Closing Recap

Friday, January 22, 2021

Equity Market Recap

·     Stocks finished the day mixed as the Nasdaq Composite overcame early weakness to settle higher for a 4^th straight session, while the Dow Jones Industrial Average underperformed behind weakness in components Intel (INTC) and IBM after mixed to disappointing results (INTC also a drag on the semiconductor index which touched a record earlier this week). Energy, Financials, and Industrials (sectors that have led the latest leg higher for major averages in December) were generally weaker along with pockets of weakness in technology ahead of a busy time for earnings (over 60% of the S&P 500 report the next 2-weeks) that includes AAPL, TSLA, MSFT, CAT, BA, FB, and MCD among them. Stocks were weaker overnight with questions swirling about the details of the new $1.9B stimulus plan being pushed by the Biden administration and the challenges of delivering the COVID vaccine, but that was short lived. The Biden administration plans to discuss the need for economic stimulus with a group of senators on Sunday, White House national economic council director Brian Deese said on Friday, as it seeks to build support for what it sees as a critical round of new coronavirus relief.

·     Stock momentum has been incredible as Goldman Sachs noted this morning that global equities have recorded a massive +$255B worth of inflows in the past 3 months and global equities have recorded +$60B worth of inflows so far in just the 3 weeks of January. Recall yesterday, DJ reported that 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 and fewer than 10 million in January 2020. Today on CNBC, Bob Pisani noted the increase in volume as well saying so far in 2021.

·     Momentum stocks have been raging out of control to the upside, with companies that have either large-short interest, or negative sell-side coverage have been surging for unexplained reasons, pushing stocks in incredible fashion. Such examples today alone included a massive surge higher for GME (now up over 200% MTD), as well as BB, PLTR, AMC, BBBY (the list goes on and on) for no real reason other than it appears shorts are getting squeezed. Momentum plays such as electric vehicles and SPACS dominated trading the last two months of the year with focus now on high concentrated short positions.

Economic Data

·     Markit January manufacturing PMI at 59.1 vs 57.1 prior, Services PMI Flash Actual 57.5 (Forecast 53.4, Previous 54.8) and Markit Composite PMI Flash Actual 58.0 (Previous 55.3)

·     Existing Home Sales for December rose +0.7% to 6.76M, topping the 6.550M estimate and came in above the prior 6.710M (revised from 6.690M); median home price for existing homes $309,800, +12.9 pct from dec 2019; inventory of homes for sale 1.07 mln units, 1.9 months’ worth

Commodities

·     Oil prices end lower as WTI crude slips 86c or 1.6% to settle at $52.27 per barrel to end the week lower by a modest -0.2%, falling today behind an unexpected rise in weekly inventories. EIA weekly inventory data which showed a 4.4M barrel rise in crude stocks, more than the 1.0M barrel draw after the API reported a 2.6M barrel build Wednesday. Oil slipped this week as pessimism over demand spread with the coronavirus forcing more lockdowns, while a stronger dollar reduced the appeal of commodities priced in the currency. Natural gas prices slip on the day, bringing its weekly decline to down around 11%. Gold prices slipped on Friday, down -$9.70 or 0.5% to settle at $1,856.20 an ounce, but still managed to climb roughly 1.4% for the week buoyed by expectations for further fiscal stimulus under new President Joe Biden.

Currencies & Treasuries

·     Bitcoin with another wild ride on the day, falling as much as 9% overnight and dropping below $29,000 before a sharp recovery, pushing to highs just under $34,000, up over 8% (down from $42,000 just two weeks ago). The cryptocurrency has been all the rage the last few months but saw declines this week after incoming Secretary Treasury Janet Yellen expressed concerns that cryptos could be used to finance illegal activities, while ECB President Christine Lagarde called for global regulation of Bitcoin. The U.S. dollar drifted higher on Friday after three straight days of losses, and riskier currencies fell, as bleak non-U.S. economic data gave global equity markets reason to pause after another week of record highs. U.S. Treasury yields were lower as well.

Sector News Breakdown

Consumer

·     Retailers; DECK tgt raised to $369 at Stifel reflecting UGG brand strength and evaluation of the HOKA multi-year opportunity beyond management’s $1bn brand target; for TSCO, Bofa est. comps +20% (v +16% prior) and ‘21E EPS of $6.97 (7% above cons) assuming +2% comps in ’21 (following +22% in ’20) and reit as top pick in Hardlines; AOUT upgraded to Outperform at Wedbush saying its portfolio targets a who’s who of categories that all saw a massive surge in demand during 2020; VSTO was initiated Outperform and $36 tgt at Wedbush saying the COVID-19 pandemic provided the accelerant for a turnaround that was just beginning to take root a year ago, and all signs now point to a record setting year for the company; MYTE cautious WSJ mention saying the IPO was highly priced, and especially with AMZN and Instagram moving in, online competition from the likes of FTCH, REAL may soon eat into its margins; GME shares rise again, rising over 60% this week alone as the short squeeze continues – a short call from Citron Research Andrew Left earlier in week (said sees shares going to $20) was met with abuse, saying he was attacked from the investor community on his short thesis, including alleged attacks against his family (said he will no longer comment on the company)

·     Auto sector; in the auto parts sector, APTV was downgraded to Neutral from Overweight at JPMorgan (pt raised to $134 from $110), THRM (pt to $60 from $51) VC (pt to $113 from $88) downgraded to Underweight on valuation and upgraded ADNT (pt to $35 from $20) and LEA (pt to $210 from $149) to Neutral as calling for broad-based earnings beats; Ford (F) upgraded to Overweight from Neutral with $14 tgt at JPMorgan on what they see as a multitude of factors, foremost of which is an incoming tide of hot new products they expect will bring substantial volume, mix, and pricing benefits; CARG announced the appointment of Jason Trevisan to CEO and a member of the board; NIO was initiated Buy and $80.30 tgt at Nomura

·     Housing & Building Products; homebuilders have had a strong week of gains on better economic data, positive analyst calls (MTH, LEN, KBH); AZEK 20M share Secondary priced at $40.00; GRBK said it expects to report EPS between $2.21-$2.23 for 2020, an increase of over 90% and 92.2% YoY; RDFN says median home sale price up 15% year-over-year to $318,750 in 4-week period ending Jan 17; median home sale price increased 15% Yoy to $318,750 in 4-week period ending and pending home sales were up 32% year-over-year in 4-week period ending Jan 17

·     Consumer Staples & Restaurants; RLX 116.5M share IPO priced at $12.00; BJRI said it sees Q4 revenue $197.0M vs. est. $210.97M; guides Q4 comp sales down (-32.3%); sees Q4 adj. EBITDA $2.0M-$3.0M and Q4 restaurant level operating margin $12.5M-$13.5M and announces and ATM offering program

Energy

·     Energy stock movers; group mostly lower after recent rally in bout of profit taking; SLB with Q4 EPS beat (22c vs. 18c est.) on slightly better revs of $5.5B vs. est. $5.26B (but down 33% YoY) as last of major oil service names report; Baker Hughes (BKR) U.S. rig count was up 5 from last week to 378 with oil rigs up 2 to 289, gas rigs up 3 to 88, and miscellaneous rigs unchanged at 1 – drillers add rigs for a 9th week in a row. U.S. inventories of crude oil surprisingly increased last week, but gasoline stockpiles declined slightly, according to weekly data released Friday by the Energy Information Administration.

·     Utilities & Solar; BWEN fell after Q4 rev guidance of $40M, below the $44.2M estimate, impacted by a delay in the delivery of a tower order to a new wind turbine customer, lower revenue within the gearing segment and continued pandemic-related supply chain disruptions; ED drops in utilities after cut 2020 guidance a third time due to Covid-related expenses and issued a challenging outlook for 2021; TPIC was downgraded at UBS to Neutral as now see risk/reward more balanced following a 96% increase in the share price over the last 3 months

Financials

·     Bank movers; few more bank earnings in what has been a busy week of results; HBAN Q4 EPS 27c vs. est. 29c; revs $1.24B vs. $1.25B est. – Full-year noninterest expense is expected to increase approximately 3% to 5%, Q4 NII $825M, Q4 NIM 2.94%, non-interest income $409M; RF Q4 EPS 61c vs. est. 42c; Q4 adj revenue $1.66B vs. est. $1.56B; Q4 net interest margin 3.13% vs. 3.39% a year ago; Q4 Common Equity Tier 1 ratio 9.8% vs. 9.7% last year; SIVB rises after earnings as JPM raised tgt to $550 from $440 saying demonstrated yet again alongside 4Q20 results that it is the bank of the innovation economy, with "off the charts" operating trends including client fund inflows of $31B (+51% y/y), 1,500 new clients, and capital call loans surging 122% annualize

·     Consumer Finance; ALLY Q4 EPS $1.60 vs. est. $1.05 and revs up 21% YoY to $2B vs. est. $1.67B; approves up to $1.6B share repurchase in 2021; Q4 provisions for credit losses fell $174M to $102M; CACC mentioned as short position by Steve Eisman of Neuberger on Bloomberg TV citing credit acceptance around regulation, says will suffer from regulatory hurdles; MGI expands real-time digital p2p payments with Visa Direct through New Checkout.com PartnershipCustomers can use the MoneyGram website or leading mobile app to send money in near real-time to Visa debit card holders across 575 corridors from 25 countries in Europe

·     Mortgage insurers MTG, RDN, NMIH, ESNT all fell sharply – follows recent news that Joe Biden is proposing a $15,000 first-time homebuyer tax credit, which could be accessed immediately by the buyer, thereby serving as down payment assistance and the FHA could also reduce its monthly insurance premiums under the new leadership.

·     REITs; Truist provided a 2021 REIT outlook, as they upgraded EQR, EXR, PSA and VNO to Buy from Hold and downgraded AIRC, CUZ, CXP and MPW to Hold from Buy while also adjusting price targets and estimates – said are relatively bullish on Self-Storage, Retail, Triple Net, Data Center & Towers, and Gaming; neutral on Healthcare, Multifamily, Office and Industrial; and incrementally cautious on Hotel.

Healthcare

·     Pharma movers; BHC was downgraded to Neutral from Overweight at Piper noting shares are up 25% year-to-date (and up ~140% from its 52-week low); PASG 7M share Secondary priced at $22.00; ADMP announced last night that its SYMJEPI, epinephrine, Injection products are now available to members of the Walgreens (WBA) Prescription Savings Club program; ACB 12M share Secondary priced at $10.45

·     Biotech movers; BCRX rises after saying Japan’s health ministry granted marketing and manufacturing approval to its oral drug, Orladeyo, to prevent hereditary angioedema (HAE) attacks in patients aged 12 years and older; SAGE downgraded to market perform at BMO saying current valuation better reflects the recent BIIB collaboration and pipeline risk/reward; NVTA 7.77M share Secondary priced at $51.50; INCY said the FDA has accepted INCY’s BLA application for priority review of retifanlimab (a PD-1 checkpoint inhibitor) in second line (2L) patients with locally advanced/metastatic squamous cell carcinoma of the anal canal (SCAC) with a PDUFA target action date of July 25, 2021.

·     Healthcare services and providers; RAD, CVS, WBA active after WMT said it would begin offering covid-19 vaccine in 7 more U.S. states, as well as in Chicago and Puerto Rico this week and next –company spokeswoman

·     MedTech and Equipment; ISRG reported 4Q results as EPS of $3.58 well ahead of est. $3.09, driven by better-than-expected da Vinci shipments and higher stocking orders, but elected not to provide formal guidance; SENS 51.9M share Spot Secondary priced at $1.925; VRAY 11.5M share Block Trade priced at $4.75; BSX receives FDA approval for the Vercise genus™ deep brain stimulation system fourth-generation DBS portfolio features full-body MR conditional devices; STIM upgraded to outperform at William Blair after meeting with CEO/CFO as came away encouraged by the commercial strategy that has been put in place; QDEL upgraded to outperform at Raymond James saying core business is well positioned to exit the pandemic much stronger than it entered

Industrials & Materials

·     Transports; CSX reported 4Q20 adjusted EPS of $1.04, ahead of the consensus estimate of $1.01 as the 57.0% operating ratio (OR) was 50bp better than the Street (shares were downgraded to Hold at Stifel); KSU EPS of $1.89 missed estimates by 3c on lower revs down about 5% YoY to $693.4M below est. $696.2M; it has been a mixed week for transports after record highs late last week, as airlines slumped on weaker UAL results Thursday, while rails have been mixed

Technology, Media & Telecom

·     Internet; earnings next week for big names AMZN, FB; EXPE upgraded to Overweight from Equal Weight and raising our price target to $180 from $110 at Wells Fargo saying while believe ABNB rightfully commands a premium valuation vs. OTAs, also view ABNB’s strong market reception since IPO as highlighting the opportunity for EXPE to unlock value

·     Semiconductors; Samsung (SSNLF) intends to invest more than $10 billion to build a logic chipmaking facility in the US, Bloomberg News reported citing people familiar with the matter; INTC reported strong 4Q20 results (beat top/bottom line) due to continued PC strength but guidance was tempered by continued margin pressure in its data center business (30.5% of revenue); STX slips in HDD space as reported better than expected results driven by a combination of strength in the PC, Surveillance, and Enterprise markets, while guidance was less robust with STX guiding EPS just slightly ahead of prior Street numbers

·     Software movers; DCBO 2.01M share Secondary priced at $49.67; FTNT upgraded to Buy with $178 tgt at BTIG saying checks indicated that FTNT continues to gain share with larger enterprise customers and commentary around win rates in the SD-WAN market were encouraging; Cowen positive on TWLO, ZEN and raising PTs on all of them ahead of earnings saying TWLO is their best idea overall; Goldman Sachs reinstated CRM at Buy and $315 tgt as believe that Salesforce remains poised to be one of the most strategic application software companies in the $1 Trillion TAM cloud industry (also initiated buys on MSFT, WDAY, NOW, SPLK, ADBE)

·     Media & Telecom movers; DIS upgraded to Buy from Neutral with a $200 PT at as believe Disney is positioned to achieve scale like industry leader NFLX with 340M+ global subs by ’24, while its premium IP creates pricing power; GSAT downgraded to underweight at Morgan Stanley with $0.55 tgt noting the company now has an enterprise value of some ~$2.5B saying the satellite business is worth around ~$270m based on a 7x EBITDA multiple, implying spectrum is worth $2.2B; SWIR rises after saying it expects revenue to be above Street consensus of $116.5M Q4, as well as being above Street consensus of $110M in Q1; also expects to report approximately $170M in cash and no debt at the end of December 31, 2020; MGNI rises after Craig Hallum boosted tgt to $45 earlier

·     Hardware & Component news; IBM shares drop sharply after reported 4Q results with revs coming in a bit weak at $20.4B vs. est. $20.68B (total revs -8% y/y cc ex-divested biz), while EPS was ahead of expectations at $2.07 vs. cons. $1.81 – Cloud & Cognitive software revs were disappointing at $6.8B (-6.6% y/y) and GBS was weak down -5% – no specific revenue guidance; VRRM announced it reached an agreement to acquire Australia-based Redflex, which is one of its largest competitors in the red light camera/photo enforcement industry