Closing Recap

Friday, November 13, 2020

Equity Market Recap

·     Friday the 13^th was anything but scary for stocks, as major U.S. averages closed out a volatile trading week in upbeat fashion, led by economically sensitive sectors, energy and technology following strong earnings results overnight from Disney, Cisco and Applied Materials. Energy was the top sector gainer led behind refiners in what has been a big week for the group as oil rebounded 8%. Even surging Covid-19 cases and hospitalization figures failed to dent sentiment in a week that saw the Dow, S&P, Nasdaq Comp and Russell 2000 all touch records (intraday) – but not close above those levels. The U.S. reported more than 150,000 new Covid-19 cases in a single day for the first time, with record infection counts in more than a dozen states. Political news of Joe Biden winning Arizona and lawsuits falling short for the White House in Pennsylvania and Michigan added to market strength, removing uncertainty going forward.

·     Economic data was mixed as the University of Michigan’s November preliminary consumer-sentiment index fell by much more than expected, while Producer Price index (PPI) inflation data was a mixed reading. Stocks remained high after the first successful data from a late-stage COVID-19 vaccine trial from Pfizer and its German partner (BNTX) spurred hopes of the economy recovering quickly from a year of pandemic-driven crisis on Monday. The Dow Jones Industrial Average outperformed Friday behind gains in Boeing (BA), energy names Chevron (CVX) and ExxonMobil (XOM) as well as Cisco (CSCO) and Disney (DIS) on earnings. Some of the biggest winners on the week in the S&P (KIM, REG, FANG, VLO, FRT – all up over 25% the last-5-days) come from some of the biggest sector laggards this year energy and REITs.

·     In Europe: Italy reports 40,902 new coronavirus cases Nov. 13 and reports 550 coronavirus-related deaths in last 24 hours; France reports 23,794 new confirmed covid-19 cases in past 24 hours, from 33,172 on Thursday and reports 932 new coronavirus deaths in past 24 hours, from 425 on Thursday. Europe’s Stoxx 600 gains 5.3% for the week, records second weekly rise in a row, while the FTSE 100 gains 6.9% for the week, logs best weekly gain since April and the European banking stock index jumps 16.74% for the week, its biggest weekly gain since March 2009. European markets rise despite the further increases in Covid cases.

·     Bank America noted U.S. Treasury funds see $4B in redemptions in week to Wednesday, biggest in six months, while U.S. equity funds see inflows of $32.5B in week to Wednesday, second-biggest week on record; emerging market equities get $6.5B in fifth highest inflow.

Economic Data

·     Producer Price Index (PPI) for October rose 0.3% vs. est. 0.2% and core prices MoM (ex food and energy) rose 0.1% missing the 0.2% estimate; on a YoY basis, headline PPI rose 0.5% vs. est. 0.4% and core prices YoY rose 1.1% missing the 1.2% estimate

·     The University of Michigan surveys of consumers sentiment prelim Nov 77.0 (consensus 82.0) vs final oct 81.8; the current conditions index prelim Nov 85.8 (consensus 87.5) vs final oct 85.9 and the expectations index prelim Nov 71.3 (consensus 78.6) vs final oct 79.2

Commodities

·     Oil prices slip as WTI crude fell 99c or 2.4% to settle at $40.13 per barrel, but that didn’t stop it from posting an 8% gain on the week despite expectations for lower energy demand (following lower forecasts from OPEC and EIA this week) and a climb in weekly U.S. crude supplies. Prices had climbed early on in the week on news of a potential COVID-19 vaccine, helping give energy stocks a much needed boost on the week, but pared gains on Thursday and Friday after U.S. government data showed an unexpected weekly climb in domestic crude inventories. Weekly rig count data was bearish, pushing prices down today as Baker Hughes said total oil/natural gas rig count up 12 to 312 in week to Nov 13^th (the 9^th straight week in a row of rigs being added).

·     Gold prices end higher, rising $12.90 or 0.7% to settle at $1,886.20 an ounce…but prices still end the week with a 3.3% decline as investors rotated out of defensive and perceived safe-haven assets. Silver prices end the week lower by 3.46% to $24.75 an ounce, while copper edged higher by 0.8% on the week to $3.1755 a pound.

Currencies & Treasuries

·     The U.S. dollar slipped vs. major currencies (euro, Pound, yen) following mixed economic data (weaker consumer sentiment data). Still, the Japanese yen posted its worst week since June following its 2% drubbing on Monday vs. the buck on positive vaccine news and selling pressure in safe-haven assets. The world’s top central bankers remained cautious about an economic recovery this week, as the buck eased vs. emerging markets. Low interest rates and the ECB’s loose monetary policy stance should slow the general pace of the euro’s appreciation. Turkey’s central bank is expected to raise its benchmark interest rate to 15% from 10.25% according to strategists at the November 19 policy meeting, possibly allowing the lira to extend recent gains.

·     Treasury prices were little changed at 0.89% on the 10-year, a day after yields fell from 6-month highs around 0.99%, ending another volatile week for stocks and bonds. After trading lower for most of the week, Treasury prices gained Thursday ahead of the weekend and remained cautious overall given the surge in coronavirus cases. Total COVID-19 cases crossed the 100,000 mark for a ninth consecutive day. Friday’s data showing slightly better than expected producer prices had little impact on the Treasury debt market.

Sector News Breakdown

Consumer

·     Retailers; FTCH topped consensus estimates on all key metrics as Digital Platform GMV rose 60% vs. guidance of 40-45% and the Street’s 42% while BTIG noted Digital Platform Services revenue of $263MM on $674MM in Digital Platform GMV beat est. of $222MM of revs $596MM of GMV and expects its first ever quarter of positive adjusted EBITDA in Q4, since IPO in Sept. 2018; DDS gains after reporting a surprise Q3 profit, as it discounted less and cut its selling, general and administrative expenses by 24%, though net sales tumbled 26% in Q3

·     Auto sector; electric vehicle sector strong initially again as Chinese EV maker LI rises as Q3 revs $379.8M top the $290.17M est. as vehicle deliveries rose 31% from previous quarter to 8,660 vehicles in Q3 and guides Q4 revenue $457.8M-$499.4M vs. est. $342.38M on better deliveries (follows strong results from XPEV the day earlier in China EV space); BLNK falls as Q3 results missed top and bottom-line estimates with a $900K (+18% Y/Y) and a $0.12 loss respectively; Ford (F) said is considering doing own battery cell production; NIO short call mention at Citron – reverses from long call made two-years ago it noted (shares pulled back sharply on call)

·     Consumer Staples; UTZ was upgraded to overweight at Piper as believes the co has an attractive portfolio as it is focused in salty snacks, a category that has had 4%-5% average growth over past three years (follows purchase yesterday of Truco Enterprises for $480M); DoorDash files for IPO, to list on NYSE under ticker DASH; SPB better-than-expected Q4 EPS and revenue, helped by a quick rebound in demand for its garden and home improvement products as well as pet supplies, as shares trade to 52-week highs; REV reported a 20.1% slump in Q3 sales just a few days after the company staved off bankruptcy, saying enough bondholders had taken part in its debt restructuring program

·     Restaurants; CAKE was upgraded to outperform at Wedbush as believe a premium is warranted saying in >50% of retail centers where a Cheesecake Factory location exists, at least one competitor has shuttered; Wedbush also lifted their price targets on TXRH, DENN, CHUY, DRI and maintained their Outperform ratings on each; JANA Partners discloses 5.3% stake in BLMN, down from prior 6.5%

·     Leisure and Gaming; DKNG shares jumped after saying unique players rose 64% Y/Y in Q3 and average revenue per monthly unique user was 34% higher which were enough to help lift revenue 98% during the quarter (raises FY20 revenue guidance to a range of $540M to $560M (+25% to +30% Y/Y) from $500M to $540M prior view); cruise lines outperform (CCL, NCLH, RCL) as investors rotate back into “reopen” trades (hotel, travel, leisure)

Energy

·     Energy stock movers; big week for energy stocks as oil prices climb on rising demand hopes given the improved possibility of a virus vaccine; The energy sector rose 16% for the week, against a 1.8% rise for the overall S&P 500 for its biggest weekly percentage gain on record; Cowen remains cautious in the near-term on integrated oil and major producers, saying the group is getting ahead of its fundamentals after recent vaccine optimism, and they also say CVX are their top picks in the sector, and they believe TOT dividend is safer after the vaccine news; SWN increased its production guidance for Q4 to 251-258 bcfe from 225-234, and its full-year to 881 bcfe from 843-861 after it completed its acquisition of Montage Resources; PXD price target was raised to $130 from $120 at RBC who maintained their Outperform rating; VVV increased its quarterly dividend to 12.5c/share from 11.3c and its board approved a $100M buyback program;

·     Oil Refiners; group outperformed early (HFC, PSX, MPC) – Piper said despite near-term headwinds through 1H21 on a potential COVID-driven pullback in demand, improved visibility on the recovery in the form of 1) vaccine readiness, and 2) refinery closures makes us cautiously optimistic on the outlook for refiners in 2H21/2022

·     Solar; SUNW shares rise after terminating the merger agreement with PECK as the agreement inked on August 10 was cancelled due to Sunworks’ inability to obtain stockholder approval.

Financials

·     Bank movers; SCHW reported their October results, highlighted by Core net new assets brought to the company by new and existing clients totaling $25.6B, Total client assets $5.88T as of month-end (+53% YoY, +34% MoM), and Average interest-earning assets on the company’s balance sheet $442.1B (+66% YoY, +13% MoM); the SEC charged former WFC CEO John Stumpf and retail banking head Carrie Tolstedt with misleading investors

·     Consumer Finance; Morgan Stanley maintained EW rating on FIS and raised its pt to $136 from $128; PYPL expanded its cryptocurrency platform to all US users after a narrow rollout and intends to let users use cryptocurrency to make online purchases early next year; FBR initiated LPRO at Neutral with a $30 price target and TRIT at Buy with a $16 target

·     REITs; EXR was upgraded at KeyBanc to Overweight with a $124 pt from Sector Weight as work- and learn-from-home as boosted demand for self-storage; NSA will pay a dividend of 35c/share in Q4, up from 34c in Q3; EQR was downgraded to Hold from Buy at Argus on concerns that its big-city portfolio (NYC, LA, San Francisco make up 55% of rev) may face softer demand as surging cases may push more people to the suburbs; WELL was downgraded to In-Line from OP at Evercore/ISI, though its pt was raised to $64 from $60; Citi upgraded DLR to Buy from Hold after its -11% pullback over the past month, saying the stock trades in-line or at a discount to peers and offers a favorable combination of growth and yield

Healthcare

·     Pharma & Biotech movers; GSK was upgraded to equal-weight at Morgan Stanley; KOD downgraded at Goldman Sachs but raises their 12 month price target to $105 from $83, as rating change primarily on valuation following meaningful share out-performance; Sumitovant Biopharma to acquire the balance 28% shares in UROV for $16.25 per share, or ~$584M, in an all-cash merger (Sumitovant largest holder with ~72% ownership) https://bit.ly/3f6ysW5 ; BYSI announces research collaboration and license agreement with LLY; CYTK said galactic-hf trial did not meet secondary endpoints including reduction in cardiovascular death; XLRN announces new data from two Phase 2 clinical trials, SPECTRA and PULSAR, evaluating sotatercept in patients with pulmonary arterial hypertension (PAH).

·     Healthcare services and providers; AMWL posted a bigger-than-expected Q3 loss of (92c) vs. est. loss (28c) as total costs, operating expenses more than doubled while guides year revs $235M-$239M as the midpoint of which is slightly higher than analysts’ estimates; TDOC upgraded to outperform and $220 tgt at Baird saying valuation is now approaching pre-COVID levels near 11-15x forward revenue following the ~25% pullback from August highs; MGLN upgraded to overweight at Stephens as after underperformance and as the co has taken significant internal actions over the past 18+ months to improve future growth and returns prospects

Industrials & Materials

·     Industrial & Machinery; MMM said October sales rose 3% to $2.9B compared with year earlier as sales led by 12% increase in Health Care, 7% in Consumer, and 4% in Safety and Industrial; sales at Transportation and Electronics declined 4%; TT was upgraded to buy from hold at Argus as stock has pulled back about 8% from its all-time highs, though the company’s momentum is expected to continue; CSL downgraded to hold at Loop Capital on valuation; CAT Oct. N.A. 3-mos machine sales -28% vs. +9% y/y while APAC 3-mos machine sales +3% vs. -9% YoY

·     Metals & Materials; in chemical sector, DOW and LYB both downgraded to Market-Perform at Bernstein given that our COVID recovery thesis now has largely played out and additionally, the wave of new Chinese capacity is coming online earlier than we expected; TKR raised its dividend

Technology, Media & Telecom

·     Semiconductors; AMAT delivered Q4 revenue/EPS above the midpoint of guidance and consensus on better than expected semiconductor and services sales while Q1 revenue/EPS guidance was also above expectations on continued strong semiconductor equipment demand; Morgan Stanley noted semiconductor blog "SemiAccurate" wrote that INTC was delaying its server version of "Ice Lake" again – the firm said they checked with Intel and it does appear that there have been some short-term issues with a late stage validation that per the company should delay shipments by "a matter of a few weeks." Philly semi index jumped over 2% early on the AMAT and continued follow-through for a sector that has seen strong earnings results in Q3

·     Software movers; FSLY rises as the U.S. Commerce Department said on Thursday Chinese-owned TikTok video-sharing app can continue to operate in the U.S./TikTok-owner ByteDance is FSLY’s biggest customer and accounts for 11% of its YTD revenue; BIGC 5M share Secondary priced at $68.00; BSY 10M share Secondary priced at $32.00; DGII posted a beat on the top/bottom line on strong healthcare demand, return in grocery and expansion with a restaurant customer; PLTR beat market expectations in its first quarter as a public company and raised its 2020 revenue forecast as it shored up large government and aerospace contracts – though net loss widened; Unity (U) shares jumped in its first earnings report as a public company

·     Media & Telecom movers; Dow component DIS Q4 results exceeded consensus expectations driven by outperformance at Media Networks, Parks, and Direct-to-Consumer segments while the co highlighted strong growth across its DTC portfolio with Disney+ reaching 73.7mm paid subscribers in its first year and over 120mm combined paid subs including ESPN+ and Hulu

·     Hardware & Component news; in networking, Dow component CSCO quarterly results exceeded the reduced guidance (1Q21 revenue/EPS of $11.9B/76c beat Street’s est. of $11.85B/71c), while expects Q2 revenue to be between flat and a 2% fall better than the 3% estimate decline; NTDOY said with growth of 136% when compared to the same month in 2019, the Nintendo Switch family of systems saw its strongest October sales yet, with more than 735,000 units sold between Nintendo Switch and Nintendo Switch Lite