Closing Recap

Monday, August 23, 2021

Equity Market Recap

·     Last week’s selloff after Monday’s 6^th-consecutive record close for the S&P seems to have been put in the rear-view mirror as stocks have fully resumed their upward momentum. The S&P and Nasdaq both made new record intraday highs today and the S&P recorded its 50^th record close of 2021 as its meteoric rebound from the pandemic lows exactly 17 months ago continues. Today’s move higher was buoyed by the FDA’s full approval of Pfizer and BioNTech’s Covid-19 vaccine that also helped to lift reopen-related sectors such as casinos, airlines, and cruise lines. Meanwhile, the Smallcap-heavy Russell 2000, which has not participated in the summer optimism as its record intraday high remains from March, continues Friday’s rebound from a 6-day losing streak as it outperformed other indices for the 2^nd consecutive session. Elsewhere, the cryptocurrency space rallied with Bitcoin and Ethereum touching their highest levels in over 3 months, and the Energy sector outperformed with WTI Crude snapping its 7-day losing streak. Later in the week, investors will focus on the virtual Jackson Hole symposium starting Thursday to look for hints on when the Fed will start tapering in addition to bankers’ thoughts on inflation and other economic commentary. Lastly, 95% of the S&P companies have already reported this quarter with earnings coming in almost 16% above expectations, and this week’s earnings are focused in retail (JWN, BBY, URBN, DKS, ULTA, WSM, ANF, BBW, BURL, DG, DLTR, GPS, BIG, HIBB all scheduled to report) and tech (PANW, INTU, ADSK, CRM, NTAP, SNOW, SPLK, DELL, DOMO, HPQ, MRVL, WDAY, VMW).

·     Stock/sector news; PFE, BNTX soar after the FDA fully approves their Covid vaccine, lifts other vaccine makers MRNA, NVAX and reopen trades in airlines (AAL, LUV, DAL), cruises (CCL, RCL, NCLH), casinos (WYNN, MGM, CZR, PENN), LYV, PLNT, etc.; Energy outperforms with OXY, APA, FANG, DVN, MRO among S&P leaders, rebounding with WTI Crude up over 5% to snap its 7-day losing streak; Bitcoin, Ethereum hit respective 3-month highs, boosting RIOT, MARA, SI, and PYPL rises after launching crypto services in the UK; COIN, MSTR join the rally early but pare gains; HOOD gains after several initiations and possibly in sympathy with the crypto space (crypto trading accounted for 41% of firm’s Q2 total revenue); GNRC jumps after Hurricane Henri makes landfall in the Northeast over the weekend while P&C insurers ALL, HIG, CB were active; DASH UBER LYFT each open red after a CA judge strikes down the state’s ballot measure classifying gig workers as independent contractors, but each stock shakes off the early weakness.

Economic Data:

·     U.S. July existing home sales rise 2% to 5.99M unit rate, topping consensus of 5.83M while June upwardly revised to 5.83M from 5.86M; the national median home price for existing homes $359,900, +17.8% from July 2020

·     Markit Aug. U.S. PMI Composite Flash was 55.4, missing the 59.5 consensus and 59.7 prior; Manufacturing PMI 61.2 vs. 63.1 consensus and 63.1 prior and the Markit Service PMI reported at 55.2 vs. 59.7 consensus and 59.8 prior.

Commodities

·     Crude oil prices rebounded $3.50, or 5.63%, to settle at $65.64, snapping its seven-day losing streak with its largest daily increase since March, largely fueled by a return of risk-on investor sentiment that has weakened the dollar despite demand concerns prompted by rising cases of the coronavirus delta variant.

·     Gold prices vaulted $22.30, or 1.3% to settle at $1,806.30/oz, above the key $1,800 psychological level on Monday as a retreat in the dollar pushed investors to seek refuge in bullion with rising coronavirus cases driving expectations that the U.S. Federal Reserve might delay tapering of economic support. Prices of other precious metals also jumped on the prospect of delayed tapering, as spot palladium bounced over 5% off its lowest price in over 5 months and silver rebounded more than 2% off its YTD low today

Sector News Breakdown

Consumer

·     Retailers; PTON tgt cut to $140 from $150 at Oppenheimer and lowering FY22E revenue by 6% and ahead of F4Q release, as third-party data suggests a slowdown in June/July product deliveries and connected-fitness subscriber growth; ULTA tgt raised to $405 at Piper as continue to favor ULTA following our channel checks of its Target partnership which rolled out last week; TGT to add more than 100 Disney shops to stores as holiday season approaches; earnings this week in retail space (after many results last week) include: JWN, BBY, URBN, DKS, ULTA, WSM, ANF, BBW, BURL, DG, DLTR, GPS, BIG, HIBB

·     Auto sector; GM to take a $1B charge to expand the recall of its Chevrolet Bolt electric vehicles due to the risk of fires from the high-voltage battery pack; this comes on top of $800M in costs from previous Bolt recalls; KAR to accelerate dealer-to-dealer growth, profitability through acquisition of CARWAVE, in transaction valued at $450M

·     Consumer Staples; BGS enters at-the-market equity program for up to 7.5M shares; for SAM, TAP Bank America notes we are halfway through the summer and hard seltzer trends continue to worsen saying YoY retail sales for hard seltzers continue to decelerate with sales for the 4wks ending July 31st up +6.6%. In addition, if trends from last year hold then hard seltzer share of beer sales peaked at 12.1% during the 4wks ending 7/17/21 & should face declines until the end of Jan 2022; SYY announced Trian’s Peltz and Josh Frank resigned as board members after 6 years

·     Casinos, Gaming, Lodging & Leisure sector; strong sector given FDA approving PFE vaccine, helping the reopen trade as casinos, lodging, leisure names move higher; ride haling companies UBER, DASH, LYFT shares slide initially after a California state judge strikes down a ballot measure that declared drivers for the companies were independent contractors (but recovered with FDA approval of FDA Covid vaccine); separately, UBER files to sell 25.4M shares for holders; cruise lines active (CCL, RCL, NCLH), as the CDC said late Friday people in at-risk groups for Covid-19 complications should avoid taking cruises, regardless of their vaccination status; MSGE shares surged despite its Q4 EPS loss ($4.87) wider than est. ($3.26) as revs $99.8M topped est. $71.5M

Energy

·     Energy stock movers; strong rebound underway for energy related stocks as WTI crude oil prices recover, on track to snap its 7-day losing streak (APA, FANG, DVN, OXY among top gainers in the S&P). Oil prices jumped with gains driven by a weaker dollar despite demand concerns stoked by rising cases of the Delta coronavirus variant.

·     E&P and Majors; U.S. E&P stocks were down ~9% last week, underperforming the S&P 500, which was down ~1% WoW. E&P equities tracked the downward move in WTI oil prices, which also fell ~9% WoW to settle at $62.32 per barrel on growing concerns around the economic impacts from the spread of the COVID-19 delta variant, as well as strength in the US dollar; in research today, CLR, EOG, OAS all upgraded at Wells Fargo while downgraded CHK, ESTE

·     Utilities & Solar; STEM a positive mention in Barron’s saying the company that installs batteries for utilities and sells software to manage them, is an attractive renewable energy bet; On Friday, Reuters reported that the U.S. Environmental Protection Agency is expected to recommend to the White House lowering the nation’s biofuel blending mandates below 2020 levels. While EPA did not make a press release, D6 RIN prices reacted and were down 15% closing at $1.32 gal on this Reuters report

Financials

·     Bank movers; JEF mentioned positively in Barron’s calling it a “rising star” on Wall Street and it will benefit from European banks’ pullback from the U.S. capital markets; The UK Competition and Markets Authority officially opened a formal probe into SPGI’s planned $44b acquisition of INFO; SIEB acquired a 24% stake in diversity broker Tigress Financial Partners for undisclosed sum; HOOD was initiated with a Buy/OW rating at Mizuho ($68 PT), Citi ($63), JMP ($58), KeyBanc ($55), Neutral at Goldman ($56), Barclays ($50), Piper ($47), Deutsche ($45), and with an Underweight rating at JPMorgan ($35)

·     Insurance; shares of property & Casualty (P&C) stocks were active (ALL, CB, HIG, TRV) given the impact of Tropical Storm Henri this weekend in the Northeast – RBC Capital said if had to hazard a guess they’d say +/-$5 billion of losses with population density and high value property adding to losses while comparatively milder than normal wind impacts and likely modest commercial impacts reducing the total

·     FinTech & Payments; PYPL will allow customers in the UK to buy, sell and hold bitcoin and other cryptocurrencies starting this week, Reuters reported this weekend; Bitcoin’s price surged past $50,000 on Monday for the first time since May, continuing its rebound from a months-long slump. This is a 70% rally off July lows below $30k, and other cryptocurrency Ethereum traded above $3,300 to also hit its highest price in more than 3 months as it has rebounded 95% off its 7/20 low. Shares of related stocks (MARA, RIOT, COIN) also partake in the rally; Morgan Stanley initiated PAYA at Equal-Weight with an $11 price target as their opportunity in B2B integrated payments is largely reflected in current valuation

·     REITs; KeyBanc raised their estimates on self-storage CUBE, EXR, NSA, LSI, PSA after all 5 reported significant beats with guidance revisions that support continued outperformance (YTD +25.8% vs RMS) and raised their PTs on OW-rated EXR, LSI

Healthcare

·     Vaccine news: The FDA announced full approval of the Pfizer (PFE) BioNTech (BNTX) Covid vaccine for individuals 16 years old or older; PFE and BNTX prices were initially higher after a report in the NY Times Friday said that the U.S. FDA is poised to fully approve their coronavirus vaccine early this week; separately, BNTX price tgt raised to $450 from $240 at Canaccord saying they remain optimistic for BNTX’s prospects amid its COVID vaccine cash funds clinical pipeline, enabling growth into a fully integrated, global immunotherapy company

·     Pharma movers; PFE agreed to buy Canadian drug developer TRIL in a $2.26 billion deal to strengthen its arsenal of blood cancer therapies, paying $18.50 per share https://on.mktw.net/3kiNUB7 ; BMY said the FDA accepts for priority review its application for Orencia (abatacept) for the prevention of acute graft versus host disease and assigned an action date of December 23, 2021; XERS shares rise after FDA approves Supplemental New Drug Application of Gvoke kit for treatment of Severe Hypoglycemia

·     Biotech movers; AXSM rises after saying the FDA was unable to complete its review of the company’s drug to treat major depressive disorder by the target action date of Aug. 22 (not unexpected given the deficiency letter the company disclosed earlier in August), but also said the FDA did not request additional information, adding that the review of the application was ongoing; ORPH rises after the company posted results from the trial of its key drug candidate for a genetic disorder Niemann-Pick disease type C, two months after it was rejected in the U.S.

·     MedTech Equipment; VVOS said the U.S. FDA has granted 510k market clearance to the company’s mmRNA (modified mandibular Repositioning Nighttime Appliance) device for treating mild to moderate obstructive sleep apnea (OSA)

Industrials & Materials

·     Aerospace & Defense; MAXR rises after winning a five-year, $60M contract with the U.S. National Geospatial-Intelligence Agency to continue development and operations of a classified big data analytics program; Richard Branson’s Virgin Orbit said BA. will invest in the satellite-launching startup’s planned $3.2 billion SPAC listing later this year, an investment that comes as the plane maker’s own space program faces hurdles.

·     Industrials and Materials; gold miners rise in early trading (AEM, AUY, GOLD, NEM) after bullion gains as the dollar pulls back; industrial metals also seeing strength (FCX, AA) as slowing growth fears ease with full approval of PFE/BNTX Covid vaccine by FDA

·     Engineering and Construction sector; DY was upgraded to Overweight from Equal Weight at Wells Fargo and raises tgt to $90 from $77 on increasing confidence that DY will be a meaningful participant in the multi-year fiber-to-the-premise (FTTP) investment cycle over the next 5 years, in which we project fiber passing will grow ~15%/year through 2025 and the telcos will spend >$70B in capex in building new fiber premises; KeyBanc meanwhile maintains conviction with Overweight thesis on DY, as their findings are supportive of the strong growth ramp implied in MTZ’s 2H21+ Communications segment outlook – also said view telecom as a growth kicker for PWR and PRIM as well

Technology, Media & Telecom

·     Internet; JD reported Q2 sales that beat analyst estimates as consumer spending improved, defying a crackdown on the Chinese internet sector – posted sales of 253.8 billion yuan ($39.1 billion) for the three months ended June, compared with the 248.5 billion yuan est. and said annual active customer accounts increased by 27.4% Y/Y to 531.9 million; DUOL was initiated at OW by Piper ($156 PT) and JMP ($160) and at Neutral by Barclays ($125), Evercore ($140), Raymond James, Goldman ($125), and KeyBanc; RSKD received several positive initiations with new Buy/OW ratings at Truist ($35), KeyBanc ($35 PT), Credit Suisse ($33), Barclays ($33), Piper ($32), and William Blair, though JPMorgan initiated at Neutral with a $29 PT

·     Semiconductors; ADI and MXIM announced that China’s State Administration for Market Regulation has given antitrust clearance for Analog Devices’ previously announced acquisition of Maxim; SYNA tgt raised to $195 from $178 at Mizuho saying with a strong F22 outlook, multiple self-help drivers including IoT, Auto, and DisplayPort, and strong ~57% GM, we are Reiterating our Buy, and raising estimates and tgt