Closing Recap

Tuesday, August 24, 2021

Equity Market Recap

·     It was another day of all-time highs as it appears there is just no stopping U.S. markets. The S&P 500 and Nasdaq Composite climb a 4^th straight day to fresh records, while the Smallcap Russell 2000 is now up 5% off last week lows after briefly trading in correction territory (down 10% from best levels). Technology shares (mega-caps) again doing the heavy lifting, but strength was broad based as energy names rebounded along with materials and discretionary while defensive utilities and staples lagged. The FDA’s full approval of the Pfizer-BioNTech COVID-19 vaccine on Monday fueled optimism over economic recovery which spilled into Tuesday’s session. Reopen sectors such as gaming, airlines, theme parks and the like also surged. Next market catalyst is Fed Chair Jerome Powell, who is expected to meet with other world bank leaders when the Jackson Hole Symposium convenes later this week, and his remarks will be closely parsed for any clues regarding the Fed’s tapering of asset purchases and hiking key interest rates. Goldman Sachs raised the odds on the Federal Reserve taper announcement in Nov to 45% from 25%; lowers December chances to 35% from 55% and expects a $15 bln per meeting pace of tapering, split between $10 bln in US Treasury’s and $5B in MBS. Oil prices recover as Brent moves back above $70 per barrel, while Treasury yields inched higher.

·     Stocks/sector movers: Cybersecurity space outperformed as PANW surges to its record high on strong results, including quarterly billings and FY guidance, and CRWD jumps as it will join the Nasdaq-100 later this week; OKTA, ZS shares were lifted in sympathy; BBY soars as the S&P leader on its quarterly beat with raised comp sales guidance; reopen plays extend yesterday’s gains after the FDA approved the PFE/BNTX vaccine – casinos LVS/WYNN, cruises and airlines; MDT rose to its ATH after its earnings beat and AAP jumped after raising its guidance; China stocks bounce off recent weakness – PDD spikes after its earnings, JD rises over 10% after Ark disclosed purchasing shares yesterday, TCEHY higher after buying back 230k of its shares yesterday, BABA, BIDU, DID rebound; risk-on sentiment weighs defensive staples $SJM $CPB $K, utilities NEE, DUK, SO; GME, AMC, BBBY, WISH, EXPR, BB, and many others saw spikes in volume and prices as "meme" stock momentum saw renewed interest late day.

Economic Data:

·     New Home Sales for July rose 1.0% to 708K, above the 697K estimate and prior 701K; the median sale price up 18.4% to a record $390.5K (previous 361.8K, +6.1% from June 2020); July single-family home sales +1.0% vs June -2.6%; July new home supply 6.2 months’ worth vs. 6-months June.

·     Richmond Federal Reserve Manufacturing Survey disappoints at +9 vs. +25 consensus and +27 prior; shipments +6 vs. +21 prior, capacity utilization +6 vs. +21 prior and volume of new orders +5 vs. +25 prior.

Commodities

·     Oil prices finish higher, with WTI crude gaining $1.90 or 2.89% to settle at $67.54 per barrel, rising a second straight day after tumbling 7-straight days prior. Prices got a boost on a bullish demand outlook as Mexico suffered a big production outage and U.S. regulators issued their first full approval for a COVID-19 vaccine, helping allay fears of slowing global growth. Oil had fallen for seven trading days in a row through Friday, the longest losing streak since 2018 for Brent crude, the international benchmark, and since 2019 for West Texas Intermediate. For much of the past year, oil has moved on two factors: the spread of Covid-19 and the decisions of OPEC and its allies about whether to increase or decrease production. Gold prices rise $2.20 to settle at $1,808.50 an ounce (highs $1,812.20 an ounce and lows $1,802.60), a narrow range as the dollar was little changed and investors await this weeks Fed symposium.

Currencies & Treasuries

·     The U.S. dollar slipped around a five-day low, this after touching 9-month highs late last week on signs the U.S. Federal Reserve is considering reducing stimulus this year. Markets appeared less concerned by the spread of the Delta coronavirus variant this week following the FDA full approval for the Pfizer vaccine, boosting risk appetite in global stock markets. Market attention is focused on the Jackson Hole conference on Friday, at which some investors expect U.S. Fed Chair Jerome Powell to give hints on a possible timeline for tapering of monetary stimulus. The USD-JPY printed six-session lows of 109.41 early in the session, later bouncing to 109.75.

·     Bitcoin prices topped the $50K level this weekend but has seen a steady wave of selling pressure since dropping to lows around $48K today, while other crypto assets all saw profit taking after massive run over the last 3-months when it had dropped around the $28K level. Ethereum prices slide over 4% dropping below $3,200 (but off June lows around $1,800).

·     Treasury yields edged modestly higher but remain in a very tight range ahead of the Jackson Hole Federal Reserve symposium later this week, but the 10-yr yield finished near the highs above 1.29%. The U.S. Treasury sold $60B in 2-year notes at a yield of 0.242% vs. 0.253% when issued prior, with a bid-to-cover (demand) at 2.65 and indirect bidders awarded 60.45% of the auction and directs awarded 21.18%.

Sector News Breakdown

Consumer

·     Retailers; BBY with a beat and raise as 2Q adj EPS $2.98 topped est. $1.85 on enterprise comps +20% vs est. +17.2% while guides Q3 revs $11.4B-11.6B above est. $10.6B and boosts year comp store sales view to +9-11% (from 3%-6%) and above est. +7.5%; URBN said to launch marketplace called Nuuly thrift; Citigroup opens a positive catalyst watch call on SIG as believe the setup heading into SIG’s earnings report on 9/2 is favorable; CTRN said its sales rose for the fiscal second quarter as it saw customers being in a better financial position compared with a year ago; VSCO downgraded to Equal-weight at Morgan Stanley on a more balanced risk reward & fewer catalysts until 2H22 noting shares have rallied +44% since the separation; earnings tonight in retail: JWN, URBN

·     Auto sector; auto retailer active after AAP Q2 adj EPS $3.40 vs. est. $3.03; Q2 revs $2.6B vs. est. $2.62B; Q2 comp store sales +5.8%; increased full year 2021 guidance as now sees FY comparable store sales up 6.0% to 8.0% (from 4%-6%) and raises year sales view to $10.6B-$10.8B (from $10.4B-$10.6B); NIO is introducing a new test on its app required by drivers before they can use the company’s assisted driving system, Navigate on Pilot, after a Chinese driver died in a crash earlier this month using it

·     Consumer Staples & Restaurants; defensive food stocks led the declines early (CPB, K, CAG); IFF signed a deal to sell its microbial control unit to German specialty chemicals maker Lanxess, with the deal being valued at $1.3 billion, the companies said; DOLE initiated coverage today by several analysts with Buys from Deutsche Bank, Goldman, and Stephens, but an underperform and $15 tgt at Bank America; GRWG announced the acquisition of Commercial Grow Supply, a hydroponic supply retailer with one store in Santa Clarita

·     Casinos, Gaming, Lodging & Leisure sector; Casino stocks active, especially those with Macau exposure (WYNN, LVS, MLCO) after the special administrative region’s authorities announced an easing of testing polices for travelers from the mainland, according to Bloomberg; online gambling/betting companies PENN, DKNG, CZR also saw significant strength; PLNT was initiated Overweight and $93 tgt at Morgan Stanley saying with the stock having underperformed its benchmark by ~15% YTD and off pre-Covid/early 2021 highs, the market seems skeptical of a return to normalized membership but firm sees evidence that in-person fitness can recover; MCW 12M share secondary priced at $19.57

Energy

·     E&P and Majors; a good move higher for energy stocks for a second week (after leading sector decliners last week with the 9% oil drop) – but the sector rebounds along with oil prices; OVV upgrade to Outperform with $39 tgt at Cowen saying E&P equities remain FCF driven stories, and OVV stands out with best-in-class yield and ‘rate of change’ potential on RoC; NTOIY upgraded to Outperform from Sector Perform at RBC Capital & raises his PT to €62 from €55 noting Neste’s shares have underperformed the wider market this year as near-term profitability has been underwhelming relative to the high levels in 2019-20

·     Utilities & Solar; utilities slide as investors sell defensive sectors; Citigroup opens an end of summer solar pair trade of overweight CSIQ and underweight FSLR noting the latter has outperformed CSIQ by ~35% since the US CBP issued a withhold release order on Hoshine Silicon on Jun. 23, and by 20% over the last week on reports that CSIQ modules had been detained by the CBP; CWEN entered into an agreement to acquire the remaining 50% equity interest in the Utah Solar Portfolio that it does not currently own for $335 million

Financials

·     Bitcoin, FinTech & Payments; RIOT reported consolidated total revenue of ~$34.3M, in-line with consensus of ~$34.6M as mining revenue was up ~36% sequentially ($31.5M during Q2) and up 1,540% Y-Y; COIN initiated Buy and $420 tgt at Needham as sees as a market-leading crypto asset exchange with significant opportunities beyond exchange services; MSTR said during Q3 fiscal YTD, co purchased about 3,907 bitcoins at an average price of about $45,294 per bitcoin

·     Consumer Finance; Banco Santander SA said its U.S. subsidiary Santander Holdings USA, Inc. will acquire the remaining shares it doesn’t already own in Santander Consumer USA Holdings Inc. (SC) for roughly $2.5 billion; Santander Holdings USA will buy the outstanding shares in Santander Consumer USA Holdings for $41.50 apiece https://bit.ly/3jchUiZ; IBKR launched the Interactive Brokers Canada Prepaid Mastercard.

·     REITs; BNL was downgraded to Hold from Buy at Truist and increasing price target to $27 from $25 saying given BNL’s strong relative outperformance this year, +38% YTD vs Triple Net Avg 27% and RMZ’s 25%, we view the shares as fairly valued; SHO was upgraded to Equal Weight from Underweight, with a price target of $11.50 at Wells Fargo

Healthcare

·     Pharma movers; CARA shares rise after the company and Switzerland’s Vifor announced U.S. FDA approval for Korsuva kidney disease drug; SAVA announces agreement with FDA on special protocol assessments (spa) for its phase 3 studies of simufilam for the treatment of Alzheimer’s disease; TBPH slides after early results showed its experimental drug, izencitinib, for ulcerative colitis, failed to meet the main goal in its mid-stage study; RHHBY signed a multi-target strategic collaboration and license agreement with Shape Therapeutics; ICCC slips as the U.S. FDA issued a letter indicating that some parts of the application for its mastitis drug are incomplete; REGN said an ongoing Phase 2 trial evaluating an 8 mg dose of aflibercept met its primary safety endpoint, with no new safety signals observed

·     MedTech Equipment; MDT Q1 EPS $1.41 vs. est. $1.32; Q1 revs $7.99B vs. est. $7.86B; narrows FY22 EPS view to $5.65-$5.75 from $5.60-$5.75 (est. $5.69), while reaffirms FY22 organic revenue view up 9%; NNOX signed a four-year distribution agreement with Dubai-based DHI 2048 to deploy and operate 2,100 of its X-ray machines in the Gulf region.

·     Healthcare Services; GTS agreed to be acquired by GuideWell Mutual Holding Corp., the parent of Blue Cross and Blue Shield of Florida, for about $900M, or $36 in cash https://bit.ly/3zqomIA ; at least six U.S. states, including Georgia, have decided they will not fully sign on to a proposed $26 billion settlement with three drug distributors (ABC, CAH, MCK) and JNJ which have been accused of fueling the nation’s opioid epidemic, according to the states’ attorneys general – Reuters reported; CI announces $2B in accelerated share repurchase agreements

Industrials & Materials

·     Aerospace & Defense; The FAA is launching a review of how Boeing (BA) employees handle safety matters following a survey that found 35% of a small sample of employees reported issues with undue pressure and difficulties being transparent with regulators – WSJ reported; MAXR said it received an order to build another geostationary communications satellite for longtime customer SiriusXM, following the SXM-9 satellite order that was announced earlier this month.

·     Industrial & Machinery; Goldman Sachs with a few changes as they upgraded AGCO to Buy from Neutral with $161 tgt driven by our positive outlook on a multi-year recovery in long-cycle ag equipment demand and AGCO’s margin expansion opportunity in a recovery; CMI downgraded at Goldman as US trucking spot rates have stabilized at peak levels, while China truck demand has started to slow off historical highs and the economic growth outlook has been revised lower; RSG was reiterated Buy and add it to the Conviction List with +20% upside to our new $147 at Goldman as see significant scope for accelerating unit profitability and high returns green capex to drive positive earnings revisions and multiple expansion for the stock; USCR gains as VMC deal set to close as soon as Thursday

·     Metals & Materials; strength early in the metals space (CLF, NUE, AA, X); CTVA has launched a new genetically modified soybean seed in Brazil following approval of the product in the European Union; RIO it has restarted operations at its Richards Bay Minerals project in South Africa after a furnace in July was shut down as the supply of raw materials was affected; in the TiO2 sector (CC, TROX, VNTR), BMO Capital said all signs continue to point to a very tight TiO2 market through at least 2022 (and possibly longer-term depending on the timing/capabilities of Chinese capacity adds)

Technology, Media & Telecom

·     Internet; China stocks rebounded overnight (BABA, JD, TCHEY, BIDU) after Bloomberg reported Cathie Wood joins bargain hunters as Ark bought back into JD while Tencent Holdings (TCEHY) bought back 230,000 shares for HK$100.9 mln ($12.95 mln) on Aug. 23, according to HK Exchange filing https://bloom.bg/2WcxBy5 ; SHOP rises early after the NY Times reported TikTok adds in-app shopping, in a partnership with Shopify; PDD swung to a profit during Q2, as net income attributable to ordinary shareholders of 2.41B yuan during Q2 vs net loss of 899.3M yuan a year earlier and posts Q2 revs 23.05B yuan below est. 26.44B bln yuan

·     Semiconductors; STX and WDC shares tumble with weakness attributed to a report from Edgewater Research noting they are taking a more cautious stance on both companies given the multiple risks to hard disk drive demand in the third and fourth quarters. Said PC-related demand for drives appears to be softening, including "a leveling off" in enterprise-focused models, with component supply issues still limiting production of PCs and servers

·     Software movers; PANW shares surged around 20% after reported better-than-expected FQ4 results, exceeding Street expectations across all key metrics and issued a better-than-expected outlook for both FQ1 and FY22. Most notably, total billings growth accelerated to 34% y/y from 27% and 22% in FQ3 and FQ2’21 which was 9% above expectations; CRWD to replace MXIM in the NASDAQ-100 Index beginning August 26, 2021; DXC upgraded to Positive from Neutral at Susquehanna with a price target of $42, up from $40 as believes cost cuts will drive higher earnings and expanded EBIT margins