Closing Recap

Tuesday, December 01, 2020

Equity Market Recap

·     It was another all-out market buying blitz for global equities on Tuesday, as optimism grows by the day about the economic landscape/recovery, with the rally again being broad-based as small caps, tech, cyclicals, value all saw an extended massive buying frenzy on positive vaccine sentiment, better China manufacturing data and additional stimulus measure hopes. Two coronavirus vaccines head to FDA review shortly (MRNA and the PFE/BNTX combo) and if both are cleared, as many as 40M doses could be distributed by year’s end (as per reports). The Nasdaq Composite and S&P 500 each traded to fresh record highs, with markets also benefitting from stimulus hopes as Mnuchin and Pelosi spoke again today, while a news of a bipartisan coronavirus relief proposal with a $908 billion price tag also lifted spirits. China’s factory activity expanded at the fastest pace in ten years as the world’s second-largest economy recorded higher output and new orders in November which was a boost to commodity stocks today. Oil prices slipped, gold rebounded as the dollar hit 2 and 1-2 year lows and Treasury yields spiked.

·     Top stock stories today: vaccine names dominate headline again as MRNA BNTX continue recent runs, both touch new all-time highs ahead of FDA meetings over next 2 weeks to approve vaccines (PFE touched 52-week highs); electrical vehicle makers NIO, XPEV with record deliveries but unable to rescue EV stocks, as the group continues plunge; semiconductors touch record highs as MU hits highest levels since 2000 after boosting guidance and QCOM jumps after announcing its new chip will power most high-end Android phones launching next year; UNH jumps after reaffirming 2020 guidance and forecasting a 2021 profit; metals and material stocks (steel, copper) surge on continued China economic recovery play

·     Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell expressed some support on Tuesday for a new bipartisan coronavirus relief proposal with a $908 billion price tag. "It sounds like you’re hitting a lot of the areas that could definitely benefit from help," Powell said, when asked about the proposal at a Senate Banking Committee hearing. Mnuchin said: "I look forward to reviewing with you the overall package. I do think that more fiscal response is needed."

Economic Data

·     U.S. IHS market November final manufacturing PMI at 56.7 (vs flash 56.7); Markit November final manufacturing PMI final 56.7 vs flash 56.7 and final October 53.4; November final manufacturing output index final 59.2 (highest since Sept 2014) vs flash 58.7 and October 53.3

·     U.S. Construction Spending for October rose +1.3% vs. est. +0.8%; Oct private construction spending +1.4%, public spending +1.0%

·     ISM U.S. manufacturing activity index 57.5 in November vs. est. 58.0 and 59.3 in October and prices paid index 65.4 in November vs. 65.5 in October; new orders index 65.1 in November vs 67.9 in October and employment index 48.4 in November vs 53.2 in October

Commodities

·     Oil prices slip on the day as WTI crude ends lower by 79c or 1.74% to settle at $44.55 per barrel as markets remain cautious, awaiting direction from OPEC+ after the producers postponed a formal meeting to Thursday to decide whether to lift output from January. Crude and brent closed out November strong, each rising over 27% on hopes that COVID-19 vaccines would boost the global economy and fuel demand. Gold futures climb, rising $38 or 2.1% to settle at $1,818.90 an ounce, bouncing back from a five-month low the day prior (July 1 low), getting a boost as the U.S. dollar fell sharply. Silver was up 6% at $23.95 an ounce as well as big gains for platinum up 3.6% to $999.96 and palladium rose 1.7% to $2,412.93.

Currencies & Treasuries

·     U.S. Treasury yields jumped (10-year up 9 bps to 0.93%) to its highest level since early November on hopes that developments on the coronavirus vaccine front would bring a speedy economic recovery. It was another rough session for the U.S. dollar, falling to its lowest in 2-1/2 years (dollar index low around 91.40), as investor appetite for risk increased on expectations of a solid global recovery and further monetary and fiscal stimulus from the United States. The euro trade to 2-year highs, trading to highs of 1.2053. The buck fell further following mixed economic data and news of proposed COVID relief in the amount of $908 billion and would fund measures through March 31, including $228 billion in additional paycheck protection program funds for hotels, restaurants and other small businesses. Currencies leveraged to commodities and that trade higher in times of risk appetite such as the euro, sterling, the Australian, New Zealand, and Canadian dollars all rose vs. the dollar. Bitcoin prices remain volatile, hitting a record high just under $20,000 yesterday, but dropped under $19K today.

Sector News Breakdown

Consumer

·     Retailers; NRF noted U.S. shoppers spent about 14% less on holiday purchases from Black Friday through Cyber Monday as big gains in online orders were offset by a decline in foot traffic – people spent an average of just under $312 on holiday-related purchases, lower than the $362 a year ago. In-store shoppers fell 37% YoY Black Friday, while online shoppers on that day rose 8% and topped 100 million; KSS announces major long-term strategic partnership with Sephora as first 200 locations open in 2021, kohls.com beauty selection will convert to exclusively showcase an assortment of Sephora’s offerings; CTRN posts Q3 revenue of $199.1 mln vs $183.1 mln from a year earlier as comparable store sales rose 6.3% and reports Q3 net income of $0.67/share compared with net loss of $0.09/share, a year earlier; monthly NICS data out (RGR, SWBI, VSTO leveraged to data) – FBI reported that there were 3,626,335 firearm background checks initiated through in Nov up from 2,574,752 checks YoY and up from 3,305,465 checks MoM

·     Auto sector; NIO reported 5,291 vehicle deliveries in November, a record month and +109.3% YoY, and its YTD deliveries now total 36,721 (+111% YoY), and the stock was upgraded at Goldman to Neutral with a $59 pt from Sell and $7.70 pt, reversing their July 17 downgrade on valuation concerns; XPEV reported 4,224 vehicle deliveries in November, +342% YoY, bringing its YTD total to 21,341 (+87% YoY); KNDI responds to yesterday’s short report at Hindenburg, saying the report contains numerous errors, misstatements of historical facts, inaccurate conclusions, and superfluous opinions; TM November U.S. auto sales fell -1% vs. +9.20% YoY; JPMorgan upped their pt on GM to $49 from $46 and reiterated their OW rating despite their recent MOU with NLKA not including an equity stake, as the stock still represents excellent value, particularly compared to pure-play EV names, and there are several upcoming positive catalysts, including capital allocation, strong sales performance for full-size pick-up trucks and SUVs; TSLA will be added to the S&P 500 in one action on Dec 21

·     Leisure and Gaming; in gaming (WYNN, MLCO) another tough month is in the books for the Macau sector as gross gaming revenue fell 70.5% in November to 6.75B patacas, according to the Gaming Inspection and Coordination Bureau, down 7.2% from October; MTN was downgraded to Market Perform from Outperform at William Blair on a reset over the impact of the pandemic on the ski season; cruise lines opened higher (CCL, NCLH) before paring gains

Energy

·     Energy stock movers; OPEC and allies led by Russia postponed talks on oil output policy for 2021 to Thursday, as key players still disagreed on how much oil they should pump amid weak demand due to the coronavirus pandemic; XOM said it sees 15% global workforce reductions by the end of 2021 on top of cost savings that are seen at $10B, or 30% of capital spending and 15% of cash operating expenses this year; a non-cash, after-tax charge of $17B-$20B is expected in Q4; capital spending next year is seen at $16B-$19B, and then $20B-$25B annually through 2025; UBS downgraded OXY to sell from neutral and also cut SWN to sell from neutral; SU forecast higher production and spending for 2021, and also expects debt repayment between C$500 mln and C$1 bln in 2021

·     Utilities & Solar; sectors busy amid research rating changes; in solar, FSLR was downgraded at Barclays to Underweight with a Street low $60 price target (from $86) ahead what they perceive is a pending margin cliff; NOVA 7M share Spot Secondary priced at $37.00; in utilities, Wells Fargo upgraded SO to Overweight from Equal Weight and increase our forward price target to $72 as think it could be in the early stages of a substantial valuation re-rating; albeit not without risk; FE was downgraded to Equal Weight at Wells and cut its tgt to $31 as increasingly of the opinion that shares could tread water for an extended period of time as investors await the results of both external and internal investigations into the level of FE’s involvement in an OH bribery scandal related to the ’19 passage of HB 6

Financials

·     Bank movers; banks overall bouncing with broader markets again; in research, NTRS was downgraded to underweight by JPMorgan relative to trust peers (STT, BKbecause its P/E premium to is almost two standard deviations above its long term average premium despite sharp narrowing in revenue growth versus peers; SCHW upgraded to Overweight at Wells who views the stock as an excellent play on the "Covid reflation" theme given its sensitivity to interest rates and an increased comfort with the interest rate/ economic backdrop due to highly effective Covid vaccines, an expectation of solid EPS growth near-term on the back of the TD Ameritrade acquisition, and confidence in the broker’s ability to be a market-share taker; CS warned that they may have to pay up to $680M in an 11-year old mortgages case, and will add to its $300M in provisions already set aside for the case; BMO reported Q4 adj EPS C$2.41 on revs C$5.99B, both topping estimates (C$1.92 on C$5.86B), and its total provision for credit losses was C$432M, up from C$253M YoY but less than estimated C$726.7M

·     Consumer Finance; massive strength in space as COF, ADS, DFS all surging while SQ notable decliner in Fintech; Mizuho raised their target on PYPL from $270 to a street-high $290 on monetization from Bitcoin exposure, as nearly one-fifth of users have already traded Bitcoin on the PayPal app, nearly two-thirds would use it as currency at the company’s 28 million merchants, and rising engagement can also drive a meaningful lift to revenue and help offset some eBay headwinds next year; Needham raised their SQ pt to $250 from $230 following their acquisition of Credit Karma’s tax business, which will help increase user engagement within Cash App and drive higher account growth and interchange revenue over time; Bank of America raised their target on FISV to $136 from $120 saying the company’s Dec 8^th Analyst Day, its first in 3 years, is a potential positive catalyst as they are expected to provide initial 2021 guidance

·     Financial Services; Morgan Stanley upgraded NCR to OW with $34 pt, $51 bull case ahead of the company’s analyst day on Thursday due to an improving 2021 spending backdrop, solid execution, and potential value creation from SoTP analysis; Truist upgraded VRSK to Buy, saying it is positioned to deliver years of mid-single digit % organic revenue growth, better profitability, strong FCF, and improved capital disciple, and downgraded CLGX, INFO saying they are fairly valued; Argus also downgraded INFO to Sector Perform following the stock’s rise yesterday on the announcement that it will merge with SPGI to in-line with the deal value

Healthcare

·     Vaccine related news on Covid-19; PFE and BNTX have applied to the European drugs regulator for conditional authorization of their COVID-19 vaccine, following similar steps in the U.S. and Britain; MRNA rises again after touching record highs Monday as a panel of outside experts advising the U.S. FDA will meet Dec. 17 to review the evidence for Moderna’s vaccine and vote on whether to recommend that the agency authorize its emergency use – STAT news notes that MRNA is now worth more than 4 of the biggest biotech’s in the world (VRTX, REGN, BIIB, AMGN) as each of those companies has a multitude of approved medicines and, on average, made about $7.9 billion in revenue last year. Moderna has no approved products yet, and accordingly its 2019 revenue was $60 million; JNJ said Europe’s health regulator has started real-time review of its single-dose COVID-19 vaccine candidate, based on positive pre-clinical data

·     Biotech movers; AXSM announced positive results from the long-term, open-label Phase 3 COMET trial of AXS-05 in patients with major depressive disorder, or MDD, and the open-label Phase 2 COMET-AU trial in patients failing one prior antidepressant treatment; AGIO said its oral drug, mitapivat, for treating a type of blood disorder met the main goal of a late-stage study, showing sustained increase in hemoglobin compared to placebo; NERV slides after the FDA advised its mid-stage study of drug to treat negative symptoms in schizophrenia is problematic because it did not use the commercial formulation of the drug, roluperidone, and was conducted solely outside U.S.; NTLA announced $150M common stock offering

·     Pharma movers; ELAN 54.5M share Secondary priced at $30.25; FSTX rises as GSK reports a passive stake of 8.9% in FSTX as of Nov. 20; SAGE downgraded at Raymond James based upon view that the now captive zuranolone program has made SAGE a CATCH-22 investment around the outcome with Biogen’s aducanumab

·     Healthcare services and providers; UNH forecasts 2021 profit between $17.75 and $18.25 per share, below analysts’ estimates of $18.33 per share, but in-line revenue; HUM reaffirms guidance for 2020 eps; AHCO has acquired Orlando, Florida based AeroCare Holdings for $2B, comprising of $1.1B in cash and 31M shares. https://bit.ly/3lses1i

·     MedTech and Equipment; TMO shares rose on better forecast after saying it sees FY 2020 adj EPS of $19.17, above estimates of $18.34 which represents 55% adj EPS growth over 2019, compared with previous expectation for y-o-y adj EPS growth of 48%; Citi opened a positive Catalyst Watch on BIO, as the shares have pulled back ~16% since Pfizer’s positive COVID-19 vaccine data release on 11/6, making BIO the worst performer across the Tools group; Bank America reassessed valuations for SMID cap MedTech after a year of significant appreciation and record valuations as they downgraded SWAV to Neutral from Buy based on valuation, and emphasizing SIBN, AXNX as two names with significant upside potential, while raising tgts for Buy rated NVRO, LUNG, INSP and EAR

Industrials & Materials

·     Materials, Industrial & Machinery; FCX in copper rallying along with broader metals, buoyed by the better China manufacturing data overnight; steel and iron ore names (X, STLD, NUE, CLF) also rallying along with China recovery theme; KALU announced agreement to acquire AA’s Warrick rolling mill operations

·     Transports; FDX upgraded to overweight with $360 tgt at Barclay’s saying a more collaborative future between FedEx’s transportation networks could signal the beginning of a multi-year upcycle; overall transport index continues to be buoyed by economic recovery hopes with vaccine news as well as pick up in online spending and a recovery in air travel

·     Aerospace & Defense; BA continues to lead space after getting flight approval for Max 737 in recent weeks, helping boost supplier sector to industry; Truist today upgraded shares of ATRO, SPR, and TGI to hold from sell and upgraded AIR to buy from hold while upgrading their view of the commercial aerospace sector taking into consideration the recent 737 Max certification coupled with Covid vaccine news; SPCE shares rise after winning a NASA contract to provide flight and integration services for payloads chosen by the agency’s Flight Opportunities program; the multiple award contracts are firm-fixed-price orders with a total combined value of $45M; OSK active as Oshkosh Defense, a unit of OSK, gets an order for 2,738 joint light tactical vehicles (JLTV), 1,001 companion trailers, and associated kits from U.S. Army

Technology, Media & Telecom

·     Internet; PINS was upgraded to buy and setting a price target of $80 at Argus saying the company is benefiting from streamlined ad systems through the Pinterest Partners Program for smaller merchants and product improvements like Shop tab and also seeing strong international growth; in online travel, BKNG reit OW and raise tgt to $2,290 from $1,960 and EXPE to $140 from $120 at Barclay’s saying while there is still plenty of uncertainties on the timeline, distribution, and adoption of potential vaccines, they believe travel companies stand to benefit significantly from the widespread availability of vaccines in 2H21 and beyond; Bernstein less positive as BKNG initiated with an Underperform and $1,720 price target, TRIP initiated with an Outperform and $35 price target and EXPE initiated with a Market Perform at Bernstein and $113 price target

·     Software movers; ZM shares fell despite another amazing quarter with non-GAAP EPS of $0.99 (consensus $0.76) on an across-the-board beat with revenue of $777.2M, up 367% y/y (consensus $693.4M) an acceleration from 355% last quarter, billings of ~$888.8M (consensus $766.9M), up ~382% y/y, versus 384% last quarter, and RPO growth of 215%; APPN downgraded to underweight and Reiterate $76 PT at Barclay’s as they see downside risk to the current valuation as fundamentals come back in the driver’s seat and short covering subsides in due time

·     Hardware & Component news; BB shares surged after announced a "multi-year, global agreement" with AMZN’s Amazon Web Services cloud business to develop BlackBerry’s Intelligent Vehicle Data Platform, IVY; AAPL rises over 3% posting its 5th straight day of gains, leading major averages

·     Semiconductors; the Philly semi index (SOX) another fresh all-time high, topping the 2,700 level up as tech momentum surging; MU surges after raising Q1 EPS view 69c-73c from 40c-54c (above est. 48c) and raises revenue view $5.7B-$5.75B from $5B-$5.4B (est. $5.25B.); group has been a stand out to the upside on increasing demand; QCOM announces its new chip will power most high-end Android phones launching next year