Closing Recap

Friday, May 14, 2021

Equity Market Recap

·     Up, up, and away as stocks finished sharply higher on the day, but still posted losses on the week, as investors scooped up beaten up high growth names. Markets seem to have shaken off negative economic data, as today’s misses in retail sales and University of Michigan’s consumer sentiment come on the heels of the highest CPI reading in more than a decade on Wednesday and the massive non-farm payroll miss last Friday, though the S&P recorded +1% gains in back-to-back sessions for the first time since the Thursday-Monday of Easter weekend and on consecutive days for the first time since Feb 1-2. Stocks also got a boost today given the recent pullback in several commodity prices – corn down over 10% during the last week, along with declines of 2% for copper and 7% for lumber, pulling back from multi-year highs in so many sectors and easing some inflation fears. Additionally, yesterday’s CDC guidance that called for easing restrictions and laxer mask use has given a boost to travel and other reopen-related stocks. Defensive sectors such as foods along with media stocks after Disney missed quarterly revs and disappointed on Disney+ subs and pricing data saw weakness. Even with the strong close, the benchmark index recorded a weekly loss as these sessions followed 3 red days to open the week.

·     Today’s market strength was led by a rotation into tech as the Nasdaq Composite enjoyed its best daily performance in more than 2 months. However, tech stocks have been unable to recapture the unbridled optimism they recently experienced when the index doubled from its March lows in less than 10 months, as the Nasdaq suffered its 4th consecutive weekly loss with the threat of rising interest rates and move away from stay-at-home weighing on these names more than others. In other news, the Dow Transports put up a valiant effort to crawl back from a midweek pullback, but a late afternoon decline pushed the ETF slightly lower on the week to end its record streak of weekly gains at 14. Lastly, earnings season has all but wrapped up with only 43 companies in the S&P yet to report, though retailers are in focus next week with HD, M, WMT, LOW, TGT, TJX, LB, BJ, KSS, PLCE, DECK, ROST, FL all scheduled to report and CSCO, RIOT, TTWO, DE highlighting other stragglers.

Economic Data:

·     Import prices MoM for April reported at 0.7% vs. est. +0.6% and export prices rise 0.8% vs. est. 0.6% (both down from higher March figures); April year-over-year import prices +10.6%, export prices +14.4%

·     Retail sales for April unchanged vs. est. up +1.0% (March revised to 10.7% from 9.7%) and retail sales ex-autos MoM fell -0.8% vs. est. +0.7% (March +9.0% vs. est. +8.4% prior)

·     U.S. April industrial output +0.7% vs. est. 1.0% (March +2.4% vs. prior +1.4%); Capacity utilization rate 74.9% vs. est. 75% (March 74.4%, in-line with prior); April motor vehicle assembly rate fell to 9.03 mln units/yr from March 9.46 mln units/yr

·     University of Michigan surveys of consumers sentiment prelim May 82.8 well below consensus 90.4 and April 88.3; consumers expectations index prelim May 77.6 below consensus 85.0 and final April 82.7; current conditions index prelim May 90.8 (consensus 99.6) vs final April 97.2

Commodities, Currencies & Treasuries

·     Oil prices ended higher as riskier assets jumped across the board. The Baker Hughes (BKR) weekly rig count rose 5 to 453, while the oil rig count gained 8 to 352 (highest since April 2020) as the gas count fell -3 to 100. U.S. crude futures trading around $65 a barrel y, putting the contract up about 34% so far this year after it fell about 21% last year. June gold climbs $14.10, or 0.8%, to settle at $1,838.10/oz, extended its gains on Friday, buoyed by a dip in the dollar and U.S. Treasury yields after data showed U.S. retail sales unexpectedly stalled in April.

Sector News Breakdown

Consumer

·     Retailers; DDS said it swung to a profit in the first quarter of $158.2M compared to a loss of $162M the same period a year ago; TGT and WMT set to report earnings next week – Cowen says prefers TGT on prospects for a more pronounced beat, ability to maintain momentum through the re-opening as its sales mix is skewed toward more discretionary categories; FTCH Q1 beats estimates, Q2 guidance above consensus, FY guidance upgraded & implies acceleration on 2y stack for the rest of 2021 said Bank America

·     Auto sector; FSR rises after saying it is working with Hon Hai Technology Group, or Foxconn, for the joint development and manufacturing related to Project PEAR, which aims to produce a new breakthrough electric vehicles; QS announced that it has entered into an agreement with Volkswagen to select the location of their joint venture, or JV, solid-state battery pilot-line facility by the end of 2021; BLNK reports mostly in-line quarterly results as EV stocks in general seeing bounces after a rough week of selling pressure; autos a little bounce after Reuters reported US senators to unveil proposal for $52B domestic semiconductor investment (the lack of chips has effected auto production for several OEMs)

·     Housing & Building Products; HD and LOW to report earnings next week, Jefferies raised tgt on HD to $374 from $325 and LOW to $247 from $200 and raising 1Q estimates based on bullish geolocation data, site traffic, and vendor checks.

·     Consumer Staples; TSN said it would sell its pet treats business for $1.2 billion to GIS, about 11 years after the foods company entered the pet treats business; KMB upgraded to Equal Weight from Underweight at Wells Fargo and raise tgt to $140 as don’t see much case for the stock to keep trading lower; in dining space, the monthly retail sales report showed the food services & drinking places category showed a 116.8% Y/Y gain from a year ago and a 3.0% sales gain from March to stand out as one of the stronger categories for the month; GRWG outperforms after Ladenburg and Roth Capital upgrade after Q1 earnings beat and raised guidance

·     Casinos, Gaming, Lodging & Leisure sector; in lodging, ABNB was upgraded to Outperform at Wells Fargo saying the co produced strong 1Q results, which they view as demonstrating the company’s positive momentum exiting the pandemic, with ABNB set to benefit from secular demand shifts, increasing category familiarity/favorability, and shifts in workplace flexibility; CHDN upgraded to Buy from Hold at Jefferies with $244 tgt because fundamentals and unique growth pipeline are intact despite the decline from 3/15/21 peak (-23%); WYNN said they will communicate to guests that they are not required to wear a mask if they are fully vaccinated and are required to wear a mask if they are not; online sports betting names getting a boost today with PENN and DKNG strong bounces

Energy

·     Energy stock movers; overall energy complex broadly higher, helping pace the gains in the S&P 500 after selling pressure this week (EOG, APA, MRO, COP, PXD advance). Oil prices rose on Friday, reversing some of the previous day’s sharp losses as stock markets strengthened, though gains were capped by the coronavirus situation in major oil consumer India and the restart of a fuel pipeline in the United States. Colonial pipeline restarted its entire system after the cyberattack but said it will take several days for the supply chain to return to normal. India’s covid crisis hits port operations, raising concern of risks to global trade; MPC announced closing of the $21 billion sale of Speedway to 7-Eleven, Inc. and will buyback up to $4B of stock

·     Utilities & Solar; PLUG shares rebounded after restating its financial statements for fiscal years 2018 and 2019 and its quarterly filings for 2019 and 2020 and filed Form 10-K for the year ended Dec. 31, 2020, with the U.S. Securities and Exchange Commission.

Financials

·     Bank movers; Raymond James upgraded BXS to Outperform as the shares screen as the most attractive om the Southeast/Southwest coverage, and also upgraded CADE to Outperform as the merger between the two banks should close in Q4; SCHW said core net new assets brought to the company by new and existing clients totaled $37.2 billion. Net new assets excluding mutual fund clearing totaled $35.6 billion. Total client assets were $7.34 trillion as of month-end April, up 94% from April 2020 and up 4% compared to March 2021; in insurance; AIZ increased its share buyback authorization by $900M

·     FinTech & Payments; GDOT bought Republic Bank & Trust’s tax refund unit for $165 Million; Wolfe raised their price targets on SYF, COF, AXPin Consumer Finance; Credit Suisse upgraded GPMT to Outperform on an improved earnings outlook with potential dividend increases and with shares trading at a 23% discount the their adj Q1 book value estimate and at an attractive valuation against peers; FOA posted Q1 revs $499M (+165% YoY), adj EBITDA $154M (+340% YoY), total funded volume $9.5B (+78% YoY); SQ said it has no plans to buy more Bitcoin for its corporate treasuries, after losing $20 million on its $220 million investment in the cryptocurrency last quarter. https://bit.ly/3y4MbWe

·     Bitcoin news; COIN reported Q1 EPS $3.05 vs. est. $3.09 on revs $1.8B vs. est. $1.81B, 56M verified users, 6.1M monthly transacting users, and Q1 assets on platform $223B that represent 11.3% crypto asset market share; in FY 2021, expect technology and development expenses and general and administrative expenses between $1.3B-$1.6B; and Piper initiated coverage on the stock at OW with a $335 pt; Dogecoin rallied after Coinbase said it was trying to accelerate its listing of the token to the next 6-8 weeks and Elon Musk tweeted that he was working with the token’s developers to improve transaction efficiency a day after he said Tesla won’t accept Bitcoin for payments anymore because of environmental concerns; NCTY signs three Chia (XCH) cryptocurrency mining machine purchase and cloud service leasing agreements with three unrelated vendors, with the total contract sum of more than $5.7M

·     REITs; BMO downgraded EXR to Market Perform on valuation as they see opportunity elsewhere in the storage sector after shares rose 24% in the past 3 months vs +16.7% for peer group and upgraded CUBE to Outperform as they see the risk that surrounds NYC’s post-Covid normalization ass overstated; Evercore upgraded HST to Outperform with a $20 target; AFCG init Buy and $29 tgt at Lakestreet as think this cannabis REIT is a "picks and shovels" play on the cannabis space that has a strong first-mover advantage

Healthcare

·     Biotech & Pharma movers; in cannabis space, ACB posted Q3 sales 21% below consensus (C$55.2M vs. est. C$68.4M) citing impact of coronavirus-induced restrictions in Canada (shares downgraded to Sell at Canaccord); BIIB said the XIRIUS study did not meet its primary endpoint of demonstrating a statistically significant improvement in the proportion of treated study eyes with >=7 dB improvement from baseline at >=5 of the 16 central loci of the 10-2 grid; PTE said late yesterday it plans to wind down commercial sales of its tissue-based product SkinTE by end of May in compliance with end of U.S. FDA’s enforcement discretion period

·     Healthcare Services; OSCR reported its first quarter post IPO, with slightly better net premium revenues, better membership growth aided by the Special Enrollment Period (SEP) and better admin expense ratio; APR beat and improving outlook drove another increase in top and bottom-line guidance as sales of $275 were up +2.2% and topped the high end of guidance by $3M; CRL tgt from $340 to $360 and IQV from $255 to $260 at KeyBanc saying leading indicators for the CRO space continue to improve exiting 1Q21; GDRX posts Q1 adj EPS of 7c (in-line) with revs slight miss, as results impacted by fewer physician visits/therapy starts (guides Q2 revs above)

Technology, Media & Telecom

·     Internet; a broad-based rebound for Internet names with the mega caps all jumping (FB, GOOGL, AMZN, PINS, SNAP); DASH a bright spot after earnings, upgraded by two analysts (Truist and Wells) saying they think beat & raise is large enough to offset the rotation to ‘value’ that has afflicted ‘growth’ stocks YTD

·     Semiconductors; Reuters reported that a bipartisan group of U.S. senators set to propose Friday $52 billion in funding to boost U.S. semiconductor production, research (gave a little boost to auto stocks); ASML positive mention at Wells Fargo saying think shares offer the most attractive risk / reward in the group as wafer-based EUV analysis leaves them to believe EUV supply / demand will remain tight through 2023; MX shares fell on speculation Wise Road deal may have regulatory issues in Korea https://bit.ly/3hp68Bl ; STX, WDC outperform after Morgan Stanley said crypto-mining and the new cryptocurrency Chia could significantly boost hard disk drive supply and demand in the current quarter

·     Software movers; SNOW upgraded from Neutral to Buy at Goldman Sachs with $275 tgt saying it is well positioned to capitalize on a generational shift of data and analytics to the cloud (notes has corrected ~34% compared to an ~11% decline across their broader software coverage); Unity Software (U) upgraded from Perform to Outperform at Oppenheimer with $103 tgt calling it an attractive entry point for a good compounding growth story; NEWR slides following cautious analyst comments after earnings as BMO said think there is risk in near-term go to market execution with direct sales reps and channel partners; Goldman Sachs initiated a Buy rating on MDB (price target: $310), a Neutral rating on PLAN ($60), and with Sell ratings on SWI ($16) and DBX ($26) and also assuming coverage of BSY and ALTR at Neutral

·     Communication & Networks; PLT plunges after downside guidance due to component shortages offset the fiscal Q4 beats (sees Q1 revs $410-430M below consensus: $438.76M and PS $0.35-$0.55 below est. $0.79); VVNT upgraded to Buy at Goldman Sachs after the co reported solid results all-round with a beat on subscribers, revenue, margins, and cash flow vs. their forecasts; ADTN was upgraded to Buy from Hold at Argus noting they posted double-digit revenue growth in Q1, while non-GAAP EPS bounced back from a year-earlier loss

·     Media movers; Dow component DIS posts a big q1 EPS beat (79c vs. est. 27c) but Q1 revs fell -13.3% to 415.61B, missing the $15.87B estimate and said average monthly revenue per paid subscriber for streaming service "Disney+" fell to $3.99 from $5.63 (overall Disney+ paid subs were 103.6M, total Hulu paid subs were 41.6M and ESPN+ paid subs were 13.8M); AMCX upgraded to Neutral from Sell with $51 tgt at Goldman Sachs saying Q1 results showed a return to pricing growth at the company’s domestic linear networks, which they ow view as sustainable