Mid-Morning Look

Friday, July 02, 2021

Stocks have opened the second half of the year on a strong note, setting back-to-back record highs as any fear seems to have dissipated. The S&P is on track to enter the holiday weekend on a 7-day winning streak that includes record highs every day this week. Economic data has been strong all week and this morning’s nonfarm payrolls report was no different, as the 850,000 net jobs in June topped estimates of 700,000. Tech stocks had been laggards over the past 2 sessions but is outperforming today with the 10-year yield retreating towards the 1.44% level after nearing 1.5% yesterday. The rally in oil and energy stocks is halted as investors await the OPEC+ decision after the UAE rebuffed a reported agreement to raise supply by 400bpd from August through December. If no deal could be reached, output will remain steady despite heightened demand.

Economic Data

·     US June nonfarm payrolls +850,000 vs consensus +700,000, May +583,000 (revised from +559,000); Labor Force Participation Rate unchanged at 61.6%; Jobless rate 5.9% (consensus 5.7%) vs May 5.8%

·     Average hourly earnings all private workers +0.3% (cons +0.4%) vs May +0.4% (revised from +0.5%), to $30.40 vs May $30.30; June year-on-year earnings +3.6%; U.S. June average workweek all private workers 34.7 hrs (cons 34.9 hrs) vs May 34.8 hrs, factory 40.2 vs 40.4, overtime 3.2 vs 3.3

·     US May trade deficit $71.2B (consensus $71.4B) vs April deficit $69.1B (prev $68.90B); US May exports +0.6% vs April +1.0%, imports +1.3% vs April -1.4%; US May exports $206.02B vs April $204.70B, imports $277.26B vs April $273.78B

Sector Movers Today

·     Casinos, Gaming, Lodging & Leisure sector; Raymond James initiated CWH at Outperform with a $45 tgt given its attractive valuation and unique position in a very healthy domestic RV industry to continue to gain meaningful market share, driven primarily by growing its dealer footprint and expanding into higher margin and less cyclical sources of revenue, WGO at Market Perform as it should benefit from a healthy industry backdrop but faces tougher competition in motorhomes, and THO on concerns about share erosion in North American towables; Cowen is now well above the street consensus on hotels after raising estimates and PTs on MAR ($170 from $130), HLT ($135 from $110), and H (Hyatt) ($85 from $55) on evidence of a travel boom already building that could put US hotel REVPAR at record levels as early as the end of summer; China announced a cybersecurity review of DIDI that will prevent users from registering for the service during the review

·     Pharma movers; RNLX was initiated with a Buy rating and $38 pt at Berenberg; Credit Suisse reiterated their OP rating on SHC as they see a court ruling on a preliminary injunction in New Mexico as unlikely to materially affect operations; Ladenburg initiated coverage on HROW at Buy with a $14.25 PT; JNJ announced data that demonstrated its single-shot COVID-19 vaccine generated strong, persistent activity against the rapidly spreading Delta variant and other highly prevalent SARS-CoV-2 viral variants the immune response lasting at least eight months, the length of time evaluated to date; Truist raised their PT on LLY to $262 from $225 after moving up its projected timeline for FDA approval of donanemab to 2023 from 2025

·     Aerospace & Defense; SPCE announced its next test flight will be July 11 and founder Richard Branson will be a passenger, 9 days ahead of Jeff Bezos’ Blue Origin flight; TATT signed an additional new strategic MRO and lease agreement with HON for the maintenance repair and overhaul of Honywell’s 131 Series of Auxiliary Power Units; RTX won a $2B Air Force contract to produce a nuclear-armed cruise missile with design and manufacturing expected to be completed in February 2027; Canaccord was positive on the space sector (SPCE, ASTR, NVSAU) on elevated investor interest and upcoming catalysts such as test flights; Truist said investors should seize the opportunity in BWXT to acquire a predictable and differentiated asset with numerous organic growth levers that is expected to have a superior margin profile and return characteristics relative to defense peers after shares have lagged YTD and now trade at a 12% discount to peers

Stock GAINERS

·     SPCE +9%; announced founder Richard Branson will be on its next space test flight, scheduled for 7/11

·     ALEC +73%; reached a $2.2B collaboration deal with GSK to co-develop treatments for neurogenerative diseases, such as Alzheimer’s and Parkinson’s

·     TSLA +1%; Q2 deliveries 201,250 (est. 204,160), Q2 production 206,421 vehicles vs. 82,272 y/y

·     SC +11%; Santander Holdings USA submitted a proposal to SC yesterday to acquire all outstanding shares of common stock of SC not already owned by SHUSA for $39.00 per share in cash. The proposal represents a 7.4% premium to Wednesday’s closing price of $36.32

·     APLS +3%; reiterated as Top Idea at JPMorgan ahead of Phase 3 trial data; see shares going to the ~$85-115+/share range (up ~30-80%) on win / homerun versus downside to the mid-teens to ~$60/share range on mixed data / trial failure(s) (down ~10-80%)

·     SHEN +12%; declared special $18.75 dividend (38.71% yield)

Stock LAGGARDS

·     DIDI -6%; China announced a cybersecurity review and will prevent users from registering for the service during the review

·     SWBI -16%; gun stocks (RGR, POWW, VSTO) lower after FBI reported 3.05M NICS firearm background checks (lowest since Sept; down from 3.22M in May, 3.514M in April)

·     BA -1%; Boeing 737 cargo jet was forced to make an emergency landing off Hawaii; both pilots were rescued

·     ITRM -34%; the FDA said deficiencies were found during its review of the New Drug Application for a urinary tract infection treatment

·     ARWR -26%; immediately paused a Phase 1/2 clinical study of a cystic fibrosis treatment after a chronic toxicology update in rats contained unexpected signals of local lung inflammation