Closing Recap

Wednesday, June 16, 2021

Equity Market Recap

·     U.S. stocks saw losses this afternoon (but finished well off the lows) after the FOMC kept benchmark interest rates steady (no surprise), and again referred to inflation as transitory while saying it would need substantial further progress before tapering its $120B a month asset-purchase program ($80B in Treasuries and $40B in MBS). The Fed brought forward its projections for the first post-pandemic interest rate hikes into 2023, as seven of the 18 policymakers expect the Fed funds rate to rise from zero in 2022 (from 4 prior), and 13 expect it to rise by 2023. The Fed also said it predicts that US GDP will rise 7.0% in 2021 (previously 6.5%), 3.3% in 2022, and 2.4% in 2023, with a median long-run projection of 1.8% (previously 1.8%). The Fed said it will maintain accommodative policy until inflation runs moderately above 2% for some time, so that inflation averages 2% over time and longer-term inflation expectations remain well-anchored at 2%. In his press conference, Federal Reserve Chairman Jerome Powell said "inflation could turn out to be higher and more persistent" than officials expect amid an unprecedented process of reopening. He said the Fed will use monetary policy to deal with it if it happens, but notably, Fed forecasts don’t show a sustained inflation break out once this year is over. U.S. Treasury yields shot up after Federal Reserve policymakers moved up their projections for commencing interest rates hikes as the 10-year hit highs above 1.59% from 1.49% prior to statement, while the dollar bounced vs. rival currencies. Overall markets rebounded in the afternoon following the Powell press conference, well off its session lows (Nasdaq recovered more than 175 points off the lows).

Economic Data:

·     Import Prices for May rises 1.1% vs. est. 0.8% (prior month revied up to 0.8% from 0.7%) and exports jumped 2.2% vs. est. 0.8% (prior month revised to 1.1% from 0.8%; May YoY import prices +11.3% (highest since 2011), export prices +17.4% (highest on record since 1984); May airfares to the US rose 13.5% YoY.

·     May Housing Starts rose +3.6% MoM to 1.572M vs. 1.630M expected and 1.517M prior (revised from 1.569M) while Building permits fell -3.0% to 1.681M vs. 1.738M expected and 1.733M prior (revised from 1.760M). May single-family starts +4.2% to 1.098 mln unit rate; multifamily +2.4% to 474,000-unit rate.

·     Service sector businesses in the New York region continued to stage a comeback in early June, when business activity grew at a record fast pace, according to a survey released Wednesday by the Federal Reserve Bank of New York. The business activity index increased by four points to 43.2, according to the survey of business leaders for service sector firms in New York, northern New Jersey, and southwestern Connecticut.

Commodities

·     Oil gained for a fifth day as Brent neared $75 a barrel to its highest since April 2019, supported by a recovery in demand from the pandemic and a drop in U.S. crude inventories and WTI crude rose above $72.50 per barrel (highest since Oct 2018) before paring gains. WTI crude ended higher by a mere $0.03 at $72.15 per barrel. Oil prices have jumped this year, supported by supply cuts led by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, and a demand recovery expected to gather pace in the second half. Executives from major oil traders said on Tuesday they expected prices to remain above $70 and demand to return to pre-pandemic levels in the second half of 2022.

·     Gold prices rose $5.00 or 0.3% to settle at $1,861.40 an ounce, which was prior to the FOMC Policy meeting results. Copper prices bounced after touching their lowest in more than seven weeks Tuesday – China announced plans on Wednesday to release copper, aluminum, and zinc in batches from its national reserves to curb commodity prices.

Sector News Breakdown

Consumer

·     Retailers; few analysts lowering ests and tgt on Dow component NKE into earnings (reports 6/24) as Cowen, Bofa are cautious based on weak sales in China, but say the bigger data point will be the intro of F22 guidance, which should provide insight into duration of China weakness; Sporting goods retailers were weak yesterday (ASO, DKS, HIBB, FL, etc. all sold off) following the deceleration in retail sales data; LZB top and bottom line beat as Q4 EPS $0.87 tops consensus $0.74 and revenue $519.5M vs consensus $498.5M; written same-store sales +100% (+29% vs 4Q19) and says demand trends remain strong across the business with backlog at record levels; TJX reiterate buy and $82 tgt at Bank America as expect TJX to continue to post solid sales growth with waning cost pressures; OXM boosts quarterly dividend by 13.5% to $0.42 from $0.37

·     Auto & Industrial sector; GM boosted its spending on electric and autonomous vehicles, pulled ahead plans for two U.S. battery plants and forecast stronger-than-expected second-quarter profits (now said it will now spend $35 billion through 2025 on EVs, an increase of 75% from March 2020); CHPT announced most comprehensive EV charging solution portfolio available for fleets of all types & sizes; WKHS shares jumped after Reuters reports co to challenge USPS decision to award delivery contract to OSK

·     Consumer Staples; APRN 4.7M share secondary priced at $4.25 per share; SAM tgt lowered to $1,145 from $1,395 at Citigroup noting shares have traded off ~22% since its high (reached in April 2021) saying sell-off to the sharp slowdown that we have seen for SAM in Nielsen-tracked channels; Bank America said Nielsen grocery sales declined -7.9% for supermarkets & -3.4% for AOC y/y in May, improving vs. April on easing tonnage declines; several analysts weigh in on MNST after its virtual shareholders’ meeting

·     Casinos, Gaming, Lodging & Leisure sector; CCL, NCLH and RCL all upgraded in cruise industry at Wolfe from Peer Perform to Outperform saying checks suggest improving booking / pricing trends out of North America over the past month, with stronger trends over the past week; DKNG rebounds after yesterday “short” report from Hindenburg research

Energy

·     Energy stock movers; oil gained for a fifth day as Brent neared $75 a barrel to its highest since April 2019, supported by a recovery in demand from the pandemic and a drop in U.S. crude inventories and WTI crude rose above $72.50 per barrel (highest since Oct 2018). Oil prices have jumped this year, supported by supply cuts led by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, and a demand recovery expected to gather pace in the second half. Executives from major oil traders said on Tuesday they expected prices to remain above $70 and demand to return to pre-pandemic levels in the second half of 2022.

·     Inventory data; the API showed a draw of 8.54M barrels of oil for the week ended June 4, gasoline inventories show a build of 2.85M barrels, distillate inventories show a build of 1.96M barrels and Cushing inventories show a draw of 1.53M barrels. This morning, the EIA said crude stockpiles fell -7.355MM, vs. expected draw of -2.5MM, while gasoline inventories rose +1.954M barrels, distillates fell -1.023MM and Cushing dropped -2.150MM

·     Utilities & Solar; SPI rises as Phoenix Motorcars, a wholly owned subsidiary of SPI, has launched a full range of EV charging products for the U.S. market; Goldman upgraded EVRG to Buy with a $72 target given its attractive valuation, upside to consensus estimates, and positive changes to regulatory frameworks in both Kansas and Missouri, and they also downgraded Missouri-based AEE to Neutral given its current premium P/E valuation vs peers; BTIG upgraded ENS to Buy following management meetings last week; ED announced a public offering of 10.1M shares; ED 10.1M share Spot Secondary priced at $76.90

·     Solar stocks higher solar industry outperforms as RUN rises after positive comments from Morgan Stanley – firm said, "the rapid growth in Electric Vehicle (EV) adoption will be a major source of upside for RUN, and EV customer adoption of rooftop solar could create as much value for RUN as RUN’s entire current business” (other solar names also strong ENPH, SEDG, SPWR)

Financials

·     Bank movers; large cap banks under pressure early following weaker comments on trading from Citi and JPM this week at a conference – big banks (BAC, Citi, MS, WFC) all pressured – but the group rebounded as the Fed revealed a sooner forecast for interest rate hikes into 2023, raising banks; FBNC upgrade from Neutral to Overweight at Piper saying the selloff following the SLCT acquisition announcement is overdone and offers an attractive entry point for investors; in insurance, AFL said in a CNBC interview that low interest rates have forced the insurer to reprice new policies in order to make up for lost investment income.

·     Financial Services and Consumer Finance; COF selected as exclusive long-term issuing partner for new WSM credit cards/new credit cards and loyalty enhancements are expected to launch before end of 2021; SOFI initiated Buy and $30 tgt at Rosenblatt saying the incumbent legacy banks face a challenging road ahead as a new wave of digitally native and mobile-first banks rush into the market; HRB reports Q4 EPS $5.16 vs consensus $5.06 and revenue $2.33B vs consensus $2.32B; EBITDA $1.13B vs consensus $1.12B; increases quarterly dividend by 4% to $0.27/share

Healthcare

·     Pharma movers; ELAN will acquire all outstanding stock of KIN at a price of $9.25 per share, or approximately $440 million, a premium of 52% based on the 30-day average; the FDA cleared an additional batch of JNJ’s Covid-19 vaccine doses from a troubled production plant in Baltimore run by EBS as the agency cleared 15M doses, bringing the total doses authorized for export to 25M; PTGX 3.05M share Spot Secondary priced at $37.75; ALT rises after announcing results from a 6-week interim analysis of its ongoing Phase 1 trial of ALT-801, an investigational GLP-1/glucagon dual receptor agonist, in healthy overweight and obese volunteers; APRE said the Phase 1/2 trial for a cancer therapy met a main goal in driving patient remissions; CATB shares jumped after RA Capital Management took a more than 7% stake to become its largest holder; TEVA launches its generic version of SOOLANTRA cream, 1% for once daily treatment

·     Biotech movers; MRNA said the U.S. government has bought another 200 million doses of its authorized COVID-19 shot, including the option to purchase other coronavirus vaccine candidates from the company’s pipeline; MNKD, UTHR active as the FDA accepts for priority review their new drug application (NDA) for Tyvaso DPI, an investigational drug-device combination therapy for inhaled treatment for patients with types of lung conditions; REGN said an antibody it developed has been shown to significantly cut the risk of death among certain hospitalized Covid-19 patients; RAPT 3.79M share Secondary priced at $33.00

·     MedTech Equipment; RMD downgraded to underperform at Bank America saying while they like the company and are positive on the long-term outlook, the believe that the market has over-reacted (+8%) to competitor’s product recall and cites valuation; PKI was upgraded to Outperform at Wolfe Research saying are comfortable with ests into analyst day (June 24)

·     Healthcare Services; CNC shares rise after providing investor day slides as reaffirmed 2021 adj EPS guidance; FORD rises after the company announced an agreement with Chipolo to distribute its tracker products in the U.S.

Industrials & Materials

·     Metals & Materials; China has stepped up its campaign to rein in commodity prices and reduce speculation in a bid to ease the threat to its pandemic rebound from soaring raw material costs. State-owned enterprises were ordered to control risks and limit their exposure to overseas commodities markets by the State-owned Assets Supervision and Administration Commission (bearish for metals and materials); FCX remains weak (down 9 of last 11 sessions) as copper prices broke through and closed below its 50 DMA yesterday (which stood at $4.46 per lb.); in research, JPMorgan initiating coverage with OW ratings on CLF, RS and STLC , Neutral ratings on NUE, CMC and CRS, and assuming EAF and STLD with OW ratings and X with an UW rating.

·     Steel sector; STLD guides Q2 EPS $3.26-$3.30 vs. est. $3.14, says Q2 profitability from steel operations is expected to be significantly higher than Q1 results/ ferrous scrap demand also continued to be strong in Q2 and earnings from steel fabrication operations are expected to be significantly higher sequentially; NUE guides Q2 EPS $4.60-$4.70 vs. est. $4.60 as believe that strong market conditions will continue in Q3/said all 3 operating segments continuing to generate robust profitability as overall strong demand is supporting higher average selling prices

Technology, Media & Telecom

·     Internet; AMZN added to Franchise Picks list at Jefferies saying it trades at a ~10% discount to its historical average EV/EBITDA multiple, despite a fundamental outlook that is arguably better than ever; TRIP announces the launch of TripAdvisor Plus, a new annual subscription for just $99/year, promises to help members become better travelers by saving them money

·     Semiconductors; MX shares slide after saying it is assessing impact of interim order received on June 15 from U.S. department of treasury on behalf of CFIUS; RMBS announces stock buyback

·     Software movers; ORCL posted a top and bottom line Q4 beat (Q4 adj EPS $1.54 vs. est. $1.31; q1 revs $11.23B vs. est. $11.04B) but issued a profit forecast below expectations (Q1 EPS $0.94-$0.98 vs. est. $1.02) as it ramps up its investments in cloud computing and said it would double capital expenditures to almost $4 billion; RBLX shares fell as released May key metrics, which showed daily active users hit 43M, which was up 28% from the previous May, but down 1% from 43.3M in April; GWRE downgraded from Buy to Hold at Needham following the ~14.5% rise in the shares since reporting mixed results two weeks ago

·     Hardware, Components & Services; EXFO rises after VIAV said it has submitted a proposal to buy the company at $7.50 per share in cash, valuing the co around $430M, a premium of 25% to a go-private transaction announced by EXFO’s majority shareholder, Germain Lamonde https://bit.ly/3iIvkmP

·     Media & Telecom movers; DISH upgraded from Hold to Buy with upward $60 tgt (from $50) at Pivotal as view new target price as arguably conservative considering the significant upside potential in the DISH greenfield 5G wireless opportunity and to a much lesser extent from the likely inevitable merger with DIRECTV