Mid-Morning Look

Monday, December 20, 2021

U.S. stocks exhibiting broad market weakness to kick off the holiday shortened trading week, with major averages down over 1% as the Democrats’ $2 trillion social spending package, known as Build Back Better (BBB), looks headed for failure after Senator Joe Manchin (D–WV) said he wouldn’t vote for it, breaking party lines and weighing on market sentiment early. Goldman Sachs trimmed its quarterly U.S. GDP forecasts for 2022, in response to Manchin’s comments. Investors also worry that a rise in Omicron Covid-19 cases (and rising restrictions taking place in Europe) would stall economic growth and add pressure to inflation. The Netherlands on Sunday reimposed a lockdown, with all nonessential shops, bars and restaurants closed until mid-January. Irish Prime Minister also announced new restrictions. Not helping markets, news that CNBC Jim Cramer, Senators Warren and Booker having Covid despite being fully vaccinated (boosters) along with mass cancellations in NBA, NHL sports world, also with players fully vaccinated. Seeing vaccine stocks pulling back off earlier highs throughout the morning thus far.

After notching its largest weekly percentage decline in three weeks, the S&P 500 index falls with high growth sector’s and Smallcaps leading the weakness, while defensive sectors such as consumer staples rising early (like last week). Vaccine maker Moderna said a third dose of its Covid-19 vaccine increased immune responses against Omicron compared with two doses in lab tests helping vaccine names. Oil prices fall over 5% amid concerns that the spread of the Omicron variant could hurt global economic growth and crimp oil demand. In addition to Omicron and its impact on the economy, investors have also had to deal with a changing stance by the Fed, with rate hike expectations on the rise heading into 2022 (with decision last week to end its pandemic-era stimulus faster, with the central bank signaling at least three quarter-percentage-point interest rate hikes by the end of 2022). Biden plans to deliver an update Tuesday on the fight against Covid-19 in the U.S., where cases are rising.

Sector Movers Today

·     Covid vaccine news; Covid vaccines clearly less effective against Omicron than anticipated, with a drop in effectiveness, says EMA head – FT reported; MRNA said that a booster dose of its COVID-19 vaccine protects against the Omicron variant more effectively than a two-dose regimen; NVAX said the European Medicines Agency, the regulator for the EU has recommended granting a conditional marketing authorization to the COVID-19 vaccine developed by the co to prevent the illness in people aged 18 and older; New Zealand health authorities said they believe a man’s death may be linked to the PFE’s COVID-19 vaccine, per Bloomberg

·     Consumer Staples; CLX, PG among top gainers in the S&P 500 as defensive staples outperform in another rout in large cap growth names early; SAM upgraded to hold at Jefferies following pullback of more than 60% in the shares related to “massive” reset in expectations for hard seltzers, removing the only negative rating on the stock; BYND said it continues to strengthen its global innovation capabilities with new plans for a state-of-the-art R&D center in Shanghai; DNUT updates fiscal year 2021 expected results incorporating higher organic growth and reaffirms long-term outlook/reiterated long-term outlook for organic revenue growth, adjusted EBITDA growth; LW increases quarterly dividend, approves additional $250 million for share repurchase program

·     Paper & Packaging; VRS shares rise following Swedish pulp maker BillerudKorsnas’ buyout proposal of $27 per share in a deal valued at $825M, a 35% premium over Friday closing price (KeyBanc noted Billerud’s acquisition of Verso spells potential trouble for N.A. boxboard producers such as GPK, WRK, CLW, PTVE – noting Billerud expects to convert one of the mill’s three paper machines by 2025 and another by 2029, resulting in total boxboard capacity of around 1.2 million tons, and estimates the cost of the conversion project will be up to $1 billion); SON announced it has entered into a definitive agreement to acquire Ball Metalpack, a leading manufacturer of sustainable metal packaging for food and household products and the largest aerosol producer in North America, for $1.35B in cash; PTVE upgraded to Buy at Deutsche Bank saying the setup is favorable in 2022 following a transition year in 2021 that was marred by a number of one time disruptions

·     Media & Telecom movers; DIS and GOOGL reached a deal over the weekend the returned the entertainment group’s sports and movie channels to YouTubeTV following a dispute over carriage fees; SONY’s “Spider-Man: No Way Home,” opened to a record-setting $253 million at the box office this weekend; in cable, KeyBanc lowers ests for CABO, CHTR, WOW while reiterate OW across Cable/Wireless coverage as see competitive intensity increasing; AT was upgraded to Overweight from Equal weight with $30 tgt at Barclay’s saying the timeline is getting more aligned with the opportunity due to upcoming catalysts such as proximity to the 2022 guidance cycle across telecom companies and potential decision on Warner Media deal structure, as a result of which we expect more focus on the name in the coming months

·     Healthcare Services; ORCL confirmed a last week WSJ report as they announced agreement to acquire CERN through an all-cash tender offer for $95.00 per share, or approximately $28.3 billion in equity value; in research, Mizuho upgraded ANTM to Buy, while raising price targets on UNH, HCA, CVS, MCK, IQV, and LH and lowering our price targets on CI and MD as believe the managed care industry is set to outperform in 2022 due to increased earnings visibility, reduced legislative risk, an improved economic backdrop, less exposure to supply chain and inflationary risks, and, finally, because it is leveraged to rising interest rates; DVA boosts share buyback program by $2B

Stock GAINERS

·     BGNE; said it signed an option, collaboration, and license agreement with NVS for the development of an immunotherapy cancer treatment for up to $1 billion.

·     BIIB; after the co announced a nearly 50% price reduction for its newly approved medicine for Alzheimer’s disease, Aduhelm to $28,200 for a patient with an average weight, saying the cost-cutting measures are anticipated to yield nearly $500M in annualized savings

·     BRG +70%; after Blackstone (BX) will buy all outstanding shares of common stock of BRG for $24.25 per share in an all-cash transaction valued at $3.6B https://bit.ly/3H28VK3

·     CANF +72%; after said the last patient treated under an Open Label Extension program of its concluded Phase II study of Namodenoson in the treatment of hepatocellular carcinoma experienced a Complete Response, meaning that all cancer lesions have cleared.

·     CIT +5%; after its planned merger with First-Citizens Bank & Trust’s parent company, First Citizens BancShares Inc. received approval from the board of governors of the Federal Reserve System

·     CLX +2%; as defensive staples outperform in another rout in large cap growth names early

·     ITCI +14%; after the company said the U.S. FDA approved its antipsychotic medicine Caplyta for the treatment of depressive episodes associated with bipolar I or II disorder (it was previously approved to treat schizophrenia);

·     MRNA +1%; said that a booster dose of its COVID-19 vaccine protects against the Omicron variant more effectively than a two-dose regimen.

·     NVAX ; said the European Medicines Agency, the regulator for the EU has recommended granting a conditional marketing authorization to the COVID-19 vaccine developed by the co to prevent the illness in people aged 18 and older.

·     VRS +30%; following Swedish pulp maker BillerudKorsnas’ buyout proposal of $27 per share in a deal valued at $825M, a 35% premium over Friday closing price

Stock LAGGARDS

·     BLUE -20%; after saying the FDA has placed a partial clinical hold on patients below the age of 18 in its lovo-cel sickle cell gene therapy program due to an investigation by the company into an adolescent patient who has suffered persistent, non-transfusion-dependent anemia following treatment with lovo-cel, now 18 months after the treatment

·     CGC -7%; downgraded to Underweight from Neutral and cut tgt to $7 from $11 at Piper saying Canopy’s sales trends remain under pressure across its business

·     GPK -7%; KeyBanc noted Billerud’s acquisition of Verso spells potential trouble for N.A. boxboard producers such as GPK, WRK, CLW, PTVE

·     NOVA -4%; along with weakness in other renewables (RUN, ENPH) after Senator Manchin announced said he does not intend to support President Biden’s ~$2T Build Back Better Act which includes > $550M in clean energy and climate investments across numerous subsectors

·     PTON -4%; as tgt cut to $30 at UBS as maintains sell saying they expect PTON to lower guidance for FY, but so does the market

·     RCL said 48 people on its Symphony of the Seas cruise ship this weekend tested positive for COVID-19; said it had 6,091 guests and crew members on board the ship, which ended a week-long cruise in Miami on Saturday after setting sail on Dec. 11.

·     SQM -12%; lithium stocks (ALB, LTHM) pressured after Chilean leftist Gabriel Boric secured victory in the country’s presidential election on Sunday defeating his far-right rival – Bank America noted in its downgrade of SQM today that Boric’s gov’t program considers the creation of the National Lithium Corporation, a state-owned enterprise in charge of developing the Lithium industry