Closing Recap

Tuesday, September 01, 2020

Equity Market Recap

·     Lather Rinse Repeat – same recap, new day as technology again paces market gains, with the Nasdaq making it another record high (up 10 of last 12 days and if not for a small slip decline last week, would be up 9-straight days), led by all the usual suspects (AAPL, AMZN, GOOGL, NFLX) as well as software with “stay at home” beneficiaries rising behind ZM’s incredible quarterly results. Stock markets just add on to last month’s incredible gains (Nasdaq rose 9%, S&P, Dow each over 7% in August) as stimulus hopes, an accommodative Fed, strong earnings and improving economic data all continue to push stocks to record highs. The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 56.0 last month from 54.2 in July which was the highest level since January 2019 and marked three straight months of growth. It followed data out of China and Europe that showed an uptick in manufacturing last month. With COVID-19 cases slowing along with death rates, markets have just soared with no negative market catalysts dragging down momentum. The dollar dropped to a two-year low before recovering while Treasury yield fell from multi-month highs midday.

Economic Data

·     U.S. IHS Markit August final manufacturing PMI at 53.1 (vs. flash 53.6); new orders index for august at 54.1 vs. flash reading 54.3 vs. final July 51.3; PMI and new orders index both at highest since January 2019

·     July construction spending rises +0.1% vs. est. 1% and compared to June down (-0.5%); private construction spending rose 0.6% and public spending down (-1.3%)

·     ISM manufacturing activity index rises to 56.0 in August (highest since January 2019), topping the consensus for 54.5 reading and was above the 54.2 reading in July; prices paid index 59.5 vs. 53.2 in July, new orders index jumped to 67.6 (highest since December 2017) from 61.5 in July and the employment index 46.4 topped 44.3 in July

Commodities, Treasuries and Currencies

·     Commodity prices were higher, but pared gains as WTI crude rose 15c to settle at $42.76 per barrel (well off earlier highs) while Brent rose 30c to $45.58 per barrel as earlier weakness in the dollar (fell to fresh 2-year lows) helped boost prices early – but prices reversed midday with the dollar index (DXY) ending near its best levels around 92.40 (off 91.74 lows). Strong economic data helped give the buck a boost but remains pressured as the Fed has made it clear they are in no rush to raise rates anytime soon. Gold also fell from highs to gains a mere 30c at $1,978.90 an ounce (off highs just above $2,000 an ounce). U.S. Treasury yields fell, with the 10-yr yield down 3 bps to 0.67%, off earlier highs around 0.73%.

Sector News Breakdown

Consumer

·     Retailers; WMT unveils perks of its new membership program, Walmart Plus, which will grant subscribers unlimited free delivery, fuel discounts and no checkout lines as the new loyalty program will cost $98 a year, or $12.95 a month, slightly cheaper than AMZN Prime membership; BBW shares rise after earnings as Q2 E-commerce sales jump near four-fold, helping beat Wall Street revenue estimates and said have seen (Q3) sales trends steadily improve in store locations; JILL has just 10 days to get permission from the vast majority of its lenders for a deal that would extend the struggling retailer’s debt maturities, excuse it from financial covenants and give it fresh cash; SPWH shares rise ahead of earnings (DKS, HIBB recent good results)

·     Restaurants; busy morning for group that has continued to rebound as COVID-19 cases have slowed; BLMN upgraded by two analysts as Deutsche bank raised to buy with $20 tgt as believe that there is still ~40% upside over the next 12 to 18 months while Raymond James also upgraded to strong buy with $18 tgt, while the firm downgraded EAT as it has been the strongest performing stock in their universe behind better than expected F4Q results/F1Q guidance and cut DRI as see a somewhat mixed NT setup ahead of the company’s F1Q release; Raymond James also upped tgts on CHUY, FRGI and RUTH tgt raised to $1,600 from $1,320 at Wedbush

·     Gaming sector; PENN rebounds after Craig Hallum said the sports betting and online gaming (i.e. blackjack, roulette, slots) market is less than $2B today but is expected to grow to $20B+ over the next decade as initiates with buy and $75 tgt but sees potential to $200 plus; Bloomberg reported that William Hill eyes CZR’s online gaming after completing purchase of CG Technology which was spun off from Cantor https://bloom.bg/3i0gjti ; WYNN, MLCO, MGM active after gaming revenue in Macau fell 94.5% in February to 1.33B patacas ($167M), with the relaxation of travel and visa restrictions in some regions only leading to a minor bump of traffic months end; TSLA shares erase gains (traded up over 8% pre-mkt) after entered into an agreement with a syndicate of banks to sell up to $5.0B of its shares over time

Energy

·     Energy stock movers; LBRT gains after SLB sells its North America fracking business to Liberty Oilfield as move comes as U.S. oil producers cut spending on well completions to cope with a plunge in energy demand; TOT announced a 50/50 partnership with Macquarie’s Green Investment Group to develop 5 floating offshore wind projects in South Korea; MUR initiated with a Buy rating and $22 pt at Truist; Goldman Sachs reiterated Conviction Buy rating on PXD and raised it tgt to $132.50 from $127

·     Utilities; NEE announces it will invest nearly $800M to build 700 MW of battery storage in CA before the end of 2022, and stock was reiterated as a long-term hold and OW rating at Wells; Morgan Stanley upgraded SR to Equal-Weight from UW, but lowers their tgt to $63 from $68; FE has started the auction process for its Pennsylvania utilities, which is currently scheduled for October 26

Financials

·     Bank movers; Wells Fargo sees upside for large cap banks (C, BAC, JPMon declining Covid cases, historically low valuations providing unique risk-to-reward conditions, and shifts to value from growth; but overall banks continue to lag broader markets; ; JPM also announces a new Freedom Flex credit card, developed in a partnership with MA

·     Insurance; GNW rises on after its management team does not terminate their merger agreement with China Oceanwide Holdings Group Co. Ltd (Oceanwide) after confirming Oceanwide has provided satisfactory information on its funding plan to complete its $2.7B acquisition of GNW, to be completed no later than Sept 30

·     Consumer Finance; PYPL tgt raised to $238 from $220 and names best idea for the back half of the year at KBW Inc.; SQ could reach $250-300 in bull case according to Wedbush; Wells says that is time for more card exposure (AXP, COF, SYF, DFS) as these companies are weathering credit storm and may have less 3Q reserve builds than anticipated, and there is also chatter of hedge funds buying these companies early; MELI board authorized up to $350M in stock buybacks; SQ rises again after Wedbush sees a bull case of $250-$300

·     REITs; KeyBanc upgraded EXR to sector weight from underweight as the downside that led to their downgrade on April 16 does not appear to be materializing, and current conditions may lead to improving internal and external growth opportunities, while reiterating OW rating on LSI (raised PT to $110 from $106) and SW ratings on CUBE, NSA, and PSA

Healthcare

·     Pharma & Services movers; SNY and REGN said that the rheumatoid arthritis drug Kevzara failed a Phase 3 clinical trial testing the therapy as a treatment for severely ill COVID-19 patients; ABBV shares weak after U.S. house oversight panel subpoena seeks documents from AbbVie from 2009 through 2019 regarding Humira, Imbruvica; ATNX shares jump as the FDA grants priority review to Athenex’s marketing application for its oral metastatic breast cancer treatment; HUM raised its profit outlook due to the change in market value of its equity price; INMB received FDA approval to begin a mid-stage clinical trial for Quellor as a treatment for immune mediated complications in COVID-19 patients

·     Biotech movers; GILD announced an agreement with JNCE to exclusively license its JTX-1811 program (GILD to make $85M upfront payment and $35M equity investment); PSTV said the FDA grants orphan drug designation for its lead investigational drug, Rhenium NanoLiposomes; for treatment of patients with recurrent glioblastoma, an aggressive type of brain cancer; ORTX says additional interim data from clinical trial evaluating safety and efficacy of OTL-203 for treatment of mucopolysaccharidosis type I support planned initiation of registrational trial in 2021

·     MedTech and Equipment; QDEL announced a stock buyback; MDT announced it has received U.S. FDA approval of its MiniMed 770G hybrid closed loop system; DGX slides after Florida Department of Health severs ties with company after the company failed to report almost 75k results in a timely manner since April

Industrials & Materials

·     Industrial & Machinery; KODK shares jump after D.E. Shaw reports 5.2% stake as of Aug. 21 in a 13G filing; FTV said it will get a $1.6B contribution from Vontier as part of the spinoff of its transportation and mobility business. Fortive plans to distribute 80.1% of Vontier to its shareholders by the end of the year, issuing two Vontier shares for every five Fortive shares held.

·     Transports; overall Dow Transports outperform up roughly 1%; airline trade group IATA says July’s 80% drop in air traffic from a year ago fell short of the expectations baked into its 2020 forecast for an industry loss of $84B this year, and bode ill for the peak summer season.

·     Metals & Materials; copper prices rise to two-year highs, spurred by data showing that Chinese manufacturing activity last month grew at its fastest pace in almost a decade (shares of FCX, SCCO were active); WY purchased about 85K acres of timberlands in mid-coastal Oregon in one transaction, and sold 149K acres of timberlands in southern Oregon in a second transaction with net cost of these two separate transactions is approximately $40M in cash; OLN ests lowered at Truist based on an incrementally weaker near-term outlook for caustic soda prices

Technology, Media & Telecom

·     Semiconductors; QCOM was upgraded to Equal Weight from Underweight at Wells Fargo, and boosted tgt to $120 from $90 based on higher peer group valuation metrics as well as various possible outcomes to the Huawei situation; AVGO unveils Gen 7 64Gb/s Fibre Channel switching platforms; SITM raised Q3 rev guidance to $31M-$32M from prior $28M-$29M which includes initial revenue from a new design win at a large existing customer; COHU said it now expects Q3 revenue at high-end of guidance at approximately $146M (est. $140.4M)

·     Software movers; ZM the story of the day as the media conference company soared as much as 40% after another historic quarter in F2Q21, with revenue at $664M (+355% y/y) vs. consensus at $500M and billings at $854M (+384% y/y) vs. consensus at $553M and 32% q/q and raised its yearly profit and revenue outlook well above consensus, prompting many analyst tgt hikes (shares of work from home stocks rose in sympathy WORK, DOCU); ZEN was upgraded to overweight at Piper and upped tgt to $123 as see several underappreciated levers that could spark a demand recovery into 2021.

·     Hardware & Component news; AAPL rises again early following its recent 4 for 1 stock split, as well as reports (from Bloomberg) that it has asked suppliers to build at least 75 million 5G iPhones for later this year, roughly the same as last year; NPTN was upgraded at B Riley to buy based on Huawei being de-risked while demand from non-Huawei customers remains strong, following the company’s Q3 update reaffirming views; RXT reports higher revenue, as Q2 bookings rise 107% to $288M and issues a better forecast for 2020 profit