Mid-Morning Look

Friday, August 14, 2020

U.S. equities open lower, with most sectors under pressure in what to this point has been a winning week for stocks. The S&P 500 has twice this week traded just short of all-time intraday record highs (stands at 3,393) before fading each time and the Nasdaq Composite approached its all-time bests again, but too failed. Markets remain hopeful for improved trade talks with China as both sides are expected to sit down this weekend to discuss the current situation. At the same time, markets have been hopeful (but let down to this point) on seeing the latest coronavirus stimulus bill come to fruition but the two sides remain far apart on several factors including the dollar amount, and have been unwilling to budge to this point. Fed’s Kaplan noted the expiration of unemployment benefits makes this time of “great hardship and stress” for lower income workers who have lost jobs. Economic data was a mixed bag this morning in the U.S. with better nonfarm productivity, industrial production and sentiment with mixed retail sales data. Travel concerns grabbing headlines again as U.S. acting secretary of homeland security says U.S., Canada and Mexico agree to extend curbs on non-essential travel at shared borders through September 21. In Europe, countries are reimposing restrictions and checks on holidaymakers in the region, in response to rising coronavirus infections among people traveling within the continent. Treasury yields edge higher, the dollar sink along with commodity prices.

Economic Data

·     Nonfarm Productivity for Q2-P was a strong 7.3%, well above the est. 1.5% while Unit Labor Costs surged to 12.2% vs. est. 6.9% (prior month also revised up to 9.8% from 5.1%)

·     Retail Sales Advance MoM for July rose a lighter than expected 1.2% below est. for 2.0% rise (but prior month revised up to 8.4% from 7.5%) while retail sales – less Autos for July rose a greater 1.9% vs. est. 1.3% (prior month revised to 8.3% from 7.3%) and retail sales ex auto and gas rose 1.5% vs. est. 1% (prior month revised to 7.7% from 6.7%

·     Capacity Utilization for July rate 70.6% vs. est. 70.3% and above the 68.5% in June, while Industrial Production for July rose 3%, in-line with estimates but down from the +5.7% in June; July manufacturing output +3.4% vs. est. 3% and compared to June +7.4%

·     Business Inventories for June fell (-1.1%), which was in-line with estimates as June business sales +8.4% vs. May +8.5% and inventory/sales ratio 1.37 months’ worth vs may 1.50 months

·     University of Michigan Sentiment for Aug-P rose 0.3 point to 72.8, near April’s pandemic low of 71.8 that was the worst since 2011, and slightly above the 72.0 estimate; the gauge of current conditions fell 0.3 point to 82.5, while a measure of expectations ticked up 0.6 point to 66.5.

Sector Movers Today

·     Casino & Leisure movers; DKNG in focus today as quarterly revenue topped estimates but news that both DraftKings and FanDuel fees deemed taxable in IRS memo is what weighed on shares, as the IRS said fees are wagers under US tax code; in lodging, MAR and HLT both upgraded to buy at Jefferies from hold, confident that efficiencies to the operating model should drive better returns for the companies and related owners as demand rebounds through 2021 and into 2022

·     Brokers and Exchanges; ETFC daily average revenue trades for July were 1.01M, down 9% from June but up 288% in July 2019, while derivative DARTs in July 2020 of 273,257 fell 2% M/M and increased 196% Y/Y; through Aug. 12, 2020, August DARTs are 1.08M, derivative DARTS are 291,000; said net new retail accounts of 45,842 fell 49% from June; SCHW net new client assets for July of $11.2 billion, -42% YoY, total client assets $4.28 trillion, +14% YoY and July new brokerage accounts 206,000, +60% YoY

·     Media & Telecom movers; towers AMT, CCI, SBAC mentioned positively at Cowen saying they would be buyers of towers in the ST given all their reasonable valuations and all tower operators public and private noted that 2020 has been a slow year with some operators speculating that since VZ is expected to aggressively deploy C-Band (and CBRS) in 2021; GLOB reported modest upside to revenue and EPS expectations and provided F3Q guidance slightly above consensus

·     Transports; Dow Transports rebound a day after having its 11-day win streak snapped as FDX, JBHT, R, KSU pace early gains; airlines mixed as ALK provided traffic and revenue expectations for the month of August; said it expects total revenue for the month to be down 70% to 75% from a year ago, after a 73% decline in July (est. for 67.5% decline to $776M)

Stock GAINERS

·     AMAT +6%; tgt raised by several analysts after posted strong results and guidance, and it expects demand to improve in C2H20 as customers continue to move to advanced technology nodes – said expects CY20 WFE (Wafer Fab Equipment) spending to grow 10-15% Y/Y, and is forecasting a similar healthy level in CY21, and Services revenues at over $1B

·     DDS +14%; after reporting a smaller Q2 loss than anticipated on revenue of $919M vs. $1.428B a year ago and said it is uniquely positioned within the sector to weather the COVID-19 pandemic

·     FTCH +14%; as beats Q2 sales estimates as boutiques sold more of their merchandise through company’s website while their stores were closed; several analysts raise tgt price as co forecasts 40% to 45% growth in Q3 gross merchandise value (GMV)

·     MESO +46%; said expert panel to U.S. FDA voted in favor of its lead drug candidate, remestemcel-L, for treatment of children with a type of graft versus host disease (GVHD), which occurs on rejecting a transplant/FDA is set to give decision on drug approval by Sept. 30

·     NVAX +12%; signed term sheet agreement with the UK Government for the purchase of 60M doses of company’s COVID-19 vaccine, NVX-CoV2373 and a Phase 3 clinical trial to assess the efficacy of the vaccine in the UK population; the late-stage trial expected to begin in Q3

·     TSLA +1%; shares were upgraded at both Bank America to neutral and Morgan Stanley to equal-weight, as two of the more bearish analysts raise tgts noting it’s been assembling assets, tech and people to put them in position to potentially unveil a vertically integrated battery supply business

·     VTR +2%; was upgraded to outperform from sector perform at RBC on the expectation of a recovery in senior housing, and to in-line from underperform at Evercore ISI, which said the health care REIT addressed a restructured lease and reduced payout

Stock LAGGARDS

·     BIDU -7%; beat core operating income margin by nearly 7 points on strong cost controls, and provided encouraging signs of revenue recovery in the near-term, but Mizuho noted IQ’s SEC inquiry is an overhang

·     DKNG -10%; as quarterly revenue topped estimates but news that both DraftKings and FanDuel fees deemed taxable in IRS memo is what weighed on shares, as the IRS said fees are wagers under US tax code

·     IQ -10%; as the SEC’s Division of Enforcement is seeking the production of certain financial and operating records dating from January 1, 2018, as well as documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020; also reported earnings results

·     PAYS -18%; posts Q2 top-and bottom line misses as both plasma and pharma businesses negatively impacted by covid-19 pandemic according to BTIG, surprising investors

·     PRPL -5%; shares fell after missing top and bottom line results with no formal guidance issue, though analysts Wedbush and Raymond James were positive on shares

·     SO -1%; seeing weakness in defensive utilities early with SO and EIX among top S&P decliners

Syndicate:

·     CarParts.com (PRTS) 6M share Secondary priced at $13.00

·     CureVac (CVAC) 13.3M share IPO priced at $16.00

·     Equillium (EQ) 5M share Spot Secondary priced at $7.00

·     Griffon (GFF) 8M share Secondary priced at $21.50

·     Southwestern Energy Company (SWN) 55M secondary priced at $2.50

·     Sunnova Energy (NOVA) 10M share Spot Secondary priced at $25.00