Closing Recap

Wednesday, June 09, 2021

Equity Market Recap

·     It was more sideways trading action for U.S. stock averages in another lackluster, downside trading day outside of a handful of momentum driven stocks and sectors. Major averages remain in a tight trading range heading into key inflation data tomorrow morning with May Consumer Prices expected. Bespoke noted that today marked the fourth straight day the S&P 500 has traded within 0.15% of an all-time high but didn’t get there. The Russell 2000 also neared its all-time highs before fading late day. U.S. bond yields fell to lowest levels in over a month (below 1.5%). In the absence of earnings, Fed speakers, and macro data, market and media attention remain the power of the retail investor as the list of names grows longer for trader favorites amid touts for stocks on Reddit. The latest round of volatile moves on mentions on the WSB/Reddit platforms include WISH, AEMD, CLOV, CLNE, GEO, WEN…in addition to the prior so called “meme” stocks of past notoriety AMC, KOSS, BBBY, BB and of course GME which reports tonight.

·     Stocks/sector top movers: Brokerage/execution stocks slipped (VIRT, SCHW) as SEC Chair Gary Gensler said he has asked staff to recommend rules aimed at ensuring fair competition between exchanges and brokers which would address payment-for-order-flow and best execution among other issues; Consumer staples sink on earnings as CPB, BF/B slide on their misses, while CASY declines despite its beat; UNFI plunges 20% on its rev miss and reaffirmed FY guidance from previously seeing high-end of range; UPS among the worst performers in the S&P after providing 2023 financial targets at its investor conference, drags FDX with it; CLOV, WISH surge in the pre-market to extend weekly gains on positive social media commentary and high-short interest, though unravel during the day to go red; yesterday’s darling WEN plummets after yesterday’s rapid rise, though CLNE, WWE spikes as the latest Reddit names; in retail earnings, LOVE soars on its surprise quarterly profit, though VRA stumbles after its report; RIDE extends yesterday’s post-3:30 decline on its going concern notice and after RBC initiates with an Underperform rating.

·     Interesting statistic: There are four new issues expected to price tonight (DISB, LFST, MNDY, ZETA) and two more tomorrow in another busy week. So how many companies went public in the U.S. stock market in 2020? Answer: 480 which was 107% higher than 2019 and 20% higher than the previous record IPO year of 2000 which had 397.

Commodities

·     Oil prices slipped -$0.09 or 0.13% to settle at $69.96 per barrel, finishing well off earlier highs of $70.62 per barrel despite bullish oil data (gasoline data came in bearish with bigger builds). The report showed another bullish decline in US crude-oil inventories, but also showed a just-as-bearish increase in gasoline and diesel inventories. What’s more, US oil production jumped by 200,000 barrels a day to 11 million bpd. Signs of strong fuel demand have helped push oil prices to highest levels since 2018, while the prospect of Iranian supplies returning faded as the U.S. secretary of state said sanctions against Tehran were unlikely to be lifted. Gold prices little changed, rising $1.10 to $1,895.50 an ounce ahead of tomorrow CPI data.

Currencies & Treasuries

·     The U.S. dollar remained in a tight range, failing to meaningfully bounce off recent declines as the dollar index (DXY) held just above the 90 level. Investors have piled up bets against the dollar as the Fed remains vigilant they will keep rates and accommodative monetary policy in place and are willing to let inflation run a little hot. The dollar remains not far off January lows (around 89.50) which also mark lowest levels since April 2018. All eyes on the CPI data tomorrow morning, PPI data early next week as well as the ECB meeting tomorrow. The pound slid as Britain and the European Union failed to agree on solutions to post-Brexit trade problems in the British province of Northern Ireland.

·     The U.S. Treasury sold $38B in 10-year notes at a yield of 1.497% vs. 1.507% when issued prior with the bid-to-dover (demand) at 2.58 and indirect bidders awarded 65.04% and directs 19.23%. Treasury prices extended gains as yields sank further following the strong auction (strong demand on weaker yield). The 10-year yield moved back below 1.5% afterwards (but remained off morning lows of 1.47%, lowest in a month). Even as inflation measures and expectations climb, downward pressure on Treasury yields remains (CPI tomorrow could shake things up).

Sector News Breakdown

Consumer

·     Retailers; CHWY co-founder Ryan Cohen to become GME Chairman (announcement comes ahead of earnings later today); ANF receives 2^nd analyst upgrade in as many days as Jefferies raises to a Buy; TGT raises its quarterly dividend by 32% to $0.90; VRA Q1 EPS loss (5c) vs. est. loss (20c); Q1 revs $109.1M vs. est. $97.9M; sees year guidance for revs to $555M-$575M vs. est. $562.4M and EPS 85c-$1.00 vs. est. 86c

·     Auto sector; Citigroup raises estimates on GM and Ford (F), with GM target going to $90 and Ford to $17 – GM remains Top Pick with a path to >$100/share and tier-1 supplier picks = MGA and APTV and also opening a 90-day Upside Catalyst Watch on LEA shares; RIDE shares tumbled late Tuesday into today after the company amended its annual filing with a going concern notice saying its "current level of cash and cash equivalents are not sufficient to fund commercial scale production and the launch of sale" of its vehicles (shares rebounded late day after the company says it is in "active talks" to secure additional funding)

·     Housing, Home Furnishing, & Building Products; LOVE 1Q EPS $0.13 vs est. ($0.58) on net sales $82.9Mm vs est. $75.1Mm, total comps +48.8%, showroom comps +182.7%, internet sales -16.3%; U.S. applications for home mortgages declined last week as refinancing dropped to its lowest level since February 2020. The Mortgage Bankers Association (MBA) said its seasonally adjusted market index fell 3.1% in the week ending June 4 from a week earlier. This reflected a 5.1% decline in applications for refinancing and was 27% lower YoY; CCS estimates trimmed at Wedbush after CCS disclosed the F2Q21 monthly sales absorption through 6/8/21 was ~5.0 orders/ month versus our prior 6.1 estimate and the Thomson consensus estimate of 5.7

·     Consumer Staples weak on earnings; CL upgraded to Outperform at Credit Suisse and raising target to $95 saying fears of category slowdown (anti-recovery) and commodity headwinds have weighted on shares of Colgate underperforming the S&P by 22pp in the past year; CPB announces up to $250M share repurchase program, reported Q3 EPS 57c, missing the est. 66c on revs $1.98B that also missed est. $2B, and now sees FY adj EPS $2.90-2.93, lower than their previous range of $3.03-3.11; UNFI posted Q3 adj EPS 94c vs est. 87c on revs $6.62B vs est. $6.79B and reaffirmed its FY adj EPS guidance range $3.05-3.55; BF slips as Q4 adj EPS of $0.25 missed the $0.33 est. amid higher expenses while revs of $812M topped the $774M estimate and forecast mid-single-digit growth in net sales and operating income in 2022.

·     Restaurants; WEN subsidiaries commenced a refinancing transaction, which will consist of the refinancing of a portion of their outstanding securitization debt (news follows a spike in shares yesterday after being mentioned favorably on social media forums/Reddit); WEN also downgraded to Hold from Buy at Stifel following the 26% appreciation in the stock today, surpassing our $25 12-month target price

Energy

·     Inventory data was bullish: The EIA said crude -5.2M barrels vs. -2.0M consensus, -5.1M last week, gasoline inventories rose +7.0M vs. +0.7M consensus, +1.5M last week and Distillates posted a weekly build of +4.4M vs. +1.4M consensus, +3.7M last week. Last night, the American Petroleum Institute (API) showed crude oil stockpiles fell -2.1m bbl vs -3.5m expected: Cushing -420k: Gasoline +2.4m: Distillates +3.75m

·     E&P and Majors; XOM announces new discovery at longtail-3 offshore Guyana; more than 2,600 Guyanese supporting overall activities; additional drilling activity to support Stabroek development; in refiner space, Citigroup opening a 30-day positive catalyst watch on shares of PSX and raising the stock to our #2 pick in the group and updated estimates and targets in group

·     Utilities & Solar; CLNE another Reddit/WSB social media forum retail favorite as shares soar amid an increase in interest on message forums; BLDP and W. L. Gore & Associates announce an agreement to empower advancements in fuel cell technologies; FSLR to invest $680M in expanding American Solar manufacturing capacity by 3.3 GW as new manufacturing facility in Ohio will be company’s third in the United States; Citi expands expand their renewable energy coverage further into biofuels, launching on DAR with Buy, $110 TP and REGI with Buy, $90 TP

Financials

·     Finance, FinTech & Payments; Marqeta (MQ) 45.5M share IPO priced at $27.00; TIGR 6.5M share Secondary priced at $24.50; AMZN is considering replacing JPM in its co-brand card deal, Bloomberg reported saying AXP and SYF are being considered as an alternative. In Bitcoin news; VCTR announces plans to enter cryptocurrency market; COIN initiated underperform at Raymond James saying they don’t see a structural barrier to entry here and therefore expect significant pricing degradation over time; IBKR said to offer crypto trading by summer; shares of online technology brokers/execution (VIRT, SCHW) shares fell after SEC Chairman Gensler said on Wednesday that he has asked staff to recommend rules aimed at ensuring fair competition between exchanges and brokers.

Healthcare

·     Pharma movers; Healthcare and Biotech names among the top gainers in the S&P 500 most of the day (BIIB, BMY, MRK, LLY, REGN); MRK announces supply agreement with U.S. government for molnupiravir, an investigational oral antiviral candidate for treatment of mild to moderate covid-19; VRTX announces U.S. FDA approval for Trikafta® in children with cystic fibrosis ages 6 through 11 with certain mutations

·     Biotech movers; LYRA announced the successful outcome of an End-of-Phase 2 (EOP2) meeting with the FDA for LYR-210, its lead candidate for the treatment of chronic rhinosinusitis; Lyell Immunopharma Inc. (LYEL) has set terms of its IPO, which would value the California-based T cell reprogramming company at up to $4.37 billion; BIOC partners with pandemic health and safety solutions firm CLEARED4 to develop a system for tracking and managing COVID-19 testing requirements and test results for Biocept customers

·     MedTech Equipment; AEMD shares surges over 400% after Reddit contributors discuss a June 8 report from Zacks which discusses opportunities for AEMD’s Hemopurifier; ITGR upgraded to Buy at Argus saying the company’s results are improving as vaccination rates have risen, with two of its three medical segments generating sequential growth in Q1 as reported in late April

Industrials & Materials

·     Transports, Industrial & Machinery; SPXC signs an agreement to sell 100% of the issued and outstanding stock of its wholly-owned subsidiary, SPX Transformer Solutions, to GE-Prolec Transformers, for $645 million in cash; lowers FY21 adjusted EPS and rev outlook; UPS announces 2023 financial targets for investor and analyst conference as sees 2023 adj. operating margin about 12.7% to about 13.7%, sees 2021-23 cumulative capital spending about $13.5b-$14.5b and sees 2023 adj. return on invested capital about 26%-29%; drone stocks bounced (UAVS, EH) after reports the FAA is reportedly looking to form an industry group to expand drone flights; North American rail traffic rose 12.2% in week ended June 5, the Association of American Railroad said.

·     Chemical sector; SHW raises Q2 sales guidance and full year 2021 sales and diluted net income per share guidance; raises FY 2021 consolidated net sales guidance to be up a high-single to low-double-digit percentage over full year 2020; Goldman Sachs upgraded CC to Buy from Neutral as see substantial improvement across Chemours’ end markets and downgraded CE from Buy to Neutral, following recent outperformance (since being added to the Buy list on March 30, 2020, CE shares are up 27% vs. SPX up 13%); EMN to sell the rubber additives and other product lines and related assets and technology of the global tire additives business to One Rock Capital Partners for $800M

Technology, Media & Telecom

·     Semiconductors; KLAC upgraded to Buy from Hold with $375 tgt at Deutsche Bank saying while headlines for semicap equipment spending have continued to improve in the past few months, KLAC’s stock price has meaningfully underperformed its large cap semicap peers; MX shares active after a report that the company’s technology has been designated as "national core" by South Korea, as per Seeking Alpha

·     Software movers; PATH shares slid despite reporting 1Q results that beat estimates, with its 2Q revenue forecast also exceeding expectations; under a new partnership, customers of data cloud company SNOW customers will have access to the AI’s AI Suite and pre-built AI applications

·     Components & Services; Acer reports May 2021 revenues of NT$24.81 billion, the highest in seven years over the same period (+22.9% Y/Y; -0.6% M/M); CMTL slips as posts Q3 sales just below views ($139.4M vs. est. $140.7M) and lowers FY net sales $580M-$590M from prior $610.0M-$620.0M (est. $616.4M)

·     Media & Telecom movers; FOXA upgraded to overweight from Equal-weight and raise tgt to $47 from $42 at Wells Fargo; DISH downgraded to Underweight from Neutral at JPMorgan though raise price target to $45 (from $38) saying at today’s levels we believe Dish shares are fully valued; WWE shares surged on no specific news; AT won a $725M contract to modernize the data network at the U.S. Dept. of Veterans Affairs.