Mid-Morning Look: July 14, 2020

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Mid-Morning Look

Tuesday, July 14, 2020






DJ Industrials




S&P 500








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U.S. equities are falling (though already off worst levels), adding to the late day decline yesterday following another pullback in the tech space after the recent record high run for the Nasdaq Composite, while bank stocks are mixed after Wells Fargo reported its first quarterly loss in twelve years as loan-loss provisions soared. JPMorgan and Citigroup reported mixed quarterly results (also large loan provisions). The Consumer Price Index (CPI) inflation reading saw its biggest monthly gains since 2012, rising 0.6%, as Treasury prices rise post data and yields fall (10-year back down to 0.6%). CNBC noted the 2, 3, 5 and 7 yr yields are challenging all-time low closes. Nymex crude oil initially extends declines as OPEC said it sees coronavirus impact enduring but has bounced with stocks since. Several states continue to pull-back on their economic reopenings, highlighted by California’s move last night, closing indoor activities (gyms, salons) as well as bars, restaurants. European and Asian markets both followed US markets lower after yesterday’s wash out in tech and rising COVID-19 cases in several parts of the country.


Economic Data

·     Consumer Price Index (CPI) MoM for June rose 0.6% vs. est. 0.5%, while core CPI (Ex: Food & Energy MoM) was up 0.2% vs. est. 0.1%. Consumer Price Index (CPI) YoY for June rose 0.6% vs. est. 0.6% and core prices YoY (Ex: Food & Energy YoY for June) rose 1.2% vs. est. 1.1%; June real earnings all private workers -2.3% vs. May +0.5%







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10-Year Note





Sector Movers Today

·     Housing & Building Products; MHK shares fell following its disclosure of receiving subpoenas from a U.S. attorney and the SEC, shortly before a class action complaint alleging securities-law violations was filed; Wayfair (W) was upgraded to outperform from neutral and raise tgt to $240 from $165 at Wedbush as forecast 85% y/y revenue growth for W in 2Q, 46% y/y in 3Q and 39% y/y in 4Q, with more upside than downside risk; ZG positive mention at BTIG saying tracking shows ZG well ahead of 2Q guidance and they bring estimates up, but what we really need to see is progress on unit economics and aren’t likely to get that this quarter; LL was upgraded to buy from hold at Loop Capital and raise tgt to $18

·     Casino & Leisure movers; cruise lines CCL, RCL, an NCLH all downgraded from Outperform to Neutral at Macquarie noting CCL’s AIDA sailings are set to restart in August, but US infections are likely to keep domestic sailings off the table for now. We are incrementally positive on CCL vs. peers as the regional brand structure that was hurting revenues prior is now possibly going to help with piecemeal regulatory approvals (SunTrust also downgraded RCL, NCLH to hold and CCL to sell in the cruise industry); in lodging, Raymond James reduced estimates for nine of our covered lodging companies ahead of 2Q reporting season to more closely reflect the steep decline and gradual (emphasis on gradual) recovery trajectory of the hotel industry (also cutting price targets on RHP, HST, INN, RLJ, and PK)

·     Asset Managers out with monthly assets under mgmt data: AB June preliminary assets under management rose to $600B from $596B at the end of May led by market appreciation, partially offset by firm wide net outflows; IVZ preliminary assets under management of $1.14T at the end of June increased 0.2% from May; favorable market returns increased AUM by $22B while reinvested distributions and FX contributed $1.6B and $1.1B, respectively; MN preliminary assets under management of $18.6B at June 30, 2020 is little changed from the end of May; VCTR AUM of $129.1B at the end of June increased from $127.7B at the end of May

·     Bank movers; earnings center stage as: WFC posted a Q1 loss ($2.4B vs. $6.2B profit a year ago), its first since 2008 as loan-loss provisions soared on the economic impact of the coronavirus pandemic/WFC set aside a record $9.5B for credit losses, well above estimates and also cut its dividend to 10c from 51c; JPM posted Q2 net income of $4.7 billion, or $1.38 per share and revs of $33B topping views while Q2 included $8.9B of reserve builds firm wide and announced suspension of repurchases at least through the end of Q3/qtrly average loans up 4%; average deposits up 25%; Citigroup (C) said Q2 profit fell 73% to $1.32B from $4.8B YoY but topped estimates, weighed down by $7.9B set aside for potentially rising loan losses as the COVID-19 virus impact raised concerns about loan defaults by consumers and big businesses alike/Q2 revenue rose 5% to $19.77 billion while Citigroup’s loan-loss provision included $2.21 billion in net charge-offs and $5.7 billion it added to its reserves for loans that might default in the future



·     BPMC ; announced a collaboration with Roche (RHHBY) on the development of pralsetinib, as Roche to pay $675M in cash in addition to $100M equity investment, while BPMC is eligible to receive up to $927M in potential milestones

·     EW +2%; reached an agreement with ABT to settle all outstanding patent disputes between the companies regarding transcatheter mitral and transcatheter tricuspid repair products

·     HBI +4%; upgraded to outperform at Credit Suisse saying they think HBI weathered COVID-19 retail closures better than peers

·     JPM +1%; 2Q EPS $1.38 vs est $1.04 on revs $33.0B vs est $30.3B, avg loans +4%, avg deposits +25%, qtrly provision $10.5B (+$9.3B yr/yr), ROTCE 9% vs 20% yr-ago

·     LRN +7%; after Citron Research out with positive commentary and $100 tgt in online education

·     RIGL +85%; announces investigator-sponsored trial of Fostamatinib, its oral spleen tyrosine kinase (SYK) inhibitor in patients with COVID-19 pneumonia

·     XYL +5%; issued prelim Q2 EPS of 37c-39c, topping the 6c estimate while said it expects 2Q revenue declines of about -14%



·     DAL -2%; Q2 revenue was down 91% Y/Y to $1.2B excluding refinery sales, and system capacity was 85% lower during the quarter and said it sees 3rd qtr revenue 20% to 25% of year-ago levels

·     MHK -9%; following its disclosure of receiving subpoenas from a U.S. attorney and the SEC, shortly before a class action complaint alleging securities-law violations was filed

·     NFLX -5%; downgraded to neutral from buy at UBS after run in shares and increasing competition, while large cap tech names in general seeing pullback in shares

·     RCL -4%;, NCLH, RCL downgraded to hold and CCL to sell in the cruise industry at SunTrust (sector also downgraded at Macquarie today, lowering its rating on all three names)

·     WFC -7%; posted a Q1 loss ($2.4B vs. $6.2B profit a year ago), its first since 2008 and set aside a record $9.5B for credit losses, well above estimates and also cut its dividend to 10c from 51c

·     WYNN -5%; as casino stocks give back some of yesterday’s gains – group jumped Monday after Chinese province Guangdong agrees to lift mandatory quarantine requirements for starting 7/15


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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