Closing Recap

Wednesday, August 25, 2021

Equity Market Recap

·     Stocks push higher as the S&P 500 posts its 51^st record closing high this year (third ATH time this week) topping the 4,500 level, though it’s important to note volumes were well below normal ranges as markets await this Friday’s Jackson Hole Fed Symposium, with Chairman Powell set to speak at 10:00 AM. The Nasdaq Composite also touched another record high while the Smallcap Russell 2000 extends gains after its recent 6-day losing streak was snapped this week, as financials, energy among top gainers in the index. Banks jumped amid the bounce in treasury yields, hitting the best levels in 2-weeks, while energy names recover on a 3^rd day of gains for oil (erasing all last week’s 9% decline for WTI crude), while consumer was mixed after earnings (DKS shares surge on beat and raise while JWN plunges on weaker sales).

·     Stocks/sector movers: DKS surges to record high after a blowout quarter with strong guidance, increased buybacks, and a special dividend; other sporting goods stores (ASO, BGFV, HIBB follow higher); retailers JWN, URBN, EXPR each fall over 10% at their lowest levels today following earnings (JWN also d/g at JPMorgan); INTU rises to ATH early in the morning after its strong quarterly earnings and FY guide; semi’s lead behind TSM after reports it may potentially increase prices as semis outperform with NVDA hitting record highs; financials outperform (AXP, JPM, BAC, C, TRV) as the 10-year bounces to a daily high over 1.34%, its first time above 1.3% since 8/13; SAVA plummets after allegations of manipulating its Alzheimer’s drug trial data; Staples weaker again today with SAM hitting 52-week lows after Cowen downgrades to Underperform and Bernstein warns of a bumpy 3-6 months ahead, BYND slides after being downgraded at Argus, and CPB among the worst S&P performers after a Piper downgrade.

Economic Data:

·     July Durable Goods slipped -0.1% vs. the -0.2% expected and +0.8% prior reading; transportation equipment drove the decrease, falling 2.2%, its first decline after two consecutive months of increases. Excluding transportation, Durable new orders rose +0.7% vs. +0.5% expected and % prior (revised from +0.3%). U.S. July durables ex-defense orders -1.2% vs June +0.9%. July durables shipments +2.2% vs June +1.6%

Commodities

·     Oil prices reverse higher, with WTI crude settling at $68.36 per barrel (off lows $66.92), up $0.82 or 1.21%, extending gains for a third session after U.S. government data showed that fuel demand has climbed to its highest since the start of the COVID-19 pandemic. The 4-week average for U.S. total product supplied soared to nearly 21M barrels per day, its highest since March 2020, when governments first began to widely impose pandemic-related restrictions. Oil prices came into the week with a 7-day losing streak but since has risen around 9%, erasing most of the slump from a week-long losing streak on the back of a resurgence in COVID-19 cases.

·     Gold prices decline, dropping -$17.50 or 1% to settle at $1,791.00 an ounce, its first close below $1,800 in three sessions as Treasury yields rose along with U.S. stocks (again) dulling the interest in precious metals. Prices had rallied 1.4% on Monday to the highest in nearly three weeks, driven by a broad retreat in the dollar.

Currencies & Treasuries

·     Treasury yields popped on the day, getting a boost ahead of the Federal Reserve symposium later this week, as investors position themselves on expectations for Fed Chair Powell to provide the timeline to pare back bond and MBS asset purchases. The yield on the benchmark 10-year yield touched highs above 1.35%, best level in 2-weeks. The U.S. Treasury sold $61B in 5-year notes at a yield of 0.831% compared to 0.29% when issued prior, with the bid-to-cover at 2.35 and indirect bidders awarded 62.7% of the auction and directs 17.54%. Treasury yields jumped following the auction results. The U.S. dollar index (DXY) was little changed for a second day, holding below the 93.00 level, with the dollar/yen around 110 and the euro up slightly.

Sector News Breakdown

Consumer

·     Retailers; JWN falls as Q2 top and bottom line results topped estimates, but Q2 sales lag recovery in rival department store operators Macy’s and KSS, while shares downgraded to Underweight at JPMorgan; DKS surges as Q2 EPS comes in well ahead of consensus at $5.08 vs. est. $2.72, while announces increase in its share buyback to a minimum of $400 mln and a special dividend of $5.50 per share; Q2 sales $3.27B vs. est. $2.82B while Q2 comps rose 19.2% vs. est. 5.5% and raises year guidance (helped sporting goods stores ASO, BGFV, SPWH, HIBB); URBN 2Q EPS of $1.28 beat consensus of $0.79 on sales and gross margin (GM) as sales increased 20.3% vs F20 (C19), while mgmt expects lower markdown to offset supply chain headwinds; EXPR reported a surprise profit as net income totaled $10.6M after a loss of $107.8M last year while sales of $457.6M were up from $245.7M and also ahead of consensus for $411.0M; SCVL another beat and guide higher in retail; PRPL announced the departure of CFO Craig Phillips

·     Housing & Building Products; homebuilder TOL Q3 EPS $1.87 vs. est. $1.54; Q3 revs $2.26B vs. est. $2.24B; Net signed contract value was $2.98 billion, up 35% compared to FY 2020’s third quarter; contracted homes were 3,154, up 11% – Home deliveries rose 28% to 2,597; the U.S. MBA reported a 1.6% rebound in mortgage applications in the August 20 week, that unwinds about half of the -3.9% drop in the prior week. The bounce mostly reflected a 3.0% jump in the purchase index after it dipped -0.8% previously. The refi index edged up 0.9% following the -5.3% plunge. It posted its highest level since February in the August 6 week.

·     Consumer Staples; CPB downgraded to Neutral from Overweight at Piper saying broad exposure to rising commodity prices, especially steel, is becoming a significant risk to Campbell’s F22 outlook; LMNR shares tumbled after guided Q3 revs $49M, below consensus est. $58.1M and pre-announced 3Q21 EBITDA of $7.2M-$8.4M vs. Stifel $14.9M; SAM downgraded to an Underperform rating at Cowen and a $400 PT as see 30% downside to 2022 consensus EPS estimates saying seltzer’s summer slump continued through mid-August; BYND downgraded to Hold at Argus saying Q3 revenue guidance of $120- $140M is below consensus, driven by labor shortages, a July 4 shift, and decelerating foodservice revenue growth

·     Casinos & Leisure; casino/sports betting stocks been breaking out over the last few days, led by gains in WYNN, CZR, LVS, DKNG and PENN amid positive FDA full approval vaccine news this week (for PFE/BNTX) and the college and pro football seasons starting soon; THO, CWH, WGO, LCII active as RV shipments increased 3.5% in July to a record tally for the month of 44,357 units, according to the latest update from RV Industry Association. Towable RVs, led by conventional travel trailers, were up 3.4% against last July with 40,511 wholesale shipments. Motorhomes finished the month up 3.9% at 4,026 units

Energy

·     Inventory data: The Energy Information Administration (EIA) said weekly Petroleum Inventories showed crude stockpiles fell -3.0M barrels vs. -2.7M consensus, gasoline showed a drawdown of -2.2M barrels vs. -1.6M consensus and distillates rose +0.6M barrels vs. -0.3M consensus. Last night the API report showed a weekly draw of 1.62M barrels of oil for the week ending August 20; gasoline inventories showed a draw of 985K barrels, distillate inventories show a draw of 245K barrels and Cushing inventories show a draw of 485K barrels.

·     E&P and Majors; oil prices were a non-event today after a day rally (following a 7-day slide prior) as inventory data failed to move the needle – several E&P names edged higher today; TALO selected as winning bidder for carbon capture and storage site located near Beaumont and Port Arthur, Texas – project site encompasses a total land area of over 40,000 gross acres and is located offshore in Texas state waters in the Gulf of Mexico

Financials

·     Bank movers; strength in the banking and insurance sector today (JPM, BAC, C, WFC) given the rebound in Treasury yields ahead of Jackson Hole Fed event, with the 10-yr moving to 2-week highs around 1.33%; RJF announces 3-for-2 stock split. A nice rebound in crypto assets, boosting shares of RIOT, MSTR, SI, MARA, COIN as Bitcoin rises to best level of the day at $48,800 midday (overnight lows $47K); Ethereum also rebounds off lows ($3,150) moving back above $3,200

·     Financial services; INTU capped off FY21 by beating consensus expectations handily across all reporting segments as consumer came in 8% higher than consensus and guidance for FY22 above views (sees FY22 adj EPS between $11.05-$11.25 vs estimates of $10.86; sees FY revenue in the range of $11.05B-$11.20B vs estimates of $10.96B); FDS upgraded to Overweight at Barclay’s saying it now has healthier end markets and a stronger C-team, with new CFO Huber (look for better margins & cap allocation) and CRO Shan; QIWI shares slid as JPM noted Russian Authorities have appointed Mobilnaya Karta – a competitor of QIWI – to run the single Unified Interactive Bets Accounting Center (ETSUP), which will replace the existing set up in Sep-21.

Healthcare

·     Pharma movers; JNJ says it has given a booster dose in a small trial 6 months after a single shot of its vaccine and is seeing it produces what it calls a "rapid and robust" in spike binding antibodies; MRK said a Phase 3 study of its Vaxneuvance 15-valent pneumococcal vaccine in infants met its key immunogenicity and safety endpoints; LLY said it signed a multi-year research collaboration and licensing agreement with Lycia Therapeutics; FGEN positive topline results from phase 2 clinical trial of roxadustat for the treatment of chemotherapy induced anemia; ANIX said its Covid-19 compounds are expected to be effective against the delta variant; PFE and BNTX initiate rolling submission of supplemental Biologics License Application to U.S. FDA for booster dose of COMIRNATY® in individuals 16 and older

·     Biotech movers; SAVA plunges after late Wednesday it was revealed that a Citizen Petition was filed with U.S. FDA on 8/18 requesting that the agency halt two ongoing trials of Cassava’s lead drug candidate simufilam used in treatment of Alzheimer’s disease, pending a thorough audit by FDA – SAVA issued a statement calling claims made regarding scientific integrity "false and misleading"; MRNA completes submission of biologics license app to the FDA for its #COVID19 vaccine; efficacy remains durable thru 6 months after 2nd dose; final blinded analysis of Phase 3 cove study shows 93% efficacy

·     Healthcare Services, MedTech Equipment; BLFS will replace SAIA in the S&P SmallCap 600; TECH is joining the S&P 500, moving from the S&P MidCap 400 to replace MXIM which is being acquired by ADI; OPCH will replace TRMK in the S&P MidCap 400

Industrials & Materials

·     Aerospace & Defense; PAE downgraded at Morgan Stanley and cut tgt to $8 from $11 saying recent developments in Afghanistan are likely to negatively impact the company’s revenue and margins, and potential risk from Iraq exposure is a key debate; EH reported Q2 adj operating loss (RMB 49.4M) vs. (RMB 11.1M) last year as revs of $1.9M, down 65.9% from last year; AJRD shares fell on speculation that the company’s sale to LMT may be challenged by antitrust regulators. https://bit.ly/3mD5DX3

·     Transports; airlines slipped initially after AAL chief revenue officer says recent uptick in Covid cases has created some softness in post end bookings with a rise in closing cancellations (spoke at Raymond James conference) – weighed on shares of other airlines (DAL, UAL, LUV) – but the weakness short-lived as the strength in the reopen trade led names higher; the Baltic Dry Index rises for 11th consecutive day to highest level since mid-2010

Technology, Media & Telecom

·     Semiconductors; strength in the sector today, led by gains in TSM, NVDA, AMD; U.S. officials have approved license applications worth hundreds of millions of dollars for China’s blacklisted telecom company Huawei to buy chips for its growing auto component business, Reuters reported (note the move is a change to trade restrictions imposed by the Trump administration on the sale of chips and other components); PLAB posted a top and bottom line beat along with upside guidance; TSM active after Digitimes said the company reportedly plans to raise its manufacturing prices by 10% to 20% starting with orders expected to be fulfilled in December; MCHP announces 2-for-1 stock split; late day, WDC shares spiked after the WSJ reported the company in advanced talks to merge with Kioxia in $20B-Plus Deal https://on.wsj.com/3mxPqlN

·     Hardware, Software movers; OKTA was upgraded to Strong Buy rating at Raymond James and bumps up its tgt to $310 noting the stock’s recent weakness and the "groundswell" of upcoming catalysts, including the second-quarter earnings report on September 1; MIME will join the S&P MidCap 400, replacing CNK; Xiaomi Corp. posted better-than-expected quarterly results after beating Apple Inc. to become the world’s second-largest phone vendor by shipments, helped by a recovery in key markets like India.

·     Media & Telecom movers; Wells Fargo downgraded the Software industry to underweight and are upgrading the Media & Entertainment industry to overweight saying technicals, valuation, and earnings revisions are the foundation of the upgrade/downgrade; NFT sector active again (another momentum sector play) after Non-fungible token (NFT) sales surged in August, according to the largest platform for the digital asset class, as sales volumes recorded on the largest NFT trading platform, OpenSea, have hit $1.9B so far this month, more than ten times March’s $148M. In January 2021, the monthly volume recorded on the platform was just over $8M (shares of FNKO, PLBY, TKAT, ZKIN, DLPN are among names that have been linked to NFT’s in the past); NXST signed a multi-year agreement to launch SportsGrid Network, the first US Diginet for fantasy sports and sports wagering.