***This will be the last Closing Recap note until Monday July 6^th

***Have a safe and Happy 4^th of July holiday weekend

Closing Recap

Wednesday, July 01, 2020

Equity Market Recap

·     U.S. stocks advance in its first trading day of the month and quarter following a 14-month high in manufacturing data (ISM), promising COVID-19 vaccine test news from Dow component Pfizer and its drug partner, and as the labor market continued to show improvement last month. After posting its best quarterly result in over 20-years yesterday, fueled by the Federal Reserve’s aggressive support for financial markets and signs of an early recovery in economic activity, stocks started the new quarter how it left off – strength in tech. Software and Internet names extended their recent rebound (FB has now nearly recovered all its losses following the mass boycott on its platform), while semi’s slipped after yesterday’s outperformance behind MU/XLNX guidance. Transports as a whole erased gains despite FDX jumping on earnings as airlines and rails couldn’t hold early rallies. Increased COVID-19 cases in over a dozen U.S. states (Texas and Arizona touched record highs), remain a concern heading into Q3 – though that wasn’t evident today. Mid-afternoon, stocks took a blip lower after headlines that the U.S. readies global sanctions on China over Xinjiang abuses – but as has been the case (for the most part), was used as a buying opportunity. Back to the data, the ISM’s June manufacturing index rose to 52.6 from 43.1 in May and topped estimates. That followed similar results in the overseas surveys in Asia and Europe. Smallcaps underperformed with the Russell 2000 falling with large caps in focus.

·     Coronavirus news: Florida coronavirus cases rise by 6,563 to 158,997 total as of Wednesday as Florida covid-19 cases rise 4.3% vs. previous 7-day avg. 5.7%. New York followed New Jersey lead and delayed the reopening of indoor dining that was expected to resume on July 6^th. Arizona coronavirus cases rise by 4,877 to 84,092 total as of Wednesday, biggest daily increase since pandemic started while deaths rise by 88 to 1,720 total on Wednesday, biggest daily increase since pandemic. California posts record 9,740 new virus cases a 4.4% daily jump, with 232,657 total positive covid-19 cases and reports 110 additional covid-19 deaths. Apple said it was re-closing 30 more stores tomorrow – bringing the total up to 77 now. Also record high corona virus case daily totals for Georgia, Tennessee, North Carolina and Alaska.

Economic Data

·     ADP nonfarm private sector in the U.S. added 2.37M jobs in June, but the speed of rehiring slowed compared with May (was also below the 2.9M estimate), as reported by ADP. June’s reading signals a slowdown in job creation compared with May figures, which were upwardly revised to 3.07M jobs added from an initial estimate of -2.76M of jobs lost.

·     June U.S. ISM Manufacturing rises to 52.6 (highest since April 2019) vs est. 49.8 as production rose to 57.3 vs 33.2, highest since Nov. 2018, new orders rose to 56.4 vs 31.8, highest since Jan. 2019 and employment rose to 42.1 vs 32.1

·     IHS Markit June final manufacturing PMI at 49.8 (vs. flash 49.6) as manufacturing sector final PMI for June at 49.8 vs flash reading 49.6 and final May 39.8; sector final output index for June at 47.5 vs flash reading 47.8 and final May 34.4

·     U.S. construction spending unexpectedly fell in May, pulled down by a decline in outlays on private construction projects. The Commerce Department said that construction spending dropped 2.1% vs. an est. rise of 1%. Data for April was revised down to show construction outlays decreasing 3.5% instead of declining 2.9% as previously reported

Commodities

·     Oil prices bounce along with broader stocks markets as WTI crude gained 55c or 1.4% higher at $39.82 per barrel following bullish weekly inventory data as the EIA reported a much-larger-than-forecast drop in US crude-oil inventories. The EIA reported a -7.2MM barrel decline, which followed a weekly draw of stockpiles over 8M the night prior by the API

·     Gold prices slipped -$20.60 or 1.1% to settle at $1,779.90 an ounce, just a day after settling at their highest since 2011 above the $1,800 an ounce level. Some optimism remains over the U.S. economy recovering quicker than expected, but the rising coronavirus cases and trade concerns with China keep gold prices higher along with a weakening U.S. dollar.

Currencies & Treasuries

·     Treasury prices slipped as yields inched higher, as the 10-year yield neared 0.7% before fading. Economic data was favorable given strong ISM data and mixed private payroll data. Markets remain watchful of coronavirus case headlines, state reopen plans and hopes for a vaccine. The U.S. dollar slumped to lows late afternoon despite the better round of data, falling vs. the euro and Pound after better PMI data overseas overnight.

Sector News Breakdown

Consumer

·     Retailers; CPRI Q4 adj EPS 11c on sales $1.19B (vs. $1.34B a year ago) and vs. est. 14c and $1.12B while sees Q1 revenue declining about 70% and a significant Q1 loss (Q4 Michael Kors revenue fell -18.4% to $872M); Macy’s (M) posted a net loss of $3.58B while sales fell over 45% to $3.02B, which was in-line with estimates while not providing updated guidance but does continue to expect a gradual sales recovery; PTON said it launches on the ROKU platform to bring the industry leading interactive fitness platform to Roku users; SWBI, RGR, SPWH, VSTO shares active (sun, sporting goods) after June NICS data showed 3.931M checks, up from 3.091M in May and up from 2.312M the same period a year ago

·     Restaurants/Consumer Staples; GIS reports Q4 EPS and sales above estimates while saying that calendar differences and the significant surge in demand seen in 4Q FY20 would result in 4Q FY 2021 net sales declining materially year over year; BYND rises as announced a partnership with BABA to sell its plant-based burgers in the Chinese technology giant’s Freshippo stores in Shanghai/Beyond Meat will begin selling its products in 50 Freshippo stores beginning July 4; STZ beats first-quarter profit estimates saying COVID-19 slowed down beer production in Mexico, but is expected to return to normal levels in Q3; beer and spirits names (BUD, SAM, TAP), along with restaurants (DRI, EAT, TXRH, CAKE) after Virginia and Delaware also shutting bars and slowing or reversing some reopening plans; DENN 8M share Spot Secondary priced at $9.15

·     Auto movers; GM said sees Q2 sales down about 34%; TSLA surpassed TM as the largest auto company by market cap today as shares trade to new record highs; TM sold 148,280 in June as North American June sales were down 26.7% from last year; HMC June auto sales down -15.5% vs. -7.3% YoY

·     Casino & Leisure movers; for WYNN, MGM, MLCO, Macau gross gaming fell by 97.0% Y/Y in June to $716M patacas, according to a release by the Gaming Inspection and Coordination Bureau (YTD Macau GGR is down 77.4% from the 2019 level to 33.7B patacas); PENN entered into a partnership with Sportradar, the global provider of sports data and content, to use official NFL data on the Company’s sports betting platforms; DKNG initiated overweight and $52 tgt at Stephens on its view that the total addressable market for U.S. online sports betting is large and underpenetrated.

Energy

·     E&P sector; NOG was upgraded to buy at SunTrust as believe its non-operated status that causes it to trade at a discount provides positive options in today’s volatile energy environment; OXY extends deadline for Wyoming to bid on company’s Colorado, Wyoming land and minerals up for sale from today to July 8; Goldman Sachs reiterates Buy ratings on CVX, COP and its Sell rating on XOM (price tgt lowered to $42 from $44) ahead of quarterly earnings later this month

·     Utilities; Goldman Sachs downgrades CWEN from Buy to Neutral and removes from Conviction list, replacing it with NEP; JPMorgan upgrades SR from UW to Neutral and downgrades SJI from OW to Neutral; SRE completes its exit from South America and raised its full-year 2020 GAAP EPS guidance range to $12.38-$13.32 from $11.88-$13.02 and its full-year 2020 adjusted EPS guidance range to $7.20-$7.80 from $6.70-$7.50.

Financials

·     Consumer Finance and Lending; PYPL touches another all-time high, continuing to benefit from cashless transactions during COVID-19 pandemic; SQ another beneficiary, receives another analyst upgrade as Rosenblatt raised to buy with $121 tgt as believe that too much focus on NTM EPS multiples will ensure investors miss the bigger picture; WU was upgraded to buy at Northland saying while WU’s late March and April were rough with transactions down ~30% y/y and 21% y/y, respectively, they believe transactions have recovered better than expected with May being down only 7% y/y and this momentum continued into June

·     Services and Exchanges; IBKR said for June 1,862 thousand Daily Average Revenue Trades (DARTs), 131% higher than prior year and 13% higher than prior month. Ended client equity of $203.2 billion, 33% higher than prior year and 7% higher than prior month. Had 876 thousand client accounts, 36% higher than prior year and 4% higher than prior month.

·     REITs; senior living REIT stocks outperformed though with Covid-19 cases on the rise in many states around the country Morgan Stanley expressed caution noting nursing homes have been particularly badly hit by the virus, which has seen a higher mortality rate in older people. The firm noted that re-opening of senior housing properties to new residents has helped the sector and particularly WELL but the uptick in cases could weigh. In four U.S. states MS cites as current epicenters for the virus – TX, FL, CA & AZ – the report says SNR, has most exposure followed by WELL and VTR with PEAK having the least exposure there.

Healthcare

·     Pharma movers; BNTX says covid-19 vaccine, co-developed with PFE triggered strong immune response in early-stage human trial/both plan to test most promising of four vaccines on up to 30,000 healthy participants in U.S. and Europe; MNOV shares rise early as its investigational new drug application (IND) for MN-166 for prevention of Acute Respiratory Distress Syndrome (ARDS) has been accepted by the FDA; CHMA 17.5M share Secondary priced at $4.00; GBT rises over 11% after Goldman upgraded earlier

·     Biotech movers; AKRO shares jumped after released results of a 16-week analysis of "secondary and exploratory endpoints in its Phase 2a Balanced study of efruxifermin, formerly known as AKR-001, in patients with nonalcoholic steatohepatitis (NASH); CRSP 6.428M share secondary priced at $70.00; AMGN wins appeal upholding patents on Enbrel

·     Medical equipment, Healthcare services and providers; CRL upgraded to buy from neutral and raise tgt to $192 at Bank America saying business trends are evolving better than expected; CDMO shares jumped following quarterly results overnight

Industrials & Materials

·     Transports; FDX gives a boost to transports after reported 4QF20 EPS of $2.53 easily topping the consensus of $1.58 as Ground revenue growth of 20% was much stronger than estimates (helped by loss of AMZN volume) while both Ground and Express margins were better than forecasts; YRCW shares rise after the company said it expects to receive a $700 million CARES Act loan from the U.S. Treasury.

·     Airlines surge on vaccine hopes for COVID-19 virus while UAL also said it as adding nearly 25,000 flights to its August schedule, which will be triple the size of the June schedule. That would bring the air carrier’s overall August schedule to 40% of its August 2019 schedule. In the U.S., United plans to fly 58% of its 2019 schedule, up from 30% in July, while internationally, United is scheduled to fly 25% of its August schedule, up from 16% in July; broad strength in the airlines

Technology, Media & Telecom

·     Internet & Semiconductors; Philly Semi index (SOX) slips after surging yesterday, failing at the 2,000 level last 2-days – profit taking today after XLNX, MU earnings/guidance related sector strength yesterday post better guidance; FB nearly recoups all of its recent pullback on the boycott of advertising on its platform from dozens of companies, shares up over 4%

·     Software movers; SAIL rises to record highs after Goldman Sachs upgraded to buy from sell saying its poised to address enterprise demand for a more streamlined and automated approach to provisioning and managing digital identities and access; SE was initiate overweight and $130 tgt at Stephens saying its firing on all cylinders; KeyBanc raised its price tgts on TEAM ($201 from $163) and LPSN ($48 from $38), and our FIVN bull case ($130 from $102) and raise ests amid increased confidence in the outlook for Collab and next-gen Contact Center software; KeyBanc also initiated COUP, PLAN and BL with overweight ratings as sees encouraging signals that WFH trends are exposing limitations in cumbersome on-premise system, which could accelerate cloud-based system demand; MSFT trades to new all-time highs

·     Media & Telecom movers; CMCSA was upgraded to outperform at Bernstein as the firm urged the company to spin out NBCUniversal and Sky; CCOI was upgraded to buy at SunTrust saying through a combination of higher rep counts, lower rep churn, increased productivity and improving ARPU on remote office promotions along with accelerating net centric growth (streaming), we believe CCOI can exceed expectations for 2Q and 2H; shares of media giant DIS rebounds with broader market rally on vaccine headline hopes; DISH closed its purchase of Boost Mobile from TMUS, officially jumping into the retail wireless market with 9M new customers.