Closing Recap

Wednesday, April 07, 2021

Index	Up/Down	%	Last
DJ Industrials	15.96	0.05%	33,446
S&P 500	5.79	0.14%	4,079
Nasdaq	-9.54	0.07%	13,688
Russell 2000	-37.09	1.64%	2,222

 

Equity Market Recap

·     Stocks end mixed in another day of low volume, tight ranges, and listless trading (seeing the lowest volume days of the year this week), dominated by several dovish Fed speakers (Brainard, Evans, Kaplan, Daly, and of course FOMC minutes from the prior month Fed meeting). The Fed officials pointed to a brighter outlook for the economy at their most recent meeting while agreeing to provide continued support through ultralow interest rates and large monthly bond purchases. Still, most of the 18 officials expected interest rates to remain pinned near zero through 2023, which has continued to provide bullish sentiment for stocks.

·     President Biden’s $1.9 trillion pandemic relief package, signed into law last month, prompted Fed policy makers to lift their forecasts for U.S. economic growth and inflation this year ahead of their March 16-17 meeting according to Fed minutes. Meanwhile President Biden is ramping up pressure on Republicans to support his $2.25 trillion infrastructure plan, appealing directly to GOP voters (Biden delivered his second sales pitch in a week for the “American jobs plan” today).

·     Stocks saw brief weakness midday following comments by the Fed’s Kaplan who said, "once it becomes clear we’ve weathered the pandemic he will be advocating that we start withdrawing extraordinary measures." The weakness was short lived, rallying post minutes. CNBC noted JPM CEO Jamie Dimon annual letter, saying he sees the U.S. economic boom running into 2023 citing excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine, and euphoria around the end of the pandemic.

·     The major indexes held near unchanged for most of the day, before the S&P 500 climbed to a session high after the minutes, in which Fed officials said it would likely take "some time" for substantial further progress on goals of maximum employment and stable prices. Technology and Consumer related names outperformed along with Energy as oil prices climbed.

Economic Data

·     The U.S. trade deficit widened to a record high in February as economic activity rebounded more quickly than global rivals ahead of massive fiscal stimulus. The Commerce Department said the trade gap increased 4.8% to a record (-$71.1B) in February vs. est. deficit of (-$70.5B) and -$67.8B prior (revised from -$68.2B).

·     Federal Reserve Bank of Dallas President Robert Kaplan said a strong economic rebound may push inflation to "well in excess" of 2.5% before it moderates, and projects 2021 GDP growth at 6.5%. Kaplan said if that forecast were achieved, thinks that the unemployment rate would drift and trend down lower throughout the year an approach 4% by year end

·     Chicago Federal Reserve Bank President Charles Evans said he is optimistic and confident in his forecast for stronger growth this year but said that the Fed will need to see actual progress toward its goals, not just improved forecasts, before reducing its massive bond buying program.

 

Commodities

·     Oil prices rebounded off morning lows, with WTI crude rising $0.44 or 0.74% to settle at $59.77 per barrel (traded range of $60.04 highs and $58.12 lows). Prices recovered off morning lows following mixed inventory data (bullish oil data but bearish gasoline) as a rebound in stocks following dovish Fed commentary (several speakers today) and increased hopes for stronger global economic growth. Meanwhile, Iran and world powers held what they described as "constructive" talks on Tuesday and agreed to form working groups to discuss the possibility of reviving the 2015 nuclear deal that could lead to Washington lifting sanctions. Gold prices edge lower by -$1.40 to $1,741.60 an ounce, snapping the 4-day win streak for the precious metal.

 

Currencies & Treasuries

·     The U.S. dollar was little changed most of the day, staying near a two-week low reached yesterday in a bout of profit taking after a 2.5% jump in March while weakness in U.S. yields exerted additional pressure. Economic data has improved the last few weeks, but the buck has pulled back this week as Fed officials remain overly dovish on interest rates. Treasury yields were mixed as the short end of the curve (2, 3-yr) saw yields slide, while long end saw modest rises (30-yr), while the 10-yr was around 1.645%, down slightly).

 

 

Macro	Up/Down	Last
WTI Crude	0.44	59.77
Brent	0.42	63.16
Gold	-1.40	1,741.60
EUR/USD	0.0008	1.1883
JPY/USD	-0.06	109.68
10-Year Note	-0.016	1.64%

 

 

Sector News Breakdown

Consumer

·     Retailers; ANF (tgt to $46 from $31), GIL (tgt to $43 from $35), KTB (tgt to $74 from $53) and LB (tgt to $96 from $54) all upgraded to Buy from neutral at UBS saying these stocks have strong long-term growth prospects which they believe are not priced in; CASY was downgraded at Raymond James as the stock is now trading above their prior target price of $215; Piper raised its tgt on TPR to $54 on the heels of their 41st semi-annual taking stock with teens survey and also raised tgt on RVLV to $53 from $45; for WMT, RBC Capital remains bullish on its strategic positioning/ability to grow EBIT as 2020/2021 volatility fades

·     Housing & Building Products; U.S. mortgage market index falls 5.1% in week ended April 2 according to the MBA, while mortgage purchase index falls 4.6% and the mortgage refinancing index decreases 5.3% – 30-yr mortgage 3.36%, highest since June; LGIH tgt raised to $135 from $110 at Wedbush after LGI’s F1Q21 closings exceeding their forecast and what appears to be a positive inflection in LGI’s community count during the quarter (announced it closed 1,147 homes in March 2021, up from 795 homes closed in March 2020); JPMorgan said believe the home builders are poised for a pullback this earnings season, as the stocks appear to anticipate strong 1Q results without any signs of weakness (long/short ideas this earnings season feature DHI and CCS as longs and MTH and LGIH as short ideas – and among the building product names, highlight MAS and FBHS as longs and WHR and MHK as short ideas)

·     Consumer Staples; BYND said it will open its own production facility in China, to be located in the Jiaxing Economic and Technological Development Zone near Shanghai; SMPL Q2 adj EPS of 25c beats by 3c on in-line revs of $230M and guides year EPS and revs just above consensus; LW Q3 adj EPS 45c misses the 54c estimate on sales $896M vs. est. $820M

·     Casinos and Gaming; Oppenheimer and Bank America noted DKNGFanDuel, RSI and Bet365 remains well positioned as NY approves online sports betting – but are uncertain if operators PointsBet and PENN/Barstool, who have second-skin agreements will be included. Overnight, New York approved a hybrid limited-operator online sports betting (OSB) model as part of its 2022 budget; casino names fell with other reopen stocks on profit taking (WYNN, MGM)

·     Auto, Lodging & Leisure sector; cruise lines (CCL, RCL, NCLH) active after the CDC is reported to have said that cruises can start back up the middle part of this summer with restrictions, according to headlines; CCL Q1 2021 ended with $11.5 bln of cash and short-term investments; cash burn rate in q1 of 2021 was better than expected – said cumulative advanced bookings for full year 2022 are ahead of a very strong 2019, despite minimal advertising or marketing; TSLA is building a new world’s largest Supercharger station with 100 stalls in California according to a report in Electrek; LI said to offer $750M in convertible senior notes due 2028; TSLA also slides as sees delays with Model S and Model X deliveries according to another report in Electrek

 

Energy

·     Inventory data; the API reports that crude inventories fell 2.62M barrels last week and gasoline inventories rose 4.55M barrels, distillate inventories show a build of 2.81M barrels and Cushing inventories show a draw of 84K barrels. The EIA this morning weekly crude inventories fell -3.522M barrels vs. -1.436M consensus, gasoline stockpiles rose an unexpected +4.04M barrels vs. -0.221M consensus, and distillates rose +1.452M vs. +0.5M consensus

·     Energy movers; LPI said sees total production of 78.9 Mboe per day for three months ended march 31, 2021; sees oil production of 24.2 MBoed for three months ended March 31, 2021; RDSA said it sees Q1 adj EPS to see a hit of up to $200M due to an extreme cold snap in Texas in the quarter; said it saw refined oil product sales at between 3.7-4.7M bpd for Q1

·     Solar sector; MAXN shares fell as posted Q4 adj EPS of $0.11 while saying elevated costs for glass, solar cells, freight and other items may persist well into H2 2021; guides for Q1 revenues of $160M, below the $232.7M estimate; in research, RBC Capital initiates coverage of AZRE (tgt $42) and RUN ($81 tgt) both with Outperform ratings saying as a leading developer of utility scale solar power in India, they view AZRE as a way to play power and solar demand growth in India and notes RUN is the leading player in the rapidly growing US rooftop solar market; CSIQ starts construction on 143 MWP of solar projects in japan supported by over $300 million financing

·     Utilities, SRE downgraded at Seaport saying KKR deal should make the IEnova stock tender more expensive, the Oncor deal seems off the table, and market valuations of SRE’s CA utility peers are sharply discounted; CMS downgraded to neutral at Seaport as struggle to see meaningful upside to CMS’s P/E premium especially after DTE, CMS’s MI peer, spins off its midstream business; ATO downgraded to neutral at Seaport saying the debate about the future of gas LDCs is ongoing, but in the meantime, investors don’t seem open to assigning a premium P/E to even the fastest growing gas LDC in the US; The Biden administration released a tax plan that would replace tax breaks for fossil fuel companies with incentives for production of clean energy.

 

Financials

·     Bank movers; Morgan Stanley upgraded LAZ to OW with a $61 pt (36% upside) as its YTD underperformance vs peers has pushed the stock into value territory and they now have the highest EPS estimate on the Street that is 17% above consensus; Loop increases their Q1 estimates on TW, ICE ahead of earnings after accounting for March pricing trends and volumes, which was a record month for TW; CBOE said it set records for monthly options volume in March (266.3M) and its quarterly record in Q1 (773M vs 665.3M YoY); FBR lifted their price target on MFIN to $11 from $10 and reiterated their Buy rating after management was upbeat on continuing loan demand, NIM expansion, and lower credit costs; Janney upgraded TCBI to Buy

·     Raymond James with several bank re-rating changes: BANR upgraded to strong buy with $63 tgt as view its underperformance since September lows (+76% vs. BANK +92%) and YTD (+15%) as unjustified; GFED upgraded to outperform primarily to reflect a valuation still below TBV that we believe is unjustified; HWC upgraded to strong buy following recent mgmt meetings; PFBC upgraded to Outperform with $72 tgt predicated on our belief that the growth outlook and profitability profile of the bank is underappreciated by the market. ABCB downgraded to Outperform driven by its strong performance since September 2020, where shares are up 148% vs. the BANK +88% and S&P 500 +23%; AMNB downgraded to market perform primarily on valuation; FULT downgraded to MP following a strong run in shares where they now trade in line with historical P/TBV multiples; RF downgraded to Outperform following notable strength in the stock since the depths of the pandemic where shares now trade at a premium on a P/TBV basis vs. historical discount; SFNC downgraded to MP after 78% rally since July

·     Insurance; GNW said it has exercised its right to terminate its $2.7 bln merger agreement with China Oceanwide Holdings Group Co., Ltd. as of April 6, 2021; Wells initiated WRB at OW with a $92 pt given its strong presence in the E&S market, top-end rate increases away from workers’ comp, and underlying margin improvements this year

·     Bitcoin; COIN (Coinbase) sees Q1 net income $730-800M (vs $31.9M YoY), total income $1.8B (vs $190.6M YoY, $585M 4Q20), adj EBITDA $1.1B, trading volume $335B, verified users 56M, and monthly transacting users 6.1M, and DA Davidson raised its price target to $440 from $195 after the outlook, and Loop said this has a positive readthrough for SQ and PYPL; RIOT announced milestone purchase order of 42,000 s19j antminers, growing total hash rate to 7.7 eh/s upon 2022 deployment; EBON shares rebound as the company responds to short-seller Hindenburg’s report saying the report contained many errors, unsupported speculations, and inaccurate interpretations of events (shares were down ~13% yesterday after Hindenburg took a short)

·     Payments and FinTech; RBC said inflation could provide upside for MA, V (Visa) as the annual increase in CPI should correspond with a spending recovery in the second half of the year, and said they prefer Visa near-term between the two due to its valuation and its market share in travel spending, which should rebound; Wells said rewards linked to credit cards and loyalty programs should benefit FIS, PYPL as they provide cardholders with the ability to use rewards at merchants, and FISV, GPN could benefit over time; Wolfe initiated PSFE at OW with a $19 price target (went public last week through reverse merger with SPAC BFT); Barclays reiterated their OW rating on SQ and raised their price target as they see upside from their international business as it accelerates business investments outside the US, including overseas hiring picking up meaningfully; Truist said LSPD is positioned to exceed FY22, 23 revenue estimates as it expands its payments offerings, including yesterday’s rollout to European hospitality customers, and benefits from the reopening and its recent acquisitions

·     REITs; Bank of America upgraded EPR, EPRT, NNN to Buy from Underperform and downgraded WPC to Underperform from Buy; RBC says coastal REITs (AVB, ESS, EQR) could see the largest benefit as more people rent vs buy; KeyBank sees emerging green shoots of a recovery in SKT during its CEO transition and with its liquidity limiting downside risk, but they say fundamentals are yet to stabilize and occupancy is unlikely to meaningfully recover until later in the year, and they lowered 2021-22 FFO estimates after the recent equity issuance; GEO suspended its dividend to maximize cash flows to repay debt and the board has begun to evaluate its corporate structure as a REIT; CXW files prospectus supplement related to offering of $400 mln senior notes due 2026

·     Financial services; Wolfe downgraded PAYX to Underperform following their earnings report yesterday as they see limited upside with shares trading above historical valuations, though Citi maintained their Buy rating and BMO raised their estimates and price target after the earnings report; JMP initiated BRMK at Market Perform; SPGI said it is partnering with Dow Jones to provide real-time market news content that will become available for clients as part of their subscription plan later this year

 

Healthcare

·     Pharma movers; AZN’s Covid-19 vaccine linked to blood clots, but European regulators still believe the benefits of the vaccine outweigh its risks, the announcement will likely raise questions about its use in some populations; ALKS announces clinical trial collaboration and supply agreement with MSD to evaluate nemvaleukin alfa in combination with Keytruda in patients with platinum-resistant ovarian cancer; BHC said the FDA approves its ClearVisc ophthalmic viscosurgical device; PFE said the FDA extended the review of its experimental atopic dermatitis drug by three months, another regulatory setback for a class of treatments known as JAK inhibitors; TMDX said that after reviewing its clinical evidence, the Circulatory Systems Device Advisory Panel convened issued a favorable vote in support of approval of the OCS Heart System; ABBV submits regulatory applications for SKYRIZI in psoriatic arthritis to FDA and EMA

·     Biotech movers; FGEN shares tumble as the FDA said it has tentatively scheduled a cardiovascular and renal drug advisory committee on July 15 to review the new drug application for Roxadustat, which is intended to be used for the treatment of anemia of chronic kidney disease (shares of AKBA rally in reaction – note Akebia recently submitted NDA seeking approval for Vadadustat for treatment of anemia due to CKD); BIIB said the European Commission grants marketing authorization for new subcutaneous administration of Tysabri (natalizumab) to treat relapsing-remitting multiple sclerosis

·     Healthcare services and providers; BFAM was downgrade from Equal-weight to Underweight at Morgan Stanley with $150 tgt saying with the potential for changing on-site work dynamics post COVID, think this could result in daycare becoming more local to employee homes and lead to increased competition for BFAM in MedTech and Equipment; CAHC rises after diagnostics testing co LumiraDx agrees to merge with blank-check firm CAHC and list on Nasdaq under ticker symbol (LMDX); the combination reflects a value of $5 bln for LumiraDx’s existing equity

 

Industrials & Materials

·     Transports; After failing to breach the 15,000 level on Monday, rising to record highs of 14,980, the Dow Transport index has since slipped the last 2-days; UPS announced a commitment to purchase up to 10,000 arrival electric vehicles; XL is electrifying Apex Clean Energy’s vehicle fleet as part of a comprehensive effort to reduce its carbon emissions – the order will provide 19 electrified Ford F-series pickup trucks

·     Aerospace & Defense; SAIC wins $800 million U.S. army contract for modeling & simulation systems engineering; CW selected by LMT aeronautics to provide first open architecture cots modules for service onboard f-22 raptor aircraft

·     Industrials, Metals & Materials; RPM shares slipped despite a beat on the top and bottom line but warned of rising raw materials costs for the paint sector (note shares of PPG, SHW, AXTA also lower); SCHN said Q2 profit rose along with revenue as it benefited from strong demand for recycled metals and finished steel products (revs of $600M topped the $597M estimate)

 

Technology, Media & Telecom

·     Internet; large cap mega tech names (FAANG) helped keep markets higher most of the morning, with FB, AMZN, AAPL, GOOGL, NFLX outperforming along with software giant MSFT; TWTR shares jumped after saying is in early stages of thinking about how to monetize audio feature ‘spaces’ and that eventually people may complete shopping transactions on twitter; SNAP another outperformer in the Internet/social media space today for a second day

·     Semiconductors; SGH rises early on beat and raise as Q2 EPS 87c vs. est. 80c; Q2 revs $304.0M vs. est. $295.38M; sees Q3 EPS $1.00-$1.20 topping est. 90c and sees Q3 revenue $400M-$430M above consensus $314.01M; IDCC removed from S&P MidCap 400 and will replace CKH in the S&P SmallCap 600 effective prior to the opening of trading on Monday, April 12; HIMX reports prelim Q1 revs of $309M, topping the $184.9M Refinitiv estimate and said for Q2, the demands remain robust and the global semiconductor shortage has not shown signs of receding

·     Software movers; CYBR upgrade from Neutral to Outperform w/$170 pt at Baird given appreciation of the company’s commitment to driving its model transition and a healthy demand environment for PA; FSLY and OKTA join forces to offer in-depth identity protection against security and fraud risk without impacting user experience; ZM got a morning pop higher after Facebook said it is adding Zoom and GoToMeeting to its portal tv device

·     Media & Telecom movers; DISCA price target hiked to $60 from $35 at Deutsche Bank as improved growth outlook warrants a higher valuation; FOXA upgraded from Underweight to Equal Weight and raise tgt to $41 from $27 at Wells Fargo saying they now see the new NFL deal as a clearing event with our out-year TV estimates moving up significantly; VIAC was upgraded to Outperform at Wolfe Research saying risk/reward attractive with underlying ad trends solid, a seemingly reasonable consensus streaming sub target, the likelihood of a distribution partner(s) in the coming months, and implied streaming value of ~$5B at current levels

·     Hardware & Component news; BB announced that Volvo Group has selected BlackBerry QNX as the foundational software for its main domain controller ECUs in more than 300,000 heavy vehicles Volvo Group manufactures every year; NOK announced that DISH has selected Nokia’s NetGuard solution to assist with securing the United States’ first cloud-native, Open RAN-based 5G wireless network