Mid-Morning Look

Tuesday, August 31, 2021

U.S. stocks pulled back off overnight gains but still only trading down modestly despite disappointing U.S. economic data, as the Chicago PMI data missed views (still a generally strong reading), but prices paid spiked to highest since 1979, while consumer confidence came in well below consensus views as inflation expectations edged up. On the Covid front, the EU announced fresh travel restrictions from US on Monday, as expected, while today, the U.S. State Department has raised its travel advisory alert for Canada to a “level 4 – do not travel.” Coming into the final trading day of August, the S&P 500 index on track for its 7^th straight month of gains, up nearly 3% for the month, while the Nasdaq is up 3.5% MTD, the Dow +3.6% MTD and the Russell +1.6%. In stock news, ZM tumbles after lackluster Q3 guidance failed to impress Wall Street, as shares drop below $300 for the first time since May. Early strength in healthcare services (ANTM, CAH, CVS, HCA, MCK) and media (VIAC, DISCA) in the S&P, while energy and tech slip. Stocks have stayed steadily higher in recent session after Fed Chair Jerome Powell last week signaled no rush to tighten its monetary policy, helping equities continue their rally.

Economic Data

·     Chicago PMI for August at 66.8 below estimate 68.0 and previous 73.4; Prices Paid, meanwhile, rose to the highest level since December 1979; Order Backlogs tumbled 14.1 points

·     July Consumer Confidence drops to a 6-month low at 113.8 vs. 123.0 consensus and 128.9 prior revised from 129.1; the present situation index 147.3 in august vs July revised 157.2; expectations index 91.4 in august vs July revised 103.8 (previous 108.4); 1-year consumer inflation rate expectations 6.8% in august vs July revised 6.6%

·     U.S. single-family home prices in 20 key urban markets rose in June from a year earlier at the fastest pace on record, according to the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas gained 19.1% through the 12 months ended in June, from an upwardly revised 17.1% the previous month, marking the largest annual price increase in the survey’s 20-year history. On a month-to-month basis, the 20-city composite index rose 1.8% from May. This was in line with estimates from economists polled by Reuters.

·     June FHFA House Price Index: +1.6% vs. +1.8% consensus and +1.8% prior

Sector Movers Today

·     MedTech Equipment; ABT with lots of positive analyst commentary after its Amulet LAA Closure Device demonstrated that in comparison to BSX’s first-generation Watchman device it was superior for the primary endpoint of LAA closure and non-inferior for the primary endpoints of safety and effectiveness. The LAA market has evolved as an alternative treatment for patients who have non-valvular atrial fibrillation (AF); BTIG said it is most positive on long-term growth prospects for GMED and JNJ in the spine industry saying its survey of U.S. surgeons indicates they would see the most market share gains in the coming years while MDT is poised to lose share; INSP said a CMS panel has unanimously approved a recommendation to increase the previously proposed reimbursement for Inspire procedure performed in Ambulatory Surgical Centers (ASCs). Piper notes this is important because earlier this year CMS proposed to reduce the facility payment for Inspire procedures from ~$24,300 to ~$17,500 in the ASC setting, effective 1/1/22

·     Transports; airlines slide (UAL, AAL, DAL, LUV) early (after a drag on markets Monday) after the U.S. State Department has raised its travel advisory alert for Canada to a “level 4 – do not travel” status amid the ongoing COVID-19 pandemic, it said in a statement on Tuesday. Separately, the airline industry recovery took another step back with system sales decelerating for the fifth straight week. Sales were down 61.5% vs. 2019 for the week ending August 22 vs. -58.9% last week, per tracking by Bank of America/firm notes some stabilization in demand as domestic and int’l tickets sold were both flat compared to last week at down -29.3% and -46.1%, respectively.

·     Metals & Materials; for the steel, sector (X, NUE, STLD), Citigroup notes that signs are emerging that US steel prices are now in the 8th or 9th inning of the COVID-recovery rally as flat steel prices are 50% above previous all-time highs; in paper/containerboard, UBS sees potential Q3 risk from Hurricane exposure (IP, WRK, PKG) noting Hurricane Ida made landfall in southeastern Louisiana on 8/29. Weather is an important factor for pulp-based, herein kraftliner, costs as heavy rain can restrict access to forest land thereby driving up wood prices. IP, PKG and GPK each have roughly 25% of capacity in Louisiana. Assuming current projections, Ida will turn northeast over MS, AL, TN, and KY through Wednesday. All five states combined include ~50% of both IP and PKG packaging capacity. Conversely, WRK is notably less exposed to the region

·     Auto sector; YNDX said it would buy UBER’s stakes in their joint foodtech, delivery and self-driving businesses, and increase its stake in a mobility-focused joint venture as part of a $1 billion deal; YNDX added that it had received a call option to purchase Uber’s remaining stake in mobility businesses for up to $2 billion; HYZN price tgt raised 50% to $15 from $10 at Wedbush saying he is getting “increasingly confident” about the California-based hydrogen mobility company’s potential in the hydrogen trucking market; VLDR partners with MOV.AI, which provides developers with tools to create autonomous robots, to provide automation solutions like navigation and obstacle avoidance to robot manufacturers; HYLN says it will be unveiling an improved model of its Hybrid system at the American Clean Transportation Expo in Long Beach, California today; ZEV enters a multi-year agreement with vehicles maker REVG’s subsidiary Collins Bus to make all-electric Type A school buses

Stock GAINERS

·     ACIU +68%; rises after saying its experimental Alzheimer’s therapy semorinemab slowed patients’ rate of cognitive decline in a study

·     APPS +14%; upgraded to buy from hold at Canaccord saying the mobile-services platform operator has gotten stronger and improved its value proposition since the firm downgraded the stock in December/also stock will be added to the MidCap 400

·     CVS +1%; early strength in healthcare service industry (MCK, CAH, ANTM)

·     INSP +1%; said a CMS panel has unanimously approved a recommendation to increase the previously proposed reimbursement for Inspire procedure performed in Ambulatory Surgical Centers

·     NTES +5%; reported Q2 revenue of RMB 20.53bn vs. cons RMB 20.54bn. Online game services net revenue came in at RMB 14.53bn vs. cons RMB 14.31bn. Online game services gross profit came in at RMB 9.61bn vs. cons RMB 9.23bn

·     SPCE +8%; initiated Buy and $33 tgt at Jefferies as think the attractive long-term setup for SPCE is boosted by supply ramping with additional spaceships driving capacity to 660 flights per year by 2030

·     VG +6%; after a report that activist Jana Partners is asking the company to explore alternatives, including a sale of all or parts of the telecom company https://bit.ly/3BjDHeO

Stock LAGGARDS

·     AMWD -13%; Q1 adj EPS $0.70 vs. est. $1.48; Q1 revs $442.6M vs. est. $461.79M; said while delivering sales growth across all channels our adjusted EBITDA margins of 7.3% were below expectations

·     DBI 6%; falls despite posts Q2 sales to $817.3M (+66.9%) vs est. $751.2M, adj EPS 56c vs est. 24c, same-store sales +84.9% vs. est. 62.2%; says sales results were driven by increased store traffic

·     HOOD -3%; extending losses following the double dose of negative news Monday: 1) PYPL may start a stock trading feature and 2) that SEC Chair Gensler said that payment for order flow has “an inherent conflict of interest” and that a full ban of payment for order flow is “on the table”

·     SQBG -56%; files for chapter 11 bankruptcy; lists up to $500M of assets, liabilities

·     ZM -15%; delivered F2Q results that exceeded Street estimates across revenue, profitability and FCF, with in-line billings, but provided guidance that was just in line with consensus, implying F2H below expectations and disappointing Wall Street (shares of FIVN fell in sympathy after ZM agreed last month to by them a $14.8B deal)