Closing Recap

Tuesday, April 13, 2021

Equity Market Recap

·     U.S. stock continue to defy odds, making new all-time highs for the S&P 500 index while the tech heavy Nasdaq Composite went from correction territory (more than 10% off highs) two-months ago to new record highs for many of the large cap giants as investors continue to pile into mega caps (AAPL, AMZN, TSLA, GOOGL, NVDA) with momentum buying accelerating. Smallcaps have been the laggards with modest weakness in materials and energy, leading the Russell 2000 index lower as investors rotate in large cap. Financials will be in focus with earnings kicking off tomorrow behind JPM, GS, WFC results. Technology got a lift today following a pullback in Treasury yields with the 10-year sliding to 1.62% (further pullback in yields came after better 30-year auction results at 1:00) following disappointing JNJ vaccine data. Inflation data (CPI) also came in higher than expected, but much like the spike in PPI data Friday, yields were unphased and edged lower throughout the session. Not much to say other than investors going with what works as the Fed remains accommodative/unconcerned about rising inflation, while pent up demand from consumers to buy goods and services given stock market returns (boosting traders buying power) and a third stimulus package add to the record run in stocks globally.

·     U.S. stocks received from pre-market declines despite cautious vaccine news related to JNJ’s single shot dose and another higher inflation reading (CPI). U.S. health authorities recommended a pause in JNJ’s use of its single-shot Covid-19 vaccine to investigate rare but severe cases of blood clots in six instances. A panel of outside experts met Wednesday to review the matter for the CDC, while the FDA will also investigate. Shares of companies in the U.S. travel sector fell initially on the vaccine news but reversed higher. Bitcoin grabbing a lot of attention today, up over 4.5% around the $63,000 level, a new all-time best as momentum picks up.

Economic Data

·     U.S. consumer prices picked up sharply in March as the economic recovery gained momentum, partly reflecting higher gasoline prices. The March Consumer Price Index (CPI) rose 0.6%, topping the 0.5% estimate and 0.4% prior (was largest MoM increase since August 2012). On a YoY basis, CPI rose 2.6% before seasonal adjustment, up from the 1.7% YoY increase in February. Core CPI (ex food & energy) MoM rose 0.3% vs. est. 0.2% and YoY rose 1.6% after rising 1.3% in February.

Commodities, Currencies & Treasuries

·     Oil prices rise with WTI crude up $0.48 or 0.8% to settle at $60.18 per barrel, while Brent crude up $0.39 or 0.62% to settle at $63.67 per barrel, ahead of weekly inventory data tonight. Gold prices advanced $14.90 or 0.9% to settle at $1,747.60 an ounce, erasing all its -0.7% decline on Monday when prices closed at their lowest levels of the week, and snapped its modest two-day losing streak. Treasury yields hit lowest levels in over a week following a better 30-year auction as the 10-year slipped to 1.62% on the day.

Sector News Breakdown

Consumer

·     Retailers; LVMUY the world’s leading luxury products group, recorded revenue of 14 billion euros for the first quarter of 2021, up 32% compared to the same period in 2020 and up 30% on an organic basis. The quarter marks a return to growth after several quarters of decline during 2020; CHWY 6.1M share Block Trade priced at $82.50; Wells reiterated their OW rating on TSCO ahead of earnings next Thursday and raised their Q1 comps estimates to a street-high +28% given the strong consumer from stimulus and savings, healthy category demand, and incremental market share gains; Following yesterday’s announcement that their Q1 comp sales have risen HSD YoY, URBN’s price target was raised at Morgan Stanley, Barclays, Wedbush, FBR, and Telsey; JPMorgan raised their target on AAP to $211 from $199 and raised their Q1 estimates to 16.7% comps from 10.9% ahead of next week’s Analyst Day; ZUMZ chairman sells over 190,000 common shares in filing; toy retailer HAS partners with RBLX bringing digital worlds to life

·     Auto sector: TSLA shares jumped around 8% on no specific news, playing catch-up after recent underperformance in EV space; Ford Motor (F) says to allow its EV customers to use NIO charging network in China; MGA shares active after a report in appleinsider.com saying the LG & Magna partnership is very near to winning Apple Car contract; VRM was added to the Best ideas list at Wedbush because they believe it has nearly overcome recent operational challenges and is in the process of rapidly scaling its business in the booming online used car industry

·     Casinos, Gaming, Lodging & Leisure sector; shares of companies in the U.S. travel sector fell on the JNJ vaccine news, as well as cruise lines, hotel/lodging and theme park names; BALY shares fell after announced stock, tangible equity unit offerings – also said it estimates Q1 revenue of greater than $185.0M vs. $156.6M consensus and adjusted EBITDA greater than $50.0M due; PLBY shares surged over 20%, comes a day after Hedgeye named a top pick with 900% upside on Monday, which initially sent shares surging.

Energy

·     Energy stock movers; OPEC said it expects oil to demand rise by 6M bpd in 2021 from 90.5M in 2020 in its monthly Oil Market Reports, which is a 100,000 bpd increase from its March estimate as it expects economies to benefit from government stimulus and lowered pandemic restrictions

·     Energy movers; FANG Q1 2021 avg production 184.2 MBO/d (307.4 MBOE/d), average unhedged realized prices of $56.94 per barrel of oil, $22.94 per barrel of natural gas liquids and $3.05 per Mcf of natural gas, resulting in a total equivalent price of $42.36 per BOE, and Q1 2021 estimated cash CAPEX of $280 – $300 million and full-year capex $1.6B-$1.75B; VNOM Q1 2021 average production 15,500 bo/d (26,066 boe/d), 134 gross (2.5 net 100% royalty interest) horizontal wells turned to production during Q1 with an average lateral length of 10,584 feet, and FANG is the operator of 50 gross (2.1 net) of the total wells turned to production; CLR said the Texas winter storm in February impacted Q1 production by about 6,000 barrels of oil equivalent per day and they expects oil production to average about 152,000 barrels of oil per day and natural gas production to average about 935 million cubic feet per day; BP announces advantaged oil discovery in Gulf of Mexico; GPRK reported consolidated output of 38,131 boe/d in Q1, down 17% YoY

·     Utilities & Solar; NI plans to offer 7.5M equity units at $100; Bank of America upgraded AEE to Buy with an $89 pt given its territory lying in the renewable rich Midwest, giving investors exposure to the grid reinvestment theme in the infrastructure bill; Credit Suisse downgraded NWE to Neutral on valuation after its recent outperformance, though they lift their target to $66 from $60

Financials

·     Bank movers; earnings barrage begins tomorrow with FRC, GS, JPM, WFC results, BAC, BLK, C, TFC, USB on Thursday and ALLY, BK, CFG, MS, PNC, STT on Friday April 16^th; expectations are high given the ramp in deals to start the year, Treasury yields at their highest levels in over a year, and increased market trading volatility (outside of the last week); RILY to replace Michaels (MIK) in S&P 600 at open on 4/15

·     Asset Managers; out with monthly assets under management (AUM) data; AB said preliminary assets under management increased to $697 billion during March 2021 from $688 billion at the end of February; APAM reported that its assets under management as of March 31, 2021 totaled $162.9B; CNS preliminary assets under management of $87.0 billion as of March 31, 2021, an increase of $4.0 billion from assets under management at February 28, 2021; BEN preliminary month-end assets under management of $1,498.9 billion at March 31, 2021, compared to $1,500.5 billion at February 28, 2021; IVZ preliminary month-end assets under management of $1,404.1 billion, an increase of 0.9% versus previous month-end; VRTS assets under management (AUM) as of March 31, 2021 of $168.9 billion

·     Consumer Finance; SYF shares slipped after the WSJ reported that GPS is parting ways with its longtime credit-card issuer (over 20-years) and moving the business to Barclays PLC which will take over Gap’s private-label and co-branded credit cards; CDLX acquired Bridg, a customer data platform for $350M in cash; SQ tgt raised to $320 at Citigroup and $310 at Needham as expect good execution in 1Q, though the timing of stimulus / re-opening likely impacts 2Q more so

·     SPAC news: Some special-purpose acquisition companies (SPACs) have improperly accounted for warrants sold or given to investors, securities regulators said Monday, stepping up scrutiny of the popular vehicles. The SEC didn’t say on Monday how many SPACs would be affected by its view on the warrants. Not all SPACs will be affected, but many will, the SEC suggested in its statement. The SEC won’t declare registration statements effective until the warrant issue is addressed, Bloomberg reported

·     REITs; PSA buys ezStorage for $1.8B; AFCG was initiated by JMP at Market Outperform with a $28 pt due to being the only public cannabis mortgage REIT and also by Seaport at Buy with a $25.70 pt; JPMorgan lowered their estimates on ACC ahead of their earnings next week (scheduled 4/19) and reiterated their UW rating and $40 pt, saying there should be a better entry point; EPRT commenced a 6.5M share offering; BTIG initiated BXMT at Buy with a $35 pt, viewing it as one of the blue chips in the commercial mortgage REIT sector given its size, liquidity, strong balance sheet, and broader BX sponsorship

Healthcare

·     Vaccine news; JNJ the story of the day after U.S. health authorities recommended a pause in the use of its single-shot Covid-19 vaccine in order to investigate rare but severe cases of blood clots. Both the FDA and Centers for Disease Control and Prevention announced the move after finding that six women between the ages of 18 and 48 years who got the vaccine had developed blood clots. More than 6.8 million doses have been administered in the U.S., the agencies said. (shares of companies with rival Covid-19 drugs MRNA, BNTX, PFE advanced)

·     Pharma news, BMY was upgraded to Buy from Hold at Truist and raise tgt to $74 from $66 noting the co has received FDA approval for Abecma and Breyanzi, and also announced positive topline Phase 3 results for deucravacitinib and relatlimab; AMZN said its current CEO would be retiring effective 8/1/21 and current SVP and head of commercial for Europe will assume the CEO role; SUPN upgraded to Buy at Jefferies saying it is on the cusp of a new product cycle that should more than offset Trokendi XR’s LOE in 2023

·     Biotech movers: GILD decided to stop its Phase 3 Veklury (remdesivir) intravenous (IV) study in high-risk non-hospitalized patients with COVID-19 – though says the decision was not based on issues on safety or efficacy, the company emphasized; ATXI shares fell after the company said its marketing application for non-opioid painkiller tramadol is still under FDA review (shares of FBIO also fell in sympathy)

·     MedTech Equipment; NVCR shares surge after reporting positive results from their Phase III pivotal trial of Tumor Treating Fields in Stage 4 non-small-cell lung cancer following platinum failure – the data monitoring committee (DMC) recommended a reduced trial duration and patient numbers in its phase III trial; DHR boosted its Q1 non-GAAP core revenue growth forecast including co’s biopharma unit Cytiva to 29%, from mid-to-high-teens growth prior; DGX says well positioned to expand covid-19 clinical testing as well as industry "return to life" programs, such as k-12 school testing

Industrials & Materials

·     Aerospace, Defense & Industrials; BA says it booked 196 new gross orders in march, all for the 737 jet family; MMM mentioned as a catalyst sell call at Deutsche Bank noting the stock has curiously outperformed in recent weeks, despite the fact that management has been sounding the alarm on supply chain headwinds (semis within T&E, ethylene/propylene) and commodity inflation (doubling from $0.10 embedded into original guidance); FAST Q1 net sales $1.42 billion, +3.7% YoY but missed the estimate $1.43 billion

·     Transports; index pulls back from around record highs on Monday, led by weakness in airlines; FDX upgraded to Overweight from Sector Weight at KeyBanc with a $350 price target citing the proprietary Online Parcel Index suggesting that B2C parcel volumes remained strong throughout Q1; AAL said it sees Q1 revs to plunge about 62% compared with the same period in 2019, and to post a loss of about $2.7B-$2.8B (prior rev view decline was for 60%-65%) – also said it now expects its average daily cash burn rate for the quarter to be about $27 million per day compared to its previous forecast of $30 million; JBLU and SAVE were both upgraded at Susquehanna; Tankers/Shipping data; The Baltic Exchange’s main sea freight index dipped 5 points, or 0.2%, to 2,140, as lower panamax vessel rates outweighed a slight gain in the larger Capesize segment.

·     Metals & Materials; CMP said Q1 winter weather activity in its North American-served market was less than average, resulting in a slightly below average winter for the full season ended in March, but it sold 4.6M tons of highway deicing salt products vs. 3.1M tons YoY; in chemicals, Wells Fargo said they remain bullish on polymers, especially PE, given how pricing has performed post-Winter Storm Uri as expect WLK, DOW, and LYB to benefit from this accelerated upward movement in PE pricing and integrated margins

·     In Packaging, RBC Capital lowered estimates for BERY, PTVE, SEE, GPK, OI due to higher raw material cost and Winter Storm Uri related headwinds. The firm said they still like the beverage can manufacturers headed into Q1 reporting and our preferred name is CCK following its announcement to sell 80% of its European Tinplate business at an attractive 10.8x multiple.

Technology, Media & Telecom

·     Internet; overall quiet in the broader Internet and social media names, but they continue to spike day after day on momentum buying with AMZN, ETSY, FB, GOOGL rising; BKNG upgraded to Buy from Hold with $2,800 tgt at Jefferies saying they like the story fundamentally and turn more positive as see a meaningful inflection in global travel after a tough year, bookings and revenue growth reaccelerating and margins rebounding

·     Hardware/Software movers; internet security among biggest winners today (CRWD, OKTA, FEYE), but group overall outperforms for a second day (MSFT, MDB, ZM, ORCL, TWLO); ZUO tgt raised to $20 from $19 at Canaccord citing a positive analyst day which included a material upside surprise to the medium-term outlook; ROKU announces Express 4K Plus streaming player and rechargeable Voice Remote Pro; Worldwide PC shipments were up 32% on the year in Q1 to 69.9M units, according to new Gartner data, the fastest quarterly growth since Q1 2000; NET partners with NVDA to bring AI to its Global Edge Network

·     Media movers; IHRT double upgraded to Buy from underperform at Bank America as believes that advertising trends will come roaring back over the next several months as small to medium sized businesses and sectors across the country open up as drive times increase; group rallied with broader market for most of telco and media; last night IAC said Vimeo implied 1Q revenue +57% y/y (2-year stack rate of +45%), 6% above the Street, vs. 4Q’s +53%, driven by EOP subscribers +25% vs. 4Q’s +24% y/y; ANGI March revenues +31% y/y, with 2-year revenue stack of +16%, accelerating from February’s +11% 2-year, implying strong revenue trajectory heading into 2Q. Recall, management guided 1Q up 8–9% vs. Street’s +9%