Closing Recap

Tuesday, September 14, 2021

Equity Market Recap

·     Stocks finished lower in what was a slow, steady decline throughout the afternoon as investors looked past lower-than-expected CPI inflation data, focusing instead on economic uncertainties and growing chances of a corporate tax rate hike. Financial stocks paced the declines following the weaker inflation data (sending Treasury yields lower) and cautious updates from the likes of JPM, Citi at a research conference today, while tech saw selling pressure late day led by Apple (AAPL) as its product announcement failed to “wow” Wall Street. U.S. stocks initially opened higher after slowing consumer prices eased fears that high inflation will push the Federal Reserve to reduce stimulus early, but selling pressure quickly ensued. With today’s declines, the S&P 500 and Dow are down 6 of the last 7 days while the Nasdaq falls for a 5^th straight day (longest losing streak since mid-July). Afternoon headlines were dominated by Apple’s (AAPL) product announcement with new iPhones, iPads, watches, and fitness related items. Concerns remain that a rise in Delta variant cases of Covid-19 could weigh further on economic activity or slow the shipping of goods and materials, adding to inflationary pressures.

·     Stock/sector movers: AAPL shares weak after its product event unveiled new iPad, iPad mini, and iPhone 13 but did not include new AirPods; ORCL sinks after mixed earnings with an EPS beat but a miss on revenues; INTU rebounds after purchasing Mailchimp for $12B, confirming a WSJ report late yesterday; casinos underperform with LVS, WYNN plummeting almost 14% at today’s lows and MGM joining them among the worst performers in the S&P after Bloomberg reports Macau wants to increase supervision of casino operators and increase local ownership in gaming companies; media companies also stand out to the downside after CMCSA CFO comments about seeing a slowdown in net adds at the end of August drags CHTR, ATUS, CABO; banks slide in conjunction with Treasury yields after August’s CPI data showed a smaller than expected increase in prices, as JPM outlook for a decline in Q3 trading revenue and PNC warnings of a little bit of a slowdown in Q3 also weigh on sentiment in the sector; FCEL surges after posting a smaller quarterly loss than expected with a revenue beat and HLF plunges after cutting FY guidance.

Economic Data:

·     Consumer Price Index (CPI) for Aug MoM reported at +0.1%, below the +0.4% estimate and on a YoY basis, reported in-line at 5.3% The core CPI Ex: Food & Energy MoM rose +0.1% below the +0.3% estimate and YoY CPI rose 4% below est. +4.2%.

Commodities

·     Oil prices slip late day, paring earlier gains but still finishing the day higher with WTI crude up $0.01 to $70.46 per barrel and Brent up $0.09 at $73.60 per barrel. Investors continue to gauge the impact of another hurricane on both oil supply and oil demand. Prices climbed to a six-week intraday high above $71 early in the session after Tropical Storm Nicholas forced Colonial to temporarily halt its key fuel pipelines that run from Texas to North Carolina.

·     Gold prices rise to 1-week highs, up $12.70 or 0.7% to settle at $1,807.10 an ounce, getting a boost as the dollar retreated and Treasury yields fell after a slower-than-expected rise in U.S. inflation led to uncertainty over the U.S. Federal Reserve’s timeline to taper monetary stimulus. The U.S. core Consumer Price Index edged up 0.1% in August, missing expectations of 0.3%, and weighing on the U.S. dollar. That was the smallest gain since February. The inflation data could reinforce the view that the Fed may go slow on unwinding economic support measures and keep interest rates low. In other precious metals, palladium fell over 5% to its lowest since July 2020.

Currencies & Treasuries

·     Treasury yields slide following tamer than expected CPI inflation data, with the U.S. 10-year Treasury yields hit session low of 1.265%, lowest level since Sept 3, after trading around 1.35% prior to the CPI data print. It was the slowest pace in six months for consumer prices in August, suggesting that inflation had probably peaked. The core measure of U.S. consumer prices edged up 0.1% last month, the smallest gain since February. The measure, which excludes the volatile food and energy components, increased 4.0% on a YoY basis after advancing 4.3% in July. The data gives the Federal Reserve breathing room as it prepares to reduce its massive bond holdings and decide how soon to begin lifting rates from near zero.

Sector News Breakdown

Consumer

·     Retailers; CROX outperforms in retail as guidance around 2021-2026 sales outlook during its investor day boosted sentiment; Deloitte is forecasting a 7% to 9% increase in holiday retail sales this year, reaching a total of $1.28 trillion to $1.30 trillion during the November to January period. E-commerce is expected to grow 11% to 15% to between $210 billion and $218 billion (as per MarketWatch); BBW updated guidance from slides – sees 2021 revenue of $375M-$385M vs $383M consensus, EBITDA of $45M-$50M and expects to make planned capital expenditures of around $10M to support growth initiatives; LESL upgraded to a Buy from Hold at Berenberg and increasing target to $30 from $28 as believe the recent pullback in Leslie’s stock price since early May (-21% vs Russell 2000 +1%) presents a strong buying opportunity; Sovos Brands Inc. said it expects the price of its IPO to be between $14-$16 a share as it plans to offer 23.33M shares of its common stock and will grant underwriters a 30-day option to buy up to an additional 3.5M shares; AMZN confirms plans to hire 125K employees and raises wages; REAL shares volatile after Citron Research out positive on stock, saying sees shares going to $30 in 12-months.

·     Housing & Building Products; RBC Capital said homebuilder price increases are clearly moderating as their data shows a fourth consecutive month of deceleration in pricing power with 50% of base floor plans seeing a m/ m price increase, down from 58% last month. Said the magnitude of price changes also took a step down to +0.7% m/m from +1.1% and that DHI and NVR, who are typically quicker to act in real time, are continuing to see relatively worse trends.

·     Consumer Staples; HLF cuts Q3 EPS and sales view; cuts FY21 revenue view to 4.5%-8.5% from 8.5%-12.5% and EPS to $4.55-$4.95 from $4.70-$5.10 (est. $4.99) saying they recently observed lower than expected levels of activity amongst its independent distributors that has led to a decrease in expected third quarter and full year net sales; KR says it is partnering with Instacart on a new service that provides customers fresh groceries and household essentials in as fast as 30 minutes; Wells Fargo said for Signature Picks Updates they remove EL from the portfolio, add STZ based upon risk/reward, and increase our QRVO position

·     Casinos, Gaming, Lodging & Leisure sector; the Macau casino sector tumbled (WYNN, MLCO, MGM, LVS) after Bloomberg reported that Macau wants government representatives to supervise casino operators and plans to increase local ownership in gambling companies, signaling tighter control over the world’s largest gambling hub amid Beijing’s efforts to clamp down on money laundering and currency outflows; for DKNG, Hallum upped its tgt to $70 from $60 as expect strong online sports betting this NFL season, heavy marketing/promotions, and investors focused on market share winners/losers

Energy

·     Energy stock movers; oil prices extend recent gains, touching a six-week high on Tuesday as Hurricane Nicholas weakened into a tropical storm, bringing the threat of widespread floods and power outages to Texas and Louisiana, and as the International Energy Agency forecast a big demand rebound for the rest of the year. Global crude inventories that ballooned during the pandemic have shrunk to the lowest level in 20 months amid economic rebound. The world will have to wait until October for extra oil as Ida offset increases from OPEC+, according to IEA.

·     Utilities & Solar; EXC upgraded to Buy from Neutral at Mizuho and raise tgt to $53 from $47.50 following further improvement in forward commodity power markets and said the likely adoption of the energy bill in Illinois should provide Exelon with roughly $140 million in annual subsidies for its nuclear fleet and provide a positive path forward. Wells Fargo noted while it has been a long and winding road, on 9/13 the IL Senate passed SB 2408, which provides carbon mitigation credits for EXC’s Byron, Dresden & Braidwood nuclear facilities. FCEL reported a rare narrower-than-expected fiscal third-quarter net loss, helped by higher gross margin, and revenue that rose above forecasts as shares surged.

Financials

·     Bank movers; GS to replace its CFO at year-end, with Denis Coleman taking over from current CFO Stephen Scherr (Coleman, 47, is co-head of the global financing group in Goldman’s investment banking division); the NY Times reported that Elizabeth Warren asks the Fed to break up Wells Fargo (WFC), to break off its core banking activities from its other financial services; JPM said today at a conference that it sees 3q trading revenue down 10% sequentially and y/y and sees 3q investment-banking fees up y/y and down q/q; PNC CEO said at conference he sees little bit of a slowdown in Q3, pickup in Q4.

·     Asset Managers; AB said preliminary assets under management increased to $761 billion during August 2021 from $748 billion at the end of July; IVZ prelim AUM of $1,562.7 billion, an increase of 2.2% versus previous month-end. Total net inflows were $13.6 billion; MN preliminary assets under management as of August 31, 2021 of $22.7 billion, compared with $22.5 billion at July 31; VCTR reported assets under management (AUM) of $164.9 billion as of August 31, 2021.

·     Financial services; INTU announced its intent to acquire Mailchimp for $12B, the largest deal in the company’s history; in consumer Finance, DFS said credit card delinquency rate 0.92% at August end vs 0.93% at July end and credit card charge-off rate 1.14% at August end vs 1.09% at July end

Healthcare

·     Pharma movers; The UK Joint Committee on Vaccination and Immunization recommended a booster shot of PFE/BNTX’s COVID-19 vaccine to the 50+ and other vulnerable groups not earlier than six months after the second shot; EBS secures multi-year development and manufacturing agreement with providence therapeutics for its MRNA covid-19 vaccine candidate, ptx-covid19-b; JNCE upgraded to Outperform at Raymond James based on a mosaic of recent and upcoming events and competitive developments with read through in the LILRB/ILT space; KERN said to acquire 365 Cannabis, a cannabis-specific application built on Microsoft’s Dynamics 365

·     Biotech movers; AXSM said the FDA has accepted for filing the Company’s New Drug Application (NDA) for AXS-07 for the acute treatment of migraine, and has set a Prescription Drug User Fee Act (PDUFA) target action date of April 30, 2022 for the NDA; RDHL said topline data from a global Phase 2/3 study for opaganib (ABC294640) in patients hospitalized with severe COVID-19 pneumonia did not reach its primary endpoint; CVAC slips after terminates 2 manufacturing contracts due to the reduced short-term peak demand for Covid19 vaccines

·     Healthcare MedTech Equipment; TMO tgt raised to $605 at Bank America ahead of analyst day (9/17) saying comments from peers AVTR and DHR, both of which held analyst days last week, support their view of healthy end markets; ZBH announced additional details on its previously disclosed spin-off of its Spine and Dental businesses, announcing a CFO and other members of senior leadership team, and the planned name for the new entity, ZimVie; AVTR 20.83M share Secondary priced at $42.00; WOOF added to Citigroup SMID Focus List as see the pet sector as fairly resilient, with increased pet adoption during the pandemic as an ongoing tailwind

Industrials & Materials

·     Industrials, Aerospace & Defense; BA raised its 20-year market forecast for commercial jet deliveries to 43,610 units from 43,110 and raises 20-year market forecast for wide-body jet deliveries to 7,670 units from 7,480 while cutting its 20-year forecast for freighter deliveries to 890 units from 930; Nicholas made landfall last night as a Cat 1 hurricane along the TX gulf coast and is expected to move along the coast into LA as a tropical storm; about 12.6Mm customers now without power in TX (shares of GNRC, PWR, MTZ movers in reaction)

·     Transports; Dow Transports underperform, with the the IYT dropping below the 200-day MA support of $248.50 (last break below 20-day was July 2020); MTRX FQ4 shows a 18% rise in revenue to $174.9M, 99.1M of project awards in the quarter resulting in backlog of $462.6M and cash balance of $83.9M and no borrowings at June 30, 2021

·     Metals & Materials; Bloomberg notes Iron ore dropped for a fifth day, with production curbs in China weighing on demand; MP 4.25M share Spot Secondary priced at $35.00; shares of CCJ and other uranium stocks (URA, UUUU, UEC, DNN) pull back a bit from their recent rocket ride, and while Morgan Stanley analysts think the current rally could have further to run, they are not yet convinced that it can be sustained into next year

Technology, Media & Telecom

·     Apple (AAPL) product announcements today: says iPhone 13 (starts at $799 and mini $699) will feature advanced dual camera system, coming in 5-colors and says new iphone 13 to include a15 bionic processor (a 5nm chip with nearly 15 billion transistors that Apple says is 50 percent faster than its competition); also announced iPhone “pro” starting at $999 and the Pro Max at $1,099; said the smaller iPhone 13 Mini is also back; announces new entry-level iPad with A13 Bionic chip which is 20% faster than last year which starts at $329 and $299 for schools; says bringing 5G to iPad mini which costs $499, and hits stores next week; announced the Nextgen of its Apple watch to launch later this fall to have 40% thinner borders than Series 6

·     Internet; for U.S. listed China names fall again (BABA, JD, DIDI) with more gov’t regulation impact as China will accelerate the drafting and implementation of laws to prevent online crimes, rules for online information management and the protection of minors on the internet, Xinhua reported; IQ to expand its existing strategic collaboration with Barça to develop a new premium membership program, "iBarça Membership"

·     Semiconductors; Semiconductor equipment makers AMAT, AEIS, LRCX downgraded to neutral from positive, while upgraded KLAC to positive from neutral saying given all the various moving parts, we simply don’t know enough to call a downturn. But, there is incremental confidence on earnings momentum; the beat-and-raise cycle for AMAT, LRCX, and AEIS is already behind us with all the good news already dialed in

·     Software movers; ORCL posts Q1 revenue of $9.73B (+2% YoY c/c and down -4% QoQ c/c), slightly missing the $9.77B Street consensus saying revs were hit by competition in the cloud computing space as the software giant competes with MSFT’s Azure, AMZN’s Amazon Web Services (AWS), CRM and IBM; in video games (ATVI, EA, TTWO), NPD data showed August U.S. console/handheld software sales were roughly $150 million, down 11% year-over-year, and below Wedbush estimate of $172 million; SRAD 19M share IPO priced at $27.00

·     Media & Telecom movers; cable stocks weakened (ATUS, CHTR) after CMCSA says it has seen a "little bit of a slowdown in net adds" at the end of August after CFO speaks at conference – the co said net adds of subscribers in the third quarter are running about 10% behind the comparable quarter two years ago; IAC disclosed monthly business trends for August showing ANGI at +21% Y/Y in August up from +16% in July (including the Total Home Roofing acquisition, which closed July 1st). DotDash, while strong at +29% Y/Y continues to show normalization of growth, especially in DR; DISH selected IBM’s artificial intelligence-powered automation and network orchestration software and services for its cloud-native 5G network.