Mid-Morning Look

Thursday, April 01, 2021

Markets are gaining on the opening day of Q2, with the S&P 500 crossing above $4,000 for the first time ever and tech stocks are repeating yesterday’s outperformance as the Nasdaq Composite hits its highest level in two weeks. Meanwhile, the CBOE Volatility Index (VIX) has fallen below 18 for the first time since February 21, 2020, which marks the date before stocks began their pandemic-related selloff. The 10-year Treasury yield has reversed its weekly ascent, returning to levels below 1.7%. Electric vehicle stocks are gaining this morning after Joe Biden released his infrastructure package yesterday afternoon and companies NIO, XPEV reported March deliveries that more than quadrupled from 2020. TSLA is also rising ahead of their expected deliveries report sometime this week, with Q1 deliveries expected to total 177K, though Wedbush predicted the company would top that number in a note yesterday. Energy stocks also comprise most of the S&P’s top gainers on the day as WTI Crude rebounds back above $60/bbl as the OPEC+ meeting began this morning. Analysts expect the group to keep April production unchanged. Weekly jobless were expected to be 680k, which would be an improvement on last week’s 684k claims, but initial claims were 719K this week.

Economic Data

·     U.S. jobless claims rose to 719,000 in the latest week, higher than the consensus 680,000 and compared to 658,000 the prior week (previous 684,000); the 4-week moving average fell to 719,000 from 729,500 prior week (previous 736,000); continued claims fell to 3.794 mln in latest week vs. est. 3.775 mln (and from 3.840 mln prior week); the U.S. insured unemployment rate unchanged at 2.7% in the latest week

·     US Markit Manufacturing PMI came in at 59.1, barely missing the forecast that called for 59.2, but slightly improving on February’s 59.0

·     Construction Spending fell -0.8% from February, which was a smaller decline than the consensus forecast of -1.0% MoM and came down from February’s MoM +1.7% increase

·     ISM Manufacturing for March was strong, with the reported 64.7 topping the expected 61.5 and improving on last month’s 60.8 number. This was also the highest monthly reading since December 1983.

Sector Movers Today

·     Bank movers; Treasury yields slipping, weighing on some banking shares early; Wells Fargo increases estimates for most of the 17 large cap banks that we cover by about 20% for 1Q21, 10% for 2021 after prior increases in the past month (BAC, C, JPM) given better than expected economic growth, credit, rates, and efficiency. They place more emphasis on Stage 2 recovery plays of BAC (spread revenues), USB (payments), TFC (merger), and C (buybacks) since Stage 1 factors (reserve releases, capital markets) seem more priced in short-term based on the underperformance of JEF after its record results last week; GS downgraded to Neutral from Buy with $340 tgt at UBS noting shares have substantially outperformed and now seem to reflect a solid mid-teens ROTE, in line with management’s targets and believe the risks are more balanced

·     Semiconductors; MU reported results at the high end of its earlier pre-announced range, and guided well above consensus and our estimates (including a +860bps non-GAAP gross margin expansion Q/Q); TSM said it plans to invest $100 billion over the next three years to keep up with demand – TSMC is working closely with our customers to address their needs in a sustainable manner, the world’s largest contract chip manufacturer said in a statement to Reuters; WDC and MU are each exploring a potential deal for Kioxia Holdings Corp. that could value the Japanese semiconductor company at around $30 billion – WSJ https://on.wsj.com/2QWCHLN

·     MedTech and Equipment; ABT received FDA Emergency Use Authorization for over-the-counter, non-prescription, asymptomatic use of its BinaxNOW COVID-19 Ag Self-Test for detection of coronavirus infection; QDEL QuickVue At-Home OTC COVID-19 test receives emergency use authorization for screening use with serial testing; BDX announced the FDA has granted emergency use authorization, or EUA, for its rapid antigen test to be used for SARS-CoV-2 screening through serial testing of asymptomatic individuals; in diabetes sector, Leerink did deep dive on industry which prompted upgrade of PODD to Outperform and cut SENS to MP

·     Auto sector; NIO delivered 7,257 vehicles in March, an increase of 373% Y/Y and 30.1% MoM from 5,578 vehicles in February 2021; XPEV delivered a total of 5,102 Smart EVs in March 2021, an increase of 384% YoY and 130% MoM; March deliveries consisted of 2,855 P7s, and 2,247 G3s; VLDR announces multi-year agreement with AGM systems LLC, launches new Velodyne lidar-based UAV mapping solution for energy companies worldwide; in auto retail, KMX 4Q EPS $1.27 vs. est. $1.26 on revs $5.16B vs. est. $5.17B, qtrly comp used unit sales -2.3%

Stock GAINERS

·     FNKO +24%; took a majority stake in TokenWave to enter the NFT market

·     FTFT +20%; announced a framework agreement to purchase a Bitcoin mining farm

·     MU +5%; reported Q2 adj EPS 98c on revs $6.24B, guided Q3 revs $6.9-7.3B vs est. $6.79B and EPS $4.45-1.59 vs est. $1.32

·     UTHR +15%; said the FDA approved its drug Tyvaso for treatment of pulmonary hypertension associated with interstitial lung disease

·     WING +7%; provided preliminary Q1 sales update with sales +30% YoY, domestic comps +20.7%

Stock LAGGARDS

·     AZRX -29%; shares fall after saying results didn’t consistently meet the primary efficacy endpoint in its Phase 2b OPTION 2 clinical trial, investigating MS1819 in cystic fibrosis patients with exocrine pancreatic insufficiency

·     EBS -14%; JNJ said it had found a problem with a batch of drug substance for its COVID-19 vaccine, which did not meet quality standards at EBS production site in Baltimore, Maryland

·     MVIS -14%; shares are giving up some of yesterday’s late gains (finished +50%) after MSFT won a $21.9B Army contract for AR headsets. Shares of VUZI are also giving back some of the contract-related gains today

·     XL -7%; falls after guided to $1M in revenue for 1Q21 (consensus at $8M) which is down ~90% sequentially. XL noted a combination of OEM delays (equipment shortages related to COVID) and seasonality (2H20 revenues were ~450% higher than 1H20 revenues)

·     XSPA -11%; Q4 revs $0.3M missed est. $1.8M, saying the underperformance was due to limited air traffic