Closing Recap

Friday, January 29, 2021

Index	Up/Down	%	Last
DJ Industrials	-622.52	2.03%	29,980
S&P 500	-73.34	1.94%	3,714
Nasdaq	-266.46	2.00%	13,070
Russell 2000	-32.98	1.57%	2,073

 

Equity Market Recap

·     Major U.S. stock averages fell on Friday, closing out a relatively good month in poor fashion, as the S&P 500 slipped back below its 50-day moving average (3,723) in the final minutes after falling more than 2.4% earlier to lows below 3,700. Stock selling was broad-based as mega-cap tech was hit hard (TSLA, AAPL), while positive earnings in the chip space (SWKS, WDC) lifted shares of each, but could not boost the overall sector. The squeeze stocks rallied again today (GME, AMC, etc.) after sharp selling pressure Thursday, leading some to think some institutions are selling positions to cover shorts. Defensive sectors such as utilities and consumer staples were down the least while energy was a drag. Healthcare stocks were volatile following a bout of vaccine news – with JNJ disappointing in its one-shot dose data while NVAX shares soared on its results. There are so many moving parts today (and for the week) for investors to focus on ahead of another remarkably busy week of upcoming earnings.

·     1) Vaccine news plentiful as NVAX said NVX-CoV2373, was 89.3% effective in preventing COVID-19 in a trial conducted in the UK, while JNJ in its single-shot data today said was 72% effective in preventing COVID-19 in the United States, but a lower rate of 66% was observed globally (good results, but market hoping for more) – MRNA, PFE, BNTX, INO shares jumped on the JNJ data.

·     2) The short squeeze story continues to get louder –the investing community platforms of Reddit and WallStreetBets, targeting stocks that have high short interest, have currently changed the market investing structure. The community forums, buying shares of high short interest names has created astronomical short squeezes for the likes of GME, AMC, BB, BBBY, KOSS, FUBO, SPCE, IRBT, EXPR, GSX (among others), which prompted online trading platforms to halt trading in some of those names yesterday (and creating massive backlash from retailers, politicians, and others). Noted short seller Citron Research said today he is no longer shorting stocks (he said last week GME should be back at $20 – when shares were $40 – drawing ire from the Reddit/WSB community who he said sent threatening messages to him), a sign of the changes. Note Short interest in GameStop is at $11.2 billion, making it the third most shorted stock by value, although the number of shares shorted has declined, according to analytics firm S3 Partners. GameStop is the third-largest short by value behind Tesla and Apple, according to the firm.

·     3) Earnings overwhelm with results in tech lifting some (WDC, SWKS big gains on results) – which follows better results from AAPL, AMD, MSFT this week (wouldn’t know based off the stock performance), while TSLA shares dropped on its miss. Next week we get AMZN.

·     4) Bitcoin prices surge as much as 14% topping $38K after Tesla Inc CEO Elon Musk tagged the cryptocurrency in his Twitter biography. Musk wrote simply "#bitcoin" in his biography on the social media site (Bitcoin bank SI jumped as well as cryptocurrency miners RIOT, MARA, and online retailer OSTK, and blockchain tech investor MSTR all rose). Bitcoin prices pared gains late day, back to the 35K level.

·     5) Economic data showed better personal income and spending with higher inflation readings, while markets turn their attention to the monthly payroll figures next Friday. Weekly jobless claims showed improvement yesterday after several weeks of rising claims.

·     6) Robinhood scrambled for cash last night after the Reddit revolt, tapping investors and credit lines for more than $1 billion to meet the central clearing hub’s demand for huge sums in collateral. The move came after some U.S. brokerage sites restricted trading though Robinhood but resumed trading on Friday. Robinhood also told some of its users it may close out some of their positions.

·     7) Sentiment starting to turn bearish: The level of pessimism among individual investors about the short-term direction of the U.S. stock market rose to its highest level in 15 weeks in the latest American Association of Individual Investors Sentiment Survey (yesterday). With this, optimism fell to its lowest level in 11 weeks. AAII reported that bearish sentiment increased 3.8% points to 38.3% while bullish sentiment fell 4.9% to 37.7% With these changes, the bull-bear spread fell to minus 0.6 from +8 in the previous week – the first negative reading since Oct. 21 of last year.

Economic Data

·     December Personal Income rose +0.6% MoM vs. +0.1% consensus and -1.3% prior (revised from -1.1%), while Consumer spending fell -0.2% MoM vs. -0.5% consensus and -0.4% prior. The PCE Price Index rose +0.4%, slightly above the +0.3% consensus and 0.0% prior, while Core PCE Price Index rose +0.3% vs. +0.1% consensus and 0.0% prior. The Q4 Employment Cost Index: +0.7% Q/Q vs. +0.5% consensus and +0.5% prior.

·     Chicago PMI reported at 63.8 for January vs. est. 58.5

·     University of Michigan Consumers Sentiment final Jan 79.0 vs. est. 79.2 and prelim Jan 79.2 and final dec 80.7; expectations index final Jan 74.0 vs prelim Jan 73.8 and final Dec 74.6 and the current conditions index final Jan 86.7 vs prelim Jan 87.7 and final Dec 90.0

·     Pending home sales for Dec fell -0.3% vs. est. -0.1% to 125.5 according the National Association of Realtors; Dec pending home sales +21.4 pct from Dec 2019

 

Commodities, Currencies and Treasuries

·     Oil prices settle lower as WTI crude down 14c or 0.27% to settle at $52.20 per barrel, down more with the broader pullback in stocks and risk assets, while front month prices rose over 7% to start the New Year. Gold futures climbed $9.10, or 0.5%, to $1,850.30 an ounce, snapping its 6-day losing streak as a rise in stock market speculation helped boost demand for the haven metal. Gold, however, finished lower for the month falling 2.4%, pressured as the U.S. dollar and Treasury yields have climbed since the end of last year. Treasury yields end the week higher along with the dollar, each bouncing to start the New Year.

 

 

Macro	Up/Down	Last
WTI Crude	-0.14	52.20
Brent	0.35	55.88
Gold	9.10	1,850.30
EUR/USD	0.001	1.2131
JPY/USD	0.52	104.73
10-Year Note	0.028	1.083%

 

 

Sector News Breakdown

Consumer

·     Retailers; one of the busiest sectors over last two weeks given the large amount of high short interest in brick-and-mortar and names that have little online presence during to pandemic shutdowns (shares of GME, EXPR, BBW, FOSL, M among the sharpest movers recently); CPRI upgraded to Outperform from Neutral, price target $58 at Baird, and firm downgraded SFIX to neutral from Outperform with $85 tgt; in Europe, Ferragamo shares slipped after a 20% decline in sales in the fourth quarter; LZB forecast a 1% to 2% fall in Q3 consolidated sales, vs estimate for an increase of 1.98%

·     Auto sector; TSLA tgt raised to $1,010 from $777 at Argus on belief that Tesla is the undisputed leader in the electric vehicle (EV) space with its Model S, Model 3, Model X, Model Y, and upcoming Cybertruck offerings; NIO tgt raised to $80 from $33 at Morgan Stanley on confidence the electric vehicle upstart is a strong place to gain more market share and firm initiated XPEV with an overweight and $70 tgt; ABG increases share repurchase program to $100M; Ford (F) downgraded to Underweight from Equal Weight at Morgan Stanley based on assessment of the regulatory, technological and economic factors driving de-carbonization

·     Consumer Staples; MDLZ posted 3.2% organic sales growth for the quarter and 3.7% for the full year: Revenues came in 1.9% above consensus estimates. However, the gross margin of 39.2% was -72bp below consensus and down by -80bp YoY; CL with 1c EPS beat on better sales of $4.32B as organic sales growth +8.5% vs consensus +5.4% – NA +8.5% vs consensus +3.0%; CHD slight beat on top and bottom line for Q4 with organic sales growth +10.8% vs est. +8.1% though margins slightly below consensus.

·     Leisure and Gaming; JPMorgan remained Overweight on RRR, BYD, CZR, PENN, CHDN – but reduced 4Q20 and 1H21 EBITDA estimates across our regional gaming coverage to reflect rising COVID-19 infection rates and the ensuing impact of casino restrictions on regional gaming visitation; DKNG, DMYD, GAN, PENN, RSI, SGMS – online gaming names active late yesterday after Google announced it will allow gambling apps in its Android store starting 3/1/21; DS 20.833M share Secondary priced at $2.40.

 

Energy

·     Energy stock movers; CVX reported a surprise Q4 loss as adj EPS (1c) missed est. 7c profit and revs $25.25B also missed est. $36.35B, and its production 3.2M boe/d increased 6% YoY; PSX Q4 adjusted EPS ($1.16) loss was wider than consensus ($1.06) on revs $16.7B vs consensus $16.1B, and cash flow from operations decreased 62% YoY to $639M; the weekly Baker Hughes U.S. total rig count was 384, rising 6 rigs as drillers add oil rigs for 10th week in a row, while the gas rig count unchanged at 88.

·     Utilities & Solar; Goldman downgraded NI to Neutral and lowered their target to $25 from $27 citing potential guidance and consensus risk from increased rate case overhang at its gas utility segment, along with the company’s elevated equity financing needs; JPMorgan upgraded SR to Overweight given its discount to LDC peers, a stabilizing regulatory outlook, and potential earnings upside, and downgraded SWX to Neutral on account of regulatory risk after its recent AZ rate case order; Singapore’s sovereign wealth fund GIC to acquire 19.9% minority interest in DUK’s Indiana unit for $2.05 bln; Duke Energy to remain majority owner and sole operator of DEI

 

Financials

·     Bank & Brokers movers; SF Q4 EPS $1.67 vs. est. $1.31 on revs $2.2N vs est. $956.6M and increased their dividend ~32% to 15c per share; Citi reiterates their Buy on RJF with a raised price target to $148 from $129 and opened a 90 day positive catalyst watch after their Q1 earnings results; WETF posted Q4 adj EPS 6c on revs $67.1M (ests. 5c on $65.5M); KBW upgraded OBNK to Outperform with a $36 pt; EGBN was upgraded at Gabelli to Buy with a $51 pt

·     Insurance; AJG Q4 adj EPS 88c vs. est. 78c on revs $1.67B vs. est. $1.45B, and they have not seen any meaningful decline in cash receipts from clients to date and have over $1.6B of available liquidity; PFG reported Q4 EPS $1.48 vs. est. $1.42, record AUM of $806.6b, and generated net cash flow of $1.2B, its 49th consecutive quarter of positive net cash flow; Credit Suisse double-downgraded LNC to Underperform from Outperform on valuation and the potential for adverse mortality, lowering their target price to $45 from $56, and they also downgraded RGA to Underperform as yearly renewable term mispricing from 1998-2004 continues to affect earnings

·     Consumer Finance; SLM was upgraded to Outperform with a $20 target at RBC and its price target was also bumped to $18 from $15 at Barclays, $20 from $17 at Credit Suisse, and $17 from $14 at BTIG following their earnings; Visa (V) announced a $8B share repurchase program and posted Q1 EPS $1.42 on revs $5.7B (down 6% YoY) vs. est. $1.28 and $5.52B, payments volume up 5% and transactions processed 39.2B, while they did not provide outlook for FY21; Home Point Capital (HMPT) 7.25M share IPO priced at $13.00; SYF reported Q4 EPS $1.24 (est. 91c) on revs $3.659B (est. $3.55B), net interest margin 14.6% (est. 14.1%, 15.0% YoY), and authorized a $1.6B stock buyback plan; Raymond James initiated LPRO at Strong Buy with a $55 target

·     Services; ADP was upgraded to Buy with a price target raise to $190 at Citi who revised their estimates on the company’s better-than-expected recovery, improved outlook for retention, pays per control, PEO WSEs, client balances, and bookings, and optimistic tone after December’s job contraction and notable white-collar declines compared to cautious optimism in October; FICO 1Q adj EPS $2.74 vs. est. $2.27 on revs $312.4M vs. est. $319.6M

 

Healthcare

·     Covid-19 vaccine news plentiful today; NVAX rises after saying its vaccine, NVX-CoV2373, was 89.3% effective in preventing COVID-19 in a trial conducted in the UK; reported 60% efficacy among HIV-negative individuals against the variant found in South Africa – JPM said the recent COVID-19 vaccine data has strengthened the co’s experimental vaccine’s position as the "best-in-class"; JNJ shares dropped after the company’s single-dose vaccine was 72% effective in preventing COVID-19 in the United States, but a lower rate of 66% was observed globally in the large trial conducted across three continents and against multiple variants – the National Institute of Allergy and Infectious Diseases said there were 16 deaths in placebo group of vaccine study and 3 deaths in the vaccine group (note vaccines from PFE and MRNA were around 95% effective in preventing symptomatic illness in pivotal trials when given in two doses); NVS has entered into an agreement to help boost the production of the Covid-19 vaccine developed by PFE and BNTX

·     Pharma movers; LLY reported a 41% rise in its quarterly profit, boosted by strong sales of its COVID-19 antibody treatment and higher demand for its diabetes drugs – profit jumped to $2.12 billion, or $2.32 a share, compared with $1.5 billion, or $1.64 a share YoY; KPTI receives positive CHMP opinion for Nexpovio for treatment of patients with refractory multiple myeloma; in cannabis, shares of CRON, ACB, CGC, TLRY rallied as Stifel said that Sen. Majority leader Chuck Schumer confirmed that he and some other Democratic senators and Republicans are working on federal cannabis reform bill that Stifel sees as the "Goldilocks" scenario.

·     Biotech movers; BIIB shares rose as the U.S. FDA extended review period for aducanumab, its experimental Alzheimer’s disease treatment by three months and set an action date of June 7, 2021 – says it submitted additional information, including analyses and clinical data to the FDA, that will require additional time for review by the agency; RDHL announces positive DSMB futility review for phase 2/3 covid-19 study of opaganib; BLCM rose after the FDA lifted the clinical hold on patient enrollment and dosing in its Phase 1/2 dose-escalation clinical trial evaluating BPX-601 and rimiducid in patients with previously treated metastatic pancreatic or prostate cancer

·     Healthcare services and providers; EHTH shares slide after guiding Q4 prelim revs $291M-$293M vs. est. 4369.8M saying 4q Medicare enrollments negatively impacted (also announces $225M strategic investment from H.I.G. capital); lab companies DGX tgt to $157 and LH to $257 at Jefferies as they raised estimates to simply reflect recent higher COVID-19 testing, with a continued bias for numbers to move higher; JPMorgan initiates IDXX and HSKA with overweight as views companion animal diagnostic market as most attractive sub-segment of animal health space

·     MedTech and Equipment; IRTC shares dropped after Novitas is said to have published rates that appear to be lower than expected, according to traders and Twitter posts https://bit.ly/39ud3oj ; RMD shares dropped as Needham said the co’s growth could slow as COVID-19 driven ventilator sales decline and also noted Q2 revenue growth slowed compared to Q1 as ventilator sales were negligible in the qtr; BAX, GKOS, PODD, ZYXI all downgraded to neutral at Piper

 

Industrials & Materials

·     Industrial & Machinery; CAT posted better than forecast Q4 EPS and revenues that fell 15% Y/Y to $11.2B but roughly matched analyst estimates as earnings fell to $780M, or $1.42/share, from $1.1B, or $1.97/share, in the year-ago quarter and operating profit margin was 12.3% vs. 14.1% for the prior-year; HON reported 4Q profit dropped 13% but the results came in well above Wall Street expectations on better sales ($2.07/$8.9B vs. $2/$8.4B) as all divisions saw sales fall except for Safety and Productivity Solutions (Aerospace, its largest business, had sales drop 19%); ETN signs agreement to acquire Tripp Lite for $1.65B, expanding Eaton’s power quality business in the Americas; Tripp Lite supplies power quality products, connectivity solutions

·     Transports; Dow Transports have quietly have quietly fallen about 1,000 points from its record highs of 13,208 on Jan 14 – down 6 of the last 7 trading days trading around 12,230 last as earnings results have disappointed thus far in rails and some truckers, while airlines still remain pressured; AAL filed $1.1B ATM ("at-the-market") sale, selling ~68.6 mln shares at avg price of $12.87, for gross raise of ~$882 mln under its prior $1 bln ATM filed in Oct

·     Aerospace & Defense; BA was double upgraded from Underweight to Overweight w/ $230 pt at Morgan Stanley saying with a low bar for expectations, and without any significant incremental headwinds in 2021, now see a clear runway for Boeing for further upside; LHX raises quarterly dividend 20%, approves $6B stock buyback

·     Metals & Materials; in steel, U.S. Steel (X) posts smaller Q4 adj EPS loss (27c) vs. est. loss (68c) with Q4 adjusted EBITDA $87M vs $4M last year and said average realized prices for flat-rolled steel hit $731 a ton, up from $699 a ton the year before; FCX added to Franchise List, reit Buy w/ $36 pt at Jefferies saying its balance sheet is strong now, free cash flow is kicking in, and the outlook for copper is compelling; UFS rose on news that CEO John Williams was on temporary medical leave had at least one outlet speculating https://bit.ly/2KYFzF9 ; silver producers rise again as AG, FSM add to recent gains along with PAAS, EKX as silver set to post best week since early November, up 8%; CE reported a sizable 4Q beat and guided solidly above consensus—while still being conservative enough to offer further upside;

 

Technology, Media & Telecom

·     Semiconductors; SWKS reported a DecQ almost 50% ahead of consensus top line, with Rev/EPS/GM at $1.51B/ $3.36/51.1% versus consensus ~$1.06B/$2.06/50.1%, and guided to a much stronger MarQ at $1.15B, ~24% above $924M consensus driven by 5G, Wifi6/6e, and Broad Markets strength with IoT/automotive 9few analysts raise QRVO tgt based on SWKS numbers); WDC surges after co posts Q2 revenue above estimates on robust retail demand with EPS of $0.69 topping the $0.54 estimate – Evercore raises to Outperform noting NAND has clearly bottomed and improving supply/demand trends along with higher value product mix should drive meaningful uplift to earnings power; ICHR, UCTT upgraded to OP from MP at Cowen as believe they are a great way to play semi SMIDCap upside to the recent robust strength in both AMAT and LRCX as both the top suppliers of gas and chemicals to semi cap cos

·     Hardware & Software movers; TEAM reported a very good F2Q, with revenue, billings, and EPS all above the Street while net customer adds of 11.6K were materially higher than expected, with roughly 3,000 more new customers than TEAM’s prior record (as per Mizuho); EGHT reported solid FQ3 results and raised FY21 guidance based on the beat; DDD downgraded from Buy to Hold at Hallum after the recent run-up, which he believes was entirely driven by a short squeeze and retail

·     Media & Telecom movers; CHTR shares fell as Q4 revs in-line at $12.6B, but said added 197,000 total customer relationships in q4, compared to 268,000 during q4 of 2019