Closing Recap

Tuesday, September 15, 2020

Index	Up/Down	%	Last
DJ Industrials	1.09	0.01%	27,994
S&P 500	17.58	0.52%	3,401
Nasdaq	133.67	1.21%	11,190
Russell 2000	1.18	0.08%	1,538

 

Equity Market Recap

·     U.S. stocks add to Monday gains with most S&P sectors closing higher, led by REITs, Communication Services, Technology and Discretionary while the biggest laggards were energy and financials – though stocks slipped late day, paring gains. For a second day, “reopen” related sectors outperformed (restaurants, REITs), along with another bounce in technology led by semiconductor (SOX up 2% for a 2^nd straight days), mega caps (TSLA, NFLX, FB, AMZN) and software ahead of Adobe earnings tonight. Financials/Banks were among the biggest drags in the S&P, falling after several large cap companies (JPM, BAC) issued expectations of weaker net interest income trends into 2021 at an investor conference today. Cruise lines fell after CCL filed a $1 billion common stock offering. Transports will also be in focus tonight with FedEx earnings expected after the close. Most of the afternoon tech headlines surrounded Apple’s new product launch for watch, iPad, and fitness trackers, including bundle plans.

·     Oil prices jumped late day, rising ahead of Hurricane Sally expecting to make landfall. Economic data today was better as U.S. import prices increased more than expected in August and gains in the prior month were revised sharply higher, supporting the view that inflation pressures were building up, while Empire Manufacturing also topped views for September. The U.S. data points followed better results out of China last night as retail sales returned to growth for the first time in 2020, rising 0.5% in August from a year earlier, and China Industrial production rose 5.6%, up from July’s 4.8% increase. The dollar was mixed while Treasury yields inch higher.

Economic Data

·     Import prices rise +0.9% vs. est. 0.5% and compared to July up 1.2%; and Aug export prices +0.5% vs. est. 0.4% vs. July 0.9%; Aug year-over-year import prices -1.4%, export prices -2.8%

·     Empire Manufacturing rose to 17.0 in September, topping the 6.0 estimate and was above the prior month reading of 3.7

·     Industrial output rises +0.4% vs. est. 1% and vs. July up 3.5%; Capacity utilization rate 71.4%, which was in-line with estimates and above the July 71.1% reading

 

Commodities

·     Oil prices ended higher, with WTI crude rising late day to finish higher by $1.02 or 2.74% to settle at $38.28 per barrel, buoyed by better economic data in the U.S. and China, ahead of weekly inventory data, and possible production disruption due to another hurricane. Slow-moving Sally weakened to a Category 1 hurricane and is expected to maintain that strength with sustained winds of 85 mile per hour through landfall by early Wednesday, the U.S. National Hurricane Center said. More than a fifth of U.S. offshore oil production was shut and key exporting ports were closed as a precaution ahead of Hurricane Sally’s landfall on the Gulf Coast.

·     Gold prices edge higher $2.50 or 0.1% to settle at $1,966.20 an ounce, rising a second straight day to its best level in roughly 2-weeks ahead of the FOMC policy statement tomorrow afternoon. With the Fed expected to remain dovish, especially after their policy shift a few weeks ago when they said they would allow inflation to rise and not act on rate hikes, gold prices have been climbing over the last week or so. Copper was near 2-year high as Chinese factory output accelerates

 

Currencies & Treasuries

·     Treasury yields edged higher amid another bounce in U.S. stocks and selling pressure in safe-haven assets, with the 10-year yield inching higher 1 bps to 0.687%, and the 30-yr yield up 3 bps to 1.44% while the 2-yr note yield was steady at 0.14%. Investors drove longer-term U.S. Treasury yields higher while the Federal Reserve began a two-day meeting, with a decision expected tomorrow. U.S. stocks opened higher as upbeat data from China revived optimism around an economic rebound, while investors looked for more stimulus from the Fed.

·     The U.S. dollar was little changed, to down slightly, as the dollar index (DXY) was down around the 93 level (93,14 high and off 92.78 low), a 2-week low against the Japanese yen ahead of the FOMC meeting tomorrow where expectations are they will maintain its downbeat stance on the U.S. economy as it grapples with the pandemic, and keep U.S. interest rates near zero for some time. The Fed has been very dovish over the last few months, increasingly so given the economy struggling amid the COVID-19 pandemic. The euro was down slightly while the Pound was higher.

 

 

Macro	Up/Down	Last
WTI Crude	1.02	38.28
Brent	0.92	40.35
Gold	2.50	1,966.20
EUR/USD	-0.0024	1.1844
JPY/USD	-0.21	105.51
10-Year Note	0.0013	0.682%

 

 

Sector News Breakdown

Consumer

·     Retailers; VFC upgraded to buy from neutral at BTIG as it sees catalysts for improving demand trends during fall/winter season and says VFC’s sales and earnings should accelerate through Q4 and into FY 2022, especially through brands Vans and TNF; FRAN falls as raises going-concern doubts and plans to explore strategic options and posts Q2 net loss of $17M and 29% drop in sales due to lower foot traffic and temporary closure of most of its stores; CTRN reinstated its $30M share buyback plan and reaffirmed its prior 3Q guidance of comp sales of negative mid-single digits to flat with continued gross margin expansion after repaying $41.6M of borrowings; SHOP announces 1.1M share secondary offering and $800M offering of convertible senior notes due 2025; LB announces partnership with British company Next plc to form a joint venture to operate all Victoria’s Secret stores in the UK and Ireland; NKE price target was raised at Deutsche Bank (to $107 from $87, maintain Hold) and BTIG (to $140 from $117, maintains Buy)

·     Auto movers; TSLA turns sharply higher again, picking up steam heading into its September 22^nd battery day as well as amid increased rumblings of S&P 500 inclusion; NKLA shares slide initially as the SEC is examining the company to determine the merits of Hindenburg’s allegations of deceit; Hindenburg’s Sept. 10 report referred to Nikola as an "intricate fraud"; FCAU rises after the car maker and French partner PSA revised the terms of their merger deal, with FCA’s shareholders getting a smaller cash payout but a stake in another business; GM says company looking at aerial mobility, declines to elaborate

·     Housing & Building Products; LEN Q3 earnings and revs topped views as EPS $2.12 on revenue $5.87B topping the $1.58 estimate and $5.53B while Q3 deliveries of 13,842 homes vs. its guidance of 13,200-13,400 and Q3 new orders of 15,564 homes, up 16% (Wells Fargo said Q4 order outlook implies modest 8% growth); MDC upgraded from Neutral to Buy at Bank America following a surprisingly robust prelim 3Q20 order growth update (+75% for July/Aug); Venture-backed real estate startup Opendoor announced plans to go public via a merger with Social Capital Hedosophia Holdings II, a SPAC, founded by venture investor Chamath Palihapitiya. Opendoor has two primary businesses. The company buys single-family homes for its own account and then flips them and offers a more conventional resi real estate brokerage service

·     Restaurant stocks: SBUX said August U.S. comp sales growth for company-operated stores was negative 11% and China comp sales growth for company-operated stores was 0%; restaurant names outperformed with gains in many casual dining names

·     Consumer Staples; in beverages, RBC Capital noted for STZ that beer volumes up 9.7% in the latest 4 weeks driven by Modelo +7%, Corona Extra +5% and Premier +14%, for SAM beer volumes +44% in the latest 4 weeks driven by Truly +92% and Twisted Tea +33%, beer volumes +61% in the latest week driven by Truly +115%; KHC unveils its strategic transformation plan, updates 2020 outlook, and provides long-term financial algorithm as sees better-than-expected qtrly sales growth, and says it will step up its marketing budget and overhaul its supply chain, hoping to save $2B by 2024; KHC also signed a deal with Lactalis to sell certain cheese business for $3.2 bln in all-cash transaction; LSF the maker of plant-based Superfood Creamer coffee creamers and other items set IPO terms with plans to offer 2.2M shares priced at $18-$20

·     Leisure and Gaming; CCL falls after prelim Q3 results, announces $1B proposed stock offering weighed on other cruise stocks (RCL, NCLH); CWH raised upped guidance after company said it expects adj. EBITDA to grow mid-single digits over the next 5 years (expects to make $500M in Ebitda vs. prior view $460M-$490M), but shares erased earlier gains.

 

Energy

·     Energy stock movers; CVX obtained approval yesterday from Israel’s Petroleum Council to acquire NBL stakes in Israeli natural gas fields as part of the two companies’ pending merger; PBR has reduced its planned investment in oil exploration to $40B-$50B for 2020-2024 from $64B as they will instead focus on developing its deep water assets and has entered into talks with SBM Offshore to hire a floating platform for the Buzios field located in the Santos Basin

·     Broader energy more slowing demand outlook; the IEA cut its 2020 oil demand forecast following the lowered forecast of OPEC yesterday by saying "we expect the recovery in oil demand to decelerate markedly in the second half of 2020, with most of the easy gains already achieved." Worldwide oil demand growth is now seen at 91.7M barrels per day, marking a contraction of 8.4M bpd Y/Y and more than the 8.1M bpd contraction predicted in the agency’s August report

·     Utilities & Solar; NEE increased its 2021 financial expectations ranges by $0.20 and now expects adjusted earnings per share to be in the range of $9.60 to $10.15. For 2022 and 2023, NextEra Energy expects to grow 6% to 8%, ff the expected increased 2021 adjusted earnings per share. The board of directors also approves a 4-for-1 stock split; Wells Fargo upgrades NEE, NEP to OW;

 

Financials

·     Bank movers; JPM cuts its 2020 net interest income guidance to ~$55B from its previous outlook of $56B, BAC CEO says 3q net interest income will be down $600-700 million from 2q levels compared with prior guidance of down $200 million at conference; Davidson downgrades OBNK, ISTR, RNST to Neutral from Buys; JPM announced it has started a cash tender offer for $16.25 billion of its senior notes, including its $2.5 billion of 2.55% notes due 2021 and $2 billion of 4.625% notes due 2021, and the company also said it plans to redeem any of its 2.4% notes due in 2021 that remain outstanding after the completion of the offer on October 14; Citigroup (C) announced it is boosting investments in the bank’s risk management systems after recent $900M operational error and as the Office of the Comptroller of the Currency and the Federal Reserve is expected to reprimand the bank for failing to improve its risk-management systems; Morgan Stanley cuts its tgt on C to $58 from $61 but maintains OW

·     Credit cards; COF reports August net charge-offs 3.74% vs. 3.82% last month and reports August 30-plus day performing delinquencies 2.23% vs. 2.44% last month; JPM reported a credit card delinquency rate of 0.95% in August vs. 0.99% in July and a monthly net charge-off rate of 2.18%, up from 2.03% in the prior month; DFS reported a credit card charge-off rate of 3.62% in August, up from $3.42% in July and 3.40% in August 2019, and a delinquency rate fell to 1.92% in August, down from 2.03% in July and 2.41% in August of last year; BAC reports credit card delinquency rate of 1.08% at August end vs 1.16% at July end and its credit card charge-off rate was 2.08% in August vs 2.09% in July; AXP card member loans 30 days past due loans as a % of total 1.2% at august end vs 1.4% at July end; Citi posted domestic credit card delinquency rate of 1.33% in August, down from 1.43% in July. The net charge-off rate was 2.75%, compared with 2.42% in the prior month.

·     Exchanges and brokers; SCHW reports client assets +5% MoM and +21% YoY, but sees 3Q revenue slightly lower than 2Q results; ETFC reported Daily Average Revenue Traders for August were 1,038,000 (+2% MoM, +256% YoY) and derivative DARTs hit a record 287,000, and activity has increased for Sept through last week (DARTs 1,205,000 and derivative DARTs 346,000 including a daily record 433,000 on 9/4). Net new accounts were 97,859 in August, a 43% increase from July and a 258% increase from Aug 2019, of which 80,507 were retail accounts (+76% MoM and +439% YoY)

·     Consumer finance; WU upgraded from Neutral to Buy w/ $26 pt at BAML as their estimates and PO are unchanged, but they don’t believe the stock’s 300 bps of underperformance since the 2Q print is justified as C2C transaction trends have proven to be more resilient than feared at the outset of COVID-19; PYPL reiterated Outperform with $220 pt at Baird; SQ states that Covid-19 has accelerated cashless transactions as the share of transactions made in cash was 33.3% as of August 1, down from 40.6% for the same period last year. Meanwhile, only 5.4% of Square sellers were cashless in February, but this jumped to 23.2% in April and has showed signs of stabilizing and was 13.4% in August;

·     REITs; Baird initiates ESS as Neutral with a $227 pt and IRT at Outperform with $13 pt; Deutsche Bank lowers UBA pt to $10 from $18 and maintains Hold; STOR increases quarterly dividend to $0.36 from $0.35 and reinitiated investment guidance for the year, as it expects to complete between $300M-$425M of acquisitions net of sales in the second half of the year. The CEO also said that the company has maintained an acquisition pipeline of over $12B throughout pandemic

 

Healthcare

·     Pharma movers; BNTX and PFE secures 375 mln euros ($445.95 mln) in government funding to speed up work on its COVID-19 vaccine program and expand its production capacity in Germany; BioNTech and Pfizer are testing their most promising vaccine candidate in late-stage trials; PFE provided a bridge to achieve its 2020-2025 biopharma revenue CAGR of at least 6%, comprising $8bn+ from key on market products in its investor day; PSTV said the FDA grants fast track status for co’s lead drug, Rhenium NanoLiposomes, which is being studied as a potential treatment for recurrent glioblastoma, an aggressive brain tumor

·     Biotech movers; MRNS rises after its Phase 3 “Marigold” trial of oral ganaxolone in children and young adults with CDKL5 deficiency disorder, a genetic epilepsy with refractory seizures, met its primary endpoint; NVAX announces covid-19 vaccine manufacturing agreement with serum institute of India to manufacture about 1 bln doses of nvx-cov2373 in 2021; EQ completes pre-Investigational New Drug (IND) meeting with U.S. FDA for itolizumab as a potential treatment for hospitalized COVID-19 patients

·     Healthcare services and providers; BDX said it is investigating reports from nursing homes that federally provided rapid coronavirus testing equipment from the company is producing false-positive results in some cases; DVA announced that ~8m shares of DVA were validly tendered and not validly withdrawn at or below the price of $88; CVS to maintain previously announced FY adj EPS range and FY cash flow from ops guidance range, but midpoint misses estimates

·     MedTech and Equipment; ANPC said it secured a 14-mth sales contract with Chinese health management firm Beijing Yuan Jian Health Management Co Ltd for its new immunology test, AnPac Defense Medical Examination; NNOX falls after Citron out negative this morning with a target of zero; GNMK says its ePlex respiratory pathogen panel 2 gets CE mark

 

Industrials & Materials

·     Industrial & Machinery; CAT rolling 3-month retail sales for world total machines fell 20% in Aug; rolling 3-month retail sales for world resource industries fell 27% and rolling 3-month retail sales for world construction industries fell 17% in Aug; MMM forecast Q3 sales above expectations, saying it sees sales between $8.2B-$8.3B above estimates of $8B and said August sales rose 2% to $2.7 billion led by 23% jump in Health Care, 6% in Safety and Industrial, and 3% Consumer; CARR init OW and $38 tgt at KeyBanc saying it is well positioned relative to emerging "stay at home," "indoor air quality," and ESG themes, and comes without the excessive premium of peers; GTES said it sees 3q core rev decline of 5%-7% YoY vs prior guidance of 10%-15% decline

·     Metals & Materials; GLNCY was upgraded to Outperform & raises his PT to £240 at RBC Capital as think there is ~$38B of potential unrealized value and Tyler argues that a management buyout could crystalize much of this, but even if unobtainable risk/reward is now favorable; a World Trade Organization panel of three trade experts rules that the U.S. violated international rules when it imposed tariffs on Chinese goods in 2018; SMG raises FY20 adj. EPS view to $7.25 from $6.65-$6.85 (est. $6.75) while raises FY20 revenue view to over 30% from 26%-28%; AEM, ALB, BLL, FMC, FCX, GFI, RIO among names in the material space touching 52-week highs today – rails UNP, NSC, CNI, CP also 52-week highs in the transport sector; RIO rises to 12-year highs following two analyst upgrades (J.P. Morgan and Barclays both upgraded the stock)

 

Technology, Media & Telecom

·     Apple (AAPL) product event: the event focused on the Apple Watch and iPad, while an iPhone event will likely happen next month after the devices were delayed due to the pandemic’s supply chain disruption. Apple Watch Series 6 has a blood oxygen sensor, which uses red and infrared light and algorithms to read the color of your blood, which shows oxygen and the reading takes 15 seconds. Apple Watch Series 6 starts at $399. The SE will sell for $279. Both are open for pre-orders today and launch Friday (shares of GRMN, PTON, NLS all active on reports); Apple says Fitness+ priced at $9.99 per month, $79.99 per month. The Apple One bundle will cost $15 per month for an individual plan or $20 per month for a family plan and include television, music and games. Apple is also offering a bundle for $30 per month that adds news, the fitness service and more storage.

·     Semiconductors; another spike for semiconductors as the Philly semi index (SOX) jumps over 2% after a 2.2% spike Monday with strength across the board; Bloomberg reported that after increasing forecast with suppliers in July from 10 mm to 14 mm units, SNE has now reduced FY21 PS5 units from 14 mm to 11 mm (-25%) due to yield issues on the core SoC provided by AMD which they claim is running ~50%; MPWR raises Q3 revenue view to $257M-$259M from $200M-$210M (est. $205.15M) and lowers Q3 non-GAAP gross margin view to 55.4%-55.6% from 55.5%-56.1% – said business during Q3 increased beyond our expectations

·     Software movers; MSFT active ahead of the launch of its cloud gaming service, set to launch a cloud-based game streaming feature on its Xbox Game Pass Ultimate subscription on Tuesday; CYBR upgraded to Overweight at Barclays with a price target of $130, up from $125 saying the company is undergoing an under-appreciated transition to more recurring revenue;

·     Media & Telecom movers; CMCSA CEO says because of covid-19 impact, Ebitda is not back to where co thought it would be at this point- conference; IAC with monthly metrics saying total ANGI HomeServices revenue up 12% in August and total Vimeo revenue up 43% and ending subscribers up 19% in August; said total revenue from search was down 25% in August; tower stocks higher as AMT and TMUS signed a new long-term 15-year agreement which will enhance TMUS’ access to AMT’s U.S. sites

·     Internet; KeyBanc initiated coverage on seven Internet and platform stocks with an overweight rating, citing a “digital acceleration,” with the line between advertising and e-commerce blurring. Firm said that advertising is a “second derivative to e-commerce growth” with the proliferation of users and the shift from offline to online advertising setting up a compelling environment across the group. FB, SNAP, GOOGL, NFLX, TTD among overweight rated names