Closing Recap

Thursday, April 15, 2021

Equity Market Recap

·     Stocks surge again as the buying frenzy continues with the Dow topping 34,000 for the first time, the Nasdaq climbed back above the 14,000 level and the S&P 500 notched another record high behind large cap outperformance. However, underlying market fundamentals were weak with breadth down early amid weakness in small and mid-cap names. Economic data continues to improve as retail sales in the U.S. surged 9.8% in March as shoppers increased spending across several categories, including in-store shopping, restaurant dining and online purchases. The path of least resistance remains higher as central bank liquidity tailwind, fiscal stimulus, vaccine distribution, reopening momentum, and inflows all seen as bullish – while a strong start to earnings season also providing positive sentiment.

·     Dow Transports back near its record 15,000 level, the Nasdaq rises over 1%, topping the 14,000 level again (record highs stand at 14,175), banking stocks slipped despite good earnings results thus far, with Citi, and Bofa numbers beating after good results from Wells, GS, and JPMorgan yesterday (sliding yields hurt group a little – but results for Q1 well above expectations in most cases so far). Energy stocks among top decliners in the S&P and Russell after outperformance Wednesday. The recent pullback in U.S. bond yields (10-year fell below 1.54% after touching 1-year highs 2-weeks ago around 1.78%) and the Federal Reserve’s reassurance on keeping interest rates low have led to renewed demand for growth stocks.

·     Interestingly, while markets have continued to rally, many of the “momentum” related sectors that saw massive buying interest the early part of 2021 such as electric vehicles (FSR, BLNK, NIO, NKLA), cannabis (GTBIF, TLRY, CGC), solar (SEDG, JKS, ENPH), drones/space (SPCE, EH, MAXR, UAVS), alternative energy (FCEL, PLUG) and the Reddit/WSB “meme” stocks (AMC, BB, KOSS) – have seen massive pullbacks from their January highs – rotating into large cap tech, semiconductors, as well as industrials and materials on the infrastructure package bill, in addition to reopen stocks amid vaccine rollout and pent up demand for goods and services.

Economic Data:

·     Retail Sales for March jumped 9.8% MoM vs. est. 5.6% (and vs. prior -3%); core retail sales jumped 8.4% MoM vs. est. 5.0% as stimulus money, vaccinations and re-openings spurred a burst of shopping

·     Weekly jobless claims tumbled to 576K in latest week, below the 700K estimate (prior week revised to 769K from 744K); continued claims rose to 3.731M from 3.727M prior; the 4-week moving average fell to 683,000 in latest week from 730,250 prior week and the U.S. insured unemployment rate rose to 2.7% from 2.6%

·     Empire state current business conditions index 26.3 in April vs. est. 19.5; new orders index 26.9 in April vs 9.1 in March; prices paid index 74.7 in April vs 64.4 in March; the employment index at 13.9 in April vs 9.4 in March and six-month business conditions index 39.8 in April vs 36.4 prior

·     March Industrial Production +1.4%, below the consensus +2.7%; March Capacity Utilization at 74.4% below consensus 75.7%; Feb Industrial Production revised to -2.6% From -2.2%

·     U.S. business inventories rose 0.5% in February and sales dropped -1.9%, which followed respective gains of 0.4% (was 0.5%) and 4.5% (was 4.7%). The inventory-sales ratio rose to 1.30 after falling to 1.27 (was 1.26) in January

·     April NAHB housing market index 83 (in-line with consensus and vs. 82 in March; the index of current single-family home sales 88 versus 87 in March; index of prospective buyers 75 versus 72 in March

·     The 30-year fixed-rate mortgage averages 3.04% for the week ending Apr.15, down from 3.13% recorded in prior week and down from 3.31% averaged in same period a year ago, according to the Freddie Mac Primary Mortgage Survey.

Commodities, Currencies & Treasuries

·     Gold jumped to its highest in over a month, rising $30.50 or 1.8% to settle at $1,766.80 an ounce to 6-week highs and topping its 50-day moving average (first time above since February 1^st according to Bespoke) The collapse in Treasury yields (despite better-than-expected U.S. economic data), pushed investors into precious metals. It appeared it was more of a weak dollar, strong economy, low interest rate dynamic that pushed gold prices higher (though precious metals were broadly higher – silver, platinum). Powell and other Fed officials have said brighter economic forecasts and brief higher inflation will not affect monetary policy and the central bank will keep its support in place until the crisis is over.

·     Oil prices climb for a fourth straight session, with WTI crude rising 0.5% or $0.36 to $63.46 a barrel, the highest closing price since March 17 in another broad-based market rally that saw stocks, bonds, gold, oil and crypto all closing higher. Investors continue to shrug off some vaccine issues, including the latest U.S. decision to at temporarily halt the Johnson & Johnson one-and-done vaccine over side effect worries. Bullish inventory data has helped push prices higher.

·     Treasury yields tumbled across the curve, with longer-term yields falling the most, as the 30-year dropped over 10 bps to 2.10% and the benchmark 10-year fell around 9 bps to 1.54% (now more than 20 bps off its 1-year highs reached two-weeks ago and below the 1.6% for the first time in 3-weeks). The dollar edged slightly higher after pulling back since its 2.5% gain in March despite the economy remaining strong, providing an upbeat outlook.

Sector News Breakdown

Consumer

·     Retailers; On the heels of URBN and LB positive updates in recent weeks, AEO updated positively with strong spring results driving sales +mid-teens vs. 2019 and stronger margins driving operating income of $120MM vs. 2019’s $49MM (both above prior guidance sales and OI to exceed 2019 as well as consensus at +2%/$55MM); ETH preannounced fiscal 3Q results that were above Street expectations for revenue and EPS while written trends remained strong for ETH’s Retail and Wholesale segments during the quarter; COST raises quarterly dividend by 12.9% to $0.79 from $0.70; SHOO completed the acquisition of the 49.9% share that it did not already own of its European joint venture

·     Housing & Building Products; declining Treasury yields help homebuilders as interest rates slide; in roofing sector, OC and BECN downgraded to Neutral at Northcoast saying residential roofing checks are good…very good…too good…unsustainably good and believe the peak of the good news is right now, meaning 1Q21 results and the 2Q21 outlook; GVA was upgraded to Buy at Davidson as are optimistic around the prospects for shares when considering relative underperformance in recent years.

·     Consumer Staples; PEP Q1 core EPS $1.21 vs. est. $1.12; Q1 revs $14.82B vs. est. $14.55B; said continues to expect a mid-single-digit increase in organic revenue; high-single-digit increase in core constant currency EPS; core annual effective tax rate of approximately 21%; HSY was upgraded to Buy from Neutral at Goldman Sachs and up price target $181 from $171 believes 2020 was the beginning of a three-plus year cycle of outsized growth; COTY announced its intention to offer up to $750 mln aggregate principal amount of senior secured notes; BYND and Carl Jr’s partner for plant-based meat menu; HelloFresh said it expects Q1 revs/EBITDA sig. above market expectations while the 2021 guidance is increased (popped shares of APRN)

·     Restaurants; Cowen previewed the sector saying Q1 earnings should be a positive catalyst for the group given a sales frenzy over the last 4 weeks & an embedded deceleration in consensus 2Q21 comps that are likely to be revised higher – said prefer CMG, SBUX (PT to $255 from $250) into earnings with a catch-up trade likely for WEN;

·     Casinos, Gaming, Lodging & Leisure sector; online gambling stock EBET opens for trading on the Nasdaq at $21 per share after 2.4M share IPO was priced at $6.00; LVS plans to launch a multimillion-dollar advertising blitz for supporting its campaign of bringing casinos to Texas according to reports; DKNG, PENN little lower initially after Bloomberg reported that House leaders left sports betting Rev out of the ’22 budget proposal released Wednesday, which makes the legalization in the state this year less certain. The Senate has yet to release its own proposal, which still must be debated before a compromise bill can be worked out; in auto/EV, QS shares tumbled after negative short report by Scorpion Capital https://bit.ly/32ipteA ; BALY said it is discontinuing a $250M of its tangible equity units and instead is pursuing a possible private offering of equity-linked securities to a potential strategic investor.

Energy

·     Energy stock movers; in research, among oilfield services, Stifel favors differentiated CHX, BOOM, WHD, says the YTD underperformance in BKR makes it compelling, and SLB will benefit from a rebound in international activity; Truist raised their pt on MTDR to $30 as they forecast the company continuing to generate solid FCF despite the impact of the arctic blast in Q1; Citi raised its estimates and price targets on Canadian oil stocks given rising oil prices and their more insulated Downstream versus other global peers, and says CVE offers the most compelling thesis; Raymond James downgraded CAPL to Market Perform as the stock is now trading at its target price and they see better risk-reward elsewhere in the space, and they upgraded RTLR to Outperform with a $13 target with its lower EV/EBITDA multiples and lowest leverage ratio versus peers; Scotia downgraded FANG to Sector Perform

Financials

·     Bank movers; BAC with Q1 EPS beat of 86c vs. est. 66c; Q1 revenue $22.8B vs. est. $22.13B; announces $25B share repurchase plan; reported a 12% fall in consumer banking revenue to $8.1 billion in the quarter ended March; net charge-offs are expected to decline in 2q21 given recent positive delinquency trends; 1q provision for credit losses was benefit of $1.9 billion; TFC Q1 adj EPS $1.18 vs. est. $1.11; Q1 revenue $5.48B vs. est. $5.47B; Q1 provision for credit losses $48M; Citigroup (C) reported sharply higher Q1 profit and said it is shutting down most of its consumer-banking operations in Asia, Europe, and the Middle East (posts Q1 EPS of $3.62 vs. est. $2.60 (and above the $1.05 EPS in year ago period); USB Q1 diluted EPS $1.45, beating the 96c estimate bolstered by a release in credit reserves as the macroeconomic outlook improves and credit quality stays strong…but net interest income (NII) weakens to $3.09B from $3.2B last quarter as loan balances fall against a low rate backdrop; BLK Q1 adj EPS $7.77 vs. est. $7.64 and says rev rise reflects strong organic growth, higher performance fees, 12% growth in tech services revs; SCHW said adds 3.2 million new brokerage accounts in first quarter – more than all of 2020

·     Insurance; PGR said Q1 EPS $2.51, Q1 Combined Ratio 89.3%; Net Premiums Earned $10.42B and Net Premiums Written $11.73B; MMC downgraded to market perform from underperform at Raymond James as expect the company could report below-average adjusted EBITDA margins and adjusted FCF conversion rates over the course of the next two years compared with AJG, AON, and BRO estimates March pretax catastrophe losses of $252M, or $54M after tax and anticipated reinsurance recoveries; AXS said preliminary Q1 net loss estimate for catastrophes and other weather-related events in range of $95M-$105M after-tax; RNR said losses from winter storm will have net negative impact of about $180 mln on Q1 2021 results

·     Consumer Finance; MGI said delivers record high for transactions in its direct-to-consumer digital business in March; DFS said credit card delinquency rate 1.21% at March end vs. 1.30% at February end and credit card charge-off rate 1.74% at March end vs. 1.79% at February end; JPM credit card delinquency rate falls 0.89% in March from 0.97% in February and from 1.16% in March 2020; AXP March net write-off rate 1.1% vs. 1.4% last month

·     Bitcoin news; it was reported today that Brevan Howard main hedge fund to start buying cryptocurrencies; COIN shares little changed after IPO yesterday; CLSK purchases 22,680 additional bitcoin miners and anticipates 3.2 eh/s capacity after deployment; Bitcoin prices held above the $62,000 level most of the day, but down from $64K highs yesterday

·     REITs; Shopping center owner KIM said it would buy WRI for about $3.87 billion, paying about $30.32 per share in cash and stock, a near 11% premium to the company’s closing share price on Wednesday and create a company with 559 shopping centers https://on.mktw.net/2OUWTNs

Healthcare

·     Pharma movers; for JNJ, timelines for a restart of JNJ’s COVID-19 vaccine are unclear after yesterday’s ACIP meeting concluded without a vote, with leaders indicating it could take more than a week to call a new session; MRK said to discontinue development of MK-7110 for covid-19 saying based on additional research that would be required, mk-7110 would not be expected to become available until the first half of 2022; The Financial Times reported Hedge fund Elliott Mgmt Corp. has amassed a multibillion-pound stake in GSK https://on.mktw.net/3wXTQ8k ; GSK said that it has stopped enrolling patients in a trial studying a combination drug therapy using feladilimab in cancer patients; STRO announced that Merck will make a $15M milestone payment for the initiation of an IND enabling toxicology study for the first program in its collaboration; INO rises as results from a phase 1 trial showed INO-4800 was effective against the U.K., South Africa and Brazil SARS-CoV-2 variants

·     Healthcare Services; UNH reported 1Q results, with revenue ($70.2B vs. $69B) and EPS ($5.31 vs. $4.39) both ahead of street, with particular strength in the UHC business (MCR 80.9% vs. 82.8%) and a modest beat in Optum, offset by higher operating costs; RAD declined to provide guidance for its 2022 fiscal year, opting instead to offer a forecast for the first quarter of that period; AGL priced 46.6M shares at $23.00, at the high end of the $20.00-$23.00 range

·     MedTech Equipment; TMO said it would buy contract researcher PPD for $17.4B, paying $47.50 per share to boost its pharma service business https://on.mktw.net/3diuUQY ; ABMD said the first patient enrolled in protect iv randomized controlled trial of Impella; DEH announced plans Thursday to acquire Bill Gates-backed Vicarious Surgical Inc. (RBOT) in a SPAC deal that values the robotic-surgery firm at $1.1B.

Industrials & Materials

·     Aerospace & Defense; SPCE slides after billionaire founder Richard Branson sells stocks worth over $150 mln as regulatory filing shows sold 5.58M shares at a price range of $26.82-$28.73 between April 12-14; VSAT said Ka-band in-flight connectivity system has received approvals in the U.S. and Europe for use on some Bombardier business jets

·     Transports; in airlines, DAL Q1 EPS loss ($3.55) vs. est. loss ($3.13) on better revs $4.15B vs. est. $3.91B while expects positive cash generation for the quarter ending June; sees revenue for the period to fall between 50% and 55% from two years ago, but the drop would be less than the over 60% decline in the first quarter; Citi opens a positive catalyst watch on UPS on its view that shares look attractive ahead of the company’s earnings report; Barclays positive on transports, upgrading XPO to Overweight given low valuation, solid fundamentals and a clearer post-split future, raises CP to Overweight in rails on long-term potential of the pending Kansas City Southern acquisition and upgraded UPS to Equal-weight given momentum in parcel markets, relative valuation and $5.5 bn liability bailout; GBX said to offer, subject to market and other conditions, $275.0 million aggregate principal amount of Convertible Senior Notes due 2028

·     Metals & Materials; precious metal stocks outperform behind gains in gold and silver prices; paper (IP, PKG, WRK) and containerboard names rise ahead of Q1 figures Thursday for containerboard mills and downstream corrugated box plants will be released. As the two trade associations involved ceased monthly releases at YE20, this will be the first look at 2021 industry trends. Then, on Friday evening, Pulp & Paper Week will publish its estimates of April containerboard prices. Also today, Finnish forestry group UPM raised its full-year outlook, saying it now expected to make a comparable operating profit helped partly by a faster rise than expected in pulp prices; gold miners jumped (AUY, AEM, NEM) as gold hits 1-month highs; AA earnings tonight in the aluminum sector

Technology, Media & Telecom

·     Semiconductors; TSM said it would raise its capital spending budget to $30B from earlier range of $25B-$28B in January and raise its revenue growth forecast for 2021 to 20% for the year, from an earlier estimate of 15% growth (Stifel said names that are best exposed to TSM include KLAC AMAT, NVMI, ONTO, CAMT, and VECO); VSH raises Q1 revenue view $765M from $705M-$745M, consensus $728.4M; in research, NVDA was upgraded to strong buy and $750 tgt at Raymond James while the firm downgraded INTC to underperform and initiated AMD with an Outperform and $100 tgt calling it a secular winner due to a durable technical advantage vs. Intel

·     Software movers; DELL announces the planned spin-off of its 81% equity ownership interest in VMW – the transaction will result in two standalone companies positioned for growth in the data era and is expected to close during the fourth quarter of 2021, subject to certain conditions; APP opens at $70 after IPO priced at $80 per share; internet security software again outperform in general software space (OKTA, CRWD, ZEN)

·     Media & Telco movers; in advertising, PUBGY posted a Q1 revenue beat as North American segment was strong (boosts IPG, OMC early); in cable, Truist said is buyers of CMCSA, CHTR and CABO (~7%-24% recent relative underperformance) have witnessed leading into and after the release of details of the proposed infrastructure bill that includes $100b earmarked for relief and stimulus in the broadband industry; PLBY extends recent gains this week, getting a boost earlier in week on positive Hedgeye call; ZKIN announces NFTs launches for NBA Players Dwight Howard and Michael Beasley on the xSigma NFT Marketplace