Mid-Morning Look

Wednesday, December 23, 2020

Stocks are higher as the reflation trade is again rallying value and SmallCap names, with the Russell 2000 topping the 2,000 level for the first time ever, while the Dow rises behind strength in financials (AXP, JPM, GS) and industrials. The U.S. dollar weakened as investors pile into riskier assets into year end, while Treasury yields jump (helping the banks). Oil erased earlier losses on economic recovery hopes (which is boosting travel, leisure, retail names along with energy), despite mixed inventory data. The Eurozone awaits any news on Brexit as trade and transport links between the UK and its neighbors look set to resume. Stimulus relief news back in the headlines after President Trump called the $892B package a “disgrace” and demanded changes to the bipartisan legislation approved by Congress. The President said, “I am asking Congress to amend this bill and increase the ridiculously low $600 to $2,000, or $4,000 for a couple,” Trump declared. “I‘m also asking Congress to immediately get rid of the wasteful and unnecessary items from this legislation.” The new coronavirus strain continues to generate concerns that it is more contagious than older variants though no signs it causes more severe disease or cannot be addressed with recently approved vaccines. Busy morning of economic data (see below).

Economic Data

·     Weekly jobless claims fell to 803,000 in the latest week (better than the 885K estimate), from 892,000 prior week (revised from 885,000); the 4-week moving average rose to 818,250 from 814,250 prior week (previous 812,500); continued claims fell to 5.337 mln vs. 5.558 mln estimate and down from 5.507 mln in the prior week; insured unemployment rate fell to 3.6% from 3.8%

·     Personal Income for Nov fell -1.1% MoM vs. -0.3% consensus and -0.6% prior (revised from +-0.7%), while Consumer spending fell -0.4% MoM vs. est. -0.3%; the PCE Price Index was flat vs. +0.2% prior and core PCE Price Index +0.0% vs. +0.1% consensus and +0.2% prior

·     Durable Goods for November rose +0.9% vs. +0.6% est. and upwardly revised +1.8% (from +1.3%), now rising for seven straight months; Core Durable Goods rose +0.4% vs. +0.5% estimate and upwardly revised +1.9% (from +1.3%); shipments of manufactured goods increased $0.7B, or 0.3%, in November to $250.1B

·     University of Michigan Survey final for Dec was 80.7 (vs. est. 81.3) and vs. preliminary Dec 81.4 and final Nov 76.9; the current conditions index final Dec 90.0 vs. prelim Dec 91.8 and final Nov 87.0 and the expectations index final Dec 74.6 vs. prelim Dec 74.7 and final Nov 70.5

·     New Home Sales for November fell -11% YoY to 841K annual rate vs. 989K expected and 945K prior (but rises 20.8% YoY); the median sales price of new houses sold was $335,300 up from $330,600 in October; seasonally adjusted estimate of new houses for sale at the end of October was 286K, representing a supply of 4.1 months at the current sale rate, flat from a 3.3-month supply at the end of October.

Sector Movers Today

·     Vaccine movers; U.S. government orders 100 million additional doses of the PFE COVID-19 Vaccine bringing total doses for U.S. to 200 million; MRK has reached a deal with the U.S. to manufacture and supply MK-7110, a recombinant fusion protein, as a treatment for people with severe or critical Covid-19; SRNE submitted Emergency Use Authorization application to the FDA for its COVI-STIX rapid diagnostic test for the detection of SARS-CoV-2 virus nucleocapsid antigen in nasal samples of patients; DVAX and partner Serum Institute of India (SIIPL) have dosed the first participant in the Phase 1 part of the Phase 1/2 clinical trial evaluating SIIPL’s vaccine candidate adjuvanted with CpG 1018 to prevent COVID-19

·     Alternative Energy; shares of CLNE, FCEL, PLUG, FTEK rallied as U.S. Congress passes an alternative fuel tax credit which will continue to support the expansion of renewable natural gas; legislation includes the Alternative Fuels Tax Credit, which extends the $0.50 per gal fuel credit/payment for the use of RNG as a transportation fuel, and the Alternative Fuel Vehicle Refueling Property Credit, which extends the 30% per $30K investment tax credit for alternative vehicle refueling property

·     Auto sector; NKLA shares fell after the company and Republic Services (RSG) have discontinued their collaboration on refuse truck development; MGA rises after the automotive supplier and LG Electronics announced they are launching a joint venture that will make key components for electric cars, the companies announced; DDAIF is considering an IPO for its truck unit, according to German publication Handelsblatt; LMPX receives $192M financing for Stage 1 acquisition

·     Bank movers; banks among top gainers in the S&P along with rest of “reopen” trade (energy, retail, travel, leisure) on economic recovery play, as well as another boost on higher Treasury yields; banks already among top gainers on the week after last week’s Fed street tests opened up the door for banks to resume share buybacks and dividend hikes (WFC, BAC, C, GS, JPM)

Stock GAINERS

·     CCL +5%; Reopen strong again (cruises, energy, airlines, retail, etc. all up – top S&P gainers include FTI, FANG, CCL, MRO, COTY, M etc; similarly, stay at home names PTON, ZM, ETSY, NFLX all down

·     CLNE +14%; rallied along with PLUG, FCEL in alternative energy as Congress passes an alternative fuel tax credit which will continue to support the expansion of renewable natural gas; legislation includes: Alternative Fuels Tax Credit and the Alternative Fuel Vehicle Refueling Property Credit

·     GME +13%; is a new addition to the Best Ideas List at Hedgeye as a long trade

·     MGA +7%; LG Electronics Inc. and automotive supplier Magna (MGA) are launching a joint venture that will make key components for electric cars, the companies announced

·     MOGO +13%; announces a $1.5M corporate investment in Bitcoin and will consider additional investments in 2021

·     PAYX +1%; raises FY21 adjusted EPS view to down 1%-4% from down 6%-8% and sees FY21 revenue down 3% to flat, vs. consensus $3.94B after Q2 top and bottom line beat

·      SUPN +15%; said a phase III study for its SPN-812 met the primary endpoint in improving the symptoms of ADHD from baseline to end of study as measured by ADHD Investigator Symptom Rating Scale, and phase 3 study met the key secondary efficacy endpoint with statistical significance

·     WFC +3%; gaining with other banks (MS, BAC, GS, C, etc.) as US 10yr yields climb

Stock LAGGARDS

·     BLNK -7%; EV names give up some recent gains (SBE, NIO, SOLO)

·     FUBO -7%; BMO Capital downgraded to Market Perform following recent outperformance as raise valuation and target again owing to higher streaming comp set valuation and expanded distribution opportunities (also has lock-up expiry end of month)

·     NKLA -8%; announced that Nikola and Republic Services (RSG) have discontinued their collaboration on refuse truck development.

·     SPPI -7%; Cohort 3 of the ZENITH20 trial (1L NSCLC patients with EGFR exon 20 insertion mutations treated at 16 mg QD) failed to meet its primary endpoint, but preliminary data from Cohort 5 indicated that the 8 mg BID dosing strategy improved tolerability

·     VYGR -10%; as it and collaboration partner NBIX said the FDA has put a clinical hold on RESTORE-1 trial evaluating NBIb-1817 (VY-AADC) in Parkinson’s disease as the independent Data Safety Monitoring Board requested additional patient level data from the trial

·     ZM -5%; as stay at home winners seeing sharp declines today