Mid-Morning Look

Monday, March 29, 2021

U.S. stocks open the trading week lower after mostly higher gains last week, led by weakness in banking and financial stocks after a large investment fund last week unwound billions of dollars in holdings, triggering concern that global banks that dealt with the firm could face sharp losses. Banks drop after hedge fund Archegos Capital Management was forced to liquidate positions at the end of last week in several technology, China ADR, and media related stocks (VIAC, DISCA, GSX, FTCH, IG, BIDU) as the moves caused a wave of selling pressure Friday. Credit Suisse (CS) warned of a “highly significant” hit to its Q1 results, after the bank began exiting positions with a large U.S. hedge fund that melted down on margin calls last week. Japanese firm Nomura said it is evaluating a potential loss estimated at $2 billion, in just a few instances. Reuters reported Deutsche Bank said on Archegos they have significantly de-risked exposure without incurring any losses and are managing down the immaterial remaining client positions, on which they do not expect to incur any loss. It looks like in the early going, investors brace for more uncertainty with several media names under trading pressure again.

Treasury yields moving higher with the 10-year yield back near the 1.70% level, up over 3 bps which is impacting technology shares to start the week. Gold prices slide to lows down -1.5% or $25 at $1,706 an ounce – the dollar modestly higher. Oil prices active as the giant Ever Given container ship blocking the Suez Canal was partially refloated early Monday, days after the vessel got stuck and brought a vital global trade route to a standstill (and was later reported that traffic in the channel resumed). In Washington, President Biden is expected Wednesday to unveil the first part of his infrastructure plan, focusing on items like rebuilding roads and railways. The second part which is set to include child-care and health-care reforms are expected to be released in in just a couple of weeks. Bitcoin prices jump back above the $58,000 level after Visa (V) said it will allow the use of the cryptocurrency USD Coin to settle transactions on its payment network.

Sector Movers Today

·     Bank movers; Hedge fund liquidation pressures banks on the day as the sharp sell-off in media names on Friday explained: A liquidation of holdings in Archegos Capital Management, which is run by Tiger cub Bill Hwang and was estimated to have managed about $10B, led to a major sell off in VIAC and DISCA shares Friday according to Bloomberg and IPO Edge (ViacomCBS fell 26%, while Discovery dropped 27%). The liquidation in Archegos may have been precipitated by a margin call that the fund received from an investment bank that couldn’t be met. An email to clients seen by Bloomberg News said Goldman sold $6.6 billion worth of shares of BIDU, TME and VIPS, before the U.S. market opened on Friday. Following this, Goldman sold $3.9 billion worth of shares in VIAC, DISCA, FTCH, IQ and GSX. The Financial Times reported that MS sold $4 billion worth of shares earlier in the day, followed by another $4B in afternoon. https://yhoo.it/2PdRSQ8 . All in all, Archegos Capital was forced to sell more than $20B in stocks on Friday through block trades offered by GS, MS, and DB, and the Wall St Journal reported the sales have ultimately approached $30B in value and that most of the selling has been completed

·     Aerospace & Defense; FLY agrees to be acquired by an affiliate of Carlyle Aviation Partners in a deal valued at around $2.36 bln, with FLY shareholders to receive $17.05 per share in cash, representing a total equity valuation of ~$520M https://on.mktw.net/3fopqpy; LUV confirms an agreement with Boeing (BA) on 100 firm orders for MAX 7 aircraft, with the first 30 scheduled to be delivered in 2022; GD pt raise from $183 to $210 at Cowen as see further upside on extended Gulfstream lift starting in 2022, GD IT turnaround and accelerating cash flow/deployment, which together, suggest 2022-23 EPS gains of ~10% in line with/above big cap defense peers

·     Media & Telecom movers; NWSA agreed to buy the consumer arm of educational publisher HMHC for $349 million, marking the media company’s second deal in less than a week; TME board approved a share buyback to repurchase up to $1B of its Class A ordinary shares; VIAC, DISCA, FOXA, other media names tried to rebound after block trades last Friday sunk shares of several media names

·     Pharma movers; LLY, VIR, and GSK announce positive topline data from the phase 2 blaze-4 trial evaluating bamlanivimab with vir-7831 in low-risk adults with covid-19; HGEN reports positive phase III topline results showing lenzilumab improves survival without need for mechanical ventilation in hospitalized patients with covid-19 as it achieved primary endpoint of study; BMY said the European Medicines Agency validated its application seeking expanded approval of its cancer drug Opdivo for the adjuvant treatment of patients with surgically resected, high-risk muscle-invasive urothelial carcinoma; QURE rises after saying an independent investigation found that its experimental blood disorder therapy was unlikely to be the cause of an adverse event in its pivotal late-stage study

Stock GAINERS

·     BA +3%; as LUV announced 100 firm orders for Boeing’s (BA) 737 Max jets, while taking an option on 155 more planes

·     BEN +3%; BMO upgraded to Outperform with a $36 pt from $22 given their belief that the firm’s recent net flows improvement are sustainable, and they downgraded ARES to MP

·     BLUE +10%; and BMY received FDA approval for Abecma in relapsed/refractory multiple myeloma (first BCMA-directed CAR-T cell therapy) after four or more prior lines of therapy

·     CARR +3%; upgraded to Overweight from Equal Weight at Morgan Stanley and firm also upgraded JCI to Overweight from Equal Weight

·     FLY +24%; agrees to be acquired by an affiliate of Carlyle Aviation Partners in a deal valued at around $2.36 bln, with FLY shareholders to receive $17.05 per share in cash, representing a total equity valuation of ~$520M https://on.mktw.net/3fopqpy

·     NUE +3%; further strength in metals, steel related stocks – extended from Friday

·     QURE +8%; after saying an independent investigation found that its experimental blood disorder therapy was unlikely to be the cause of an adverse event in its pivotal late-stage study

·     TME ; board approved a share buyback to repurchase up to $1B of its Class A ordinary shares

·     TWTR +2%; upgraded to Buy from Hold at Truist with $74 tgt predicated on higher revenue growth ests, exciting product roadmap with Topics, Fleets etc., double digit growth in mDAUs and attractive valuation with the stock off 22%+ since AD on 2/25

Stock LAGGARDS

·     CS -13%; warned Monday of a “highly significant” hit to its first-quarter results, after the bank began exiting positions with a large U.S. hedge fund that melted down on margin calls last week.

·     DVN -3%; said Q1 production is estimated to be reduced by 8% due to the impact of severe winter weather; said it restored its production to pre-storm levels and expects the weather-related downtime to be confined to the first quarter

·     HIG -3%; CB said on Monday it was “disappointed” that smaller rival HIG had declined to engage in talks on its $23.24 billion takeover offer/Chubb made an offer of $65 per share on March 18, a premium of about 13%

·     KLAC -3%; profit taking in semiconductor and equipment stocks after strong gains on Friday paced gains in technology – LRCX, AMAT, ASML all lower)

·     MS -4%; bank fall-out weakness after liquidation of holdings in Archegos Capital Management weighed heavily last Friday on several media and tech names (DISCA, IQ, BIDU, GSX, VIAC)

·     VIAC -7%; among the top names in liquidation of a handful of media and tech names from Archegos Capital Management – Bloomberg notes the SEC says monitoring Archegos Capital situation