Closing Recap

Tuesday, September 07, 2021

Equity Market Recap

·     U.S. stocks finish mixed as large cap tech dominated today’s trading action, with new record highs for AAPL and NFLX. The Dow Jones Industrial Average underperformed, led by declines in industrials (BA, HON, MMM) and healthcare stocks (AMGN, JNJ, MRK) following analyst downgrades in the sector. Commodity prices slid, led by a near 2% drop for gold prices, settling below $1,800 an ounce while oil also dipped given a rise in the dollar and Treasury yields. The other top story today in generally subdued trading action was the volatility in the crypto sector as Bitcoin prices fell as low as $43K before rebounding (off weekend highs above $52K). Bitcoin prices in the news this weekend after El Salvador became the first country in the world to declare the cryptocurrency as legal tender. Financial stocks finished mostly higher given the bounce in Treasury yields. Stocks are coming off another winning week last Friday, rising despite a weaker nonfarm payroll report as dovish commentary from Fed Chair Jerome Powell at the Jackson Hole Symposium in late August has helped to support stocks recently.

·     Stock/sector movers: Bitcoin tumbles, falling as much as 15% off yesterday’s highs and weighing on related names RIOT, COIN, MSTR – COIN reports that transactions are currently delayed or cancelled at elevated rates and our apps may be experiencing errors; JNJ, AMGN, MRK, VRTX each trade lower in pharma after Morgan Stanley downgrades them; big tech a bright spot again with all-time highs in AAPL, NFLX; also gains FB, TSLA, GOOGL; MRNA, NVAX vaccine related headline stocks outperform; CZR, DKNG, PENN, BALY sports gambling names outperform following the 1st weekend of NCAA football and ahead of the NFL kickoff this week; PPG slides as they now see Q3 sales volumes lower given worsening supply disruptions and customer parts shortages; TNDM shares get boosted by its S&P MidCap 400 inclusion and MTCH sees a lift after news it will be added to the S&P 500.

Commodities

·     Oil prices settle lower, as WTI crude dips -$0.94 or 1.36% to $68.35 per barrel, its lowest settlement in more than week, pressured by a stronger U.S. dollar. The decline came as a bit of a surprise given strong Chinese export data overnight and as lots of U.S. production remains offline following Hurricane Ida. Gold prices end lower -$35.20 or 1.9% to settle at $1,798.50 an ounce, its first settlement below $1,800 an ounce since Aug. 26, after ending last week at their highest since mid-June. The drop in prices came in reaction to dollar strength and rising Treasury yields.

Currencies & Treasuries

·     The U.S. dollar rose for a second straight day, rising vs most rival currencies and off a near-one-month low hit last week, as firming U.S. Treasury yields prompted investors to cut short dollar positions against the euro before a European Central Bank meeting this week. The greenback plunged to its lowest levels since early August on Friday after a surprisingly soft U.S. payrolls report prompted analysts to raise bets that the Federal Reserve will not unwind its stimulus plans in the coming months. But the dollar has gained against rivals in the past two sessions. The British pound dipped for a second consecutive day and hit its lowest in over six weeks against the euro after the British government set out a plan to raise taxes.

·     Treasury yields edged higher initially, with the 10-yr hitting highs around 1.385% before fading slightly in a quiet day of economic data. The U.S. Treasury sold $58B in 3-year notes at a yield of 0.447% vs. 0.45% when issued prior as the bid-to-cover (demand) was at 2.45 vs. 2.54 prior and indirect bidders awarded 56.67% of the auction and directs 18.97%.

Sector News Breakdown

Consumer

·     Retailers; ELY raised its revenue outlook, citing the mitigation of supply chain issues and a better-than-expected performance of its Topgolf business as raises Q3 revenue view $850M-$860M from $775M-$790M and boosts adjusted EBITDA view $105M-$110M from $51M-$58M; Cowen said its China and supply chain reads are negative as their proprietary data checks and updated models shows a mixed picture across the sector – data for NKE showed an acceleration during June in China followed by a deceleration in July back to May’s depressed run rates, while estimate LULU management can raise FY EPS guidance by roughly $0.10 (raised tgt to $476 from $441); OSTK reinstated Buy and $89 tgt at Bank America; FOSL files for debt shelf of up to $200M

·     Auto sector; HYZN receives supply order for its fuel cell stacks for zero-emission aviation company ZeroAvia; GOEV initiated with a buy rating and price target of $15 at HC Wainwright; TSLA outperformed in a generally strong EV sector today; Ford (F) shares a late day pop on reports that said to hire away executive leading Apple’s car project

·     Housing & Building Products; HD files for three-part, notes offering; size not disclosed – SEC filing; FTDR announces new three-year, $400 million share repurchase program

·     Casinos, Gaming, Lodging & Leisure sector; DOOO upgraded to Outperform at BMO Capital based on a positive outlook for the powersports market, continued strong innovation, a reclamation of market share gains in the key off-road vehicle market after several quarters of decline, and positive initial dealer response to the new Sea-Doo Switch Pontoon; GENI signed a new multi-year agreement with CZR; AMC announced a new Labor Day admissions-revenue record eclipsing the previous admissions-revenue record set during Labor Day weekend in 2013; Morgan Stanley said their U.S. travel agents survey shows a clear deterioration in cruise booking volumes alongside a spike in cancellations, and to a lesser degree weaker pricing, driven predominantly by concerns about the delta variant and stricter protocols (CCL, NCLH, RCL)

Energy

·     Energy stock movers; Oil prices fell on Tuesday, extending losses from the previous session, and dragging down energy stocks as Saudi Arabia’s sharp cuts in crude contract prices for Asia sparked fears over slower demand, but strong Chinese economic data and U.S. output outages capped losses. China’s crude imports rose to a five-month high after private refiners were allocated new import quotas and as cargoes delayed due to typhoon were delivered. Hurricane Ida’s initial impact on Gulf of Mexico oil supply has been greater than any other storm in history

·     Utilities & Solar; in solar, LNT downgraded to Neutral from Buy on valuation at Guggenheim with shares now trading at a slight premium to our high-quality peer group, and outperforming UTY by over 900bps YTD, while upgraded SO to Buy from Neutral based on our view that Unit 3 HFT and clarity into the ongoing NRC special investigation represent key NT clearing events; BLDP and Quantron AG announce a strategic partnership for the development of hydrogen fuel cell electric trucks; AMZN and Mitsubishi to set up 450 solar power plants in Japan- Nikkei reports; WATT formed a partnership with TAGnology to bring over-the-air wireless power solutions to European customers; SPI announced the launch of a new Solar4America Amazon store; in solar, (SEDG, ENPH), SMA Solar said it expects sales between EU980M-EU1.03B, down from prior view of EUR1.075B-EU1.175Band sees 2021 ebitda between EU50M-EU65M from prior EU75M-EU95M

Financials

·     Bank movers; STT has agreed to buy Brown Brothers Harriman & Co.’s investor-services business for $3.5 billion in cash; TNET named new best short idea at Hedgeye; BANR was downgraded to Neutral at Davidson searching for catalysts to justify a trading premium, our loan growth

·     Bitcoin, FinTech & Payments; COIN reports that transactions are currently delayed or cancelled at elevated rates and our apps may be experiencing errors – the explanation was partially blamed for a mid-morning flash crash in crypto assets; prior to, Bitcoin prices held firmly over the $50,000 mark after El Salvador became the first country in the world to declare the cryptocurrency as legal tender; BTBT enters strategic co-mining agreement with crypto mining facilities operator Blockfusion to help an increase in BTBT’s hashrate of up to about 1.2 Exahash;

·     REITs; CXP announced an agreement to be acquired by funds managed by Pacific Investment Management Co. LLC (PIMCO) in a deal valued at $3.9 billion. PIMCO will pay $19.30 for each share outstanding, a 16.7% premium https://on.mktw.net/2WVSi1A

Healthcare

·     Pharma movers; Morgan Stanley downgraded shares of JNJ, MRK and AMGN to equal-weight from overweight and VRTX to underweight – sys for JNJ, stock has run up in recent months and we see limited news flow in the mid-term to drive JNJ higher; for AMGN more work needs to be done to improve the growth outlook after the mid-decade LOEs of Prolia, XGEVA, and Evenity and for VRTX, competitive concern (despite the high bar for success) is likely to keep VRTX from appreciating and negatively impacts the risk/reward; PLRX reports positive interim results from phase 2a pet imaging clinical trial in patients with idiopathic pulmonary fibrosis; HZNP said the first patient has been enrolled in a Phase 4 trial evaluating the efficacy and safety of Tepezza for the treatment of chronic (inactive) Thyroid Eye Disease; TMDX said the U.S. FDA has granted premarket approval of its OCS Heart System for use with organs from donors after brain death

·     Biotech movers; NVAX rises after Takeda Pharmaceutical Co says Japanese government will purchase 150 mln doses of the COVID-19 vaccine it will produce using NVAX formula; ALRN, NVTA, SRPT, CMPS, and ALVR highlighted by Barron’s as five biotech’s that are ready for a comeback; TVTX announces successful outcome from type a meeting with U.S. FDA for sparsentan in focal segmental glomerulosclerosis; ADAP entered into a strategic collaboration and license agreement with Roche’s Genentech to develop and commercialize allogeneic cell therapies; BMRN slides after the U.S. FDA has placed a clinical hold on early- to mid-stage study testing BMRN’s experimental gene therapy in patients with phenylketonuria, a genetic disease that manifests at birth and can cause developmental disabilities

·     Healthcare Services & MedTech Equipment; TNDM will replace HCSG in the S&P midcap 400; RNXT rises as receives a new 510(k) clearance from the FDA for its proprietary RenovoCath Delivery System

Industrials & Materials

·     Aerospace & Defense; BA said one of its biggest customers Ryanair ends jet order talks over a purchase of 737 MAX 10 jets worth tens of billions of dollars due to a price dispute; U.S. authorities are investigating whether payments by U.S. weapons maker RTX to a consultant for the Qatar Armed Forces may have been bribes intended for a member of the country’s ruling royal family, the WSJ reported

·     Industrial & Machinery; AVTR announced an agreement to buy Materflex, a maker of perstaltic pumps and aseptic single-use fluid transfer technologies, in an all-cash deal valued at $2.7 billion; TDG said on Tuesday it would not make a counteroffer for British rival Meggitt (MEGGF), backing out of an over $8 billion takeover battle with PH

·     Transports; KSU said it will take a new look at CP’s $27 billion acquisition offer and hold talks with the company after a recent regulatory ruling jeopardized a rival bid that the U.S. railroad had already accepted; UNP files for a two-part notes offering; size not disclosed; ODFL said Q3 Revenue per day increased 29.1% as compared to August 2020 due to a 10.9% increase in LTL tons per day and an increase in LTL revenue per hundredweight. The change in LTL tons per day was attributable to a 17.3% increase in LTL shipments per day that was partially offset by a 5.5% decrease in LTL weight per shipment.

·     Metals & Materials; PPG provides sales update and reports worsening supply disruptions and customer parts shortages/sees 3q sales volumes lower by $225M to $275M

Technology, Media & Telecom

·     Internet; large cap tech again pacing gains for major averages with NFLX, GOOGL, AMZN, FB among leaders; SPOT upgraded from Sector Weight to Overweight at KeyBanc with $340 tgt citing industry dynamics that appear increasingly favorable, which is underscored by recent app strength improved monetization and unit economics; NFLX tgt raised to street high $780 at Atlantic Equities as expects Netflix to add over 100 million incremental subs by end of 2025

·     Semiconductors; CRUS upgraded to Overweight from Equal Weight at Barclay’s with a price target of $100, up from $95 as sees a path to further content gains AAPL over the next several years for Cirrus as well as Android opportunities in both Audio and power; QCOM said it will supply a key computing chip for the digital dashboard in a new Renault SA electric vehicle – Reuters; Global semiconductor sales were up 29% on the year in July to $45.4B, a 2.1% increase on the prior month, according to new data from the Semiconductor Industry Association

·     Hardware, Software movers; AAPL scheduled an event for Sept. 14, called "California Streaming, " at which the company is expected to unveil its latest line of iPhones; MCFE downgraded to Neutral from Buy at UBS with a price target of $29, up from $27, after resuming coverage of the name – as the company transitions to a standalone consumer cybersecurity business; Software consultancy firm ThoughtWorks Inc expects its IPO to be priced between $18 and $20 per share, the company said; MNDY Lock up expires this week as well to the tune of around 4M shares

·     Media & Telecom movers; Deutsche Telekom is selling T-Mobile Netherlands to a consortium controlled by funds advised by Apax Partners and Warburg Pincus for an enterprise value of EUR5.1 billion, bringing in around EUR3.8 billion in net cash proceeds; VEON has a deal to sell its Russian mobile network towers to Service-Telecom for 70.65 billion rubles (about $970 million; DIS said Hulu with ads will increase from $5.99 to $6.99 per month and Hulu (No Ads) will increase from $11.99 to $12.99.