Mid-Morning Look

Monday, September 20, 2021

Stocks are selling off today on global growth concerns spearheaded by Chinese real estate developer Evergrande’s looming debt crisis and ahead of possible tapering by the Fed at its meeting tomorrow-Wednesday. The S&P and Dow are both on track to suffer their worst day since July 19 and the Nasdaq is trying to fend off its first daily decline of 2% since May 12. The S&P and Nasdaq each enter the week on 2-week losing streaks, while the Dow has traded lower for each of the past three weeks. If markets do not recover by the end of the week, it would be the S&P’s first 3-week losing streak since last September when it fell each of the first 4 weeks of the month. Additionally, recent gains have quickly evaporated with the S&P trading at its lowest level since July 22, the Dow at its lowest level since July 20, and the Nasdaq at its lowest since August 20. Investors have taken a more risk-averse approach with the Dollar hitting its highest level in almost a month, metals such as Gold and Silver appreciating in value, and a rotation into more defensive equities, evidenced by Utilities being the only sector currently in the green. Meanwhile, the VIX has surged up to 28% to a high of 26.75, the highest reading in more than four months.

Economic Data

·     US NAHB Housing Market Index Actual 76 (Forecast 74, Previous 75)

Sector Movers Today

·     Pharma movers; PFE and BNTX said their vaccine is safe for children aged 5-11 and generates a robust immune response for the age cohort, and they will submit their data to the FDA seeking emergency clearance as soon as possible; AZN said its Enhertu reduced risk of disease progression or death by 72% vs. trastuzumab emtansine (T-DM1) in patients with HER2-positive metastatic breast cancer; MRK said irs Keytruda combined with chemotherapy reduced risk of death by 27% vs chemotherapy as first-line treatment for patients with metastatic triple-negative breast cancer whose tumors expressed PD-L1; AMGN said its Adagrasib combined with Erbitux shrinks tumors in 39% of trial patients with advanced colorectal cancer and also announced a partnership with VSTM to evaluate an experimental drug to treat patients with non-small cell lung cancer; BMY announced the FDA accepted priority review for its treatment of unresectable or metastatic melanoma with a target action date of March 19, 2022

·     Auto sector; LI said it now expects to deliver 24,500 vehicles in Q3, down from its previous forecast of 25-26k; Barclays reiterated their OW ratings on GM, F (Ford) as they say the chip shortage and changes in industry behavior should favor OEMs over suppliers; Jefferies downgraded LEA and BWA to Hold from Buy and upgraded VC to Buy as the company who maintains the most direct exposure in their coverage to the ongoing electronics shortage

·     Software movers; Wells initiated Overweight ratings on ADBE ($770 PT) as one of the crown jewels in software and a long-term core hold in any large-cap tech portfolio, CRM ($325) as they see a catch-up in shares given a favorable backdrop for front-office/revenue-generating software, and WDAY ($320) based on favorable trends including a rebound in sales activity, uptick in interest from key verticals, and investments into added sales capacity and product; TDC was upgraded to OW at Morgan Stanley who also lifted their price target to $66 from $55 as they say the recent pullback on weaker 2022 guidance created a buying opportunity to take advantage of the company’s underappreciated cloud business

Stock GAINERS

·     BRKS +9%; after selling its semiconductor solutions business for $3B in cash to Thomas H. Lee Partners

·     VSTM +9%; announced encouraging response rates and progression-free survival in study data for low-grade serious ovarian cancer and also partnered with AMGN to evaluate an experimental drug to treat patients with non-small cell lung cancer

·     AZN +3%; said its Enhertu reduced risk of disease progression or death by 72% vs. trastuzumab emtansine (T-DM1) in patients with HER2-positive metastatic breast cancer

·     TDC +5%; after Morgan Stanley upgraded to OW seeing a buying opportunity for an underappreciated cloud business following the stock’s recent pullback on weaker 2022 guidance

·     AAL +1%; airline stocks (UAL, DALoutperforming after the U.S. revoked its travel ban for vaccinated travelers from the UK and EU

Stock LAGGARDS

·     GS -3%; bank stocks (JPM WFC, C, BAC) are underperforming with a decline in Treasury yields

·     MARA -6%; shares of Bitcoin-related stocks (COIN, RIOT, SBNY, SI) after the cryptocurrency hits a 1.5-month low this morning

·     DHI -2%; cut its Q4 revenue to $7.7-7.9B from $7.9-8.4B and below est. $8.2B and Q4 home sales closed to 21,300-21,700 from 23,000-24,500 due to continued supply chain disruptions;

·     LI -6%; now expects Q3 deliveries to be 24,500, down from previous forecast of 25,000-26,000, weighing on other EV makers (XPEV, NIO, TSLA)

·     OXY -5%; falling in tandem with oil prices, which are declining with a rise in the Dollar and as more U.S. Gulf oil output came back online in the wake of two hurricanes

·     BWA -4%; shares are sliding with other auto parts supplier LEA after Jefferies downgraded both to Hold from Buy