Mid-Morning Look

Monday, September 21, 2020

U.S. stocks are sharply lower as major indexes extend losses into a fourth straight week amid increasing COVID-19 virus fears as Europe steps up its efforts to try and stop the recent surge in cases with lockdowns (fears of a second wave) dragging down travel, leisure and restaurant related names. Financials fall amid reports major banks moved $2 trillion of allegedly illicit funds from 1999-2017 despite questions over their origin, according to U.S. government documents. Worries about the increased lockdowns in Europe are hitting transports, adding on to last week’s stock market declines as large cap technology-related names once again among the primary drags. Also adding to mark uncertainty, inability of Congress to agree on more fiscal stimulus raised fears about another hit to the domestic economy. Healthcare stocks pressured as Supreme Court Justice Ginsburg’s death this weekend and the potential appointment of a more conservative judge – raises further fears for the appeal of Obamacare. There was no major economic data today to move markets. The CBOE Volatility index (VIX) rises to its highest level in over two weeks amid the sell-off in stocks. Energy is the worst-performing sector early, with crude futures down sharply (over 3%) on news of Libyan production restart. Overall, several negative factors weighing on market sentiment, heading into even more uncertainty in November with the Presidential election and fears of no clear outcome on election day given the number of mail-in ballots this year.

Sector Movers Today

·     Healthcare services and providers; hospitals HCA downgraded to Neutral, THC, UHS downgraded to Underweight at JPMorgan as reviewed universe and are compelled to rebalance our ratings distribution – says while HCA remains the best-in-class hospital operator, skeptical shares will outperform coverage universe; hospitals and managed care names (ANTM, UNH, HUM CNC) also down as Supreme Court Justice Ginsburg’s death this weekend and the potential appointment of a more conservative judge – raises further fears for the appeal of Obamacare; DRIO and 40-year veteran healthcare management company HMC HealthWorks entered into a sales and distribution partnership

·     Retailers; luxury retailers with positive analyst comments as TPR was upgraded from Neutral to Overweight ($26 PT from $29) at Piper as see it as a value recovery name into 2021 with current valuation as a compelling entry point; CPRI was upgraded to overweight at Morgan Stanley saying faster than expected global retail recovery suggests revenue and earnings beats are coming; BJ was upgraded from Buy to Conviction Buy at Goldman Sachs saying new member acquisition should drive higher comps going forward and BJ’s unit growth story is accelerating

·     Leisure and Gaming; cruise line stocks tumble (CCL, NCLH, RCL) amid COVID-19 pandemic related concerns following increasing lockdowns in parts of Europe given surging coronavirus cases; gaming names (WYNN, MGM, LVS) and theme parks (DIS, SIX, SEAS) among decliners as well amid similar fears; travel stocks down in Europe on worries over the region locking down in response to a new wave of coronavirus case; SGMS was upgraded at Jefferies

·     Bank movers; large U.S. banks as well as several European banks were weak after BuzzFeed and other media reported they and other banks moved large sums of allegedly illicit funds over nearly two decades despite red flags about the origins of the money. Major banks moved $2 trillion of allegedly illicit funds from 1999-2017 despite questions over their origin, according to U.S. government documents reported HSBC (HBC), JPMorgan Chase (JPM), Deutsche Bank (DB), Standard Chartered and Bank of New York Mellon (BK) were among the banks cited

·     Transports; airlines pressured, especially global carriers AAL, DAL, UAL (and European names) amid rising coronavirus cases in Europe and fears of a second wave potentially hitting; UPS was upgraded to outperform from neutral and raise tgt to street high $192 from $147 at Credit Suisse as sees domestic pricing power shifting towards carriers as a growth catalyst, and a fall in capital expenditure from a multi-year high as opportunities to reduce capital intensity

Stock GAINERS

·     CPB +2%; stay at home related names such as food (SJM, CPB) and cleaning product names (CLX) among leaders early on fears of second wave virus concern

·     FSLY +8%; rises on TikTok news – recall on Q2 earnings call FSLY disclosed TikTok was its largest customer, representing 12% of revenue in first half of 2020

·     ORCL +3%; U.S. President Donald Trump supported a deal that would allow TikTok to continue to operate in the U.S. as ORCL will owns 12.5%, WMT 7.5% – President Trump said ByteDance will have no ownership in TikTok Global

·     RCII +2%; on raised FY sales, profit forecast as sees FY revenue of $2.78B-$2.83B vs. est. of $2.77B and forecasts adj. profit between $3.15-$3.45, also above estimates

·     ROKU +9%; as Peacock app is now available nationwide on ROKU platform for access to everything peacock has to offer, peacock premium is available for $4.99 per month

·     ZM +2%; as stay-at-home beneficiaries rising amid fears of second wave virus fears given the resurgence of cases hitting Europe and forcing some lockdowns

Stock LAGGARDS

·     HCA -8%; on JPMorgan downgrade of hospitals as well as Supreme Court Justice Ginsburg’s death this weekend and the potential appointment of a more conservative judge – raises further fears for the appeal of Obamacare (also weakness in UHS, CNC, UNH, HUM)

·     ILMN -5%; confirms recent reports as it acquires Grail Inc. for $7.1B in cash and stock for the part it doesn’t already own to move deeper into the application of its gene-sequencing technology to the diagnosis & treatment of patients https://on.mktw.net/3cfS9cu

·     LEGN -14%; after saying CEO and Chairman Zhang steps down amid residential surveillance by Chinese law enforcement, in connection with an investigation over suspected trade violations under Chinese law

·     NKLA -16%; after founder Trevor Milton steps down with immediate effect in the wake of allegations from a short seller that he and the company had made false statements to investors.

·     SNOW -6%; downgraded to sell at Summer Insights with $175 tgt based on the belief its the most expensive name in all tech, with limited differentiation with respect to Redshift, Big Query, and Azure SQL Database

·     XOM, COP -3%; energy stocks slide along with broad weakness in other energy plays (services, equipment – SLB, HAL, OXY) after a unit of Libya’s National Oil Corp. restarted some production in the east of the country after a deal was struck between warring parties