Closing Recap

Wednesday, February 03, 2021

Index	Up/Down	%	Last
DJ Industrials	35.13	0.11%	30,722
S&P 500	3.77	0.10%	3,830
Nasdaq	-2.23	0.02%	13,610
Russell 2000	8.26	0.38%	2,159

 

Equity Market Recap

·     The S&P 500 advances advance for a third consecutive session, with major averages approaching record all-time highs midday before paring gains in the final hour of trading. Major averages have bounced back following last week’s decline as attention turns to strong corporate earnings overnight (GOOGL, AMZN) in tech, surging oil prices (WTI crude 1-year highs lifting energy stocks) better economic data (ADP, ISM services – ahead of payroll Friday) and rising hopes of new government fiscal stimulus. Today’s private payroll report from ADP showed 174K added jobs, topping the 50K consensus while the prior month was upwardly revised and the ISM services index is now above its pre-pandemic level, rising to its best levels in 2-years. Earnings have been stellar with more than 80% of reports from S&P 500 companies so far having surpassed expectations, with 97% of reports from technology companies beating, according to Refinitiv.

·     The air has certainly come out of the Reddit/WallStreetBets short squeeze over the last few days with GME, AMC, KOSS, EXPR, silver stocks, etc. well off their meteoric highs, but many of those “meme” stocks were mixed on the day. In response to those recent market events, U.S. Treasury Secretary Janet Yellen is calling a meeting of top officials, including from the Securities and Exchange Commission and the Federal Reserve, this week to discuss market volatility.

·     Regarding additional stimulus/relief measures, the WSJ reported that U.S. President Joe Biden suggested in a call with House Democrats that he was open to issuing $1,400 payments to a smaller group of Americans in the next round of COVID-19 stimulus legislation and altering the overall price tag of his $1.9T plan.

·     Top stock stories: GOOGL paces tech gains, touching record ATH’s after posting record revenue as ad revs jumped 22% YoY; ON, TXN, NXPI, STM auto chip stocks volatile after data firm IHS Markit said a shortage of auto chips could impact 672,000 units of global light vehicle production in the first quarter; GWPH to be acquired by JAZZ in $7.2B deal at 50% premium – helps boost shares of other epilepsy and cannabis names ZYNE, TLRY, ZGNX, CGC on the day; APA, FANG, HES, MRO, EOG all outperform as energy a market leader today behind continued strength in WTI crude – at 1-year highs; CHKP, FEYE, EA, TENB shares slide in software space after earnings/guidance; AMGN, BIIB lead biotech space lower after disappointing earnings/guide; OSTK, MSTR, RIOT, MARA, GBTC -names leveraged to Bitcoin (blockchain, etc.) rise alongside another jump in Bitcoin prices.

Economic Data

·     January ADP Private Payroll jobs report stronger; showed +174K jobs added vs. +50K consensus while December payroll change revised to -78K from -123K.

·     IHS Markit January final composite PMI at 58.7 (vs. flash 58.0) and January final services PMI at 58.3 (vs. flash 57.5).

·     ISM Non-Manufacturing PMI (services) for January rose to its highest level in nearly two years, with growth in new orders and employment accelerating; index increased to a reading of 58.7 last month from 57.7 prior month and est. 56.8 (index is now above its pre-pandemic level); prices paid index 64.2 in January vs. 64.4 in December, new orders index 61.8 vs. 58.6 prior and employment index 55.2 vs 48.7 in December.

 

Commodities, Currencies and Treasuries

·     Oil prices continue to push higher, with WTI crude rising $0.93 or 1.7% to settle at $55.69 per barrel on improving global demand and economic recovery expectations. OPEC+ maintained its oil output policy at a meeting on Wednesday (JMMC) as the price of crude hit its highest in almost a year, a sign that deep supply cuts are draining inventories despite an uncertain outlook for demand recovery. Note oil has rallied from historic lows hit last year as the pandemic hit demand, thanks to record output cuts OPEC+. Inventory data also bullish for prices after API reported crude inventories fell by 4.3M barrels last week, the seventh decline in eight weeks.

·     April gold rose $1.70, or nearly 0.1%, to settle at $1,835.10 an ounce, while March silver settled at $26.889 an ounce, up 49 cents, or 1.8% recovering part of yesterday’s declines despite the U.S. dollar holding up around its best levels since mid-November (DXY holding above the 91 level). Prices steady today ahead of key payroll data on Friday (after + private payroll data today).

·     Treasury yields inching higher again as the 30-year Treasury yield moved above 1.9%, highest since last February, while the 10-year yield inched higher by 2 bps nearing 1.13% (2021 highs remain around 1.18%). Strong economic data for private payrolls and the services industry leading yields higher. The dollar meanwhile remains well bid at 1-month highs.

·     The U.S. Treasury Department said that its recent efforts to increase the size of nominal Treasury auctions have created sufficient capacity for its near-term funding, and that any new increases in funding needs will be met with increases in Treasury bill auction sizes or cash management bills. The Treasury next week will sell $58 billion in three-year notes, $41 billion in 10-year notes and $27 billion in 30-year bonds, unchanged over last month. The U.S. Treasury said it plans to borrow $274 billion in the first quarter, significantly lower than the November estimate of $1.127 trillion, with the decline due to the department’s higher cash balance.

 

 

Macro	Up/Down	Last
WTI Crude	0.93	55.69
Brent	1.00	58.46
Gold	1.70	1,835.10
EUR/USD	-0.0017	1.2025
JPY/USD	0.05	105.03
10-Year Note	0.022	1.129%

 

 

Sector News Breakdown

Consumer

·     Retailers; AMZN exceeded high expectations on the top & bottom lines, but the strong results were overshadowed by the announced CEO transition; GME active again after announced hired Matt Francis to the newly created role of chief technology officer, effective Feb. 15 (Francis most recently an engineering leader at AMZN’s AWS biz); CPRI shares rise on Q3 beat as EPS $1.18 vs. est. $1.01 on revs $1.3B vs. est. $1.33B, qtrly e-comm sales +65%, qtrly Versace global retail sales +dd, qtrly Kors revs -18.6%, qtrly Choo revs -26.7%, net inventory -18% yr/yr; not providing annual earnings guidance; KSS upgraded to Outperform at Cowen and raise tgt to $52 as think consensus EPS estimates under-appreciate KSS’s evolving model; TCS rises as Q3 adj EPS $0.42 vs. est. $0.33; Q3 revenue $275.5M vs. est. $262.16M; net sales in The Container Store retail business were $256.5 million, up 21.0%, inclusive of the 19.5% increase in Custom Closets

·     Auto sector; Kia Motors (KIMTF) rises after Bloomberg reports the carmaker will sign a 4 trillion won ($3.59 billion) deal with AAPL to build electric vehicles https://bloom.bg/3jaxoT0 ; Ford (F) reports U.S. sales declined 8.3% to 143,578 vehicles in January and said truck sales down 8.6% to 74,928 units, Car sales squeezed 57% to 7,696 units and SUVs up 7.6% to 60,954 units; RACE downgraded to Sell from neutral at Citigroup; BLNK signs reseller agreement with Ballantyne Strong for deployment of electric vehicle charging stations at cinema operators, theme parks and other entertainment and leisure-related locations; LAZR to redeem public warrants; expects to receive up to $153 million; HYLN downgraded to Sell at Goldman Sachs and tgt to $12 from $19; DDAIF says plans to spin-off Daimler Truck, the world’s largest truck and bus maker, as it seeks to increase its investor appeal as a focused electric, luxury car business; GM says semiconductor shortage will impact GM production in 2021; CCIV shares fell after the WSJ reported that talks between the SPAC and EV firm Lucid Motors are continuing, though a deal is not imminent

·     Consumer Staples; Davidson downgraded a handful of names in the food industry, cutting BYND to underperform from neutral, SMPL downgraded to neutral from buy and UTZ downgraded to neutral from Buy; FIZZ downgrade from Neutral to Sell at UBS ahead of difficult compares, mounting competition, and rising input & logistics costs at stretched valuation

·     Restaurants; CMG falls after missing Wall Street estimates for quarterly profit, hurt by costs related to keeping its business running during the COVID-19 pandemic – Excluding one-time items, the company earned $3.48 per share, missing the estimate of $3.73 – Digital sales rose nearly three-fold and drove a 5.7% rise in comparable sales,

·     Leisure and Gaming; Morgan Stanley lowered estimates in cruise industry again (CCL, NCLH, RCL) saying ‘Wave season’, normally the Jan/Feb peak selling season for the cruise industry, has been subdued for most of the US travel agents we surveyed and minimal for the others

 

Energy

·     Energy stock movers; JPMorgan upgraded SM to Neutral and downgraded COG to Neutral and CDEV to Underweight on updated FCF outlooks and relative risk-reward, and they also lifted their MPC target to $52 from $45 after its earnings were above expectations and as a way to play a more aggressive refining macro upside case; Stifel upgraded TTI to Buy and raised its price target to $3 from $1, calling its divestiture of CCLP a game-changer; Barclays upgraded IMO to OW and maintained their $30 target as they like the company’s balance sheet and cash flow; Goldman reinstated coverage on COP at Buy with a $52 target, saying shares are compelling after underperforming peers over the last year; EPD Q4 EPS 15c on revs $7.04B miss estimates (50c, $7.6B) as they were hurt by lackluster global demand and higher costs

·     Inventory data; The American Petroleum Institute (API) reported a weekly draw of 4.26M barrels of crude oil for the latest week, showed gasoline inventories fell 240K barrels, distillate inventories a draw of 1.62M barrels and Cushing inventories a draw of 1.88M barrels. The EIA Petroleum Inventories showed crude fell -1.0M barrels vs. +0.4M consensus, -9.9M last week, gasoline +4.5M vs. barrels vs. +1.1M consensus, +2.5M last week

·     Utilities & Solar; PCG agreed to sell license agreements for wireless providers to place wireless telecom antennas on the company’s towers to SBAC for $973M; BIP posted Q4 FFO per share 86c (est. 83c) on revs $2.53B (est. 1.13B) and raised its quarterly dividend to 51c (+5% YoY)

 

Financials

·     Bank movers; big banks saw gains as treasury yields pushed higher (C, JPM, WFC); ISBC was added to the S&P SmallCap 600 index; Piper upgraded FCBC to OW after its earnings report and underperformance compared to peers over the past year despite its strong profitability profile, HBCP to Overweight with a $40 pt as well after its earnings and forward growth trends, and TOWN to OW with a $28 target as its current valuation discount to peers provides a good entry point; Stephens upgraded PFHD to Overweight and downgraded ESXB to Equal-Weight; NMR reported Q3 EPS 30c on revs $3.9B; EVR reported Q4 EPS $5.67 (est. $2.12, $2.72 YoY) on revs $969.9M (est. $549.9M, $668.5M YoY)

·     Insurance; busy night of earnings coming up with ALL, AFL, MET and LNC expected; CB Q4 core EPS $3.18 vs. est. $2.82, net premiums written were $8.41B (+5% YoY), net premiums earned were $8.43B (up over 6% YoY), Q4 pre-tax losses $314M and after-tax catastrophe losses were $271M; GL Q4 adj EPS $1.74 vs est. $1.72 in sales $1.23B vs est. $1.2B, sees FY21 operating EPS $7.16-$7.56; HMN 4Q EPS $1.13 vs est $0.91 on revs $352.3M vs est $326.4M, sees FY21 core EPS $3.00-3.20 vs est $2.95, and says auto and supplemental policyholder behavior expected to gradually return to near historical levels by yr-end 2021; MKL posted Q4 EPS $59.33 ($36.26 YoY) on sales $3.36B ($2.58B YoY)

·     Consumer Finance; FIS was downgraded to Neutral with a $140 pt from Buy at Rosenblatt, while Raymond James reiterated the name as a Strong Buy ahead of its earnings next Tuesday; Wells and Raymond James both trimmed their estimates on GPN ahead of Monday’s earnings report, but said that the recent sell-off is overdone (-11% YTD vs +2% for S&P 500) and investors should take advantage of the weakness as it provides an attractive entry point; EPAY Q2 core EPS $0.30 vs est $0.28 on revs $116M vs est $113.7M, and they are on track for FY21 subscription rev growth at or near 15%-20% target; SC reported Q4 EPS $1.70 (est. $1.11) on in-line revs $2.05B; VEON and MA announced a global partnership to boost digital financial services in key markets

·     Payments; Payoneer Inc. announced an agreement to merge with special purpose acquisition company FTAC Olympus Acquisition Corp (FTOC, which will effectively take the payments and e-commerce-enabling platform company public in a deal expected to be valued at about $3.3B and is expected to occur 1H21

·     Asset managers, Exchanges; APO reported Q4 distributable EPS 72c vs est. 51c on sales $715.85M vs $593M, and AUM increased 5.2% primarily driven by growth in Athene, Athora, and market activity; APAM reported Q4 adj EPS $1.06 (est. $1.01) on revs $261.1M (est. $256.3M) and announced a special 31c dividend paid on Feb. 26 to shareholders of record on Feb 12; MKTX announced monthly trading volume for January 2021 $575.3B consisting of $236.5B in credit volume and $338.8B in rates volume, and the total credit daily trading volume of 12.4B set a new record, surpassing March 2020

·     REITs; BTIG initiated coverage on mortgage REITs with Buy ratings on ACRE ($13.50 pt), KREF ($19.50 pt), LADR ($11.50 pt), RC ($14 pt), STWD ($21 pt), TRTX ($12.50 pt) and Neutral ratings on ARI, BRMK, CLNC; BDN reported Q4 EPS 11c, FFO per share 36c, in-line with consensus, on revs $126.8M, slightly missing est. $128.1M, and they expect FFO per share $1.32-1.42 in FY21

 

Healthcare

·     Pharma movers; JAZZ to acquire GWPH in $7.2B deal valuing GWPH shares at $220 ADS in cash each as the deal represents over 50% premium to GWPH’s closing price (epilepsy treatment names ZYNE, CRBP, ZGNX, XXII active in sympathy as well as cannabis names TLRY, CGC, APHA as GWPH Epidiolex, an epilepsy treatment – the first cannabis-based drug to win U.S. approval in 2018) https://on.mktw.net/2YI6NmF ; MBRX shares slid after priced 14.274M share Secondary at $4.75 (vs. yesterday close $6.39); GSK shares fell as forecasts 2021 profit to decline by mid- to high-single digit percentage as in-line Q4 EPS and revs and adds plan to split into two businesses on track; ARQT 5.5M share Secondary priced at $35.00; ARGX 1.608M share Secondary priced at $320.00; KRYS 1.923M share Spot Secondary priced at $65.00; ABBV beat quarterly revenue estimates ($2.92/$13.86B vs. est. $2.85/$13.7B) and forecast annual profit above expectations (guides year $12.32-$12.52 vs. est. $12.18) due to higher demand for its blockbuster drug Humira (rose 4.8% to $5.2B) as well as newer treatments for psoriasis and rheumatoid arthritis;

·     Biotech movers; VYGR shares tumble (downgraded by a few firms) after the company said NBIX provided notice that it would terminate the Parkinson’s disease portion of their collaboration agreement, effective Aug. 2; AMGN delivered modest top and bottom line beats (largely driven by volume growth), but shares dipped after issuing weaker FY21 guidance (guides FY21 adjusted EPS $16.00-$17.00 vs. est. $17.02 and revenue $25.8B-$26.6B vs. est. $26.43B); BIIB posted Q4 EPS miss $4.58 vs. est. $4.80 on revs $2.85B vs. est. $2.8B saying sees 2021 as "transformative year" for pipeline while guidance disappoints as forecasts EPS $17.00-$18.50 well below the $24.67 estimate and 2021 revs $10.45B-$10.75B below $11.23B est.; VXRT plunges after it announces disappointing preliminary data from its Phase 1 study of VXA-CoV2-1, its oral COVID-19 tablet vaccine candidate saying that neutralizing antibodies were not detected in most of the subjects who were part of the study; ENLV rises as reports positive top-line results from its mid-stage study testing its experimental therapy Allocetra in severe and critical COVID-19 patients; BCRX announces FDA approval of supplemental new drug application for Rapivab expanding patient population to include children six months and older

·     Medical devices and equipment; IRTC shares fell following its 40% plunge on Friday – note BSX on call earlier today said it expects a headwind related to new reimbursements for long-term Holter monitor device; BSX posted a smaller Q4 profit, as sales from its cardiovascular and medical-devices segments declined YoY (overall revs down to $2.71B from $2.91B) and medical-surgical sales climbed 1.5% year over year to $892 million, but the company’s other divisions lost ground. Cardiovascular sales declined 12% year over year and rhythm-and-neuro sales sank by 6.1%.

 

Industrials & Materials

·     Industrial & Machinery; CMI, PCAR, ALSN shares may be active as monthly ACT prelim Class 8 data showed a 42,200 figure, which was a 16.8% MoM deceleration and has now posted sequential declines the last 2-months; MMM upgrade from Hold to Buy with $200 tgt at Argus as think the company is back on track to achieve its long-term goals of raising margins and growing earnings; MTOR rises following strong Q4 beat, FY21 outlook above consensus

·     Metals & Materials; US Steel (X) filed to sell 40M shares; FCX reinstated a cash dividend of $0.30 per share; steel producers NUE, STLC and STLD all upgraded to outperform from neutral at Credit Suisse as firm upgraded view of the US Steel sector to Overweight and raise TPs for most of coverage as expect they will benefit from capital efficient capacity growth and strong FCF; in chemicals, SMG shares rallied following its quarterly results

 

Technology, Media & Telecom

·     Internet; GOOGL shares surged to new all-time highs, posting a record $56.9B revenue (est. $52.7B), up from $43.2B a year ago as ad revs jumped 22% YoY to $46.2B – while profit easily topped views at $15.7B vs. est. $11.9B and year ago $9.3B – had strength in cloud revs; BABA rises as Bloomberg News reported that Ant Group Co. and Chinese regulators agreed on a restructuring plan to turn Jack Ma’s fintech giant into a financial holding company. Ant’s $37 billion IPO was suspended in November after Jack Ma blasted China’s regulatory system; SPOT slides following weak Q1 revenue and premium subscribers due to uncertainty revolving around COVID-19 guiding to range of 1.99B-2.19B euros, short of expectations of 2.23B euros

·     Semiconductors; NXPI upgraded to outperform at Oppenheimer as beat 4Q/1Q consensus sales estimates by 2%/9%, respectively; POWI delivered upside results and guidance for the December and March periods while maintaining a prudent level of caution for 2H activity (tgt raised to $105 from $70 at Loop); Philly semi index (SOX) taking a breather, down in generally strong tech space while NVDA outperforms after positive Wells and New Street comments today ahead of earnings; a shortage of auto chips could impact 672,000 units of global light vehicle production in the first quarter, data firm IHS Markit said on Wednesday, warning that the disruption could extend into the third quarter.

·     Software movers; TENB slides following disappointing Q1 revenue guidance of $118M-$120M, below the $121.2M estimate and downside year revenue outlook despite a Q4 beat; in video games, EA posted a slight beat in the Q3 holiday quarter for revs on in-line bookings of $2.4B but issued a lower Q4 outlook; FEYE delivered a solid finish to year-end 2020 displaying healthy upside on record revenue, ARR, profitability (operating margin/FCF), swiftly ahead of Street’s expectations; MANH reported upside to key metrics in 4Q20, including cloud subscription revenue, new RPO (bookings) and free cash flow while professional services revenue further stabilized; CHKP shares down 8% after softer Q1 and year guidance

·     Media & Telecom movers; CMCSA was upgraded to Outperform and tgt upped to $60 at Cowen saying many of the headwinds that the co faced over the past 3 yrs. (namely Sky & NBCU) will begin to dissipate with the economy reopening; MSGS posted a larger than expected Q2 EPS loss of ($1.68) on slightly better revs of $28.77M; MTCH offers mixed forecast while topping estimates for latest quarter; WMG upgraded to Buy on valuation at Bank America; in advertising, PUBGY rises after reporting results, which Goldman Sachs says show a "strong" FY20 beat, with solid North America strength (good for IPG, OMC); ONTF raised $428 million after selling roughly 8.6 million shares at $50 each in its IPO, the top of its $45 to $50 range

·     IT Services, Comm and Consulting; DT reports Q3 revenue of $182.9 mln, beating estimates of $172.3 mln and also forecast FY 2021 revenue and profit ahead of estimates; TIXT sold 37 million subordinate voting shares at $25 each, up from the 33.33 million shares at $23 to $25 it had planned to sell.

·     Hardware & Component news; VIAV posted better-than-expected decline in revenues, slipping 4.4% to $299.9M topping the $290.5M estimate; while Q3 EPS and revs also came in above estimates; SONO tgt raised to $35 from $30 at Morgan Stanley as still believes that Sonos shares are undervalued at today’s prices given accelerating revenue and Adjusted EBITDA growth, structurally higher long-term margins; BOX announced deal to buy SignRequest, a cloud-based electronic signature co, for an aggregate price of $55 mln; SNE raised its full-year profit outlook amid more demand for games, movies and other content due to the lockdowns; now expects 940 billion yen ($8.95 billion) in operating profit in the 12 months through March compared with the 700 billion yen it previously forecast