Closing Recap

Monday, August 24, 2020

Equity Market Recap

·     The S&P 500 and Nasdaq opened at record levels, helped as the FDA approved the emergency use of blood plasma in COVID-19 patients and on a report the Trump administration may fast-track a vaccine candidate. Sentiment also remains positive as markets await U.S. Federal Reserve Chair Jerome Powell’s address to the bank’s annual symposium in Jackson Hole, Wyoming later this week. Stocks overlook (again) the fact that talks between top Democrats and Republicans on coronavirus aid legislation remained stalled. Industrials, Financials, Energy were among the top gainers while pharma names underperform in the Dow (UNH, PFE, JNJ). The Dow Jones Industrial Average moved within 5% of its record high, outperforming tech. Also helping stocks, the U.S. has seen a significant decline in the number of daily new Covid-19 infections as a total of 34,567 new cases were reported across the country on Sunday, the lowest daily count since June 22 as per John Hopkins. TSLA, AMZN, AAPL were among stocks touching 52-week highs in the S&P 500 (before paring gains). Some of the big winners during the COVID-19 pandemic saw weakness today with NVAX, MRNA, INO, APT among decliners, while pandemic losers/recovery trade names such as airlines, cruise lines, gaming and restaurants rebound on the plasma news.

·     Interesting statistics: Total shareholder dividend payouts fell by $108 billion to $382 billion, the lowest second-quarter total since 2012, according to Janus Henderson’s index of global payouts. Also, with over 95% companies of S&P 500 having reported their quarterly results, share repurchases in Q2 are running 56% below Q1 and 45.8% lower than year-over-year, said the senior index analyst at S&P Dow Jones Indices. He said of those companies, 199 reported zero buybacks, compared to 97 in Q1. Bespoke noted the S&P 500 is up nearly 5% MTD, and yet only half of all days this month have seen positive breadth.

Economic Data

·     The Chicago Fed’s national activity index fell to 1.18 in July from a revised record-high of 5.33 in June. The index’s three-month moving average, which tries to smooth out volatility, rose into positive territory – moving up to 3.59 from negative 2.78 in the prior month

Commodities

·     December gold slips -$7.80 or 0.4% to settle at $1,939.20 an ounce, its lowest settlement in a month as a rise in the U.S. stock market and signs of strength in the dollar pulled prices lower. Prices dropped initially as optimism over the FDA’s authorization of a COVID-19 treatment lifted Wall Street stocks to record highs. Oil futures rise as WTI crude up 28c or 0.66% to settle at $42.62 per barrel, as a pair of tropical storms are expected to make landfall within days of each other, closed in on the Gulf of Mexico, forcing the shutdown of offshore drilling rigs responsible for more than half of the region’s crude production and nearly half of its natural-gas output.

Currencies & Treasuries

·     The U.S. dollar rebounded after early weakness, following a modest recovery late last week off 27-month lows, as buck managed to bounce throughout the day to end little changed vs. the euro around 1.18 after earlier weakness. The USD-CAD traded above 1.3225 after earlier seven-month lows of 1.3132 as better news on the U.S. economy last week has been supportive of the pairing, while crude oil’s inability to break higher out of its near sideways two-month trading band has stalled CAD. Treasury yields were modestly higher after falling from multi-week highs early last week, as the 10-year yield slipped back down to 0.62% before recovering around the 0.65% level, as bonds fell with stocks resuming upward momentum.

Sector News Breakdown

Consumer

·     Retailers; TGT, NKE, TJX, and WMT back to school positive mentions in Barron’s this weekend as all are employing different strategies to win shoppers in the covid-19 era/meanwhile, specialty stores and mall stalwarts will fall even further behind; Wayfair (W) to repurchase up to $700M in common stock; big week of discount retailer earnings with DG, DLTR, BIG expected; Susquehanna raises price target on LULU to $426 from $360 and maintains Positive rating; BNED said it has decided to go it alone and execute its current business plan following a strategic review of its business; GPS rises after Gordon Haskett analyst speculates on VFC potential interest in its Athleta brand

·     Consumer Staples; EL upgraded upgrades to Outperform from Sector Perform at RBC Capital as notes the YTD underperformance, reset expectations, and evidence that the company will come out of the pandemic as a higher market share/higher margin business; FLO filed mixed securities shelf of indeterminate size; FIZZ shares touch new 52-week highs

·     Leisure and Gaming; CHDN active as the Kentucky Derby will take place without fans; had worked on a plan to have a limited number of spectators, but dropped it because of "significant increases in COVID-19 cases in Louisville as well as across the region"; SGMS accelerates digital expansion with sports betting launch for National Lottery in Netherlands; in lodging, Barron’s said WH is well positioned for a run-up given its focus on budget hotels and leisure customers and notes they’re primarily located in domestic drive-to locations, not urban ones; WSJ reported the coronavirus is likely to still be circulating for most of the upcoming ski season, hurting companies like Vail Resorts (MTN)

Energy

·     Energy stock movers; all eyes on tropical storms as Tropical Storm Laura and Tropical Storm Marco are both expected to impact the Gulf of Mexico in the next few days, with the latter storm tracking closer to oil platforms.              Energy firms shut 57.6%, or 1.07 million barrels per day (bpd), of offshore crude oil production in the U.S. Gulf of Mexico because of the twin threat from Hurricane Marco and Tropical Storm Laura, the U.S. government said on Sunday. Also, 44.6%, or 1,205 million cubic feet per day (mmcfe), of natural gas output was shut ahead of the storms; FTSI files for bankruptcy in stock news

·     Utilities & Solar; ES was downgraded at Guggenheim given valuation but may look for a re-entry point, in time, given our view on ES’ strong attributes including a top-tier regulatory construct; for EXC Gov. Pritzker laid out a vision for comprehensive energy reform titled "Putting Consumers & Climate First." Key elements include (1) a path to 100% clean energy by 2050, (2) a market-based solution to reduce carbon emissions from power plants and (3) the implementation of measures to ensure greater ICC oversight of the state’s regulated utilities – Wells Fargo views the plan as a positive development for EXC and largely neutral for AEE

Financials

·     Financial top stocks news; BX announces it will acquire Takeda’s Consumer Healthcare business for $2.29B; New York Times reported over the weekend that APO CEO Leon Black will be subpoenaed by the US Virgin Islands over his decades-long relationship with Jeffrey Epstein; BLK joint venture in wealth management with China Construction Bank and Singaporean Temasek was approved by China’s Banking and Insurance Regulatory Commission over the weekend; V announced it has provided another round of funding to MagicCube; QFIN reported Q2 EPS $0.88 on rev $472.8M, a 50% YoY increase

Healthcare

·     Pharma movers; The FDA issued an emergency use authorization for convalescent plasma gathered from people who have recovered by COVID-19 as a treatment for hospitalized coronavirus patients. More than 70,000 COVID-19 patients in the U.S. have received plasma through a government-funded program during the pandemic (shares of KMDA, GRFS, XBIT, CERS, ADMA, SONN among names active on report); AZN rises after reports President Donald Trump is considering fast-tracking its coronavirus vaccine candidate, in a bid to make it available to Americans before the November election; MRK six-week dosing schedule for Keytruda now approved in Japan, US and Europe; PTI and Yumanity Therapeutics to merge to advance Yumanity’s pipeline of programs for neurodegenerative diseases; ODT says that the CONTESSA (Phase 3) trial evaluating lead candidate tesetaxel in metastatic breast cancer (MBC) patients met the primary endpoint, but under pressure on safety profile of lead drug tesetaxel

·     Biotech movers; ONTX shares plunge after saying its treatment for a type of blood disorder failed to meet main goals in a late-stage study assessing efficacy and safety; GH receives FDA emergency use authorization for its guardant-19 next generation sequencing-based covid-19 test; NVAX started enrolling volunteers in the phase 2 portion of its ongoing clinical trial to evaluate the immunogenicity and safety of NVX-CoV2373, Novavax’ Covid-19 vaccine candidate; vaccine developers slide following plasma nod (NVAX, INO, MRNA, GILD)

·     Healthcare services and providers; CTLT & Gene Therapy will provide drug substance manufacturing to AstraZeneca for the University of Oxford’s coronavirus vaccine at Catalent’s facility in Harmans, Maryland, according to statement.

·     MedTech and Equipment; BWAY rises as received U.S. FDA clearance for its brain stimulation tech, H4 Deep Transcranial Magnetic Stimulation, to treat cigarette smokers who seek to quit; QGEN upgraded to Buy from Neutral at Citigroup following the termination of the TMO tender offering at Citigroup based on view that the current valuation does not fully reflect the upside drivers related to COVID-19 testing and improving management execution/trends

Industrials & Materials

·     Industrial & Machinery; DE upgraded to buy from neutral at Bank America with $234 tgt after the company more than doubled consensus EPS forecasts for this quarter and raised its earnings and cash flow outlook for FY20; NNBR announces sale of Life Sciences Division for $825M as strengthens balance sheet by accelerating its ability to de-lever and provides the Company with enhanced financial flexibility to deliver long-term shareholder value through its Power Solutions and Mobile Solutions businesses; BA shares outperformed in the Dow, rising more than 5%

·     Transports; airlines among early winners on FDA plasma news over the weekend; AAL said it is preparing to use EPA approved long-lasting disinfectant – says proven to fight Covid on surfaces for up to seven days, has been granted emergency approval by EPA for use in Texas; shares of FDX, LSTR and JBHT among transports touching 52-week highs today

·     Metals & Materials; containerboard, paper related stocks (IP, WRK, PKG) after prices published by the trade journal Paper & Pulp Week (PPW) held steady for the month of August. The journal also said stronger demand led to talk of a potential price hike for domestic kraftliner; DOW another outperformer in the Dow Jones Industrials led by industrial/material stocks

Technology, Media & Telecom

·     Internet; PINS downgraded to neutral from buy at Citigroup but raise tgt from $25 to $35 while maintain neutral on TWTR and sell on SNAP while FB is only Buy rated social media stock; SPOT says it has partnered with Tencent backed Riot Games, developer of multiplayer online battle arena game League of Legends, to launch several new esports-related podcasts about the game; BABA tgt raised to street high $350 at Susquehanna after strong Q1 results; AMZN touches record highs

·     Semiconductors; SYNA mentioned positively in Barron’s noting shares are up 150% in the past 12 months but says more gains could lie ahead as its CEO continues to restructure and grow the business; AMD was downgraded to market perform at Northland saying they believe there are several negative potential catalysts on the horizon for the sector and AMD; TXN shares touched 52-week highs as semi’s remain strong; TSM expanded production capacity for 5nm chips due to 5G, AI demand and forecasts output to jump from current 60k chips per month to 90k in Q4 while aiming for 111k in 2021 Q2, and the company also said it expects its production of 3nm chips to begin in 2022

·     Software & Hardware movers; AAPL another record high, topping $500 for the first time; FSLY was upgraded to Outperform from Market Perform at Raymond James with a price target of $100 after hosting its CFO for a virtual NDR and completing a series of technical industry checks and came away incrementally positive around the company’s share gain potential, more comfortable with Fastly’s relationship with Microsoft; TikTok said it is asking a judge to block the Trump administration from enacting a ban on the Chinese social-media network; ZM slips after thousands of Zoom users in U.S. report issues with running and accessing web meetings; PANW with earnings tonight in security software sector; shares of CDNS, SNPS, ADSK, ADBE, NOW, GLW among tech names touching 52-week highs today; BNFT shares down over 10% after appointing new CEO and CFO today