Closing Recap

Thursday, December 30, 2021

Equity Market Recap

·     A sharp selloff into the close pushes major averages to lows in final minutes. The S&P 500 and Dow Jones Industrial Average each touched new intraday record highs before slipping in the afternoon session, as the S&P failed to set a fresh record close (came into the day with 70 record highs in 2021 – while the record stands at 77 in 1995). The Dow snapped its longest winning streak since March (6-days) amid the late day dip, while the tech heavy Nasdaq and Smallcap Russell 2000 outperformed on light volume. Based on today’s market action, it seemed that tax loss selling supply was a massive factor in holding down beaten down names up until yesterday – with big bounces in many of the 2021 top decliners, several of the Russell 2000 Smallcaps led on the day. Oil prices advanced (on track for best yearly return since 2009), along with gold prices despite a bounce in the dollar.

·     Stock & Sector movers: NTES, JD, DIDI, BABA, BIDU rise amid a massive squeeze in U.S. listed China names that have been pummeled all year amid increased scrutiny and regulation it its country as tax loss selling dries up into the end of the year; transport stocks slip early after names like rails CSX, UNP, NSC touching all-time highs this week, rotation into yearly losers; VIAC, DISCA, DISH among top gainers in the S&P 500 as media leading (sector still down big on year); in pharma, JNJ’s COVID-19 vaccine demonstrates 85% effectiveness against hospitalization in South Africa when Omicron was dominant; TEVA fueled opioid addiction in New York state, a jury found on Thursday, and $BIIB shared fell as Samsung Biologics said overnight a report Wednesday that it’s in talks to purchase the biotech company is not true; RCL, CCL, NCLH give up early gains after the CDC said the COVID-19 Travel Health Notice level has been updated from Level 3 to Level 4, the highest level reflecting increases in cases onboard cruise ships since Omicron variant.

·     After a selloff in high-growth stocks during the waning days of the year, two-thirds of the companies that went public in the U.S. this year are now trading below their IPO prices. Traditional IPOs raised more money than ever in 2021, as startup founders and early investors tried to cash in on sky-high valuations. In the first eight months of the year, IPO shares rose. In November 2021’s class of IPOs were trading up 12% on average, according to Dealogic. By late December, they traded 9% below their IPO prices. – WSJ reported https://on.wsj.com/3eE7W6K

·     Market timer Tom McClellan, publisher of the "McClellan Market Report," warned of a "sharp drop" in the stock market, "beginning imminently," and continuing for a couple of weeks into January. Among reasons for his view, chart signals suggest the recent rally in the Dow Jones Industrial Average and S&P 500 to record highs appear to reflect a "blowoff exhaustion;" negative divergence in the advance-decline line, which showed most stocks were declining while the indexes rose; and the fact that the annual seasonal pattern shows a tendency for the Dow to fall during the first two-to-three weeks of January, McClellan said in a newsletter sent to clients overnight. McClellan said he’s bearish short-, intermediate- and long-term trading styles – Marketwatch.com https://on.mktw.net/3zeqvIs

Economic Data:

·     Weekly Jobless Claims fell to 198,000 in the latest week, below consensus 208,000 and down from 206,000 prior week; the 4-week moving avg fell to 199,250 in latest week from 206,500 prior; continued claims fell to 1.716M in latest week (back to where it was pre-COVID) from 1.856M prior (below est. 1.868M); the U.S. insured Unemployment rate fell to 1.3% from 1.4%

·     Chicago PMI for December reported at 63.1, topping estimates of 52 and prior month 61.8

Commodities, Currencies & Treasury’s

·     Oil prices finished higher, with WTI crude rising $0.43, or 0.56% to settle at $76.99 per barrel but off the best levels of the day ($77.44), extending its December gains up roughly 16% ahead of the OPEC-plus meeting set for Tuesday January 4^th. OPEC+ increased January quotas by 400,000 b/d, rather than freezing quotas – but no change is currently expected at the upcoming meeting. Oil prices pared earlier gains after China, the world’s top crude importer, lowered the first batch of 2022 import quotas to mostly independent refiners by 11%. Note global oil prices have rebounded by between 50% and 60% in 2021 as fuel demand roared back.

·     Gold prices rise $8.30 or 0.5% to settle at $1,814.10 an ounce despite a bounce in the dollar and a further rally in stocks that took the Dow Jones Industrial Average and the S&P 500 to intraday records, amid a continued downshift in omicron concerns.

·     Treasury yields fell, with the 10-year at afternoon lows around 1.52% (down 2.3bps) – off recent highs 1.55% after weekly jobless claims data and year-end positioning. Longer dated yields declined after outperformance on Wednesday, about 3 bps lower at 1.520% and 1.929% on the 10- and 30-year maturities, respectively, while the 2-year was fractionally lower at 0.742%.

·     The U.S. dollar index (DXY) with a bounce back above the 96 level, trading slightly above and below it for a few weeks now as stock hold near highs. The Rouble hit a one-month on Thursday ahead of a phone call between President Vladimir Putin and his U.S. counterpart Joe Biden at a time of strained Moscow-Washington relations over Ukraine.

Sector News Breakdown

Consumer

·     Retailers; a generally good day for consumer discretionary stocks with hardline, Softline and specialty apparel names seeing relative strength early; TSCO was upgraded to Buy at Argus with $255 tgt saying it has a record of consistent growth, an experienced management team, and a clean balance sheet. It has also benefited during the pandemic from increased consumer spending on home improvement projects, in-home activities, and hobbies

·     Auto sector; Citigroup with a few tgt changes as GM tgt raised to $96 from $90 and maintains its Buy; TSLA reiterate sell and raise tgt to $262 from $236; LCID resume with a Buy and $57 tgt and Ford (F) tgt raised to $23 from $20 and stays neutral rated; DIDI said Q3 revs dropped 11.5% QoQ, after Chinese regulators launched a cybersecurity probe into the ride-hailing firm; reported the equivalent of $6.7B in revenues for Q3 and posted a net loss equivalent to $4.8B; TSLA recalls nearly half a million Model 3 and Model S cars to address potential failures in its trunk latching systems, as first reported by Barron’s

·     Consumer Staples & Restaurants; MCD tgt raised to $300 from $275 at Argus saying they expect McDonald’s, with its strong digital, delivery, and drive-thru businesses, to endure a period of weak industry sales better than most other restaurant chains; KR board authorizes $1B in share repurchase authorization

·     Casinos, Gaming, Lodging & Leisure sector; in the cruise line industry, RCL issued updates saying it has carried 1.1 million guests with 1,745 people testing positive – a positivity rate of 0.02% – said none of the Omicron cases have been severe or needed to be taken to a hospital…and said the company experienced a decline in bookings and increased cancellations for near-term sailings but to a lesser degree than that experienced with the Delta variant; cruise names (NCLH, RCL, CCL) give up early gains after the CDC said the COVID-19 Travel Health Notice level has been updated from Level 3 to Level 4, the highest level reflecting increases in cases onboard cruise ships since Omicron variant as advises Americans to avoid cruising, even if vaccinated; online gaming stocks seeing a bounce after a dismal year, with DKNG, PENN moving higher

Financials

·     In real estate, RDFN said the median asking price of newly listed homes increased 12.9% year over year to $345,348, up 28.7% from 2019 while 42.1% of homes sold above list price, up from 33.6% a year earlier and 19.9% in 2019; New listings of homes for sale were down 6.4% from a year earlier but up 15.6% from 2019; 29.6% of homes that went under contract had an accepted offer within one week of hitting the market, up from 25.3% during the same period a year earlier and 15.8% in 2019; Homes that sold were on the market for a median of 26 days, down from 33 days a year earlier and 50 days in 2019

·     Bitcoin, FinTech & Payments; MSTR said that it bought about 1,914 bitcoins for $94.2M between December 9th-29^th; FTFT shares jumped after it establishes a new blockchain division which will manage the company’s existing blockchain sector business and its bitcoin mining farm plans in the U.S. and Paraguay; HOOD said it will launch the beta phase of its cryptocurrency wallet in mid-January to thousands of customers on its waitlist

Healthcare

·     Pharma & Biotech movers: Samsung Biologics said a report that it’s in talks to purchase Biogen (BIIB) is not true. The earlier Korea Economic Daily report is not true, according to a Bloomberg report, which cited a regulatory filing https://bit.ly/3195CBE; JNJ’s COVID-19 vaccine demonstrates 85% effectiveness against hospitalization in South Africa when Omicron was dominant. Separate analysis showed Johnson & Johnson COVID-19 vaccine booster generated 41-fold increase in neutralizing antibodies and a 5-fold increase in T-cells against Omicron; JAZZ announces first patient enrolled in phase 2 clinical trial evaluating jzp150 for once-daily treatment of adults with post-traumatic stress disorder; MDGL said topline results from a phase 3 trial called MAESTRO-NAFLD-1 of resmetirom in patients with non-alcoholic fatty liver disease, is now expected in January instead of this year end; TEVA fueled opioid addiction in New York state, a jury found on Thursday, a setback for a company still facing thousands of other opioid-related lawsuits around the United States.

Industrials & Materials

·     Transports; airlines and travel names struggling for the most part this week due to rising cancellations amid Omicron surging cases globally; rail stocks CSX, UNP, NSC seeing modest pullback today after hitting record highs earlier this week; JBLU is reducing its schedule through Jan. 13 by about 1,280 flights due to a surge in crew members falling sick from the Omicron coronavirus variant, a spokesperson for the airline told Reuters; in truckers & freight, Raymond James raised its price tgts for FWRD to $145 from $135, XPO to $102 from $100, KNX to $65 from $62, ODFL to $380 from $345, and SAIA to $350 from $330

Technology, Media & Telecom

·     Internet; strength in several China related stocks after a dismal 2021 amid increased scrutiny and regulation it its country; possible tax loss selling behind the names with a big bounce today in many names (BABA, DIDI, BIDU, KWEB, NTES, PDD); GDDY shares rise again, up over 10% this week after Starboard’s revealed a 6.5% stake in the web-services provider in a Monday regulatory filing (shares up a 9th straight day)

·     Semiconductors; MU shares slip after saying late yesterday that the COVID-19 lockdown in the Chinese city of Xian will cause delays in the supply of its DRAM memory chips; said it should meet most of its customer demand, but the restrictions have resulted in thinner staffing levels – recall yesterday, shares of MU, WDC, STX advanced on reports Samsung said it will temporarily adjust operations at the NAND facility in Xi’an, China

·     Media, Software & Hardware, Components & Services; nice day of gains for beaten up media names in 2021, with VIAC, DISCA, DIS, DISH among today’s top gainers in the S&P 500; RRD said it received an $11 per share unsolicited non-binding offer from a strategic buyer, a bid that is above its latest accepted deal with Chatham Asset for $10.85 per share