Closing Recap

Wednesday, August 04, 2021

Index	Up/Down	%	Last
DJ Industrials	-323.34	0.92%	34,793
S&P 500	-20.46	0.46%	4,402
Nasdaq	-19.24	0.13%	14,780
Russell 2000	-27.24	1.23%	2,196

 

Equity Market Recap

·     Stocks looks broadly lower to start, but a rebound in healthcare (vaccine news/earnings), and pockets of technology helped minimize the declines. The S&P 500 pulled back from record highs the day prior, while transports underperformed behind a decline in Avis (despite better earnings) and weakness in reopen stocks such as airlines on rising infections. As mentioned, the Healthcare industry among top leaders, led by vaccine names (MRNA, BNTX, PFE, NVAX) and large cap Pharma (LLY, BMY 52-week highs), with A, ABC, DGX, EW, EVH, HCA, LH, MOH, WAT, ZTS among other names in healthcare hitting 52-week highs today. Treasury yields bounced following better a record high July ISM reading and hawkish comments from the Fed’s Clarida saying Federal Reserve should be in the position to begin raising interest rates in 2023, while the Fed’s Kaplan said tapering should happen sooner. Oil prices slide to 3-week lows around the $68 level on slowing demand fears as the spread of the coronavirus Delta variant in top consuming countries outweighed Mideast geopolitical tensions and a fall in U.S. inventories. Roughly 70% of the S&P 500 has posted earnings this quarter, with another flurry of reports again tonight and tomorrow. Recap of top sector movers below.

·     Stock/sector top movers: Vaccine makers outperform on the day with BNTX trading at record highs on reports the FDA will give full approval to its vaccine by early next month (though shares of partner PFE slightly lower), NVAX surges over 20% after the EU approves a contract for up to 200M doses through 2023, and MRNA jumps to its 3rd straight record high as it gains as much as 10% ahead of earnings tomorrow AM; autos weak as GM slumps after full-year guidance misses consensus expectations, LYFT sinks to its lowest level in 2.5 months despite delivering a profitable quarter as its revenue guidance misses expectations, and Ford slides after its U.S. July sales were down 31.8% YoY; HOOD surges on the 1st day of options trading in the stock, touches a high of $85, more than double last Thursday’s $38 IPO price and Monday’s $37.68 close’ Semiconductors record new all-time highs as AMD continues upward momentum for its 6th consecutive record close (rising over 30% during the stretch) and MCHP gaining after its EPS/guide; RCL, FUN, Hyatt slip after misses among reopen plays, while CZR underperforms despite a strong beat, and LYV rises after its beat; AMGN biggest drag on Dow on guidance.

·     Stock markets still showing no fear despite a third Wall Street strategist calling for a possible 10% decline. Goldman strategist Mueller-Glissmann noted that with 188 days without a 5% drawdown in S&P 500 – one of the longest uninterrupted stretches in the last 100 years – the market is starting to look quite precarious and with "both equities and bonds getting more expensive, multi-asset portfolios are becoming more vulnerable to rates and growth shocks.” Morgan Stanley also made recent comments while today, Citigroup said while stocks may not be in the bubble like they were in early 2000, the market could still be vulnerable to a 10% decline this year. "Too many inexperienced investors are plowing into technology ideas that seem overvalued at 20x revenues, complaining that the often-older investment community does not understand the disruption taking place and are too handicapped by traditional metrics," they wrote.

 

Economic Data:

·     Private companies added 330,000 jobs in July, according to ADP, far short of the 653,000 estimates; data for June was revised slightly down to show 680,000 jobs added instead of the initially reported 692,000

·     Markit July U.S. PMI Composite (Final) 59.9 vs. 59.7 consensus and 63.7 prior, while the Markit Services PMI also 59.9 vs. 59.8 consensus and 64.6 prior

·     ISM non-manufacturing sector PMI rises to record high in July of 64.1, topping the consensus 60.5 and was above the 60.1 in June; ISM non-manufacturing business activity index 67.0 in July vs. 60.4 in June, prices paid index 82.3 in July (highest since Sept 2005) vs 79.5 in June; new orders index 63.7 in July vs 62.1 in June and employment index 53.8 in July vs 49.3 in June

 

Commodities, Treasury’s

·     Oil printed a two-week low of $67.85 before WTI crude finished settled down -$2.41 or 3.42% at $68.15 per barrel, its lowest closing level since July 20^th and down for a 3^rd straight day. Oil price, already pressured by lingering concern over rising cases of the Delta coronavirus variant and its impact on demand, extended losses this morning after the EIA said U.S. crude inventories rose by 3.6 million barrels in the week ended July 30 (vs. a consensus drawdown of over 3M barrels).

·     Gold prices gave up early gains as comments from a Fed Reserve official Clarida and record U.S. services industry activity data shifted concerns back to the Federal Reserve potentially easing asset purchases later in the year, pulling gold off earlier highs around $1,835 an ounce to settle at $1,814.50 an ounce, up less than 0.1% on the day. Gold prices had jumped more than 1% earlier in the session after weaker than expected ADP jobs data.

·     U.S. Treasury yields bounced off its lowest levels since February (10-year below 1.13%) after a top U.S. Federal Reserve official (Clarida) backed expectations for higher interest rates, while the ISM non-manufacturing sector PMI rises to record high in July of 64.1, topping the consensus 60.5 along with inflationary data points (prices paid index 82.3 in July – highest since Sept 2005). The 10-year yield hits highs above 1.21% following the combo before paring gains. Clarida said he could envision a taper in bond purchases later this year, and that the U.S. economy is on track to meet hurdles the central bank has set for raising interest rates.

 

Federal Reserve member comments

·     The U.S. central bank should start reducing its bond-buying program “soon” and gradually, Dallas Federal Reserve President Robert Kaplan said on Wednesday, adding that doing so would give it more flexibility to be "patient" on raising interest rates. "As long as we continue to make progress in July (jobs) numbers and in August jobs numbers, I think we’d be better off to start adjusting these purchases soon," Kaplan told Reuters in an interview.

·     Fed Vice Chair Richard Clarida said today the Federal Reserve should be in the position to begin raising interest rates in 2023, as he predicted the U.S. economy remains on track to meet the central bank’s employment and inflation goals. "I believe that these … necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022," Clarida said in prepared remarks for a webcast discussion.

 

 

Macro	Up/Down	Last
WTI Crude	-2.41	68.15
Brent	-2.03	70.38
Gold	+0.50	1,814.50
EUR/USD	-0.0022	1.1840
JPY/USD	0.41	109.45
10-Year Note	0.006	1.18%

 

 

Sector News Breakdown

Consumer

·     Retailers; BGFV Q2 EPS $1.63 vs est. $1.08 on revs $326M vs est. $291.65M, same-store sales +31.2% vs. guidance of +22-27%, raised its dividend to 25c/share from 18c, sees Q3 EPS $0.95-1.15 vs est. $0.86; TUP Q2 adj EPS 95c vs est. 57c on sales $464.7M as sales rose YoY in North America +26%, Europe +26%, and South America +45%, but fell in the Asia-Pacific region by 7%; RCKY Q2 EPS 99c vs est. 83c on revenue $131.6M (up 134.2% Y/Y) that beat ests. by $2.7M, and said will raise prices to offset costs and margin pressures; ODP Q2 adj EPS 51c vs est. 52c on sales $2.29B vs est. $2.24B and continued its plan to spin-off into 2 separate companies, and remain on track for the separation to occur in 1H22; VSCO (which started trading yesterday after a split of LB) was initiated by Wells at OW with a $100 PT as they see it as an underappreciated asset with a more compelling story, and it replaces LB as one of their Top 5 picks in retail, and MKM initiated the stock with a Buy rating and $88 target; Cowen upgraded CPRI to OP as current valuation is attractive and their $75 price target implies upside of over 25%; JPMorgan upgraded UAA to OW with a $30 target given its strong top-line growth in 1H21, the forecasted growth in sportswear, and favorable risk/reward after shares have underperformed the retail sector by 75% over the past 18 months; GME, VSCO were both added to the S&P MidCap 400 index

·     Auto sector; GM Q2 adj EPS $1.97 missed est. $2.23 on revs $34.17B that topped est. $29.9B and worldwide vehicle sales 1.757M vs est. 1.467M, and now sees FY21 adj EPS $5.40-6.40 vs prior $4.50-5.25 but still below est. $7.31, and FY adj EBIT $11.5-13.5 from $10-11B; Ford (F) July U.S. sales 120,053 vehicles, down 32% vs July 2020; July total U.S. truck sales down 27%, SUV sales down 27%, car sales down 75%; LYFT Q2 was its 1st quarter of profitability by adj EBITDA, as its $23.8M EBITDA came in well above the company’s ($40M) loss at the midpoint of its quarterly guidance and the est. ($44M) loss, and also reported adj EPS loss of (5c) vs est. (24c) on revs $765M vs est. $696.9M as its active users increased 3.6M from Q1 to 17.142M, though its rev per active rider was $44.63 vs $45.13 in Q1; TM reported a record quarterly profit in Q1 of 897.8B yen (~$8.2B) on sales 7.94T yen ($73B) and it kept full-year guidance unchanged, though said vehicle sales could beat projections if parts shortages that are currently impacting production are solved, though it shut down production at 1 China plant; HMC Q1 operating profit 243.21B yen ($2.23B) and raised its FY forecast to an operating profit of 780B yen (est. 764B yen) from its previous forecast a 660B yen profit, though it lowered its sales projections to 4.85M vehicles from; auto supplier BWA Q2 adj EPS $1.08 vs est. $0.80 on revs $3.76B vs est. $3.45B, and raised its full-year guidance from adj EPS to $4.15-4.40 from $4-$4.35 and revs.

·     Housing & Building Products; LL with beats across the board as Q2 EPS $0.41 tops consensus $0.19 and revs $301.4M (est. $296.8M) while comps +31.3% vs. est. +29.7% (+10.0% on a two-year stack) and margins 37.4% vs consensus 36.9%; BLDR ests raised at RBC Capital ahead of 2Q results, reflecting BLDR’s pre-release, marked-to-market lumber/OSB, and all announced acquisitions/divestitures; ETH declares special cash dividend of $0.75/share

·     Consumer Staples; KHC beat on Q2 EPS and sales while organic sales (2.1%) vs consensus (1.3%) – U.S. (2.7%) vs consensus (2.7%), International +0.4% vs consensus +1.1%, and for Q3, expects a mid-single-digit percentage increase in Organic Net Sales; FDP Q2 EPS $0.98/$1.14B (mixed) vs. estimates $0.83/$1.15B; EBITDA $83.6M vs consensus $77.5M; CVGW said it sees Q3 revenue of $275M-$285M, near the low end of its previously announced range, with EBITDA $0M-$2M which is below its previously announced range of $11M-$15M; HLF mixed Q2 as EPS beats on in-line/slight miss on sales while Q3 guidance midpoint misses estimates (EPS $1.05-$1.25 vs. est. $1.22, revenue growth (1%)-+5% vs consensus +4.6%)

·     Restaurants; the recent spike in COVID cases has hurt restaurant stocks badly. Many down 10%+ over the last week; DENN Q2 EPS $0.18 tops $0.12 est. and revs $106.2M above consensus $99.5M with EBITDA $25.3M (est. $20.9M) and domestic system-wide comps +117.0% vs consensus +124.4%; NDLS mixed quarter as EPS of $0.10 misses on slightly better revs of $125.6M with better comps (+56.8% vs consensus +52.3% – company +55.7% vs consensus +53.5% and franchise +63.8% vs consensus +53.0%); BJRI upgraded from Hold to Buy at Deutsche Bank with $61 tgt noting shares are down ~39% from the high that was achieved in March

·     Casinos, Gaming, Lodging & Leisure sector; MGP shares jump after VICI to acquire the company for a total consideration of $17.2B, including the assumption of ~$5.7B of debt; in hotels, shares of Hyatt (H) active on earnings; in cruise lines, RCL reported earnings that showed a larger-than-predicted loss of (-$5.06) vs. est. loss (-$4.35) with a 2021 loss and hopes to have 80% of capacity in service by end of year; in gaming, CZR revs missed us at $2.5B v our $2.675B but EBITDA of $1B beat street $930m. Sports betting saw $117m of Revs in the qtr and had $2M EBITDA; in theme parks, FUN posts smaller than expected loss of (-$1.04) vs. est. loss (-$1.61) on better revs of $224M and says in-park per capita spending at record levels through July

 

Energy

·     Energy stock movers; in earnings: OXY Q2 adj earnings topped expectations as revenues doubled Y/Y to $5.96B due to higher oil prices, higher sales volumes across all products and lower operating expenses, while Q2 GAAP loss narrowed to $97M from a Q1 loss of $346M and production rose 7.7% Q/Q; DVN Q2 earnings and revenue topped estimates as core EPS swung to a $0.60 per share profit from a year-ago loss of $0.18 and Q2 operating cash flow jumped 85% Q/Q to $1.1B; BRY EPS $0.07 above consensus due mainly to lower cash costs. 2Q21 capex was $9M above consensus due to more wells being drilled, including eight in Utah. 2Q21 production was in line with consensus; CDEV EPS was 11% above consensus. 2Q21 production was 3.4% above consensus, and 2Q21 oil production was 0.4% above consensus. However, 2Q21 capex was $3M above consensus; CRK EPS was 6% above consensus on higher production and slightly lower cash costs, but 2Q21 capex was 23% above consensus and CRK raised its 2021 capex budget by 2.4%. 2Q21 production was 2.3% above consensus; WTI shares tumble post earnings

·     Inventory data: U.S. crude stocks and distillate inventories rose while gasoline inventories fell, according to the weekly EIA report; crude inventories rose by 3.6 million barrels in the week to July 30 to 439.2 million barrels (est. was for -3M barrel drawdown), while crude stocks at the Cushing, Oklahoma, delivery hub fell by 543,000 barrels in the last week, EIA said. U.S. gasoline stocks fell by 5.3 million barrels in the week to 228.9 million barrels, the EIA said. The API showed a draw of 879K barrels of oil for the latest week; gasoline inventories show a draw of 5.75M barrels, distillate inventories show a draw of 717K barrels and Cushing inventories show a build of 659K barrels; U.S. natural gas futures extend gains, rise to highest since December 2018

·     Utilities & Solar; SPWR shares slide after posting a Q2 revenue miss ($308.9M vs. est. $327.31M) and guides Q3 revs $325M-$375M below the est. $400.83M – report follows recently better earnings/guidance from rival solar names FSLR and SEDG; PNW downgraded by two firms (Barclays and KeyBanc) saying the ALJ recommendation falls ~$151M short of PNW’s revenue request, driven by capital disallowances and below-average ROE of 9.16% – firms believe that this will create significant challenges for the Company moving forward

 

Financials

·     Brokers, Bank, Exchanges movers; big banks benefit from a bounce in treasury yields, helping boost large caps, regionals, and insurance names; HOOD upside momentum continues in shares, surging as much as 75% to highs above $84 – after the recent 55M share IPO priced at $38 last week (shares fell to lows below $34 last week)

·     Insurance; GNW Q2 earnings beat the consensus estimate as net investment rose Q/Q and Y/Y, while said it continues to prepare for its planned minority IPO of Enact; UNM Q2 adj earnings topped estimates and improves its guidance for the full year saying sees after-tax adjusted operating income per share for full-year 2021 to decline ~1%-3% in relative to FY2020, compared with the previous expectation of a 5%-6% decline; PRU Q2 adj operating EPS of $3.79 tops the consensus estimate of $3.09 and said assets under management (AUM) of $1.730T at June 30 vs. $1.663T at March 31.

·     Financial services; FICO 3Q results came in above Street expectations due to strong Scores momentum on both the B2B and B2C side; VIRT falls after Q2 earnings disappoint as trading activity declines – Q2 total revenue of $549.0M, easily beating the consensus of $369.4M, falls from $905.9M in Q2 2020

·     REITs; PSA boosts full-year guidance after Q2 earnings beat; NSA FFO beats by $0.01, beats on revenue; RPAI Q2 FFO of $0.27 beats by $0.06, and also beats on revenue; SPG upgraded to Buy from neutral at Bank America and raise tgt to $150 from $141 as 2Q results far exceeded our expectations; MAC posts Q2 beat and boosts the low end of its 2021 guidance range for FFO per share to $1.82-1.97 from its previous range of $1.77-1.97

 

Healthcare

·     Pharma movers; Amid surge in new COVID-19 infections across U.S., the FDA plans to give full approval to PFE and BNTX coronavirus vaccine by the start of the next month, The New York Times reports; ZY plunges after saying it no longer expects product revenues in 2021 and for revenues to be "immaterial" in 2022, as it recently became aware of issues with its commercial product pipeline and its CEO stepped down; GBT upgraded to Buy at Truist as Oxbryta revenue came in above Street expectations and 3Q21 guidance was above initial consensus; ENDP said it will pay $35m to settle an opioid-related case in a Tennessee court; UTHR solid 2Q results with revenue of $447M (vs. $379M cons), with beats in Tyvaso, Unituxin and Adcirca

·     Biotech movers; BYSI shares surge after saying its Dublin-3 registrational trial of plinabulin in combination with docetaxel met the primary endpoint showing statistically significant improvement in overall survival for the combination versus docetaxel alone; the European Commission (EC) said Member States will be able to purchase up to 100M doses of the NVAX vaccine, with an option for 100M additional doses over the course of 2021, 2022, and 2023; AMGN slow steady slide for the Dow component, falling well below 200-day MA support (was $238.75) after earnings beat, but mid-point of guidance below consensus; NVTA raised revenue forecast for 2021 to $475M-$500M from prior $476.4M after Q2 revs rose 152% y/y to $116.3M, driven by billable volumes of 287,000

·     Healthcare Services; CHNG shares fell on a report that the U.S. Dept. of Justice is considering a lawsuit to block the company’s $8B sale to UNH https://bit.ly/3yA4Etu ; OPCH 18M share Spot Secondary priced at $20.25; PEAK Q2 FFO beat ests and now sees 2021 adjusted FFO per share of $1.55-1.61 vs. previous range of $1.53-1.61; consensus estimate $1.59; CVS Q2 adj EPS $2.42 vs. est. $2.06; Q2 revs $72.62B vs. est. $70.11B; raises FY21 adjusted EPS view to $7.70-$7.80 from $7.56-$7.68 (est. $7.66); sees FY21 cash flow from operations $12.5B-$13B; ABC hitting 52-week highs today following quarterly earnings and guidance

 

Industrials & Materials

·     Aerospace & Defense; LMT cut its full-year earnings forecast due to its purchase of group annuity contracts from Athene Holding to transfer $4.9B in pension obligations and related plan assets for ~18K U.S. retirees and beneficiaries; MRCY shares slide (downgraded by Baird and Truist) as the co’s updated FY22 outlook was revised lower from its preliminary view and this marks two quarters in a row of disappointing results/guidance; SPR Q2 adj EPS loss (31c) was less than half of est. (66c}) loss on revs $1B vs est. $958.2M, delivered 243 shipsets vs 159 YoY, including 35 Boeing 737 shipsets vs 29 in Q1 and 19 YoY

·     Materials, Industrial & Machinery; for monthly class 8 truck data, ACT released July preliminary Class 8 net order figures of 25,800 units, which compared to last month 25,700 units (shares of CMI, PCAR, ALSN among names leveraged to data); IR 29.79M share Spot Secondary priced at $49.25 KKR as sells its remaining 7% stake; EMR reported Q3 adj EPS $1.09 vs est. $0..98 on revs $4.7B vs est. $4.6B, in-line gross margin 42.2%, and raised its full-year forecast for adj EPS to $4.06-4.08 from $3.85-3.95 and net sales +9-10% from +6-9%; SMG shares tumbled despite the Q3 top/bottom line beats as midpoint of year outlook below consensus (despite big beat)

·     Transports; CAR Q2 adj EPS $5.90 vs. est. $1.21 on revs $2.37B vs. est. $1.86B, adj EBITDA in the Americas $634M driven by continued sequential revenue growth and sustained cost discipline

 

Technology, Media & Telecom

·     Internet; COUR reported a strong beat-and-raise 2Q with revenue growing 38% Y/Y off a tough comparable and Consumer gross margins expanding 1,150 bps Y/Y on greater adoption of higher margin content; AKAM downgraded to Hold at Needham after earnings citing a lack of catalysts to drive shares higher/notes Edge’s 3-5 year CAGR of 2%-5% is unlikely to inspire the next leg of growth

·     Semiconductors; another record high for the Philly semi-index (SOX), taking out its prior record high of 3,420, led by another surge in AMD to fresh record highs (upward momentum); LSCC slips on guidance; MCHP reported in-line JunQ rev/EPS of $1.57B/$1.98 and guided to a BETTER SepQ of $1.67B/ $2.11 vs. cons. $1.59B/$1.98, with top-line up ~5% q/q, in-line with peers as foundry TSMC’s Supply has improved

·     Software movers; ATVI rises after better Q2 results and guidance; AYX slides as reported mixed 2Q21 results as revenue and EPS were well ahead of consensus, but guidance for FY21 revenue was lowered – a key driver of this change is the headwind created from shortening contract duration; NEWR reported solid 1QFY22 results as revenue and EPS were ahead of consensus and including higher FY22 guidance metrics; PAYC delivered beat-and-raise Q2 results on broad-based strength in the core business and signaled an early recovery in pandemic-related unemployment headwinds; SKLZ reported Q2 results that missed expectations on the top and bottom lines; ZI 20M share Spot Secondary priced at $55.25; MIME reported a strong quarter with upside to revenue/profitability and took FY/22 guidance up, slightly higher than the beat; RNG strong quarter with lead metrics accelerating and pipelines remaining strong

·     Hardware, Components & Services; NPTN 2Q21 revenues and margins came in above expectations, although there was significantly greater Huawei sales ($14mn) than expected and GMs were helped more than 200bps by an accounting change

·     Media & Telecom movers; CDLX falls over 20% early after the company reported second-quarter results that missed expectations; SHEN upgraded to market perform at Raymond James, saying the stock is trading at a more reasonable valuation after significant price dislocation; NYT beat quarterly profit expectations as its advertising business showed signs of recovery, overshadowing slower growth in digital subscriptions; MTCH mixed Q2 as earnings missed estimates on better revs of $707.8M with upside guidance; LUMN confirms it’s selling its U.S. telecom assets to Apollo Funds in a $7.5B deal in a deal that includes debt assumption of $1.4B.