Closing Recap

Wednesday, April 14, 2021

Equity Market Recap

·     Stocks end mostly lower, with the S&P 500 index slipping from record highs the day prior and the S&P 500 ETF (SPY) snapping its streak of 12-consecutive days rising from the open to close as Smallcaps outperform after recent underperformance (biotech, energy names among leaders in the Russell 2000) but large caps saw profit taking. The sell-off occurred late day following the Fed Beige Book minutes which showed "prices accelerated slightly since the last report, with many Districts reporting moderate price increases and some saying prices rose more robustly. Input costs rose across the board, but especially in the manufacturing, construction, retail, and transportation sectors-specifically, metals, lumber, food, and fuel prices.” The comments renewed inflation fears (for the moment) despite several Fed speakers saying the last few weeks that prices would rise in the near-term but are seen as transitory (time will tell). The other big stories on the day were financials and banks after better earnings results from GS, JPM and WFC, while crypto currency was volatile as COIN opened for trading today. Earnings pick up tomorrow with results from Pepsi, Delta, UnitedHealth, and several banks (BAC, C, TFC, USB).

·     Stock and Sector top movers: COIN makes its much-anticipated IPO debut at $381, well above its $250 reference price set yesterday, trading as high as $429 before profit taking ensued, falling below its $381 opening price to lows of $340 (taking Bitcoin and other crypto-related stocks lower); in bank earnings, WFC hits 52-week highs on its beat and comments on trends pointing towards NII coming in at the high end of guidance, GS soars as its revenue blows out consensus and more than doubles YoY, and JPM also posts EPS, rev beats but shares slip after CEO Dimon comments on challenging loan demand; in retail earnings, BBBY and LOVE both decline more than 10% at their respective daily lows despite EPS beats; energy stocks XOM, FANG, APA, OXY, NOV among the top S&P performers after bullish inventory data lifts oil prices; MRNA touches its highest price since 2/25 after study shows its vaccine is still effective after 6 months; LOW hits record levels after being upgraded at Atlantic, HD also rallies to record levels; airlines outperform broader markets after JPM issues optimistic outlook on airline stocks, including double upgrades on SAVE, JBLU and LUV; biotech and small cap in general outperform.

·     Fed Beige Book showed national economic activity accelerated to a moderate pace from late February to early April. Consumer spending strengthened. Reports on tourism were more upbeat, bolstered by a pickup in demand for leisure activities and travel which contacts attributed to spring break, an easing of pandemic-related restrictions, increased vaccinations, and recent stimulus payments among other factors. Employment growth picked up over the reporting period, with most Districts noting modest to moderate increases in headcounts. Prices accelerated slightly since the last report, with many Districts reporting moderate price increases and some saying prices rose more robustly. Input costs rose across the board, but especially in the manufacturing, construction, retail, and transportation sectors—specifically, metals, lumber, food, and fuel prices.

Economic Data

·     U.S. import prices rose more than expected in March, rising 1.2% vs. the 1.0% estimate, while Feb was unrevised at 1.3%; exports for March rose 2.1% vs. est. 1.0% and Feb unrevised at 1.6%. Imports were lifted by higher costs for petroleum products and tight supply chains, the latest indication of inflation heating up as the economy reopens.

Commodities, Currencies & Treasuries

·     U.S. Treasury yields edged slightly higher a day after slumping to more than three-week lows as the 10-year ended around the 1.64% level. Yields tumbled on Tuesday after a strong auction of 30-year bonds and U.S. consumer prices data that showed while underlying inflation picked up in March, it was not rising out of control. Fed speakers for the most part remain “dovish” on rates saying they will do everything they can to accommodate while at the same point, willing to let inflation shoot above their 2% target (run hot). The U.S. dollar edged lower.

·     Oil prices end higher as WTI crude gains $2.97 or 4.94% to settle at $63.15 per barrel, getting a boost from the bullish API and EIA inventory data. Gold prices slip -$11.30 or 0.7% to settle at $1,736.30 an ounce, pilling back despite a dip in the U.S. dollar as investors avoid defensive/safe-haven investments with stocks still running (and momentum trading moving into crypto currencies and out of precious metals).

Sector News Breakdown

Consumer

·     Retailers: BBBY Q4 results mixed as adj EPS of 40c beats by 6c while sales fell -16% YoY to $2.62B (vs. est. $2.63B) as comps rose +4% and EBITDA up 13.5% YoY to $168M, while reaffirms FY22, but Q1 Rev/EBITDA missed at 40% (vs. 45%) and $80-$90m (vs. $100m) – boosts buyback; OSTK shares benefit from rally in Bitcoin as well as Wedbush initiation with Outperform rating and $95 tgt; SFIX announced that its founder and CEO Katrina Lake will be transitioning to the role of Executive Chairperson of the Board effective August 1st as a buying opportunity; CTRN prelim Q1 EPS $2.75-2.90 vs. est. $0.91 and revs $280M-285M vs. est. $213.6M and comps +74.5% YoY; KSS board expands existing share repurchase authorization to $2 bln

·     Auto sector; TSLA adds to recent gains, now up over 40% from its March 5^th lows sub $600 on more momentum buying; NKLA rising following news of a collaboration with Iveco, OGE to accelerate deployment of hydrogen infrastructure and fueling solutions; XPEV announced its third production model, the XPeng p5, the world’s first production smart EV equipped with automotive-grade lidar technology (LAZR, VLDR fell in reaction)

·     Housing & Building Products; in home improvement, LOW upgraded from Neutral to Overweight with $240 pt at Atlantic Equities saying sentiment towards hardlines retail has inflected since the start of March, buoyed by government stimulus and optimism regarding the reopening; RH tgt raised to $680 from $600 at Cowen as see upside to FY21 revenue and margin outlook, including raising our 1Q21 sales growth to +58%; in home furnishing, LOVE posts Q4 EPS $1.37 and sales better at $129.7M while gross margins improved in the quarter to 57.9% from 49% a year earlier, in part because the company lowered promotions and reduced inventory levels; DHI tgt raised to $105 at Argus as believe that there is a significant shortage of affordable housing after more than a decade of underbuilding; the MBA said weekly purchases, refinances and applications fell; Wayfair (W) said it will hold its two-day Way Day shopping event on April 28 at 12 a.m. ET.

·     Consumer Staples & Restaurants; PG increases quarterly dividend by 10.0% to $0.8698 from $0.7907; YUM upgraded to Buy from Hold with $135 tgt at Argus which reflects YUM’s diverse brands, prospects for higher same-store sales, global operations, and asset-light business model; KRUS reported a mixed quarter with slightly better than expected same-store sales offset by weaker EBITDA and EPS, same-store sales of (60.2%) saw modest improvement by month

·     Casinos, Gaming, Lodging & Leisure sector; DKNG said it plans to work with the PGA Tour to provide market access for retail and sports betting in the state, pending the approval of the bill by Arizona’s governor; HOG initiated Buy and $55 tgt at Bank America as see it a top SMID Cap pick ahead of the qtr amid accelerating brand momentum with reset to a pull market strategy; leisure names remain volatile, balancing economic reopen strength with mixed vaccine headlines over the last few days (JNJ); in RV’s LCII said it sees Q1 sales $1B, up more than 50% over same period last year – watch shares of CWH, PATK, THO, WGO on guidance

Energy

·     Crude oil prices jumped on revised oil demand forecasts despite concerns over rising coronavirus cases and vaccine rollouts. Inventory data bullish as the American Petroleum Institute showed a weekly draw of 3.61M barrels of oil for the latest week, gasoline inventories showed a build of 5.57M barrels, distillate inventories show a draw of 3M barrels and Cushing inventories show a build of 917K barrels. The EIA this morning also a bullish inventory report as weekly stockpiles fell -5.9M barrels vs. est. -2.9M and -3.5M the prior week and a smaller build in gasoline

·     Energy stock movers; Raymond James upgraded XOM to Market Perform after the stock has pulled back about 10% over the past month and its Q1 earnings indicators show improvement; MKM maintained its $32 price target on OXY and upgraded the stock to Buy as it now represents an approximate 30% upside following the stock falling over 20% since early March; Goldman downgraded PBR to Neutral despite trading at a discount to historical valuation multiples, as they say the stock will be pressured on strategic uncertainty until the CEO outlines his plans and investors get clarity on the next presidential election; Wolfe upgraded MMP to Peer Perform as their negative thesis from January on disappointing guidance and EV pressures has played out in the near-term and upside is emerging with growing demand, though the ongoing energy transition and EV adoption present longer-term concerns, and they also upgraded TRGP to Outperform after the stock has cooled off, providing a better entry point with 2021 tracking to the upper half of its guidance range given NGL prices; KeyBank upgraded BRY to OW with a $9 price target after California’s SB 487 failed to make it out of committee

Financials

·     Bank earnings dominate news headlines early; still busy week of results to come: BAC, BLK, C, TFC, USB to report on Thursday and ALLY, BK, CFG, MS, PNC, STT on Friday April 16th

·     1) Dow component JPM Q1 earnings beat on strong global investment banking fees and equity market revenue, as EPS of $4.50 topped the $3.10 estimate and revs of $32.3B topped to $30.5B view; said consumer spending is up 14% YoY; said Q1 had a negative credit-loss provision of $4.16B, compared with a negative provision of $1.89B in 4Q and a provision of $8.29B YoY

·     2) Dow component GS with blowout Q1 results as revs rose to $17.7B, easily above the $12.55B estimate and prior year same quarter of $8.74B – investment banking revenue $3.57B, while trading revs rose 47% YoY to $7.58B (above est. $5.3B), FICC sales & trading revs rise 31% YoY to $3.89B (est. $2.9B) and equities sales & trading revs up 68% YoY to $3.69B

·     3) WFC reported Q1 EPS of $1.05, topping the $0.70 estimate on revs $18.06B beating the $17.5B estimate; Q1 net interest income (NII) was $8.80B vs. est. $9.08B – firm noted Q1 results included a $1.6 billion pre-tax reduction in the allowance for credit losses (in Q4, it had a negative provision of $179m and in 1Q a year ago, its provision was $4.01B) – Nonaccrual loans as a percentage of total loans was 0.93%, compared with 0.98% in 4Q

·     4) FRC Q1 EPS $1.79 vs. est. $1.54; Q1 revs $1.1B vs. est. $1.09B – said had a reversal of provision for credit losses of $14.6M (provision was $35.1M in Q4 and $62.4M in 1Q a year earlier) – said net loan charge-offs to average total loans was 0% in the quarter, the same as in 4Q

·     Brokers and Asset managers: TROW was downgraded at Citigroup, KKR removed from US focus list, and AMG added to US focus list ahead of Q1 earnings and following generally torrid YTD price action – firm remains overweight retail B/Ds and reiterate BLK pair trade; APO was upgraded to Outperform at Oppenheimer following the Apollo/Athene Holding (ATH) merger

·     Consumer Finance; SYF downgraded at Oppenheimer saying combined with the 4/13 Gap partnership loss ($3.8B of loans/~5% of portfolio) effective 04/30/22, and shifting consumer spending focus, they move to the sidelines as sentiment and various fundamentals become challenged in 2022/2023 vs. consensus’ previous expectations

·     Bitcoin news; Coinbase (COIN class A shares opened at $381 in Nasdaq debut vs reference price of $250 per share set last night, putting the valuation of Coinbase at $66.5B, assuming an estimated 266.2M shares outstanding (shares traded above the $400 level shortly after it opened); FTFT signed an non-binding equity acquisition framework agreement to acquire a 51% equity interest in Mingtang Network Technology from its shareholders for ~$7M; Bitcoin leveraged names (MSTR, MARA, SI, RIOT, GBTC) volatile on crypto momentum; SOS said in Q1 co has mined 42 bitcoin and 916 Ethereum’s

·     REITs; Bank of America downgraded SLG and VNO to Underperform from Neutral; Baird upgraded CUZ to Outperform given improving migration trends to the Southeast and its recent underperformance versus peers, reinstated coverage on RPT at Neutral with a $12 pt as its strong management team is offset by higher exposure to low-growth markets and struggling tenants, RPAI at Neutral with a $12 pt as the stock could have an attractive setup later in the year as leasing activity and occupancy rates rebound, ROIC at Outperform with an $18 pt on expectations of top-tier NOI long-term growth with lower capital intensity as California re-opens, REG at Neutral with a $59.13 pt, and WRI at Outperform with a $29 pt; Truist upgraded RLJ to Buy and lifted its target to $19 from $13 as a beneficiary of the return to corporate travel; Mizuho remains UW on office REITs as they believe 2021-22 consensus and current share prices, which are trading at historical P/FFO levels, underestimate the risk of WFH, and say West Coast HPP, KRC, DEI could benefit as recovery trades in the near-term, and name defensive ARE, OFC as their top picks to play catch-up in the second half as the re-open enthusiasm wanes

Healthcare

·     Pharma movers; for BNTX, the European Union has reached an agreement to speed up delivery of 50 million more doses of the BioNTech-Pfizer COVID-19 vaccines to boost the continent’s vaccination program. Those 50 million doses were initially foreseen for delivery in the fourth quarter of 2021 are now available in Q2 said the EC President; GALT shares rise after saying paper published in a medical journal shows using the co’s lead drug candidate with MRK’s cancer drug Keytruda significantly enhances tumor response to immunotherapy in patients with two types of cancer; GLSI provides update on late-stage breast cancer treatment GP2 at the 2021 American Association for Cancer Research (AACR) Annual Meeting, sending shares higher

·     Biotech movers; MRNA rises as its Covid-19 vaccine was more than 90% effective at preventing Covid-19 disease in people six months after vaccination, an updated analysis of a large clinical trial showed; BCRX said the Japanese National Health Insurance System (NHI) has approved the addition of oral, once-daily ORLADEYO (berotralstat) to the NHI drug price list on April 21, 2021; ALIM grants exclusive license to Ocumension for $10 mln upfront payment and up to $89 mln in additional sales-based milestone payments

·     Healthcare Services; in managed care, Barclay’s noted ANTM win in Ohio Medicaid Award and UNH renew saying overall, the awarded RFP was most meaningful to MOH, as they estimate that the current contract was responsible for just over ~20% of EPS in 2020 but believe the current contract is generating <1% of total company EPS for UNH

·     MedTech Equipment; PKI announced 1Q revenue growth of +98% (vs. estimates of +82%) and organic growth of +90%, driven by base business and COVID testing revenues – said COVID-19 related solutions contributed approximately $535 million of revenue in Q1; BRKR guides Q1 revenue $549M-$554M, representing reported revenue growth of approximately 30% to 31%, above estimates of $506.86M; FLXN announced preliminary 1Q21 revenues of $24.6M, below Opco’s anticipated $26.9M and consensus of $25.2M as firm said believe the miss may have been related to delays in intra-articular procedures related to COVID-19 vaccine rollout; late day, the WSJ reported TMO is nearing a deal to buy pharmaceutical-testing company PPD for more than $15 billion, according to people familiar with the matter https://on.wsj.com/3gbLPqc

Industrials & Materials

·     Transports; Dow Transports edge higher amid rebound in airlines; SAVE, JBLU both double upgraded to Overweight from Underweight at JPMorgan and LUV upgraded to Neutral from Underweight while up tgts for ALK to $104 from $65, DAL to $63 from $49, and UAL to $58 from $43 as believe COVID-19 will have no permanent, negative margin impact on US airlines. UBS lowered estimates for most of the truckload and intermodal names to reflect the loss of loads and miles during the period of extreme winter weather and disruption to the freight system the third week of February; ALK said it sees Q1 revs falling 57.5% from 2019 period vs. prior outlook of down 55%-60%, while capacity to drop 33% from 2019 period, unchanged from previous outlook and the load factor to rise to 52% vs. previous guidance of ~45%-50%

·     Chemicals; RBC Capital positive on ag chemicals as reit OP and $42 tgt for MOS as think improvements to Mosaic’s underlying fundamentals remain underappreciated with significantly lower costs, improved operations and better market conditions for phosphate; RBC reit OP and raised tgt on NTR to $62 as believe higher crop prices have supported strong fertilizer demand, which may extend into 2022; Deutsche Bank added DOW, WLK as a Catalyst Call Buy as believe consensus Q2 estimates for both are 15-20% too low versus what we believe will be record Q2 results; firm also adds LYB as believe consensus Q2 estimates for Lyondell are 20-25% too low

Technology, Media & Telecom

·     Internet; China companies edging higher (BIDU, JD, BABA) after Chinese internet cos pledge to avoid anti-competitive behaviors, according to a statement from China’s State Administration for Market Regulation. The companies have made promises to stop using such banned practices, including over-harvesting consumer data and abusing their market dominance position

·     Software movers; SAP raised year view; now expects EUR9.2B-EUR9.5B in adjusted cloud revenue and EUR23.4B-EUR23.8B adjusted cloud and software revenue, compared with its earlier view of EUR9.1B-EUR9.5B and EUR23.3B-EUR23.8B, respectively, driven by the fastest growth in new cloud business in five years; TEAM announced preliminary 3QFY21 revenue of $566–572M, $85M above the midpoint of prior guidance primarily due to accelerated demand for on-premises products as customers purchased ahead of the discontinuation of new server license sales (ended 2/2/21) and price increases for on-premises products; SWI guides prelim Q1 revenue $255.9M-$256.9M vs. est. $249.89M; prelim Q1 adjusted EBITDA $103M-$106M; INTZ slides after being mentioned a short call by White Diamond Research with $4 target

·     Media movers; Credit Suisse prices more block trades in what appears further unwinding of the Archegos trade from 2-weeks ago: DISCA 19M share Block Trade priced at $38.40; DISCK 22M share Block Trade priced at $32.35; IQ 35M share Block Trade priced at $15.85; TV surges after the co and Univision announced that they have finalized a deal to combine their content and production assets. Televisa will receive $3B in cash and $1.5B in equity as part of the deal, and SoftBank (SFTBY) will invest $1B in the combined entity https://on.mktw.net/3dhapnZ