Closing Recap

Friday, August 20, 2021

Equity Market Recap

·     U.S. stocks end Friday near the highs of the session but finish the week lower (a little less than -1% for the Dow, S&P and Nasdaq) heading into the weekend as all 11 S&P sectors rose. Smallcaps finally bounce, with the Russell 2000 Index climbing a day after ending a streak of 226 consecutive closes above its 200-DMA yesterday, the 11th longest streak in its history. Investors largely shrugged off the looming threat of the COVID-19 Delta variant (again) and signals from the U.S. Federal Reserve that it could begin tightening its dovish monetary policy sooner than expected, as the S&P 500 and Dow pull back only modestly after a string of record highs just a week ago. Mixed economic data from the U.S. and China suggested the ongoing recovery has lost some momentum, which weighed on commodity prices this week with oil tumbling 9%. Attention now turns to next week’s Jackson Hole Symposium, a gathering of major central bank leaders, for clues regarding the expected pace of recovery and the timeline for policy tightening.

·     Stocks/sector movers: the good week for retail earnings continues as FL surges following its adj EPS more than doubling consensus, lifts DKS (ahead of its earnings next Weds 8/25), NKE, UAA; some earnings-related names comprise the worst S&P decliners on the day with ROST falling on weak guidance and AMAT, DE both giving up early gains after their beats with strong guides; MSFT leads the Dow after jumping to its ATH after positive broker notes following yesterday’s announcement of their first-ever price increase for its Office product suites; SPOT rallies (shares hit 52-week low yesterday -47% from Feb highs) after authorizing a buyback of up to $1B; MUDS continues yesterday’s late sell-off, trades below $10 for 1st time in 4.5 months after terminating its merger agreement with Topps after the MLB said it will not renew its licensing agreement.

·     China passed legislation overnight setting out tougher rules for how companies handle user data, as the legislature of the Asian nation approved the Personal Information Protection Law. However, China stocks tried to recover after China’s securities regulators vowed to create conditions to push for China-U.S. cooperation on companies’ audit and supervision among work to be focused on for the second half of this year, according to a statement of China Securities Regulatory Commission (CSRC). For the week though, tough sledding for Asian markets as Hong Kong’s flagship Hang Seng Index fell 1.8% Friday to end the week down nearly 6%. In mainland China, the CSI 300 Index, which is made up of the largest stocks listed in Shanghai and Shenzhen, did slightly better, losing 3.6% for the week.

·     Europe’s Stoxx 600 up 0.3%, down 1.5% for the week – marks biggest weekly decline since February as the resources sector index leads weekly declines, falls 8.4%. Germany’s Dax up 0.2%, Britain’s FTSE 100 up 0.4%, France’s Cac 40 up 0.3%, and Spain’s ibex flat.

Commodities, Currencies & Treasuries

·     Oil prices fell a seventh straight session, with Sept WTI crude down -$1.37, or 2.15% to settle at $62.32 per barrel (Oct WTI crude down -2.1% to $62.14), near three-month lows and posting a weekly loss of roughly 9%, its biggest one week drop in nearly a year and half. Prices tumbled this week as new lockdowns in countries facing surging cases of the COVID-19 Delta variant dampened the outlook for fuel demand. Broader investor risk aversion also weighed on oil with the U.S. dollar jumping to a nine-month high on signs the U.S. Federal Reserve is considering reducing stimulus this year, and that global crude producers are starting to ramp up production.

·     Gold futures slip a modest -$0.90 to settle at $1,784 an ounce, finishing the week up slightly at 0.3%, holding up well overall despite the rout in commodity prices on slowing global growth concerns and a stronger dollar.

·     Treasury yields remain in tight range, with the 10-year benchmark at 1.26%, off highs of 1.3% this week and lows around 1.21% as markets await the Fed Jackson Hole symposium late next week, looking for more clues on a possible Fed bond buying “taper” and comments on inflation. Several Fed members this week suggested tapering could begin as soon as September or October, which is one of the main factors for stock weakness this week.

·     Bitcoin prices surge, rising over 4% nearing the $49,000 level after topping and holding above its 200-day moving average mid-week (of $45,500). Crypto assets in general broadly higher. COIN CEO tweeted overnight the company recently received board approval to purchase over $500M of crypto on our balance sheet to add to our existing holdings. And we’ll be investing 10% of all profit going forward in crypto.

Sector News Breakdown

Consumer

·     Retailers; FL with strong earnings results as comps rise +6.9% vs. +18.6% YoY but better than analysts’ estimates of a 0.1% rise saying Q2 sales boosted by demand for women’s and kids’ footwear, and fewer promotions ($2.28B vs. est. $2.09B est. for sales); BKE Q2 revenue jumps ~36% to $295.12M YoY, topping consensus of $226M and also posts higher Q2 earnings compared with a year earlier; FTCH reports smaller Q2 loss (-17c vs. est. -40c) as revs of $523M topped the $470M estimate and sees full-year digital platform growth of 35%-40% YoY; ROST mixed as 2Q EPS of $1.39, above consensus of $0.97 on strong sales and gross margin driven by higher average ticket and slight traffic improvement – comps increased 15% vs 2019, but stock weak early after softer Q3 guide (sees 3Q comps +5-7% with EPS $0.61-0.69 vs est. $0.93); LESL upgraded to Buy from Hold at Loop while maintaining our above consensus estimates for 4Q21/FY22 as believe the recent pullback is overdone; Macy’s upgraded at JPM post earnings

·     Auto sector; TSLA held its much anticipated AI Day in which Musk & Co. showcased several next generation technologies for the coming years highlighting the R&D initiatives underway and said it planned to build a humanoid robot, and expects to make a prototype sometime next year; RIDE saw its biggest jump in a month today after demonstrating its Endurance pickup truck an American Association of Airport Executives conference.

Energy

·     Energy stock movers; Oil prices were down for a seventh straight session near three-month lows and heading for a weekly loss of over 6% as new lockdowns in countries facing surging cases of the COVID-19 Delta variant dampened the outlook for fuel demand. U.S. shale output is rising just as a resurgence in Covid cases eats away at driving demand. China cut crude shipments from Saudi Arabia last month. CFTC and ICE positioning data due later. Baker Hughes (BKR) U.S. oil rig count rises 8 to 405, U.S. gas rig count down 5 to 97, and total U.S. total rig count up 3 to 503.

·     Stock movers; refiner PSX downgraded Outperform to Market Perform at Cowen and lowering Tgt $80 to $73 as see downside to 2022 and 2023 consensus earnings due to the market’s misunderstanding of PSX RIN exposure and the company’s limited ability to offset these costs, compared to in the past;

Financials

·     Bitcoin, FinTech & Payments; COIN CEO Brian Armstrong tweeted last night: "We recently received board approval to purchase over $500M of crypto on our balance sheet to add to our existing holdings. And we’ll be investing 10% of all profit going forward in crypto. I expect this percentage to keep growing over time as the crypto-economy matures; NCTY signed an Investment Memorandum to establish another cryptocurrency mining joint venture for building another 200mw capacity in Kazakhstan. In the last two weeks, at least five money managers have filed to start bitcoin futures ETFs after SEC Chairman Gary Gensler said he’d be open to ETFs that include bitcoin futures rather than holding cryptocurrency directly if they follow the strict rules that mutual funds use.

Healthcare

·     Pharma movers: AZN’s Alexion division will stop developing a treatment for the neurological disorder ALS due to lack of efficacy in a late-stage trial, it said today; JNJ CEO and Chairman Alex Gorsky, will take over as executive chairman on Jan. 3, stepping down as CEO and will be succeeded as CEO by Joaquin Duato, a 32-year company; FATE announces positive interim clinical data from its FT596 and FT516 off-the-shelf, IPSC-derived NK cell programs for b-cell lymphoma as 10 of 14 Patients in FT596 single-dose escalation cohorts 2 and 3 achieved objective response; ENDP shares fell on reports they are looking into possible financial restructuring as faces more than 3,000 lawsuits over its marketing and sale of opioids and carries more than $8B in debt. https://on.wsj.com/2UCU06O (note shares of TEVA, PRGO other names related to opioids); HEXO 47.5M share Spot Secondary priced at $2.95

·     Vaccine news: MRNA shares weak after U.S. health officials are investigating reports that its COVID-19 vaccine may be linked to a higher risk of a rare heart condition in younger adults than previously thought, the Washington Post reported https://reut.rs/3z3wKxP ; AZN said it would seek regulatory approval for an antibody drug after a study showed strong efficacy in preventing symptomatic Covid-19, offering a potential new alternative to vaccines for people who refuse shots or for whom they aren’t effective. The company said AZD7442 showed 77% efficacy in reducing risk of symptomatic Covid-19 compared with a placebo in late-stage clinical trials

·     Biotech movers; the EU said it was opening a probe into ILMN’s decision to complete its $7.1 billion purchase of Grail Inc. despite a continuing antitrust investigation – said the probe would assess whether Illumina’s move breached the bloc’s rules calling for companies to put on hold mergers while the EU is investigating competition concerns; FGEN said the European Commission approved its drug roxadustat for the treatment of anemia associated with adult patients suffering from chronic kidney disease; ICPT was downgraded to Sell with lower tgt of $10 at Goldman Sachs saying while Ocaliva is approved in primary biliary cholangitis (PBC), recent label updates with contraindications pressure the commercial opportunity

·     Healthcare Services, MedTech Equipment; Wells Fargo reshuffled their rankings in the Life Science sector with OW-rated HOLX moving up the ladder, into the top pick category alongside CLR and BIO; NTRA and GH remain their top picks in emerging growth diagnostics; OTRK slips for second consecutive day as the disclosure of Cigna’s intent to terminate its contract by the end of ’21 yesterday draws analyst downgrades

Industrials & Materials

·     Industrial, Aerospace & Defense; SPCE tgt cut to $25 from $41 at Bank America; LDOS downgraded to Hold from Buy at Argus noting shares have underperformed the market over the last three months, with a 7% drop compared to a 7% gain for the S&P 500 and notes the formerly positive technical trend has turned neutral. We may look to upgrade the shares if they fall toward the $90 level; DE posted Q3 EPS and revs that topped consensus and raised its full-year earnings forecast raised to range of $5.7B-$5.9B vs. prior guidance of $5.3B-$5.7B as expect demand for farm and construction equipment to continue benefiting from favorable fundamentals

·     Metals & Materials; MOS and CF both upgraded to Buy from Hold at HSBC as believes supply disruptions, higher feedstock costs and low inventories are the catalysts that could support strong fertilizer prices through Q1 of 2022; overall a little rebound in metals after mass selling pressure in copper, aluminum, steel, and iron ore names on Thursday given slowing global growth concerns in China and the U.S. amid rising Covid cases and its impact on consumers

Technology, Media & Telecom

·     Semiconductors; AMAT delivered a strong beat and raise quarter, as print and guide were $259M/$0.13 and $190M/$0.13 above consensus despite supply chain headwinds and mgmt continues to expect rising 2H H/H and CY22 Y/Y growth, with all segments up Y/Y; NVDA’s planned $40 billion acquisition of British chip designer ARM looks set to face a lengthy inquiry after a UK regulator found the deal would hit competition and could weaken rivals.

·     Software movers; MSFT tops $300 per share after several positive analyst comments (tgt raised to $350 at both Wedbush and Mizuho) noting recent mid-quarter September checks have shown incremental strength again as the Azure cloud growth story is hitting its next gear of growth in Redmond and after the co announced a first-ever price increase for its Microsoft 365 and Office 365 commercial product suites; BLND slides as Q2 results driven by an increase in banking transactions and continued platform adoption, but Piper notes the stock is pressured as the company did not provide pro forma Q2 financials, partially due to timing of the Title365 acquisition; ADBE announced an agreement to acquire Frame.io, a leading provider of video review and collaboration tools for $1.275B, which is expected to close in Adobe’s F4Q21; SNOW shares slid, as Piper noted the 8-10% intraday sell-off on fears of moderating growth metrics on elongating sales cycles appear overdone

·     Media & Telecom movers; TMUS says hackers had accessed data of another 5.3M wireless customers, including address, date of birth and phone numbers. Earlier this week, they said personal data of more than 40M former and prospective customers was stolen along with data from 7.8 M existing wireless customers; MUDS shares active as the SPAC said the merger pact with Topps Intermediate Holdco and Tornante-MDP Joe Holding has been terminated by mutual agreement. Termination comes a day after the companies learned MLB and MLBPA would not be renewing their baseball card agreements; SPOT rises after authorized to repurchase 10M company’s ordinary shares, up to the amount of $1B; MSGS rises following positive analyst comments this week (Wolfe raises tgt to $207, MSCO this week upped tgt to $230)