Closing Recap

Wednesday, September 15, 2021

Equity Market Recap

·     Markets were able to stop some of the recent bleeding with the S&P, Nasdaq, and Russell each enjoying their best days in September following strong moves to the upside throughout the afternoon. Today was also only the 2^nd green day in the last 8 sessions for the S&P, Dow, and Russell 2000. Meanwhile, the Nasdaq snapped its 5-day losing streak after it briefly dipped below the 15,000 level for the first time this month prior to the afternoon rally. Today’s rebound was led by energy thanks to a drawdown in crude inventories that exceeded expectations and bullish analyst notes from JPMorgan, who also said they expect the S&P to reach 4,700 by year-end. This target implies a further increase of at least 5.7% from yesterday’s close and would bring 2021’s annual return above 25%. Today’s move higher came as the U.S. stock markets overlooked the continued economic weakness in China as the country said retail sales grew a disappointing 2.5% in August from a year ago, well below the forecast for 7% growth, industrial production growth was also slightly below expectations and China’s new home prices grew at their slowest pace in eight months in August, +0.2% month-on-month in August after increasing 0.3% in July.

·     Stock/sector news: Macau-exposed casinos plunge for the 2nd straight day after yesterday’s report that Macau wants to increase supervision and local ownership of the companies as MLCO hits 8-year lows, LVS lowest since March 2020 (and would be lowest price since Jan 2016 excluding the pandemic), WYNN, MGM slide too; energy names EOG, MRO, FANG, COG, OXY, APA lead the S&P as WTI Crude tops $73/barrel for the 1st time since August 2; YUMC stumbles after lowering its guidance given the impact of the Delta variant in China, also weighing on shares of SBUX; other China names BABA, BIDU, JD, PDD also extend recent weakness after country’s August retail sales disappointed; MSFT jumps after raising its quarterly dividend by 11% and authorizing a new buyback up to $60B; GS shares slid after purchasing GSKY for $2.24B, though other bank stocks higher with Treasury yields rebounding; STLD shares climb after strong Q3, Q4 guidance, lifting other steel names; KSU officially ends its bidding war, accepting the bid from CP.

Economic Data:

·     Empire State Manufacturing Index for Sept rises +34.30 vs. +18.6 consensus and +18.3 prior; new orders index 33.7 in september vs 14.8 in August; prices paid index 75.7 in september vs 76.1 in august; the employment index at 20.5 in September vs 12.8 in august and six-month business conditions index 48.4 in September vs 46.5 in August

·     Import prices for August fell -0.3% M/M vs. +0.3% consensus and +0.4% prior (revised from +0.3%), while export prices rose +0.4% M/M vs. +0.5% consensus and +1.1% prior (revised from +1.3%). U.S. Aug non-petroleum import prices -0.1%, year-over-year +5.9% and U.S. Aug petroleum import prices -2.4% vs July +2.3%

·     Industrial output for Aug +0.4 pct (consensus +0.4%) vs July +0.8% (previous +0.9%) while capacity utilization rate 75.3% (vs consensus 76.4%) vs July 75.2% (previous 76.1%)

Commodities, Currencies & Treasuries

·     Oil prices were very strong, with WTI crude rising $2.15 or 3.05% to settle at $72.61 per barrel, its highest closing settlement since late July after industry data showed a larger than expected drawdown in U.S. crude inventories and on expectations demand will rise as vaccination rollouts widen. Natural-gas futures also rallied, to mark another finish at the highest since February 2014. October natural gas rose 20 cents, or 3.8%, to settle at $5.46 per million British thermal units.

·     Gold prices slide -$12.30 or 0.7% to settle at $1,794.80 an ounce, pulling back after a broad stock market rally following a week of declines. A weaker dollar failed to generate buying precious metals as gold gave back most of yesterday’s advance.

·     The dollar slipped vs. other currencies after softer-than-expected U.S. inflation data released on Tuesday eased short-term expectations about tapering of asset purchases from the Federal Reserve. The buck trimmed losses today after data showing import prices fell unexpectedly in August and a higher-than-expected reading for the New York Fed’s business survey. The dollar fell to a four-week low of 109.14 yen, the euro was little changed against the dollar at $1.1808.

Sector News Breakdown

Consumer

·     Retailers; ASO 18.645M share Secondary priced at $44.75; LESL 15.8M share Secondary priced at $22.00; ONON 31.1M share IPO priced at $24.00; ELY filed mixed shelf; CROX tgt price raised by several analysts after the co projected sales to grow to more than $5 bln by 2026 during its investor presentation yesterday; WEBR reported Q3 adj. EBITDA $134M vs. $122M last year and posted Q3 revs $668.9M, mostly in-line with consensus

·     Auto sector; WKHS voluntarily dismissed its legal challenge against a U.S. Postal Service (USPS) move to award a multibillion-dollar contract to OSK for making postal delivery vehicles, Reuters reported; NKLA unveils to the public its manufacturing facility in Ulm, Germany that it is operating with joint venture partner IVECO; Ford (F), Argo AI and WMT are working together to launch an autonomous vehicle delivery service in Miami, Austin, Texas, and Washington, D.C.; XPEV launches new P5 smart family sedan at RMB157,900 to RMB223,900

·     Consumer Staples and Restaurants; YUMC said its adjusted operating profit would take a 50% to 60% hit in Q3 as the spread of the Delta variant in China led to restaurant closures and "sharply reduced sales"; says same-store sales in August declined by mid-teens percentage Y/Y, or close to an approximately 20% decline compared to August 2019; CMG tgt raised to $2,110 from $1,950 at Argus as think that Chipotle has a healthy balance sheet along with robust mobile ordering and delivery platforms that will help it to recover as the economy reopens; CBRL ests lowered at Truist and tgt to $159 from $178 ahead of F4 results driven by lackluster non-local road travel (-4% vs. ’19 in F4Q21) as well as outsized exposure to counties with high new COVID cases; BROS 21M share IPO priced at $23.00; DTEA shares fell after the tea retailer said its ecommerce and wholesale sales fell by nearly one-third in its fiscal second quarter; APRN said it plans to raise $78 million of equity, including a $45 million fully backstopped rights offering. It also announced changes to its board and capital structure.

·     Casinos and Gaming sector; U.S. casinos with operations in Macau (WYNN, LVS, MLCO, MGM) looking sharply lower for a second straight day as Macau government proposes to revise the city’s gaming law, tightening direct supervision of casinos in the world’s largest gambling hub. Reuters noted Macau’s secretary for economy and finance said there were still some deficiencies in industry supervision. J.P. Morgan downgraded Macau gaming names Galaxy Entertainment (GXYEF), MGM China (MCHVF) SJM Holdings (SJMHY), Melco (MLCO), Wynn Macau (WYNMF) and Sands China (SCHYY) from overweight to neutral or underweight due to heightened scrutiny on capital management and daily operations ahead of license renewals; Wells Fargo initiated the gaming sector: BYD, CHDN, CZR, DKNG, MGM initiated OW, and BALY, LVS, PENN, RSI, WYNN initiated wit EW – CZR and BYD among top picks

Energy

·     Energy stock movers; energy stocks the top gainers early (APA, COG, COP, FANG, HES, MRO) as oil prices rise, boosting sentiment for E&P and equipment names. Oil prices climbed after industry data showed a larger than expected drawdown in U.S. crude inventories and on expectations demand will rise as vaccination roll-outs widen.

·     Inventory data: the American Petroleum Institute (API) showed a draw of 5.44M barrels of oil for the week ending September 10, while gasoline inventories showed a draw of 2.76M barrels, distillate inventories show a draw of 2.89M barrels and Cushing inventories show a draw of 1.36M barrels. Energy Information Administration Petroleum (EIA) said Crude inventories fell-6.4M barrels vs. -3.5M consensus, -1.5M last week, gasoline -1.9M vs. -1.9M consensus, -7.2M last week and distillates -1.7M vs. -1.6M consensus, -3.1M last week.

·     E&P and Majors; JPMorgan believes the current price environment for North American integrated oils remains in a sweet spot with recovering demand and attractive valuation that is cheaper than pre-Covid levels, and remain OW on CNQ, CVE, XOMNeutral on COP, IMO, MEG, SUand UW on OXY and downgraded CVX to N primarily on valuation; JPMorgan believes that 2022 will be the year E&P companies return cash to equity holders, see stark improvement in gas and NGL fundamentals, say their favorite way to play rising natural gas prices is AR, say they would avoid companies with underwater hedges (EQT, SWN, CNX) in favor of OVV, upgraded SM to OW given robust FCF metrics and attractive valuation, upgraded GPOR, RRC to N and downgraded SWN to UW within Appalachia based on their updated forced ranker methodology, and upgraded MTDR to OW based on continued operational outperformance, an attractive mix of growth and FCF generation, increasing shareholder returns, and its attractive position in our updated forced ranker; Truist raised their PT on FANG to $130 from $122 after management meetings increased their confidence in the company to generate material FCG to pay off debt and increase buybacks; Wells reiterated LNG at OW and raised their PT to $112 from $95

·     Utilities & Solar; JKS reported Q2 EPS 22c vs. est. loss (16c) on revs $1.23B vs. est. $1.22B, shipments were 5,203 MW, see Q3 revenue $1.24B-$1.37B vs. est. $1.6B, and FY 2021 total shipments 25-30GW; FTCI announced that Tony Etnyre will step down as CEO and board member and the board has appointed Sean Hunkler as his successor effective Sep.24

Financials

·     Bank movers; a rebound for banking stocks after weak Treasury yields and softer trading outlooks from JPM, Citi yesterday weighed on the sector; SCHW said for Aug, Core net new assets brought to the company by new and existing clients totaled $51.8 billion. Net new assets excluding mutual fund clearing totaled $50.5 billion. Total client assets were $7.84 trillion as of month-end August, up 75% from August 2020; PRU to sell subsidiary Prudential Annuities Life Assurance Corporation to reinsurer Fortitude Re for a total transaction value of $2.2 billion

·     Consumer lending; GSKY surges as Goldman Sachs Group Inc. is buying the specialty lender for $2.2 billion, striking a deal it hopes will further its reinvention from Wall Street powerhouse to Main Street player. Goldman will pay roughly $12 a share in stock – https://on.wsj.com/3nuS6RI (GSKY lends to consumers for big one-time purchases like cosmetic surgery and home improvements); SOFI init Buy and $28 tgt at Mizuho, calling it a one-stop shop digital financial services firm that is during a powerful transition to a full-fledged mobile-first, super-app neo-bank with in-house next-gen issuing capabilities (Galileo).

·     Consumer Finance/Cards; COF reports August net charge-offs 1.54% vs. 1.45% last month and reports August 30-plus day delinquencies 1.79% vs. 1.71% last month; SYF reported August charge-off rate 2.59% vs. 2.24% last month and reports August 30-plus day delinquencies 1.33% vs. 1.37% last month; WEX awarded and entered the state-wide fleet card contract with the State of Minnesota through the NASPO ValuePoint Master Agreement; JPM credit card delinquency rate of 0.62% in August edges down from 0.64% in July and compares with 0.95% in August 2020, while net charge-off rate of 1.25% increases from 1.14% in July, but it’s still down from June’s 1.30% and 2.18% in August 2020; ADS August net charge offs 4.0% vs. 4.2% last month and reports August delinquency ratio 3.6% vs. 3.4% last month

Healthcare

·     Pharma movers; PFE is seeking FDA approval for use of its COVID-19 vaccine in children aged six months to five years, the Financial Times reports. The company is aiming to gain such approval in November; TBPH drops after saying a late-stage study of its drug candidate, ampreloxetine, did not meet the main goal of improving symptoms of neurogenic orthostatic hypotension (nOH)- a type of low blood pressure; also said will reduce the headcount by ~75%, which will result in annualized operating expense savings of ~$165M in 2022; KALV cut its sales outlook for the year following an “extremely challenging” 3Q; Dice Molecules Holdings (DICE) 12M share IPO priced at $17.00; Procept BioRobotics (PRCT) 6.56M share IPO price $25.00; Tyra Biosciences (TYRA) 10.8M share IPO priced at $16.00

·     Biotech movers; SAGE said the U.S. FDA has granted Fast Track Designation to SAGE-718 for development as a potential treatment for Huntington’s disease. Fast Track is a process designed to facilitate the development and review of new treatments for serious conditions with unmet medical need such as HD; REGN rises after being awarded a $2.94B modification to a contract for 1.4M REGEN-COV antibody therapeutic doses; SRPT was upgraded to Buy with $100 tgt at Guggenheim based on our outlook for the remainder of 2021 and into 2022; BIIB said plans to initiate phase 3b study evaluating potential benefit of higher dose of Nusinersen in patients previously treated with Evrysdi; BGNE said the FDA grants BRUKINSA® (Zanubrutinib) accelerated approval in relapsed or refractory marginal zone lymphoma (marks 3^rd approval for BRUKINSA and first approval in marginal zone lymphoma); BBIO receives FDA fast track designation for investigational therapy for the treatment of limb-girdle Muscular Dystrophy Type 2i (LGMD2i)

·     MedTech Equipment; IART downgraded to Neutral from Buy at BTIG and removing price target saying while they like the progress IART has made (shedding extremities, acquiring Codman and ACell), they see limited upside in the near to mid-term, stemming from a few factors

Industrials & Materials

·     Aerospace & Defense; the first all-civilian mission to orbit Earth is set to take off tonight, within a five-hour launch window that opens at 8:02 p.m. ET. SpaceX will power the expedition, known as Inspiration4, using one of its Dragon capsules atop a reusable Falcon 9 rocket; LHX signed armed forces covenant to support Military Community and announces grant for veterans (William Blair said it is only a modest negative that AVAV did not win this Air Force EOD award; RTX CEO said a Morgan Stanley conference that international travel down significantly through the end of this year and probably even into next year

·     Transports; the saga is over in the railroad sector is over as KSU officially terminates CNI M&A deal, enters agreement with CP at $90 in cash and 2.884 shares – Canadian National Railway Co said it would not proceed with its $29.6 billion offer for Kansas City Southern; in truckers, Cowen upgraded shares of KNX, SNDR and WERN to Outperform as consensus appears to be underestimating the industry’s ability to get pricing in ’22 which we see up mid-single digits vs consensus flat to down. We increase our already above-consensus estimates to 9% growth vs consensus ~3% to reflect the aforementioned better pricing and flat fleet growth in ‘22

·     Metals & Materials; uranium producers (CCJ, UUUU, DNN) rise as prices of the metal hit multi-year highs with futures at $44.15 a pound, a nine-year high; Iron ore futures in China sink to nine-month lows, extending the recent selloff as data showed August steel production in the country falling 13% Y/Y; AA upgraded to Buy from Hold with $58 tgt at Argus as view Alcoa as a well-run company with a strong track record in its industry; steel stocks get a boost as STLD with better Q3 guidance as sees EPS $4.88-$4.92 vs. est. $4.33 in steel space saying Q3 steel shipments are expected to be strong across the company’s steel portfolio

Technology, Media & Telecom

·     Software movers; MSFT board approves new share buyback of up to $60B in shares; raises quarterly dividend 11% to 62c per share; SKIL raises FY22 revenue view to $670M-$690M from $645M-$675M and boosts FY22 bookings view to $690M-$710M from $660M-$690M; RBLX said it expects bookings to be between $219M-$222M in Aug, down from $221M-$224M in July; estimates average bookings per daily active user (DAU) to be between $4.54-$4.60, – lower than July’s range of $4.75-$4.81; SE upgraded to Buy from Hold at Stifel and raise tgt to $400 from $325 saying with attractive gaming margins, Sea is well positioned to invest in its burgeoning eCommerce and financial services segments; EA slips early on reports a Battlefield 2042 delay could in the offing if multiple rumors from respected sources are to be believed, as per GamesRadar https://bit.ly/3hznn2b