Closing Recap

Wednesday, August 18, 2021

Equity Market Recap

·     Stocks finish at the lowest levels of the session in a late day melt down! U.S. stocks were volatile after trading sideways most of the morning, sliding initially after the Federal Reserve minutes at 2:00, then rebounding sharply, only to melt to intraday lows into the close amid much uncertainty/mixed messages. The FOMC minutes of the July 27-28^th meeting showed officials felt the U.S. central bank’s employment benchmark for decreasing its support for the economy "could be reached this year," but appeared to disagree on other key aspects of where monetary policy should turn next. Fed officials agreed that, as of late July, the benchmark for beginning to reduce the central bank’s $120 billion in emergency bond purchases had not been met, while consensus around when and how fast to taper them seemed elusive. The comments led to market uncertainty with stocks, bond yields and the dollar whipping around.

·     Other factors which remain in the forefront of investors’ minds include monitoring the Taliban’s seizure of Kabul, more headlines/lockdowns overseas amid rising Delta variant and impact of Chinese government regulatory moves. Earnings also remain in focus with LOW posting better monthly comps a beat in retail and as investors await NVDA and CSCO numbers tonight. More cautious sentiment surrounding equities over last couple of days partly chalked up to growth concerns (weak retail sales data yesterday and mixed housing today today).

·     Stock/sector movers: TGT posts a quarterly beat and announces a new $15B buyback program, but the stock slips; LOW surges to lead the S&P and its highest close in over 3 months after a strong quarterly report leads its rebound from yesterday’s slide after HD earnings; in other retail earnings, PLCE EPS beat is outweighed by its revenue and comp sales misses, and TJX soars after its earnings to lift other off-price retailers (ROST, BURL, EXPR) ahead of more reports in the space (VSCO, BBWI tonight, BJ, M, KSS, TPR pre-market tomorrow); Airlines an cruise lines go from red to green in the morning after the U.S. announces it will offer booster shots to any American next month; PFE also sees a lift after the news, though other vaccine names remain weak; in financials, HOOD rallies ahead of earnings tonight while the Financial Times reported that CME in $16B bid for Chicago exchange rival CBOE (while CME later denied the FT report).

·     Federal Reserve minutes: Federal Reserve minutes for the late July meeting saw officials actively debate the outlook for pulling back on asset buying. The minutes noted "the standard set out in the Committee’s guidance regarding asset purchases could be reached this year." The debate and disagreement over tapering centered on assessments of the labor market, where some officials saw lots of strength and others saw some distance toward recovery. The minutes added, "several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace and that such a combination could mitigate the risk of an excessive tightening in financial conditions in response to a tapering announcement – WSJ

·     Market stats: It has now been 329 calendar days since the benchmark index last ended a decline of more than 5% from a record high. The current 328 calendar-day run since then end of a decline of more than 5% from a record high, is the longest such streak since early 2018. Also, with the index down less than 1% as of yesterday 10% of S&P 500 stocks are down at least 20% and 34.5% are off by 10% (that was data coming into today).

Economic Data:

·     Housing Starts MoM for July fell (-7.0%) to 1.534M units (weakest since April) vs. est. up 1.60M (vs. June +3.55); Building Permits MoM for July rose 2.6% to 1.635M units vs. est. 1.61M (vs. June -5.3%); July single-family starts -4.5% to 1.111 mln unit rate; multifamily -13.1% to 423,000 rate

Commodities, Currencies & Treasuries

·     Oil prices finish lower in another volatile trading session, as WTI crude slides -$1.13 or 1.7% to settle at $65.46 per barrel, falling for a 5^th consecutive day despite bullish inventory data. U.S. crude oil stockpiles dropped last week to their lowest levels since January 2020, the Energy Information Administration said on Wednesday. Investors remain worried about the outlook for fuel demand as COVID-19 cases surge worldwide and on rising strength in the U.S. dollar.

·     Gold prices slip -$3.40 or 0.2% to settle at $1,784.40 an ounce, dipping ahead of the FOMC minutes and as the dollar index (DXY) hits its best levels since April (93.26). After touching over 4-month lows below the 1.17 level, the euro rebounded following the Fed minutes results.

·     Bitcoin prices jumped back above the 200-day MA support of $45,500, amid a general recovery in crypto assets. Not overnight Fed President Neil Kashkari with negative comments saying crypto is ‘95% fraud, hype, noise and confusion https://on.mktw.net/3meVrUi

·     Treasury yields inched higher throughout the day into the FOMC meeting minutes as the 10-yr climbed to 1.30% but faded after the FOMC minutes. The U.S. Treasury sold $27B in 20-year notes at a yield of 1.85% (31.99% at highs) vs. 1.85% when issued, with the bid-to-cover (demand) at 2.44 and indirect bidders awarded 62.3% and directs awarded 18.68%

Sector News Breakdown

Consumer

·     Retailers; TGT Q2 EPS $3.64 vs. est. $3.49; Q2 revs $25.16B vs. est. $25.08B; Q2 comp store sales rise +8.9% vs. est. +8.2%; board approved a new, $15B share repurchase program; for 2H2 2021, expects high single digit growth in comp sales, near high end of previous guidance range; TJX 2Q EPS $0.64 vs est. $0.57 on net sales at $12.1B vs. est. $11.0B, qtrly open-only comps +20% vs. est. 14.5% (Marmaxx +18%); says all US, Canada and Europe stores are currently open, and 3Q sales off to very strong start with overall open-only comps +mid-teens; PLCE topped Q2 estimates on Q2 earnings but revs missed and declined to provide EPS guidance due to continued COVID-related uncertainty (posted margin beat of 9.7% vs Street at 2%); LZB 1Q adj EPS $0.55 vs est. $0.56 on sales $534.8M vs est. $485.9M, qtrly written comps in co-owned retail segment +22%

·     Auto sector; TSLA snaps 3-day losing streak, holding above key 50, 100, and 200-day moving averages technical levels yesterday into today; HMC plans China factory expansion to make 120,000 more EVs according to the Nikkei; VRM downgraded at Piper and cutting price target from $54 to $30 saying after a flood of challenging investor questions post-Q2, they must admit: it’s hard to defend our long-term margin assumptions; DIDI falls after officials in China said the Ministry of Transportation is drafting measures to ensure the rights of ride-hailing and trucking platform drivers, reported by Bloomberg overnight

·     Housing & Building Products; LOW little better results than rival HD yesterday (better comps) as Q2 EPS $4.25 vs. est. $4.00; Q2 revs $27.6B vs. est. $26.79B; Q2 consolidated comparable sales decreased (-1.6%) vs. est. decline (-2.2%) and U.S. comparable sales decreased (-2.2%) vs. est. (-2.6%); sees FY21 revenue $92B vs. est. $91.53B

·     Consumer Staples; in the beauty sector, Stifel said they see trading upside for shares of ULTA and to a lesser extent COTY ahead of earnings next week and also remain positive on shares of EL but would recommend buying on any potential weakness around F4Q21 results; DNUT Q2 EPS $0.13 vs. est. $0.14; Q2 revs $349.2M vs. est. $333.36M; qtrly net revenue growth of 43% and organic growth of 23%, up from a 6.7% decline in Q2 of 2020; sees FY organic revenue growth of 10% to 12% and sees FY adjusted Ebitda of $178M-$185M

·     Restaurants; EAT Q4 adj eps $1.68 vs. estimate $1.71 on in-line revenue $1.01B billion, comp sales +65.4% vs est. +67.8%, total location count 1,648 (-0.5% vs Q3); OpCo upgraded WEN to Outperform from Perform due to their 2H21 SSS forecast being above consensus, their belief that the company could out-comp peers through 2022 given more effective utilization of their loyalty program and strengthening breakfast business, and the stock’s EV/EBITDA multiple that is the lowest in the QSR sector other than JACK despite upside to EBITDA and accelerating unit growth

Energy

·     Inventory data: the American Petroleum Institute (API) reported that weekly crude inventories fell 1.163M barrels last week and gasoline inventories fell 1.979M barrels. U.S. crude oil stockpiles last week fell by 3.2 million barrels to 435.5 million barrels, their lowest since January 2020, according to U.S. EIA. U.S. weekly jet fuel product supplied, a proxy for demand, last week rose to about 1.7 million barrels per day, the highest since March 2020, the data showed.

·     E&P and Majors; CDEV upgraded to Market Perform at Cowen and raising PT to $5.75 from $4 saying a better oil price environment has no doubt been a panacea for CDEV but mgmt has also embraced maintenance mode with a focus on FCF to fix the b/s — and it’s worked; CRK is offering to sell oil and gas assets in North Dakota’s Bakken oilfield, Reuters reported

·     Utilities & Solar; DQ raised its 2021 production guidance for polysilicon to the range of ~83,000 to 85,000 metric tons from 81,000 to 83,000 MT and revs $441.4M vs. est. $407M, driven by higher average selling prices; JKS said it signed long-term polysilicon supply agreement with chemicals maker Wacker Chemie AG where Wacker to supply over 70,000 tons of polysilicon to JKS from September 2021 to December 2026

Financials

·     Financial Times reported this afternoon that CME in $16B bid for Chicago exchange rival CBOE https://bit.ly/3gdqkER – but the CME later came out and denied the report, saying they had not had any discussions with CBOE; HOOD with earnings after the close; Goldman reinstated coverage on HBAN with a Buy rating and $18 PT after the bank closed its merger with TCF as shares have underperformed the BKX by ~10% YTD, though have outperformed since Q2 EPS and they expect its multiple to re-rate higher as management executes on the deal; PGR July EPS 43c vs $1.38 YoY, July net premiums written $4.55B and net premiums earned $4.31B vs $4.11B/$3.78B YoY; JMP lowered their price target on LDI to $12 from $21 but reiterated their Outperform rating as this new target still implies 49% upside to current share price; Mizuho upped its PT on COIN to $220 from $210 but remains cautious as Q2 saw fewer retail trades, the company may have ceded some Bitcoin market share, and institutional yield that continued to fall; KIM announced a $500M at-the-market equity offering; Raymond James downgraded STOR to Market Perform and upgraded FCPT to OP after earnings and has tempered their outlook on the net-lease sector given less upside after its YTD recovery; Mizuho lists AMH, BXP, KRC, PEAK, SITC, and VTR as REITs that screen competitively based on select growth, valuation/risk criteria, as ARE, AVB, INVH and O remain their top picks

Healthcare

·     Pharma movers; ANAB said it received accelerated approval for its GSK partnered JEMPERLI for the treatment of adult patients with mismatch repair deficient (dMMR) recurrent or advanced solid tumors – approval triggers a $20M milestone payment, with an additional $15M and $165M in other potential payment; TLRY acquires a majority of outstanding convertible notes of MedMen Enterprises (MMNFF), paying about $118Mn for a ~21% contingent stake as per Cantor, which would imply $561Mn for 100% of the MedMen equity

·     Biotech movers; REGN said it delivered 135,023 drug doses to U.S. healthcare providers last week, a nine-fold increase from a month earlier and estimates that as recently as June, fewer than 5% of high-risk patients were receiving treatment, before increasing recently to as much as 30%; MRNS announced positive top-line Phase 2 results for oral ganaxolone in treating seizures due to tuberous sclerosis complex; VRPX adds to yesterday gains after the firm said it received a pre-investigational new drug response from the U.S. FDA for an antiviral barrier product

·     MedTech Equipment; Agilent (A) posted a healthy Q3 beat with core growth of +21% beating guidance of +15-17%, led by +37% core growth in DGG with EPS of $1.10 also coming in above the $0.99 estimate and also raised the full-year revenue guidance from $6.15B-$6.21B to $6.29B-$6.32B; ALC Q2 EPS $0.56 tops est. $0.45 and raises FY21 EPS view to $2.00-$2.10 from $1.85-$1.95 (est. $1.93) and raises FY21 rev view to $8B-$8.2B from $7.8B-$8B (est. $7.92B); BWAY received 510(k) clearance from the FDA allowing the company to market its Deep Transcranial Magnetic Stimulation System for decreasing anxiety symptoms in patients with depression.

Industrials & Materials

·     Aerospace & Defense; BA a drag on the Dow, falling for a 5th consecutive day and dropping below its 200-day MA support of $226.40 this week; HWM announces $1.5 billion share repurchase authorization, proposed debt offering, and cash tender offer for 2025 notes; EH announces the cancellation of the EHang Yunfu Investor Day due to the latest tightening COVID-19-related travel and group gathering restrictions by the local governmental authorities following the recent Delta variant outbreak in China

·     Transports; The Baltic Dry Index rises a seventh straight session to its highest in more than a decade on stronger demand across vessel segments. The index +1.4% to 3,833, the highest since June 2010, while average daily earnings rose across categories for shipping vessels, for capesizes +8.4% to $44,495, panamaxes +2.6% to $32,024, and supramaxes +1.3% to $35,080; LUV hiring plans disclosed in company memo; seeing sharp decline in qualified job applicants; seeks to hire 4,500 employees in the near term

·     Metals & Materials; Credit Suisse says stock markets are underestimating the staying power of strong U.S. steel market conditions, while raising PTs on five U.S. and one Canadian steel stocks as upped tgt on CLF to $34 from $28, STLD to $92 from $86, X to $49 from $41, NUE to $142 from $115, CMC to $37 from $35 and Stelco to C$54 from C$44 – says thinks U.S. steel demand could easily increase by 5% in 2022; AMCR downgraded to Sell with $11.50 tgt at Goldman Sachs as acknowledge that execution on the Bemis transaction has been strong, but also believe this represented a unique industry consolidation and cost-out opportunity at a scale that will be difficult to replicate in coming years

Technology, Media & Telecom

·     Semiconductors; NVDA earnings tonight in chip space; CREE mostly in-line quarterly results, but shares dropped initially following weaker guidance on higher expenses and supply issues – said that it would be focusing further expansion of SiC production outside of Durham and took a $73.9M write-down during the quarter on the facility; ADI posts Q3 EPS and rev beat with slightly better Q4 forecasts on both top and bottom line as well

·     Software movers; CDK helped by the 10th straight quarter of YoY site growth at Auto and record high revenue per site in the quarter, but falls on guidance as sees FY22 EBITDA of $655M-$685M, vs. Street’s $691M ests, as topline strength is offset by investment spend, particularly at Roadster; MNDY first quarterly report post-IPO showed revenue growth accelerated to 94%, the number of new customers added with annual spend >$50K nearly doubled compared to Q1, and net revenue retention for 10+ user accounts ticked up to >125% in the quarter; Dow component CRM shares outperformed in software space

·     Hardware, Components & Services; HPQ estimates lowered for Q3 and FY21 at Bernstein due to weakness in PCs stemming from (1) a collapse in the Chromebook market in June and July and (2) very poor availability in FY Q3 of traditional PCs that caused HPQ to lose market share; in optical space, LITE 4Q adj EPS $1.15 (prior method), $1.06 (new method) vs est. $1.05 on revs $392.1Mm vs est. $382.3Mm; guides 1Q adj EPS $1.47-1.61 vs est. $1.45, sees 1Q revs $430-445Mm vs est. $437.3Mm; BB was upgraded to Hold from Sell at Canaccord while maintain $10 tgt after hosted a fireside chat with company, highlighting the various levers for future growth within BlackBerry’s cybersecurity business; CSCO earnings tonight in networking; AAPL Services growth is tracking *below* forecasts based on an intra-quarter App Store growth slowdown to +12% in July and +10% halfway through August — that run rate implies a total Services growth number in the low 20s (~$300M headwind) vs Morgan Stanley modeling +25%

·     Media & Telecom movers; VIAC upgraded to Overweight from Equal Weight at Wells Fargo with a price target of $60, up from $45 saying the company’s streaming efforts are bearing fruit and have impressed us, so is moving from historical bears to constructive bulls; DISH shares active after reports a potential combination between them and DirecTV may be not only back on the table but just a matter of time – now that AT is disengaged from its longtime satellite provider, CTFN reports https://bit.ly/37UeCKE