Mid-Morning Look

Tuesday, August 11, 2020

U.S. equities are mixed again as the Dow and S&P rise for an 8^th straight day, the Russell 2000 SmallCaps rise for the 6^th time in seven days, while profit taking continues for a third day in the Nasdaq Composite after two market moving stories lift global markets overnight (hasn’t seen a 3-day losing streak since early March). The two stories driving market gains today are: 1) Russian President Vladimir Putin said Moscow has registered the first vaccine in the world against the novel coronavirus, marking a milestone in the global fight against the pandemic. Scientists at the Moscow-based Gamaleya Institute have employed military testing, accelerated clinical evaluations and shortened test trial times in an attempt to be the first with the vaccine, which Russia hopes to use in a mass vaccination rollout at home and export abroad. 2) President Trump, in addition to several weekend executive actions that included a payroll tax holiday, is “very seriously” considering a capital gains tax cut, which would “create a lot more jobs.” Trump said in a press conference overnight “there is no reason the economy can’t grow at a 20% pace in the third quarter,”…”that would be a record and interestingly, it’ll be a number that’s going to be announced before November 3.” 3) Markets are also hopeful for a full-fledged COVID-19 stimulus bill in Washington as the two sides continue to work towards a resolution. Leisure, travel, casino, restaurant, retail, lodging names surged on the day after the Russian vaccine news; travel names such as cruise lines (RCL, CCL, NCLH), hotels (MAR, HLT, H), online travel (EXPE, BKNG, TRIP), casinos (WYNN, LVS, MGM), theme parks (SIX, SEAS) are just some of the few that have seen massive revenue hits due to COVID-19 lockdowns. At the same point, vaccine names chasing a COVID-19 vaccine (NVAX, MRNA, INO) fell on the news, as well as stay at home related beneficiaries, which are slipping early (FSLY, ZM, PTON, PZZA). Banking stocks are jumping as Treasury yields rebound, energy stocks rally with oil prices climbing in what has been a volatile start to the day.

Treasuries, Currencies and Commodities

·     Gold prices plunge over $80 as expectations of a U.S. stimulus deal boosted risk appetite and prompted investors to take profits from bullion’s run to a record high, as well as hopes for a slowing of the COVID-19 virus after Russia vaccine news – gold prices dropped over 4%, retreating from last week’s record of $2,072.50, gold on track for worst day since June 2013 while silver plunges 7.8%, biggest daily decline since mid-March

Economic Data

·     Producer Price Index MoM for July rises 0.6% vs. est. rise of +0.3% while and core PPI prices (ex: food & energy) rises 0.5% vs. expected increase of +0.1%; PPI on a YoY basis, July PPI falls (-0.4%) vs. estimate decline (-0.7%) and core YoY reported at 0.3% vs. estimate unchanged

Sector Movers Today

·     Energy stocks among the top gainers in the S&P after Brent oil futures in London topped $45 a barrel, heading for their strongest close in five months, as shares of major oils (CVX, XOM), services (HAL, SLB) were among top gainers; OXY posted its fourth straight quarterly loss hit by $6.6 bln impairment charge as Q2 EPS loss was ($1.76) and revs slipped 34% to $2.98B – said its oil and gas production will fall 13% in current qtr, and another 5% in Q4; adds shale output from its operations will drop 37% this year in the Permian Basin

·     Utilities & Solar; Wells Fargo said YTD, small cap electric/gas utilities have provided a total return of (22%), lagging the S&P Utilities of (3%), giving them the opportunity to upgrade the higher quality names within the small caps to Overweight from Equal Weight raising OGS in the LDC sub-sector and PNM on the electric side. The firm downgraded two of the better performing small caps, yieldco NEP and water utility SJW to Equal Weight from Overweight; ED was downgraded at KeyBanc as they believe that Governor Cuomo’s recent announcement of an investigation into ED’s slow response to outages from Tropical Storm Isaias and raising the issue of the possibility of revoking the Company’s franchise in NY will likely create an overhang on the shares in the NT; overall, the utility sector one of few decliners, as investors rotate into riskier, underperforming sectors – while at the same time, rising yields also weighing on dividend paying sectors

Stock GAINERS

·     AAL +2%; airlines stocks surge again (AAL, DAL, UAL, LUV, JBLU) on both the Russian vaccine news as well as building on Monday’s rally, when Transportation Security Administration data showed airline passenger numbers were improving

·     EQ +11%; announced positive interim data from the first two cohorts of the Phase 1b open label, dose escalation portion of the EQUATE study of itolizumab in acute graft-versus-host disease

·     JPM +4%; big banks (JPM, C, BAC, WFC) and regional players (PNC, USB, ZION, FITB) rallying as Treasury yields bounce out of recent trading range – 10-yr yield up nearly 6 bps to 0.635%;

·     KFRC +29%; following better earnings and guidance after the close and an upgraded at William Blair citing the company’s increasingly expanding technological infrastructure as a result of the pandemic and worldwide shutdowns

·     NLS +11%; after Q2 results topped views with revs of $114M topping the $69M estimate as Q2 Direct Segment sales increased 142% and Retail Segment sales increased 68% from last year

·     PFNX +65%; shares jump after agreeing to be acquired by LGND at $12 per share, equivalent to $438M in equity value; additionally, Ligand will pay $2 per share or $78M as a Contingent Value Right in the event a predefined regulatory milestone is achieved by December 31, 2021

·     SPG +7%; following better Q2 earnings results, along with a broad based bounce in REITs given improved COVID-19 news on vaccine front, lifting retailers and restaurants

Stock LAGGARDS

·     CPRX -12%; said top-line results of late-stage study of Firdapse in patients with an autoimmune neuromuscular disease called anti-MuSK antibody positive myasthenia gravis did not replicate the positive results observed in a 2017 proof-of-concept study

·     CSPR -10%; Q2 sales topped views but warned they have been impacted by industry-wide capacity constraints which have led to increased delivery times for certain of our products through our e-commerce platform

·     FENC -32%; falls as announced that it received a Complete Response Letter from the FDA regarding its marketing application seeking approval of Pedmark

·     FIXX -12%; after saying its pheNIX trial for adult patients with PKU is taking longer than anticipated due to the pandemic

·     NGL -7%; reported Q1 FY21 net loss of $35.3M vs. net profit of $8M YoY as Q1 total revenue slumps ~55% to $844.4M below views of $1.25B as results were impacted by COVID-19 pandemic and significant commodity price volatility

·     SYY -2%; reported a loss for Q2 and said sales plunged 43% as restaurants and other outlets pulled back on orders with consumers sheltering in place at home

·     TLRY -14%; shares slide on disappointing earnings as posted Q2 EPS loss (65c) on revs $50.4M vs. est. $55M and 2Q adjusted Ebitda loss $12.3 million

·     UBER -4%; and LYFT shares pressured early after late Monday, a judge ruled the two hail riding companies must classify their drivers as employees due to a new California law