Closing Recap

Monday, October 05, 2020

Index	Up/Down	%	Last
DJ Industrials	465.37	1.68%	28,148
S&P 500	60.11	1.80%	3,408
Nasdaq	257.47	2.32%	11,332
Russell 2000	42.67	2.77%	1,581

 

Equity Market Recap

·     U.S. stocks closed sharply higher as uncertainty about rising global COVID cases and continued disappointment of a failed stimulus relief deal in Washington failed to dent sentiment as investors looked to the positive as President Trump announced that he will be leaving the Walter Reed Medical Center today at 6:30 P.M following his positive Covid-19 diagnosis that scared markets on Friday (the news helped raise hopes of vaccine effectiveness on the virus). Speaker Pelosi and Secretary Mnuchin spoke by phone today for about 1-hour according to reports – but again no signs of deal, though Fox News reported the two are expected to exchange proposals again later this afternoon. Treasury prices declined as yields on the 10, 20 and 30-year Treasury touched more than 1-month highs. Markets preparing for the start of earnings season next week, while we are in the heart of preannouncement time this week.

·     COVID fears rising: stocks tumbled briefly off highs midday as more reports came out of White House staff (McEnany, Leavitt) testing positive of COVID-19 (following President Trump and his wife last Friday), as well as other government officials. Recall over the weekend, Senate Majority Leader Mitch McConnell canceled votes planned in the chamber over the next two weeks, after three recent cases of Covid-19 among Republican senators. Meanwhile the U.S. CDC said tiny particles that linger in the air can spread the coronavirus, revising its guidelines on the matter just a few weeks after the health agency had acknowledged a role for the particles and then abruptly removed it. New York Governor Andrew Cuomo has ordered schools in certain New York City areas to be closed within a day to stop flare-ups of COVID-19. All that was erased on one tweet as President Trump said he will be leaving the Walter Reed Medical Center today at 6:30 P.M following his positive diagnosis last Friday – sending markets higher.

·     Sector movers; Financials were among the top gainers in the S&P amid rising Treasury yields as the 10-year, 20-year and 30-year Treasury bond yields hit five-week highs, while energy stocks jumped behind a 5% bounce in oil prices, each helping boost the Russell 2000 Smallcap index. There was rotation out of recent winners’ materials and into losers such as energy and financials while technology again outperformed behind strength in semi’s and mega-caps.

Economic Data

·     U.S. IHS Markit September final composite PMI at 54.3 vs. flash 54.4 and September final services PMI at 54.6 vs. flash 54.6; composite PMI for September at 54.3 vs flash reading 54.4 and final august 54.6. The index has rebounded from the 26.7 record low from April. It was also at 50.9 last September.

·     ISM U.S. non-manufacturing sector was 57.8 in September vs. consensus 56.3and above the 56.9 in august; non-manufacturing business activity index 63.0 in September vs. 62.4 in august; prices paid index 59.0 in Sept vs. 64.2 MoM, new orders index 61.5 vs. 56.8 MoM and non-manufacturing employment index 51.8 vs. 47.9 MoM

 

Commodities

·     Oil prices bounce after last week’s downdraft, with WTI crude rising $2.17 or 5.86% to settle at $39.22 per barrel, getting boost on improving risk sentiment as President Trump’s health improves while reports of shut in production also helped. Six Norwegian offshore oil and gas fields were shut on Monday as more workers joined a strike over pay, as the strike will cut Norway’s total output capacity by just over 330,000 barrels of oil equivalent per day, or about 8% of total production. Norway regularly pumps just over 4 million barrels of oil equivalent per day.

·     Gold prices closed higher, rising $12.50 or 0.7% to settle at $1,920.10 an ounce, its best level in over 2-weeks amid a weaker dollar and after several White house and U.S. officials tested positive for the coronavirus, sending investors fleeing for the safety of gold. The dollar was down 0.5% against rivals, making gold cheaper for holders of other currencies.

 

Currencies & Treasuries

·     Treasury yields firmly higher as yields on the 10-year, 20-year and 30-year Treasury bonds hit five-week highs. The 10-year yield is at 0.76%, up more than 6 basis points. The 20-year yield is at 1.33%, up 8 basis points and the 30-year is at 1.56%, up more than 8 basis points as President Donald Trump’s improving health bolstered risk sentiment, and expectations grew that a stimulus package could be completed before the November presidential election (though sides still remain far apart). Upcoming supply with a $110B package of coupons this week, as well as a heavy corporate calendar, along with the rally in risk along with some hopes for stimulus hurts prices.

 

 

Macro	Up/Down	Last
WTI Crude	2.17	39.22
Brent	2.02	41.29
Gold	12.50	1,920.10
EUR/USD	0.00061	1.1777
JPY/USD	0.39	105.71
10-Year Note	0.073	0.767%

 

 

Sector News Breakdown

Consumer

·     Retailers; in gun sector (SWBI, RGR, SPWH), September NICS background checks were +61% y/y, the 17th consecutive month of y/y growth and the 7th above 50% as demand was broad based with every state up YoY; REAL rises after announces partnership with Gucci until the end of 2020 to feature and promote pre-owned Gucci items on its

·     Housing & Building Products; JELD upgraded to Overweight from Equal Weight and $32 tgt at Wells Fargo as believe JELD has improved its Windows manufacturing operations as contacts suggest the company’s product quality control issues are a thing of the past while pricing announcements across both Windows and Interior Doors are strong; Truist lowered Q3 ests on BLDR and BMCH on extreme lumber inflation in the quarter, impacting profits on the framing package business; in housing, the median price of U.S. home sales jumped 14% in a four-week period ended late September from a year ago, the largest surge since August 2013. The median home sale price rose to a record $319,769 in the four weeks ended Sept. 17 and home prices have gained 6.5% since a four-week period ended July 5

·     Restaurants; DNKN downgraded to neutral from buy at BTIG following a more than doubling of the share price since March, sustained breach of their $75 price target and heightened valuation with P/E and EV/EBITDA at or near peak; SBUX tgt raised to $101 at Oppenheimer saying the recovery is well under way with sales improving from their lows as economies re-open and SBUX installs a plethora of self-help drivers

·     Leisure and Gaming; DKNG shares fall on 32M shares secondary offering; GAN rises after WYNN engaged the company in a 10-year agreement to be the enterprise software platform for its Internet sports betting and Internet casino gaming business in the State of Michigan; in leisure, PII was upgraded to outperform at Baird with shares off nearly 10% from recent highs and based on strong retail checks and growing inventory shortages

 

Energy

·     Energy stock movers; a nice rebound for beaten up energy stocks as oil prices jumped most of the day, boosted by comments from doctors for U.S. President Donald Trump suggesting he could be discharged from hospital as soon as Monday, just a few days after his positive coronavirus test. Also helping oil prices, an escalating workers’ strike in Norway as energy major Equinor shut four of its offshore oil and gas fields on Monday as its workers expanded their strike, a company spokesman told Reuters.

·     Pipelines and MLPs; OKE upgraded to Overweight from Equal Weight at Wells Fargo saying Bakken gas volumes have recovered much faster than expected, no longer believe OKE will need to cut its dividend, and are increasingly positive on ethane heading into 2021-22; TRGP authorized the repurchase of up to $500M outstanding common stock, and said expects FY2020 Adjusted EBITDA to be at or around the high end of its previously provided outlook; TCP rises after TRP offered earlier to acquire remaining units it does not already own in a deal that values the natural gas pipelines company at $1.48B/to pay $27.31 per share https://bit.ly/2GyqlUR

·     Oil equipment; LBRT upgraded to overweight from equal-weight and up tgt to $10 and HP raised to EW at Barclays saying rig count and pressure pumping crews in the lower 48 states need to double in order to maintain production – expects lower 48 production to start to "meaningfully" decline by year end, providing a catalyst for an increase in rigs and completions crews in the second half of 2021; PTEN announced an average of 60 drilling rigs operating for the month of September vs. 59 in August; KOS restructured previously announced Gulf of Mexico prepayment facility into a five-year $200 mln term-loan facility; RNET secured a multi-year contract with another premier offshore drilling company for providing fully managed communications services and global satellite access

·     Alternative energy, Utilities & Solar; ES was upgraded to neutral from underperform at Bank America saying while ultimately expect passage over the next several weeks, they stress the final bill as a simplified and less punitive version of what was initially expected – and see risk/reward more balanced; FCEL shares fell after short report from Night Market research alleging they lost 2 contracts in backlog which wasn’t disclosed https://bit.ly/34u6xtU ; ITRI rises after NY State Public Service Commission approved its 550G gas Encoder Receiver Transmitter (ERT) module for use by state’s gas utilities; BTU falls after temporarily idling the Shoal Creek metallurgical coal mine in Alabama

 

Financials

·     Financials were among the top performing sectors given the sharp recovery in Treasury yields as banks, regionals, and insurance names were among the strongest names

·     REITs; ACC downgraded from OW to SW at Keybanc saying its September 11 leasing update for fall 2020 fell short of expectations but is a relatively good outcome given economic uncertainty and rising COVID-19 cases across university markets; WRE said collected ~99% of cash rent and 99% of contractual rent due during July and August

·     Services; GDOT estimates and price target raised to $70 to reflect COVID related tailwinds and recent BaaS partnership opportunities at Craig Hallum; INTU upgraded to overweight with $400 tgt at Morgan Stanley saying faster EPS growth and improving secular story set up a positive risk/reward; in trading, TW reports September total trading volume of $18.5 trillion and for Q3 of 2020, reported adv of $780.3 bln, down 4.5% YoY

 

Healthcare

·     Pharma movers; MYOK to be acquired by BMY for $225 a share in cash, or $13.1B, as MyoKardia’s lead pipeline drug, code-named mavacamten, treats a chronic heart condition that can cause irregular heart rhythms in some patients and even death https://on.wsj.com/33wbS51 (shares of CYTK rose in sympathy); separately, BMY received U.S. FDA approval for Opdivo in combination with Yervoy for the first-line treatment of adults with malignant pleural mesothelioma; IMGN said the FDA granted Breakthrough Therapy designation for IMGN632 for the treatment of patients with relapsed or refractory blastic plasmacytoid dendritic cell neoplasm; PFE in trial collaboration agreement with SWTX to evaluate its investigational gamma secretase inhibitor (GSI), nirogacestat, in combination with Pfizer’s anti-B-cell maturation antigen (BCMA) CD3 bispecific antibody, PF‐06863135, in patients with relapsed or refractory multiple myeloma; CRVS rises after announces positive additional data from covid-19 therapy trial

·     Biotech movers; REGN rises after President Trump’s doctor said the U.S. president is receiving an intravenous dose of REGN’s experimental antibody cocktail to treat COVID-19 – he is also taking a steroid, dexmethasone, and GILD’s intravenous antiviral drug, remdesivir; BBIO and EIDX entered into a definitive agreement under which BridgeBio has agreed to acquire all of the outstanding common stock of Eidos it does not already own, with EIDX holders given the right to receive in the transaction either 1.85 shares of BridgeBio common stock or $73.26 in cash per Eidos share in the transaction, up to an aggregate maximum of $175 million of cash. https://bit.ly/3lfVQSy

·     Healthcare services and equipment; CMPS shares advanced as Citron Research said goes long on shares with $100 tgt; QDEL awarded emergency use authorization (EUA) from the FDA for its Sofia 2 Flu + SARS antigen combo assay that delivers 3 results from one sample; HAE announced FDA 510(K) clearance for its new PPN software, now called Persona; telehealth names (AMWL, TDOC, EHTH) shares rallied as COVID cases rising again/fear of second wave

 

Industrials & Materials

·     Industrial & Machinery; CAT reached an agreement to buy the oil and gas division of Scotland-based Weir Group for $405 million in cash; heavy duty truckers CMI, PCAR, NAV active as preliminary North America Class 8 net orders in September were up 145% from a year ago to 31,100 units, according to new data from ACT Research (Wells Fargo was at 20K estimate); TEX mentioned positively in Barron’s calling shares are cheap as the small-cap industrial company has a strong balance sheet and potentially higher profits, making it a good choice

·     Metals & Materials; Barron’s was positive on the lithium sector saying Electric vehicles like Tesla need lithium, and miners such as ALB, SQM and LTHM should be considered among the potential winners of an anticipated boom in the EV market; Bloomberg reported KPLUY is in advanced talks to sell its Morton Salt unit to Kissner Group for ~$3B, and a deal could be announced as soon as this week, Bloomberg reported over the weekend. https://bit.ly/2HWe3GC

·     Transports; XPO advanced after reports that the European supply chain business is on the sales block in deal that could fetch as much as $4B to $5B (as per Bloomberg) while also named a top transportation pick at Cowen today with $119 tgt; airlines (AAL, UAL) were pressured most of the day though the overall transport sector outperformed

 

Technology, Media & Telecom

·     Semiconductors; the Semiconductor Industry Association (SIA) said total industry sales grew by 4.4% on a YoY basis in August, after increasing by 4.4% YoY in July, memory rose 15.4% YoY while non-memory was flat (0.5%) YoY and total MoM semiconductor sales were better than typical patterns, up 9.6% versus the historical August average of 6.5% MoM.

·     Software movers; DOCU upgraded to Overweight with $260 tgt at Morgan Stanley as view the story today as more compelling than ever based on durable COVID-19 tailwinds driving strong new customer acquisition, and that the company’s growth and profitability profile that is ahead of SaaS peers; video game sector mentioned positively in Barron’s (ATVI, EA, TTWO) noting the pandemic is a significant moment for the industry with the delay in sports, film releases and other major events; CRWD assumed with a Buy at Goldman Sachs saying Crowdstrike has established itself as a technology leader in the Endpoint Security market; SNOW rises as hedge fund Third Point reveals a new passive stake

·     Media movers; move theatre stocks AMC, CNK shares slide as rival Cineworld Group PLC’s Regal Entertainment Group’s decision to suspend operations at its more than 500 locations this coming Thursday, putting pressure on the theatre industry along with rising COVID cases

·     Telecom; AT downgraded to Underweight from Sector Weight at KeyBanc saying key first look data suggests deterioration in DirectTV subscription and average rev per user in August and declining wireless postpaid ARPU indicating limited rev improvement in Q3; ATUS upgraded to outperform at Bernstein as have gained comfort with forecasts, believe that underlying fundamentals bottomed earlier in 2020, and see the company expanding investments in 2021; GILT agrees to terminate merger agreement with communications solutions provider CMTL saying since the COVID-19 pandemic made timing of combination particularly challenging, GILT and CMTL concluded settlement is best path forward

·     Hardware & Component news; ATEN raised its revenue guidance for Q3 to come in at $55.5M-$56.5M, above the prior range of $53M-$56M, and vs. est. $55.7M; CCOI upgraded to Market Perform from a long held Underperform rating at Raymond James noting shares have declined 8.2% YTD, compared to the S&P 500 up 3.6%; NPTN guided Q3 EPS 10c-14c on revs $101M-$103M vs. est. 9c and $101M