Mid-Morning Look

Tuesday, December 15, 2020

Stocks rising early on renewed stimulus hopes (again) after a bipartisan group of lawmakers put forward another economic relief package, which would split a previously proposed $908B package into two parts. A first bill of $748B would avoid the issues holding up a deal by focusing on spending programs that are favored by both Democrats and Republicans, while a second $160B measure would be for state and local aid. Additional headlines on positive vaccine news also helping early as the FDA said Moderna’s (MRNA) COVID-19 vaccine candidate is “highly effective” at preventing infections with the coronavirus, ahead of the Thursday emergency use application meeting. Stocks stay strong as the Russell 2000 trades above its Dec 10 record close and the S&P 500 rises for the first time in 5-days. Congress is running out of time to strike a deal before the year-end holiday season, so investors betting on a last-minute deal. Commodity prices jump with oil and gold prices are higher, while Treasury yields also gain. Markets also prepare for dovish Fed comments, which concludes its final 2-day meeting of the year tomorrow.

Economic Data

·     Import prices rise +0.1% MoM in November vs. +0.3% consensus and -0.1% prior as higher fuel prices in November more than offset lower nonfuel prices (YoY import prices decreased 1.0%); Export prices rose +0.6% MoM in Nov vs. +0.3% consensus and +0.2% prior as higher prices for both agricultural exports and nonagricultural exports contributed to the November rise.

·     Empire State Manufacturing for December rises a smaller-than-expected +4.9 vs. +6.9 consensus and +6.3 prior month while new Orders index up +3.4 vs. +3.7 prior, shipments index: +12.1 vs. +6.3 prior and employment index up +14.2 vs. +9.4 prior; its highest level in over a year; prices paid index +37.1 in December vs +29.1 in November

·     November Industrial Production rose +0.4% MoM above the +0.3% consensus and vs. +1.1% prior while Capacity Utilization 73.3% vs. 72.9% consensus and 72.8% prior. Manufacturing Output +0.8% M/M vs. +0.3% consensus, +1.0% prior as an increase of 5.3% for motor vehicles and parts contributed significantly to the gain in factory production

Sector Movers Today

·     MedTech and Equipment; busy morning of research as Morgan Stanley upgraded MDT, BDX to overweight and downgraded ISRG to equal-weight (on valuation) noting that multiple expansion on rising earnings will drive performance in 2021. Wells Fargo upgraded NARI from Equal Weight to Overweight, downgraded BDX and TNDM from Overweight to Equal Weight, and downgraded NUVA from Equal Weight to Underweight. Firm’s top picks in 2021 are ZBH, TFX, PODD and SWAV as see positive catalysts and potential upside to Street estimates for each of these names; OCX surges as diagnostic test maker BNR enters into an exclusive licensing agreement with OCX to bring co’s cancer risk stratification test DetermaRx to China

·     Monthly Master Trust Credit Card data: SYF credit card adjusted charge-off rate falls to 3.1% from 3.3% in November and down from 4.8% in November 2019, while delinquency rate of 3.0% edges up from 2.8% in October but is down from 4.5% in November 2019; COF monthly NCO’s improve to 2.57% in November from 3.11% in October and 3.91% in November 2019 and its delinquency rate of 2.29% is up from 2.19% in October, but down from 4.43% YoY; ADS reported net charge offs of $68.24M, or 5.2% vs. 6.3% in year ago month of average receivables which dropped 13% Y/Y to $15.66B as of Nov.30 month end; JPM credit card net charge-off rate for November improves to 1.59% from 1.89% in October and 2.20% in November 2019 while the delinquency rate of 1.02% up from October’s 1.00% and down from 1.17% YoY

·     Major oils sector; Wells Fargo upgraded XOM (to OW, $53 pt), RDSA (OW, $49), CNQ (EW, C$32), OXY (EW, $20) and downgraded CVX (EW, $105), MUR (UW, $11), SU (EW, C$26), calling for more supportive macro tailwinds next year, but realize significant challenges exist and maintain an average Brent price below $50; Raymond James reiterates their outperform ratings on BP on compelling valuation despite not loving their business pivot and CVX as the best positioned for most macro environments, and their UW rating on XOM as the debate over dividend/capital allocation is not going away any time soon

·     Biotech movers; MRNA rises early after the FDA said the company’s COVID-19 vaccine candidate is “highly effective” at preventing infections with the coronavirus. The FDA published a document outlining its thinking about Moderna’s emergency use application in advance of the FDA Vaccines and Related Biological Products Advisory Committee’s scheduled meeting on Thursday; LEGN and MNOV were selected for addition to the NASDAQ Biotechnology Index, effective prior to market open on Monday, December 21, 2020; MESO slips after announcing top-line results from the landmark DREAM-HF Phase 3 trial of its allogeneic cell therapy rexlemestrocel-L (REVASCOR) in 537 patients with advanced chronic heart failure

·     Aerospace & Defense; LHX was downgraded to Neutral in aerospace and defense at JPMorgan, while likes SPR the most in Commercial Aero – says RTX and HWM attractive too in, while notes it will take time, but we see the ramp on 737 giving Spirit appealing exposure to a multi-year Aero recovery. Boeing’s (BA) future depends on ramping MAX production in the coming years, giving Boeing a strong incentive to sell the key platform that drives Spirit profitability

Stock GAINERS

·     AAPL +3%; has reportedly tasked suppliers to produce up to 96 million iPhones for the first half of 2021, a nearly 30% YoY increase, following a late surge in demand for the iPhone 12 amid the global health crisis, according to MacRumors https://bit.ly/34eTGN4

·     BIDU +9%; after Reuters reported according to sources the company is looking to make electric vehicles and has also held talks with automakers. BIDU has held early talks with Zhejiang Geely Holding Group Co Ltd, Guangzhou Automobile Group Co Ltd and China FAW Group Corp Ltd.’s

·     OCX +40%; rises as diagnostic test maker Burning Rock Biotech Ltd (BNR enters into an exclusive licensing agreement with OCX to bring co’s cancer risk stratification test DetermaRx to China

·     PRVL +85%; LLY announced a definitive agreement to acquire PRVL for $22.50 per share in cash (or an aggregate of approximately $880M) payable at closing plus one non-tradable contingent value right (“CVR”) worth up to $4.00 per share in cash https://bit.ly/3oYghpb

·     SWKS +4%; Apple suppliers jumping on reports the company has reportedly tasked suppliers to produce up to 96 million iPhones for the first half of 2021, a nearly 30% YoY increase (shares of QCOM, QRVO, TSM among gainers)

·     TUFN +4%; as earlier announces support for Google Cloud platform

Stock LAGGARDS

·     AIV -85%; announced that it has completed the separation of its businesses, creating two, separate and distinct, publicly traded companies, Apartment Income REIT Corp. and Aimco

·     EAF -7%; 8.5M share Block Trade priced at $9.15

·     LHX -2%; downgraded to Neutral in aerospace and defense at JPMorgan

·     MESO -16%; slips after announcing top-line results from the landmark DREAM-HF Phase 3 trial of its allogeneic cell therapy rexlemestrocel-L (REVASCOR) in 537 patients with advanced chronic heart failure

·     NCLH -5%; proposes to sell $500M senior notes due 2026

·     SNOW -2%; falls as IPO lock-up expiry today as shareholders can sell shares

·     SWI -4%; falls a second day after dropping 16% Monday after FEYE said an attack on SolarWinds Corp. infected the company’s software updates with a type of malware that has made its way into private and public organizations worldwide.