Closing Recap

Wednesday, October 07, 2020

Equity Market Recap

·     U.S. stocks finished broadly higher, led by gains in materials, consumer discretionary and technology while defensive REITs and utilities lagged after President Trump said late on Tuesday Congress should quickly extend $25 billion in new payroll assistance to U.S. passenger airlines while also urged Congress to approve the $135 billion payroll protection program for small businesses. The comments came just a few hours after Trump called off talks with congressional Democrats on a relief package until after the November election, causing stocks to tumble. Stocks briefly dipped midday after Bloomberg reported the U.S. is considering imposing restrictions on Ant Group (BABA) as well as Tencent (TCEHY) over concerns that their digital payment platforms threaten U.S. national security, but the pullback was short lived. Tech giants (AAPL, AMZN, FB, GOOGL) also shook off a U.S. House panel’s report which broadly recommended structural separations but stopped short of saying a specific company should be broken up. Tonight, VP Pence, and Kamala Harris meet for Vice-Presidential debate tonight. It was a slow strong grind higher for U.S. stocks all day long, with improving updates of the President’s health as doctors said he is symptom-free for the last 24-hours. Comments out of the Fed minutes showed that many participants said that if future fiscal support was significantly smaller or came significantly later than they expected, pace of recovery could be slower than anticipated – those headlines pared market gains late day before pushing higher late.

·     Federal Reserve officials wrestled last month with how to apply their new policy framework to an economy battered by the coronavirus pandemic, according to minutes of their Sept. 15-16 meeting released Wednesday. Officials raised the bar for interest-rate increases at that meeting and signaled they expected it would be at least three years before they would near the new threshold. Fed officials laid out a three-part test that must be met before they consider lifting short-term rates from near zero. First, they need to be satisfied that labor-market conditions meet their maximum employment goals, which were not spelled out. Second, inflation must reach 2%. Third, they will need some evidence — from forecasts or market-based measures — that inflation will continue to run moderately above 2%.

Commodities

·     Oil prices slipped after back-to-back gains, as WTI crude dipped 72c or 1.77% to $39.95 per barrel as markets till hopeful of stimulus while rising supplies also dent sentiment. Hurricane Delta shuts 80% of U.S. gulf offshore crude oil production and cuts 49% of U.S. gulf natural gas output as it approaches the Gulf of Mexico. Natural gas prices end the session 3.4% higher at $2.606/mm Btu on hopes for a further narrowing of a US storage surplus, and as Hurricane Delta forces offshore firms to slash natural gas production. Gold prices slumped with December gold down -$18.00 or 0.9% to settle at $1,890.80 an ounce, extending losses from yesterday after settling at 2-week highs on Monday.

Currencies & Treasuries

·     U.S. Treasury prices fell as stocks jumped, with yields holding near 4-month highs before slightly paring back, as the 10-year yield failed to top the 0.8% level and the 30-year dipped back below the 1.6% level. Investors took comfort in President Donald Trump’s comments urging Congress to pass an airline bailout deal as well as a stimulus package for small businesses. At the same time, the market continues to price in a victory for Democratic challenger Joe Biden in next month’s presidential election. This afternoon, the U.S. Treasury sold $35 billion in U.S. 10-year notes at a yield of 0.765% vs. 0.765% when issued prior as the bid-to-cover was 2.47 vs. 2.30 prior and indirect bidders awarded 62.88% of the auction, directs 14.19% and primary dealers 22.93%.

·     The U.S. dollar dipped vs. most rivals on renewed hopes a stimulus deal may come to fruition after President Donald Trump said that he was ready to sign off on some stimulus measures. The dollar recently touched 2-year lows amid the growing likelihood of a Democrat victory while failing to benefit from mostly improving economic data (though the pace has slowed). The euro advanced vs. the buck despite German industrial output edging down in August following three months of relatively strong increases.

Sector News Breakdown

Consumer

·     Retailers; LEVI 3Q was well ahead of expectations, with sales, GM and EPS all better than consensus forecasts and Citi noted trends continued to improve in Sept, though 4Q guidance overall includes some caution about what the rest of the holiday season may bring; Barclay’s with several ratings changes as AEO, FL, GPS, URBN, KTB were all upgraded to overweight as believe will materially benefit from sales recovery, as well as KTB, which is both a defensive play on a COVID surge and an offensive play on global growth. Barclays downgraded two apparel manufacturers, cutting RL to Equal Weight and PVH to Underweight, as both have department store channel and apparel category exposure; CROX announces a collaboration with Grammy Award-winning singer and artist Justin Bieber, with the collection set to launch on Oct. 13

·     Consumer Staples; PM upgraded to buy with $100 tgt at Citigroup saying its current 3-year target for RRPs runs out in 2021 and expect a replacement, perhaps for 150-200 bln sticks equivalent for 2024 which would imply accelerating growth; COTY upgraded to buy from hold at Jefferies saying recent bold actions by co shows a sense of urgency to de-risk costs and the balance sheet; LW Q1 EPS 61c on sales $872M vs. est. 30c and $869.2M (though profit fell from $115.7M last period a year-ago to $89.3M this quarter); Guggenheim calls TAP a recession-proof top pick and raises to top pick in space (replaces PEP); BYND up another 4%, rising to 52-week highs; CLX said it has developed an experimental device to help detect an uptick in illness indicators, including fevers, coughs and sneezes, in U.S. classrooms

·     Restaurants; TACO tgt raised from $11 to $13 at Wedbush saying checks point to co-owned SSS growth above 1.0% consensus for all of Q4 (at or above Q3’s preannounced level of 2.0%) and franchised SSS growth above 4.2% consensus; MCD will expand its breakfast menu and include apple fritters, blueberry muffins, and cinnamon rolls starting Oct. 28

·     Leisure and Gaming; IGT and SGMS issued a joint statement noting that both parties are withdrawing and re-evaluating the previously won Brazilian instant ticket JV contract, as failure to finalize negotiations with a local lottery retailer and an unfavorable Supreme Court ruling have impacted the proposed launch; DKNG 32M share Secondary priced at $52.00; also pressured after positive coronavirus results for a few NFL players on the Raiders, Titans, and Patriots

·     In cruise industry; RCL extends the list of suspended sailings to include those departing on or before November 30, excluding sailings from Hong Kong; Celebrity Cruises will be suspending their full 2020/21 winter program in Australia and Asia Azamara will be suspending their 2020/21 winter sailings throughout Australia & New Zealand, South Africa and South America; CCL’s ultra-luxury Seabourn brand announces that it will cancel upcoming 2020 and 2021 voyages for three cruise ships in its fleet into Spring 2021

Energy

·     Energy stock movers; PXD downgraded to hold at Truist and tgt to $95 down from $125 saying while Pioneer continues to have some of the most prolific acreage and best balance sheet, its valuations remain a premium; TOT acquired a 20% stake in an offshore floating French wind farm pilot project and joined the Sea Cargo Charter, designed to set new benchmarks for curbing carbon emissions in shipping industry

·     Utilities & Solar; Piper initiates solar stocks SPWR ($20 pt) as a favorite idea, NOVA ($3 pt) at OW and RUN ($10 pt) at Neutral; SPWR pt was also raised to around $10 from $8 neighborhood at BAML who reiterated their Underperform rating as they remain cautious given SunPower’s valuation and expect underperformance versus cleantech stocks as enthusiasm wanes; SUNW said it signed $10 million in new commercial and agriculture projects in the third quarter, marking its strongest quarterly booking activity since early 2020; PECK announces the signing of a 5.3MW contract in Rhode Island

Financials

·     Bank movers; group has a little bounce over the last few days with treasury yields recovering to 4-month highs; USB was upgraded to neutral at Bank America saying while it continues to trade at a premium 1.6x TBV relative to its ’21 ROTCE potential of 12.6% they think revenue momentum is shifting; Truist says CADE, SNV, PB, UMPQ, HTH, & SBCF top rated bank ideas as provides 10 reasons to own bank stocks now; in consumer Finance; SQ tgt raised to $250 from $210 at Truist as bullish view supported by growing conviction in the persistence and monetization of Cash App customers, beyond stimulus, as they appreciate the value of the ecosystem’s attributes as a bank substitute

Healthcare

·     Pharma movers; LLY submitted request for emergency use authorization (EUA) for monotherapy to U.S. FDA; PSTI said the Israeli Ministry of Health has given its approval to commence patient enrollment for co’s mid-stage clinical trial on co’s therapy PLX-PAD, which uses cells derived from the placenta, on COVID-19 patients; VXRT expands manufacturing agreement with pet therapeutics maker KIN for its oral COVID-19 vaccine candidate and other vaccine candidates; BMY said Phase 3 CheckMate-816 trial met a primary endpoint of pathologic complete response (pCR) in resectable non-small cell lung cancer

·     Biotech movers; PTCT was upgraded to overweight and tgt raised to $71 at JPMorgan saying with the Evrysdi launch underway and an eye toward the clinical start for PTCT518 in Huntington’s disease, they took a fresh look at PTC’s overall pipeline, its contributions to our model and key catalysts over the mid-term; CRSP, NTLA shares active after CRISPR gene editing discovers share Nobel Prize Emmanuelle Charpentier and Jennifer Doudna, the discoverers of a bacterial immune system called CRISPR a simple gene editing tool that has the potential to transform medicine, are the recipients of the 2020 Nobel Prize in Chemistry; GH 7M share secondary priced at $102; SRNE unit Scilex says Q3 sales of its pain relief medication, ZTlido, totaled $7.2 mln, up 26% from Q2

·     MedTech and Equipment; EXAS and PFE announced an extension and amendment of their agreement to promote Cologuard, the first and only FDA-approved non-invasive stool DNA screening test for colorectal cancer; HOLX announced that its Aptima(R) SARS-CoV-2 assay is now authorized for testing of individuals without symptoms or other reasons to suspect COVID-19; guidance provided by several MedTech names as IART, MASI release better results; AVTR, CRL, PKI and NSTG price tgt raised at UBS following another solid quarter of stock performance, the bar continues to creep higher for this quarter’s results; MTD downgraded to sell from neutral at UBS but raise tgt to $880 from $770 as they see an unfavorable risk reward at current levels

Industrials & Materials

·     Transports; airline stocks rally after President Trump said he would immediately sign individual stimulus measures sent to him, including $25 billion in airline payroll support; JPMorgan also upgraded JBLU and UAL to overweight SAVE raised to neutral while downgraded LUV to underweight while reducing forecasts to reflect a more conservative demand trajectory and revising our equity price targets to reflect our 2022 forecasts; UBS lowered tgts on truckers HTLD, JBHT and SNDR saying Truckload spot metrics show a market that remains on a trend of further tightening; Stifel said rail volumes were generally better than expected in 3Q20, as the tight truckload market and rush of imports to restock inventories drove Intermodal demand higher

·     Aerospace & Defense; BA shares active after the FAA issued a draft report on revised training procedures for the Boeing (BA) 737 MAX, a key milestone to the plane’s eventual ungrounding; AL said it delivered seven new aircraft from ALC’s order book including one Airbus A320neo, four A321neos, one A350-900 and one A350-1000

·     Metals & Materials; metals outperform, led by gains in copper stocks as FCX jumps; JPMorgan said they are OW BHP (top pick), Anglo American, RIO & and upgraded GLNCY to Neutral noting sector returns (-7% since 5th Aug) and investor interest have faded on concerns for "peak" iron ore and longevity of China COVID-19 stimulus; AREC unveiled earlier its new subsidiary, American Rare Earth LLC, to organize and develop its portfolio of rare earth mineral sites

·     Chemicals; CE upgraded to overweight in chemicals preview at KeyBanc saying they prefer exposure to intermediates (EMN, HUN, CE), specialty (DD, AXTA), and ag (CTVA, FMC) names heading into 4Q20 and 3Q20 reporting season as they see these names as having better risk/reward than commodities. For CE, they upgrade recognizing that risks in acetyls and EM are skewed to the upside; RPM Q1 adj. profit topped estimates as Q1 net income surges 70.1% to $180.6M and sales rise 9.1% to $1.61B, also beating est. of $1.49B saying in Q1 select segments of the economy began to gain momentum as stay-at-home orders were relaxed

Technology, Media & Telecom

·     Internet; NFLX rises after Pivotal tgt hike to street high $650 saying the company benefited massively from global "stay-at-home" trends amid COVID-19 pandemic during H1 of FY20; overnight the House antitrust subcommittee released its report on Big Tech after a 16-month investigation, on AAPL, FB, GOOGL, AMZN with several recommendations, including imposing structural separations, prohibiting dominant platforms from entering adjacent business lines

·     Software movers; BAND downgraded to underweight at Morgan Stanley with $140 tgt saying MSFT’s new Azure Communication Platform could prove a meaningful opportunity for Bandwidth; WDAY upgraded to buy from hold at Jefferies and raise tgt to $260 from $250 calling it a product leader with in Human Capital Management (HCM) space and its total addressable market which was $79B in 2019, is growing to $99B by 2024; WORK shares jumped after unveiled new audio and video tools to its communication platform and said it plans to offer an always-on audio feature that can act as a walkie-talkie.

·     Semiconductors; SIMO raises Q3 rev guidance to about 5% higher than previous range of $114-120M; AVGO announced it will no longer use exclusivity deals for chips used in tv set-top boxes and internet modems to comply with EU antitrust regulators who ends their probe on the agreement; Wedbush maintains their Outperform rating on TSM and increases their pt; Allegro MicroSystems publicly filed From S-1 for proposed IPO to trade under ALGM

·     Media & Telecom movers; SIRI shares rose overnight after Bloomberg reported it is nearing a contract renewal with shock jock Howard Stern. Citing people familiar with the matter, the new contract could raise his annual pay to about $120 million a year https://on.mktw.net/3iC5RIg ; AT is moving forward with plans for an auction of DirecTV, the New York Post says, but for significantly less than what it paid five years ago. A handful of suitors has been invited to a second round of bidding, though the opening figures came in around 3.5 times EBITDA of about $4.5B – implying valuation of about $15.75B (AT&T paid $49B and assumed $18B in debt for DirecTV in 2015). https://bit.ly/3jP1FGc ; PERI raises FY Adj Ebitda $25M-$27M; Saw $19M-$21M; NXST remains top pick among local TV broadcasters at Guggenheim followed by GTN and continue to forecast a record political cycle in 2020 with political spending expected by Center for Responsive Politics to hit $10.8bn (up from $6.5bn in 2016) driven by record fundraising

·     Hardware & Component news; in component suppliers, Stifel upgraded VSH to buy from hold and upped its tgt on ST and TEL tgt as checks with several component suppliers and distributors point to improving demand throughout Q3, with significant improvements in auto-related demand and modest upticks across industrial markets; SSYS, DDD, XONE shares active after a job posting from Tesla referencing 3D printing equipment.