Closing Recap

Monday, June 07, 2021

Equity Market Recap

·     U.S. stocks finish mixed as early weakness in large-cap tech faded with the Nasdaq Composite melting higher throughout the session, while the Smallcap Russell 2000 outperformed led by gains in the biotech sector after the FDA approved Biogen’s (BIIB) aducanumab as the first treatment to attack a likely cause of Alzheimer’s disease. Meanwhile the Dow Jones Industrial Average and S&P 500 posted modest declines. Oil prices dipped from 2-year highs in a bout of profit taking after rising 5% last week. There were no major economic data points or Fed speakers today to influence markets as the dollar slipped and Treasury yields finish flat ahead of a busy week of Treasury auctions ($120B worth). Technology stocks dropped initially after the Group of Seven (G7) advanced economies agreed on Saturday to back a minimum global corporate tax rate of at least 15%, squeezing more money out of multinational companies such as Amazon and Google…but had no carry over negative effect into the trading session. Meanwhile this weekend, Treasury Secretary Janet Yellen said President Joe Biden shouldn’t be deterred from his spending plans even if they spur inflation and higher interest rates.

·     Top stock/sector news; BIIB surges over 50% after the FDA approved its Alzheimer’s treatment, lifting the entire Biotech space (IBB) and other Alzheimer related stocks LLY, PRTA, ACIU, SAVA; the Reddit/WSB “meme” stock names (AMC, KOSS, GME, BBBY, BB) surge again despite tepid overall market; MRNA spikes to record highs after seeking authorization in the EU for its vaccine in adolescents; BNTX, NVAX also outperform in vaccine names; cruise lines CCL, NCLH, RCL among S&P leaders after issuing updates on summer restarts; casinos PENN, CZR also among leaders after Barron’s noted Las Vegas is making a comeback over the weekend in the reopen space; few M&A deals announced today including: QTS spikes after BX acquires it in a $10B deal, USCR spikes after VMC purchases it in a $1.29B deal; AAPL announces updates at its Worldwide Developers Conference with changes to iOS, Facetime, Apple Wallet.

Commodities

·     August gold rises $6.80 or 0.4% to settle at $1,898.80 an ounce getting a boost from the sliding dollar as investors awaited U.S. inflation data and clarity on when the Federal Reserve might start tapering economic support measures. Gold rose over 1% Friday after a weaker-than-expected U.S. monthly jobs report calmed fears about the Fed reining in monetary stimulus. China’s gold reserves were $119.02 billion at the end of May, up from $110.73 billion at the end of April. Oil prices finish slightly lower as WTI crude drops -$0.39 or 0.56% to settle at $69.23 per barrel after touching earlier highs of $70 per barrel (Brent earlier touched highs of $72.27 before sliding).

Currencies & Treasuries

·     The U.S. dollar index (DXY) slipped again amid a lack of economic data and an ongoing dovish Fed, as it dropped back below the 90 level. Investors awaiting European and U.S. central bank meetings and key U.S. inflation data later this week after Friday’s lower-than-expected jobs data. In crypt-currencies, Bitcoin prices dropped below the $36K level. Treasury yields went sideways throughout as the 10-year stayed around the 1.57% level all day. The U.S. Treasury Department is scheduled to auction about $120 billion of notes and bonds starting tomorrow in the form of three-year, 10-year and 30-year government debt.

Sector News Breakdown

Consumer

·     Retailers; GIII tops estimates for Q1 net sales and guides FY22 net sales of about $2.57B and EPS between $2.60-$2.70 per share, both above estimates ($2.41 and $2.53B) as it benefits from a reopening of the economy; POSH announced its CFO stepped down

·     Auto sector; RIDE said it received a notice of delinquency for late filing from the Nasdaq Stock Market because it has yet to file its 10-Q for the quarter ended March 31; HMC says some N. American operations will adjust production the week of June 7 based on parts supply, provides no details on plants affected; in auto retail, AZO downgraded from Buy to Hold at Argus as the shares have surpassed former target price of $1385 and forecast slower growth as the economy recovers from the recession and new car sales continue to rise.

·     Housing & Building Products; BLDR remains top pick in housing space at RBC Capital as prefer building products vs. builders more broadly, with AZEK, DOOR (idiosyncratic earnings growth stories), and MAS (high quality) being preferred names in housing space and says MHK remains our preferred underperform

·     Consumer Staples; Reckitt Benckiser Group Plc agreed to sell its Chinese baby-formula business to Primavera Capital Group for $2.2 billion as the company seeks to exit from the struggling sector. Reckitt will retain an 8% stake in the unit and sees net cash proceeds of about $1.3B; BYND announces launch of beyond meatballs in Australian market through retail distribution at Coles; in tobacco industry (PM, BTI, MO), the U.S. Supreme Court rejected a challenge to the Food and Drug Administration’s regulation of electronic cigarettes and vape pens

·     Restaurants; Barron’s positive on EAT this weekend with an improved Chili’s poised for a big comeback; Jefferies says casual dining landscape could be setting up for some "golden years" of growth starting later this year and through 2024 saying the industry has never been through something as tumultuous as the pandemic, with operators struggling to generate traffic

·     Casinos, Gaming, Lodging & Leisure sector; RCL said six of its ships will begin sailing from U.S. cruise ports in Florida and Texas in July and August and CCL confirmed its plans to return to guest operations from port of Galveston on July 3 with Carnival Vista; in casinos, Las Vegas is making a comeback according to Barron’s saying bookings at casino resorts have gone up, but convention and expo business still faces uncertainty after the pandemic (positive on shares of VICI, MGP, MGM, CZR, BYD, RRR); VAC upgrade from Hold to Buy with $209 pt at Deutsche Bank based on an incrementally bullish outlook for big ticket spending from a historically robust consumer, combined with a favorable longer term outlook for leisure travel in a post-Covid world

Financials

·     Insurance; PGR downgraded to Underweight from Equal-weight at Morgan Stanley saying after PGR’s high April core loss ratio, consensus is factoring in NT margin improvement vs. April…but they say they disagree as people are driving again, at pre-Covid levels, which means more accident frequency. Lowering 2021-22e EPS by 11-16% – now 11-14% below consensus.

·     FinTech & Payments; FIS, FISV both downgraded to Hold from Buy at Truist and lower tgts to $155 and $120 respectively and maintain below-Street C22/C23 ests saying while see nothing wrong w/these cos, they expect valuations to contract as investors contemplate slowing Merchant segment organic rev growth and lack of strategic optionality; MSTR said it expects to incur impairment loss of at least $284.5M on related to its Bitcoin for three months ending June

·     Consumer Finance; COF downgraded to Neutral at Baird following significant outperformance of the stock (+68% YTD vs. S&P 500 +13% and +110% over the last year vs. S&P +32%) and a less than compelling valuation at ~1.85x TBV, ~17.7% cap/assets, and ~4.3x PPNR; Visa (V) upgraded to Overweight from Neutral at Piper and up tgt to $260 from $234 as expect Visa to benefit more from a vaccine-driven U.S. recovery than Mastercard. Visa generated 45% of its pre-pandemic revenue from the United States, compared to only 32% for Mastercard; MGI prospectus supplement is offering shares of common stock having aggregate offering price of $100 mln

·     REITs; data REITs active after private equity giant Blackstone, through its infrastructure unit and non-traded REIT, agreed to buy QTS for $78 per share in a deal valued at ~$10 bln, including debt (a ~21% premium to Friday close for QTS) https://on.mktw.net/2T6nQiI – shares of EQIX, COR also moving in sympathy

Healthcare

·     Biotech movers; BIIB received FDA approval of aducanumab, the first treatment to address an underlying cause of Alzheimer’s disease despite controversy over mixed clinical trial results. The FDA said clinical trials for the treatment, to be sold under the brand name Aduhelm, showed a reduction in the plaques that is expected to lead to a reduction in the clinical decline of patients; shares of other companies with Alzheimer treatments AVXL, PRTA, SAVA advanced in sympathy; LLY another Alzheimer treatment names surged (has Solanezumab), MRNA said it filed for a conditional marketing approval for its Covid-19 vaccine in adolescents with the European Medicines Agency and also said it submitted for authorization of the Covid-19 vaccine in adolescents with Health Canada; FATE upgraded to Buy from Neutral at H.C. Wainwright after presented updated Phase 1 results for FT516 at the 2021 ASCO meeting; LMNL shares jumped after the U.S. FDA approved Ryplazim for the treatment of patients with plasminogen deficiency type 1 (hypoplasminogenia)

·     Pharma movers; BLUE announces lifting of FDA clinical hold for sickle cell disease and β-thalassemia studies; NVS announced Phase 2 primary endpoint data showing investigational iptacopan – a first-in-class, oral, targeted factor B inhibitor – reduced protein in the urine; IOVA announced updated clinical data for lifileucel from Cohort 2 in the C-144-01 clinical study in patients with advanced melanoma; KZIA initiates Phase 2 study of Paxalisib in primary CNS lymphoma. Enrolls first patient; ALLK completes patient enrollment in phase 3 eosinophilic gastritis and/or eosinophilic duodenitis and phase 2/3 eosinophilic esophagitis clinical trials of lirentelimab (ak002); MRUS upgraded to Buy with $31 tgt at Citigroup based on the ASCO’21 dataset we now believe that Zeno has the type of efficacy and safety profile that can support multiple paths to registration including tumor-agnostic or tumor-specific strategies

·     Healthcare Services, MedTech & Equipment; CDXC announced the launch of its flagship consumer product Tru Niagen(R) in Walmart, available in 3,800 stores across the United States; MDT announces that the U.S. FDA has approved implants of the SenSight Directional Lead System used for Deep Brain Stimulation therapy; ONEM to acquire Iora Health, a human-centric, value-based primary care group with built-for-purpose technology focused on serving Medicare populations, in an all-stock transaction valued at approximately $2.1 billion.

Industrials & Materials

·     Aerospace, Defense, Industrial & Machinery; VMC agrees to acquire USCR for $1.29B, paying $74 per share in cash, representing a premium of 29.5% to USCR’s Friday’s close (transaction has been unanimously approved by the boards of both companies) https://on.mktw.net/3ge0bVI; MIC to sell Atlantic Aviation business to KKR for $4.48B; CAR board approved a $325 mln increase to company’s share repurchase authorization; Oppenheimer said views non-residential construction as an attractive end market over the next 12-24 months and a critical driver for Outperform-rated CSL, RXN and SPXC; EXFO said a corporation controlled by Germain Lamonde, EXFO’s founder and majority shareholder, will buy remaining shares for $6 per share, a 62% premium to Friday’s close

·     Metals & Materials; NTR increasing potash production in response to strong global demand/said it expects to increase potash production by approximately half a mln tonnes in second half of 2021; NUE signed a definitive purchase agreement to acquire Cornerstone Building Brands’ insulated (CNR) metal panels business for a cash purchase price of $1 billion; metals in general underperformed on the day with declines in steel (X) and copper names (FCX)

Technology, Media & Telecom

·     Apple (AAPL) showed updates to its FaceTime video chat app, adding the ability to schedule calls with multiple attendees and making the software compatible with Android and Windows devices at its 2021 virtual Worldwide Developers Conference (WWDC); says with iOs 15, AirPods can be located with FindMy app; announced plans for updates to maps, weather and wallet apps as well as a new way of handling notifications on the iPhone.

·     Internet; AMZN’s Jeff Bezos announces on Instagram that he and his brother Mark will join the Blue Origin auction winner on New Shepard’s first human flight on July 20; GOOGL to pay nearly $270 million in France over alleged advertising abuses; MGNI upgraded to Buy at Truist as view annual consensus as set very reasonably, view valuation as more tenable and continue to view MGNI as well-positioned in CTV.

·     Semiconductors; FLEX forecasted that the chip shortage disrupting the car industry and the supply of consumer technology products will last until at least mid-2022 – Financial Times reported; NVDA tops the $700 level to new all-time highs – outperforms in generally weak start in semi space (after outperformance Friday) as SOX index falls back below the 3,200 level (off record highs of 3,314 on April 5^th).

·     Software movers; ALMFF rejected an unsolicited takeover proposal by ADSK as it significantly undervalued the company’s prospects. Autodesk had made an offer of 38.50 Australian dollars (US$29.81) a share for the ASX-listed company; LSPD said to acquire Ecwid, a U.S.-based global e-commerce platform for total estimated consideration of about $500M and to buy NuORDER, a digital platform connecting businesses and suppliers for about $425M https://bit.ly/3z8nUiM ; SNOW rises to highest levels since mid-March – ahead of virtual annual Snowflake Summit user event on June 8-10, and an inaugural Investor Day on June 10.

·     Media movers; FUBO said starting today, LG customers can enjoy more than 100 sports, news & entertainment channels from fuboTV; SIRI said it intends to offer $1.5B of Senior Notes due 2028; in tower space, UBS raised price tgts on AMT to $290 from 275, CCI to $195 from $185 and SBAC to $355 from $350