Mid-Morning Look

Friday, October 01, 2021

Stocks opened higher following a slew of positive news (vaccine news and debt ceiling crisis averted for now), boosting markets initially, but the selling pressure seen in markets earlier this week pushed stocks lower, especially for tech stocks. Positive news for the vaccine/reopen sectors after Merck (MRK) said it plans to seek emergency use authorization for its oral antiviral treatment for Covid, after the medicine showed “compelling results” in clinical trials and Australia plans to start reopening its international border in November, ending one of the world’s strictest pandemic-era travel bans (the + MRK news crushing shares of rival vaccine players BNTX, MRNA, PFE, JNJ). In Washington D.C., House Speaker Nancy Pelosi plans to try again Friday for a vote on bipartisan infrastructure legislation that’s been held up by a battle between moderate and progressive Democrats over President Joe Biden’s economic agenda. Note the debt ceiling crisis was averted (for now) as the government stays funded following passage of bill late yesterday by GOP and Democrats. Inflation concerns weighed on overseas markets as euro zone inflation jumping to a 13-year high (CPI 3.4% vs. prior month 3%), while data in the U.S. showed no slowdown in rising prices as well (PCE monthly data). However, manufacturing and spending data came in above views. Starting a new trading month and quarter for the stocks after the S&P 500 suffered its worst month since the onset of the pandemic in September, reflecting concerns about COVID-19, inflation fears and budget wrangling in Washington.

Economic Data

·     U.S. Aug personal income rose +0.2% vs. est. +0.3% and vs. July +1.1%, while Personal Spending rises +0.8% above est. +0.6% and vs. July -0.1%; Aug real consumer spending +0.4% vs July -0.5%. On inflation readings, Overall PCE price index +0.4%, in-line with July while Core PCE rises +0.3% vs. est. +0.2% and July +0.3%. On a YoY basis, PCE price index +4.3% vs July +4.2% and core PCE YoY +3.6% in-line with estimates

·     September Markit PMI Manufacturing Index reported at 60.7, vs. 60.5 consensus, 61.1 prior; final output index for september at 55.7 vs flash reading 55.2 and final august 56.7; final input prices index for september at 87.0 vs flash reading 86.9 and final august 87.5; manufacturing input prices index decreases from previous month for first time since January

·     ISM Manufacturing Index for Sept reported at 61.1 vs. 59.8 expected and 59.9 prior; new Orders 66.7, unchanged from August; production to 59.4 from 60.0; employment to 50.2 from 49.0; supplier Deliveries to 73.4 from 69.5; prices paid index 81.2 in september vs 79.4 in august

·     University of Michigan surveys of consumers sentiment final sept 72.8 vs. consensus 71.0 vs preliminary sept 71.0 and final Aug 70.3; the current conditions index final sept 80.1 vs prelim sept 77.1 and final Aug 78.5 and expectations index final sept 68.1 vs prelim sept 67.1 and final Aug 65.1; the 1-year inflation outlook final september 4.6% vs prelim 4.7% and final August 4.6%

·     August Construction Spending unchanged M/M to $1,584.1B vs. +0.3% consensus, +0.3% prior and construction spending +8.9% Y/Y vs. +9% prior.

Sector Movers Today

·     Pharma movers; Dow component MRK surges after its experimental oral drug for COVID-19, molnupiravir, reduced by around 50% the chance of hospitalization or death for patients at risk of severe disease, according to interim clinical trial results. Merck and partner Ridgeback Biotherapeutics plan to seek U.S. emergency use authorization for the pill as soon as possible, and to submit applications to regulatory agencies worldwide. Due to the positive results, the Phase 3 trial is being stopped early at the recommendation of outside monitors (shares of other vaccine makers tumbles following the better MRK data, with MRNA, NVAX, PFE, BNTX sliding)

·     Casinos, Gaming, Lodging & Leisure sector; in casinos (WYNN, LVS, MGM, MLCO) Macau gross gaming revenue rose 166% year-over-year in September to 5.88B patacas ($735M) to miss the consensus expectation for growth of 200%. The GGR tally for the month was up 32%% from the level in August on some incremental improvement of traffic levels during the first three weeks of the month before new COVID cases led to tighter restrictions; MGM downgraded to negative at Susquehanna as see DKNGs bid for Entain as consistently aggressive, out-maneuvering MGM for control of BetMGM and weakening its digital prospects in all likely scenarios; in leisure, ABNB tgt raised to $190 at BTIG and raise ests with changes based on mix impacts to ADR and improving view of leverage in the model.; overall “reopen” sectors such as theme parks, leisure, travel, lodging saw strength on positive COVID-vaccine news from MRK

·     Auto sector; LI delivered 7,094 Li ONEs in September 2021 (+102.5% YoY but -24.8% vs Aug), Q3 deliveries 25,116 (+19o% YoY, +42.9% Q/Q) and exceeding recently revised guidance of ~24,500 units; NIO September deliveries 10,628 vehicles (+125.7% YoY, +80.7% vs Aug), an all-time high monthly record, Q3 deliveries 24,439 vehicles (+100.2% Y/Y), exceeding the revised guidance of ~22,500 to 23,500 vehicles; XPEV delivered a monthly record 10,412 Smart EVs in September (+199% YoY, +44% vs. Aug) and a quarterly record 25,666 deliveries in Q3 (+199% YoY, +48% Q/Q); TSLA missed its deadline to deliver the Model X in Q3 2021, but a handful of units of the new electric SUVs were spotted in Fremont factory, Electrek reported. It gives some hope that deliveries might start soon https://bit.ly/2Y8L4ba; RIDE said it plans to sell its Ohio auto factory to Foxconn for $230M, updated its production plan and 2021 financial outlook as it now sees SG&A expenditure $105-120M vs prev. $95-105M after it reached an agreement with Hon Hai Technology Group to work jointly on electric vehicle programs in the company’s assembly plant in Lordstown, OH

·     E&P and Majors; XOM said gas prices will boost Q3 earnings by about $700M, oil prices will boost earnings by about $400M, and downstream margins will boost earnings by about $600M; Into Q3 earnings, Cowen likes the tactical setup for XOM and maintain RDS CVX as their top picks and are 60% above consensus on 4Q21 and 1Q22 with international gas prices hitting record levels and climbing, while Mizuho continues to prefer CVX over XOM due to a higher cash return outlook but raised their quarterly EPS on both to above consensus estimates; PDCE pre-announced Q3 production of 63-65k bpd that was sharply below expectations for the 3^rd consecutive quarter, lowered its FY21 oil production to 60-63k bpd from 64-66k and anticipates production at low end of previous range of 190-195k bpd

·     MedTech Equipment; ISRG & SILK both downgraded to Neutral from Buy at Citigroup saying they enter the earnings season with particularly low expectations, and believe that most investors are willing to look forward if the fundamentals are intact for group, upped tgt prices for ABT, DXCM and IRTC while decreasing ZBH and believe more diversified stocks with comprehensive product pipelines (ABT, BSX, and MDT) and those more consumer interfacing also with a pipeline (Diabetes stocks: DXCM, PODD, and TNDM) are best positioned to manage the noise; BMRA shares jumped after saying WMT has begun selling co’s EZ Detect colorectal disease screening test through its online sales channel

Stock GAINERS

·     BMRA +24%; after saying WMT has begun selling co’s EZ Detect colorectal disease screening test through its online sales channel

·     BTBT +2%; cryptocurrency-exposed stocks rally (BTBT, NCTY, MARA, SI, RIOT, MSTR) after Bitcoin jumped back above $47,000, rising nearly 10% at one-point

·     CCL +3%; shares of travel, casinos, theme parks, and other reopen sectors seeing strength this morning, risk-on for sectors after the positive MRK Covid vaccine news and reports Australia plans to start reopening its international border in November (UAL, HST, EXPE top gainers)

·     FIVN +1%; said its $14.7B merger agreement with ZM has been terminated by mutual agreement as did not receive the requisite number of votes to approve the merger with Zoom (FIVN upgraded by Canaccord, Evercore, Barclay’s and Wells following the news as we believe the implied post-announcement value of FIVN is below its intrinsic value)

·     MRK +9%; after its experimental oral drug for COVID-19, molnupiravir, reduced by around 50% the chance of hospitalization or death for patients at risk of severe disease, according to interim clinical trial results. Merck and partner Ridgeback Biotherapeutics plan to seek U.S. emergency use authorization for the pill as soon as possible

·     OXY +3%; energy another strong sector on reopen news and strong oil prices this week

·     SPWR +9%; will replace XEC in the S&P MidCap 400 index before trading begins on Oct. 5th

Stock LAGGARDS

·     BABA -1%; downgraded to Outperform from Strong Buy with a price target of $240, down from $300 saying while they remain positive on Alibaba long-term and believes valuation remains attractive, feels the recovery in shares could take longer

·     GNRC -3%; extends weekly declines following lower 3-year outlook mid-week that sunk shares

·     MGM ; downgraded to negative at Susquehanna as see DKNG’s bid for Entain as consistently aggressive, out-maneuvering MGM for control of BetMGM and weakening its digital prospects in all likely scenarios (but casinos rally with other reopen plays on positive vaccine news from MRK)

·     MRNA -4%; falling along with other COVID-19 vaccine makers PFE, NVAX, BNTX, REGN after MRK’s experimental oral drug for COVID-19, molnupiravir, reduced by around 50% the chance of hospitalization or death for patients at risk of severe disease

·     OMER -32%; after saying that FDA had identified deficiencies in its marketing application for narsoplimab in hematopoietic stem cell transplant-associated thrombotic microangiopathy