Mid-Morning Look

Friday, March 05, 2021

Stocks roll despite strong jobs report! After opening in positive territory on a monthly payroll report that showed job growth acceleration at a faster-than-expected rate in February, stocks quickly came for sale, led by high valuation tech stocks again. The jobs data pushed Treasury yields higher (10-yr touched 1.62%) initially, before paring gains (to around 1.57%), as it added to recent equity investors’ concerns about rising interest rates and its impact on high multiple tech stocks as the Nasdaq underperforms. The move in the Nasdaq comes after falling 10% from its Feb 12^th record highs, which is seen as correction territory. Federal Reserve Chair Jerome Powell fueled investor worries yesterday after disappointing investors by not taking a firmer stance against rising inflation and heightened bond market volatility. Oil prices jump more than 3% to session-highs above $66 per barrel a day after members of the OPEC+ alliance agreed to leave crude production unchanged. With today’s pullback, major averages are on track for a 3^rd straight week of declines amid the rising yield environment. Reopen names getting crushed today with airlines down 4% or more (UAL, AAL, JBLU, LUV) and cruise lines hit hard following another cash raise by NCLH (shares down over -15%).

White House economic adviser Heather Boushey told Reuters today that the U.S. economy is in a jobs hole that is deeper than it faced during the “Great Recession” and it needs more support to ensure a strong, speedy recovery. The comments came despite a strong showing in monthly jobs data earlier as the BLS said 379K jobs were added in February, well above the 182K estimate along with a surge in private payrolls as well (+465K) as unemployment declined to 6.2%. Treasury yields jumped following the much stronger-than-expected February jobs report to highs above 1.62% (big gains in jobs, unemployment drops and wages stay steady), currently validating the Fed’s view that a rise in rates is in-line with an improving economy. Treasury yields have since pulled back about 5 bps to 1.57%. Also today, the U.S. Senate will debate on the $1.9 trillion coronavirus aid bill, expected to last several hours before considering many amendments that could lead to a lengthy voting session.

Economic Data

·     February payrolls data much stronger than expected as added: +379K vs. +182K consensus and the prior month (Jan) upwardly revised to +166K from +49K; the unemployment rate: 6.2% vs. 6.3% consensus and 6.3% prior while wages rise 0.2% (in-line with estimates); Private payrolls surge +465K vs. est. +210K) and prior month revised to 90K from 60K

·     January International Trade in Goods and Services showed a deficit of (-$68.2B) vs. (-$67.5B) consensus and -$67.0B prior (revised from -$66.6B), while exports $191.9B and Imports $260.2B

Sector Movers Today

·     Bank movers; Treasury yields jumped following the much stronger-than-expected February jobs report (big gains in jobs, unemployment drops and wages stay steady), helping boost bank stocks which tend to benefit from a rising rate environment; FITB was raised to the Conviction List at Goldman Sachs where they see 27% upside to $45 tgt, viewing it as a “cheap” way to play rate upside optionality with limited downside in a low rate scenario; IBKR initiated Buy and $89 tgt at Jefferies citing combo of elevated retail activity and the potential for higher interest rates both represent tailwinds to earnings in 2021 and beyond

·     Energy stock movers; Shares of oil companies (CVX, XOM, MRO, APA, OXY, COP, etc.) rise premarket as crude prices hit 14-month highs after OPEC+’s decision yesterday to not increase supply in April as they await a more substantial recovery in demand; CVX acquired the remaining NBLX shares they do not already own in an all-stock transaction, where NBLX holders receive 0.1393 of a share of common stock of CVX; Barclays downgraded offshore drillers RIG, FI, DRQ despite Brent oil’s recent price appreciation as they still believe offshore’ s outlook is uncertain in 2021 and will not recover until late 2022; DZ Bank upgraded XOM to Hold with a $58 target; XOM hit a dry hole for the third time in four months in its drilling campaign offshore Guyana.

·     MedTech and Equipment; EYES said the FDA approved the Argus 2s Retinal Prosthesis System, a redesigned set of external hardware initially for use in combination with previously implanted Argus II systems for the treatment of retinitis pigmentosa; FLGT shares surge on earnings as Q4 EPS $6.20 vs. est. $4.05; Q4 revenue $294.98M vs. est. $199.44M on higher guidance; TTOO posts Q4 revenue of $7.8M, below estimates of $8.1M on in-line EPS loss of 7c; ABT won FDA emergency use nod for PCR assay differentiating Sars-Cov-2 from other respiratory infections

·     Software movers; ORCL upgraded to Overweight from Equal Weight at Barclays and raise tgt to $80 from $66 at Barclay’s; JAMF reported another strong quarter, as ARR growth of 37% Y/Y easily exceeded the Street’s 31% forecast and added a record number of new devices under management; PAYC upgrade from Hold to Buy at Jefferies as shares off 25%from ATHs and 23% YTD and with the valuation below the pre-pandemic peak, we are getting off the bench; Bloomberg reported that MSFT is in danger of losing a contract to provide $10 billion of cloud computing services to the Pentagon; GWRE results came in above expectations on both the top and bottom line due to stronger license sales but outlook was mixed, with the revenue outlook being raised slightly, ARR holding firm, and operating income coming in below-consensus

Stock GAINERS

·     BA ; was upgraded to Buy with $275 tgt at Canaccord based on 1) the MAX return to service; 2) the improved outlook for travel and the airline recovery, which will correspond with a positive inflection in the aerospace cycle; and 3) the stabilization in the wide-body outlook

·     CSCO +3%; upgraded to Overweight at JPMorgan on a combination of Enterprise IT spending recovery tracking ahead of expectation, on-track transformation to subscriptions, as well as still inexpensive valuation

·     FLGT +6%; shares surge on earnings as Q4 EPS $6.20 vs. est. $4.05; Q4 revenue $294.98M vs. est. $199.44M on higher guidance

·     GPS +7%; 4Q adj. EPS beat on better gross margins, while sales missed consensus primarily owing to store closures associated with COVID-restrictions; 2021 EPS outlook of $1.20-$1.35 on 5% EBIT margins brackets consensus at $1.27

·     KR +2%; defensive food stocks seeing outperformance (MDLZ, CPB, CAG)

·     MRO +6%; as energy stocks outperform along with rising oil prices (COP, CVX, PXD, OXY, EOG)

·     ORCL +5%; upgraded to Overweight at Barclays and raise tgt to $80 from $66

Stock LAGGARDS

·     CHPT -14%; shares down for a 7th straight session (fell 14% the day prior as well) in charging station/EV space – along with weakness in BLNK, TSLA, NIO

·     CLGX -3%; as CSGP announced that it has withdrawn its bid to acquire the co and terminate any further acquisition discussions. CoStar Group believes rising interest rates will negatively impact the outlook for the mortgage refinancing market

·     COST -2%; missed analysts’ estimates for Q2 profit as it spent more on employee benefits who worked through the COVID-19 pandemic and sanitizing its stores

·     GWRE -7%; results came in above expectations on both the top and bottom line due to stronger license sales but outlook was mixed, with the revenue outlook being raised slightly, ARR holding firm, and operating income coming in below-consensus

·     NCLH -15%; as 47.578M share Spot Secondary priced at $29.85

·     SPCE -16%; Chairman Chamath Palihapitiya sold 6.2M shares at an average price of $34.32 this week. He previously sold 3.8M shares in December to raise cash for other projects. He still holds a 6.2% stake in the space tourism company through a 15.8M share position