Market Review: July 12, 2021

Auto PostDaily Market Report

Closing Recap

Monday, July 12, 2021

Index

Up/Down

%

Last

DJ Industrials

130.23

0.37%

35,000

S&P 500

15.20

0.35%

4,384

Nasdaq

31.32

0.21%

14,733

Russell 2000

1.82

0.08%

2,281


 

Equity Market Recap

·     It was a quiet start Monday, with major U.S. averages steadily climbing, trading in narrow ranges into a potentially catalyst rich week, as the S&P looks to make it a 4th straight week of gains. S&P 500 Q2 earnings start tomorrow for GS, JPM and Pepsi, with several key themes such as inflation, capex, China, COVID expected to be prevalent in company comments/guidance the next few weeks. The S&P and Nasdaq touch new intraday record highs, building on last Friday’s market surge. Treasury yields edge higher following two bond auctions and after Friday’s rebound with the 10-year up above 1.36%, as the dollar rebounds, pushing commodity prices lower (gold, oil). Outside of the earnings season kick off (S&P 500 earnings are expected to increase 64% y/y in Q2, up over 12 pp from the start of the quarter which would mark best performance since Q4 2009 when earnings grew nearly 110%), investors await Fed Chairman Powell’s monetary policy testimony in front of Congress and Senate, several Treasury sales, both consumer and producer price index inflation data, and China June trade, activity and Q2 data. Meanwhile, the global vaccine rollout continues to accelerate with over 3.4 billion doses administered world-wide, of which 334 million are in the U.S. However, the threat of new variants and new waves in different countries continue to put the economic recovery in jeopardy.

 

Commodities

·     Oil prices end lower with WTI crude slipping -$0.46 or 0.62% to settle at $74.10 per barrel, its third straight day of declines (but off lows $73.16), adding to last week’s small losses, which marked the first weekly fall in seven weeks. Brent crude dips -$0.39 to $75.16 per barrel. Selling pressure stems from a highly uncertain environment with regards to OPEC production levels, a potential resumption of global coronavirus restrictions and U.S. trends in oil and fuel demand. Gold prices slip -$4.70 or 0.3% to settle at $1,805.90 an ounce (above the $1,800 an ounce level for 4th straight session), well of the session lows of $1,791.00 earlier.

 

Currencies & Treasuries

·     The U.S. dollar edges higher across the board as concerns about the pandemic encouraged investors to seek a safe-haven, while investors position ahead of key inflation data the next two days (CPI Tuesday and PPI on Wednesday). Markets also await testimony by Federal Reserve Chair Jerome Powell on Wednesday and Thursday. If inflation data points spike, the buck could see a rebound after falling from 3-month highs last week. Conversely, more benign data could lead investors to think the U.S. central bank can afford to maintain an easy policy framework for longer, encouraging more bets on risk assets, including risk-sensitive currencies.

·     Treasury yields edge modestly higher ahead of a busy $120B in Treasury sales that started this morning. The U.S. Treasury sold $58B in 3-year notes at a yield of 0.426%, slightly above the 0.424% when issued prior with the bid-to-cover (demand) at 2.41, indirect bidders awarded 53.17%, directs 18.28% and primary 28.55%. The U.S. also sold $38B in 10-year notes at a yield of 1.371% vs. the 1.374% when issued prior with the bid-to-cover (demand) at 2.39 and indirect bidders awarded 63.5% and directs 17.5%.

 

 

Macro

Up/Down

Last

WTI Crude

-0.46

74.10

Brent

-0.39

75.16

Gold

-4.70

1,805.90

EUR/USD

-0.016

1.1857

JPY/USD

0.18

110.32

10-Year Note

0.003

1.359%

 

 

Sector News Breakdown

Consumer

·     Retailers; for WMT, Morgan Stanley says their survey work leads to estimate that Walmart+ membership levels have been "treading water" since March in the 9M to 10M member range; JWN buys stake in four apparel brands owned by UK fashion house Asos, in bid for younger shoppers; Golf pro Rory McIlroy, through his investment firm Symphony Ventures, will invest at least $10M in DS’ mini-golf brand Puttery over the next three years as Symphony will take a 10% stake in each venue that is planned to open through 2023; BIG ests lowered at KeyBanc saying data points to even greater downside risk for Q2; BBBY announces the launch of a new storage brand called Squared Away; Outdoor grills maker Weber Inc on Monday filed paperwork with U.S. regulators for an initial public offering; LB shares among leaders in retail

·     Auto sector; TSLA shares outperformed after failing to participate in mega tech rally last week; DIDI confirmed the country’s cyberspace administration notified app stores to remove the ride hailing company’s 25 apps and said the move could impact its China revenue; Spain’s government said it will invest 4.3 billion euros ($5.1 billion) to kick-start the production of electric vehicles and batteries as part of a major national spending program financed mostly by European Union recovery funds; Bloomberg reported GM is turning to a German parts supplier to make the initial, small production run of its new electric commercial van in a move to get the vehicle quickly into the hands of customer FedEx

·     Restaurants; CAKE and EAT both upgraded to Outperform from Market Perform at Raymond James as see strong upside to 2Q expectations and attractive valuation entry points with each down 20%+ from their recent highs – also publishes above-consensus 2Q EPS estimates for many buy-rated companies in universe including BLMN, CMG, CAKE, DIN, EAT and RRGB; CMG ests and tgt raised to $1,800 at RBC Capital as reviews Q2 earnings and reviews the case for ESG-driven upside (says CMG remains favorite name in coverage); PZZA tgt raised to $124 and up 21/22 EPS estimates to $2.85 and $3.12, reflecting increased SSS growth, benign cheese costs, and the repurchase of preferred shares

·     Casinos, Gaming, Lodging & Leisure sector; LVS says it plans to be a strategic investor in digital gaming technologies focused primarily in the business-to-business space; Bank America provided lodging Q2 Preview saying U.S. RevPAR -22% vs. 2019, +12pts ahead of their forecast (U.S. RevPAR was above 2019 levels for the first time at +6% (+89% Y/Y) for the week ended 7/3, largely due to the July 4th holiday); Barron’s was positive as MBUU saying it is capitalizing on a boom in boating industry, helping boost leisure

 

Energy

·     Energy stock movers; energy stocks mixed as oil futures started the week lower before paring losses amid growing concerns about the spread of the delta variant of the coronavirus that could hobble appetite for crude in parts of the world; LPI announces senior notes offering; in research CVX was initiated outperform and $123 tgt as they like the company’s solid free cash flow profile and low dividend breakeven, which should improve in future years with the start-up of TCO FGP-WPMP; BMO initiated XOM at market perform saying Exxon has a lot of momentum, although we think share price performance has reflected much of this

·     Utilities & Solar; Dominion Energy (D) and Berkshire Hathaway Energy said they have terminated the planned sale of Questar Pipelines to Berkshire, citing uncertainty over achieving antitrust clearance for the deal; SPI rises after announcing the launch of next-generation electric pickup truck, EF1-T by its wholly owned EdisonFuture, Inc. and Phoenix Motor Inc. subsidiary; CSIQ wins first energy storage project in Colombia of 45 mw

 

Financials

·     Bank movers; Earnings this week kick off with large cap banks: Tuesday: GS, JPM; Weds: BAC, BLK, C, PNC, WFC; Thursday: BK, MS, TFC, USB and Friday: STT); in trading, VIRT estimates lowered at Piper saying likely faced seasonal headwinds In 2Q21 as trading activity and volatility slowed – says the biggest driver being the decline in volatility; in asset managers, IVZ was upgraded to Buy at Citigroup as see the biggest positive revisions to the Street across the Asset Managers (said within Retail B/Ds, RJF is now top pick, replacing LPLA)

·     Insurance; STFC to be acquired by Liberty Mutual for $52 per share in cash in auto insurance sector https://bit.ly/3r65YBq ; ahead of earnings season, JPMorgan said GL and LNC are their top picks in space and upgrades RGA to Overweight reflecting declining global COVID cases and deaths, potential upside to consensus EPS estimates, a likely resumption of share buybacks, and the stock’s significant underperformance. Firm says long-term fundamental outlook for the life insurance sector remains downbeat, but we believe that stocks offer attractive risk-reward; TRV was upgraded from Underweight to Equal-weight at Morgan Stanley saying prior rating was highly predicated on reserve weakness in GLO and commercial auto lines, with fading support from WC cushion (says those expectations have largely played out).

·     Mortgage, Consumer Finance and Lending; Jefferies noted with a price war ongoing in the wholesale channel, they conducted a proprietary survey of mortgage brokers & found very low prices are likely to bleed into retail, while we get the sense that the war will continue past ’22. While they still model healthy volumes, now see an extended period of wholesale/retail margin pressure as they downgrade RKT to Hold & reduce PTs for LDI and say PFSI is well-positioned as the business is 73% correspondent & more tied to volumes; UPST jumps to start after Goldman Sachs initiated with a Buy and $147 tgt saying the fintech lender’s artificial intelligence enables better borrowing selection, price efficiency, and ability to offer lower APRs

 

Healthcare

·     Pharma movers; JNJ slipped after the Washington Post said the FDA is expected to announce a new warning on its coronavirus vaccine related to autoimmune disorder; KALV said its KVD900 slows progression, accelerates resolution of attacks in HAE patients following its data for its oral drug candidates at the European Academy of Allergy and Clinical Immunology; ALNA provides update on clinical development programs saying ALLN-346 successfully completes phase 1b safety study; on track to start two phase 2a studies in q3 2021 with initial data expected in Q4

·     Biotech movers; CLDX rises after announces updated early-stage trial data for CDX-0159, indicating 95% complete response following a single dose in patients with two most common forms of chronic inducible urticaria, a skin condition; FDA chief Janet Woodcock has called for a federal investigation into the approval of BIIB’s controversial Alzheimer’s drug, Aduhelm, asking the independent Office of Inspector General to look into how regulatory staffers interacted with Biogen leading up to the June 7 approval of the drug; ENOB said the FDA accepts its pre-Investigational New Drug request to provide feedback for its potential cure for hepatitis B virus (HBV) infection; DARE enters into agreement with National Institutes of Health (NIH), for late-stage study of its experimental hormone-free monthly intravaginal contraceptive, Ovaprene

·     Healthcare Services; CLOV downgraded to underweight from neutral at JPMorgan with $9 tgt following 1Q21 results in which the company lowered most guidance metrics, including reducing the number of aligned beneficiaries under the direct contracting program in 2021 by 50%; Guggenheim with several changes in the Animal health sector as they downgraded IDXX to Neutral, and upgraded HSKA and CVET to Buy saying they are not adjusting their positive view on the animal health space overall; but are adjusting our strategy.

·     Medical equipment and devices; QGEN said to conduct an additional up to $100M share repurchase program/sees FY net sales +12%, saw +18% to +20%/says prelim 2q adj eps 66c to 67c, est. 63c and sees 3q adj eps 52c to 53c, est. 58c

 

Industrials & Materials

·     Aerospace & Defense; SPCE shares initially jumped after its VSS Unity successfully completed its flight into space with company founder Richard Branson on board, making him the second-oldest person to fly in space – stocks reversed lower after filing to sell up to $500M in stock; BAH said it made a vital investment in Latent AI, a company with an suite of software tools that enable adaptive artificial intelligence and machine learning.

·     Industrial & Machinery; several rating changes at Wolfe Research as downgraded MMM to Underperform as see a more challenging growth outlook through the back half of 2021 and into 2022 and cut WSO to underperform, turning more bearish on the outlook for the residential HVAC end market following extraordinary growth over the past 12 months. Wolfe upgraded IR to Outperform and $61 tgt noting the stock has lagged YTD, and this has been largely caused by earnings dilution from the disposals of IR’s upstream O&G and Club Car businesses and upgraded FTV to Outperform from Peer Perform noting shares have also lagged YTD and its multiple has now de-rated to a level that is largely in line with the large-cap universe, despite FTV’s higher quality factors (~60% GM) and superior software mix (~12%).

·     Transports; for airlines (AAL, DAL, JBLU, UAL), TSA checkpoint data hit highest level in pandemic era, was still 18% below 2019; GBX double upgraded from underperform to Buy at Bank America with $52 tgt and lift price tgt to $52 from $45 noting shares have pulled back from the upper-$40 range to the low-$40s in recent weeks, and see this pull-back as an opportunity to buy; UAL was downgraded to in-line at Evercore/ISI saying while they like the long-term focus on premium revenue growth, they believe the rate of planned investment makes it a "tougher story" at this point in the investment cycle

·     Metals & Materials; lithium names outperformed with shares of ALB, LAC, LTHM leading higher (note on early Friday, EVE Energy said it would take a stake in a small lithium producer and establish a joint venture to build a lithium chemicals project costing up to 1.8B yuan ($277.8M); also, LAC entered into an agreement to acquire 42.8M subscription receipts of Arena Minerals Inc for a total of C$6M; in ag space, Wheat futures climbed, following a six-session streak of declines, after a monthly report from the U.S. Department of Agriculture revealed a lower forecast for 2021/2022 supplies. The USDA cut its outlook for all wheat U.S. production by 152 million bushels to 1.7 billion bushels and pegged the all-wheat crop yield at 45.8 bushels per acre, down 4.9 bushels from last month’s forecast.

Technology, Media & Telecom

·     Semiconductors; WSJ reported that AVGO is in talks to buy SAS Institute Inc., in a deal, which would value closely held SAS in the range of $15 billion to $20 billion https://on.wsj.com/3r2feH0 ; overall quiet for semi space ahead of tech earnings kicking off next week

·     Hardware, Components & Services; HPQ shares slide as IDC Q2 PC tracker talks about a modest softening in demand saying "though growth remains quite high, it has begun to taper off as the +13% rate in 2Q21 is far lower than the +55.9% in 1Q21 and +25.8% in 4Q20; AAPL active after hitting all-time highs last week as Bank America said this morning Apple app store growth decelerating in fiscal Q3; DOYU said it had terminated its $5.3B deal with HUYA two days after China’s market regulator blocked TCEHYs plans to merge its top two video game streaming sites

·     Media & Telecom movers; DIS shares jump after Variety reported the company will raise the monthly and annual fees for ESPN Plus; CHTR downgraded to Market Perform from Outperform at Bernstein; TME slides after Reuters report says China may ask co to give up exclusive rights on labels; in cinema (AMC, CNK), Walt Disney Co.’s (DIS) "Black Widow" grossed $80 million in the U.S. and Canada, according to preliminary studio estimates, highest grossing film since pandemic; IMAX soared to a $12 million debut for Marvel Studios’ "Black Widow," its highest grossing opening weekend of the pandemic era in 11 markets worldwide; VMEO tgt raised to $60 at Jefferies on April/May rev growth above consensus, strong headcount growth and job listing growth.

_________________________________________________________________

Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

Live Trading

Open an Account

Paper Trading

Register