Market Review: October 13, 2020

Closing Recap

Tuesday, October 13, 2020

Index

Up/Down

%

Last

DJ Industrials

-157.19

0.55%

28,680

S&P 500

-22.46

0.64%

3,511

Nasdaq

-12.36

0.10%

11,863

Russell 2000

-12.21

0.74%

1,636


 

Equity Market Recap

·     U.S. stocks finished mixed to lower as markets received a negative dose of vaccine news today, which overshadowed a strong start to earnings season. The NY Times first reported LLY’s vaccine trial paused due to potential safety concerns, which followed overnight news that JNJ’s COVID-19 vaccine has been temporarily stopped due to an unexplained illness in a trial participant, according to health care news provider STAT first. Despite the disappointing headlines, and lack of any follow through of talk on the virus stimulus aid in Washington, stocks only managed small losses in comparison to the all-out buying frenzy that occurred on Monday.

·     Technology again outperformed, with the Nasdaq Composite falling the least as headlines from the Apple (AAPL) iPhone 12 rollout event dominated the afternoon news, with markets, moving up and down on announcements (details of the iPhone announcement below). Earnings this morning from big banks JPM and Citi topped consensus views, but shares slip, while energy stocks rebound along with oil prices. Airlines fall on weaker DAL results and cruise lines drop as RCL raises capital and suspends more cruises for year. Gold prices tumble over $30 an ounce back below $1,900 as the dollar recovers while Treasury yields dip.

·     Economic data showed U.S. consumer prices rose 0.2% in September, matching expectations, for a fourth straight monthly climb, though the pace has slowed. Stalled talks in Congress around another package of coronavirus financial assistance remains on investor minds and come against the backdrop of reports of the smallest increase in new coronavirus infections in a week in the U.S. The Presidential election remains less than three weeks away and polls continue to show Biden leading comfortably at this point with markets surging of late on chance of a Democratic White House, Congress and potential Senate, which could ease passing large stimulus measures.

·     U.S.-China tensions in focus after Reuters reported in a follow-up story that the White House is moving forward with more sales of sophisticated military equipment to Taiwan, telling Congress on Tuesday that it will seek to sell MQ-9 drones and a coastal defensive missile system (which is expected to anger China)

Economic Data

·     Consumer Price Index (CPI) for September rose 0.2%, in-line with estimates while core prices MoM were also reported at an in-line 0.2%; CPI YoY rose 1.4% (in-line) and core prices rose 1.7% vs. est. 1.8%; CPI energy +0.8%, gasoline +0.1%, and new vehicles +0.3%

 

Commodities

·     Oil prices rebounded with WTI crude rising 77c or 1.95% to settle at $40.20 per barrel, while natural gas prices dipped about 1% to $2.85 mln btu (off Jan ’19 highs) as production resumes after Hurricane Delta. Strong economic data from China offset returning supply in Norway, the Gulf of Mexico and Libya as China took in 11.8M barrels per day of oil in September, up 5.5% from August and up 17.5% from a year earlier. The IEA said in its World Energy Outlook that vaccine and therapeutics could mean the global economy rebounds in 2021 and energy demand recovers by 2023. OPEC forecast a slower demand recovery saying oil demand will rise by 6.54 million bpd next year to 96.84 million bpd, 80,000 bpd less than expected a month ago.

·     Gold futures dropped back below $1,900 an ounce, sliding -$34.30 or 1.8% to settle at $1,894.60 an ounce, posting its first loss in 4-sessions as the dollar rallied following more stalled talks over U.S. stimulus. House Speaker Nancy Pelosi said the latest coronavirus stimulus package offer by President Donald Trump fell short of what the United States needs. There remain several bullish prospects for the metal in the longer term, amid expectations of easy money policies.

 

Currencies & Treasuries

·     The U.S. dollar was higher vs. most major currencies; the British Pound slipped broadly, dipping back below the $1.30 level against the U.S. dollar as investors kept an eye on ongoing Brexit negotiations. Recent reports have shown that the EU wants more concessions from the UK before entering the final phase of negotiations of its departure from euro bloc. British Prime Minister Boris Johnson had set a deadline of the Oct. 15 EU summit for agreeing a trade deal and Frost is in Brussels for intensified talks. U.S. Treasury yields slipped on the day after bond markets were closed Monday in observance of Columbus Day holiday. The benchmark 10-year yield was last down 4.3 basis points at 0.7322%.

 

 

Macro

Up/Down

Last

WTI Crude

0.77

40.20

Brent

0.73

42.45

Gold

-34.30

1,894.60

EUR/USD

-0.0074

1.17538

JPY/USD

0.23

105.53

10-Year Note

-0.043

0.732%

 

 

Sector News Breakdown

Consumer

·     Retailers; in footwear, FL was upgraded to buy from underperform and tgt to $50 from $20 at Bank America as believe FL momentum has improved significantly in Sept.-Oct. given a shift in Back-to-School sales and Nike product momentum; ETH rises as guides Q1 sales $151.1M above the est. $137.8M and said retail segment written orders continued to accelerate with growth of 10.8% over the prior year; WSM boosted its dividend by 10% to 53 cents a share and also said it has resumed its share buyback program

·     Auto sector; TSLA cuts the Model S starting price by 3% in China, trimming the U.S. price of Model S Long Range Plus by 4% to $71,990; China’s vehicle sales rose 12.8% Y/Y to 2.57M vehicles, up from August’s 11.6% growth, according to the China Association of Automobile Manufacturers; LEA upgraded from Underperform to In-Line w/ $145 pt at Evercore/ISI; Ford (F) named a new short-term catalyst call buy at Deutsche Bank, pt $9; WKHS was downgraded to hold from buy at Roth Capital saying the USPS is pushing the highly-anticipated NGDV decision to the end of the year (original timing of the decision was expected to be today)

·     Housing & Building Products; OC was upgraded to buy from hold at Benchmark as is increasingly optimistic that the residential exposure of Owens will be more than enough to push estimates higher; MLM and VMC both downgraded to neutral from buy at Bank America after a strong rally, especially over the past month, as they are concerned excess speculation on infrastructure spending unduly supported the names. MLM has risen 29% in the past month and VMC 19% on little news, and they continue to anticipate weakness over the next 6- 18 months

·     Consumer Staples & Restaurants; BYND downgraded to underperform from market perform at Bernstein – citing a stretched valuation and says sales growth of BYND’s fresh plant-based patties in measured U.S. retail channels turned negative in recent weeks

·     Lodging; MAR, PK, HLT and HST all upgraded at BMO Capital, taking a more positive stance saying while the env’t remains challenging, particularly in non-leisure/group market segments, we believe the sector is on the path to recovery, albeit one that will play out over several years. We are once again reducing estimates, but we believe negative estimate revisions are nearing an end and an inflection in demand is likely in 2H21 and into 2022

·     Cruise lines weak again as RCL commenced an underwritten public offering of $500M of shares of common stock and $500 mln 3-year convertible debt deal, while suspends all winter sailings throughout Australia and New Zealand, South Africa, South America (CCL, NCLH shares fell)

 

Energy

·     Energy stock movers; OPEC left its outlook for 2020 oil demand relatively unchanged, penciling in a decline of 9.5 million barrels a day. For 2021, OPEC, in its monthly report, said revised demand lower by 80,000 barrels a day, forecasting growth of 6.5 million barrels a day, with the cut largely reflecting a lower growth outlook for both developed and emerging market regions compared to the September forecast. On the supply side, OPEC revised up its forecast for 2020 output by 310,000 barrels a day, due largely to a stronger-than-expected recovery in U.S. liquids production

·     Major oils and E&P; XOM was upgraded to Neutral from Sell at Goldman Sachs and raise tgt to $36 from $33 noting underperformance vs. peers; PBR announces offering of U.S. dollar-denominated global notes and commencement of cash tender offers; XEC was upgraded to buy from hold and raise tgt to $40 from $30 at Truist as we forecast XEC to generate 10% type FCF yield 3Q20 into 2022; this is higher than any of the other large cap E&Ps

·     Oil equipment movers; Bank America with a few ratings changes in oilfield service companies as the sees a bumpy road to a recovery, upgrading NEX to buy and CLB to neutral while downgraded LBRT and HP to neutral calling HAL its top large-cap pick and CHX its SMID-cap favorite – said negative revisions focused on U.S. drilling exposure including HP, PTEN, WHD

·     Utilities & Solar; EXC active after Bloomberg reported the company is considering a breakup that would involve separating its non-utility assets, working with advisers to evaluate the split, adding the company could opt to keep its current structure; solar stocks again outperform early,

 

Financials

·     Bank movers; JPM reports a 4% rise in Q3 profit, helped by a surge in trading activity & IBD revs alongside lower provisions and slightly lower expenses – net income rose to $9.44B, or $2.92 per share (est. $2.23) in Q3, compared with $9.1B, or $2.68 per share, a year earlier while Q3 provision for credit losses down -60% YoY to $611M; Citigroup (C) posted a Q3 EPS and revenue beat helped by strength in the institutional clients business and as credit costs have stabilized as IC revenue rose 5% to $10.35B, as equity markets revenue grew 15% to $875 million and fixed income markets revenue increased 18% to $3.79 billion

·     Asset managers; BLK quarterly profit rose 22% to $1.36 billion, or $8.87 share, up from $1.1 billion, or $7.15 a share, a year earlier while revenue rose 18% to $4.37 billion (both company’s profit and revenue beat analyst estimates); AB announced prelim AUM decreased to $631 billion during September 2020 from $643 billion at the end of August; IVZ end of month AUM of $1,218.2 billion, a decrease of 2.2% versus previous month-end; MN reports preliminary AUM $19.2B as of September 30

 

Healthcare

·     Pharma movers; JNJ’s COVID-19 vaccine has been temporarily stopped due to an unexplained illness in a trial participant, according to a report by health care news provider STAT – separately, posted better-than-expected quarterly earnings and sales for Q3; LLY shares slipped mid-afternoon after the NY Times reported vaccine trial paused due to potential safety concerns; GOSS says its Phase 2B Leda trial in patients with moderate-to-severe eosinophilic asthma did not meet the primary endpoint of asthma worsening; FLXN reported 3q preliminary net sales of $23.6m for zilretta, its lone drug, topping the highest analyst estimate of $22.1m; VYGR said Investigational New Drug submission for VY-HTT01 for the treatment of Huntington’s disease has been placed on clinical hold pending the resolution of certain chemistry, manufacturing and controls matters; Dow component UNH to report earnings tomorrow morning

·     Biotech movers; MESO says that the randomized controlled Phase 3 trial of remestemcel-L in COVID-19 patients with moderate-to-severe acute respiratory distress syndrome has surpassed 50% enrollment; RGLS said it received a total of $5 million in milestone and material payments from SNY; VXRT says first subject has been given a dose of its potential COVID-19 vaccine, VXA-CoV2-1, in early-stage trial; AXGT said the FDA granted rare-pediatric-disease designation to AXO-AAV-GM2, in development for GM2 gangliosidosis, a neurodegenerative disorder also known as Tay-Sachs and Sandhoff disease; IVA announced that the FDA has granted Breakthrough Therapy Designation (BTD) to lanifibranor for the treatment of NASH

·     MedTech and Equipment; ILMN downgraded to neutral from buy at Guggenheim as continue to see Illumina benefiting from strong end markets in oncology and growth in use among NIH-funded researchers; however, with the stock up 30% (vs. +8% for the S&P) since the acquisition of Grail was announced now see the risk/ reward as less compelling

 

Industrials & Materials

·     Industrial & Machinery; FAST reported Q3 EPS 38c on sales $1.41B, in-line with expectations, and the company still sees FY capex in the $155M-180M range; AZZ reported Q2 adj EPS 49c on net sales $203.4M, which missed the $219M est. and fell from Q2 2019 $236.2M; JPMorgan upgraded AGCO to Overweight from Neutral and downgraded PCAR to Underweight ahead of earnings in machinery; Morgan Stanley initiated WM and RSG at Equal-Weight and WCN at OW; UBS upgraded GTES to Buy with 25% upside and downgraded AOS to Neutral on limited upside and a flattening improvement in demand

·     Transports; earnings get underway in airlines as DAL posts larger Q3 EPS loss of $3.30 vs. est. ($3.00) on adj revs $2.6B below the $3.1B estimate saying it’s been encouraged as more customers travel, seeing a path of progressive improvement in revenues, financial results, cash burn – may be two years or more until see normalized revenue environment; CSX was upgraded to outperform at Bernstein in strong rail space ahead of earnings

·     Aerospace & Defense; The European Union has won the right to impose tariffs on $4 billion in U.S. goods in retaliation for subsidies granted to plane maker Boeing (BA) under a World Trade Organization (WTO) ruling on Tuesday.

·     Metals & Materials; gold miners pressured (NEM, AEM, GOLD) as gold slides; LOOP shares dropped after a short report from Hindenburg research claiming Loop Industries "is smoke and mirrors with no viable technology”

 

Technology, Media & Telecom

·     Apple (AAPL) held its product event today: highlights included the company introducing 5G across all iPhone models; launched the iPhone 12 with faster 5G connectivity starting at $799, which has a 6.1-inch display, flat sides with a flush display, similar to the company’s iPhone 5 and a departure from rounded edges in recent years; also introduced a "Mini" version with a 5.4-inch screen for $699 and a "Pro" version with three cameras; iPhone 12 new OLED display has higher resolution, twice as many pixels as iPhone 11, has 460 pixels per inch; Apple phones include a14 bionic, which apple says is fastest chip; new iPhones available for pre-order Oct 16th; iphone 12 pro starts at $999, iphone 12 pro max is $1099; iphone 12 mini, iphone 12 pro max launch 11/13

·     Semiconductors; overall semiconductor index pulls back from record highs the day prior; MRVL reiterate buy and $50 tgt at Argus saying it is showing accelerating momentum in the 5G, Cloud, and Automotive end markets with its networking, connectivity, and storage products; MU upgraded to buy from hold with $60 tgt at Deutsche Bank saying latest industry checks suggest that DRAM demand has picked up in both mobile and server markets, leading us to believe that 4Q will likely be the trough of this short cycle; KLIC the latest chipmaker to raise guidance citing stronger demand from the general semiconductor and advanced LED end markets.

·     Software movers; RBC lifted NOW tgt to $600 from $510 and reiterated it as a favorite name after discussions with partners lead us to expect a very strong 3Q20 and success across the product portfolio driven by a resurgence in IT demand due to customers’ heightened focus on digital resilience; TEAM, TWLO, MDB, ESTC targets were raised at OpCo, who remains bullish on heading into September/October-quarter reports; TWLO was also upgraded at Rosenblatt to Buy with a $375 tgt from Neutral, and Canaccord, Mizuho, JMP, Needham, Morgan Stanley, and Wolfe were among analysts who reiterated bullish ratings and lifted their respective price targets following yesterday’s acquisition of Segment; BAND was reiterated at Buy with a price target increase from $175 to $225 at Canaccord after announcing the acquisition of Voxbone for an enterprise value of 446M euro; ATVI downgraded to Market Perform from Outperform with a revised target price of $80 at BMO Capital saying to take profits and step to the sidelines after an extraordinary run; Susquehanna upgraded CTSH to Positive from Neutral with a street-high $87 price target; Morgan Stanley initiated ADS at Overweight with a $67 pt and upgraded NTAP to EW from UW; U (Unity) was initiated with bullish ratings at Goldman, Credit Suisse, William Blair, and Piper, while Barclays, Stifel, and BofA initiated the stock with Neutral ratings; ZM rises ahead of its Financial Analyst Meeting tomorrow (10/14) during its premier customer event, Zoomtopia

·     Media & Telecom movers; DIS announced a strategic reorganization of its media and entertainment business in a continued effort to accelerate its pivot toward direct-to-consumer, with the previously announced Investor Day centered on its DTC strategies now dated for December 10th; CNSL discloses that Searchlight III CVL holds 8% stake or 6.35M shares in the company; VZ shares popped midday after its CEO talked 5G network coverage at the AAPL event

·     Hardware & Component news; CMBM increases revenues and net income above high-end of previous outlook as sees Q3 revs about $73M; UIS said Q3 revenue is expected to grow by $47M-$53M, up 10.7% to 12.1% compared to Q2; NTAP upgraded to Equal-weight at Morgan Stanley saying with corporate IT demand re-accelerating and coverage trading near a record discount to the S&P 500, they upgraded IT Hardware industry view to Attractive and raise tgts across sector (AAPL, DELL and STX Piper updating estimates for FFIV, FSLY and NTNX given our recent channel survey, calls with the management teams, and other industry inputs.

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Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.