***This will be the last “Closing Recap” of the week

***Service will resume normally on Monday August 24^th

Closing Recap

Tuesday, August 18, 2020

Equity Market Recap

·     U.S. stock were generally higher as the S&P 500 and Nasdaq Composite both trade to new intraday record highs, with the Nasdaq melting higher in what was another low volume trading summer day. Technology led the way (nothing new here) as the Nasdaq Composite rise was led behind AMZN, AAPL, GOOGL, NFLX and software names, while the usual market laggards continue to be financials and energy along with weakness in retailers and REITs given concerns of futures sales following cautious commentary from WMT and KSS today on future sales. The dollar fell to two-year lows helping push gold back above the $2,000 an ounce level despite stronger housing data (beat for housing starts and building permits for July). Earnings in the retail space for WMT, HD, AAP all impressed and topped analyst estimates, but following the rally in shares heading into results, profit taking ensued. Still no progress made on the stimulus bill in Washington related to unemployment benefits or new checks, while no word on China-U.S. trade talks as well. More retail earnings tomorrow morning with TGT, LOW and TJX all due.

Economic Data

·     Housing Starts for July expected rose a stronger 22.6% to 1.496M units vs. estimate at 1.24M (up 5%) and up from June at 1.22M units; Building permits for July were up 18.8% to 1.495M units vs. est. at 1.32M (up 5.4%) and above June permits 1.258M; July single-family starts rose +8.2% to 940,000 unit rate but multifamily soars +58.4% to 556,000 unit rate

Commodities

·     Oil prices end unchanged at $42.89 per barrel (earlier lows $42.11), rebounding from earlier losses to hold at 5-month highs (March 5^th) as macro tailwinds remain supportive for oil. Prices also buoyed as the dollar declined. Inventory data from API tonight and EIA tomorrow morning. Gold prices rose $14.40 or 0.7% to settle at $2,013.10 an ounce, closing back above the $2,000 level in about a week after its recent profit taking, getting another boost from the plunging dollar and weaker Treasury yields, making the price of gold more appealing.

Currencies & Treasuries

·     The U.S. dollar falls to 2-year lows overall (DXY) as the euro trades as high as 1.1966 (best since May 2018) while the British Pound gains as much as 1% at 1.322, its highest since January; the dollar hits 7-month lows vs. Canadian dollar at 1.1375 in another day of broad weakness for the buck. While the dollar remains pressured vs. major currencies, Wells noted some emerging markets’ currencies have it worse, as the Brazilian real, the South African rand and the Turkish lira have lost about 20% of their value against the dollar this year. The Russian ruble and the Mexican peso have dropped roughly 15% amid high levels of coronavirus infections in poorer countries, where the pandemic has exacerbated existing problems. Treasury yields weakened after touching the best levels in over 2-months last week, as the 10-year yield slides back to 0.65$ from highs around 0.71% a week ago.

Sector News Breakdown

Consumer

·     Retailers; WMT posted 2Q adj EPS $1.56 topping the $1.25 estimate as comps ex fuel rose +9.9% (and Sam’s comps 13.3%), with e-comm sales +97%, total revs $137.7B above est. $135.5B – all better, but shares slipped after pointing to normalizing trends and a slower back-to-school; KSS top and bottom line results beat (Q2 EPS loss (25c) on sales $3.41B (down 23.1% YoY) vs. est. loss (83c) and $3.09B) but did not report comp sales due to store closures – warned that the resurgence of COVID-19 in certain parts of the U.S. during July impacted sales negatively – overall retailers giving back some of last week gains with JWN, DDS, M pulling; in staples, KDP priced its 45M share secondary at $29.15; CALM filed to sell 6M shares of common stock; NKE outperforms in retail trading around the $107 level (just off 52-week highs of $107.32) last week

·     Auto sector; in auto retail, AAP Q2 comp store sales rose 7.5% in Q2 well above the estimate for a rise of 2.6%, driven by strength in the company’s DIY omnichannel business while GM and op margin above views; UBER and LYFT are "seriously" mulling licensing their brands to vehicle fleet operators in California, NYT reports, citing people with knowledge of the plans; GM rises early after Deutsche Bank speculated the automaker could spin off its electric-vehicle operations to create more value; TSLA momentum continues topping the $1,900 level for the first time

·     Housing & Building Products; HD a stellar quarter, beating on all levels as EPS, sales, comp all well ahead – Q2 EPS $4.02 beat est. of $3.68 on better revs while comp sales jumped +23.4% (US was +25%) vs +12% on better margins at 34% – the results come ahead of earnings from peer LOW tomorrow morning which is also expected to have benefitted from the pandemic; home builders get another strong economic report as housing starts and building permits for July both came in well above economist views (DHI, LEN, TOL, MTH)

Energy

·     Stock movers; for land drillers, Citigroup said they remain neutral on the U.S. Land Drillers as foresee a modest rig count recovery over the next 12 months as operators focus on debt payment and DUC consumption – believe HP, PTEN and PD appear fairly valued with this backdrop but we downgrade NBR given a weak international land rig market, leverage and weak FCF outlook; natural gas stocks active as price touch 8-month highs given increased demand

·     Utilities & Solar; clean energy, renewable stocks have outperformed (AEE, ES, AGR) on possible positioning for Biden (Goldman notes that on July 14th, Biden announced his 2 trillion clean energy policy over 4 years which could be interpreted as the potential to accelerate rooftop solar growth rates – utility “green” names (renewables rate base growth stories tied to renewables) are seeing multiple expansion; overall utility names pull back today

Financials

·     Bank movers; banks refuse to participate with broader market gains, continuing to lag as Treasury yields remain low (despite recent bounce) as investors continue to put money to work with more growth related sectors such as tech; ICE was downgraded to Neutral at Oppenheimer due to multiple headwinds ahead of the company expected over the next one-to-two years; AMTD announces service issues on its trading platform for a second consecutive session; Citigroup (C) was downgraded to sell by Dick Bove at Odeon Capital saying the recent issue surrounding the mistaken Revlon debt payment will become a problem with regulators; EVTC shares jumped after Bloomberg reported midday the company is said to explore potential sale

Healthcare

·     Pharma movers; TEVA weak as the government sues them for alleged submission of false claims to Medicare as a result of kickbacks it paid for its multiple sclerosis drug, Copaxone; LLY and China alliance partner Innovent Biologics have agreed to expand their partnership in cancer, initiated in March 2015; VNDA said interim analysis of late-stage trial of its potential treatment showed hospitalized patients with COVID-19 pneumonia improved faster than those on placebo as study showed 14-day treatment with its drug accelerated clinical improvement by day 7; AMAG was downgraded at Barclay’s following the strong run in shares

·     Biotech movers; PSTX shares decline after the FDA put a clinical hold on its Phase 1 clinical trial for P-PSMA-101 in prostate cancer following a death of a patient; UBX was downgraded by at least three analysts (Citi, MS, Mizuho) as UBX0101 did not meet its primary endpoint in a Phase II trial in knee OA; ICPT 1.25M share Block Trade priced at $47.25

·     Healthcare services and providers; drug distributors ABC, CAH, MCK shares active after U.S. states are seeking a combined $26.4B from the three major drug distributors and JNJ to settle opioid litigation against the companies, the WSJ reported. About a dozen attorneys general are seeking a collective $21.14B from them and $5.28B from JNJ

Industrials & Materials

·     Industrial & Machinery; DE tgt was raised to $209 from $182 at Goldman Sachs saying its precision ag portfolio is likely to generate $2bn in revenues in 2021E as our field checks highlight solid adoption trends for ExactEmerge; GFL mentioned negatively by short seller SprucePoint pressured shares; transports a little bit of profit taking after strong run in rails, truckers and partial recovery in airlines over the last 2-weeks.

·     Metals & Materials; gold miners have been soaring of late on surging gold prices (back above $2,000 an ounce today), with miners getting an additional boost yesterday after Warren Buffet’s Berkshire Hathaway revealed a stake in GOLD shares in latest 13F filing; NEM and Canada’s Kirkland Lake Gold to jointly assess exploration opportunities for NEM’s Timmins properties and KL’s Holt Complex in Ontario, Canada

Technology, Media & Telecom

·     Internet; SNAP is testing a feature that would allow users to share Snapchat content that is not their own off of the platform, as per Axios; SPOT, TME, SIRI among movers after AAPL launched two live global radio offerings on Apple Music, now available in 165 countries; AMZN confirms plans to expand offices in 6 U.S. cities and hire 3,500 people

·     Semiconductors; NVDA touches another record all-time high, leading semis initially ahead of expected strong earnings tomorrow night after the close; MU tgt cut to $58 from $63 at Mizuho and lowered NovQ (F1Q) estimates on much weaker Enterprise demand, even with Cloud remaining healthy and handsets a tailwind, and 2H20E NAND/DRAM pricing headwinds and modestly softer GM; Philly semi index (SOX) touched new intraday highs before slipping with outperformance in MCHP shares, while CREE tumbles ahead of its earnings tonight

·     Software movers; ORCL has entered the picture as a potential buyer of TikTok, the Financial Times reported, working with a group of investors that already holds a stake in the Chinese company https://on.mktw.net/317DwE2 ; SE Q2 revenue growth of 94% Y/Y to $1.29B while did post a slightly wider than expected loss per share of $0.68 – digital revenue totaled $716.2M (+62% Y/Y) and e-commerce grew 189% to $510.6M and GMV was up 110% to $8B; TTWO to acquire Playdots for $192.0M in cash and stock; ZI slides after offers to sell 12M shares of common stock for holders; CRM rises after Cleveland Research said most recent checks on CRM suggest that 2Q21 likely finished ahead of plan, with feedback consistent to slightly better

·     Media & Telecom movers; VZ announced today new Mix & Match Unlimited data plans that now include Disney+, Hulu, and ESPN+ on Verizon. This expands on Verizon’s previously announced agreement with Disney, which only included Disney+ on Verizon for 12 months; IMBI reports Q2 adjusted EBITDA of $10.7M vs. $0.2M YoY helped by lower operating expenses and growth in active customers during the coronavirus crisis; VIAC in talks to sell its CNET tech site to Red Ventures Dow Jones reported and said has put other assets on the block as well

·     Hardware & Component news; ROKU two positive analyst mentions as William Blair sees 44% upside in the next 12 months, taking up revenue estimates $102M and $187M in 2020 and 2021, while Berenberg raised its tgt to $181 from $145 saying it has the potential to attract more than just linear TV ad dollars; FN shares tumble despite better Q3 results and mostly in-line Q4 guidance