Closing Recap

Tuesday, March 16, 2021

Equity Market Recap

·     U.S. stocks end the day mixed, but not before hitting new intraday record highs as markets painting a much different picture today than a year ago. The Dow and S&P 500 Index touched fresh all-time highs around 32,970 and 3,980 today – compared to exactly a year ago when the Dow settled lower -12.93% to 20,188 and the S&P fell around -12% at 2,386, posting their worst one-day declines since the 1987 crash as the pandemic lock-down impact was in full effect. On March 16, 2020, the Nasdaq was down -12.3% at 6,904 and the Russell down -14.2% that day at 1,037 – with a much brighter picture today above 13,500 and 2,300, respectively. Who would have imagined that we would witnessing an all-out market blitz higher a year after markets looked their bleakest? But fueled by three fiscal stimulus packages and several monetary policy changes by the Fed, boosting investments in stocks and commodities, stocks have been a straight-shot higher. Markets await additional dovish Fed comments when they concluded its 2-day FOMC meeting tomorrow afternoon. Absolutely no fear in markets at all as the CBOE volatility index falls to a fresh covid-19 pandemic low, dropping to lows around 19.50, its lowest since Feb. 21, 2020. Stocks lost steam late day as Treasury yields inched higher, rhetoric with North Korea intensified and markets positioned themselves ahead of the Fed tomorrow.

·     Large cap tech led today’s gains as the Nasdaq Comp outperformed, while 2021 winners such as materials, energy and financials were the leading decliners on the day. Economic data disappointed amid softer retail sales data and industrial production due to weather impact. Dow Transports decline for the first time in 7-trading days, while energy was a drag and retailers slipped. Market upside support continues to be driven by fiscal and monetary policy stimulus, a better economic outlook given declining Covid cases and the accelerating vaccine rollout, and more retail investor support. Reopen stocks stalled today after reports vaccine distribution encountering complications as more European countries including Germany, Italy, and France temporarily suspend the use of AstraZeneca (AZN) Covid-19 shot over blood clot concerns though medicine regulators and WHO say there is no evidence of problems. Central banks coming more into focus as policy meetings draw closer this week. Expectations of more bullish forecasts from the Fed building even as policy and guidance.

Economic Data

·     Retail Sales dropped (-3.0%) MoM in Feb, worse than the (-0.9%) estimate and down from prior month +7.6% (revised), while core Retail Sales (ex autos) dropped (-2.7%) MoM, worse than the (-0.1%) consensus and +8.3% prior – sales were impacted on delayed tax refunds, weather impact (blizzard)

·     Import/Export Prices for January reported as import prices rise +1.3% MoM, slightly above the +1.0% consensus and +1.4% prior month reading; Export prices rose +1.6% MoM vs. +1.0% consensus and +2.5% in December

·     Industrial Production for February dropped (-2.2%) MoM worse than the +0.5% consensus and +0.9% prior month reading, again likely hurt by weather; Capacity Utilization 73.8% vs. 75.7% consensus and 75.6% prior, while manufacturing output fell (-3.1%) MoM

Commodities, Currencies & Treasuries

·     Oil prices declined, slipping for a third straight session, with WTI crude down -$0.59 or 0.9% to settle at $64.80 per barrel, while Brent declined -$0.49 or 0.71% to $68.39 per barrel as moves by European countries such as Germany and France suspended the use of a major coronavirus vaccine by AZN after reports about possible serious side effects, which threatens the recovery of fuel demand. Oil prices are coming off recent multi-year highs (Brent reached its highest since early 2020, while U.S. crude hit a 2018 high last week). The moves deepen concerns about the slow pace of vaccinations in the EU that could hurt an economic recovery. Markets also anticipate weekly inventory data in the U.S. with API data out tonight and the EIA tomorrow. U.S. crude stocks jumped by nearly 14 million barrels in the week to March 5.

·     Gold futures edged higher, rising $1.70 to $1,730.90 an ounce and settling at highest level in two weeks, though fell from earlier highs around $1,740 an ounce. Markets await the outcome of the Federal Reserve’s two-day meeting tomorrow afternoon with a close eye on comments about the economy and inflation.

·     The U.S. dollar was modestly higher, and Treasury yields mixed; the euro hits one-week low vs U.S. dollar, last down 0.4% at $1.1885 before rebounding back the $1.19 level; the Canadian dollar touched a 3-year low at 1.244 vs. the U.S. dollar; the British pound little changed at 1.3897; the Japanese yen dips back below the 109 level vs. the buck; softer economic data and positioning ahead of tomorrows FOMC meeting led currency moves. The U.S. Treasury sold $24B in 20-year notes at a yield of 2.29% vs. 2.31% when issued prior to auction, with the bid-to-cover (demand) at 2.51 and indirect bidders awarded 61.41% of auction and directs 17.03%. The 10-year yield ended near highs of the day around the 1.62% level.

Sector News Breakdown

Consumer

·     Retailers; after retail sales for February unexpectedly fell, shares of retailers were pressured on the day (many chalking up the blizzards last month for the big miss); CTRN Q4 EPS $1.81 vs prelim $1.71-$1.76 with in-line revs of $251.9M and comps +16.7% prelim prior as co says are encouraged by its Q1 to-date sales performance, which is above its internal expectations; JILL reports Q4 EPS revenue $120.4M vs year-ago $168.1M and EBITDA ($6.5M) vs year-ago $11.8M; ended Q4 with $4.4M in cash and $23.8M of total availability under its revolving credit agreement; ULTA downgraded at Guggenheim; DKS announced the introduction of VRST, a men’s athletic apparel brand.

·     Auto sector; Ford Motor Co. (F) said it continues to expect to meet its 2021 financial guidance it had laid out in its annual report/expects to take a $1 billion to $2.5 billion hit, and said plans to offer $2B of convertible senior unsecured notes due 2026 in a private placement; NKLA slides after files for common stock offering of up to $100 mln; VWAGY is doubling down on its EV initiatives for the next decade as the European auto stalwart unveiled its plans to build six "giga factories" in Europe by 2030 with a total production capacity of 240 gigawatt hours per year

·     Consumer Staples; in tobacco, MO downgraded to neutral from buy at Citigroup saying it comes out worst among peers because 82% of its economic exposure is to U.S. cigarettes, and if long-term trends continue, this category may disappear within 30 years.

·     Restaurants; SBUX was upgraded from Neutral to Buy at BTIG with $130 tgt as believe the faster-than-anticipated pace of restaurant reopening, coupled with massive federal stimulus, should lead to upward earnings revisions; RBC Capital said view DRI as well-positioned in space, but are incrementally more cautious on the casual dining group given the strong start to the year and as a number of stocks are trading at or near all-time highs; PBPB files to sell 4.55M common shares by selling stockholders; DRI was downgraded at MKM; CBRL downgraded at Sidoti.

·     Lodging & Leisure sector; in the cruise sector (CCL, NCLH, RCL), JPMorgan said it expects to see new CDC guidance for cruises relatively soon and believes the specific instructions will generally be more agreeable that the last update in the fall – but thinks the key issue for cruise line operators will be pricing; NCLH said today it has extended its sailing pause by a month to June 30, stretching its hiatus as it hasn’t sailed in about a year due to the Covid-19 pandemic.

Energy

·     Energy stock movers; oil prices decline, putting pressure on 2021 winner such as energy stocks with EOG, MRO, FANG, OXY among top decliners in the S&P; NOV forecasts consolidated Q1 revenues will be between $1.20B-$1.25B (below est. $1.36B) with an adjusted EBITDA loss of $15M-$25M and announced that it expects operational disruptions and softer-than-anticipated customer orders will cause Q1 of FY21 operating results to fall below prior guidance; Goldman raised their price target on CVX from $115 to $117 (10% upside) and lowered their target on XOM from $66 to $66 (11% upside) after reviewing the companies’ 10-k filings; PARR commenced an offering of 5M shares; CDEV said it intends to offer $150M of exchangeable senior notes due 2028

·     Utilities and Solar; FCEL Q1 revenue $14.9M missed estimate $22.1M and its Q1 gross loss ($3.6M) vs $3.3M profit YoY, and they said its generation revenue fell to $4.9M (-10% YoY) due to a temporary shut-down of several of the Bridgeport Fuel Cell Project plants for scheduled module exchanges; NFE posted a breakeven Q4 (est. EPS 4c) on revs $145.7M (est. $165.8M, $69.8M YoY), and Stifel upgraded the stock to Buy with a $50 pt despite the results below expectations, as valuation is compelling after its recent pullback; Goldman upgraded POR to Neutral from Sell to reflect its average growth profile, some regulatory uncertainty, and challenges like Covid and the recent wildfire and winter events normalizing, and downgraded PNW to Neutral from Buy due to the challenging Arizona regulatory environment that could hamper the company’s execution and growth potential; Barclays lifted their pt on SPWR to $28 but remain UW due to seeing one more leg lower following the short squeeze in late January that pushed shares to more than double in January; BLDP is now powering New Zealand’s first fuel cell electric bus; WEC unveils plans for the 325 MW Darien Solar Energy Center to be built in Rock and Walworth counties, Wisconsin, its 2nd proposed large-scale solar and battery project announced this year.

Financials

·     Bank movers; financials lagged broader markets, as the winners of 2021 thus far (energy and financials) saw weakness amid a rotation back into tech; in Bitcoin news; MARA slipped initially after earnings and as Bitcoin prices slip – reported Q4 EPS loss (10c) on revs $2.6M; said in q4, generated over 157 Bitcoins and held over 254 Bitcoins; note Mizuho said yesterday that their proprietary survey estimates that 10%, or nearly $40bn of the $380bn in direct stimulus checks, may be used to buy Bitcoin and stocks. Nearly two in five check recipients expect to use some portion of their checks to invest; in consumer Finance; Visa (V) tgt raised to $297 vs. $244 and MA of $412 vs. $350 at RBC Capital as believes the Street is under-modeling the possibility of a travel/consumer rebound; LC rises again after Cathie Wood’s Ark Investment Management (ARKF) disclosed adding 86.6K more LC shares to its fintech ETF on Monday after buying 228.5K LC shares last week.

Healthcare

·     Vaccine news; AZN to supply up to 500K doses of its experimental antibody-based COVID-19 combination therapy to the U.S.; deal comes after Sweden joined Germany, France, Italy and some others in pausing use of AZN’s COVID-19 vaccine as a precautionary measure. Canadian Prime Minister Justin Trudeau said on Monday that Canadian health experts are sure of AZN vaccine’s safety; The first participants have been dosed in MRNA’s Phase 2/3 KidCOVE study, of mRNA-1273, in children ages 6 months to less than 12 years against COVID-19

·     Pharma & Biotech movers; the FDA granted MRK priority review for a hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor belzutifan for the potential treatment of patients with von Hippel-Lindau (VHL) disease-associated renal cell carcinoma (RCC), not requiring immediate surgery; ENZ said it hired an investment bank to evaluate various strategic options as its chief executive plans to step down from the job; CANF rises as signs exclusive distribution agreement with Switzerland-based Ewopharma for its experimental treatments for psoriasis and liver diseases; BHVN 2.69M share Spot Secondary priced at $76.00; ANAB upgraded to buy from Hold at Truist and raise tgt to $34 from $27 as post POPLAR data and 30% sell off (vs NBI +5%), they like the setup into several catalysts over the next 12-18 months; SLDB slides after reported interim results from its early-to-mid stage study testing its experimental gene therapy, SGT-001, for muscle wasting disorder Duchenne muscular dystrophy

·     Healthcare services and providers; SDC announced its suite of affordable yet premium oral care products, including the best-selling bright on premium teeth whitening system, whitening touchup pen, and electric toothbrush, will now be available at WMT locations across Canada; HQY reported F4 results slightly above consensus and provided F22 guidance as revenue and adjusted EBITDA guidance was mostly in line with expectations while adjusted EPS fell short; SSY soars after saying its wholly owned Trace Regional Hospital subsidiary has implemented its Trace Forward Capital Plan; OTRK appoints CVS executive VP and CTO as the CEO effective April 12

·     MedTech and Equipment; ICAD rises after saying the FDA had cleared a new version of its artificial intelligence software for 3-D mammography or breast imaging; RMD was upgraded from Hold to Buy with $229 pt tgt at Needham as see potential for RMD to launch a new flow generator platform soon and expect this to drive a new product cycle

Industrials & Materials

·     Industrial & Machinery; Citigroup raising estimates and price targets nearly across the board for ag machinery (CAT, AGCO, DE) to reflect stronger global demand, consistent with more bullish feedback we are picking-up from the channel; WPRT strong Q4 results as revenue from Volvo HPDI up ~2x. Revenue of $83.9mm was above consensus of $69.3 million. EBITDA of $8.1 million was above our $5.8 million estimate; CARR will accelerate and advance its electrification capabilities through a new strategic partnership with Portuguese technology company AddVolt; HXL upgraded to equal-weight at Barclay’s as thinks aerospace manufacturers can outperform; DE, CMI, EXPD among industrials touching 52-week highs today

·     Transports; Dow Transports decline for the first time in 7-trading days; CAR downgraded to EW from OW at Morgan Stanley following the strong performance alongside the increases in Consensus earnings estimates in outer years, and downgrade on a balanced risk-reward; in truckers, Cowen raised tgt on XPO (PT to $157 from $149) TFII ($85 from $82) and CVLG ($32 from $30) saying positive trends amongst industry data and contacts indicate ongoing capacity tightness and a bullish trucking outlook; rails active with several updates at JPM conference this morning (CSX, UNP); UNP said with a couple of weeks left in the qtr, q1 volumes are down 4% overall – CSX says had additional unplanned operating expenses associated with the difficult weather in Feb.; airlines have been soaring as vaccine distribution ramps up, showing increased demand, but some airline execs have warned it will take years to return to the pre-pandemic revenue and passenger levels.

·     Metals & Materials; metals in general were weaker; in steel sector, NUE guided Q1 EPS of $3.00-$3.10, topping the $2.83 estimate saying margins have expanded since the beginning of the year, a trend it expects will continue into Q2 (follows recent positive EPS update from U.S. Steel); in chemicals, DOW said it expects 1Q21 net upside, delivering $50-100 million EBITDA higher than current 1Q21 First Call consensus estimate

Technology, Media & Telecom

·     Internet; in online travel, SABR downgraded to Equal-weight from OW at Morgan Stanley noting with SABR up >50% in the last 3 months, they see a more balanced risk reward, already reflecting optimism around a travel demand rebound; PDD shares rise early after Cathie Wood’s ARK initiated a stake of 196,517 shares on Monday through the ARK Next Generation Internet ETF (ARKW); GOOGL drops commissions to 15% from 30%, following Apple’s move last year; LIZI shares jumped after Citron Research out with $30 tgt in tweet today

·     Semiconductors; semiconductor space outperformed early, rising more than 2.6% for the SOX; KLAC tgt to $300 from $280, MU to $120 from $110, WDC tgt to $72 from $56 all at UBS as firm was positive on NAND pricing; IIVI lays out the detail of the $2B investment commitment from private-equity firm Bain Capital supporting II-VI’s $6.6B bid for laser maker COHR. II-VI says the 5% preferred investment includes three tranches, with $750M committed for funding at signing at a conversion price of $85/share. Bain commits another $750M for funding at closing of the Coherent deal; RMBS says financial statements from sept. 30, 2019 through Dec. 31, 2020 should no longer be relied upon citing understatements of revenue and unbilled receivables; says results from sept. 30, 2019 through Dec. 31, 2020 will require restatement

·     Media & Telecom movers; TMUS plans to offer up to $3.0 bln, to be issued in three tranches with maturities in 2026, 2029 and 2031; FOXA active after Chairman Rupert Murdoch raises stake through a 2004 Revocable Trust, buying 500,000 Class A shares at an avg. price of ~$42.76 on March 12, according to SEC filings; IHRT was upgraded to Neutral and tgt raised to $17 at JPMorgan driven by sooner than expected recovery in advertising demand, robust digital revenue growth and EBITDA margins, strong expense management and potential strategic interest

·     Software, Hardware news; JBL beat consensus estimates for Q2, guided May higher and lifted FY21 guidance as lower expenses for R&D, restructuring charges and amortization of intangible assets helped operating income (shares of FLEX, BHE, SANM active in sympathy in the EMS sector); NOK said it plans to cut up to 10,000 jobs over an 18–24-month period, and is planning other changes like investing in R&D and future capabilities including 5G, cloud and digital infrastructure; in 3D space, XONE was downgrade from Outperform to Perform at Oppenheimer saying macro headwinds, potential threat from well-funded competitors, premium valuation to peers, lead to defensive position for the next 12 months; TTWO owned 2k Inks signs long-term exclusive deal with Tiger Woods; 2K Publisher also reaches agreement to acquire @PGATOUR