Closing Recap

Monday, December 28, 2020

Equity Market Recap

·     It was another strong day for U.S. stocks, with most sectors rising on low volumes after President Trump signed into law the $900B relief package passed by Congress last week to help individuals, small businesses, and the economy overall, restoring unemployment benefits to millions of Americans and averting a federal government shutdown. With today’s moves, the S&P 500, Dow Industrials, Nasdaq Composite and Russell 2000 all touched fresh record highs as the market momentum remains firmly to the upside into year end. The German Dax traded to a record high after a Brexit trade agreement was reached between the UK and EU. Bitcoin kept rallying over the holiday break, surging past $28,000 on Sunday for the first time before retreating. The rolling out of vaccines, election uncertainty behind us and a string of stimulus measures have put the S&P 500 on track to rise about 15% this year, while the Nasdaq outperforms up over 40% YTD.

·     Among the recovery plays jumping today on expectation of relief funds are airlines (AAL, DAL), cruise lines (CCL, NCLH), theme parks (SIX, SEAS), retailers (M, KSS), and theaters, which were also boosted by better-than-expected revs for the release of “Wonder Woman 1984”. At the same time, stay at home 2020 winners such as PTON, ZM, CHWY, ETSY, SNAP and software winners were among the biggest drags today as well as 2020 IPO winners (AI, SNOW, DASH, PLTR). Large cap tech outperformed, led behind gains in FAANG, as AAPL, AMZN, FB, GOOGL among to leaders. Trading volumes are expected to be slim in the final week of the year, with stock markets being shut on Friday for New Year holiday.

·     Flashing market warning signs, but stocks still surging into year-end: 1) Margin debt at a record as investors borrowed a record $722.1 billion against their investment portfolios through November, according to the Financial Industry Regulatory Authority, topping the previous high of $668.9 billion from May 2018; 2) last week, the AAII sentiment poll showed bullish sentiment remained above 40% for a seventh consecutive week, which is its longest consecutive weekly streak since an eight-week stretch between December 14, 2017, and January 31, 2018 – while percentage of individual investors with a negative six-month outlook on U.S. stocks dropped to its lowest level in nearly a year (fell 4.3 bps to 22%); 3) Euphoria in Bitcoin continues as prices top $28,000 this weekend, rising another +10% today.

Commodities

·     Oil prices erased earlier gains, as WTI crude dipped 62c or 1.26% to settle at $47.62 per barrel, as oil prices failed to build on recent gains on economic recovery hopes. Gold prices slipped midday to settle at $1,880.40 an ounce, down -$2.80 and off earlier highs above the $1,900 an ounce level, snapping its modest 2-day winning streak. Gold prices had briefly posted a modest bounce toward its highest level in about six weeks intraday after President Donald Trump signed a coronavirus relief package over the weekend. Natural gas prices drop over 8.4% to settle at $2.31 ml btus on warmer weather forecasts.

Currencies & Treasuries

·     The U.S. dollar posted modest gains vs. rivals, while the euro gained against the safe-haven Japanese yen and Swiss franc as risk sentiment was boosted after a Brexit deal was reached between the EU and UK. The news boosted risk taking early with German and U.S. stocks hitting record highs. Risk sentiment also improved after U.S. President Donald Trump on Sunday signed into law a $2.3 trillion pandemic aid and spending package. Sterling had underperformed since the Brexit deal was reached, with traders saying that the news was likely priced in.

·     Bitcoin prices jump on day, trading above he $28,000 level over the weekend (but pared gains today), helped on reports BlackRock is looking to up its game in crypto, advertising for a VP of Blockchain, CoinDesk reports https://bit.ly/2WWRHsx . Marathon Patent (MARA) purchases 70,000 S-19 ASIC miners from Bitmain for $170 mln – shares are up over 35% amid spike in Bitcoin. Overall, Bitcoin-related stocks were strong on the day (MSTR, RIOT, XNET, SI, GBTC)

·     U.S. Treasury yields rose early as the 10-year edged up over 2 bps to 0.95% on rising appetite for risk after President Donald Trump signed into law overnight the $900B Covid relief bill passed by Congress last week, but erased gains to settle around 0.93%. The U.S. Treasury kicked off a record $176 billion in shorter maturities auctions this week, starting with Monday’s $58 billion in two-year notes and $59 billion in five-year debt. For the 2-year, the U.S. Treasury sold $58B at a yield of 0.137% with a bid-to-cover (demand) at 2.45 and indirect bidders awarded 49.22%, primary dealers take 33.28% and directs 17.5%. the U.S. Treasury sold $59B in 5-year notes at a yield of 0.394% with a bid-to-cover (demand) at 2.39 as indirects received 57.11% of auction, primary 24.92% and directs 17.97%.

Sector News Breakdown

Consumer

·     Retailers: strength in retailers as the economic recovery trade thanks in part to latest relief fund deal passage ($900B this weekend) as well as upbeat vaccine sentiment boosting retailers (M, KSS, JWN among gainers); Holiday retail sales excluding automotive and gasoline increased 3.0% this expanded holiday season, according to tracking from Mastercard Spending Pulse. Online sales were up 49.0% for an extended holiday period tracking that ran from October 11 to December 24, E-commerce accounted for 19.7% of overall retail sales, up from 13.4% last year with Amazon (AMZN), Wayfair (W) and Etsy (ETSY) made big market share grabs this year in retail; POOL positive mention in Barron’s this weekend

·     Auto sector: electric vehicle stocks outperformed early with big jumps in BLNK and NKLA but the group saw profit taking midday with many shares turning negative (LI, NIO, SBE, BLNK); NKLA had its tgt cut to $35 from $40 at JPMorgan but stayed Overweight as believe the stock may not fully price in successful execution of the multi-year growth strategy, which yields earning power of ~$1.5bn EBITDA in 2027E

·     Leisure and Gaming; sector was among the top outperformers given the relief bill passage this weekend (to the tune of $900B) by President Trump, helping revive spending hopes coupled with more positive vaccine rollout news, giving a boost to cruise lines (CCL, NCLH), theme parks (SIX, SEAS), casinos (WYNN, LVS, MGM) and leisure names (LYV, WWE)

Energy

·     Energy stock movers; energy names mixed despite overall recovery names rising today on relief bill news; Northland kept its Outperform rating on FANG and raised their target to $60 from $50; Goldman Sachs highlighted XOM as the stock that appears most oversold (-40% YTD vs. their cash flow estimate of -19%) and SU as another oversold name that has underperformed their cash flow estimate and peers, and they also reiterated their Buy rating on MPC despite being the top performer among its peers this year as they see above-average returns given their modeling shows company had the least reduction in 2022 FCF and cash flow estimates

·     Alternative Power, Utilities & Solar; CLNE, FCEL, PLUG higher (before reversing on profit taking) after gains late last week – U.S. Congress passed an alternative fuel tax credit which will continue to support the expansion of renewable natural gas; in coal, BTU rises after reaching support agreement with certain creditors on financial covenant relief, debt maturity extension and notes exchange offer

Healthcare

·     Pharma movers: MYOV and PFE to jointly develop and commercialize ORGOVYX (relugolix) and relugolix combination tablet in the U.S. and Canada as Myovant to receive an upfront payment of $650M in addition to potential regulatory and sales milestones for a total payment of up to $4.2B; AZN shares active after reports that British and Indian governments are likely to grant the emergency use approval for the COVID-19 vaccine candidate from AstraZeneca within ‘a few days (while other vaccine makers were volatile today – BNTX, MRNA, PFE); AVXL said it plans to advance avatar adult Rett syndrome study into a pivotal phase 2/3 clinical trial.

·     Biotech movers: APRE drops over 70% after saying its therapy, eprenetapopt in combination with chemotherapy drug, azacitidine, to treat a type of blood cancer did not meet main goal in a late-stage trial; NVAX has begun a large late-stage study of its experimental COVID-19 vaccine in the United States, the drug developer said on Monday, after delaying the trial twice due to issues in scaling up the manufacturing process. It will enroll up to 30,000 volunteers across about 115 sites in the United States and Mexico gene editing stocks (CRSP, EDIT, NTLA) extend gains after outperformance last week initially before sliding late day.

Industrials & Materials

·     Transports; airlines higher (DAL, UAL, AAL, JBLU) after U.S. President Donald Trump signs into the $900B relief bill passed by Congress last week – comes to around $2.3 trillion in total spending to fund government agencies (if Trump had not signed the bill, then a partial government shutdown would have begun on Tuesday; DAL and UAL said Friday they will require all passengers on flights from the U.K. to the U.S. to present a negative COVID-19 test taken within 72 hours of departure. Delta’s policy, which expands its earlier decision to require the screenings on U.K. flights to New York’s JFK International Airport. The U.S. Transportation Security Administration said it screened 1.28 million passengers on Sunday at U.S. airports, the highest number since mid-March, but is still about 50% lower than the same date last year.

Technology, Media & Telecom

·     Internet: BABA extends Friday’s decline after Chinese regulators have ordered affiliate Ant Group to shift its focus back to its main payments business after launching a probe into Alibaba for suspected monopolistic behavior. BABA also increased its stock repurchase program late Sunday to $10B (from $6B), but shares remain weak; WB reported a beat on the top and bottom line for quarterly results; YELP with a positive mention in Barron’s this weekend; GOOGL’s Google Pay is now the No. 5 finance app in Apple’s App store list as SQ holds the top spot followed by Mobile Cash and Venmo, both PayPal (PYPL) apps as per Piper

·     Semiconductors: price targets raised at Mizuho across the board, while calling ALGM, AMD, AVGO, MU, NVDA, NXPI, ON, QCOM, and SWKS top picks for 2021 in semi’s with favorable fundamental trends in autos, industrial, 5G, and M&A potential driving upside; in the end semiconductors as a whole erased earlier gains, falling late day

·     Software movers: PLAN tgt raised to $95 from $85 at Needham and selecting Anaplan as their 2021 best idea and adding it to our Conviction List (while removing UPLD); ATVI active after Truist noted Call of Duty Mobile (CODM) launched in China on 12/25 and said they believe the game is off to a good start based on Sensor Tower data (estimate CODM bookings in China for the 1st 2 days to have been ~$4.8m on iOS…~$6.8m Total)

·     Media & Telecom movers; DISH announced it reached a new, multi-year carriage agreement with NXST as local stations and WGN America have been immediately restored on DISH T and WGN America will be available on SLING TV in early 2021 as part of an Extra add-on package

·     Hardware & Component news; NNDM shares slide after entered into definitive agreements with investors to sell 33.3 million American Depositary Shares at a discount of $7.50 an ADS in a registered direct offering; ATUS tgt raised to $42 from $35 and ups video revenue estimates for Q4 and FY21 at Raymond James saying the pandemic has decelerated the pace of cord cutting, a trend we expect to continue over the next couple of quarters