Mid-Morning Look

Friday, August 28, 2020

Stocks push higher again with new record highs for the S&P 500, the Dow erases losses YTD and tech rallies prompting another bounce in the Nasdaq as stocks look to end a strong week on a good note. It took just over six months to reach an all-time high again, but the S&P 500 has now set new records for five straight trading sessions and up 6-straight overall (CNBC noted its only recorded 11 other six day winning streak in the last five years), and the S&P 500 is approaching a 10% total return on the year (+9.2%), an amazing result given the historic decline in February-March that saw a more than 40% pullback from February record highs. Gold prices up over 1.75% as dollar plunges (DXY 92.45 nears 52-week lows of 92.12 on 8/12) – buck down over 1% to 105.50 vs. the Yen after Abe steps down. Treasury yields steady after touching best levels in months this week – 10-yr above 0.73% and 30-yr above 1.50%. Tech again pacing gains behind strong earnings and guidance in software and hardware overnight from likes of NTNX, WDAY, HPQ, DELL, VEEV and MRVL. Pandemic/reopen names extend recent gains as cruise lines, restaurants and leisure names outperform. Economic data mostly better as personal income and spending for July both topped estimates along with slightly better sentiment data, but Chicago PMI data fell short of estimates. Another solid week supported by positive Fed comments, better data, impressive quarterly results (tech and retail this week) and improving COVID-19 cases.

Economic Data

·     Advance Goods Trade data for July showed a wider than expected deficit of (-$79.3B) vs. the (-$72.0B) estimate as imports rose 11.8% in July to $194.327b from $173.841b in June and exports rose 11.8% in July to $115.008b from $102.855b in June

·     Personal Spending for July rose a slightly better than expected 1.9%, topping the 1.6% estimate while personal income in July rose 0.4%, vs. an expected decline of (-0.2%); real personal spending rose 1.6% vs. est. 1.3%; PCE prices rose 0.3% MoM vs. est. 0.4% and up 1.0% YoY while core prices rose 0.3% MoM vs. est. 0.5% and rose 1.3% YoY

·     Chicago PMI data for August with reading of 51.2 vs. est. 52.6 after 51.9 reading prior

·     University of Michigan sentiment Aug-F reported at 74.1 vs. est. 72.8 (which was also the preliminary reading); the expectations index rose to 68.5 vs. 65.9 last month and the current economic conditions index rose to 82.9 vs. 82.8 last month.

Sector Movers Today

·     Leisure and Gaming; DKNG and PENN cut at Morgan Stanley to equal-weight from overweight citing concern investors’ expectations are too high and see 6 potential negative catalysts through YE; in the cruise space, CCL rises after Germany-based AIDA Cruises, a unit of Carnival, said it will set course on Nov. 1 for seven-day voyages to the Canary Islands, while Western Mediterranean and Orient cruises would begin in mid-December; in boating sector, MBUU Q4 results easily exceeded Street expectations as retail trends improved throughout the quarter and remained robust through August, while channel inventories are at historically low levels

·     Biotech movers; MRNA said it’s in talks with the Ministry of Health, Labor and Welfare of Japan to potentially purchase 40 million or more doses of mRNA-127, its COVID-19 vaccine; FBIO announces positive topline clinical efficacy results for cutx-101, copper histidinate, for the treatment of Menkes disease/rolling submission of new drug application to FDA for cutx-101 on track to begin in Q4 of 2020; IBIO enters exclusive worldwide license agreement with privately held Planet Biotechnology Inc to develop Planet’s experimental COVID-19 therapy candidate

·     Transports; UBS raising 2H20 EPS 16% for KNX and WERN; 6%-7% for SNDR and HTLD in the trucking sector as inventory restocking and strength in goods spending should continue to support freight demand; The Baltic dry index, which tracks rates for ships ferrying dry bulk commodities and reflects rates for Capesize, Panamax and Supramax vessels, shed 16 points, or 1.1%, at 1,488 as the index registered a small 0.5% weekly gain.

·     Hardware & Component news; NTNX shares jump after announcing a $750 million private equity investment from Bain Capital, the retirement of CEO Dheeraj Pandey and results that were better than feared; DELL was upgraded at RBC Capital after earnings as believe its steadily improving balance sheet is positioned to withstand additional COVID-19 macro shocks while many analysts focus on the potential for a VMW spin-out as an opportunity; HPQ posted Q3 revenue and profit that beat analysts’ estimates, as the PC maker has benefited from a swell of demand from remote workers and students during the pandemic (year EPS $2.16-$2.20 vs. est. $2.11)

·     Restaurants; Morgan Stanley upgrading EAT to Equal-weight from Underweight and raise tgt to $39 from $23 as sales and margin performance continue to improve and sit at the top of the peer group and its Just Wings adds an incremental growth layer at minimal cost; YUMC has filed an application with stock exchange of Hong Kong limited; YUM tgt raised to $98 at Bank America saying U.S. quick service sales have rebounded nicely and are generally running above 2019 levels for most brands; strength in restaurants and casual dining early with CMG touching new 52-week highs again, but broad gains for BJRI, CAKE, RRGB, CBRL

Stock GAINERS

·     CCL +3%; after Germany-based AIDA Cruises, a unit of Carnival, said it will set course on Nov. 1 for seven-day voyages to the Canary Islands, while Western Mediterranean and Orient cruises would begin in mid-December

·     HIBB +3%; comp store sales increased 79.2% in Q2, brick and mortar comparable sales increased 65.2% and e-commerce sales shot up 212.2% while inventory declined 32.7% to $182M

·     HPQ +5%; posted Q3 revenue and profit that beat analysts’ estimates, as the PC maker has benefited from a swell of demand from remote workers and students during the pandemic

·     NTNX +14%; after announcing a $750 million private equity investment from Bain Capital, the retirement of CEO Dheeraj Pandey and results that were better than feared

·     ULTA +13%; reported quarterly earnings that beat analysts’ expectations (73c vs. est. 6c) and said e-commerce sales had more than tripled (e-commerce operations surged over 200% in Q2), though revs fell short of views

·     WDAY +13%; reported Q2 results that beat expectations and raised its full-year outlook for subscription revenue, sending shares higher much like its peer CRM just two days ago

·     WMT +3%; new record highs, follow through strength after noting yesterday it was looking to team with MSFT on bid for TikTok

Stock LAGGARDS

·     DKNG -3%; downgraded along with PENN to equal weight from overweight at Morgan Stanley citing rally in shares as well as concern investors’ expectations are too high

·     HLF -12%; shares fell as Federal prosecutors in New York have brought criminal charges against the health supplement maker Bloomberg reported; Reuters said Herbalife is being charged with one count of conspiracy to violate books and records provisions of foreign corrupt practices act

·     NIO -4% following 75M share ADS offering

·     OLLI -6%; beat on the quarter but said it expects sales to slow through 2H

·     OKTA -2%; reported Q2 results that topped expectations and it raised its full-year forecast prompting analyst upgrades though some cautioned about valuation after a YTD gain of nearly 90%, while one analyst warned a deceleration in billings pointed to slower momentum