Closing Recap

Tuesday, March 30, 2021

Equity Market Recap

·     Major U.S. averages finished mixed as the biggest decliners on Monday including the Russell 2000 Smallcap index were among the top gainers today while the Dow Jones Industrials slipped off its prior closing record highs and the S&P rolled late day after approaching its record highs in a mixed session for major averages. Dow Transports touched a fresh all-time high, paced by gains in airlines, truckers, and car rental (CAR record high). Industrials and Materials extended their gains ahead of President Biden’s infrastructure plans expected tomorrow (see breakdown of bill below). The 10-year Treasury yield hit fresh 14-month highs earlier around 1.775% before sliding throughout the day (despite bullish economic data), to end around 1.72%, while the dollar surged, and commodity prices tumbled (gold and oil slide). Bets on a swift economic rebound backed by vaccine rollouts and unprecedented stimulus has helped the S&P 500 and the Dow notch record closing highs last week, while the Nasdaq is still about 7% below its all-time closing high from February. Bank stocks rebounded as investors took heart from signs that the impact from the fall of a U.S. hedge fund didn’t ripple out wider.

·     Further details of The White House infrastructure bill and climate plan revealed today, ahead of official announcement expected tomorrow. The Washington Post said the White House on Wednesday is expected to unveil a plan to spend $2.25 trillion on a jobs and infrastructure package that could form a cornerstone of President Biden’s economic agenda, two people familiar with the matter said. Biden’s plan will include approximately $650 billion to rebuild the United States’ infrastructure, such as its roads, bridges, highways and ports, the people said. The plan will also include in the range of $400 billion toward care for the elderly and the disabled, $300 billion for housing infrastructure and $300 billion to revive U.S. manufacturing. White House press secretary Jen Psaki has said the proposal will be paid for in new tax hikes, particularly on corporations, seeking to reverse much of President Donald Trump’s 2017 tax law, the people said. The plan will also include approximately $400 billion in clean-energy credits on top of the $2.25 trillion in new spending. https://wapo.st/39KlRGD

·     How to pay for bill: Axios earlier noted that Biden is preparing to go to the mat for 4 tax increases worth about $1.8 trillion to pay for his infrastructure plan: 1) raise corporate rate from 21% to 28%, 2) impose a global minimum tax on profits from foreign subsidiaries, 3) tax capital gains as regular income for the wealthy and tax unrealized capital gains at death, and 4) return the top individual rate for those making more than $400,000 to the pre-Trump rate of 39.6%. Economic data strong with consumer confidence crushing estimates

Economic Data

·     March consumer confidence index 109.7 well above the 96.9 estimate and February revised 90.4 (previous 91.3); consumer expectations index 109.6 in March vs. Feb revised 90.9 (previous 90.8) and the present situation index 110.0 in March vs. Feb revised 89.6 (previous 92.0)

·     S&P Case/Shiller home price index rose 0.9% to 243.0 in January 20-City report (a new historic peak) and follows the 0.9% December increase to 240.9 (was 240.8). The 12-month pace accelerated to an 11.1% pace after the 10.2% y/y clip previously/fastest rate since March 2014

Commodities

·     Oil prices drop along with other commodities, as WTI crude slips -$1.01 or 1.64% to settle at $60.55 per barrel, amid a strong dollar, ahead of weekly inventory data tonight (API) and tomorrow morning (EIA) and as OPEC+ is getting ready for talks later this week. The reopening of the Suez Canal eased concerns surrounding the flow of oil supplies in the region. Back to OPEC+, RBC Capital said today the base case for this week’s meeting is that the Saudis will keep their 1mb/d unilateral cut intact and that the OPEC+ quotas will remain largely unchanged, with Russia and Kazakhstan potentially being allowed another incremental increase.

·     Gold prices fell -$28.30 or 1.7% to settle at $1,683.90 an ounce (3-week lows), falling below the $1,700 level and now down nearly 12% YTD, while Bitcoin prices extend gains, rising over 2.5% to around $59,000 and is now up about 100% YTD, likely stealing some market share from gold. As the vaccine rollout continues, investors stay away from defensive and safe-haven assets.

Currencies & Treasuries

·     The benchmark 10-year Treasury yield hit a 14-month high above 1.775% as market participants prepare to rebalance their portfolios for quarter-end, also boosted by a massive beat for monthly the consumer confidence report, though yields fade off highs. The 2-yr/10-yr yield curve spread moved to its highest since July 2015. Reuters noted that liquidity has been poor because the end of March brings with it the end of an extension to a rule called the supplementary leverage ratio, or SLR. The rule requires banks to hold more capital against Treasury bonds, as well as deposits they keep at the Federal Reserve, leading them to pare their Treasury holdings and lending.

·     The U.S. dollar remains on track for its biggest one-month advance since November 2016 according to RBC Capital. The firm also noted in general a stronger dollar has an adverse impact on equity performance, earnings revision trends and margins and negative for the reflation trade, with energy, materials, and industrials the most sensitive. However, through the first quarter of 2021, energy, materials, industrials, and financials are the top performing S&P sectors. The dollar index (DXY) jumped to its biggest level since November, topping the 93 level, prompting additional selling pressure in commodity prices (gold, silver). The euro heading towards the 1.17 level to the downside and dollar remains above the 110 level vs. the Japanese yen.

Sector News Breakdown

Consumer

·     Retailers; sporting goods retailers active after ASO EPS of $1.09 topped the 52c estimate on revs $1.6B; guides 2021 EPS $2.70-$2.95 vs. est. $2.43 (shares of DKS, BGFV, HIBB, SPWH move in reaction); GME shares rise after appoints Elliot Wilke as Chief Growth Officer (he spent 7 years at AMZN working on various businesses); Huawei has removed both NKE and ADDYY from its app store amid the Xinjiang cotton controversy

·     Auto sector; TSLA CEO Elon Musk said in a tweet the near-term cell supply shortage makes it difficult to scale the production of Tesla Semi commercial truck; KNDI said 2020 revs $76.9M and 2020 share loss (19c); says year-end working capital surplus $223M; Optimus Ride, a leading autonomous mobility service provider, and PII signed a partnership to bring fully autonomous GEM vehicles to market by the second half of 2023; GOEV was downgraded at Roth to neutral given a hard pivot in the business model after earnings and a reset on operations, which are clearly still ongoing

·     Consumer Staples; defensive consumer staples (beverages, food) have seen outperformance over the last few sessions with mixed broader markets; MKC reported a beat on the top and bottom line for Q1 (72c/$1.48B vs. 58c/$1.38B) and boosted its FY21 adjusted EPS view to $2.97-$3.02 from $2.91-$2.96 and revenue view to up 8%-10% from up 7%-9%; EL positive comment at Morgan Stanley saying despite its strong run-up in shares (nearly doubling from post COVID lows 12 months ago), firm sees room for additional, albeit more limited, stock upside, and EL remains his top household products pick; ACI and GOOG are partnering to make shopping easier to customers nationwide using Google Maps

·     Casinos, Gaming, Lodging & Leisure sector; DKNG to acquire Vegas Sports Information Network for an undisclosed amount; in cruise space, LIND appointed Dolf Berle President and CEO effective May 10 (Berle is CEO of TopGolf which was acquired by ELY on March 8th) and Lindblad Expeditions, the global provider of small ship expeditions cruises and adventure travel experiences, announced that they plan to resume operations for the 2021 season in Alaska and Galápagos in June.

Energy

·     Energy stock movers; Truist downgraded APA to Hold given limited near-term growth as the company focuses on Suriname exploration where first production is still years away and other peers with more potential near-term torque and CNX to Hold as the stock as hit its previous price target after rising nearly 50% YTD; JPMorgan moved CPE to Neutral with a $34 target from Not Rated as it sees the company providing sustainable FCF but balanced risk/reward after the stock’s YTD outperformance (+176% vs XOP +38%); Morgan Stanley upgraded OVV to OW with a $35 target (almost 50% upside) from $32 on the company’s improved financial flexibility as their leverage decreases, though the stock trades at the second lowest 2022E EV/EBITDAX multiple in their group

·     Coal, Utilities & Solar; PLUG said planned to build a green hydrogen production plant in south-central Pennsylvania with BEPNorthcoast initiated Buy ratings on BE, CPST and Neutral ratings on PLUG, BLDP, ENS, FCEL; Mizuho upped their pt on ETR to $120 from $105 after Arkansas extended its formula rate plan through legislation, which benefits the company; Piper reiterates GTLS as a Top Pick after meeting with the company’s CEO given its recent hydrogen and fast LNG bookings and attractive entry point after its 20% pullback now gives 32% upside to their unchanged $175 price target; Avangrid reaches deal with key stakeholders in Texas for PNM Resources merger

Financials

·     Bank movers; concerns remain for trading losses in big banks related to hedge fund Archegos Capital Management, which was forced to liquidate positions at the end of last week in several technology, China ADR, and media related stocks; JPMorgan said that banks roiled by the Archegos Capital fallout may see total losses in the range of $5 billion to $10 billion; WFC shares rose after saying it had no Archegos related losses; DA Davidson upgraded CMA, EWBC, CARE to Buy and downgraded ABCB, TSC to Neutral; KBW upgraded TCBI to Outperform with an $86 price target; Piper reiterated ISTR at OW and lifted its price target to $25 after saying that the bank’s EPS expansion is still not reflected in its share price following their meeting with management last week; Credit Suisse downgraded TROW to Neutral from Outperform as the company’s overall investment performance over the past two years has brought it more in line with its peers and its organic growth rate vs the industry has narrowed

·     Consumer Finance; JMP reiterated ENVA at Outperform and raised its price target to $48 from $38, continuing to see the stock as a top small-cap pick in consumer finance given its execution record as a pioneer as a digital-only lender; LPRO launched a secondary public offering of 7.5M shares and will buy back $20M in shares

·     Bitcoin services; NCTY signed a Filecoin mining machine purchase and hosting agreement amounting to approximately $2M with a Filecoin mining service provider; Canaccord raised their price target on SI to $150 from $90 due to its core competitive cost advantage in crypto margin lending, which could eventually evolve into a fee-based model if demand for margin lending exceeds the bank’s ability to meet the demand internally; CME will launch Micro Bitcoin Futures on May 3^rd

·     Payments and FinTech; PYPL enables PayPal customers in U.S. to checkout with cryptocurrency alongside other payment methods in PayPal wallet; Visa (V) expanded its real-time push payments platform Visa Direct by launching Visa Direct Payouts, which will allow clients to use a single point of connection to push payments to eligible cards; Following its FinTech Bus Tour, Cowen reiterated Outperform ratings on PYPL as the best positioned payment company given economic trends that should be sustained and not reverse, V (Visa) given improving US purchase volumes, its low double-digit revenue growth, and as a solid reopen play, and on FIS who they also reiterated as their Top Pick as they say concerns about competition with legacy tech solutions are overblown; Loop says GPN, FIS, FISV appear to post solid Q1 results as economic conditions have improved and comps have eased throughout the quarter, and they continue to prefer GPN in the space as they believe they will post the best earnings recovery given its larger exposure to merchant acquiring revenue and upside to recent stimulus payments

·     REITs; CapitalOne downgraded NHI Overweight to Equal-weight with a $77 pt; Bank of America upgraded WELL to Buy with a street-high $78 target from $73 and PEAK to Buy from Neutral

Healthcare

·     Pharma movers; BNTX and PFE said they expect to increase manufacturing capacity of their COVID-19 vaccine to 2.5 bln doses by the end of 2021 citing a new German manufacturing facility and expansion of network of third-party manufacturers and suppliers; AMRN said its fish-oil derived heart drug Vazkepa receives European Commission marketing authorization as a treatment to help reduce strokes, heart attacks and other major cardiovascular events in high-risk patients across Europe; BMY and HUYABIO International have signed a clinical collaboration agreement to evaluate the combination of Opdivo with HUYABIO’s HBI-8000.

·     Biotech movers; Biotech space weak, as XBI falls below its 200-day MA support of 128.40 (first time below 200-day since last April); NVAX, GSK and the UK Government Vaccines Taskforce announced that they have reached an agreement in principle to support manufacturing of up to 60M doses of Novavax’ COVID-19 vaccine candidate (NVX-CoV2373) for use in the UK; WVE shares tumbled after results from the Ph 1b/2a PRECISION-HD2 core trial showed no statistically significant change in mutant huntingtin protein (mHTT) compared with placebo after single or multiple doses of WVE-120102 up to and including 32 mg monthly; MBRX rises after saying the FDA has granted a fast-track tag for its drug, annamycin, for the treatment of soft tissue sarcoma lung metastases, a type of rare cancer

·     Healthcare services and providers; MCK was upgraded from Hold to Buy with $230 tgt at Argus noting the company is boosting profitability and ROE, helped by strong revenue growth in the Medical-Surgical business and improved execution in Prescription Technology Solutions; Guggenheim said they believe HQY consensus estimates for F1Q may be underappreciating certain business headwinds, and are lowering revenue estimates to below-consensus levels

·     MedTech and Equipment; OSUR submits covid-19 rapid antigen prescription home self-test and professional test to FDA for emergency use authorization; MDXG awarded a group purchasing agreement by Premier Inc. under the latter’s SURPASS purchasing program; SWAV said it expects first quarter revenue to be in the range of $31M to $32M, representing an increase of 104% to 111% over the prior year quarter; DGX says average turnaround time for covid-19 molecular diagnostic testing is about 1-2 days, with vast majority completed in 1 da; says now have capacity to perform over 280,000 covid-19 molecular diagnostic tests a day; ILMN shares dropped after the U.S. FTC challenged its proposed acquisition of cancer detection test maker Grail.

Industrials & Materials

·     Transports; Dow Transports touch new record highs, topping the prior 14,669 closing record, with rising optimism of a continued global economic recovery; in airlines, AAL upgraded to hold from underperform at Jefferies saying strong network positioning continues to drive considerable potential to outperform peers as the sole operator on 37% of its routes, which compares to 29% for DAL, and 21% for UAL

·     Aerospace & Defense; the ARK Space Exploration & Innovation ETF (ARKX), run by ARK Investment Management CEO Cathie Wood, began trading today, with the top 10 holdings comprising roughly half of the fund (top 3 holdings are TRMB with 8.3% weighting, 3D Printing ETF PRNT and KTOS both weighted at ~6%); SpaceX starship fails in test flight during descent; OSIS announced that its security division received an order for approximately $16 million to provide maintenance and support for U.S. aviation checkpoint inspection systems.

·     Metals & Materials; LTHM said it has signed a $335M lithium supply contract with BMW where it will supply the key ingredient in EV battery cells directly to BMW’s battery-cell makers from 2022; seeing weakness in gold miners with drop in prices (AEM, AUY, NEM); steel stocks rally again (X, NUE) ahead of Biden infrastructure plan details expected tomorrow; also boosting shares of other metals and materials

Technology, Media & Telecom

·     Internet; GOOGL upgraded to buy from hold at Stifel and raise tgt to $2,350 from $2,025 saying they have increased confidence in Alphabet’s positioning to benefit from category recovery; YELP upgraded to buy from neutral at Citigroup and up tgt to $48 from $33 as expect Yelp to benefit from four trends over the next few years; VIPS authorized to repurchase up to $500M of its Class A ordinary shares; in online travel, BTIG noted EXPE’s ability to maintain share in the US has been a concern given the depth of cost cuts and BKNG talking about making a push – says their site traffic analysis suggests that EXPE may actually be gaining share vs. BKNG on strength at VRBO; YNDX shares slip after COO and CFO to depart/said no impact to strategy of financial guidance

·     Semiconductors; AVGO declined after a report in theinformation said AMZN is developing a chip to power the hardware switches that shuttle data around networks, a "big step toward seizing control over a key component in its technologies; TSM will move 4nm process chips to volume production in the fourth quarter of 2021, ahead of the 2022 timeframe set previously, according to a report in Digitimes; TXN was upgraded to overweight at KeyBanc with $225 tgt and up ests and tgts for ADI (increasing PT to $195), MCHP (increasing PT to $180), NXPI (increasing PT to $225), ON (increasing PT to $47), and QRVO while lower ests and tgt on SWKS (to $210) saying quarterly supply chain findings are positive, as demand continues to be extremely robust in 1Q, albeit supply constrained; VLDR downgraded to hold from buy at Hallum citing a lack of near-term catalysts; Japanese chipmaker Renesas Electronics expects a fire-damaged semiconductor plant to take up to four months to fully recover; The Nikkei reported that Foxconn, the world’s biggest contract electronics manufacturer, says the global chip shortage will cut its shipments by 10%

·     Media & Telecom movers; VIAC was upgraded to Neutral from Underperform at Credit Suisse with a $46 price target saying while they expected fundamentals-based investors would steer clear of Viacom’s valuation until this level, they see 1H21 catalysts as positively biased, suggesting current year estimates are reasonable, or perhaps even conservative; WWE and USA Network today announced a multi-year extension for NXT, which will move to Tuesday nights live on USA Network at 8/7c beginning April 13; TGNA reiterates its Q1 and full year 2021 guidance and expects Q1 revenue to come in at the high end of the range.

·     Hardware & Component news; ROKU upgrade from Hold to Buy with $367 tgt at Truist as see upside to Platform gross profit, think catalysts could include TCL Roku TVs in UK/Brazil and progress with linear addressable and valuation has pulled back on relative basis; DXC upgraded from Hold to Buy at Deutsche bank as believe new CEO Mike Salvino (former Head of ACN Operations), has cleaned up DXC’s issues; BHE upgrade from Hold to Buy at Needham on growing confidence in the sustainability of demand through 2022 in key end markets like semi-cap equipment (18% of revs. in 2020) and expected tailwinds in markets impacted by COVID last year.

·     Software movers; ATVI appoints company veteran Armin Zerza as chief financial officer; says on track to exceed prior outlook for Q1; SEAC 10.3M share secondary prices at $1.85