Mid-Morning Look

Tuesday, December 01, 2020

Stocks surging again as the optimism of Covid-19 vaccines has markets acting like a runaway train higher over the last few weeks. Two coronavirus vaccines head to FDA review (MRNA and the PFE/BNTX combo) and if both are cleared, as many as 40M doses could be distributed by year’s end according to reports. Fed Chairman Powell said Monday that while the news on the vaccine front is positive, its impact on the economy will be unclear until challenges such as vaccine production and mass distribution are resolved. Better-than-expected manufacturing data from China also providing a boost for markets as manufacturing released by Caixin hit a decade high in November. Also helping sentiment, stimulus hopes as House speaker Pelosi, and Treasury Secretary Mnuchin to talk at 1:00 pm today on Covid relief, which was followed by reports this morning that a Bipartisan House, Senate Group to propose $908 Billion in Coronavirus aid. The Safe-haven dollar falls to fresh 2-year lows against the euro which traded up around 1.202 (best since April 2018). The stocks market rally is once again overly broad based, helped by economically sensitive sectors. U.S. Treasury yields rose (10-year up 7 bps to 0.91%) to its highest level since November on hopes that developments on the coronavirus vaccine front would bring a speedy economic recovery. Asian and European markets surge with the Nikkei at best levels since 1991.

Economic Data

·     U.S. IHS market November final manufacturing PMI at 56.7 (vs flash 56.7); Markit November final manufacturing PMI final 56.7 vs flash 56.7 and final October 53.4; November final manufacturing output index final 59.2 (highest since Sept 2014) vs flash 58.7 and October 53.3

·     U.S. Construction Spending for October rose +1.3% vs. est. +0.8%; Oct private construction spending +1.4%, public spending +1.0%

·     ISM U.S. manufacturing activity index 57.5 in November vs. est. 58.0 and 59.3 in October and prices paid index 65.4 in November vs. 65.5 in October; new orders index 65.1 in November vs 67.9 in October and employment index 48.4 in November vs 53.2 in October

Sector Movers Today

·     Aerospace & Defense; BA continues to lead space after getting flight approval for Max 737 in recent weeks, helping boost supplier sector to industry; Truist today upgraded shares of ATRO, SPR, and TGI to hold from sell and upgraded AIR to buy from hold while upgrading their view of the commercial aerospace sector taking into consideration the recent 737 Max certification coupled with Covid vaccine news; SPCE shares rise after winning a NASA contract to provide flight and integration services for payloads chosen by the agency’s Flight Opportunities program; the multiple award contracts are firm-fixed-price orders with a total combined value of $45M

·     Financial Services; Morgan Stanley upgraded NCR to OW with $34 pt, $51 bull case ahead of the company’s analyst day on Thursday due to an improving 2021 spending backdrop, solid execution, and potential value creation from SoTP analysis; Truist upgraded VRSK to Buy, saying it is positioned to deliver years of mid-single digit % organic revenue growth, better profitability, strong FCF, and improved capital disciple, and downgraded CLGX, INFO saying they are fairly valued; Argus also downgraded INFO to Sector Perform following the stock’s rise yesterday on the announcement that it will merge with SPGI to in-line with the deal value

·     Biotech movers; AXSM announced positive results from the long-term, open-label Phase 3 COMET trial of AXS-05 in patients with major depressive disorder, or MDD, and the open-label Phase 2 COMET-AU trial in patients failing one prior antidepressant treatment; AGIO said its oral drug, mitapivat, for treating a type of blood disorder met the main goal of a late-stage study, showing sustained increase in hemoglobin compared to placebo; NERV slides after the FDA advised its mid-stage study of drug to treat negative symptoms in schizophrenia is problematic because it did not use the commercial formulation of the drug, roluperidone, and was conducted solely outside U.S.

·     Auto sector; NIO reported 5,291 vehicle deliveries in November, a record month and +109.3% YoY, and its YTD deliveries now total 36,721 (+111% YoY), and the stock was upgraded at Goldman to Neutral with a $59 pt from Sell and $7.70 pt, reversing their July 17 downgrade on valuation concerns; XPEV reported 4,224 vehicle deliveries in November, +342% YoY, bringing its YTD total to 21,341 (+87% YoY); KNDI responds to yesterday’s short report at Hindenburg, saying the report contains numerous errors, misstatements of historical facts, inaccurate conclusions, and superfluous opinions; TM November U.S. auto sales fell -1% vs. +9.20% YoY; JPMorgan upped their pt on GM to $49 from $46 and reiterated their OW rating despite their recent MOU with NLKA not including an equity stake

Stock GAINERS

·     BB +41%; after announced a “multi-year, global agreement” with AMZNs Amazon Web Services cloud business to develop BlackBerry’s Intelligent Vehicle Data Platform, IVY

·     FSTX +15%; as GSK reports a passive stake of 8.9% in FSTX as of Nov. 20

·     KSS +14%; as announces major long-term strategic partnership with Sephora as first 200 locations open in 2021

·     MRNA +3%; rises again after touching record highs Monday as a panel of outside experts advising the U.S. FDA will meet Dec. 17 to review the evidence for Moderna’s vaccine and vote on whether to recommend that the agency authorize its emergency use

·     SPCE +5%; after winning a NASA contract to provide flight and integration services for payloads chosen by the agency’s Flight Opportunities program

·     TSLA +1%; after S&P Dow Jones Indices said it would add one of Wall Street’s most valuable companies to the S&P 500 index all at once on Dec. 21.

Stock LAGGARDS

·     FSLR -3%; was downgraded at Barclays to Underweight with a Street low $60 price target (from $86) ahead what they perceive is a pending margin cliff

·     MTN -2%; was downgraded to Market Perform from Outperform at William Blair on a reset over the impact of the pandemic on the ski season

·     NERV -19%; slides after the FDA advised its mid-stage study of drug to treat negative symptoms in schizophrenia is problematic because it did not use the commercial formulation of the drug, roluperidone, and was conducted solely outside U.S.

·     NKLA -12%; falls again after revised MOU with GM yesterday sunk shares; 3.23M Share Block Trades at $17.66

·     ZM -13%; analysts overly positive after reported solid Q3 results that meaningfully outperformed guidance and consensus, though by a meaningfully lower magnitude – billings of ~$888.8M (consensus $766.9M), up ~382% y/y, versus 384% last quarter, and RPO growth of 215%