Closing Recap

Tuesday, March 09, 2021

Equity Market Recap

·     Stocks jumped on Tuesday as the Dow Jones Industrial Average touched new intraday record highs, the S&P 500 moved back to the 3,900 level (not far from recent record levels of 3,950) and the Dow Transports climbed back near its record highs from Monday at the 14,000 level – but it was the Nasdaq Composite that grabbed headlines and turned heads with a massive 4% surge just a day after it entered correction territory (defined as 10% move of recent highs). The market story today was a rotation back into technology and out of the recent market winners including energy, financials, media and reopen related sectors. A pullback in Treasury yields off one-year highs, helped by a stronger than expected 3-year auction midday, boosted market sentiment for high growth sectors. Semiconductors and large cap tech were the biggest winners as the Philly semi-index (SOX) rose over 6.5% for its biggest one day gain in almost a year. Precious metals saw a rebound with gold and silver futures rising as the dollar falls from 3 ½-month highs. Investors remain focused on this week’s $120 billion auction of 3-, 10-, and 30-year Treasuries.

·     Quick snapshot of top stories today: Nasdaq rebounds from its recent 10% correction as large cap mega tech AAPL, AMZN, TSLA, FB each surge; GME, AMC, PLTR rise as Reddit names partake in the day’s euphoria, soar again; Bitcoin tops $54K level again, lifts NCTY, SQ, PYPL, RIOT, MARA, SI; the electric vehicle space strong as TSLA, XPEV, NIO, LI spike after China reports February EV sales increased sevenfold YoY, FSR gains after crossing 14k reservations for its SUVs, CHPT, BLNK soar on positive Cowen initiations; other clean energy plays also outperform PLUG, BE, solar as well with ENPH, FSLR, SPWR; in retail, DKS slips despite EPS beat on weak guidance, SFIX plunges below $50 for the first time in 4 months on its weak report, while PLCE hits 52-week highs after surprising analysts by reporting a profitable quarter with comp sales growth; recent winners in energy APA, NOV, FANG, media DISCA, VIAC, FOXA give up some recent gains and slide despite market’s rise in rotation into tech; ACAD value is nearly halved after the FDA reports its has identified deficiencies in the company’s application ahead of its April 3 PDUFA

·     According to Bank America, their clients bought equities at an aggressive pace last week, mostly in tech, where dip-buyers took advantage of a third-straight down week for the Nasdaq. The Nasdaq jumped over 4% today as Treasury yields slipped modestly. The bank said retail, hedge funds, institutions and corporates (in the form of buybacks) all bought Info Tech (XLK) last week. Hedge funds and retail purchases were close to record levels. There was a near-record weekly inflow into XLK at $2.6B, the highest in more than seven years, and four-week average tech flows hit a record, strategists said https://bit.ly/38pDhrc

Commodities, Currencies and Treasuries

·     Oil prices slipped on Tuesday, pulling back from recent near 2-year highs in a bout of profit taking as WTI crude drops $1.04 or 1.6% to settle at $64.01 per barrel. Earlier today, the EIA reported that U.S. crude oil production is expected to fall by 160,000 barrels per day (bpd) in 2021 to 11.15 million bpd, a smaller decline than its previous monthly forecast for a 290,000-bpd drop. Oil prices have rebounded from the lows touched in 2020 after OPEC+ agreed this month not to increase supply in April as they await a more substantial recovery in demand amid the coronavirus pandemic. At the same time, U.S. rig counts have begun to climb as crude prices rebound, with oil rigs rising by one to 310 last week, their highest since May. Next up weekly inventory data tonight and tomorrow morning.

·     Gold prices jumped on Tuesday, up $38.90 or 2.3% to settle at $1,716.90 an ounce (snapping a 4-day losing streak), posting a strong recovery from a nine-month low Monday, powered by a retreat in U.S. Treasury yields and the dollar. Next up, investors await the U.S. Federal Reserve’s two-day meeting next week, even as Chair Jerome Powell has said that the Fed’s current easy policy stance remains appropriate.

·     Bonds rallied, pushing yields lower ahead of an auction of $120 billion of government debt this week which kicked off today as the U.S. Treasury sold $58 billion of three-year notes at a yield of 0.355% vs. 0.359% when issued prior, with the bid-to-cover (demand) at 2.69 vs. 2.39 prior auction and indirect bidders awarded 47.76% of the auction with directs getting 18.35%. The 10-year Treasury rate traded down at 1.53% after the auction from 1.55% (after climbing to 1.6% in the previous session). The solid auction lifted stocks to highs as yields slipped. Rising bond yields, which have dominated market attention the past few weeks, have been hitting tech shares the hardest since the high-growth stocks can be more vulnerable to inflation pressures. The U.S. dollar index (DXY) pulled back from 3 ½ month highs, trading back down to the 92 level, as the euro and Japanese yen recovered.

Sector News Breakdown

Consumer

·     Retailers; DKS posted q2 beat on top/bottom ($2.43/$3.13B vs. est. $2.28/$3.07B) as comp sales rose 19.3% topping expectation of +17.1% and saw e-commerce sales soar 57% – shares slipped following EPS outlook for year of $4.40-$5.20 vs. $5.15 est., though sales view was higher; PLCE said Q4 profit fell, though adj EPS of $1.02 was above the est. loss of (23c), while net sales fell 7.8% to $472.9< but topped the $420M est. (comp sales rose 1%); SFIX shares tumble as reported lower than expected quarterly revenue, and weaker Ebitda (loss of -$9M) due to external and internal factors and FY21 guide was lowered (coming in at $504M vs. the range of $506M-$515M); PTON shares active after announcing entry into Australia in 2H21; Citi initiates Hardlines: AAP ($193), AZO ($1424), FND ($107), HD ($288), LOW ($195), RH ($560), and WOOF ($31) Buy, CHWY ($95), ORLY ($493), TSCO ($158), and WSM ($127) Neutral, and BBY ($86) Sell

·     Auto sector; TSLA snapped its 5-day losing streak in a big way, rising as much as 20% at one point, helped after upbeat car sales data out of China as the China Passenger Car Association said electric vehicle sales in February rose more than sevenfold from a year ago while falling 38% from January, to 97,000 EVs. Tesla sold 18,318 EVs in February; FSR says it crossed 14,000 reservations for its Fisker Ocean SUV on interest and orders in the fleet market and is projected to start production by Q4 2022; IDEX acquired 20% of Italian Energica Motor Company S.p.A. (Energica) for $13.2M; PRTS moves on earnings; WKHS shares rose after Reuters reported three U.S. House lawmakers introduced legislation on Tuesday calling on the U.S. Postal Service to freeze a $482 million contract to OSK to finalize production for the next-generation postal vehicles pending a review of the contract.

·     Consumer Staples; BYND active after saying starting this week, WMT is adding its Beyond Sausage Hot Italian to fresh meat aisle at more than 400 stores and expanding frozen Cookout Classic value-pack to approx 500 stores; CASY 3Q EPS of $1.04 vs Consensus $0.97, with sales and EBITDA directly n-line and ID sales were slightly better in both fuel gallons and grocery; MDLZ agrees to buy Australia’s Gourmet Food Holdings for more than A$400M

·     Restaurants; BLMN was downgraded to hold from buy at Deutsche bank noting shares are ~+40% YTD, which includes a ~+21% move since the day prior to earnings results on February 18 and view the risk/reward as more balanced at current levels; TACO reported a top and bottom line Q4 beat as system-wide comps +3.8% – company-owned +0.6% and franchised +7.5%; CMG positive mention at Goldman Sachs as believe the recent sell-off in shares is an attractive buying opportunity as fundamentals remain strong (and 1Q21 same-store sales guidance encouraging). Moreover, the company continues to benefit from a shift to digital, which can drive growth over the next several years and improve margins

·     Leisure and Gaming; THO 2Q EPS $2.38 vs. est. $1.55 on sales $2.73B vs. est. $2.53B, gross margin +240bps; says expects continued company and RV industry expansion even after pandemic ends, anticipates supply chain challenges will continue to impact near term and cautiously optimistic will lessen in 2H21, for remainder of CY21 sees demand for products outpacing supply; LESL was upgraded to buy from neutral at Guggenheim; STAY upgraded to outperform at Baird; DKNG said 2020 results suggest a +$67B combined online sports betting and iGaming North American total addressable market. DKNG estimates the U.S. OSB market is at least $22B at 100% legalization.

Energy

·     Energy stock movers; Wells said we are entering the recovery’s second phase sooner than expected and are now focused on larger operators versus the smaller, more-levered names and downgraded MTDR, SM, RRC to EW and OAS to UW, upgraded WLL to OW and AR to EW, and named PXD, DVN, PDCE as their top picks and removed CNX as a top pick to reflect this belief; RBC reiterated CLR at Outperform and raised their target to $32, saying shares provide high relative beta and correlation to oil prices; QEP shareholder Glazer Capital, who owns about 5.7% of shares, issued an open letter to other shareholders strongly urging them to vote against FANG’s proposed acquisition of the company at their special meeting on March 16; CVX expects FCF to grow by more than 10% per year by 2025, is targeting more than doubling their return on capital employed by 2025, and is also targeting a 25% carbon intensity reduction by 2028; Johnson Rice upgraded BRY, CDEV, DVN, SBOW, SWN to Buy and downgraded COG, FANG, PXD to Hold and EOG to Accumulate; Credit Suisse raised their price target on CNQ to $52 as they anticipate the company’s debt reduction pace to accelerate this year

·     Utilities & Solar; Bloomberg reported that activist investor Carl Icahn is seeking seats on FE’s board; SJW 1.03M share Spot Secondary priced at $59.00; UBS downgraded NS to Neutral after shares more than doubled since November given the recovery in commodity pricing and as a reopen trade; Piper said interest rate stabilization and improved visibility surrounding Biden’s infrastructure plan can be catalysts to reverse the recent decline in renewable stocks as investors look to growth opportunities and positive medium and long-term outlooks, and list ENPH in solar, NEP in infrastructure, DAR in biofuels, and GTLS in engineered equipment as their favorite names; Bank of America downgraded OGS to Underperform from Neutral and ATO to Neutral from Buy; Wells downgraded OGE to Equal-Weight with a $34 target

Financials

·     Bitcoin news; Coinbase shares changed hands at a private auction at a roughly $90B value according to people familiar with the matter reported Bloomberg; SI launched a $300M at-the-market equity sales program to further supplement regulatory capital levels and to support its SEN (Silvergate Exchange Network) leverage product, which allows customers to obtain U.S. dollar loans collateralized by Bitcoin; NCTY signs MoUs with three unrelated bitcoin mining machine owners to purchase bitcoin mining machines and will issue about 5.9M Class A ordinary shares to sellers on at $38.51

·     Bank movers; ZION, CMA, KEY, HBAN, PBCT all down early in the S&P as markets saw a rotation out of recent winning sectors (financials, energy and media) and into tech; SoFi (IPOE) agreed to buy community bank, Golden Pacific Bancorp (GPBI) for about $22.3M in its effort to get a national bank charter; Wedbush downgraded TSC to Neutral solely on valuation after shares are now trading near their $27 target after their slight outperformance versus peers since its capital raise in October (+87% since 10/12 vs +82% vs KRX – midcap bank index); RBC reiterated STL at Outperform and raised its target to $28 after management reaffirmed its FY21 loan guidance of 4.5-7% growth and said it expects core NIM growth to be at the higher end of guidance

·     Insurance; Bank of America initiated LMND at Underperform with a $29 pt (66.5% downside to yesterday’s closing price) as they expect the company to miss 2021 revenue guidance of $372-378M in premium after sequential growth declined in 4Q20 and hitting their FY21 guidance requires the last 9 months of the year to be 50% more robust than the first quarter, and growing its customer base to hit its target would come at a cost far higher than the lifetime value of the policies and customers; AIZ sold Global Preneed, its prearranged funeral insurance and final expense business, for $1.3B in cash to CUNA Mutual Group in a deal expected to close by the end of Q3, and expects to use three-quarters of the proceeds from the deal for share repurchases

·     Consumer Finance; Mizuho lifted their target on MA to $430 from $400 as they believe consensus is underestimating the positive revenue impact of a snapback in cross-border travel this year; LDI was initiated with bullish positions with a $25 price target at each of JMP, Citi, Credit Suisse, and Barclays, a Buy with a $33 target at Jefferies, and Neutral stances at Morgan Stanley ($21 pt), UBS ($20), and Piper ($20)

·     REITs; Goldman downgraded SKT to Sell as shares have risen +159% since November 1 despite Goldman’s view that fundamentals are weaker now than pre-Covid as occupancy and leasing will remain challenged, and they also downgraded BRX to Neutral with a $22 target from $20 as they expect the REIT’s earnings to continue to benefit but are hesitant to assume its multiple exceeds pre-Covid levels in the near-term

Healthcare

·     The CDC released its first guidance for people who have been fully vaccinated against Covid-19. People who are fully immunized can safely visit other vaccinated people indoors without wearing a mask or social distancing, the agency said. Vaccinated people can visit some unvaccinated people without masks or social distancing as well. Someone is considered fully vaccinated 2 weeks following either a single shot of JNJ newly authorized vaccine or two weeks after their second shot of MRNA or PFE two-dose regimens. About 58.9m people in the U.S. have received at least one shot with 30.7m of those people receiving two doses.

·     Pharma movers; NVS said its drug candidate canakinumab did not meet a late-stage trial’s primary endpoint of improving overall survival in lung cancer patients; ANPC shares surge after co develops new sensor for multi-cancer detection; RCKT rises after saying U.S. FDA grants Regenerative Medicine Advanced Therapy (RMAT) tag for co’s RP-L201

·     Biotech movers; ACAD shares plunged after the FDA identified deficiencies during its ongoing review of co’s marketing application for its drug candidate Pimavanserin to treat hallucinations and delusions associated with dementia-related psychosis; FDA had assigned a target action date of April 3 for the application; VBIV rises after saying it began enrollment of its Phase 1/2 clinical study of VBI-2902, its monovalent enveloped virus-like particle Covid-19 vaccine candidate; NVTA extends gains from late yesterday after Cathie Wood mention on CNBC saying it was among most important companies in molecular testing; SURF to partner with MRK in a clinical trial to evaluate the safety and efficacy of a combination of co’s SRF388 and MRK’s Keytruda; PTCT and the Spinal Muscular Atrophy Foundation enter into a new collaboration focused on regenerative medicine

·     Healthcare services and providers; XELA said it got a 10-year, $90 million contract blending automation technologies, software-as-a-service, and services through its PCH Global platform; said the contract will accelerate the digital transformation efforts for a major U.S. health insurance company and is part of a broader relationship that included more than $28 million in revenue in 2020.

Industrials & Materials

·     Aerospace, Industrial & Machinery; AER confirmed ongoing discussions with GE to acquire GE Capital Aviation Services or GECAS. It would be the biggest aircraft leasing shakeup in almost a decade; BA orders grew for the first time in 14 months during February as it notched deals for 82 wide body planes and 737 MAX jetliners (the headlines helped boost shares)

·     Transports; sector ends higher after touching record highs the day prior; JBHT positive mention by Cleveland research saying seeing upside to intermodal pricing expectations, expects strong demand into 2022; total traffic of the US Class I rails recovered to positive YoY growth this week at +6.4% (vs. last week -0.8%), close to the YoY growth level in week 3 of the year before the adverse weather impact set in. All 4 rails had DD intermodal volume growth driven by sustained consumer economy expansion (CSX at +11.7%; NSC at +16.8%; UNP at +21.9%; KSU at +11.2%). Ex-intermodal wise, NSC and KSU’s traffic had close to 3% YoY growth while CSX and UNP are still in negative territory (as per Goldman Sachs); in airlines, ALGT February traffic results showed sharp declines from a year ago, but said travel demand has recently increased

·     Metals & Materials; gold and silver miners saw strength today (GOLD, NEM, AEM, PAAS) as precious metal prices rise amid a weaker dollar; BHP upgraded to Buy at Argus as expect the company’s long-term underlying fundamentals to remain strong, and look for BHP to benefit from stronger global economic growth and higher prices for metals and other commodities as the pandemic recedes

Technology, Media & Telecom

·     Internet; FAANG stocks helped lead the Nasdaq higher, as the index surged back above the 13,000 level behind gains in AAPL, AMZN, FB, NFLX and GOOGL among other large cap names; SFT shares jump as posted smaller-than-expected Q4 loss on in-line revenue ($73M) as BTIG noted guidance for 130% revenue growth and 120% unit growth should help validate the growth story (upgraded to Buy at Benchmark)

·     Semiconductors; Philly semiconductor index (SOX) rebounds over 5% early (up over 100 points) after plunging 5.4% yesterday, dropping to its 100-day MA 2,772; AMD will be launching its next-gen Zen 3-based EPYC CPUs on March 15 according to reports; AMD’s flagship 3rd Gen EYPC ‘Milan’ CPU is the EPYC 7763: 64 cores, 128 threads at up to 3.5GHz, with next-gen Zen 3 architecture

·     Software and Hardware movers; DBX to acquire secure document sharing startup DocSend for $165M; ZM CEO Eric Yuan transferred roughly 40% of his ownership in the company, a stake valued at about $6B, after Zoom’s shares more than tripled last year; DM rises after earlier Bloomberg report saying it has explored deal for SLM Solutions; SSYS announces the J5 DentaJet 3D printer, which the company says is the only multi-material dental 3D printer.

·     Media & Telecom movers; VIAC tgt raised to Street high $82 at Wells Fargo as the firm applauds the successful launch of the Paramount+ streaming service, saying it gives ViacomCBS a clearer direction, but remains on the sidelines due to the 125% YTD rally; overall media names (DIS, DISCA, FOXA) which have surged over the last few weeks, saw profit taking today; DIS says Disney+ tops 100 million global paid subscriber milestone