Mid-Morning Look

Monday, August 17, 2020

U.S. equities start the week higher, looking to add to its current 3-week winning streak as the benchmark S&P 500 cash (SPX) index moves back within a few points of its all-time intraday highs above 3,393 with strong open. Another major tech rally outweighs the stimulus stalemate in Washington over an additional relief package while tensions between the U.S. and China show little signs of letting up. Also in Washington, Speaker Nancy Pelosi and House Democratic leaders will summon the House back in session this coming week regarding the U.S. Postal Service, she announced Sunday night. In trade news (after the China/U.S. 6-month trade review talks were postponed this weekend), reports showed the U.S. commerce department to tighten restrictions on Huawei access to U.S. technology, semiconductors which means Huawei cannot get third-party designed chips that use U.S. technology without a license. The Dow last week rose 1.8% and the S&P 500 gained 0.6% and the NASDAQ rose 0.1% last week. Gold prices and miners get a boost after Warren Buffet’s Berkshire revealed a stake in shares of “GOLD” last Friday in its 13F filing. Manufacturing in NY expanded in August at a slower pace than projected as more factories reported declining orders, as coronavirus continues to limit momentum in the recovery. Overall, energy, financials and re-opening trade names (cruise, airlines, and casinos) biggest drags while technology once again market leaders. Big week for retail earnings with AAP, HD, KSS, WMT report tomorrow morning in retail sector and LOW, TJX and TGT report Wednesday morning. The U.S. dollar extends declines from last week as the dollar index back below the 93 level near 2-year lows. Oil prices rebound along with gold prices on dollar weakness and Treasury yields steady.

Economic Data

·     NY Fed’s Empire State current business conditions index falls to a positive 3.7 reading in August from 17.2 in July and below the consensus for a 15.0 reading; new orders index falls -1.7 in August vs 13.9 in July while prices paid index 16.0 vs. 14.9 MoM and the employment index at 2.4 in August vs. 0.4 in July; six-month business conditions index 34.3

Sector Movers Today

·     Retailers; luxury retailers Burberry (BRBY) upgraded to hold and Louis Vuitton (MC) upgraded to buy at Jefferies; UBS said they believe that the dollar stores (DLTR, DG) are poised to report another quarter of strength as conditions created by the pandemic have played into the key tenets of these retailers; retailers AAP, HD, KSS, WMT report tomorrow morning and LOW, TJX and TGT report Wednesday morning; OSTK shares jump as Piper initiated with an overweight and $140 tgt (despite rally in shares) as believe there are seismic forces at work that have dramatically improved the sales and profitability outlook for OSTK well into the future

·     Transports; CHRW downgraded to neutral from outperform at RW Baird after its recent rally while upgraded UNP to outperform with a $220 tgt – said 2Q20 EPS reporting was remarkable, with median upside versus consensus of ~50% among our covered companies. However, a few themes and trends emerged during reporting and into the early part of 3Q20 that we believe present sustainable catalysts for the group beyond (raises FDX to top idea); for airlines, Bank America said Domestic industry capacity is tracking to -47.6% in September vs -46.3% in August and -50% in July.” The U.S. airline industry currently shows a 46% reduction in domestic capacity for August and 56% decline in system-wide capacity; RYAAY cuts capacity in Sept and Oct

·     Pharma movers; SNY entered into a definitive agreement for the acquisition of PRNB for a total enterprise value of $3.36B, paying $100 per share in cash https://on.mktw.net/2CxuYNd ; ARNA tgt raised to $115 from $95 at Guggenheim as view the stock as having ~30% upside / -10-15% downside on data readout; XBIT said it has identified True Human antibodies, derived without modification from humans, that could potentially be used to treat COVID-19; TCON says U.S. FDA clears its application to start human trials of its investigational soft tissue cancer treatment; LCI said it will be the exclusive U.S. distributor for the generic of Respirent Pharma’s Flovent Diskus.

·     Casino & Leisure movers; for PLNT Jefferies said updated traffic analysis illustrates that while PLNT’s gym reopenings have experienced NT volatility, trends appear to be stabilizing at ~60% of pre-COVID levels, on avg; in gaming, the WSJ discusses the opportunity in online gambling for the casino industry as the owner of the Golden Nugget said due to DKNG he realized that he has ‘an online gaming business that is worth a lot more than we thought it was worth; CCL, NCLH weak as cruise lines fall with airlines, theme parks and other reopening related trades (all among top decliners in the S&P)

Stock GAINERS

·     ABEO +9%; after entering into license and inventory purchase agreements with privately-held Taysha Gene Therapies for rights to experimental gene therapy for treating rare disorder CLN1

·     CVAC +41%; extends strong gains after IPO priced late last week – shares more than tripled to close Fri at $55.90 after IPO priced at $16 – specializes in the messenger RNA technology that is the basis of many of the leading Covid-19 vaccine programs

·     EAT ; comes in with 9-day win streak, was upgraded at both Deutsche Bank and Bank America this morning post recent earnings results

·     GOLD +10%; after Berkshire 13F filed Friday showed they acquired nearly 21 million shares of Barrick Gold (GOLD) worth $563 million

·     NVDA +4%; as more analysts raise price tgts ahead of its earnings results this week (reports Wednesday night) – Susq to $540, Wells to $510

·     OSTK +13%; Piper initiated with an overweight and $140 tgt (despite rally in shares) as believe there are seismic forces at work that have dramatically improved the sales and profitability outlook for OSTK well into the future

·     PRNB +9%; SNY entered into a definitive agreement for the acquisition of PRNB for a total enterprise value of roughly $3.36B, paying $100 per share in cash https://on.mktw.net/2CxuYNd

Stock LAGGARDS

·     CCL -3%; as cruise lines fall with airlines, theme parks and other reopening related trades

·     JPM -1%; as financials lag broader markets – Berkshire Hathaway 13F filing last Friday showed Buffett reduced stakes in many banks (including JPM, WFC)

·     NKLA -8%; after filing Friday showed investor Jeffrey Ubben trims position Jeffrey Ubben’s Inclusive Capital Partners sold 1.4 million shares of Nikola on August 11

·     OXY -5%; energy stocks among early market decliners

·     UBX -62%; as the company’s mid-stage trial for osteoarthritis treatment (UBX0101) fails to meet main goal – said there was no statistically significant difference between any arm of UBX0101 and placebo at the 12-week endpoint – does not anticipate progressing UBX0101 into pivotal studies