Closing Recap

Thursday, June 24, 2021

Equity Market Recap

Stocks are yet again moving higher and extending their YTD gains, with the S&P and Nasdaq both hitting their respective all-time highs. Remarkably, today was 2021’s 38th new intraday record for the S&P, meaning there has been a new record high on almost 1/3 of the 120 trading days so far this year. Tech stocks had been treading water in recent months on rising yields and fading stay-home tailwinds and the Nasdaq only set a new intraday record one time since mid-February, but they have taken part in this rally and today is the 3rd consecutive day with a new record high. In Washington, President Biden announced a bipartisan agreement for the framework to an infrastructure bill. The deal calls for just over $1.2 trillion in new spending over 8 years, almost half of Biden’s original $2.25T proposal in March, but it does not include any new taxes according to Sen. Rob Portman (R-OH) and will be paid for by using some unused Covid aid money, Sen. Susan Collins (R-ME) said. Investors will be tuned in to the Fed’s bank stress tests and earnings reports from NKE and FDX tonight. After the infrastructure deal comments, shares of industrial and metal stocks advanced, pushing the S&P 500 higher as the tech heavy Nasdaq pulled off highs (but still ended the day with a 3^rd straight all-time closing high).

Sector/stock movers: LLY surges to record levels after its Alzheimer’s treatment (donanemab) received Breakthrough Therapy Status from the FDA, sending shares of BIIB lower; CRTO, TTD spike after GOOGL said it’s Chrome browser would not fully block tracking cookies until late 2023, a delay of nearly two years; PENN rises after issuing guidance above consensus and MGM jumps after Deutsche upgraded to Buy as casinos outperform; Solar stocks were active today – U.S. names SPWR, FSLR soar after the US blocks some products from China’s Xinjiang region – JKS, DQ were lower early on the news, but shake off the weakness, while residential stocks RUN, NOVA tumble on the ban; RAD KBH plummet after earnings misses; DRI jumps on strong report and guidance

Federal Reserve Bank of Dallas President Robert Kaplan said he sees "upside risk" to his forecast for 3.4% inflation this year and 2.4% inflation next year, as supply-demand imbalances may persist longer than anticipated. Kaplan also said that to manage the range of inflation risks ahead, the Fed ought to "sooner rather than later" reduce its support for the economy by trimming its $120 billion a month in asset purchases.

Economic Data:

Weekly Jobless claims fell to 411K from upwardly revised 418K 9from 412K prior), but was above the economist est. of 380K; the 4-week moving average rose to 397,750 in latest week from 396,250 prior; continued claims fell to 3.390M from 3.53M prior; the U.S. insured unemployment rate fell to 2.4% in latest week from 2.5%

Gross domestic product (GDP) increased at a 6.4% annualized rate last quarter, the government said in its third estimate of growth for the first three months of the year. That was unrevised from the estimate published last month. The economy grew at a 4.3% rate in the fourth quarter. The inflation readings in-line as PCE price index +4.3% in-line with forecast and +1.9% prior qtr

May International Trade in Goods (Advance) was -$88.11B deficit vs. -$87.9B estimate while U.S. advance May wholesale inventories rose +1.1%

Commodities

Oil prices steadied on Thursday, holding close to their highest levels in almost three years, supported by drawdowns in U.S. inventories and accelerating economic activity. WTI crude rallied off earlier losses to settle at $73.30 per barrel, up 0.3% on the day. Doubts about the future of the 2015 Iran nuclear deal that could end U.S. sanctions on Iranian crude exports also helped prices. Brent rose $0.37 or 0.49% to settle at $75.56 per barrel. Both benchmarks had hit their highest since October 2018 on Wednesday before paring gains.

Gold prices end lower, falling -$6.70 or 0.4% to settle at $1,776.70 an ounce, erasing yesterday’s gains, holding in a narrow range today, tracking moves in the dollar and sliding as stocks rally behind the infrastructure deal announcement. A day after Fed Chair Jerome Powell said interest rates would not be raised too quickly and that inflation wouldn’t be the only determinant of policy, two Fed officials said inflation may persist longer than anticipated, with one official predicting a rate hike in late 2022.

Currencies & Treasuries

The U.S. dollar was little changed as the walk-back commentary from several Fed speakers this week about interest rates after the FOMC policy meeting surprised markets by forecasting two rate hikes in 2023 (pushing up the timeframe) has pared gains in the buck. The dollar has slipped since reaching two-month highs on Friday in the wake of the Fed meeting. The dollar fell slightly after data showed that fewer Americans filed new claims for unemployment benefits last week. The next major U.S. economic focus will be producer price data on Friday. Sterling slipped after the Bank of England said inflation would surpass 3% as Britain’s locked-down economy reopens. Treasury yields remain subdued, as the 10-year holds below the 1.50% level. The U.S. Treasury sold $62B in 7-year notes at a yield of 1.264% vs. 1.267% when issued prior as the bid-to-cover (demand) was 2.36 and indirect bidders awarded 59.97% and directs awarded 21.34%

Sector News Breakdown

Consumer

Retailers; NKE to report earnings tonight (watch apparel and footwear industries); BBBY upgraded to Buy from Neutral with $38 tgt at Bank America; DLTR downgraded to neutral from Overweight at Piper and cut tgt to $102 from $117 based primarily on concerns of intensifying inflationary pressures from both freight and wages, combined with core-Dollar Tree’s inability to pass through price increases; Truist raises price tgts on ELY to $40 and Hold-rated GOLF to $50 saying recent retail checks incrementally more positive on the N-T golf demand/margin backdrop; DBGI announces channel expansion into Amazon marketplace, sending shares higher

Auto sector; TSLA rallies again after gaining 5.2% yesterday after opening their first charging station in China, marking the stock’s best 2-day stretch since rising 12.6% April 12-13; Guggenheim upgraded APTV to Buy with a $184 target; Goldman upgraded MGA to Buy as incremental units in complete vehicles would be accretive to EPS and the company’s potential to establish a North American footprint for complete vehicle manufacturing could also drive further EPS growth, and they also upgraded LEA to Buy as they believe that the fundamental backdrop will be positive for auto OEMs and suppliers in 2H21 as semi supply increases; Skoda Auto (owned by VWAGY) will temporarily halt production at its Kvasiny plant next week and partly halt production at other plants due to chip shortages; XPEV said it is planning a global offering of 85 million Class A shares, split between an int’l offering of 80.75M shares and a Hong Kong offering of 4.25M shares; QS to Join Russell 3000 Index and Russell 1000 Index; LAZR rises after announcing its lidar sensor technology would be standard in Volvo’s upcoming electric vehicle; also CFO reiterates profitability, liquidity targets, aiming to end the year with more cash than at the beginning

Housing & Building Products; homebuilders looking weak for a second straight day after KBH Q1 revs missed estimates ($1.44B vs. est. $1.48B) – company delivered 3,504 homes in the quarter, a 40% increase from the year prior and net orders increased 145% year-over-year to 4,300 (sector fell yesterday on weaker New Home Sales data); in furniture, SCS beats Q1 revenue estimates, helped by growth across all segments and guides Q2 revs $750M-$780M above est. $704M

Restaurants; DRI Q4 adj EPS $2.03 vs est. $1.76, EBITDA $412M, total sales $2.28B (+79.5% YoY) vs est. $2.19, same-store sales +90.4%, and same-store sales vs 2019 for Olive Garden were -1.5% and +13.5% for Longhorn Steakhouse, and sees FY22 sales $9.2-9.5B (est. $9.24B), EBITDA $1.5-1.59B, and EPS $7.00-7.50 (est. $7.06); Longbow raised their price target on DPZ to $518 from $485 and kept their Buy rating; WEN announced new development agreements with Global Investors Limited to bring 65 restaurants to Georgia, Kazakhstan, and Uzbekistan by 2030

Casinos, Gaming, Lodging & Leisure sector; in leisure, BC agrees to acquire marine electronics and sensors firm Navico for $1.05B; in gaming, MGM upgraded from Hold to Buy at Deutsche Bank with $54 tgt as believe the next leg of the stock story is likely to be one of improving margins that extend well beyond the "over 30%" targets management has discussed as the LV Strip goal, as well as the 32.5% peak margins of 2006; PENN said it sees Q2 revs in the range of $1.45B-$1.55B (est. $1.36B), adjusted EBITDAR from $540M-$580M and Adjusted EBITDA from $420M-$460M while also launches $400M debt offering; in cruise industry, CCL said booking volumes for all future Carnival cruises during Q2 were 45% higher than booking volumes during Q1 and advanced bookings for the full year are ahead of the 2019 level

Energy, Industrials and Materials

Transports; FDX expected to report earnings after the close tonight, a barometer for the health of the U.S. economy; FDX said it suspended freight shipping service earlier this month for about 1.4K customers in an effort to ease congestion on the booming network; XL and Rubicon to accelerate fleet electrification in waste and recycling industry

Utilities & Solar; DQ falls along with weakness in JKS as the U.S. to block some solar products made in China’s Xinjiang region – DQ under greater pressure as separately, the U.S. added Xinjiang Daqo New Energy Co, a unit of Daqo New Energy Corp to the U.S. economic blacklist

Financials

Bank movers; not much in the space today, as the group continues to recover from two weeks of weakness due to plunging Treasury yields and rate hike outlook; all eyes on tonight as we get the latest round of bank stress tests from the Federal Reserve for big banks; Wedbush listed FITB, CFG, HBAN as top picks in regional banks and SBNY, SI, CUBI, WAL as their top mid-cap banking picks as significant excess liquidity on balance sheets can mitigate the flattening yield curve and they see NIM expansion as this liquidity could enable management to be less aggressive in raising deposit rates when the Fed lifts interest rates

FinTech & Payments; Cantor initiated PAYA at OW with a $14 target as they expect organic revenue to expand by 15% per year, implying its payment volume can grow 75% above its end-market industries and say its current valuation provides a compelling entry point as it does not reflect its fundamentals of a resilient business with above-industry growth potential; Wells said PYPL, SHOP, SQ, EEFT have the most to gain from the evolution of the digital wallet and FIS, FISV, JKHY, GPN, WU, PAY could also benefit to varying degrees

Consumer Finance; Visa (V) announced it has signed a definitive agreement to acquire Tink, a European open banking platform that enables financial institutions, fintech’s and merchants to build financial management tools, products and services for EUR 1.8B; GDOT gets a bounce as Walmart MoneyCard, issued by Green Dot Bank, now offered as demand deposit accounts with enhanced digital banking tools and features for customers

REITs; UBS initiated PSA at Neutral with a $310 target as it should benefit from industry tailwinds with expected long-term same-store growth of 3% and generate growth through acquisitions, though they believe risk/reward is balanced trading at 25.4x NTM FFO (23% above its 3-yr avg); EQIX issued guidance at its analyst day yesterday for FY21 EPS $26.73-27.72, 7-9% annualized rev growth through 2025, 7-10% AFFO/share per year from 2022-2025, and capex $2-3B/yr; Truist upgraded AKR to Buy with a $25 target from $20 for growth at a reasonable price as their leasing pipeline and street retail are inflecting positively, and the stock is trading down ~25% vs 2019 levels vs peer average +6%; Zelman downgraded INVH to Hold

Healthcare

Pharma movers; LLY’s rises as Donanemab receives FDA breakthrough therapy designation for treatment of Alzheimer’s disease, giving a boost to shares and move volatility in the Alzheimer treatment sector (BIIB, PRTA, SAVA, AVXL, ACIU); ARAV announces positive initial results from phase 1b portion of the phase1b/2 study of avb-500 in combination with cabozantinib in clear cell renal carcinoma; VKTX announces the start of second phase of its early stage dosage study of VK0214, its potential treatment for X-linked adrenoleukodystrophy; KPTI said it is expanding its royalty agreement with entities managed by HealthCare Royalty Management LLC for up to $100 million in new financing to support the ongoing development and commercialization of Xpovio Selinexor; FULC reports results mid-stage losmapimod study in rare disabling disease

Biotech movers; BIIB falls after positive rival LLY Alzheimer drug news (see above); CRBP shares tumble after topline results from its Phase III study of lenabasum in adults with dermatomyositis missed the primary endpoint of total improvement score at week 28; RCUS shares rise as announced its first interim update from its highly anticipated anti-TIGIT (domvanalimab) combination study looking at a single, double, and triple regimen, and they are moving forward with all arms (Cantor notes as expected, the company only announced a go-forward decision today vs. providing detailed data); MRNA tgt raised to $230 from $220 at Argus as the company studies potential COVID-19 vaccine boosters; AGTC reports 12-month data from its ongoing achromatopsia Phase 1/2 clinical trials, including data from all adult patients and low-dose pediatric patients; GLUE 11.7M share IPO priced at $19.00

Healthcare Services; pharmacy retailers slide after RAD Q1 revs rose to $6.16B but was below the $6.21B estimate saying the 2.2% increase in revs was driven by growth at the Retail Pharmacy segment, partially offset by a decline at the Pharmacy Services segment (adj EPS of $0.38 topped the $0.22 est.) – Quarterly Retail Pharmacy segment front-end same store sales, excluding cigarettes and tobacco products, decreased 11.5%; BHG 51.35M share IPO priced at $18.00; CLOV said plans expansion into 101 new markets/to introduce new benefits as early as 3q; DOCS opened at $41.17 after IPO priced at $26

Technology, Media & Telecom

Internet; AMZN Prime Day event generated about $6.8B of gross merchandise volume, up 9% year-over-year, but estimates Prime Day revenue only grew about 7% year-over-year to $3.8B given that Amazon noted that third party sales grew faster than Amazon’s own retail business according to Morgan Stanley; SNAP rises early after setting a licensing deal with the world’s largest record label group Universal Music Group; GOOGL delays blocking third party cookies in Chrome until 2023, (shares of TTD, CRTO jumped on GOOGL report)

Software movers; MSFT officially unveiled the next version of Windows on Thursday at 11 a.m. ET (said Microsoft Teams will directly integrate as part of Windows 11 – shares of ZM dipped initially on headlines); CASA extends strategic collaboration with Red Hat to drive 5G adoption; UPLD raised its full year 2021 guidance to reflect Panviva acquisition (paid $19.8M); NET mentioned as new Motley Fool pick

Hardware, Components & Services; ROKU tgt raised to $485 from $400 at Macquarie as estimate advertising within the Platform division will double in size this year, comprising around 75% of segment revenue or ~$1.7bn; ACN posted higher Q3 revenue that beat analysts’ estimates, as more businesses used its digital, cloud and security services and boosted year revenue growth to 10%-11%, above its previous outlook 6.5%-8.5%; CFLT surges in Nasdaq debut after cloud software developer raises over $800 million in IPO

Media & Telecom movers; ERIC downgraded to Neutral from Buy at UBS saying after strong execution in the past three years, driven by new management and supportive market dynamics with 5G and data growth, they downgrade the stock from Neutral to Sell; BuzzFeed says it will become a publicly listed company by combining with blank-check firm 890 Fifth Avenue Partners (ENFA), confirming recent reports about the plans