Closing Recap

Wednesday, December 30, 2020

Equity Market Recap

·     U.S. stocks fell short of their record highs Tuesday, spending most of the day in positive territory though pared gains into the close as investors position portfolios into year-end. The rollout of coronavirus vaccines and recent signing of a new $900B virus relief aid bill have helped bolstered investors’ expectations for the economy into 2021 with big gains today in materials, energy, and industrials, though technology remains the market leader this year (Nasdaq up around 43% YTD). While markets have been on a straight rise since the November Presidential election, elevated levels of Covid-19 infections, the emergence of a rapidly spreading variant of the virus, economic data showing the rebound is slowing, soaring valuations, record high margin debt and the back-and-forth in Washington over the size of stimulus checks has tempered some of that optimism. In politics, Georgia is holding runoff elections for both U.S. Senate seats on Jan. 5, and the outcome will determine control of the Senate (Republicans currently hold the majority at 50-48).

·     IPO market a record year as companies raised $167.2 billion through 454 offerings on U.S. exchanges this year through Dec. 24, compared with the previous full-year record of $107.9 billion at the height of the dot-com boom in 1999, according to Dealogic. There was $67.3 billion raised in the fourth quarter, roughly six times the total for the first three months of the year. The IPO market got a boost from a surprising surge in special-purpose acquisition companies, or SPACs, empty vehicles that raise money through listings and then look for businesses to merge with. Nearly half of all fundraising in the IPO market was for SPACs, and the total raised through SPACs this year is almost six times as much as the vehicles raised in 2019, the previous record-setting year – WSJ https://on.wsj.com/2KERSXi

·     European stocks ended a five-day winning streak as investors locked in recent gains, although positive vaccine and Brexit trends pointed to a stronger 2021 for regional markets. The pan-European STOXX-600 edged 0.3% lower, still staying close to a 10-month high (down about 3% this year). German shares ended a shortened session about 0.3% lower, in their last trading day this year, but added more than 3% in 2020.

Economic Data

·     Chicago PMI for December rises to 59.5 vs. 56.0 consensus and 58.2 prior. New orders slipped two points in December as demand eased, while production ticked up 1.1 points as business activity picked up. Order backlogs rose for the second consecutive month in December, by 3.6 points compared with the previous month. Employment saw the largest gain in December and rose to a one-year high but is still in contraction territory.

·     November advance international goods trade balance widened to (-$84.82B) vs. -$82.0B consensus and -$80.4B prior (revised); Advance Retail Inventories rose +0.7% in November to $616.9B vs. +0.8% prior, while Advance Wholesale Inventories fell -0.1% to $649B vs. +0.6% estimate and +0.9% prior

·     Pending Home Sales Index fell -2.6% in November vs. est. decline of -0.3%, marking the third straight month of declines, following four months of extended gains and reaching in August the highest level in the historical series. Pending home sales were up 16.4% in November compared with the same month a year earlier

Commodities, Treasuries and Currencies

·     Oil prices add to moderate gains, rising 0.83% to $48.40 a barrel after the EIA reports a bullish decline in US crude-oil inventories, and another weekly move higher in gasoline demand. The EIA said U.S. stockpiles of crude fell by -6.1M barrels in the latest week versus forecasts for just a -2.5M-barrel decline. Gold prices rise 0.6% to settle at $1,893.40 an ounce as the U.S. dollar touched a new year low of 89.55 earlier (lowest level since April 2018) as investors continue to put money to work in riskier assets. Gold prices have held up very well this year despite the surge in stocks and both monetary and fiscal stimulus. Bitcoin prices reached another record high as speculators add to the recent momentum with prices topping $28,900, up as much as 8% today. Treasury yields have barely moved over the last few weeks despite stocks making new highs this week, as the 10-year yield remains in the 0.9%-0.95% range.

Sector News Breakdown

Consumer

·     Retailers; Guggenheim raised price tgts on several names as KSS tgt raised to $45 from $40, RVLV raised to $35 from $28, CPRI raised to $48 from $28, KTB raised to $46 from $40, LEVI raised to $24 from $20, and TPR raised to $35 from $27 and NKE named best apparel deal for 2021; in Consumer Staples; MKC purchased 100% of the shares of FONA International, LLC and certain of its affiliates, a privately held company for $710 million in cash; CALM tgt cut to $47 from $55 at Stephens saying weak foodservice demand has been impacting industry pricing dynamics

Energy

·     Energy stock movers: weekly inventory data was mostly bullish as the API reported last night that U.S. crude inventories fell 4.8 million barrels last week, saw a 718,000 barrel drop in gasoline inventories and a 1.88-million-barrel fall in distillate stocks. This morning, the EIA said weekly crude inventories fell -6.1M barrels vs. -2.6M consensus, gasoline fell -1.2M barrels vs. +1.7M consensus and Distillates rose +3.1M barrels vs. +0.5M consensus. Oil also gained ground on the back of a weaker dollar, a decline in U.S. crude oil inventories and as Britain approved another coronavirus vaccine, but both benchmarks remains on track to end the year about 20% lower. Energy stocks were among the top gainers in the S&P 500 on the day.

Financials

·     Financial news: FTIV rises as Boutique investment bank Perella Weinberg Partners agrees to go public through a merger with FTIV, backed by banking entrepreneur Betsy Cohen, in a deal valued at $975M; VNO was upgraded to Buy from Hold with $42 tgt at Argus noting shares are down 44% year-to-date due to the pandemic, and in our view offer a favorable entry point; MA tgt raised to $397 from $384 at Stephens as they expect cross border sentiment to improve by the beginning of next year

Healthcare

·     Pharma movers; AZN rises after announcing that its COVID-19 vaccine has been approved for emergency supply in the U.K., with the first doses being released today so that vaccinations may begin early in the New Year; PLX reports positive results from final analysis of its late-stage study of PRX-102, its experimental treatment for Fabry Disease; EBS and Mount Sinai Health System announced the start of a clinical program to evaluate whether a therapy could help protect individuals following exposure to Covid-19; ALT begins multinational phase 2 clinical trial of heptcelltm, a novel immunotherapeutic for the treatment of chronic hepatitis b

·     Biotech movers; OSMT plunges after saying the U.S. FDA declined to approve its arbaclofen ER tablets to treat spasticity in multiple sclerosis patients; REGN announced encouraging initial data from covid-19 antibody cocktail trial in hospitalized patients on low-flow oxygen; first antibody therapy to demonstrate anti-viral effect in patients hospitalized with covid-19; MRNA said it will offer its new Covid-19 vaccine to its own employees, contractors and board members; INCY said it agreed to collaborate with privately held clinical-stage biotech company Cellenkos Inc. in the treatment of myelofibrosis, a rare, chronic blood cancer

·     Healthcare services and providers; ACHC reached an agreement to sell its U.K. operations to Waterland Private Equity for about 1.078 billion pounds ($1.47 billion) as expects net proceeds of about $1.350 billion net of transaction costs and the settlement of currency hedging liabilities; FMS said it plans to begin administering the intravenous treatments nationwide this week at facilities dedicated to handling COVID-19 patients or during shifts set up for only those patients; PDCO slid after Piper said that DSO Heartland Dental selected one of Patterson’s competitors as its primary distribution partner effective April 1, 2021

Industrials & Materials

·     Metals, Materials, Industrial & Machinery; CAT named top 2021 idea at Baird as sees setup like 2010, 2017 where stock outperformed by 50%; FDX tgt raised to $305 from $270 at Argus and raising EPS estimates for this year and next; big day for metals which saw broad-based strength on the day as FCX, X, AA among gainers in aluminum, copper, and steel spaces

Technology, Media & Telecom

·     Tech movers: JD said its board authorizes the company to explore feasibility of potential spin-off of JD Cloud & AI business to JD Digits, in which co owns a significant minority stake; MVIS slips after entering into a $13M At-the-Market (ATM) equity offering agreement; MODN announced John Ederer as the company’s new Chief Financial Officer, which comes nearly 3 months after the surprise departure of then CFO David Barter; FUBO shares fall a 5th day ahead of lock-up expiry today, short call for Kerrisdale Capital as well as recent cautious sell-side related research calls (Lightshed and Hedgeye)

·     Semiconductors outperform after recent underperformance as the Philly Semi index (SOX) came into the day down six of the last 7 days, pulling back from recent record highs (note NVDA and AMD among the best performing S&P components this year). Reuters noted a global chip shortage threatens production of laptops, smartphones and more. Makers of cars and electronic devices from TVs to smartphones are sounding alarm bells about a global shortage of chips, which is causing manufacturing delays as consumer demand bounces back

·     Tech research: Needham with several top pick calls in 2021: AMAT tgt raised to $110 from $82 and named a top pick in 2021 in the Semi Cap space for 2021, TWOU named best idea in online education for 2021 replacing (CHGG), FFIV named the Single Best Idea in Networking for 2021, and MXL named top semi pick for 2021 – PT raised to $45 from $40