Closing Recap

Thursday, September 17, 2020

Index	Up/Down	%	Last
DJ Industrials	-130.60	0.47%	27,901
S&P 500	-28.45	0.84%	3,357
Nasdaq	-140.19	1.27%	10,910
Russell 2000	-9.73	0.63%	1,542

 

Equity Market Recap

·     Major U.S. stocks closed lower on Thursday as technology shares once again drag down major averages while industrials outperform. Markets witnessed a “hangover” from yesterday’s FOMC policy meeting where investors appeared disappointed by the Fed’s lack of action, failing to indicate any new stimulus, though pledged to keep rates at historic lows for a prolonged period of time (until the end of 2023 at the earliest). But it was the cautious outlook from Fed Chairman Powell that spooked markets saying additional fiscal support is likely to be needed, as the Fed can’t rescue the economy alone and Congress needs to act quickly on another coronavirus relief package. Also, investors who had been counting on a vaccine to curtail the coronavirus outbreak and allow the economic recovery to pick dealt conflicting reports over the last week as a top Trump administration health official predicted that a Covid-19 vaccine may not be available to the general public until next summer, but his comments were quickly disputed by President Trump talking about next month as a real possibility. The director of the U.S. Centers for Disease Control and Prevention, Robert Redfield, said the vaccine would be in "very limited supply" at the end of the year. Mr. Trump said a vaccine would be distributed to the public immediately.

·     In sector news, industrials (MMM, CAT, DOW) and materials saw strength today, helped by improving economic data out of China as well as a rotation out of technology stocks with mega-cap tech names at the lowest levels in over a month as valuations have been balked about recently, highlighted by the astronomical surge in new IPO SNOW shares yesterday, that saw its more than double its IPO price (pulled back today). Gold prices dropped, oil prices jump, and Treasury prices remain little changed while big cap tech selling remains a standout, with many of the high-fliers over the summer pulling back more than 10% from record highs. Transports have been a standout, touching 52-week highs yesterday of 11,690 before slipping back today, led by gains recently in FedEx after earnings and a rally in rails. Financials, energy, and retailers have gained this week, though were mixed on the day amid the rotation theme.

Economic Data

·     US jobless claims fell to 860K from 893K last week and vs. the 850K consensus; continued claims fell to 12.628M vs. est. 13M and last week 13.54M; the 4-week moving average fell to 912K from 973K and US insured unemployment rate fell to 8.6% from 9.3%

·     Housing starts for August fell -5.1% to 1.416M annual rate vs. est. 1.478M and July at 1.492M; Housing permits fell -0.9% vs. July +17.9%; August single-family starts rose +4.1% to 1.021M and multifamily fell -22.7% to 395,000 unit rate

·     The Philadelphia Fed said its gauge of business activity in its region dipped in September as the regional Fed bank’s index fell to 15 from 17.2 in August straight positive reading. The barometer on new orders rose to 25.5 in September from 19 in the prior month. The shipments index surged to 36.6 in September from 9.4. Inventories moved deeper into negative territory.

·     The 30-year fixed-rate mortgage averages 2.87% for the week ending Sept. 17, 2020, a tick up from 2.86% in the previous week and down from 3.73% a year ago, according to the Freddie Mac Primary Mortgage Market Survey

 

Commodities

·     Oil prices rise as WTI crude up 81c or 2.02% to $40.97 per barrel, one of the few outperforming asset classes on the day, while Brent crude rises $1.08 or 2.56% to settle at $43.30 per barrel and natural gas prices drop nearly 10% to $2.042 mln btus as inventories surge amid mild temperatures and Hurricane impact. Oil prices got a boost after OPEC and its allies emphasized their commitment to reach full compliance with pledged output cuts during a joint committee meeting. Meanwhile, the BSEE said about 30.69% of the region’s oil output, and 24.73% of natural-gas output, was shut in as of Thursday, due to the impact of Tropical Storm Sally.

·     Gold prices slide -$20.60 or 1.1% to settle at $1,949.90 an ounce, pulling back from its best level in two-weeks in what was a broad asset-based pullback. The weakness came despite the Fed saying yesterday it would keep rates around zero until around 2023 and reiterated it will not tap the brakes in the face of improved numbers until inflation is above their 2% targeting.

 

Currencies & Treasuries

·     The U.S. dollar finishes mixed, as the dollar index ends down near the lows, holding just below the 93 level (93.61 high and 92.95 low), falling vs. the Japanese yen, while the euro was little changed and the Pound dropped back below the $1.30 level from yesterday. The Mexican peso retreated from near-six-month highs, after doubts about the pace of a global economic recovery resurfaced following weekly jobless claims data from the United States. In Brazil, the central bank held rates, as expected, after nine consecutive cuts. The Canadian dollar rose to over a one-week high of 1.3247 overnight before easing to 1.3182 on the back of higher oil prices.

·     Treasury prices were little changed despite the sell-off in U.S. equities, as the 10-year yield held steady around the 0.68% level following several mixed economic data points. The U.S. Treasury sold $12B in 10-year Tips at a yield of 0.966% vs. 0.955% when issued prior, with a bid-to-cover at 2.65 as Primary dealers take 16.29% of U.S. indexed 9-yr 10-mo notes sale, direct 15.04% and indirect 68.67%. Volatility has eased in Treasury markets, with the 10-year stuck in a narrow 5 bps range over the last week or so.

 

 

Macro	Up/Down	Last
WTI Crude	0.81	40.97
Brent	1.08	43.30
Gold	-20.60	1,949.90
EUR/USD	0.0026	1.184
JPY/USD	-0.24	104.70
10-Year Note	-0.00	0.687%

 

 

Sector News Breakdown

Consumer

·     Retailers; CHWY 4.98M share Spot Secondary priced at $55.25; LVMH has submitted a request to a Delaware court to dismiss TIF’s request to issue their M&A dispute within a short timeframe, arguing Tiffany is trying to avoid answering questions on results, including “worrying” 4Q profits. Tiffany countered, saying this is LVMH’s latest attempt to “run out the clock” on its obligations, and has urged the DE court to proceed with the trial and yield a decision by the 11/24 termination date in the two companies’ merger agreement; RVLV was initiated as a Buy with a $24pt at MKM who likes their differentiated assortment, strong brand connection; MKM also initiates SFIX at Neutral with a $25 pt, though Needham upgrades the stock to Buy from Neutral with a street-high $36 pt; GME is now taking pre-orders for SNE’s PlayStation 5, and its price target was raised to $10 from $8 at Jefferies who reiterated their Buy rating and S&P has affirmed its ratings, removing GME from CreditWatch on expected improvements in credit ratings and stable outlook; MIK announces an offering of $500M in senior secured notes due 2027 and sets its agenda for next week’s virtual investor day, including teasing a new growth opportunity; OSTK said its new Fremont, CA fulfillment center will significantly improve shipping speeds, including an expansion of its 1-day shipping; Cowen has tracked Google Search trends for retailers cooling off since store reopenings, but DECK is the only stock maintaining relative search growth above 30%, and the stock remains a Top Idea and growth standout

·     Auto sector; TSLA slipped early after reports co-founder wins amazon funding for electric battery project earlier; GM active as Reuters reports delay in sale of its Indian plant to China’s Great Wall Motor due to Sino-Indian tensions might lead to high unplanned costs. Deal has yet to gain government approval, but GM expects to begin winding down plant’s operations next month; Ford (F) said it expects the redesigned model of F-150, its top selling vehicle, to go on sale in November; auto retail in focus next week with AZO earnings on Tuesday

·     Housing & Building Products; following a bout of better housing related data points, housing starts came in a bit lower today for August, falling -5.1% to 1.416M annual rate vs. est. 1.478M and July at 1.492M and building permits fell -0.9% vs. July +17.9%; in furniture, MLHR shares rise after better earnings last night (SCS, KNL other comps); APOG reported a better-than-expected Q2 adjusted profit despite sales figures that were dented by project delays during the pandemic; LL shares slide following new anonymous short report circulated by Whitney Tilson site saying they will miss earnings by 60% amongst other things https://bit.ly/2E9bO0Y ; ZG another positive analyst call today as BTIG raised its tgt to $120 a day after DBAB named it a new catalyst buy call

·     Consumer Staples; HAIN upgraded to Buy from Hold and our PT to $40 from $30 at Truist saying fireside chat with management gave them increased confidence that the story is far from over despite a remarkable turnaround over the past 18 months; PEP tgt cut to $149 from $154 at JPMorgan and also lowers its Q4 estimates to reflect a slightly slower pace of recovery on the topline and higher spending, also expecting Pepsi to up the level of reinvestment; CL, K, KMB, KHC, MDLZ, PEP, STZ, MO named as 9 Consumer-Staples Stocks That Can Keep Growing After Covid Is Gone at Barron’s

·     Restaurants; PLAY shares fell after the WSJ reported the company might need to file for bankruptcy if it does not reach a deal with lenders noting PLAY flagged going concern doubts earlier this year and last week reported an 85% fall in Q2 revs https://on.wsj.com/2FFjg4p ; RUTH raises estimates and price target to $15 following the company’s business update released Wednesday; DRI tgt raised to $102 from $87 at Keybanc and up ests based on recently announced cost savings and improving comp sales momentum at the Company’s larger brands; CBRL reported F’4Q earnings yesterday including F’1Q-to-date restaurant and retail comps down 20% and 15%, respectively

·     Leisure and Gaming; in cruise lines, CCL falls as its British cruise line, P&O Cruises, extends a cancellation in all sailings until early 2021; in gaming, PENN tgt raised to $85 from $47 at Stifel despite shares up a staggering 174% YTD saying while some view it overvalued, they believe they can continue to work; casino stocks pressured again (WYNN, MGM, LVS); Pennsylvania generated $364.99M in sports betting wagers in August to more than triple the $109M brought in last year during the same month, according to data from the Pennsylvania Gaming Control

 

Energy

·     Natural gas prices dropped 11% to a six-week low after last week’s storage build was bigger than expected (at 89 bcf vs. est. 74 bcf build), keeping stockpiles on track to reach a record high by the end of October. Prices were already trading down on expectations output would start to rise from a two-year low as producers return wells shut-in for Hurricane Sally and on forecasts calling for lower cooling demand over the next two weeks (co’s leveraged to natural gas were under pressure including RRC, EQT, COG, CLR, CXO)

·     E&P sector; energy stocks outperformed yesterday; WLL was upgraded to buy at Truist saying it went through a reorganization quicker than we expected with an outcome better than we expected; KeyBanc noted for WLL announced job cuts, new 2H20 oil production guide was 5% below consensus and its new 2H20 total production guide was 2.4% below, though WLL is expecting 2,500 Boepd of shut-ins in 2H20, which explains some of the difference; Reuters reported that EQT has made a $750M offer for CVX’s Appalachia properties and a pipeline interest – RBC Capital says they think this is a fair offer for both parties

·     Refiners; Credit Suisse noted reports that the Trump administration is considering at least $300M in cash aid to U.S. oil refiners that are denied exemptions to U.S. biofuel blending laws for the 2019 compliance year – the firm said they see a low probability that this cash relief program is actually implemented but if so, DK, CVI and HFC will likely be the only ones benefiting from it; RBC Capital updated 3Q20 estimates based on QTD cracks noting both crude spreads and product cracks came in worse than their prior expectations, and our 3Q20 EPS estimates are moving down by $0.53 on average.

 

Financials

·     Bank movers; ; JPM price tgt raised to $110 from $99 at RBC; FRC initiated at Neutral with a $115 pt at Piper; CS to establish a multibillion dollar direct private credit platform with the Qatar Investment Authority to provide financing to upper-middle market and larger American and European companies

·     Insurance; MET to buy Versant Health for $1.7 Billion, which the company says would turn it into one of the largest vision insurers in the U.S. https://on.wsj.com/3c6Oz48 ; ALL estimates its August catastrophe losses totaled $985M pre-tax ($778M post-tax) as 11 events, including Hurricanes Isaias and Laura, contributed to losses; PGR August net premiums written were $3.44B, an 18% increase YoY and its net premiums earned were $3.09B, an 11% increase YoY; HIG was reiterated as a Buy at BAML, but price target was lowered to $51 from $57

·     Asset managers, brokers; IVZ upgraded from Sell to Neutral w/ $11 pt at UBS on a less negative fundamental outlook, driven by improving flows and cash generation supported by a building institutional pipeline and fading headwinds from the Oppy deal; AJG updated its outlook for Q3 and 2020 at its investor day yesterday, and takeaways included more rate momentum for pricing, modesty better outlook on organic growth than its earnings call, mostly unchanged expense savings, and a favorable view on M&A that deals should pick up towards the end of 2020 in advance of changes to capital gains taxes

·     Consumer Finance; FNMA FMCC downgraded from Hold to Sell @ Odeon as the analyst senses from these hearings is that the release of the two companies from their conservatorships any time in the next few years is highly unlikely; ATM operator CATM enjoys best day in 3 months after issuing business update, including it now expects Q3 adj. EBITDA of about $70M, ahead of IBES estimates of $51.8 driven by encouraging transaction activity and continued cost management; Compass Point initiates a Buy rating and $120 pt on QTWO and coverage on payments with Buy ratings on FISV ($130 pt), GPN ($220 pt), ACIW ($40 pt) and Neutral on FIS ($155 pt) and JKHY ($175 tgt)

·     REITs; NRZ refinanced its senior secured term loans, completing its $550M offering of 6.25% unsecured notes due 2025 to retires its 3-yr 11% secured loan; STOR was upgraded to OW from EW at Wells; HCFT raised its dividend 13% to 8.5c/share; LAND was named as a new Buy with an $18 pt at Berenberg, which states that the stock offers a unique opportunity to own a REIT with outsized growth that is less correlated to the overall market than other REITs, a particular benefit given the recent rise in market volatility

 

Healthcare

·     Pharma movers; BHC was upgraded to Neutral from Underperform at Bank America; LLY and AMGN announce a global antibody manufacturing collaboration to increase the supply capacity available for Lilly’s potential COVID-19 therapies; RIGL said it had started a randomized, double-blind, placebo-controlled Phase 2 clinical trial evaluating Tavalisse as a treatment for hospitalized COVID-19 patients; VCNX rises as entered into a clinical collaboration agreement with MRK to evaluate the combination of Vaccinex’s investigational SEMA4D inhibitor, pepinemab, and Merck’s anti-PD-1 therapy, Keytruda; JNJ slipped after NY state filed civil charges accusing them of insurance fraud for downplaying the risks of opioid painkillers, including to elderly patients.

·     Biotech movers; MRNA and VRTX announced a second collaboration in gene-editing therapies for the treatment of cystic fibrosis, with a focus in patients who do not currently generate CTFR proteins, the 10% of patients that VRTX’s current CFTR modulator therapies cannot target; SRNE rises after saying the FDA had allowed it to start early-stage trial of its antibody candidate, STI-1499, in hospitalized COVID-19 patients; NCNA 15.6M share Spot Secondary priced at $4.50; ETNB 3.3M share Secondary priced at $28.00

·     Healthcare services, providers; WebMD and TWTR announced a partnership, marking the first content collaboration between Twitter and a health care platform; CVS said it plans to add more than 2,000 new COVID-19 drive-thru test sites at select CVS Pharmacy locations across the U.S. – CVS expects to have more than 4,000 test sites operating by mid-October in the country; AMWL 41.222M share IPO priced at $18.00

 

Industrials & Materials

·     Industrial & Machinery; AOS upgraded from Neutral to Buy at Rosenblatt as believe most internal initiatives in NA and China are on track and key data we track to gauge AOS’s operating environment are turning upward; FRTA 10M share Secondary priced at $13.50; GE extends Wednesday gains after its CFO said at a conference sees good progress on its $2B cost, $3B cash actions and was positive on free cash flow; MAXR rises after the company wins contract to build communications satellite for Intelsat

·     Transports; LUV temporarily grounds 130 Boeing 737-800 jets after it discovered discrepancies in aircraft weight data, Reuters reported; Major airline CEOs met with White House Chief of Staff Mark Meadows today as the industry gets closer to what it is anticipated to be major job cut announcements in October

·     Aerospace & Defense; GD was double downgraded to sell from buy at Goldman Sachs as see incremental fundamental challenges in each of the main business segments and no longer find the valuation case compelling; HXL was downgraded to sell at UBS after the run in shares and said they see a more difficult recovery path ahead given their business mix which creates a slower recovery profile

·     Metals; gold miners sunk along with a decline in gold prices after the U.S. Federal Reserve disappointed expectations for further stimulus to spur inflation and support the economy, battered by the coronavirus crisis (gold miners weak AEM, AUY, GOLD, NEM); MT upgraded to buy from neutral at Bank America looking past trough profitability to improving shipments going into Q4 2020 and H1 2021 saying with retail sales outperforming wholesale for five months, expects auto makers to restock in Q4 and higher production to drive up steel volumes

·     Materials & Chemicals; GRA said it expect 3Q20 sales to be down 10%-13% y/y, about $409.3-$423.5M (est. $417.64M), sees gross margin in range of 37%-38%, an increase of 300-400 bps sequentially; UBS initiated coverage on plastics and consumer packaging with buys on BERY ($70 tgt), SEE ($52 tgt), and FMC ($127 tgt) while neutral on SON ($56 tgt)

 

Technology, Media & Telecom

·     Software movers; SNOW shares fall following its more than 100% gain following its IPO debut yesterday, with many calling into questions its high valuation; ZI upgraded to overweight at JPMorgan while shares have pulled back materially for this elite Rule of 40 performer, and while we see multiple legs to the growth story and think some elements of the model could actually show improvement in the 2H; TikTok owner ByteDance Ltd. and ORCL are waiting to learn whether President Trump will give his blessing to their deal, but another hurdle remains: Beijing still has to sign off too; CNBC reported that the Treasury Dept., TikTok owner ByteDance and Oracle have a tentative agreement on terms of the bid for the social media app’s U.S. operations; BAND shares jumped midday following a positive mention in weekly Motley Fool newsletter

·     Media & Telecom movers; MTCH tgt raised to $151 at Morgan Stanley saying the Street underappreciates MTCH’s emerging brands and expects Hinge, touted as the dating app designed to be delete", to be MTCH’s next major revenue and earnings growth driver/expects Hinge to have over 8 mln subscribers in 2030

·     Hardware & Component news; KRNT 4.078M share Secondary priced at $56.50; PPD 38M share Secondary priced at $32.25; SUMO 14.8M share IPO priced at $22.00; JOBS received a preliminary non-binding proposal from DCP Capital Partners, L.P. to acquire all of the outstanding common shares for $79.05 in cash https://bit.ly/3hBcVo1. ; SNE PlayStation 5 will launch Nov. 12 with a price of $500 for the base system, and the discless PS5: Digital Edition will be $400 on the same launch date. That compares with recent news that MSFT’s Xbox Series X would launch at $500 two days before, on Nov. 10, with its mini-sized Series S priced at $300; ATEN positive Q3 forecast from continued business transformation and authorizes $50 million share buyback