Closing Recap

Tuesday, February 16, 2021

Equity Market Recap

·     It was another record-breaking day on Wall Street as the S&P 500, Dow Industrials, Nasdaq Composite, Dow Transports and Semiconductor index all topped intraday record highs before paring gains to end slightly lower. The U.S. dollar rallied as Treasury yields jump to fresh one-year highs while Bitcoin again grabs headlines topping $50K before slipping. Oil prices made it a 10^th day of gains in the last 11-trading days as a deep freeze in Texas curtailed refining capacity, sending shares of energy stocks higher. Stocks steady, even after a brief blip to the downside this morning amid a bounce in Treasury yields. The market narrative remains the same: buying momentum continues as investors fear of missing out, hopes for new stimulus keeps in D.C., Fed keeping rates low, vaccine rollout, earnings strong and economy recovering all market catalysts. Surging market multiples, inflation in commodity prices, bubble concerns (bitcoin), Covid-19 variant potential impact all failing to dent any investor sentiment. In the first 2-months of trading, the S&P 500 has recorded 10 all-time highs, copper at 9-year highs, oil prices at 13-month highs, lumber trades record all-time highs as commodity prices soaring (yest Fed says no inflation). Goldman Sachs today raised S&P 500 2021 EPS by 2% to $181 reflecting higher sales and profit margins that should overcome input cost pressures thanks to high operating leverage.

·     Sector movers: Cold weather throughout the Midwest with snow and power outages in TX boosts GNRC, as well as natural gas names RRR, CBT, SWN and energy XOM, CVX, FANG, MRO; Bitcoin hits another record high, topping $50k and lifting RIOT, MARA, SI, WBAI; CVS slumps despite eps/rev beats after 2021 guidance range comes in weaker than expected; PLTR also slides after reporting a quarterly loss, disappointing analysts’ expectations of a profit; in auto retail, AN soared to record highs after its earnings beat and new $1B stock buyback plan and AAP also gained after its earnings report in auto names; GEO plunges after its revenue forecasts miss estimates, dragging CXW; BLUE plummets after halting its sickle cell disease trial; cruise stocks outperform after CCL Aida cruises to start sailing on March 20 RCL, NCLH, while airlines ALK, AAL, UAL generally higher as well though LUV lags the sector despite slower cash burn and improving leisure demand after forecasting continued business travel pressure; banks JPM, CMA, WFC, ZION strong after the 10-year yield has returned to pre-pandemic levels around 1.3%.

Commodities

·     Oil prices climb again; WTI crude settle above $60 per barrel, rising 58c or 0.98% to end at $60.05 (rises for the 10th time in last 11-days and follows a 5% jump last week). Brent crude reversed earlier losses to rise a nickel at $63.35 per barrel. Energy stocks led today amid the higher oil and gas prices as the crippling winter storm in the central U.S. from the Midwest to Texas wreaks havoc on energy production and refining capacity. Gold prices tumbled, as April prices fell -$24.20 an ounce, or 1.3% to settle at $1,799 an ounce, pulling back as the dollar and treasury yields gained, with investors rotating out of safe-havens.

Currencies & Treasuries

·     Treasury yields stealthily moved higher, with the 10-year yield moving higher by 8bps just within 1.30% eclipsing last March highs, which prompted some profit taking from stock markets. U.S. yields have been on the rise for the last two months on expectations of increased issuance of Treasuries to finance a massive stimulus package and prospects of a recovery as the world’s largest economy emerges from the pandemic. Since mid-December 10-year yields have climbed nearly 40 basis points touching 1.267% on Tuesday, the highest since March 2020. The yield on the long-term 30-year rose over 7 bps to 2.07% while short term yields steady (2-yr 0.11%). The U.S. dollar moved higher along with Treasury yields as the dollar index gained 0.25%.

·     Bitcoin remains the market topic du jour, soaring above $50,000 on Tuesday to an all-time high (traded $50,602 before paring gains), as the crypto currency rises day after day amid acceptance among mainstream investors and companies. This month alone, Elon Musk’s Tesla said it bought $1.5 billion of Bitcoin and will start accepting it as payment for its electric vehicles at some point soon. BNY Mellon said it would hold, transfer, and issue Bitcoin for clients, and Mastercard said it would integrate Bitcoin into its payments network this year. Other financial and payment companies are pushing Bitcoin into the mainstream such as Robinhood, Square (SQ), and PayPal Holdings (PYPL) allowing Bitcoin trading. Prices have risen around 70% year-to-date after a 300% spike last year. With tis popularity, concerns arise of regulation and more scrutiny. U.S. Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde both called last month for tighter oversight of bitcoin due to concerns over its use for criminal activities.

Sector News Breakdown

Consumer

·     Retailers; gun stocks active (RGR, SWBI) ahead of earnings this week for some and as Joe Biden said yesterday “I am calling on Congress to enact commonsense gun law reforms, including requiring background checks on all gun sales, banning assault weapons and high-capacity magazines, and eliminating immunity for gun manufacturers who knowingly put weapons of war on our streets”; MAT upgrade from Hold to Buy at Argus as believe that Mattel has turned the corner in its efforts to become an IP-driven toy company; ELY downgraded at Cowen until get visibility into the combined Topgolf and Callaway model which is likely to burn cash into FY24

·     Auto sector; Ford (F) exited its stake in VLDR, according to a regulatory filing; Ford has held a passive stake of 7.6% of 13.07M shares at the end of Q3. Ford originally invested $75M in Velodyne in 2016; AAP mixed Q4 results as Q4 adj EPS misses at $1.87 vs. est. $1.96 with revs $2.4B vs. est. $2.36B and Q4 comp store sales rose 4.7%; AN authorized buyback up to additional $1B stock after Q4 EPS and rev beat ($2.43/$5.8B vs. est. $2.01/$5.56B); GT upgrade from Hold to Buy with $16 tgt at Argus as view Goodyear as a well-run company with a strong track record in its industry, and expect its products and services to be in demand on the other side; CCIV shares jump higher after Reuters reports Lucid Motors Inc. nears deal to merge with co

·     Consumer Staples & Restaurants; lots of updates with CAGNY conference (Consumer Analyst Group of New York) taking place this week; GIS reaffirms its 3Q and full-year guidance and outlines a growth strategy, targets mid- to high-single-digit adj. EPS growth long-term and targets organic net sales growth of 2% to 3%; USFD with EPS miss (5c vs. est. 10c) in in-line revenue $6.1B and does not provide outlook for the year; COTY mentioned positively in Barron’s noting the stock tumbled after earnings but it’s time to buy; MDLZ reaffirms its 2021 outlook, as well as its long-term annual financial targets and capital allocation priorities

·     Leisure and Gaming; IMAX said IMAX China soared to its best-ever opening weekend for the Lunar New Year holiday, grossing $25 mln through Feb 14; in cruise lines, CCL said Aida cruises opens 2021 cruise season on March 20 – but all trips originally planned from March 6 up to and including March 19, 2021, are unable to take place; NCLH announces extension of suspension of voyages as suspension includes all voyages for Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises with embarkation dates through May 31, 2021

Energy

·     Energy stock movers: Multiple oil production and transport facilities along the U.S. Gulf Coast in Texas and Louisiana have halted operations due to a rare deep freeze, which left more than 5 million without power in Texas. Oil prices hovered near 13-month highs on Tuesday, supported by the cold snap that shut wells in Texas, the biggest U.S. producing state. More than 3 million barrels in refining capacity have been taken offline by the storm, according to reports. Refiners such as VLO, MRO, TOT, XOM, LYB, Citgo among those announcing impacts to output capacity; natural gas prices jumped over 10% to $3.21 mln btu on Texas cold front

·     A deep freeze continued to wreak havoc on the U.S. energy sector, bringing operations to a halt at the Houston Ship channel, while several of the biggest oil refineries remained offline in the nation’s largest crude-producing state. Overall, around 5.3 million customers were without power in most states including Texas and New York, with around 4.3 million customers out in Texas alone, according to local power companies. The cold snap sent oil prices to near 13-month highs, while front-month gas futures jumped to an over three-month high.

·     MLPs; JPMorgan upgraded ENLC to Neutral from Underweight, downgraded NBLX to Underweight and maintaining RTLR at OW saying following better-than-expected volume recovery from the March 2020 collapse, G&P sub-sector has led the recent rally higher. YTD our G&P coverage has appreciated 29%, on average, outperforming both the AMZ and AMNA by 16%. However, looking ahead to 2021 we remain cautious on the group

Financials

·     Credit card monthly metrics; DFS credit card charge-off rate 1.69% at Jan 2021 end vs 1.58% at Dec 2020 end and credit card delinquency rate 1.32% at Jan 2021 end vs 1.31% at Dec 2020 end; COF credit card delinquency rate rises to 2.49% in January from 2.41% in December and declined from 4.10% in January 2020 while net charge-off rate of 2.54% increased from 2.42% in December and fell from 4.31% a year ago; SYF net charge-off rate of 3.1% is unchanged from 3.1% in December and compares with 5.2% a year ago and delinquency rate of 3.2% in January ticks up from 3.1% in December, but is still down from 4.5% in January 2020; JPM Net charge-off rate of 1.97% rises from 1.70% in the prior month and declines from 2.19% a year ago and credit card delinquency rate holds steady at 0.99% in January, unchanged from December

·     Consumer finance; ADS upgrade from Hold to Buy with $95 tgt at Argus as expect Alliance to post stronger results as the impact of the pandemic diminishes; AXP downgraded to neutral at Baird saying while they like the franchise and find it to be a decent re-opening play, there seems to be reasonable amount of optimism in the stock despite a generally uncertain outlook;

·     Services; CLGX rose after CSGP offered to buy the company in a deal valued at $95.76 in stock/cash, topping the prior $80 offer that CoreLogic agreed to from Stone Point Capital earlier this month https://on.mktw.net/3jVXJnW

Healthcare

·     Pharma movers; Europe’s drugs regulator (EMA) said it could issue an opinion by mid-March on whether to approve drug maker JNJ’s COVID-19 vaccine under a speedy review; EXEL announced positive phase 2 results for CABOMETYX® in patients with metastatic papillary renal cell carcinoma; ZTS posts Q4 adj profit of $0.91 beating by 4c and forecasts 2021 adj profit of $4.36-$4.46 vs. est. $4.26 helped by higher sales of its animal products including Simparica Trio, its newly launched parasiticide for dogs; KALA said its Eysuvis 0.25% to treat signs and symptoms of dry eye disease now covered by CI’s pharmacy benefit manager Express Scripts, effective Feb. 5; CRTX slides after the FDA places partial clinical hold on mid-to-late-stage trials of its therapy, Atuzaginstat, to treat Alzheimer’s Disease

·     Biotech movers; BLUE falls after saying it placed early-stage and late-stage studies of LentiGlobin gene therapy for sickle cell disease on a temporary suspension following a serious adverse reaction; GTHX shares rose after saying the FDA approved its Cosela, a therapy that reduces the frequency of chemotherapy-induced bone marrow suppression in adults receiving chemotherapy; DFFN reports completion and topline data from an early-stage trial of its trans sodium crocetinate, or TSC, in hospitalized COVID-19 patients with confirmed hypoxemia; GH launches guardant reveal liquid biopsy test for residual disease, recurrence monitoring in patients with early-stage colorectal cancer

·     Healthcare services and providers; CVS posts better-than-expected Q4 profit and sales, helped by COVID-19 vaccinations and testing at its retail locations but sees 2021 adjusted EPS between $7.39-$7.55 vs. est. $7.54 per share; KR said its Health division said it plans to offer the first smartphone-enabled, at-home Gauss COVID-19 Rapid Antigen Test Kit

·     MedTech and Equipment; HOLX positive mention in Barron’s saying the stock is cheap, pointing out that the medical-diagnostics company is a COVID-19-beneficiary but also a business that will benefit as life returns to normal. Moreover, the stock has gained 55% during the past year, but its valuation has dropped as well; BRKR posts top and bottom line beat for Q4 with slightly better EPS outlook for the year ($1.72-$1.77 vs. est. $1.71)

Industrials & Materials

·     Industrial & Machinery; GNRC, PWR, MTZ among names seeing strength this morning (generators) as Texas’ power grid experienced a systemwide failure Monday morning as demand surged due to the historic winter conditions across the state. Grid managers declared an emergency after the record-breaking energy use strained utilities beyond capacity; IR to sell majority interest in high pressure solutions segment to American Industrial Partners; in waste space, RSG and WM both downgraded to neutral from outperform at Baird; HON board authorized up to $10B in share buyback;

·     Aerospace & Defense; LDOS shares slid after Spruce Point released a new short report, estimating that the shares have 35%-60% downside to $43-$70/share; in another short report, Wolfpack was out negative on shares of drone maker EH sending shares tumbling

·     Transports; Dow Transport index touched record intraday highs of 13,272.76 before fading along with the broader markets; LUV forecasts slower cash burn in current quarter as leisure bookings and demand improve in February saying expects average core cash burn of ~$15 mln/day in Q1 vs previous forecast of $17 mln – but did note business travel demand continues to lag; U.S. passenger airline traffic fell 60.1% in 2020 to the lowest number since 1984 as the COVID-19 pandemic devastated demand for air travel, the U.S. Transportation Department said on Tuesday. In total, there were 368 million passengers in 2020, down from 922.6 million in 2019. The previous yearly low was 351.6 million in 1984, the department said

·     Metals & Materials; commodity prices surging with copper touching fresh 9-year highs and lumber prices surging to record highs; PDAC rises on Reuters report this weekend that the co is close to a deal to take Li-Cycle Corp., a recycler of lithium-ion batteries, public in a deal valued at about $1.7B; LPX posts Q4 adj. profit of $2.01 above est. $1.74 and Q4 revenue of $860M beating the $784.9M estimate as Q4 LP SmartSide, OSB segment revenue rose by 30%, ~149% respectively; MP shares jumped after earlier reports that China targets rare earth export curbs to hobble U.S. defense industry, as per the Financial Times. Fighter jets such as LMT’s -35, rely heavily on rare earths for critical components such as electrical power systems and magnets

Technology, Media & Telecom

·     Internet; JCOM price tgt raised by several analysts including Street high $250 from $120 at Susquehanna see an easy pathway for the stock to more than double from here after monster quarter and outlook (Wedbush upped to $140, Barclays to $130); Loop Capital raised tgts on several names following earnings with TWTR getting a $95 tgt, SNAP tgt raised to $78 from $49 as think the continued momentum across digital platforms persists as digital’s share gains vs. traditional media accelerates coming out of the pandemic; SABR Q4 revenue fell 67% to $314M (est. $328.6M), as adj EPS loss (77c) vs. est. loss (66c) and no guidance given; FSLY down for a 4th day in a row into earnings tomorrow night (2/17) – stock started drop last week on Biden review of ORCL TikTok US operations bid – stock extended declines late last week, falling in sympathy with LLNW, NET quarterly results

·     Semiconductors; the Philly semiconductor index (SOX) turned in another record intraday high (3,269.02) before paring gains as the global chip shortage keeps demand high, especially in the growing autos segment; LRCX added to positive catalyst watch list at Citigroup and SWKS added to negative catalyst watch list

·     Software movers; PLTR reported a 40% rise in sales (to $322M vs. est. $300M) in its second quarterly results since going public last year as signed 21 contracts each worth $5 million or more during the fourth quarter and said it expects sales in the first quarter to grow by about 45% from a year ago (note lock up expiration where 80% of total shares come free 3 days after results); BL upgraded by Goldman Sachs to neutral; CDAY upgraded by BMO to outperform; PLAN upgraded by Morgan Stanley to overweight; TENB and ZS both initiated by Canaccord at buy

·     MSFT tgt to $300 from $285 at Wedbush saying based on our recent field checks, they strongly believe the tide is shifting in the cloud arms race as Microsoft coming off its recent 50% Azure growth number is taking market share vs. AWS (28% YoY growth this quarter); MSTR said it intends to offer $600 mln of convertible senior notes due 2027 – intends to use net proceeds from sale of notes to acquire additional bitcoins; PANW entered into a definitive agreement to acquire Bridgecrew, a developer-first cloud security company.

·     Hardware & Component news; BB downgraded to Sell from Hold at Canaccord whing while believe management has created a cogent long-term strategy and the business is turning the corner towards stronger trends, await more proof in execution on the new product roadmap; GLW mentioned positively in Barron’s noting the co now serves a diverse set of markets, from smartphones to auto manufacturing to vaccine vials and believes deserves more attention; SCKT shares jump after launching its first enterprise-grade barcode scanner for AAPL iPhone 12 series