Closing Recap

Tuesday, June 29, 2021

Equity Market Recap

Stocks traded in a narrow range throughout the day and ended slightly higher across the board. Major indices continued their torrid pace of setting new record highs as the S&P 500 set an intraday record for the 4^th consecutive trading day and the Nasdaq did the same for the 5^th time in the last 6 sessions with several indicators snapping back to their most bullish readings since before the pandemic. The VIX’s low of 14.10 today was its lowest level since Valentine’s Day 2020 and consumer confidence similarly recorded its most optimistic level since February 2020 with the index coming in well above expectations along with upward revisions to recent months. The Case-Shiller data was the best in its history that spans more than 30 years as home prices increased 14.6% YoY in April and rose in each of the 20 cities it gathers data from. Several pieces of macro news and data are still to come later this week, with employment figures being reported tomorrow (ADP’s private payroll) and Friday (June Nonfarm Payrolls), Manufacturing PMI data on Thursday, and an OPEC+ meeting also scheduled on Thursday that could determine changes in global oil supply.

Stock news; Most big banks announce dividend hikes after the Fed lifts restrictions following their stress tests last week – MS GS strong, while JPM BAC WFC give up early gains, C weak throughout day as only megabank to not raise its dividend; In retail, MLHR slides despite its earnings beat as its quarterly guidance was short of expectations, PRPL slips after lowering guidance due to production issues related to bringing its manufacturing machines back online after an accident, CPRI slightly higher after raising prior FY22 EPS guidance, and ADDYY touches ATH after announcing a new buyback program; FDS shakes off early weakness on its mixed results, JEF trades at highest level in more than a decade after its strong report in financial earnings; MRNA hits ATH after study shows its vaccine was effective against Covid variants (including Delta variant); Semis SMH SOXX touch record highs, led by iPhone suppliers QRVO SWKS CRUS after positive Barclays, Citi notes, and AMD who extends June gains after Wedbush noted its growing market share in supercomputers; CERE more than doubles after promising results in its Phase 1 schizophrenia clinical trial

Economic Data:

June consumer confidence index surged to 127.3 from May revised 120 level and well above the consensus 119.0; the present situation index 157.7 in June vs May revised 148.7 (previous 144.3); the expectations index 107.0 in June vs May revised 100.9 (previous 99.1)

April FHFA House Price Index rose +1.8% vs. +1.2% consensus and +1.4% prior, and on a YoY basis, rose +15.7% vs. +13.9% prior

S&P CoreLogic Case-Shiller data showed: HPI Composite: -20 (S.A.) +1.6% M/M vs. +1.2% consensus, +1.6% prior; HPI Composite 20 (N.S.A.) +2.1% M/M vs. +1.7% prior, and HPI Composite – 20 (N.S.A.) +14.6% Y/Y vs. +13.5% consensus, +13.3% prior

Commodities

Oil prices were little changed as WTI crude inches higher by $0.07, or 0.10%, to settle at $72.98/barrel, rebounding from yesterday’s pullback on rising cases in the UK and Asia after OPEC Secretary General Mohammed Barkindo said the group is currently forecasting oil consumption in the second half of this year to be 5M barrels/day higher than the first half ahead of the OPEC+ meeting on Thursday where analysts expect the group to announce a supply increase. Gold prices slid, with August gold falling $17.10, or -1.04%, to settle at $1,763.60/oz, its lowest settlement since mid-April as the dollar strengthens.

Currencies & Treasuries

The dollar rose slightly for the third straight day, hovering near the best levels of the quarter as investors are seeking safety while rising cases in the UK and Asia hamper sentiment. The Euro slid against the dollar again, falling below $1.19 as positive economic data in several countries could not outweigh the risk-off trade due to rising cases. Treasury yields were little changed after yesterday’s pullback and the 10-year yield remains below 1.5%.

Sector News Breakdown

Consumer

Retailers; ADDYY announces new share buyback program; PRPL shares slide after withdraws full-year financial forecast based on updated Q2 results and the impact of production challenges in Q3; said it sees Q2 revs $175M-$185M below prior month outlook of $200M-$210M; CPRI raises fiscal 2022 EPS forecast to between $3.80-$3.90 from prior $3.70-$3.80; but midpoint of new forecast falls below estimate of $3.87 with in-line revs view of $5.15B; says popular fashion brands Michael Kors, Versace and Jimmy Choo, sales trends improving

Auto sector; Credit Suisse said they expect TSLA 2Q21 deliveries of ~205-210k vs. sell-side consensus 201k and expect upside constrained by supply, and China is an x-factor in the month; Edmunds forecast that 4,468,791 new cars and trucks will be sold in U.S. in q2 of 2021, a 14.8% increase compared to q1 of this year

Consumer Staples; KDP upgraded from Equal-weight to Overweight at Wells Fargo as think KDP’s relative outperformance has been under-appreciated and misunderstood and expect momentum to sustain with structural portfolio advantages go-forward; HLF was initiated by FB Riley with a Buy rating and $70 PT as they say the company is flourishing after an FTC investigation, macro trends such as global obesity and increasing health and wellness interest provide opportunities, and their product categories are growing profitably

Casinos, Gaming, Lodging & Leisure sector; in meal delivery, DASH tgt raised to $215 and reit overweight at Wells Fargo saying the story has shifted from sustaining 20 GOV run rate to how many new geos and verticals and how fast, also raise q2/2021 Uber Eats gross booing ests and reit overweight; SGMS said to divest its lottery and sports betting businesses – evaluating options for each business; options include an IPO, a combination with a SPAC, a sale or a combination with another business; RCL received CDC approval for passenger voyages

Energy

E&P and Majors; SND reaches settlement with USWS after it won a favorable verdict in a dispute on June 4^th and will receive $35M as part of settlement; Piper initiated OAS with an Overweight rating and $115 PT as new management has already demonstrated its commitment to a shareholder return business model and think the return to a single basin operating model plays to the company’s strength as it enables it to fully take advantage of its scale and size in the Bakken; UBS downgraded PTR to Neutral as shares are up more than 60% YTD to pre-Covid levels and think that the market is not pricing in continued strong oil prices, and they say CNOOC is their top pick amongst China majors

Refiners; Barclays initiated MPC at Overweight as few companies can boast their repurchasing capability with the company planning to buy back nearly a quarter of its market cap through next year, and they also adjust their estimates for DK (PT to $23), HFC (PT to $35), PBF, PSX (PT to $95), and VLO (PT to $94) to reflect updated commodities and operational assumptions given brighter domestic demand, though there remains uncertainty over what normalized refining economics will be

Utilities & Solar; CSIQ has been awarded 86 MWP in Japan’s 8th solar energy auction; SRE raised its FY adj EPS view to $7.75-8.35 from $7.50-8.10 and now expects FY22 EPS $8.10-8.70; SWX said its Centuri Group subsidiary agrees to acquire installation and repair services provider Riggs Distler & Co. for $855M in cash; ENPH launches Encharge® battery storage system in Germany; STEM at Outperform with a $48 PT at Credit Suisse as it benefits from a strong and growing battery storage market, a capital–light, software-based business model, and market leadership in behind the meter (BTM); Mizuho raised their price target on FE to $37 from $33 to account for current market multiples

Financials

Bank movers; several large cap banks announcing stock buyback plans and dividend hikes following last weeks Fed stress test results (all 23 banks had passed); BAC said it would increase its dividend to $0.21 a share from $0.18 (previously approved buyback), GS raised its dividend to $2.00 a share from $1.25 (no new buyback); JPM ups dividend to $1 a share from 90c (had announced $30B share repurchase plan in Dec); PNC boosts its quarterly cash dividend by 9% to $1.25 and plans to reinstate its share repurchase program for up to $2.9B; MS with 100% increase of its quarterly dividend from $0.35 to $0.70 and stock buyback of $12B; WFC doubled its dividend to $0.20 from $0.10 (but still down from $0.51 before the pandemic and said it expects to buy back $18 billion of stock over the next four quarters; Citi (C) the lone megabank not to increase its dividend, keeping it unchanged at 51c, but left the door open for an increase and didn’t announce a new buyback plan; JEF Q2 EPS $1.30 vs est. $0.90 on revs $1.95B vs est. $1.58B and raised its dividend to 25c from 20c

Financial services; FDS reported Q3 adj EPS $2.72 vs est. $2.77 on revs $399.6M vs est. $397.9M and reaffirmed FY guidance of adj EPS $10.75-11.15 and revs $1.57-1.59B; OpCo initiated GLAD at Perform with a $10 target;

FinTech & Payments & Bitcoin news; Ark Invest filed for a potential Bitcoin ETF (ARKB) with the SEC; REGRF was initiated at Neutral by HC Wainwright; Citi initiated DLO at Neutral with a $50 target as it benefits from multiple secular trends of rapid e-commerce growth, rising importance of EM users for global merchants, and greater use of alternative payment methods

REITs; Credit Suisse downgraded TWO to Neutral and lowered their target price to $7.50 (from $7.75) due to more limited total return opportunities at current levels trading at an 11% premium to book (and 8% premium to Agency focused peers), and they also see limited return in mortgage REITs with the group trading near the upper end (104%) of its longer-term P/B range, though the strong dividend coverage across the group should lead to some level of organic book value growth in 2H21 and PMT remains their top pick in the sector, followed by RWT

Healthcare

Pharma movers; BMY receives European commission approval for Opdivo (nivolumab) plus Yervoy (ipilumumab) for the treatment of mismatch repair deficient or microsatellite instability–high metastatic colorectal cancer after prior chemotherapy; MDWD said the FDA declined to approve its topical treatment, NexoBrid, for burnt tissue – shares of development partner VCEL moved in sympathy; TLRY said is seeking to increase number of authorized shares of stock; CERE surges after reporting positive topline results for CVL-231 in its Phase 1b clinical trial in patients with schizophrenia. Both doses demonstrated a clinically and statistically significant improvement in PANSS score

Biotech movers; MRNA trades at all-time highs after saying an in-vitro study analyzing the sera of people who have received its COVID-19 vaccine had neutralizing antibody titers that protect against infection with several variants, including the worrisome Delta variant; RARE upgraded to Buy from Neutral at Bank America as believe the current market price reflects minimal valuation contribution from its late-stage clinical pipeline; ZNTL 3.1M share Spot Secondary priced at $48.50; DMAC shares tumble after posting mixed results in kidney disease study

MedTech Equipment; ABMD said the FDA issued the pre-market approval (PMA) for the right heart pump, the Impella RP with SmartAssist as a potential treatment of acute right heart failure for up to 14 days

Healthcare Services; LHCG, AMED, EHC shares active after the Centers for Medicare and Medicaid Services (CMS) released its proposed 2022 home health rule that included a proposed reimbursement rate increase, comments on assumed vs. actual behavior relative to PDGM and a proposal to expand the Home Health Value-Based Purchasing Model nationwide. The proposed calendar 2022 payment rate update for Home Health is a net +1.7% (estimated $310M) with the key components including a +2.4% market basket increase and a 0.6% reduction tied to the productivity adjustment (the adjustment was mostly in-line with estimates)

Industrials & Materials

Aerospace & Defense; BA rebounds after leading the Dow lower on Monday after UAL announces its largest-ever aircraft order and the biggest by a single carrier in a decade, for 270 narrow-body jetliners from Boeing and Airbus worth more than $30B; LHX announced Christopher Kubasik succeeds William Brown to become the second CEO in its history as a combined company; TXT upgraded to Overweight from Equal Weight at Morgan Stanley with $87 tgt as see upside in its business jet portfolio and optionality in the growth of the urban air mobility/eVTOL (electric vertical take-off and landing) industry

Industrial & Machinery; HOLI rises after CPE Funds Management, Ace Lead Profits and the company’s former CEO started solicitation of consents from shareholders to acquire the company by offering $17.10 a share; Goldman Sachs said JCI, PH, GE, EMR, CARR top large cap ideas in multi-industry as believe the current backdrop is still favorable for short cycle stocks (low inventories, improving growth, moderate inflation and stimulus) and view the recent pullback as a buying opportunity

Transports; XPO 5M share Secondary priced at $138.00; CSX upgraded to Buy at Citigroup saying as peak growth concerns may linger, we believe it makes sense to focus on the US rails (NSC, UNP, CSX), which should have multiple tailwinds into 2022; in trucking sector, Truist lowers tgts for ARCB, ECHO, SAIA, LSTR and reiterate Buy ratings for ARCB, ECHO, and SAIA as think there’s upside potential to ests due to record demand trends and valuations remains attractive even with decelerating EPS growth expected for 2022; FDX was added to Bank of America’s Top Picks as they see significant tailwinds led by pricing gains, margin improvement (including TNT integration), continued ecommerce growth, and the return of B2B volumes

Technology, Media & Telecom

Internet; AAPL’s spending on Google (GOOGL) cloud storage on track to soar 50% this year – the information as per report in theinformation https://bit.ly/3w6GXHn ; PLBY to acquire honey birdette in $333M cash-and-stock deal; CVNA downgraded to neutral from Overweight at Piper noting online platforms are stealing share from used car dealerships, but think CVNA is now fairly valued; TWOU says it will buy online course provider edX for $800 mln in cash

Semiconductors; Barclay’s said they like QRVO longer term but believe AAPL levered names such as CRUS and SWKS are positioned for beat/raises into earnings and likely outperform into the Fall (CRUS, QRVO, and SWKS PTs all edge higher); AMD rises for a 5th time in 6-days as Wedbush positive saying number one takeaway from the June ’21 Top 500 list is that continued share gains by AMD in supercomputing are another positive indicator around improving share prospects for AMD in servers; Citi opened a positive catalyst watch on Neutral-rated SWKS as their checks indicate AAPL iPhone builds are tracking above expectations and see upside since Apple is about half of their sales

Hardware & Software movers; ZM said to acquire real-time machine translation service provider Kites for undisclosed terms; DDD said Rodin Cars has selected its additive manufacturing solutions to produce parts for its upcoming Rodin FZero hypercar; CFRA initiated TTD with a Buy rating and $90 pt

Media & Telecom movers; FOXA downgraded to Neutral from Buy at Guggenheim as the company made modest adjustments to models for it and DIS to better reflect current outlook. Gugg says revised estimates reflect view of the advertising market as well as adjustments for the timing of y/y shifts in the sports calendar, production timing, and incremental investments.