Closing Recap

Thursday, June 17, 2021

Equity Market Recap

·     Stocks finished mixed on Thursday as strength in mega-cap tech boosted the Nasdaq Composite back near all-time highs, while weakness in materials (silver and gold prices plunged), financials (on lower Treasury yields), energy (general commodity pullback), and Transports weighed on the Dow and S&P 500. The S&P 500 ended little changed as the strength in tech helped offset weakness in other sectors as a sharp drop in treasury yields helped boost interest in high multiple/growth names with semi, software, Internet names pacing the gains. Stocks got a boost this morning after billionaire hedge fund manager David Tepper, in comments to CNBC’s Scott Wapner, praised the Federal Reserve for maintaining its accommodative policy and said the stock market remains in good shape given the central bank’s current stance.

·     Precious metals tumbled (gold, silver, platinum, palladium, and industrial metal copper) with many posting their biggest one-day percentage loss of the year following a hawkish turn by the Federal Reserve yesterday which boosted the U.S. dollar as they signaled an interest rate rise soon than expected, with its forecasts suggesting two increases in 2023. So next up, will tomorrow’s quadruple witching option expiration provide a big catalyst for markets tomorrow? Also, more IPOs coming up tonight (AMAM, ATAI, CYT, DNAY, RERE, TRMR, UNCY among IPOs expected to price tonight, concluding a busy week of new issues) – in what has been a busy year-to-date with $47B in issuance across 120 traditional IPOs (excluding SPACs). Previous YTD record was in 2000 ($38B across 178 traditional IPOs by this point in the year).

·     Stocks/sector movers: inflation trade unwinds as banks JPM, C, WFC, BAC) and energy (OXY, FANG, MRO, NOV) underperform – two top sector gainers 2021; AMD jumps with XLNX as the European Commission has not called a meeting into their pending merger and NVDA was also among the top S&P performers as it traded at record highs as Jefferies upped their pt; in earnings: KR rises on its beat and $1B buyback program, JBL hits its highest level since 2000 on its beat before going red, LEN rises on its beat, HNST stumbles after their 1st public earnings were in-line but Guggenheim downgrades the stock given a lack of catalysts; WGO, THO, CWH slide after Northcoast downgraded the RV stocks and LCII rolls in sympathy as Northcoast sees increased competition and says demand is being hurt by higher pricing; NVAX, MRNA, BNTX outperform after CVAC vaccine trial misses endpoint; FCX, NUE, NEM, CLF stocks tied to precious metals/steel tumble as Gold, Silver, Copper all extend weekly declines as dollar jumps.

Economic Data:

·     Weekly Jobless Claims worse than-expected as claims reported at 412K vs. est. 360K, while prior month slightly revised to 375K from 376K; continued claims rose to 3.518M in latest week vs. est. 3.430M and from 3.517M prior week; the 4-week moving average fell to 395K from 403K; the U.S. insured unemployment rate unchanged at 2.5%

·     The Philly Federal Reserve’s Business index slipped nearly a full point to a reading of 30.7, just below the mean economist forecast. Both the Philly Fed/Empire State numbers above zero signify expanded activity from the previous month. The orders index fell sharply, down 10.3 points to a six-month low of 22.2, but shipments and employment rose strongly.

Commodities

·     Oil prices finished lower, but well of its session lows as WTI crude slides -$1.11 or 1.54% to settle at $71.04 per barrel (off lows of $69.77) …but only pulling back after posting a record 14-straight days with an intraday high higher than the last heading into today. Prices dropped as the U.S. dollar strengthened after the Federal Reserve signaled it might raise interest rates as soon as 2023 and hopes the United States and Iran could come to a nuclear agreement. On Wednesday, Brent settled at its highest since April 2019 and WTI at its highest since October 2018.

·     Gold prices plunged a whopping -$86.60 or 4.7% to settle at $1,774.80 an ounce to the lowest settlement since the end of April and largest one day dollar/pct. Decline since November 2020. The moves came after the Fed signaled an interest rate increase sooner than previously expected, lifting the U.S. dollar, and hurting commodity prices. Palladium led the precious sell-off, tumbling 10% to $2,517.18, while platinum fell 6.6% to $1,048.44 and silver slipped 4.3% to $25.81 per ounce. December corn futures fall by exchange limit to $5.325/bushel.

Currencies & Treasuries

·     Treasury yields went full circle from yesterday, as the benchmark 10-year hit lows of 1.47%, the same level prior to the FOMC announcement yesterday and well off the intraday highs above 1.59% late Wednesday. Markets unphased by the moved-up timeline for interest rate hike “dot-plots” from the Fed as inflation fears remain non-existent. Treasury Secretary Janet Yellen said today during House budget testimony “what I am supportive of is inflation in line with the Fed’s targets and interest rates at slightly higher levels that would give the Fed the ability to use monetary policy to address weakness in the economy. The U.S. 30-year yield falls below 2.10%, lowest since Feb 19^th, while 5’s and 10’s came under pressure. The U.S. dollar index (DXY) rises near the 92 level, its highest since the 2^nd week of April, rising vs. the euro and Japanese yen while commodity driven currencies such as the Canadian dollar came under pressure.

Sector News Breakdown

Consumer

·     Retailers; BOOT was upgraded to Buy from Neutral at Citigroup and raise tgt to $92 from $65 as believe BOOT is an attractive way to play the economic re-opening over the near-to-medium term based on appealing assortment dynamics & catalysts, a continued margin expansion path led by increasing exclusive brand penetration, and beneficial exposure to the recovery in oil/gas regions; MAT shares volatile early after the New York Times reported Mattel joins the NFT frenzy with Hot Wheels digital art.

·     Auto sector; Ford Motor (F) said it expects Q2 adjusted earnings before interest and taxes to top the company’s prior expectations and be significantly better than a year ago – but net income for Q2 is still expected to be substantially lower than a year ago; FSR and MGA signs long-term manufacturing deal, which finalizes all aspects of original agreement entered on Oct. 15 which Magna will supply the vehicle platform and build the electric carmaker’s Ocean SUV – they also confirmed production of all-electric Fisker Ocean SUV is projected to start in November; RIDE slides again after saying it has no binding purchase orders from customers; CHPT partners with Mercedes-Benz USA to launch Mercedes Me Charge charging solution

·     Housing & Building Products; homebuilding sector fell yesterday after interest rate expectations climbed following the FOMC monetary policy meetings; this morning group active as LEN Q2 EPS of $2.65 beat consensus of $2.37 and included a $0.30 net loss on investments, driven by stronger HB revenue and margins while orders increased +32% vs. BTIG +28% est. LEN also noted that the planned spin-off of company non-core assets would measure $5-6B (vs. $3-5B previous expectations) but that mgmt has "slowed progress" on the initiative.

·     Consumer Staples; grocer KR posted Q1 beat ($1.19/$41.3B vs. est. $1.01/$39.78B) as digital sales grew 16% and two-year stack grew 108% and boosted year guidance to $2.95-$3.10 from prior $2.75-$2.95 and announce new, $1 billion share buyback program; ABEV upgraded to equal-weight at Barclay’s as believe AmBev is positioned well to further drive top-line growth and recover profitability lost in recent years; HNST downgraded to Neutral from Buy at Guggenheim citing balanced risk/reward though notes reported solid 1Q results – the first quarter since becoming a public company – w/ top-line growth of 12% against a strong year-ago comparison of 36% that benefited from Covid-related stock ups; LOCO to test door-to-backyard drone delivery

·     Casinos, Gaming, Lodging & Leisure sector; busy sector as JPMorgan raised tgts and estimates (well ahead of consensus) for cruse industry (CCL tgt to $36, NCLH to $38 and RCL to $123) as positive bookings momentum and pricing continues for the broader cruise industry; in towables, Northcoast downgraded CWH, THO and WGO to Neutral from Buy after latest checks revealed price increases are negatively impacting retail demand and there are new formidable competitors entering the RV industry that may alter 2022 market share dynamics. In the current RV Industry environment, we prefer LCII to the RV OEMs; in theme parks, Wedbush raised price tgt on FUN to $63 from $61 and unchanged on SIX as are comfortably ahead of the Street in most cases with what they believe to be substantial demand for theme parks outweighing the significant pinch from increased wages; in casinos, Hong Kong said will ease certain COVID travel rules by shortening hotel quarantines to 7 days for vaccinated travelers (WYNN, MLCO impacted); in boating sector (BC, MBUU), Truist reiterating ratings and estimates but lowering targets across the board by 5-15% to acct for negative comp overhang and incremental inflationary risks

Energy

·     E&P and Majors; a rough day for the energy sector across the board as majors (CVX, XOM), services (SLB, HAL), E&P (FANG, PXD, EOG), refiners (VLO, PSX, DK) among other sub-sectors were the top decliners in the S&P (along with financials and materials) as the 2021 winning sectors were the top losers today amid a rotation into high multiple sectors (tech) as inflation fears disappeared yet again after the FOMC meeting results; NOG 5M share Spot Secondary priced at $17.50

·     Utilities & Solar; RUN higher again- recall yesterday MSCO said raised tgt to $91 as "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". Today , Truist said view RUN, ENPH and SEDG as attractive as ultimately a transitory supply chain dynamic appears a roadblock ahead of an unprecedented and strong secular growth theme. We continue to see encouraging signs around the demand profile for residential solar, particularly in markets that are large but not thought of as solar states.

Financials

·     Bank movers; big declines in the banking sector as JPM plunged along with other large cap banks (C, WFC, BAC, PNC, etc.), giving back yesterday gains, as Treasury yield fail to follow through higher after FOMC event yesterday (10-year fell to 1.5%); in trust banks, BK upgraded to Outperform from Market Perform at Keefe Bruyette while firm downgrade NTRS to Market Perform from Outperform at Keefe Bruyette; AOMR 7.2M share IPO priced at $19.00; Citi shares posts its 11th straight day of declines – underperforms other large cap banks down over 4% today (one of few large cap banks yesterday not to finish higher); MS also weak around 4% (down for 7th time in last 9-days) and both GS, JPM down for the 8th time in last 9-sessions

·     Insurance; ALL said May catastrophe losses $213 million which comprised of 7 events, -13% YoY; VOYA downgraded to Neutral from Buy at Citigroup as continue to have a favorable view of the company’s business mix and management’s actions / execution over the past few years; late yesterday, the Justice Department said it would sue to stop insurance broker AON’s $30 billion bid for WLTW citing antitrust concerns. Shares of AJG were active as the co had agreed to buy assets from the two insurance brokers were selling in order to get antitrust approval in Europe

·     Bitcoin news; yesterday, the SEC delayed ruling for a second time on a CBOE proposal to list a bitcoin ETF by Van Eck Associates. The SEC will seek public comment on several questions regarding bitcoin transparency, fraud and manipulation prevention, and bitcoin and bitcoin futures regulation; NCTY selects Coinbase Custody, a wholly owned subsidiary of COIN as the custodian for The9’s digital assets, including Bitcoin

·     REITs; CONE downgraded to Market Perform at Cowen saying they see potential downside to ests for both FFO and AFFO/share over the next few years and thus view the risk reward as less compelling, prefer EQIX and CLNY; WRE downgraded to Market Perform from Outperform at Raymond James following a dramatic, quicker than expected shift towards a pure play multifamily REIT

Healthcare

·     Pharma movers; ACOR said it has repaid in full its convertible senior notes due 2021 using cash in hand – prior to repayment, there was $69 mln in aggregate principal amount of 2021 notes outstanding (debt pay down prompts upgraded at HC Wainwright saying removes overhang); JAZZ updated its guidance for 2021 to the upside to reflect its acquisition of GW Pharmaceuticals Inc., which closed in early May; NOVN shares tumble as 3.64M shares secondary priced at $11.00; VKTX reports positive results from an early-stage dosage study of VK0214, its potential treatment for X-linked adrenoleukodystrophy; STSA announces positive pharmacokinetic, tolerability and safety results from phase 1 trial of sts101 at multiple dose strengths; TARS initiated dosing participants in its first clinical trial for TP-05, a novel, oral, non-vaccine therapeutic for the prevention of Lyme disease; SYBX said it will collaborate with Roche to discover a novel synthetic biotic medicine to treat inflammatory bowel disease

·     Biotech movers; CVAC plunges after saying its COVID-19 vaccine was only 47% effective in a late-stage trial, missing the study’s main goal and throwing in doubt the potential delivery of hundreds of millions of doses to the European Union (shares of other Covid vaccine makers AZN, JNJ, PFE, BNTX, MRNA, NVAX edged higher initially on report); BIIB said it dosed the first patient in a Phase 3 study of BIIB059 in systemic lupus erythematosus; APLT said the FDA grants fast track designation to AT-007 for treatment of galactosemia, a rare metabolic disease; VERV 14.04M share IPO priced at $19.00; LYEL 25M share IPO priced at $17.00

·     MedTech Equipment; DHR entered into a definitive agreement to acquire privately-held Aldevron, for a cash purchase price of approximately $9.6 billion; NNOX rises as submits 510(k) marketing application to the U.S. FDA for the first version of its multi-source 3-D medical imaging system, Nanox.ARC

·     Healthcare Services; PDCO upgraded to Overweight from Neutral and raises PT to Street high of $44 from $34 ahead of Q4 results as sees favorable near- to intermediate-term outlook for PDCO’s end markets, expanding operating margin, and undemanding valuation; managed care names (MOH, CNC, UNH) active after The Supreme Court throws out a lawsuit seeking to strike down Obamacare, finding that Republican-led states and individual plaintiffs behind the case lacked legal standing to challenge the law

Industrials & Materials

·     Defense, Industrial & Machinery; PNR tgt to $80 from $75 at Cowen saying they see upside to consensus numbers (we are 9% above Street for FY22E), but more importantly see the potential for material re-rating as an ESG thesis, that clearly applies, begins translating into higher multiples; ETN tgt raised at Credit Suisse following recent marketing as the company was discussed in the majority of our meetings; CACI awarded $82M contract to provide cyber and ground electronic warfare expertise and technology to the U.S. army

·     Transports; Dow Transports another weak spot in mixed market falling as much as 350 points before paring losses; Truist reiterates Buy on UBER (PT $75) and LYFT (PT $76) and believe that based on our proprietary credit card and 3rd party data, 2Q QTD business trends have improved materially on a Y/Y and Q/Q basis for both companies; XPO tgt raised to $176 from $160 and ests raised at Truist following XPO’s updated 2021 guidance and Form 10 registration for GXO Logistics

·     Commodities, Metals & Materials; CMC 3Q adj EPS $1.04 tops the $0.83 estimate on better sales $1.8B vs. est. $1.7B; industrial metals pressured again (aluminum, copper, steel) with shares of AA, FCX, NUE falling – recall yesterday, reports 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; gold miners (precious metals) getting crushed after the FOMC interest rate outlook adjustment yesterday, dollar spiking, sinking silver, gold, platinum prices on the day (hits AUY, GOLD, AEM, NEM)

Technology, Media & Telecom

·     Internet; AKAM touted as cause of dozens of financial institutions and airlines in Australia and the United States briefly hit by an internet outage on Thursday. The Australian outage, which also affected the country’s central bank, was caused by glitches on the servers of Akamai (recall an outage by CDN company FSLY hit several high-profile websites last week); BIDU partnered with state-owned automaker BAIC Group to build 1,000 driverless cars over the next three years. BIDU has been testing robotaxis in several major cities across China including Shanghai, but the new partnership is an attempt to commercialize autonomous taxis on a mass scale; NFLX cautious comment at KeyBanc saying data suggests Netflix is tracking below our/Street 2Q21E net add estimates of 0.8M/1.0M

·     Semiconductors; sector was among top gainers on the day as high growth/high multiple stocks saw biggest gains as Treasury yields fell with no fear about inflation or interest outlook despite modest tweaks by the Fed yesterday (moving timeframe up on rate hikes); NVDA among top gainers in the space ahead of its 4 for 1 stock split; Google’s cloud taps AMD for new service as chip wars heat up; MX slips after disclosing it needs to get Korean approval for Wise Road deal; a bipartisan group of U.S. senators on Thursday proposed a 25% tax credit for investments in semiconductor manufacturing as Congress works to increase U.S. chip production.

·     Hardware, Components & Services; JBL turned a profit in Q3 as the company reported strong demand (EPS of $1.30 topped the $1.04 est. and better revs $7.21B vs. est. $6.95B); CSCO shares active after Cleveland Research said sees industry tailwinds offsetting competitive concerns for now; ‘supply constraints seen as limiting upside over the next 12 weeks’; SNPS replenishes repurchase authorization up to $500M; DISH and DELL will build the nation’s first open ran 5g edge infrastructure