Mid-Morning Look

Monday, May 17, 2021

U.S. stocks open modestly weaker after posting strong gains across the board on Friday (though still ended last week with declines) with early weakness in tech as the Nasdaq tries to snap its 4-week losing streak. Economic data mostly in-line (NY Manufacturing) after weakness in retail sales late last week. Retail will be in focus this week with earnings results expected from HD, LOW, TGT and WMT. More dovish Fed comments as Federal Reserve Bank of Atlanta President Raphael Bostic (a voting FOMC member) said he isn’t ready for the central bank to dial back its support for the economy, in a television interview in which he also said it will take some time to get a firm read on inflation. Bitcoin’s dollar value fell more than 10% after a tweet from Tesla Inc. Chief Executive Elon Musk prompted speculation that the electric-car maker had sold, or would sell, its holdings of the cryptocurrency (seeing broad based weakness in the crypto space so far). In the media space, AT&T and Discovery said they will combine their content assets to create a standalone global entertainment and media business. Precious metal prices looking strong early with spot gold up over 1%, while Treasury yields inch higher (generally seeing safe haven related sectors higher early with Consumer staples rising).

Economic Data

·     NY Fed’s empire state current business conditions index 24.3 in May mostly in-line with consensus of 23.90 and vs. 26.3 in April; NY fed’s empire state new orders index 28.9 in May vs. 26.9 in April; prices paid index 83.5 in May vs. 74.7 in April; employment index at 13.6 in May vs 13.9 in April; six-month business conditions index 36.6 in May vs 39.8 in April

·     NAHB Housing market index 83 (in-line with consensus and April figures); May index of current single-family home sales 88 versus 88 in April; index of home sales over next six months 81 versus 80 in April

Sector Movers Today

·     Bitcoin news; Bitcoin prices dropped to an overnight low around $42K, along with a plunge in other crypto currencies ($ETH Ethereum overnight low around $3,100 and Bitcoin cash $BCH low under $1k) after a Twitter war broke out over the weekend between Musk and bitcoin fans, with TSLA CEO Musk suggesting Sunday that Tesla has already or intends to unload its $1.5B in Bitcoin holdings before Musk clarified comments overnight in a tweet saying he has not sold any Bitcoin

·     Consumer Finance; JPM credit card delinquency rate 0.78% at April end vs 0.89% at March end, credit card charge-off rate 1.97% in April vs 2.03% in March; COF April domestic credit card net charge-offs rate 2.40 % vs 2.41% in March, 30+ day performing delinquencies rate for domestic credit card 1.92% at April end vs 2.24% at March end; DFS reported charge-offs for April of 2.55% vs. 3.98% YoY, April delinquencies 1.69% vs. 2.56% YoY and April total card loans $67.0 billion (-5.6% YoY); SYF April net charge-off rate 3.24% vs. 3.72% in March

·     Media & Telecom movers; AT&T Inc. (T) and DISCA reached a deal to combine their media assets into a new publicly traded company, unwinding the telecom company’s big bet on entertainment after less than three years. The new company will be led by current Discovery CEO Zaslav. In exchange, AT&T said it would receive $43B of cash, debt securities and WarnerMedia’s retention of certain debt; CCO said it plans to offer $1.05B principal amount of Senior Notes due 2029 in a private offering; VIAC shares active after a report billionaire George Soros’s investment firm bought stocks linked to Archegos meltdown as they were being sold off (VIAC, TME

·     Auto & Leisure sector; HOG tgt raised to $55 at Citigroup saying Harley has begun 2021 with strong 1Q results where NA retail sales were up +30% and market reaction to the new Pan American 1250 bike is strong; used cars and online dealers mentioned positively in Barron’s (CVNA, SFT, VRM) saying given the ongoing shortage of semiconductor components, there’s suddenly a rip-roaring bull market in used cars, and with dealers not able to keep enough supply

·     Real estate & REITs; Barron’s surmised that BXMT and KREF will benefit from the reopening despite not offering much growth as each yield about 8% and should be able to maintain or lift distributions as commercial real estate improves; Bank of America downgraded NYMT to Underperform and kept its $4.50 pt after shares have outperformed peers but do not have any near-term catalysts, and also downgraded CWK to Underperform on valuation and its lesser exposure to cyclical capital market activity; KeyBanc upgraded AAT to OW because of the stronger-than-expected recovery in the West Coast and Hawaii with potential for a strong inflection in fundamentals and earnings growth into next year; Berenberg upgraded PEAK to Buy with a $37 target; Barron’s said that RLGY shares look cheap as the owner of familiar brands like Century 21, Coldwell Banker, and Corcoran has rebounded from pandemic lows but still trades at just a third of its all-time high

Stock GAINERS

·     APLS +16%; said the U.S. FDA approved its EMPAVELI for treatment of adults with paroxysmal nocturnal hemoglobinuria, an acquired blood disorder;

·     DISCA +9%; after AT said to combine media assets with Discovery to create a streaming powerhouse as AT&T will receive $43 billion in cash, debt securities, and WarnerMedia’s retention of certain debt and its shareholders will get stock representing 71% of new co

·     HOG +3%; tgt raised to $55 at Citi saying Harley has begun 2021 with strong 1Q results where NA retail sales were up +30% and market reaction to the new Pan American 1250 bike is strong

·     PLCE +11%; upgraded to Outperform from Neutral at Wedbush and boost tgt to $150 from $48, reflecting 90% upside from current levels saying approximately 70% of Q3 sales are generated in August and September

·     PRPL +2%; Q1 adj EPS beat by 3c on better revs of $186.4M on better mattress sales and boosted its year outlook to $860M-$900M from $840M-$880M

·     RLGY +5%; Barron’s said shares look cheap as the owner of familiar brands like Century 21, Coldwell Banker, and Corcoran has rebounded from pandemic lows but still trades at just a third of its all-time high

Stock LAGGARDS

·     DIS -1%; increased competition with DISCA and AT&T streaming news

·     GBTC -8%; shares of bitcoin miners, investors under pressure today with Elon much twitter battle over the weekend with Bitcoin investors – shares of MARA, COIN, MSTR, SI, RIOT slide

·     LRCX -4%; weakness across the board in semiconductors which got a boost on Friday after reports that lawmakers in Washington are close to unveiling a $52 billion dollar proposal to aid U.S. microchip production. Today prices hit again as rising Covid cases in Taiwan prompted shutdowns in Taipei and New Taipei over the weekend

·     LVS -3%; seeing broad weakness in casino names early (WYNN, PENN)

·     NOVA -8%; after offering of privately $500 mln 5-yr convertible senior notes

·     SPOT -1%; slipped after AAPL Music announces spatial audio with Dolby Atmos; will bring lossless audio to entire catalog and says is coming to subscribers June 2021 at no additional cost