Mid-Morning Look

Thursday, March 04, 2021

Stocks erased early gains quickly, with stocks plunging below key technical levels again (S&P 500 back below the 50-day moving average support for a second time now this year), as momentum builds to the downside following a strong start to 2021, with technology feeling the brunt of the selling pressure. The Nasdaq Composite drops well below its 50-day moving average of 13,372, trading to lows of 12,782 before bouncing, led by large cap tech (100-day support lower at 12,667), as investors bail on higher multiple growth stocks and rotate further into cyclicals and “reopen” stocks, as energy, financials, industrials hold up well. Defensive consumer staples seeing strength today with PG, WMT, KO among early Dow Jones leaders. Rising Treasury yields and inflation concerns have been attributed to the beginning of this pullback last week along with mixed economic data. The Fed has remained vigilant thus far about keeping rates lower for longer, noting the recent uptick in rates is more a factor of an improving economy and that they are willing to overshoot their inflation targets of 2% before looking to hike rates. Commodity prices have been mixed with oil rising to over 1-year highs recently (higher again today), while gold extends losses to lowest levels since June amid a steady dollar. Markets cautious ahead of remarks from Federal Reserve Chair Jerome Powell later today. Stocks have since rebounded well off the lows, as major averages now turn higher in another buy the dip.

Economic Data

·     Weekly jobless claims rose 9K to 745K, slightly below the 750K estimate while the prior week was revised to 736K from 730K; the 4-week moving average fell to 790,750 in latest week from 807,500 prior week (previous 807,750) and continued claims fell to 4.295M from 4.419M prior week and vs. consensus of 4.3M; the U.S. insured unemployment rate fell to 3.0% from 3.1%

·     U.S. Q4 non-farm productivity revised to down -4.2% vs. est. -4.7% (prior -4.8%), while Q4 non-farm unit labor costs revised to +6.0%, slightly below the 6.6% estimate

·     U.S. factory orders rose 2.6% in January (above est. 2.3%) as manufacturers continued to lead the way for the U.S. economic recovery. Orders for durable goods made to last at least three years climbed an unrevised 3.4% last month. Orders for nondurable goods such as clothing and groceries rose a slower 1.9%.

Sector Movers Today

·     Retailers; BJ said holiday-quarter comp sales growth (ex-gas) rose by 15.9%, down from 18.5% growth in the previous quarter (est. 16.2%) though beats total revenue estimates as membership fee income increased 11%; BURL strong as comps better (Nov -10%, Dec flat, Jan +17%), margins a little weak as expected, inventories -4.7%, and EPS beat on comps – no formal guide; AEO EPS beat, Q4 comp store sales rose 29%, qtrly digital revenue increased 35%, with Aerie up 75% and AE up 20% and said it is reinstating quarterly cash dividend at $0.1375 per share and unsuspended it share buyback plan; PRPL shares tumble as the mattress retailer reported Q4 earnings and revenues that fell well short of consensus (7c/$173.9M vs. est. 11c/$196M)

·     Housing & Building Products; U.S. mortgage rates jump north of 3% for first time since July, something to watch for homebuilders (KBH, LEN, TOL, MTH, PHM); UBS reiterated positive call on homebuilders and select building products FBHS, TREX noting as interest rates have moved higher in recent months, homebuilding and building products stocks have been under pressure on the investor assumption that demand will soon drop in response to higher mortgage rates – nit the firm said they disagree as the move to date of ~30 bps in the 30 year mortgage rate isn’t enough to derail housing’s momentum

·     Consumer Staples; KO, PG among early leaders in the Dow as investors look to defensive consumer staples with high tech growth sliding; KR beats estimates for Q4 same-store sales and profit while guides annual EPS $2.75-$2.95 vs. est. $2.69, relying on cost-savings initiatives but sees year comp sales down (3%-5%) vs. estimates for decline of about (2.5%); UNFI extends its primary wholesale grocery distribution relationship with Whole Foods Market by entering into an extension of the current distribution agreement; SFM announces $300M share buyback

·     Utilities & Solar; Raymond James upgraded BE to Outperform as a high-beta, aggressive growth idea that is not fully appreciated, and assert that it is not a valuation-based upgrade even as shares have fallen 35% since 2/8; ATO was upgraded to Buy with a $99 target at Mizuho; CLNE and its largest shareholder TOT announced terms of a new joint venture on Thursday focused on renewable natural gas production with an initial firm commitment of $100M to build renewable gas production facilities; ETR wrongfully charged customers more than $1B over eight years in upgrading its problem-plagued Grand Gulf Nuclear Station in Mississippi, according to allegations in a federal complaint filed by three of the utility’s regulators; Wells upgraded WEC, PCG, BEP, BEPC and downgraded SJI, SR, CWT and sees real value in the space for the first time in several years after the sector has underperformed the S*P 500 by nearly 16% since the 11/9 vaccine news and over 8% YTD

·     Software movers; SNOW delivered strong FQ4 results with a 7% beat on product revenue, 9% upside on gross profit, and substantially better than expected operating income and FCF – also Q1 revenue guidance was slightly ahead of street estimates and the full year guide was in-line and announced an uptick in $1MM+ customer growth (upgraded at Deutsche Bank); OKTA reported solid Q4 results with billings (by 10%), revenue (by 6%) and OMs exceeding consensus estimates and raised its full year rev guidance, but its $6.5B acquisition of privately held Auth0 caught the Street by surprise (paying a lofty price >30X+ on a NTM ARR according to Mizuho)

Stock GAINERS

·     BURL +13%; strong as comps better (Nov -10%, Dec flat, Jan +17%), margins a little weak as expected, inventories -4.7%, and EPS beat on comps – no formal guide

·     CNP +3%; defensive utilities also lead in the S&P early (AWK, WEC)

·     FANG +4%; as energy and E&P names outperform with rising oil prices

·     FPRX +78%; AMGN agreed to acquire the co for $38 per share, in deal valued at $1.9B https://on.mktw.net/3kKMnnd

·     SNOW +3%; delivered strong FQ4 results with a 7% beat on product revenue, 9% upside on gross profit, and substantially better than expected operating income and FCF – also Q1 revenue guidance was slightly ahead of street estimates (upgraded at Deutsche Bank)

·     UNFI +8%; extends its primary wholesale grocery distribution relationship with Whole Foods Market by entering into an extension of the current distribution agreement

Stock LAGGARDS

·     FCX -6%; seeing pullback in commodity related names that have outperformed

·     OKTA -4%; solid Q4 results with billings (by 10%), revenue (by 6%) and OMs exceeding consensus estimates and also raised its full year revenue guidance by about 2 but its $6.5B acquisition of privately held Auth0 caught the Street by surprise (paying a lofty price >30X+ on a NTM ARR)

·     PRPL -21%; shares tumble as the mattress retailer reported Q4 earnings and revenues that fell well short of consensus (7c/$173.9M vs. est. 11c/$196M)

·     VRM -24%; reported 4Q results that were below expectations as eCommerce unit growth of 74% compared to +79% consensus and eCommerce GPPU grew 12% y/y to $1,821 (below Stifel $2,130) and also delivered lower-than-expected 1Q21 guidance

·     YEXT -10%; plunges on weaker-than-expected growth outlook for FY22 as calls for 6% rev growth at midpoint in FY22, well below consensus as headwinds from location-based businesses are impacting upsell activity as well as new customer growth

Syndicate:

·     Digi International (DGII) 3.5M share Secondary priced at $19.50

·     Dynex Capital (DX) 3.5M share Spot Secondary priced at $18.35

·     InnovAge (INNV) 16.667M share IPO priced at $21.00

·     SelectQuote (SLQT) 10.6M share Secondary priced at $27.50

·     VICI Properties (VICI) 60M share Secondary priced at $29.00