Closing Recap

Thursday, December 03, 2020

Index	Up/Down	%	Last
DJ Industrials	86.71	0.29%	29,970
S&P 500	-2.27	0.06%	3,666
Nasdaq	27.82	0.23%	12,377
Russell 2000	10.68	0.58%	1,848

 

Equity Market Recap

·     After chugging along to all-time record highs for the Nasdaq Comp and S&P 500 most of the day, markets faded into the close after the WSJ reported Pfizer Inc. expects to ship half of the Covid-19 vaccines it originally planned for this year because of supply-chain problems, but still expects to roll out more than a billion doses in 2021. The news brought out sellers for the first time in the day as profit taking ensued (albeit off record highs and quickly recovered). Prior to that, gains were broad based but led by cyclical, SmallCap and value names. Large cap leaders weren’t weak, they just lagged as the positive/upbeat sentiment heading into the New Year remains astonishing despite a massive surge in November.

·     Surging coronavirus cases, deaths, and hospitalizations in Europe and the U.S. has been offset with daily (literally) upbeat vaccine related headlines from the likes of PFE, MRNA, as just yesterday the UK approved the PFE/BNTX vaccine, becoming the first western country to formally endorse a shot (UK granted emergency use approval to the Pfizer vaccine just 23 days since Pfizer published the first data from its final-stage clinical trial) – with the FDA approval vote upcoming shortly. On top of vaccine news, U.S. lawmakers have been unable to agree on a fresh relief package, but there remain signs a $908 billion bipartisan proposal was gaining support as a negotiating tool. The expectations of a stimulus deal and continued optimism over COVID-19 vaccines kept the dollar index near a more than two-year low, buoying appeal for gold among investors holding other currencies.

·     On the data front, results were mostly favorable as jobless claims came in lower with declining continuing claims and strong manufacturing data from Markit, though ISM Services data disappoints missing estimates and dipping below prior month (though did show expansion). Reminder monthly nonfarm payroll data expected tomorrow morning, with ests for a 469K rise in nonfarm, 589K in private payrolls, 43K adds in manufacturing and unemployment to dip to 6.8%.

·     Nothing new to report on stimulus talks after U.S. House Majority Leader Hoyer expressed hope yesterday that a fiscal stimulus deal could be reached "in the next few days", and any legislation would likely need to be supplemented with further aid next year – which has been another big market driver this week. Republicans and Democrats also face a Dec. 11 deadline to pass a $1.4 trillion budget or risk a shutdown of the government.

·     In Europe, the EU and U.K. officials said that a treaty regulating the two sides’ future trade relationship could be agreed before the weekend. But hard-liners in both camps reiterated their longstanding views that the absence of a deal would be preferable to an agreement that would ignore their red lines (as per Reuters). EU and U.K. negotiators entered the last possible days to strike an agreement, before an EU summit next week that could green light the deal and open the way for parliaments to ratify it before the end of the year.

·     Sector movers; BA soars after RYAAY ordered 75 additional 737 MAX planes and UAL expects to receive its first 737 MAX delivery next week (top Dow component); in Fintech, SQ, PYPL rise after Evercore assigns street-high price targets on both stocks as they will benefit from accelerating shifts to online payments; retail earnings busy as PVH, GES spike after earnings in luxury retail, lifting RL, CPRI; in tech, CRWD, ZS, OKTA all-time highs in software after impressive earnings beats, though SPLK plunges on its disappointing results in software; TSLA soars after Goldman upgrades to Buy with a street-high target on the company’s EV market share and the industry shift towards EVs; WDR jumps after being acquired for a 49% premium from Tuesday’s closing price, lifting BEN, TROW, WETF, IVZ; in staples, COST slips after Nov comp sales miss estimates and KR slides after rev misses estimates and slowing same-store sales growth.

Economic Data

·     U.S. jobless claims fell to 712K better than the 775K est., while prior week revised to 778K; continued claims fell to 5.520 mln in latest week (vs. est. 5.915 mln) from 6.089 mln prior week; the 4-week moving average fell to 739,500 from 750,750 prior week and the U.S. insured unemployment rate fell to 3.8% from 4.2% prior week

·     Markit Services PMI Nov-F at 58.4 vs. Oct 56.9 (vs flash 57.7) and highest since March 2015, Final Composite PMI at 58.6 (vs flash 57.9), also highest since March 2015vs. Oct 56.3; Final services employment index at 57.8 vs flash 58.6 and final October 53.4 – final services and composite employment indexes both highest since survey began in 2009

·     ISM Non-Manufacturing for Nov (services) slowed to a six-month low in November amid widespread restrictions on businesses reported at 55.9 last month, below the 56.6 in October and missing estimates. Services sector PMI and business activity index both lowest since may, new orders lowest since August. The second straight monthly decrease pulled the index further below its 57.3 level in February.

 

Commodities

·     Oil prices end surprisingly higher as OPEC+ members agreed to increase oil production by 500,000 barrels per day starting in January but failed to find a compromise on a broader and longer-term policy for the rest of next year. The increase means the Organization of the Petroleum Exporting Countries and Russia would move to cutting production by 7.2 million bpd, or 7% of global demand from January, compared with current cuts of 7.7 million bpd. After hopes for a speedy approval of anti-virus vaccines spurred an oil price rally at the end of November, several producers likely started questioning the need to keep such a tight rein on oil policy. Natural gas settles 9.8% lower at $2.507, a 2-month-low, on warm weather and storage surplus

·     Gold prices edged higher for a third straight session (2-week highs), helped as the dollar fell a 7^th day to new multi-year lows and investors hung to hopes of an eventual breakthrough in negotiations over a fresh U.S. coronavirus aid package. February gold rose $10.90, or 0.6%, to settle at $1,841.10 an ounce ahead of the monthly nonfarm payroll data tomorrow morning.

 

Currencies & Treasuries

·     U.S. Treasury yields edged lower after a strong 2-day advance prior (10-yr slips back to 0.92% from 0.96% highs yesterday) after data showed the nation’s services industry activity slowed to a six-month low in November. That data followed a better weekly jobless claims report and strong manufacturing data.

·     The U.S. dollar again with broad weakness, as the dollar index (DXY) hits lowest levels since April 2018 at 90.53 (on track for 7^th straight daily decline), falls to 2 ½ year low vs. the euro which trades up at 1.215 (+0.4%), hits 1-week low vs. the Japanese yen and fell to January 2015 low vs. the Swiss franc as signs of progress towards U.S. fiscal stimulus and optimism about COVID-19 vaccines kept investors upbeat and firmly in riskier assets. The British pound around $1.35, helped by the dollar weakness, as Brexit negotiations continue (best levels since May ’18).

 

 

Macro	Up/Down	Last
WTI Crude	0.36	45.64
Brent	0.46	48.71
Gold	10.90	1,841.10
EUR/USD	0.002	1.2135
JPY/USD	-0.42	103.98
10-Year Note	-0.023	0.921%

 

 

Sector News Breakdown

Consumer

·     Apparel Retailers; GES Q3 adj EPS 58c on revs $569M vs. est. 5c and $515.58M, and the company expects Q4 revs to be down low-mid 20s due to lower customer traffic related to the pandemic and store closures; PVH reported Q3 Adjusted EPS of $1.32 (6x higher than consensus $0.22) on revs $2.12B (-18.1% YoY, above consensus $1.99B), as all three brands report better than expected revenues, with Tommy Hilfiger’s and Calvin Klein’s international driving the largest portion; BKE reported November total sales +8.1% to $86.3M and comp sales +8.4%; EXPR 3Q adj EPS ($1.17) vs. est. ($0.51) on sales $322.1Mm vs. est. $376.4Mm, comps -30%, and they do not provide guidance for 4Q; SFIX downgraded to underweight on valuation at Wells Fargo with shares being among the strongest YTD performers in our group (up ~60% vs. SPX +12%)

·     Discount retailers; DG Q3 EPS $2.31 on net sales $8.2B (est. $8.14B), comp sales +12.2% (est. +11.5%) but market may have wanted more; FIVE Q3 EPS 36c on revs $476.6M, both topping estimates (19c on $445.6M), and comp sales +12.8% beat est. +5.3% and was the company’s strongest growth since 2010; FIVE 3Q sales and margin beat, due to leverage and tight cost controls. While go-forward expenses should normalize, 4Q comps are off to a strong start

·     General retail; SPWH Q3 adj. EPS 71c (+185% YoY) on revs $385.75M, above consensus 47c and $327.83M, same-store sales +40.9%, and sees Q4 EPS 39c-45c on revs $356M-$386M (above est. 26c and $299.91M), and Q4 same store sales growth 32%-42%; MIK Q3 EPS 74c on net sales $1.41B, comp sales +16.3% (est. +14.4%), e-commerce sales +128% YoY, and the company generated $380M in FCF for the quarter, but does not provide guidance; SIG reports a surprise Q3 profit with adj EPS 11c vs. est. (66c) loss on sales $1.3B vs. est. $1.14B, comp sales +15.1% (est. +5.1%), and gross margin rate improved 250bps to 33.6% (est. 31%) driven by higher sales volume and lower store occupancy costs, though the company does not provide any guidance but believes Covid will have a more significant negative effect in December than in November

·     Auto sector; TSLA was upgraded to Buy from Neutral at Goldman Sachs with a price target of $780, up from $455 on better long-term sales outlook and margin expansion; BLNK to deploy EV charging stations across northeast Burger King locations; electric vehicle names still dominate trading activity as investors turn to future growth potential

·     Housing, Home Furnishing & Building Products; MHK was upgraded to overweight from neutral and up tgt to $157 from $122 at JP Morgan while the firm downgraded SWK to neutral from overweight on valuation, add WHR to focus list and reiterate our Overweight ratings on FBHS and DOOR in building products sector – Overall, while we anticipate solid earnings growth over the next two years; KIRK Q3 Adj EPS 66c on sales $146.6M, comp sales +8.9% and ecommerce +49.9%, and the board authorized a $20M share buyback plan

·     Consumer Staples; KR Q3 sales of $29.72B just below the $29.97B view while Q3 digital sales more than doubled, but was down compared with a 127% growth in the last qtr and raised its FY 2020 guidance; TSN upgraded to overweight from neutral at Piper as believe a vaccine and economic ‘reopening’ will benefit Tyson in ways that are not yet priced into valuation; COST reported Q1 net sales $42.35B (+16.9% YoY), Nov net sales $15.67B (+15.1% YoY), and comp sales +13.4% (ex-gas +14.2%), missing estimates (+13.8%, +15.4%)

·     Restaurants; another sector benefitting from stimulus aid hopes as both sides in Washington becoming more agreeable to terms (at least according to headlines); CMG highlighted as the company as a "Best Idea for 2021" in restaurants space at Cowen; CBRL Q1 comp-store sales didn’t fall as steeply compared to recent quarters, but revenue declined almost 14% YoY; RBC raised its tgt on SBUX to $109 ahead of its 2020 Biennial Investor Day (December 9^th)

·     Leisure and Gaming; cruise lines outperform early on as Covid vaccine hope builds (NCLH, CCL, RCL); hotel and lodging names (MAR, H, HLT) also another beneficiary as well as theme parks (DIS, SIX, SEAS), casinos (WYNN, LVS); Flutter Entertainment raised its bet on the U.S. gambling market on Thursday, with a $4.18 billion deal to increase its FanDuel holding to 95% and end Fastball’s involvement in online sports betting platform FOX Bet; MGM announced the completion of the remaining $700M OP unit redemption with its REIT partner MGP.

 

Energy

·     Energy stock movers; little profit taking today in energy stocks as markets awaited official OPEC+ production headlines (proposal to raise output by 500,000 bpd from Jan is the only proposal being discussed now according to midday comments); CVX unveils a 2021 organic capital and exploratory spending program of $14B and lowers its longer-term guidance to $14B-$16B annually through 2025 – longer-term guidance is well below the company’s previous guidance of $19B-$22B, which excluded Noble Energy; RDSA upgraded to outperform from market perform on attractive cashflow momentum fueled by ~12% CFO CAGR to 2025 and continued capex discipline at Bernstein; natural gas prices slipped 10% as inventory showed a smaller-than-expected weekly draw of -1 bcf vs. -12 bcf consensus and compared to -18 bcf last week as well as warm weather – EQT, COG, RRC drop as energy names leveraged to natural gas seeing some of the biggest declines with natural gas prices falling

 

Financials

·     Asset managers; WDR agrees to be acquired by Macquarie Group for $25 per share, in a $1.7B deal, a ~48% premium to the stock’s closing price on Dec. 1. Macquarie also will sell Waddell & Reed’s wealth management platform to LPLA for $300M and enter into a long-term partnership with Macquarie https://bit.ly/37ye9x6 ; XP 31.654M share secondary priced at $39.00; Jefferies said BLK and TROW top picks in U.S. in asset manager space and from an M&A perspective they view WETF is the leading take-out candidate saying as organic growth challenges persist industry consolidation is on the rise; in insurance, LMND shares jumped on positive Motley Fool pick

·     Consumer Finance; Dyal Capital Partners is in talks to merge with ORCC, part of a complicated deal with a special-purpose acquisition company that would value the fast-growing asset managers at about $13 billion – WSJ reports https://on.wsj.com/39DeK3w ; FOUR 8M share Secondary priced at $55.50; SQ upgraded to outperform at Evercore ISI and hikes PT to $300 from $161, implying upside of ~33% from last close as expects co’s Cash App to sustain incredible growth through innovation and total addressable market expansion; PYPL tgt raised to $312 from $240 at Evercore/ISI as believes will continue to benefit from the accelerating shift to online payments created by the COVID-19 pandemic/continue to disrupt payments/banking industries

·     REITs; in healthcare REITs, JMP Securities upgraded OHI and SBRA to Outperform saying they believe COVID-19 vaccine deliveries will begin to arrive within the next two weeks and skilled nursing facility residents will be prioritized, based on vulnerability; EQIX, DLR, QTS init buy in Data Center REITs at Mizuho, COR, CONE with neutrals as expect solid earnings growth in 2020/2021 balanced by the need for future development to meet demand; ESS and ESRT both upgraded at BMO Capital

 

Healthcare

·     Pharma movers; LLY announces 650,000 additional doses of neutralizing antibody bamlanivimab (ly-cov555) purchased by U.S. government to treat covid-19; purchase agreement is for $812.5 mln and doses will be delivered through January 31, 2021; JAZZ slips as study of Zepzelca in combination with doxorubicin in adult patients with small cell lung cancer (SCLC) did not meet the pre-specified criteria of significant for the primary endpoint of overall survival (more)

·     Biotech movers; OMER rises after a rule from the Centers for Medicare & Medicaid Services showed the company’s Omidria qualifies as a non-opioid pain management drug that functions as a surgical supply; INO announces deal with Kaneka Eurogentec S.A., an affiliate of Japan’s Kaneka Corp, to make INO’s COVID-19 vaccine candidate INO-4800

·     Healthcare services and providers; in hospitals (THC, UHS, CYH), Piper said outpatient volumes declined (0.9%) y/y in this month’s survey, indicating a reversal from the 180-bps improvement observed in October. Despite the shift, volumes have again come under pressure due to rising Covid case counts; WBA and CVS outperform in pharmacy retail

·     MedTech and Equipment; WAT announced that its current CFO would be stepping down at the end of 2020 to pursue an opportunity at a privately held company. Current VP/Corporate Controller will assuming role of interim CFO; CDMO blow-out Q2 results as excluding a $1.7M accounting benefit, revenue came in above both consensus and Street high estimate, while guidance was raised by more than the amount of the beat; QDEL active after mgmt presented yesterday at an investor conference saying the QuickVue SARS-Antigen test may be approved as early as next-week, and the QuickVue "At-Home" test would be submitted for EUA by year-end

 

Industrials & Materials

·     Industrial & Machinery; CMI, PCAR, NAV, ALSN active after November preliminary NA (U.S., Canada, Mexico, and for Export) Class 8 truck net orders registered 51,900, up 197% y/y and 33% m/m, according to ACT Research data released after the close Wednesday; represented the third highest level in history. Preliminary Class 5–7 truck net orders of 27,200 units increased 78% y/y but declined 9% m/m from Oct’s 30-mo high; MMM to start restructuring actions, will impact all groups and about 2,900 positions, sees annual pre-tax savings of $200-250Mm, sees taking $120-150Mm pre-tax charges in 4Q; Morgan Stanley said residential is the natural inverse of the reopening theme in our coverage, but not all names are equal saying channel inventory and a "normal" 2020 leave them cautious on residential HVAC as prefer SWK while PNR is close enough to normalized earnings as they downgrade to Equal-weight.

·     Transports; DAL said revenues are slowly coming back, but still expects to be at just 30% of 2019 levels for Q4; XPO announced a proposed spinoff of its two-core business, Transportation and Logistics, into two separate publicly traded companies; SAVE said expects flights to be 70% full in Q4 despite pandemic-related fall in demand and continues to see significant pressure on ticket revenue per passenger flight segment

·     Aerospace & Defense; BA shares jumped as much as 7% on positive headlines as Ryanair (RYAAY) announced that it signed a purchase agreement with Boeing (BA) for 75 new MAX-8200 aircraft, which increases its firm order for the Boeing aircraft from 135 to 210, with a total value of over $22B (confirms prior reports); SPR surges on BA strength as Cowen raised tgt from $39 to $46, reit Outperform, calling it a 2021 Best Idea saying MAX certification vaccine announcements and up trending domestic traffic make narrow body OE recovery the most investable theme in the commercial aircraft sector

 

Technology, Media & Telecom

·     Semiconductors; another record high for the Philly semi index (SOX); SMTC delivered October quarter results ahead of expectations, while January quarter guidance also beat consensus. The strength was broad-based, with very strong traction in LoRa; SIMO added to Wedbush best ideas list given our positive outlook around the current environment and what we see as an increasingly favorable setup through the coming calendar year into 2022

·     Security software names active on earnings; CRWD shares jump after Q3 beats with 86% YoY revenue growth to $232.46M (est. $212M), subscription revenue was up 87% to $213.5M and ARR totaled $907M vs. the $853.8M with better Q4 guidance; ZS reported strong F1Q21 results as the company is benefiting from an acceleration of digital transformation as billings growth accelerated to +64% y/y (vs. Street +39.5%), and FY21 billings guidance was raised by ~6% at the mid-point; OKTA reported good quarter as billings, revenue, OM and CFFO all comfortably exceeded consensus estimates and large deal momentum was stronger than expected

·     Other software; SPLK tumbles as missed on most major metrics for the quarter including revenue (-9.1% vs cons), PF operating margin (-490 bps vs cons), and EPS (-$0.07 vs cons expectations of $0.09); SNOW Q3 results generally beat sell-side consensus numbers, Q4 and FY21 guidance was mixed, with lower product revenue guidance than investors expected; ESTC delivered strong results with marked revenue/billings outperformance with SaaS revenue +81% to 26% of the mix

·     Media & Telecom movers; NXST programming went dark for more than five million DISH Pay-Tv customers Wednesday evening after the two companies couldn’t come to terms on a new distribution agreement; AMC, CNK, IMAX slide as Dow Jones reported that Warner Bros. will put out 17 films in 2021 as viewers will be able to view a new film every three weeks in 2021 on HBO Max; movies will debut on HBO Max and stay there for a month – "Godzilla vs. Kong’ and ‘matrix 4’ included in 2021 warner bros. roster – more

·     Hardware & Component news; VERI 3M share Spot Secondary priced at $18.50; GPRO said subscriber count surged past 670,000 mark due to record-breaking sales at gopro.com during Black Friday and Cyber Monday period and is confident about co’s ability to exit 2020 with low channel inventory and a promising outlook for 2021