Closing Recap

Wednesday, July 21, 2021

Equity Market Recap

·     Stocks add to Tuesday’s advance as the S&P 500 index builds on its best daily performance since March, while the Russell 2000 Smallcap jumped for a second day after falling as much as 10% from its record highs recently in another broad-based stock market rally. The Nasdaq climbed behind strength in semiconductors after better ASML earnings/bookings and ahead of INTC tomorrow night. Overall, buyers stepped in again after worries about the spread of the coronavirus variant dented sentiment late last week into Monday. A strong start to the earnings season among the biggest U.S. companies helped buoy sentiment long with a recovery in Treasury yields. Commodity prices also rebound as oil rallies more than $5 off yesterday lows to settle back above the $70 per barrel level. The yield on 10-year Treasury rose to 1.28% from 1.208% Tuesday (well off Tuesday lows below 1.13%).

·     Bottom-line, stocks rally as conditions remain easy, the variant is not as deadly and political policy, though volatile (debt ceiling, infrastructure), could still be supportive for markets. The federal government will most likely run out of cash to pay its bills in October or November unless Congress increases or suspends the federal borrowing limit, the Congressional Budget Office said Wednesday. Congress voted in 2019 to suspend the debt ceiling until July 31 of this year. Since then, the nation has added $6.5 trillion in debt, bringing the total amount owed to $28.5 trillion. Add a strong start to earnings season (through Tuesday, 85% of S&P 500 companies that had filed quarterly results topped analysts’ expectations, according to FactSet) and we see major averages again not far off recent all-time highs following a brief profit taking three-day blip.

·     Stocks/sector movers: NFLX slides to lowest levels in a month on weak subscriber growth, EPS miss; CMG leads the S&P and makes new ATHs on its strong quarter, IPG also leads on its quarterly profit and better revenue growth outlook, while STX the worst in the index despite its beat-and-raise; earnings among Dow components, KO touches 52-week highs, VZ rises, and JNJ flattish after all 3 report quarterly beats with full-year guidance raises; in retail, SNBR plunges after missing on EPS and revs, LE soars to 6.5-yr highs after raising guidance; semi’s lead Nasdaq higher as ASML jumps on results, new buyback, and its raised sales outlook amid the chip shortage lifts LRCX, TER, AMAT, KLAC; semi space generally outperforms; reopen sectors outperform led by airlines, cruise lines and restaurants.

·     Bitcoin (along with other crypto assets) surged, getting a boost as Tesla CEO Elon Musk, Twitter’s Jack Dorsey and ARK Invest’s Cathie Wood were among those to take part in a live discussion at The B Word conference today. Tesla CEO Elon Musk said "We need to watch out for bitcoin and proof of work for using energy that’s maybe a bit too much and not necessarily good for the environment. but on balance I support bitcoin." Says he still owns BTC, ETH and DOGE.

Commodities

·     Oil prices finish higher with WTI crude up $3.10, rising 4.61% to settle back above $70 per barrel (off lows around $65.21 the day prior) at $70.30 per barrel in what was a broad-based rebound for stocks and commodity prices. Brent crude rises $2.88 or 4.15% to settle at $72.23 per barrel.

·     Gold prices slide, falling -$8.00 or 0.4% to settle at $1,803.40 an ounce for its second straight day of losses (and lowest level in a week) following a rebound in U.S. Treasury yields. Surging Delta variant COVID-19 infections which raised fears over a stalling global economic recovery, had weighed on risk sentiment and sparked an equities sell-off on Monday, but stocks and bond yields have since recovered, lessening the appeal of safe-haven assets.

Currencies & Treasuries

·     The U.S. dollar slipped from more than three-month highs as the dollar index (DXY) drops after topping the 93 level Tuesday, with risk appetite back up with stocks higher. Markets remain somewhat cautious due to inflation fears and concerns about coronavirus variant. Another safe-haven, the Japanese yen, was also down on the day against the dollar, as risk aversion eased. Note the Fed’s stimulus measures, or quantitative easing (QE) have restrained the buck as it increased the currency’s supply in the financial system.

·     Treasury yields rise across the board, recovering off fresh 5-month lows just a day ago, as the yield on the benchmark 10-year rose back above the 1.3% level after bottoming below 1.13% yesterday. The U.S. government sold $24B in 20-year notes at a yield of 1.89% vs. 1.878% when issued prior, with the bid-to-cover (demand) at 2.33 and indirect bidders awarded 60.16% of the auction and directs 18.94%.

Sector News Breakdown

Consumer

·     Retailers; LE raises Q2 revs to $380M-$385M, up from prior view $345M-$355M; raises Q2 adj Ebitda to $36M-$38M from prior view $20M-$23M and ups EPS view to $0.39-$0.43 from prior $0.05-$0.12 (est. $0.07); also raises year revs, income and Ebitda views; mattress retailers weak as SNBR with Q2 miss as EPS $0.88 below est. $1.16 on net sales $484.3Mm missing the est. $511Mm, though guidance was above views; REAL upgraded to Buy from Neutral at Bank America saying RealReal was disproportionately hit by the pandemic relative to other e-commerce peers as customers were less likely to consign goods;

·     Auto sector; DDAIF Q2 sales EU43.48B beat est. EU42.74B, but cut full-year unit sales expectations for Mercedes-Benz to be at prior year’s level from ‘significantly above’ expected earlier as the semiconductor shortage will continue to affect 2H business; HOG posted Q2 adj EPS $1.41 above est. $1.26 on revs $1.53B that also beat est. $1.41B, motorcycle shipments nearly doubled YoY to 56,700, retail sales 65,300 (+23.9%), and guided FY motorcycle segment revs +30-35%; LAD reported Q2 adj EPS $11.12 vs. est. $5.85 on revs $6.01B vs. est. $4.99B as new vehicle retail sales increased 130.0% and used vehicle retail sales increased 95.7% from last year; F (Ford) and private company Argo AI said they will launch self-driving vehicles on the LYFT network by the end of the year with initial deployments in Miami and then Austin; Barclays lowered their price target on CAR to $70 from $83, but kept their $150 bull case intact; EVGO filed to sell 52.35M shares of common stock for holders; Elon Musk tweets that TSLA will make their Supercharger network open to other EVs later this year; JPM initiates QS with a $35 PT (+45% upside) but a Neutral rating and says Blue Sky valuation for June ’23 stands at $61/share; CCIV shares active ahead of tomorrow’s shareholder vote for merger approval with Lucid Motors

·     Consumer Staples; KO Q2 sales beat expectations for the Dow component and now forecasts EPS growth of 12% to 15% from $1.95 in 2020, up from previous guidance of high-single digit to low-double digit growth (est. is for EPS of $2.18, suggesting an 11.9% rise); SAM FY’21 shipment expectations lowered to +40% (prev. 45%) at RBC Capital and EPS to $24.09 after channel work but raises FY’22 EPS to reflect improved margins; COST entered a delivery pilot with UBER with 25 locations across the state of Texas

·     Restaurants; CMG shares jump to record highs (and price tgt raised by many analysts) as reported earnings well above consensus ($7.46 vs. Street $6.53) and guided to stronger-than-expected 3Q comps (low to mid-double-digits vs. Street 10%); restaurant margin also impressed (24.5% vs. Street 23.7%), marking the highest quarterly level since 2015; KRUS 1.1M share Spot Secondary priced at $45.00; strong rebound for reopen sector including casual dining

·     Casinos, Gaming, Lodging & Leisure sector; AMC names CEO Adam Aron as the chairman of the board, while Ambassador Philip Lader has been tapped to serve as the board’s Lead Director; DKNG announced plans to launch DraftKings Marketplace, which will offer non-fungible tokens (NFTs) and will support secondary market transactions; cruise line CCL selling $2.4 billion in new junk bonds to refinance debt the cruise ship company took on last year, when it was forced to pay high interest rates.

Energy

·     Energy stock movers: sharp rebound in energy stocks as oil recovers; U.S. crude stockpiles unexpectedly rise according to weekly data from the EIA saying crude +2.1M barrels vs. -4.5M consensus, and -7.9M last week; gasoline stockpiles slipped -0.1M vs. -1.0M consensus and vs. +1.0M last week and distillates with weekly draw of -1.3M barrels vs. +0.6M consensus and +3.7M last week; overnight, the API reported that crude inventories rose 806,000 barrels last week, gasoline inventories rose 3.31M barrels and distillate stockpiles fell -1.225M barrels

·     Oil services and Equipment news; HAL upgraded to Buy at Goldman Sachs with $26 tgt saying shares present an opportunity at current levels given the combination of the recent pullback, Halliburton’s stronger than expected margin outlook through 2023, and accelerated deleveraging prospects; BKR Q2 results beat analysts’ estimates on revenue and posted a slimmer net loss than in the same period last year; XEC upgraded to Buy at Truist noting the stock has notably underperformed its peer group since its May 24 COG acquisition announcement.

Financials

·     Bank movers; CMA 2Q EPS $2.32 vs est. $1.61, NII $465Mm vs est. $461.9Mm, provision neg $135M vs pos $138M; CET1 cap ratio 8.53% vs 8.78% YoY; NTRS Q2 EPS $1.72 and revs $1.59B were generally in-line with expectations, AUM $1.54T vs est. $1.49T, and recovery of credit losses $27M vs est. $12.7M and provision for losses $66M YoY; UCBI Q2 EPS $0.78 vs. est. $0.67, return on assets 1.46%, return on common equity 14.1%; HOPE reported a mixed quarter with positive deposit mix shift offset by weak loan growth and Q2 EPS 43 beat est. 38c but NII $126.6M was shy of est. $127.1M; MTB Q2 EPS $3.45 and NII $942.3M both missed consensus ($3.63, $971.6M), net charge-offs $46M vs est. $83.6M; HCW 2Q EPS $1.00 vs est. $1.11, NII $237.5M vs est. $232.2M; FULT Q2 EPS $0.38 vs. est. $0.33, NII $162M vs $164M in Q1; PFBC Q2 EPS $1.44 vs est. $1.46, NII $43.4M vs est. $46.6M; BOKF Q2 EOS $2.40 topped est. $1.83, net interest margin 2.6% vs 2.83% YoY, CET1 ratio 12% vs 11.4% YoY; OFG Q2 EPS doubled YoY to 78c, net interest margin 4.22% vs 4.78% YoY; PNFP Q2 EPS $1.68 vs est. $1.44 on revs $331.4M vs est. $315.54M; SBNY 2.5M share Spot Secondary priced at $232.00

·     Brokers and Exchanges; NDAQ Q2 adj EPS $1.90 and revs $846M were better than the most optimistic estimate and announced plans to enter an accelerated share repurchase agreement for an additional $475M of shares; IBKR reported Q2 adj EPS 82 vs est. 83c on revs $754M (+40% YoY) vs est. $681.28M, NII grew 40% YoY, commission revs increased 11% YoY

·     Insurance; PRU to sell its retirement business to U.S. subsidiary of Great-West Lifeco Inc (GWO.TO) in a deal valued at C$4.45 bln ($3.51 bln); AFL invested $2.1B in Denham Capital to expand its sustainable infrastructure business

·     FinTech & Payments; FOUR announced a convertible notes offering for $500M due 2027, a primary share offering of 1.79M shares, and a secondary offering of 5.2M shares; QIWI has agreed with Otkritie Bank to sell its 40% stake in the capital of Tochka, which represents a 45% economic interest in the company;

·     Rebound in crypto assets/Bitcoin: Bitcoin prices have been halved from record highs above $65K earlier this year as the concerns facing Bitcoin read long. China has turned its attention to crypto, banning financial institutions from dealing in cryptocurrencies and forcing Bitcoin miners to suspend operations. Regulators elsewhere, including the U.K. have adopted a tougher stance of late. However, Bitcoin did rebound today as the B-word Conference took place where key speakers included Elon Musk, Jack Dorsey, Cathie Wood, and SEC commissioner Hester Peirce; Cathie Wood’s ARK Invest reported purchasing 138,804 shares of COIN and 140,157 shares of GBTC yesterday

·     Consumer Finance; Bank of America issued a double-downgrade on LDI to Underperform from Buy given a more cautious outlook on the mortgage origination sector due to higher interest rates and increased competition pressuring volumes and margins; MKTX Q2 EPS $1.77 vs est. $1.76 on revs $176.3M (-4.6% YoY) vs est. $181.3M as variable transaction fees fell 13% YoY to $127.1M (est. $134.5M), and total trading volume of $668.88B (-9.8% YoY) was less than half of the est. $1.48T; WRLD Q1 EPS $2.44 on revs $129.7M vs est. $122.8M, loans $1.22B (+15% YoY); FCFS Q2 EPS 71c vs est. 57c on revs $389.6M vs est. $380.9M; Berenberg initiated Buy ratings on RMAX ($41 PT), RLGY ($23 PT), ZG ($156 PT), and EXPI ($53 PT), and RDFN at Hold with a $64 PT

Healthcare

·     Opioid settlement news: opioid related drug names active after the U.S. state attorneys general announce $26 bln opioid settlement with MCK, ABC, CAH and JNJ (shares of generic names TEVA, ENDP also active); the broad terms of the opioid settlement call for the three distributors to pay up to $21 billion collectively over a period of 18 years (6.4B for ABC, $6.4B for CAH and $7.9B for MCK over 18-years), and for Johnson & Johnson to contribute $5 billion over nine years. The settlements, if completed, would resolve the opioid lawsuits for these four companies, but several other targets remain. Trials are under way in California and New York against drugmakers TEVA, ABBV, and ENDP

·     Pharma movers; Dow component JNJ with a beat and raise as Q2 adj EPS $2.48 vs. est. $2.27; Q2 revs $23.31B vs. est. $22.19B and raises FY21 adjusted EPS view to $9.50-$9.60 from $9.30-$9.45 (est. $9.52) and raises FY21 revenue view to $93.8B-$94.6B from $90.6B-$91.6B; MGTA received a clinical hold letter from the U.S. FDA related to its Investigational New Drug Application (IND) to initiate a Phase 1/2 clinical trial of MGTA-117 in patients with acute myeloid leukemia (AML) and myelodysplastic syndrome

·     Biotech movers; CEMI surges after the company said it received a $28.3 million purchase of its DPP SARS-CoV-2 Antigen tests for delivery during 2021 to support the needs of Brazil’s Ministry of Health in addressing the Covid-19 pandemic; CYTK 10M share Secondary priced at $27.50; SAVA surges ahead of oral presentation scheduled at the 2021 Alzheimer’s Association International Conference (AAIC) next week for its Alzheimer’s candidate Simufilam

·     MedTech Equipment; ISRG Q2 EPS and revenue well above estimates driven by a solid sequential improvement in both system placements and procedure growth – Revenue of $1.46B (up 71.8% YoY) surpassed the consensus’s $1.27B, as all segments reported stronger-than expected results while raises procedure and GM guidance.

·     Healthcare Services; managed care provider ANTM reported 2Q results, with slightly better revenues $33.28B (vs. $33.1B cons) and EPS of $7.03 (vs. $6.34 cons), with better benefit expense ratio 86.8% (vs. 87.8% cons) and Investment Income partially offset by higher SG&A 11.5% (vs. 10.8% cons) while raised its ’21 guidance; SDC announced a favorable legal ruling, specifically, an en banc panel of the U.S. Court of Appeals for the Eleventh Circuit sided with SDC, rejecting the Georgia Board of Dentistry’s attempt to shield itself from antitrust liability

Industrials & Materials

·     Aerospace & Defense; AIR reported adjusted Q4/21 EPS of $0.47, as compared to our estimate of $0.46. The quarter was generally better than we had expected, with total sales of $438M (up 3% and ahead of our $421M estimate) with adjusted gross margins of 16.5% (as compared to our estimate of 16.0%). The company saw growth in both its aerospace and defense markets

·     Transports; in airlines, UAL Q2 results largely in-line with consensus views as international and business travel rebounded faster than expected – revs of $5.47B topped the $5.35B estimate on mostly in-line EPS loss of ($3.91)but Q3 guidance was relatively upbeat; in truckers, KNX posts Q2 EPS and revs ahead of consensus views and raises year guidance; in rails, CNI posts Q2 Operating Miss, as EBIT fell short of consensus (-6%), with the O.R. deteriorating by 120bps y/y and incremental margins of just 29% y/y on a 12% y/y increase in revenue

·     Metals & Materials; WLK was upgraded to Outperform at RBC Capital and raises tgt to $105 as believe WLK will continue to benefit from strong demand pull in construction, automotive and broader industrial recovery

Technology, Media & Telecom

·     Internet; NFLX mixed results as Q3 EPS of $2.97 missed the est. $3.16 on revs $7.34B vs. est. $7.32B, streaming net adds 1.54Mm w/ about 2/3 of global paid net adds from APAC; guides 3Q streaming net adds 3.5Mm, which was below the est. at 5.5Mm; next up TWTR earnings results for tomorrow before more heavy weights the following week

·     Semiconductors strong: overnight, ASML reported a rise in second-quarter profit, a new share buyback program and higher full-year sales guidance; strength across the board in semi-cap equipment names (LRCX, TER, AMAT, KLAC) after ASML bookings were +74% q/q; markets prepare for INTC earnings tomorrow night; IIVI downgraded from Buy to Neutral at Citigroup as believe that the stock will see relative underperformance until the acquisition of COHR closes later this year; STM announced that they have worked together to develop a new Unilumin display using the ST60A2, ST’s 60GHz RF transceiver for advanced high-data-rate contactless-transfer solutions; TER positive catalyst watch in semi-equipment sector at Citigroup while AMAT remains top pick; NVDA advanced on first day after 4-1 stock split takes effect

·     Software movers; MSFT tgt raised to $305 from $285 at Stifel ahead of earnings as expect MSFT to broadly outperform Street expectations on the heels of sustained strength within the company’s commercial business lines, particularly Office 365 and Azure; EA upgraded to Buy from Hold and raise tgt to $175 from $156 at Deutsche Bank; LAW 7M share IPO priced at $32.00; VTEX 19M share IPO priced at $19.00; XM 2Q’s beat-and-raise was driven by broad based strength, and results display accelerating growth trends across the business metrics – Hallum said Qualtrics’ report gives a positive read through for MDLA and MNTV and is another confirmation they are experiencing tailwinds as the economy re-opens; PYCR 18.5M share IPO priced at $23.00; ZM announced the launch of Zoom Apps and Zoom Events; SAP Qtr was mixed as cloud weaker, license better but the guide underwhelmed with slight tweaks to FY guide vs consensus (cloud revs for FY were not raised)

·     Hardware, Components & Services; AVT positively pre-announced June-Q (4Q’FY21) preliminary sales and adjusted EPS of $5.2bn and $1.01-$1.05, above prior guidance of $4.7bn-$5.1bn and $0.71-$0.77; BOX initiated at Underperform and $18 tgt at RBC Capital saying it is worried about co’s slowing growth, uneven execution, and increased competition, especially from MSFT; AAPL will not introduce new 4G phones or iPhone Mini next year (2022), will only introduce 5G phones, according to a report in the Nikkei overnight

·     Media & Telecom movers; Dow component VZ posted a Q3 EPS/rev beat ($1.37/$33.8B vs. est. $1.30/$32.67B) saying the strong post-COVID economy boosted its quarterly results, along with a faster-than-expected adoption of 5G – lost 62,000 pay TV customers during the quarter but added 92,000 broadband subscribers compared to a loss of 82,000 broadband users in Q1; IAC upgraded to Outperform with $170 tgt at BMO Capital saying it’s been a particularly active 12+ months (MGM investment revealed, MTCH spin, investor day, VMEO spin) and we think investors are catching their breath with the IAC story; in advertising, IPG said it turned a profit for the second quarter due to revenue growth across agencies (better than OMC yesterday) – and sees organic revenue +9% to +10%, saw +5% to +6%