Closing Recap

Tuesday, January 05, 2021

Equity Market Recap

·     Stocks in the U.S. managed a solid bounce after yesterday’s disappointing start to the year, as major averages were lifted by strength in energy as oil prices top the $50 per barrel level. Despite the solid gains Tuesday, investors remain on edge ahead of Georgia’s Senate runoff elections results which will determine the balance of power in Washington. Defensive sectors such as Staples, Utilities were lower while the “reopen” story related names such as energy, financials, travel, technology, and leisure were the market leaders. Absolutely no market weakness follow-through after Monday’s slippage despite a slow vaccine rollout, a variant strain of Covid hitting parts of Europe, political uncertainty heading into tonight’s Senate vote and economic data this week with the monthly jobs report due Friday.

·     While a "blue sweep" of Congress could warrant greater fiscal stimulus to aid the economy, it could also allow President-elect Joe Biden to push through greater corporate regulation and higher taxes, hurting some areas of the market. Congress is still controlled by Democrats, while the tight Senate seat control shows Republicans hold the majority at 50-48. If Democrats win both seats, that will mean control of the House, Senate and White House, making it easier for Democrats to pass bills without challenge. If incumbent Georgia Republicans David Perdue and Kelly Loeffler hold their seats, the GOP will have majority control and greater ability to block President-elect Joe Biden’s agenda and proposals from the Democratic-controlled House.

·     In sector news, outside of the larger political backdrop focus (Georgia), energy was the big market news story of the day as WTI crude topped the $50 per barrel mark for the first time since last February, as MRO, FANG, DVN, HAL, OXY, APA were all top leaders in the S&P 500 index. Shares of FSLR, CSIQ stumble after Goldman Sachs downgrades them to Sell, while ENPH jumps on Goldman’s upgrade to Buy in mixed solar sector. Banking stocks hold up well given the recovery in Treasury yields, lifting financials (along with M&A deal in regional space). Chinese telecom names (CHA, CHL, CHU) jump after the NYSE reverses their earlier decision to delist the three stocks. Semiconductors a pocket of strength inside broader technology as MU rises to new 52-week highs after Citi issues a double upgrade to Buy from Sell and QCOM moves higher after CEO retires and announces their current President as his successor.

Economic Data

·     ISM Manufacturing activity index for Nov reported 60.7 in December (above consensus 56.6and highest since August 2018) vs. 57.5 in November; prices paid index 77.6 in December (vs. est. 65.7) and vs. 65.4 in November; new orders index 67.9 in December vs 65.1 in November; the employment index 51.5 in December vs 48.4 in November – PMI at highest since august 2018

Commodities, Currencies & Treasury’s

·     Outperformance in the energy complex today, as WTI crude oil topped $50 per barrel for the first time since February of last year (off early lows around $48), settling just under at $49.93, up $2.31 or 4.85%, while Brent jumped $2.51 or 4.91% to settle at $53.60 per barrel. OPEC+ reached a deal on output curbs starting in February, with Saudi Arabia agreeing to cut an additional 1 million barrels per day in February and March, as output quotas from Russia and Kazakhstan increase by a combined 75,000 barrels a day. Also supporting prices on Tuesday was news that Iran had seized a South Korean ship in the Persian Gulf, ramping up tensions there.

·     February gold prices rise $7.80 or 0.4% to settle at $1,954.40 an ounce (highs $1,956 and lows $1,938.40 an ounce) as the dollar index (DXY) again tumbled to new 2-year lows, down -0.45% under 89.50 as investors again poured money into riskier assets. Commodity prices in general benefit from the decline in the dollar.

·     Treasury yields edged higher following positive economic data (ISM), with the benchmark 10-year yield rising 4 bps above 0.95% ahead of a potentially catalyst filled week of politics and economic data (jobs on Friday). The 30-year yield is up around 1.715%, from 1.655% Monday. Yields rose after data from the Institute for Supply Management showed the U.S. manufacturing sector’s activity expanded in December at the quickest rate in more than two years.

·     The U.S. dollar was broadly lower; the British Pound rose above 1.3625 against the dollar, climbing despite England and other parts of the UK entering a stricter lockdown to bring the spread of Covid-19 back under control. The Canadian dollar strengthens to a near 3-year high at 1.2657 to the U.S. dollar. China’s central bank set the official yuan midpoint at 6.4760 per dollar before the market opened, up 1% from the previous fix, the biggest change higher since 2005. The euro moved above the 123 level vs. the greenback. Bitcoin prices surged again, rising over 9% and topping the $34,000 level.

Sector News Breakdown

Consumer

·     Retailers; LULU named catalyst Buy with $402 tgt at Deutsche Bank saying checks/promotional tracker suggest that clearance inventory levels are down materially YOY; LESL downgraded to Hold from Buy at Loop Capital as the shares have recently exceeded their $26 PT and think the risk-reward is in balance until there’s better visibility into the upside potential of the company’s recently released FY21 guidance; BTIG lowered their price target on GOOS to C$31 and reiterated their Sell rating, saying that multiple checks and retail’s headwinds in December has only increased their conviction in downgrading the stock in late November

·     Auto sector; GM reported a 4.8% rise in U.S. auto sales for the fourth quarter, boosted by demand for new vehicles during the COVID-19 pandemic as sales rose to 771,323 units from 735,909 units a year ago; TM Dec. U.S. auto sales rose +20.4% vs. -6.10% YoY; IDEX says it signed an agreement to acquire Wireless Advanced Vehicle Electrification Inc (WAVE) that provides wireless charging for commercial EVs; QS shares down again after falling 40% yesterday; VLDR tgt raised to $23 at Craig Hallum saying it is still the most mature LiDAR maker on the market, with revenues, contract wins, and backlog surpassing or rivaling any other LiDAR maker

·     Housing & Building Products; Bank America downgraded homebuilder PHM to underperform as believe a lower valuation multiple could be warranted as the market balances strong mid/longer-term fundamentals with increased affordability concerns; Bofa upgraded MDC downgraded to neutral from buy as believe a lower valuation multiple could be warranted as the market balances strong mid/longer-term industry fundamentals with increased affordability concerns; lastly, Bofa upgraded AWI to Buy from Neutral as believe the vaccine rollout and expectations for a return to a more pre-virus world could position AWI as a big winner

·     Consumer Staples; KO was downgraded to a Neutral from Buy at Guggenheim on its view that the beverage giant will be going through a transition year; Credit Suisse shifted back to a bearish view on packaged foods to take into account the expectation for two years of sales declines compared to peak levels achieved during the pandemic in 2020 as they downgraded CAG and BGS to underperform and remain underperform on KHC because their brands benefited the most from the unusual consumer eating patterns during the pandemic and they have the most to lose if consumers return to their prior behaviors (cut tgt on GIS, K, CPB)

·     Restaurants; DIN upgraded to Buy from Hold with $77 tgt at Deutsche Bank as see ~30% to 35% upside over the next twelve months in a base case scenario which revolves around Applebee’s AUVs that are ~3 to 4% higher in 2022 versus 2019, with less open units than pre-COVID; MCD initiated outperform and $240 tgt at Wedbush as believe MCD’s ongoing menu, technology, marketing, and Capex investments render visibility into sustained MSD global SSS growth very high in a post COVID global restaurant environment; TXRH initiated Buy and $93 tgt at Truist as expect to generate strong sales growth during the post COVID recovery, expand margins above pre-COVID levels and maintain its segment leading store growth

·     Leisure and Gaming; CHDN announced today it will move to a single brand strategy for its online wagering segment by rebranding the Company’s sportsbook and iGaming platform as TwinSpires; UBER named a top pick with $60 tgt at Needham today on the basis that it is well hedged for both basic recovery scenarios that aren’t yet fully reflected in the stock; IGT completed regulatory approval in Nevada for its Resort Wallet, which allows players to use a loyalty card to wager on slot machines and is the first in cashless slot play in the state; ABNB was downgraded to Neutral with a $120 pt at Atlantic Equities, initiated at Neutral with a $150 target by Citi who says the stock is a growth name and a beneficiary of the vaccine rollout but their Neutral rating is due to very aggressive valuation, and BTIG says their street-high estimates are closer to the mark

Energy

·     Big bounce in energy stocks across the board (FANG, OXY, HAL, MRO, DVN) – OPEC agrees to raise production by 75K bpd in Feb and March as Russia will be allowed to raise production by 65K bpd and Kazakhstan by 10K bpd in each month. Earlier were reports of OPEC+ agreeing to keep production in check through February and then start ramping back up again in March. Oil prices also got a boost on reports of Iran’s seizure of a South Korean chemical tanker

·     Energy stock movers; energy index spikes on OPEC+ output talks and Iran tensions; APA leads, said its board of directors has authorized the creation of APA Corp., a new holding company. APA Corp. will replace Apache Corp. as the public company trading on the Nasdaq stock exchange; RRC said it intends to offer $500 mln of senior notes due 2029 in a private placement

·     Solar sector active as Goldman Sachs upgraded ENPH to Buy and downgraded FSLR (to sell) and CSIQ (to neutral) where they see an average of ~1% upside to Solar coverage and remain constructive, albeit a bit more selective, on the group heading into 2021. Firm said across verticals, stock selection is leaning more toward residential solar, where we rate installers like NOVA and SPWR at Buy, while we also upgrade inverter manufacturer ENPH to Buy. FSLR downgraded to Sell from Buy with 20% downside to our revised 12-month target of $81 from $101 predicated upon our view that FSLR’s gross margins and EPS power are peaking n-t

Financials

·     Bank movers; SIVB agrees to acquire BPFH for about $900M of stock and cash as holders will get 0.0228 shares of SIVB common stock and $2.10 of cash for each BPFH share they own, valued at about $10.94 each https://bit.ly/2JJK0Db ; Wolfe upgraded universal (BAC) and trust banks (RJF, EVR) to Market Outperform from Market Weight, with a strong preference for brokers vs. trusts (top picks MS, GS, LPLA), and downgrades retail brokers (cuts STT, SCHW, SF, HLI)

·     Asset managers; Goldman Sachs with lots of rating changes in the group: upgraded shares of RJF to Buy from sell with $110 raised tgt and raised TROW to Neutral with $170 tgt saying flows should improve amid better prospects for its target date franchise. Goldman downgraded shares of BEN to Sell as expects the stock to be range-bound and a relative underperformer against the rest of the traditional asset management group, JHG cut to Sell and SF to neutral on valuation while ARES removed from conviction buy list but ups tgt to $56 – also downgraded trust banks STT (to neutral), and NTRS (to sell)

Healthcare

·     Pharma movers: MRKR rises as the FDA lifted the partial clinical hold on its Phase 2 trial, evaluating MT-401, the company’s lead multi-tumor-associated antigen-specific T cell product candidate for AML; ZSAN surges after company requests FDA meeting to review resubmission plans for migraine treatment marketing application; TNXP and Massachusetts General Hospital enter into research collaboration on its third generation anti-CD40-Ligand Monoclonal Antibody

·     Biotech movers: PTCT was upgraded to Buy with $85 tgt at Citigroup after taking a closer look at PTC518, in phase 1 for Huntington’s disease as they see a good 65% likelihood that phase 1 data for PTC518 will be favorable (up to $24 upside / $18 downside around these initial results); CYTH rises after saying its lead candidate, Trappsol Cyclo, to treat Niemann-Pick Disease Type C showed disease stability or improvement in an early-stage trial

·     Healthcare services and providers; in hospitals, THC was upgraded to buy from neutral at Bank America and downgraded UHS to underperform from neutral. THC is well positioned to benefit from the hospital tailwinds we expect in 2021, and the recently announced deal continues the business mix shift to faster growing ASCs

·     MedTech and Equipment; VRAY 10.31M share secondary priced at $4.85 per share; EXAS said it expects to exceed consensus q4 2020 forecasts for total rev and covid-19 testing revs; DVA downgraded to neutral from buy at Bank America as expect results to be solid, dialysis will likely not see the same utilization boost as other providers; DGX said as of January 5, average turnaround time for covid-19 molecular diagnostic testing stable at about 2 days

Industrials & Materials

·     Metals & Materials; FCX upgraded to Buy from Hold at Argus with $30 tgt and raise ests as expect Freeport to benefit from management’s efforts to strengthen the balance sheet, as well as from rising metals prices and a slowly recovering manufacturing sector; AVY upgraded to outperform at BMO Capital as expects to outperform the broader space, led by a recovery in the RBIS market; ALB was upgraded to in-line from underperform at Evercore ISI and tgt to $160 from $86 saying electric vehicle penetration rate expectations have increased; metal stocks in general outperformed, extending momentum from late 2020 with CLF, X, AA among gainers.

Technology, Media & Telecom

·     Internet; BILI plans to raise over $2 bln through a secondary listing in Hong Kong, CNBC reported, saying the company will likely file with regulatory authorities for its proposed offering by end of the current week or early next week; SNAP tgt raised to $60 from $52 at Guggenheim as believe SNAP is in the early stage of a virtuous cycle that leverages the company’s technology to drive higher user engagement and satisfaction, and additional platform monetization opportunities; JD upgraded to Buy from Hold and raising our PT to $105 from $84 at Stifel; VRM added to Select List (replaces PTON) in Internet outlook also at Stifel

·     Semiconductors: Apple supplier Dialog Semiconductor (DLGNF) raised their Q4 guidance last night and iPhone assembler Hon Hai Precision reported revenues above Street estimates on strong 5G iPhone demand; QCOM said CEO Steve Mollenkopf will be stepping down from his post on June 30 and replaced as CEO by Cristiano Amon, the company’s current president, who was unanimously selected by Qualcomm’s board of directors; MU upgraded to Buy from Sell at Citigroup and raise tgt to $100 from $35 based on belief that the long-awaited upturn in DRAM (68% of F20 revenue) is about to materialize, which should drive upside to Micron EPS and stock; AMBA tgt raised to $115 from $90 at Craig Hallum as take a look AMBA both in terms of its applications (Auto and Security), but also its transition towards greater CV exposure; equipment stocks (AMAT, LRCX) outperformed in the space ahead of TSM investor day next week

·     Hardware & Software movers: MDB added to top picks and raise tgt to $400 from $300 at Oppenheimer; PLAN upgraded to overweight at Wells Fargo with tgt $85 rebound in play for 2021, HUBS upgraded to overweight tgt $450 saying it’s hard for them to see co’s fundamentals slowing down anytime soon and downgraded EGHT to underweight on valuation in software

·     Media & Telecom Movers; FUBO rebounds after seven days of declines, defended by Needham as reiterate buy and $60 tgt saying never expect FUBO to be forced to absorb 6x shares traded again, which implies that this is a floor (company also raises Q4 revs $94-98M vs. $86.6 est. (prior $80-85M); CCO downgraded to neutral from buy at Citigroup saying while they are likely in the midst of an ad recovery, at prevailing values, think the market has already priced in a return to 2019 EBITDA in 2022; China Telecom Corp Ltd (CHA), China Mobile Ltd (CHL) and China Unicom (CHU) shares rise after the NYSE reversed its decision to delist the three stocks, citing further regulatory guidance; Truist maintains their Buy rating on DIS into 2021 and raises their price target to $195 from $175 and subscriber, revenue estimates given the company’s differentiated assets, DTC momentum, and out-years recovery at parks post-Covid