Market Review: January 04, 2021

Closing Recap

Monday, January 04, 2021





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Stocks stumble to start 2021, with the Dow Jones falling as much as 700 points to 29,900 (after hitting a fresh intraday record high on the open) with major averages falling as much as 2.3% before paring losses into a critical day in Washington. Politics center stage tomorrow as Tuesday’s run-off elections in the U.S. state of Georgia will decide which party controls the Senate (currently controlled by Republicans 50-48 – tie would give Dems control as Harris deciding vote). The races will determine whether Republicans or Democrats control Congress which could influence the agenda of President-elect Joe Biden’s administration. A "blue sweep," or Democratic control, could pave the way for greater corporate regulation and higher taxes, though also for greater fiscal spending. The S&P 500 index also fell from opening record intraday highs while the Nasdaq fell short of its intraday best, trading in a range of 400 points from highs to lows (12,958 to 12,543), before paring losses.

·     Sentiment remains very bullish after a banner year for global stocks, led by gains in technology (Nasdaq rose 43% in 2020) and Smallcaps (Russell up 18% in 2020) despite the economic hit from the coronavirus. Electric vehicle stocks rise on Monday after monthly delivery updates from several EV makers (TSLA, NIO, XPEV, LI). Gold prices jump nearly 3% as the dollar slips, with gold miners and industrial metals rising. There were also a few M&A deals to start the year as FLIR agrees to be acquired by TDY in $8 bln deal and MGLN being bought by CNC in $2B deal.

·     Potential impact of Senate sweep if Democrats take control of Senate tomorrow along with control of Congress and White House: positive for cannabis (TLRY, CGC) – recall Biden and Harris have voiced support for decriminalizing marijuana on a federal level, and are expected to adopt a more pro-cannabis legalization agenda; banks (WFC, JPM, C) could be weak over concerns of more stringent regulations should Democrats prevail on Tuesday (but could boost increased fiscal spending under sweep); Democratic sweep could halt momentum for oil and gas shares (XOM, CVX) on fears of tougher rules for the industry (recall industry was seen as positive under Trump admin); solar (FSLR, SEDG) seen as positive under Dem sweep which could give further support to a strong "green energy" push expected under the Biden administration. Healthcare (UNH, CI, ANTM) may be seen negative under sweep as it opens door to systemic changes, or to fight rising medical costs.

·     The CBOE Volatility index (VIX) surged as much as 25% today (before paring gains) as investors hedge against Georgia Senate run-off tomorrow. Shares of the “recovery” names such as airlines (AAL, UAL), cruise operators (CCL, NCLH), and hotel/hospitality companies (HLT, MAR, WYNN) slid to start the year amid mounting worldwide restrictions to contain the resurgent coronavirus. Several European regions have imposed stringent shutdowns despite the rollout of vaccines amid surging case, death, hospital counts. Industrials and Real Estate were among top sector decliners.

Economic Data

·     Markit said U.S. manufacturing activity picked up at its fastest pace in more than six years in December, extending a recovery in the factory sector. IHS Markit said its manufacturing PMI climbed to 57.1 in December from 56.7 in November. The index also improved from its preliminary – or "flash" – reading in mid-December of 56.5

·     Construction Spending for November rose +0.9% vs. est. 1% and Nov private construction spending +1.2%, public spending -0.2%



·     Oil prices declined, as WTI crude slips 90c or 1.85% to settle at $47.62 per barrel, as Brent hit its highest levels since March before pullback, while WTI hits highest since February before pullback as broader stock averages eased on concerns over the outcome of runoff elections in Georgia. OPEC+ oil producers were split on Monday over increasing output from February as some feared a hit from new coronavirus lockdowns, while Russia said demand recovery justified higher production, five OPEC+ sources said according to Reuters. OPEC+ increased output by 500,000 barrels per day (bpd) this month but some members have questioned the need to increase more from February due to an upsurge in the COVID-19 pandemic.

·     Gold prices surge to start the day and year, rising $51.50 or 2.7% (best one day gain since April) to settle at $1,946.60 an ounce, its best level in about 2-months, benefitting again from the dollar’s slide ahead of Georgia runoff elections as well as rising Covid-19 cases (gold prices rose over 20% in 2020, helped by a 7% drop in the dollar amid unprecedented monetary and fiscal stimulus measures). Platinum prices rise to their highest since August 2016 amid supply concerns. Gold looking for a repeat performance after posting its best annual return in a decade.


Currencies & Treasuries

·     The U.S. dollar index (DXY) started off the year how it ended, under pressure down -0.2% at 89.56 (off earlier low 89.41) but recovered after touching its lowest level since April 2018. Amid U.S. interest rates pinned at record lows, massive U.S. deficits, increased fiscal and monetary stimulus and a belief that rebounding world trade will drive non-dollar currencies higher, the dollar initially weakened after falling nearly 7% in 2020. Treasury yields slip from earlier highs, but still remain in tight trading range of 0.9%-0.95% for the benchmark 10-year.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers: CPRI (tgt up to $56) and VFC (tgt up to $106) were both upgraded to overweight in retail at Piper and raises tgt for REAL to $25 from $19 saying they have defined five themes they see as investable – S.T.Y.L.E. – Sustainability, Transformation Towards Digital, Yearning To Go Out, Luxury & Exercise/Health; Barron’s was positive on JWN calling it a "department store survivor" thanks to its online investment, cost-cutting, and willingness to try smaller stores; gun retailer related names (SWBI, RGR, VSTO) active after FBI reported that there were 3,937,066 firearm background checks initiated through the NICS system in December 2020. This compares to 2,936,894 checks YoY and 3,626,335 checks MoM

·     Auto sector; monthly delivery updates announced in the electric vehicle space, giving a boost to several names initially after a strong 2020; TSLA reported 499,550 deliveries for 2020, slightly missing the 500K target as delivered 180,570 electric vehicles in Q4 and produced 179,757 vehicles total; in Q4, Tesla delivered 18,920 and produced 16,670 Model S/X vehicles, and delivered 161,650 and produced 163,660 Model 3/Y vehicles; LI delivered 6,126 Li ONEs in December 2020, representing an increase of 31.9% MoM and up 529.6% YoY; NIO delivered 7,007 vehicles in December 2020, rising 121.0% YoY – NIO delivered 17,353 vehicles in Q4, representing an increase of 111.0% YoY and topping the high end of guidance; XPEV said it reached a record monthly delivery of 5,700 Smart EVs in December 2020, consisting of a record high 3,691 P7s, the company’s sports smart sedan, and 2,009 G3s, its smart compact SUV; FSR shares active after Canadian auto supplier MGA to develop an advanced driver assistance system with the company, expected to launch in late 2022; WKHS said it received a purchase order for 6,320 C-Series all-electric delivery vehicles from Pride Group Enterprises.

·     Housing & Building Products; MAS was downgraded to hold at Jefferies saying with margins likely peaking from temporary cost tailwinds reversing and limited cyclical torque, they see no imminent catalysts for its multiple to expand and believe shares are fairly valued; SWK was downgraded to Underperform from Neutral at bank America on what they see as an unfavorable setup for 2021, noting a tougher 1-2 year set up as concerns have less to do with a COVID-19 vaccine and tougher comps in 2H21, and more with rising competition

·     Consumer Staples: at RBC Capital, KO, PEP, and CL downgraded to Sector Perform mainly on valuation in Consumer Staples – says both KDP and newly upgraded REYN have been added and we’re removing MO and CPB. Firm revised estimates across coverage to account for belief that the path to normalization will be more prolonged than consensus is currently baking in. New focus picks, in order of preference, are STZ, SPB, PRMW, MDLZ, KDP, and REYN was raised to Outperform & raises tgt to $35 at RBC; HLF announced it would buy back $600M of shares from Icahn Enterprises for $48.05 per share and all five director designees previously nominated by Icahn Enterprises resigned from the company’s board on 3-January; TAP was upgraded to Buy from Hold at Jefferies with raised $57 tgt saying there has been a clear strategic shift under CEO Gavin Hattersley to return TAP to topline growth; EL downgraded at Raymond James saying it’s difficult to make a valuation case, either on an absolute or relative basis

·     Leisure and Gaming; PENN shares slip after announced that David Williams, has stepped down as executive VP and CFO as of December 31, 2020; WYNN, LVS, MGM, MLCO active after gross gaming revenue in Macau fell 65.8% in December to 7.83B patacas as the slow pace of recovery continued (ests were to fall about 68.3% during the month). Macau GGR for the full year was down 79.3% to 60.44 patacas ($7.57B) as COVID-19 shutdowns and restrictions decimated traffic; in cruise lines, RCL said that as of Dec. 31, company has sold ~13M shares of the company’s common stock under its “at-the-market” equity offering program that was announced on December 3, and exhausted the program in full; MGM recently made a second offer to acquire British gaming company Entain after an initial all-cash offer of roughly $10B was rebuffed – WSJ



·     Oil prices rolled, dragging energy stocks lower in broad market weakness today. Most OPEC+ oil-producing countries oppose plans to increase output from February as winter lockdowns to contain the coronavirus choke demand, OPEC+ sources told Reuters. OPEC+, which groups OPEC and other producers including Russia, began meeting Monday. On Sunday, OPEC Secretary General Mohammad Barkindo warned OPEC+ experts of downside risks facing the oil market. On Monday, Saudi energy minister Prince Abdulaziz bin Salman said OPEC+ should be vigilant and cautious despite a generally optimistic market environment as demand for fuels remains fragile and the new variant of coronavirus is unpredictable.

·     Energy stock movers; Bernstein names BP, RDS, and REP as their Top Picks in integrated energy and downgrades TOT, EQNR, GALP, and ENI as they shift to a shorter time horizon on further near-term volatility and seek out intra-group alpha, saying macro troughs in oil, gas, LNG, refining, and chemicals are left behind in 2020 but recovery is back end loaded; TOT entered into and E&P agreement with Egyptian Natural Gas Holding for the North Ras Kanayis exploration block offshore Egypt; CEO upgraded to outperform at Bernstein noting CNOOC Ltd share price has fallen sharply following the addition of the parent co. CNOOC Corp to the US blacklist -With a >8% yield, positive FCF and no net debt the stock is too attractive to ignore



·     Bank movers; Wells Fargo says banks enter 2021 with capital adequacy and lending standards that have improved since the GFC, though they will have to deal with low rates and a dismal loan growth outlook. SBNY is their top pick and they doubled their pt to $200 from $100 as the bank’s growth is matched by few banks, each of which trades at a greater valuation which should drive upside as the narrative shifts to growth from credit. Wells also downgraded PNFP, WBS, and FIBK to EW, upgraded BOKF and PACW to OW and SIVB to EW, and they raised their target on LPLA to $122 from $110 and reiterated its OW rating; Barclays upgraded ALLY, MS, and GS to OW and downgraded C (Citi), ZION, and SIVB to Equal-Weight; IBKR reported its Electronic Brokerage monthly performance metrics for December, reporting 2,301 thousand Daily Average Revenue Trades, or "DARTs," which is 198% higher than the prior year

·     Insurance: Wells downgraded PGR to UW after outperforming the sector in 2020 and remain EW on ALL, saying they are cautious on personal lines insurers as miles driven rebounds with a vaccine rollout and consequently have a more favorable view on commercial and reinsurance sectors; Wells raised their pt on AIG to $42 from $40 but downgraded the stock to EW to reflect higher group multiples and following the stock’s Q4 performance (+38% vs. S&P +12%); JPMorgan remains upbeat on P&C stocks but the sector’s Q4 performance provides less enticing valuations. They upgraded HIG to OW after underperforming last year and on expected stabilization of workers comp prices, acceleration of buybacks, and reduced BI uncertainty, and names it as a top pick along with AON. They also downgraded CB to Neutral following on risk-reward valuation after Q4 outperformance, though they consider it best-positioned to take advantage of hardening prices and prefer it to other insures they rate at Neutral; GNW shares plunged after the December 31, 2020 end date for its merger with China Oceanwide Holdings passed without an extension

·     Consumer Finance; Wells Fargo sees stimulus and pent-up demand for travel and entertainment driving an increase in US spending mid-to-late 2021 and global travel late 2021-early 2022, which sets up card issuers with attractive near-term valuations. They raise their pt on COF to $120 from $100 as their tactical Covid recovery play, AXP to $150 from $130 as their top card issuer pick being a beneficiary of the recovery in travel and entertainment, and on MA to $400 from $350, saying it is slightly more attractive than V (Visa), though both stocks remain core holdings; MOGO reported new Bitcoin accounts more than doubled in December from November and entered an at-the-money offering for up to $50M; MELI announced intentions for its first debt offering though it does not disclose the size

·     REITs; BAM offered to acquire the remaining shares of BPY that it does not already own for $16.50/share (a 14% premium to last close) to take it private in a $5.9B deal. BPY unitholders would have the ability to elect to receive $16.50 in cash, 0.40 Brookfield class A shares, or 0.66 of BPY preferred units with a liquidation preference of $25.00 per unit.



·     Pharma movers; BMY said with no FDA decision on liso-cel before December 31, the Contingent Value Rights Agreement that followed its acquisition of Celgene, automatically terminated (according to Bloomberg, nearly 715 million BMY Contingent Value Rights (BMY.RT) were outstanding, with a potential all-or-nothing payout of $6.4 billion in total, or $9 a share, if three drug candidates from Celgene won regulatory approval before key deadlines); AZN and the Oxford University said India has granted the emergency use approval for their COVID-19 vaccine, a day after an advisory panel in the country issued its recommendation; CALA falls after saying topline results from the CANTATA clinical study of its glutaminase inhibitor, telaglenastat, in patients with advanced or metastatic renal cell carcinoma did not meet primary endpoint while announces 35% workforce reduction

·     Biotech movers; lots of research at Guggenheim starting the New Year as ARNA, IMVT, RLMD added To Top 3 Ideas List In biotech while upgraded SAGE & downgraded ARGX after strong 2020 as see a recent boost in BD interest from large biopharma players in the space; in SMID Biotech, IMGN, EXEL, ALLO named top picks and upgraded INCY on valuation in Oncology biotech; and raise tgts for BPMC, CLLS, FATE, GMAB, and ZNTL; lastly in space, Guggenheim upgraded GILD to BUY with $75 tgt and says top Picks include ZYME (Best Idea), MRUS, and DMAC saying despite headwinds from COVID-19, Biotechnology ended 2020 up 48% (XBI vs +16% for S&P 500), lifted by deal activity and positive clinical, commercial, and regulatory updates; RBC Capital downgraded SAGE to Sector Perform & raises tgt to $86 as continue to see substantial upside potential on positive phase III ‘217 data next year and would remain holders; PASG says the FDA has signed off investigational new drug (IND) application for its lead product candidate, PBGM01; BHVN starts Phase 3 Trial of troriluzole; MRNA increased the base-case 2021 global production estimate for its COVID-19 vaccine to 600M doses, from 500M

·     Healthcare services and providers; MGLN rises after announced it will be acquired by CNC for $95.00 per share in cash for a total enterprise value of $2.2B; HUM was upgraded to Outperform at RBC Capital and raises tgt to $479 as believe it has the best growth prospects in the near and immediate term and the best earnings visibility in the group; managed care stocks bounced (UNH, CI, HUM) off lows after CNBC reported that the Amazon-Berkshire-JPMorgan venture Haven to disrupt healthcare, is disbanding after 3 years

·     MedTech and Equipment; XRAY said it has acquired Byte, a privately owned clear aligner provider, in an all-cash deal valued at $1.04 billion; ZBH upgraded to buy with $185 tgt at Guggenheim saying the co has made significant strides in its turnaround in the three years since Bryan Hanson was named CEO, solving its quality/supply issues, refreshing and upgrading its product portfolio, and transitioning from a chronic underperformer


Industrials & Materials

·     Industrial & Machinery; ITW upgraded to Buy from Neutral and raise tgt to $232 from $211 at UBS as analysis suggests that for the first time since 2018, organic growth in 2021 will be positive for all of ITW’s segments at Credit Suisse, ATKR upgraded to Outperform while downgraded FLS to neutral citing a lack of near-term catalysts noting a combination of COVID-19 and geopolitically driven, plus unexpected, oil price cuts resulted in a dramatic price decline in March 2020.

·     Aerospace & Defense; FLIR to be acquired by TDY in an $8B cash and stock deal, with holders to receive $28 in cash and 0.0718 shares of TDY’s common stock which implies a purchase price of $56.14, a premium of 28.1% from Thursday’s close ; BA was downgraded to Underperform at Bernstein and cut tgt to $199 from $221 saying had seen Boeing as fairly valued since the stock rose after announcements on high efficacy vaccines for Covid-19

·     Metals & Materials; gold miners NEM AEM, GOLD rise with gold jumping over 2% or $40 to $1,938 an ounce as the dollar plunges further; in fertilizer chemicals, Citigroup upgraded Yara to Buy saying the commodity nitrogen price outlook should broadly offset the higher European gas prices, with earnings growth to come from the higher contribution from specialty fertilizers and that global Top Picks – In order of preference: NTR and CF followed and ICL, Yara and OCI; FCX adds to strong gains after rising around 100% in 202 as metals jump early.


Technology, Media & Telecom

·     Internet: in online travel, EXPE upgraded to Buy from neutral at Bank America with a $153 price target, as sees a valuation disconnect between online travel agencies and ABNB given expectation that OTAs will have between 15-27% bookings exposure to alternative accommodations in 2022 (BKNG price target raised to $2,285 from $2,165); BABA pt trim from $330 to $320, at Oppenheimer saying an IPO seems unlikely in 2021. It will likely take Ant some time to meet all five regulatory requirements (especially reserve capital requirement) and another one year or more to get ready for an IPO again; MELI said revenue growth for the quarter, compared with the year-earlier period, will be generally in line with recent quarters,

·     Semiconductors: TSM hosting investor meeting on 1/14 – expectations of higher cap-ex outlook likely boosting chip names earlier today; KeyBanc said they view MU (OW rated) as a compelling idea entering 2021, as DRAM trends should remain relatively positive through the year. NAND pricing is likely to face headwinds for several more quarters, which could be a positive for SIMO (higher SSD adoption) and a headwind for WDC on Friday, the SIA announced November monthly sales of $38.7 billion (up 2.6% MoM), and seasonality of down 0.5% MoM, due to better-than-expected DRAM and Microprocessor revenue; MU tgt raised to $88 at Credit Suisse

·     Software movers: PLTR said it has won a $22.5M, one-year contract in partnership with SOMPO Holdings for the “Real Data Platform for Security, Health, and Wellbeing”; AI falls after several analysts initiate coverage, with JPMorgan the most cautious with an underperform and $84 tgt noting shares are currently trading at 427% of the initial IPO filing range midpoint (Needham positive with a Buy rating and $193 tgt)

·     Media & Telecom movers; AT was upgraded to outperform with $32 tgt at Raymond James saying while 4Q is likely to be an unimpressive quarter, between a whopper of a C-Band bill and pressures from the iPhone launch and marketing, they believe the situation improves for AT&T over the next 12 months, offering a solid total return story; shares of CHA, CHL and CHU were down initially after delisting announcement over the weekend; DISCA Launches discovery+ In The U.S. and announces new distribution and platform agreements discovery+ to be available on several platforms; VOD said it has signed a long-term, multi-platform agreement with Discovery Communications (DISCA) to allow customers in 12 of its European markets to continue to access Discovery content – partnership covers Vodafone’s TV and mobile customers in the UK; Quibi is in advanced talks to sell its content catalog to ROKU, the WSJ reports according to people familiar with the matter, as the short-form streaming service winds down its operations following an unsuccessful run

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