Closing Recap

Friday, October 15, 2021

Equity Market Recap

·     Markets have seemingly put September’s swoon in the rear-view mirror heading into earnings season as today closed out the S&P’s best week since July with the Nasdaq logging its own 2% gain for the week. Meanwhile, the VIX fell below 16 for the first time since before Labor Day as several data points, including September’s retail sales coming in at +0.7% despite an expected contraction, Goldman being the latest bank to beat earnings estimates this week, and the U.S. announcing it will lift its UK travel ban next month provide investors with optimism that last month was merely a blip on the radar and the upwards momentum from last March will resume.

·     The Energy, Financials, and Consumer Discretionary sectors each made new 52-week highs today as major U.S. markets are now not far from all-time highs with the S&P 500 only about 1.5% off its record, having absorbed recent market threats including the debt ceiling (funded thru early December), surging inflation prices (oil 7-yr highs), Delta variant concerns, and now with improving economic data, the likelihood of a Fed asset tapering starting next month, while the rate hike timeline has been pushed up to late 2022 according to fed fund futures. At the same point, major averages bounced off key technical levels, heading into the holiday quarter. Next week’s earnings ramp up with another stream of financials (including AXP, BK, BX, CMS, DFA, SI, SBNY), while NFLX, TSLA, SNAP, IBM, LRCX highlight the tech companies scheduled to report, and T, VZ, JNJ, CMG, LVS, KSU, UAL, AAL, DOW, BIIB are also among several others set to report.

·     Stock & Sector movers: Dow Transport index strength buoyed by JBHT leading the S&P and trading at all-time highs after earnings and airline strength on reports that the U.S. is set to lift U.K. travel ban on November 8; IP, WRK, PKG weakest stocks in the S&P, GEF also pressured in paper & packaging as Keybanc noted Q3 containerboard data came in below expectations saying “the data itself is underwhelming by any measure, and not supportive of a fourth price increase”; crypto space outperforms after Bloomberg reports that the SEC is set to approve the first Bitcoin ETF – Bitcoin tops $60K for the first time in nearly 6 months, ETHE hits highest in over a month, while COIN, MSTR, GBTC, BTBT jump, and miners RIOT, MARA; GS poised for first close above $400 in a month after its EPS and revenue handedly topped consensus, SCHW record highs on its beat, TFC hits highest since June 2, PNC slides on its EPS and NII misses; SPCE plunges to lowest levels since May after delaying its enhancement period one month later than expected and commercial service is now expected to commence 4Q22.

Economic Data:

·     Import prices for Sept rose +0.4% MoM vs. +0.6% estimate and above the -0.3% prior driven by higher fuel prices, while U.S. export prices ticked up +0.1% in September following advances of 0.4% in August and 1.1% in Jul. The September rise was the largest 1-month increase since the index rose 1.1% in June. Prices for import fuel increased 3.7% in September, after decreasing 3% the previous month; advance was primarily led by higher petroleum prices.

·     Retail sales for September unexpectedly rise +0.7% MoM vs. -0.1% estimate miss and +0.9% prior (revised from +0.7%); Retail Sales ex: autos rise +0.8% MoM vs. +0.4% consensus and +2.0% prior (revised from +1.8%); Ex-Auto & Gas rise +0.7% MoM vs. +0.7% consensus and +2.1% prior; U.S. Sept cars/parts sales +0.5% vs. Aug -3.3%.

·     Empire manufacturing index 19.8 in October, missing consensus of 27.0 and below the 34.3 in September; new orders index 24.3 in October vs 33.7 in September; prices paid index 78.7 in October vs 75.7 in September; employment index at 17.1 in October vs 20.5 in September and six-month business conditions index 52.0 in October vs 48.4 in September.

·     The University of Michigan consumers sentiment prelim oct 71.4 below consensus 73.1 and vs final sept 72.8; current conditions index prelim oct 77.9 (consensus 82.0) vs final sept 80.1 and consumers expectations index prelim oct 67.2 (consensus 70.3) vs final sept 68.1

Commodities, Currencies & Treasuries

·     November U.S. crude oil futures settle at $82.28 per barrel, up 97 cents or 1.19%, while Brent crude settled at $84.86 per barrel, up 86 cents, 1.02%. For the week, WTI crude gained about 3.7%. Gold prices retreated on Friday, falling -$29.60 or 1.7% to settle at $1,768.30 an ounce, but still managed to end the week with a modest +0.6% advance as currencies were choppy. A rebound in U.S. bond yields and a surprise increase in September retail sales weighed on defensive, safe-haven trades, as investors added to stocks. The rise in Bitcoin prices to their best levels in 6-months above $60K also dented the appeal for gold.

·     Treasuries were red all session and rates have edged higher into the afternoon as buyers retreated. The surge in risk appetite and the rise in inflation are combining to boost yields. The 5-year yield was up over 6 bps to 1.109%, the cheapest since late February 2020 and is a 6th straight session over the 1% mark.

Sector News Breakdown

Consumer

·     Restaurants & Consumer Staples; NAPA 12M share Secondary priced at $20.50; TACO 3Q adj EPS $0.11 vs est. $0.10 on revs $124.3Mm vs est. $124.9Mm, system comps +1.8% vs est. +2.4% (company +1.6% vs est. +2.38%); in tobacco, Stifel says MO, PM are well positioned with reduced risk products (RRPs) that provide a distinct growth advantage, including in 2021 and maintain positive outlook for tobacco stocks in front of 3Q21 earnings

·     Casinos, Gaming, Lodging & Leisure sector; CRSR sees 3Q revs about $391Mm vs est. $484Mm, cuts FY revs to $1.825-1.925B from $1.9B-$2.1B and vs est. $2.04B; in theme parks (SEAS, SIX, FUN), KeyBanc said daily attendance trends for the period of 10/4 to 10/10 (using 2019 as a baseline) saw broadly accelerating trends vs. last week with both weekdays, as well as the more relevant weekend period, trending over 100% for all three operators; in gaming, FUBO named authorized gaming operator of NASCAR; PENN outperforms as Hallum noted Michigan reported very strong September online gambling metrics yesterday afternoon (iGaming record, OSB 2nd highest) and highlights PENN positively given it gained market share sequentially, following sequential declines since May

Energy

·     E&P and Majors; Stifel upgraded RRC to Buy and raised their PT to $32 from $18 due to strong natural gas and NGL prices and diminished near-term liquidity risk; KOS 37.5M share Secondary priced at $3.30 and the stock was upgraded to Buy at Berenberg; Seaport initiated CTRA at Neutral following the completion of the Cimarex-Cabot merger; WTI filed a $500M mixed securities shelf; EOG anticipated a $494M net loss on mark-to-market in Q3 of its financial commodity derivative contracts; The Baker Hughes (BKR) weekly rig count is up 10 from last week to 543 with oil rigs up 12 to 445, gas rigs down 1 to 98, and miscellaneous rigs down 1 to 0.

·     Pipelines: SHLX upgraded to Neutral at Credit Suisse on valuation as they believe shares are now pricing in the negative catalysts of a distribution cut in July, expectations of foregoing a second consecutive dividend payment, and guidance that includes a Hurricane Ida

·     Utilities & Solar; Truist initiated Buy ratings on NOVA ($50 PT) and GNRC ($500) as the market leaders in residential solar and standby/backup power respectively, and Neutral ratings on SHLS ($34), BE ($235), BLDP ($18), ARRY ($23); PLUG had its PT raised at BMO ($35 from $30), Wolfe ($42 from $34), and Morgan Stanley ($43 from $40); Mizuho raised their EXC price target to $55 from $53 and 2022-24 estimates to reflect the upward recent trend in the forward price of gas and electricity; ZWS downgraded to Neutral at Baird; SR shares dropped after the Supreme Court rejected to keep its St. Louis-area pipeline operational, meaning operation of the pipeline could cease on Dec. 13 unless FERC extends an emergency order granted in September

Financials

·     Bank movers; GS monster beat as Q3 profit jumped 66% as Q3 EPS $14.93 crushed $10.11 consensus and revenue $13.61B tops consensus $11.67B, net provisions for litigation & regulatory proceedings for third quarter 2021 were $52M vs $256M YoY, Investment banking revenue nearly doubled to $3.55B; PNC EPS beat $3.75 vs $3.64 est. on provision and fee income, offset by weaker NII/NIM (2.27% vs 2.32% est.) and higher expenses (efficiency 69% vs 63% cons); TFC posted a slight PPNR beat on higher fees (mortgage), partially offset by higher expenses while Q3 EPS of $1.20 vs $1.09 consensus; MS downgraded to Sector Perform at RBC Capital and maintains $97 PT as believe at current valuations, the stock discounts the outlook for the company; XP upgraded to Overweight at JPMorgan as see very strong fundamentals supporting earnings momentum and overhang risk now dissipating; USB downgraded at Raymond James after earnings results; SCHW rises after Q3 results showed a 28% Q/Q increase in core net new assets and total client assets rise 14% YTD.

·     Bitcoin, FinTech & Payments; COIN rises along with other crypto-based stocks (MARA, SI, RIOT, MSTR) after a Bloomberg report that the SEC is poised to allow the first U.S. Bitcoin futures ETF to begin trading; Bitcoin ending the week near its best levels since May, topping the $60K level, picking up momentum in October as prices are up roughly $18,000 in the first two-weeks of the month on the Bloomberg report; FUTU declined after Bank America downgraded to underperform and cut tgt to $66 from $156 citing rising regulatory uncertainties

·     Consumer Finance & Lending; DFS said credit card charge-off rate 1.01% at September end vs 1.14% at august end; credit card delinquency rate 0.95% at September end vs 0.92% at august end; BAC credit card net charge-off rate improves to 1.29% in September vs. 1.45% in August and 1.94% in September 2020, while the delinquency rate of 0.90% holds steady from August; AXP preliminary U.S. small business card member loans net write-off rate – principal only 0.4% at sept end vs 0.5% at Aug end

Healthcare

·     Biotech & Pharma movers; ABBV receives EMA CHMP positive recommendation for psoriatic arthritis treatment SKYRIZI; LVTX active after the FDA granted orphan drug designation (ODD) for its CD1d targeted Gammabody, LAVA-051, for the treatment of chronic lymphocytic leukemia (CLL); Cantor lowered BIIB tgt to $327 from $427 and revise ests largely driven by early feedback on Aduhelm sales, which is a large driver for the company

·     Vaccine news; MRNA initially added to yesterday gains after a panel of expert advisers to the U.S. FDA unanimously voted on Thursday to recommend booster shots of its COVID-19 to those age 65 and older and those at high risk of severe illness or occupational exposure to the virus (MRNA upgraded to Overweight and $445 tgt at Piper after VRBPAC Votes 19-0 to Approve Booster and on recent pullback in shares); however, shares of MRNA slipped midday after the WSJ reported the FDA is delaying a decision on authorizing Moderna Inc.’s Covid-19 vaccine for adolescents to assess whether the shot may lead to heightened risk of a rare inflammatory heart condition; JNJ said the FDA panel unanimously backs its Covid-19 vaccine booster shot

·     MedTech Equipment; ANGO upgraded to Buy from Hold at Canaccord and raise tgt to $37 from $28 after completing a deep-dive and come away bullish as the company has redirected its primary focus to several high-growth areas of MedTech; FNA opened at $19.15 after pricing its 7.813M share IPO at $16 overnight

·     Healthcare Services; healthcare staffing names (AMRN, CCRN) weak again – Truist noting possible reasons for weakness earlier: declining COVID case trends mean demand will likely falter sequentially; and (2) the tight staffing environment cited by UNH on earnings report; in the CRO industry, KeyBanc raised price target on IQV and reiterating our Overweight ratings on SYNH and CRL heading into the 3Q21 reporting season, despite strong relative share performance

Industrials & Materials

·     Aerospace & Defense; SPCE shares plunge after saying late yesterday recent material testing returned new data that requires further analysis, and extends enhancement period about one month later than anticipated and commercial service is now expected to commence in Q4 2022; a former Boeing (BA) chief technical pilot was charged with fraud on Thursday for deceiving federal regulators evaluating the company’s 737 MAX jet, hindering the ability to protect airline passengers and leaving "pilots in the lurch," the U.S. Justice Department said – Reuters; LDOS was awarded a ~$65M contract by the Office of Naval Intelligence (ONI); ATI was upgraded to Overweight at JPMorgan with $23 tgt saying n-t, should see profitable HPMC growth on narrowbody engine exposure, and over time mgmt aims to create a more appealing business; HWM extended John Plant’s employment agreement indefinitely (vs. prior 3/31/23 expiration) & offered strong financial incentives (500K RSU grant) for Mr. Plant to stay until at least 1/1/24

·     Transports; JBHT reported Q3 EPS $1.88 vs est. $1.79 on revenue $3.14B vs est. $3.01B; KeyBanc slightly raised their Q3 estimates on UPS as yields and favorable international trends offset lower volumes, and they believe in-line results may be viewed favorably in the context of lowered expectations and current valuation, while saying the current FDX valuation adequately discounts lingering cost pressure and FY22 guidance concerns with underlying volume and pricing trends favorable; Airline stocks (AAL, DAL, UAL) rose early after reports the U.S. is set to lift their UK travel ban on November 8; Stifel’s top picks into earnings are KNX, SNDR, HTLD as they see a strong secular backdrop for LTL, and say premium, pure-play, non-union players (ODFL, SAIA) are fairly valued, but there are opportunities in ARCB, TFII, XPO

·     Paper & Packaging; sector pressured (IP, WRK, PKG, GEF) as Keybanc noted Q3 containerboard data came in below expectations saying “the data itself is underwhelming by any measure, and not supportive of a fourth price increase”. U.S. Boxplant Containerboard Inventory rose 2.9% from last month, at 3.5 weeks of supply

·     Industrials, Metals & Materials; AA another record quarter for net income; announces initiation of a quarterly cash dividend and a new $500 mln share repurchase program; Q3 adj EPS $2.05 vs. est. $1.71; Q3 sales $3.11B vs. est. $2.93B; gold prices slide on better dollar and jump in yields, pushing shares of gold/silver miners lower early (NEM, AEM, PAAS, AUY); FLS upgraded to buy at UBS as 50%+ EPS growth through ’23E looks underappreciated relative to concerns around supply-chain, ESG unfavourability (i.e. 40% O&G exposure), and macro-related stock pressures.

Technology, Media & Telecom

·     Internet; no rhyme or reason, but shares of AMZN surged mid-morning, trading sharply above its 200-day ($3,314) and 200-day rolling MA ($3,347) which seemed to exacerbate the move; FB added to Tactical Underperform List at Evercore ISI as see risk to FB shares into the Q3 print based on seven key factors, including four Online Retail challenges (the firm added NFLX to tactical outperform list); SQSP was upgraded to Overweight at Piper based on an attractive risk-reward given shares are now 43% off the 52W highs

·     Semiconductors; Goldman Sachs upgraded AVGO (tgt to $589 from $527), recommends investors stay selective within the names and buy/own names such as AMD, ADI and ON that have idiosyncratic EPS drivers that can offset any signs of cyclical weakness, and downgraded WDC to Neutral (tgt to $62 from $91) as expects cyclical pressures in the NAND business to more than offset the company’s improving competitive position in nearline HDD and enterprise SSD

·     Software movers; DCT reported a disappointing F4Q, marked by meaningful deceleration in subscription revenue and ARR, along with weak guidance guides FY22 revs $296mn at mid-point below consensus $303mn; MTTR added to best ideas list at Wedbush with $26 tgt as continue to believe Matterport is in the early innings of a massive growth story playing out over the coming years; Goldman Sachs positive on NOW into earnings and expect strong demand tailwinds to manifest into continued net new business growth

·     Media & Telecom movers; PSO shares slide after issues 9-month update saying it remains on track to deliver adjusted operating profit for FY21 in line with market expectations, but notes higher education sales have slipped 7% in 2021 to date, worrying investors despite it maintaining full-year guidance; LLNW was upgraded to Buy at Hallum as believes this name has been de-risked and at the same time, we are seeing a lot of positive change underway at the company since the new CEO has been in place and the recent acquisition of Layer0; DIS shares rallied late day on reports the company is exploring whether or not there is a strategic rationale for spinning off ESPN (Bloomberg later picked up the story)