Mid-Morning Look

Tuesday, September 22, 2020

The S&P 500 and Nasdaq rise for the first time in five days (currently on longest losing streak since late February) and the Dow higher for the first time in four as investors look to take advantage of the recent decline, especially in technology shares as the Nasdaq Comp outperforms early. The rebound comes one day after equities retreated sharply on trade tensions, healthcare concerns due to Supreme Court Justice Ginsberg passing, rising COVID-19 cases in Europe prompting lockdowns in certain parts, and on fears the stimulus deal in Washington will continue to materialize. Surging cases in Europe have knocked confidence in the world economy’s recovery from the downturn sparked by coronavirus, which has pressured travel, leisure, gaming, and restaurant related names lately (while liftin food and stay-at-home related beneficiaries). In prepared remarks published Monday ahead of Federal Reserve Chairman Jerome Powell’s scheduled testimony on Capitol Hill, the policy maker suggested Congress would need to spend more to shore up struggling parts of the economy. Powell is due to testify to the House Financial Services Committee alongside Treasury Secretary Steven Mnuchin, starting at 10:30 a.m. ET. Banks, REITs and Discretionary among leaders early while Biotech slides.

Economic Data

·     Richmond Fed composite manufacturing index +21 in sept vs +18 in Aug, manufacturing shipments index +13 in sept vs +22 in Aug; Richmond Fed services revenues index +6 in sept vs +2 in August

·     Existing Home Sales for August rise 2.4% to 6.00M (highest levels since Sept 2006), in-line with estimates and compared to July 5.86M; Aug inventory of homes for sale 1.49 mln units, 3.0 months’ worth; the national median home price for existing homes $310,600, +11.4% from Aug 2019

Sector Movers Today

·     Retailers; NKE to report earnings after the close tonight (implications for UA, FL); PTON, NLS slip early after AMZN unveiled its “Echelon Smart Connect Fitness Bikes,” for $499 which offers live and on-demand classes, and said one membership works for all machines; GME shares rise after stakeholder RC Ventures discloses it has held recent talks with the retailer’s management and board members and slightly upped its stake in shares; OSTK tgt raised to $75 from $55 at Cowen saying they are incrementally positive; RL said it will be cutting its global workforce at the end of fiscal year 2021, which will drive pre-tax charges of $120 million to $160 million; KSS positive mention at Cleveland Research notes 3Q comps looking slightly ahead of ests and expects gross margin support from lean inventory while said for JWN it sees 3Q sales trending below ests, but gross margin better

·     Aerospace & Defense; JPMorgan upgraded LDOS, CACI to overweight from neutral in the defense sector citing visible growth for both while downgraded KTOS to neutral on valuation as expects improvement in Q3 results for LDOS, particularly in the health segment after two consecutive sales downgrades by the company, and solid growth in 2021; LMT up slightly as Reuters reports the U.S. hopes to reach a deal on the sale of F-35 stealth fighter jets to UAE, one of its closest Middle East allies, by December, sources close to the negotiations tell Reuters; Truist reiterated its negative aero call across our exposed names with current SELL ratings include ATRO, ROLL, SPR, TGI, WWD but holds vulnerable too AIR, B, HEI, TDG as forecasts 2019 total capacity to be down 50% YOY in 2020 while also pointing to additional potential downside risk this year

·     Biotech movers; VCNX shares tumble after saying an experimental Huntington’s disease treatment, pepinemab, did not meet the primary endpoints in a Phase 2 double-blind, placebo-controlled clinical trial; in research, Guggenheim upgraded FPRX to buy with an $11 PT based on increased conviction for a positive outcome for bemarituzumab in patients with FGFR2+ gastric cancers, while they downgraded shares of EIDX, CTMX to neutral from; GNCA said the FDA has accepted the company’s Investigational New Drug (IND) Application for GEN-011, an adoptive T cell therapy targeting neoantigens; CRSP said the European Medicines Agency has granted Priority Medicines (PRIME) designation to CTX001, an autologous, ex vivo CRISPR/Cas9 gene-edited therapy for the treatment of severe sickle cell disease

·     Auto sector; TSLA holds its highly anticipated Battery event day; BLNK rises after saying it sold or deployed 539 EV charging stations, indicating a ~100% Y/Y increase in U.S. and internationally during the summer Covid-19 lockdowns of June, July, and August 202; LI announces a strategic cooperation with chipmaker NVDA and its Chinese partner, Huizhou Desay SV Automotive; in auto retail, AZO reported a top and bottom line Q4 beat as Q4 comp sales rose 21.8%; Bloomberg reported HTZ is evaluating two loan offers of about $1B to $1.5B as it looks for new sources of cash; VRM upgraded to buy from neutral at Goldman Sachs

Stock GAINERS

·     AZO +1%; reported a top and bottom line Q4 beat as Q4 comp sales rose 21.8%

·     BLNK +12%; after saying it sold or deployed 539 EV charging stations, indicating a ~100% Y/Y increase in U.S. and internationally during the summer Covid-19 lockdowns of June, July, and August 202

·     BMY +1%; and BLUE said that the US FDA had accepted its application under priority review and had set a PDUFA of 3/27/2021 for its ide-cel/bb2121

·     CVNA +26%; after saying it expects to achieve company records in performance across several important metrics in Q3 and after an upgrade at Goldman Sachs to buy with $250 tgt

·     FLGT +8%; is joining the S&P SmallCap 600 index, replacing Garrett Motion (GTX), which is filing for bankruptcy and must leave the index

·     GME +23%; shares rise after stakeholder RC Ventures discloses it has held recent talks with the retailer’s management and board members and slightly upped its stake in shares

·     JBLU +3%; after saying it has seen “modest improvement” in revenue and bookings since early August, while now expects capacity for the third quarter to be down 55% from a year ago, compared with previous expectations of a decline of “at least” 45%

·     SPG +3%; as REITs among early market gainers (AIV, FRT)

Stock LAGGARDS

·     KC -8%; after filed to sell 8M American Depositary Shares and selling shareholders are offering 9.68M American Depositary Shares

·     NNOX -12%; shares tumble after Muddy Waters say it is short the stock, which comes out a week after Citron said NNOX stock is heading to $0

·     PTON -4%; after AMZN unveiled its “Echelon Smart Connect Fitness Bikes,” for $499 which offers live and on-demand classes, and said one membership works for all machines (shares of NLS also came under pressure)

·     SEDG -5%; said it intends to offer $500 mln worth convertible senior notes due 2025 in a private offering

·     TSLA -5%; as some of the steam comes out of shares which rallied into the Battery Day event today

·     VCNX -59%; after saying an experimental Huntington’s disease treatment, pepinemab, did not meet the primary endpoints in a Phase 2 double-blind, placebo-controlled clinical trial