Closing Recap

Monday, September 12, 2022

Equity Market Recap

·     Stocks extending last week’s gains, with the S&P and Nasdaq Composite rising for a 4^th straight session into a potential binary event, the August consumer price (CPI) data at 8:30 AM tomorrow. Market estimates are for some cooling in headline inflation, expected to rise at 8.0% y/y for August vs 8.5% the month before and core inflation at 6.1% vs 5.9% previously. A softer reading (sub 8%) could help buoy markets, at least in the short-term showing inflation is decelerating, while a “hotter” number could spark future aggressive hikes by the Fed (which is already expected to deliver a 75-bps hike next week). There are no Fed speakers this week as the FOMC goes into its blackout period ahead of the September meeting. There are a ton of conferences this week across all sectors but within tech the Goldman Sachs Communacopia, and Piper Growth will be the highlights after Citigroup held its tech conference last week. Today felt like more positioning ahead of the data, with many hoping for a sign of easing prices in the data. The Healthcare sector was busy, with several companies moving on headlines out of the European Society for Medical Oncology (ESMO) conference this weekend (see BMY, AMGN, IDYA). Friday, 9/16 could be an interesting trading day given it is a quadruple witching Friday (simultaneous expiration of index futures, index options, stock futures, and stock options), and 3Q22 rebalance Friday for several major market indexes (S&P, FTSE Russell) and S&P indexes are also seeing an annual Investable Weight Factor (IWF) rebalance. All eleven S&P sectors were higher today, with the biggest gains in Energy, Technology, Industrials and Discretionary.

Commodities

·     Oil futures rise but finish off best levels; WTI crude rises $0.99 or 1.14% to settle at $87.78 per barrel (off $89.10 highs). Prices for the front-month contract marked their highest finish since Aug. 31. December gold rises $12.00 or 0.7% to settle at $1,740.60 an ounce, while silver added $1.09, or 5.8%, to settle at $19.86 an ounce, the highest since Aug. 17 – each getting a boost on easing dollar ahead of CPI tomorrow. Natural gas rose 25.3 cents, or 3.2%, to settle at $8.249 per million British thermal units (MMBtu), reversing some declines from earlier in the session.

Currencies & Treasuries

·     The euro jumped over 1% to around 1.013, more than 200-bps move off last week lows below parity vs the US dollar as hawkish commentary from ECB policy makers continue and investors prepare for a potentially decelerating inflation reading tomorrow. The Canadian dollar strengthened to its highest level in nearly two weeks against its U.S. counterpart as oil prices climbed and investors awaited U.S. inflation data.

·     There were two Treasury auctions today – weak results send yields higher on the day (10-yr 3.37%): The U.S. Treasury sold $41B in 3-year notes at high yield 3.564% vs. 3.55% when issued prior (1.4 bps tail), as the bid-to-cover ratio 2.49 vs. 2.5 prior auction, primary dealers take 23.6% of U.S. 3-year notes sale, direct 21.85% (vs. 17.5% prior) and indirect 54.55% (down from prior 63.15). The U.S Treasury sold $32B in 10-year notes at a yield of 3.33% vs. 3.303% when issued prior (largest tail since April of 3 bps); the bid-to-cover ratio reported at 2.37 vs. 2.53 prior and primary dealers take 19.81% of auction, directs 17.89% and indirect 62.3%.

Economic Data:

·     Ny Fed: U.S. Consumer 1-year inflation expectations fall to 10-month low of 5.75% in August from 6.2% in July (ahead of CPI data tomorrow). U.S. Consumer 3-year inflation expectations fall to lowest in nearly two years at 2.8% in August from 3.2% in July. U.S. Consumers saw lower chance of losing a job in August than in July and higher likelihood of finding a new job should they lose one

Sector News Breakdown

Consumer

·     Retailers: Holiday spending growth is projected to slow to 7.1% from 8.5% a year earlier, according to the report, while online sales are expected to increase 4.2% building on last year’s substantial growth, according to the Mastercard SpendingPulse report released on Tuesday; LULU, DECK, DKS are top ideas within Athletic Footwear/Apparel at Cowen as firms leans cautious NKE which reports 9/22 as see evidence of trade-downs occurring within the athletic apparel companies

·     Auto sector: CVNA upgraded to overweight at Piper with $73 tgt (down from $98) saying the company’s value is a function of market share in the used car market and profitability – though notes they are aware that used vehicle prices are falling, rising interest rates are a risk, and know that bankruptcy is a real possibility; VRM files for mixed shelf of up to $300 mln

·     Consumer Staples & Restaurants: YUM authorizes up to $2B in buybacks; Wedbush added JACK and removed WING from their Best Ideas List as find Jack’s valuation attractive and believe the risk of any impact from AB257 prior to FY25 is low

·     Casinos, Gaming, Lodging & Leisure sector; KeyBanc said that domestic geolocation data tracking DIS and Universal theme park August attendance continues to show signs of softening for 3Q, as have now seen two months of y/y decline for Disney and three months of y/y decline for Universal; online sports betting stocks outperform following the first weekend of NFL games and busy college football schedule as well (DKNG, CZR, PENN); POOL mentioned positively in Barron’s this weekend saying the stock presents a buying opportunity; online travel names extend recent gains with ABNB up an 8^th straight day, BKNG, EXPE up 4 straight strong sessions

Energy

·     E&P and Majors; Canada’s Tamarack Valley Energy Ltd said it will buy oil producer Deltastream Energy Corp in a deal valued at C$1.425 billion ($1.10 billion), making it the largest producer in Alberta’s Clearwater; In research, Citigroup upgraded APA to Buy from Neutral and raised tgt to $58 from $40 saying it offers an under-appreciated growth story combining upcoming exposure to the strength in global gas prices (starting in mid-2023) coupled with base volume growth, and potentially supplemented by a Suriname development longer term; the firm downgraded OXY to Neutral from Buy noting the stock now trades at a 2023 CF multiple approaching EOG and remaining upside potential appears modest

·     Pipelines: ENB upgraded from Market Perform to Outperform at Raymond James saying since appreciating through the latter half of August, ENB stock has checked back 5% and is now 8.7% below its 2022 high set in early June. While the equity has been drifting lower, the fundamental outlook for ENB has only gotten better

·     Utilities & Solar; Guggenheim said that NEE is arguably the most leveraged stock in our coverage to IRA provisions outside of BUY-rated CEG and a clear winner from renewables and decarbonization provisions of the law, in our view; solar stocks take a breather after recent run

Healthcare

·     Pharma movers: BMY shares jump after the FDA approved BMY’s Sotyktu (Deucravacitinib) for the treatment of moderate/severe psoriasis, finding it was more effective than either a placebo or AMGN’s drug Otezla, with no “black box” warnings; VTYX shares surge, seen as a beneficiary of the BMY news with Jefferies says approval using TYK2 inhibitor w/o any warnings opens oppty for second generation firms like VTYX’s TYK2 undergoing clinical trial and Opco saying the lack of a box warning for Sotyktu is a significant win for VTYX, raises PT to $65 from $40; SPPI said late Friday the FDA approved ROLVEDON(TM) injection to decrease the incidence of infection in adult patients with non-myeloid malignancies receiving myelosuppressive anti-cancer drugs; EWTX announced topline positive results from a 4-month interim of ‘5506 in BMD patients which ‘5506 demonstrated an impressive ~1 PT NSAA increase versus an expected ~0.4 PT decline as per RBC; MRSN said the FDA granted fast-track designation to XMT-1660 for the treatment of adults with advanced or metastatic triple-negative breast cancer.

·     Biotech movers: MRNA said the Japanese regulator has approved a partial change to its new drug application for its omicron-targeting COVID booster, MRNA-1273.214; ALNY announces proposed offering of $900 million convertible senior notes; ANAB said it sold its royalty interest on future global net sales of Zejula to a wholly owned subsidiary of DRI Healthcare Trust for up to $45M; RGLS announces positive data from early-stage trial for kidney disease candidate; IDYA reported promising data from mid-stage trial testing its combination therapy in metastatic uveal melanoma patients; ACAD announced that the FDA has accepted for filing its New Drug Application (NDA) of trofinetide for the treatment of Rett syndrome; BLUE announces departure of Chief Strategy and Financial Officer Jason Cole this fall; GILD rises after settling a patent case that extends the exclusivity of its HIV franchise

·     Healthcare Services & MedTech Equipment; EXAS announced new data on its multi-cancer early detection (MCED) assay in an abstract to be presented at the European Society for Medical Oncology annual meeting; ABC announced that it has signed a definitive agreement to acquire PharmaLex Holding GmbH, a leading provider of specialized services for the life sciences industry, from funds advised by AUCTUS Capital Partners AG for EUR1.28 billion in cash

Industrials & Materials

·     Transports: railroads CNI, CP and UNP all upgraded to Buy from Neutral at Bank America, seeing an opportunity ahead of Friday’s deadline on a cooling-off period for negotiations with unions. US freight railroads are due to reduce their services starting Monday and workers could be on strike by the end of the week, posing political risks before midterm elections

·     Materials & Chemicals: Credit Suisse initiated ASH and HUN with Outperform ratings and target prices of $120 and $33, respectively saying both companies represent integrated specialties; CTVA hosting Investor Day Presentation tomorrow; in lithium space, LTHM downgraded to Hold from Buy at Vertical noting shares are up 40% YTD, outpacing peer ALB; fertilizer names NTR, CF, MOS weak, having benefitted from disrupted supplies during Ukraine/Russia war – but after reports that Russia withdrew more forces from the region, industry seeing weakness; ag names move after WASDE figures – Farmers will likely harvest a corn crop of 13.944 billion bushels – In August, USDA had projected a corn crop of 14.359 billion bushels

·     Paper & Containerboard: KeyBanc noted, citing Fastmarkets RISI’s PPI Pulp & Paper Week updates on the containerboard and boxboard markets over the weekend (IP, WRK, PKG), that news in the containerboard market keeps getting worse, while the news in the far-smaller SBS boxboard market remains positive for the time being

·     Metals & Mining: VALE was upgraded to Outperform at RBC Capital noting its weak operational performance, uncertain Samarco liabilities and a negative outlook for iron ore have weighed on VALE shares – but already pricing-in long-run $75/t, and having underperformed peers over the past 12 months, think this is in the price; CRS upgraded to Outperform at Cowen for accelerating EPS gains & a catalyst-rich backdrop (787/737/A320 rate hikes; investor day), and think the stock may overshoot as its early in the earnings recovery; gold miners AEM, GOLD, NEM get a bounce as the dollar pares recent gains ahead of CPI and precious metal prices rise

Technology, Media & Telecom

·     Media, Internet; AMZN is projected to spend $15 billion on programming, including sports, this year, according to Bloomberg Intelligence – that comparable figure for NFLX is $13.6 billion for the year, DIS with estimated $9.5 billion spending this year, WBD with $6.5 billion and AAPL with $6 billion; DIS CEO Bob Chapek said he rejected activist investor Dan Loeb’s suggestion to sell or spin off the ESPN sports network, the Financial Times reported; RBLX was initiated Underperform and $31 tgt at Cowen as believe current valuation far too aggressively factors in a metaverse future that is likely still far away

·     Semiconductors: sector generally underperformed led by semi equipment names, though likes of AMD, NVDA also weak; semi equipment makers AMAT, KLAC, LRCX shares slipped initially after a Reuters report that the Biden administration plans to broaden curbs on U.S shipments to China of semiconductors used for artificial intelligence (AI) and chipmaking tools in October

·     Hardware & Software movers: ADBE downgraded from Buy to Neutral at Mizuho and cut tgt to $440 PT from $480 ahead of earnings this week as checks were indicative of a more difficult environment than expected, even allowing for a challenging macro; EA is giving more of its video game properties to Vince Zampella, who oversaw the blockbusters Call of Duty and Modern Warfare, according to Barron’s.

·     Telecom movers: in cable, CABO downgrade from Overweight to Equal Weight at Wells Fargo and cut tgt to $1,200 PT from $1,700 saying while think CABO has the strongest/best network—nearly 70% fiber by mileage—it’s also well known that incremental competition is coming to all areas, including rural; TMUS files prospectus supplement related to a potential three-part senior note offering as per SEC filing