Closing Recap

Friday, November 06, 2020

Equity Market Recap

·     It was another volatile day on Wall Street, capping a spectacular run that saw the S&P tally a 4-day win streak of 1% gains or more (snapped today), the longest such streak since 1982, while stock markets showed no fear in a catalyst rich filled week which included: a Presidential election (still no outcome as of today – though Biden appears close to the 270 electoral votes needed), jobs data (which came in strong), an FOMC meeting (in-line with expectation and said has more monetary stimulus ammo if needed) and a barrage of earnings results (which caps a strong quarter of returns). Markets ignored uncertainty as the CBOE Volatility index (VIX) posted its biggest weekly loss since April despite President Trump issuing lawsuits vs. several states claiming the White House is being “stolen”. Battleground states Arizona, Nevada, Pennsylvania, Georgia votes are still being counted though many results pointing to leads for Biden now. Helping markets recover from early weakness, the U.S. labor market continued to rebound, rising a 6^th straight month as employers added 638,000 jobs (topping views of 600,000) and sent unemployment down sharply (to 6.9%) amid signs the economy is healing from the pandemic-induced downturn. Private-sector employers added 906,000 jobs last month, a pickup from September, offsetting a drop of 268,000 jobs in the public sector.

·     Today saw strength in several of the pandemic related winners (SQ, ROKU, NET, TTD, ZG, TMUS) after strong earnings from each (PTON also better earnings but shares slipped), while reopen related names reporting misses included (BKNG, WYNN, CZR, PLNT, EB and LYV) with individual stocks showing mixed market reactions. There were 52-week highs for several companies following earnings (COTY, CVS, NWSA, MCHP) in the S&P on their results. It was a remarkably busy week for earnings as over 430 S&P companies have since reported – with the bulk easily topping consensus estimates (though many of them showing weakness on a YoY basis). Cannabis names (ACB, CGC, TLRY, CRON) shine, continues yesterday’s outperformance on Biden lead.

·     The Covid-19 cases in Europe continue to show staggering numbers as France reports 60,486 new confirmed covid-19 cases in past 24 hours, from record 58,046 on Thursday (France reports 828 new coronavirus deaths in past 24 hours, from 363 on Thursday) Italy had 7,809 new coronavirus cases vs 34,505 day before and UK Covid cases +23,387 vs. 7-day avg 22,551. The rising cases has carried over to the U.S. as reported a record increase in new coronavirus cases for the second day in a row with at least 109,658 new infections, according to a Reuters tally. U.S. cases have risen by more than 100,000 for three out of the last seven days.

Economic Data

·     Jobs data very strong for October -Nonfarm payrolls rise 638K vs. est. 600K (Sept revised to 672K from 661K); private payrolls rise 906K vs. est. 690K (prior revised to 892K from 877K) and unemployment plunges to 6.9% from 7.9% and below the 7.7% estimate

Commodities, Currencies, Treasuries

·     Oil falls on day – rises on week – WTI crude falls -$1.65 or 4.25% to settle at $37.14 per barrel as more delays to U.S. elections results spook some investors, though WTI still posted a weekly rise of 3.8% after last week’s sharp decline. Commodity markets remain on edge amid new lockdowns in Europe to halt surging COVID-19 infections sparked concern over the demand. Baker Hughes (BKR) said the U.S. gas rig count down 1 to 71, U.S. oil rig count rose 5 to 226 as the total U.S. total rig count stands at 300 (rising for the 7^th straight week). Even a near 2% drop in the dollar couldn’t lift oil on the week.

·     Gold futures rose $4.90 or 0.3% to settle at $1,951.70 an ounce, ending the week with a 3.8% gain (best 5-day stretch since July) as it settled at near 2-month highs as the dollar plunged by nearly 2% (worst 5-day stretch since March). The dollar weakened on increasing chances of a Joe Biden victory in the U.S. presidential election boosted hopes for a larger coronavirus relief bill (though as long as the GOP holds on the Senate it will make gridlock more likely in Washington). Comex silver rose 8.59% on the week to $25.64 an ounce, copper rose 3.47% to $3.19 per pound

·     The U.S. dollar posted its worst week since March, down about 1.9% (dollar index 92.30, down -0.3% today) to lowest level in 2-months (fell to 7-month low vs. the Japanese yen today and fell to 2-month low vs. the British Pound, Euro and Canadian dollar) – all due to “risk-on” as global stock markets have been “risk on” all week despite so much uncertainty. Treasury yields all over the place this week, as the 10-year yield fell from 5-month highs of 0.94% late last week to lows around 0.72% this morning before finishing above 0.8% this afternoon.

Sector News Breakdown

Consumer

·     Retailers; retail space buoyed this week with risk on mentality, rising despite surging Covid cases; FTCH rises after BABA and Swiss group Richemont will invest $1.1 bln in FTCH and its new marketplace in China, as online demand for luxury goods booms in the Asian country; AAXN trades record high as posts topline beat and adj EPS comes in double the consensus view and raises year revs to $630-640 mln above its original expectation of $615-$625 mln; MAT was upgraded to buy from hold at UBS

·     Leisure; PTON reported another strong quarter in Q2 2021, with revenue, subscribers and margins all beating expectations (Q1 revenues increased 232% to $758M, 3.2% above consensus) and the number of total Connected Fitness subscribers was 1.334mm, up 137% YoY; GPRO surges as delivered its most profitable third quarter results since 2017 as Q3:20 results beat as mix shifts toward higher-margin DTC sales; PLNT reported 3Q EPS and revs below estimates on higher SG&A as membership down 7% QoQ (flat YoY) with >95% PLNT clubs now open

·     Auto sector; UBER with mixed Q3 results, with Bookings slightly better than the Street and ANR and EBITDA roughly in-line/ says delivery will be Ebitda profitable in 2021; TM and HMC both more than doubled their operating profit forecasts, helped by recovering demand in China as it rebounds from the coronavirus pandemic; MGA posted better-than-expected earnings as key customers ramped up production and also raised its 2020 sales outlook; TRUE drops on weaker revenue and as number of automobiles purchased through its platform slumped 20% to 213,869; CARG beat on profitability and dealer inventory constraints are limiting pricing

·     Housing & Building Products; ZG guided Q4 EBITDA of $107M-$131M, and revenue of $709M-$748M, above consensus for $696.1M after Q3 results easily topped consensus (upgraded to Outperform & raises his PT to $147 at RBC); building products MLM, VMC downgraded to hold at Jefferies saying exposure to non-res & air pocket in public, volumes will remain under pressure in 2021, but EBITDA should remain relatively flat; homebuilders DHI, PHM, LEN down as homebuilders early weakness

·     Consumer Staples; HSY Q3 profit, revenue top estimates boosted by strong retail sales while also reinstates FY EPS guidance of $6.18 and $6.24 on strong Halloween sales and demand for baking ingredients; COTY Q1 net revenue fell 20% y/y to $1.12B but post a surprise Q1 profit and beats sales estimates, as it kept a tight lid on costs and benefited from a resurgence in demand for beauty products; MNST EPS 65c (in line) on strong Sales and lower SG&A as Oct gross sales grew +14.8% YoY (v Nielsen +10%); THS 3Q results came in ahead of expectations driven by operating margins and below the line items while sales missed

·     Lodging and Gaming; in lodging, MAR reported a surprise Q3 profit, helped by cost cuts and a near doubling of occupancy rates in its N.A. hotels to 37% from 19.6% in Q2 while noted Greater China was Marriott’s best-performing market as occupancy rates jumped to 61.4% from 35.5%; CZR Q3 EBITDA of $463M, ahead of $457M as Vegas remains difficult but getting better

Financials

·     Bank movers; financials had a mixed week, down on Biden office increasing probability raising fears of higher capital gains taxes and more regulatory action – but a divided government with the Senate appearing to be held by Republicans, eased some of those concerns. Whippy treasury yields also wreaked havoc on banks on the week.

·     Insurance; AIG Q3 EPS of 81c beat the 55c view while Q3 total net investment income on adjusted pretax income basis was $3.20BB vs. $3.20B in Q2 and $3.48B in Q3 2019

·     Consumer Finance; SQ Q3 adjusted EPS beat (34c vs. est. 16c) as Q3 total revs of $3.03B beat the $2.08B estimate with Q3 adjusted EBITDA of $181M increased from $98M in Q2 and Q3 Cash App ecosystem gross profit jumped 212% YoY for $385M

Healthcare

·     Pharma movers; GBT falls as Q3 total costs and operating expenses climb 38.5% to $95.2M while Q3 Oxbryta sales of $36.9M missed the $44M estimate; ELAN posted 3Q revenue miss ($889.6M vs. $927.7M cons), with the company citing headwinds in their Farm Animal business; EXEL reported 3Q earnings including net product revenue from the cabozantinib franchise of $168.6M missing est. $181M; ASMB plunged after saying mid-stage study testing its lead drug, vebicorvir, for hepatitis B virus did not achieve meaningful sustained virologic response (SVR) as 39 out of 41 patients had relapsed; MTEM falls as reports a FDA partial clinical hold on MT-3724 (1st-gen aCD20 ETB) Ph2 trial, following 1 pts death due to capillary leak syndrome (CLS) on the MT-3724 mono TRx study

·     Biotech movers; BIIB stock halted ahead of its Aducanumab FDA Advisory Committee (AdCom), with the stock +30% since the briefing documents were posted on Wednesday; EQ announces preliminary results from a Phase 1b open-label dose-escalation study, EQUATE, evaluating lead candidate itolizumab for the treatment of acute graft-versus-host disease in a first-line setting, a Fast Track- and Orphan Drug-tagged indication in the U.S.; IRWD Q3 beat and boosts FY20 revenue to $370M-$385M from $360M-$380M (est. $369.2M) and also raises FY20 adj EBITDA view to over $130M from over $105M; EPZM falls as posts lower-than-expected Q3 revenue, hurt by a fall in demand for its follicular lymphoma treatment, Tazverik; SRPT shares dropped after saying it will not initiate a large, global late-stage study of SRP-9001, its investigational gene transfer therapy for the treatment of Duchenne muscular dystrophy (DMD), this year

·     Healthcare services and providers; CVS 3Q adj EPS and revs beat as saw increased diagnostic testing in response to Covid, saw reduced new therapy prescriptions and lower front-store traffic and raises FY adj EPS $7.35-7.45 (est. $7.24); CCRN and AMN both reported upside 3Q results and guided meaningfully ahead for 4Q revenues (AMN +5% / CCRN +4%)

·     MedTech and Equipment; FLDM reported a top and bottom line Q3 beat by 12c and $7M; MTD EPS beats by $1.05, beats on revenue while provides Q4, FY20 and FY21 guidance; ZBH reported 3Q results, with sales of $1.93B (vs. $1.71B) citing stronger than expected recovery of elective procedures in the third quarter and better EPS ($1.81 vs. $1.07 est.); TNDM delivered another beat and raise result in Q3

Industrials & Materials

·     Metals & Materials; LTHM shares rose after extends multi-year lithium hydroxide supply agreement with TSLA through 2021, with a commitment for higher volumes compared to 2020; OLN was upgraded to Sector Perform from Underperform at RBC based on OLN’s new corporate culture and strategy to focus on maximizing ECU value chain and market products selectively as well as improving chlorine fundamentals in 2021; gold miners active again this week as gold posts best weekly return since July (AEM, GOLD, NEM)

Technology, Media & Telecom

·     Internet; BKNG shares fall as guided to material deterioration in Q4, due to its much greater exposure to the new Lockdown Markets in Europe (EXPE rose yesterday after tis results); YELP upgraded to Outperform & maintains $29 PT on the back of Q3 earnings at RBC as believes starting to see the impact of early signs of recovery and reopening of the economy on Yelp’s biz; ANGI against low expects following the intra Q announcement, results came in shy of street

·     Video game software; EA Q2 bookings missed expectations though topping company guidance, and issued weaker bookings forecast short of consensus, while announced a new $2.6B buyback program and initiated a dividend (downgraded at Piper); GLUU reported an unexpected Q3 profit topping views; TTWO Q2 bookings beat ($957.5M, beating expectations for $884.7M) and raised expectations for the full-year with bookings guidance, and digitally delivered GAAP net revenue rose 16%, to $711.3M, and made up 85% of the total; HEAR quarterly revenue way ahead ~30%, EBITDA nearly doubled

·     Software movers; HUBS rises on Q3 beat of rev growth to $228.4M(up 32% YoY) and EPS of $0.28 and upside Q4 rev view ($235M-$237M vs. $217.8M) – said Q3 sub revenue was up 32% Y/Y to $221.1M while Professional services and other fell 12% to $7.3M; AVLR reported strong Q3 results with 30% revenue growth, above both our and consensus estimates, driven in part by a continued resilient business model in the current COVID-19 environment; DBX delivered a strong quarter that saw net paid user adds of 290K outperform est. by ~100K (but down QoQ); TTD posts Q3 top and bottom line beat and guides Q4 revs $287-$291M vs. est. $252.6M; NEWR downgraded to underweight at JPMorgan saying the new consumption-based pricing model, with a robust free tier, has created a bigger than anticipated impacts on financials, while noting ARR in the quarter missed expectations; AYX rolls after reported in line w pre anncd numbers but next Q gets guided lower and FY is raised due to the beat this Q

·     Media & Telecom movers; DISH 3Q EPS beats by 16c on mush better revs ($4.53B vs. est. $3.56B) as net pay-tv subs up about 116k in qtr; IAC shares rally after Q3 revs beat consensus and said it is considering a spin-off of its ownership stake in Vimeo to its shareholders; TMUS outperforms in Telco after beat on top and bottom lines for Q3 as subscriber metrics well above expectations (Net additions rose to a record 2.035M, and postpaid net adds rose to a record 1.979M, both industry bests) and raised guidance; VIAC with Q3 rev beat $6.12B vs. est. $5.94B) as nearly reached its annual streaming subscription target a full quarter ahead of time as COVID-19 lockdowns boosted demand; UONEK signs a definite asset exchange agreement with Entercom Communications to receive Charlotte radio stations; NWSA gains after Q1 EPS 8c on revs $2.12B topped 0c and $1.98B est. as segment Ebitda at Dow Jones grew 47%, due to average consumer product subscriptions of 3.88 mln, 29% growth in digital-only subscriptions

·     Hardware & Component news; NET rises in CDN space after Q3 beats, upside current quarter guidance, and a raised full-year view as Q3 revenue was up 54% Y/Y to $114.2M (a lift in space after recent lower FSLY guidance) – several analysts raise tgts; ROKU reported a Q3 beat with revenue & Ebitda coming in well above street and implied q4 revenue also ahead of the street as record high revenue growth, Ebitda margin, and +90% y/y impressions growth; AAOI falls after Q4 rev guidance of $50M-$55M well below consensus of $84M after Q3 miss