Closing Recap

Monday, November 09, 2020

Equity Market Recap

·     There is just no stopping global stock markets, as the S&P 500, Dow Jones Industrial Average, Nasdaq Composite and Dow Transports all touched record intra-day highs (though not all closed at records) paced by gains in “reopening” related trades after the first successful data from a late-stage COVID-19 vaccine trial from PFE/BNTX spurred hopes of the economy recovering quickly from a year of pandemic-driven crisis. Volunteers who took the two injections three weeks apart experienced more than 90% fewer cases of symptomatic Covid-19 than those who received a placebo well above expectations as researchers have been cautioning that a vaccine may only be 60% or 70% effective. The data boosted already strong stocks, led by gains in airlines, cruise lines, movie theatres, energy, restaurants, retailers, casinos, theme parks, lodging and REITs. At the same time, the biggest winners over the pandemic lock-down/stay-at home such as video gamers (TTWO, EA), online retail presence (OSTK, PTON), media related (NFLX, ROKU), as well as vaccine testing companies (QDEL, ABT, FLDM) were among the top decliners which dragged down the Nasdaq Composite late day. Oil prices surged more than 8% as U.S. Treasuries sold off and yields surged; gold plunged 4%.

·     Stock futures were higher prior to the vaccine news after Democrat Joe Biden received enough electoral votes over the weekend to be viewed as President elect (though Pres. Trump not going down with a fight as he continues to contest several states counts late last week). Japan’s Nikkei share average reached a high last seen almost three decades overnight (prior to the $PFE news this morning) – The Nikkei rose 2.12% to 24,839.84, its highest close since November 1991, adding 8.1% in the last five sessions of gains. European markets to an eight-month high on vaccine news and as Joe Biden’s election victory raised hopes of a more stable U.S. trade policy. The STOXX 600 jumped nearly 4% and clocked its best day since late March led by travel and leisure names (STOXX 600 trading about 11% higher in November so far). JPMorgan said on Monday it expected the U.S. S&P 500 to hit 4,000 points by early next year and called Pfizer’s COVID-19 vaccine update as "one of the best backdrops for sustained gains in years". The bank said it expects the U.S. equity index to hit about 4,500 by the end of 2021 — a 25% jump from current levels. The index rose 3% to slightly above 3,600 points on Monday.

Commodities

·     Gold futures posted its largest one-day dollar and percentage declines since 2013, plunging -$97.30 or about 5% to settle at $1,854.40 an ounce as positive news on a potential COVID-19 vaccine helped strengthen the U.S. dollar and bond yields, dulling investor demand for the precious metal. Investors poured money out of safe-haven instruments and assets given the rotation into stocks and oil prices.

·     Oil prices jumped $3.15 or 8.48% to settle at $40.29 per barrel for its biggest daily gain in almost six months after news of a highly effective Pfizer vaccine against COVID-19 and Saudi Arabia’s assurance that an OPEC+ oil output deal could be adjusted to balance the market. The vaccine news helped boost sentiment for improved demand on reopen hopes while the Saudi minister was commenting after being asked whether OPEC+ – which groups OPEC states, Russia and other producers – would stick to existing cuts of 7.7 million barrels per day (bpd) rather than easing them to 5.7 million bpd from January.

Currencies & Treasuries

·     Treasury yields jumped as prices slumped following Pfizer vaccine news, as 10-year yields rise over 13 bps on day to move above 0.95%, best levels in about 5-months 9above the 200-day MA of 0.8%. Investors sold bonds to move into riskier assets as political uncertainties diminish and the prospect of getting back to normal life next year increases with the vaccine headlines. The U.S. two-year, 10-year yield curve steepest since February 2018, last at 77.4 basis points. The U.S. dollar was mixed, gaining over 200 bps vs. the Japanese yen to move back around the 105.50 level (bouncing off 7-month lows Friday), but slipped vs. the euro as the dollar index gained roughly 0.75% on the day amid a mass rush into U.S. stocks.

Sector News Breakdown

Consumer

·     Retailers; massive gains for retailers on the day on reopen hopes given PFE vaccine news (URBN, KSS, GPS, JWN, DDS, M – as well as mall REITs SPG, KIM, MAC, PEI); VSTO upgraded to overweight at KeyBanc saying firearm-related names have historically benefited under a Democratic administration while also sees continued high demand for products in co’s outdoor segment, which includes archery and hunting accessories and sports protection goods, due to the COVID-19 pandemic; MAT downgrade to Hold at Jefferies saying though are not turning more bearish, they are pausing with shares at current levels; surprise PRTY rises on 3Q adj EPS profit $0.10 vs. est. ($0.32) on revs $534Mm vs. est. $489.3Mm; guides 4Q revs $675-695Mm vs. est. $660.3Mm; HD and LOW, which have seen sales surge due to demand for paint, tools and other home improvement products, shares fell; BBY which has been a beneficiary of strong demand for monitors, printers and other computer needs due to work-from-home set-ups also slumped

·     Auto sector; automakers rose following news this weekend that Joe Biden has the current electoral votes to win the Presidency – the win raised prospects of tougher carbon emissions targets and swifter transition to electric vehicles – shares of GM, F higher as Biden had pledged to reinstate California’s zero-emission vehicle rules and reverse the Trump administration’s decision to ease fuel efficiency and carbon emission requirements through 2025 = EV stocks also higher again today (FSK, NKLA, LI, TSLA, WKHS); MGA was downgraded to underweight from equal-weight at Morgan Stanley while being upgraded to outperform at BMO Capital

·     Consumer Staples; CLX one of the market losers on the vaccine news (had rallied on increased usage of its disinfectant wipes); BYND shares tumbled initially after MCD said it has developed its own plant-based burger, McPlant but the co later said it was co-created with MCD; shares of grocers and food related stocks which rallied during the pandemic saw selling pressure early (KR)

·     Restaurants; one of the biggest market beneficiaries included restaurants and casual dining given the increased chances of a Covid vaccine following PFE upbeat news; Dow component MCD reported slightly better Q3 revenue of $5.42B vs. est. $5.38B on better EPS of $2.22 as U.S. comparable sales rose +4.6%; CAKE was upgraded to buy from hold at Deutsche Bank saying outside of near-term weather and COVID risks they sense a reluctance to fully embrace a bull case here just given legacy issues and biases as it pertains to CAKE’s mall exposure – shares of SBUX, CMG, RRGB, WEN, EAT, TXRH, PLAY, DRI among top movers

·     Leisure and Gaming; biggest beneficiaries of + PFE vaccine news as reports 90% success for its vaccine in a Phase 3 study – casinos (WYNN, LVS, MGM) rising along with Macau-related names with Joe Biden forecast to win the U.S. presidential election; theme park stocks break sharply higher after Pfizer reports its success for its vaccine in a Phase 3 study (SIX, SEAS, DIS); lodging names also rise (HLT, MAR, H) on hopes a vaccine will boost travel exposure; also boating and RV related stocks which surged during the pandemic found profit taking early with shares of BC, CWH, WGO, THO, MBUU all tumbling early

Energy

·     Energy stock movers; Oil jumped by almost 10% on Monday for its biggest daily gain in almost six months after news of a highly effective Pfizer vaccine against COVID-19 and Saudi Arabia’s assurance that an OPEC+ oil output deal could be adjusted to balance the market; HSBC upgrades RDSto Buy from Hold and the bank also kept Buy ratings on BP, TOT and Hold ratings on CVX, E, XOM, EQNR; Morgan Stanley raised its price target on FANG to $50 from $47 and maintained its Equal-Weight rating; Goldman Sachs lowered its targets on HFC, DK, CVI in refiner space, but the group surged on the day given increased demand hopes (CSFB said problem was the product markets and especially the overhang of surplus jet fuel – believe that’s where the vaccine will be most effective)

·     Utilities & Solar; SPI’s subsidiary EdisonFuture signed a joint agreement with Liuzhou Liancheng Industrial and Guangxi Dazhou Automobile Sales to strengthen EV supply chain and sales infrastructure; FSR was initiated at Cowen at Outperform with a $22 pt; DE Shaw reported a 5% passive stake in JKS, which represents more than 8.9M shares; Renewable energy and electric-vehicle stocks, including NEE, REGI, SPWR, FSLR, CSIQ, rise in premarket trading after Democrat-candidate Joe Biden wins the U.S. election; ALE reported Q3 EPS 78c on revs $293.9M vs est. 64c on $292.9M and reaffirmed FY20 Adj EPS guidance $3.25-3.45 (est. $3.33); BIP posted Q3 EPS loss of (12c) vs est. 10c profit, FFO 79c (est. 58c) on revs $2.21B (est. $991.4M); AQN completed its acquisition of Bermuda Electric Light for about $365M

Financials

·     Bank movers; All 65 components in XLF were positive pre-market on hopes of Pfizer vaccine and rising treasury yields, as the 2-year, 10-year treasury yield curve hits the steepest level since March; BRKreported Q3 net EPS $18,994 (+82% YoY) which was largely driven by investment gains and reported repurchasing $9B of its stock in the quarter, which almost doubled Q2’s previous $5.1B record and brings the YTD total to $15.7B; KBE (S&P Bank Index) hits the highest levels since March 4 as banks (JPM , etc.) benefit from surge in treasury yields (helps lending margins); VIRT was upgraded to Buy at Rosenblatt

·     Consumer Finance; AXP was highlighted as one of Berkshire Hathaway’s core positions; SQ, PYPL among names falling on stay at home; MELI OW rating was reiterated at JPM who upped their pt to $1,640 from $1,370 following last Thursday’s earnings and on company’s position to capture structural trends in ecommerce and fintech in Latin America and GMV acceleration in Brazil

·     REITs; SPG KIM MAC PEI BXP FRT mall REITs, EPR (theaters, amusement parks REIT) are other reopening groups that outperformed on Pfizer’s vaccine headlines; PFSI price target raised to $80 from $67 at Credit Suisse after its earnings on Thursday beat consensus estimates; RBC downgraded BPY to Sector Perform from Outperform but maintained its $17 price target following its recent rally of 52-week lows that outpaced its peers; Stifel upgraded CUBE to Buy with a $39 pt from Hold on increasing momentum in its 3 key markets of NYC, DC, Miami; SVC reported Q3 Normalized FFO 14c, missing est. 32c, on rvs $296.5M, beating est. $262.5M

Healthcare

·     Pharma movers; PFE shares soar, lifting market in conjunction after data shows that the Covid-19 vaccine from PFE and BNTX is strongly effective, as volunteers who took the two injections three weeks apart experienced more than 90% fewer cases of symptomatic Covid-19 than those who received a placebo. The results beat expectations; researchers have been cautioning that a vaccine may only be 60% or 70% effective, STAT news reported; APVO shares jump after Tang Capital Partners reported a 54% stake in new 13D regulatory filing; ELAN downgraded to underweight at Barclays as sees a stronger entity emerging post the Bayer integration, but believe any material improvements in portfolio, will take longer than anticipated

·     Cannabis stocks extend last week gains; sector benefits amid expectations that Joe Biden will lead a reform effort that will spark investment in the sector; Biden and Harris said during their campaign that Marijuana would be decriminalized at a federal level under a Biden administration, but efforts toward full legalization may also not be off the table – ACB, CGC, APHA, CRON, TLRY, HEXO among gainers – ACB reports fiscal Q1 2021 total and cannabis net revenue was $67.8M, a slight increase from the $67.5M in the prior quarter – Consumer cannabis net revenue was $34.3M (-3% Q/Q) – medical cannabis net revenue was $33.5M, a rise of 4%

·     Biotech movers; BIIB failed to gain support from a panel of U.S. FDA advisers as outside experts voted 8 to 1, with 2 undecided, that data from a single clinical trial with positive results was insufficient to show its Alzheimer therapy drug aducanumab works. They also voted 10 to 0, with 1 undecided, that the positive study shouldn’t be considered primary proof the drug works in light of conflicting evidence from a different trial; ICPT reported mostly in-line results; NTLA dosed the first patient in Phase 1 trial evaluating NTLA-2001 for hereditary transthyretin amyloidosis (ATTR) with polyneuropathy (hATTR-PN); ONCS slips despite positive data from TAVO and MRK’s Keytruda in metastatic melanoma; NVAX said it was on track to begin a delayed U.S.-based late-stage study of its experimental coronavirus vaccine later this month; also said the vaccine, NVX-CoV2373, had gained the U.S. FDA "fast-track" status

·     Medical technology and Services; Vaccine testing stocks hit very hard on the day (ABT, DGX, PKI, QDEL, FLDM, TMO) with rising chances of a vaccine, while hospital stocks rallied led by gains in HCA, UHS, CYH

Industrials & Materials

·     Industrial & Machinery; a rebound for industrial and construction related stocks after slipping last week on fears stimulus measures would be smaller than hoped given the divided government. TTEK upgraded to buy at Stifel saying the company is well-positioned to benefit from strong secular drivers in water and environmental services, with 85%+ of revenues tied to these markets; Volkswagen AG’s truck unit Traton SE has agreed to pay about $3.7 billion for the outstanding shares of U.S. truck maker NAV in a deal announced on Saturday. Finalization of the deal comes after Traton said on Oct. 16 it had agreed to raise its bid for Navistar to $44.50 per share, up from $43 https://bit.ly/3eMsbyA

·     Transports; Dow Transports trade to record highs; airlines lead the index to near record highs (AAL, DAL, JBLU, LUV, UAL) following the vaccine hope news from PFE this morning, giving a boost to travel related names; CHRW upgraded to buy and tgt raised to $118 at Citigroup as sees a credible opportunity for Robinson to earn between $5 and $6 per share next year (our estimate moves to the low-end), which is ~$1+ higher than consensus’ current $4.22; FDX and UPS shares slide on expectations a vaccine will reopen more foot traffic, less online shopping

·     Metals & Materials; lithium stocks ALB and LTHM both upgraded to buy from neutral at Citigroup on tightening lithium supply/demand over the next two years; gold miners tumble on “risk-on” trade, with NEM, AEM, GOLD sliding; HL falls on Q3 earnings miss and narrowed gold output; revised FY20 outlook

Technology, Media & Telecom

·     Large cap technology; the tech trade dominated by the PFE positive vaccine headlines as tech gained, but the recent 6-month stay-at-home winners due to the Covid-19 related lockdowns and impact in business at home were among the most active names. Stay at home winners over the last few months including ZM, ROKU, NFLX, AMZN, WORK, TTWO, ATVI, EA, were some of the names that pulled back today on profit taking; In stocks news; FFIV rises as activist investor Elliott Management has taken a stake in FFIV and spoken to the software company’s management in recent weeks about ways to boost its lagging stock https://on.wsj.com/2U5UMW