Closing Recap

Monday, November 08, 2021

Equity Market Recap

·     The Dow, S&P 500, Nasdaq Comp and Russell 2000 eclipse new all-time highs following the passage of a $1 trillion infrastructure bill that lifted equities, especially industrials and metals, while travel related stocks rise (airlines, bookings, hotels) as the U.S. lifts COVID-19 air and land travel restrictions. The U.S. stock market remains an unstoppable freight train for weeks now, with the Nasdaq-100 (QQQ) making it an 11^th straight day of gains, buoyed by strength in tech as the Philly semi-index (SOX) posts another all-time high as chip stocks extend surge – an 8th straight day of gains for semi-index. The S&P 500 also extended its winning streak to 8-days. The S&P 500, Nasdaq, and Dow are looking to extend their weekly winning streaks to six ahead of key economic data this week with PPI and CPI inflation data coming Tuesday and Wednesday respectively. About half of the 11 S&P sectors were higher, with Energy and Materials are among the top and defensive Utilities and Consumer Staples the weakest sectors.

·     Stock and Sector movers: AMD leads the S&P after FB, MSFT both announce they will use the company’s chips amid continued semis strength – NVDA joins it at record highs along with SOX, SMH ETFs who extend win streak to 8 sessions; cannabis names CURLF, GTBIF, TLRY, MSOS extend Friday’s spike into the close on congressional legalization headlines and ahead of several earnings this week in the space; EV names CHPT, BLNK, EVGO, fuel cells BLDP, BE, FCEL, industrials CAT, PWR, MTZ, metals FCX, NUE, CF outperform after Congress passed a $1.2T infrastructure bill on Friday; TSLA does not partake in the EV rally with the stock sliding after Elon Musk ran a Twitter poll that decided he should sell 10% of his stake in the company and RIVN Rivian raised its IPO price range ahead of its debut later this week to boost Ford (F) above $20 for the first time in more than 20 years; TTD, COTY, EDIT surge on their strong quarters, while EHTH plunges to 3-year lows on its miss; Bitcoin approached its ATH near $67K, Ethereum cleared $4700 for the first time as crypto space outperforms, lifting MARA, COIN, RIOT, MSTR.

·     Fed Speakers today: St. Louis Federal Reserve Bank President James Bullard on Monday said he expects the Fed to raise interest rates twice in 2022 after it wraps up its bond-buying taper mid-year, though he said if needed the Fed could speed up that timeline to end the taper in the first quarter. Federal Reserve Bank of Philadelphia President Patrick Harker said on Monday that if inflation pressures do not ease next year as he expects them to, the central bank may have to act and raise short-term interest rates. "Inflation is more widespread across products and services than it was earlier this year," Mr. Harker said in a speech text. Federal Reserve Governor Quarles will resign at the end of December, marking the 4th official to step down after Biden took office.

·     On Friday, The US House of Representatives passed the US infrastructure bill which is expected to be signed by President Biden. The bill was already passed by the Senate in August but has been held up in the House. The bill includes $1.2T in spending for roads, the grid, rails, broadband, water, and transit. The earlier version of the bill included both funding for electric vehicle (EV) charging and expanded US consumer tax credits toward the purchase of EVs; however, the EV credits were removed. The bill still includes $7.5bn in funding to build US electric vehicle charging. There is also funding for zero ($2.5b) and low emission ($2.5bn) buses.

Commodities

·     Oil prices rise with WTI crude up $0.66 or 0.81% to settle at $81.93 per barrel as investors again “all-in” on risk assets with commodity prices and stocks higher. Nat gas futures fell 8.9 cents, or 1.6%, to settle at $5.427 per million British thermal units (MMBtu), their lowest close since Nov. 1. Gold price rise $11.20 or 0.6% to settle at $1,828 an ounce, two-month highs as the dollar retreated. Ongoing inflation concerns ahead of tomorrow’s PPI and Wednesday CPI data prompted investors to position themselves. Gold, considered an inflation hedge, has been benefiting from an ultra-low interest rate environment to spur growth during the pandemic.

Currencies & Treasuries

·     Treasury yields remain sharply lower from last week but edged high on the day ahead of key inflation data points tomorrow and Wednesday (PPI and CPI respectively). For tomorrow, the PPI overall MoM expected at +0.6% and YoY +8.7% and core PPI est. +0.5% MoM and +6.8% YoY. The U.S. treasury sold $56B in 3-year notes at a yield of 0.75% vs. 0.74% when issued prior, with the bid-to-cove at 2.33 vs. prior 2.36 and indirect bidders awarded 57.62%, directs 18.04% and primary dealers 24.34%. The U.S. dollar was mixed with the dollar index (DXY) around the 94 level, falling vs. the euro, but remains below 1.16. Crypto assets also making some new highs today with Ethereum topping $4.750 and Bitcoin back to $66K.

Sector News Breakdown

Consumer

·     Retailers; sector was weaker in general, with NKE, DDS, WMT, TGT all lower; PRPL downgraded to Underperform from Buy at Bank America, while taking a cautious view on TPX based on what they call weak online and wholesale trends into Q3 – also notes last week news that TPX is introducing a direct competitor to PRPL’s gel grid-based beds next year; PTON extends last week declines after freezes hiring after it slashes its forecast and shares drop 35% on Friday

·     Auto sector; TSLA CEO Elon Musk on Saturday asked his 62.5 million followers on Twitter in a poll if he should sell 10% of his Tesla stock. He said he could face a "massive" tax bill this year as he must exercise many stock options coming due next year; RIVN raises IPO price range to $72.00-$74.00 from $57.00-$62.00. Separately, Barron’s noted Rivian is set to go public this coming week at a market value that could exceed that of Honda (HMC) despite having sold just a handful of vehicles, with a market cap around $64 billion; Ford (F) files for notes offering, size not disclosed (shares hit highest price in nearly two-decades); electric vehicle charging stocks rise (BLNK, CHPT, QS, EVGO) as Infrastructure package passes- allows for $7.5 billion spending for building out a network of electric vehicle chargers and another $7.5 billion for low or zero-emission buses and ferries.

·     Restaurants & Consumer Staples; COTY reported better-than-expected Q1 revenue and announced a deal to sell a 4.7% stake in Wella to KKR & Co. Inc. in exchange for the redemption of 56% of KKR’s remaining convertible preferred shares in Coty; THS reduced its outlook for 2021 adjusted earnings from continuing operations to $1.08-$1.28 from between $2.00-$2.50 prior, but shares bounce as company said it is exploring strategic alternatives; DNUT downgraded to Hold from Buy at Truist while lower ests and tgt to $15 from $21 saying acute labor shortages and wage inflation currently occurring in the US will slow the company’s; USFD mixed Q3 as EPS missed on slightly better-than-expected sales of $7.89B while noting gross profit rose 27%, while op expenses rose 23% to $1.1B

·     Casinos, Gaming, Lodging & Leisure sector; LTRY says it is in the early stages of development for a platform to operate the lottery, sports betting, sweepstakes, and other forms of online gaming, and enhance the Company’s API capabilities; in education, EDU, GOTU and TAL rally early after the WSJ reported that China plans to issue more than a dozen licenses that would allow companies to offer after-school tutoring https://on.mktw.net/3EVcxg5 ; PENN slips after the NY Post reported The state gaming commission is meeting Monday to select two groups to offer mobile or online sports betting in New York, but Barstool Sports will not be one of them

Financials

·     Bank movers; BRK hit record highs after reporting its operating income jumped 18% YoY, over $20B in buyback YTD, and more than $1.49B cash on hand; Citigroup (C) said it expects to take a cash charge of nearly $1.2 billion to $1.5 billion related to the closure of its consumer banking business in South Korea

·     Bitcoin, FinTech & Payments; PYPL earnings after the close tonight; another day another surge for crypto assets as Bitcoin rises near $66K, Ethereum record highs up over 6% above $4,700, Litecoin tops $200, up over 5.75% as crypto assets surging again; BBIG said subsequent to its planned spinoff, co registers its blockchain tech unit, Cryptyde Inc, to be traded on Nasdaq; Mizuho lowered tgts for both FLT to reflect lower market multiples – FLT of $290 (vs. $310 previously) and FIS PT of $160 (vs. $170 prior); U.S. listed crypto stocks rise between 9% and 18% after ethereum hits record high, bitcoin nears all-time high (RIOT, MSTR, MARA, SI, COIN)

·     Financial Services; FICO upgraded from Hold to Buy with $522 tgt at Jefferies saying risk/reward now skews favorably – investor concerns around Scores’ pricing power and Software’s lack of growth should prove transient; JOBS slides after releasing an update on its going-private transaction saying the buyer consortium formed to buy firm has been consulting Chinese regulators on recent regulatory changes that may apply to the firm and the proposed transaction

·     REITs; MITT upgraded to neutral from Sell at BTIG while, downgrade MFA, EARN to Neutral from Buy and believe upside potential is strongest in NRZ; AVB was upgraded to Overweight at Morgan Stanley, UDR cut to Equal-weight

Healthcare

·     Cannabis & Pharma movers; move higher continued in cannabis names (ahead of busy week of earnings for sector) after late Friday, Marijuana Moment reported Republican Congresswoman Nancy Mace (R SC) is circulating her own version of a federal cannabis reform. The States Reform Act led by Rep. Nancy Mace (R-SC) is still in the preliminary stage, and a final version is expected to be filed later this month (shares of CURLF, GTBIF, CRLBF); BMY said Phase 3 checkmate -816 trial met primary endpoint of improved EFS in patients with resectable stage Ib to IIAA NSCLC; LQDA said the FDA has granted tentative approval to its Yutrepia (Treprostinil) inhalation powder for the treatment of pulmonary arterial hypertension (PAH).

·     Biotech movers; REGN rises initially as new phase 3 analyses show that a single dose of regen-COV(r) (Casirivimab and imdevimab) provides long-term protection against covid-19; GLMD reports data from its ongoing late-stage study testing its drug candidate, Aramchol, for the treatment of a fatty liver disease called nonalcoholic steatohepatitis (NASH); AUTL rises after Blackstone Inc. is investing as much as $250M in the company to fund the final stages of development of a new therapy to treat a serious form of leukemia

·     Healthcare Services: in health insurance sector, EHTH shares tumble after Q3 results missed estimates on both EPS and revenue and revised its full-year revenue guidance downward and its net loss upward (said net loss increased ~265% in the quarter and revenue fell 32.2% year over year to $63.9M)

Industrials & Materials

·     Industrial & Machinery; among the busiest sectors today as the House passed the $1.2T infrastructure bill ($550B in new spending over 5-years) on Friday evening, which increases US infrastructure and total non-residential construction spend by an average of ~35% and ~15% at the midpoint, respectively according to Bernstein. The bill will: 1) Prioritize 21st century infrastructure needs such as electric grid & broadband (PWR); 2) Catalyze the adoption of digital/automated construction technology (TRMB); 3) Accelerate the shift from construction equipment ownership to rental (URI). In the E&C sector, KeyBanc said view ACM as a favorite play on the legislation, with the only tangible reasoning for the discount to peers being the unproven ability to grow top line (we believe this clearly alleviates that concern). We also highlight EME as an under-the-radar beneficiary, with an increasingly apparent ability to be nimble around key growth end markets. We also highlight DY, where the risk reward is now even more compelling (other names include J, TTEK, STRL, FLR, PWR, MTZ, MYRG, PRIM)

·     Transports: The U.S. is lifting entry restrictions for more than 30 countries, allowing fully vaccinated travelers to fly from places including Europe, China, and India. Singapore is also rolling back some curbs as its outbreak eases. Meanwhile, countries across Europe are considering strategies to confront a new wave of cases.

·     Metals & Materials; also a beneficiary of the infrastructure bill announcement as steel producers such as CLF, X, STLD, aluminium producer AA, CENX, copper producer FCX, cement maker CX are among those volatile on the day

·     Aerospace & Defense; BLDE a positive mention in Barron’s saying it is bringing ride-sharing to helicopters-just don’t call it the Uber of the sky

Technology, Media & Telecom

·     Internet; TTD shares advance as reports Q3 revs of $301.1M topping ests of #283.5M on better EPS ($0.18 vs. est. $0.15) and guides Q4 revs of "at least" $388M topping ests $386.7M saying they are seeing growth across all channels; social media stocks modest rebound after underperformance last 2-weeks (SNAP, TWTR); online travel outperforms (EXPE)

·     Semiconductors; Philly semi index (SOX) making another new all-time highs as chip stocks extend surge – an 8th straight day of gains for semi index (AMD, NVDA making new highs daily); MCHP announces $4.0 billion stock repurchase program; LSCC authorized company to repurchase up to an additional $100 mln of its outstanding common stock; AMD shares jumped later morning after the company said Meta Platforms (FB has adopted its EYPC processor chips for use in data centers – new supercomputing chips aimed at taking on NVDA – that headlines was followed up with another that MSFT to use new AMD Milan x chips in azure

·     Software movers; APPN was upgraded to Buy and tgt raised to $116 from $105 at Truist saying they believe the ~12% sell-off post earnings was unwarranted, and the stock is now down 65% from the 52-week highs (more confident in APPN’s ability to monetize the digital transformation megatrend with its differentiated low-code development platform); TOST shares slip after saying late Friday it estimates up to ~10.7 mln shares held by employees and consultants will become eligible for sale on Nov 11, two days after planned release of Q3 results

·     Software M&A news; MCFE to be acquired by investor group led by Advent International and Permira Advisers for $26.00 per share in all-cash deal, in an all-cash transaction valued at approximately $12B on an equity value basis, and over $14B on an enterprise value; ZIXI to be acquired by OTEX for $8.50 per share, in deal valued at ~$860M cash

·     Media & Telecom movers; DIS starts a company-wide push to boost streaming subscribers with promotions that include $1.99 for Disney+ for the first month; VSAT agreed to buy rival Inmarsat in a deal valuing the British company at $7.3 billion, as the companies seek to scale up their spectrum, satellite, and land-based communication offerings; LYV shares slip in the wake of a weekend concert tragedy in Houston that left eight people dead; DISCA was upgraded to Outperform at Macquarie given strong Discovery+ growth, the transformation into a scaled media player with the Warner merger, and a cheap valuation