Mid-Morning Look

Wednesday, May 19, 2021

U.S. stock markets are broadly lower, extending late day declines on Tuesday as investors still bailing on high multiple tech stocks, but also taking profits in recent winners in the industrial and energy sectors as inflation fears remain, still renewing fears that a spike in inflation could force the U.S. Federal Reserve to pare back its support soon (despite Fed members saying ad nauseum that price hikes are transitory, and they plan on keeping accommodative stance for some time). Over the last week, there has been a big decline in commodity prices with lumber down a 7^th day and copper prices tumbling and oil taking it on the chin the last few days after touching 2021 highs. Stronger retail earnings this week (TGT, LOW beating earnings today after WMT, HD beats Tuesday) not really helping broader markets. Focus on Fed April minutes due this afternoon, as investors will be looking for clues as to what participants are thinking with rising inflation. Not much new on coronavirus front as Europe continues to reopen, though Indian Covid variant remains a concern globally.

The entire cryptocurrency space was hammered, with Coinbase noting the overall market was down over 20% in the morning. Major losers include recent winner Dogecoin having its price be cut in half from yesterday’s high and Ethereum losing more than one-third of its value since yesterday. Bitcoin, by far the largest coin by market cap, fell over 25% and hit lows around $30,000, the first time under $30k since January and more than 40% off its record high on April 13. While cryptocurrency’s recent weakness coincides with a general loss of risk appetite that has also weighed on growth stocks, today’s move stems from yesterday’s headlines that Chinese banking authorities warned institutions not to conduct business with digital currencies, recent comments from Elon Musk that Tesla will not accept the currency due to environmental concerns and cryptic tweets that hinted the company may have sold all its Bitcoin, and a JPM note yesterday that institutional investors have reversed course and are now transitioning back to traditional gold. Consequently, RIOT, MARA, MSTR fell over 10%, and COIN, SI, SQ pulled back more than 5% in pre-market trading.

Sector Movers Today

·     Retailers; TGT with solid Q1 beat as EPS $3.69 topped the est. $2.25 as sales grew 23.4% to $24.2B vs. est. $21.81B, with comp sales up 22.9% and digital comp sales up 50% (follows a strong report from WMT the day prior – but broader market weakness hurts); DKS tgt raised to $102 from $93 at Cowen and raise ests ahead of earnings next week as see meaningful upside to topline + guidance; PRPL files for resale of up to 8.41 mln shares of class a common stock by the selling stockholders; TJX slides post better earnings as EPS 44c/$10.09B above ests 31c/$8.62B on comp store sales 16% while says Q2 comparable store sales trends remain similar to Q1

·     Housing & Building Products; LOW the latest home improvement company to report better earnings and sales following an uptick in demand with Q1 EPS $3.21 vs. est. $2.62 and Q1 sales $24.4B vs. est. $23.86B while posted a 25.9% jump in Q1 comp store sales vs. est. 19.2% (strong data but not as much as HD 30% reported yesterday); EXP Q4 EPS $1.56 vs. est. $1.23; Q1 revs $343M vs. est. $333.6M; decided not to pursue proposed separation of eagle materials; average net cement sales price for quarter increased 2% to $112.77 per ton; lumber down for a 7th straight day (down 27% during that stretch off record highs) – still up 45% YTD

·     Pharma movers; IOVA shares fall following news that BLA filing for lifileucel in advanced and metastatic relapsed/refractory melanoma will be delayed until 1H22 (previously guided 2021); RETA said it would file for a pre-marketing application meeting with the FDA and withdraw a request for a Type-C meeting to discuss its treatment omaveloxolone for Friedreich’s ataxia; VERU enrolled the first patient in its Phase 3 trial of sabizabulin, a novel, proprietary, oral cytoskeleton disruptor with anti-inflammatory and anti-viral properties, to combat the effects of COVID-19; BTAI said the FDA accepted filing of NDA for bxcl501 for the acute treatment of agitation associated with schizophrenia and bipolar disorders I and II

·     Internet; JD posted a Q1 rev advance of 39% to $31.57B, topping ests amid an expanded product line-up that helped lure in more users; TCOM posts Q1 narrower EPS loss to 0.34 yuan from 3.73 yuan a year earlier on better revs 4.1B yuan vs. est. 2.98B citing a strong rebound in Chinese travel demand; VIPS slips after earnings mixed while guides Q2 revs 28.9 bln-30.1 bln yuan below Street est. of 30.57 bln yuan; Squarespace (SQSP) began trading today through a 40M share direct listing rather than a traditional IPO, as the NYSE has set a reference price of $50 per share

·     Software movers; TTWO reported a Q4:F21 top and bottom-line blow-out driven by outperformance from RCS across the company s portfolio; CRM upgrades from Equal weight to Overweight with $270 tgt at Morgan Stanley saying its well positioned for ramping digital transformation demand and more constructive margin commentary from management tilts the risk/reward significantly more favorably; XM upgraded to Buy and raise tgt to $45 at Bank America saying the company is executing well and the valuation has improved after a recent 20% pullback

Stock GAINERS

·     ADI +2%; posts both Q2 revenue and adj profits above consensus expectations, helped by record revenue in the industrial and automotive markets while guides Q3 revs $1.7B plus/minus $70M topping the $1.65B estimate

·     CRM +1%; upgrades from Equal weight to Overweight with $270 tgt at Morgan Stanley saying its well positioned for ramping digital transformation demand

·     JD +1%; posted a Q1 rev advance of 39% to $31.57B, topping ests amid an expanded product line-up that helped lure in more users

·     NEM +1%; gold miners outperform as gold prices rebound with crypto currencies pulling back

·     RETA +18%; said it would file for a pre-marketing application meeting with the FDA and withdraw a request for a Type-C meeting to discuss its treatment omaveloxolone for Friedreich’s ataxia

·     TGT +4%; with solid Q1 beat as EPS $3.69 topped the est. $2.25 as sales grew 23.4% to $24.2B vs. est. $21.81B, with comp sales up 22.9% and digital comp sales up 50% (follows a strong report from WMT the day prior

·     TTWO +3%; reported a Q4:F21 top and bottom-line blow-out driven by outperformance from RCS across the company s portfolio while few analysts note FY22 EPS guidance came in conservative

Stock LAGGARDS

·     DVN -6%; among top S&P 500 decliners as energy tumbles

·     FCX -7%; seeing broad weakness in commodity sectors as lumber, copper declines

·     IOVA -17%; following news that BLA filing for lifileucel in advanced and metastatic relapsed/refractory melanoma will be delayed until 1H22 (previously guided 2021).

·     MYOV -3%; says U.S. FDA on May 18 placed partial clinical hold on co’s late-stage study of its combination tablet as a contraceptive

·     TJX -3%; slides post better earnings as EPS 44c/$10.09B above ests 31c/$8.62B on comp store sales 16% while says Q2 comparable store sales trends remain similar to Q1

·     TSLA -3%; falls with broader market sell-off as reports showed Tesla inc.’s growth in China slowed precipitously last month, as 11,949 China-built Tesla’ were registered in the country in April

·     WDC -6%; shares of both STX and WDC (HDD makers) weaker – recall recent rally after MSCO last week said “additions to Ethereum mining capacity grew fivefold from 4q to 1q, and should remain strong given mining economics” – now getting hurt due to crypto pullback today