Mid-Morning Look

Monday, August 22, 2022

U.S. stocks open sharply lower, failing to rebound after Friday (and last week) declines as traders remain worried about further aggressive interest-rate increases and a slowing economic backdrop ahead of the Jackson Hole meeting later this week where Fed Chairman Powell is slated to speak Friday. First day in a while that fear popping up as the CBOE volatility index (VIX) hits highest in nearly 3 weeks, now up 2.65 points at 23.25. The selling is broad-based early, as stocks resume selling after ending last week lower, snapping a four-week stretch of gains for the S&P 500 and Nasdaq Comp. While the Fed has raised interest rates this year to tame inflation and signaled more increases are to come, some investors believe inflation has started to peak. That belief has led to a near 20% bounce off the June lows over the last few weeks…but stock prices have begun to weaken recently after the S&P 500 briefly topped and failed its 200-day moving average resistance of 4,325. Futures bets show traders are split as to whether the central bank will raise interest rates by 50-bps or 75 bps at its September meeting. The U.S. dollar has extended its gains, Treasury yields edge higher as the 10-year hovers around 3% and precious metals prices slide on that buck/yield movement. Brent crude oil tumbled over 3% to $93 per barrel. Natural-gas prices shot higher by 20% in Europe, on worries over a planned closure of the Nord Stream pipeline. The S&P is on track for its first back-to-back 1% daily declines since early June.

Sector Movers Today

·     Pharma movers; BHC has transferred common shares in an amount equal to approximately 38.6% of the issued and outstanding shares of Bausch + Lomb Corporation to an existing wholly-owned unrestricted subsidiary of the company in continuing process toward separating Bausch + Lomb; TNXP initiates enrollment in Phase 2 PREVAIL study of TNX-102 SL for the treatment of long COVID; TVTX and CSL Vifor announce EMA has accepted for review the Conditional Marketing Authorization application for Sparsentan for the treatment of IgA Nephropathy; GRTS downgraded to Sell at Goldman Sachs as believes will not be financially capable to support its solid tumor cancer vaccine candidate trials long enough to generate clinically meaningful results

·     MedTech Equipment; TFX will acquire Standard Bariatrics for an upfront cash payment of $170M at closing, with additional consideration of up to $130M payable upon the achievement of certain commercial milestones; PODD has received clearance from the FDA for its Omnipod 5 Automated Insulin Delivery System (Omnipod 5) for individuals aged two years and older with type 1 diabetes (T1D); Citigroup upgraded BRKR to buy and added ILMN to Positive Catalyst Watch ahead of the company’s investor day.

·     Aerospace, Industrial, Transports & Machinery; several changes at Evercore/ISI as UPS downgraded to In Line from Outperform, SNDR upgraded to Outperform from In Line, CNI downgraded to In Line from Outperform and SAIA downgraded to In Line from Outperform all at Evercore ISI while FDX, CHRW added to Tactical Outperform List; VSAT awarded $99M order from U.S. NAVWAR

·     Software movers; PANW and ZM are expected to report earnings after the close ahead of a busy week of results in the software sector; COUP downgraded to Underperform from SP at RBC Capital and trim tgt to $55 from $65 as view Coupa as disproportionately recession-prone, have concerns on the roll-up nature and financial profile looks unattractive; DOCU downgraded to SP from OP at RBC and cut tgt to $65 from $80 as see a long path to turnaround, which is effectively on hold without a CEO and said execution issues and high employee turnover reduce their confidence in numbers

Stock GAINERS

·     ALB +2%; lithium producers seeing rebound after selling pressure last week

·     AXSM +6%; adds to last week gains as analysts raise price tgts as its AXS-05, branded Auvelity, is now approved for MDD with broad label

·     CSVI +49%; after Private investment firms Centerbridge Partners and Bridgeport Partners to acquire CSI for ~$1.6 bln, or $58 per share

·     NVO +3%; after saying it has successfully completed phase 2 trial with CagriSema in people with type 2 diabetes

·     SGFY +36%; AMZN is among the bidders for healthcare company SGFY, joining other heavy hitters vying in an auction for the home-health-services provider, according to people familiar with the matter – WSJ https://on.wsj.com/3K8UK8Z

Stock LAGGARDS

·     AMC -37%; ahead of the start of trading for its AMC Preferred Equity Units, or Apes, which were declared by the company as a special dividend to class A common shareholders earlier in August

·     DOCU -4%; downgraded to Underperform from SP at RBC Capital and trim tgt to $55 from $65 as view Coupa as disproportionately recession-prone, have concerns on the roll-up nature and financial profile looks unattractive (RBC also downgraded COUP)

·     F -4%; after a jury in Georgia on Friday awarded $1.7 billion to the family of Voncile and Melvin Hill who were killed in a 2014 accident

·     GRTS -4%; downgraded to Sell at Goldman Sachs as believes will not be financially capable to support its solid tumor cancer vaccine candidate trials long enough to generate clinically meaningful results

·     VFC -3%; downgraded Outperform to Market Perform at Cowen lowering PT to $50 from $52 as see uncertainty related to management’s guidance

·     WEN -3%; after the fast-food chain’s restaurants were linked to an outbreak of dangerous E. coli bacteria in an investigation of dozens of cases, the CDC said