Mid-Morning Look

Monday, September 12, 2022

U.S. stocks surging to start the week, with around 1% gains across the board for major averages, rising ahead of key inflation data tomorrow (CPI) and Wednesday (PPI). Major averages remain momentum driven and very one-directional the last few weeks, to both the downside and upside. After snapping its 3-week losing streak last Friday, the S&P 500 is now up 4-straight days and the Nasdaq Composite, after having posted its longest losing streak in 6-years (7-days), has now risen 4-straight days as well. The S&P has broken above its key technical 50-day MA (4,055) and 100-day MA (4,040) along the way, with its 200-day MA higher (4,272). Other major averages have also topped key resistance levels as well (Russell, Nasdaq). August consumer prices (CPI) data is expected to show some cooling in headline inflation, as economists forecast a rise of 8.0% y/y for August vs 8.5% the month before and core inflation at 6.1% vs 5.9% previously. Regardless of the data, the Federal Reserve is still likely to hike rates by 75 basis points in September, with a 90% probability roughly, but a softer CPI reading could adopt a less hawkish stance after – which is likely being reflected in an increased demand for stocks, pushing the indices high and a falling U.S. dollar. The dollar index (DXY) is currently down 0.4% at 108.33 after hitting its highest in 20 years last week. Oil prices rise lifting energy stocks, Treasury yields flat early.

Sector Movers Today

·     Metals & Mining: VALE was upgraded to Outperform at RBC Capital noting its weak operational performance, uncertain Samarco liabilities and a negative outlook for iron ore have weighed on VALE shares – but already pricing-in long-run $75/t, and having underperformed peers over the past 12 months, think this is in the price; CRS upgraded to Outperform at Cowen for accelerating EPS gains & a catalyst-rich backdrop (787/737/A320 rate hikes; investor day), and think the stock may overshoot as its early in the earnings recovery; gold miners AEM, GOLD, NEM get a bounce as the dollar pares recent gains ahead of CPI and precious metal prices rise

·     Media, Internet; AMZN is projected to spend $15 billion on programming, including sports, this year, according to Bloomberg Intelligence – that comparable figure for NFLX is $13.6 billion for the year, DIS with estimated $9.5 billion spending this year, WBD with $6.5 billion and AAPL with $6 billion; DIS CEO Bob Chapek said he rejected activist investor Dan Loeb’s suggestion to sell or spin off the ESPN sports network, the Financial Times reported; RBLX was initiated Underperform and $31 tgt at Cowen as believe current valuation far too aggressively factors in a metaverse future that is likely still far away

·     Materials & Chemicals: Credit Suisse initiated ASH and HUN with Outperform ratings and target prices of $120 and $33, respectively saying both companies represent integrated specialties; CTVA hosting Investor Day Presentation tomorrow; in lithium space, LTHM downgraded to Hold from Buy at Vertical noting shares are up 40% YTD, outpacing peer ALBFor Containerboard: KeyBanc noted, citing Fastmarkets RISI’s PPI Pulp & Paper Week updates on the containerboard and boxboard markets over the weekend (IP, WRK, PKG), that news in the containerboard market keeps getting worse, while the news in the far-smaller SBS boxboard market remains positive

Stock GAINERS

·     APA +6%; Citigroup upgraded to Buy from Neutral and raised tgt to $58 from $40 saying it offers an under-appreciated growth story (downgraded OXY)

·     BMY +5%; after the FDA approved BMY’s Sotyktu (Deucravacitinib) for the treatment of moderate/severe psoriasis, finding it was more effective than either a placebo or AMGN’s drug Otezla, with no “black box” warnings

·     CVNA +14%; upgraded to overweight at Piper with $73 tgt (down from $98) saying the company’s value is a function of market share in the used car market and profitability – though notes they are aware that used vehicle prices are falling, rising interest rates are a risk, and know that bankruptcy is a real possibility

·     GILD +4%; after settling a patent case that extends the exclusivity of its HIV franchise

·     IDYA +15%; reported promising data from mid-stage trial testing its combination therapy in metastatic uveal melanoma patients

·     MRSN +7%; said the FDA granted fast-track designation to XMT-1660 for the treatment of adults with advanced or metastatic triple-negative breast cancer

·     UNP +1%; railroads CNI, CP and UNP all upgraded to Buy from Neutral at Bank America, seeing an opportunity ahead of Friday’s deadline on a cooling-off period for negotiations with unions

·     VTYX +69%; surges after several analysts (Jeff, Opco, Canaccord) said the approval of BMY’s TYK2 inhibitor deucravacitinib (Sotyktu) to treat psoriasis is a positive for VTYX, as the label doesn’t include a black-box warning

Stock LAGGARDS

·     ADBE -1%; downgraded from Buy to Neutral at Mizuho and cut tgt to $440 PT from $480 ahead of earnings this week as checks were indicative of a more difficult environment than expected

·     AMGN -3%; after BMY won FDA approval for Sotyktu, a new competitor to Amgen’s Otezla in the psoriasis market

·     BLUE -3%; announces departure of Chief Strategy and Financial Officer Jason Cole this fall 

·     LTHM -6%; downgraded to Hold from Buy at Vertical noting shares are up 40% YTD, outpacing peer ALB

·     MOS, NTR -5%; Russia withdrew more forces from the Kharkiv region on Monday, retreating from a vast swath of northeastern Ukraine as Kyiv’s forces continued their push into Russian-occupied territory (fertilizer industry had been benefitting from disrupted supplies during war)