Mid-Morning Look

Friday, October 15, 2021

Another day, another rally as major averages trade back above key technical levels heading into the weekend, with upward momentum and a busy earnings week coming up. There were several positive developments today adding to the upside momentum early including: 1) a surprise retail sales beat of +0.7% vs. est. for decline of -0.1% for September; 2) GS shares rising on big EPS, revs beat behind a double in IB revs; 3) reopen sector gets a boost two-fold bounce: a) reports that the U.S. is set to lift U.K. travel ban on November 8 and more vaccine news as late yest, MRNA rose as a panel of expert advisers to the U.S. FDA unanimously voted y to recommend booster shots of its COVID-19 to those age 65 and older and those at high risk; 4) option expiration today, may provide more upside risk taking (GS notes $703bn of single stock options will expire today, the 3rd highest notional for a non-January expiration). Note the S&P 500 is coming off its biggest gain in 7-months (up about 18% in 2021, and it is down just over 2% from its Sept. 2 record high close) and moves back above its rolling 50-DMA (stands at 4,436). The Nasdaq Composite rose 1.73%, its largest % gain since May 20th and the Dow with its biggest % jump since July 20th (+1.56%). Still no fear as the CBOE Volatility index (VIX) continues to bleed, dropping another 6% to below $16, lowest levels since mid-August. Bitcoin prices surging into the weekend as well, above $60K at highest levels since before the summer.

Economic Data

·     Import prices for Sept rose +0.4% MoM vs. +0.6% estimate and above the -0.3% prior driven by higher fuel prices, while U.S. export prices ticked up +0.1% in September following advances of 0.4% in August and 1.1% in Jul. The September rise was the largest 1-month increase since the index rose 1.1% in June. Prices for import fuel increased 3.7% in September, after decreasing 3% the previous month; advance was primarily led by higher petroleum prices.

·     Retail sales for September unexpectedly rise +0.7% MoM vs. -0.1% estimate miss and +0.9% prior (revised from +0.7%); Retail Sales ex: autos rise +0.8% MoM vs. +0.4% consensus and +2.0% prior (revised from +1.8%); Ex-Auto & Gas rise +0.7% MoM vs. +0.7% consensus and +2.1% prior; U.S. Sept cars/parts sales +0.5% vs. Aug -3.3%.

·     Empire manufacturing index 19.8 in October, missing consensus of 27.0 and below the 34.3 in September; new orders index 24.3 in October vs 33.7 in September; prices paid index 78.7 in October vs 75.7 in September; employment index at 17.1 in October vs 20.5 in September and six-month business conditions index 52.0 in October vs 48.4 in September.

·     The University of Michigan consumers sentiment prelim oct 71.4 below consensus 73.1 and vs final sept 72.8; current conditions index prelim oct 77.9 (consensus 82.0) vs final sept 80.1 and consumers expectations index prelim oct 67.2 (consensus 70.3) vs final sept 68.1

Sector Movers Today

·     Bank movers; GS monster beat as Q3 profit jumped 66% as Q3 EPS $14.93 crushed $10.11 consensus and revenue $13.61B tops consensus $11.67B, net provisions for litigation & regulatory proceedings for third quarter 2021 were $52M vs $256M YoY, Investment banking revenue nearly doubled to $3.55B; PNC EPS beat $3.75 vs $3.64 est. on provision and fee income, offset by weaker NII/NIM (2.27% vs 2.32% est.) and higher expenses (efficiency 69% vs 63% cons); TFC posted a slight PPNR beat on higher fees (mortgage), partially offset by higher expenses while Q3 EPS of $1.20 vs $1.09 consensus; MS downgraded to Sector Perform at RBC Capital and maintains $97 PT as believe at current valuations, the stock discounts the outlook for the company; XP upgraded to Overweight at JPMorgan as see very strong fundamentals supporting earnings momentum and overhang risk now dissipating

·     Transports; JBHT reported Q3 EPS $1.88 vs est. $1.79 on revenue $3.14B vs est. $3.01B; KeyBanc slightly raised their Q3 estimates on UPS as yields and favorable international trends offset lower volumes, and they believe in-line results may be viewed favorably in the context of lowered expectations and current valuation, while saying the current FDX valuation adequately discounts lingering cost pressure and FY22 guidance concerns with underlying volume and pricing trends favorable; Airline stocks (AAL, DAL, UAL) rose early after reports the U.S. is set to lift their UK travel ban on November 8; Stifel’s top picks into earnings are KNX, SNDR, HTLD as they see a strong secular backdrop for LTL, and say premium, pure-play, non-union players (ODFL, SAIA) are fairly valued, but there are opportunities in ARCB, TFII, XPO

·     Semiconductors; Goldman Sachs upgraded AVGO (tgt to $589 from $527), recommends investors stay selective within the names and buy/own names such as AMD, ADI and ON that have idiosyncratic EPS drivers that can offset any signs of cyclical weakness, and downgraded WDC to Neutral (tgt to $62 from $91) as expects cyclical pressures in the NAND business to more than offset the company’s improving competitive position in nearline HDD and enterprise SSD

·     Aerospace & Defense; SPCE shares plunge after saying late yesterday recent material testing returned new data that requires further analysis, and extends enhancement period about one month later than anticipated and commercial service is now expected to commence in Q4 2022; a former Boeing (BA) chief technical pilot was charged with fraud on Thursday for deceiving federal regulators evaluating the company’s 737 MAX jet, hindering the ability to protect airline passengers and leaving “pilots in the lurch,” the U.S. Justice Department said – Reuters; LDOS was awarded a ~$65M contract by the Office of Naval Intelligence (ONI); ATI was upgraded to Overweight at JPMorgan with $23 tgt saying n-t, should see profitable HPMC growth on narrowbody engine exposure, and over time mgmt aims to create a more appealing business

Stock GAINERS

·     AA +12%; after another record quarter for net income; announces initiation of a quarterly cash dividend and a new $500 mln share repurchase program; Q3 adj EPS $2.05 vs. est. $1.71; Q3 sales $3.11B vs. est. $2.93B

·     COIN +3%; rises along with other crypto-based stocks (MARA, SI, RIOT, MSTR) after a Bloomberg report that the SEC is poised to allow the first U.S. Bitcoin futures ETF to begin trading

·     GS +2%; Q3 profit jumped 66% as Q3 EPS $14.93 crushed $10.11 consensus and revenue $13.61B tops consensus $11.67B

·     JBHT +4%; reported Q3 EPS $1.88 vs est. $1.79 on revenue $3.14B vs est. $3.01B

·     LVTX +7%; after the FDA granted orphan drug designation (ODD) for its CD1d targeted Gammabody, LAVA-051, for the treatment of chronic lymphocytic leukemia (CLL).

·     MRNA +1%; adding to yesterday gains after a panel of expert advisers to the U.S. FDA unanimously voted on Thursday to recommend booster shots of its COVID-19 to those age 65 and older and those at high risk of severe illness

·     SCHW +3%; after Q3 results showed a 28% Q/Q increase in core net new assets and total client assets rise 14% YTD.

Stock LAGGARDS

·     AMN -4%; healthcare staffing names (CCRN) weak again – Truist noting possible reasons for weakness earlier: declining COVID case trends mean demand will likely falter sequentially; and (2) the tight staffing environment cited by UNH on earnings report

·     BIIB -1%; as Cantor lowered tgt to $327 from $427 and revise ests largely driven by early feedback on Aduhelm sales, which is a large driver for the company

·     CRSR -8%; announced a 20% guide down for Q3 revenue and lowered full-year revenue guidance by $125m to $1.825-1.925B from $1.9B-$2.1B and vs est. $2.04B

·     DCT -25%; reported a disappointing F4Q, marked by meaningful deceleration in subscription revenue and ARR, along with weak guidance

·     IP -4%; along with weakness in other paper names (WRK, PKG, GEF) as Keybanc noted Q3 containerboard data came in below expectations saying “the data itself is underwhelming by any measure, and not supportive of a fourth price increase”

·     PSO -11%; issues 9-month update saying it remains on track to deliver adjusted operating profit for FY21 in line with market expectations, but notes higher education sales have slipped 7% in 2021 to date, worrying investors despite it maintaining full-year guidance

·     SPCE -14%; after saying late yesterday recent material testing returned new data that requires further analysis, and extends enhancement period about one month later than anticipated and commercial service is now expected to commence in Q4 2022

·     WDC -2%; downgraded to Neutral (tgt to $62 from $91) at Goldman Sachs as expects cyclical pressures in the NAND business to more than offset the company’s improving competitive position in nearline HDD and enterprise SSD (upgraded AVGO in semi’s)

Syndicate:

·     Duckhorn Portfolio (NAPA) 12M share Secondary priced at $20.50

·     Kosmos (KOS) 37.5M share Secondary priced at $3.30

·     MiNK Therapeutics (INKT) 3.33M share IPO priced at $12.00

·     Paltalk (PALT) 1.35M share Spot Secondary priced at $7.50

·     Paragon 28 (PNA) 7.813M share IPO priced at $16.00

·     Paycor (PYCR) 12M share Secondary priced at $32.00

·     Sun Country Airlines (SNCY) 8.5M share Secondary priced at $32.50