Closing Recap

Wednesday, September 16, 2020

Equity Market Recap

·     Stocks end lower following Fed Chairman Powell’s press conference after stocks initially rallied as the U.S. Federal Reserve delivered a policy statement that bolstered expectations it will keep interest rates near zero for a prolonged period. The Dow rose more than 1% and the Nasdaq turned positive after the Fed promised to keep rates around 0% until inflation is on track to "moderately exceed" the U.S. central bank’s 2% inflation target, indicating they could remain near zero through 2023 — even with better economic growth than officials had previously expected. Fed officials also predicted 2020’s slowdown would be weaker than they previously estimated, and they forecast 4% and 3% gross domestic product growth in 2021 and 2022, respectively. The central bank also said it would increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace over coming months. Stocks however came under pressure as Fed Chairman Powell hosted a Q&A session after the policy meeting highlights were released, with the Nasdaq falling as much as 1%.

·     Prior to the FOMC meeting, stocks were mixed prior with technology stocks lagging and unloved energy and financials leading, as well as reopen related trades again with retailers higher with cases slowing. Transports got a boost amid stronger-than-expected FedEx earnings and strength in airlines. In the tech space, the highly anticipated market debut for SNOW took place, opening more than 100% higher than IPO price (opened at $245 after the 29M share IPO priced at $120 – rises as high as $319). With the Fed meeting behind the markets now, focus turns to options expiration as quadruple witching occurs this Friday, which refers to a date on which derivatives of stock index futures, stock index options, stock options, and single stock futures expire simultaneously, which could lead to increased volume.

Economic Data

·     U.S. retail sales increased 0.6% in August, missing the 1.0% estimate and down from the +0.9% in July while Aug retail sales ex-autos rose +0.7% vs. est. 0.9% and July’s 1.3%; Aug retail sales ex-autos/gas/building materials/food services fell -0.1%

·     U.S. July business sales rose +3.2% vs. June +8.6%, business inventories rose +0.1%, in-line with estimates and better than the (-1.1%) in June

·     The NAHB housing market index rises to record high in September at 83 better than the consensus 78 and prior month reading and current single-family home sales 88 versus 84 in Aug

Commodities

·     Oil prices finished sharply higher as WTI crude rises $1.88 or 4.91% to settle at $40.16 per barrel following unexpectedly upbeat weekly U.S. inventory numbers from both the EIA and API while Hurricane Sally curtailed production in the Gulf of Mexico. More than a quarter of U.S. offshore output was shut on Tuesday due to Hurricane Sally. In inventory data, the API said crude inventories fell -9.5 million barrels, while the EIA showed a weekly drawdown of inventories of -4.4 million barrels. December gold rises $4.30 or 0.2% to settle at $1,970.50 an ounce ahead of the Fed meeting, its 3rd straight day of gains as expectations are that the Fed is going to leave the interest rates low for a very extended period of time, and inflation numbers to run over their 2% target rate as per their recent policy changes.

Currencies & Treasuries

·     The U.S. dollar was mostly lower on Wednesday ahead of the Federal Reserve’s economic projections and policy comments, with the dollar index (DXY) below the 93 level most of the day, falling against the Japanese yen and British Pound specifically. The Fed, as expected, kept rates at zero with no indications of hikes any time soon as the U.S. economy continues to deal with aftermath from the coronavirus pandemic. Stronger Chinese data for August and optimism about a vaccine for the coronavirus helped boost risk sentiment this week, weighing on the buck. The Japanese yen strengthened as far as 104.70 against the greenback, the strongest since July 31, while the Pound moved back above the $1.30 level. Treasury prices slid following the FOMC policy meeting, with yields hitting the highest levels of the day (around 0.7%).

Sector News Breakdown

Consumer

·     Retailers; TPR was upgraded to buy at Deutsche bank with $21 tgt saying while have long appreciated TPR’s robust international growth engine, Coach’s merchandising strength, they believe increased efforts to refocus its brands, reduce SKU count, will result in meaningful GPM expansion; OSTK active as Credit Suisse, Wedbush begin coverage with outperform as Wedbush sets a PT of $92, while CS introduces a $91 PT; KSS reducing corporate positions by ~15%, which is expected to save $65m annually; overall another good bounce in retailers

·     Auto sector; TSLA shares volatile again, coming into the day with a 5-day win streak ahead of battery event Sept 22 and talk of S&P 500 inclusion, slipped early -2.6% on reports GM is set to announce plans to put into production an interchangeable "family" of electric vehicle (EV) drive systems and motors, boosting manufacturing efficiencies as it transitions to a fully electric lineup; BWA slides after the SEC announced a settlement with BorgWarner that fully resolved an investigation into the company’s historical accounting for asbestos-related claims; the agency had disclosed the investigation on July 31, 2018

·     Housing & Building Products; KBH, LEN, PHM rise as homebuilders benefit from the better housing data earlier; ZG mentioned as a catalyst call buy at Deutsche Bank noting the $4.8 billion SPAC deal for real estate start-up Opendoor sets the stage for Zillow to get more value attribution for the Homes segment of its business; in furniture, ETH retail segment written orders have continued to accelerate, with its written orders reflecting a 10% increase for the QTD and 26% increase in written orders for August; LEN upgraded to outperform at RBC after earnings

·     Consumer Staples; USFD said that current case volume trends are showing continued improvement as expects Q3 adjusted EBITDA to more than double from the level of Q2 to $214.6M; KHC was upgraded from Sell to Neutral at Guggenheim following a strong investor day presentation Tuesday morning that highlighted the significant work being done to reinvigorate the brands, re-tool the prioritization and strategy, and ultimately improve the algorithm; Bernstein said highlights private label and branded sales growth and share trends in U.S. Nielsen tracked channels (including convenience stores) for the 13 U.S. packaged food names in coverage showed U.S. packaged food sales in measured channels increased by +7.9% in the 4 weeks ending September 5th, 2020 (excluding HAIN, SMPL and BYND), continuing to show a benefit from the shift to eating at home, though a slowdown from the previous 4 weeks

·     Leisure and Gaming; LVS slides after Bloomberg reported Adelson casino hires law firm to investigate employee transfers of more than $1B in gamblers money to third parties; casinos WYNN, LVS and MGM were both downgraded at Roth Capital citing peer-high Macau VIP reliance combined with VIP liquidity risks, lack of broad-based, sustainable VIP player recovery visibility, dearth of HK dollars in Macau disrupting chip buying/redemption; in cruise space, AIDA Cruises, a German cruise line and a wholly-owned subsidiary of CCL, will expand its range of cruises this autumn to include new voyages to Italy offered weekly starting Oct. 17, 2020 until Nov. 28, 2020; DKNG and the New York Giants announced an exclusive, multi-year arrangement, making DraftKings the Official Sports Betting, iGaming and Daily Fantasy operator of the team, while also rises on news the Big Ten will resume its college football season

Energy

·     Energy stock movers; inventory data was mostly bullish, helping lift oil prices along with beaten up stocks; the EIA said U.S. crude stocks unexpectedly fell in the most recent week, while distillate inventories were up once again. Crude inventories fell by -4.4M barrels in the week to Sept. 11 to 496 million barrels, while inventories at Cushing, Oklahoma, delivery hub fell by -74,000 barrels in the last week, EIA said. Overnight, the API showed a draw of 9.52M barrels of oil for the week ending Sept. 11, gasoline inventories showed a build of 3.76M barrels, distillate inventories show a draw of 1.12M barrels and Cushing inventories show a draw of 798K barrels.

·     Energy movers; after being among the top underperformers the last few days, energy stocks bounced back; BP will reduce refining throughput to 1.5M barrels/day in 2025 from 1.7M last year and they hope to save $1.5B by 2023 from cost cuts and efficiency, and the CFO expects 7-9% growth in EBIDTA per share by 2025; E discovered gas offshore of Egypt, in the Great Nooros Area in the Mediterranean Sea; PEIX price target was raised to street-high $16 at HC Wainwright; XOM snapped its 11-day losing streak as oil prices rebounded.

·     Utilities & Solar; NEE will sell $2B of equity units to BAC and BCS; CSIQ closed of its $230M convertible senior notes offering and is facing additional claims from Solaria Corporation in the ITC on patent infringement, following Solaria’s claims against Canadian Solar filed in the US District Court for the Northern District of California in March; BAML upgrades UTIL to Neutral from Underperform; POR was upgraded to buy at Bank America saying shares now trade at a roughly 21% discount to the group though he sees limited reasons to be concerned around the company’s wildfire specific risks

Financials

·     Bank movers; BAC will redeem on Oct. 1 all of its outstanding floating rate senior notes due October 2021 worth a total of $750 million and $2 billion of its 2.328% fixed/floating rate senior notes due October 2021; The WSJ picked up a story from Swiss finance blog Inside Paradeplatz the day prior of a possible merger between USB and CSTruist maintains its Buy rating on RF and raises pt to $14 from $12; GWB upgraded to Buy from Neutral at Davidson

·     REITs; RBC keeps Outperform rating on EPR, although they remain cautious on theater industry in the short-term; DLR upgraded to Outperform at BMO with a corresponding pt raise to $167 from $139; PSB has collected 95% of August rents, an increase from July’s 93%;

·     Consumer Finance; AXP CFO said that spending on travel and entertainment has slightly improved and spending on travel co-brand cards has remained very strong; SQ reit Buy at Mizuho with a $225 pt on Cash App’s lending potential to drive returns

Healthcare

·     Pharma movers; ARWR positive interim 24-week liver biopsy results in four subjects from AROAAT2002, an open-label Phase 2 study of ARO-AAT being developed as a treatment for the rare genetic liver disease; LLY announces proof of concept data for neutralizing antibody LY-CoV555 in the COVID-19 outpatient setting- Primary endpoint of viral load change from baseline at day 11 was met for one of three doses

·     Biotech movers; HRTX announces publication of results from epoch 2 follow-on study, a phase 2b study of htx-011 in patients undergoing hernia repair surgery; AVEO reports final results from a late-stage study comparing its drug candidate, tivozanib, with another drug, sorafenib, in patients with renal cell carcinoma, a cancer of the kidney (trial met the main goal of greater progression free survival)

·     Healthcare services and providers; ANTM announces research study with apple watch to help improve asthma management; CI announces the launch of Evernorth, a new brand for its growing, high-performing health services portfolio. Evernorth will accelerate delivery of innovative and flexible solutions to meet the diverse needs of health plans, employers, and government organizations; SYNH 7M share Spot Secondary priced at $59.75

·     MedTech and Equipment; AXGN says it now expects total Q3 revs at least $30M vs. est. $23M; the FDA grants emergency use authorization to ABT’s BinaxNOW COVID-19 Ag Card rapid test, its sixth for the coronavirus, that generates a result in 15 minutes without the need for equipment; NNOX recovers early after back to back daily declines of over 20% after the recent negative Citron mention this week; Bloomberg reports that ILMN is in advanced talks to acquire Grail, a spinout that it formed in 2015 to develop and commercialize liquid biopsy testing for cancer

Industrials & Materials

·     Industrial & Machinery; BRC reported 4Q EPS $0.53 on net sales $251.7M ($0.68 / $295.3M last year), and lifts dividend to $0.22 from $0.2175 (also filed mixed securities shelf); EMR reports total trailing 3-month orders for period ended Aug -12% with underlying orders -11%; DY anticipates contract revenues and margins to range from in-line to modestly lower on a sequential basis for Q3 2021; FTV announced shares of Vontier (ticker to be VNTare expected to begin trading on Sept 24 and the spin-off will be completed on Oct 9; RUSHA announces a 3:2 stock split and they keep the dividend unchanged; UBS initiates GWW with a Buy rating, $416 pt and Neutral ratings on HDS ($42 pt) and FAST ($44 pt); Baird raised WM pt to $128 from $122 and reit Outperform with a $169 pt on CAT on upside over the next 12-18 months from improving retail demand and lean dealer inventory; UBS initiates AYI as Sell, $91 pt, HUBB as Neutral, $149 pt, CFE as Neutral, $36 pt, ALLE as Neutral, $99 pt; GE shares edged higher after its CFO said at a conference sees good progress on its $2B cost, $3B cash actions

·     Transports; FDX shares lead transports higher as reported Q1 EPS of $4.87, beating the highest estimates on the street by 50% as Express revenue beat bullish estimates on higher volume while Ground revenue grow over 35% YoY (though margins declined); in airlines, LUV Aug load factor 42% vs. prior outlook 40%-45% and cuts daily cash burn to $17M from $20M; revenue down 70%from year ago vs. down 70%-75% guidance; the Baltic Exchange’s main sea freight index fell on Wednesday, pressured by a dip in Capesize vessel rates/the Baltic dry index shed eight points, or 0.6%, at 1,281 as the Capesize index fell 33 points, or 1.7%, to 1,889.

·     Aerospace & Defense; BA shares volatile after The House Committee on Transportation and Infrastructure released a 238-page filing, showing numerous designs, management and regulatory failures during the development phase of the 737 MAX had preceded the "preventable death" of 346 people in two crashes of the popular jetliner

·     Metals & Materials; OI said it expects 3Q20 sales volume will be about flat to slightly up Y/Y/said actual sales volume up ~ 1% QTD through August; the current 3Q20 outlook slightly favorable to prior outlook of flat to modesty down; PPG receives doe funding to study coatings applications in automotive lithium-ion batteries; FCX CFO said yesterday at Morgan Stanley conference she does not want to be distracted by any buyout offers and is focused on expanding its Grasberg copper-and-gold mine in Indonesia and boosting cash flow; CE announced an immediate price increase for certain acetyl products and its price target was raised to $125 from $120 at Wells Fargo who reiterated their OW rating on expected strength in construction and autos driving a recovery, as well as a recovery in the acetyl chain and demand recovery in China and India; HSBC downgrades DOW to Reduce from Hold (pt to $22 from $35) and LYB to Hold from Buy (pt to $72 from $75)

Technology, Media & Telecom

·     Internet; FB shares slipped on reports the FTC is readying a potential antitrust lawsuit against Facebook that it could file by the end of 2020, in a case that would challenge the social media giant’s dominant position in the space https://on.wsj.com/3km9eUV ; SHOP 1.1M share Secondary priced at $900.00; SPOT slides after AAPL rolled out a new virtual fitness service on Tuesday and a bundle of all its subscriptions, Apple One, which includes television or video games services

·     Software movers; shares in the highly anticipated cloud storage and computing SNOW skyrocketed in its first day of trading, opening at $245 after the 29M share IPO priced at $120, above an already-increased range valuing the company at $33.3B; ADBE with strong earnings results as net Digital Media ARR ($458M) came in well ahead of Street estimates ($344M) and elevated investor expectations of (>$400M) which also pushed revenue above consensus expectations ($3.23B vs. $3.16B); MSFT raises quarterly dividend 10% to 56c from 51c per share; FROG priced its IPO last night at $44, above the recently increased price range of $39-$41 per share while shares opened at $71.27 in its debut

·     Media & Telecom movers; AMCX said it plans to buy back up to $250M of its stock in "modified Dutch auction" tender offer, sets price range of $22.50-$26.50 while also announced Charles F. Dolan stepping down from Executive Chairman; CCO said it expects restructuring to result in pre-tax annual cost saves in excess of $200Mm, continues to consider other cost reduction initiatives including in Americas division; NTES said it has set a strategic music partnership with publishing giant BMG.

·     Hardware & Component news; KODK shares jump as the company’s law firm said securities transactions made by CEO Continenza around the time co learned it could receive a $765 mln government loan did not violate internal policies. However, an investigation found "gaps" in KODK’s insider trading processes and that the general Counsel was found to be overwhelmed and running on outdated policies