Market Review: March 25, 2021

Closing Recap

Thursday, March 25, 2021

Index

Up/Down

%

Last

DJ Industrials

200.81

0.62%

32,620

S&P 500

20.59

0.53%

3,909

Nasdaq

15.79

0.12%

12,977

Russell 2000

48.85

2.29%

2,182


 

Equity Market Recap

·     Stocks gapped up late morning, erasing initial market weakness as momentum sectors (“meme” trades, electric vehicles, SPAC’s, etc.) and technology, which have seen heavy selling pressure the last few days, reversed higher around the European close as investors once again “bought the dip.” The market bounce began late morning/early afternoon following a round of Fed speakers, as Atlanta Fed’s Bostic says "unambiguously" no need to remove policy accommodation soon (another reassurance by Fed members that the Fed will continue to accommodate with low rates for quite some time – recall the recent dot plots showed first hike seen as late as 2023). The Fed’s Evans also out with positive comments, saying he suspects it will be 2024 before raise interest rates, but if the economy recovers faster than expect, Fed’s rate hikes could begin earlier. Fed Vice Chair Richard Clarida, speaking to the Institute of International Finance, said the central bank will stay in the game until the recovery is "well and truly complete." Earlier in the week, "patience" was the byword used separately by Fed Governor Lael Brainard and San Francisco Fed President Daly as to how the Fed would address economic recovery. The message has remained constant from the Fed, lifting stocks in the process.

·     The comments from the Fed helped turn things around, with big rebounds in Smallcaps after a recent drubbing in the Russell 2000 Index, the Nasdaq moved back to the 13,000 level (a more than 200 point bounce off morning lows), the Dow traded in a 500-point range off its lows (ending near the highs) and the S&P 500 index moved back above the 3,900 level. Economic data came in strong with GDP topping views and jobless claims falling to its best levels since early last year as the economy continues to improve. Treasury yields inched higher following a tepid 7-year auction, the dollar extended to 4-month highs, pushing gold and oil prices down in the process.

Economic Data

·     Gross domestic product (GDP) rose at a 4.3% annualized rate in its third estimate of Q4 GDP growth, which was up from the 4.1% pace reported last month but a sharp deceleration from the record 33.4% rate logged in the third quarter. The economy is forecast to grow by as much as a 7.5% rate in Q1. The PCE price index +1.5%, in-line with consensus and +1.6% previous estimate, while Core PCE price index +1.3% vs. +1.4% consensus and +1.4% previous estimate. Consumer spending or Q4 rose +2.3% vs. est. 2.4% and durables fell (-1.1%) vs. prior (-0.6%).

·     Weekly jobless claims fell to 684K from 781K the week prior and better than the 730K estimate; the 4-week moving average fell to 736,000 mar 20 week from 749,000 prior week; continued claims fell to 3.870M in latest week vs. est. 4.043M and from 4.134M the prior week; the U.S. insured unemployment rate fell to 2.7% from 2.9% prior.

 

Commodities, Currencies & Treasury’s

·     Oil prices tumbled on Thursday as WTI crude lost -$2.62 or 4.3% to settle at $58.56 per barrel, while Brent crude declined -$2.46 or 3.82% to settle at $61.95 per barrel, erasing most of yesterday’s gains on the back of the halt in shipping activity through the Suez Canal, as a ship continued to block the waterway. Reports indicated a salvage squad resumed efforts to dislodge the ship, but it may be days before ships can move again as the best chance to free the boat is Sunday or Monday when the tide peaks. Gold futures slid by -$8.10 or 0.5% to settle at $1,725.10 an ounce, erasing morning gains, pressured in part by strength in the U.S. dollar as investors searched for a catalyst that would move prices out of their recent trading range.

·     Treasury yields edged higher following a weaker $62B seven-year auction that saw a yield of 1.30% vs 1.275% pre-sale when-issued yield; the dollar hit fresh 4-month highs as the dollar index (DXY) rose 0.2% to $92.80 as the euro dropped under the 1.18 level after better GDP data and weekly jobless claims that showed the economy improving. European markets edged lower following the biggest rise in new coronavirus cases in Germany since Jan. 9.

 

 

Macro

Up/Down

Last

WTI Crude

-2.62

58.56

Brent

-2.46

61.95

Gold

-8.10

1,725.10

EUR/USD

-0.0035

1.1777

JPY/USD

0.38

109.10

10-Year Note

0.007

1.621%

 

 

Sector News Breakdown

Consumer

·     Retailers; GME shares continue to defy odds, rebounding more than 50% late day just a day after quarterly results sunk shares, as momentum and “meme” stocks again caught fire higher late day; NKE shares slide after the company was criticized on Chinese social media over Xinxiang statement – NKE said it was "concerned" about reports of forced labor in Xinjiang and that it does not use cotton from the region; MOV Q4 EPS $0.84 beats est. $0.45 and revenue $178.3M vs. consensus $164.0M and not providing annual FY22 outlook at this time

·     Auto sector; QS shares slip after 10.4M share Secondary priced at $40.00 (deal downsized from 13M share prior); electric vehicle carnage continues after being one of the 2020 darling sectors, led by declines in TSLA as well as other EV’s/charging names (BLNK, NIO, LI, FSR, CHPT); UBER, LYFT pt raised to $75 and $65, respectively at Morgan Stanley as continue to rely on rideshare use case based modeling to gauge the slope of the recovery and remain bullish given

·     Housing & Building Products; RH shares rise after the co reported a 22% rise in Q4 revenue to $812.4M, topping estimates of $797.7M on better EPS and sees Q1 revs growth at least 50%, prompting several analysts to raise their price tgts; homebuilder KBH reported mixed Q1 results as EPS of $1.02 beat the est. $0.91 while revenue of $1.14B missed the $1.2B est., while raises FY21 housing revenue view to $5.7B-$6.1B from $5.55B-$6B; CSL upgraded to Buy with $184 tgt at Loop Capital after their roofing survey indicated broad support for the industry’s upcoming price increase, an expectation of additional price increases later this year, and a supply/demand set-up that is starting to look a lot like what the residential roofing industry is experiencing

·     Restaurants; DRI strong in casual dining after Q3 EPS 98c easily topped the 69c estimate on better revenue of $1.73B (est. $1.63B) and issues Q4 EPS view of $1.60-$1.70 above est. $1.24 and announces new $500M share repurchase program; casual dining and other restaurant names outperformed on the day, along with other “reopen” related stocks/sectors

 

Energy

·     Energy stock movers; MEG Q4 EPS (13c) loss was wider than consensus (4c) loss, though on revs $108.7M beat est $86.5M, and guided FY21 revs to about +20% vs est +21% and sees FY adj EBITDA $61-67M vs est $61.7M; Morgan Stanley upgraded WHD to OW with a $40 price target as they favor drilling to completions markets and this stock is their preferred way to play that theme given the company’s favorable portfolio positioning with approximately 75% of revenues coming from US drilling markets, upside revision potential, and reasonable valuation vs peers; NE agreed to acquire PACD in an all-stock transaction that combines two offshore drillers that recently emerged from bankruptcy

·     Utilities & Solar; Wolfe upgraded CWEN, the worst utility stock YTD, to Outperform from Peer-perform as they offer accelerating growth and a 5% dividend yield after the stock’s decline; GLJ kept FSLR at Sell and lowered their pt to $35.24 from $38.40 as they estimated a lower price for the company’s PV modules in 2021 and 2022 vs. 2020, and they also see PV module prices dropping sharply once the Section 201 tariffs on solar panels ends

 

Financials

·     SPAC sector was pressured on reports the SEC has opened an inquiry into the blank check acquisition frenzy on Wall Street and is seeking information on how underwriters are managing the risks involved, Reuters reported. The SEC in recent days sent letters to Wall Street banks seeking information on their dealings in SPACs https://bit.ly/3slIAQd

·     Bank movers; Citi downgraded AB to Neutral and lowered their estimates and price target to $40 from $41, as the stock is now trading at its previous target (up about 20% YTD) after their meeting with management did not bolster the case for further expansion; JEF posted Q4 EPS $2.14 vs est. $1.08, sales $2.49B vs est. $1.85B, up from $1.39B YoY; RBC reinstated coverage on HTGC at Outperform with a $17 pt; CBOE acquired Chi-X Asia Pacific Holdings, an alternative market operator, to enter Australia and Japan in a deal that is expected to close in Q2 or Q3

·     Insurance; TIG reported Q4 adj EPS 22c vs. est. 16c, sales $134.5M vs. est. $120.3M, Q4 gross written premiums increased $134.5M (+37.4% YoY); Goldman initiated online health insurance broker SLQT at Buy with a $36 pt given its profitably scalable model in Medicare Advantage (MA) and strong execution.

·     Consumer Finance: RBC initiated NRZ at Outperform with a $12 target as their mortgage origination business is a long-term growth opportunity with potential market share gains and a beneficiary of industry growth; BTIG raised their price target on RC to $16.50 from $15.50 after the company raised its dividend sooner than anticipated, and the new target implies a potential 38% total return with the new 12.2% dividend yield

·     Payments and FinTech; Jefferies rates V (Visa) and MA at Buy as the sees meaningful upside to volume growth rates from the $410B in stimulus checks that are being sent to US consumers

·     REITs; Goldman upgraded FR to Neutral with a $46 pt on its more attractive valuation after its positive estimate revisions and underperformance over the past 6 months, and they expects industrial REITs to benefit from secular and cyclical tailwinds, including e-commerce growth

 

Healthcare

·     Pharma movers; AZN said its COVID-19 vaccine was 76% effective at preventing symptomatic illness and completely stopped severe or critical forms of the disease, citing a new analysis of up-to-date results for its major U.S. trial. U.S. health officials earlier in the week publicly rebuked the drugmaker for using "outdated information" when calculating that the vaccine was 79% effective; CYTH meets primary efficacy endpoint in phase 1/2 trial from intravenous Trappsol(R) Cyclo in rare disease Niemann-Pick Type C1 (NPC1); NBIX is replacing OI in the S&P MidCap 400 index while OI is moving down to the S&P SmallCap 600 index to take the place of HMSY; BMY announced results of its RELATIVITY-047 Ph3 trial evaluating anti-LAG-3 Antibody Relatlimab and Opdivo in patients with Melanoma vs Opdivo alone, meeting its primary endpoint of PFS; SNDL agreed to sell via the sales agents the company common stock with an aggregate offering price of up to $800M from time to time

·     Biotech movers; BIIB’s Alzheimer’s disease therapy aducanumab awaits to see if the FDA approves the drug over the objections of its scientific advisory committee; EOLS slips as posts Q4 revenue of $20.6 mln, below analysts’ estimates of $21 mln as well as wider Q4 loss of $3.28 per share, compared with 47c YoY as revenue was impacted by selling under a bond required by the International Trade Commission (ITC) beginning mid-December 2020

·     Healthcare services and providers; drug retailers fell after RAD lowers FY21 adj EBITDA view to $425M-$435B from $490M-$520M; said Q4 results significantly impacted by weak cough, cold, and flu season, continued effects related to covid-19 pandemic – the lower guidance weighed on other rival comps CVS, WBA; AMWL reported strong 4Q20 results with revenue gross margin and adj. EBITDA all better than expected, but guided both F21 revenues and adjusted EBITDA below consensus (FY21 revenue guidance implies 9.6% YoY growth vs. Piper street-high est. 30.6%); EHTH was downgraded to neutral at Goldman Sachs as believe shares are pricing in an optimistic fundamental turnaround scenario in light of widely discussed and ongoing policy growth and retention issues, which have hampered the company’s performance since 1Q20

 

Industrials & Materials

·     Aerospace & Defense; BA bounces after Bloomberg reported the co is set to resume deliveries of its 787 Dreamliner planes after a five-month hiatus; BA tgt raised to $265 from $210 at Bank America saying improved market sentiment on commercial aero stocks now benefiting original equipment manufacturers, suppliers, airlines, and aircraft lessors; MAXR was upgraded to Overweight at JPMorgan with $47 tgt saying a turnaround opportunity remains, risk-reward now more favorable following the pullback; GD tgt raised to $200 from $160 at Citigroup saying the co has quietly outperformed the market & broader defense in recent months after posting strong cash flow performance in 2020 and setting a 2021 target ahead of our expectations; AVAV awarded $21M contract option for raven radio frequency modifications under existing U.S. army fcs contract

·     Metals & Materials; in chemicals space, CE increases 2021 financial outlook as sees FY21 EPS $11.00-$11.50 vs. est. $10.13; says expects a strong finish to Q1 with adj EPES around $3.00 vs. est. $2.71; said expect momentum to continue across the middle of 2021; FUL posts beat and raise as Q1 adj EPS 66c vs. est. 48c; Q1 revenue $726M vs. est. $681M; raises its full year guidance on stronger outlook for revenue and Ebitda growth; AVNT tgt to $55 from $50 at Wells Fargo and raise 2021 EPS estimate above guidance from $2.40 to $2.50 as strong demand for polymers and engineered materials continue to drive production and demand

Technology, Media & Telecom

·     Semiconductors; COHR agreed to a $7 billion buyout offer from optical components maker IIVI, ending weeks of competing bids and scrapping a merger deal it signed with LITE weeks ago; COHR holders will receive $220 in cash and 0.91 II-VI shares, compared with LITE’s raised offer on Tuesday of $230 in cash and 0.6724 shares of Lumentum stock; AMD upgrade from Market Perform to Outperform with $96 tgt at Northland as believe INTC has made a strategic faux pas re-committing to entering the foundry business saying they do not believe TSM will relinquish its manufacturing lead to INTC any time soon and process technology leadership drives product leadership and GM higher

·     Media & Telecom movers; VIAC downgraded to sell at Moffett saying domestic average revenue per user growth other media companies like ViacomCBS will be challenging as they are giving up higher linear per subscriber revenues for lower-monetized direct-to-consumer products; NWSA agreed to acquire Investor’s Business Daily from O’Neil Capital Management, for $275M; HWCC to be acquired by OmniCable for $5.30 per share in deal valued at $91M https://bit.ly/3m1vGF3 ; IHRT upgraded to Outperform w/ $24 pt at Wolfe research saying though the pandemic has had a major impact on core radio advertising, it allowed mgmt. to successfully accelerate the execution of its digital strategy

·     Hardware & Component news; CSCO was upgraded to Buy at Goldman Sachs and raised tgt to $59 as believe it will still thrive in the new work environment as companies look to enable a video-conferencing heavy return to office mode/also focus on incremental upside from Cat9k license renewals

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.