Mid-Morning Look

Monday, January 11, 2021

U.S. stocks opened sharply lower to start the week (much like last Monday), but investors using that opportunity to snatch up stocks at lower prices (much like rest of last week), with major averages already well off their lows. U.S. stocks are coming off record closing highs last Friday despite a disappointing monthly jobs report miss, as it further boosts expectations of additional fiscal stimulus measures (and keeps the Fed in the dove camp for even longer). Markets fixated on the drama ongoing in Washington as Democrats continue to push for the impeachment of President Trump (despite having less than 2-weeks remaining in office) with Biden’s inauguration set for January 20^th. It was a busy morning of earnings and sales updates out of retailers ahead of their presentations at the annual ICR conference which starts today and goes through Wednesday, as well as updates in the healthcare industry ahead of the JPMorgan Healthcare conference (next 4-days). Those updates and headlines dominated the morning news flow. The dollar index rises to its best levels since Christmas Eve, while Treasury yields climb to their best levels since last March. Wall Street Darlings are among the biggest decliners to start the week as Bitcoin plunged more than 19% to a one-week low, putting the cryptocurrency on track for its biggest one-day drop since March (still up 15% to start the year). Bitcoin touched lows of $30,699, its lowest since Jan. 5, after topping highs above $42,000 late last week. The falls reflect a wider dollar bounce. There was no major U.S. economic data today.

Oppenheimer noted this morning that there are two market signals they think important to flag this week due to the bullish implications for the S&P 500: 1) a four-year high in the number of net new 52-week highs on the NYSE (337); and 2) the breakout in the 10-year US Treasury yield. Emerging Markets are also closing in on a breakout above its 2007 peak. Over the weekend Twitter (along with other social media related outlets) banned President Trump from their platforms (TWTR said permanently) as shares fall: TWTR just an example of a company that provide their service for free, users have no say in how it works, they control your access to information, you have no privacy, and if you say anything they do not like, they silence you.

Sector Movers Today

·     Aerospace & Defense; BA shares fell after passenger plane carrying 62 people crashed into the Java Sea on Saturday, Indonesian authorities said. The Sriwijaya Air jet lost contact with air-traffic controllers and disappeared from radar minutes after taking off from the country’s capital, Jakarta (the aircraft involved was a 26-year-old Boeing 737-500); aero parts supplier SPR was upgraded to Outperform from Neutral at Baird; Truist upgraded shares of DCO, MOGA, TGI to buy, ROLL and WWD upgraded to hold, downgraded KTOS to hold and said LHX is favorite idea in aero and defense, a contrarian attractively valued defense play with amply capital deployment opportunities, they will use the playbook.

·     Retailers; several retailers issuing guidance ahead of their presentations at the ICR Exchange conference this week, moving the needle on some; LULU said it expects Q4 revenue and earnings to be at the high end of its prior range of expectations; CROX guides Q4 revenue to increase ~55% to be between $407M-$410M vs. consensus of $330.07M and up from the previous guidance range of +20% to +30%; GME rises after saying it signed agreement with investor Ryan Cohen’s RC Ventures LLC appointing Cohen and two other e-commerce veterans to its board (RC Ventures holds 13% stake in GME); in research, UBS upgraded RL upgraded to Buy and KSS to Neutral; BOOT upgraded at JPMorgan after higher guidance; other companies issuing guidance ahead of ICR Retail conference: TLYS, GCO

·     Consumer Staples; USFD slips after saying it sees Q4 adj. Ebitda below previous view (other food distribution names active as well (SYY, PFGC); GRWG preannounced 4Q:20 revenue above our expectations and raised 2021 guidance on both the top and bottom lines; ADM and ANDE both downgraded to market perform from outperform at BMO Capital as believe in the near-term, upside may be limited given its current valuation, the impact of higher corn prices on ethanol, and the potential for more limited carry; Wells Fargo reiterated overweight rating on IFF as the N&B transaction is poised to close on February 1st and they continue to believe the combination should create a higher growth and margin leader in the flavors and fragrance industry

·     Transports; sector outperformed broader stock markets led by rails, airlines mixed; in research, Cowen upgraded JBLU, UAL, ALGT to Outperform, while downgraded AAL, DAL to Market Perform, and HA downgrade to Underperform, while top Picks: LUV, SAVE, ALK – saying focus is domestic leisure with corporate/international lagging; Bernstein positive on the railroad sector as UNP, CNI were both upgraded in Rails as well as raising their view of the sector as the demand outlook improves and resistance from structural headwinds fades. Noted the stocks have started to work ahead of a global recovery from the pandemic, and they expect them to continue to work as higher highway costs and modal advantages make the idea of a more growth focused rail narrative more of a reality.

Stock GAINERS

·     CROX +8%; guides Q4 revenue to increase ~55% to be between $407M-$410M vs. consensus of $330.07M and up from the previous guidance range of +20% to +30%

·     EXAS +14%; issued prelim Q4 revenue $464.5M-$467.5M vs. est. $431.2M and FY20 revenue $1.490B-$1.493B vs. est. $1.460B, both above views lifting shares

·     LLY +13%; said its experimental Alzheimer’s drug (donanemab) met the primary goal of the study as it helped patients in a small trial/the drug slowed the decline in memory and ability to perform activities of daily living by 32% after 18 months among people who received the therapy compared with those who got a placebo

·     GME +14%; rises after saying it signed agreement with investor Ryan Cohen’s RC Ventures LLC appointing Cohen and two other e-commerce veterans to its board (RC Ventures holds 13% stake)

·     GRA +5%; as 40 North raised its offer for the chemical company to $65 per share from $60 (on Nov. 9, W.R. Grace had confirmed that 40 North made an unsolicited bid to buy the company for $60) https://bit.ly/2LEyCZU

·     NIO +10%; after launching its first sedan model (ET7) at an event in the western city of Chengdu on Saturday, coming just after rival TSLA started selling its China-made Model Y sport-utility

·     ODP +16%; after USR Parent, Inc. proposes to acquire 100% of the issued and outstanding common stock of The ODP Corporation for $40.00 per share in cash. https://bit.ly/3buiZPO

·     WBA +3%; received two upgrades as Guggenheim raised to buy from neutral and establishing a $55 target price on its view that the retailer is finally positioned for an upward earnings revision cycle and Baird also raised rating to outperform

·     WBAI +10%; said it entered into an agreement to acquire bitcoin mining machines and said it expects to issue $14.4m worth of shares as consideration to acquire the bitcoin mining machines

Stock LAGGARDS

·     ALB -2%; slides after Chilean regulators have threatened ALB with legal action, demanding that by the week’s end co present a plan for turning over data on its reserves of lithium, according to filings obtained by Reuters

·     BA -3%; after a Boeing 737-500 jet operated by Sriwijaya Air crashed into the sea on Saturday after taking off (parts suppliers such as SPR fell as well)

·     FCX -4%; profit taking in metals and miners after recent surge

·     GBTC -14%; as named leveraged to Bitcoin roll (MARA, RIOT, XNET) with Bitcoin slide

·     TSLA -4%; pulls back off record higher, snapping its 11-day winning streak

·     TWTR -8%; after the social media platform permanently banned outgoing President Donald Trump saying Trump’s tweets breached policies by risking incitement to violence

·     USFD -2%; slips after saying it sees Q4 adj. Ebitda below previous view (other food distribution names active as well (SYY, PFGC