Mid-Morning Look

Tuesday, September 08, 2020

U.S. stock slide to start the week, adding to last week’s declines as investors remain uneasy about recent falls in giant tech stocks over the last few days in a massive bout of profit taking and concerns over valuations given the meteoric rise off the March lows. The Nasdaq Composite fell to lows of 10,875 (last week lows) before rebounding back near 11,100, amid weakness in some of Wall Street darlings including TSLA, AMZN, AAPL and FB (and semiconductors), along with a steep drop in energy stocks after oil prices tumbled over 8% for WTI crude (Oct futures) on slowing demand concerns. The Euro extends losses vs U.S. dollar, hitting two-week lows. TSLA shares tumble after failing to be added to the S&P 500 index yet again on Friday with ETSY, CTLT, and TER being added instead. As we’re seeing easing coronavirus related lockdowns and the prospect of a vaccine, people are beginning to go back to a more normal way of life and reliance on tech is starting to fade from the peak where it was at the height of the lockdown. Also weighing on markets Tuesday are an uptick in tensions between the U.S. and China after President Trump said Monday that he was considering “decoupling” from China and wasn’t seeking to bring outsourced jobs back to the U.S. Also possibly hitting tech are various reports saying that Japanese conglomerate SoftBank has been taking huge options positions in technology shares and could have been a factor in tech’s recent rally, and as it becomes know, unwinding of that is taking hold. Stocks early adding to last week losses when the tech-heavy Nasdaq fell 3.3% for its worst week since March, the Dow declined 1.8% and the S&P 500 lost 2.3%. Stimulus hopes, an accommodative Fed and slowing coronavirus cases and related deaths continue to backstop the market.

Sector Movers Today

·     Auto sector; TSLA shares pressured after being excluded from being added to S&P 500 on Friday, coupled with the broader stock market pullback in tech; NKLA shares soar after GM took a 11% stake in the U.S. electric carmaker as NKLA will exchange $2 billion in stock for the in-kind services and access to GM’ parts and components/GM will be exclusive supplier of fuel cells globally to Nikola for Class 7/8 trucks; NIO initiated buy and $24 tgt at Deutsche Bank saying there is an emerging class of Chinese automakers backed by large well capitalized tech titans and ambitious local governments looking to disrupt the auto industry (NIO, Xpeng, Li Auto, and WM Motor); Ford (F) was upgraded to in-line at Evercore ISI and also raised APTV rating to buy; KAR signs agreement to acquire BacklotCars Inc. for $425M

·     Semiconductors; space under pressure after weekend reports from various newswires said the U.S. Commerce Department was “assessing” whether to put leading Chinese semiconductor foundry, Semiconductor Manufacturing International Corp. (SMIC), on its entity list, citing the company’s supposed sale of semiconductor products to Chinese military companies (would put significant restrictions on SMIC’s ability to procure semiconductor equipment from key U.S. vendors, like AMAT, KLAC, LRCX)

·     Industrial & Machinery; CMI was upgraded to buy from neutral at UBS as think the North America heavy duty truck market is poised for an upcycle over the next 3-4 years, and expect an extended upcycle in China as well; URI was downgraded to neutral from buy at UBS as catalyst of an inflection in underlying rental metrics (rental rates, time utilization) has played out over the last few months of the restart and peak construction season; FAST was downgraded at Raymond James while the firm upgraded GWW shares active after the NY Post reported the merger with Volkswagen’s Traton business could be in jeopardy on reports of higher price needed

·     Leisure and Gaming; Macau; Average Macau daily casino gross gaming revenue for the first six days of September was at almost double the pace seen in August, according to checks from Bernstein as forecasts Macau gross gaming revenue could fall in in the mid-80s rate for the full month to improve dramatically from the more than 94% drops seen prior months (WYNN, MLCO, MGM, LVS); WYND upgraded to buy at Goldman Sachs saying its vacation ownership business has shown defensive characteristics, with EBITDA falling just 5% during the 2008 financial crisis and now generating $62mn in FCF in 1H20; in leisure, CWH was upgraded to overweight at JPMorgan saying it should continue to benefit from higher demand for RVs in the wake of COVID-19 as consumers travel in a way that allows them to avoid the novel coronavirus

Stock GAINERS

·     ALBO +14%; reported positive topline results from a global Phase 3 clinical trial evaluating the efficacy and safety of odevixibat

·     CWH +2%; was upgraded to overweight at JPMorgan saying it should continue to benefit from higher demand for RVs in the wake of COVID-19 as consumers travel in a way that allows them to avoid the novel coronavirus

·     DIS +1%; was upgraded to buy from hold at Deutsche Bank and raise tgt to $163 from $128 saying it is succeeding in the land grab phase of direct-to-consumer

·     ETSY +4%; a bright spot in weak tape, getting a boost after news it will be added to the S&P 500 index effective Sept 21st

·     NKLA +12%; after GM took a 11% stake in the U.S. electric carmaker as NKLA will exchange $2 billion in stock for the in-kind services and access to GM’ parts and components/GM will be exclusive supplier of fuel cells globally to Nikola for Class 7/8 trucks

·     PTON +8%; as expands product suite with all new bike+ and tread, offering more ways for people to access and enjoy world-class at-home fitness

·     SPCE +4%; initiated buy and $25 tgt at UBS as see Virgin Galactic as the only way for consumers to gain entry into the ~560-member astronaut club in the next 5 years.

Stock LAGGARDS

·     AMAT -6%; after Reuters reported on Friday that the U.S. government might block American companies from providing goods and services to SMIC, China’s top chipmaker

·     BA -4%; following reports of a production problems at a Boeing Co. 787 Dreamliner factory prompted air-safety regulators to review quality-control lapses potentially stretching back almost a decade

·     CRBP -74%; after saying its lead drug lenabasum showed no significant differences in the primary and secondary goals when comparing lenabasum to placebo, both added to background drug therapy

·     HAL -6%; Oil-related stocks fall in premarket trade as crude prices dip to their lowest levels since June, with WTI crude falling as much as 8%

·     MRNA -10%; downgraded to underperform at Leerink and slashed its tgt to $41 saying recent developments make a durable market with oligopoly pricing unlikely

·     TSLA -13%; shares pressured after being excluded from being added to S&P 500 on Friday, coupled with the broader stock market pullback in tech