Closing Recap

Wednesday, September 02, 2020

Equity Market Recap

·     Another day – another record high for stocks. The Nasdaq Composite another record close, rising for the 11^th time in 13-days, the S&P rises the 9^th time in last 10-sessions trading to another intraday record and the Dow Jones Industrials move to less than 2% of its all-time bests as September starts the same was August ended, with big gains. The story remains the same, tech leads while energy, financials lag, though defensive utilities and staples jumped as well, with investors making big bets daily on continued upside amid Fed accommodation, stimulus relief bill hopes and slowing COVID cases which are allowing restaurants, retailers, leisure, lodging related names to extend their relief bounce. Economic data has been mixed with stronger manufacturing, housing reports prompting a bounce in markets – but even after a big ADP employment figure miss today, stocks still went higher on expectations the Fed will continue to provide a low rate environment not to disrupt the economic recovery. Overnight hopes for a stimulus deal lifted futures as Treasury Secretary Mnuchin offered a higher number for the Trump administration’s proposed ceiling for a follow-on bill at $1.5T but is still way below what Democrats want. Commodity prices slip as the dollar rebounds against the euro after ECB comments about the recent rise in the euro, weighing on prices of gold and oil. Retailers got a bounce behind better-than-feared earnings results from VRA, CAL, GES, and Macy’s, while at the same time, energy stocks still among the most unloved on Wall Street. Software in focus with earnings from CLDR, CRWD, GWRE, MDB, ZUO among those expected to report). Transports continue to trade not far off 52-week highs (and closing in on record highs) on the bet that the global economy will continue to recover from the global pandemic impact. Seven of the thirty Dow components (NKE, PG, AAPL, MSFT, V, CRM, WMT) all touching 52-week highs on the day (though some closed in negative territory on profit taking).

Economic Data

·     ADP private payrolls showed 428K jobs added in Aug, below est. 1.0M, while ADP July payrolls revised to 212K from 167K (ahead of Friday nonfarm payrolls report)

·     Factory Goods Orders for July rise 6.4%, slightly beating the 6.1% estimate while new orders ex-trans rose 2.1% in July after rising 4.8% the prior month and new orders ex-defense for July rise 5.6% after rising 7.3% in June; capital goods non-defense ex aircraft new orders for July rise 1.9% after rising 4.3% in June; durables orders for July rose 11.4% after rising 7.7% in June

·     U.S. Congressional Budget Office (CBO) said the federal budget deficit for fiscal 2020 will hit $3.3 trillion, 16 percent of gross domestic product, down from its April 24 preliminary estimate of $3.7 trillion. Federal deficits will fall to $1.8 trillion in the fiscal year beginning Oct. 1, the CBO said, and will total $13 trillion over 10 years

Commodities

·     Oil prices slipped to close near their lows of the day, as WTI crude dropped -$1.25 or 2.92% to settle at $41.51 per barrel while Brent dropped -$1.15 to 2.52% to settle at $44.43 per barrel, pulling back despite bullish oil inventory data that was skewed due Hurricane Laura (draw nearly entirely due to shut in production last week in the Gulf of Mexico), while showed lower gasoline demand from a week earlier. Late day, Iraqi oil ministry spokesman affirms Iraq remains fully committed to OPEC+ oil cut pact agreed in April and the compensation mechanism agreed to in June. Renewed US dollar strength also weighed on commodity prices.

·     December gold futures fell -$34.20 or 1.7% to settle at $1,944.70 an ounce, pulling back as the dollar recovered off 2-year lows yesterday following mostly better economic data and comments out of the ECB noting the recent appreciation in its currency vs. the dollar. The strong rebound in U.S. manufacturing sector fueled hopes of a rapid recovery in the coronavirus-hit economy.

Currencies & Treasuries

·     After hitting more than two-year lows yesterday of 91.74, the dollar index (DXY) rose near the 93 level today (up 0.5%) following better factory orders and durable goods (though ADP jobs data was weak), which followed a better ISM reading the day prior. Comments from ECB member Lane saying the euro-dollar rate does matter weighed on the euro overnight, pulling back from its 2-year highs against the buck (and after having risen 10% from march lows).” “If there are forces moving the euro-dollar rate around, that feeds into our global and European forecasts and that in turn does feed into our monetary policy setting,” Lane said. The Australian dollar lagged after the country confirmed it is in a recession. After hitting the highest level in 5-months last we around 0.75%, the yield on the 10-year falls back to around 0.65% today as treasuries rise.

Sector News Breakdown

Consumer

·     Retailers; GES shares surge after earnings and resumed its quarterly dividend of $0.1125 per share to investors, while didn’t issue detailed guidance – revenue drops across its Americas retail (-44.7% Y/Y), Americas wholesale (-51.6%), Europe (-39.5%), Asia (-39.7%) in Q2 due to COVID; VRA another winner in retail as profit and sales rose for the recent quarter, buoyed by an acquisition and e-commerce performance that softened the effects of Covid-19 store closures, though also isn’t providing fiscal 2021 guidance due to Covid-19 uncertainties; Macy’s (M) Q2 adj EPS loss smaller than expected on better margins of 23.6%; LE which posted a surprise sales gain for the recent quarter, is guiding for sales declines for the fiscal third and fourth quarters due to dented demand amid the Covid-19 pandemic; sporting goods and gun stocks higher ahead of results from SPWH tonight and SWBI tomorrow morning (follows beats from DKS, HIBB); SCVL one of weak spots in retail following its earnings results overnight; CAL rose on earnings

·     Housing & Building Products; ZG upgraded to buy from hold at Deutsche Bank with $106 tgt as see meaningful upside potential to estimates across a number of vectors that can drive the shares higher – added Zillow to our short-term catalyst Call list as a Buy on June 8; HOME shares pull back after surge in shares, after posting only in-line quarterly revenue of $515M and not issuing guidance

·     Consumer Staples; BF rises as beats estimates for quarterly profit and net sales, as people stuck indoors due to COVID-19 restrictions bought more alcoholic beverages with bars closed/also maintains expectations to fully fund ongoing investments in its business and pay regular dividends; shares of KO, MNST, PEP were among some of the best gainers in the beverages/staples sector; in restaurants, the group again outperformed in reopen trade opens

·     Leisure and Gaming; DKNG shares surge after Michael Jordan will provide strategic and creative input to the board of directors on co strategy, product development, inclusion, equity and belonging, marketing activities; PTON price target raised to $105 from $58 at JPMorgan and keeps an Overweight rating on the shares ahead of the company’s fiscal Q4 results; PLNT tgt was raised to $81 at MKM Partners and Piper

·     Services; SERV said it agreed to sell several services units, including the Merry Maids cleaning business, to an affiliate of Roark Capital for about $1.55 billion, and refocus its business on its Terminix pest-control unit; QNST completed the sale of its Education media, client and campaign assets to private company EducationDynamics for $20M in cash; sale closed on August 31, 2020.

Energy

·     Energy stock movers; Natural gas prices fell, putting them on track for a fourth straight session of declines after a 46% run higher in prices during August; oil prices were active following weekly inventory data that showed bigger than expected drawdowns in inventory, a 6^th straight week of declines while gasoline and other fuel supplies also declined – though figures were skewed due to the impact of Hurricane Laura.

·     Stock movers; CLNE was selected by the NY MTA to provide its Redeem RNG to the agency’s 800 buses; SU initiated at Overweight with a C$29 pt at Barclays; MPC announced its plans to redeem all of its $475M senior outstanding notes; PSX said power may not be restored to its Lake Charles, LA refinery for up to 3 weeks; XOM started offering voluntary redundancy to Australian employees and is considering extending job cuts to its global operations in attempt to “right-size” the company; utilities were among the top performing sectors in the S&P

Financials

·     Bank movers; WFC was upgraded to Buy from Hold by Dick Bove at Odeon Capital, pointing out that even for all of the bank’s travails it’s still the largest private housing lender in the midst of a U.S. housing boom; HLNE 2.21M share Spot Secondary priced at $71.00; Visa (V) total U.S. payments volume rose 7% Y/Y. Credit payment declined 8% Y/Y, while debit payment grew 24% Y/Y partially due to the expiration of the elevated unemployment benefits; processed transactions increased 3% Y/Y.

·     REITs: busy sector after the Trump administration implemented a national moratorium on residential evictions through the end of the year based on the 1944 Public Health Service Act. The new ban covers tenants who certify that they have lost “substantial” income; that they expect to make no more than $99,000 in 2020 or received a stimulus check; and that they are making their “best efforts” to pay as much of their rent as they can – evictions for reasons other than nonpayment of rent will be allowed to proceed (shares of AVB, EQR, UDR, AIV, ESS, CPT, MAA are among names that could be impacted by ruling); in data REITs, Wells Fargo said on the group (CONE, DLR, QTS) following very strong leasing in Q2 for the data center REITS, they see emerging signs that hyperscale leasing could slow in 2H 2020 and into 2021, particularly in the U.S and Northern Virginia

·     Services; HRB capped off the most unusual tax season in its history with a better-than-expected adjusted earnings print for 1Q21 (the quarter ended July 31), which is typically an uneventful, off-season period for the company but had increased significance due to the extension of the U.S. tax filing deadline to July 15 from April 15 as a result of the COVID-19 pandemic – year-over-year increase in total volume was driven by a 10.6% increase in its do-it-yourself (DIY) online filing volume to 6.7mm. That increase helped to offset a 2.8% decline in assisted filings to 11.5mm

Healthcare

·     Pharma movers: RHHBY confirmed it would be launching a rapid COVID-19 instrument-free antigen test in late September in countries that accept the CE mark. The test will provide results in 15 minutes and has a sensitivity of 96.52% and specificity of 99.68%; Piper notes the November elections could drive meaningful upside for the US marijuana industry (CGC, TLRY, ACB) as Democratic control of the Senate or a Biden Presidential victory both look very possible based on current polls which could drive ongoing favorable regulatory; AMRN falls after reports that judges have been assigned in its appeal of an adverse ruling by a Nevada court opening the gate for generic versions of Vascepa (icosapent ethyl)

·     Biotech movers; CVAC shares active after reports that the company was meeting with Elon Musk, Tesla’s chief executive, in Germany this week; TWST announces potent sars-cov-2 neutralizing data from covid-19 therapeutic antibody program; MESO said it has received ethics approval to include Australian hospitals in the Phase 3 randomized controlled trial of remestemcel-L in ventilator-dependent COVID-19 patients with acute respiratory distress syndrome; CORT surged as the U.S. Patent Trial and Appeal Board heard arguments on the validity of a patent on its only drug, Korlym

·     Healthcare services and providers; TDOC upgraded to buy and raises tgt to $252 from $157 at Berenberg as the company benefits from patient shift to telemedicine accelerated by the pandemic; SDC shares rise initially after filings showed the CEO acquires 12.78M shares in the company at price ranging between $7.63 to $8.25; OSH announced that it is opening 3 pilot clinics within Walmart Supercenters – these clinics will provide a similar scope of services as a typical OSH center

Industrials & Materials

·     Transports; Dow Transports traded flattish most of the morning early afternoon as airlines with modest gains; KSU spiked late day after the WSJ reported a group of buyout investors has made a takeover offer for railroad operator Kansas City Southern, which has a market value of more than $17 billion https://on.wsj.com/3lFxnXY ; UAL plans to cut 16,000 jobs as coronavirus continues to hammer demand; in metals & Materials; shares of gold miners (NEM, GOLD, FNV, AEM, GFI) decline after the bullion falls as the dollar rebounded and strong U.S. manufacturing data raised hopes of a swifter global economic recovery

Technology, Media & Telecom

·     Internet; DOCU reiterated as Outperform at OpCo, who raised their price target to $300 from $200 ahead of earnings report tomorrow as the firm sees the fastest growth since DOCU’s IPO and upside in both the short-term and long-term; PINS pt lifted at Baird to $41 from $35, and they maintain Outperform rating; PS initiated as a Buy with $25 pt at DA Davidson; BTIG lifts pt on EXPE to $120 from $100 as a hospitality recovery play

·     Semiconductors: NVDA officially unveiled its GeForce RTX 30 Series GPUs based on the Ampere architecture. The GeForce RTX 3090, 3080 and 3070 GPUs also utilize the second-gen Nvidia RTX PC gaming platform for real-time ray tracing and AI gaming; Argus lifts pt on MRVL to $50 from $40 and maintains its Buy rating; AVGO reiterated as a buy at Rosenblatt ahead of earnings tomorrow night – also saw strength in semi-equipment names into results (AMAT, LRCX); INTC higher today after launching “Tiger Lake”, the 11th generation version of its flagship laptop chips saying equipment will be available for the holiday season with the 11th Gen core processor

·     Software movers: MSFT shares active on reports deal talks between U.S. companies and TikTok have hit a snag over whether TikTok’s algorithms would be included in any package. According to The Wall Street Journal, restrictions issued by the Chinese government last Friday, which place new rules on the export of artificial intelligence technology, threw into question whether TikTok’s algorithms could be included in a sale to a U.S. buyer; GSX falls after disclosed investigation by SEC enforcement division during earnings results; Bloomberg reported a U.S. appeals court denied ORCL’s appeal in its dispute over the Pentagon’s $10B cloud-computing contract, according to a report from Bloomberg this morning

·     Media & Telecom movers; ATUS offers to acquire 100% of the issued and outstanding shares of Cogeco for $7.8 billion; dating app Bumble is preparing for an initial public offering that could come early next year, Bloomberg reported and could seek a valuation of $6B-$8B; VHC disclosed that the U.S. District Court for the Eastern District of Texas yesterday denied a motion for relief from judgment brought by Apple, upholding $440M verdict; AMC rises after its latest update for U.S. reopening plans for the upcoming Labor Day weekend/said 70% of U.S. AMC locations will have resumed operations by this weekend as the company welcomes guests at about 420 theaters nationwide