Mid-Morning Look

Friday, March 26, 2021

U.S. stocks open the final trading of the week higher, extending gains, as all three major U.S. stock indexes are on course for modest weekly advances in what has been a volatile week if sharp spikes in oil, several Fed speakers out dovish and generally better than expected economic data showing the economy continues to improve. One of the biggest stories this week, impacting oil prices, shipping rates, and retailers/material company inventory, is the blockage of the Suez Canal due to a stranded cargo ship is wreaking havoc in the global seaborne trade, possibly forcing re-routing – note about 12% of global trade goes through the canal. Bloomberg noted the cost to ship a 40-foot container from China to Europe has climbed to about $8,000, almost quadruple the figure a year ago. Smallcaps look to rebound after sharp selling pressure earlier in the week. Stocks have struggled for direction in recent sessions as market participants weigh signals that the U.S. economy is primed for a spell of rapid growth against concerns about rising bond yields and a jump in coronavirus cases that threatens Europe. Treasury yields ticked higher this morning, but no impact for technology shares as the Nasdaq moves higher by 0.6%. The U.S. dollar is little changed today, but on track for big weekly gains. Shares of major banks rose after the Federal Reserve said temporary limits on dividend payments and share buybacks will end for most lenders after June 30. A strong start for major averages with stocks near morning highs.

Economic Data

·     Personal Income for February dropped (-7.1%) MoM vs. est. down (-7.2%) and the +10.1% prior (revised from +10.0%); consumer spending for February fell (-1.0%) MoM vs. the -0.7% consensus and +3.4% prior. Inflation readings showed: PCE Price Index: +0.2% vs. est. +0.3%, core PCE Price Index rises +0.1% (in-line with ests). Feb YoY PCE Index +1.6% vs. Jan +1.4%

·     University of Michigan surveys of consumers sentiment final March 84.9 (consensus 83.6) vs preliminary March 83.0 and final Feb 76.8; the consumers expectations index final march 79.7 vs prelim March 77.5 and final Feb 70.7 and the current conditions index final March 93.0 vs prelim march 91.5 and final Feb 86.2

·     Advance Trade Goods International Balance widens +2.5% to (-$86.7B) vs. (-$86.1B) consensus and -$84.6B prior; Wholesale inventories +0.5%, while inventories excluding autos +1.2%

Sector Movers Today

·     Media movers: MSGE acquires MSGN in an all-stock, fixed exchange ratio of ~4% above the ratio of the unaffected closing stock prices of the two companies on March 10, 2021 as MSGN holders to receive 0.172 shares of MSGE Class A or Class B common stock; in research, Wells Fargo downgraded AMCX to Underweight saying they have ridden the momentum wave upwards but see it fading along with peers like DISCA and VIAC; Wells also downgraded VIAC to equal-weight after rising to a peak up +160% YTD before its capital raise and think marks the end of a remarkable volatility period with valuations resetting to more normalized levels; CRTO was upgraded to Outperform at JMP Securities as believe its retargeting business can stabilize(and possibly return to growth behind share gains in 2022

·     Bank movers; Bank stocks rise after the Federal Reserve signaled it plans to lift pandemic-era restrictions on bank dividends and share buybacks for most companies after June 30 (Treasury yields also back at week highs with the 10-year up over 5 bps to 1.66%); in research, Goldman downgraded AB to Neutral from Buy (follows recent downgrade at Citi) as they see organic growth moderating in coming quarters as rising long-term interest rates could potentially pressure fixed income flows; Wedbush added CUBI to its Best Ideas List as they say the stock is the most undervalued bank in its peer group (trading at 8.0x 2022 EPS forecast vs 12.1x peer median); Wells raised its price target on TFC to $74 from $58 and its 2022-23 estimates to about 20% above consensus, which they say fails to reflect the benefit from the recovery in credit costs, NII yield curve, and merger synergies; Raymond James upgraded MAIN to Outperform with a $41 target on attractive risk/reward at the levels even with one of the highest P/NAVs in industry; HBAN and TCF said that their shareholders approved the proposed merger

·     Retailers; LB rises after raising Q1 EPS view to 85c-$1.00 up from prior view of 55c-65c due to improved sales trends which co believes are mainly driven by unusual shifts in consumer spending patterns – said previously mentioned factors have led to a stronger forecast at Bath & Body Works and Victoria’s Secret; JWN, KSS receive POSITIVE data signal on shares of both at Wedbush, raising tgt on JWN to $40 from $35, and KSS to $65 from $29 given better-than-expected business quarter-to-date, according to our proprietary data; OXM mixed results as Q4 EPS loss ($0.13) vs. est. $0.21 and revs $221M beat est. $217M with margins missing; NKE upgrade to Outperform with $150 pt at Baird after being sidelined for 806 days despite their positive fundamental view of NKE’s transformation to a DTC/digital-led organization which has driven customer engagement, elevated brand positioning, and supported margin expansion

·     Tanker stocks are active (FRO, NAT, NMM, TNK, TNP, EURN, GNK, SB, SBLK, STNG) as shipping rates are surging as the blockage of the Suez Canal is wreaking havoc in the global seaborne trade and making the long trip around Africa the only short-term alternative, said Bloomberg; about 12% of global trade goes through the canal. Bloomberg noted the cost to ship a 40-foot container from China to Europe has climbed to about $8,000, almost quadruple the figure a year ago. Suezmax vessels, which typically carry 1 million barrels of oil, are now getting about $17,000 a day, the most since June 2020

Stock GAINERS

·     AMAT +3%; chip names, specifically equipment names higher (KLAC, LRCX) as the Philly semi-index (SOX) up over 2% (50-day resistance higher around 3,036 level) – group got a boost this week after INTC raised its cap-ex view for the year

·     BOWX +12%; WeWork announced they entered into a definitive merger agreement with the SPAC BOWX in a transaction that values WeWork at an initial enterprise value of approximately $9B and will provide WeWork with approximately $1.3 billion of cash (confirms prior WSJ report)

·     JPM +1%; larger cap banks/regionals higher after the Federal Reserve signaled it plans to lift pandemic-era restrictions on dividends and share buybacks for most companies after June 30

·     LB +7%; guides Q1 EPS 85c-$1.00 up from prior view of 55c-65c due to improved sales trends which co believes are mainly driven by unusual shifts in consumer spending patterns; said prior factors have led to a stronger forecast at Bath & Body Works and Victoria’s Secret

·     MX +33%; as enters into definitive agreement with Wise Road cap in a take private transaction valued at $1.4B, with holders getting $29 per share https://bit.ly/3sqI3g9

·     NKE +2%; upgrade to Outperform with $150 pt at Baird after being sidelined for 806 days despite their positive fundamental view of NKE’s transformation to a DTC/digital-led organization which has driven customer engagement

·     ROOT +10%; after Citron’s Andrew Left said the stock is misunderstood and that shares are a bargain; he called Root a “disruptive tech company” and added that its shares should not be trading below their IPO price of $27

·     X +8%; seeing general strength in metals stocks, with big jumps in X, NUE, FCX

Stock LAGGARDS

·     AEE -1%; utility stocks broadly lower (CMS, ES, WEC) – among top decliners in the S&P 500 as investors bail on defensive sectors and back into growth

·     BIDU -8%; Chinese ADR stocks opened weak (BIDU, BABA, JD, NTES, VIPS, TCEHY) as the U.S. SEC recently began rollout of law aimed at delisting, compounding concerns of a widening domestic antitrust crackdown – shares rebounded off earlier declines for many

·     NIO -6%; cut its first quarter delivery forecast to around 19,500 vehicles, compared to the 20,000 to 20,500 vehicles prior and said it would halt production for five working days at its Hefei plant due to a shortage in semiconductor chips

·     SAIC -16%; as sales guidance fell short for both FY21 and FY22, below expectations on a slower ramp-up of the recent seven new large contract wins as margins fell short

·     VIAC -9%; Wells downgraded VIAC to equal-weight after rising to a peak up +160% YTD before its capital raise and think marks the end of a remarkable volatility period with valuations resetting to more normalized levels (more weakness in media names – FOXA, DISCA)

Syndicate:

·     Arbor Realty (ABR) 7M share Spot Secondary priced at $15.65

·     Design Therapeutics (DSGN) 12M share IPO priced at $20.00

·     Edgewise Therapeutics (EWTX) 11M share IPO priced at $16.00

·     iKena Oncology (IKNA) 7.813M share IPO priced at $16.00

·     ThredUp (TDUP) 12M share IPO priced at $14.00

·     Vuzix (VUZI) 4.146M share Spot Secondary priced at $20.50

·     Zhihu (ZH) 55M share IPO priced at $9.50