Good morning! Stock futures are getting absolutely crushed this morning.
UPB Here, JB back tomorrow.. The market, after hitting fresh record highs last week is in pull back mode. And yes.. this one... like all the other pull backs has the look of "the one" . You know that long awaited top.
This Virus, in my most humble opinion, is just another excuse to sell on top of all the other excuses to sell we've seen over the years. Each of them brought some element of fear with them, a spike of the VIX, analyst calls for recessions, and a market that had finally topped after a historic rally from the Financial Crisis lows.
And in each instance the market found a bottom, recovered, and soared far beyond the expectations of most market participants. Remember who will be buying today. It's the passive ETF's. Retirement accounts, and most importantly the share buyback machines.
Why do all these fear induced sell offs result in new record highs down the road? Because it means the cheap money will be here for longer and cheaper.
And just think of all the pent up demand the Virus is creating. When the dust settles on the Virus outbreak... and rest assured it will... we are going to see some wild numbers out of China.
What does this mean? The same thing its meant for 10+ years... more record highs. Clearly its not going to be cut and dry... just like the run up to record highs we've seen over the years.
A pull back like today is likely going to take many days to resolve. We may bounce today off the lows, but plunge even further tomorrow. There is no telling how long this will last. However the trend remains up, and these sharp sell offs have usually lasted a very short period of time.
Clearly the risk is.. if this Virus shuts down more countries. We could see global economic activity grind to a complete halt. If so... we could see another 20% of downside from here very easily. That is the risk. With todays move lower the market is starting to price in more risk to growth going forward. The question will be how much firepower the central banks have to offset that?
With that being said clearly the picture is muddied short term. And until the water settles down its going to be choppy seas for the short to medium term. Absent a full blown shut down in Europe and the U.S. because of this Virus, I think we could see another move to record highs in the late Spring and early Summer.
If this Virus abates sooner than most expect, we could see pent up demand from China, and Central Bank assistance moving this market to record highs even sooner than that.
With that being said some names I like on the pull back today:
$CAT mentioned positively in Barrons this weekend. Had a nice little trade on Friday, and will be looking for some weekly calls today after the morning dust settles.
$SQ price target raised on Friday at Citi. Credit Karma was bought for $7 billion over the weekend. I think the stock heads over $100 in the summer or sooner.
$DBX I'll be looking for April calls after the morning dust settles. I think the buyback, coupled with improving earnings, will keep the stock grinding higher and moving to $26-$30 in the medium term.
Aside from that I'll be looking at the 10:30am time to see if we find a bottom there. Historically it has been a common bottom point intra-day for the market before the dip buying begins.
Have a great day!
Notable Research Calls For Monday, February 24
- Morgan Stanley upgraded Keurig Dr Pepper (KDP) to Equal Weight mostly on valuation.
- Morgan Stanley downgraded Wayfair (W) to Underweight, said revenue growth was still decelerating.
- Argus downgraded Norwegian Cruise Line (NCLH) to Hold on coronavirus impact.
- Cowen downgraded Aurora Cannabis (ACB), Sundial Growers (SNDL), and Tilray (TLRY); now cautious on Canadian cannabis names, prefers U.S. peers.
- L Brands (LB) was downgraded to Neutral at Robert W. Baird due mostly to valuation.
- BofA/Merrill moved to the sidelines on Americold Realty Trust (COLD) following last week's miss, unimpressive guidance.
- Evercore ISI initiated coverage on Chewy (CHWY) with an Outperform, says stock is "undervalued."
- UBS launched coverage on Levi Strauss (LEVI) with a Buy, touts profit potential.
- Jefferies started coverage on Denali Therapeutics (DNLI) with a Buy, sees about 43% upside.
- Black Diamond Therapeutics (BDTX) received mostly bullish initiations out of Jefferies, Canaccord Genuity, Cowen, and JP Morgan.
In reaction to strong earnings/guidance:
- EXK +6.4%, CTB +1.8%, XENT +0.7%, KOS +0.6%
Select metals/mining stocks trading higher:
- HMY +11.6%, GFI +8%, AUY +6.4%, AU +5.7%, GOLD +5.4%, IAG +4.5%, PAAS +4.5%, AG +4.4%, GDX +3.8%, GLD +2.3%, SLV +1.5%, .
- CFRX +11.6% (granted Breakthrough Therapy designation by FDA to exebacase for the treatment of MRSA bloodstream infections including right-sided endocarditis including anti-staphylococcal antibiotics in adult patients)
- SENS +7.6% (Soros Fund Management discloses 5.09% passive stake)
- UTHR +6.6% (Tyvaso meets primary and all secondary endpoints)
- NEM +5.7% (upgraded to Sector Outperform from Neutral at CIBC)
- PBA +0.5% (upgraded to Overweight from Equal Weight at Wells Fargo)
Briefing note - With US futures down 2.5-3% in pre-market, most stocks are trading lower. The following represents a snap shot of sectors and names with identified catalysts
In reaction to disappointing earnings/guidance:
- CRI -9.7%, DORM -4.9%, BRK.B -3.7%, SPNS -2.2%, EPZM -1.9%, AWI -1.4%, STAR -0.7%
Select sectors showing weakness:
- SMH -4%, XLK -3.5%, XLE -3%, QQQ -2.8%, XLF -2.8%, IWM -2.7%, DIA -2.7%, XLY -2.7%, SPY -2.5%, XLI -1.9%
Select travel related names showing early weakness:
- CCL -6%, AAL -5.1%, DAL -5%, RCL -4.5%, UAL -2.9%
- CEL -7.6% (Chairman Ami Erel resigns, effective March 1; no updates on replacement at this time)
- CRON -5.6% (announces that it will delay its 2019 fourth quarter and full-year earnings release and conference cal)
- JCAP -4.4% (Jernigan Capital lowers quarterly dividend to $0.23/sh from $0.35/sh)
- TECK -3.8% (announced it is withdrawing the Frontier Project from the regulatory review process)
- TCOM -3.7% (reschedules Q4 release to March 18 after the close due to the evolving situation brought on by the novel coronavirus outbreak in China)
- BB -3.2% (files for 4,182,189 share common stock offering by selling shareholders)
- EBAY -1.5% (issues on statement regarding the previously announced strategic review of its Classifieds Group)
- GLPG -8% (downgraded to Underperform from Neutral at BofA/Merrill)
- W -6.4% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
- ACB -6% (downgraded to Market Perform from Outperform at Cowen)
- TLRY -6% (downgraded to Market Perform from Outperform at Cowen)
- COMM -4.5% (downgraded to Hold from Buy at Deutsche Bank)
- A -4.4% (downgraded to Hold from Buy at Needham)
- NCLH -4.2% (downgraded to Hold from Buy at Argus)
- FSLR -3.9% (downgraded to Underperform from Buy at BofA/Merrill)