Mid-Morning Look: March 22, 2021

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Mid-Morning Look

Monday, March 22, 2021

Index

Up/Down

%

Last

 

DJ Industrials

45.85

0.14%

32,673

S&P 500

19.03

0.49%

3,932

Nasdaq

117.38

0.88%

13,332

Russell 2000

-23.95

1.05%

2,263

 

 

Stocks open mostly higher to the start the week, with strength in transports after a mega-merger in the railroad space (CP buying KSU in $25B deal), a further rebound in technology shares (led by software and semis) as Treasury yield slip from last Friday highs. The constant back-and-forth action continues early in stocks with the rotation back to growth and away from cyclicals as the Russell 2000 index underperforms with the yield pullback. The 10-year Treasury yield slips 4 bps to 1.69% after topping 1.75% last week. Lot of attention in currency markets to start the week after Turkey’s currency tumbled 9% on Monday following the abrupt ouster of the central bank governor last week. The lira fell to as low as 8.280 a dollar from 7.219, before regaining some ground to trade at about 7.9312 a dollar. Positive news in the Covid/vaccine space today after AZN said its Covid-19 vaccine was shown to be safe and 79% effective in preventing symptomatic disease in U.S. clinical trials involving more than 32,000 people and the U.S. trials identified no increased risk of serious blood clotting. Generally quiet day to start the week.

 

Economic Data

·     Existing Home Sales for February declined -6.6% to 6.220M vs. 6.500M consensus and 6.660M prior (revised from 6.690M). The median existing-home sales price rose to $313,000, 15.8% higher from one year ago, with all regions posting double-digit price gains. As of the end of February, housing inventory remained at a record-low of 1.03 million units, down by 29.5% year-over-year — a record decline. Properties typically sold in 20 days, also a record low.

 

 

Macro

Up/Down

Last

 

WTI Crude

0.27

61.69

Brent

0.24

64.77

Gold

-7.30

1,734.40

EUR/USD

0.013

1.1915

JPY/USD

-0.12

108.76

10-Year Note

-0.037

1.695%

 

 

Sector Movers Today

·     Semiconductors; Philly semi index (SOX) rises more than 1% early, back near the 3,050, moving back above its 50-day MA of 3,034 as tech leads early; AMAT board of directors approved a new $7.5 bln stock buyback authorization and said its planned $3.5B acquisition of Kokusai Electric Corp. from KKR is on the brink after the companies were unable to confirm timely regulatory approval in China by last week’s deadline; MTSI said intends to offer $400 mln convertible senior notes due 2026; STX tgt raised to $86 from $75 at Argus saying given the company’s shift toward growing, high-value-added markets, they believe that STX shares are undervalued at current levels; ASML upgraded to Outperform at Cowen and raising tgt from €430 to €550 as model ASML earnings growing >50% in 2023

·     Aerospace & Defense; CUB rises after saying it received an unsolicited buyout bid for $76 a share from Singapore Technologies valued at $2.42B which implies a mkt cap of $2.42B – Cubic said it expects to determine STE’s bid to be a “superior proposal” to current buyout deal for $70 from affiliates of Veritas Capital and Elliott Investment https://on.mktw.net/3lBQ2o5 ; LMT mentioned positively in Barron’s saying it might be the safest way to bet in space, saying its seen as a defense stock and a legacy player in the “old space”; Barron’s also noted new companies have emerged with hopes of taking on SpaceX, as favors the soon-to-be publicly traded Rocket Lab USA, with its current valuation is $5.5 billion, based on its merger with VACQ; also the number and diversity of satellites will rise as the industry remains a $20B-$30B business a year, meaning risks could increase for companies like MAXR and IRDM

·     Retailers; several analyst research calls after earnings/ahead of others; DG upgraded from Inline to Outperform with $205 tgt at Evercore with the risk/reward compelling at a 20% discount to the S&P on building initiative traction, Washington policy aid, and a positive inflection in traffic forthcoming; Evercore downgraded FIVE to In Line with the risk reward balanced at 38x, or nearly 2x the S&P on our CY22 EPS; VRA was downgraded to Market Perform at Cowen saying they remain excited about VRA’s product innovation & partnerships, digital-first mindset, and attractive M&A prospects but note valuation appears fair; COLM upgraded to Buy at Bank America saying it sees a stronger recovery than originally anticipated for the retailer given recent management commentary and supportive debit/credit card data; Bank America also upped RL tgt to $135 and PVH to $120 ahead of 4Q earnings and lowering ests on PVH to reflect the pandemic disruption on its European business (35%E sales) while raising estimates on RL to reflect additional retention of the costs cut through its recent cost cut actions; as for the warehouse clubs (COST, BJ, WMT), UBS says they think they will emerge from the pandemic even better positioned than they were before

·     Transports; big day in railroad space as CP agreed to buy KSU for $25 billion in a cash-and-share deal with KSU holders to receive 0.489 of a CP share and $90 in cash which values KSU at $275 per share, representing a 23% premium https://on.mktw.net/2NCEeVT ; in airlines, JBLU announces $650 million convertible senior notes offering; Brazilian airlines AZUL, CPA both downgraded to underweight at JPMorgan with an overall cautious view for the sector noting Latin America airline stocks have rallied massively since last year on the vaccine news without a significant shift on business fundamentals

 

Stock GAINERS

·     ACER +21%; enters into agreement with Relief Therapeutics Holding for worldwide development and commercialization of its experimental metabolic disorders treatment ACER-001

·     AMAT +2%; board of directors has approved a new $7.5 bln stock buyback authorization and said its planned $3.5 billion acquisition of Kokusai Electric Corp. from KKR is on the brink after the companies were unable to confirm timely regulatory approval in China by last week’s deadline

·     AZN +2%; said its Covid-19 vaccine was shown to be safe and 79% effective in preventing symptomatic disease in U.S. clinical trials involving more than 32,000 people and the U.S. trials identified no increased risk of serious blood clotting

·     CUB +9%; after saying it received an unsolicited buyout bid for $76 a share from Singapore Technologies valued at $2.42B -said it expects to determine STE’s bid to be a “superior proposal” to current buyout deal for $70 from affiliates of Veritas and Elliott https://on.mktw.net/3lBQ2o5

·     FB +1%; extends last week gains, moving higher for the 5th time in last 6 sessions – approaching its Nov highs around the $300 level

·     KSU +14%; big day in railroad space as CP agreed to buy KSU for $25 billion in a cash-and-share deal with KSU holders to receive 0.489 of a CP share and $90 in cash which values Kansas City Southern at $275 per share, representing a 23% premium https://on.mktw.net/2NCEeVT

·     SNX +9%; and Tech Data have entered into a definitive merger agreement valued at approximately $7.2B, including net debt; transaction is expected to close in the second half of this year. https://bit.ly/3scmdg6

·     TSLA +3%; after Cathie Wood of Ark investment set a new price target, saying she expects Tesla to hit $3,000 a share in 2025

 

Stock LAGGARDS

·     CCL 4%; after the cruise operator pushed back the restart of its Costa Cruises out of Italy by about a month to May 1. Last month, Carnival had said Costa Smeralda planned to restart cruises on March 27 – Costa Luminosa’s restart was postponed to May 16 from May 2.

·     GM -5%; shares pullback after hitting 52-week highs last week

·     GRPN -10%; proposed private offering of $200 mln of convertible senior notes

·     JBLU -5%; announces $650 million convertible senior notes offering

·     ODT -72%; said it will wind down its operations after determining that tesetaxel, a drug it was developing, was unlikely to earn FDA approval

·     PINS -2%, SNAP -3%; as PINS was downgraded to neutral from buy at Bank America and cut tgt to $78 from $94 and downgraded SNAP to neutral and cut tgt to $67 from $78 as think investors may becoming increasingly concerned on tougher 2H comps

·     WRK -4%; paper stocks (IP, PKG as well), slipped after Jefferies and Keybanc both noted surprisingly, RISI reflected only $20-35/ton of the $60 linerboard price increase for March…but says given tight market conditions they expect the majority/all of the increase realized in April

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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