Closing Recap

Friday, October 09, 2020

Equity Market Recap

·     U.S. stocks were higher throughout the trading session, ending the day firmly higher as the Dow Jones Industrial Average posted its biggest weekly advance since August as the White House announced a revised stimulus proposal of $1.8 trillion, above its prior $1.6 trillion offer but still remains below the Democrats request for $2.2 trillion in aid that will help small businesses, airlines and out of work American citizens. Through Thursday, the Dow was on track for a 2.7% weekly gain, while the S&P 500 was up 2.9% and the Nasdaq was up 3.1%. While the drama continues in Washington, investors brace for the upcoming earnings season which unofficially kicks off next week with big banks JPM, C, WFC, GS reporting. Financials were up roughly 4% for the week as the XLF closed above its 200-day moving average for the first time since February while energy was the weekly leader despite slipping today. Gold prices end the week strong, as the dollar declined while oil prices dipped.

·     In sector movers; Dow Transports touch record highs for 3rd straight day after MATX preliminary Q3 results crushes previous estimates, airlines LUV, DAL, AAL rebound from early declines after Trump said he approved a stimulus package. Retail could be in focus next week as holiday sales move into October with Amazon two-day Prime event moving to Oct. 13-14, along with Covid, which has pushed big sales and Black Friday events into October as well (WMT Big Save promotion Oct. 11-15, Target Deal Days Oct. 13-14 and Best Buy Black Friday also Oct. 13-14). Healthcare in focus next week as Dow components JNJ, UNH and WBA expected to report earnings. Financials slip on the day but overall rises 4% this week (XLF) as Treasury yields touch their best levels in 4-months and M&A activity in the asset manager space boosted interest (MS buying EV for $7B announced Thursday). Semiconductors outperformed in tech today following M&A reports (WSJ reported AMD in talks with XLNX) and better guidance from NXPI.

Commodities

·     Oil prices slipped as WTI crude fell -59c or 1.43% to settle at $40.60 per barrel after an oil worker strike in Norway ended, which should boost output, even though production was still down in the United States ahead of a hurricane. Norwegian oil firms struck a wage bargain with labor which had threatened to cut the country’s oil and gas output by close to 25% next week. At the same point, oil markets closely watch Hurricane Delta which approaches the Gulf of Mexico as 92% of oil production has been halted ahead of the expected impact. Natural gas prices rose 4.3% to settle at 1-year highs of $2.741 mln btu on supply cuts ahead of the storm

·     Gold prices ended the day higher, with December gold rising $31.10 or 1.6% to settle at $1,926.20 an ounce (intraday high was $1,935.80), closing out the week with a roughly 1% advance and settled at a 3-week high as the dollar slipped to a near three-week low. Increased bets for fresh U.S. stimulus pushed investors into precious metals as a hedge against inflation.

Currencies & Treasuries

·     The U.S. dollar was pressured throughout the day while Treasury yields climbed as bond prices dipped given the improving commentary on stimulus talks and subsequent rally in U.S. stock markets. The benchmark 10-year yield was up slightly at 0.77%, while the longer-term 30-yr rose to 1.58% and the 2-yr yield up above 0.15%. Though the 10-year yield has risen this week on an intra-day basis to its highest since June 10, above the previous peak hit on Aug. 28, it has closed below the August level on days it was breached intra-day. Stocks rallied after U.S. President Donald Trump said on Thursday talks with Congress had restarted on targeted fiscal relief.

Sector News Breakdown

Consumer

·     Retailers; AMZN pt was raised to $4,000 from $3,700 at Mizuho who reiterated their Buy rating; W was upgraded at Blair to Outperform from Neutral as they forecast shares will top $550 within the next four years; Citron says there is no way they would short e-commerce stocks such as JMIA, saying the worst is behind them; DECK pt raise from $236 to $267, maintain Outperform at Baird saying category relevance and expanding brand reach for both UGG and HOKA increase confidence near-term and across FY22; VFC downgraded to hold at Stifel on valuation while firm raises its targets on COLM ($107 from $99), DECK ($267 from $236), WWW ($31 from $29); Wolfe initiated Outperform rating on BIG ($61 tgt), DG ($250 pt), NGVC ($14 pt), and a Peer Perform rating on DLTR; Deutsche Bank ups its LB target to $39 from $33 and maintains Buy

·     Consumer Staples; SPTN discloses that it issued warrants to AMZN as part of a commercial agreement with the company; KO tgt raised to $53 at Guggenheim ahead of earnings saying although the company faces short-term headwinds associated with the COVID-19 pandemic, they expect sequential improvements in the second half with 3Q organic sales down 8.5%

·     Lodging and leisure; Broadway theaters in New York city will be closed through May 30, 2021, the Broadway League industry group said on Friday. Broadway theaters were previously set to remain closed through early January 2021, after being forced to shut in mid-March due to the pandemic. (lodging MAR, HLT, H) and restaurant names continue to suffer from shutdowns

Energy

·     Energy sector; energy stocks slipped on the day still posted big gains on the week as oil with its biggest weekly gain since June with Hurricane Delta forcing the shutdown of almost 92% of crude output in the Gulf of Mexico. Delta regained strength to become a major hurricane and is forecast to slam into the already battered Louisiana coast later today. U.S. natural gas futures jump again today to their highest close since November as production fell to its lowest in over two years after Gulf Coast energy firms shut wells ahead of Hurricane. After rising 19% over the past two weeks, the front-month was up 12% so far this week. Weekly baker Hughes (BKR) rig data showed total rigs at 269 as oil rigs rose 4 to 193 and gas rigs fell -1 to 73.

·     Energy movers; SWN reaffirmed a borrowing base under a credit facility at $1.8B, which will grow to $2B after MR acquisition; The stock was also upgraded at MS to EW from UW with a $3 pt from $2.50; MS also issued an upgrade of EQT to OW from EW and lifted its pt to $16.50 from $15; Tudor Pickering & Holt lowered its estimates on SU, but reiterated its Buy rating and C$21 pt, while lowering its PT on PARR to $11 from $14; Stifel initiates Buy ratings on CRK ($7.60 pt) and CNX ($13 pt), and a Hold rating on RRC ($8 pt); Truist cuts its pt on XOM to $41 from $44;

·     Utilities & Solar; SEDG, JKS, FSLR, ENPH rise after a brief pullback in strong space Thursday, solar names once again outperform – group has been beneficiary of Biden jumping in polls as the Biden campaign has announced aggressive plans to ramp up renewable energy production; FCEL said it was selected by the U.S. Department of Energy for an $8 million funding award to design and make a SureSource electrolysis platform capable of producing hydrogen.

Financials

·     Bank movers; Financials come into the day up nearly 4% this week as the XLF, closed above its 200-day moving average for the first time since February; big week for asset managers as well following the MS $7B deal to acquire EV announced Thursday; BEN was double-upgraded to Buy from Underperform at Bank America with a price target of $26, up from $20 citing the potential for improving flows and a remaining strong balance sheet with an elevated cash position; JHG was upgraded to neutral at Credit Suisse after spending more time researching the potential levers that activist investor Trian could encourage JHG management to pull (raise tgt to $26 from $16); CNS preliminary assets under management of $70.5 billion as of September 30, 2020, a decrease of $1.6 billion from assets under management at August 31, 2020; in consumer Finance; AXP downgraded to neutral at Susquehanna saying it would be hard for AXP to do better than their merchants, so consensus ’21 revenue up 11% looks full to them

Healthcare

·     Pharma movers; PFE said a collaborative Phase 3 study of its cancer drug Ibrance in early breast cancer didn’t meet its primary endpoint, failing to show improved invasive disease-free survival in women with hormone receptor-positive; AXGT on track to report 6-month Stage 1 data from the low dose juvenile cohort (Type II) in Q4 and expects to initiate the high dose cohort which includes infantile (Type I) and juvenile (Type II) patients in 2H’20; RIGL said it has enrolled patients in mid-stage trial of fostamatinib to test it in hospitalized COVID-19 patients

·     Biotech movers; GILD said that a late-stage study of its experimental COVID-19 treatment remdesivir (trade name Veklury), plus standard of care shortened the time of recovery by an average four days, compared with a placebo and standard of care; AMGN was downgraded by both Bernstein and Truist to market perform/hold noting the company’s Omecamtiv phase 3 data hit on its primary endpoint but missed on the reduction in cardiovascular death; SPRB opens at $18.14 vs. IPO price of $15.00

·     Cannabis stocks (ACB, CGC, TLRY, APHA) active again after VP nominee Harris vows to decriminalize pot. Democratic VP nominee Kamala Harris said marijuana would be decriminalized at federal level in U.S. under a Biden administration. During Wednesday night’s debate with Vice President Mike Pence, Harris said she and Democratic presidential nominee Joe Biden would also expunge criminal records those convicted of marijuana-related offences in the past

·     Healthcare services and devices; hospital stocks bounce early as HCA forecast Q3 revenues of ~$13.3B, +5% Y/Y above est. $12.67B while prelim 3Q same facility equivalent admissions -4%, and revenue per equivalent admission +15%; GNMK said it sees Q3 revs about $42.6M vs. est. $38.1M and received Emergency Use Authorization, or EUA from the FDA for its ePlex Respiratory Pathogen Panel 2, or RP2; MDT upgraded to outperform at Bernstein as growth outlook improving and device markets continue to recover; STTK opens at $22.10, 30% above the IPO price of $17

Industrials & Materials

·     Industrial & Machinery; ETN tgt raised to $130 from $105 at Wells Fargo and boosted expectations as continue to favor due to short-term earnings power with margin strength benefitting from prior transformational efforts, intermediate-term strategic optionality; CTVA positive mention at Bernstein noting Starboard’s Jeff Smith pitched the stock at the 13-D Monitor Active-passive Investor Summit focused on margin expansion, highlighting the potential to grow margins from current 14.4% to 23% – said they fully agree with Starboard; GE was reinstated with a buy and $10 tgt at Goldman Sachs saying CEO Larry Culp and his management team have made progress in creating a leaner, structurally more productive company with better capital discipline

·     Transports; Dow Transports touched intraday record high for 3^rd straight day; MATX which said it expects Q3 net income and diluted eps to be $67.2-$69.4M and EPS $1.55-$1.60 (est. 96c) with operating income for ocean transportation to be $84.5-$86.5M vs. $43.9M YoY; truckers cautious at JPMorgan, turning negative on the truckload rate cycle ahead of 3Q20 earnings and downgrading KNX and SNDR to Underweight after cautioning in early July to "pump the brakes" on the TL stocks and the expected supply-side squeeze on rates. At the same time, upgraded HTLD Neutral as one of the few YTD underperformers with less downside to trough P/E, CHRW is our other long idea for the quarter ahead of net revenue margin inflection and widespread negative sentiment and Ryder (R) upgraded to neutral from underweight; airlines AAL, DAL, UAL rally after President Trump and Lawrence Kudlow indicated that a broad stimulus package is on the table

·     Metals & Materials; AA said it will curtail San Ciprián aluminum smelter in Spain to curb losses and initiate collective dismissal, likely to affect ~530 employees and expects restructuring charges related to severance; UBS said they prefer STLD over X, TX and GGBR in the steel sector saying construction start decline (leading indicator) does not bode well for 2021 steel demand; in paper, IP upgraded to Overweight at Wells Fargo and up tgt to $52 saying it is reaping benefits from increased food-at-home consumption and accelerated adoption of delivery-to-home activity in its Industrial Packaging segment; gold miners rise GOLD, AEM, NEM, AUY as gold prices rose as much as 2% following the decline in the U.S. dollar; WY shares dropped after warned of Q3 charges related to fires

Technology, Media & Telecom

·     Semiconductors sector very active today following several developments: the WSJ reported AMD is in advanced talks to buy rival chip maker XLNX in a deal that could be worth more than $30 billion, https://on.wsj.com/3dcyGtv; NXPI announces a significant improvement in our outlook for Q3 as sees revenue $2.27B vs. est. $2.0B as experienced material improvement in demand across all end markets, but particularly in automotive and mobile end markets in Q3; the auto comment helping some names as KeyBanc noted IFX (~50% auto exposure), ON (33%), MCHP (25%), TXN (20%), MXIM (20%)/ADI (16%), AMBA (15%); MRVL tgt raised by several analyst after the company hosted its 2020 Analyst Day and continues to drive more design win share in their core enterprise/storage/5G networking infrastructure mkts while leveraging their core strengths; TER was upgraded to buy from hold at Stifel saying from a top-down and bottom-up perspective our view on the company’s growth prospects in semi test and industrial robotics has improved

·     Software & Hardware movers; MODN preannounced F4Q20 results that exceed revenue and profitability guidance provided on August 4 but coupled that with the surprise departure of CFO David Barter, who is leaving for private VC; EXTR raises Q1 adjusted EPS view to 5c-8c from prior 1c-4c (est. 2c) and ups Q1 revenue view to $233M-$236M from $220M-$230M (est. $223.61M) citing better-than-expected preliminary results across geographies and major market segments