Mid-Morning Look

Friday, March 20, 2020

U.S. equities are higher in volatile trading, with the S&P 500 index trying to post back-to-back daily gains in roughly six weeks (2/10-2/12), as investors weigh massive central bank moves (large QE programs from the U.S. Fed and ECB this week), including lower rates and coordinated actions to further enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements to help credit markets and keep cash available. At the same time, the U.S. government has been putting into action stimulus plans to help out of work employees as business are crippled and shut down to the impact of the coronavirus (with the latest worldwide count of cases reaching over 245K – and likely to grow quickly as more tests are administered). Several of the hardest hit industries such as airlines, autos, cruise lines, casinos, restaurants and retailers are seeing nice bounces today. The Fed is buying more this week than the biggest week during the financial crisis, according to CNBC‘s Steve Liesman. He estimates $307 billion in buying this week versus $162 billion as the highest weekly total during the financial crisis. Energy stocks are mixed as oil prices pare yesterday’s 24% gain. Watch for increased market volumes late day ahead of quadruple witching into the weekend, which refers to the simultaneous expiration of market index futures, stock futures, market index options and stock options.

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index (DXY) is lower, down about -0.7% off 3-year highs, falling the most against the British Pound which is up over 3% to 1.184 (off overnight lows 1.1412) after having posted massive gains over the last two weeks; the euro and Japanese yen are little changed. Commodity prices mixed as oil prices slip after posting their best daily performance ever on Thursday when WTI crude rose 24% (essentially wiping out the day prior losses), while gold prices push higher in flight to safety and dollar pullback. Treasury prices rising with yields down across the board, as the 10-year yield back at 1% (down 14 bps)

Economic Data

·     The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank announced a coordinated action to further enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements

·     Existing-home sales for February rose 6.5% at 5.77M vs. est. 5.51M while January was revised to 5.42M vs. est. 5.46M; there were 3.1 months’ supply in Feb. vs. 3.1 in January; median home price rose 8% from last year to $270,100

Sector Movers Today

·     Consumer Staples; MO Chairman and CEO Howard Willard has contracted the coronavirus and is taking temporary leave and Vice Chairman and CFO William Gifford will assume his duties; COTY said it sees 3Q net revenues to decline roughly 20% like-for-like, with a meaningful impact on profit; in beverages, TAP upgraded at Jefferies predicated on contraction in on-premise now reasonably discounted in shares at <8x EV/EBITDA and new CMO driving improvement in big brands; PEP, STZ, TAP and MNST were all upgraded at Guggenheim; TSN and SAFM both upgraded at JPMorgan as it observes enough meat flying off retail shelves to more than offset the drops in the foodservice business

·     Retailers; KSS suspends dividend and buybacks, withdraws Q1 & FY20 guidance; confirms to close all stores nationwide through at least April 1^st; LULU, ROST, ULTA were all upgraded to buy from neutral at Citigroup saying believe it is time to take some swings on companies where long term earnings power is intact that we believe are going to come out of this even stronger on the other side; HIBB mixed quarter as Q4 adj EPS missed on better revenue; OLLI was downgraded to hold from buy at Loop Capital and slashed tgt to $33 (prefers DG or FIVE after missed consensus expectations for the second time in the past three quarters; NKE upgraded to buy at Banc America saying as believes current global athletic momentum favors Nike in both footwear and apparel; ROST closes all its stores (following suits of many other retailers this week); SFIX closes two distribution centers; GME downgraded at Wedbush given the significant headwinds that GameStop faces from coronavirus and the challenging current-gen video game retail marketplace; KeyBanc upgraded DLTR to overweight and downgraded BBBY as turnaround / reorg the market is hoping for is not going to happen in this kind of retail market

·     Auto sector; TSLA said late Thursday it will temporarily halt production at its Fremont, Calif., auto factory and its solar-panel factory in Buffalo, N.Y., amid efforts to limit the spread of the novel coronavirus; UBER was upgraded to overweight with $41 tgt at Wells Fargo as think shares are attractively priced and value remains tied to growth trends that will play out long after coronavirus-driven disruptions have subsided; trade groups representing the U.S. auto industry are urging top lawmakers to consider several forms of tax relief and to delay the USMCA trade agreements start date amid the coronavirus fallout

·     Casino & Leisure movers; casino stocks were among the top gainers in the S&P early (MGM, WYNN) as the demolished group trying to recover as the industry faces a halt of business in Las Vegas for the next few weeks; SEAS was upgraded to neutral at Citigroup though cut its tgt to $9 from $27 as expect it will require an additional $50M of liquidity, but may be able to increase its revolver capacity by an additional $227 million based on 10-K commentary

·     Software movers; CRWD shares jump after reported a very strong quarter, as total ARR growth of 92% Y/Y beat the Street’s +79% estimate and also initiated FY21 revenue guidance that was better than expected, while reiterating non-GAAP operating income breakeven by F4Q21; SAP was upgraded to overweight at Morgan Stanley as believe will continue to benefit from its restructuring programme in FY20 and we think it still has considerable flexibility on cost; ORCL was upgraded to overweight at JPMorgan with the stock essentially flat lining since mid-June 2015 through yesterday, while the IGV index returned ~90%, MSFT returned >200%, CRM returned >85% and WDAY returned ~60%

Stock GAINERS

·     CCL +21%; as Q1 adj EPS 22c on revs $4.8B vs. est. 13c and $4.61B; though warned advanced bookings for the remainder of the year are meaningfully lower than the prior year

·     CRWD +18%; reported a very strong quarter, as total ARR growth of 92% Y/Y beat the Street’s +79% estimate and also initiated FY21 revenue guidance that was better than expected, while reiterating non-GAAP operating income breakeven by F4Q21

·     GNMK +56%; shares jumped in reaction to the FDA’s issuance of Emergency Use Authorization for its qualitative (yes or no answer) ePlex SARS-CoV-2 Test

·     HTZ +21%; and CAR rally in car rental sector after asking the Treasury Department to include their industry in federal plans to rescue travel companies ravaged by the coronavirus

·     MYL +9%; on headlines has restarted production of hydroxychloroquine sulfate tablets at its West Virginia facility in order to meet COVID-19-related demand, although it is not formerly approved for this use

·     WYNN +18%; as casino stocks were among the top gainers in the S&P early (MGM, PENN) as the demolished group trying to recover as the industry faces a halt of business

Stock LAGGARDS

·     BLMN -2%; after saying it has a cash position of over $400 million after drawing down substantially all of its revolving credit facility, while suspended the quarterly cash dividend; withdraws guidance for 2020

·     KSS -9%; after suspends dividend and buybacks, withdraws Q1 & FY20 guidance; confirms to close all stores nationwide through at least April 1st

·     MO -5%; Chairman and CEO Howard Willard has contracted the coronavirus and is taking temporary leave and Vice Chairman and CFO William Gifford will assume his duties

·     OLLI ; downgraded to hold from buy at Loop Capital and slashed tgt to $33 (prefers DG or FIVE) after missed consensus expectations for the second time in the past three quarters