Closing Recap

Friday, January 08, 2021

Equity Market Recap

·     Stock markets end higher, with the S&P 500 rising for a 4^th straight day as major averages remain at or reach new record highs in what was a good start to the New Year. The narrative remains the same, momentum pushing averages higher as investors and funds chase performance, buying any dip and being rewarded. The same market drivers continue to boost market sentiment (every day) such as an accommodative Federal Reserve (low rates), two rounds of stimulus relief money (with more on the way as President elect Biden said today in a speech it will be in the trillions) and a further vaccine rollout (despite surging cases). These same bullet points lift major averages day after day in broad fashion as financials, energy, materials, industrials among the gainers this week on expectations for infrastructure legislation to pass more easily after Democrats completed a sweep of power in Washington by taking the Senate in Georgia run-off elections. The power shift also boosting sub-sectors such as cannabis, solar, electric vehicles – all groups that have been Democratic focus during the elections. Earnings season is around the corner (2-weeks), which could be another catalyst as several companies have boosted outlooks of late.

·     Markets overlooked softer jobs data this week (ADP Wednesday and Nonfarm payrolls today) as well as soaring valuations and market multiples for stocks. Gold ended the day and week lower, falling to the lowest level in 3-weeks while oil prices rise to 10-month highs. Bitcoin again grabs headlines as a media darling, topping $41,000 today from $30,000 to start the week while Tesla (TSLA) the other media favorite tops $800B mkt cap. Smallcaps continue to dominate strength, rising about 6% the first few days of the year after a 20% advance in 2020, while financial getting a boost from a jump in yields. The overall rally this week has been further underpinned by politics as Democratic control of the Senate has raised expectations for additional near-term coronavirus relief and infrastructure stimulus further down the road. In Europe this week, the Stoxx 600 logged a weekly gain of 3%, its best week in about two months while the FTSE 100 rises 6% for the week, the German Dax ends the week up 2.4% and the Cac-40 rises 2.8% for the week.

·     Stocks slipped midday after Senator Joe Manchin (D-W.Va.) said "absolutely not" to a round of $2,000 stimulus checks Biden promised to approve $2K checks if Georgia Dems won their Senate races. Pelosi and Schumer also on board, according to a Washington Post report. Also, political drama surrounding President Trump and calls for his impeachment by Democrats picking up steam today, but none was enough to keep markets lower in the end.

Economic Data

·     Big miss on headline jobs data: Nonfarm payrolls fell -140K vs. est. up +71K, (Nov revised to 336K from 245K), private payrolls fell -95K vs. est. +98K (prior month revised to 417K from 344K) and manufacturing payrolls rose 38K vs. est. 20K (prior revised to 35K from 27K); unemployment rate at 6.7% vs. est. 6.8%; averages hourly earnings spiked to 0.8% vs. est. 0.2%; U.S. labor force participation rate 61.5% in December vs 61.5% in November.

·     Wholesale inventories for November revised to unchanged (vs. est. -0.1%) from -0.1%; Nov stock/sales ratio 1.31 months’ worth vs oct 1.31 months; wholesale sales +0.2% vs oct +1.7%

Commodities, Currencies & Treasuries

·     Oil prices finish strong as WTI crude rises $1.41 or 2.77% to settle at $52.24 per barrel (10-month highs), up 8% for the week. Natural gas prices slipped about 1% to $2.70 mln btu, snapping its 5-day rally to start the New Year. Oil prices rose on renewed stimulus hopes after Democrats won two Senate seats up for grabs this week in Georgia, paving the way for Biden to lay out additional spending packages that could boost energy demand. Markets had already risen after Saudi Arabia’s unilateral plan to cut output by 1 million b/d in February and March. More oil rigs coming back online as U.S. drillers add oil and natural gas rigs for seventh week in a row according to Baker Hughes as weekly rig count rises 9 to 360 rigs (oil rigs rose 8 to 275 and gas rigs up 1 to 84) – amid growing demand. Gold prices fall -$78.20, or 4.1% to settle at $1,835.40 an ounce, its lowest level in about three weeks and finished down roughly 3% on the week; while silver prices drop over 6% for the week at $24.58.

·     The U.S. dollar strengthened against major currencies, including 0.5% against the euro and 0.2% against the yen as the Dollar Index (DXY) rises 0.2% as safe-haven currencies saw strength after the U.S. lost 140,000 jobs in December, breaking a seven-month streak of additions. Treasury yields finally broke out of a tight trading range over the last few months, topping the 1% mark for the 10-year this week (1^st since March), topping 1.10% this week.

Sector News Breakdown

Consumer

·     Retailers; potential big catalyst coming up next week as the ICR Conference to be held virtually January 11-14, which could see a slew of updated guidance and/or holiday sales reports for several retailers that are attending (AEO, ANF, BBW, BGFV, BKE, BOOT, CHS, CROX, CTRN, EXPR, FIVE, GCO, GME, HOME, JWN, KSS, LB, LULU, M, PLCE, PVH, SIG, TGT among them; ELY tgt raised to $30 and maintain Outperform at Raymond James ahead of completion of its merger with Topgolf; PSMT Q1 EPS $0.90 vs consensus $0.68 and revenue $877.4M vs consensus $837.4M; notes that mobility restrictions were reduced in many of their markets in November

·     Auto sector; TSLA an animal unto itself, rising for an 11^th straight session to another record high, up over 15% the first 5-trading days of the year after a more than 700% return in 2020, as bearish analysts have thrown in the towel this week (several upgrades); BLNK 5.4M share Secondary priced at $41.00 per share; in Lidar space, VLDR fell as guided Q4 revenue $15.5M-$16M (est. $29.5M) and 2020 revs $94M; said long-term outlook remains strong, but 2021 guidance withdrawn due to reduced near-term visibility; GT was upgraded to Overweight at Keybanc driven by the Co.’s numerous pathways to earnings upside through 2022E, as expect GT to solidly outperform the U.S. replacement mkt; MDGS rises after saying its expanding its electric-vehicle operations with a purchase agreement for the IP and know-how including a provisional patent for a robotic charging pad for wireless charging of electric vehicles; LEA was cut to neutral at Guggenheim following a significant run in the stock (+33% since October 15th vs. +9% S&P 500)

·     Housing & Building Products; RBC Capital with several changes as DHI was upgraded to Outperform while downgraded TPH and TMHC to Sector Perform in homebuilders. In building products MAS is their favorite long among BP OEM’s, while remain OP on AZEK and DOOR and remain underperform on MHK. In distribution, BLDR is favorite idea (macro tailwinds, lumber inflation, synergies) saying believe enthusiasm around housing is warranted into 2021 but we see risk that expectations are already lofty and a number of cross-currents present headwinds that could limit stock performance, so we recommend staying selective; WDFC shares jumped on better earnings and guidance as 1Q EPS $1.72 beat est. $10.3, sales $124.6Mm vs. est. $106.9Mm; guides FY sales $435-470Mm vs. est. $434.5Mm

·     Consumer Staples; NWL upgraded to Buy and tgt raised to $27 at Bank America as it has streamlined its portfolio, made investments and SKU reductions to improve its supply; KO defended at Barclay’s after shares have fallen 8% in the last 3-days as firm believes a worst case scenario for how an ongoing tax dispute with the IRS could pan out is arguably now fully baked into the stock; MNST tgt raised to $105 from $91 at Stifel and lift 4Q20 sales and EPS estimates reflecting stronger sales growth, per scanner data, in part reflecting successful innovation; THS was downgraded at JPMorgan to neutral as store brands have lost share in measured channels and the benefits of eating at home have not been substantial for the company

·     Leisure & Gaming; online gambling apps DKNG, PENN active after joint bills were filed by the New York state house and legislature to legalize online sports betting in the state; MGM said its largest shareholder, IAC supports its $11 billion takeover approach for Ladbrokes owner Entain Plc

Energy

·     Energy stock movers; After the past 6 years were difficult for energy investors, Piper is now optimistic on oil companies due to a combination of improving oil price stability, an increasingly attractive FCF outlook, and a broader "reflation trade" tailwind, and they upgraded CVX to OW given an improved FCF outlook as recent underperformance provides an attractive entry point, highlight CVX as top US/Euro picks, is positive on TOT though say XOM still at a crossroads and face challenges to compete with peers on distribution despite recent improvement; Barclays and JPMorgan both reiterated their Overweight ratings on FTI after yesterday’s spinoff

·     Utilities & Solar; Citi initiated CSIQ at Buy with a street-high $71 target despite its +130% 2020 performance as they still see more room to run given macro tailwinds, a growing and stabilizing project development business, and energy storage that offers underappreciated growth, and FSLR at Neutral with a $106 tgt as they should also benefit from macro tailwinds but their valuation is stretched and there is potential for margin pressure if the Section 201 tariffs lapse next year; AVA was downgraded to Underperform with a $37 pt at Bank of America as it trades at a premium compared to peers despite its current rate case in Washington and the company’s wildfire risk in the Pacific Northwest

·     Renewable & Clean energy: Raymond James made six rating changes: downgrading ITRI, LTHM, and TPIC from Strong Buy to Outperform; downgraded XYL from Outperform to Market Perform and cut ENPH from Market Perform to Underperform; but upgraded PRMW as all reflects an approach of being prudent and disciplined: locking in gains on some clear-cut winners, while staying on the lookout for opportunities on a selective basis; XYL was also downgraded to underperform at Cowen who lowered their estimates on the belief that further near-term upside is unlikely based on a slow recovery in key markets, mix and cost pressure on margins

Financials

·     Bank movers; UBS upgraded mid-cap banks WAL, WBS, EWBC and BPOP to Buy as they remain bullish on the sector after a re-rating consistent with a more constructive credit outlook and vaccine news; BNS was downgraded to Underperform by Credit Suisse due to continuing near-term headwinds for the bank’s International business and a less compelling relative valuation following its share price outperformance vs. peers through Q4 earnings season; Piper raised its price target on BANC to $21 from $19 and named it a top pick for 2021 based on a number of catalysts, an expanding ROA outlook above consensus, and its valuation discount; KBW upgraded RF to Outperform; CS said it expects to raise its provisions by another $850M due to its civil dispute with bond insurer MBIA in NY, resulting in a net loss for Q4

·     Insurance; Evercore upgraded PGR to outperform, AFL and UNM to in-line from underperform and downgraded ATH and VOYA to in-line from outperform; Goldman upgraded CB to Conviction Buy with a $175 pt as the company’s broad platform and strong balance sheet position it well, RNR to Conviction Buy with a $199 pt as current valuation presents an opportunity to own shares, BRO to Buy with a $64 pt as they estimate it will have the highest EPS growth, adj EBITDAC margin expansion, and FCF margin in 2022 among brokers, WRB to Neutral as an insurer poised to benefit from stronger and stickier P&C rate momentum and downgraded PGR to Sell with a $90 pt, saying shares are overvalued with a lack of pricing power

·     Services, Consumer Finance; CATM said that it received an offer from an undisclosed party for $39 per share in cash, above the prior $35 deal it reached with Apollo (APO) and Hudson Executive last month https://bit.ly/39fBJiW ; Cowen reiterated their outperform on FISV as see 36% upside, saying shares are very underappreciated after their Clover acquisition and they would be buyers at these levels; Ray Jay reiterated their Outperform rating on DCT after the company’s Q1 results exceeded expectations and showed progress on several key growth initiatives; WU upgraded to Buy at Guggenheim as see EPS generation improving materially in ’21E/’22E and the operating environment for WU should begin to normalize in coming periods

·     REITs; BMO downgraded WELL to Underperform with a $64 pt, saying the street is too optimistic on a senior housing recovery, upgraded LSI to Outperform with a $140 pt on improving pricing and supply trends across NYC, Chicago, and Houston, its top 3 markets, and also upgraded CUBE ($36 pt), CTRE ($26 pt), and NSA ($42 pt) to Outperform, SBRA ($19 pt) to Market Perform, and downgraded VTR to Underperform ($49 pt)

Healthcare

·     Pharma movers; BNTX and PFE’s Covid-19 vaccine appeared to work against a key mutation in the highly transmissible new variants of the coronavirus discovered in Britain and South Africa, according to a laboratory study conducted by the U.S. drugmakers; MRUS granted FDA fast track designation of zenocutuzumab for the treatment of patients with neuregulin 1 fusion cancers; CMRX rises after the company said it bought Oncoceutics Inc., a privately held, clinical-stage biotechnology company for $78 million.

·     Biotech movers; SRPT plunges as its price tgt was cut by several analysts after the co’s DMD drug failed to achieve statistical significance in one of the main goals of a study while the drug, SRP-9001, met one of the goals of the study; NLTX falls following a clinical hold from the FDA related to its Investigational New Drug application to start a Phase 1 program of its immunotherapeutic candidate, NL-201; BIIB announced that first patient has been treated in Phase 4 (RESPOND) study, assessing benefit and safety of Spinraza in patients with spinal muscular atrophy; REGN upgraded to a Buy rating with a $575 PT from $635 at Citigroup as think recent weakness in the name is overlooking the pace of Dupixent’s growth and expansion potential while fixating on Eylea which is gradually becoming smaller part of the story; the UK’s Medicines and Healthcare products Regulatory Agency has authorized use of MRNA’s COVID-19 vaccine

·     Healthcare services and providers; animal health names in focus at Stifel today as TRUP tgt raised to $90, IDXX to $520, CVET to $32 saying while industry momentum appears likely to continue, they believe that multiple expansion may player a smaller role as many AH stocks ended 2020 close to all-time-highs; Jefferies upgraded hospital THC to Buy as see its pending acquisition of 45 surgery centers from SurgCenter (SCD) and spin-off of Conifer as transformational catalysts, raise CVS to Buy as believe its role in the government’s COVID vaccination efforts could yield ~$1B in incremental gross profits over the next 12mo, which should translate to meaningful EPS surprises and downgraded PINC to Hold after the recent rally in shares

·     MedTech and Equipment; HOLX rises after saying it expects Q1 total revenues of $1.61B (+89.3% Y/Y), compared to its most recent guidance range of $1.35-$1.43B, and vs. consensus of $1.39B; MYGN receives first reimbursement decision for MyChoice® diagnostic system in japan, enabling women with ovarian cancer to benefit from treatment with Zejula

Industrials & Materials

·     Aerospace & Defense; BA announced that it had reached an agreement with the Department of Justice (DOJ), which resolves the DOJ’s criminal investigation into Boeing regarding the 737MAX. Under the terms of the deal, Boeing will make a total of $2.51bn in payments, which consists of three separate parts; Jefferies said prefer TDG given price and volume levers with 30% upside from cap deployment, while SPR is favorite OE narrow body play as believe Defense should benefit from pent-up demand and a lag in outlays, but flattening budgets weigh on valuations

·     Metals & Materials; U.S. Steel (X) upgraded to Buy from Sell, CMC and RS downgraded to Hold from Buy in steel sector at Deutsche Bank; gold miners slumped with the decline in gold prices (NEM, GOLD, AEM); in chemicals, RBC Capital said its most favored names are DD, HUN (upgrading to OP), CC (upgrading to OP), CTVA, and FMC. Within Coatings, preferences in order are PPG, AXTA, SHW and RPM (downgrading to SP). In Packaging, we believe many of the same themes should carry over into 2021 and our favorite names are CCK, PTVE, and GPK; EGO reports prelim FY 2020 and Q4 gold production results of 528,874 oz. and 138,220 oz., respectively

Technology, Media & Telecom

·     Semiconductors; another record high for the Philly semi index (SOX), led by MU posted Q1 numbers ahead of Dec 1st pre-announcement and guided 2Q higher as well as DRAM drove results with demand in mobile, cloud and auto (tgt raised by several analysts); STM preliminary Q4 revenue was $3.24B, topping its prior view of $2.99B plus or minus 350 bps, helped by smartphone demand as well as automotive products and microcontrollers; LRCX was downgraded to Hold from Buy at Needham as think the WFE industry is at an inflection point, where the growth driver is shifting from NAND in the last cycle to DRAM and foundry/logic in this new cycle; TSM reported December sales NT$117.37B, (6.0%) m/m, +13.6% YoY; IMOS Q4 revenue $224.7M (+13.3% Y/Y) as December revenue was $78.0M (+20.1% Y/Y; +6.8% M/M), helped by strong memory and DDIC demand throughout 2020

·     Internet, Software movers; NEWR spikes as promotes Chief Product Officer Bill Staples to additional role of President and said it expects Q3 revenue and annual recurring revenue (ARR) above high end of guidance; BABA bounces after Bloomberg reports U.S. Treasury list from Jan. 8 doesn’t include Alibaba, Tencent – U.S. posts updated list of Chinese military companies

·     Media & Telecom movers; SIRI said it expects to meet or exceed its 2020 guidance for revenue, EBITDA and free cash flow; added a net 909,000 self-pay subscribers to end 2020 with about 30.9M self-pay subs, beating its most recent guidance; DIS was upgraded to Neutral by long time bear at Lightshed saying their call has been dead wrong.

·     Hardware, Services, & Component news; ST raised Q4 revenue forecast to $902M-$907M from prior view $810M-$850M helped by higher orders and deliveries than anticipated for its automotive and industrial businesses; FFIV tgt raised by several analysts to reflect the Volterra acquisition and improved NT and LT outlook as reflected in FFIV’s preannouncement; ROKU hits record highs after acquired global distribution rights to short-form video streaming app Quibi’s content library (follows several positive analyst calls to start the year); DM shares spiked after Bill Miller on CNBC notes DDD is up over 150% last few days – saying that’s the old 3D technology while saying DM is the future of 3D technology

·     Communications & Networking: ACIA that it has opted to terminate its merger agreement with CSCO. The merger, announced last July, "was conditioned on the satisfaction or waiver of customary closing conditions, including obtaining necessary regulatory approvals within the timeframe contemplated by the merger agreement.