Closing Recap

Monday, July 27, 2020

Equity Market Recap

·     U.S. stocks advanced on Monday, led by strength in technology shares as markets await details of the Republican stimulus plan proposal expected later this afternoon. After slipping last week, the Nasdaq Composite outperformed broader markets on Monday as the Nasdaq Comp and S&P 500 each snapped their respective 2-day losing streaks (which was the longest for the Nasdaq since May 12-13), while the Nasdaq avoided its first 3-day losing streak since early March. Upbeat economic data, positive vaccine news and preparation ahead of the busiest week of the quarter for earnings also gave a boost to market sentiment. The GOP is expected to release its version of the virus rescue package that Treasury Secretary Mnuchin said this weekend is expected to include $1,200 direct payments to some Americans in a plan for $1 trillion additional dollar in virus spending, with an extension of unemployment benefits, but far less incentives than the prior $600 additional each week – which are set to expire this week. This marks the busiest week for the 2Q earnings season with over 180 companies representing 43% of the S&P 500’s market cap reporting results, including 4 of the top 5 biggest names (AAPL, AMZN, GOOGL and FB). Gold prices touched new record highs (rising for a 7^th straight session) amid the dollar slumping to 2-year lows. Gold prices have gained nearly 9% over the past month and about 27% this year, making the metal one of the strongest-performing major assets in 2020. The Nasdaq Composite surged, topping the 10,500 level (after touching intraday lows of 10,400 late morning). On the coronavirus front, COVID-19 hotspots such as Arizona, Florida and California saw a promising retreat in cases, though an outbreak in a baseball team (Miami Marlins) forced the cancellation of its game today, and raised fears of what it meant for the near-term future of sports. Dow Jones Industrial components expected to report tomorrow include PFE, MCD, MMM and RTX.

Economic Data

·     Durables Goods Orders for June rose 7.3% vs. est. +7.2% vs. May +15.1% from prior +15.7%; U.S. durables ex-transportation orders rose +3.3% vs. est. 3.5%, and June durables ex-defense orders rose +9.2% vs. May +15.2% and June nondefense cap orders ex-aircraft +3.3%

Commodities

·     Oil prices rebounded off earlier losses, as WTI crude advanced 31c or 0.75% to settle at $41.60 per barrel. Prices slid late last week amid worsening relations between Washington and Beijing alongside coronavirus outbreaks across the world. Second waves of the pandemic are popping up from Spain to China, while “hot-spots” in the U.S. were showing signs of slowing.

·     Gold prices touched a fresh all-time high for a second consecutive session, jumping $33.50 or 1.8% to settle at $1,931 an ounce after touching earlier highs of $1,941.90 an ounce. The move in precious metals (silver touched 7-year highs) comes again as the U.S. dollar slides to a fresh 2-year low, helping dollar denominated commodities outperform. Silver futures climbed to $24.36 an ounce early Monday, shooting through the September 2013 high after rising 16% last week to settle at $22.85 an ounce Friday on Comex.

Currencies

·     The U.S. dollar pullback continues, as the dollar index (DXY) touched fresh 2-year lows of 93.47 (July 2018) as the euro surges more than 1% to highs of 1.78 vs. the dollar while the British Pound rises as much as 0.8% to just above $1.29, highest since mid-March. It was only 4-months ago in March when the U.S. dollar jumped to a three-year high (around the 103 level), but since the pandemic and the impact it has had on the U.S. economy (and most cases by far), the dollar has fallen sharply, aided as well by the FOMC and government response with stimulus measures. The euro has rallied strongly versus the dollar, getting an added lift last week as European leaders agreed on a substantial package of grants and loans aimed at easing the pandemic blow.

Bond Market

·     Treasury yields remain little changed, with the 10-year yield holding below 0.60% (down at 0.58%) as concerns over a second wave of virus and a fear of a pause in the recovery keep Treasury prices well bid. Economic data in the U.S. has gradually improved, but the dollar has plunged to 2-year lows and given mixed auctions, Treasury prices remains steady. No major announcements are expected at the end of the U.S. central bank’s two-day meeting on Wednesday, where rates will remain near historic lows. The U.S. Treasury sold $48B in 2-year notes at a yield of 0.155% vs. 0.146% when issued prior, with the bid-to-cover at 2.92 vs. 2.97 prior auction and indirect bidders awarded 52%. The U.S. Treasury also sold $49B in 5-year notes at a yield of 0.288% vs. 0.281% prior, with the bid-to-cover at 2.32 vs. 2.58 prior auction and indirect bidders’ awarde58.1% and directs 12.3% (all-time low yields for 2 and 5 yr auctions).

Sector News Breakdown

Consumer

·     Retailers; HAS shares slide after the toy retailers quarterly results miss on productions shutdowns, movie release delays due to COVID-19 outbreak and posts its 4^th straight quarterly revenue miss (follows better MAT earnings last week); shares of KTB and TPR were both upgraded to buy at Goldman Sachs; UAA slips after executive Chairman Kevin Plank and CFO David Bergman were given a Wells Notice from the SEC on the allegations that the company didn’t recognize some revenue correctly from Q3 of 2015 through Q4 of 2016; WWW upgraded from Hold to Buy at Pivotal as believe the company’s brands and overall retail environment improved sequentially from April/May to June; TIF’s takeover by LVMH is still confirmed on plan by the French luxury-goods co today, though closing is dependent on regulatory approvals

·     Consumer Staples & Restaurants; ACI shares declined after sales growth slowed in the quarter in grocer space; BLMN upgraded to overweight from neutral at JPMorgan saying the resumption of on-premise dining "is smoother" for Bloomin’ versus most industry participants as many hourly workers continue to receive pay instead of layoffs; restaurant and casual dining stocks in general under pressure today (BJRI, TXRH, DRI, RRGB), while names leveraged to more online and drive thru outperformed (PZZA, JACK, WEN, MCD, YUM); MNST hitting 52-week highs today after Stifel + comments ahead of earnings this week

·     Casino & Leisure movers; shares of gaming names leveraged to online betting (DKNG, PENN) slide after MLB cancelled the Miami Marlins game against Baltimore Orioles canceled due to widespread Marlin COVID-19 breakout (raises concerns about future of season) – later reports that Monday’s Phillies Yankees game also postponed; casinos in general were weaker (WYNN, MGM), along with theme parks (SIX, SEAS), and hotels as pandemic related stocks were under pressure most of the day; cruise lines also slipped (CCL, RCL)

·     Auto sector; GNTX was upgraded to overweight at KeyBanc after Q2 results Friday, saying they exit the quarter with much greater confidence in the outperformance runway and ability to now fully leverage future growth based on its latest cost-out actions; Barron’s Cover story was "Electric Trucks Are the Future. The Stocks Are for the Bold," which suggests that though speculative fervor has sent shares of electric-truck makers like NKLA soaring, competition is stiff and TSLA-like returns may prove elusive

Energy

·     Energy sector; after outperformance last week, energy stocks were mostly lower today as money rotated into defensive and technology names; SLB was upgraded to buy at Citigroup saying given greater than anticipated benefits from SLB’s cost restructuring, including rapidly leveraging digital, we believe SLB can achieve $5B of run rate EBITDA by late 2022; RRC reports Q2 production averaged nearly 2.35B cf/day, up 2.7% Y/Y, as drilling and completion spending totaled $99M; CNX said it would acquire all of the outstanding common units of CNXM that it doesn’t already own for CNX common stock valued at about $357 million.

·     Utilities & Solar; AEP shares underperformed today after reports AEPOhio funded dark money spending in HB 6 campaign through nonprofit whose board includes utility’s top lobbyist, former Ohio House speaker and former congressman https://bit.ly/30TzY6S in fuel cells, shares of BLDP, PLUG mentioned cautiously in Barron’s as thinks the shares and other makers of hydrogen fuel cells are in danger of jackknifing; in solar, FSLR was downgraded to neutral at Roth and tgt cut to $56 as believe the company’s progress on increasing module efficiency may not be fast enough to enable a competitive cost structure over the medium-term; CSIQ rises as announces strategic decision to extend access to China’s capital markets

Financials

·     Bank movers; generally quiet for banking stocks with earnings out of the big names and large regional names behind us – which showed improvement in trading, and good investment banking revs but weaker NIM and NII weighed on many of them; in insurance, LMND shares fell after Goldman Sachs initiated with a sell and $44 tgt; in mortgage finance, Credit Suisse upped its tgts on ACRE, BXMT, STWD to reflect the better than expected dividends and increased confidence in the liquidity outlook for the sector; in services, BKI said it is buying Optimal Blue from affiliates of private equity firm GTCR LLC for an enterprise value of $1.8 billion

·     REITs; UDR was downgraded to Underweight at Piper and cutting estimates to reflect the weakening Coastal Urban Apartment leasing environment given their exposure to the Gateway markets says recent spike in homes sales in the Northeast and doubling of vacancies in NYC speak to the shift underway (underweight rated on AVB, EQR, UDR);.

Healthcare

·     Pharma movers; AZN signs $6B oncology deal with Daiichi Sankyo as entered into a global development and commercialization agreement; AERI announces positive results from a 49-subject Phase 2 clinical trial evaluating two formulations of AR-1105 (dexamethasone intravitreal implant) in patients with macular edema associated with retinal vein occlusion; MNOV announced an agreement with BioComo and Mie University for joint development of a SARS-CoV-2 vaccine; AMRN VASCEPA showed significant reduction in coronary revascularization, including first and total event reductions of 34% and 36% respectively; ELAN downgraded to underperform at Cleveland Research

·     Biotech movers; MRNA said it got an additional $472 mln from the U.S. government to help develop its coronavirus vaccine/said funding from Biomedical Advanced Research and Development Authority (BARDA) will support late-stage clinical development; also on MRNA its experimental coronavirus vaccine is the first in the U.S. to begin human trials (announces phase 3 cove study of its vaccine against covid-19 (MRNA-1273) begins; IMUX reports first patients enrolled in phase 2 clinical trial of IMU-838 in combination with Oseltamivir for treatment of moderate-to-severe Covid; TCRR presented the first human data from its mesothelin-directed "TRuC" (Tcell receptor fusion construct) T-cells, TC-210, in solid tumors; BIIB was upgrade from Underweight to Overweight at Morgan Stanley with $357 tgt saying while expect generic Tecfidera competitors in the near-term, also believe investors should start to average into a long position in BIIB now despite that downside risk

·     Healthcare services and providers; FLGT rises after Piper raised tgt to Street high $31 and upped estimates after saying the company was “well-positioned in the COVID-19 testing environment; WBA shares fell after CEO Stefano Pessina has decided to step down and will assume the role of executive chairman once a replacement is appointed

Industrials & Materials

·     Metals & Materials; AVY posted a beat on the top and bottom line, but fell from same level’s last year as projects 2020 revenue and earnings to decline and Q3 sales decline ex-Fx of 5%-7%; ADM was downgraded to an Underperform rating at Credit Suisse on its view that the changing dynamics in the grain merchandising industry and structurally weaker demand for ethanol and corn sweeteners will pose formidable obstacles; gold miners outperform (AEM, KGC, AUY, NEM, GOLD) given the further spike in gold and precious metal prices; RPM touched a record high after Q2 results topped views saying consumers spend more on home improvement during the COVID-19 pandemic, purchasing paints, caulks, sealants, repair products and specialty cleaners

Technology, Media & Telecom

·     Internet; SPOT tgt raised to $305 from $185 ahead of earnings at Stifel saying while some of its largest competitors have focused on streaming video during COVID-19 lockdowns, Spotify has extended its lead as the go-to destination for streaming audio by accelerating its cadence of podcast content deals, expanding geographically into Eastern Europe, and finalizing the latest round of licensing deals with major labels

·     Semiconductors; chip stocks recover after Friday’s pullback in the chip space (recovery for shares of QRVO, SWKS, KLAC, MCHP, XLNX); QCOM tgt raised to $108 from $100 at JPMorgan saying it will maintain a large market share of early 5G shipments and adds the chipmaker to its analyst Focus List as a "Growth" pick; OLED outperforms after Oppenheimer upgraded to outperform; COHR was upgraded to buy at Longbow as expect positive estimate revisions both near- and medium-term driven by underappreciated OLED investment and services ramp in the next 12M

·     Software movers; CSOD downgraded to underperform from buy at Bank America saying channel checks point to growing customer dissatisfaction stemming from lacking innovation in the core learning and performance suite, and this trend could lead to attrition to platform vendors; SAP announced Sunday it plans to take its Qualtrics cloud-software business public through an initial public offering. SAP bought Qualtrics ahead of its planned IPO in 2018 for around $8 billion; SOGO shares jump after its parent SOHU announced it’s received a nonbinding proposal to acquire Sogou for $9 per share, from Tencent (TCEHY)