Closing Recap

Monday, October 25, 2021

Equity Market Recap

·     Stocks extend gains from last week with new all-time highs for the S&P 500 into the busiest week of earnings, with the Dow Jones Industrial Average also making new record highs and the tech heavy Nasdaq outperforms in another broad rally for stocks. The Dow Transport index approaches 16K level (not far off its record best of 16,170) as investor sentiment surges into earnings season, with investors showing no concerns around supply chain disruptions, input price pressures and labor shortages despite several high-profile companies having warned about it. Tech earnings kick off the week with social media giant Facebook (FB) tonight after Snap’s disappointing guidance last week sunk the sector. Overall, for the week, ~33% of the S&P will report led by Industrials, Technology & Consumer which include: AAPL, AMD, AMZN, BA, BSX, CAT, CBOE, CMCSA, CVX, EBAY, ENPH, F, FB, FISV, GE, GLW, GOOGL, HES, HLT, MA, MCD, MMM, MSFT, MXIM, NOC, RCL, SBUX, TWTR, TXN, UPS, XOM, & YUM. Truist notes we get the 5 largest companies to report this week that combine for 45.6% of the Nasdaq COMP and 24.1% of the SPX reporting this week. In addition to positive earnings bias, stocks got a boost as House speaker Pelosi said this weekend around 90% of the spending Bill has been agreed to & she’s expecting final agreement this week. The CBOE Volatility index (VIX) falls further after collapsing 5% last week, (its third straight negative week of losses for the index and its 4th losing week in last 5). Stocks rise, Treasury yields slip off highs, gold rises and crypto assets again surging to the upside (Bitcoin, Ethereum) – the same playbook for markets over the last 2-weeks.

·     Stock/sector mover; Philly semi-index (SOX) rises ahead of some key earnings this week (AMD), pushing above 3,400 (all-time highs stands at 3,484 for the SOX); NVDA trades all-time highs; TSLA surges to record highs (hits $1 trillion mkt cap) after increasing prices over the weekend and a 100k car order by HTZZ as the EV space outperforms – LCID, XPEV jump over 10%, CHPT rises, lithium stocks ALB, LTHM also posting gains in sympathy; PYPL rebounds, PINS plunges after their potential deal reported last week was abandoned; energy OXY, APA, metals/materials FCX, NUE among the S&P leaders; KMB stumbles to 52-week lows after missing on EPS and lowering guidance, and QSR drops on its revs, comps misses; FB volatile ahead of earnings tonight, going from red to green after an whistleblower files a complaint with the SEC about the company withholding concerning teen usage data from investors and several negative news pieces.

Commodities

·     Oil prices pulled back after hitting fresh 7-year highs, as WTI crude finished flat at $83.76 per barrel (off best levels of $85.41). Prices jumped earlier, lifted by tight global supply, and strengthening fuel demand in the United States and beyond as economies recover from pandemic-induced slumps. U.S. oil futures hit $85 a barrel for first time since 2014. Oil prices come into the week riding an 8-week winning streak. December gold rises $10.50 or 0.6% to settle at $1,806.80 an ounce, its best level in roughly 6-weeks in a quiet day for precious metals, managing to rise despite a bounce in the U.S. dollar.

Currencies & Treasuries

·     The U.S. dollar edged higher vs. most major currencies, as the dollar index (DXY) touches highs just short of 94 before paring back. The Russian Rouble firmed to a more than 15-month high versus the euro and strengthened past 70 to the dollar amid rallying oil prices and Friday’s sharper-than-expected rate hike by the central bank (rose rates 75 bps to 7.5%). Turkish lira touches below 9.6 against the U.S. dollar. Treasury yields pulled back off morning higher, trading sideways most of the day as stocks pushed higher throughout. The yield on the benchmark 10-yr ended around 1.63% after touching highs above 1.7675%.

Sector News Breakdown

Consumer

·     Retailers; Global lifestyle brand, Allbirds Inc. (BIRD), sets terms for its IPO at 19.2M shares with a price range $12.00-$14.00 or market cap $1.7b-$2.0b; WHR downgrade from Sector Perform to Underperform with $190 tgt at RBC Capital as market share losses continue in North America, margins look set to weaken in 4Q with further pressures coming in FY’22, and industry volume growth is likely to subside; in mattresses, CSPR downgraded to Neutral at Wedbush and cut tgt to $4 from $10.50 on decreasing financial stability as Casper filed an 8-K indicating that it had received a limited waiver and amendment regarding certain covenants in its debt agreement; Truist said Golf equipment retail sales grew 3% YoY for the month of September (ELY, GOLF) which comes on top of a particularly challenging YoY comparison (+39% YoY in Sept. ’20) and brings YTD sales to +41% YoY; HD shares up for an 11th straight session, and up 14 of last 15 trading days making new all-tie highs daily; LOW shares also up for an 11th straight trading day

·     Auto sector; TSLA shares surge to record highs after Hertz said it has ordered 100,000 Tesla Inc cars, marking the single-largest purchase ever for electric vehicles and represents about $4.2 billion of revenue for Tesla; Separately on TSLA, the company rolled back the latest version of its autonomous driving software, called full self-driving, or FSD; also TSLA increased the price of its Model X Long Range and Model S Long Range variants by $5,000, according to Reuters. The Model X Long Range and Model S Long Range now sell for $104,990 and $94,990, respectively; XPEV rises on reports it plans to upstage Tesla and domestic rivals on autonomous driving with a full-scenario driver-assistance system by the first half of 2023, South China Morning Post (SCMP) reported; Volvo Cars set the price for its IPO at the low end of its target range, or 53 Swedish kronor each, equivalent to $6.18, the bottom of its target range of up to 68 kronor which values Volvo at just over $18B – shares are set to begin trading on the Nasdaq Stockholm exchange on Oct. 29; LIDR initiated with a Buy and $15 tgt at Roth Capital

·     Consumer Staples; KMB posted Q3 adj EPS $1.62 vs est. $1.65 on in-line sales $5B, lowered its FY guidance for adj EPS to $6.05-6.25 from $6.65-6.90 (est. $6.70), the top end of its sales view as it now sees FY net sales growth +1-2% from +1-4%, negatively impacted by significant inflation and supply chain disruptions that increased costs more than anticipated; SJM boosts share buyback authorization by 5M shares, bringing its current authorization total to approximately 7.8M shares; SMPL upgraded to Buy at Stifel with a $42 PT on near-term growth and long-term growth driven by the growth in new users and increased household penetration; OLPX initiated at Raymond James with a Strong Buy rating and $37 PT, Buy ratings at Bank of America ($37 PT), Goldman ($34), Truist ($35), Cowen ($33), Telsey ($34), JPMorgan ($32), Piper ($34), and at Equal-Weight/Hold at Barclays ($32), Morgan Stanley ($31), and Jefferies ($30)

·     Restaurants; QSR Q3 adj EPS 76c vs est. 74c on revs $1.5B that were slightly shy of consensus $1.52B, as comp sales for Tim Horton’s (+8.9%), Burger King (+7.9%), and Popeye’s (-2.4%) all missed respective estimates; Wells recommends investors take a fresh look at OW-rated CAKE and they expect Q3 updates to provide a catalyst for many casual dining names the worst of the staffing challenges may be behind them and accelerating earnings growth could be seen into 2022 with the industry seeing near record-high levels of pricing and a strong consumer; Stephens said they’d take advantage of any selloffs in casual dining and buy trough-multiple full service stocks, including BJRI whose PT was lowered to $50 from $55 after earnings last week

·     Casinos, Gaming, Lodging & Leisure sector; in cruise lines, CCL downgraded to Neutral with $24.50 tgt at Citigroup while initiated NCLH Buy and $39 tgt as see momentum building in the re-opening of the cruise industry and says their proprietary survey of consumers and cruise agents is also supportive; in leisure, IMAX delivered its best October ever at the global box office with $100Mm amid the remake of "Dune" which earned biggest Oct opening weekend ever for IMAX, with $17.8M worldwide; WGO and THO both downgraded at KeyBanc

Energy

·     Energy stock movers; another outstanding performance for E&P and major oil names (APA, MRO, COP, EOG, FANG) as oil prices extend gains, with WTI oil coming into the week rising an 8-week winning streak on rising demand, falling supply.

·     Renewable Energy, Utilities, & Solar; GPRE ests lowered at Truist saying while 3Q macro trends driving lower corn prices and steady ethanol prices would typically bode well for ethanol producers, they believe an abnormal spike in corn basis spreads (which has since reversed) will put pressure on 3Q margins for GPRE; BE and SK ecoplant expand highly successful power generation partnership and invest to establish market leadership in the hydrogen economy; CWEN entered into a binding agreement to sell its Thermal Business to KKR for total consideration of $1.9B, subject to closing adjustments

Financials

·     Bank movers; HSBC announced a $2 billion stock buyback and a surge in Q3 net profit as earned $3.54B in the three months to the end of September, up from $1.36B YoY; Blank-check company B Riley Principal 150 Merger Corp’s shares (BRPM) rise as digital platform FaZe Clan agreed to go public in a merger with co in a $1 bln SPAC deal; RF upgraded to outperform and raising our price target to $29 at Wedbush as believe shares are undervalued trading at only 11.6X our 2022 EPS estimate vs. peers at 12.1X, with a better outlook for net interest income growth; BAC tgt to $60 (from $55) and reiterate BAC as our No. 1 pick at Wells Fargo; ISBA, INDB both downgraded to Neutral at Piper

·     FinTech & Payments; Oppenheimer said entering 3Q, they’re incrementally positive on EPS expectations for V (V top pick) even as recent data points suggest some Delta impacts, particularly on travel spend; shares of PINS fall after PYPL said Sunday it is not pursuing an acquisition of digital pinboard site Pinterest "at this time" following reports last week it was in discussions in deal based around $70; MQ shares popped after Citron Research called it the next gen payment platform powering all major crypto platforms including today’s announced BKKT crypto partnership with MABread unit will offer its pay-over-time installment loan product through Sezzle’s merchant network system; UPST, AFRM early upside momentum; BKKT also popped on another press release that it announced a strategic relationship with FISV

·     Bitcoin news; a third Bitcoin futures exchange-traded fund (ETF) with significantly lower management fees will hit the markets as soon as Monday, as VanEck filed a prospectus with the SEC on Saturday to launch its Bitcoin Strategy ETF (XBTF) "as soon as practicable." MA says any bank or merchant on its vast network can soon offer crypto services: CNBC reported – shares of BKKT surged as CNBC noted to do so, the payments network is partnering with Bakkt, the crypto firm recently spun off by Intercontinental Exchange; as Bitcoin, Ethereum and other crypto assets rise (again), seeing strength in shares of COIN, MARA, RIOT and other related miners, investors

Healthcare

·     Pharma movers; NVS slips after the company said its Phase 3 trial for experimental therapy canakinumab (ACZ885) in a group of patients with non-small cell lung cancer (NSCLC) did not meet primary endpoints; late Friday, Bloomberg reported that BMY has expressed interest in buying AUPH citing people familiar with the matter, though notes that no final decision has been made; MRK announces positive top-line results from pivotal phase 3 trials evaluating investigational, once-daily oral fixed dose combination of doravirine/islatravir for the treatment of people with hiv-1 infection; TTNP rises as receives funding from the Bill & Melinda Gates Foundation to develop combination HIV preventative therapeutic and contraceptive implant for women in low- and middle-income countries; EYEN said its MydCombi combination microdose formulation of tropicamide and phenylephrine for in-office pupil dilation has been reclassified as a drug-device combination product by the U.S. FDA in a Complete Response Letter for its NDA

·     Biotech movers; MRNA said that its COVID-19 vaccine generated an immune response and was generally well-tolerated in children aged six to 11 years, citing interim data from a study; REGN & SNY said results from a second Phase III trial assessing the investigational use of Dupixent in patients 12 years and older with eosinophilic esophagitis met its co-primary endpoints; TCRR enters into a clinical trial collaboration with BMY as it will test its lead candidate gavo-cel in combination with Bristol’s approved cancer drugs Opdivo and Yervoy in a mid-stage trial in patients with certain types of solid tumors, including ovarian cancer; HZNP said it MIRROR randomized controlled trial meets primary endpoint and shows 71% of patients achieved a complete response rate using KRYSTEXXA with methotrexate; PTCT announces expansion of Translarna label to include ambulatory patients as young as 2 years old in Brazil; XERS rises early after announcing a collaboration agreement with MRK for its suspension-based formulation technology XeriJect.

·     MedTech Equipment; EXAS shares slipped early as data presented at ACG shows GH’s blood-based test accurately detects early-stage colorectal cancer – study indicates Guardant Health’s blood test could provide meaningful clinical performance in an average risk screening population; HSKA shares mentioned negatively by SprucePoint with Strong Sell opinion saying has 50%-60% downside

Industrials & Materials

·     Transports; Airline stocks (JETS) on watch after a third consecutive week of improved bookings against the pre-pandemic period with Bank of America reporting system net sales improved to -46.5% for the week ended October 17 vs. 2019 after being -50.9% and -56.4% in the two preceding weeks; UBS upgraded KNX to Buy as the expansion of its non-truckload business is occurring faster than we previously anticipated and its strong free cash generation provides potential for further diversification through acquisitions; Barclays initiated GOL at OW with an $8 target as its cost leadership provides a strong business moat, its fleet transformation plan to replace Boeing 737 NG with MAXs should decrease unit costs, and Brazilian air travel recovery

·     Metals & Materials; metals FCX, X, CLF (adding to last week earnings gains) were among leaders; Sibanye-Stillwater (SBSW) is in advanced talks to buy two Brazilian miners for about $1 billion including debt, a bet on continued demand for metals used in the production of electric-car batteries, the WSJ reported; for ALB Australia’s Mineral Resources Ltd says it will restart operations at the Wodgina lithium mine it owns with Albemarle next year, on improving demand for the metal used in making electric vehicle batteries

Technology, Media & Telecom

·     Internet; huge week for the space that saw selling pressure last week behind SNAP lower guidance; FB reports earnings tonight, along with results from AMZN, GOOGL, TWTR this week as well; in online travel, TCOM slides amid weakness in China stocks following reports that after warning of a winter surge in coronavirus infections in the coming weeks, China took another series of steps to limit travel and business activity in Ejin, near Inner Mongolia, a hotspot of infections in the world’s second-largest economy; Chinese ADR in tech space broadly lower as well (BIDU, BABA, JD)

·     Semiconductors; Philly semi index (SOX) rises ahead of some key earnings this week (AMD), pushing above 3,400 (all-time highs stands at 3,484 for the SOX); NVDA trades all-time highs; Bernstein initiated coverage on Global Memory with a positive structural view, but find the cyclicality too painful to ignore as rate Samsung Electronics, SK Hynix & MU Underperform & tgt is the Street’s lowest for Samsung & Micron, & the second lowest for Hynix; MX posted a $0.20 beat for Q3 EPS on in-line revs of $127M, as results driven mainly by higher gross profit margin

·     Telco, Hardware, Software movers; FIVN upgraded to Overweight at KeyBanc with a $200 price target following survey data and discussions with channel partners saying sees Five9 as one of the best positioned names in communications software; ZNGA being removed from Wedbush Best ideas list; SSYS upgraded to buy from Hold and raise tgt to $42 from $27 at Craig Hallum; RCI downgraded to Sector Perform at RBC Capital in light of the ongoing family-Board dispute and will look for more timely and/or attractive entry points; DIS said Disneyland ticket prices go up as much as 8%, with parking rising 20%- LA Times