Closing Recap

Friday, May 28, 2021

Index	Up/Down	%	Last
DJ Industrials	65.73	0.19%	34,530
S&P 500	3.44	0.08%	4,204
Nasdaq	12.46	0.09%	13,748
Russell 2000	-4.10	0.18%	2,268

 

Equity Market Recap

·     Stocks finish mixed as major averages close out a strong week of gains behind accommodative Fed comments (several speakers this week reiterating the recent price spikes are transitory) as inflation fears ease despite another data point this morning indicating otherwise. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, climbed to 3.1%, far above the Fed’s 2% target. On a monthly basis, though, the core PCE rose 0.7% in April, after gaining 0.4% in March. Still, this had no impact on markets, as Treasury yields ended much lower on the day. For the week, the S&P rises 1.3%, the Dow up about 1%, but Nasdaq and Russell 200 outperform up 2.2% and 2.4% respectively on the week (tech gains led behind semi rally – SOX +4.7% on week) in what was a broad-based rally, but the main focus all week was on momentum and social media names, led by the January “meme’ reddit/WSB related names, led by AMC (along with GME, KOSS, SPCE, BB and EXPR).

·     In stocks/sector news: ULTA soars to its highest price in almost 2 years after its blowout quarter, leads the S&P in retail; COST slips as it is facing margin pressures and its beat was less impressive than peers TGT, WMT; HIBB opens at its new ATH after its strong report and guidance raise, following peer DKS earlier this week, but the stock fades to red; BIG posts a Q1 beat, but the stock slides on its forecast of a decline in Q2 comps. In software/hardware earnings, CRM after its own beat-and-raise, VEEV spikes after beating estimates for EPS, billings, and revs, and raising full-year guidance, BOX DOMO rise on their quarterly beats, ADSK no reaction to its strong report, and VMW slides on its in-line results, and DELL falls on pressures related to the current chip shortage.

 

Economic Data:

·     Personal income for April fell -13.1% compared to est. decline of -14.1% and down from March up 20.9%; Personal saving rate 14.9% vs. March 27.7%; Personal spending rises +0.5%, in-line with estimates while March revised up to 4.7%; real consumer spending fell -0.1%

·     Inflation data hotter as: April core PCE price index rises +0.7% vs. est. 0.6% and above March 0.4%; April overall PCE price index +0.6% in-line with March reading; April year-over year PCE price index +3.6% vs. March +2.4% and core +3.1 % vs. est. 2.9%

·     April Advance International Trade in Goods with wider deficit of -7.3% to -$85.2B vs. -$91.0B consensus and -$92.0B prior (revised from -$90.6B); Advance April retail inventories excluding autos +0.5% and U.S. advance April wholesale inventories +0.8%

·     Chicago PMI surges as reported at 75.2, well above the 68 estimate and prior reading of 72.1 (all time high was 81 in 1973); It’s up from 35.3 a year ago

·     University of Michigan consumers sentiment final May 82.9, in-line with consensus and vs. preliminary May 82.8 (and April final 88); the expectations index for May-F 78.8 vs. prelim May 77.6 and the current conditions index final May 89.4 vs prelim May 90.8 and final April 97.2

 

Commodities

·     Oil prices ended lower on Friday with WTI crude slipping $0.53 or 0.79% to settle at $66.32 per barrel but finish the week higher by about 4% (month also up about 4%) ahead of next week OPEC+ meeting on June 1^st. Strong U.S. economic data and expectations of a rebound in global demand outweighed concerns about more supply from Iran once sanctions are lifted. Weekly Baker Hughes (BKR) rig data this week showed drilling rigs active in the U.S. gained 2 to 457 for the 24th increase in the past 27 weeks, and oil rigs gained 3 to 359, while gas rigs fell by 1 to 98.

·     Gold reversed and turned positive on Friday, ending near the best levels of the day up $6.80 or 0.4% to settle at $1,905.30 an ounce after data showed U.S. consumer prices surged in April and boosted its appeal as an inflation hedge. For the week, gold futures advanced 1.5%, but monthly returns surged, rising over 7.8% as the dollar hit its lowest levels since early January.

 

Currencies & Treasuries

·     Despite another sign of rising inflation pressures, Treasury yields slipped on the day, ending near the lowest levels for the 10-year below 1.59%. The ten-year topped out at 1.625% just roughly after 8:30 when the personal consumption expenditures (PCE) price index, ex: the volatile food and energy components, climbed to 3.1%, far above the Fed’s 2% target. On a monthly basis, though, the core PCE rose 0.7% in April, after gaining 0.4% in March (above +0.6% est.). the bond market closed early today ahead of the U.S. Memorial Day holiday weekend. Bitcoin prices end the day lower above the $35,000 level, more than 40% off its record highs just a few weeks ago.

·     The U.S. dollar erased morning gains as the dollar index (DXY) fell back around the 90 level (flat on day), sliding since its strong opening (off highs 90.44) as the euro bounces back above the 1.22 level, compared with a four-month high of $1.2266 earlier in the week. The dollar touched 5-month lows earlier this week as the British Pound held around the $1.42 level (52-week high). The next big event for the markets is the Fed’s monetary policy meeting on June 15 and 16, which could provide clues to when U.S. interest rates will increase.

 

Biden Budget Revealed

·     President Biden’s $6 trillion budget proposal was officially unveiled today with big increases in spending on infrastructure, public health, and education along with tax increases on corporations and the wealthy. The Biden administration is seeking $1.52 trillion for spending on the military and domestic programs in FY22, which begins Oct. 1, an 8.6% increase from the $1.4 trillion enacted last year, excluding emergency measures to combat the Covid-19 pandemic. The proposal would shift more federal resources from the military, which would see a 1.6% rise in spending next year, to domestic programs such as scientific research and renewable energy, which would receive 16.5% more funding under the president’s plan in 2022.

·     The White House also detailed costs for its proposals to spend $4.5 trillion over the next decade on infrastructure and social programs, which the administration is hoping to advance through Congress this summer. The plan would provide $17 billion next year for infrastructure improvements, including repairs to roads, bridges, and airports, $4.5 billion to replace lead water pipes across the country, and $13 billion to expand high-speed broadband.

·     Plans to provide universal preschool and ensure teachers at those schools earn $15 an hour would cost $3.5 billion in 2022. The budget would also provide $8.8 billion next year on direct spending on families, including $6.7 billion for affordable childcare, and $750 million for paid leave, the costs of which would rise substantially in 2023 and beyond.

·     The plan relies on corporate tax increases to pay for infrastructure and taxes on high-income households for the family-spending and education initiatives. The corporate tax rate would climb to 28% from 21%, the top capital-gains tax rate would go to 43.4% from 23.8% and unrealized gains would be taxed at death, with a $1 million per-person exemption.

 

 

Macro	Up/Down	Last
WTI Crude	-0.53	66.32
Brent	0.17	69.63
Gold	6.80	1,905.30
EUR/USD	0.0004	1.2196
JPY/USD	-0.04	109.77
10-Year Note	-0.012	1.598%

 

 

Sector News Breakdown

Consumer

·     Hardline/Broadline Retailers; COST posted another strong quarter with core comp growth of 15.1% and strong earnings leverage (EBIT margin of 3.7% was 50 bps above RBC 3.2%E) and EPS beat EPS of $2.75 topped a Street consensus of $2.32; BIG shares slip after saying it expects a low double-digit decline in comp sales in Q2 after a year of strong growth on pandemic-driven demand for furniture and foods, but guided Q2 EPS above views $1.00-$1.15 vs. est. $1.04 after Q1 beat; OLLI posted better-than-expected Q1 results and Q2 QTD trends – while not guided, Q2 QTD comp is running ahead of expectations and historical 2-yr trends (ie. 2-yr growth of 40%+); HIBB lifted its full-year guidance and expanded its stock-buyback program after better quarter

·     Apparel & Accessories Retail; GES a top and bottom line beat while says they experienced lower net revenue compared to 1Q20 due lower demand, temporary store closures and capacity restrictions; Americas comp +6%; Europe comps +44%; Asia comps +32%; GPS a top and bottom line beat for Q1 as comps not comparable due open-only store calculations, and guides FY EPS $1.60-$1.75 vs prior $1.20-$1.35 and consensus $1.39; expects FY21 net sales y/y growth to be in the low-to-mid-twenties vs prior mid-to-high teens; CAL slips after softer Q2 guidance (revs $625M-$650M below the $674M est.) overshadows a beat for Q1 results

·     Auto sector; Wedbush said changes to U.S. tax legislation on electric vehicles (EV) could boost demand by 12% to 15% and sees a potential removal of the 200,000 vehicle limit on EVs eligible for a $7,500 tax credit, which would greatly benefit TSLA and GM (also sees an increase in the EV tax credit to $10,000 per vehicle); NKLA was initiated Buy at BTIG with $18 tgt on its view the company is ripe for disruption with the Tre battery-electric truck set to debut this year/expects a handful of Tre deliveries from Nikola of the Tre before Q4; ORLY announced a $1.5B buyback

·     Housing & Building Products; in building products, Stifel initiated JELD with a buy ($34 tgt), resumed coverage on DOOR with a buy ($148 tgt) and CSTE with a hold ($18 tgt) noting these names all primarily operate in the building products industry, with a bias toward the North American market and are also tied to the new home construction, repair & remodel (R&R) and commercial construction end markets (to a lesser extent)

·     Consumer Staples; BYND shares extend recent gains, adding to yesterday 12% gains as shares have caught attention with retail traders yesterday after being singled out by Jim Cramer and landing on Bank of America’s list of top Reddit stocks by mentions; ULTA comps came in above high estimate (65.9% vs. 53%e), EPS was 116% ahead of consensus and gross margin was above 1Q19 levels and raised its FY21 EPS and operating margin view; Wells Fargo comments on food services saying they remain optimistic on the post-COVID earnings power of this space overall and continue to see upside in all three stocks, but the risk/rewards have shifted as PFGC is now top idea, and continue to like USFD a lot, and believe it’s probably the cleanest way to play

·     Casinos, Gaming, Lodging & Leisure sector; cruise lines CCL, NCLH, RCL on watch as investor sentiment on the group improves with cruises being schedules for this summer; in the RV sector, Truist said its Dealer Survey has them raise 2021/2022 estimates for names under coverage (THO, WGO, CWH) and are now above street on revs / ebitda for each company as the demand environment remains elevated through May with anticipated YoY growth of 15-20% for month; MGM announces a horse race wagering partnership with NYRA Bets LLC

 

Energy

·     Energy stock movers; Barclays downgraded GLOP to UW with a $3 target as it is taking a cautious approach given the stock’s current valuation and also downgraded SLCA to UW with a $10 target on balance sheet concerns and a lack of faith in the sub-segment of OFS that the company operates in; Stifel raised their 2021-23 NYMEX oil and gas price forecasts and their price targets on most E&P stocks in their universe, now forecasting an average implied upside of 87% for their bellwether stocks, (DVN, PXD, XEC, SM, LPI, BCEI); RBC initiated coverage on CRC at Outperform with a $40 target as they see shares being deeply undervalued and on WLL at Sector Perform with a $47 target despite its discount to peers; following yesterday’s announced acquisition of a refinery in Mobile, AL for VTNRHC Wainwright upped its price target on the stock to $25 from $4 after raising its 2023 revenue and adj EBITDA and Craig Hallum also reiterated the stock as Buy with a new $13 target (more than triple the current price) as they say calling the acquisition “transformational” could potentially be an understatement; in refiners: Tudor upgraded DK to Buy and downgraded HFC to Hold and CVI to Sell

·     Utilities & Solar; Morgan Stanley upgraded SJI to Equal-Weight; BLDP announced a follow-on order for 13 electric buses in Frankfurt, Germany; BTIG initiated PLUG at Buy with a $40 pt given we are in the early innings of an energy transition from fossil fuels, which should build momentum for green hydrogen this decade and the company is a well-capitalized, first mover in the space

 

Financials

·     Bank movers; Citi closed their 30 Day Positive Catalyst Watch on RJF after the company completed its Investor Day, but they say to buy the dip on the stock as they say consensus FY23-24 estimates are too low; MBWM renewed its buyback program and is authorized to repurchase $20M in stock

·     Consumer Finance; Wedbush slashed its target on RKT to $14 (from $17), a downside of about 24%, and lowered its FY21 EPS estimate to $2 from $2.30 due to its view that the company’s volumes will fall in the second half of the year and longer-term issues regarding growth in the purchase market; QFIN reported Q1 EPS $1.28 vs est. $0.79 on revs $549.35B vs est. $556.63B; BKI agreed to buy Top of Mind Networks, the developer of the Surefire customer relationship management and marketing automation system for the mortgage industry, for $250M in cash

·     Bitcoin news; Bitcoin slumped to wipe out most of this week’s advance as Bank of Japan Governor Haruhiko Kuroda warned about token’s volatility and speculative trading. The digital currency lost 7% to trade around $35,700, recalling levels seen in last week’s crypto meltdown. Bitcoin is now flat for the week after a run that’s seen prices swing between $33,000 and $39,000. Shares of RIOT, MARA, SI, FTFT, EBON, MSTR, SOS, COIN were among the stocks falling with the cryptocurrency’s selloff

·     REITs; Piper upgraded ACC to OW given its stronger pre-leasing and the growing dominance of D1 schools, in addition to the stock’s YTD underperformance (+8.2% vs. SNL Apartment Index +25.2%); BTIG named CTO as a new Buy with a $60 target as the company’s corporate transformation that includes converting to REIT status at the end of 2020 and disposing its single-tenant retail assets to pursue a value-add investment strategy set it up for strong growth and a simplified business model in the years ahead

 

Healthcare

·     Pharma movers; PRVB said the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee voted 10-7 in favor of the company’s teplizumab drug candidate for delaying type 1 diabetes; ETON said the U.S. FDA has declined to approve the company’s dehydrated alcohol injection for the treatment of methanol poisoning; in cannabis, HEXO to buy Redecan, a Canadian privately owned, licensed cannabis producer, for C$925 million ($764.72 million) in a cash-and-stock deal; FDA approved BMY’s Zeposia (ozanimod) for adults with moderately to severely active ulcerative colitis (UC), representing the second indication for the drug following multiple sclerosis last year and the first IBD drug approved in BMY’s immunology portfolio; FENC resubmits New Drug Application to FDA for PEDMARK

·     Biotech movers; BHVN announced after the close the FDA has approved Nurtec ODT for migraine prevention in people with episodic migraines (<15 headache days per month) – comes a few weeks earlier than we expected; AMGN and MRTX rise on news of FDA approval for Lumakras (sotorasib) on priority review as a treatment for adults with non-small cell lung cancer (NSCLC).

·     MedTech Equipment; DXCM upgraded to Equal Weight from Underweight at Wells Fargo as see three potential positive catalysts over the next few weeks; the slower than expected launch of ABT’s Libre 3 in Europe has allowed DXCM to catch-up with its G7; and valuation has become more reasonable.

 

Industrials & Materials

·     Aerospace & Defense; BA has halted deliveries of its 787 Dreamliners, adding fresh delays for customers following a recent five-month suspension in handing over the aircraft due to production problems, the WSJ reported https://on.wsj.com/3fQaDm7; SPCE shares jumped again, rising over 50% in a week following its successful test flight last weekend and upward momentum buying

·     Materials, Industrial & Machinery; WBT spikes after the WSJ reported the co has received a topping bid valuing the co at around $3.3 billion, as Italy’s Ali Group made an all-cash offer to buy the company for $23 a share earlier this week; TITN was upgraded to Overweight at Stephens with $40 tgt after better Q1 results yesterday; uranium names slipped (CCJ, UEC) after White House docs show Biden not seeking funding for national uranium reserve

·     Transports; KeyBanc generally positive ahead of upcoming less-than-truckload mid-quarter updates as expect strength in April to carry over into May (prefer ODFL target to $280 from $270 given share gain potential and XPO on relative valuation); in rails, Barclay’s downgraded KSU to underweight and adjust price targets for KSU to $310, CNI to $144 (CAD), CP to $112 (CAD) and UNP to $240 saying 2Q21 rail volume tracking in line with 2019 outcomes, a bit less than prior expectations

 

Technology, Media & Telecom

·     Internet; YEXT shares jump after forecasting Q2 and year guidance above estimates following Q1 beat; YY slips as posts Q1 loss per share of 30c wider than the est. loss of 11c; says Indian government’s ban of Chinese apps saw its monthly average users drop 15%; in online travel, Truist said European vaccinations shows solid momentum on this front and our country-level tracker of government restrictions shows a gradual reopening of tourism-related activities (said views trend positively for BKNG given exposure); LIZI rises after its new LIZHI Podcast app has been recommended by Apple’s App Store as one of its featured apps

·     Software movers; CRM reported bullish F1Q results and guidance well ahead of expectations on both top and bottom lines led by Current RPO growth of 23% Y/Y (+20% CC) that was significantly above the Street’s 19% reported forecast – also boosted year outlook; VMW reported a quarter that was largely in-line with the positive preannouncement and highlighted by 30% Subscription & SaaS growth, which accelerated from Q4/21; ADSK Q1 revenue and billings ($989M / $974M) above consensus estimates ($965M / $914M), driven by new product subscription growth and improving retention partially aided by upfront rev rec and a month of Innovyze – raised FY22 revenue outlook ($4.345B) above the Street ($4.312B) but was unchanged ex. Innovyze; DOMO delivered a strong 1Q w/ billings growth of 25% above Street of 17% and had its largest up-sell ever w/ a top 15 global brand & a notable large F500 win (FY22 billings growth guide raised from 16% to 18%); VEEV delivered strong print as Q1 billings, revenue, and margins all well ahead of elevated investor expectations – billings were ~$27M above Street ($421M vs. $394M) driven by strong demand for Dev Cloud and services – and firm guided FY22 above prior outlook)

·     Hardware, Components & Services; DELL posted better-than-expected results for the fiscal first quarter ended April 30, driven by impressive personal computer growth (Q1 EPS/revs beat and said Dell’s Client Solutions Group (PC business), had revenue of $13.3 billion, up 20%); HPQ raised profit projections for the year, following better-than-expected quarterly results, driven by pandemic-fueled laptop sales even as the company grappled with component shortages; BOX raised its FY22 rev outlook after better Q1 results as billings were up 24% to $159.4M

·     Media & Telecom movers; LGF wrapped up its fiscal year with 4Q revenue and segment profits coming in ahead of estimates on upside at Motion Pictures as Starz subscriber momentum remains solid and issued guidance for domestic and international net adds to both accelerate in FY22; MSGS said plan for team to sell tickets exclusively to fully vaccinated fans should team advance past round one