Closing Recap

Monday, November 22, 2021

Equity Market Recap

·     It was a volatile trading day to start the holiday shortened week, with the S&P 500, Dow, and Russell 2000 rising initially while the tech heavy Nasdaq slumped late morning (trading range was 220 points from high to lows) before rebounding as investors again “buy the dip.” However, a late day swoon took stocks back near the lows and erased much of those gains. The Nasdaq had hit a morning record high of 16,212, before sliding to lows around 15,899 by noon, before the rebound kicked in. Financials, (on rising Treasury yield), energy (amid a rebound in oil), industrials and materials were among the leaders. Stocks got a boost after the White House said President Biden intends to renominate Jerome Powell as Fed chair, Lael Brainard as Vice Chair noting Powell has provided steady leadership during an unprecedentedly challenging period, while saying Brainard has played a key leadership role at the Fed. Following the news, stocks extended gains, while gold extended losses, treasury yields (10-yr up nearly 10 bps to above 1.63% and 2-yr up 8 bps to 0.595) and the dollar each advanced. Brief market concern amid the situation in Europe after Germany’s chancellor Merkel calls the covid situation dramatic, arguing that stricter controls are required. On the economic calendar, better monthly October existing home sales.

·     Stock and Sector movers: Nasdaq underperforms; AMZN, TWLO, OKTA, DOCU, payment/FinTech names MA, V, FIS, GPN, PYPL, notable decliners; stay-home plays pressured again with ZM falling to 52-week lows ahead of earnings tonight, TDOC rolling to lowest since March 2020, PTON lowest since May 2020, PINS 52-week lows and SNAP 2021 lows amidst weakness in social media names; video game weakness EA, TTWO, RBLX, and streaming another area of red with ROKU dropping (and bouncing) off 52-week lows; EV space continues its volatility with mixed performance – RIVN gives up its recent gains to tumble back towards its $106.75 open on Nov. 10, BLNK reverses some of its infrastructure bill-related gains after Cowen downgraded it today; vaccine makers MRNA, NVAX, BNTX, PFE climb in a follow-through from the FDA approving booster shots on Friday; ERIC acquires VG for a 28% premium at $21 per share; Crypto space another winner since the pandemic seeing its stock tumble – SI plunges as much as 20% after making new all-time highs this morning, MARA, RIOT, COIN, MSTR roll.

Economic Data:

·     Existing home sales for October reported at 6.34 mln unit rate (+0.8%), topping the consensus 6.20 mln and above the Sept 6.29 mln; U.S. oct inventory of homes for sale 1.25 mln units, 2.4 months’ worth; the national median home price for existing homes $353,900, +13.1% YoY

Commodities

·     Oil prices finish higher, rising $0.81 or 1.07% to settle at $76.75 per barrel, well off morning lows of $74.76. Prices initially dropped on slowing demand fears given the tighter Covid restrictions in Europe as well as reports that President Biden is preparing to announce a release of oil from the nation’s Strategic Petroleum Reserve (SPR) in concert with several other countries as soon as tomorrow to tame prices after OPEC+ rebuffed U.S.

·     Gold prices were sharply lower, falling -2.4% or -$45.30 (biggest drop in 3-months) to settle at $1,806.30 an ounce (2-week lows), as the dollar jumped following Federal Reserve Chair Jerome Powell nomination for a second term, driving expectations that the central bank may stay the course on tapering economic support. Gold sold off on notions that maybe the Fed would keep on its present monetary policy path as opposed to a Lael Brainard nomination.

Currencies & Treasuries

·     The U.S. dollar index (DXY) trades back near best levels since July 2020, while the euro fell to a 16-month low on growing concerns over the impact of new COVID-19 restrictions in Europe, with Austria starting a full lockdown and Germany considering following suit. The nomination of Fed Chair Powell for a second term by the White House also boosted the buck vs. rival currencies. Back in Europe, German Chancellor Angela Merkel told leaders of her conservative party that measures being taken to stop the spread of the coronavirus in Europe’s biggest economy were insufficient and that stronger action was needed. The euro slipped 0.4% to $1.125.

·     Treasury yields move higher following renomination of Fed Chairman Powell. There were also two Treasury auctions today (both much weaker): The U.S. Treasury sold $58B in 2-year notes at a yield of 0.623% with the bi-to-cover at 2.36 (down from 2.69 prior auction), indirect bidders awarded 45.62%, directs 17.17% and primary dealers 37.21%. Later in the day, the U.S. Treasury sold $59B in 5-year notes at a yield of 1.319% vs. 1.309% when issued prior, with the bid-to-cover at 2.34 (vs. 2.55 prior auction), with indirect bidders awarded 56.88%, directs 16.24% 9yields edged higher in the afternoon after 5-yr auction had biggest tail in 18-months).

Sector News Breakdown

Consumer

·     Auto sector; TSLA CEO Elon Musk said the Model S Plaid, the car-maker’s high performance luxury sedan, will be made available in China early next year; also in the EV sector, BLNK was downgraded to Market Perform at Cowen following a “torrid run” on renewed EV and EV charging euphoria in which BLNK is up +51% since the start of 4Q and now +1% YTD v. peers; UBER will allow users in Ontario, Canada, to place orders for cannabis on its Uber Eats app, marking the ride-hailing giant’s foray into the sector

·     Consumer Staples; MNST is said to be exploring a possible deal with STZ according to a Bloomberg report; MNST is 19% owned by KO; a potential deal comes after Coke recently agreed to buy sports drink Body Armor for $5.6B; in food distributors (PFGC, SYY, USFD) Jeffries said C3Q trends showed some pockets of deceleration/stagnation in restaurant case growth in Aug/Sep although the distributors are seeing acceleration in growth into Oct, a trend we believe is holding

·     Casinos & Online Gaming; in casinos (WYNN, LVS, MGM), JPMorgan forecasts 2022 gross gaming revenue (GGR) in Macau will be just over 50% of the pre-pandemic level seen in 2019 off a 70% recovery in mass and a 24% recovery in VIP. Jefferies incrementally positive on the Macau outlook saying the Macau market could be close to bottoming with current local C-19 outbreaks in China falling to single-digit daily cases and a partial China-Hong Kong border opening possible before year-end; GENI designated as a "preferred programmatic marketing partner" by FanDuel in deal which will include official NFL data content and fan engagement solutions; Truist said October sports betting GGR down on high handle…but overall trends remain strong along w/ iLottery – firm favors omni-channel operators value plays like Buy-rated BALY and PENN

·     Lodging & Leisure sector; in the cruise industry, Truist said from conversations with senior executives at large travel agencies that specialize in cruises and from examining "big data" on future bookings and pricing, as they had feared two months ago following a sizable slow-down in Caribbean bookings as the summer and fall progressed, they have begun to observe discounting on ticket prices by CCL and RCL for Caribbean sailings in the first half of 2022.

Energy

·     Energy stock movers; Oil prices fell on Monday as rising COVID-19 cases in Europe and a potential release of Japanese oil reserves raised concerns about both oversupply and weak demand; in E&P and Majors; BMO upgraded XEL to Outperform as they have underperform its broader group by ~10% YTD and now represent an attractive entry point given its visible, above-average growth and positive catalyst calendar; GDP was acquired by Paloma Partners for $23/share in a deal worth ~$480M; FLNC was initiated with Outperform/Buy ratings at UBS, RBC ($49 PT), Credit Suisse ($50), JPMorgan ($45), Barclays ($41), Evercore ($47), and Citi ($47), and EW/Neutral ratings at Morgan Stanley ($39) and Raymond James ($35)

·     Utilities & Solar; Portugal shut down its last remaining coal plant over the weekend, ending the use of the polluting material for electricity generation and becoming the fourth country in the European Union to do so; BLDP launched a three-year project through a collaboration with CAT and MSFT that is supported and partially funded by the U.S. Department of Energy; SR reported Q4 EPS (32c) vs est. (70c) on operating revenue $290.2M vs est. $255M, sees FY22 EPS $3.70-4 vs est. $4.30; FSLR shares rebound after sliding last week to lead solar names higher

Financials

·     Bank movers; were among early leaders following the bounce in Treasury yields after the White House renominated Jerome Powell and Fed Chairman; Rising yields benefit insurers as higher rates boost profitability (lifts AIG, PRU, TRV); the 10-year yield hit highs around 1.6% late morning helping lift banking stocks; FinTech & Payment stocks have seen a steady decline over the last month or so, with declines adding up for the likes of MA, Visa, PYPL, SQ, FIS and GPN among them; crypto asset stocks saw sharp selling pressure as well (RIOT, MARA, MSTR, COIN) following volatility in Bitcoin, Ethereum and others

Healthcare

·     Pharma movers; PFE, BNTX with follow-up data from phase 3 trial of their covid-19 vaccine support safety and high efficacy in adolescents 12 through 15 years of age; WSJ reported in a bid to take on well-established rivals, NVS is formulating a non-traditional sales strategy to promote the company’s cholesterol-busting therapy Leqvio; BMRN tgt raised to $120 from $103 at Guggenheim after VOXZOGO was approved in children 5 and older with achondroplasia and open growth plates; BGNE initiates first-in-human phase 1 clinical trial of investigational tyk2 inhibitor bgb-23339 – first patient has been dosed in a phase 1 clinical trial of bgb-23339; IMRA announces primary endpoint change in ardent phase 2b clinical trial of tovinontrine (imr-687) in sickle cell disease; AFMD reports results from Phase 1-2 study evaluating cbNK cells pre-complexed with Affimed’s innate cell engager AFM13 for CD30-positive lymphomas

·     Biotech movers; BLUE said the FDA has accepted for priority review its marketing application for Beti-cel, gene therapy for patients with Beta thalassemia, a blood disorder that reduces the production of hemoglobin; RPRX said it acquired additional royalty interests in BCX9930 and Orladeyo from BCRX in transactions totaling $350 million in new funding for BioCryst, with all funds immediately available at closing; XNCR announced a licensing agreement Sunday night granting Zenas global rights for obexelimab in autoimmune diseases in exchange for warrants to maintain 15% equity in Zenas with up to $480M in potential royalties and milestones; ALNY upgraded to Outperform at RBC Capital and raises tgt to $225 ahead of a catalyst-rich calendar and post an impressive R&D day and notes DRNA’s acquisition last week is fueling the debate; PRVB provided a regulatory update for the approval pathway of teplizumab in at-risk Type 1 diabetes saying it updated on its efforts to address U.S. FDA considerations cited in an FDA rejection letter.

·     Healthcare Services; TALK shares slip after President and COO Mark Hirschhorn has resigned, days after company’s co-founders stepped down; TDOC was downgraded to Neutral at BTIG from Buy following the company analyst day last week where they estimate that management is guiding just ~1-5% y/y membership growth; PGNY was downgraded to Neutral from Buy at Citigroup saying while they continue to like the Progyny story and attractive growth prospects, they see more balanced risk/reward at current levels as they consider recent trends.

Industrials & Materials

·     Aerospace & Defense; BA active on Reuters report South Korea to allow operation of Boeing 737 MAX aircraft from Nov. 22; ASTR rises after the space-transportation company successfully completed its first commercial orbital launch for the U.S. Space Force; said the test payload, launched from its Kodiak Spaceport in Alaska, reached precise orbit in less than 10 minutes; in Aerospace & Defense, Cowen said the setup for lagging defense stocks is improving given escalating U.S.-China tensions and bipartisan support for FY22 DoD add-ons saying pure-play leaders NOC (PT to $420 from $412) & LMT ($365 from $350) should see improving growth

·     Transports; broad strength in the transport sector ahead of the Thanksgiving Day holiday week, with travel expected to soar; TSA checkpoint thru-put hit a news pandemic high on 11/19 and 7-day avg vs 2019 continues to recover off the delta-variant dip as airlines rebound (AAL, DAL, UAL); also early strength in the package delivery names (FDX, UPS)

·     Industrials, Metals & Mining; industrial metals such as steels, iron ore names rise (X, STLD, NUE) after China announcements overnight ranging from potential economic easing measures to expectations of more support for the property sector; gold miners tumbled along with the price of precious metals after Fed Chairman Powell was renominated by President Biden; in research, AUY both upgraded at Bank America saying AUY has strong free cash flow which can be used to fund its organic project pipeline, increase shareholder returns and strengthen the balance sheet while RGLD raised from Underperform to Neutral and the PO hiked from $108.75 to $125.00; GNRC among top performers in the S&P 500 on no apparent news

·     Chemicals; CE, OLN, and WLK all downgraded Overweight to Sector Weight at KeyBanc after saying they expect commodity margins to start normalizing in 1H22, following the sharp inflection toward record levels in October 2021. They don’t expect a dramatic decline in margins but see recent spot levels as unsustainable. We highlight risks in caustic soda, PVC, EDC, acetyls

Technology, Media & Telecom

·     Internet; GDDY said unauthorized third party accessed 1.2m customers; Outbrain Inc. (OB) said it agreed to buy Video Intelligence AG, a Switzerland-based contextual video-technology platform for digital and connected TV media owners, for about $55 million in cash and stock; BIDU enters into license agreement with SNY to enable next-generation MRNA therapeutics and vaccines; U.S. listed China stocks active again on more Chinese scrutiny this weekend as China’s State Administration for Market Regulation said Saturday that it had fined the three companies, among others, for breaching antitrust law by failing to declare deals as far back as 2012.

·     Semiconductors; Philly semi index (SOX) touched new record highs, above 3,970 (takes out prior best 3,936), led by AMD, NVDA and others initially – before a sharp reversal in large cap growth tech stocks bled lower in a bout of profit taking; not much to account for the selling pressure today in semis and software after initially jumps other than a rotation; QCOM said it is re-branding its Snapdragon chipset line ahead of a set of new products to be unveiled in early December.

·     Software movers; selling pressure in high growth names such as U, ZM, CRWD, MDB, OKTA and many others on no specific news; ADBE upgraded to Overweight from Neutral at Atlantic Equities and raise price tgt to $820 from $600; ATVI shares fell after the WSJ reported the CEO Bobby Kotick would consider stepping down if he isn’t able to make meaningful changes to the video game maker’s workplace culture; EA trades lower a 6th straight session, down over 9% during that stretch after its Battlefield 2042 has been criticized by users over numerous graphical and gameplay bugs

·     Media & Telecom movers; VG to be acquired by ERIC for $6.2 billion, paying $21 per share (28% premium to Friday close), https://on.mktw.net/3xbmsLQ ; DIS tgt lowered to $196 from $203 at Wells Fargo as analyze the recent Disney+ subscriber slowdown saying work indicates that the slowing content machine was the culprit; AVYA outperformed behind better earnings; defensive telecom names such as VZ and T saw strength today with growth stocks taking a hit