Closing Recap

Tuesday, July 20, 2021

Equity Market Recap

·     U.S. stocks finish solidly higher, recouping yesterday’s steep losses as the Dow advanced 1.7% (after its worst session since October), the S&P 500 up 1.6%, while the NASDAQ added 1.7% and the Smallcap Russell 2000 (which recently fell into correction territory – 10% off highs) outperformed jumping over 3%. The S&P 500 traded above Friday’s closing price, erasing Monday’s drop which was attributed to the spread of Covid-19 variants possibly setting back the economic recovery – but was just another buying opportunity for investors. The Nasdaq and Russell 2000 each snapped their five-day losing streaks as buying momentum was widespread as defensive sectors (staples) lagged. Treasury yields recovered (10-yr yield back to 1.21% off lows 1.13%), which removed a sense of panic that was seen Monday when rates slid to five-month lows. Despite the recent pullback in markets, the three major stock indexes each closed Monday down only about 3% from their all-time highs, underscoring the strength of the rally that powered equity markets in the first half of the year. Crypto assets pressured again as Bitcoin drops below the $30,000 level, falling over 4% along with weakness in Ethereum.

·     Stocks/sector top movers: banking stocks (XLF, KRE) rebound as Treasury yields spike off lows; in tech, IBM rises post earnings results overnight while markets await NFLX numbers tonight; drug distributors ABC, CAH, MCK climb after the co’s reach a $1.18B opioid settlement agreement with NY State; HCA surges to lead the S&P and lift other hospitals (THC, UHS, CYH) after raising full-year guidance; DOV all-time high, IBM, HAL, CCK jump on their beats, PPG sinks after its EPS miss, and PM slides on weak guidance in other earnings reports.

Economic Data:

·     Housing starts for June rose 6.3% MoM to 1.643M unit rate, above consensus of 1.590M and tops May’s 1.546M units; single-family starts +6.3% to 1.160M unit rate and multifamily +6.2%; June Housing Permits fell -5.1% to 1.598M unit rate, below consensus 1.700M. June single-family permits -6.3% to 1.063 mln unit rate; multifamily -2.6% to 535,000-unit rate.

Commodities, Currencies and Treasury’s:

·     Oil prices rebound with WTI crude rising $1.00 or 1.51% to settle at $67.42 per barrel, a solid rebound after hitting lows of $65.21 per barrel. Oil opened lower, extending the previous session’s steep slide, pressured by concern that rising COVID-19 infections could weaken demand again just when OPEC+ is increasing supply. But as stocks opened higher, surging throughout the session, commodity prices rallied along. Monday’s selloff had pushed oil to a two-month low and hit other riskier assets. U.S. natural gas futures climbed over 2% to a 31-month high on forecasts for hotter weather and higher air conditioning demand (front-month gas futures rose 9.7 cents, or 2.6%, to settle at $3.876 per million British thermal units)

·     Gold prices eke out a small gain, rising $2.20 to settle at $1,811.40 an ounce after earlier touching highs of $1,825.90 an ounce; gold pulls back following a rebound in Treasury yields and as the dollar index (DXY) tops the 93 level, gaining on the euro and Pound.

·     Treasury yields recover off 5-month lows as the 10-year yield finishes highs above 1.21% after touching lows of 1.13%; the 30-year, 5-year and 7-year yields also finished higher after touching multi-months lows earlier. The U.S. dollar index (DXY) popped above the 93 level for the first time since the beginning of April, and well off its May lows below 90. EUR/USD was last down 0.13% after trimming losses that took it to new 3-1/2-month lows at 1.1755.

Sector News Breakdown

Consumer

·     Retailers; SKX upgraded to Buy from Neutral at Monness Crespi; UNH said as of Sept. 1, fully insured UnitedHealthcare members can enroll with PTON to obtain access to Peloton’s fitness classes; PRPL said production levels are back to 85-90% capacity and will be back to full capacity in about a week after previously expecting production problems for about 10 weeks due to issues bringing its Mattress Max machines back online after safety issues on 6/29, and also expects to be out of its backlog by the end of August; GPS adds Instagram purchasing feature for Old Navy, Athleta products

·     Auto sector; TSLA Semi electric truck is finally about to go into production, Electrek reports; VLDR downgraded to Neutral from Outperform at Baird with $10 tgt on CEO stepping down, which casts further uncertainly in the company’s outlook after earlier-year design win losses and a high-profile board/founder fight; nice rebound in general for auto names and suppliers with Ford, GM and others leading higher; AN rallies a second day after better earnings in auto retail

·     Consumer Staples & Restaurants; PM posted modest EPS beat of $1.57 (vs. est. $1.55) as shipment volume of heated tobacco units rose 30% in 2Q from a year ago to more than 24B units and Cigarette shipment volume, meanwhile, rose 3.2% to more than 156 billion units; IPAR Q2 revenue $207.6M tops est. $151.3M (up 22.7% vs 2Q19 on a constant currency basis); guides FY EPS $1.95 vs prior $1.65 and consensus $1.72 and FY revenue $750M Vs prior $700M; RBC with weekly IRI beverage data showed MNST Volumes up +9% in the latest 12 weeks with volumes +8.4% in the latest 4 weeks, SAM Beer volumes up +13.9% in the latest 12 weeks (vs Beer -10%) driven by Truly up +25.3% and Twisted Tea +15.2% and STZ Beer volumes down 4.6% in the latest 12 weeks (vs Beer -10%) with Modelo -1.2%, Corona Extra -6.3%, and Premier -9%; defensive food names that outperformed this week lagged in the S&P today (CAG, K); in restaurant space, reopen names get a bounce with CMG earnings in focus tonight

·     Casinos, Gaming, Lodging & Leisure sector; cruise lines rebound from Monday sell-off; CCL announced 3 more ships will resume guest operations in September and another 4 in October, which brings the total ships to 15; DKNG named betting operator of Northern Trust & World Golf

Energy

·     Energy stock movers; a rebound for energy stocks after two-weeks of selling pressure, getting a boost from HAL after reports a 33.5% jump in Q2 profit from the previous three months, with EPS topping consensus views as both North America and international markets continued to improve, and operating income grew 17% with solid margin performance

·     Utilities & Solar; KeyBank upgraded CMS to OW with a $67 PT as they see a strong utility with solid growth prospects and constructive regulatory framework who will regain its historical premium in the medium-term as its recent issues are transitory and downgraded ED to UW given it is a slow-growing utility that operates in mature jurisdictions (NYC/NYS) characterized by flat to negative population growth, unfriendly business climate; Morgan Stanley upgraded WES to OW as its total return potential now screens in-line with other OW-rated names after its 21% selloff since mid-June highs and are now back to March levels despite continued tightening of oil supply/demand and uptick in Permian activity trends

Financials

·     Bank earnings; KEY 2Q EPS $0.72 vs est. $0.54, NII $1.0B vs est. $1.0B, said it will evaluate an increase to its dividend in 4Q, and announced new common share repurchase authorization of up to $1.5B; SI Q2 EPS 80c vs. est. 51c, Q2 deposits $11.4B (+62.4% from Q1, +580.6% YoY); SBNY Q2 EPS $3.57 vs. est. $3.14, NII $457.2M (+18.1% YoY), CET1 capital ratio 10.03%, net charge-off 0.12%, and book value per share $106.24; SNV Q2 adj EPS $1.20 vs. est. $1.04, NII $381.9M (+2.1%) core transaction deposits +$702.4M (+2%), provision for credit losses of $24.6M; PACW Q2 EPS $1.52 vs. est. $0.97, NII $270.1M vs. $264.6M in Q1; WTFC Q2 EPS $1.70 vs. est. $1.59, NII $279.6M vs. $263.1M YoY, net interest margin 2.62% vs. 2.73% YoY; ZION 2Q EPS $2.08 vs est. $1.29, CET1 ratio 11.3% vs 10.2% at beginning of pandemic, released more than $120Mm of allowance for credit losses; UBS Q2 EPS 55c and revs $8.98B (+21.25% YoY) both handily beat consensus (36c, $8.33B) as the bank added $25B of new fee-generating assets in wealth management but warned client activity is set to slow; FNB reported Q2 EPS 31c vs est. 29c on revs $308M vs est. $305.7M, NII $227.9M, total avg deposits rose $3.2B (+11.9%); FBK Q2 adj EPS 88c vs est. 75c, NII $87.3M vs est. $83.8M; SFBS Q2 EPS 92c vs est. 93c, on revs $104.3M vs est. $100.4M, total loans ex-PPP grew $517.3M (+28% YoY), and deposits rose 17% YoY to $10.96B; MBWM Q2 EPS $1.12 vs est. $0.78, net interest margin 2.76% vs 3.17% YoY, and raised its quarterly dividend to 30c from 29c; CFG Q2 adj EPS $1.46 vs est. $1.13 on revs $1.61B (-8% YoY) vs est. $1.63B, credit provision benefit $213M, CET1 ratio 10.3%; PEBO, EQBK, EQBK, BCBP, CATC, FMBI, ONB also posted quarterly results that topped consensus views

·     Bank research/news; BK was upgraded to Buy at Argus after the company’s 2Q results last week demonstrated sequential revenue growth and an expense decline, as well as a continued rebound in asset values; NDAQ confirms JV with banks SIVB, C, GS, MS to spin out Nasdaq Private Market that will create an institutional-grade, centralized secondary trading venue for issuers, brokers, shareholders and prospective investors of private company stock; KBW upgraded BMRC to Outperform with a $43 target; Baird upgraded ZION to Neutral as recent underperformance has led to a more balanced risk/reward

·     Insurance; TRV reported Q2 Core EPS $3.45 vs. est. $2.40 and (20c loss YoY), net premiums written $8.14B (+11% YoY), combined ratio reported 95.3% vs. 103.7% YoY, net investment income $818M vs. $268 million YoY, and adj book value per share $103.88 vs. $92.01 YoY; CB authorized a new one-time incremental share repurchase program of up to $5B through June ‘22

·     Bitcoin, FinTech & Payments; Shares of MARA, RIOT, MSTR, and other crypto-related stocks were lower after Bitcoin fell below $30,000 for the first time since June 20 and Ethereum dropped below $1,800 for the first time since June 26; MA is working with several companies to simplify converting cryptocurrency to traditional fiat currency that will allow more banks and crypto companies to offer a card option to customers who want to spend their digital assets. SQ introduced Square Banking to provide banking services (checking, savings, lending services) for small businesses; Wells upped their price target on PYPL to $350 from $310 as they are confident in the company’s growth opportunities and ability to drive organic TPV and revenue growth

·     Consumer Finance; ALLY posted Q2 adj EPS $2.33 vs est. $1.54 on revs $2.09B vs est. $1.87B and credit provision benefit $32M vs provision for credit losses $319M YoY; SYF Q2 EPS $2.12 vs. est. $1.39, book value per share $23.48, Q2 CET1 capital ratio 17.8%, net charge-offs 3.57%, and NII $3.3B (-2%); Wedbush downgraded RKT to Underperform with a $12 target as they believe the residential mortgage market is headed towards an environment where the company’s DTC model is not optimized

·     REITs; ELS reported Q2 adj FFO 61c vs est. 55c on revs $317.4M vs est. $262.7M, guided Q3 normalized FFO 59-65c (est. 60c), and sees FY21 normalized FO $2.42-2.52 (above est. $2.40); Stifel upgraded SPG to Buy with a $132 target as the recent pullback (-5.87% yesterday, -14.8% since June 8 vs RMS -0.4%) has created an attractive entry point; JPMorgan raised their price target on MGP to $41 from $39 despite the recent selloff given Delta variant concerns and a risk-off appetite as they believe the stock is compelling with stable fundamentals not directly impacted by Delta variant risks given its strong liquidity and 5.6% dividend yield; KeyBank initiated GNL at Sector Weight due to its discounted valuation, premium dividend yield, growth opportunity, and strong underlying credit being offset by headwinds from its externally managed structure and above-average leverage profile

Healthcare

·     Pharma movers; shares of vaccine makers PFE, MRNA, NVAX, BNTX helped lead the rally in Pharma/Biotech before reversing mid-afternoon; generics TEVA, ENDP outperform as NY AG trials against the companies underway and will continue in state court; ARDX plunges after the FDA identified deficiencies on the company’s New Drug Application for Tenapanor for the Control of Serum Phosphorus (prompts several analyst downgrades as they struggle to see a path forward for Tenapanor); MDWD announces positive topline results from phase 3 pediatric study (CIDS) of NexoBrid for Eschar removal of severe thermal burns (said primary endpoints met); ALDX receives orphan drug designation from the U.S. FDA for ADX-2191 to treat primary vitreoretinal lymphoma; RDHL said its bacterial infection treatment, Talicia, will now be covered by UNH’s PBM OptumRx; PLXP said Vazalore, a liquid-filled aspirin capsule, will be available in over 8,000 Walgreens (WBA) stores across U.S. in August

·     Biotech movers; IMNM shares rise after saying its antibody cocktail, IMM-BCP-01, to treat COVID-19 neutralizes Delta variant in pre-clinical study; co said it plans to submit application to U.S. FDA to start clinical trials this qtr; PACB said it will acquire San Diego-based rival Omniome for about $800 mln in cash and stock; ANPC said total number of paid customers and testing volume increased ~110% in H1 of 2021 vs same period in 2020

·     MedTech Equipment; GKOS was downgraded to Underperform at Wells Fargo and cut tgt to $41 due to the downside risk to sales from the proposed reimbursement cuts to GKOS’ iStent. Notes CMS issued the proposed outpatient prospective payment system for 2022 which includes the facility fees for the hospital outpatient and ASC settings. In the proposed rule, CMS lowered the facility fee in the ASC setting by 25% which was greater than we expected. This comes on the heels of CMS cutting the physician fee for GKOS’s iStent by 90% last week; INSP and XENT shares active after CMS issued its proposed rule for CY2022 for the rate of Medicare facility reimbursement in the HOPD/ASC settings. The ASC proposed rate appears to be -28% vs. CY2021 (Piper said if upheld it would reduce some attractiveness of an INSP procedure in the ASC setting)

·     Healthcare Services; ABC, CAH, MCK shares rise after the co’s reach a $1.18B opioid settlement agreement with NY State (expectations are that U.S. state attorneys general and lawyers for local governments are reportedly expected to unveil the final terms of the $26B settlement on Wednesday); in hospitals, HCA raises FY21 EPS view to $16.30-$17.10 from $13.30-$14.30 (est. $14.08) and boosts FY21 revs view to $57B-$58B from $54B-$55.5B (above est. $55.27B) and sees FY21 adjusted EBITDA $12.1B-$12.5B; in the CRO sector, Credit Suisse upped tgts for IQV to $265 (from $242), SYNH to $96 (from $94), MEDP to $205 (from $200), ICLR to $250 (from $245), and CRL to $385 (form $352), as conviction in inherent industry growth prospects rises (says IQV remains our most compelling CRO idea)

Industrials & Materials

·     Aerospace & Defense; Amazon founder Mr. Bezos and three other passengers took Blue Origin LLC’s spacecraft to space and successfully returned this morning from a company facility in West Texas. The flight was Blue Origin’s inaugural crewed mission; Textron Aviation a Textron Inc. (TXT) company, has received an order for up to 150 Cessna Grand Caravan EX single-engine turboprop aircraft, with an initial fleet order of 100 aircraft and an option for 50 more from Surf Air Mobility; Defense Threat Reduction Agency (DTRA) awarded CACI the Decisive Action Task order, a single-award task order worth ~$1.4B; SPCE falls after rival space venture Blue Origin’s New Shepard launch vehicle took place this morning and returned safely to Earth

·     Industrial & Machinery; MTW entered into a definitive agreement to acquire the crane business of HEES for about $130M; FLOW confirmed its Board of Directors previously received and rejected an unsolicited, conditional, non-binding proposal from IR to acquire all outstanding shares of SPX Flow common stock for $85.00 per share in cash; DOV trades to record highs following its earnings and guidance results

·     Materials; in chemicals, PPG posted disappointing 2Q results as raw material inflation and supply chain disruptions impacted margins and nicked certain segment vols more than expected (Q2 adj EPS of $1.94 missed the $2.20 estimate) – shares of SHW, AXTA active in results; in mining, GATO upgraded to Outperform at RBC and increases PT to $18, reflecting the increased flexibility to accelerate exploration and expansion plans following the recent equity financing and expected debt retirement; MOS, CF outperform in fertilizer/potash space after comp KPLUY sees prelim 2q ebitda about eu110m, topped est. eu91.4m; PLL shares fell as five out of seven Gaston County’s board of commissioners in North Carolina may block or delay Piedmont’s planned lithium mine

·     Steel sector; BMO Capital said for the 25th consecutive Steel Monitor, U.S. spot HRC prices increased over the past two weeks, +4.7% to $1,825/st (all-time high, +81% YTD and +297% since bottoming last August); in earnings, STLD 2Q EPS $3.32 vs est. $3.42 on sales $4.5B vs est. $4.22B, qtrly steel and fabrication shipments of $2.9Mm tons and $189,000 tons, respectively; NUE to acquire steel racking manufacturer Hannibal Industries, Inc. for $370M

Technology, Media & Telecom

·     Internet; NFLX earnings results tonight; ahead of earnings, Jefferies raises tgts on digital ad platforms GOOGL, FB and TWTR saying with their digital ad peer group +27% YTD, they favor selectivity and would own FB and GOOGL was downgraded to Neutral from Buy at BTIG primarily due to valuation as the stock has recently run past our prior $103/share PT (but notes fieldwork on NET within its core WAF, DDoS, and CDN target markets remains positive); in online tutoring (in China), shares of EDU, TAL, GOTU look higher amid reports authorities in China pledged to reduce the cost of childbirth, parenting and education (recall the industry has been pummeled this year amid a crackdown by China on its private education companies)

·     Semiconductors: earnings kick off for sector this week with INTC on Thursday; Piper said they feel ON’s upcoming Analyst Day (August 5th in NYC) will be a major catalyst for the stock as see a heavy focus on the automotive and industrial markets, along with a push to the 43% to 45% gross margin range in the mid-term

·     Software movers; RPD acquired IntSights Cyber Intelligence Ltd., a leader in contextualized external threat intelligence and proactive threat remediation for approximately $335 million in cash and stock; BIGC announces partnership with Argentine e-commerce giant MELI to promote cross-border ecommerce growth; INTZ plunges after saying its CEO left the cybersecurity company and also issued prelim 2Q sales that missed expectations and said it’s looking into funding sources needed to achieve profitability

·     Hardware, Components & Services; IBM posted Q2/CY21 revenue/EPS beat, as the top-line increase of 3.4%, was IBM’s biggest gain in three years, while Q-Q revenue growth in Cloud slowed, while RHT’s YOY revenue growth improved from the prior quarter; BOX said it has made multiple attempts to settle with activist investors Starboard Value since announcing the KKR-led investment, but Starboard didn’t agree to the terms; VIAV downgraded to neutral at JPMorgan on valuation despite expectations for the company’s revenue to recover on account of the accelerated ramp in physical deployments of field equipment through the summer months; VIAV also boosted its offer for EXFO to $8.00 from prior $7.50

·     Media & Telecom movers; Dow Jones reported AAPL looks to lease Hollywood hub for filming shows, movies; in advertising, OMC 2Q EPS of $1.60 beats the $1.38 estimate on better revs $3.57B vs. est. $3.38B (organic +24.4%); ROKU NBCUniversal launch new Olympic streaming TV offering as Tokyo’s Covid concerns rise