Closing Recap

Monday, January 11, 2021

Equity Market Recap

·     Stocks slump to start the week, led by weakness in Big tech as profit taking weighed on some of Wall Street’s biggest movers along with political concerns as the House has introduced an article of impeachment against President Donald Trump with a vote possible by Wednesday (with less than 2-weeks before Biden is expected to take over). Energy stocks helped the broader market midday with a turnaround as WTI futures pared losses, but the bounce faded with stocks rolling near the low’s late day. The 10-year Treasury yield rose 2 bps to 1.13%, up a 6^th straight session (with stimulus and supply in focus), while the dollar and gold also edged higher. Technology was mixed with mega cap, online and social media names (FAANG) hit the hardest (AMZN, AAPL, FB, GOOGL) as well as TSLA, TWTR, but semiconductors higher (SOX around 1%) and many software names stronger on the day as well. Stocks remain buoyed by additional Covid relief proposal plans as President elect Joe Biden said this weekend Americans need more economic relief from the coronavirus pandemic now and that he will deliver a plan costing "trillions" of dollars on Thursday. Biden said the proposal includes relief for state and local governments as well as new support for people who lost their jobs or cannot afford rent. Biden also called for raising the minimum wage to $15, a campaign promise, and for sending out $2,000 in direct cash payments.

·     U.S. stocks are coming off record closing highs last Friday despite a disappointing monthly jobs report miss, as it further boosts expectations of additional fiscal stimulus measures (and keeps the Fed in the dove camp for even longer). It was a busy morning of earnings and sales updates out of retailers ahead of their presentations at the annual ICR conference which started today and goes through Wednesday, as well as updates in the healthcare industry ahead of the JPMorgan Healthcare conference (next 4-days). Those updates and headlines dominated the morning news flow. Bitcoin dropped over 20% touched lows of $30,699, its lowest since Jan. 5, after topping highs above $42,000 late last week. The falls reflect a wider dollar bounce. Oppenheimer noted that there are two market signals they think important to flag this week due to the bullish implications for the S&P 500: 1) a four-year high in the number of net new 52-week highs on the NYSE (337); and 2) the breakout in the 10-year US Treasury yield. Emerging Markets are also closing in on a breakout above its 2007 peak.

·     Sector/stock top movers: LLY surges to all-time highs after its Alzheimer’s drug donanemab met endpoint and BIIB also soars on the data and saying it expects FDA approval for its aducanumab at the JPMorgan Healthcare conference as the top 2 performers in the S&P; NIO spikes to record levels after announcing the launch of its electric sedan and its partnership with NVDA, which also outperforms on the day; retailers active after updates ahead of key conference: GME jumps after reporting a YoY growth in holiday comp sales and appointing 3 new board members; CROX also outperforms after raising guidance, LULU rises after saying they now expect Q4 earnings to be on the high end of its previous guidance, and BOOT hits record levels after JPMorgan upgrades the name in retail; Bitcoin leveraged stocks (RIOT, MARA, MSTR, GBTC) slide as Bitcoin plunges more than $10k (over 20%) off of Friday’s prices at the day’s lows around $30K; TWTR, FB slide after the platforms ban Donald Trump from posting, driving concerns of future user engagement; Sports betting DKNG, PENN, cannabis TLRY, ACB, CGC outperform after NY Gov Cuomo calls to legalize both in an effort to close budget gap.

·     At least eight businesses are set to price initial public offerings (IPOs) in the next three days, seeking to raise a total of nearly $5 billion in what’s the biggest week for new listings in over five years. Financial technology startup Affirm Holdings Inc (AFRM), mobile gaming firm Playtika Holding Corp (PLTK), pet retailer Petco Health (WOOF) and online fashion marketplace Poshmark Inc (POSH) are among those aiming to price IPOs this week – Reuters.

Commodities

·     Oil prices ended the day flat, as WTI crude was up one penny to $52.25 per barrel, as news was generally quiet. Prices bounced from earlier losses after renewed concerns about global fuel demand amid tough coronavirus lockdowns around the world, as well as a stronger U.S. dollar. Both West Texas Intermediate (WTI) and Brent crude prices are up sharply recently.

·     Gold prices settled $15.50 higher or 0.8% to settle at $1,850.80 an ounce, rising amid concern out of Washington as Democrats rush to impeach President Trump less than two weeks before Biden is set to take office. The move higher came despite a recent bounce in the dollar (off more than 2-year lows last week). Gold prices 8recover following a weekly slide of 3.2% on Friday.

Currencies & Treasuries

·     Bitcoin plunged more than 23% at its lowest point (staying pressured all day) to a one-week low, putting the cryptocurrency on track for its biggest one-day drop since March (still up 10% to start the year). Bitcoin touched lows of $30,200, its lowest since Jan. 5, after topping highs above $42,000 late last week. The fall reflects a wider dollar bounce. Interest in bitcoin has been soaring as institutional investors began buying heavily, viewing it as both an inflation hedge and as exposed to gains if it became more widely adopted. The U.S. dollar was broadly higher.

·     Treasury yields rose for a 6^th straight session, as the 10-year yield topped 1.13%, up 2 bps after posting its biggest weekly increase (19 bps) since last June, breaking above its June peak (0.96%) in a bullish push higher and completes the 10-year’s nine-month base dating back to its Q1’20 collapse. Oppenheimer said the next major resistance level is around 1.35% loosely marking its 2012, 2016, and 2019 lows as well as a key retracement of its 2018 to 2020 decline. The U.S. Treasury sold $58B in 3-year notes at a yield of 0.234% vs. 0.231% when-issued prior, with the bid-to-cover at 2.52 and indirect bidders awarded 52.2% of the auction, primary dealers take 33.23% and directs 14.57%.

Sector News Breakdown

Consumer

·     Retailers; several retailers issuing guidance ahead of their presentations at the ICR Exchange conference this week, moving the needle on some; LULU said it expects Q4 revenue and earnings to be at the high end of its prior range of expectations; CROX guides Q4 revenue to increase ~55% to be between $407M-$410M vs. consensus of $330.07M and up from the previous guidance range of +20% to +30%; GME rises after saying it signed agreement with investor Ryan Cohen’s RC Ventures LLC appointing Cohen and two other e-commerce veterans to its board (RC Ventures holds 13% stake in GME); ODP rises after USR Parent, Inc. proposes to acquire 100% of the issued and outstanding common stock of The ODP Corporation for $40.00 per share in cash https://bit.ly/3buiZPO ; in research, UBS upgraded RL upgraded to Buy and KSS to Neutral; BOOT upgraded at JPMorgan after higher guidance; other companies issuing guidance ahead of ICR Retail conference: TLYS, BBW, GCO, ZUMZ

·     Auto sector; NIO rises after launching its first sedan model (ET7) at an event in the western city of Chengdu on Saturday, coming just after rival TSLA started selling its China-made Model Y sport-utility; UBER named Top 2021 Pick at Morgan Stanley on Profit View, raised pt to $68 from $49; RIDE said it received more than 100K non-binding production reservations from commercial fleets for its Lordstown Endurance all-electric pickup truck; TSLA pulls back off record higher, snapping its 11-day winning streak

·     Consumer Staples; GRWG preannounced 4Q:20 revenue above our expectations and raised 2021 guidance on both the top and bottom lines; ADM and ANDE both downgraded to market perform from outperform at BMO Capital as believe in the near-term, upside may be limited given its current valuation, the impact of higher corn prices on ethanol, and the potential for more limited carry; Wells Fargo reiterated overweight rating on IFF as the N&B transaction is poised to close on February 1st and they continue to believe the combination should create a higher growth and margin leader in the flavors and fragrance industry

·     Restaurants; RRGB said Q4 net comparable restaurant revenue decreased 28.9%, primarily resulting from our operational shift in response to COVID-19; PLAY guides Q4 revenue $98M-$102M above est. $88.1M; DENN said Q4 domestic system-wide same-store sales fell -33%, with trends improving across October (-26%), November (-27%) and domestic system-wide same-store sales down -41% in December on a preliminary basis; CMG ests raised at Wedbush as checks through December point to SSS growth in-line to above 6.1% consensus

·     Leisure and Gaming; WBAI rises after saying it entered into an agreement to acquire bitcoin mining machines and said it expects to issue $14.4m worth of shares as consideration to acquire the bitcoin mining machines; in gaming (WYNN, LVS, MGM), Macau 4Q20 industry property EBITDA turned positive QoQ to USD328mn thanks to GGR recovery and cost savings as Premium mass outperformed VIP/grind mass; Premium-mass focused operators gained share in 4Q; CCL reported a bigger-than-expected prelim Q4 net loss amid the impact by the COVID-19 pandemic

Energy

·     Energy stock movers; XOM is now Morgan Stanley’s top US Integrated pick and was upgraded to Overweight with a $57 tgt after the stock’s total return has lagged CVX by about 50% over the past 5 years, though proactive cost and capex cuts combined with rebounding commodity prices and margins lead to expectations that the valuations between the two will compress; BMO downgraded CRK to Market Perform and continues to have CNX and COG as their two natural gas Outperform-rated E&Ps given their view that the two offer more resilient FCF versus peers; BMO additionally upgraded Canadian stocks BDIMF, CPG, MEGEF, PIPEand TOLWF to reflect a higher 2021 oil forecast which would result in improved leveraged and FCF profile; SM was upgraded to Outperform at RBC with a $12 PT given the rapid pace of de-leveraging, top tier Permian economics, upside in the Austin Chalk; Raymond James downgraded KMI to Market Perform as the stock’s historic “flight to quality” versus other large-cap midstream names is a theme that is currently out of favor given current fundamentals; Wolfe upgraded NOV to Outperform and PDS to Peer-perform and downgraded HP, LBRT, PUMP to Underperform; CVE was downgraded at Barclays to Equal-Weight

·     MLPs – Raymond James downgraded AM to MP and called to take some profits after the stock has hit the target price from its October upgrade, upgraded MPLX to OP with a $28 pt as their L&S and G&P segments both present tailwinds that are not reflected in current estimates (RJ’s 2021 and 2022 estimates ~2% above consensus), and DCP to OP as they still see the stock being undervalued on relative and historical bases despite rebounding off its bottom and their 2021 and 2022 EBIDTA estimates are nearly double-digit percentages above consensus

Financials

·     Bank movers; JPMorgan says the rally in trust banks STT, BK, NTRS may possibly pause on moderate Q4 earnings and servicing fee growth headwinds and recurring price headwinds, and the sharp outperformance in large cap banks (C, FITB, USB, WFC, etc.) may take a similar pause on Q4 earnings and mortgage rates that have continued to tick downward, though they expect these large-cap banks to outperform in 2021 as the economy recovers and prefer BAC into earnings due to its investment banking and retail brokerage;

·     Investment managers, Services: VIRT was downgraded to Underweight at Morgan Stanley who kept their $24 PT on expected relative performance compared to other stocks and brokers under coverage as the economy recovers; Morgan Stanley also downgraded WETF to UW with their base $4.75 price target seeing -15% downside after the stock rallied 50% in the past 60 days despite greater pricing risk and a more competitive environment including significant market shares losses in its Gold ETF franchise; Ameritrade and E*TRADE reported issues this morning due to increased volumes

·     Insurance; Credit Suisse upgraded MMC to Outperform from Neutral on the view that investors have become too bearish on their ability to manage expenses and grow EPS by +10% in ’21, and downgraded AJG to Neutral from OP as its more centralized and less complex operating structure allowed it to quickly cut costs which provides it with less opportunity to the upside, especially in the face of what we expect to be moderating commercial pricing levels by 2H21; JPMorgan remains OW on small-cap P&C insurers GSHD, KNSLand PLMR even after significantly outperforming other insurers and the S&P in 2020 as they expect valuation premiums vs other insurance stocks to persist as these names forecasted premium growth, sustained price hardening, and non-material Covid-19 exposure against the backdrop of an improving economy; WLTW was upgraded to Outperform with a $225 pt at Raymond James as the current stock price provides attractive risk/reward and offers a substantial discount relating to potential divestures in the pending AON merger; Piper initiated MDWT at OW with a $76 target

·     Consumer Finance; NCR offered to buy CATM for more than $1.7 billion, confirming reports last week that the payments-technology firm was looking to snatch the ATM operator from APO and another firm that earlier agreed to buy it; Northland upgraded MGI to Buy, the only Buy rating now on the stock, with a $9.50 pt with upside to double to $13; Susquehanna remained Positive on MA and raised its target to $420 from $380

·     REITs; Mizuho remains underweight on Office REITs into 2021 as the sector outperforming broader REITs since Nov 9 on vaccine news is unwarranted as the pandemic gets worse and the vaccine rollout has been slower than expected, increasing the risk that WFH becomes a permanent substitute and they downgrade PGRE to Underperform and KRC to Neutral as tech-heavy San Francisco offers particularly challenging fundamentals, though they upgrade Washington D.C.-based OFC to Buy as they expect little change to the strong outlook in defense spending under the Biden administration and name ARE as their top office REIT pick given focus on life sciences; Mizuho also says they are Equal-Weight on strip centers into 2021 and they upgraded KIM to Buy as it offers the most favorable combination of relative valuation, growth, and risk among its peers; BMO is optimistic on multi-family apartment REITs given the improving economy, WFH fading, and rental growth expected to accelerate in 2022, upgrading EQR to Market Perform with a $61 price target and UDR to Outperform from Market Perform with a $43 target as its diversification (17% NOI exposure in the Sunbelt) provides stability until its coastal markets improve, though they downgrade ELS to MP from OP while maintaining its $66 target as the stock’s resiliency during the recent downturn means it is trading at a significant premium to its residential peers; BTIG initiated a Sell rating and $9.50 pt on small-cap apartment REIT BRG

Healthcare

·     Pharma movers; LLY rises after saying its experimental Alzheimer’s drug (donanemab) met the primary goal of the study as it helped patients in a small trial/the drug slowed the decline in memory and ability to perform activities of daily living by 32% after 18 months among people who received the therapy compared with those who got a placebo (BIIB with competing Alzheimer’s drug was active in sympathy); IRWD sees 2020 total ironwood rev at high end of $37M-4385M; EXEL issued pre-announcement of better-than-expected 4Q20 revenue and OpEx; BMRN announced positive one-year Ph3 GENEr8-1 data with gene therapy Roctavian demonstrating superiority vs. standard of care factor VIII (FVIII) prophylaxis in patients with severe hemophilia A (84% reduction, p<0.0001); CLVS guided Q4 Rubraca global product revenue to $43M-$43.5M up from $38.8M in Q3 and $39.3M YoY

·     Biotech movers; MRNA, NOVX bounced as Reuters reported the European Union is in talks with Modern to order more of its COVID-19 vaccine despite the company seeking a higher price, and is also trying to close COVID-19 vaccine deals with Valneva and Novavax; GILD raised its year earnings outlook as sees year product sales $24.3B-$24.35B vs. prior outlook of $23B-$23.5B and Operating income $11.65B-$11.75B up from $10.7B-$11.2B; PTCT said Huntington splicing program healthy volunteer data expected 1h 2021 and Duchenne franchise revenue guidance of $355-$375M; BLUE announced it would separate its oncology business into an independent publicly traded company, with the stay-co retaining its focus on severe genetic disease; TPTX and ZLAB are expanding their existing collaboration, with Zai Lab obtaining exclusive rights to develop and commercialize several TPTX assets; MESO with results from the DREAM-HF Phase 3 trial in 537 treated patients with chronic heart failure; EDIT slides after chief scientific officer to retire, and the co provides trial updates

·     Healthcare services and providers; WBA received two upgrades as Guggenheim raised to buy from neutral and establishing a $55 target price on its view that the retailer is finally positioned for an upward earnings revision cycle and Baird also raised rating to outperform; LH upgraded to Buy from Hold with $245 tgt at Argus

·     MedTech and Equipment; PKI said it expects adjusted earnings from continuing operations of at least $3.60 per share for fiscal Q4, higher than its previously issued guidance range of $2.60 to $3 per share; NSTG announced preliminary 4Q revenues of $35.7M – above the Street’s $33.4M as well as mgmt’s $31-34M guide; DXCM said it expects preliminary Q4 revs to meet or exceed $567M, an increase of 23%; NVCR guides Q4 revenue of $144.0 above est. $133.6M; SPNE said it sees Q4 revenue $46.2M-$46.6M (vs. est. $47.27M) and said Spinal Implants revenue is expected to reflect growth within the 7% to 8% range; EXAS surges as issues prelim Q4 revenue $464.5M-$467.5M vs. est. $431.2M and FY20 revenue $1.490B-$1.493B vs. est. $1.460B; ABT received a 510(k) clearance from the FDA for its blood test evaluating mild traumatic brain injuries; MYGN forms strategic partnership with ILMN in oncology

Industrials & Materials

·     Transports; sector outperformed broader stock markets led by rails, airlines mixed; in research, Cowen upgraded JBLU, UAL, ALGT to Outperform, while downgraded AAL, DAL to Market Perform, and HA downgrade to Underperform, while top Picks: LUV, SAVE, ALK – saying focus is domestic leisure with corporate/international lagging; Bernstein positive on the railroad sector as UNP, CNI were both upgraded in Rails as well as raising their view of the sector as the demand outlook improves and resistance from structural headwinds fades. Noted the stocks have started to work ahead of a global recovery from the pandemic, and they expect them to continue to work as higher highway costs and modal advantages make the idea of a more growth focused rail narrative more of a reality.

·     Aerospace & Defense; BA shares fell after passenger plane carrying 62 people crashed into the Java Sea on Saturday, Indonesian authorities said. The Sriwijaya Air jet lost contact with air-traffic controllers and disappeared from radar minutes after taking off from the country’s capital, Jakarta (the aircraft involved was a 26-year-old Boeing 737-500); aero parts supplier SPR was upgraded to Outperform from Neutral at Baird; Truist upgraded shares of DCO, MOGA, TGI to buy, ROLL and WWD upgraded to hold, downgraded KTOS to hold and said LHX is favorite idea in aero and defense, a contrarian attractively valued defense play with amply capital deployment opportunities, they will use the playbook.

·     Metals & Materials; CMC Q1 net sales were $1.39B, topping the $1.36B estimate and better adj EPS of 58c vs. est. 54c; RGLD was upgraded to Outperform from Sector Perform at RBC Capital while lowers tgt to $150 from $155 as see shares offering the potential for above-average returns at below-average risk; in paper and packaging, Wells Fargo said are constructive on the Containers & Packaging sector for 2021, taking a bullish stance and are constructive on both Overweight-rated IP and WRK

·     Chemicals: GRA rises as 40 North raised its offer for the chemical company to $65 per share from $60 (on Nov. 9, W.R. Grace had confirmed that 40 North made an unsolicited bid to buy the company for $60) https://bit.ly/2LEyCZU ; DD tgt raised to $95 from $75 at Wells Fargo as believe the remaining company portfolio is underappreciated and offers strong leverage to a post pandemic economic recovery; ALB slides after Chilean regulators have threatened ALB with legal action, demanding that by the week’s end co present a plan for turning over data on its reserves of lithium, according to filings obtained by Reuters

Technology, Media & Telecom

·     Internet; TWTR shares fell after the social media platform permanently banned outgoing President Donald Trump saying Trump’s tweets breached policies by risking incitement to violence; FB also fell after banning Trump, and NYT is lower (stock more than quadrupled from election day 2016 $11.20 close and has almost tripled its digital subscribers in the time period – may also be losing momentum from Trump); OPRA said it now expects Q4 revenue to exceed its previous guidance of $45-47M and $10-12M in adj EBITDA; Pivotal raised its price targets on Buy-rated TWTR to $67 from $64, PINS to $85 from $75, and SNAP to $72.50 from $45.50, and on Hold-rated FB to $315 from $300; ETSY tgt raised to $205 at Jefferies saying November and December traffic on ETSY accelerated to nearly 100%, up from 57% in October and representing the highest level of monthly growth since we started measuring traffic 2 years ago; The number of new users installing messaging app Signal every day is on track to cross 1 million, putting it closer to levels seen by larger rival WhatsApp, following an update to the Facebook Inc-owned app’s privacy policy.

·     Software movers: busy morning of research as Jefferies upgraded shares of CRWD, DDOG, and PLAN to Buy as they see strong growth potential as these stocks are levered to security, cloud infrastructure and financials software respectively – said in DDOG, see parallels to NOW, SPLK, CRM in their early days, with recent product launches expanding enabling cross-selling potential; CRWD launches $750M of senior unsecured notes due 2029; Piper called TWLO, WDAY, VEEV, HUBS, and ASAN as their top five cloud ideas to own; PLAN was upgraded to Overweight at Piper and raising tgt to $87 from $66 as improving hiring intentions and partner discussions hint at a potential demand recovery in the coming year – Piper downgraded CRM to Neutral based on the prospects of yet another year with little to no margin improvement, further dilution, and increasing execution risk could cap upside

·     Media & Telecom movers; WMG was downgraded at Credit Suisse saying valuation as expanded to 23x adj. EBITDA from 18x over the past month; for IAC, Truist said for Vimeo (IAC currently) estimate revenues in 2020 at $277M up 41%, helped partially by the Covid bump; Barclays initiated MSGS at OW with a $224 pt and upgraded LSXMA to OW with a $55 target from $39

·     Hardware, networking, CDN space; Piper said they are less positive on CDNs in 2021, as they prefer AKAM for exposure, and reiterate underweight rating on FSLY – says AKAM and NET showed relative stability that suggests upside in Q4, while FSLY had some concerning "organic" trends; Global PC shipments, which include desktops, notebooks and workstations, rose 26.1% y-o-y to 91.6 mln units in Q4, according to data from research firm IDC