Mid-Morning Look

Monday, May 18, 2020

U.S. equities surge after posting its worst week in almost two months (when the Dow was down 2.7%, the S&P 500 lost 2.3% and the NASDAQ 1.2% lower, marking their worst weekly skid since the period ended March 20) amid a report of early success in a vaccine from Moderna (MRNA) for the COVID-19 pandemic and as Federal Reserve Chairman Jerome Powell said last night in a 60-Minutes interview that Americans need to prepare for a tough road ahead in the aftermath of the COVID-19 pandemic but that he wouldn’t bet against the domestic economy’s ability to persevere. Moderna said a phase-one human trial for a coronavirus vaccine showed the production of antibodies to the virus in all of its participants involved in the study. The comments from the company, Powell’s comments, slowing coronavirus cases in the U.S. and ongoing reopening of several parts of the economy are helping boost stock markets, especially those that have been hardest hit such as theme parks (DIS, SIX), airlines (AAL, DAL), cruise lines (RCL, CCL), online travel (BKNG, EXPE), hotels (HLT, MAR), gaming (WYNN, PENN), retailers (LB, PVH) as well as office/mall REITs (SLG, KIM) though the rally very broad based this morning. At the same time, recent stay at home beneficiaries such as grocers and food stocks are lagging broader markets on the day (KR, CPB, SJM, and K). Energy stocks also jumping as oil prices spike above $32 per barrel supported by optimism about the re-opening of economies and output cuts by major producers. Sentiment very strong, with no negative economic data today to rain on the parade.

Treasuries, Currencies and Commodities

·     In currency markets, the dollar pulls back broadly vs. major rival currencies, which is helping fuel gains in commodity prices as WTI crude climbed more than $2 a barrel on Monday, with benchmark Brent hitting a one-month high and U.S. crude topping $30 supported by optimism about the re-opening of economies and output cuts by major producers. Gold prices jumped initially, hitting highs of $1,775 before reversing lower with “risk-off” trade as stocks jump as vaccine hopes rise, pushing gold to $1,740. Treasury market’s fall as yields rise.

Sector Movers Today

·     Casino & Leisure movers; boating sector strong early after B Riley upgraded MCFT to buy and up tgt to $16 from $10 saying checks indicating that retail demand has been strengthening week-to-week into the Memorial Day holiday weekend while firm also raised tgts on BC to $57.50 from $54, MBUU to $42 from $33 and HZO to $19 from $17; WYND said it is planning a phased reopening strategy starting in q2 and ramping through the summer/says lockdown has created pent-up demand for vacations and expect adj ebitda in range of flat to negative $20M in Q2; PII ests and tgt cut to $86 from $114 at UBS due to supply chain disruption, dealer closures, and expected demand impact from Covid but recent checks show strong retail demand continuing; cruise lines CCL, RCL, NCLH among top gainers early in buying momentum for beaten up sectors

·     Housing, Home Improvement & Building Products; markets prepare for earnings results from HD, LOW this week; WSM was upgraded to Outperform from Neutral at Wedbush and raise the target to $80 from $46 saying a new retail paradigm is emerging as the coronavirus pandemic wears on/not only are consumers shopping much more online, but they are shifting their discretionary spending to the place they are spending nearly all of their time, their home; Wayfair (W) mentioned cautiously in Barron’s saying shares may drop after surging the last 2-months from $22, to $197, before settling back to a recent $175)

·     Transports; airlines strong recovery today (AAL, DAL, LUV, UAL) with broader market rebound; in tankers (DSX, EURN, SBLK, STNG), the Baltic Dry Index +5% to start the week to 427 points in London to gain for the second day in a row after a long stretch of weakness. The Baltic Dry Index bottomed out at 411 on February 10 and traded as high as 2,518 last September (Capesize rates jump 20.1% and Handysize rates up 2.38%); SAVE was upgraded to outperform at Evercore/ISI in airline sector pointing to stabilizing demand trends and Spirit’s strong liquidity position

·     Software movers; FSCT shares fall after Advent said it would not be proceeding to consummate the acquisition of ForeScout by May 18th deadline, though talks are continuing regarding time and price; PANW, SPLK, TTWO among earnings this week on software side; PANW was upgraded to buy with $270 tgt at Davidson based on improving demand trends, conservative estimates and a reasonable valuation, while UBS downgraded shares to neutral

·     Pharma movers; SRNE adds to Friday gains of 158% after last week saying that its anti-SARS-CoV-2 antibody, STI-1499, demonstrated 100% inhibition of SARS-CoV-2 virus infection in an in vitro virus infection experiment at a very low antibody concentration; TEVA said China’s National Medical Products Administration approves Austedo for treatment of Huntington’s disease; drug would be priced somewhat lower in China than in the United States. However, it is yet not eligible for coverage under China’s national insurance scheme; in cannabis sector, ACB adds to Friday gains following its recent earnings results

Stock GAINERS

·     DCPH +7%; after the FDA approved company’s lead drug, Qinlock, to treat patients with a form of stomach cancer based on efficacy results from a late-stage trial

·     FLGT +27%; after saying its subsidiary, Fulgent Therapeutics, LLC has received Emergency Use Authorization (EUA) from the U.S. FDA for its RT-PCR test for detecting the novel coronavirus, that causes the COVID-19 disease

·     MRNA +23%; after the co’s experimental COVID-19 vaccine, mRNA-1273, shows promise in an early-stage study and company is looking to move into late-stage trial/FDA had granted “fast track” designation to mRNA-1273

·     SRNE +21%; adds to Friday gains of 158% after last week saying that its anti-SARS-CoV-2 antibody, STI-1499, demonstrated 100% inhibition of SARS-CoV-2 virus infection in an in vitro virus infection experiment

·     TSLA +4%; after saying it had been given the green light from local officials to resume operations at its Fremont, Calif., auto plant

Stock LAGGARDS

·     GILD -2%; loses steam following positive results from competitor MRNA in coronavirus vaccine progress

·     KR -2%; CPB, GIS, CHD among leading decliners in the S&P in the food sector given the improved sentiment about economy reopening

·     FSCT 22%; after Advent said it would not be proceeding to consummate the acquisition of ForeScout by May 18^th deadline, though talks are continuing regarding time and price

·     PKI -1%; after Reuters reported the company is facing a federal investigation into its role in an alleged massive Medicare fraud (company came out confirmed subpoenas but denied reports saying it is not aware of any wrongdoing, as implied by Reuters)