Mid-Morning Look

Monday, September 19, 2022

U.S. stocks open lower, rebounding slightly as markets anxiously await confirmation of the Fed’s latest interest rate hike this week. The U.S. central bank is expected to raise its policy rate by 75 basis points on Wednesday for the third time since June. Since March, the Fed has lifted that rate from near zero to its current range of 2.25% to 2.50%. Mortgage rates have surged even higher. The 30-year fixed mortgage rate averaged 6.02% last week from 5.89% in the prior week, breaking above 6% for the first time since November 2008. NAHB homebuilder sentiment weak at 46, below the expected 47 and down from 49 to its lowest since May 2020 (down 9^th straight month). Treasury yields reach new highs ahead of the Fed, with the two-year trying to breach the 4% level and the 10-year briefly breaking 3.5% for the first time since 2011. They are now at 3.96% and 3.49%, respectively. Wednesday’s FOMC move could send them even higher (or is the move “baked-in” to markets?). Crypto assets tumbled this weekend, with Bitcoin falling as much as 7% to near $18K lows, lowest since 2020 on interest rate hike fears and the White House’s unveiling last week of plan to regulate the industry (bounces back above $19K). Oil fell by more than 2% on Monday, pressured by expectations of weaker global demand and by U.S. dollar strength ahead of possible large increases to interest rates, though supply worries limited the decline. Macro rate picture continues to impact Treasury, Currency, and Stock markets as the S&P 500 and the Nasdaq look to rebound after logging their worst weekly percentage drop since June on Friday.

Economic Data

·     U.S. September NAHB Housing market index 46 versus 49 in August, the lowest since May 2020; index of current single-family home sales 54 versus 57 in August; index of home sales over next six months 46 versus 47 in August; index of prospective buyers 31 versus 32 in August

Sector Movers Today

·     Metals & Mining: EAF said late Friday that inspectors issued a suspension notice for its Monterrey facility, which accounts for about 25% of its total production; in gold mining, NEM mentioned positively in Barron’s saying it may be time to buy the gold producer whose shares have dropped more than 50% from an April high alongside the decline in gold prices; KGC announces enhanced share buyback program as commits to $300M over remainder of 2022 and 75% of excess cash in 2023 and 2024 and maintains quarterly dividend; AngloGold Ashanti has agreed to pay $150 million in cash to acquire a subsidiary of CDE with mining concessions in Nevada adjacent to its own, the companies said.

·     MedTech Equipment; BSX presented data from its PROTECTED TAVR trial which missed statistical significance for its primary endpoint (all stroke at 72 hours or discharge) but showed that use of cerebral embolic protection (BSX‘s Sentinel device) for reduction of disabling stroke, a secondary endpoint, was statistically significant, with a 60% relative risk reduction; EW presented interim results from CLASP-IID, a head-to-head study of PASCAL vs. ABT’s MitraClip in DMR were presented over the weekend at TCT BTIC said hits primary endpoint with non-inferiority to MitraClip; some sign of greater and sustained reduction in MR severity at six months

·     Housing & Building Products: ahead of earnings this week in homebuilders, KeyBanc changes its underweight Builder outlook to overweight, based on our view “Early Pain = Early Gain,” with most builders’ underperformance relative to the S&P by the 3rd quartile in previous cycles. They see fundamental and rate pressures persisting, but positive relative performance, supporting upgrades (DHI, LEN, MTH, PHM, and BLD to Overweight, and KBH and TOL to Sector weight)

·     Hardware & Software movers: CRM added to Raymond James’ current favorites list and HUBS removed from the list; Bloomberg reported a hacker released gameplay from TTWO’s Grand Theft Auto VI in one of the biggest leaks in gaming history; KNBE shares jumps after confirms it received a non-binding proposal from Vista Equity Partners to acquire remaining outstanding shares not already owned for a price of $24.00 per share, payable in cash; NTAP downgraded from Positive to Neutral w/$75 tgt from $100 at Susquehanna; SE is preparing to lay off 3% of employees at its e-commerce arm Shopee in Indonesia, as per a Bloomberg report

Stock GAINERS

·     ARRY +4%; upgraded to Overweight from Neutral at Piper saying the company’s strong order book creates the potential for an attractive 2023 revenue and EBITDA outlook

·     KNBE +25%; confirms it received a non-binding proposal from Vista Equity Partners to acquire remaining outstanding shares not already owned for a price of $24.00 per share, payable in cash

·     NFLX +1%; upgraded to Outperform from Perform at Oppenheimer with a $325 price target saying its ad-tier launch should accelerate subscriber growth, drive ARPU, and slow churn

·     PRPL +35% after holder Coliseum Capital offers to buy for $4.35/share https://bit.ly/3SfoV13

·     RL +2%; said its 3-yr financial outlook accelerates to a mid- to high-single digit revenue compounded annual growth rate and operating profit growth exceeding top-line growth by fiscal 2025 in constant currency

·     RUM +4%; Rumble Inc to start trading with ticker “RUM” today after SPAC merger as closed business combination with special-purpose acquisition company CFVI

·     WIX +10%; after reports activist investor Starboard Value has established a roughly 9% interest and has spoken to the company about how it can better its operations https://reut.rs/3qLXGzF

Stock LAGGARDS

·     EAF -9%; said late Friday that inspectors issued a suspension notice for its Monterrey facility, which accounts for about 25% of its total production

·     EW -5%; presented interim results from CLASP-IID, a head-to-head study of PASCAL vs. ABT’s MitraClip in DMR were presented over the weekend at TCT BTIC

·     MRNA -8%; along with weakness in other vaccine names (PFE, NVAX) – Possible weakness in vaccine names due to Biden comments on 60 minutes – “pandemic is over”

·     TROX -4%; in the TiO2 sector, VNTR downgraded to Underperform from Market Perform at BMO Capital and TROX downgraded to Market Perform

·     TTWO -2%; after a large collection of in-game footage/clips, allegedly from GTA 6, was posted online and widely distributed through social media such as YouTube and Twitter

·     UDR -2%; Mizuho downgraded ESS to Neutral in large cap Apartment coverage universe, saying for ESS, downgrade is more fundamentally driven, reflecting the implications of its more rapid sequential blended rent deceleration in 3Q22 thus far, while UDR is valuation driven

·     VIRI -66%; said top-line results from phase 2b study of IMC-1 in Fibromyalgia did not achieve statistical significance on the prespecified primary efficacy endpoint