Closing Recap

Thursday, July 15, 2021

Equity Market Recap

·     Stocks slide with technology shares dragging the Nasdaq lower, while Smallcaps extend losses with the Russell 2000 falling further below key technical levels. Investors appear cautious following somewhat more watchful comments from Fed Chairman Powell and Fed President Evans (at least more so than normal). Powell stressed that while inflation remains well above the Fed’s target, still views the high rate of price increases as temporary (also said “U.S. inflation uptick is bigger than I expected).” Evans, while noting he expects ‘unusual’ rise in inflation pressures to be transitory, and expects 2.1% core PCE inflation in 2022, he did note that inflation has picked up stronger than expected as well. Remarkably, bond markets continue to rally as yields fall sharply with the 10-year breaking back below 1.30%, oil dropped sharply a second day and gold rose. Market focus may now turn to earnings, as we get into the heart of earnings season with nearly 1/3 of Dow components expected to report next week (AXP, HON, KO, IBM, INTC, MMM, TRV, VZ). Meanwhile the IPO calendar continues to heat up as fifteen (15) IPO’s are expected to price this week, with six of them pricing last night (RPID, MCG, PECO, FXLV, SERA, SGHT) and trading today and roughly eight expected tonight (BLMD, BRDG, DYCU, ERAS, IMGO, SCAN, STVN, TCRX).

·     Stock/sector news: NFLX rises early after hiring execs in a push towards offering video games on its platforms within the next year, but shares go red intraday with broader weakness; TSM stumbles after Q2 revs slightly miss consensus as semi stocks stand out to the downside; AMD slides despite Citi u/g to Neutral, MCHP lowest in more than 4 months and NXPI drops sharply after Mizuho downgrades; UNH rises on its earnings beat and raised FY guidance, leading the Dow with HON on news it will be added to the Nasdaq-100 as the index outperforms the S&P and tech-heavy Nasdaq; Bank earnings: USB leads the S&P and TFC gains on beats, while BK slips as its NII fell YoY on lower rates and MS slightly lower despite its beat; BIIB hits its lowest level since the controversial FDA approval of its Alzheimer’s drug 6/7 after some hospitals, such as the Cleveland Clinic, said they will not administer the drug in a panel yesterday.

·     Note tens of millions of U.S. households are set to receive their first monthly payments of the expanded child tax credit. The Internal Revenue Service issued families payments of up to $300 per child under a recent government program. The Biden administration said it paid about $15 billion, mostly through direct deposits, to families with nearly 60 million children.

Economic Data:

·     Weekly jobless claims fell to 360K in latest week, in-line with estimates while prior week revised higher to 386K from 373K; continued claims fell to 3.241M from 3.367M; the 4-week moving average fell to 382,500 July 10 week from 397,000 prior week and U.S. insured steady at 2.4%

·     NY Fed’s “Empire State” index on current business conditions shot up by 26 points to 43.0, well above the reading of 18 forecast; survey’s six-month outlook gauge registering at 39.5; new orders 33.2 in July vs. 16.3 in June, prices paid 76.8 vs. 79.8 in June and employment index at 20.6 in July vs. 12.3 in June.

·     Philadelphia Fed Factory index for July weaker at 21.9 vs 30.7 prior and estimate 28.0; new orders index at 17.0 vs 22.2; Fed Future index at 48.6 vs 69.2 and Employment index at 29.2 vs 30.7.

·     Industrial output rose +0.4%, slightly below the 0.6% estimate vs. May up +0.7%; June industrial output ex cars/parts +0.8% vs May +0.4%; Capacity utilization rate 75.4% vs. est. 75.6%, but up from May reading of 75.1%.

·     June Import prices rose +1.0% M/M vs. +1.2% consensus and +1.1% prior while Export prices rose +1.2% M/M vs. +1.3% consensus and +2.2% prior.

Commodities

·     Oil prices add to Wednesday losses (fell -2.8%) as WTI crude dips -$1.48, or 2.02% to settle at $71.65 per barrel, as OPEC+ producers begin to raise output after the White House urged increased production to stave off rising gasoline prices. Gold prices rise for a third straight session, bouncing off lows of $1,820.60 an ounce to settle at $1,829 an ounce, rising $4.00 on the day as precious metals get a boost as stocks slide and bond yields fall.

Currencies & Treasuries

·     The U.S. dollar edged higher, with the dollar index up 0.25% above 92.60, recovering some of the ground lost in the prior session after Fed Chairman Powell told Congress he saw no need to rush the shift towards tighter post-pandemic monetary policy. His comments come in the face of a 4^th straight month of surging CPI and PPI price, coming in “hotter” than economist expectations yet again, as the pace of inflation seems to be rising faster than the Fed foresaw. The buck has climbed in recent weeks as investors got more sanguine about the outlook for the greenback.

·     Doubleline CEO Jeffrey Gundlach said in a CNBC interview that he expects the U.S. dollar to continue climbing to around the 94s (for the dollar index = DXY), before a very major drop. He also said Treasury yields are this low due to liquidity; said stocks are still cheap to bonds, though valuations rising and that for inflation to be transitory, stimulus should be transitory.

·     Treasury yields just couldn’t get going, pulling back the last few days despite a significant surge in consumer and producer prices, as the 10-year Treasury falls to 1.30% after topping highs above 1.42% just yesterday morning. Comments by Fed Chairman Powell, Fed’s Evans (more cautious than normal) and Gundlach all led the decline in stocks and rotation into bonds.

Sector News Breakdown

Consumer

·     Retailers; LB announces ~20.04M shares by former CEO Leslie Wexner, and his wife Abigail, at $74.50 for aggregate purchase price of $1.49B/LB also to repurchase 10M shares from the selling stockholders at $73.01, as part of previously announced $1.5B buyback program; CSPR announces a new partnership with BBBY as its sleep offerings will be available to customers; GME slips early after Netflix hired a former Electronic Arts and Facebook effort to lead its expansion into video games (general downward momentum over the last 2-weeks as well); DG tgt raised to $270 from $225 at Oppenheimer; VRA announces collaboration with DIS; DLA said expects net sales growth of 65% Y/Y to ~$118M vs. consensus of $109.8M.

·     Auto sector; CHPT 12M share Secondary priced at $23.50; NKLA adds 51 dealership locations in nine states as the co plans to expand its sales and service network; GM warns Bolt EV owners with the model years 2017, 2018 and 2019 and were part of a recent recall that they should not park their vehicles inside or charge them unattended overnight; GM named EVGO as a preferred provider for the company’s Ultium Charge 360 fleet service.

·     Consumer Staples; ATD upgraded to Outperform with $59 tgt after the company hosted an Investor Day event and presented on the company’s outlook with several positive takeaways; BYND said it has launched an online store in China on JD’s ecommerce platform, as the plant-based meatmaker aims to boost sales; OTLY shares dropped as much as 10% midday, adding to yesterday declines following SprucePoint short call.

·     Casinos, Gaming, Lodging & Leisure sector; SCPL rises after SGMS offered to buy the remaining 19% equity interest in the digital games developer that it doesn’t already own – SciPlay shareholders would receive 0.250 shares of SGMS common stock for each share of SciPlay, implying an enterprise value of $1.9B https://bit.ly/3xJ4rUG ; MLCO downgraded to Hold at HSBC saying higher exposure to premium end-demand could drag on MLCO’s recovery trajectory given the ongoing regulatory impact; WYNN said its WynnBET multi-year partnership its first with an NFL Team; Stifel said they are buyers of SEAS heading into their August print as we believe there is considerable upside to current published estimates and expect positive data points around visitation and spend levels; FXLV 20.313M share IPO priced at $16.00.

Energy

·     Energy stock movers; OPEC stuck to its forecast for a strong recovery in world oil demand in the rest of 2021 and predicted oil use would rise further in 2022 similar to pre-pandemic rates, led by growth in China and India. OPEC said in its monthly report that demand next year would rise by 3.4% to 99.86 million barrels per day (bpd), averaging more than 100 million bpd in the second half of 2022. Oil demand averaged 99.98 million bpd in 2019, according to OPEC.

·     E&P and Majors; energy firms decline following another tumble for crude prices as investors brace for increased supplies after a compromise deal between leading OPEC producers and as U.S. fuel stocks rose, raising demand concerns; CLR upgraded from Neutral to Buy with $46 tgt at MKM Partners and raise tgt by $10 to $46, due to a $3 increase in our structural NYMEX oil price outlook to $65, a higher gas price realization.

Financials

·     Bank movers; BK 2Q EPS $1.13 vs est. $1.00 on quarterly fee and other revs $3.32B vs est. $3.2B and total revs $4.0B vs est. $3.88B, quarterly provision benefit $86M, and AUM $2.3T at quarter end; USB reported Q2 EPS $1.28 on net revs $5.78B vs es.t $5.62B, NII $2.62B vs est. $2.5B, and recovery of credit losses $170M vs est. provision $108.8M; TFC posted Q2 adj EPS $1.55 vs. est. $1.18 on revs $5.65B vs. est. $5.47B, CET1 capital ratio 10.2%, net charge-offs .2%; MS Q2 adj EPS $1.89 on net revs $14.76B, including institutional investment banking revs $2.38B (est. $2.06B), wealth management revs $6.1B (est. $5.92B), equities trading revs $2.83b (est.$2.5B); UCBI to acquire RBNC in a deal for approximately $517B, or $30.58 per share of RBNC common stock whose shareholders will receive 0.9842 shares of UCBI common stock for each share of RBNC held; Odeon Capital upgraded WFC to Buy

·     Brokers, Asset Managers; Citi opened a 30-Day Positive Catalyst Watch on RJF ahead of C2Q results expected on 7/28 and added the stock to their more selective Action Stocks into the print as key read-throughs from recent bank earnings give greater confidence around a C2Q EPS beat and angst around expense lift seems discounted; BMO upped their price target on BLK to $803 from $773 after their P-fees-driven beat, though they still think its multiple has limited upside and favor APO, KKR, ARES, VCTR among asset managers; HOMB Q2 adj EPS 46c was in-line with consensus on revs $172.4M that slightly missed est. $174.1M

·     Insurance; AIG announces strategic partnership with BXselling them 9.9% of its life & retirement business for $2.2B, and also sold BX certain affordable housing assets for $5.1B; Citi views this deal as positive for BX and upped its PT to $103.50 from $100; Morgan Stanley downgraded ATH to EW as the stock is more a reflection of APO stock given the pending acquisition and their new $74 is consistent with a price target of converted APO stock; ALL Q1 catastrophe losses $752M after-tax; PGR June net premiums written $3.63B (+13% YoY), net premiums earned $3.46B (+14% YoY), and June combined ratio 100.5% vs 86.9% YoY

·     FinTech & Payments; Mizuho believes SQ’s Cash App may be en route to becoming the ultimate neo-bank and the money center bank of the future with potential Cash App products showing a visible path to an average revenue per user of $150-200, or 3-5x above current levels, and gross profit possibly seeing 4-8x growth over the coming years.

·     Consumer Finance; V (Visa) and MA continue to allow customers to use their cards to make purchases on Binance despite rising regulatory scrutiny on the cryptocurrency exchange, and Piper also views weak non-U.S. purchase sales volumes as negative for these names but positive T&E and airline activity as a positive for AXP; SYF June charge-offs 2.83% and delinquencies 1.34%, and they announced a multi-year extension of their consumer financing partnership with TJXsettled with the FTC over its charge of deceiving customers over hidden fees, agreeing to pay an $18M charge; TRU, EFX strong after positive Experian results this morning in Europe

·     REITs; MAC was upgraded to Hold at Jefferies after recasting their credit facilities, selling assets, and raising equity in Q2 all improve the quality of their portfolio; PECO 17M share IPO priced at $28.00; KeyBanc downgraded FR to Sector-Weight.

Healthcare

·     Pharma movers; GLPG shares slide after its rheumatoid arthritis candidate, oral SIK inhibitor GLPG3970, failed to show benefit in mid-stage trial, though showed a positive effect after six weeks, in a Phase 1b trial for psoriasis and Phase 2a trial for ulcerative colitis; LPCN entered into a global settlement and license agreement with privately held Clarus Therapeutics to resolve all outstanding claims in the ongoing IP litigation between the two companies; in cannabis, Piper said continue to believe the U.S. opportunity is significant and that existing U.S. operators are best positioned, and their head start in the U.S. will remain a competitive advantage

·     Biotech movers; regarding BIIB, acting FDA Commissioner Janet Woodcock stands by the agency’s decision to approve Aduhelm, but she acknowledged regulators may have made missteps in the process; BCRX outlines designs for two BCX9930 trials as oral monotherapy for PNH patients; ADXS initiates early-stage ADXS-504 prostate cancer study; SAVA downgraded to Neutral from Overweight at Cantor while target to $100 saying while remain bullish on lead candidate, simufilam, believe the program insufficiently de-risked for SAVA; NAVB said the FDA granted its request for a meeting to discuss its ongoing clinical program for Rheumatoid Arthritis; IMUX 4.5M share Spot Secondary priced at $10.00.

·     MedTech Equipment; SGHT 10M share IPO priced at $24.00; BSX shares active after Needham cautious citing competition coming vs its SENTINEL device, competition coming from TriGUARD 3; GKOS extends losses after tumbling 21% yesterday after CMS released its calendar 2022 proposed physician fee schedule that includes a "significant reduction" to the physician reimbursement code for the company’s iStent.

·     Healthcare Services; managed care giant and Dow component UNH reported Q2 adj EPS $4.70 vs. est. $4.43; Q2 revs $71.32B vs. est. $69.45B; raises FY21 adjusted EPS view to $18.30-$18.80 from $18.10-$18.60 (est. $18.57) (Optum Q2 revs of $38.3 billion grew 17.2%); CLOV announced that CFO Wagner will leave on August 13^th; SERA 4.688M share IPO priced at $16.00

Industrials & Materials

·     Transports; few analyst rating changes ahead/post earnings as DAL upgraded to strong buy at Raymond James as believe expectations have been reset after better earnings, albeit with some risk if the recovery stalls; Wolfe Research upgraded PCAR to peer perform from underperform noting the stock is up less than 2% YTD, materially underperforming the Transport Index and broader market while they downgraded ODFL to peer perform from outperform as the stock is up 32% YTD, outperforming our broader LTL Index (+25%) and materially outperforming SAIA which is up 14%; CNI is temporarily suspending operations in parts of British Columbia due to wildfires, Bloomberg News reports

·     Metals & Materials; AXTA said pressure of inflation leads to the co to further increase price across all its global lines of business, effective immediately or as permissible by contract; GATO 8.93M share Secondary priced at $14.00; CE announced a new $1.0 billion share repurchase authorization; HUN, LIN, ALB all named Catalyst Call Buys at Deutsche bank today

Technology, Media & Telecom

·     Internet; NFLX said it has hired a former Facebook executive to lead its video games unit as the company ramps up its efforts to grow beyond its traditional streaming business (shares of ATVI, EA, TTWO active on the news); Carson Block, founder of Muddy Waters Research, said on CNBC that he expects a wave of delistings for Chinese ADRs, citing a lack of financial transparency and rising tensions between China and the U.S.; The U.S. Consumer Product Safety Commission filed an administrative complaint against AMZN to force the company to accept responsibility for recalling potentially hazardous products sold on Amazon.com; Theinformation reported that 70 antitrust cases are now collectively underway against AAPL, AMZN, FB, GOOGL – up from 17 just two years ago

·     Semiconductors; sector soft as TSM reports mixed Q2 results; Q2 revs rise 28% Y/Y to $13.29B vs. est. $13.31B; Q2 gross margin was 50.0% vs. guidance, 49.5%-51.5%, operating margin 39.1% vs. guidance 38.5%-40.5%; Q3 revs $14.6-14.9B vs. est. $14.71B; AMD was upgraded to Neutral from Sell at Citigroup and raise tgt to $95 (from $17) as checks indicate gains are finally accelerating in the server market, especially at hyper-scale companies such as AWS and Google; MCHP and NXPI both downgraded to Neutral at Mizuho saying while remain long the semiconductor technology sector overall, with Semis showing strong execution under tight, constrained supply conditions, they are selectively downgrading

·     Media & Telecom movers; VIAC and CHTR announced comprehensive, multi-year distribution agreements for the continued carriage of ViacomCBS’ leading portfolio of broadcast, entertainment, news and sports networks; CIDM rises after the company’s streaming channel revenue rises 197% y-o-y; total Q4 revenue up 6.9% at $8.3M; MCG 30M share IPO priced at $14.00