Mid-Morning Look

Monday, July 27, 2020

U.S. equities are strong after last week declines, boosted by optimism for details of a late day deal from Republicans on the latest stimulus package, upbeat economic data, positive vaccine news and preparation ahead of the busiest week of the quarter for earnings. At the same time, the dollar plunges to the lowest levels since September 2018, while gold prices extend their record highs, with $2,000 an ounce in sight. The perception that America can’t contain Covid-19 has the dollar headed for its worst month since the beginning of 2018 and driving safe-haven demand. Later this afternoon, the GOP is expected to release its version of the virus rescue package that Treasury Secretary Mnuchin said this weekend is expected to include $1,200 direct payments to some Americans in a plan for $1 trillion additional dollar in virus spending, with an extension of unemployment benefits, but far less incentives than the prior $600 additional each week – which are set to expire this week. Meanwhile, the news on the virus is encouraging, with Moderna’s vaccine candidate moving to phase III trials and cases slowing in U.S. hotspots. This marks the busiest week for the 2Q earnings season with over 180 companies representing 43% of the S&P 500’s market cap reporting results, including 4 of the top 5 biggest names (AAPL, AMZN, GOOGL and FB). Credit Suisse noted today that 32.6% of the S&P 500’s market cap have reported 2Q results and earnings have exceeded estimates by 13.3% in aggregate, with 80% of the reported companies beating their lowered projections. Bitcoin moves above $10,000 for the first time since June as tensions flare between US and China.

Economic Data

·     Durables Goods Orders for June rose 7.3% vs. est. +7.2% vs. May +15.1% from prior +15.7%; U.S. durables ex-transportation orders rose +3.3% vs. est. 3.5%, and June durables ex-defense orders rose +9.2% vs. May +15.2% and June nondefense cap orders ex-aircraft +3.3%

Sector Movers Today

·     Retailers; HAS shares slide after the toy retailers quarterly results miss on productions shutdowns, movie release delays due to COVID-19 outbreak and posts its 4^th straight quarterly revenue miss (follows better MAT earnings last week); shares of KTB and TPR were both upgraded to buy at Goldman Sachs; UAA slips after executive Chairman Kevin Plank and CFO David Bergman were given a Wells Notice from the SEC on the allegations that the company didn’t recognize some revenue correctly from Q3 of 2015 through Q4 of 2016; WWW upgraded from Hold to Buy at as believe the company’s brands and overall retail environment improved sequentially from April/May to June

·     Utilities & Solar; AEP shares underperformed today after reports AEPOhio funded dark money spending in HB 6 campaign through nonprofit whose board includes utility’s top lobbyist, former Ohio House speaker and former congressman https://bit.ly/30TzY6S in fuel cells, shares of BLDP, PLUG mentioned cautiously in Barron’s as thinks the shares and other makers of hydrogen fuel cells are in danger of jackknifing; in solar, FSLR was downgraded to neutral at Roth and tgt cut to $56 as believe the company’s progress on increasing module efficiency may not be fast enough to enable a competitive cost structure over the medium-term

·     Pharma movers; AZN signs $6B oncology deal with Daiichi Sankyo as entered into a global development and commercialization agreement; AERI announces positive results from a 49-subject Phase 2 clinical trial evaluating two formulations of AR-1105 (dexamethasone intravitreal implant) in patients with macular edema associated with retinal vein occlusion; MNOV announced an agreement with BioComo and Mie University for joint development of a SARS-CoV-2 vaccine; AMRN VASCEPA showed significant reduction in coronary revascularization, including first and total event reductions of 34% and 36% respectively; ELAN downgraded to underperform at Cleveland Research

·     Software movers; CSOD downgraded to underperform from buy at Bank America saying channel checks point to growing customer dissatisfaction stemming from lacking innovation in the core learning and performance suite, and this trend could lead to attrition to platform vendors; SAP announced Sunday it plans to take its Qualtrics cloud-software business public through an initial public offering. SAP bought Qualtrics ahead of its planned IPO in 2018 for around $8 billion; SOGO shares jump after its parent SOHU announced it’s received a nonbinding proposal to acquire Sogou for $9 per share, from Tencent (TCEHY)

Stock GAINERS

·     BIIB +4%; upgraded from Underweight to Overweight at Morgan Stanley with $357 tgt saying while expect generic Tecfidera competitors in the near-term, also believe investors should start to average into a long position in BIIB now despite that downside risk

·     CNXM +28%; as CNX said it would acquire all of the outstanding common units of CNX Midstream Partners LP that it doesn’t already own for CNX common stock valued at about $357 million.

·     MNOV +22%; announced an agreement with BioComo and Mie University for joint development of a SARS-CoV-2 vaccine

·     MRNA +5%; said it got an additional $472 mln from the U.S. government to help develop its coronavirus vaccine/said funding from BARDA will support late-stage clinical development; also on MRNA its experimental coronavirus vaccine is the first in the U.S. to begin human trials (announces phase 3 cove study of its vaccine against covid-19)

·     SOGO +46%; after its parent SOHU announced it’s received a nonbinding proposal to acquire Sogou for $9 per share, from Tencent (TCEHY)

·     TCRR +45%; presented the first human data from its mesothelin-directed “TRuC” (Tcell receptor fusion construct) T-cells, TC-210, in solid tumors

·     XLNX +3%; as chip stocks recover after Friday’s pullback in the chip space (also recovery for shares of QRVO, SWKS, KLAC, MCHP)

Stock LAGGARDS

·     AEP -9%; after reports AEPOhio funded dark money spending in HB 6 campaign through nonprofit whose board includes utility’s top lobbyist, former Ohio House speaker and former congressman https://bit.ly/30TzY6S

·     AVY -3%; posted a beat on the top and bottom line, but fell from same level’s last year as projects 2020 revenue and earnings to decline and Q3 sales decline ex-fx of 5%-7%

·     DKNG -2%; shares of gaming names leveraged to online betting (DKNG, PENN) slide after MLB cancelled the Miami Marlins game against Baltimore Orioles canceled due to widespread Marlin COVID-19 breakout (raises concerns about future of season)

·     HAS -6%; after the toy retailers quarterly results miss on productions shutdowns, movie release delays due to COVID-19 outbreak and posts its 4^th straight quarterly revenue miss

·     LMND -7%; after being Goldman initiated sell and $44 tgt

·     UAA -1%; after executive Chairman Kevin Plank and CFO David Bergman were given a Wells Notice from the SEC on the allegations that the company didn’t recognize some revenue correctly from Q3 of 2015 through Q4 of 2016.