Market Review: September 08, 2020

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Closing Recap

Tuesday, September 08, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     It was a rough day on Wall Street in the U.S. as investors returned from a 3-day holiday weekend to more broad-based selling pressure as the technology weighted Nasdaq Composite was hit the hardest again after underperformance the tail-end of last week in a massive bout of profit taking and concerns over valuations given the surge in stocks off the March lows. Major averages touched session lows late day, erasing a modest recovery earlier as some of the biggest YTD winners saw the heftiest declines. The Nasdaq Composite fell around 4% after a 3.3% decline last week, while the S&P 500 also underperformed, down over 2%. Technology, energy, industrials sectors were hit hard, with very few places to hide in the aggressive sell-off. The dollar rallied vs. the euro and yen, while commodity prices ended mixed with gold eking out a gain, but WTI crude falling over 7% on demand concerns. TSLA shares tumble around 20% after failing to be added to the S&P 500 index yet again on Friday with ETSY, CTLT, and TER being added instead, among the top decliners on the day. Increasing tensions with China also propelled stocks lower after President Trump said Monday that he was considering "decoupling" from China and wasn’t seeking to bring outsourced jobs back to the U.S. Markets still remain hopeful for additional stimulus relief bill measures out of Washington, while the Fed remains accommodative and slowing coronavirus cases and related deaths continue to help backstop the market and boosted “reopen” related trades such as airlines, casinos, leisure and restaurants.



·     Oil prices were pummeled on Tuesday as WTI crude dropped -$3.01 or 7.6% to settle at $36.76 per barrel for October futures as concerns over the outlook for energy demand continued to weigh on the market, pulling prices down to their lowest settlement since June. Natural gas prices fell -7.3% to $2.40 mln btus in broader base energy related sell-off. On Monday, crude fell after Saudi Arabia’s state oil company Aramco cut the October official selling prices for its Arab light oil, a sign of softening demand. Gold prices advanced, as December gold rose $8.90 or 0.5% to settle at $1,943.20 an ounce as the dollar strengthened but pared gains as the day progressed.


Currencies & Treasuries

·     The U.S. dollar rose to a three-week high (dollar index DXY up 0.75% around 93.40), getting a boost against the British Pound (down to $1.30, -1.2%) on renewed worries about Brexit as no-deal talk grew louder, while investors’ aversion to risk grew amid a sell-off in stocks. The euro slid to 2-week lows ($1.178, down -0.3%) vs. the buck ahead of Thursday’s ECB meeting. The UK had gone into Tuesday’s fresh round of Brexit trade talks warning it was ramping up no-deal preparations. Bitcoin prices fell -0.5% to around $10,100.

·     U.S. Treasury yields dropped across the board as the 10-year yield slipped 4bps to 0.68% as investors rotated back into safe-haven instruments given the extended selling pressure on Wall Street and ahead of another busy week of supply. The U.S. will sell $108 billion in coupon-bearing supply this week, which included a record $50 billion in three-year notes today, followed by $35 billion in 10-year notes on Wednesday and $23 billion in 30-year bonds on Thursday. Today the U.S. sold $50B in 3-yr notes at a yield of 01.7% (record low) with a bid-to-cover (demand) at 2.28 and indirect bidders awarded 50.74% and directs 12.97%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Auto sector; TSLA shares were pressured after being excluded from being added to S&P 500 on Friday, coupled with the broader stock market pullback in tech; NKLA shares soar after GM took a 11% stake in the U.S. electric carmaker as NKLA will exchange $2 billion in stock for the in-kind services and access to GM’ parts and components/GM will be exclusive supplier of fuel cells globally to Nikola for Class 7/8 trucks; NIO initiated buy and $24 tgt at Deutsche Bank saying there is an emerging class of Chinese automakers backed by large well capitalized tech titans and ambitious local governments looking to disrupt the auto industry (NIO, Xpeng, Li Auto, and WM Motor); Ford (F) was upgraded to in-line at Evercore ISI and also raised APTV rating to buy; KAR signs agreement to acquire BacklotCars Inc. for $425M

·     Consumer Retail & Staples; KDP disclosed that JAB Holdings has indicated its intention for its majority-owned Maple Holdings B.V. subsidiary to convert a portion of the interest of its minority partners into directly held shares of KDP stock; PTON rises early as expands product suite with all new bike+ and tread, offering more ways for people to access and enjoy world-class at-home fitness; MKM reiterates its Sell rating on TGT and $127 pt as analyst sees e-commerce growth hurting margins; Atlantic Equities upgrades ORLY to Outperform from Underweight and lifts pt to $560 from $378 and AZO to OW from Neutral ; Goldman Sachs initiates FL with a $38 pt and Buy rating; FLWS will hire 10k seasonal workers while MIK to hire 16k seasonal workers

·     Restaurants; PLAY was upgraded to buy from hold with $28 tgt at Deutsche Bank as believes that there is still about 50% upside over the next 12-18 months in a relatively conservative base case, and potentially more than that in a bull case; SBUX said it will utilize Impossible Foods, Oatly and Beyond Meat (BYND) to add more plant-based food choices on its menu in some markets; select casual dining names higher today: FRGI, WEN, MCD, CHUY, and DRI

·     Leisure and Gaming; Macau; Average Macau daily casino gross gaming revenue for the first six days of September was at almost double the pace seen in August, according to checks from Bernstein as forecasts Macau gross gaming revenue could fall in in the mid-80s rate for the full month to improve dramatically from the more than 94% drops seen prior months (WYNN, MLCO, MGM, LVS); WYND upgraded to buy at Goldman Sachs saying its vacation ownership business has shown defensive characteristics, with EBITDA falling just 5% during the 2008 financial crisis and now generating $62mn in FCF in 1H20; in leisure, CWH was upgraded to overweight at JPMorgan saying it should continue to benefit from higher demand for RVs in the wake of COVID-19 as consumers travel in a way that allows them to avoid the novel coronavirus; PENN said the Pennsylvania Gaming Control Board has approved a live, real money test period for its new Barstool Sportsbook mobile app in Pennsylvania from September 15 to 17



·     Energy stock movers; Oil-related stocks fall as crude prices dip to their lowest levels since June after Saudi Aramco cuts prices to the U.S. for the first time in 6 months; Brent crude fell to its lowest price since June 29 and WTI Crude slid over 8% in their 5th session of decline on concerns that a recovery in demand could weaken as coronavirus infections flare up across the world; XOM, CVX, BP, RDS and oilfield service providers HAL, SLB all falling

·     Stock movers; XOM is reportedly facing a $48B shortfall through 2021 which may force cost savings initiatives including job cuts and project reductions; OXY was upgraded to buy from neutral at MKM Partners; PXD price target was lifted at JPM to $119 from $107 and the stock was reiterate OW at JPM due to its strong balance sheet and potential to return significant cash to shareholders through its new investment framework to return excess cash flows via recurring and variable dividends; SU shares were lower after cutting production guidance following a fire at an oil sands upgrader, though Tudor reiterates their OW rating; TOT resigned from its role as operator of 5 offshore Brazil exploration blocks

·     Coal, Utilities & Solar; PCG has turned power off for ~172k customers in 22 CA counties as a public safety response to the growing wildfires; Seaport initiates ratings on NEP (Buy, $62pt), CWEN (Buy, $26pt), AY (Neutral); HC Wainwright initiates EVSI with a Buy rating and $30 pt; SPWR announced new low APR loans to lower monthly payments and barriers to entry for households; CNX raised its 2020 FCF guidance and announced a $200M private offering of 7.25% senior notes due in 2027 to raise funds to redeem all of its 5.875% notes that mature in 2022, which would eliminate all of the company’s senior notes that expire before 2026



·     Bank movers; Banks; BRK has cut its stake in WFC to 3.3% from 8.4% at the end of the year after Friday SEC filing shows Buffett has sold more than 100M shares since late June; JPM, C, RF were mentioned positively in Barron’s as they presume these banks are reserving more losses than they will end up incurring and new accounting standards put in place at the start of the year have negatively affected bank stocks, but the release of surplus reserves into earnings can be a boon in 2021; GS was reported to be joining lenders including JPM, C, MS, CS as a joint lead manager for the Hong Kong and Shanghai IPO of BABA’s Ant Group

·     REITs; Piper reiterates OW ratings on BRX, KIM, KRG, HHC as they see recent rebounds in retailers and builders spilling over to landlords, and they forecast a vaccine will immediately benefit hotel, mall REITs but also see urban apartments most at-risk due to ongoing pandemic and urban unrest; Piper also initiates IIPR as OW with a $150 pt; AFIN secured $125M refinancing with the Bank of Texas and reports that it has collected 90% of August original cash rent due

·     Mortgage & Insurance; GWLIF subsidiary Empower has acquired MassMutual’s retirement business in a deal valued around $3.35B; Piper upgrades RGA to OW from Neutral and lifts its price target to $112 from $100; COOP rose as it was announced on Friday that the stock will be added to the S&P SmallCap 600 Index



·     Pharma movers; CRBP plunges after saying its lead drug lenabasum showed no significant differences in the primary and secondary goals when comparing lenabasum to placebo, both added to background drug therapy; MYL said it will pay EUR641.9 million ($756.8 million) for Aspen Pharmacare Holdings Ltd.’s thrombosis business in Europe; SPRO reports positive topline results from a pivotal late-stage clinical trial evaluating its oral antibiotic candidate, tebipenem HBr, in adults with complicated urinary tract infection (cUTI) and acute pyelonephritis; ACB provides an update on its business operations as net revenue in Q4 is expected between $70M and $72M, compared to $75.5M in Q3 2020; ALBO reported positive topline results from a global Phase 3 clinical trial evaluating the efficacy and safety of odevixibat.

·     Biotech movers; MRNA was downgraded to underperform at Leerink and slashed its tgt to $41 saying recent developments – loss of mRNA-1273’s lead in clinical development, extension of multiple large volume COVID-19 vaccine contracts to competitors, risk of reduced end-user demand due to increased skepticism for vaccines rushed to market under EUA – make a durable market with oligopoly pricing unlikely; INO announced that Thermo Fisher Scientific (TMO) has signed a letter of intent to manufacture its DNA COVID-19 vaccine candidate INO-4800

·     Healthcare services and providers; PTE subsidiary, Arches Research has entered a strategic partnership with CODX to expand COVID-19 testing operations; CTLT announced to be added to the S&P 500 index effective September 21st; EHTH was upgraded to Outperform from Market Perform with $110 tgt at Leerink as risk/reward looks attractive following a 44% decline in the stock since the company’s 2Q earnings release; SDC shares after Meredith Corp. said its custom content marketing studio, Foundry 360, is working with the company to launch Telehealth Explained, a platform aimed at consumers to discuss telehealth.

·     MedTech and Equipment; ISRG was downgraded to neutral at Bank America saying while nothing has changed with his long-term positive view on the market opportunity for surgical robotics it has a hard time seeing more than 5%-10% upside over the next 12 months; IRTC won the Artificial Intelligence in Health and Care Award in England. The funding will support a three-year study of its Zio service in selected sites across the UK; FLDM achieved the initial milestone under its letter contract with the National Institutes of Health; NSPR said the FDA granted approval to proceed with a pivotal study of the CGuard Carotid Stent System, CARENET-III


Industrials & Materials

·     Industrial & Machinery; CMI was upgraded to buy from neutral at UBS as think the North America heavy duty truck market is poised for an upcycle over the next 3-4 years, and expect an extended upcycle in China as well; URI was downgraded to neutral from buy at UBS as catalyst of an inflection in underlying rental metrics (rental rates, time utilization) has played out over the last few months of the restart and peak construction season; FAST was downgraded at Raymond James while the firm upgraded GWW shares active after the NY Post reported the merger with Volkswagen’s Traton business could be in jeopardy on reports of higher price needed

·     Aerospace & Defense; Dow component BA weak following reports of a production problems at a Boeing Co. 787 Dreamliner factory prompted air-safety regulators to review quality-control lapses potentially stretching back almost a decade; SPCE initiated buy and $25 tgt at UBS as see Virgin Galactic as the only way for consumers to gain entry into the ~560 member astronaut club in the next 5 years.

·     Metals & Materials; AA was upgraded to buy from neutral at Bank America with $17 tgt on a more positive outlook for aluminum/alumina, which they believe can lead to H2E earnings beats


Technology, Media & Telecom

·     Internet; ETSY a bright spot in weak tape, getting a boost after news it will be added to the S&P 500 index effective Sept 21st; CHWY tgt raised to $70 from $60 at Bank America ahead of earnings later this week saying its subscription model and recession-resistant sector positions it well in an uncertain H2, as online sales of pet products remain higher

·     Semiconductors; space under pressure after weekend reports from various newswires said the U.S. Commerce Department was "assessing" whether to put leading Chinese semiconductor foundry, Semiconductor Manufacturing International Corp. (SMIC), on its entity list, citing the company’s supposed sale of semiconductor products to Chinese military companies (would put significant restrictions on SMIC’s ability to procure semiconductor equipment from key U.S. vendors, like AMAT, KLAC, LRCX)

·     Software movers; one of market theories around for latest pullback in tech space related to Softbank (SFTBY) after recent reports suggested the Japanese investing conglomerate had been loading up on options in tech stocks over the past several months and was now sitting on $4B in gains. With the positions "now known," SoftBank shares fell overnight; the U.S. Defense Department said on Friday it has completed a comprehensive re-evaluation of its $10 billion JEDI cloud computing contract proposals and determined that MSFT was the best value; WORK shares edged higher ahead of earnings results after the close tonight

·     Media & Telecom movers; DIS was upgraded to buy from hold at Deutsche Bank and raise tgt to $163 from $128 saying it is succeeding in the land grab phase of direct-to-consumer and has the most clear path to successfully transitioning its general entertainment programming and content production businesses into a globally scaled, vertically integrated streaming entertainment leader; VZ was upgraded to buy with $68 tgt at Argus


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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