Closing Recap

Monday, July 06, 2020

Equity Market Recap

·     U.S. stocks surged again on Monday, pushing the NASDAQ to fresh all-time highs (rising a 5^th straight session along with the S&P 500), helped by a jump in ISM Non-manufacturing data for June in the U.S. and after Chinese markets posted their best one-day gains in nearly 5-years amid hopes of a China-led recovery from an economic slump brought on by the coronavirus outbreak. Stocks continued their upward momentum despite the number of U.S. coronavirus deaths exceeding 130,000 on Monday, following a surge of new cases with cases rising in 39 states and 16 posting new record daily infection counts this month, according to a Reuter’s analysis. The big cap, high flying momentum names in technology were at it again today as TSLA easily topped the $1,300 level, AMZN traded above $3,000 for the first time, MSFT another record high topping $210, NFLX a record high as approaches $500 per share, NVDA also record highs as nears the $400 level as the Semiconductor index hits a record. In software, CRM trades to new record highs as few points of weakness in tech overall. Shares of Materials, Financials and Consumer Discretionary also paced gains while defensive Healthcare, Utilities and Energy stocks fell. The day started strong after China’s Shanghai Index jumped 5.7% overnight (180-points) to record its largest one-day gain since 2015 (highest close since Feb 2018) amid expectations of a faster and a better bounce-back in business activity than other major countries still battling COVID-19 crisis. The S&P remains about 7% from its record highs and the Dow about 11% below their respective peaks from February, up more than 40% from March lows. Treasury prices still remain strong, with the 10-yr yield only up 2 bps still holding below 0.7%.

·     Coronavirus news: The U.S. Centers for Disease Control and Prevention (CDC) reported 2,886,267 cases of new coronavirus, an increase of 44,361 cases from its previous count, and said that the number of deaths had risen by 235 to 129,811. Florida covid-19 cases rise 3.2% vs. previous 7-day avg. 5.1% as total cases reach 206,477 from 200,111 a day prior. Arizona virus cases increase 3.4% or by 3,352 vs. 7-day average of 4.1%.

·     Just two weeks after JPMorgan said it was turning bullish on the US, officially upgrading US equities to Overweight after missing the biggest equity rally in decades with a Neutral rating on US stocks, the bank’s chief equity strategist said that looking ahead, much of his newly found optimism has vaporized and as a result, "risk-reward is unattractive for equities in 2H of 2020" and stocks are likely to lag bonds and cash again, as they did in 1H ‘20.

Economic Data

·     ISM Non-Manufacturing index jumped to 57.1 from 45.4 in May and above the 50.2 estimate, helping boost stock markets higher as the employment index rose to 43.1 from 31.8 in May, prices paid index 62.4 in June vs. 55.6 in May and the new orders index surged to 61.6 in June vs. 41.9 in May in another sign of an economic recovery

·     U.S. IHS Markit June final composite PMI at 47.9 (vs. flash 46.8) and vs. last month 37.5 reading and June final services PMI at 47.9 (vs. flash 46.7)

Commodities

·     Oil prices ended the day little changed, with WTI crude slipping 2c to settle at $40.63 per barrel after ending last week at a four-month-high near $41 per barrel as investors keep a close eye on the demand recovery from the coronavirus stand-still on travel for a few months. Brent oil found some support from strong China stock markets and better US data. U.S. natural gas prices rose 5.5% to settle at $1.83 mln btus

·     Gold prices rise $3.50 or 0.2% to settle at $1,793.50 an ounce, falling early as stocks jumped but found traction as the dollar slides. Gold has pulled back from 8-year highs hit last week as a spike in coronavirus cases kept safety demand elevated, although strength in global equities and positive U.S. services sector data limited the metal’s appeal.

Currencies & Treasuries

·     The U.S. dollar remains pressured despite improving economic data and signs of a recovery from the March coronavirus pandemic lows, as continuous monetary easing measures by the Fed over the last few months has kept the “buck” at bay. The Canadian dollar touched 2-week highs while the euro moved back above the 1.13 level. U.S. Treasury yields edged higher as investors focused on an eventual economic rebound from the coronavirus, and as traders priced in auctions this week that will increase the supply of the low-risk debt. The benchmark 10-year yield was up 2.5 basis points in afternoon trading at 0.6956%. Treasury auctions, including one for $29 billion of 10-year notes set for Wednesday, will increase the supply of the securities.

Sector News Breakdown

Consumer

·     Auto sector; UBER announced a $2.65 billion all-stock deal to buy food delivery firm Postmates which will help its food delivery arm of the ride-hailing app Uber Eats to expand into new areas and add various new restaurants; TSLA tgt raised to $1,500 from $1,050 at JMP Securities after the co delivered significant upside to our estimates and the consensus outlook for 2Q20 deliveries, reporting a total of 90,650 units as compared to their estimate of 73,800 and the consensus figure of 70,300 last week; NIO rises after DigiTimes reported Monday, citing industry sources, that Nio sold 3,740 EVs in June, up 179% from a year ago; discount retail DG, DLTR as well as big retailers TGT, WMT lagged

·     Retailers; SBH reports enterprise-wide estimated sales of $348 million in June, up 9% from the previous year and 33% from May/said E-commerce sales grew 115% in June YoY and sees enterprise-wide sales of $705M in Q3; MOV said it plans to take a charge of $9M-$12M as part of a new restructuring plan aimed at reducing costs in light of the ongoing economic challenges; MIK received positive Barron’s mention this weekend

·     Casino & Leisure movers; boating stocks price tgts raised at KeyBanc as ups BC to $72 from $67 and MBUU to $58 from $48 given an increasingly visible path to NT upside estimate revisions, and view trading ranges gravitating toward or above the high end of the historical ranges; CHDN re-suspends operations at Miami casino less than a month after it was reopened; casino related names were weaker on rising COVID-19 cases (WYNN, PENN)

Energy

·     Energy stocks lagged broader market strength as oil prices were little changed early and investors continue to pour money into the winners with technology pacing the gains once again at the expense of energy and defensive sectors such as healthcare.

·     Utilities & Solar; very active in news as the Dakota Access pipeline must shut down by Aug. 5, a district court ruled Monday surprising the oil industry (shares of OKE, ET among names that were weaker on the news); Dominion (D) shares fell after material announcements: 1) the divestiture of substantially all Gas Transmission & storage assets in a transaction valued at $9.7 billion (projected Q4 close), and 2) the abandonment of the Atlantic Coast Pipeline project along with DUK In conjunction with these actions Dominion announced that it expects to repurchase $3 billion of common stock, EPS guidance for ’20/’21 was rebased lower, the dividend was reset lower, and EPS & dividend growth guidance was increased

Financials

·     Bank movers; insurance stocks outperform led by gains in AIG, LNC, UNM, and PFG, along with gains in regional banks KEY, PBCT, CMA as financials pacing gains; there wasn’t one specific story that helped propel banking and insurance names higher other than a small bounce in Treasury yields, preparation ahead of earnings next week for big banks and expectations of increased trading activity over the last few weeks

·     Consumer finance and lending; SQ tgt raised to $150 from $83 at SunTrust as expects the fintech to capture about 20% of U.S. direct deposit accounts from banks; FOUR said transaction data indicate that the states hit earlier by COVID-19 are seeing a bigger rebound in merchant transaction volume than the rest of the country – Still, 43 states are 10% or more above transaction volumes from the last week in May

Healthcare

·     Pharma movers; EBS signs five-year deal to manufacture drug substance used in JNJ’s vaccine candidate for COVID-19; to provide its contract development and manufacturing services to JNJ in deal valued at $480 mln for first two years; OBSV reports results from its two Phase 3 studies, PRIMROSE 1 and 2 of Ysetly and said it expects to submit for regulatory approval in 4Q20 in the EU and 2H21 in the US

·     Biotech movers; REGN said it had begun a Phase 3 clinical trial testing an antibody cocktail to prevent COVID-19/the study will specifically focus on the cocktail’s efficacy preventing disease in 2,000 people who have been exposed to the virus by a close contact; IMMU Immunomedics announces positive results from phase 3 ASCENT study of TRODELVY™ in previously-treated patients with metastatic triple-negative breast cancer (mTNBC)

·     Medical equipment and devices; TMO boosts medical device names after saying Q2 revenue growth is higher than consensus estimates, as estimates both reported, organic revenue growth will be about 10%, primarily driven by strong global sales of PCR-based tests, services supporting covid-19 response; ABT receives FDA approval for heart rhythm devices with Bluetooth connectivity, continuous remote monitoring; BDX said the FDA grants emergency use authorization to its covid-19 antigen test; GMED downgraded to neutral from overweight at Piper as they are worried about the potential impact of a second outbreak of COVID-19 on domestic spine procedures, and says the Street is modeling GMED recovering fairly quickly; TNDM was upgraded to buy and ALC downgraded to sell at Citigroup; shares of HOLX, IDXX, RMD, TMO, DHR all touching 52-week highs in MedTech

·     Healthcare services and providers; EVH was downgraded at KeyBanc saying their concern is that the COVID-19 outbreak has thrown a "monkey wrench" into a lot of the momentum built around value-based reimbursement; COO was downgraded to neutral at Baird and cut its tgt to $391 from $335 based on a confluence of modest issues including concern about the broader industry-wide contact lens consumption issues and growing rebate/pricing pressures

Industrials & Materials

·     Transports; in airlines, (AAL, DAL, JBLU, LUV, UAL), TSA checkpoint data continues to show slow but steady signs of improvement. For the holiday weekend, traveler throughput fell 63.3% on July 2 to 764,761, was down 67.1% on July 3 to 718,988, declined 80.1% in July 4 to 466,669 and was off 73.8% on July 5 to 732,123.

·     Metals & Materials; sector gets a boost following strength in China markets overnight, helping lift sentiment further on an economic recovery in the country; FCX said it expects Q2 copper sales to exceed previous guidance provided in April of 690M pounds by approximately 8%, and gold sales are expected to exceed April guidance of 165,000K by about 10% (had previously cut its outlook in April); CRS said it expects to reduce inventory by $100M-$120M in 4Q, which the company says is a major contributor to the lower than anticipated operating income results for the quarter as now expects adjusted operating loss to be in the range of $16M-421M; DOW announced that it has signed a definitive agreement to sell its rail infrastructure assets and related equipment at six North American sites to Watco in excess of $310M

Technology, Media & Telecom

·     Internet; AMZN shares traded to $3,000 for the first time ever today; FB said its WhatsApp segment will pause reviewing law enforcement requests for WhatsApp user data from Hong Kong government; CVNA rises after positive analyst comments with Wedbush raising its tgt to $125 from $90 as believes Carvana is emerging from the coronavirus crisis in "pole position" while other firms also positive on shares with Bofa seeing an improving trend in used car pricing during June; SINA announces non-binding "going private" proposal for all the outstanding ordinary shares not already owned by New Wave for $41 per share in cash

·     Semiconductors; The Philly semi index hitting new record highs (SOX) touching above 2,050, as tech outperforms; INTC lags strength in tech space after Goldman Sachs downgraded shares to sell with downside $54 tgt saying recent industry checks indicate a slowdown in PC builds in 2H20 and continued share loss for Intel in the client and server CPU markets; XLNX added to Conviction Buy List at Goldman Sachs with $113 tgt as believe Xilinx’s diversified end-market mix coupled with its unique product initiatives will drive growth; NVDA trades record highs

·     Media & Telecom movers; CRTO raises its Q2 ex-TAC revenue forecast from $140-$147M to $174-$175M and was higher than the $150.5M consensus while its EBITDA outlook is lifted from $6-7M to $32-33M versus the $6.78M estimate; DIS streaming of “Hamilton” delivers 64% download bump for Disney+; DISH and VIAC announce carriage agreement