Mid-Morning Look

Friday, July 16, 2021

U.S. stock markets on track to snap their 3-day winning streak, as major averages slide following a stronger open, with the Nasdaq on track for a weekly decline of over 1%, the S&P 500 about -0.5% and the Smallcap Russell 2000 on track for a near 4% decline on the week. Inflation jitters after sharply higher readings for monthly producer and consumer prices this week certainly not helping matters despite Fed Chairman Powell reiterating his stance in testimony to the House and Senate this week that prices are likely transitory. Gold prices tumble behind a spike in the dollar, Treasury yields remain pressured with the 10-year at 1.31% (down from 1.77% highs in March). Energy stocks adding to weekly losses as crude drops, software names outperform in tech, Chinese ADRs fall further after Chinese regulators recently announce investigations into companies, while defensive food stocks holding up well early. Economic data mixed as retail sales top expectations, but confidence figures missed. Big week coming up for earnings with nearly 1/3 of the Dow Jones Industrial Average reporting.

Economic Data

·     June retail sales rose +0.6%, topping the 0.4% estimate, while retail sales ex-autos rose +1.3%, topping the 0.4% estimate; retail sales ex-autos/gasoline rises +1.1% vs. May -1.0%; June gasoline sales +2.5% vs May +0.2%

·     Business inventory for May rose 0.5%, in-line with consensus views (prior month revised to +0.1% from prior -0.2%); the May inventory/sales ratio 1.26 months’ worth vs April 1.25 months; May business sales fell -0.3% vs April +0.6%

·     University of Michigan consumers sentiment prelim July 80.8, well below consensus 86.5 and the June-Final reading of 85.5; current conditions index prelim July 84.5 below June-F 88.6 and the expectations index prelim July 78.4, below the June-F 83.5

Sector Movers Today

·     Bank movers; FHN Q2 adj EPS $0.58 vs. est. $0.43; Q2 revs $781M vs. est. $771M; Q2 net interest margin 2.47% vs. 2.90% a year ago; tangible book value per share of $10.74 up 4% from Q1; other earnings results from PBCT, BANF, WAL; STT raises quarterly dividend 10% to 57c from 52c, authorizes $3B share buyback and reported Q2 EPS/revenue beat; HOMB downgraded to market perform at Raymond James following 2Q21 results that fell short of our Street high forecast but which matched consensus on a core basis

·     Casinos, Gaming, Lodging & Leisure sector; cruise lines active (CCL, NCLH, RCL) after Canada says it will allow cruise ships back into its waters starting in November – notes ships will have to fully comply with public health requirements that have yet to be finalized; in online travel, RBC Capital said checks suggest likely 2Q21 bookings/2H21 revenue upside so raises estimates for both EXPE and to a lesser degree ABNB; in gaming, FUBO said its gaming segment completed market access for mobile sports betting in Pennsylvania through an agreement with The Cordish Companies; Truist notes Sports betting-related stocks continue to tumble, reflecting ongoing inflation concerns and some seasonality – they continue to highlight omni-channel focused operators also benefiting from reopening, including Buy-rated BALY, PENN and CZR

·     Pipelines: Wolfe upgraded ET to Outperform with the stock down 14% from the June highs as energy has consolidated and growth has rallied, creating a buying opportunity in a favorable macro environment with higher commodity prices and a return to production growth in the Permian; Morgan Stanley upgraded PAA, PAGP to OW due to leverage to recovery in Permian Basin oil production, where they see strong growth in 2021/2022, and valuation below large-cap peers

·     Metals & Materials; AA posts Q2 top and bottom line beat (EPS $1.49 vs. est. $1.37; Q2 revs rise 32% to $2.83B vs. est. $2.64B) and says to expect a strong 2021 based on continued economic recovery and increased demand for aluminum in all end markets (upgraded at Citigroup); in chemicals, OLN and WLK both upgraded at Bank America which downgraded DOW and LYB; in mining, TRQ shares slide after saying its Q2 mining activities were hurt by personnel shortages due to COVID-19 restrictions, causing an increase of lower-grade stockpile material being processed during the quarter

Stock GAINERS

·     AKBA +2%; Cantor notes benefits from FGEN/AZN failed drug news – says the negative roxadustat panel in both dialysis and non-dialysis creates first-in-class opportunity for the co’s vadadustat

·     CTAS +2%; upgraded to outperform at Baird saying investors rarely get quality growth stocks at the basis they really desire; such is the case with Cintas today

·     FUBO +3%; announced that its gaming segment completed market access for mobile sports betting in Pennsylvania through an agreement with The Cordish Companies

·     KR +1%; seeing strength in food and other defensive related assets as stocks decline from highs

·     MGI +8%; after the Financial Times reported of a potential takeout bid from private equity firm Advent https://bit.ly/3kl1cPo

·     MRNA +10%; will join the S&P 500 index as of the start of trading on July 21, replacing ALXN which is being acquired by AstraZeneca

·     STT +3%; raises quarterly dividend 10% to 57c from 52c, authorizes $3B share buyback and reported Q2 EPS/revenue beat

Stock LAGGARDS

·     ALV -4%; Q2 top and bottom line and cut its full-year outlook, citing the continued impact of the COVID-19 pandemic, the negative effect of the semiconductor shortage and continued rise in raw material prices

·     AOUT -20%; shares slip after Q4 revenues missed estimates while guides year EPS $2.02-$2.26 vs. est. $2.13; sees FY revs $280M-$295M vs. est. $284.9M

·     CRVS -9%; discontinues phase 3 study of Mupadolimab (anti-cd73) for covid-19 due to vaccine effectiveness in reducing hospitalizations

·     DIDI -3%; after China sends state officials from at least seven departments to the ride-hailing giant for cybersecurity review, as regulatory pressure intensifies

·     ERIC -9%; after warning that it expects to lose market share in China following Sweden’s decision to ban Huawei Technologies Co. from its 5G networks

·     FGEN -42%; after a panel of experts to the U.S. FDA voted against the approval of FGEN’s drug candidate, roxadustat, to treat anemia of chronic kidney disease

·     TRQ -12%; said its Q2 mining activities were hurt by personnel shortages due to Covid-19 restrictions, causing an increase of lower-grade stockpile material being processed during the quarter

Syndicate:

·     Blend (BLND) 20M share IPO priced at $18.00

·     Bridge Investment (BRDG) 18.75M share IPO priced at $16.00

·     Erasca (ERAS) 18.5M share IPO priced at $16.00

·     Imago BioSciences (IMGO) 8.6M share IPO priced at $16.00

·     Stevanato Group (STVN) 32M share IPO priced at $21.00

·     TScan Therapeutics (SCAN) 6.67M share IPO priced at $15