Closing Recap

Monday, November 29, 2021

Equity Market Recap

·     One day removed from one of the worst trading days of the year and markets were sharply higher across the board (with the S&P posting its best day in about 6-weeks) as fears about the new coronavirus variant Omicron receded on hopes it might prove to be milder than initially feared. President Biden urged Americans not to panic and said the United States was working with pharmaceutical companies to make contingency plans if new vaccines were needed. Biden said the country would not go back to lockdowns this winter, but urged people to get vaccinated, get their boosters and wear masks. Normally a day focused on retailers following Black Friday and Cyber Monday today was notably quiet with the virus more of a focus. Data over the weekend showed U.S. shoppers spent roughly $8.9 billion online on Friday, down from $9 billion a year earlier, according to the latest Adobe figures, while forecasting Cyber Monday to be between $10.2 billion and $11.3 billion. A late day comment By Fitch Ratings pulled markets off their best levels, saying “We currently believe that another large, synchronized global downturn, such as that seen in 1H20, is highly unlikely but the rise in inflation will complicate macroeconomic responses if the new variant takes hold.”

·     Stock and Sector movers: MRNA leads the S&P for the 2nd consecutive session after saying it could have a vaccine for the Omicron variant by early 2022; BNTX also adds to Friday’s gains, though PFE, NVAX pare all early gains to go red; reopen names EXPE, LYV, MAR, RCL rebound from Friday’s Omicron-driven selloff; Hyatt (H) getting an additional boost from JPMorgan’s upgrade to OW; TWTR spikes as much as 11% and SQ climbs in pre-market trading after Jack Dorsey said he will step down as Twitter CEO, but both stocks pare all gains during the day; LI soars after its Q3 revenue and Q4 guidance came in above consensus, and was also mentioned positively in Barron’s with NIO, XPEV both flattish amidst a mixed day in EV names; MRK was the worst S&P stock after Citi downgraded it with a negative catalyst watch on potential abandonment of its islatravir; semiconductors a market bright spot on no news with equipment names AMAT, LRCX and large cap chip players NVDA, AMD, QCOM leading.

Commodities

·     Oil prices gained, with WTI crude up $1.95 or 2.64% to settle at $69.95 per barrel, but well off its morning highs above $72.93 per barrel, recouping some losses from Friday’s selloff, with investors betting that the impact of the Omicron Covid-19 variant will be less profound than initially feared. Many analysts this morning called the Friday plunge in energy markets overdone, as oil stocks rose, tracking crude prices higher. An OPEC+ technical meeting was postponed to Wednesday and OPEC+ ministerial committee meeting moved to Thursday "to buy time to review things" considering the new Omicron COVID-19 variant. U.S. natural gas futures slid more than 10% on Monday, erasing gains from a post-Thanksgiving rally in the previous session, hurt by forecasts for lower-than-usual heating demand over the next two weeks. White House press secretary Jen Psaki said that the U.S. is not reconsidering its intention to release strategic oil reserves despite a recent drop in oil prices linked to the new omicron COVID variant.

·     Gold prices slip -$2.90 or 0.2% to settle at $1,785.20 an ounce, but only a modest pullback for the safe-have despite a sharp bounce in U.S. stocks and the dollar (however, the precious metal has swooned nearly $100 since touching a five-month peak of $1,876.90 per ounce two weeks ago amid rising bets of increased interest rates).

Currencies & Treasuries

·     After the pullback in the U.S. dollar on Friday, all was back to normal today, with the buck rising across the board, outperforming the most against safe-haven related currencies (yen/franc) as investors went back all-in on stocks as fears about the new coronavirus variant receded, with no further restrictions put in place from last week that spooked investors. The U.S. dollar index (DXY), which had its biggest one-day drop since May on Friday, rose 0.1% to 96.357.

·     U.S. Treasury yields bounced higher initially, with the 10-yr yield hitting highs around 1.56% (before fading) amid a waning flight-to-safety bid that had been triggered by the detection of a new coronavirus variant last week, leading to the market’s biggest rally since the onset of the pandemic. The benchmark 10-year yield hit lows of 1.473% (after topping around 1.7% the week prior), but recovered somewhat today, up 5 bps to 1.52%. The two-year yield, which reflects short-term interest rate expectations, was last up 2.1 basis points at 0.5413%, giving back a bit of Friday’s almost 14-basis-point drop — the steepest daily fall since March 2020.

Sector News Breakdown

Consumer

·     Retailers; U.S. shoppers spent slightly less online during Black Friday this year as Shoppers’ total outlay online during Black Friday was roughly $8.9 billion, less than the $9 billion in 2020, Adobe said. Spending online during Thanksgiving Day was flat at $5.1 billion, Adobe said. Adobe says over Thanksgiving weekend, U.S. consumers spent $4.5B online on Nov. 27 (down 4.3% yoy) & $4.7B online on Nov. 28 (down 0.5% yoy); TJX, BURL upgraded to Buy from Neutral at Citigroup to reflect our overall more optimistic view of the off-price sector; DLTR files prospectus supplement related to a potential two-part denominated senior note offering; Bank America said following their Black Friday store visits they expect a strong Holiday for Leisure Brands (YETI, DTC, ELY) & Retailers (DKS).

·     Auto sector; LI, XPEV, NIO all positively mentioned in Barron’s saying the Chinese EV players will grow sales, on a combined basis, roughly 160% in 2021, leaving them trading at some 6.5 times next year’s estimated sales; Nissan (NSANY) announced it will spend 2 trillion yen ($17.59 billion) over five years to accelerate vehicle electrification to catch up with competitors in one of the fastest growth areas for car makers; HTZ announced $2B stock buyback; LI outperformed after forecasting Q4 revenue above estimates

·     Housing & Building Products; BECN was downgraded to Hold from Buy at Truist driven saying 2021 has benefited from substantial price/cost and management actions and see these benefits subsiding in ’22, limiting upside to our ’22 EBITDA estimate

·     Consumer Staples; MGPI was upgraded to Buy from Hold at Truist and raising 12-month target to $100 from $80 as believe that the legacy business is poised to post solid and (most importantly) consistent performance for the foreseeable future; FLGC enters cannabis beverage market through licensing agreement with Tonino Lamborghini; CHD signed a definitive agreement to acquire the TheraBreath® brand for $580 million in cash

·     Casinos, Gaming sector; casino stocks in Macau slide initially after Suncity Group Chairman Alvin Chau was accused by Chinese authorities of being a leading member of a cross-border gambling group that set up casinos on the Mainland. It is still unclear if the scope of the allegations will just affect Chau individually, Suncity as a group or even the entire junket industry; in research, FBR said according to checks, EVRI and AGS continue to benefit from strong tailwinds/spend and game-specific results in primary markets; the firm also said VIP accounted for ~32% of Macau gaming revenue versus nearly half in CY19 and the former driver of GGR before that.

·     Lodging and Travel sector; Travel names rebound after news of a new COVID variant on Friday disrupted the holiday-shortened session with hotels, theme parks, and other leisure sectors seeing a modest rebound; Hyatt (H) upgraded to Overweight from neutral at JPMorgan saying they are using the 10% pullback from share price levels earlier in the month to get more aggressive and upgrade the stock. Shares have underperformed its c-Corp peers YTD/last 12 months

Financials

·     Bank movers; Odeon Capital upgraded WFC to Buy due to the high likelihood of the regulatory restrictions being lifted; Stephens downgraded USB to EW with a $63 PT from $68 as its payments business has outsized exposure to travel, hospitality, and entertainment where volume has lagged and faces further risks with new Covid variants; Stephens also upgraded TFC to OW as it is positioned to outperform peers as the cost savings from its BB&T/SunTrust merger is only one year away; Wedbush raised their target on CUBI to $75 from $61 and still sees upside after its +209% YTD run as the best performing bank as their transition to a digital bank warrants a higher valuation and it has addressed several overhangs weighing on valuation over the past year

·     Bitcoin, FinTech & Payments; AFRM and SYF initiated with Neutral ratings at Piper saying both stocks pricing in rapid growth while note the emergence of buy now, pay later (BNPL) lending will continue for the next several years due to a shift in consumer behavior and AFRM will be a leading player within the industry; MSTR said it bought an additional 7,002 bitcoins for ~$414.4M after last week’s sell-off

·     Consumer Finance; Visa Inc. (V) complained to the U.S. government that India’s promotion of domestic rival RuPay is hurting the company in the country, Reuters reported, citing memos it saw; MA SpendingPulse data- thanksgiving weekend retail sales up 14.1% year-over-year in U.S.; NRDS was initiated with several Outperform ratings, including Truist ($30), William Blair, KeyBank ($35), Barclays ($29), OpCo ($30), Citi ($30), and at EW with a $24 PT by Morgan Stanley

·     REITs; Piper downgraded HPP to Neutral due to the latest Covid variant likely delaying the return to office, especially in the company’s tech and TAMI tenant base; BMO upgraded U.S. REITs to Market Weight in its 2022 outlook on the sector’s relative earnings and dividend growth vs. the broader market, including blended FFO growth that has eclipsed its 12-month moving average and LTM dividend growth that has improved for four consecutive months with dividend forecasts implying growth of nearly 9% over the next 12 months; CMTG was initiated with Outperform ratings at JPMorgan ($20 PT) and JMP Securities ($19), and with Neutral ratings at KBW ($18) and UBS ($17.50)

Healthcare

·     Covid-vaccine news: MRNA Chief Medical Officer Burton said this weekend he suspects the new omicron coronavirus variant may elude current vaccines, and if so, a reformulated shot could be available early in the new year, according to Bloomberg; BNTX said it is working to adapt its Covid-19 vaccine to address the omicron variant and expects to have a new version ready within 100 days if necessary; PFE CEO said this morning he now estimates it can manufacture 80M treatment courses of Covid19 antiviral drug Paxlovid, up from 50M projected a few weeks ago; ADGI was upgraded to Overweight with a price target of $49 from $33 at Morgan Stanley, bullish on the prospects for Adagio Therapeutics’ SARS-CoV-2 antibody, ADG20

·     Pharma movers; MRK downgraded to Neutral from Buy at Citigroup with a price target of $85, down from $105 saying they place a high probability that MRK will abandon islatravir development in the next three months given likely high regulatory concerns (removed their $4B risk adjusted 2030 estimate from our model, reducing our EPS estimates up to 10%); NRXP gains 35% after Zyesami increased likelihood of survival from Critical COVID-19; APDN announces its COVID-19 diagnostic strategy in response to the emergence of Omicron variant of COVID-19.

·     Biotech movers; KRYS shares surge after announcing topline data from its pivotal GEM-3 trial for its experimental therapy, VYJUVEK dystrophic Epidermolysis Bullosa met the primary endpoint with statistical significance; ARGX upgraded to Overweight, new $354 target at Piper as view lead asset efgartigimod as emerging as the best-in-class (as well as the first-in-class) therapy in the FcRn space; FENC slips early after the FDA indicated that "following a recent completion of a pre-approval inspection of the manufacturing facility of our drug product manufacturer, deficiencies have been identified"; CEMI said it received South Africa Health Products Regulatory Authority approval for its DPP SARS-CoV-2 Antigen test, authorizing marketing and distribution of the test for use at the point-of-care by professional healthcare providers.

·     MedTech Equipment; CODX said that the mutations found in the new Omicron COVID-19 variant do not impact the company’s COVID-19 tests’ ability to provide accurate results; Wells Fargo said its Life Science Tools survey to assess trends in colorectal cancer screening, showed results remain positive for GH mixed for EXAS

·     Healthcare Services; SGRY upgraded to Buy at Stifel saying despite the market sell-off that drove shares 5% lower Friday, we think business fundamentals are solid in organic growth and expense management and improving in investment and balance sheet

Industrials & Materials

·     Transports; in airlines, the U.S. screened 2.45 million air passengers on Sunday, highest since February 2020; in research, Deutsche Bank downgraded shares of UPS, SAIA, and CP to Hold from Buy saying they have been unapologetically bullish on SAIA’s long-term prospects since upgrading shares in early 2019. But after the 400% increase in equity value per share over that period (+330% rel. to S&P 500), we think risk reward is balanced. For UPS they believe the upcoming contract negotiation between UPS and the Teamsters has potential to be the most tumultuous since the 15-day UPS work stoppage in 1997; FRO reported a larger than expected Q3 net loss and revenues that were lower than the prior year, as the quarter remained "a challenging period" for tanker owners

·     Industrials, Metals & Materials; BERY rises after activist investor Ancora Holdings issues an open letter to BERY, urging co to begin a strategic review of its options, including a sale or go-private deal and estimates could fetch valuation of $100 per share or more through sale (confirms a WSJ report over the weekend); Australia-listed lithium developer Vulcan Energy Resources said it signed a binding agreement with Dutch automaker STEL to supply lithium hydroxide from its German project for an initial five-year period; GEF weas downgraded at Wells Fargo on valuation and noting catalysts from the Caraustar integration, constructive boxboard cycle, operational improvements, and de-leveraging have played out; iron ore futures in Singapore jumped nearly 10% on optimism over restocking by China’s steel mills; VALE cuts full-year iron ore production view, sets 2022 capex at $5.8B

Technology, Media & Telecom

·     Internet; TWTR announced that Jack Dorsey has decided to step down as CEO and that the Board of Directors has unanimously appointed Parag Agrawal as CEO and a member of the Board, effective immediately. Dorsey will remain a member of the Board until his term expires at the 2022 meeting of stockholders (shares of TWTR jumped initially on news, only to slip); SHOP announced a record-setting Black Friday with sales of nearly $2.9 billion from the start, representing a 21% increase over Black Friday in 2020 when sales by Shopify merchants surged 75% over 2019 driven by COVID-19 lockdown; JMIA was downgraded to Underweight at Morgan Stanley saying heavy investment in marketing and technology is dampening EBITDA margins

·     Software movers; Clearlake Capital Group LP said it would buy private cybersecurity company Quest Software from Francisco Partners. A source familiar with the transaction told MarketWatch the value of the transaction is about $5.4 billion. Quest CEO Patrick Nichols will remain in his current position, along with the existing executive management team https://on.mktw.net/3p7MnQZ

·     Hardware, Components & Services; Personal-computer shipments in China reached a record of nearly 15.1M units in 3Q, topping last year’s 3Q record, driven by a 3.8% increase in desktop shipments and helped by a wave of commercial sector upgrades and Beijing’s "Industry 4.0" initiatives. Lenovo, Dell, and HP retained the top three spots, with an 8%, 18% and 15% shipment increase, respectively. Dell saw record performance from notebooks, Canalys said