Early Look

Monday, December 21, 2020

Futures	Up/Down	%	Last
DJ Industrials	-494.00	1.64%	29,619
S&P 500	-69.50	1.88%	3,636
Nasdaq	-155.50	1.22%	12,557

 

 

U.S. stock futures are sharply lower, as positive news of a stimulus deal out of Washington, looser buyback restrictions on banks from the Fed (after another stress test) and another vaccine (Moderna’s) receiving emergency use authorization is being overshadowed by stricter travel restriction news in the UK after reports of a new COVID-19 mutation, which has resulted in a tougher lockdown in London and southeast England, and led a number of countries to block travel from Britain. Reports indicate the variant is thought to be more transmissible than the original strain of the disease and it has so far been identified in the Netherlands, Denmark and Australia. Travel related names along with weakness in leisure, hotels and energy are seeing the biggest hits overnight as the mutation news stoked lock down fears. In Asian markets, The Nikkei Index dipped -48 points to 26,714, the Shanghai Index rose 25 points to 3,420 and the Hang Seng Index dropped -191 points to 26,306. In Europe, the German DAX is down over 400 points (3.2%) to 13,190, while the FTSE 100 is down over -170 points to 6,355.

Democratic and Republican leaders finally reached an agreement on a new coronavirus relief deal worth around $900 billion that includes a second round of stimulus checks and additional unemployment benefits. The bill will soon be put for a vote in the House and the Senate. Senate Majority Leader Mitch McConnell said the deal includes $600 in stimulus checks, jobless benefits of $300 per week in enhanced unemployment insurance for 11 weeks, $325B for small businesses, and $90B for FEMA. The reports indicate additional funding for solar and wind projects as well as airlines which may give a boost to those sectors. Outside of the relief bill news, there was better earnings from Dow component Nike (NKE) late Friday, as well as emergency use authorization from Moderna on its Covid vaccine (the 2^nd drug maker to receive it in 2-weeks), and a report that Microsoft (MSFT) was working on its own in-house chips for use in server computers (weighing on INTC and AMD late Friday).

 

As for last week, the S&P rose 1.25%, the Dow added 0.44%, and the Nasdaq gained 3.05%, closing out the week weaker however as doubts grew whether a fiscal stimulus package could be reached as a deadline grew closer. Trading was choppy late Friday in part due to quadruple witching and the S&P rebalance of its indexes, as well as the addition to Tesla (TSLA) into the S&P 500 after the close of trading. Still, all four major U.S. averages had closed last Thursday at record highs in what has been a remarkable run off the March pandemic related lows. Security technology stocks soared on Friday (FEYE, FTNT, PFPT, CRWD) amid cyber-attack disclosures, while energy was the worst sector performer.

 

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -13.07 points, or 0.35%, to 3,709.41

·     The Dow Jones Industrial Average fell -124.32 points, or 0.41%, to 30,179.05

·     The Nasdaq Composite slipped -9.11 points, or 0.07%, to 12,755.64

·     The Russell 2000 Index declined -8.06 points, or 0.41% to 1,969.99

 

Economic Calendar for Today

·     8:30 AM EST      National Activity Index for November

 

Earnings Calendar:

·     Earnings Before the Open: EPAC, FDS, LESL

·     Earnings After the Close: CVGW, HEI, VNCE

 

 

Macro	Up/Down	Last
WTI Crude	-2.48	46.62
Brent	-2.56	49.70
Gold	-7.75	1,873.50
EUR/USD	-0.0096	1.2161
JPY/USD	0.50	103.80
10-Year Note	-0.054	0.88%

 

 

World News

·     Countries have started barring travel from the U.K. following a British announcement Saturday that it is imposing fresh lockdowns to combat a new strain of Covid-19 that appears to be much more contagious than prior. The Netherlands banned passenger air travel from the U.K. until Jan. 1. Belgium quickly followed, banning flights and rail arrivals of the Eurostar train line as well, beginning midnight Sunday, initially for 24 hours – Yahoo Finance

 

Sector News Breakdown

Consumer

·     Nike (NKE) shares rose 5%; Q2 EPS 78c vs. est. 62c; Q2 revs $11.2B up 9% YoY vs. est. 10.55B; qtrly gross margin decreased 90 basis points to 43.1%; 2Q North America rev. $4.01B, 2Q EMEA revs $2.96B (up 17% YoY) and Q2 Greater China revs $2.30B, (up 24% YoY); says continues to experience physical retail traffic declines in America, EMEA and APLA due to Covid

·     Airlines (AAL, DAL, JBLU, LUV, UAL) may see volatility after reports the pandemic aid package negotiated by Congressional leaders includes $15 billion to reinstate payroll reimbursements to airlines that expired two months ago – Bloomberg

·     Rent-A-Center (RCII) agrees to acquire online lease-to-own provider Acima Holdings in a cash-and-stock deal valued at $1.65B; total consideration consists of $1.27B in cash and ~10.8M Rent-A-Center common shares currently valued at $377M https://bit.ly/34xzpCt

·     Xpeng (XPEV) has started delivery of 100 G3 Smart EV SUV to customers this week across 28 cities and towns in Norway. The company is also planning to launch its second production model, the P7 electric sports sedan, in Europe within the next 12 months.

 

Energy

·     Wind and solar projects are part of a broader package of tax incentives that will be attached to the government funding bill, according to a person familiar with the matter, Bloomberg reported. Deal extends for one year the production tax credit for wind and other renewables and an investment tax credit for solar energy projects for two years (watch shares of CSIQ, ENPH, FSLR, JKS, NOVA, RUN, SEDG, SPWR)

·     Royal Dutch Shell (RDSA) shares tumble after announcing a write-down of oil and gas assets by $3.5 bln to $4.5 bln for Q4; the decision follows a string of impairments this year, which bring total cuts for 2020 to more than $22 billion

·     Russian Deputy Prime Minister Alexander Novak on Sunday said that work was continuing to expand Saudi Aramco’s role in Russian energy projects. “Energy continues to play a key role in the cooperation between our countries, with significant potential in the creation of new technologies for oil production and enhanced oil recovery, the use of artificial intelligence and scientific cooperation,” the former Russian energy minister was cited as saying

 

Financials

·     The Federal Reserve said late Friday that the largest U.S. banks have enough capital to withstand over $600 billion in losses from a short sharp economic slump, as well as a moderate longer-lasting downturn, and will be permitted to pay out dividends and buy back stock on a limited basis. The Fed released the results of its second bank “stress test” for 2020, the first time it has put banks through their paces twice in one year in over a decade during the financial crisis.

·     JPMorgan Chase (JPM) said its board authorizes a new common equity share repurchase program of $30 bln after the U.S. Federal Reserve relaxed restrictions and permitted banks to pay out dividends and buy back stock on a limited basis

·     FIS (FIS) and Global Payments (GPN) recently held unsuccessful talks for a merger deal that could have been valued at around $70B, the Wall Street Journal reported, citing people familiar with the matter. The companies were in advanced talks and aiming to announce a deal this coming week before the negotiations broke down in the last few days, https://on.wsj.com/3h3SqSd

 

Healthcare

·     As expected, the Food and Drug Administration issued an emergency authorization for a Covid-19 vaccine developed by Moderna (MRNA), the second such vaccine to be cleared in the United States as inoculations should begin within days.

·     AstraZeneca (AZN) and partner FibroGen (FGEN) said the FDA extended its review period for the marketing application for its experimental treatment Roxadustat for anemia in patients with chronic kidney disease by three months to March 20^th

·     NantKwest (NK) shares rise 40%; after privately-held ImmunityBio and NantKwest (NK) have entered into an agreement to merge in a stock-for-stock transaction. https://bit.ly/34wUVXU

 

Industrials & Materials

·     Aerojet Rocketdyne (AJRD) announced that it has entered into a definitive agreement to be acquired by Lockheed Martin (LMT) in an all-cash transaction with a total equity value of $5B where AJRD holders to receives $56 per share in cash, representing a premium of approximately 33% to Aerojet Rocketdyne’s closing stock price on December 18, 2020 https://lmt.co/2LVy7Le

·     Boeing (BA) follows a U.S. Senate report saying Boeing officials “inappropriately coached” test pilots during recertification efforts; the report, citing a whistleblower, raised questions about testing this year of a key safety system known as MCAS was contrary to proper protocol

·     Scorpio Bulkers (SALT) will sell its remaining dry bulk vessels and exit the dry bulk sector during 2021 as part of its transition to a sustainable future and after other recent vessel sales.

 

Technology, Media & Telecom

·     Microsoft (MSFT) is working on in-house chips for use in server computers that run on its cloud services, Bloomberg reported late Friday, sinking shares of chipmakers Intel (INTC) and AMD (AMD). Microsoft is using Arm designs to produce a processor that will be used in its data centers and it is also exploring using another chip that would power some of its Surface line https://bloom.bg/2WvdtDy 

·     Private-equity firm Thoma Bravo LP has struck a deal to buy property-management-software provider RealPage Inc. (RP) for $9.6 billion, in one of the largest recent leveraged buyouts. Thoma Bravo is paying $88.75 per share for the company, a 31% premium to RealPage’s closing price Friday of $67.83, officials at the firms said https://on.wsj.com/3rjFKLu

·     BuzzFeed Inc. and NowThis owner Group Nine Media Inc., two of the largest venture-backed outfits, are exploring deals to buy competitors or go public through special-purpose acquisition companies, or SPACs, the WSJ reports. Among relatively smaller players, short-form publisher Axios is exploring potential acquisitions, while local news network Patch is weighing a sale after receiving inbound acquisition interest, the people said

·     Alphabet (GOOGL), Apple (AAPL) among Barron’s 10 Top stocks for 2021, offering stocks with good appreciation potential, while providing some downside protection if the stock market, now at a near-record valuation relative to earnings, falters in 2021, The top 10 stock picks for the next year include Alphabet (GOOGL), Apple (AAPL), Berkshire Hathaway (BRK.A), Coca-Cola (KO), Eaton (ETN), Goldman Sachs (GS), Graham Holdings (GHC), Madison Square Entertainment (MSGE), Merck (MRK), and Newmont (NEM).

·     Comcast (CMCSA) is well positioned for post-COVID world according to Barron’s this weekend saying while shares are trading near an all-time high, the stock has badly trailed rivals, up 28% in the past three years versus gains of 50% to 100% for key rivals. Yet Comcast’s stock could rally as investors come to realize that Comcast’s diverse portfolio-including broadband, film studios, streaming, and theme parks-is well suited to a post-COVID-19 world

·     Congress said it wants to fund an almost $2B project to rid U.S. broadband networks of Huawei equipment, which it considers a threat to national security, as well as gear from ZTE Corp

·     RigNet (RNET) to be acquired by ViaSat (VSAT) in an all-stock transaction representing an EV of $222M, including RigNet’s net debt as of Sept. 30, 2020; RigNet stockholders to receive 0.1845 shares of Viasat stock per RigNet share https://bit.ly/3mCD3kW