Mid-Morning Look

Friday, April 09, 2021

Stocks are rebounding after modest losses initially, as U.S. markets are coming off the 4-lowest volume days of the year all this week as Spring break week finally wraps up and markets prepare for the start of earnings season next week, kicking off with big bank earnings. Inflation concerns reared its head again this morning after the March producer price index (PPI) jumped over 4% on a YoY basis, the biggest number since 2011, as MoM figures came in well above consensus views as well. Several Fed speakers over the last 2-days have warned about inflation rising in the near-term but have been saying longer-term remains under control. The Fed’s Clarida warned this morning however that if an expected jump in inflation this year does not reverse going into 2022 the Fed “will have to take that into account.” Inflation concerns are not just here in the U.S. as China PPI for March rose 4.4% vs. est. 3.6%, which boosted inflation concerns across the region (also had China CPI that was a touch higher: .4% YoY vs. est. .3%). The higher readings weighed on tech sentiment early as Treasury yields hit their highest levels of the week this morning – but that was before another strong surge off the lows for stocks as the S&P made another record high. Gold prices tumble after the rise in yields, while oil also remains weak. Volume has remained soft all week as Monday had 10.1B shares (4th lowest of the year), Tuesday 9.7B shares (3rd lowest of the year), Wed 9.5B shares (2nd lowest of the year), and Thursday 9.4B shares (lowest of the year). Volatility also non-existent as the CBOE Volatility index (VIX) dropped below the 17 level for the first time since February 2020. Economy-linked stocks including banks and industrials gained on optimism around strong U.S. economic growth.

Economic Data

·     Producer Price Index (PPI) data was delayed by roughly 30 minutes this morning after outage at BLS – but when numbers came out, they were “hotter” than expected for headline and core PPI prices. Producer Prices MoM final demand rose 1.0% vs. est. 0.5% and prior reading of up 0.5%, while core prices (ex food & energy) MoM rose 0.7% vs. est. 0.2%; On a YoY basis, PPI final rose 4.2% vs. est. 3.8% (and prior 2.85), while core PPI YoY for 3.1% vs. est. 2.7% (prior 2.5%)

Sector Movers Today

·     Aerospace & Defense; BA asked some operators of its 737 MAX jet to fix a potential production issue related to an electrical power system in the aircraft, prompting some airlines to remove MAX jets from its schedule. Boeing said it wants 16 of its customers to check and verify “that a sufficient ground path exists for a component of the electrical power system”; EADSY delivered 72 commercial aircraft in March to 34 customers, including Delta Air Lines, American Airlines, British Airways and German carrier Deutsche Lufthansa and has now delivered 125 aircraft so far this year; AAL said it has temporarily removed 17 of its most recently delivered Boeing 737 max aircraft after notification from Boeing; in defense sector, Cowen said with the economy & domestic air travel picking up, they favor stocks positioned to offer positive Q1 color on cyclical prospects including bizjet leader GD, commercial recovery plays HWM (PT to $40 from $32), SPR, TDG ($650 from $630), and MOGA (also raised tgts on BA, BDRBF, CRS, HII, HON, LHX and TXT

·     Healthcare services and providers; HQY agreed to acquire Further, a provider of health savings accounts and the nation’s ninth largest HSA custodian overall for $500M; skilled nursing stocks weaker initially (OHI, SBRA, ENSG) as CSFB noted that the CMS issued proposed rules for the FY22 payment updates for skilled nursing facilities (SNFs) and hospice providers last night. This payment update will be effective starting October 1, 2021. Firm noted the SNF rate update was below expectations, and CMS is considering a potential negative rate adjustment in the coming years to ensure PDPM is budget neutral, which would be detrimental to the industry

·     Industrial & Machinery; HON upgraded to Buy from Hold at Deutsche Bank with $244 tgt noting it has been the worst performer in the multi-industry group year-to-date despite attractive end-market exposures; JCI to acquire Silent-Aire, a global leader in hyperscale data center cooling and modular critical infrastructure solutions, in an all-cash transaction valued at up to $870M; GE tgt raised to $17 from $15 at UBS despite the strong stock performance as remain constructive

·     Brokers & Exchanges and Services; Loop raised their Q1 estimates on CBOE on better pricing and NDAQ on better trading activity, pricing, and index trends, which resulted in slightly higher price targets for both; Jefferies increased their estimates on SCHW, IBKR to reflect strength in trading activity with record account growth and a constructive market backdrop, sec lending, margin balances, and rising interest rates; JMP upgraded SCHW to Outperform with an $80 price target, seeing more room to run after the stock has risen 26% YTD as rising interest rates and the fundamentals, such as adding more retail accounts YTD than all of 2020, support the stock’s move higher; JMP also said they are choosing to be more tactical, saying virtually all business performed well in Q1 as record capital markets activity, an active M&A backdrop, elevated transactional activity, engagement in both retail and institutional trading, and rising interest rates provided tailwinds, downgrading EVR and MC to Market

Stock GAINERS

·     AFMD +22%; shares rose after announcing its upcoming AACR presentation of initial data from its Ph1 study of cord blood-derived natural killer cells pre-complex with innate cell engager AFM13

·     CCL +2%; upgraded to Buy/Outperform at both Argus ($33 tgt) and Credit Suisse ($40 tgt) as think the improvement in bookings reflects strong pent-up demand for cruise vacations as coronavirus vaccines are rolled out

·     FUBO +9%; said it has acquired the exclusive live streaming rights to the Qatar World Cup 2022 Qualifying matches of South American Football Confederation

·     HD +1%; making new all-time highs, helping pace gains in the Dow (up 20 of last 25 trading days)

·     HOG +4%; upgraded to Buy at Northcoast with the belief the company is poised to exceed FY21 earnings expectations and believe the setup beyond 1Q21 is attractive

·     HON +2%; trades at record highs after being upgraded to Buy from Hold at Deutsche Bank with $244 tgt noting it has been the worst performer in the multi-industry group year-to-date despite attractive end-market exposures

·     LEVI +4%; tgt raised by a few analysts (UBS, Guggenheim) as Q1 adj. EPS of $0.34 was above the $0.25 estimate, with continued expansion in e-commerce (total digital +41%) and also raised its 1H EPS view to 41c-42c vs. est. 30c

Stock LAGGARDS

·     BA -1%; asked some operators of its 737 MAX jet to fix a potential production issue related to an electrical power system in the aircraft, prompting some airlines to remove MAX jets from its schedule. Boeing said it wants 16 of its customers to check and verify “that a sufficient ground path exists for a component of the electrical power system”;

·     CHTR -2%; in cable, CHTR and ATUS downgraded to Neutral at Citigroup and maintain Buy ratings on CMCSA, LBRDA saying three recent developments give them pause regarding future broadband growth for cable firms

·     CZR -3%; weakness early in casino and gaming names PENN, WYNN, MGM

·     ITRM -13% after the FDA said it has postponed an advisory committee meeting to discuss the company’s new-drug application for oral sulopenem because the agency needs more time to review the company’s materials

·     PRVB -22%; shares tumbled after the FDA said it had identified deficiencies in the marketing application for its experimental drug, teplizumab, intended for delay or prevention of clinical type 1 diabetes

Syndicate:

·     Amyris (AMRS) 19.05M share Secondary priced at $15.75

·     Outset Medical (OM) prices 2.5M shares sold by company and 3.4M shares by certain of its stockholders at $53.50 per share

·     Reneo Pharmaceuticals (RPHM) 6.25M share IPO priced at $15.00

·     RumbleON (RMBL) 1.05M share Secondary priced at $38.00

·     Ultra Clean (UCTT) 3.18M share Secondary priced at $55.00

·     Upstart (UPST) 2M share Secondary priced at $120.00

·     Vectivbio (VECT) 7.5M share IPO priced at $17.00