Mid-Morning Look

Monday, September 13, 2021

U.S. stocks opened the week higher, as the S&P looked to snap its longest losing streak since February (5-days coming into today), but selling pressured ensued on the open, with a drag in high growth tech stocks (software) ahead of key inflation data tomorrow (CPI). After posting weekly losses for major averages last week, focus turned to inflation and taxes after leading Democrats in the House of Representatives said Monday that they are seeking to raise the nation’s tax rate on corporations to 26.5%, up from the current 21%. House democrats’ plan seeks 3% surtax on wealthiest individuals and plan increases capital gains rate to 25%. The House Ways and Means Committee said that it will debate legislation this week that would achieve the change as part of Democrats’ broader, $3.5 trillion domestic investment plan. Energy was the best performer among its peers, up over 3% early as oil prices hit a one-week high on concerns over U.S. supply. Stocks lost between 1.6%-2.2% last week as a surge in August producer prices and a drop in jobless claims spurred fears the Federal Reserve could start unwinding stimulus as soon as this year. Investors will also be watching retail sales data later this week for more cues on how much a recent rise in COVID-19 cases has affected consumer spending.

Sector Movers Today

·     Retailers; NKE downgraded to Neutral from Buy at BTIG based on work they have done across the supply chain coupled with checks, all of which point to severe supply chain disruptions emanating from the COVID driven factory shutdowns in Vietnam that have worsened since the company last reported on June 24^th; ASO slips after Private equity firm KKR to sell ~18.7m shares, its remaining 20% stake, per prospectus filing; RVLV upgraded to Buy from Hold and raise tgt to $80 from $65 at Jefferies

·     Aerospace & Defense; SPCE shares slipped after saying this weekend that the flight window for Unity 23 will be pushed back to mid-October at the earliest after a third-party supplier flagged a potential manufacturing defect in a component of the flight control actuation system; RKLB mentioned cautiously in Barron’s saying after a strong run for shares, it’s time to think about taking some profits; GILT receives a $12Mm service award for recurring revenues from broadband services in Cusco, Peru; KTOS receives $338M sole source contract award for target drones from U.S. air force; CACI awarded $36Mm task order to advance the U.S. transportation command’s defense personal property system

·     Bank movers; SIVB mentioned positively in Barron’s saying while some banks have struggled to grow their loan book over the past year, SVB had 8% QoQ growth in loan balances, reflecting strong activity in the tech and healthcare sectors; KEY sold its $3.2B indirect retail auto loan portfolio to a vehicle managed by a subsidiary of Waterfall Asset Management, and will use capital generated by the sale to buy back some of its stock; PFSI announces proposed private offering of $500 million of senior notes; Dan Gallagher, chief legal officer for HOOD said to CNBC today that he expects U.S. regulators to conclude that the company’s payment-for-order-flow business model is “undoubtedly an amazingly good thing for retail investors.”

·     Asset Managers/Private Equity; monthly AUM data out for some as: 1) LAZ preliminary assets under management (AUM) as of August 31 totaled approximately $282.8B; 2) TROW Assets Under Management $1.68 Trillion at Aug. 31, up +25% YoY; 3) VRTS reported preliminary assets under management as of $183.3 billion and provided services to $3.9 billion of other fee-earning assets that are not included in assets under management; 4) BEN preliminary month-end assets under management (aum) of $1,572.1B at august 31, 2021, compared to $1,557.3B in July; CG was upgraded to Outperform at BMO Capital saying they anticipate a narrowing of the valuation gap relative to capital-lite peers BX and ARES;

Stock GAINERS

·     CCJ +5%; strength continues in the uranium sector behind reddit/WSB mentions over the last few weeks has boosted interest in space

·     EOG +4%; energy names among early leaders in the S&P with bounce in oil prices, with MRO, APA, OXY, FANG all up 4% or better

·     IRTC +10%; after naming former COO of DXCM, Quentin Blackford, as President and CEO, bringing more than 20 years of experience

·     ITMR +45%; to be bot by ZOLL Medical for $31.00 cash per share, 48.8% premium, $538 million

·     RGNX +22%; after enters partnership with ABBV to develop and commercialize RGX-314, a gene therapy candidate for treatment of chronic retinal diseases/Regenxbio to get upfront payment of $370M and may potentially receive up to $1.38B in milestone payments

Stock LAGGARDS

·     BABA -2%; U.S.-listed Chinese stocks fell after China outlined new regulations for major technology firms in the mainland; reports this weekend that Beijing wants to break up Alipay, the hugely popular payments app owned by Jack Ma’s Ant Group

·     DVAX -14%; down in sympathy with Valneva after British government ends a COVID-19 vaccine supply deal with the French vaccine maker (DVAX partners with company)

·     MDXG -59%; reports top-line data from two late-stage musculoskeletal trials – results of the Phase 2B trial for KOA did not meet primary endpoints/top-line results from Phase 3 Plantar Fasciitis trial did not meet its primary endpoints

·     MRNA -6%; CDC director says hoping by end of year for Covid19 vaccine for kids under 12, CNBC Meg Tirrell reports. Friday, Reuters reported 2 US health officials said it could be end of Oct for kids 5-11

·     NKE -1%; downgraded to Neutral from Buy at BTIG based on work they have done across the supply chain coupled with checks, all of which point to severe supply chain disruptions emanating from the COVID driven factory shutdowns in Vietnam that have worsened

·     NUVA -5%; after saying expects that net sales in Q3 2021 will be lower sequentially from Q2 2021 of $294.8M (vs. est. $305.55M), which likely will pressure margins

·     SPCE -5%; said this weekend that the flight window for Unity 23 will be pushed back to mid-October at the earliest after a third-party supplier flagged a potential manufacturing defect in a component of the flight control actuation system.

·     VALN -38%; tumbles as the British government ends a COVID-19 vaccine supply deal with French vaccine maker Valneva SE, alleging a breach of obligations that Valneva denies. Valneva is developing its COVID-19 vaccine, VLA2001, combined with DVAX’s adjuvant or vaccine booster, CpG 1018 (as shares of DVAX also fell)