Closing Recap

Tuesday, June 22, 2021

Equity Market Recap

·     Stocks jump again, adding to yesterday’s outperformance as the Nasdaq Composite posted its first intraday record high since April 29^th (topping the prior 14,211 level) as investors cheered Federal Reserve Chair Jerome Powell’s remarks during testimony to Congress on the economy. Powell reiterated his commitment to avoiding a preemptive rise in interest rates (like his comments post last week’s FOMC press conference), which took stocks higher across the board. There was nothing new or earth shattering, but that was simply fine with the Bulls as stocks powered higher again as Treasury yields remains lower. Big tech led the way, with shares of Apple, Amazon (behind strong Amazon Prime Day sales), Facebook, Netflix, Microsoft pacing gains in the S&P 500 which traded to new intraday highs (after the index touched 1-month lows just a few days ago). Energy, financials, and other economically sensitive stocks that stand to benefit the most from a U.S. re-opening, also pushed higher. The other big story remained the volatility in crypto assets as Bitcoin prices dropped below $29,000 this morning in a second day of selling pressure before rebounding above $32,500 late day.

·     Stocks/sector movers: AMZN jumps to its highest level since April 30 after it generated $5.6B in sales during the 1st day of Prime Day event according to Adobe Analytics; competitor TGT touches its ATH, COST, WMT both rise, and other e-commerce names ETSY, SHOP, PINS also strong; SAFM surges after the WSJ reports it is exploring a sale; PLUG spikes on its revenue beat, lifts other fuel cell plays (FCEL, BLDP); SPLK soars on Silver Lake’s $1B investment; SBH jumps after Cowen and OpCo both upgrade to Outperform; Bitcoin ends higher, but not before falling below the $29K level for the 1st time in 5 months; Ethereum also bounces after hitting its lowest price since late March; vaccine makers extend gains following positive headlines in Europe as the EU allows the bloc to order 150 million additional COVID-19 MRNA vaccines and BNTX rises as EMA two more manufacturing sites for COVID-19 shot.

·     S&P 500 companies have approved plans for a whopping $567 billion worth of stock buybacks since the beginning of the year through mid-June, according to a new Goldman Sachs report. This is a record for this part of the year. It’s worth noting that Apple and Alphabet accounted for $90 billion and $50 billion, respectively, of those announcements.

Economic Data:

·     Existing home sales for May fell -0.9% at 5.80M unit rate, above the consensus 5.72M but down from April’s 5.85M; U.S. May inventory of homes for sale 1.23 mln units, 2.5 months’ worth; the May national median home price for existing homes $350,300, +23.6% from May 2020

·     June Richmond Federal Reserve Manufacturing Survey: +22 vs. +18 prior; shipments +8 vs. +12 prior; capacity utilization +5 vs. +10 prior and volume of new orders +35 vs. +18 prior

Commodities

·     Oil price finish lower as WTI crude dips -$0.60 or 0.81% to settle at $73.06 per barrel after earlier hitting highs of$73.95 per barrel (highest since late 2018) while Brent rose above $75 a barrel for the first time in over two years, as OPEC+ discussed raising oil production. OPEC+ is discussing a gradual increase to oil output from August, but no decision has been taken on the exact volumes, an OPEC+ source said on Tuesday according to Reuters. Also, tonight, weekly API inventory data and tomorrow the weekly EIA inventory report.

·     Gold slipped -$5.50 or 0.3% to settle at $1,777.40 an ounce ahead of testimony by U.S. Federal Reserve chair Powell which began at 2:00, a modest move as the dollar pulled back from two-month highs around the 92.40 level for the dollar index (DXY). The announcement last week from the Fed signaling interest rates could rise into 2023 and it would begin taper asset purchases drove a 6% slide in gold last week, although it recouped some of those losses on Monday.

Currencies & Treasuries

·     It was a volatile day in the crypto space as Bitcoin bottomed just below the $29K level earlier in the session, before bouncing back above $32K early afternoon, along with a bounce in other crypto assets (Ethereum, Litecoin). The bounce followed positive comments from long-time bulls in the space including Mike Novagratz and Tom Lee of FundStrat calling the pull back a buying oppty. Despite the rebound off lows (following headlines of further mining bans in China), Bitcoin is down nearly 25% from week-ago levels, and down more than 50% from all-time high of $65K.

·     The U.S. dollar slipped ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress, having bounced sharply the last few days after the Fed indicated last week it is likely to raise rates sooner than previously expected as inflation rises as they forecasted two rate hikes in 2023. That led investors to re-evaluate bets that the U.S. central bank will let inflation run at higher levels for a longer time before hiking rates. The dollar index (DXY) fell from a two-month high of 92.408 reached on Friday, while the euro edged higher.

·     Treasury yields stayed in a narrow range today with the 10-year yield at 1.47% most of the afternoon, down off earlier highs around 1.51%. The U.S. Treasury sold $60B in 2-year notes at a yield of 0.249%, above the 0.244% when issued prior, with the bid-to-cover (demand) at 2.54 an indirect bidders awarded 50.63% and directs receiving 18.48%

Sector News Breakdown

Consumer

·     Retailers; GME rises after saying it completed its previously announced at-the-market equity offering program, having sold 5M shares and generated aggregate gross proceeds before commissions and offering expenses of approximately $1.126B; SCVL announces a two-for-one stock split; guides year EPS above $6.00 vs. est. 45.34 and year sales above $1.15B vs. est. $1.13B; SBH was upgraded at both Oppenheimer and Cowen to Outperform following the 20% pullback in shares from recent May highs and see upside to estimates; AMZN first day of amazon prime day saw total online sales in the U.S. surpass $5.6B, as per Adobe; TUP surges after saying it prepaid $58 million of its term-loan debt and that its board of directors has authorized share repurchases of up to $250 million of its outstanding shares

·     Auto sector; NKLA registers 18M shares for shareholder Tumim Stone Capital at $16.33 for a total value of $294M; a global chip shortage that is hitting carmakers will not impact Volkswagen’s (VWAGY) profit 2021 forecast, the company said on Tuesday; still expects to achieve a 2021 operating profit margin of between 5.5% and 7% for the group and a margin of 3% to 4% for its main brand; FSR to join the Russell 3000 index on June 28th; Wells Fargo said in a look at Big Data and its play, believe both F are well positioned for this theme, with higher confidence in their LT strategy we raise tgt in Ford (F) to $18 (Barclay’s also raised tgt on Ford and GM)

·     Housing & Building Products; Loop Capital upgraded AMWD and FBHS to Buy after firms cabinets survey showed sales growth remains robust into 2QCY21, and dealer traffic levels, which they view as a leading indicator, are as strong as we’ve seen in this survey – PT for AMWD goes to $100 (+$6), and for FBHS, our PT goes to $120 (+$6); Wells Fargo said Q2 checks were favorable, as valuation for HD and TSCO has compressed since last April, yet checks indicate limited underlying trend change vs Q1 peaks plus LT structural demographic tailwinds that we view underappreciated

·     Consumer Staples; SAFM shares jump after the WSJ reported late yesterday that it is exploring a sale, according to people familiar with the matter, as demand for chicken products rises. https://on.wsj.com/3gKGhmH ; PFGC says for Q4, now expects net sales to be at least $8.8B vs. prior expectation of at least $8.2B and says Q4 adjusted ebitda now expected to be at least $190M, above the prior expectation of at least $185M; TWNK dollar sales increased 16.3%on a 2-yr comp to accelerate from the 15.0% pace in the previous month and stand above the overall food sector sales growth mark of +13.5% according to Evercore/ISI; Krispy Kreme (DNUT) said sees 26.67M share IPO pricing at $21 to $24

·     Leisure, Gaming & Media movers; GCI announced it will auction its inaugural non-fungible token (NFT) inspired by the first newspaper delivered to space in 1971; GENI announces expansion of media partnership with Argentine Football Association (AFA); SHSP shares rise as Constant Contact will acquire all the outstanding shares for $17.10 per share in cash; SCR shares jumped after Canada senate passes law allowing single-event sports bets (previously only multi-game parlays were permitted, and online gambling limited to state-run lottery organizations); FUBO being added to Russell 3000 index

Energy

·     Energy stock movers; crude oil prices retreated initially after WTI rose above $73 a barrel and as OPEC+ begins discussions on raising oil production, but a strong demand outlook underpinned prices. Russia is considering proposing an OPEC+ oil-output hike in next meeting according to reports. OPEC+ is discussing a further easing of oil output cuts from August as oil prices rise on demand recovery, but no decision had been taken yet on the exact volume to bring back to the market, two OPEC+ sources said, Reuters reported.

·     Pipelines & Midstream sector: Citigroup maintained its Buy rating on LNG and Neutral on CQP saying on the heels of our detailed cost of equity work, believe LNG could be a $130+ stock and initiate a pair trade favoring LNG over CQP, which they believe could be ~40% undervalued relative (LNG tgt to $115 from $95 and for CQP to $45 per unit from $42)

·     Refiners: DK upgraded from Sell to Neutral with $24 tgt at Goldman Sachs after relative underperformance versus peers noting since being added to the Americas Sell List on January 26, 2021, shares are +8% versus refining C-Corp peers of +33% and S&P500 of +10% – says relative underperformance has been a function of tight US crude differentials, elevated leverage vs. peers, and concerns around RINs.

·     Utilities & Solar; JKS, DQ shares tumbled early following report from Politico yesterday that the Biden administration is considering barring imports of polysilicon from Xinjiang, China, which produces about 45% of the world’s supply of solar-grade polysilicon; PLUG reported a larger than expected Q1 loss but a 76% YoY rise in revenues that topped expectations as product revenue more than doubled (Q1 net loss totaled $60.75M, or $0.12/share, compared with a $37.45M, also $0.12/share YoY); EVRG downgraded at Wells Fargo saying the company has significantly narrowed the valuation gap versus peers as the company has demonstrated solid execution on the Sustainability Transformation Plan (STP) out of the gate

Financials

·     Bitcoin news; another sharp decline in Bitcoin and other crypto assets, adding to yesterday’s weakness following reports of a further crackdown in China as authorities in the southwest province of Sichuan on Friday ordered cryptocurrency mining projects to close; shares of Bitcoin miners and investors falling the last few days including MSTR (which yesterday announced that it had purchased an additional approximately 13,005 bitcoins for approximately $489 million in cash at an average price of approximately $37,617 per bitcoin), U.S. crypto miners RIOT, MARA, Chinese bitcoin mining machine maker EBON, and China-focused SOS as well as Bitcoin bank SI and online retailer and blockchain tech investor OSTK among them. Prices for Bitcoin and other crypto rebounded late morning/midday, helped by comments from long-time bull Thomas Lee of Fund Strat Global Advisors, said that Bitcoin could potentially touch $100,000 this year, or even go higher (Bitcoin bottomed just below $29,000 before rising over $3,000 off lows).

Healthcare

·     Pharma movers; CORT shares fall after stopping enrollment in the company’s late-stage trial of a combination of relacorilant and nab-paclitaxel in the treatment of certain patients with pancreatic cancer; FENC rises as FDA accepts to review re-submitted marketing application for its treatment to prevent chemotherapy-induced hearing loss in pediatric patients; VTVT entered into a licensing agreement under which Cantex has obtained exclusive worldwide rights to develop and commercialize azeliragon; AVXL sold 2.38M shares in direct offering at $21.00; TEVA agreed to pay $925,000 to the state of Mississippi to settle allegations it conspired to set prices of generic medicines, STAT News reported; in cannabis space (CURLF, TCNNF) CT Gov. Lamont signed a bill making Connecticut the 19th state to legalize recreational use of marijuana, which remains an illegal drug under federal law.

·     Biotech movers; the EU has decided to take up an option under a supply contract with MRNA that allows the bloc to order 150 million additional COVID-19 vaccines; BNTX rises as European health regulator’s committee for human medicines approves two additional manufacturing sites, in Germany and Switzerland, for production of COVID-19 vaccine developed by PFE; QURE announces positive 52-week clinical data from hope-b pivotal trial of etranacogene dezaparvovec gene therapy in patients with hemophilia b and provides regulatory update

·     Med Services and MedTech Equipment; BIOC to collaborate with DGX to provide advanced NGS-based liquid biopsy testing for patients with lung cancer; GH has added two new products to its cancer diagnostic portfolio targeting patients with late-stage and metastatic cancers; PKI to acquire viral vector gene delivery company, SIRION Biotech; MDT announces the first patient procedure with the Hugo robotic-assisted surgery (RAS) system; NXGN shares slid after announced an abrupt resignation of its CEO Rusty Frantz while also affirming its FY22 guidance

Industrials & Materials

·     Aerospace & Defense; for Boeing (BA), Reuters reported the U.S. opens $500 million victim compensation program for relatives of 346 people killed in two fatal Boeing 737 max crashes; UAVS is set to Join Russell 3000 Index; LDOS awarded CDC bioinformatics and high-performance computing support services contract

·     Industrial & Machinery; LECO upgraded to Outperform from Perform at Oppenheimer given confidence in its attractive demand runway, material earnings upside potential, and supportive valuation; WWR and the governor of Alabama sign incentives agreements that will bring a first-of-its kind, advanced graphite processing plant to the state; shares are rising after a trading halt.

·     Transports; YMM 82.5M share IPO priced at $19.00; in airlines, ALK increases in expected q2 cash flow from ops are primarily driven by ongoing strength in demand for travel dates across Q2, Q3; sees Q2 total revenue % change of down about 33% to 35%; HUBG called a best SMIDCap Ideas at Cowen and raises tgt $77 to $83 saying it appears well positioned to benefit from strong volumes robust contract pricing renewals and the anticipated improvement in rail productivity; SBLK priced 2.4M share secondary at $22 per share as holder Oaktree Capital sells shares; XPO has been granted a multi-year deal by Electrolux to manage its logistics operations in France

·     Metals & Materials; gold miner KGC downgraded at CIBC and lower price target from $11.25 to $8.50 on the back of the guidance revision after market on June 21, following the fire at the mill at Tasiast on June 15; SON implementing price a $50 per ton price increase for all grades of uncoated recycled paperboard in United States and Canada; NTR says they expect the midpoints of both 2021 adjusted EBITDA and adjusted EPS guidance to be above the top end of the ranges previously provided at the time of our first quarter results

Technology, Media & Telecom

·     Internet; The European Union has launched an investigation into whether GOOGL abused its market power by favoring its own advertising display over those of competitors, the European Commission announced; Separately, Reuters reported that Alphabet Inc’s Google plans to shut down a long-running program aimed at entry-level engineers from underrepresented backgrounds after participants said it enforced "systemic pay inequities," according to internal correspondence seen by Reuters; FB says expanding ‘shops’ feature to WhatsApp, Facebook marketplace

·     Hardware, Software movers; space among early gainers as tech continues to rebound; SPLK announces $1 Billion Investment from Silver Lake Ken Hao, Chairman and Managing Partner, to Join Splunk’s Board of Directors; TWLO positive mention at KeyBanc saying data shows strong underlying reopening trends for Twilio with Core 6 Consumer on Demand transactions up 65% y/y in 2Q21 as the firm raised its price tgt to $424 from $410; CRWD was upgraded to Buy at Stifel citing feedback received from 51 of the company’s customers suggesting broader deployments; ROKU advances a 4^th straight day on upside momentum; NTNTX shares rose during its investor day presentation after forecasting strong topline growth, including a 25% compound annual growth rate for annual contract value billings through FY25