Mid-Morning Look

Tuesday, May 26, 2020

U.S. equities rise amid optimism over the coronavirus pandemic recovery, helped by positive vaccine data headlines (NVAX, MRK) as the S&P 500 trades above its 200-day moving average for the first time since March 5th (was around the 3,000 level), as technicals, lack of negative trade tension headlines with China helped propel stocks once again. With the early strength, the Dow looks to extend recent gains after posting its biggest weekly advance in 6-weeks on Friday, while the S&P 500 and Nasdaq Comp look to gain for the 6th time in the last 8-sessions. The Dow Jones Industrial Average hold with early gains up over 600 points, or 2.5% as tops the 25K level for first time since mid-March. The Nasdaq Comp trades above 9,450, not far from its February all-time highs of 9,838 (but well off the March lows of 6,631). The economic data today was mixed to positive, including a surprisingly strong housing data point with New Home Sales coming in better than expected. Markets start the day broadly higher, but led by strength in the sectors hardest hit during this pandemic lockdown such as leisure, travel, lodging, retail and restaurant related names while technology continues to surge.

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar fell as optimism about a global recovery from the coronavirus improves investors’ risk appetite. The Dollar index (DXY) is down early while the greenback fell 0.6% against the euro intraday. Commodity prices are mixed as oil prices extend last week’s gains on the push into riskier assets, while safe-haven gold tumbles. Treasury market’s still remain strong despite the surge in stocks, though the 10-year yield is up about 4 bps today around 0.7%.

Economic Data

·     New Home Sales for April rose 0.6% to 623,000 annual rate, far better than the estimate decline of over 23% at 480K; new home sales rose 4k in April from prior month, the Census Bureau said; the median new home price fell 8.6% y/y to $309,900 as average selling price at $364,500; US April home sales Northeast +8.7%, Midwest +2.4%, South +2.4% and West -6.3%

·     Consumer confidence reported at 86.6 vs. est. 87.5 as April revised to 85.7 from 86.9 as the expectations index 96.9 in May vs. April revised 94.3 previous 93.8; while the present situation index 71.1 in May vs. April revised 73.0 vs. previous 76.4

·     Dallas Fed Texas manufacturing output index -28.0 in May vs. -55.6 in April and index of general business activity -49.2 in may vs -74.0 in April

·     Chicago Fed Nat Activity for April falls -16.74 vs. est. -3.5 (prior month to -4.97 from -4.19)

·     Housing data: CaseShiller March 20-metro area home prices +3.9% vs. est. 3.4%; March home prices in 20 metro areas +0.5% seasonally adj vs. est. 0.4%; March home prices in 10 metropolitan areas +3.4% from year ago vs. revised +3.0%

Sector Movers Today

·     Casino & Leisure movers; theme parks stocks break higher as a healthy portion of the U.S. appears to be ready to take up summertime activities and as SIX said it will reopen its theme park in Oklahoma City on June 5 in preview mode and will gradually increase attendance using its new reservation system (SEAS, FUN, DIS other park movers); hotels (HLT, MAR, H) as well as cruise lines (CCL, RCL, NCL) among early top gainers on improved sentiment about the pandemic; camping and RV names jumped early (CWH, THO, WGO) after RV dealerships are reporting a surge in customer demand as people are desperate to travel but wary of cities/crowds

·     Autos; AZO posted a Q3 earnings beat and said over last 4 weeks of qtr, as stimulus checks began to flow, same store sales turned meaningfully positive (though for quarter, comp sales fell -1% vs. up 3.9% YoY); KAR announced $550M strategic investment led by funds advised by Apax Partners; NIO was upgraded to buy from neutral at Bank America as sees higher sales volume for Nio in 2020-21 and easing of uncertainty associated with fund raising after the investment agreement with Hefei government; Nikkei Asian Review reported NSANY will scrap a production line at a U.S auto assembly plant in Mississippi as part of an effort to cut $2.79B in annual costs; HTZ announced that it and certain of its subsidiaries have filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware

·     Consumer finance and lending; PYPL turns lower after reaching new all-time highs of $154.55; Credit Suisse downgraded a few mortgage finance names as IVR and MITT both downgraded expects continued uncertainty around financing, leading to further risk to book value while they upgraded ARR to neutral amid the combination of an improved earnings outlook, resumption of a dividend, and the current discount to book limiting its downside; gains in ADS, AXP, COF, DFS, SYF as credit card names strong given expectations of increased spending as economy continues to reopen

·     Chemicals; chemicals, LYB was upgraded to Buy from Hold at Deutsche Bank and raised the price target to $72, upside potential of 20%, as the outlook for the US polyethylene market has improved significantly over the past month; LIN was upgraded to Buy from Hold at Argus with $236 tgt saying the co has a strong presence in defensive end markets that should generate steady revenue despite the impact of the pandemic; SMG downgraded from Strong Buy to Market Perform at Raymond James as the shares have performed extremely well since March 16, appreciating 53% over the past ten weeks vs. 9% for the S&P 500

Stock GAINERS

·     ADS +14%; along with gains in AXP, COF, DFS, SYF as credit card names strong given expectations of increased spending as economy continues to reopen

·     ARGX +25%; reported positive top line results from its Phase III study for efgartigimod in myasthenia gravis with trial meeting its primary end-point

·     AZO +2%; after posting a Q3 earnings beat and said over last 4 weeks of qtr, as stimulus checks began to flow, same store sales turned meaningfully positive (though for quarter, comp sales fell -1% vs. up 3.9% YoY)

·     KAR +7%; announced $550M strategic investment led by funds advised by Apax Partners

·     MRK +3%; as announces collaborations to develop COVID-19 vaccine and antiviral drug/to acquire vaccine-maker Themis, develop a vaccine program/to work with non-profit research organization IAVI to advance development and clinical evaluation of a vaccine candidate/also announces agreement with biotech co Ridgeback Biotherapeutics LP to develop EIDD-2801, an orally available antiviral candidate for COVID-19, currently in early clinical development

·     NVAX +16%; said it has started a phase 1 clinical trial of its coronavirus vaccine candidate code-named NVX-CoV2373, and expects to issue preliminary immunogenicity and safety results in July

·     SIX +7%; said it will reopen its theme park in Oklahoma City on June 5 in preview mode and will gradually increase attendance using its new reservation system

·     TOL +6%; housing stocks jumped (DHI, KBH, PHM) following surprisingly strong monthly new home sales data for April as sales rose 0.6% to 623,000 annual rate, far better than the estimate decline of over 23% at 480K

Stock LAGGARDS

·     HTZ -35%; shares held as announced that it and certain of its U.S. and Canadian subsidiaries have filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware

·     MRNA -11%; shares down with other vaccine makers grabbing headlines early (NVAX, MRK)

·     REGN -5%; after SNY disclosed its intention to sell the vast majority of their 20.6% (23.2M share) ownership of REGN with REGN committing to repurchase $5B of these shares/sale could raise ~$13B+ for SNY

·     TCBI -8%; following the termination of the planned merger with IBTX citing the significant impact of the COVID-19 pandemic on global markets and on the companies’ ability to fully realize the benefits expected from the deal (downgraded at Piper and KBW on news)

·     TDOC -4%; slide along with shares of ZM, NFLX, PTON as well as the “stay at home” beneficiaries over the last 6-weeks paring gains as states extend reopening’s