Closing Recap

Friday, September 03, 2021

Equity Market Recap

·     Despite all the hype heading into the August nonfarm payroll report today, which disappointed Wall Street economist estimates, U.S. major averages finished mixed on light volume for the final Friday of the summer into the long Labor Day weekend holiday. Markets looked bleak to start after the headline jobs figure missed estimates (235K vs. 725K est.), but it didn’t matter, as stocks do what they have been doing for months now, rallying on any market dip. Investors also not showing any concern to the slowing economic growth views as Goldman Sachs said this week it is now expecting GDP to grow just by 3.5% this quarter, its second downgrade in a month (it was 8.5% just one month ago) while Morgan Stanley yesterday cut its Q3 GDP to just 2.9% from 6.5% previously. The S&P 500, Nasdaq advanced while the Dow Jones Industrials, Transports and Russell 2000 index all ended the day lower.

·     There were several negative headlines for today/this week, but none failed to dent investor optimism: 1) Aug jobs headline miss obviously disappoints, which also follows near record plunge in consumer confidence, and the troubling contraction in retail sales where reports have missed expectations for 3 months in a row; 2) Democrats discussing taxes on stock buybacks, excess CEO pay, 3) news yesterday that Senator Joe Manchin is demanding a "strategic pause" in action on President Joe Biden’s economic agenda, potentially imperiling the $3.5 trillion tax and spending package; 4) also more China regulation news overnight on entertainment industry and a week of contracting PMI data as well, but had no effect on commodity related prices or stock. Inflation still not even a blip on investor radars with the Fed continuing to echo that price hikes are “transitory – despite prices remaining at decade highs for 6-months now.

·     Stocks/sector movers: In software earnings, MDB spikes as much as 25% to its ATH above $500 (previous ATH $428 in Feb) after a narrower than expected quarterly loss and revenue beat and $DOCU jumps on its strong earnings, billings, and guidance; AVGO rose after its earnings beat as semis outperform; precious metals (gold, silver, platinum) jump along with miners and crypto space with (Bitcoin, Ethereum highest prices since mid-May) after a wide jobs miss; HPE gains on mixed earnings, PD spikes on its beat, JOAN plunges on its sales miss; cruise lines (CCL, RCL, NCLH) among the worst performers in the S&P as reopen names lag PLNT, LUV, AAL, LYV, SIX etc.

Economic Data:

·     August Nonfarm payrolls reported at 235K (big miss) vs. est. 728K (prior reading revised to 1.053M from +943K); Private payrolls rose 243K vs. est. +665K jobs added (prior month revised to 798K from+703K in July); Manufacturing payrolls rose 37K vs. est. 25K. The unemployment rate falls to 5.2%, in-line with estimates and down from 5.4% in July; Average hourly earnings rose +0.6% well above est. +0.3% MoM and rose 4.3% YoY vs. est. +4.0% Yoy.

·     ISM Non-Manufacturing index for Aug in-line. U.S. services industry activity grew at a moderate pace in August, as the ISM said its non-manufacturing activity index slipped to 61.7 last month after racing to 64.1 in July, which was the highest reading in the series’ history, but in-line with views. Supplier deliveries fell to 69.6 last month from a reading of 72.0 in July and prices paid by services industries fell to 75.4 after surging to near a 16-year high of 82.3 in July.

·     Markit August final composite PMI at 55.4 (vs flash 55.4) and services PMI at 55.1 (vs flash 55.2).

Commodities, Currencies & Treasuries

·     Oil prices slide on the day, but end higher for the week, with WTI crude down -$0.70 or 1% to $69.29 per barrel, while Brent dropped -$0.42 or 0.58% to settle at $72.61 per barrel. For the week, WTI crude managed a less than 1% advance as a weaker dollar, bullish inventory data and OPEC+ JMMC meeting showed no need to adjust existing oil policy. Front month Nymex natural gas rose 7.38% this week to settle at $4.7120mln btus

·     Gold prices jump $22.20 or 1.2% to settle at $1,833.70 an ounce, highest level in a few months as a surprise slowdown in U.S. jobs growth in August drove the dollar lower, casting doubts on the Federal Reserve’s tapering timeline. Gold posts its fourth straight weekly gain, rising about 0.8%. Fed Chair Jerome Powell said last week that if job growth continued, the Fed could start cutting asset purchases this year, but would remain cautious about raising interest rates.

·     Crypto ends the week on a strong note as Ether, the second-biggest cryptocurrency passed $4,000 for the first time since May 15, with analysts citing frenzied demand for non-fungible tokens (NFTs) as a driver of recent momentum. The token, linked to the ethereum blockchain has soared around 25% in the last 15 days. Bitcoin also strong, topping $50K again this week.

·     The U.S. dollar fell to a fresh 2-month low against the euro, as the dollar index fell to lows around 92 – no strength in the buck given weak economic data and a dovish Fed (backdrop remains the same). The dollar/yen fell from just under 110.00 to 109.62 in the immediate aftermath of the jobs report, as the weak NFP print initially pushed back Fed tapering expectations, which weighed broadly on the dollar.

·     U.S. Treasury yields rose after Labor Department data showed U.S. employers pulled back on hiring in August during a surge in Covid-19 cases. The 10-year hit highs of 1.335% at first but steadied the remainder of the day around the 1.32% level. Hiring was weak in services sectors that involve in-person interaction, and jobless individuals who are fearful of Covid-19 were slower to return to the labor market.

Sector News Breakdown

Consumer

·     Retailers; OXM Q2 EPS $3.24 vs est. $2.33 and revenue $328.7M vs est. $308.2M; GM 64.3% vs consensus 63.0%; OM 22.0% vs consensus 16.6%; inventory (48%) y/y; guides Q3 EPS $0.20-$0.30 vs consensus ($0.25); JOAN slides as sales came in below expectations and the outlook for 2H has now moved lower (delay of events/ gatherings due to Delta), while Telsey downgraded due to limited visibility into the normalized demand level for arts & crafts, following a (29.9%) comp in 2Q21 that missed; TLYS Q2 EPS $0.66 vs consensus $0.51 and revenue $202.0M vs consensus $197.9M; comps +18.3% vs 2Q19; GM 37.0% vs consensus 34.1%; REAL reports August GMV ~$124.0M, +56% y/y and 41% vs 2019; AOV ~$477, +6% y/y and +8% vs 2019; says women’s shoes and women’s apparel were the fastest growing categories in August; PTON extended recent declines on report Peloton app has declined in each of the seven months, and rapidly in the last four months, according to data from app intelligence service Apptopia.

·     Auto sector; TSLA CEO Elon Musk said last night in a company wide call that “this month will be the craziest month for deliveries Tesla will ever have.” He also told workers he’s hoping to have a $25K car available sometime in 2023; DIDI shares edged higher after Bloomberg reported Beijing is looking to take a stake and take company under state control.

·     Consumer Staples; CLX downgraded to Hold from Buy at Argus noting the company’s revenue has fallen from peak levels during the early months of the pandemic last year, with sequential declines in three of the past four quarters; SEC charges KHC and two former executives for engaging in years-long accounting scheme saying engaged in "accounting misconduct" to "improperly" reduce cost of goods from late 2015 to end of 2018; UTZ files $750M mixed securities shelf; Kellogg (K) said it plans to reorganize its North America supply-chain network to be more productive, help offset cost inflation and reinvest in its brands; BYND discloses resignation of COO Sanjay Shah, effective immediately.

Energy

·     Energy stock movers; Oil posts back-to-back weekly gain as traders weighed the impact of Hurricane Ida on U.S. oil infrastructure. West Texas Intermediate futures were little changed on Friday, but 1.8% higher for the week. Exxon Mobil Corp. is tapping the U.S. Strategic Petroleum Reserve with more than 90% of the Gulf of Mexico’s oil production still shut after the hurricane, while Louisiana’s refineries are still reeling from the impact of the storm. The weekly Baker Hughes (BKR) rig count falls to 497, oil rig count down -16 to 394 while gas rugs rise 5 to 102.

·     E&P and Majors; CVX is said to be preparing to defend itself from a possible activist challenge from the same group that targeted XOM earlier this year, the WSJ reported. Chevron has recently met with Engine No. 1, the activist who won three seats on Exxon’s board; yesterday, XOM tapped the U.S. Strategic Petroleum Reserve to revive gasoline production in Louisiana after Hurricane Ida left much of the state’s refining and oil production offline; FTI sells 9.9% stake in Technip Energies N.V. to HAL Investments. Reuters reported CVX is looking to sell its oil and gas assets in Eagle Ford Basin in south Texas for as much as $3.8 billion.

Financials

·     Services, Consumer Finance; Visa (V) shares remain pressured following recent reports that Amazon Australia will begin surcharging customers using Visa credit cards starting November 1st (0.50% surcharge on these purchases). Further, Amazon Australia is giving customers with a Visa credit card as their default payment method an AUD$20 gift card when they add a different method; TW reports Volume of $19.8 Trillion in August; August Average Daily Volume was $900.4 billion, an increase of 20.6% YoY; KPLT shares advanced after KeyBanc suggested in a note the potential for an Amazon partnership in the future.

·     Fintech, Bitcoin news; SEC investigates crypto-exchange developer Uniswap Labs according to the WSJ. Regulators are examining Uniswap Labs, the main developer of the world’s largest decentralized exchange, called Uniswap, as enforcement attorneys are seeking information about how investors use Uniswap and how it is marketed; FTFT signed deal to buy 51% of software-as-a-service firm Shanghai Dianfa Internet Technology for $2.8M in a cash and stock deal; MARA said it company produced 469.6 new minted bitcoins during August 2021, increasing total bitcoin holdings to approximately 6,695 with a fair market value of approximately $316.4M.

Healthcare

·     Pharma movers; AZN and the EU have agreed a C-19 vaccine supply & ended the litigation; the deal will ensure delivery of the remaining C-19 shots to EU countries; will deliver 60m doses by the end of Q3 & 135m by year end; Europe’s medicines regulator said on Friday it was reviewing if there was a risk of a rare inflammatory condition after inoculation with COVID-19 vaccines, following a report of one case with PFE shot; ARDX said data from its late-stage study showed co’s drug tenapanor providing "significant" phosphorus reduction in patients with chronic kidney disease on dialysis; U.S. government regulators have told the White House they may not have enough data to recommend COVID-19 booster shots except for certain PFE recipients by late September, the New York Times reported on Friday; MRNA shares surged late day after completes submission to FDA on booster dose.

·     Biotech movers; FBRX tumbles over 80% after its mid-stage trial for FB-401, its experimental treatment for eczema, failed to meet its main goal; says it will not continue with further clinical trials of topical treatment, which was its only drug candidate; SAVA released a public statement regarding recent claims made against company saying they intend to defend ourselves & stakeholders against "false and misleading allegations"; APOP announced the first ApoGraft transplantation in a Leukemia patient in the company’s clinical trial at Washington University.

·     Healthcare Services & MedTech Equipment; GKOS announces submission of supplemental pre-market approval application for iStent infinite™; COO reported F3Q21 revenue upside in both divisions and better-than-expected EPS and again walked up FY21 revenue guidance but EPS of $13.20-$13.40 remained unchanged.

Industrials & Materials

·     Industrial & Machinery; ACT released August preliminary Class 8 net order figures of 36,900 units (implying a ~517K unit SAAR), +90.3% y/y and +43.0% sequential (impactful for ALSN, CMI, PCAR), but Stephens noted that the y/y comparison remains skewed as the market continues to mute equipment ordering in mid-2020.

·     Transports; in airlines, ALK lowered its Q3 guidance, citing worsening booking trends as COVID-19 cases rise once again in the six weeks since its last guidance was released – said now sees up to $50M in cash flow from operations, in the lower end of its previous guidance of up to $100M as forward bookings slow down; in online travel, SABR Aug. gross air bookings -64% from 2019 and said hotel reservation transactions down 22% vs 2019; in rails, CNBC David faber said the board of KSU will meet today or tomorrow and likely open takeover talks with CP (follows the Surface Transportation Board’s decision to deny the use of a voting trust in connection with the definitive merger agreement between CNI and KSU this week).

·     Metals & Materials; ASH announces $450 million accelerated share repurchase program; CCJ upgraded to Sector Perform, from Underperform, and raise our PT to $26, from $17 at RBC Capital saying for uranium, believes the combination of a rising spot price and a strong undercurrent of positive sentiment for the uranium sector may support elevated valuation multiples for uranium equities for the foreseeable future; precious metals outperform with WPM, HL, as well as ETFs SLV, AGQ amid a rebound in silver/gold prices; LAC gains after U.S. judge denies request from Native Americans to temporarily block LAC from excavating lithium mine site.

Technology, Media & Telecom

·     Internet; VIPS downgraded to Neutral at UBS as expect its user and revenue growth to slow down to only single digit for the next few quarters; JD pulls 87 unauthorized games from platform amid Beijing crackdown; PINS said its chief accounting officer to leave to pursue other opportunity; JD buys controlling China Logistics stake for $2.1 billion; YEXT slides as forecast a wider adjusted loss per share for fiscal year 2022.

·     Semiconductors; AVGO reported results and provided guidance above Consensus driven by strong demand from its semiconductor segment (74% of sales)/ reported OctQ Wireless growing 33% q/q, Enterprise up ~15% q/q highlighting a stronger Enterprise recovery into F22, BUT Industrial down ~10-11% q/q; WDC rises after Reuters reports Japan’s trade ministry ready to back WDC’s bid to merge with memory chipmaker Kioxia if control of key tech stays in Japan (Last month, a source told Reuters WDC was in advanced talks for a possible $20-bln stock merger with Kioxia, which would create a NAND memory giant rivaling Samsung Electronics).

·     Software movers; DOCU (shares rise) posted solid 8% beat to Q2 billings, which grew 47% Y/Y, net expansion rate remained elevated at 124% and new customer additions were in-line with FY’21 levels; MDB (shares rise) reported smaller-than-expected Q2 loss as revs above Street estimates ($198.7M vs. $184.2M) helped by 83% yoy rev growth of its cloud database service, Atlas and guided Q3 revs $202.0M-$204.0M vs. est. $198.3M; PD (shares rise) reported a solid qtr as billings growth of 36% was above Street of 29%, a nice bounce back qtr while NRR reaccelerated from 121% to 126% on stronger cross-sell (Digital Ops +100% Y/Y) and 3Q rev guide of +29-32% was above Street of 27%; GWRE (shares rise) beat Q4 expectations with total revenue of $229.4mn vs. the Street at $222.4mn and guide of $218mn–$224mn and had 17 GWCP deals, a significant uptick from the 8 GWCP deals in F3Q while ARR was $582mn (+13% y/y) vs. guide of $562mn-$569mn; OOMA (shares rise) beat and raise; 2Q adj EPS $0.13 vs est. $0.09 on revs $47.1Mm vs est. $46.4Mm; guides 3Q adj EPS $0.08-0.11 vs est. $0.07, sees 3Q revs $47.8-48.5Mm vs est. $46.7Mm.

·     Media & Telecom movers; AMZN planning to launch its own branded TV in the US as soon as October according to a report in Business Insider (shares of ROKU slipped yesterday); shares of Chinese tech companies listed slumped in the U.S. comes as officials in Shanghai are suspending a route long used by firms in the technology sector to draw foreign investment. The decline also follows news that China’s broadcast regulator is ordering curbs on the entertainment industry, moving to ban film stars with “incorrect” politics, cap salaries and curtail fan-based culture.