Closing Recap

Thursday, January 21, 2021

Equity Market Recap

·     Not much to say other than stocks keep going up – led by mega cap tech for a second straight day (AMZN, AAPL, FB, GOOGL, MSFT), with investors continuing to buy reflation trades, reopen trades, Smallcap trades and speculative trades, as only defensive sectors haven’t participated (utilities, consumer staples). Dow Jones noted that option call option volume on individual stocks has surged in January to record levels amid growing investor enthusiasm for stocks. January call volume has averaged 20.1 million contracts a day, up from 16.8 million contracts in December. Those numbers say it all, as investors continue to make bets that keep working, adding to the euphoric state of the market these days. An accommodative Fed, keeping rates at record lows at least until 2022 and also the foot on the gas for monetary policy, as well as two discal stimulus relief bills out of Washington DC (another large deal in the works) keeps boosting market sentiment with major averages setting all-time highs on a daily basis as investors keep buying on FOMO (fear of missing out). Newly sworn in President Biden has been calling for additional stimulus fiscal relief measures to the tune of $1.9 trillion, which have been a big boon for stocks since the election, and with Democrats now holding control of the Senate and House, expectations are that bills will be easier to pass. Economic data was mixed today with jobless claims remaining high (weak reading), while monthly Housing Starts data beat.

·     In sector news, homebuilder ETF hits a new all-time high for the second straight day after December housing starts data beats estimates today (KBH, LEN, DRI, TOL, PHM); transports slide after UAL posts a wider-than-expected quarterly loss and still sees Covid weighing on demand this year, dragging other airlines (AAL, DAL, LUV) and UNP falls despite eps, rev beats to also pullback other rails; energy shows weakness today as EOG, DVN, OXY, COP among the worst performers in the S&P; PYPL hit new record highs after BTIG upgrades to Buy with a $300 tgt given the shift to digital payments and Bitcoin capabilities for users; Bitcoin falls more than 10% at today’s lows, weighing on names leveraged to the crypto-currency; mega caps again lead the Nasdaq to another record high (AAPL, AMZN, FB, GOOGL); solar a massive outperformer (SPWR, SEDG, DQ, CSIQ) after Biden signed a series of exec orders in his first hours in office focused on combating climate change.

Economic Data

·     Weekly jobless claims fell to 900,000 in the latest week (vs. est. 910K) and compared to 926,000 prior week (revised from 965,000); continued claims fell to 5.054 mln (est. 5.40M) from 5.181M prior; the 4-week moving average rose to 848,000 Jan 16 week from 824,500 prior week; U.S. insured unemployment rate unchanged at 3.6% from 3.6%

·     Philadelphia Fed business conditions index for January at 26.5 (consensus 12.0) vs 9.1 in December; Fed new orders index 30.0 in January vs 1.9 in December

·     Housing starts for December rose +5.8% MoM to 1.669M vs. 1.558M expected and 1.578M prior (revised from 1.547M); Building permits rose +4.5% to 1.709M vs. 1.610M expected and 1.635M; December single-family starts +12.0% to 1.338M unit rate; multifamily -13.6% to 331,000 rate

Commodities, Currencies & Treasuries

·     Oil prices were little changed as WTI crude slips 18c to $53.13 per barrel while Brent gained 2c to $56.10 in what was a quiet day. Gold prices slipped on the day, down a modest $0.60 to settle at $1,865.90 an ounce a day after settling at their highest in almost two weeks. U.S. economic data released Thursday was upbeat, pressuring prices for gold. The yield on the benchmark 10-year was also little changed at 1.10% (holding there all week).

·     The euro hits its highest against the U.S. dollar in a week above $1.2165 as the dollar fell for a third straight session, with investors seeking out higher-yielding currencies following mostly better U.S. economic data and continued optimism about a massive stimulus package. The Euro gained despite ECB President Lagarde warning about a renewed surge in COVID-19 infections and the prospect of prolonged restrictions. The British Pound set a fresh 2-1/2-year high against the dollar and a new eight-month peak against the euro.

Sector News Breakdown

Consumer

·     Retailers; AEO shares rose despite saying Q4 revenue is expected to decrease in the low single digits due to store revenue declines from weak mall traffic, store closures and reduced hours related to the pandemic; in research, Deutsche Bank upgraded CPRI to Buy from Hold (tgt to $56 from $28), VFC to Buy (tgt to $103 from $81), DDS upgraded to Hold from Sell (tgt to $60 from $31) and UAA upgraded to Buy from Hold (tgt to $22 from $15); DECK tgt raised to $400 from $388 at UBS as forecast DECK delivering a Q3 beat and see better than expected sales and gross margin driving the EPS beat; NLS named favorite small cap growth idea for 2021 at Truist saying online/retail checks suggest that robust demand for product carried throughout the holidays

·     Leisure and Auto sector; auto sector has been in “cruise control” this week, led by GM and Ford (F) while TSLA remains not far-off record highs, though the electric vehicle space (NKLA, BLNK, LI, NIO, XPEV) mixed on the week after massive runs; HYRE downgraded to neutral from buy on valuation at Ladenburg; modest pullback late day; ABNB shares skyrocketed midday after Motley Fool newsletter announced it as its last weekly pick

·     Consumer Staples; the beverage, food, and products space continues to underperform the broader market which looks away from defensive sectors; SAFM upgraded to Outperform at BMO Capital and selecting it as our "Surprise Investment" of 2021, acting on our view that SAFM remains among the best positioned stocks to emerge from COVID-19 and expect chicken sandwich wars to create a bridge to more historical margin levels by F2022

·     Restaurants; BJRI downgraded to Hold at Deutsche Bank following 42% rally; Cowen said restaurant checks suggest broad optimism in 2021 for brands w/access to development capital that are not pursuing value-led strategies – top picks into earnings are Outperform rated WING (PT to $160 from $155) and MCD, and we are most tactically cautious on WEN; Piper said MCD sales trends are positive (increasing momentum), CMG comps are positive (slowing momentum) and SBUX trends are negative. We remain generally cautious on casual dining as trends are pulling back. That said, believe EAT is best positioned; DENN was downgraded to neutral at Sidoti following its sharp rise

Energy

·     Energy stock movers; BKR 4Q adj EPS ($0.07) vs est. $0.17 on revs $5.5B vs est. $5.42B, and they are cautiously optimistic that global economy and oil demand will begin to recover in 2021, though they see tepid investment environment for oil and gas during 1H21; Wells upgraded NOV to Overweight and raised their PT to $17 (from $13.5), raising their ’21/’22 EBITDA estimates to $352/$746 MM (from $310/$580 MM, Consensus $301/$529 MM); Wells also resumed coverage on PXD at OW with a $170 tgt as a leader in adopting Shale 3.0 with unmatched inventory quality in the Permian basin; Mizuho says KMI’s slight beat and lukewarm guidance does little to alter their investing thesis, and management’s clean energy opportunities and priority of flexibility in its capital return strategy should be well-received

·     In research, Jefferies initiated CVX, OXY at Hold and XOM at Underperform, as they believe that increasing governmental commitments to limit global warming could lead to oil demand falling by at least 50% by 2050 and said US majors are currently behind its European peers in the transition to a low carbon world. Jefferies also reinstated RDSat Buy and BP at Hold; Susquehanna raised its price targets on FANG, EOG, XEC and kept each at Positive; Tudor Pickering downgraded PSX to Hold and upgraded PBF to Hold and MPC to Buy; TELL was upgraded to Outperform with a $5 pt at Wolfe as its Driftwood project is well positioned to drive outperformance compared to competitors.

·     Inventory data: The American Petroleum Institute (API) said weekly crude inventories rose by 2.6 million barrels in the week to Jan. 15 to about 487.1 million barrels, compared with analysts’ expectations in a Reuters poll for a fall of 1.2 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 4.3 million barrels. Gasoline stocks rose by 1.1 million barrels, less than analysts’ expectations in a Reuters poll for a build of 2.8 million barrels. Distillate fuel inventories rose by 816,000 barrels, vs. expectations for a build of 1.2 million barrels.

·     Utilities & Solar; Guggenheim named CNP as their Best Idea, upgraded AEP, SR to Buy, downgraded HE to Sell and ALE to Neutral, and list EXC, FE, NEW, SO as their current Neutral-rated utilities with potential upside, DUK, ETR, NI, SRE as Buy-rated value plays, and D, NEE as bellwether buys and absolute calls; Wells believes that YE20 updates will highlight strong underlying fundamentals for the sector, expect updates from companies pursuing simplification strategies (most notably EXC), and they reiterate ES at OW and raise their target to $100 as shares remain compelling; Morgan Stanley initiated SEDG as a new OW with a $354 pt as its status as the world leader in the solar PV inverter market will allow the company to continue to gain market share in a fast growing space and penetrate other markets; in alternative energy, FCEL shares fell after reporting Q4 EPS loss (8c) wider than the expected (4c) loss on revenue $17.0M, +54% YoY but narrowly missing est. $17.1M, and shares of PLUG also fell in sympathy

Financials

·     Bank movers; KEY Q4 EPS $0.57 vs $0.43, revs better $1.85 bln vs $1.71 bln and also announces a $900 mln share repurchase program (provision for credit losses was $20M vs. $109M YoY); SBNY Q4 EPS $3.26 vs $2.89 and net Interest Income $395 mln vs $402.9 mln est.; MTB Q4 EPS $3.54 vs $3.01, Net Interest Income $989.3 mln vs $93 mln, net charge offs came in better; trust bank NTRS Q4 EPS miss at $1.12 vs. est. $1.49 as AUM rises 14% YoY to $1.41 trillion; BKU Q4 EPS $0.89 vs $0.71, BANC Q4 EPS beat est., $0.35 vs $0.18, TFC Q4 EPS better, $1.18 vs $0.95, FBC Q4 EPS better, $2.83 vs $2.36; FITB Q4 EPS 78c vs 69c est. and NIM 2.58% vs. 3.27% a year ago, net credit recoveries $118 million, +4.4% y/y, estimate charge-off $134.9 million

·     Insurance; TRV Q4 core eps $4.91 on revs $8.40B, vs estimates $3.18 on $7.27B, and earned premiums $7.48B topped est. $7.42B on last year’s $7.25B; LMND was reiterated at OW with a $163 pt Piper following their deep dive, mobile app data analysis, and their expectations that the insurer will continue gaining scale given its digital analysis, innovation, growth within existing markets, and expansion to additional products, such as auto insurance

·     Consumer Finance; PYPL was upgraded to Buy at BTIG with a $300 target on confidence that growth will continue given the shift towards digital payments that was accelerated during the pandemic, and was also reiterated at Positive by Vertical Group on holiday spending data; Jefferies now expects FIS Merchant Solutions organic growth of -9% YoY for Q4 (vs. prior est. -4%) and +1% YoY in Q1, as their softer volumes outlook is driven by in-store spending being impacted by incremental lockdowns in the UK and tighter restrictions in the US; FSRV was named by Whitney Tilson as a new recommendation to Buy up to $20 as the stock is cheap and only trading at 13x earnings

·     REITs; BTIG upgraded EGP to Buy with a $158 target and they remain positive on Industrial REITs as they do not expect a material shift in e-commerce demand even as in-person shopping rebounds, which means they expect incrementally more demand for modern warehouse facilities as retailers rush to restock inventory and Coastal-to-Sun Belt relocations bring expectations of swift online fulfillment to new markets; STOR announced it has collected 91% of January rent

·     Financial services; DBD was upgraded to overweight at JPMorgan ahead of the DN Series ramp in 2H21 against easy comps, continued strong demand for self-checkout solutions, and improving quality of earnings as the macro backdrop is improving; DFS Q4 EPS $2.59 vs. est. $2.42 on in-line revs of $2.82B, quarterly provision for credit losses of $531M decreased $307M YoY, and Q4 net interest income decreased $47M (2%) YoY

Healthcare

·     Pharma & Biotech movers; MRNA active after California’s health department said it was safe to continue to use a batch of COVID-19 vaccine from Moderna Inc for inoculation after a pause on Sunday due to possible allergic reactions; ATHA 4M share Secondary priced at $22.50; CMRX 11.765M share Secondary priced at $8.50; CYRX 3.788M share Spot Secondary priced at $66.00; CTMX 14.286M share Secondary priced at $7.00; DYN 6M share Secondary priced at $28.00; EDIT 3.5M share Secondary priced at $66.00; INO 2.7M share Spot Secondary priced at $8.50

·     MedTech and Equipment; BTIG raised tgts for IRTC ($235 to $283), NARI ($92 to $110), ATRC ($56 to $66), and STIM ($14 to $21) as believe these stocks deserve to move in lockstep with the rapidly expanding multiple for the fast-growing MedTech comp group; OSUR said its saliva collection device, Oragene Dx (OGD-610), has been included in industry’s first U.S. FDA authorization granted to a whole exome sequencing platform; BSX to acquire Preventice Solutions, Inc. in deal valued at $925M and also consists of up to an additional $300 mln in a potential commercial milestone payment; Citigroup added TNDM to SMID focus list and removed GH from the focus list following its strong run; CDNA 1.923M share Secondary priced at $91.00

Industrials & Materials

·     Transports; UAL leads transports lower after posting a larger than expected quarterly loss and said it expects the coronavirus pandemic will continue to weigh on travel demand this year as the airline turns its focus to rebuilding itself; in rails, UNP Q4 EPS 2.36 vs. est. $2.30 and said business volumes, as measured by total revenue carloads, increased 3% compared to 2019; quarterly freight revenue declined 1% compared to q4 2019

·     Aerospace & Defense; Aerospace & Defense: Credit Suisse with several changes: HWM PT raised to $34 from $25, SPCE PT raised to $36 from $26, MAXR PT raised to $49 from $28, RTX PT raised to $81 from $70 and rating change as upgrade SPR to outperform as become more constructive on the narrow body OE market, while downgraded shares of HXL (to underperform) and TGI (to neutral; MAXR downgraded to Neutral at JPMorgan while raised tgt to $55 from $30 after the rally the past three months (+85% vs the S&P 500 +10%) has boosted the shares to our most optimistic expectations for the turnaround story.

·     Metals & Materials; AA shares decline despite a beat on the top and bottom line for Q4 (adj EPS $0.26 vs. est. $0.1), as focus turns to Q1 as sees lower qtrly performance in aluminum segment and bauxite segment; CTVA shares active after Starboard value sends letter to company urging leadership change, board refreshment; DD downgraded to Neutral from Buy at Bank America with an $86 tgt with shares now trading near 14x pro forma EBITDA, and carrying just over 2% upside to their new $86 PO

Technology, Media & Telecom

·     Internet; a day after the sector surged behind better NFLX subscriber numbers (boosting mega cap FB, AMZN, GOOGL), group hold steady; in online travel, BKNG, EXPE, TRIP estimates lowered for 4Q and 1Q at Truist to reflect a somewhat higher than anticipated hit from the pandemic in 4Q20 and 1Q21, but maintaining BUY ratings on prospects for a sustained rebound; FSLY upgraded to outperform at OpCo, grown incrementally positive after speaking to channel checks, which suggest record traffic volumes and a positive launch of compute@edge

·     Semiconductors; INTC expected to report earnings tonight; ASML upgraded to Buy with EU570 tgt at New Street noting TSM spends $25-28bn; as the bull case becomes the base case now anticipate ASML will beat the high-end of the guide management gave at their last CMD, in 2018; SYNA upgraded to Neutral from Underweight and raising our estimates to reflect the positive mix shift to IoT at JPMorgan;

·     Hardware & Software movers; Unity Software (U) downgraded to underperform from neutral at bank America but up tgt to $127 from $102 saying at $40B mkt cap, Unity is equal to all public US/EU mobile developers together, ~60% of ADSK, and ~40% larger than its current TAM; VMW downgraded to sector weight from overweight at KeyBanc saying the firm’s CIO Survey and input from channel discussions leads them to see a more challenging first half for the company; IBM earnings expected tonight after the bell; CIEN upgrade from Neutral to Buy with $65 tgt at Bank America as look past expectations for a weak 1H and focus on the longer-term opportunity

·     Media & Telecom movers; FUBO spikes after being initiated outperform and $40 tgt at Barrington saying it offers a streamed multichannel video programming distributor option featuring a complete programming package and exceptionally intense sports focus; CHA, CHL, CHU have filed requests asking the NYSE to reverse its decision to delist their American depositary receipts and are seeking a trading halt on their ADRs to be lifted in the meantime, the WSJ reported overnight; VIAC rises as Needham raised its tgt to $55 ahead of a catalyst coming via an analyst day that should shed some light on the upcoming launch of streaming service Paramount Plus.