Closing Recap

Thursday, July 23, 2020

Equity Market Recap

·     U.S. stocks finished sharply lower, losing steam early afternoon, particularly in the technology sector as the Nasdaq Composite fell more than 2.5% (to just above 10,400), just two days after touching intraday record highs around 10,839, while Smallcaps outperformed with the Russell 2000 down the least. There was no one headline that took markets lower (especially tech), but few things of note were: 1) no GOP stimulus plan was revealed (some hoped would see bill this week) and sides still fighting talking points, 2) a report in the Global Times early afternoon stating one US consulate will be asked to close in China in retaliation of US move yesterday (such a move not unexpected after the U.S. government ordered China to close its consulate in Houston on Wednesday – as tensions ratchet up), 3) a NY Post article noted Apple reportedly delays launch event for new 5G iPhone – while Axios reported that AAPL faces a multi-state consumer protection probe. Again it was no one headline, but markets appeared tired after recent run (S&P and Nasdaq Comp came in w/4-day win streaks) and was likely used as an excuse to sell. Add those factors with weaker jobless claims data this morning (first rise in claims since March), along with ongoing rising COVID-19 cases – California reports 12,040 new cases, 157 additional death, and you got a late day sell-off into another busy night of earnings, highlighted by Intel (INTC). Gold prices briefly topped its all-time record closing highs before settling just under it at $1,890 an ounce, while Treasuries rose, sending yields lower as investors rotated into safe-haven assets. The dollar fell to its lowest levels since 2018, as more selling pressure arose for the greenback.

Economic Data

·     Weekly Jobless claims rose to 1.416M in the latest week above the 1.307M level the prior week and also above the 1.3M consensus view; continued claims fell to 16.197M from 17.304M in prior week (est. 17.067M); the 4-week moving average fell to 1.360M from 1.376M in prior week and U.S. insured unemployment rate fell to 11.1% from 11.8% prior

·     U.S. leading index climbed 2.0% to 102.0 in June after surging 3.2% to 100.0 (was 99.8) in May. The index was at an all-time high of 112.0 in January (tying the level in July 2019), but dropped over the three months from February to 96.9 in April, the weakest since September 2014

Commodities

·     Oil prices slipped midday along with broader stock markets, as WTI crude settled at $41.07 per barrel, down 83c or 1.98%, off earlier 4-month-highs above $42 per barrel. Prices had risen early amid the weaker dollar, along with other commodity prices. Gold prices rose as high as $1,897.70 an ounce, briefly surpassing its August 2001 closing high of $1,891.90 an ounce before paring gains, rising $24.90 or 1.3% to settle at $1,890 an ounce (and is now up roughly 25% YTD). Economic concerns tied to the growing cases of COVID-19 and weakness in the U.S. dollar contributing to the gains

Currencies & Treasuries

·     New day – same results as the U.S. dollar index (DXY) falls to its lowest levels since late September 2018 while the euro rises to 21-month highs vs. the dollar above the 1.16 level as weaker economic data (jobless claims) renewed concerns about the economy, and keeps pressure on the Fed to maintain its monetary easing measures. At the same time, Treasury prices continue to rise and yields move closer to record lows as the 10-year hit lows of 0.57%.

Sector News Breakdown

Consumer

·     Retailers; TSCO trades to new all-time highs after its Q2 results and Q3 outlook exceed expectations with q Q2 sales beat of $3.18B as same-store sales increased 30.5%, citing unprecedented demand for spring and summer seasonal categories/forecast Q3 sales of $2.3B-$2.42B and EPS $1.15-$1.35 above the $2.18B/$1.13 street view; ASNA falls after Chapter 11 bankruptcy filing; WHR rises as Q2 EPS/sales beat and revises FY20 sales decline to 10%-15% from 13%-18% and sees FY20 organic net sales decline of 7%-12% vs. 10%-15% previously; POOL record highs after eps/revs and boosted year profit guidance to $6.90-$7.30 from $5.30-$5.90

·     Consumer Staples; HSY Q2 adjusted EPS came to $1.31, ahead of the $1.12 consensus but sales fell to $1.707B from $1.767B, below the $1.740B consensus; KHC downgraded to sell from neutral at Guggenheim saying while many food companies are seeing a demand tailwind as a result of the pandemic, Kraft’s portfolio continues to lose share in most segments; KMB Q2 EPS of $2.20 beat by 40c on sales $4.61B and sees FY net sales +1% to +2%; MNST, CLX, GIS, KMB (after earnings), touching 52-week highs in consumer staples

·     Restaurants; CMG reported Q2 comps declined (9.8%), slightly better than the Street, with comps down (24.4%) and (7.0%) in April and May, respectively, before improving to 2.0% in June – several analysts raise their tgt following results; BLMN was upgraded to neutral at Bank America ahead of Q2 results as Q2 total revenue of $2.59B beats the consensus by $60M; increased from $2.43B a year earlier while net new orders decreased 4% to 6,522 homes; WING shares extend gains, moving to fresh record highs

·     Housing & Building Products; housing stocks have had a strong run of late following better earnings and improving economic data, while plunging mortgage rates make the sector attractive as well; today, PHM Q2 results topped views and said expects improved conditions in H2

·     Casino & Leisure movers; gaming names active after LVS reported Q2 adjusted property EBITDA of -$514M, missing consensus of -$370M as much of LVS’s portfolio was closed for the quarter (Singapore/Las Vegas) or effectively closed (Macau) due to restrictions and quarantine measures; BYD was downgraded to neutral from positive at Susquehanna calling it a great regional operator with good digital strategy – but I just fairly valued; boating stocks get a boost after HZO earnings including 37% comp store sales growth and revenue beat (watch MBUU, MCFT, BC)

·     Autos; TSLA posted top- and bottom-line 2Q upside on better than expected ASPs and Automotive GM ex-regulatory credits and also indicated it had reached full ramp on Model Y capacity and is progressing well on additional capacity; auto retailers continue to show strong results with AN the latest with better earnings (LAD record highs yesterday on beat); in auto supplier preview at Guggenheim, said believe VC may modestly top consensus revenue estimates, while believe APTV, BWA, GNTX, LEA, VC, and VNE could have top line misses and see potential EPS beats from BWA, VC, and VNE on better cost controls; BTIG said used car sales softened moderately, down 5% last week vs. up 4% the week prior. Meanwhile, new car sales were down 26% last week, in-line with recent trend (CARG leveraged to data)

Energy

·     E&P sector; HLX posted Q2 EPS of $0.04, beating expectations of $0.01, as results underpinned by 44% jump in co’s robotics revenue; sees FY20 revenue $655M-$740M, above est. $664.03M; JPMorgan with several changes in the E&P space as they upgraded to overweight APA and MRO while downgraded shares of DVN, EOG and MTDR; SU reports bigger-than-expected Q2 loss while total production fell 18.5% to 655,500 barrels of oil equivalent per day (boe/d); PTEN rises after its Q2 adj. Ebitda beat estimates, driven by cost savings

·     Utilities & Solar; in renewable energy, shares of DQ active after cautious comments by GLJ Research; solar stocks have extended recent run higher as RUN shares advance for a 10^th consecutive session, VSLR up for 10^th straight day as well (recall on July 7^th, RUN agreed to acquire VSLR in all stock deal valued at $3.2B)

Financials

·     Bank movers; Warren Buffet bought around 34M shares of BAC this week, lifting his stake to 11.3% according to SEC filing; HBAN Q2 net interest margin 2.94% vs. 3.31% YoY as 2Q return on average assets 0.51% vs. 1.36% YoY; BANR shares jump following quarterly beat; FITB another banking co that dropped on earnings

·     Insurance; TRV posted Q2 catastrophe losses of $854M compared to $367M the same period a year ago while overall revs of $7.4B missed the $7.6B estimate and 2Q net premiums written $7.35 billion, -1.4% YoY

·     Consumer finance and lending; QFIN and LX shares fall after reports that China is likely to lower the interest rate ceiling protected by law on loans offered by individuals and companies without a lending license from the current 24% to a proposed level of four times the one-year loan prime rate – as per Caixin report; ADS mixed Q2 (adj Ebitda beat with revs missing)

·     Services; EFX results were way ahead of expectations on all the key items as revenue, Adjusted EBITDA, Adjusted EPS and FCF all beat

Healthcare

·     Pharma movers; AMAG rises as enters deal with Norgine B.V. to commercialize its experimental drug, ciraparantag, which reverses the effects of blood-thinners, in Europe, Australia and New Zealand; ACRX to market Dsuvia within the dental and oral surgery markets in U.S. exclusively through Zimmer Biomet’s dental division; GNFT was upgraded to buy at Stifel after the company announced it was discontinuing elafibranor’s Phase 3 RESOLVE-IT study in NASH

·     Biotech movers; CBAY rises as the FDA lifted its clinical hold on applications seeking to test CBAY’s liver disease drug, seladelpar, in humans; GNCA rises on positive GEN-009 data in Part A study and earnings; KLDO said starts controlled clinical study testing its experimental treatment, KB109, along with self-care practices being followed by outpatients with moderate COVID-19 disease; BNTX 5.5M share Secondary priced at $93.00; MRNA shares dropped after ABUS wins IPR patent trial as PTAB rules that Moderna Therapeutics failed to prove that Arbutus ‘069 "Lipid Formulations for Nucleic Acid Delivery" patent claims were unpatentable

·     Medical equipment and devices; DHR another medical equipment maker at record highs after earnings and boosted outlook (rev beat of $5.3B (vs. $4.95B cons) driven by +3.5% core rev growth w/ Cytiva – TMO touched all-time best yesterday after its earnings; DGX reported 2Q results with revenue of $1.83B and EPS of $1.42 consistent with the preannounce from early last week while pricing was +15.3% while organic requisition volumes were -18%; sector remains strong with 52-week highs for A, PKI, RMD, HOLX, ABT, ISRG, ABMD

·     Healthcare services; ALGN shares slipped after mixed results as EPS loss ($0.35) vs. est. ($0.05) on revs $352.3Mm vs. est. $332.88Mm and says cannot reasonably estimate future impact on operations and financial results at this time; ICLR bookings in 2Q and reinstated 2020 EPS guidance signs of an improving outlook as EPS of $1.20 came in better than Street at $1.07; WST trades all-time highs after raising guidance following Q2 beat

Industrials & Materials

·     Industrial & Machinery; ALLE posted organic growth -18% and decremental margins of 38% along with a slowdown in Americas Resi (down mid-20s) while reinstated 2020 adjusted EPS range of $4.15-$4.30; CMI, PCAR in heavy machinery making 52-week highs

·     Transports; airlines with weaker quarterly results (but expected) from AAL, ALK, LUV and SAVE and cautious outlook going forward; LUV Q2 cash burn was $22M a day, in-line w prior guidance and guides Q3 cash burn $23 citing softer September trends softening – said July revenue trends worse than prior- now expect topline to decline 70-75%; AAL posted month of June cash burn better than expected at $30M per day vs. most recent guide of $40M a day while Q2 revs finished -86%, a touch better than -90% guidance; ALK posted smaller loss while traffic fell -88.7% for Q2; SAVE Q3 guidance indicates waning demand, consistent with commentary from other airlines, after a surprisingly positive June with load factors increasing to 79%

·     In rails and truckers; UNP shares fell as Q2 profit declines; CSX reported a slight EPS beat vs Street expectations ($0.65 vs $0.64) in 2Q20, as significant volume volatility led to operational challenges that squeezed margins YoY; LSTR mixed with Q2 EPS miss but revs beat (sees 3Q revenue $885M-$935M vs. est. $852.5M – expect 2020 Q3 truck revenue per load to be lower than 2019 q3 in a mid-single-digit percentage range

·     Metals & Materials; gold miners; FCX posted Q2 EPS beat on revs of $3.05B (down -14% YoY and just below views) while cut its copper sales volume forecast for the full year; KALU shares dipped in aluminum space after earnings; PAAS upgraded to buy from neutral at Bank America saying its revenue basket is about 30%/55%/15% silver/gold/base metals and see earnings upgrades upside risk; steel space active as NUE reported Q2 EPS that topped the highest estimate though sales just missed estimates ($4.33B down -27% YoY) vs. est. $4.41B and RS shares advance after its quarterly results topped views; Weekly U.S. corn and soybean export sales reached multi-year highs in mid-July, the U.S. Agriculture Department said, fueled by big purchases by China which booked deals to buy 1.967 million tonnes of U.S. corn

·     Chemicals; DOW posts a smaller than expected loss and said it plans to cut 6% workforce; APD sales decreased 7% from the prior year due to 4% lower energy pass-through, 3% lower volumes, and 2% unfavorable currency, which were partially offset by 2% higher pricing

Technology, Media & Telecom

·     Internet; TWTR saw record daily user growth for second straight quarter but its 2Q revenue came in below analyst estimates amid a global marketing pullback/said Q2 monetizable daily active users (mDAU) for 2Q was 186M topping the 173.8M view while revs of $683.4M missed the $704M estimate/saw moderate recovery in advertising demand relative to March levels/is exploring additional business lines including a possible subscriptions service; overall Internet sector saw weakness late afternoon as technology rolled over

·     Semiconductors; INTC expected to report earnings tonight after the close (Dow component) as well as SWKS (top AAPL chip supplier), while AMD pulls back after surging yesterday to record highs and WDC and MU outperform in the HDD memory space following positive results from Hynix; ENTG top gainer in the Philly SOX index after earnings and guidance

·     Software movers; MSFT reported a mixed June (F4Q20) quarter, with strong revenue driven by consumer (Xbox/Surface/Windows) while business was weak. Gross margins missed due to revenue mix but EPS was in line. Cloud growth slowed materially, with Azure sequential growth and new bookings half the rate of 4Q19’s; CTXS reports Q2 upside, raises FY sales view; BCOV shares surge after Q2 revenue beat and swings to profit

·     Media & Telecom movers; AT reported slight EPS beat on in-line revs $41B saying continues to expect total dividend payout ratio at year-end 2020 to be in 60s% range, co targeting low end of range/postpaid phone net losses of 151,000, churn of 0.84%, prepaid phone net adds of 135,000 and 17.7 mln premium TV subscribers at qtr-end, 886,000 net loss of subs; advertising names higher (OMC, IPG, WPP) after PUBGY eps as indicated a less-than-severe blow from an advertising slump due to the company’s new account wins with U.S. clients; AMC delaying the reopening of its U.S.-based theaters until mid-August