Closing Recap

Friday, August 13, 2021

Equity Market Recap

Stocks have continued their impressive run, with the S&P closing at its 4^th consecutive record high and Disney’s strong earnings last night also lifting the Dow to its new record high. For the S&P, today marks its 58^th intraday record high and 48^th record close out of the 155 trading days on the year so far. If it were to continue this pace through the end of the year, it would set 78 new record closing levels, which would edge out 1995’s 77 record closes for the most in a calendar year. Recently, stocks have showed strength during a notably strong quarterly earnings season, as Credit Suisse noted that 84% of the S&P has beaten their earnings estimates by an average of 16%. Additionally, the optimism is not constrained just to the U.S. as Europe’s Stoxx 600 hit its record high and posted its 10^th consecutive daily gain, its best winning streak since December 2006. Even though earnings season is mostly in the rear-view mirror, several large retailers report next week including HD, WMT, LOW, TJX, PLCE, BBWI, VSCO, TGT, BJ, EL, KSS, M, TPR, FL, ROST, along with RBLX, CREE, NVDA, CSCO, AMAT, DE, and the first public reports from July IPOs HOOD and DNUT.

Stock/sector movers: DIS leads the Dow after its earnings beat with recovery in Parks segment and Disney+ subs topped estimates; in “meme: stock earnings, WISH plunges to its record low after its disappointing earnings draws JPMorgan, Cowen downgrades; SOFI plunges as its quarterly loss was much wider than anticipated and its Q3 guide is below expectations; RKT spikes despite its quarterly miss as its strong loan guidance boosts shares; in gig economy earnings, DASH goes from red to green after its beat, and ABNB bookings and strong Q3 outlook unable to lift shares as they hover around flattish; LZ, ZIP both jump early after reporting quarterly beats with raised guidance in their 1st public earnings, but both reverse lower; PPC surges over 10% after the world’s largest meatpacker proposed a takeout offer of $26.50/share; HNST plunges to its all-time low (IPO 5/5) on its quarterly miss.

Economic Data:

Import Prices for July MoM rose +0.3% vs. est. +0.6% (prior month revised to +1.1% from +1%), while YoY rose +10.2%; July Export prices MoM rose +1.3% vs. est. +0.8% and June unrevised at +1.2%, while YoY rose +17.2%

University of Michigan consumers sentiment prelim Aug 70.2 well below the 81.2 estimate and far below the July Final 81.2; the current conditions index prelim Aug 77.9 vs final July 84.5; the consumers expectations index prelim Aug 65.2 vs final July 79.0

Commodities, Currencies and Treasuries

Oil prices slid, with WTI Crude losing $0.65, or 0.94%, to settle at $68.44 as prices continue their slide after the IEA sharply cut its global oil outlook for the second half of the year yesterday (though they did increase its 2022 demand forecast).

Baker Hughes (BKR) says weekly rig count rose 9 to 500 rigs, with oil rigs up 10 to 397 and gas rigs down 1 to 102

Gold prices rise $26.40 or 1.5% to settle at $1,778.20 an ounce, moving back into positive territory for the week with a 0.9% advance. Prices volatile given mixed inflation data this week (CPI in-line with views, PPI was "hotter") and mixed Fed outlooks with calls for asset purchase tapering as soon as the Fall.

Treasury yields tumble following a weaker prelim University of Michigan Sentiment reading, as the 10-year yield fell as much as 7 bps to lows below 1.30% after highs around 1.36% earlier. The U.S. dollar declined in sympathy amid the weaker data.

Sector News Breakdown

Consumer

Retailers; earnings next week from LOW, HD, WMT, TGT, KSS, Macy’s in big week heading into back-to-school; CRCT shares tumble despite Q2 results beating, downgraded at Morgan Stanley citing slower growth and investments putting pressure on the company’s forecast as Morgan said Q2 results make clear that Connected Machine revenue growth and overall user engagement are decelerating faster; e-commerce company WISH tumbles after saying demand slowed/costs rose more than expected (downgraded by multiple firms as Q2 top-line missed and revs declined 7% from last year, 9% below consensus and monthly active users were also 12% below ests); for ULTA, UBS said they believe that ULTA’s 2Q results should underscore its position as a top reopening pick as raise tgt to $415 from $395

Auto sector; Ford (F) said it will stop deliveries of some Bronco SUVs to customers because of manufacturing problems, which could delay some orders from the 2021 model year to 2022; TSLA hopes to make the first cars at its "Gigafactory" in Grünheide, near Berlin, in October or soon afterwards, Chief Executive Elon Musk said

Consumer Staples; PPC rises after JBS SA, the world’s largest meatpacker, said it has proposed buying the remaining common shares in the poultry producer for $26.50 per share https://on.mktw.net/3yNCECX; recall earlier this week, rival company SAFM agreed to sell itself for $4.5B ($203/share) to Cargill and Continental Grain Company; HNST shares slip after Q2 revs of $74.6M missed the $78.M estimate as revs from diapers/wipes fell 2% in Q2 as demand slowed from last year’s pandemic-induced panic buying; FIGS

Lodging & Leisure sector; ABNB shares slipped as its disappointing guidance for 3Q weighs (indicated 3Q bookings should be lower vs. 2Q (on seasonality and COVID variants) overshadowed meaningful Q2 bookings upside (bookings and revenue 16% and 6% above consensus, respectively); DASH posted Q2 EPS loss (-$0.30), wider than estimates as it spent heavily to expand internationally and into a crowded market for grocery, saying total expenses more than doubled to $1.34 billion, as it also incurred higher advertising rates

Energy, Industrials and Materials

Energy stock movers; Mizuho upgraded XEC to Buy based on its now-attractive free cash yield and payout capacity of the combined entity with COG after their merger announcement in May vs both oil and gas peers and their constructive outlook on E&P names after a strong earnings season; in solar, MAXN slips following quarterly results; Solar stocks mostly lower today, led by declines in JKS after GLJ Research said checks confirmed that one of its shipments into the U.S. was stopped by U.S. customs, requesting proof that the products were not using HeSheng’s silicon metal material.

Transports; in railroad sector, KSU said its board has determined that the latest unsolicited proposal from CP does not constitute a superior proposal, and reaffirms its support of a merger with CNI (earlier this week, CP submitted a new $300 per share offer that values KSU at $31B. Under the terms of the CNI, KSU holders would receive $200 in cash and 1.129 CNI shares); in trucking, XL slides as Q2 EPS ($0.08) vs est. ($0.06) on revs $3.7M vs est. $4.4M; OEMs have pushed out the opening of new orders and extended lead times, indicating the shortage of its new commercial fleet vehicles will stretch into 2022; FDX raises surcharges for peak season beginning Nov. 1st

Financials

Insurance; WLTW to sell its reinsurance unit Willis Re to AJG for an initial consideration of $3.25B in cash as deal includes another up to $750M in cash to be paid in 2025 subject to certain adjustments; ROOT was downgraded to Equal Weight from Overweight at Wells Fargo with a price target of $7, down from $16 saying along with Q2 earnings, Root revised its annual guidance down and does not expect to see top-line growth in 2022 either

Bitcoin, FinTech & Payments; a solid rebound for the crypto sector with Bitcoin, Ethereum, Litecoin, Bitcoin cash among those moving to highs of the week; MARA Q2 EPS $0.21 vs. est. $0.16 as revs rose 220% to $29.3M from Q1 and said produced 654 newly minted bitcoins in Q2; as of June 30, 2021, produced 846 newly minted bitcoins in 2021; Chime Financial Inc. raised $750 million in its latest funding round, in a move that values the financial-technology startup at about $25 billion and sets it up for an initial public offering as early as next year, WSJ reported

Consumer Finance & Lending; SOFI slides after Q2 EPS (48c) missed est. (6c), though adj revs $237.2M top est. $218.6M, but Q3 guidance disappointed as their revenue forecast of $245-255M was weaker than expected $260.3M and the top end of its adj EBIDTA view of ($7M)-$3M was also shy of est. $11.8M; RKT Q2 results missed consensus with adj EPS 46c vs est. 49c on revs $2.67B vs est. $2.92B, but its Q3 guidance was strong with their outlook of Q3 closed loan volume $82-87B topping est. $65.9B and net rate lock volume $83-90B vs est. $65.8B; UPST was upgraded to Overweight at Barclay’s as believe that improvements in conversion rate, top-of-funnel acquisition, and margins are more sustainable

Real Estate, REITs; WeWork reported a smaller net loss for the second quarter as companies increasingly turned to hybrid work strategies – said net loss narrowed to $922.51 million in the quarter ended June 30 from $1.11 billion a year ago; RDFN was initiated at Susquehanna with a Neutral rating and $60 target as they are positioned be a winner as real estate shifts online, but risk/reward is balanced at current levels

Banks and Services; SCHW said total client assets for July of $7.64 trillion vs. $4.28 trillion y/y as July total client assets $7.64 trillion, +79% y/y and new brokerage accounts 402,000, +95% y/y; MS was downgraded to neutral at Seaport Global saying while has long argued that the market was undervaluing the company, with shares now trading at 14.0x his above consensus 2022 EPS estimate, believes this thesis has mostly played out; ZIP better 2Q results and raised guidance as paid Employers meaningfully accelerated to 169K (120% y/ y and 47.5% q/q) and noted a significant increase in both new employers and employees entering its marketplace; HOOD and VIRT popped late in the session after Fox Business’ Charles Gasparino reported the U.S. House Committee on Financial Services is shelving its plans to ban payment for order flow (PFOF)

Healthcare

Biotech movers; the FDA amended the emergency use authorizations granted for PFE/BNTX and MRNA COVID-19 vaccines on Thursday, allowing their use as booster shots in certain immunocompromised individuals; MRNA shares active after a new study concluded its vaccine provided antibodies for the majority of people who received it against variants of concern & interest for 6 months; RIGL slides after the FDA declines to approve fostamatinib COVID-19 EUA

Medical Devices & Services; EXAS posts results from a study of its Oncoguard Liver liquid biopsy test published in the peer-reviewed journal Clinical Gastroenterology and Hepatology (CGH). The test delivers 82% early-stage sensitivity, and an overall 88% sensitivity and 87% specificity for the detection of hepatocellular carcinoma (HCC), the company said.

Technology, Media & Telecom

Semiconductors; AMD outperformance lifting the semi space; Evercore/ISI added AMAT to its Top Picks list, while MU was removed, though both remain Outperform as firm sees DRAM correction as seasonal vs cyclical. They say they see absolutely zero change to memory capex and are adding AMAT to our Top Picks list for SPE (along with ASML and TER). More in memory sector, Wedbush noted concerns around year end memory pricing have percolated since June as a combination of new Trendforce estimates (calling for DRAM pricing to be flat to down 5% in CQ4) combined with comments from Micron CFO, suggesting that there has been some building of DRAM inventory at PC and mobile customers led to a sell-off in stocks earlier this week. The situation culminated in a substantial drop yesterday with MU and WDC both falling over 6% on Morgan Stanley downgrade

Software movers; ATVI upgraded to Buy from neutral at Citigroup saying they believe that the current concerns about Blizzard’s execution and China regulatory risk are more than priced into ATVI’s equity at current levels; Wedbush noted that according to NPD data for video game industry (EA, ATVI, TTWO), July U.S. console and handheld software sales were $180 million, down 4% year-over-year, and below their estimate of $198 million; LTCH slides as Q2 revs of $9mn came in at the low end of guidance and missed consensus estimates of $10mn and lowered year revenue guidance of $38-$42mn, down from $47-$51mn, driven primarily by global supply chain issues and labor shortages delaying new construction and retrofit projects.

Hardware, Components & Services; AAPL shares hold steady after rallying most of the week, helping boost the S&P, Dow, and Nasdaq; BOXL rises as reports Q2 revenue up 497% to $46.8M and customer orders higher by 986% at $76M; sees Q3 revs at $60M

Media & Telecom movers; Dow component and media giant DIS reported a strong recovery for its Parks business and a solid quarter for its Disney+ streaming service at 116.0M vs. est. 113.1M as both quarterly earnings and revenues toped consensus. Gains led by better-than-expected results at the company’s Parks, Experiences and Products, Direct-to-Consumer, and Content Sales and Licensing businesses; shares of NFLX gets a boost on better Disney+ subs, showing customers still adding to subscription-based services despite more people getting out