Mid-Morning Look

Monday, June 29, 2020

U.S. equities are higher after markets initially opened mixed, as the Dow Jones Industrial Average outperforms led by gains in Boeing (BA) after reports that U.S. regulators are set to begin flight tests of the grounded 737 MAX, as well as a bounce in energy names, while the tech heavy Nasdaq Comp led the declines initially after recent outperformance YTD (has risen over 7% compared to the Dow down -11% and S&P -6%). Markets continue to focus on the resurgence of COVID-19 cases in heavily populated states, threatening the further reopening of the U.S. economy, as total coronavirus tally surpasses the 10 million mark. U.S. Health and Human Services Secretary Alex Azar warned this weekend that “the window is closing” for his country to take action to curb the virus, as he predicted rising deaths and hospitalizations in the next couple of weeks. At least 12 states, including Florida, Texas, Arizona and Florida, have halted or rolled back their reopening plans, according to reports this weekend, adding to weaker market sentiment. Some of the big tech stands out during the coronavirus “stay-at-home” lockdown which include FSLY, NFLX, CHWY, ZM, DOCU, WORK are all under pressure this morning in a bout of profit taking for tech broadly. However, stocks have recovered nicely off morning lows following a record jump in monthly Pending Home Sales data.

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar is down slightly overall, but off its worst levels, while the 10-yr U.S. Treasury yield is unchanged at 0.64% (after falling on Friday amid the stock market sell-off); gold prices are holding just off 8-year highs above the $1.780 an ounce level. Oil prices gaining early, helping boost energy stocks early, but pullback off best morning levels.

Economic Data

·     Pending Home Sales for May jumps a record 44.3% vs. est. 19.3% as the increase follows declines of 21.8% in April and 20.8% in March. Northeast up 44.4%; April fell 48.2%, Midwest up 37.2%; April fell 15.9%, South up 43.3%; April fell 15.4% and West up 56.2%; April fell 20%

Sector Movers Today

·     Consumer Staples; BYND was downgraded to underweight at Barclay’s with a $115 tgt; COTY rises after saying it will acquire a 20% stake in Kim Kardashian West’s makeup brand KKW for $200 mln/will develop KKW’s skincare, haircare, personal care and nail products; PPC shares fall after pair of downgrades as Barclay’s downgraded to an Equal-weight rating from a prior Overweight with $20 tgt and BMO cut its rating to EW from OW with $21 tgt

·     Media & Telecom movers; AMC downgraded to underperform (tgt to $2 from $4) and CNK cut to neutral (tgt to $13 from $20) at Credit Suisse warning the movie-theater business continued to look risky as cases of the coronavirus grew in the U.S.; DIS said its “Mulan” movie will now debut in theaters on August 21, after it had already been delayed once due to theater closures amid the Covid-19 pandemic.

·     Transports; index approaching the 9,000 level (off last week lows around 8,750) as airlines recover; airline rating changes at Goldman Sachs as they upgrade LUV to buy from sell as expect its primarily domestic network and industry-leading balance sheet to drive a relatively faster and stronger recovery from the COVID-19-driven downturn in demand for air travel while downgraded ALGT to neutral as believe the current risk/reward does not merit a Buy rating

·     Internet; FB and TWTR extend last week declines as more companies continue to suspend/pull advertising from the social media co citing hate speech and divisive content on the platforms; SPOT downgraded to sell from neutral but tgt raised to $223 at Guggenheim as believe Spotify shares are more than fully valued saying the market is now pricing shares for blue-sky growth

Stock GAINERS

·     ALT +11%; a receives $4.7M from U.S. Army Medical Research & Development Command to fund an early-stage trial of nasal spray T-COVID to treat outpatients with early COVID-19 disease

·     BA +4%; after reports that U.S. regulators are set to begin flight tests of the grounded 737 MAX, saying the flights, which could begin as early as Monday, and are scheduled to last three days

·     COTY 11%; after saying it will acquire a 20% stake in Kim Kardashian West’s makeup brand KKW for $200 mln/will develop KKW’s skincare, haircare, personal care and nail products

·     KNSA +16%; announced that its Phase 3 trial of Rilonacept in Recurrent Pericarditis met its primary and all major secondary efficacy endpoints, all highly stat significance and is aiming for a sBLA submission later this year

·     NKLA +5%; shares were active after saying Nikola Badger preorders open June 29 at 11 am; preorders available in battery-electric vehicle or hydrogen fuel-cell electric vehicle models

·     PCRX +15%; seen as benefitting from HRTX CRL letter from the FDA (PCRX is the maker of competing Exparel, a non-opioid local analgesic)

·     VXRT +12%; 4^th straight day of gains after saying last week it signed an MoU with Attwill Medical Solutions Sterilflow to use AMS’ resources for lyophilization development and large-scale manufacturing including tableting and enteric coating for Vaxart’s oral COVID-19 vaccine

Stock LAGGARDS

·     CACC -2%; said in an SEC filing that it received a civil investigative demand from the Consumer Financial Protection Bureau. It says it’s cooperating

·     FB -2%; extends declines from late last week as more companies continue to suspend/pull advertising from the social media co citing hate speech and divisive content on the platforms

·     HRTX -29%; as announced that it received a Complete Response Letter (CRL) from the U.S. FDA regarding its New Drug Application (NDA) for HTX-011 for the management of postoperative pain

·     ICPT -37%; received a Complete Response Letter from the FDA regarding its marketing application seeking approval to use obeticholic acid (OCA) to treat liver fibrosis due to nonalcoholic steatohepatitis (NASH) citing the uncertainty of a predicted treatment benefit based on a surrogate histopathologic endpoint, precluding accelerated approval.

·     PPC -3%; after pair of downgrades as Barclay’s downgraded to an Equal-weight rating from a prior Overweight with $20 tgt and BMO cut its rating to EW from OW with $21 tgt

·     ZM -3%; tech stands out during the coronavirus “stay-at-home” lockdown which include FSLY NFLX, CHWY, DOCU, WORK are all under pressure this morning in a bout of profit taking