Closing Recap

Tuesday, April 06, 2021

Equity Market Recap

·     Stocks gyrated between gains and losses much of the day, but only after the S&P 500 touched fresh intraday record highs late morning, while the Nasdaq Composite traded at 6-week highs before paring gains as stocks looked tired following their recent record run. The increasing Covid-19 vaccine rollout (boosting reopen industries such as travel, leisure, gaming, restaurants), the ever dovish Fed (officials keep rates at zero with ongoing monetary policy measures), the boost for Americans through a third stimulus package (two under Trump, one recently under Biden), an infrastructure deal coming to the tune of over $2 trillion (boosting materials and industrials) and stronger earnings and economic data have all underscored the strength in U.S. stock markets the last few months. Today a decline in Treasury yields (10-year down at 1.66% after touching recent 14-year highs of 1.78%), helped buoy the tech heavy Nasdaq Composite initially…but stocks took a leg lower early afternoon amid weakness in semiconductors after semi-equipment maker AMAT provided long-term outlook goals that were not well received by markets (FY24 guidance that includes $23.4-31B in revenue, $7-10 EPS, gross margin of 47.5-48.8%, and operating margin of 30.6-32.7%). The outlook sunk tech stocks in general which had been enjoying another banner day prior. Fear in the market is non-existent as the CBOE Volatility index (VIX) traded below the 18 level for a third day, with investors avoiding hedging. Stocks got another boost late day (reopen stock names) after California’s governor said plans to fully reopen economy June 15 if covid hospitalizations low and vaccine plentiful.

·     Sector movers/top stories: AMAT sinks in the afternoon after providing its 2024 targets at its Analyst Day presentation, dragging LRCX, KLAC lower; GM touches new record highs after reporting strong vehicle deliveries in China, spearheaded by EV sales growth in the company, and announcing a new electric Silverado pickup truck; ILMN soars after reporting prelim Q1 rev over $1B and raising its FY rev growth to +25-28% from +17-20%; ROKU, ETSY, GDRX, FUBO, PINS, ZG, SFIX, TRUP, UBER rise after being listed among internet stocks that Evercore now rates at Outperform; SNAP gains on its inclusion and separate upgrade at Atlantic; gyms PLNT, parks DIS, SIX, theaters AMC, CNK bounce in the afternoon after California announces it will lift restriction in June; PAYX was the worst stock in the S&P after its Q3 sales slightly missed estimates and guided full-year revenue to -2%-flat.

Commodities

·     Oil prices finish higher, with WTI crude up $0.68 or 1.16% to settle at $59.33 per barrel but finished well off its intraday lows of $60.90 per barrel, helped by a sliding dollar and ahead of weekly inventory data. The U.S. Energy Information Administration on Tuesday raised its 2021 world oil demand growth forecast by 180,000 barrels per day to 5.50 million bpd. Note there has been lots of volatility in energy prices the last few sessions with down 2.3%, up 3.9%, down 4.5% the prior three days following today’s gains. Precious metal prices gained as June gold rises $14.20 or 0.8% to settle at $1,743 an ounce for its 4^th straight daily advance to highest levels in about 5-weeks, boosted by a pullback in the dollar and Treasury yields.

Currencies & Treasuries

·     Treasury yields declined sharply across the curve, with weakness in the benchmark 10-year which fell over 5 bps to 1.66% midday (well off recent 14-month highs of near 1.8%) as fears of inflation take a back seat despite stronger economic data over the last few days (nonfarm payroll jobs, ISM services, and PMI data). U.S. 5-year notes led the decline in yields, falling nearly five basis points to 0.896% after hitting 14-month highs on Monday. Seven-year yields also fell, down four basis points, at 1.363%. At its March policy meeting, the Fed said it does not expect to raise interest rates until 2023, and several Fed members have echoed that comments recently, saying the recent uptick in inflation was transitory.

·     The U.S. dollar index (DXY) slipped to a two-week low, as traders booked profits after a strong March and as a fall in Treasury yields from recent peaks put pressure on the U.S. currency. The dollar index hit below 92.50, lowest levels since March 24, pulling back after bets the U.S. would recover more quickly from the pandemic than other developed nations, amid massive stimulus and aggressive vaccinations sent the currency surging 2.5% in March. Against the Japanese yen, the dollar slipped 0.28% to 109.87 yen, a one-week low.

Sector News Breakdown

Consumer

·     Retailers; UBS sees historic sales growth in footwear and says SKX, CROX, DECK (Hoka One) stand out as the top performing brands as raise ests on names; Argus lifted their price target on WSM to $205 and raised their 5-yr growth rate to 9% from 8%; YETI outperforms after Credit Suisse initiated at Outperform with an $85 target as they expect the company to continue to benefit from a trend toward healthier, more active, outdoor lifestyles; Bank America said refunds are -12% YoY in the first ten weeks of tax refund season. This is a sequential improvement from -15% as of Week #9. 79% of round #3 of stimulus has been released, which makes us increasingly cautious on both OLLI and BIG from here

·     Auto sector; GM said deliveries in China rose 69% Y/Y to more than 780K vehicles against the soft COVID-19 comparable in the region – points to a strong performance in luxury and premium vehicles, midsize/large SUVs and MPVs, including the Cadillac CT5 and XT6, Buick GL8 family and Buick LaCrosse; GM also confirmed on Tuesday that its Chevrolet brand will introduce a Silverado electric pickup truck that will be built at its Factory Zero assembly plant in Detroit and Hamtramck, Michigan. The U.S. automaker said it will build its recently unveiled GMC Hummer electric sport utility vehicle at the factory; electric vehicle stocks strong (TSLA, NIO, LI) after Electrek reported US electric car incentive is rumored to increase to $10,000 in program reform https://bit.ly/3dDn2IN

·     Restaurants; BLMN to raise $300M via private debt offering; Stifel said they estimate PZZA domestic comp sales were exceptionally strong in 1Q, in the low- to mid-20% range and believe the strength was driven by the successful launch of the Epic Stuffed Crust pizza, more effective advertising and promotional management, and stimulus checks, partially offset by severe winter weather in late February; CMG tgt raised to $1,750 (from $1,700) at Truist saying their menu price check revealed a ~4.0% system-wide increase on CMG’s steak/barbacoa offerings last week and est. a 25-30% mix of beef in CMG’s average check, which implies a ~100bps total menu price increase

·     Casinos and Gaming; WYNN upgraded to Buy from Hold with $160 tgt at Argus as assumes a recovery in the Las Vegas business and growth in Boston, driven by the rollout of coronavirus vaccines and increased leisure travel; GNOG was initiated Buy and $28 tgt at Jefferies as believe the magnitude and productivity prospects of the iGaming market have not been fully appreciated by the Street; in cruise lines, NCLH said it is scrapping voyages on its Regent Seven Seas Cruises and Oceania Cruises units through the end of July as its flagship line is set to restart from Jamaica, Dominican Republic and Greece in the same month; AMC, DIS, SEAS shares move late afternoon after headlines California movie theaters, theme parks to see capacity limits lifted

Energy

·     Energy stock movers; Goldman cuts CVX to Neutral after multiple years of outperforming other majors has led to the stock trading at a premium compared to peers, though they still maintain a positive view of the company; Citi upgraded NEX to Buy and says oil service stocks could end the year strong, as they were all likely to exceed Q1 expectations before the February storm; BCEI guided total 2021 annual capital expenditures to $150-$170 million, 2Q-4Q production guidance of 40-44k boe/d, 2Q-4Q oil production of 48% to 52% of BOE volumes, and Stifel says any weakness on the guidance (12% below consensus) presents a buying opportunity; BP said it has had a strong start to the year on the back of higher energy prices and strong trading results, putting the company on track to lower its net debt to $35B in Q1, which it had previously anticipated reaching in 4Q21-1Q22, and the debt reduction could lead to share buybacks; JPMorgan downgraded PXD to Neutral as they expect shares to mirror peers after its DoublePoint acquisition

·     Refiners; PSX said it sees Q1 loss $865M-$680M as severe winter storms had significant impacts on company’s operations in central and gulf coast regions; Goldman upgraded PARR to Buy on the expected recovery for oil demand in Hawaii as tourism returns and after the stock’s 40% YTD underperformance compared to peers

Financials

·     Bank movers; CS announced several high-level staff departures and cut its dividends and bonuses in the wake of a $4.7B hit from the Archegos Capital Management saga and said it now expects Q1 pre-tax loss of around CHF900M ($960.4M). Also, CS sold $2.3B in stocks tied to Archegos (more blocks in FTCH, VIAC, VIPS) according to Bloomberg as they continue to unwind positions tied to the Archegos Capital blowup; DCOM upgraded to Strong Buy from Outperform at Raymond James and raising our target price to $43, following the completion of its merger-of-equals with legacy Bridge

·     SPAC news; Mudrick Capital Acquisition Corporation II (MUDS) said it is taking sports and entertainment collectibles and confections company Topps Co. public (TOPP) as the transaction is expected late in the second or early in the third quarter in deal valued at $1.3B – Topps had sales of $567 million in 2020, representing a year-over-year increase of 23%.

·     Insurance & Services; BCO has acquired PAI for $213M; the transaction is effective April 1, 2021 – PAI provides Brink’s with a platform of proprietary ATM services and over 100,000 ATM service locations in the U.S.; DCT reported strong Q2 results as SaaS revenues grew 51%, ahead of Street expectations for 41% growth and SaaS ARR grew 75%; PAYX Q3 EPS topped estimates while revenue fell to $1.11 billion from $1.14 billion, making it in line with the consensus estimate

·     Exchanges & brokers; MKTX announced monthly trading volume for March 2021 of $689.6 billion consisting of $292.6 billion in credit volume and $397.0 billion in rates volume; TW reported record total trading volume of $24.7T for March 2021 with ADV rising 7.3% Y/Y to a record $1.07T and for 1Q, total trading volume was a record $65.1T and ADV stood at $1.06T (+18% Y/Y) outperforming some broader market trends in March; ICE reported a growth of 30% Q/Q in total average daily volume in 1Q21 with energy ADV surging 25%; Ags and metals ADV rose 24% while Interest rate ADV was up 47%; Equity Indices ADV increased 7%, U.S. Cash Equity ADV and U.S. Equity Options ADV grew 7% and 65% respectively.

·     Bitcoin, Payments and FinTech; EBON mentioned as negative short call at Hindenburg Research this morning, saying Ebang is yet another cautionary tale for inexperienced retail investors enthused by anything crypto-related; PHUN’s board authorizes bitcoin purchases for blockchain ecosystem launch; BTBT completed the purchase of 4,871 Bitcoin miners with total hash rate of over 324 Ph/s in 1Q; SQ, Fidelity Investments, and Coinbase Global (COIN) and crypto-investor Paradigm form a new trade group that aims to influence the way that bitcoin and other cryptocurrencies are regulated, the Wall Street Journal reports.

Healthcare

·     Biotech & Pharma movers; CTLT is expanding its production of MRNA’s Covid-19 shot under an agreement that will nearly double the vaccine output to about 400 vials a minute and help fill an additional 80 million vials a year – WSJ reports https://on.wsj.com/3uoKccK ; APTX says it has recommenced mid-stage trial of its experimental drug, NYX-458, in patients with cognitive impairment associated with Parkinson’s disease and Dementia with Lewy bodies; MBRX said it has engaged contract research organization IQV to manage potential clinical trials of its COVID-19 treatment, WP1122; TPTX reported initial clinical data from the ongoing Phase 1/2 SWORD-1 study of its RET inhibitor drug candidate, TPX-0046; in cannabis, GTBIF shares slid after Bloomberg reported U.K. government has no plans to legalize cannabis, Prime Minister Boris Johnson’s Press Secretary Allegra Stratton tells reporters.

·     MedTech and Equipment; ILMN rises after guiding Q1 revenue to about $1.085B, topping the $925.7M estimate and said it expects YoY rev growth in the range of 25%-28% for FY21 (prior guidance given on 2/11 earnings was 17%-20%); SPNE said it sees Q1 revenue in the range of $41.5M-42.0M vs. est. $39.22M; sees FY21 revenue to be in the range of $193M-$198M vs. est. $185.77M; ICAD announced that preliminary Q1 revenue is expected to exceed $8.1M (24+% growth y/y), above $7.9M consensus noting sales growth came from both AI Detection revenue, with ProFound AI and ProFound AI RIsk, and from Xoft Therapy revenue; ABT rises after co receives EU approval for shorter anti-platelet therapy post stent implants

Industrials & Materials

·     Transports; Dow Transports fell just short of yesterday intraday record highs (14,980), trading mixed on the day; ALK upgraded to Overweight from Equal-weight, UAL upgraded to Equal-weight from Underweight, and AAL was initiated with an underweight at Morgan Stanley; rail cars active after GBX swung to a loss for the latest quarter as revenue was more than halved amid operating challenges (revenue fell to $295.6 million from $623.8 million) in rails, Citigroup lowered Q1 EPS estimates for the rails (UNP, CSX, NSC) by 4% on average, as extreme winter weather in February temporarily disrupted volumes and has added costs to the quarter

·     Metals & Materials; Potash producers active (MOS, NTR, IPI) as Belarusian Potash Co. said India’s largest potash importer agreed to a surprising new contract price of $280 per metric ton, 13% above a level agreed to in late January, according to Scotiabank – said the price is "materially better" than the disappointing$247/mt signed by BPC several months ago

Technology, Media & Telecom

·     Internet: AMZN share of the U.S. digital ad market grew to 10.3% last year from 7.8% in 2019, according to a new report from research firm eMarketer; Amazon’s U.S. ad revenue last year grew to $15.73 billion, up 52.5% from 2019, eMarketer estimates; SNAP was upgraded to Overweight from Neutral at Atlantic Equities with $75 tgt (follows weakness in some social media stocks yesterday); VIPS 14M share Block Trade priced at $29.00; FTCH 11.1M share Block Trade priced at $48.00

·     Semiconductors: AMAT shares dropped midday after providing long-term targets at its analyst day, dragging chip names lower; the Philly semiconductor index (SOX) pulled back after touching all-time highs the day prior (above the 3,300 level) – strength has been broad based for chip names given chip shortage and rising need for chips in autos, gaming, etc. semi-equipment names have led the gains (LRCX, AMAT, KLAC, TER) after several chip companies (INTC, TSM) have recently boosted cap-ex spending views over the last month; INTC introduced its newest flagship data center microprocessor, hoping its in-house manufacturing operations will help it navigate a chip shortage to better compete against rival AMD’s faster chips.

·     Media & Telecom movers; VIAC 34M share Block Trade priced at $41.25; DISH said it chose ALLT to provide end-to-end User Plane Protection (UPP) against DDoS and botnet attacks on the United States’ first cloud-native, OpenRAN-based 5G network

·     Hardware & Component news; INSG shares slipped after CFO Foster leaves after 8-months on the job/firm appoints interim CFO; VSH was upgraded from Hold to Buy at Loop Capital and increasing target to $30 as the near term set up is becoming increasingly attractive, particularly on the improving fundamentals of the business; GLW tgt raised to $52 from $45 at Oppenheimer as believe recent pricing strength in LCD display glass, Corning’s resumption of share repurchases, and broad-based end market recovery will support sustained sales growth and stronger EPS growth in the next two years