Closing Recap

Monday, November 30, 2020

Equity Market Recap

·     U.S. stocks finish mixed on the day, but well-off morning lows, posting strong monthly gains as positive vaccine related news (MRNA, PFE, AZN) headlines and a clearer picture in Washington helped propel stocks higher for November. Major averages came into the day with massive advances with the Dow up 12.8% heading into the final trading day, the S&P 500 up 11.3%, the Nasdaq Comp up 11.8% and the Russell 2000 up a whopping 20.5% – leaders included energy (+305), banks (+195), industrials (+15%). Economic data was disappointing as the Chicago PMI was reported at 58.2, slightly below the 59.0 est. (and below prior month 61.1), and Pending Home Sales showing a surprise decline. News that Moderna would ask U.S. and European regulators for approval of its vaccine (which was widely expected) boosted shares to record highs and continued the strong of positive Monday vaccine news headlines.

·     Top stories today included: Vaccine names outperform as MRNA soars to record levels after applying for emergency use authorization with the FDA and EMA following its final analysis of its vaccine data shows 94.1% efficacy; while BNTX also surges with PFE after the Financial Times reports the UK is set to approve their vaccine rollout in the coming days. NKLA plunges after new GM agreement does not include an equity stake in Nikola or development of their Badger truck, and the company also files for an offering. Bitcoin surges to new all-time highs around $20K, lifting stocks leveraged to Bitcoin (MARA, RIOT, MSTR). INFO spikes as the best stock in the S&P after announcing a merger with $SPGI (also gains on day). Semiconductor index (SOX) touches record highs paced by AMD and Apple suppliers. Laggards include last week’s winners in Energy EOG, PXD, FANG, Retail GPS, KSS, cruises CCL and banks.

·     A rotation into economically sensitive sectors such as energy, industrials and financials have driven gains of more than 11% for the S&P 500 for its best November on record and saw the Dow post its biggest monthly gain since 1987 (up over 11%). However, those sectors were down the most on Monday in a bout of profit taking (energy and banks leading). Focus next month will likely turn to the monthly jobs report as well as an address by Fed Chair Jerome Powell before the Senate Banking Committee, as markets deal with an explosion in infections and business restrictions this month that stalled the U.S. labor market recovery.

·     In Europe, the UK and EU cautioned that time was running out to reach a Brexit trade deal, with big differences still to be bridged on state aid, enforcement, and fishing. The United Kingdom leaves the EU on Dec. 31, when a transition period of informal membership ends following its formal departure last January, and the sides are trying to secure a deal to govern nearly $1 trillion in annual trade. Another market overhang remains the Georgia Senate election in January. The Georgia vote in January will decide whether Biden faces a Republican majority in the Senate.

·     European stocks dropped 1% but still registered its best month ever as the pan-European STOXX 600 jumped 13.7%, with the big winners (just like the U.S.) int rotation into value and cyclicals triggered by the positive vaccine announcements earlier in November. The FTSE 100 fell 1.6%, after clocking gains of 12.4% in November, its best month since January 1987.

·     In retail, data from Adobe Analytics showed consumers spent $9 billion online on Black Friday alone; that’s a 21.6% increase from $7.4 billion in 2019. Overall, $3.6 billion of that came from smartphone purchases, up by more than 25% YoY, accounting for 40% of spending. Elsewhere, in-store and curbside pickup increased 52%. Adobe Analytics predicting a 15% y/y increase in Cyber Monday sales to $10.8B. RetailNext reported Black Friday foot traffic was (48%) y/y.

Economic Data

·     Chicago PMI for November weaker, reported at 58.2, slightly below the 59.0 estimate (and below prior month of 61.1). The data follows the -1.3-point slide to 61.1 in October as the index continues to pare gains after its 11.2-point bounce to 62.4 in September which was the highest reading since December 2018

·     U.S. Oct Pending Home Sales index -1.1 pct (vs. consensus +1.0 pct) to 128.9 and Oct Pending Home Sales still up +20.2% from Oct 2019

Commodities

·     Energy prices dipped on Monday, with WTI crude slipping 19c or $45.34 per barrel (but off earlier lows $44.42), down from 8-month highs as OPEC postponed its decision on extending production cuts until tomorrow and ministers say discussions will be difficult. The comments by OPEC+ added further uncertainty for crude prices where the market has priced in expectations of a three-month extension to current cuts, so moving away from that stance disappointed markets. Reports had indicated OPEC+ was considering rolling over existing cuts of 7.7 million barrels per day, or around 8% of global demand, into the first months of 2021. Still for the month, COVID-19 vaccine hopes kept crude benchmarks on track to rise by more than 25% in November.

·     Gold prices slipped -$7.20 or 0.4% to settle at $1,780.90 an ounce, posting a monthly decline of 5.4% to settle at its lowest levels since July. Silver prices slipped over 4.5% on the month while copper prices gained 12.3% to $3.402 per pound in November. Gold prices failed to benefit from the U.S. dollar dropping to 2-year lows as investors rotate into crypto currency as hedge.

Currencies & Treasuries

·     The Euro slid mid-morning, turning negative against the U.S. dollar at 1.1956 – down from high 1.2003 – and just shy of year high 1.2011. The buck remains pressured as investors still piling into riskier bets into year end with hopes for a “Santa Claus” rally. The Canadian dollar notches a 3-week high at 1.2942 to the U.S. dollar. The U.S. dollar index touched its lowest levels since April 2018 below the 92 level after reaching highs above 102.5 in March. Treasury markets quite boring these days, with yields little changed as the 10-year remains around 0.84%.

Sector News Breakdown

Consumer

·     Retailers; SHOP rises after announced Saturday that sales for Black Friday were up 75% YoY, hitting $2.4 billion from its independent and direct-to-consumer brands; FRAN declined after Bloomberg reported late Friday Francesca’s could file for bankruptcy shortly, citing people with knowledge of the matter – says the timing and plan could still change; RGS feature Barron’s article, saying that haircuts, coloring, and highlights can’t be sold online or in a box, and a brief, socially-distanced look at family, friends, and colleagues reveals plenty of pent-up demand; GME shares rallied following upbeat Black Friday sales; department store names that ran last week (JWN, M, KSS) saw some selling pressure today

·     Auto sector; NKLA big swing higher too lower as signs MOU with GM for global supply agreement but was smaller in scale than some investors hoped and doesn’t include any equity investment (the MOU does not include the previously contemplated development of the Nikola Badger); Ford (F) mentioned positively in Barron’s saying shares could double noting the automaker’s top-selling F-150 line always underpins a bullish story on Ford, but notes that sales of the heftier F-250, F-350, and F-450 models helped Ford post EPS of $0.65 in Q3 to top consensus marks; electric vehicle stocks (AYRO, BLNK, FSR, NIO, SBE) seeing some profit taking early; ATHM slides after a narrow quarterly beat but Q4 revs guidance weighs on shares ($364.5-365.9M vs. the $366.19M estimate.)

·     Leisure and Gaming; Airbnb (ABNB) and DoorDash (DASH), both set to start roadshows this week, are planning for IPO valuations that exceed previous estimates, the Wall Street Journal reports. Airbnb is planning a range of ~$30B-$33B, on a fully diluted share count basis, while DoorDash plans to target ~$25B-$28B on a fully diluted basis https://bit.ly/2JjqJbz – DASH later said sees IPO pricing $75-$85; in gaming, CZR (to 85 from 70), MCRI (to 65 from 60) and MGM (to 32 from 22) tgts raised to reflect broader group re-rate since vaccine news at Truist

Energy

·     Energy stock movers; energy names giving back some of its big November gains on the final trading day of the month in a bout of profit taking; CEO shares tumble after reports the Trump administration is set to add China’s top chipmaker SMIC and CNOOC to a blacklist of alleged Chinese military companies, Reuters reported; BP was downgraded to hold at HSBC Holdings citing the 36% jump in shares this month

·     OPEC and allies led by Russia have yet to find a consensus on oil output policy for 2021, after an initial round of talks on Sunday and ahead of crucial meetings on Monday and Tuesday, four OPEC+ sources told Reuters. OPEC+ is now considering rolling over existing cuts of 7.7 million barrels per day, or around 8% of global demand, into the first months of 2021, sources said

·     Utilities & Solar; PPL was downgraded to neutral citing what sees as critical questions around the future of the British pound in light of lingering Brexit uncertainty and economic hardships from COVID-19; NRG received the Federal Energy Regulatory Commission (FERC) approval for its $3.6B acquisition of Direct Energy from Centrica (deal expected to close early January)

·     MLP sector; Wells Fargo bullish as upgraded ENB, TRGP, DCP, NS, WES, RTLR, NBLX to overweight, TRP, KMI, MMP, PPL and BKEP to equal weight and downgrade CAPL, SUN to underweight – turned bullish on midstream headed into 2021 due to vaccine driven crude rally, bullish set up for both gas and NGL prices, rotation into value over growth and long-term opportunities around renewables

Financials

·     Bank movers; Morgan Stanley upgrades large cap bank industry to attractive with upside ranging from 16-64% as vaccine materially cuts downside risks and boosts stock upside, and names RF, WFC, C (Citi), STT as their top picks in the space, while upgrading BK to EW from UW, downgrading GS to UW from Equal-Weight, and issuing a double downgrades on JPM and BAC to UW from OW; Stephens upgraded USB to OW from EW as the bank’s YTD underperformance (down 25% vs BKX -18%) provides an attractive entry point for large-cap bank investors, and downgraded PNC to EW from OW after the stock’s performance following their acquisition of BBVA and overall bank valuations on recent vaccine news; RBC upgraded WFC to Sector Perform with a $31 target ahead of an expected announcement of cost savings and divesture plans, reversing their downgrade in January on regulatory concerns which still remain; UBS raises their price target on MS to $70 from $60 and maintains their Outperform rating as they see the integration of E*TRADE as a positive catalyst for January 2021’s strategic update

·     Services; SPGI and INFO entered into a merger agreement to combine in an all-stock transaction which values IHS Markit at $44B, including $4.8B of net debt. Under the terms of the agreement, each common share of IHS Markit will be exchanged for a fixed ratio of 0.2838 shares of S&P Global common stock. Current S&P Global shareholders will own ~67.75% of the combined company https://bit.ly/3qf7hgz (shares of MCO, FDS moved in sympathy)

·     REITs; Bank of America upgraded OHI, VTR to Buy and WELL to Neutral ahead of a recovery in 2021 as they believe the next leg higher in Healthcare REITs will be driven by improving earnings growth and they believe we are close to a trough in earnings following recent vaccine developments and their conversations at Nareit

·     Consumer Finance; Morgan Stanley lists SYF, ADS, ALLY, COF, and AXP as their top picks and downgrades DFS to EW from OW; Wedbush maintains their Outperform ratings on PYPL and networks MA, V (Visa) as Black Friday’s ecommerce trends reinforce volume strength; Wedbush raised their price target on COOP to $34 from $27.50 on the company’s plans to monetize Xome and the modest uptick in the 10-year

Healthcare

·     Pharma movers; PFE and BNTX rise as the Financial Times reported the U.K. is set to become the first country in the world to roll out a COVID-19 vaccine, with the country’s medical regulator likely to give approval "within days”; VRTX upgraded to Outperform at RBC Capital and raises tgt to $267 as the company’s core CF franchise no longer appears fully valued, should remain robust long-term, and with the pandemic resurgence may outperform relatively near-term; SNSS rises as enters into a definitive merger deal with privately held Viracta Therapeutics Inc in an all-stock transaction; SNDL said it has eliminated certain debt related to its senior secured second lien convert notes; SAGE falls as analysts continue to weigh in after BIIB collaboration deal announced Friday where some analysts feel it takes some upside off the table for SAGE; KDMN says U.S. FDA has accepted marketing application for its drug, belumosudil, to treat chronic graft vs. host disease; HOOK with positive data from mid-stage clinical trial evaluating cytomegalovirus (CMV) vaccine candidate HB-101 in kidney transplant recipients

·     Biotech movers; MRNA surges to new record highs after saying says it will file for U.S. and European emergency authorization of its COVID-19 vaccine after full results from a late-stage study showed the vaccine was 94.1% effective; NVAX said it has pushed back the start of a U.S.-based, late-stage trial for its experimental COVID-19 vaccine and now expects it to begin in the coming weeks instead of November (it is the second time that Novavax has rescheduled the Phase 3 trial after first flagging an October start); PTCT downgraded to Underperform at RBC Capital as shares are up +37% in the past two months primarily on increasing enthusiasm for the Evrysdi launch and progress with phase I Huntington’s disease (HD) asset ‘518 (says believe high expectations baked in)

·     Healthcare devices, services and providers; CI says it expects to reaffirm commitment to target of achieving 2021 consolidated adj income from operations on per share basis of $20.00 to $21.00 and still sees 2020 revs about $158B; NUVA unveils its new C360 cervical spine portfolio and the commercial launch of its Anterior Cervical Plating (ACP) system

Industrials & Materials

·     Industrial, Materials & Machinery; ROK, FTV, and LII downgraded to equal-weight at Barclay’s and also downgraded the firm’s U.S. Multi-Industry view to Neutral from Positive as part of its 2021 outlook

·     Transports; Raymond James upgraded UAL from Market Perform to Outperform while downgrades LUV from Strong Buy to Outperform, DAL from Outperform to Market Perform, and AAL from Market Perform to Underperform while raising tgts for ALK, ALGT, MESA, SKYW, and LUV; JBLU lowers Q4 revenue expectation and expects worse cash burn rate as expects Q4 revenue to fall around 70% Y/Y vs. -65% prior forecast

·     Chemicals; PPG said it would buy coatings manufacturer Ennis-Flint in a deal valued at about $1.15 billion (Ennis-Flint employs about 1,000 people globally and its full-year 2020 revenue is expected to be about $600 million); MEOH downgraded to underperform at Bernstein as continues to see the global methanol market being oversupplied in 2021; NTR tgt raised to $55 from $48 at Raymond James saying global crop fundamentals have gone from firm to glaringly tight in recent months, with prices of bellwether crops touching multi-year highs

Technology, Media & Telecom

·     Software movers; WORK shares rose after CNBC’s David Faber said this morning CRM deal for WORK roughly half cash and half stock in high premium deal https://bit.ly/3mpDaAR ; ZI files to sell 12.5M shares of common stock; PFPT upgraded to buy at Truist and raise ests as conversations with industry sources indicate strength in its emerging products as well as increased traction in its product bundling initiatives and Federal business; Unity Software (U) downgraded at Oppenheimer advising to take profits as still have confidence in the beat/raise story, but the stock has run up too soon, too fast for our risk appetite; ZM shares rise ahead of earnings expected after the close tonight; MSTR shares extend last week gains (recall last week Citron positive on shares of MSTR – had tweeted last Tuesday 11/24 saying it is how they play Bitcoin https://citronresearch.com/

·     Media & Telecom movers; LYV was downgraded to neutral on valuation at Macquarie saying recent vaccine news is encouraging but spiking new cases may limit the potential for indoor fan attendance at scale until a full rollout; DISH has secured fiber for the nationwide 5G network it’s building via contracts with four vendors

·     Semiconductors; Philly semi index (SOX) outperforms in tech, touching record highs earlier, led by gains in AMD (rose over 5%); sector held up despite weakness in equipment stocks (AMAT, LRCX, KLAC) after an earlier report that the Trump administration will add SMIC, China’s largest chipmaker, to supplier blacklist that charges companies with military ties.

·     Hardware, Services & Component news; AAPL upgraded to buy from hold at Loop Capital with $131 tgt as see a scenario of upside to consensus in near-term iPhone build and shipment as well as upside to Mac, iPad, and likely Air Pod, Watch, and Services sales well into CY21; PI shares jumped as Goldman initiated with a buy and $46 tgt saying with the opportunity to track, identify, and locate approximately 10 trillion items annually, RFID is a key enabler of a connected world; GLW said Q4 operating margin is expected to grow at approximately double rate of sales sequentially and sales to grow 5%-8% sequentially; NUAN upgraded to buy from neutral with a $51 PT at Guggenheim saying its business has outperformed throughout this pandemic environment, driven by healthier end-market demand than we had anticipated, along with product innovation; ZBRA entered a partnership agreement with XMReality for offering the latter’s Remote Guidance along with the former’s wearable solutions; CRSR says it expects FY2020 net revenue, adjusted operating income and adjusted EBITDA to exceed co’s earlier forecast