Mid-Morning Look

Monday, July 19, 2021

Stocks tumble globally as the Dow Jones Industrial Average is headed for its steepest one-day decline since late October (fell as much as 800-points) as renewed worries about the spread of COVID-19’s delta variant kicked off selling on Wall Street. The S&P 500 index was set for its sharpest daily decline since May 12, down 1.8%, while the Nasdaq Composite Index headed for its sharpest slump since mid-May. The Smallcap Russell 2000 is now down 10% from its closing high on March 15^th (first 10% correction since June 11^th, 2020). European markets down between 2%-3% for the most part, with Asian markets down around 2%. The CBOE Volatility index (VIX) highs up more than 30% as markets showing concern for the first time in months. The 10-yr yield continues to decline, currently down 11-basis points to 1.18%, the 30-yr down 10 bps below 1.83%, and the 5-yr down 7 bps to 0.698% (lowest since early March). Concerns about the Delta variant have been fueled by U.S. COVID-19 data moving in the wrong direction on a week-over-week basis, UK Prime Minster Johnson saying he will isolate for one week after a potential COVID-19 exposure, and reports that some Olympic athletes are contracting the virus. Oil prices crushed with WTI crude down over 6% to around $67.50 as OPEC and its allies struck a deal that allows for monthly supply hikes of 400k b/d until the end of 2021 and variant Covid concerns denting demand. US homebuilder confidence (NAHB data) falls to 11-month lows.

Sector Movers Today

·     Bank movers; Shares of major U.S. banks (GS, JPM, C, BAC, MS, etc.) dip in conjunction with another slide in treasury yields as rising COVID-19 cases dent expectations of economic growth in 2021, and the 10-year yield hits a 5-month low below 1.22%; BMRC posted Q2 EPS 71c vs est. 61c on in-line revs $26.6M, raised its quarterly dividend to 24c from 23c, and will buyback up to $25M in shares over the next 2 years; GNTY Q2 adj EPS 78c vs est. 74c on revs $29.4M vs est. $28.2M; BSRR reported Q2 EPS 76c vs est. 66c on revs $34.1M vs est. $34.5M; Jefferies downgraded FNB to Hold as they think last week’s merger with HBMD was priced aggressively

·     MedTech Equipment; AHCO shares slide after a short report from Jehoshaphat Research which alleges the “roll-up” company appears to be using questionable financial reporting practices; NTRA guides Q2 prelim revs $138M-$141M, above the $127.6M estimate; NVRO said it received FDA approval for its Senza System for the treatment of chronic pain associated with Painful Diabetic Neuropathy (PDN)

·     Semiconductors; QCOM upgraded from Sell to Neutral with $148 tgt at Goldman Sachs as believe the company is poised to benefit from multiple tailwinds in H2 including an earlier iPhone launch and improving supply situation; AEHR said it received a $10.8 million single purchase order from its lead silicon carbide test and burn-in customer; NVDA 4 for 1 stock split expected to take effect tomorrow; semi-equipment names (KLAC, LRCX) active into INTC earnings this week on hopeful cap-ex spending comments

·     REITs; KRG and RPAI entered into a merger agreement with KRG continuing as the surviving public company, with the combined company expected to have an equity market capitalization of ~$4.6B and a total enterprise value of ~$7.5B and each RPAI common share will be converted into 0.6230 newly issued KRG common shares in a 100% stock-for-stock transaction; PLD Q2 FFO $1.01 vs est. 99c on revs $1.15B vs est. $1.11B and raised its 2021 core FFO view to $4.02-$4.06 (est. $4) from $3.98-$4.04; In multi-family, Raymond James upgraded CSR (to OP) and ESS (to MP) and raised their estimates and price targets on stocks within the sector ahead of Q2 earnings as rental demand soars, and BMO sees an earnings tailwind for CPT, MAA, IRTand CSR as Sunbelt markets remain well above 2019 levels and have asking rents higher than coastal peers; MNR said an unnamed private investment firm increased its unsolicited acquisition proposal by 18c/share to reflect a new purchase price of $19.51 that includes a termination fee for the company to terminate its current merger agreement with EQR valued at about $3.4B; Piper upgraded RWT to OW with a $14 pt from $12 after the company pre-announced Q2

Stock GAINERS

·     AEHR +33%; rises after the company said it received a $10.8 million single purchase order from its lead silicon carbide test and burn-in customer

·     CYTK +52%; said data from a mid-stage study showed significant reductions in pressure in the left ventricle – the heart’s main pumping chamber, in patients with hypertrophic cardiomyopathy treated with its experimental treatment, CK-274, vs those on placebo

·     FIVN +8%; to be acquired by ZM in an all-stock transaction valued at approximately $14.7 billion with FIVN holders to receive $200.28 per share; FIVN holders will receive 0.5533 shares of Class A common stock of Zoom for each share of Five9, Inc. https://on.mktw.net/3xRVVTf

·     FLOW +28%; IR confirmed that on June 10, it made an all-cash non-binding proposal to FLOW to acquire it for $85 per share, a 37% premium over last Friday’s closing price https://bit.ly/3eRuqC3

·     KR +3%; defensive food related stocks outperform in market sell-off (CAG, CPB, SJM) – note was on of last week’s biggest winners as well along with utilities and REITs

·     NRXP +33%; said its drug Zyesami helped prevent cytokine storm in patients with COVID-19 in a mid-to-late-stage study

·     NVDA +3%; ahead of 4 for 1 stock split tomorrow and small recovery in chip sector

Stock LAGGARDS

·     CCL -7%; the reopen trade names (cruise lines, airlines, restaurants, casinos) underperform amid concern that the recent spread of the Delta coronavirus variant would hold back the global economy, potentially putting in place new restrictions

·     COIN -4%; as crypto asset space selling off with Bitcoin dropping near the $30,000 level, down over 3% while Ethereum falls over 4% to around $1,800

·     RRGB -6%; reopen sectors such as casual dining and restaurants seeing selling pressure today (DRI, EAT, BJRI, RRGB)

·     SIX -6%; falling along with weakness in “reopen” related trades as well as report its Texas water park evacuated this weekend after chemical spill sends dozens to the hospital

·     TSLA -3%; on track for fifth straight session of losses amid broader stock market weakness and after Electrek reports Tesla is closing its first Supercharger station at its design studio in Los Angeles, reportedly over security concerns