Closing Recap

Thursday, November 12, 2020

Index	Up/Down	%	Last
DJ Industrials	-318.51	1.08%	29,079
S&P 500	-35.66	1.00%	3,537
Nasdaq	-76.84	0.65%	11,709
Russell 2000	-28.46	1.64%	1,708

 

Equity Market Recap

·     Rough day on Wall Street as U.S. stocks erased morning gains, falling mid-morning and accelerating selling pressure midday amid several factors including: the realization that a stimulus deal will not be done in 2020 (following McConnell comments), soaring Covid cases (hit highest one day total in U.S. yesterday) and fears of stricter restrictions coming, and the political uncertainty of the election (Trump lawsuits continue), which all weighed on market sentiment. Fed Chairman Powell also warned again that the U.S. recovery has slowed and been uneven and that the main risk is the further spread of the disease and its too soon too assess implications of a vaccine. Treasury yields dropped throughout the day (10-yr yield fell 10 bps to 0.89%) alongside the further selloff in equities, dovish signals from central bankers (Powell, Lagarde) and after a tame CPI report as yields pull back from their highest levels since March.

·     Stocks pulled back from highs late morning on stimulus bill concerns as the Trump administration said to be stepping back from stimulus negotiations, leaving to Congress, while Senate majority leader McConnell said should there be another stimulus package, comment on size of relief is inconsistent with Schumer comments and is not interested in dramatically larger stimulus. Weekly jobless claims remain high but slipped to their lowest level since March (and below estimates), while consumer prices (CPI) were flat in October, as higher costs for dining out and groceries were offset by declines for items such as apparel and household furnishings. Catalysts tonight in tech as Dow components Disney and Cisco Systems are expected to report earnings as well as semiconductor equipment maker player AMAT.

·     Optimism about a Covid-19 vaccine powered markets higher at the start of the week with the Pfizer news, but has been since waning as investors and health experts raise questions about when it may become available for widespread use. Markets are also growing increasingly concerned about economic activity being hobbled by fresh restrictions in states such as New York, New Jersey, Chicago and California on restaurants, gyms, etc.

·     Covid situation in the U.S. New coronavirus cases in the U.S. climbed to another record, topping 100,000 for the ninth day in a row. The U.S. reported more than 144,000 new cases for Wednesday, according to data compiled by Johns Hopkins University. Indiana’s single day number was above 5,000 for the first time, while other states recording all-time highs included Illinois, North Carolina, Colorado, Kentucky, Arkansas, Idaho, New Mexico, and West Virginia. Hospitalizations due to the illness rose to a record 65,368 for Wednesday. Chicago issues stay at home advisory as Covid cases surge, effective Nov 16^th.

·     Europe Covid updates: Europe remains a mess as Italy new Covid cases 37,978 vs 32,961 yesterday; Spain reports 7,759 new daily virus cases versus 8,943 Nov. 11; UK records 33,470 new coronavirus cases on Thursday, compared to 22,950 on Wednesday; France says number of confirmed cases up by 33,172 over 24 hours, versus +35,879 on Wednesday as deaths rise by 425 to 42,960 and record Covid hospitalizations 32,683. European shares retreated from eight-month highs as the surging coronavirus infections raised doubts about a quicker economic rebound and overshadowed several upbeat quarterly earnings reports. The pan-European STOXX 600 index was down 0.8%, reversing after having gained 12.5% so far this month.

Economic Data

·     Weekly jobless claims fell to 709K from 757K in the prior week (and below consensus 735K), improving, but still substantially high as the 4-week moving average fell to 755,250 from 788,500 prior week (previous 787,000) and continued claims fell to 6.786M vs. est. 6.9M and down from 7.222M in the prior week

·     The consumer-price index (CPI) was unchanged in October from September, as price gains stalled followed four straight months of gains for consumer prices and was below the 0.1% estimate while core prices were also flat vs. est. for a rise of 0.2%. YoY figures for headline CPI of 1.2% and core prices 1.6% also fell short of estimates (1.3% and 1.8% respectively)

 

Commodities

·     Oil prices slipped late day with WTI crude down 33c to $41.12, erasing earlier gains, and snapping its 3-day win streak as the IEA warned the coronavirus vaccine breakthrough won’t quickly revive markets as they cut its forecasts for global oil demand this quarter by 1.2 million b/d as the pandemic continues to pressure consumption, most notably in Europe. Bearish weekly data as well as U.S. crude oil stockpiles rose unexpectedly last week, while gasoline and distillate stockpiles fell, the Energy Information Administration (EIA) said.

·     Gold prices gain $11.70 or 0.6% to settle at $1,873.30 an ounce, though fell from highs around $1,883 an ounce as the dollar was flat and investors turned attention to defensive assets. Investors still with a lot to digest including surging Covid cases, fears of stricter restrictions, political uncertainty, and logistics of a potential COVID-19 vaccine roll-out. Silver prices edge higher 0.16% to $24.29 an ounce, copper rose 0.45% to $3.143 per pound.

 

Currencies & Treasuries

·     Treasury prices jumped as yields fell in reaction to selling pressure in stocks. Another weak Treasury auction pushed prices lower (yields off lows briefly) as the U.S. Treasury sold $27B of 30-year notes at a yield of 1.685 vs. 1.674% when issued prior, with a bid-to-cover (demand) at 2.29 as indirect bidders awarded 61.9% of the auction and directs 16.54%. Following the auction results, the yield on the 10-year slightly recovered off lows around 0.89%. The U.S. dollar was little changed on the day as the dollar index remained flat as the buck dipped vs. the safe-haven yen and was up slightly vs. the euro.

 

 

Macro	Up/Down	Last
WTI Crude	-0.33	41.12
Brent	-0.27	43.53
Gold	11.70	1,873.30
EUR/USD	0.0026	1.1802
JPY/USD	-0.24	105.19
10-Year Note	-0.104	0.885%

 

 

Sector News Breakdown

Consumer

·     Retailers; FOSL surges after reporting Q3 Adj EPS 31c, beating est. (71c) loss, on revs $435.5M, also beating est. $333.5M, and the company expects the pandemic to continue pressuring sales, seeing Q4 sales dropping 30-40% YoY, though weakness in retail stores will be offset by online demand; ENR reports organic sales increased 6.1% in FQ4 to beat even the top end of its guidance range of +3% to +6%, but Adj EBITDA $140.4M was lower than est. $160.1M, and the company forecasts FY rev growth 2-4% (est. 1.5%) and EPS $2.95-3.25 (est. $3.13); RVLV Q3 EPS 27c beats est. 14c on revs $151M that miss est. $154.2M and reports Oct net sales decreased in the high-single digits YoY; WMT launches Walmart Pet Care in an expansion of its pet offerings, which now includes insurance, dog walking, pet sitting, and the PetRx pharmacy. Shares of CHWY, TRUP, PETQand FRPT were active news; CHWY launched compounded medications for pets, and intends to offer it as a service to veterinarians

·     Retail analyst research; RBC started coverage of NKE at Outperform with a $145 pt, calling the company a best-in-class global athletic play, and on UAA at Sector Perform with a $16 pt with upside opportunities; Gordon Haskett upgraded BURL, ROST, HD to Buy from Accumulate and downgraded LOW and WSM to Accumulate from Buy; SHOO was upgraded to OW with a $36 target at KeyBanc on several upcoming catalysts, including lower tariffs and trade tensions under a Biden presidency, more stimulus, and the bank sees the company as one who would benefit most from a full return to economic normalcy next year; KeyBanc also upgraded ACCO to OW with a $12 pt from Sector Weight despite challenges in the current quarter as they see accelerating trends through 2021 and 2022 as more Americans return to work; Cowen increases their price targets on off-price retail BURL, TJX, and ROST, and names NKE, DKS, DECK as their top picks in retail while remaining cautious on RL, PVH, SKX, FL; Oppenheimer named COST as their favorite play though the holiday season into early 2021 in food retailing

·     Auto sector; in electrical vehicle (EV) space, XPEV reported a Q2 loss that widened from a year ago but revenue that jumped more than fourfold as deliveries soared 266% to 8,578 vehicles; HYRE reported a Q3 revenue beat with a slight bottom line miss on lower than anticipated GM; VRM reported 3Q eCommerce units up 59% y/y, in line with guidance provided in mid-Sept, but Q4 rev guidance of $372M-$414M showed midpoint missed the $403.5M est.; CPRT tgt raised to $135 at Truist as have increased confidence in both accelerating volume and pricing trends; Ford (F) officially introduces the 2022 E-Transit all-electric cargo van, which will list for under $45K

·     Consumer Staples; EPC said its profit and sales declined for the latest quarter due to continued disruptions from the Covid-19 pandemic, but topped expectations; SPTN reported 3Q20 adjusted EPS of $0.70, topping consensus of $0.62, as pandemic-related tailwinds continue to drive results for both the food distribution and retail divisions; UTZ to buy a leading maker of tortilla chips, Truco Enterprises from Insignia Capital Group for $480M; GRWG revenue of $55M surpassed consensus of $47M with EBITDA of $6.6M versus $4.8M consensus and raised guidance for year

·     Leisure and Gaming; IGT shares jumped as Q3 revenue of $982M vs. last year’s $1.15B, beating estimates by $180.97M as player demand drives highest Global Lottery same-store sales growth; Truist positive on BYD as see upside given the consistency and resiliency of the business model, while is also well-positioned for sports betting and iGaming through its FanDuel partnership; cruise lines continue to pare gains from Monday surge (CCL, RCL, NCLH)

 

Energy

·     Energy stock movers; U.S. crude oil stockpiles rose unexpectedly last week, while gasoline and distillate stockpiles fell, the Energy Information Administration (EIA) said. Crude inventories rose by 4.3 million barrels in the week ended Nov. 6 to 488.7 million barrels, compared with analyst expectations for a decrease of 913,000 barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 518,000 barrels, the EIA said. Refinery crude runs fell by 105,000 barrels per day, data showed. Gasoline stocks fell by 2.3 million barrels, vs. expectations for a 263,000-barrel decline.

·     Energy stock movers; JE falls as Q2 sales fall 15% to C$649.6M and posts Q2 loss of C$4.37 per share compared to a profit of C$8.97 share a year earlier; in solar, SOL guides Q3 revenue at the higher end of guidance of $8M-$10M vs. $9.9M and said expects Q3 gross margin is expected to exceed 42%, compared to prior guidance of 38% to 42%; energy names were all broadly lower (APA, COG, COP, CVX, EOG) amid further unwind of vaccine related news winners from Monday

 

Financials

·     Bank movers; financial stocks are among the weakest, with rates falling after the core CPI came in flat for October, the lowest in five months (JPM, C, WFC); SF announces a three-for-two stock split & intention to increase its common stock dividend by 32%; FRC 1.5M share Spot Secondary priced at $132.20; in finance, MGI said delivered 150% YoY cross-border transaction and rev growth for oct in its direct-to-consumer digital business

·     Insurance; GOCO shares fell as Q3 revenue was below consensus but adjusted EBITDA was nicely ahead as experienced a mix shift which resulted in lower-than-expected commission revenue while enterprise revenue was significantly above our estimate

·     Asset managers; AB announced that preliminary assets under management decreased to $622B during October 2020 from $631B at the end of September; MN reports preliminary AUM $18.5B as of October 31, compared with $19.2B at September 30

·     Real Estate; RDFN says 32% of Americans have lost their job or lost wages–or someone in their household has–due to the coronavirus pandemic, according to a new report from Redfin. The report features results from a survey of more than 3,000 U.S. residents that was fielded in October. Broken down by homeownership status, 39% of renters reported a lost job or wages, versus 30% of homeowners

 

Healthcare

·     Pharma movers; AZN reports Phase II results from The CALAVI trials investigating BTK inhibitor Calquence (acalabrutinib) plus best supportive care (BSC) versus BSC alone in hospitalized patients with COVID-19 disease (Calquence did not meet the primary efficacy endpoint); ADMP files for shelf of up to 8.7 mln shares of common stock issuable upon exercise of outstanding warrants

·     Biotech movers; MRNA announced that the first interim analysis of results from the large-scale pivotal study, COVE, of vaccine candidate mRNA-1273 will include "substantially more" that the 53 cases it was expecting; CVAC CEO said hopes to receive approval for its experimental COVID-19 vaccine in Q3 2021 and aims to initiate rolling review of vaccine in Q1; INBX said INBRX- 109 shows encouraging benefit in bone cancer

·     Healthcare services and providers; for COO, Guggenheim said ahead of 12/3 earnings, with COO shares trading at 27x our CY21 EPS estimate, we see the near-term risk/reward as skewed to the downside; MPLN CEO responded to allegations in yesterday’s Muddy Waters short report during earnings call today, saying the claim that largest client UNH was leaving is "absolutely false," and the two companies are actually expanding their relationship

·     MedTech and Equipment; ALC downgraded at Guggenheim saying they were disappointed with management’s commentary on the call, which suggested that meaningful margin expansion off of the 2019 baseline is unlikely before 2022; OM reported sales ahead in first quarter as public company ($13.8M vs. est. $11.5M) as console revenue of $9M grew sequentially by almost $1M

 

Industrials & Materials

·     Metals, Industrial & Machinery; NVEE Strong Q3 results well above expectations due to good execution and a high mix of public sector customers, which provides stability; FCX rises to its highest levels since January 2018 at the $20 level; GFI reports Q3 gold production increased 7% Y/Y and 1% Q/Q to 557K oz., at overall all-in costs of $1,070/oz., as operations recovered

·     Transports; LUV Oct avg daily cash burn about $10Mm in Oct, sees avg daily core cash burn $10-11Mm for 4Q, sees Nov load factor 50-55%, sees Dec load factor 60-70%, experienced a deceleration in improving revenue trends but expects December to improve over November; ALGT Oct passengers were down 20.1%, revenue passenger miles were down 29.0%, available seat miles were down 6.4%, load factor was down 20.0 points, vs. October 2019

·     Aerospace & Defense; BA released strong forecasts for China’s aircraft demand, even as the aerospace company said it expects a weaker global market amid the coronavirus pandemic/said it expects Chinese airlines to acquire 8,600 new airplanes worth $1.4 trillion over the next 20 years; FLY falls as posts adjusted Q3 net loss of $9M vs. adjusted net income of $59.8M a year earlier and Q3 sales slump 57% to $60M hurt by non-recognition of revenue for certain lessees due to the COVID-19 pandemic and no aircraft sales in the quarter

 

Technology, Media & Telecom

·     Internet; Chinese internet stocks gain after TCEHY and PDD earnings top views, helping shake off regulatory concerns after the industry has taken a beating this week after news of China antitrust regulations that are targeting online platforms; PDD postedQ3 EPS 5c vs. est. loss (17c) and revs $2.09B topped the consensus $1.86B as Q3 average monthly active users were 643.4M, an increase of 50% from 429.6M YoY and active buyers ended Sept rose 36% YoY to 731.3M; WIX delivered another strong quarterly print that saw 3Q collections ($281M, 37% y/y) come in well above consensus estimates ($275M) and topped elevated investor expectations ($279-280M) as net premium subs (+302K) also cleared bullish investor expectations (~300K); BABA ends its annual Singles Day sales event with total GMV of RMB498.2B or about $75.1B (vs. $38B 2019)

·     Semiconductors; AAPL chip suppliers remain active (SWKS, SYNA, QCOM, AVGO) after KeyBanc said its initial round of carrier surveys for the iphone 12 launch indicates healthy initial and for the iphone 12 pro, where demand is clearly outstripping supply; HIMX reported in-line w/ preannouncement and guided Q4 revs and EPS better than expected; AMAT to report earnings tonight after the bell I the semi-equipment sector; KeyBanc said QCOM has received an export license from the U.S. to ship 4G chips to Huawei, not the 5G chips suggested in media reports

·     Software movers; TikTok filed a petition challenging an executive order by President Trump, as well as a sales process being overseen by CFIUS as the video-sharing app is facing a deadline today that requires the company be spun off from its Chinese parent, ByteDance. It also said in the filing that it proposed a new deal this month that would effectively hand over control of TikTok in the U.S. to ORCL, WMT and ByteDance’s U.S. investors

·     Software research; CRM was downgraded with $275 tgt at Morgan Stanley saying increasing focus on FCF and earnings is likely necessary for further upside – but subscription model dynamics and management’s growth philosophy may make that difficult near-term; Morgan upgraded shares of NOW to overweight with $652 tgt saying a rising priority for workflow automation post-Covid well positions NOW to sustain 25%+ revenue growth

·     Hardware & Component news; GLW says that paints and coatings containing its Corning Guardiant technology have demonstrated to kill more that 99.9% of bacteria and viruses, including SARS-CoV-2, in two hours or less; SSYS Q3 results top estimates with $127.9M in revenue (-19% Y/Y) and a $0.05 loss per share citing revenue decline to the continuing pandemic impact on some core end markets (adjusted EBITDA came in at $5.2M, below $14.5M YoY); CSCO earnings expected tonight after the close (Dow component)

·     Telecom and media; Chinese telecoms CHA, CHL slide after reports of a new executive order cracking down on investment in Chinese firms are hitting China’s state-owned telecoms. A new order that could arrive as soon as today could prohibit U.S. investment in companies Washington says are owned or controlled by China’s military, Reuters said