Mid-Morning Look

Friday, February 28, 2020

The massacre in global equities continues again on Friday, with the Dow Jones Industrials dropping over 1,000 points for a third time over the last week (including posting its biggest and 4^th biggest point declines ever and tested its 52-week lows earlier today) all amid the uncertainty from the coronavirus impact to the global economy as cases rise outside on mainland China. Stocks are down for a seventh straight session, with the S&P and Nasdaq now more than 13% off their record closing highs just a week ago. The number of new reported coronavirus cases in China continues to decline, but South Korea’s case total jumped above 2,300, along with jumps in other countries as well. European bourses also are down big, with Germany’s DAX down around 4%% and both U.K.’s FTSE and France’s CAC off 3% while Asian markets were pummeled overnight. There is no room to hide today outside of bonds as Treasury yields set new record lows for a 3^rd straight session (10-yr 1.15% and the 2-yr low dropped below 1%) as gold, and defensive sectors (staples, utilities) are among the top drags on the S&P. Energy obviously falling with oils decline while banks tumble on plunging Treasury yields. Canada’s S&P/TSX Composite Index plummeted as much as 3.6% at the open after a technical glitch halted trading for more than two hours Thursday before they closed markets.

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar plunges to lows vs. the Japanese yen in flight to safety trade – down 1.31% or 1.43 to 108.16 (down from levels above 112 just a week ago), but overall the dollar holding up against other currencies (rising vs. oil leveraged currencies such as the Canadian dollar), but rising expectations that the FOMC may cut rates to help soften the economic impact on the economy has pulled the buck back from 3-year highs this week. Commodity prices crushed across the board, led by 5% declines in oil prices and a 2% drop in gold prices all on slowing demand fears due to impact of virus on companies, businesses and countries. Treasury market’s rally again as yields setting new record lows on a daily basis as the 10-yr yield down another 9 bps to 1.17% (hit overnight low 1.1535%), while the two-year treasury yield sliding below 1% for first time since 2016 (2-yr yield down 14 bps to 0.91%).

Sector Movers Today

·     Bank movers; shares of U.S. banks drop among the most of S&P sectors, led by big banks (JPM, C, WFC, BAC) as well as regional banks as U.S. Treasury yields broadly drop across the curve, with the two-year treasury yield sliding below 1% for first time since 2016, pressuring the profit margin on loans banks make (2-yr yield down 14 bps to 0.91%)

·     Energy stocks again getting pummeled on plunging oil prices on fears of lower demand given the impact of the coronavirus on travel (personal and corporate) as crude oil extends fall, down as much as 5% to below $45 per barrel; the weakness coupled with mixed earnings results in the sector, as GPOR plunges after Q4 EPS miss hit by lower production and commodity prices and expects 2020 avg. daily gas output of 1,100-1,150 mln cubic feet equivalent, the midpoint of which is 18.2% lower than 2019 output; other earnings results included OXY as reported core 4Q19 EPS that was $0.06 below consensus on weaker oil & gas earnings; EOG with an earnings beat and plans more production in 2020; GDI replaces XEC in the S&P 500 index while XEC replaces CHK in the S&P MidCap 400 index; RRC and SWN both with better earnings in net gas

·     Utilities & Solar; AES shares dropped sharply after Q4 earnings estimates beat but missed revenue expectations by a wide mark ($2,43B vs. est. $2.69B)/on an unadjusted basis, AES reports a $78M Q4 loss compared to a $128M profit in the prior-year quarter; EIX shares drop after Q4 EPS missed and said it now sees $4.9B in liabilities from 2017-18 fires, up from prior view of $4.7B in fire liabilities; PCG falls as California’s utilities regulator proposes $2.14B fine for its role in causing the devastating 2017 and 2018 wildfires in Northern California; NI was upgraded to outperform at Credit Suisse

·     Medical equipment and devices; Needham said they think that MASI is the least vulnerable to a COVID-19 pandemic since it has limited exposure to China, moderate exposure to Europe, could actually see increased demand from COVID-19, and has the strongest balance sheet…in contrast, they think that IVC and MMSI are most vulnerable to a COVID-19 pandemic given their geographic exposure, products, and balance sheets; ACAD revenue of $9.4M grew 35% Y/Y was solidly ahead of our $8.1M estimate on continued strength in ProFound AI. AEBITDA; ATEC announced an agreement to acquire EOS imaging, SA, for a purchase price of up to $88M

·     Software movers; ADSK reported strong F4Q results for revenue and free cash flow but also reported FY21 revenue growth a touch below expectations and sees FY20 EPS $4.21-$4.44 vs. est. $4.41 (while FCF guidance was better) as shares slipped; WDAY with beat & raise as Q4 subscription rev growth of +24.7% was ahead of consensus at +23% with current billings also ahead at +20.5% y/y and margins also better at 11.9%; VMW mixed results as healthy bookings were overshadowed by a top-line miss with a mix shift and execution as culprits for the softness according to Wedbush

Stock GAINERS

·     ALT +132% says it has completed design and synthesis of a single-dose, intranasal coronavirus vaccine/says it is now advancing vaccine towards animal testing and manufacturing

·     CBB +5%; amends its pact with Brookfield Infrastructure and institutional partners to increase consideration payable to $12.50 per share in cash from $10.50 per share as the deal is now valued at about $2.745 billion, including debt

·     FTCH +11%; as beats street estimates for Q4 revenue, posts smaller-than-expected loss in the quarter and sees GMV to grow to $3.00-$3.10B in FY 2020, well above estimates of $2.81B

·     FTSV +21%; after Bloomberg reported GILD has approached cancer therapy company with a takeover offer, according to people; said the both are discussing a number of options, including a partnership https://on.mktw.net/2vr0uJl

·     SGMO +27%; entered a partnership with BIIB to develop gene therapies for diseases attacking the brain and central nervous system (SGMO to get $125M in cash and a $225M equity investment, plus up to $2.37B in development milestones/royalties)

·     TTD +8%; as reports Q4 revenue and profit above est. and sees Q1, full-year rev above est. prompting Wells Fargo to upgrade to outperform

Stock LAGGARDS

·     AES -10%; after Q4 earnings estimates beat but missed revenue expectations by a wide mark ($2,43B vs. est. $2.69B)/on an unadjusted basis, AES reports a $78M Q4 loss compared to a $128M profit in the prior-year quarter

·     BIG -34%; reported 4Q adjusted EPS below expectations, driven by soft comps and gross margin saying recent trends have slowed, prompting soft 1Q and 2020 guidance

·     BYND -17%; mixed Q4 results as sales of $98.5M beat the $80M estimate with in-line gross margins of 34%, but represented a sequential decline from last quarter’s gross margin of 35.6%

·     EB -17%; as forecasts Q1 revs between $84M-$88M below est. $90.2M and lower year rev view (RBC downgrades to sector-perform)

·     NEM -7%; as gold miners suffering as gold prices retreat hard (down over 2% to $1,608 an ounce – far cry from the 7-year highs late last week around $1,700 an ounce)