Closing Recap

Friday, December 04, 2020

Equity Market Recap

·     It was another buying frenzy of U.S. stocks Friday, with the S&P 500 index, Dow Jones Industrials Average, Nasdaq Composite and Russell 2000 index all touching intraday record highs. Continued positive vaccine developments and an expected roll-out shortly combined with growing hopes for more fiscal stimulus before year end offset a disappointing jobs report and surging Covid cases. A bipartisan, $908 billion coronavirus aid plan gained momentum in the U.S. Congress this week as conservative lawmakers expressed their support (but again no action as of yet), as markets have been clinging to these headlines the last few days.

·     The U.S. economy in November added the fewest workers since the jobs recovery started six months ago, as nonfarm payrolls increased by 245Kjobs after rising by 610K in October (missing the 469K estimate) – and marked the fifth straight monthly slowdown in job gains. Average hourly earnings were slightly higher (0.3% vs. est. 0.1%) and the unemployment rate was better (6.7% down from 6.9% prior). Still, markets rose as a weaker economy raised prospects the government may act sooner on stimulus.

·     The U.S. dollar index snapped a 7-day losing streak, but still ended lower this week, helping boost commodity prices as gold, oil, silver and copper all jumped on the week, also helped by stimulus hopes and improving manufacturing data (U.S. and China). Treasury yields move to weekly highs with the 10-year rising as high as 0.98%.

·     Energy outperforms again as FANG, OXY, FTI, APA, MRO, EOG lead the S&P; another record high for the semiconductor index as MU, AVGO, MAT also makes new highs; ULTA sinks after comps fall almost 9% and sees Q4 comps falling 12-14%; in software, DOCU, CLDR rise after beat-and raise earnings reports; SNOW spikes to more than triple IPO price; financials get a bounce as Treasury yields touch best levels since March.

Economic Data

·     Weaker jobs data – Nonfarm payroll data for November reported at 245K vs. 500K consensus (prior revised to 610K from 638K) while private payrolls at 344K vs. est. 589K (prior revised to 877K from 906K) and manufacturing jobs 27K vs. est. 43K (and prior month revised to 33K from 38k); unemployment rate falls to 6.7% from 6.9% (est. 6.8%), wages rise 0.3% vs. est. 0.1%

·     Factory Orders rose 1% in October from the prior month, topping views for a rise of 0.8% while September’s reading was revised upward.

Commodities

·     Oil prices gained again, with WTI crude up 62c or 1.4% to settle at $46.26 per barrel, ending the week with a 1.6% advance amid a weaker dollar and a further rotation into riskier assets amid hopes of a sharper economic recovery. Oil prices ended near their best levels since March, prior to the pandemic lock down with the OPEC+ meeting in the rear-view mirror. Yesterday, the group raised their collective production by 500,000 barrels a day, but the increase was less aggressive than initially discussed. Gold prices slip -$1.10 on the day but end the week at $1,840 an ounce, higher by 3% (best weekly gain in a month), while silver was 7.3% higher this week (at $24.20 an ounce) and copper 3.37% (at $3.514 a lb.) – helped as the dollar dropped to over 2-year lows.

Currencies & Treasuries

·     The U.S. dollar posted a weekly decline but a midday bounce off 2-year lows vs. several rival currencies helped the dollar index (DXY) snap its 7-day losing streak of lower lows. The buck fell against the Canadian dollar (1.2777) after U.S./Canada employment and trade reports as Canada jobs report beat expectations, while U.S. was light (stronger oil prices also help). But the euro and British Pound reversed earlier 2-year gains ahead of Brexit talks this weekend – earlier Sterling hits 2-1/2-year high of $1.3540 vs. the dollar (fell to 1.3435 late), while the euro hit its highest since April 2018 against the dollar and was last at $1.2172, a weekly gain of more than 1.5%. Upbeat announcements on vaccinations have helped drive a rally in riskier currencies, while actions taken by the Federal Reserve have weakened the greenback. The Swiss franc rose to its highest in nearly six years. The benchmark 10-year yield hit its highest level since March at 0.981% but was last up 5.2 basis points at 0.9725%. The closely watched spread between two- and 10-year notes hit 82.26 basis points, the widest since February 2018.

Sector News Breakdown

Consumer

·     Retailers; BIG reported a Q3 profit as higher comparable sales of 17.8% drove revenue growth (Q3 revs $1.38B topped $1.35B estimate and above $1.17B YoY), but declined to issue guidance; FRAN filed for Chapter 11 bankruptcy on Friday; FNKO upgraded to overweight at Piper saying the company is on track to execute Q4 at least in-line with expectations; SWBI tgt raised to $28 at Lakestreet after co second consecutive quarter of record results as strong demand and higher average prices drove record sales while higher-than-expected margin boosted the bottom line; Cowen raised price tgts on RL and UAA tgts raised and lower tgts on COLM and HBI while noting early reads on Spring 21 order books and inventory positions are positive, but w/ valuations +50% since August, the rally is likely in later innings; TLYS said it expects holiday-quarter net sales and profit per share to be lower from a year earlier due to COVID-19

·     Consumer Staples; in beauty, ULTA posted Q3 net sales below estimates on lower discounts ($1.55B vs. est. $1.56B) and forecast holiday-quarter same-store sales to fall up to 14% as U.S. shoppers avoid brick-and-mortar stores due to rising Covid cases; OLLI downgraded to neutral at Goldman Sachs saying company’s Q3 earnings commentary was highlighted by a sharp slowdown in Q4 quarter-to-date trends

·     Restaurants; SBUX investor meeting next week (12/9), with analysts raising tgts into it (Cowen to $110 today, RBC to $109 yesterday) with potential focus topics for the event including FY21 top line and margin recovery, digital/loyalty and new store growth while Cowen notes sees better opportunities in CMG, DPZ and WING; CAKE fined $125,000 to settle charges that it made misleading COVID-19 disclosures to its investors

·     Leisure and Gaming; RCL said it may, from time to time, offer and sell shares of co’s common stock having aggregate offering price of up to $1 bln; in EV space, LI 47M secondary priced at $29.00; DoorDash (DASH) disclosed Friday that the expected pricing range for its initial public offering of shares has increased to between $90 and $95 a share from the expected range of between $75 and $85 a share provided earlier this week

Energy

·     Energy stock movers: S&P 500 led by energy, in what seems to be major rotation on the day for the group as several names’ saw broad bounces today across the E&P, refiner and services sectors with OXY, FANG, APA, MRO, PSX, HFC surging as WTI crude traded above $46 per barrel. Brent crude extended gains toward $50 per barrel after OPEC+ reached a compromise deal to gradually taper production cuts. After five days of talks, the group will start adding 500,000 b/d to the market in January, with ministers holding monthly meetings to decide on the next steps; Baker Hughes weekly U.S. oil rig count up 5 to 246, U.S. gas rig count down 2 to 75 as total U.S. rig count rises 3 to 323

·     Energy research calls; VNOM upgrade to Buy and Raise Price Target to $16 at Truist as Viper continues to have the security of a large underlying operator who will essentially ensure volumes continue to increase to go along with higher prices and virtually no costs; CLR was upgraded to buy with $22 tgt at Truist as believe Continental’s continued operating efficiencies along with the latest OPEC + decisions that should help stabilize upcoming oil prices will result in material cash flow upside; Evercore ISI upgraded EQT to outperform from in-line, while downgraded COG to in-line from OP, recommending the shift saying while spot prices matter little for incremental cash flows for these names, it is upgrading EQT based on a better absolute outlook for natural gas

Financials

·     Bank movers; generally quiet for financials (JPM, BAC, C), as group edged higher with Treasury yields hitting their best levels since March, as the 10-year approached the 1% level, helping potentially boost lending margins for banks (while increased trading volatility and volumes have also been a boon for big banks/brokerage); in REITs, SLG boosted its annual ordinary dividend by 2.8% to $3.64 a share and declared a special dividend with a value of $1.6967 a share

·     Services; SPGI upgraded to buy at Stifel and raise tgt to $385 as believe that the announced acquisition of INFO together with the recent stock sell off created a good entry point into the shares; IBKR signed an agreement with Folio Investments Inc. to acquire its self-directed retail brokerage segment – deal follows GS purchase of Folio Financial on September 18, 2020.

Healthcare

·     Pharma movers; LLY partners with UNH on real-world study of COVID-19 med in diverse high-risk population; SGTX 7M share IPO priced at $18.00 and SBTX 11.5M share IPO priced at $21.00; STRO rises after it posted "encouraging" interim data on a study of its ovarian cancer drug (Phase 1 study of STRO-002); SAGE upgraded to Buy from Neutral and price target to $81 from $77 at Mizuho after closely analyzing the recently announced collaboration with BIIB on zuranolone (SAGE-217) and SAGE-324; CRTX said an independent Data Monitoring Committee conducted a pre-planned interim analysis and recommended Cortexyme continue the Phase 2/3 trial of atuzaginstat as planned to the one-year endpoint; NVO that it has submitted a new drug application to the U.S. FDA for its semaglutide weight-loss drug

·     Biotech movers; MRNA said still sees having 20M COVID-19 vaccine doses in U.S. by end of 2020; Moderna study shows COVID vaccine has potential for durable immunity; sees 100M-125M COVID vaccine doses available globally in 1Q21; MGTA and BLUE entered into clinical trial collaboration to evaluate MGTA-145, a CXCR2 agonist, in combination with plerixafor, a CXCR4 antagonist, for mobilization and collection of stem cells in patients with sickle cell disease.

·     MedTech, Healthcare services and providers; WBA shares outperformed on Thursday on no apparent news, while Deutsche Bank notes today prices rallied revived investor sentiment for the idea of a WBA LBO, which was last discussed prominently in the financial press late last year; SEER 9.21M share IPO priced at $19.00; CEMI slides after saying the FDA declined to review its application for emergency use authorization of its COVID-19 rapid antibody test at this time

Industrials & Materials

·     Industrial & Machinery; KeyBanc said they think investors should increase exposure to machinery OEMs like FSS, OSK, TEX, GBX, TRN, and WAB upgraded OSK, FSS, TEX) as shift in our view is being driven by increasing optimism for economic reopening as vaccines become available in 2021; in metals, another bounce for names (X, FCX, CLF) in a week buoyed by stimulus hopes and stronger manufacturing data (in the U.S. and China); in research, ATI and KALU both upgraded to buy at Benchmark

·     Transports; Dow Transports rising, up over 16% YTD heading into the holidays where more travel is expected and package delivery to increase (FDX, UPS); AAL said it expects Q4 average daily cash burn to come in at the high end of its previously forecasted range of $25M-$30M, due to slowing of demand and forward bookings and higher fuel prices

·     Chemicals and Materials; SLGN upgraded to Overweight from Equal Weight at Wells Fargo and increasing our price target to $45 (prior $43) saying with the stock down 11% over the past 90 days, and the Packaging index returning 15%, we believe the risk/reward now skews favorably; WRK upgraded to buy from hold at Argus with $47 tgt as view WestRock as a well-run company with a strong track record in its industry, and expect its products and services to be in high demand on the other side of the pandemic; CC downgraded to Equal Weight from Overweight at Barclay’s saying Per- and polyfluoroalkyl substance litigation news has been quiet, but that may come to an end and PFAS news flow will pick up steam

Technology, Media & Telecom

·     Internet; BABA and SE shares rise as the Monetary Authority of Singapore (MAS), the central bank, issued digital wholesale bank licenses to an entity wholly-owned by Alibaba Group affiliate Ant Group and also chose a venture between Singapore Telecommunications, ride-hailing firm Grab and internet platform provider Sea Ltd to be one of the country’s first digital banks

·     Semiconductors; Philly semiconductor index (SOX) another record high this week, topping the 2,750 with MRVL weaker after guidance, MU up again on further positive analyst comments and equipment names leading (AMAT, LRCX); the SIA published its monthly report, which tracks sales, units and ASPs across the semiconductor industry, and provides details by products, end markets and geographies. Total industry sales grew by 5.1% on a YoY basis in October, after increasing by 8.2% YoY in September. Memory rose 4.8% YoY while non-memory rose 5.2% YoY; MRVL Q3 results were in-line with estimates but shares fell as guides Q4 revs of $785M plus or minus 5% (vs. est. $786.4M), non-GAAP gross margin of about 64 and EPS of 25c-33c (vs. est. 28c)

·     Software movers; CLDR shares rise following Q3 beats that included 10% YoY revenue growth to $217.9M (est. $209M), subscription revenue was up 18% to $197.4M and ARR increased 12% YoY along with a stock repurchase of an additional $500M in shares and better Q4 revs $219-222M (vs. est. $215.21M); DOCU rises after posting Q3 revenue of $383.9M topping the $361.2M estimate, helped by accelerating digital transformation of business and agreement processes while also guides Q4 revs $404M-$408M above the $387.3M estimate; PD rises as Q3 beat on the bottom line and top line with revenue up 26% Y/Y to $53.77M, $1.16M above consensus as Q3 customers with ARR over $0.5M up 40% Y/Y and guides Q4 revs above views; ZUO reported Q3 revenue beat and forecast Q4 revenue above Street’s estimates as subscription billings benefited from increased enterprise traction; MDLA Q3 results top on the top- and bottom-line driven by a mix of higher than expected Subscription and Professional Services revenue; SNOW shares surge again after a 16% spike yesterday on mixed results – CNBC notes it now has a $109B mkt cap – same size as IBM, LOW, slightly below AMD (Warren Buffett one of largest holders)

·     Media & Telecom movers; DISH downgraded from Buy to Neutral at Guggenheim and removes the company from its Best Ideas list, and strips the $53 price target saying while they had hoped asset value would have been realized through either a sale of spectrum, or a partnership with a deep-pocketed tech firm, those scenarios are seemingly becoming much less likely; YEXT 3Q was better than expected but tough macro and muted upsells remain a drag on NT growth outlook