Market Review: September 18, 2020

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Closing Recap

Friday, September 18, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks turned lower in volatile trading as worries about rising coronavirus cases in Europe (and lockdown orders in big cities), a patchy economic recovery (mixed data), a cautious outlook from the Fed mid-week and additional selling pressure in tech dampened risk sentiment. Tech stocks erased early gains to extend their declines to a third day, with the Nasdaq 100 led by weakness in shares of mega-cap companies (AAPL, AMZN, GOOGL, MSFT) as the QQQs are down around 10% month to date, which puts it on track for the biggest monthly percentage decline since it dropped 11.5% in November 2008. Volatility increased on Friday amid quarterly expiration of U.S. stock options, stock index futures and index option contracts, known as "quadruple witching". Out of the 11 major S&P 500 sectors, financials outperformed, while technology was the biggest decliner paring losses into the weekend. Stocks bounced earlier this week on expectations of a loose monetary policy by the Federal Reserve on Wednesday at its meeting, but instead gains vanished in the absence of firm details on the central bank’s stimulus plan. The U.S. Commerce Department issued an order Friday barring people in the United States from downloading Chinese-owned messaging app WeChat and video-sharing app TikTok starting on Sept. 20. Growth names have slumped over the last 2-weeks while value and small cap related names outperformed, led by industrial, materials, financials, and healthcare.

·     Treasury yields edged higher, with the benchmark 10-year ending near the best levels of the day up around 0.7% though was in a tight 6 bps range most of the week. The yield ended where it started Wednesday before Fed leaders suggested hike rates could be years away. The U.S. dollar was little changed, as the dollar index (DXY) stayed below the 93 level with the buck falling sharply this week against the Japanese yen (its fifth straight day of declines against the yen as Japan’s monetary policy of yield curve control pushes up real interest rates).

Economic Data

·     University of Michigan sentiment prelim sept 78.9 vs. est. 75.0 vs. final Aug 74.1; surveys of consumers current conditions index prelim sept 87.5 topping the consensus of 83.9 vs. final Aug 82.9; the expectations index prelim sept 73.3 vs. est. 67.8 and vs. final Aug 68.5

·     Leading economic indicators 1.2 vs. est. 1.3; July leading economic indicators revised to 2.0%



·     Oil prices edge higher with WTI crude up 14c to $41.11 per barrel, but posted solid results on the week, rising roughly about 10% on bullish inventory data, increasing demand expectations given around 25% of production down this week due to Hurricane Sally and after OPEC and its allies emphasized their commitment to reach full compliance with pledged output cuts during a joint committee meeting this week. Prices overcame weakening oil demand forecasts earlier in the week from the IEA which lowered its forecasts. Gold prices rise $12.20 or 0.6% to settle at $1,962.10 an ounce, recovering after its more than 1% decline yesterday (slipping off its best level in 2-weeks), and managed to finish the week with a 0.7% advance (2nd straight weekly climb), dominated by a dovish Fed meeting mid-week.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; it was a good week for retailers and discretionary names overall (and for the month of September); FL upgraded to buy from hold noting shares have started to recover, as customers have returned to stores with intentions to buy merchandise and digital operations are also performing well; FOXF upgraded to buy from hold at Stifel with $97 tgt following the stock’s roughly 31% decline in the past 30 days

·     Auto sector; UBER is bringing in a new chief technology officer from AMZN, Sukumar Rathnam, filling a position that has been vacant for more than three months; NIO said it will redeem about 8.6% equity interests in Nio China for about 511.5 mln yuan ($75.56M), entered share transfer agreement with Jianheng New Energy Fund; TSLA tgt raised to $515 from $480 and reit OW at Piper after analyzing two poorly-understood aspects of Tesla’s business: 1) the Energy segment and 2) Elon Musk’s compensation; GTX slides a second day after the WSJ reported the auto equipment maker is preparing for a possible bankruptcy filing as tensions rise with former parent Honeywell International Inc. over asbestos injury payments

·     Housing & Building Products; HD and LOW downgraded to perform from outperform at Oppenheimer saying they are increasingly concerned that the market is becoming too lax toward chances of a post-COVID 19 sales growth downshift at both amid a forthcoming post pandemic reset for home improvement retail – price targets go to $305 from $320 at HD and $180 from $185 on LOW suggesting continued but modest upside; MAS raised its dividend

·     Consumer Staples; BYND downgraded to Underweight from Neutral at JPMorgan with an unchanged price target of $122; UTZ initiated buy and $21 tgt noting since 2001, the company has grown its total net sales at an +8% CAGR while growing organic sales at a +4% CAGR

·     Restaurants; PLAY was upgraded by two analysts (Stifel and Raymond James) as they believe the stock’s 26% decline yesterday (in response to media reports highlighting bankruptcy risk) seems overdone and creates an attractive risk/reward.; CAKE tgt raised to $38 at Piper after discussions where management remains resilient and the concept shows no signs of brand equity impairment in the current environment

·     Services, Leisure and Gaming; VTRU 6M share IPO priced at $16.00; U.S. cruise (CCL, NCLH, RCL), hotel (HLT, H) and airline stocks (AAL, DAL, LUV) fall hit by speculation about whether the UK government will introduce a new lockdown or new restrictions; casino related names also under pressure (WYNN, LVS, MGM), while online betting names rise (DKNG, PENN)



·     Energy stock movers; sector underperformed along with slide in broader stocks; natural Gas prices dropped again (following double-digit drop yesterday) and the overnight low of $1.93 per million British thermal units was the first time below $2 since late July after the Energy Information Administration reported inventories rose yesterday heading into fall as demand remains weak

·     E&P sector; OAS elected to enter into a 30-day grace period and defer making the interest payments due September 15, 2020 on its 6.875% Senior Unsecured Notes due 2022 and 2.625% Senior Unsecured Convertible Notes due 2023; the Baker Hughes (BKR) weekly rig count rose 1 to 255 with the oil rig count down 1 to 179 and gas rigs up 2 to 73

·     Utilities & Solar; SPWR upgraded to EW from UW at Morgan Stanley considering the greater market opportunity and stronger business model of the restructured company, along with margin expansion potential and our increased confidence in the outlook for cash flow generation



·     Bank movers: big banks were active (BAC, C, JPM, WFC) after the Federal Reserve said it’s considering extending its caps on banks’ dividends and stock repurchase for the rest of the year due to heightened economic uncertainty. The U.S. central bank made the announcement along with its release of hypothetical scenarios for its second round of stress tests

·     Services, SPACs; PIC shares rise after XL Fleet, a provider of electric vehicle technology, said it has agreed to merge with PIC, a special purpose acquisition corporation, or SPAC, in a deal with a pro forma enterprise value of about $1 billion. ; INTU initiated OW an $351 tgt at Piper saying its differentiated product offering, large customer base (50M+), proprietary tech stack, and relentless innovation/customer focus will enable the company to continue delivering superior revenue growth and margin expansion (INTU investor day next Wednesday Sept 23rd)



·     Pharma movers; ALKS presented new clinical data from ARTISTRY-1, an ongoing phase 1/2 study evaluating Alkermes’ investigational engineered interleukin-2 variant immunotherapy, ALKS 4230; KZR announced Phase 1b portion of the Phase 1/2 MISSION study evaluating lead candidate KZR-616 in patients with systemic lupus erythematosus (SLE) and lupus nephritis; BMY has settled its patent infringement litigation against RDY related to the latter’s U.S. application seeking approval of a generic version of multiple myeloma med Revlimid; ACHV’s cytisinicline beats Pfizer’s varenicline in smoking cessation study

·     Biotech movers; MRTX downgraded to neutral from buy at Citigroup as believes market has now assigned appropriate credit to co’s cancer therapy, MRTX849, and other pipeline therapies; SGEN announced that a phase 3 trial of PADCEV(R) met its primary endpoint of overall survival compared to chemotherapy; trial stopped early due to positive results at planned interim analysis; IMMU announces encouraging Phase 1 data on antibody-drug conjugate Trodelvy (formerly IMMU-132) in patients with brain tumors; CLVS shares fell after initial data from the Phase 1b part of the LIO-1 trial of lucitanib combined with Opdivo in advanced metastatic solid tumors identify a recommended Phase 2 dose and show promising signs of antitumor activity

·     Healthcare services and providers; CMPS 7.5M share IPO priced at $17.00; HUM signs Medicare network agreement with integrated healthcare system AtlantiCare to expand its in-network care options in southeastern New Jersey; WBA launches Walgreens Test & Protect program with an aim to increase testing capacity to allow for more than 500,000 tests per month; FLDM shares rose after Citron Research reiterated its long call noting the CDC has just opened the floodgates for testing as FLDM has only FDA approved saliva-based test as effective as nasal swabs


Industrials & Materials

·     Industrial & Machinery; FLIR said single digit revenue growth expected in 2H of 2020; 2H operating margin in line with 1H numbers; industrial and defense segment operating margin was 29.7% and 20.9% in 1H 2020; earnings and revenue more heavily weighted towards Q4 2020; PWR tgt to $60 from $45 at KeyBanc and keeps an Overweight rating on the shares as views the premium to historical averages as being justified by the increased exposure to programmatic utility/telco capex; TGI shares rose after a report in Deal Reporter talking about attracting interest from larger peers; WWD price target raised to $100 from $0 at Credit Suisse who maintained their OP rating

·     Transports; JP Morgan is positive on the structural growth of the China express delivery sector driven by the e-commerce penetration in China and initiates ZTO at OW with a $40 pt; DAL reportedly has reached a tentative agreement with its pilots union to reduce the number of furloughs by 220; RYAAY cut its October capacity by an additional 20% on top of the 20% cut it announced in August, blaming constant changes in EU travel restrictions and guidelines, and warning that if these policies continue, further capacity cuts may be required during winter

·     Metals & Materials; in the steel sector, STLD guides Q3 EPS of 46c-50c above estimate 38c as expects Q3 earnings from steel operations will come in lower than Q2 results, due to metal spread compression more than offsetting increased shipments driven by improved automotive and strong construction demand (follows better EPS guidance from NUE yesterday morning in its update); U.S. Steel (X) said it sees Q3 2020 adjusted EPS loss about ($1.45) and adj Ebitda is expected to be approximately $100M loss while says improving market conditions experienced in June and July have accelerated through August and September; in gold mining, KGC was upgraded to outperform after saying it will pay its first dividend since 2013 (3c quarterly dividend) and said it plans to raise production 20% from 2.4M gold equiv. oz. to 2.9M oz. in 2023


Technology, Media & Telecom

·     Internet; NTES announced a ratio change for its U.S.-listed shares which effectively results in a 5-for-1 stock split; shares of FB and SNAP benefitted from news the Commerce Department will roll out a ban of transactions in the U.S. using TikTok and WeChat starting Sunday; VZ and AMZN are expanding their relationship to offer Verizon customers the Ring Alarm Security Kit with Verizon LTE/Security by Ring plan.

·     Semiconductors; tech sold off again as the Philly semi index (SOX) fell over 2% midday in the broad tech rout; TXN raises quarterly dividend 13% to $1.02 from 90c per share; IIVI upgraded to Overweight from Equal Weight as sees value in optical networking names after some recent weakness – including II-VI, which is down 18% over the past month.

·     Software movers; ORCL shares slipped initially after the Commerce Department will roll out a ban of transactions in the U.S. using TikTok and WeChat starting Sunday. The order Friday was put into place, according to Commerce Secretary Wilbur Ross, to “combat China’s malicious collection of American citizens’ personal data.” Unity Software (U) 25M share IPO priced at $52.00; FSLY slides after Reuters report that Trump administration plans to ban downloading Chinese-owned video-sharing app TikTok (on Q2 earnings call FSLY disclosed TikTok was its largest customer, representing 12% of revenue in first half of 2020)

·     Media & Telecom movers; CHTR and CMCSA estimates raised as Covid factors are causing upgrades to higher speeds and expect wireless competition to grow on investments from cable and as VZ/T become more aggressive; ERIC announced the acquisition of Cradlepoint, a U.S.-based provider of wireless internet connectivity products, for an enterprise value of $1.1 billion. ; ROKU shares slipped after reports CMCSA makes plans to pull NBC’s TV Everywhere channels from Roku’s service amid ongoing negotiations over whether NBCU’s Peacock streaming service gets included.


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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