valuations and high multiples being cast aside for momentum driven trades, with many underperforming sectors in early 2020 playing catch-up as materials, industrials, financial and energy leading, while defensive staples and utilities lag. Investor focus remains on low rates/borrowing costs and easy money through the Fed monetary policy along with free money fiscal policy out of Washington following two stimulus packages in 2020 to help the economy after the pandemic, with more likely in the pipeline with Democrats now controlling the White House, Congress, and the Senate.

·     Top stock stories today included: Bitcoin touches $40K before fading, rising over 8% (was at $30K Monday morning) – names leveraged to Bitcoin including MSTR, RIOT, MARA, SQ etc. all rise in sympathy; Fed’s Evans says expect probably will be 2024 before we see interest rates start to rise; TSLA record highs again (up 10^th straight day), topping $800; DDD rises as much as 100% before paring gains amid strength in the 3D space after company issues upbeat Q4 revenue guidance; in retail, BBBY plunges after missing on top and bottom line and LB soars to 52-week highs after reporting holiday sales and raising Q4 guidance; CPRI TPR also hit 52-week highs on Barclays upgrades; consumer Staples mixed as KO continues its recent slide after receiving its 4th downgrade in as many days, food retailers ACI, KR, SPTN, UNFI decline after being downgraded at Barclays, CAG drops on its results, while STZ hits 52-week highs; ROKU jumps to new all-time highs after Needham raises estimates and price target; IPOE spikes after announcing it will take SoFi public in an $8.65B deal; banks JPM, WFC, USB, FITB among leaders again with the 10-year yield hitting its highest levels since mid-March and upgrades at Goldman, Bank of America; GS, MS, PNC, COF, RF among 52-week highs in financials – CAT, DE, ETN, CSX, NSX 52-week highs in industrials – KLAC, AMAT, LRCX, MU, MCHP 52-week highs in chip space – as all major indices at record highs.

·     The Covid-19 story has taken a back-seat to stimulus, while momentum trades such as TSLA, Bitcoin, electric vehicles, SPACs and IPOS remain the key market drivers along with the “catch-up” and “recovery/reopen” trade. Buying optimism has flowed into building products, infrastructure, energy, financials, consumer, metals while sectors seen benefitting from Democratic power such as solar, electric vehicles and cannabis extending gains after their strong runs since the election.

Economic Data

·     Weekly jobless claims fell to 787K in latest week, in-line with prior week and below the 800K estimate; the 4-week moving average fell to 818,750 from 837,500 prior week; continued claims fell to 5.072 mln vs. est. 5.200 mln and the US insured unemployment rate unchanged at 3.5%

·     The November International Trade gap widens to (-$68.10B) vs. estimate (-$66.80B) and prior (-$63.10B) as exports rose +1.2% to $184.20B and imports rose +2.9% to $252.30B

·     ISM non-manufacturing sector shows PMI 57.2 in December (vs. est. 54.6) vs 55.9 in November, growing for the seventh month in a row; Business activity index 59.4 in December vs. 58.0 in November; new orders index 58.5 in December vs. 57.2 in November and the employment index 48.2 in December vs. 51.5 in November.

 

Commodities, Treasury’s, Currencies

·     Oil prices edged higher, up 20c to 10-month highs of $50.83 per barrel as a drop in U.S. crude stockpiles yesterday and Democrat victories in Senate elections in Georgia added to the ongoing economic recovery hope led by additional stimulus measures out of Washington. Brent crude inched higher 8c to $54.38 per barrel. Natural gas prices rise for a fifth straight session, closing up 0.5% at $2.729/MMBtu as cold-weather forecasts for later this month

·     Gold prices gained modestly, rising $5.00 or 0.3% to settle at $1,913.60 an ounce a day after plunging over 2%. Prices held up well despite another record run for U.S. equities and higher U.S. Treasury yields, as prospects of more fiscal stimulus under a Democrat-led administration supported prices.

·     The U.S. dollar index (DXY) recovered after recent weakness, up 0.5% on better economic data while Treasury yields, which had been consolidating sideways under 1% since March, finally broke out higher, rising to 1.08%

·     Bitcoin jumps again: data by crypto coin trackers CoinMarketCap and CoinGecko said that the total market value of all cryptocurrencies rose above $1 trillion for the first time on Thursday as Bitcoin surged to a record high. Bitcoin has jumped more than 900% to above $39,000 on Thursday, from $3,850 in March, as governments increase speeding to blunt the economic impact of the coronavirus. This has raised fears about rising inflation and U.S. dollar debasement.

 

 

Macro	Up/Down	Last
WTI Crude	0.20	50.83
Brent	0.08	54.38
Gold	5.00	1,913.60
EUR/USD	-0.0056	1.2269
JPY/USD	0.80	103.83
10-Year Note	0.031	1.073%

 

 

Sector News Breakdown

Consumer

·     Retailers; COST U.S. core same store sales (excluding fuel, FX) were up +11.0% in December (total company was up 10.9%), while US headline SSS (including fuel, FX) increased 9.6% and total company was up 10.7%; BKE reported comparable store net sales +17.9% and net sales +17.7% YoY for the 5-week period ending January 2, 2021; LB reported holiday net sales $3.836B (-1.8% YoY), comp sales +5% YoY, and guided preliminary Q4 EPS in the range of $2.70-2.80, above estimated $1.96; Barclays doubled down on their bullish outlook for retail in 2021, calling for a recovery in brick-and-mortar sales and named TJX as their top sector pick and upgraded CPRI and TPR to OW as companies poised to benefit from the sales recovery; Cowen upgraded FL to Outperform and upped their target to $55 from $38 as they think valuation is too cheap and that consensus is mismodeling sales and EPS through FY22; Barclays maintained their OW ratings on WMT, HD, COST, LOW, TGT, DG, BBYand FND as retailers who should see sticky foot-traffic

·     Auto sector; TSLA rises a 10^th straight day as analysts continue to be bullish, as RBC Capital upgraded to sector perform from underperform (with $700 tgt) admitting that we got TSLA’s stock completely wrong; RACE downgrade from Buy to Neutral at Citigroup noting shares are up 20% in the last 12 months while consensus 2021E EBIT estimates have fallen by 20%; DDAIF was added to catalyst call buy idea at Deutsche Bank; BLNK filed to sell 5M shares of its common stock (expected to price tonight); VNE downgraded to Underperform at RBC and raises tgt to $17 as lack conviction on VNE’s strategic pivot, believe mid-term margin/FCF trajectory could prove aggressive and see valuation as stretched

·     Housing & Building Products; a strong group in 2020, modest gains so far in 2021 as rates edging up; in home retail, WSM added to Wedbush’s Best Ideas List with $132 tgt and note a value of $165 in our bull case if the company is truly able to expand operating margins and comp double digits in 2021; LGIH announced an all-time record for home closings during a single month with 1,630 homes closed in December 2020, representing year-over-year growth of 54.9%; BBBY shares fell after missed on top and bottom line as Q3 EPS of 8c falls short of the 19c estimate and sales of $2.62B below the $2.75% view as total comp sales rose 2%;

·     Consumer Staples; KO downgraded to Neutral from Overweight at JPMorgan (4th analyst downgrade of shares in as many days) due to the increased risk that KO loses its current tax dispute with the IRS; LW Q2 EPS 66c tops the 62c est. on better sales of $896M topping $876.8M and says North America and Europe shipments will remain soft during remainder of quarter; STZ announces new $2 billion share repurchase after the company beat estimates for Q3 and issued upbeat earnings guidance of $9.80-$10.05 vs. est. $9.44; Barclays downgraded food related names KR, ACI, UNFI and SPTN to Underweight as believe these Food retailers/distributors belong in the "Slippery" camp, will face challenges in FY21 due to tough compares; SMPL downgraded at Stifel to Hold solely on valuation as business continues to perform well and especially in light of the negative effect on the category from the pandemic/lockdown

·     Restaurants; MCD upgraded to Outperform from Perform at Oppenheimer for first time since 2012 and install a $240 price target saying stock’s recent underperformance highlights subdued investor sentiment at a time we identify catalysts for upside; WEN downgrade to Perform at Oppenheimer as remain upbeat toward a continuation of strong fundamentals – particularly as WEN’s talented management team builds upon last year’s successful breakfast launch; Stephens with a few changes in restaurants as upgraded BJRI, QSR and CAKE while downgraded DPZ

·     Leisure and Gaming; LVS said CEO Sheldon G. Adelson of both Las Vegas Sands and Sands China will take a personal leave of absence for medical reasons, effective immediately; Stifel said cautiously optimistic would be the theme they would use to best describe our top investment ideas for 2021 in gaming and leisure as SEAS Top Overall Idea; CCL, CZR, EVRI, LVS and OSW also

 

Energy

·     Energy stock movers; Cowen sees HFC, MPC, and VLO benefiting the most from increased likelihood of biofuels credit extension and yesterday’s selloff in PSX on headwinds related to a pipeline shutdown as overblown in refiners, while seeing XOM potentially face headwinds on concerns regarding a federal drilling ban and its US refining footprint and Biden’s energy agenda possibly having material structural consequences longer-term to oil & gas; Piper raised their price target on WLL to $27 from $19 and maintained their Neutral rating after the company’s guidance on Tuesday implied lower than expected capital efficiency; FTI announces resumption of activities toward separation into two industry-leading, independent, publicly traded companies

·     Alternative Energy, Utilities & Solar; ENPH and SEDG were both downgraded to Neutral from positive at Susquehanna as they believe most of the sector’s catalysts are being priced in or already come to fruition; PLUG had its price target raised to $60 from $26 at Craig Hallum who maintained their Buy rating after South-Korea based SK Group reported a 9.9% stake worth $1.5B in the company and announced a JV to provide hydrogen fuel cells to Asian markets, and FBR also kept the stock at a Buy and lifted their target to $52 from $24; FCEL was initiated at Hold by Jefferies with a $11 tgt

 

Financials

·     Bank movers; strength continues with Treasury yields rising further (10-year above 1.08%) and additional stimulus measure expectations offsetting rising corporate tax fears; Goldman upgraded FITB to Buy with a $35 pt expecting cost-cutting initiatives kicking in and revenues stabilizing in mid-2021 and possible greater reserve releases than its peers as it has greater reserves despite similar loss levels; Goldman also downgraded SC to Sell and lowered its price target to $21 as they believe the bank offers less upside than peers and reiterated their Buy rating on RF, though it removed the stock from its Conviction List after shares have more than doubled since being added to the list last March; Bank of America upgraded JPM to Buy and raised their target to $160 from $131 despite its current valuation and 2020 outperformance versus other mega-cap peers; Jefferies upgraded JPM, USB, WFC, HWC, PBCT, SNV, WBS to Buy as their 2021 outlook for the banks are about 15% above consensus for both 2021 and 2022 and they expect consensus estimates to broadly rise as clarity on the loss cycle emerges with vaccine progress, and they also downgraded TFC to Hold on valuation

·     Consumer Finance; Goldman downgraded ADS to Neutral (from Buy) and cut their price target to $77, implying 2% downside to shares as they are 20% below consensus in 2022; FOUR was downgraded to Peer Perform with a $75 pt at Wolfe and separately announced a strategic partnership with Sightline Payments to deliver seamless payments for sports gaming and betting to sports venues and casinos; Wells believes that CDK has a high-margin revenue opportunity though its GPN partnership; Mizuho raised its estimates on SQ and reiterated its $300 price target due to its investment in Bitcoin, which will multiply the company’s gross profit in the cryptocurrency even if the price falls as it will drive user engagement and revenue; MC was upgraded to Neutral with a $50 pt (from $34) at JPMorgan given the strength in equity markets and the recovery in credit markets since March/April leading to CEO confidence and what may be the best environment for boutiques with M&A activity; IPOE spikes after Reuters reported Online lending startup SoFi is nearing a deal to go public through a merger with blank check company Social Capital Hedosophia Holdings Corp V https://bit.ly/38lpYZa (report was later confirmed); AXP said since spring 2020, have been cooperating with a regulatory review of small business card sales between 2015 & 2016

·     Exchanges: JPMorgan upgraded CME to Neutral from Underweight as they see CME benefitting from US reflation, higher rate volatility, and greater trading activity that may result from execution of the Biden agenda, downgraded CBOE to Underweight as they expect the divergence in the recovery of certain sectors to keep the VIX-index elevated, keeping the cost of equity hedging high and thus continue to depress VIX and SPX trading, and they see the potential for higher rates to weigh on ICE’s mortgage activity, they keep their Overweight rating on the stock as believers in their trading, data and mortgage strategies longer term

 

Healthcare

·     Pharma movers: Bayer signed a collaboration and services agreement with CVAC, where Bayer will support the further development, supply and key territory operations of CureVac’s COVID-19 vaccine candidate CVnCoV; DBVT slips after restructuring plan to result in reduction of over 200 jobs; GBIO 8M share Secondary priced at $24.50; NEO 4.082M share Secondary priced at $49.00; ABBV said Risankizumab shows improvements in clinical remission and endoscopic response in Crohn’s disease

·     Biotech movers: NTLA issued its opening 2021 press release but held back on a timeline until later this year for when it expects to show the first clinical data on NTLA-2001, its CRISPR-based in-vivo treatment for hATTR; ALNY reports positive topline results from Helios-a phase 3 study of vutrisiran which met primary and all secondary endpoints at 9 months.

·     Healthcare services and providers; BTIG initiates Healthcare Technology sector saying they generally like the stocks within this sub-sector of HCIT, though some of the recent run-ups in share price have us concerned with valuation – buy rated on TDOC, ACCD, INOV, EVH, TLMD, and CVLB; WBA posted a Q1 beat on top and bottom line ($1.22/$36.3B vs. $1.03/$34.8B) while saying sees higher adverse impacts from COVID-19 in Q2, the company anticipates first-half FY21 adjusted EPS to be broadly in line with prior expectations

·     MedTech and Equipment; OXFD to be acquired by PKI for $22 per share in deal valued at around $591M as deal expected to be completed in the first half of 2021 https://bit.ly/3s3rkQk in research in Life Science Tool, Wells Fargo upgraded PKI and downgraded WAT as see a tricky set up as investors digest elevated stock valuations, durability of Covid tailwinds and opportunities for greater cyclical recovery elsewhere, top picks would be BIO, DHR, PKI, A, HOLX, LH, more cautious on ILMN and WAT; ABMD announces it has surpassed more than 1,000 patents worldwide, with more than 850 additional patents pending; ANGO moves on earnings; QDEL shares plunged late day after guiding Q4 revs to $808M-$810M vs. est. $819.5M

 

Industrials & Materials

·     Transports, Industrial & Machinery; the infrastructure and building related names (MTZ, PWR, GE, CAT) continue to see action on hopes for more spending measures under a full Democratic control in Washington; MMM downgraded to Underperform from Neutral at Bank America; AYI falls despite beat on top and bottom line as sales declined on a YoY basis; transports edged higher, nearing their all-time highs, but subsectors were mixed; FCX extends gains as copper prices hit their highest levels since 2013 for a third straight day, driven by expectations of infrastructure spending by incoming U.S. President Joe Biden after his party won control of the Senate (metals in general higher again)

·     Aerospace & Defense; SPCE updated rocket update saying following the test flight on December 12, 2020, corrective actions have been defined and work is already underway; AJRD downgraded at Jefferies saying a higher bid for the company is unlikely as it sees LMT as preferred acquirer due to low antitrust risk, which eliminates NOC as potential bidder

·     Chemicals: APD downgraded to Hold at Jefferies saying it has the least cyclical leverage among the industrial gas companies, notes series of mis-steps on the first round of mega-projects and the benefits from the upcoming wave of CCS and hydrogen projects will likely accrue across the sector; ALB said it will expand capacity at its lithium production facility in Silver Peak, Nevada; MOS was upgraded to overweight at JPMorgan and raise tgt to $32 from $17 saying seems to be the most inexpensive of the agricultural companies and trades at the lowest multiple of EBITDA for 2021 of names under coverage; SMG tgt raised to $250 at Truist as like Hawthorne tailwinds, solid lawn/garden trends on extension of WFH trends, and new SOP on back of Hydrofarm IPO.

·     Paper & Packaging: SEE both upgraded to Buy at Citigroup and raises ests as favor names with leverage to continued rotation & recovery in 2021 while downgraded SLGN, and earlier this week AMCR, to Neutral on more balanced risk/reward in paper & packaging

 

Technology, Media & Telecom

·     Internet; FB CEO Zuckerberg said Facebook and Instagram will extend a ban on U.S. President Donald Trump’s accounts for at least the next two weeks until the presidential transition is completed; TWTR maintains neutral rating and up tgt to $55 from $42 at Citigroup as opens a negative Catalyst Watch ahead of 4Q20 earnings, as 3P data indicates downside risk to 4Q20 Street mDAUs; NFLX tgt raised from $625 to $650 ahead of Q4 results as expect paid net adds to come in above guide helped by ongoing shutdowns & seasonal strength; SHOP took Trump e-commerce websites offline due to riot, WSJ reported; BIDU rose after Reuters exclusively reported the co plans to form new co to make smart electric vehicles with automaker Geely

·     Semiconductors; Philly semi index (SOX) another record highs, rises over 3% topping the 2,925 level today as nearly all components higher on the day; NVDA rises over 5% (Citigroup added to Catalyst Watch list and expect the stock to outperform out of CES next week following recent underperformance); equipment names KLAC, LRCX, TER among leaders ahead of TSM investor meeting on 1/14 (expectations to boost capex); MU rises ahead of earnings tonight; HIMX rises after reports preliminary Q4 adjusted EPS 19.7c, consensus 15c

·     Media & Telecom movers; TMUS adds 5.5 million postpaid customers in 2020, the most in company history, and further expands 5g network leadership by exceeding ambitious 2020 5g goals; for Q4, 1.7 million total net additions, 1.6 million postpaid net additions, 824,000 postpaid phone net additions; UONE falls after issuing guidance for Q4 revs $110M-$114M and year $373M-$377M while also issues private debt offering of $825M senior secured notes due 2028

·     Services, Hardware & Component news; DXC rises as Reuters reported France’s Atos confirmed on Thursday it has made a $10B bid approach for U.S. rival DXC Technology https://reut.rs/3opuj35 ; in the 3D space, DDD surges after guiding Q4 revs to $170M-$176M, above the $140M est. and said non-Gaap operating income is expected to be $11M-$19M vs. $5.6M earned in the year ago period (shares of SSYS, VJET, XONE active on guidance)