Closing Recap

Monday, February 08, 2021

Equity Market Recap

·     Stocks still surging as the S&P 500 topped the 3,900 for the first time, touching new all-time highs along with record for the Dow Jones Industrials, Nasdaq Composite, and Small Cap Russell 2000 as investors continue to pile into riskier assets such as stocks and commodity prices. Treasury Secretary Janet Yellen again with loud calls to go “big” on fiscal stimulus over the weekend, which markets continue to love hearing as investors await final details on the Biden administration deal. Big gains on the day came in Energy, Financials, Materials (reflation stocks rallying on belief the economy is expanding) and Technology while defensive Utilities, Consumer Staples, and REITS were the biggest drags in the S&P 500. Defensive names have lost their appeal with the flight to risk and as rising Treasury yields make higher dividend names less attractive. Year-to-date reflation trade sectors leading as Retail +24%, Energy +16%, Banks +11%, SmallCap +10% as per CNBC. Bitcoin grabbed headlines this morning, surging as much as 16% topping the $44,000 for the first time ever after Tesla (TSLA) said the co has invested ~$1.50 billion in bitcoin according to an annual filing and that they expect to begin accepting bitcoin as a form of payment for products soon. Names that mine Bitcoin, part of the blockchain, accept payment, etc. such as RIOT, MSTR, OSTK, MARA, PYPL, SI, NCTY, MOGO, WBAI, GBTC all found strength today behind the rally in Bitcoin. Major averages are coming off their best weekly gains since November as earnings, economic data, an accommodative Fed, and fiscal policy relief in DC all continue to lift sentiment daily, with fear essentially all but gone at this time. Benchmark U.S. Treasury yields surged to 11-month highs as the U.S. fiscal stimulus was seen boosting economic growth and raising inflation more quickly than expected. Semiconductors outperform in tech, boosted by M&A news after Dialog (DLGNF) rises as Japanese auto chip maker Renesas Electronics Corp confirmed it agreed to buy the chip maker. Stocks gained even after news that South Africa had halted the rollout of AstraZeneca’s vaccine after a study showed it gave only limited protection against the country’s more contagious variant of the coronavirus.

·     Last week, the S&P 500 gained 4.65%, Nasdaq rose 6.01%, and the Dow added 3.89%; the S&P and Nasdaq post biggest weekly percentage gains since week ending Nov. 6, Dow shows biggest weekly gain since week ending Nov. 13. For the week Russell 2000 rises 7.7% in its biggest weekly gain since week ending June 5.

·     U.S. President Joe Biden’s proposal to raise the minimum wage to $15 per hour by June 2025 would reduce employment by 1.4 million jobs that year and increase the U.S. budget deficit by $54 billion over the 10 years from 2021 to 2031, the Congressional Budget Office (CBO) said on Monday. In its cost assessment of Biden’s "Raise the Wage Act of 2021," the non-partisan legislative budget referee agency said that the minimum wage increase also would lift 900,000 Americans out of poverty in 2025. The CBO said the wage increase proposal would increase, on net the cumulative pay of affected people by $333 billion over the 2021-2031 period but noted that this represented an increased labor cost for firms employing them.

·     Coming int today, 292 of the S&P500 companies have reported 4Q results (76% of total market cap). 67% of companies reporting have beat street wide earnings estimates by >1SD (significantly higher than 46% historical avg) whereas only 6% have missed estimates by >1SD (significantly lower than historical avg of 14%) – as per Goldman Sachs.

Commodities, Treasuries and Currencies

·     Oil prices rise again as WTI crude rises $1.12 or 1.97% to settle at $57.97 per barrel, while Brent gained $1.22 or 2.06% to settle at $60.56 per barrel. Gold futures climbed as February gold gained $21.00 or 1.2% to settle at $1,831.90 an ounce, moving alongside gains in stocks and bitcoin, while the dollar was little changed on the day. Support for the precious metal remains tied to expectations for another round of significant aid spending to bolster the U.S. economy.

·     The U.S. dollar steadied on Monday, recovering some ground against a basket of peer currencies after falling sharply on worse than expected U.S. jobs data on Friday (but still ended the week higher overall). The dollar index slipped back below 91, down p-0.4%. Net bearish bets on the dollar by speculators fell to $29.95 billion for the week ended Feb. 2, compared with a net short position of $33.81 billion for the previous week – Reuters.

·     A selloff in bonds continues to push interest rates higher as anticipation of a larger fiscal stimulus package grows. The 30-year Treasury yield topped 2%, for the first time since Feb. 19, 2020, before easing back down in morning trading (vs. all-time lows 0.7% last March). The 10-year yield hit 1.2%, also for the first time since last February.

Sector News Breakdown

Consumer

·     Retailers; TGT upgraded to Buy at Stifel and raise tgt to $225 as positive stance reflects our view that share gains in recent years across most categories, especially digital (~18% of F2020 sales) continue; toy retailer HAS Q4 EPS/sales top views , as strength in gaming offset a miss in its franchise brands business; KSS to partner with Eddie Bauer to bring premium-quality performance outerwear and outdoor apparel for the entire family nationwide in Fall 2021; mattress retailers (TPX, SNBR, PRPL) active as Piper noted January PSC Mattress Retailer Survey showed the strongest sales growth in our 5 year survey history, with sales up +22-24% y/y; ENR posted top and bottom line Q1 beat; TSCO upgraded to Buy at Goldman as look for top line momentum to sustain in 2021 (positive comp growth) driven by a more efficient use of existing store footprints, new customers and strong digital execution, amidst attractive valuations

·     Auto sector; TSLA said the co has invested ~$1.50 billion in bitcoin according to an annual filing and that they expect to begin accepting bitcoin as a form of payment for products soon; Hyundai Motor (HYMTF) and Kia said they are now not in talks with Apple (AAPL) on developing autonomous vehicles, according to Reuters, just a month after it confirmed early-stage talks with the tech giant, sending the automaker’s shares skidding https://reut.rs/36Tj8sP ; LYFT says introducing an enhanced LYFT concierge experience within rider app; U.S. electric vehicle maker Xos Trucks Inc in talks to go public via $2 bln SPAC merger with NGAC Reuters reported.

·     Consumer Staples; HSY upgraded to outperform at RBC Capital (raise tgt to $170) as believe that Hershey is poised to hold onto its share gains from 2020 and likely to gain more in 2022 and beyond due to recent struggles of its competitors; EL trading to record highs, upgraded to outperform with $299 tgt at JPMorgan and to Buy with $310 tgt at Jefferies as sees signs from F2Q results on Friday that EL has been able to successfully pivot travel-retail and department store sales to the online channel much faster than anticipated; in protein sector, Stephens upgraded TSN, SAFM, PPC to overweight as think that after years of under-earning, the group is poised to show improving fundamentals as we move through 2021 and into 2022 and have increased confidence that higher grain prices will drive production restraint

·     Restaurants; LOCO, DENN, CBRL downgraded to hold from buy at Truist after post-consumer survey, as believe restaurant recovery could be at risk – remain positive on historical market share gainers (Buy rated TXRH and DRI and are increasing our price targets)

·     Leisure and Gaming; WYNN filed to sell 5.5M shares of stock; Bank America upgraded shares of casino MGM to Neutral while downgraded LVS to Neutral from Buy; in lodging, HLT positive mention in Barron’s saying the hotel chain stands out among the chains for its ability to weather the pandemic and emerge in good shape-and that its shares should have more upside; Jefferies said continue to see significant upside for shares of ELY, driven by robust popularity of golf and the oppty afford by the Topgolf merger.

Energy

·     Energy stock movers; OXY, MRO, APA surge as energy the leaders in the S&P behind another rise in oil prices; LBRT downgraded to underperform at Bank America citing the company’s Q4 earnings miss and believes that it pursued market share at the expense of margins during the quarter; OXY was added to the US 1 list at Bank America as continue to believe Occidental is past the worst following a commodity downturn that exposed the high level of debt used to finance the acquisition of Anadarko in 2019; in MLPs, TRGP upgraded to buy at Seaport Global as expect TRGP’s integrated NGL platform to perform well in the current environment

·     Alternative Energy, Utilities & Solar; ENPH to acquire Solar Design Services business of DIN Engineering Services LLP which provides proposal drawings and permit plan sets for residential solar installers in North America; CLNE rises after saying Los Angeles County Metropolitan Transportation Authority has signed an agreement for an estimated 47.5 mln gallons of co’s renewable natural gas

Financials

·     Bank movers; quarterly earnings all but behind the banking space, as attention turns to continued economic recovery and recently rising Treasury yields which tend to help lending margins for banks, etc.; shares of cryptocurrency and blockchain-related firms jump premarket as Bitcoin rises more than 16% topping $44,000. Bitcoin bank SI surges, along with cryptocurrency miners RIOT, MARA as well as shares of online retailer and blockchain tech investor OSTK and MSTR, a BTC buyer and business intelligence software firm; WBAI another mover 9recall on 2/2, entered into a definitive purchase agreement for 5,900 bitcoin mining machines for a total consideration of approximately RMB55.2 million (approximately US$8.5 million).

·     Consumer Finance & Services; GPN reports in line quarter, guided FY21 Rev/EPS ~in line, announces strategic partnership with Google + Accelerated Repurchase agreement; PYPL hits record highs as Bitcoin scales all-time highs after Tesla Inc says it invested $1.5 bln in the cryptocurrency (last year PYPL said it would allow customers to hold bitcoin and other digital currencies in its online wallet and shop using them); SQ shares also outperform; NCR acquired Terafina, a solution provider for customer account opening and onboarding across digital, branch and call center channels.

Healthcare

·     Pharma movers; AZN and the University of Oxford said their Covid-19 vaccine has failed to prevent the mild and moderate disease caused by the new coronavirus strain first detected in South Africa, according to the Financial Times, sourcing a study (shares of MRNA, NVAX, BNTX advanced following the AZN news); AVRO rises after saying there was a 100% reduction of toxic substrate in the kidney biopsy of the first patient dosed with the Plato gene therapy platform in its Phase 2 clinical trial of AVR-RD-01 for Fabry disease; cannabis stocks outperformed on the day, extending recent gains (TLRY, APHA, ACB)

·     Biotech movers; biotech ETF trades all time highs (ETF); VERU rises as reports positive efficacy and safety results from a mid-stage clinical trial for its drug candidate, VERU-111, in patients at high risk of COVID-19 associated Acute Respiratory Distress Syndrome; PROG downgraded to underweight at Wells Fargo which reflects a view that PROG’s challenges (e.g., share loss, pricing pressure) outweigh its opportunities (e.g., expanded reimbursement for average risk NIPT) at current levels; in testing space, QDEL, QGEN shares rise after Bloomberg reported QDEL weighs combing with the company https://bloom.bg/3jrZCc0

Industrials & Materials

·     Industrial & Machinery; WPRT rises after late Friday reports from Reuters that AMZN has ordered more than 1,000 truck engines that run on compressed natural gas for U.S. fleet between the CMI Joint venture; KMT was downgraded to neutral from buy at UBS warning the company’s earnings and margins will not rebound as quickly as previously estimated; transportation stocks got a boost led by airlines (AAL, DAL, UAL) after Democrats propose $14B for airlines, $1B for their contractors, democrats seek stimulus to prevent further airline furloughs

·     Aerospace & Defense; CUB agreed to be acquired by private equity firm Veritas Capital and U.S. Hedge fund Elliot Management in a $2.2B all-cash deal, with holders getting $70 per share https://on.mktw.net/36PCj6M ; LHX awarded systems integration contract for us navy frigate program which could exceed $300M; IRDM was downgraded to market perform at Raymond James saying they still like the business and believe in the growing Free Cash Flow (FCF) story, but think valuation has benefited from fund flows related to short squeezes and potential new ETFs; VSAT tgt raised to $67 from $63 at Raymond James as believes there is growth potential upon the launch of co’s ViaSat-3 (VS-3) satellite, and co’s efforts in managing costs and capacity

·     Metals & Materials; APD upgraded to Buy from Neutral with a $305 price target at Bank America; Platinum is poised to shine according to Barron’s this weekend because it can benefit from the rising popularity of electric vehicles. Its importance as a component of hydrogen fuel cells will probably grow. The precious metal has lagged gold and silver (says ANGPY, IMPUY and SBSW are some stocks and exchange-traded funds to play a rally in platinum); gold miners (AUY, GOLD, AEM, NEM) found support from a jump in gold prices

Technology, Media & Telecom

·     Internet; FB, GOOGL, AMZN, NFLX large cap tech names underperformed on day; BIDU tgt raised to $325 from $250 at Mizuho as increases Baidu’s Autonomous Driving (AD) business valuation from $20bn to $40bn as believe Baidu is well-positioned as the dominant OS for both the smart transportation network and in-car technology; NCTY signed legally binding memorandums of understanding on purchase of bitcoin mining machines; signed legally binding MOUs with 6 unrelated bitcoin mining machine owners to purchase bitcoin mining machines

·     Semiconductors; Dialog (DLGNF) rises as Japanese auto chip maker Renesas Electronics Corp confirmed it agreed to buy the chip maker for EUR 4.9 bln ($5.9 bln) (helping boost auto chip supplier names such as TXN, ON, NXPI) https://on.mktw.net/2YZsK0A; semiconductors as a whole outperformed broader tech after lagging last week (despite strong earnings in the industry this quarter behind high demand and chip shortages)

·     Software movers; WDAY double upgraded from Sell to Buy with $320 at Loop Capital based largely on our most recent industry checks that indicate a significant increase in large HCM (human capital management) replacement opportunities, especially in North America; Unity Software (U) 4M share Block Trade priced at $128.50

·     Media & Telecom movers; DIS trades to all-time highs ahead of earnings this week; VIAC downgrade from Neutral to Sell at UBS saying while more resilient advertising/affiliate trends supported shares, they believe trading volatility has driven the recent outsized performance (+20% in past two weeks); SBAC downgraded to neutral at JPMorgan as Sprint churn to ramp earlier than expected; 2022 will be highest until 2025-26; CCI announced proposed senior notes offering (towers in general weaker today)

·     Optical & Networking; busy sector as MKSI makes superior takeover offer of COHR for $240 per share, Under the terms of MKS’ proposal, each share of Coherent common stock would be exchanged for $115.00 in cash and 0.7473 of a share of MKS common stock. Proposal compares to Jan 19 takeout offer of COHR from LITE where Coherent stockholders will receive $100.00 per share in cash and 1.1851 shares of Lumentum common stock https://on.mktw.net/36TWxwi

·     Hardware & Component news; IBM and PLTR partner to help businesses easily deploy powerful and open ai applications; unlock valuable data across hybrid cloud environments; XONE guided Q4 revs $17M-$17.5M above the $16.7M est. and sees YoY rev growth of 15%-25% – other 3D related names move in sympathy (DDD, SSYS); CRNT reports Q4 results that beat revenue estimates as operating loss was $1.5M vs. a year-ago loss of $2.2M