Closing Recap

Friday, July 31, 2020

Equity Market Recap

·     U.S. stocks finish the day mixed as once again the tech heavy Nasdaq Composite outperformed broader markets, getting a boost from the usual suspects as stronger than anticipated earnings results/guidance overnight from AAPL, AMZN and FB boost stocks, while GOOGL slips. The funny part, the Nasdaq 100 remained higher by more than 1% despite 75% of its components trading lower on the day as the big names continue to make up so much of the major average mkt cap. Apple (AAPL) ended near the highs of the day rising around 10%. The Dow, S&P 500 and SmallCaps spent much of the day in negative territory on mixed economic data, no stimulus deal reached in Washington this week and mixed earnings outside of tech, but rallied in the final hour of trading amid hopes a last second deal for stimulus will be reached over the weekend.

·     In Washington they remain at a standstill on the new stimulus relief bill as Republicans came to the table with proposals this week – but Democrats have shot down several times. According to the White House late day, twelve issues remain in the stimulus talks (the extended unemployment benefits ended today given no resolution this week – but reports indicate more talks coming Saturday). Commodity prices end the day and month higher with gold rising 5% this week (and 10% for July) while WI crude posted a 2.5% for July, both aided by a sliding U.S. dollar.

·     Energy was a drag after Dow component CVX & XOM each post significant quarterly losses. U.S. Treasury yields lower as they yield on 5-year note touches record low of 0.214% and 2-yr down at 0.11%, while the dollar bounces off lows and gold surges to another new high around $2,000 an ounce level. Transports got a boost late day on reports of bid interest for rail company KSU (follows a day after UPS earnings crushed it – lifting that name). Retailers fell sharply on the day along with restaurants, casinos, lodging and travel as coronavirus cases are on the upswing.

·     It’s all been about technology for 2020 (Nasdaq Comp up around 20% YTD) as Bespoke investment noted at the sector level, the Financial sector has lost $900 billion in market cap this year while Tech has added $1.08 trillion. Energy has lost ~$500 billion while Consumer Discretionary has added ~$500 billion (Amazon $AMZN has added $680 billion though).

Economic Data

·     Personal savings for June was 19% vs. 24.2% in May; Personal income fell -1.1% vs. est. down -0.5% while personal spending rose 5.6% vs. est. 5.5%; June core PCE price index +0.2%, in-line with estimates and prior month, while June overall PCE price index +0.4% vs. May +0.1%

·     Chicago PMI for July strong, reported at 51.9 vs. est. 44.0 (and vs. prior month 36.6)

·     University of Michigan Final Sentiment for July fell to 72.5 from prelim reading o 73.2 and mostly in-line with estimates, but down from June level of 78.1; the expectations index fell to 65.9 vs. 72.3 last month while the current economic conditions index fell to 82.8 vs. 87.1 last month

Commodities

·     Gold prices rise (December gold) $19.10 or 1% to settle at a fresh record of $1,985.90 an ounce as investor appetite for precious metals soared this month with the dollar plunging to 2-year lows, and as economic concerns grow amid the pandemic impact. For the month, gold rallied over 10% with a bulk of that this week, rising 5% the last five-days, its best gains since March.

·     Oil prices finished the day higher, as WTI crude rebounded back above the $40 per barrel level, rising 35c or 0.88% to settle at $40.27, while Brent crude gained 37c to settle at $43.31 per barrel. OPEC oil output has risen by over 1 million barrels per day (bpd) in July as Saudi Arabia and other Gulf members ended their voluntary extra supply curbs on top of an OPEC-led deal, and other members made limited progress on compliance

Currencies & Treasuries

·     The U.S. dollar gained traction late day, bouncing off more than 2-year lows earlier after what has been a dreadful week and month given weakening economic data, overly dovish FOMC comments, and a pandemic that has ravaged the US economy. Earlier, the dollar index (DXY) dropped below the 93 level to its lowest levels since May of 2018 (92.54), with the euro pulling back off overnight highs above $1.19 (also highest since May 2018), before slipping below the 1.18 level. The British Pound rose above 1.315, best levels since March. Treasuries rose as yields continue to grind to record lows for the 5-yr (0.21%) and 2-yr (0.11%), while the benchmark 10-year dropped to around 0.53% as economic concerns grow.

Sector News Breakdown

Consumer

·     Retailers; AMZN impressive 2Q results as revenue and operating income significantly exceeded heightened expectations, revenue advanced 41% y/y FX-adj. as momentum in online shopping persisted, operating income of $5.8B, exceeded Street expectations of $1.2B, while AWS revenue grew 29% YoY decelerating 400bps sequentially; UAA reported Q2 revenue that topped the highest estimates with $707M figure vs. $538M estimate but was down (-41% YoY) on a smaller than expected Q2 EPS loss – but shares fell after warning it expects profit margins to be pressured for the rest of the year; GOED 1.1M share IPO priced at $9.00; VFC beats quarterly sales estimates and reports smaller-than-expected loss, boosted by a 78% jump in online sales

·     Consumer Staples & Restaurants; VITL 7.813M share IPO priced at $22.00; SHAK falls after a bigger-than-expected EPS loss of (45c) vs. est. (37c) amid COVID-19-led lockdowns and protests in U.S. cities and said urban area restaurants underperformed suburban locations and anticipates trend to continue as long as pandemic persists; BGS rises on 11c EPS beat and said sees net sales and adjusted Ebitda materially above views; LOCO shares jump after its Q2 results

·     Casino & Leisure movers; a rough day for travel, casino, and leisure related names as coronavirus cases are starting to trend back higher; casinos lower (DKNG, PENN – online gaming) as more baseball games continue to get cancelled as more players with COVID-19); cruise lines again slip (NCLH, CCL, RCL); hotels pressured; in education, TWOU reported a good beat across its P&L with both revenue growth and EBITDA exceeding expectation

·     Auto movers; Ford (F) shares fell despite posting a smaller than expected quarterly loss; AXL posts smaller Q2 EPS loss of (-$1.79) vs. est. (-$1.98) as sales of $515M top the $440M estimate while adjusted operations, structurally reduced costs during the quarter; FCAU shares slip after said sees US auto sales down 20% this year after posting net losses of Q1B euros; GT shares dipped with broader markets despite smaller Q2 loss and net sales beat

Energy

·     Energy stocks a rough week of earnings, with CVX and XOM adding to the mess today; CVX leads energy names lower after Q2 earnings missed analysts’ earnings expectations following a $8.3B loss and writing down the entire value of its Venezuelan operations (posted an adjusted loss of $3 billion, or $1.59 per share, versus analysts expectation for a 93c loss); XOM also missed analysts’ earnings expectation, posting a wider-than-expected Q2 loss as Covid-19 lockdowns and global oil oversupply hurt results (production fell by about 10% to 3.6M barrels); NE announced a comprehensive financial restructuring and deleveraging transaction as restructuring implemented through voluntary chapter 11 process; Baker Hughes (BKR) oil rig count fell -1 to 180, while gas rigs rose 1 to 69 as total count remains at 251; DRQ posted wider EPS loss wider than analysts had expected and said full-year bookings are expected to be half of last year’s

·     Refiners fall again on the day and week; PSX noted that Q2 refining margins sank 77% to $2.60 per barrel, posted a Q2 loss of ($141M) vs. a profit of $1.42B a year earlier, but the loss was smaller than expected, helped by the performance of its marketing and specialties unit; results follow weak commentary from VLO yesterday posted Q2 adjusted loss vs. profit last year as Q2 throughput tumbled 22% Y/Y to 2.32M bbl/day, while refining margins plunged 58% to $1.08B

·     OPEC oil output has risen by over 1 million barrels per day (bpd) in July as Saudi Arabia and other Gulf members ended their voluntary extra supply curbs on top of an OPEC-led deal, and other members made limited progress on compliance. The 13-member Organization of the Petroleum Exporting Countries pumped 23.32 million bpd on average in June, the survey found, up 970,000 bpd from June’s revised figure, which was the lowest since 1991.

Healthcare

·     Pharma movers; SNY, GSK strike deal for $2.1B Covid vaccine deal with the U.S.; MRK tops Q2 profit estimates and raises its FY outlook on increased demand for its blockbuster cancer therapy Keytruda as those sales grew 29% to $3.39B in the quarter; PFE and BNTX said they will supply Japan with 120M doses of their mRNA-based vaccine candidate against the coronavirus in H1 2021; financial details are not disclosed; ABBV 2Q sales and EPS beat and raised its guidance, but the results were muddied by the inclusion of Allergan from May 8; U.S. appeals court rejects Takeda pharmaceuticals’ appeal seeking a preliminary injunction against MYL’s generic version of its gout drug Colcrys; VRTX reported top-line revenues of $1.5B vs. FactSet consensus of $1.4B, driven by better-than-expected Trikafta revenues in 2Q ($918M vs. consensus of $876M) and also increased its product revenue guidance;

·     Biotech movers; REGN will collaborate with BNTX on a clinical trial evaluating the combination of PD-1 inhibitor Libtayo (cemiplimab) and the latter’s BNT111 FixVac candidate for the second-line treatment of patients with advanced cutaneous melanoma; GILD 2Q earnings were slightly below expectations overall as product sales of $5.1B missed FactSet consensus of $5.22B, while R&D spend came in higher at $1.2B due to remdesivir investment; BEAT announced Q2 results that were largely in-line with consensus, when adjusting to exclude a one-time $9.7M benefit; SESN announces an exclusive license agreement with Qilu Pharmaceutical for the development and commercialization of Vicineum™ in Greater China; ACHV said the USPTO has granted a patent on novel analogs of cytisinicline, a process for their preparation, and their use in the prevention or treatment of CNS and addictive disorders; SGEN reported a solid 2Q20 beat, driven by newly launched Padcev in R/R metastatic urothelial cancer (

·     Medical equipment and devices; EXAS Q2 revenue of $269mn (+34.5% Y/Y) beat consensus estimates of $228mn as Cologuard volumes (~270k vs. estimated ~250k) were more resilient than expected and COVID-19 testing revenues of ~$35mn were well above expectations; TNDM sales of $109.2M exceeded $87.2M estimates as strong US pump shipments (+15% y/y) were led by the ongoing Control-IQ launch and also reinstated ’20 sales guidance to its original $450-465M (+24-28% y/y) despite COVID-19 headwinds; in services, MDRX shares jumped after Q2 adj EPS 18c and revs $406.2M topped the 12c and $399M and said it will sell its EPSi unit to a Roper Technologies unit for $365M; FLDM jumps after saying it executed a letter contract with the National Institutes of Health for a proposed project under the agency’s Rapid Acceleration of Diagnostics program.

Industrials & Materials

·     Industrial & Machinery; Dow component CAT with lower Q2 earnings and revenues from a year earlier though beat estimates as Q2 net income fell to $458M from $1.62B in the prior-year period/said may not see improvement in profit margin in Q3 vs. Q2; JCI shares rise after earnings results and an analyst upgrade; FLS after reporting quarterly earnings and saying it will reschedule its conference call due to provider technical difficulties; in transports, rails jumped late day following a WSJ report that private equity firms discussed a bid for KSU, sending shares soaring in the final hour of trading and also boosted other rail companies (CSX)

Technology, Media & Telecom

·     Apple (AAPL reported a record June quarter, with revenue/EPS results exceeding Street expectations by +13.4% and +25.9%, despite the pandemic and several store re-closures. IPad and Mac sales led the quarter’s revenue growth. IPhone sales lagged in comparison, but saw increased demand in May and June (another boost for chip related suppliers such as AVGO, SWKS, CRUS, etc.) – also announced a 4 for 1 stock split. Bespoke Investment noted today that DA Davidson put a $480 price target on AAPL today – at that price, its market cap would be about the same size of the Russell 2000!

·     Internet; PINS shares surge as reports Q2 revenue of $272.5M topping the $251.2M estimate and monthly active users jumped 39% to 416M in Q2, beating est of 372M/said advertiser demand recovered across many verticals; FB shares jump as several analysts raise tgts following stronger than expected 2Q20 results, positive commentary, growth stabilization in July, elevated user engagement, while some warn Q2 ad revenue deceleration could pressure the stock (global MAUs of 2.70B (up 12%) came in higher than Street at 2.63B); GOOGL reports its first quarterly sales slide in its 16 years even though Google’s ad sales recovered since plummeting in March/overall Q2 revenue was $38.3B, with the slowest growth since a 2.9% increase during the Great Recession in 2009; SNAP shares jumped after reports that President Trump to order China’s ByteDance to sell TikTok U.S. operations (rival)- meanwhile the NYTimes reported late day that MSFT was in talks to buy Tik Tok

·     In online travel, EXPE bigger-than-expected Q2 loss and lower-than-expected revenue, as gross bookings plunge 90% due to the coronavirus crisis while said saw improvement in gross bookings through May and June with cancellations moderating after hitting a high in April, but July was "roughly in line with June, slightly off those numbers", as infections rise

·     Semiconductors; XLNX Q1 revenue drops 14% on COVID-19 impact but beats Wall Street expectations for both revenue and profit while guides Q2 revs above estimates helped by rising sales of its chips to data centers; the Philly semi index (SOX) slumped after touching record highs yesterday, with so much good news over the last week on better earnings from several players – also getting good news with AAPL beat last night (helping suppliers)

·     Software movers; EA reported record June qtr. results well ahead of consensus, driven by core titles Apex Legends, FIFA, Madden and Sims 4; PFPT 2Q upside driven by strength in core email offering and emerging products while renewals were stronger than expected and increased guidance for 2H; VSTA 18.575M share IPO priced at $19.00; TENB 8M share Secondary priced at $31.95