***This will be the last midday note until Monday July 6^th

***Have a safe and Happy 4^th of July holiday weekend

Mid-Morning Look

Wednesday, July 01, 2020

U.S. equities had been pointing to a lower open overnight after registering its strong quarterly results in over 20-years, but futures bounced this morning on positive vaccine news, a strong ISM manufacturing report (hits 14-month highs) and a mixed ADP private payroll report (headline figure missed, but revisions higher). Transport stocks surge with FDX rising more than 16% to its best levels since February after quarterly earnings handily topped views, helping push the Dow Transports to highs of 9,500 (200-day MA higher at 9,710 for transport index). Semis and software names lagging after recent outperformance as the coronavirus hardest hit sectors such as airlines, cruise lines and theme parks are rebounding of vaccine hopes after BNTX and PFE said its COVID-19 vaccine (BNT162b1) triggered strong immune response in early-stage human trials. Market sentiment high heading into the 3-day holiday weekend, as fears rising coronavirus cases in parts of the country has been offset by strong earnings the last few days (MU, FDX, XLNX) as well as strong economic data, raising expectations of an economic recovery. Positive travel headlines from UAL regarding increased flight helping airline stocks. Treasury prices fall along with safe-haven gold prices (off highest closing total since 2011 yesterday above $1,800 an ounce) as investors rotate further into riskier stocks/assets.

Economic Data

·     ADP nonfarm private sector in the U.S. added 2.37M jobs in June, but the speed of rehiring slowed compared with May (was also below the 2.9M estimate), as reported by ADP. June’s reading signals a slowdown in job creation compared with May figures, which were upwardly revised to 3.07M jobs added from an initial estimate of -2.76M of jobs lost.

·     June U.S. ISM Manufacturing rises to 52.6 (highest since April 2019) vs est. 49.8 as production rose to 57.3 vs 33.2, highest since Nov. 2018, new orders rose to 56.4 vs 31.8, highest since Jan. 2019 and employment rose to 42.1 vs 32.1

·     IHS Markit June final manufacturing PMI at 49.8 (vs. flash 49.6) as manufacturing sector final PMI for June at 49.8 vs flash reading 49.6 and final May 39.8; sector final output index for June at 47.5 vs flash reading 47.8 and final May 34.4

·     U.S. construction spending unexpectedly fell in May, pulled down by a decline in outlays on private construction projects. The Commerce Department said that construction spending dropped 2.1% vs. an est. rise of 1%. Data for April was revised down to show construction outlays decreasing 3.5% instead of declining 2.9% as previously reported.

Sector Movers Today

·     Retailers; CPRI Q4 adj EPS 11c on sales $1.19B (vs. $1.34B a year ago) and vs. est. 14c and $1.12B while sees Q1 revenue declining about 70% and a significant Q1 loss (Q4 Michael Kors revenue fell -18.4% to $872M); Macy’s (M) posted a net loss of $3.58B while sales fell over 45% to $3.02B, which was in-line with estimates while not providing updated guidance but does continue to expect a gradual sales recovery; PTON said it launches on the ROKU platform to bring the industry leading interactive fitness platform to Roku users

·     Consumer Staples; in food, GIS reports Q4 EPS and sales above estimates while saying that calendar differences and the significant surge in demand seen in 4Q FY20 would result in 4Q FY 2021 net sales declining materially year over year; BYND rises as announced a partnership with BABA to sell its plant-based burgers in the Chinese technology giant’s Freshippo stores in Shanghai/Beyond Meat will begin selling its products in 50 Freshippo stores beginning July 4; STZ beats first-quarter profit estimates saying COVID-19 slowed down beer production in Mexico, but is expected to return to normal levels in Q3

·     Airlines surge on vaccine hopes for COVID-19 virus while UAL also said it as adding nearly 25,000 flights to its August schedule, which will be triple the size of the June schedule. That would bring the air carrier’s overall August schedule to 40% of its August 2019 schedule. In the U.S., United plans to fly 58% of its 2019 schedule, up from 30% in July, while internationally, United is scheduled to fly 25% of its August schedule, up from 16% in July; broad strength in the airlines

·     Software movers; SAIL rises to record highs after Goldman Sachs upgraded to buy from sell saying its poised to address enterprise demand for a more streamlined and automated approach to provisioning and managing digital identities and access; SE was initiate overweight and $130 tgt at Stephens saying its firing on all cylinders; KeyBanc raised its price tgts on TEAM ($201 from $163) and LPSN ($48 from $38), and our FIVN bull case ($130 from $102) and raise ests amid increased confidence in the outlook for Collab and next-gen Contact Center software; KeyBanc also initiated COUP, PLAN and BL with overweight ratings as sees encouraging signals that WFH trends are exposing limitations in cumbersome on-premise system, which could accelerate cloud-based system demand.

·     Media & Telecom movers; CMCSA was upgraded to outperform at Bernstein as the firm urged the company to spin out NBCUniversal and Sky; CCOI was upgraded to buy at SunTrust saying through a combination of higher rep counts, lower rep churn, increased productivity and improving ARPU on remote office promotions along with accelerating net centric growth (streaming), we believe CCOI can exceed expectations for 2Q and 2H; shares of media giant DIS rebounds with broader market rally on vaccine headline hopes

Stock GAINERS

·     AKRO +33%; after released results of a 16-week analysis of “secondary and exploratory endpoints in its Phase 2a Balanced study of efruxifermin, formerly known as AKR-001, in patients with nonalcoholic steatohepatitis (NASH)

·     BYND +8%; announced a partnership with BABA to sell its plant-based burgers in the Chinese technology giant’s Freshippo stores in Shanghai/Beyond Meat will begin selling its products in 50 Freshippo stores beginning July 4.

·     FDX +11%; after reported 4QF20 EPS of $2.53 easily topping the consensus of $1.58 as Ground revenue growth of 20% was much stronger than estimates

·     MNOV +15%; as its investigational new drug application (IND) for MN-166 for prevention of Acute Respiratory Distress Syndrome (ARDS) has been accepted by the FDA; FDA asks the company to proceed with the clinical investigation of the drug

·     PFE +5%; as BNTX says covid-19 vaccine, co-developed with PFE triggered strong immune response in early-stage human trial/both plan to test most promising of four vaccines on up to 30,000 healthy participants

·     UAL +9%; airlines surge on vaccine hopes for COVID-19 virus while the airline also said it as adding nearly 25,000 flights to its August schedule, which will be triple the size of the June schedule

·     YRCW +52% after the company said it expects to receive a $700 million CARES Act loan from the U.S. Treasury

Stock LAGGARDS

·     CFG -2%; several banks sliding after outperformance yesterday post CACC test results

·     GIS -2%; reports Q4 EPS and sales above estimates while saying that calendar differences and the significant surge in demand seen in 4Q FY20 would result in 4Q FY 2021 net sales declining materially year over year

·     NEM -2%; falls as gold prices retreat from 9-year highs

·     WDC -3%; gives back some of yesterday MU related earnings gains

·     XLNX -3%; pares some of yesterday gains after company jumped on raised rev guidance

Syndicate:

·     Acceleron (XLRN) 4.86M share Secondary priced at $92.50

·     AdaptHealth (AHCO) 8M share Secondary priced at $15.50

·     Chiasma (CHMA) 17.5M share Secondary priced at $4.00

·     CRISPR Therapeutics (CRSP) 6.428M share secondary priced at $70.00

·     Denny’s (DENN) 8M share Spot Secondary priced at $9.15

·     DoubleDown (DDI) 5.5M share IPO priced at $15.60

·     Dun & Bradstreet (DNB) 78.3M share IPO priced at $22, above $19-$21 range

·     Sunnova Energy (NOVA) 6M share Secondary priced at $16.50

·     TravelCenters (TA) 6.1M share Secondary priced at $14.00