Closing Stock Market SummaryThe S&P 500 declined 0.6% on Wednesday in a disappointing session from a price action perspective. The benchmark index was up as much as 0.8% in the morning on the back of renewed strength in the cyclical stocks, but weakness in the mega-cap/growth stocks limited the early advance with broader selling interest picking up into the close.
The Nasdaq Composite fell 2.0% after being up 0.5% in early action, and the Russell 2000 fell 2.4% after being up 1.7% in early action. The Dow Jones Industrial Average (-0.01%) closed relatively unchanged after being up 1.1% intraday.
There was a strong pro-cyclical trade to start the day after Intel (INTC 62.04, -1.44, -2.3%) announced plans to invest $20 billion to build two semiconductor manufacturing facilities in Arizona, the eurozone reported stronger-than-expected flash March Manufacturing PMIs, and more states announced plans to expand COVID-19 vaccine eligibility.
The cyclical trade, however, lost steam in the afternoon, tempering the gains in the S&P 500 energy (+2.5%), industrials (+0.7%), materials (+0.7%), and financials (+0.4%) sectors. The real culprits behind the negative index performances, though, were the influential information technology (-1.2%), consumer discretionary (-1.5%), and communication services (-1.7%) sectors.
Interestingly, the growth stocks within these key sectors underperformed for most of the day despite the friendly action in the Treasury market. The inability to react positively to lower rates perhaps fueled uncertainty about the path of growth stocks, many of which remain well below their recent all-time highs.
The 10-yr yield decreased two basis points to 1.61% amid an uptick in demand following the $61 billion 5-yr note auction. The 2-yr yield decreased one basis point to 0.14%. The U.S. Dollar Index increased 0.3% to 92.58. WTI crude futures rebounded 5.9%, or $3.38, to $61.13/bbl amid technical and supply-side factors.
Within the technology sector, shares of Intel were up 6% at the open following its strategic announcement, but shares quickly turned around in a sell-the-news reaction after briefly hitting a 52-week high. Adobe (ADBE 451.51, -8.69, -1.9%) also gave up an opening gain despite beating top and bottom-line estimates and issuing upbeat guidance for Q2 and FY21.
Elsewhere, the ARK Innovation ETF (ARKK 114.78, -6.92, -5.7%) fell 5.7% while shares of GameStop (GME 120.34, -61.41, -33.8%) plunged 34% following its earnings report.
Cruise lines were an exemption to the cyclical trade after the CDC said cruise line restrictions will remain until Nov. 1 despite calls for a phase-in resumption in early July, according to Bloomberg. Shares of Carnival (CCL 24.85, -0.48, -1.9%) declined 2% after trading higher by around 8% prior to the news.
Reviewing Wednesday's economic data:
- Durable goods orders declined 1.1% m/m in February (consensus +0.9%) following an upwardly revised 3.5% increase (from 3.4%) in January. Excluding transportation, durable goods orders dropped 0.9% m/m (consensus +0.6%) following an upwardly revised 1.6% increase (from 1.4%) in January.
- The key takeaway from the report is that the disappointing data for February followed on the heels of some notable strength in January, which in turn followed on the heels of some notable strength in prior months, suggesting that it is most likely only a temporary pause in the strengthening demand for durable goods.
- The IHS final Markit Manufacturing PMI for March checked in at 59.0 vs. 58.6 in the preliminary reading. The final Services PMI for March checked in at 60.0 vs. 59.8 in the preliminary reading.
- The weekly MBA Mortgage Applications Index decreased 2.5% following a 2.2% decline in the prior week.
Looking ahead, investors will receive the weekly Initial and Continuing Claims report and the third estimate for Q4 GDP on Thursday.
- Russell 2000 +8.1% YTD
- Dow Jones Industrial Average +5.9% YTD
- S&P 500 +3.5% YTD
- Nasdaq Composite +0.6% YTD
Gapping down
In reaction to earnings/guidance:
- GME -14.4% (also names new COO), GIS -3.1%, APG -1.2%
Other news:
- EYES -16.4% ($27.9 mln private placement of common stock)
- CASI -12.7% (stock offering)
- PLL -11.4% (prices offering of 1.75 mln of its ADSs at $70 per ADS)
- VIAC -5.8% (prices offerings of class B common stock and mandatory convertible preferred stock)
- PRTA -1.8% (stock offering)
Analyst comments:
- BHC -2.5% (downgraded to Underperform from Neutral at BofA Securities)
- VINP -1.5% (downgraded to Underperform from Neutral at BofA Securities)
Gapping up
In reaction to earnings/guidance:
- PLBY +12.6%, WGO +5.9%, BNGO +5.6%, HOME +2.6%, ACCD +2.3% (also convertible notes offering), AIR +1.5%, FSS +0.8%, RILY +0.7%, ADBE +0.4% (also CFO to retire)
Other news:
- DLPN +79.7% (HOFV signs partnership with DLPN for non-fungible tokens offerings)
- HOFV +76.4% (HOFV signs partnership with DLPN for non-fungible tokens offerings)
- ALYA +55.5% (acquires R3D Conseil, a firm that specializes in digital solutions, for CAD 76 mln)
- BCLI +26.3% (announce data from the Company's Phase 2 trial evaluating three repeated administrations of NurOwn as a treatment for progressive multiple sclerosis) KLDO +16.5% (reports positive results from non-ind study demonstrating a reduction in COVID-19 related healthcare utilization and recovery time in patients with mild-to-moderate COVID-19 and one or more comorbidity)
- IPHI +7% (MRVL's proposed acquisition of IPHI gets Chinese regulatory approval)
- MYOV +6.8% (Myovant Sciences and Pfizer (PFE) report Phase 3 LIBERTY study of once-daily Relugolix combination therapy in women with uterine fibroids met primary endpoint)
- AMAT +4.4% (semi equipment names moving higher on Intel building two new plants)
- KLAC +4.3% (semi equipment names moving higher on Intel building two new plants)
- LRCX +3.8% (semi equipment names moving higher on Intel building two new plants)
- INTC +3.4% (announces "IDM 2.0" strategy; to invest $20 bln on two new factories in Arizona; also expects Q1 results to be better than prior guidance but guides FY21 EPS below consensus)
- DVAX +3.1% (reports first patient dosed in global Phase 2/3 clinical trial for Adjuvanted S-Trimer COVID-19 vaccine candidate)
- KZIA +2.3% (releases Chairman letter to shareholders)
- KBR +2.2% (awarded contracts for revamping two ammonia plants by PJSC Acron Group, Novgorod, Russia)
- AVEO +2.1% (prices offering of 6 mln shares of common stock at $8.00 per share)
- MRVL +1.5% (MRVL's proposed acquisition of IPHI gets Chinese regulatory approval)
- MOS +1.4% (announces a strategic collaboration with AgBiome)
- LH +1.3% (provides business update; announces review of co's structure and capital allocation strategy)
- KLIC +1% (semi equipment names moving higher on Intel building two new plants)
Analyst comments:
- CLMT +6.1% (upgraded to Overweight from Equal Weight at Wells Fargo)
- NEXT +5.8% (upgraded to Outperform from Neutral at Credit Suisse)
- AA +4.7% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- MTDR +3.1% (upgraded to Buy from Neutral at MKM Partners)
- CLR +2.6% (upgraded to Buy from Neutral at MKM Partners)
- NET +2.3% (upgraded to Buy from Hold at Truist)
- ZS +2.2% (upgraded to Buy from Hold at Truist)
- BK +2% (upgraded to Buy from Underperform at BofA Securities)
- EL +1.9% (upgraded to Overweight from Equal Weight at Wells Fargo)
- CME +1.5% (upgraded to Buy from Neutral at BofA Securities)
Don’t Buy the Wrong Volkswagen
Mixture of indiscriminate share buying and hedge-fund short covering has driven a wedge between virtually identical Volkswagen securities
If you find two almost identical Volkswagens on a dealer lot and one costs 25% less than the other, it should be obvious that you are better off buying the cheaper one. A surprising number of investors seem to be forgetting that the same logic applies to the stock market.
A gap or spread has opened up between the price of Volkswagen AG’s ordinary shares (VOW), now at €299—equivalent to around $354—and its preference shares (VOW3), at €225. The latter aren’t conventional, debtlike preference shares; they are identical to the ordinary shares except that they don’t carry voting rights. In the U.S., there would be two different share classes.
Infamously, the spread last ballooned in 2008, when Porsche SE tried to take over VW. That saga, by way of a short squeeze that briefly made VW the world’s most valuable company, ended with VW taking over Porsche’s car-making operation, Porsche AG, leaving behind an investment company, Porsche SE (PAH3), with roughly 53% of VW’s ordinary shares and lots of lawsuits. Since that drama, VW’s ordinary and preference shares have rarely traded out of line.
Porsche SE isn’t a suspect this time round. The company says its stake in VW hasn’t changed in recent weeks, and it is hard to see why it would risk more legal challenges.
Instead, brokers are pointing the finger at inexperienced U.S. investors. They appear to be buying VW ordinary shares without realizing the confusingly named preference shares offer the same for less. Trading volumes of American depositary receipts that track VW’s ordinary shares (VWAGY) have surged, as have Google search volumes for the VWAGY ticker.
Like General Motors, VW has positioned itself as the incumbent car maker to rival Tesla. Particularly since a “Power Day” last week that echoed Elon Musk’s September “Battery Day,” the message seems to be getting through to the kind of individual stock pickers who are also buying U.S. and Chinese electric-vehicle startups.
Another reason VW’s stock has become popular is the potential spinoff value of Porsche AG. Manager Magazin reported in February that VW was considering a minority initial public offering of the sports-car maker, which is by far its most profitable division, to raise funds for its electric push. A deal would help close the gap between VW’s stock-market valuation and bankers’ “sum-of-the-parts” calculations of what its individual parts could be worth.
Strong demand for the ordinary shares has come up against limited supply. In addition to the controlling stake held by Porsche SE, there is a 20% stake owned by the German state of Lower Saxony, and a 17% stake owned by the Qatar Investment Authority. That leaves a free float of about 10% with which the ADR managers can cover their exposure.
In an echo of 2008, a hedge-fund short squeeze may be exacerbating the moves. A popular arbitrage strategy involves buying shares in the Porsche SE investment company and selling short the VW ordinary shares that theoretically underlie them. The trade has unraveled with the ordinary-share rally, likely forcing some investors to run for cover.
The crazy thing about U.S. investors’ interest in the ordinary shares is that ADRs tracking the cheaper, more liquid preference shares (VWAPY) also exist. There may be good reasons to hold Volkswagen, but there aren’t good reasons to hold its ordinary shares or the associated ADRs.
Early premarket gappers
- Gapping up:
- HOFV +79.9%, DLPN +70.3%, PLBY +18.4%, DVAX +8.5%, BNGO +6.1%, LRCX +5.1%, INTC +4.8%, AMAT +4.7%, KZIA +4.2%, KLAC +3.4%, LH +2.6%, MYOV +2.5%, KBR +2.2%, IPHI +2.1%, HOME +2%, MRVL +1.9%, AIR +1.8%, ACCD +1.5%, CME +1.3%, MOS +1.2%, WWR +1.2%, CVNA +1%, ADBE +1%, OI +0.9%, FSS +0.8%, AMZN +0.7%
- Gapping down:
- CHDN -21.9%, GME -12.5%, CASI -12.3%, PLL -7.2%, EYES -6.4%, MP -3.4%, SCS -3.3%, PRTA -1.8%, AMD -0.9%, NEE -0.7%
What the NFT Gold Rush Means for Fashion
Sales of tweets, memes and other digital assets may change the possibilities for the industry.
Over the past few weeks, virtually every industry has seen a high-profile non-fungible token (NFT) deal. There was musician Grimes’ sale of various digital works for roughly $6 million. The artist Beeple sold an NFT for $69 million in an auction at Christie’s. Twitter chief executive Jack Dorsey’s first tweet went for $2.9 million. The NBA’s digital products arm Top Shot collaborated with blockchain company Dapper Labs to sell virtual basketball cards, which has resulted in over $230 million worth of transactions so far.
Fashion’s own NFT headline came from a collaboration between design studio RTFKT and 18-year old digital artist Fewocious, with 621 pairs of shoes selling for roughly $3.1 million total, each pair priced from $3,000 to $10,000. The shoes were issued as NFTs, meaning that the buyers can’t wear — or even touch their purchases.
In this case, buyers will later be sent a pair of physical shoes from the RTFKT and Fewocious collaboration, but more as a thank you note for the digital purchase. The true asset, as those with faith in the market believe, is the digital product.
“It’s not just a trend or a new thing,” said RTFKT co-founder and co-chief executive Benoit Pagotto. “It’s a real change of power.”
In layman’s terms, NFTs are unique digital assets authenticated and minted using blockchain technology. The blockchain contains a digital ledger that codifies and shows a record of each transaction — like the purchase of an individual pair of shoes from the RTFKT and Fewocious collaboration — that cannot be altered, meaning any transaction relying on a blockchain shows verifiable evidence of the price and ownership of a good.
As the past few weeks have shown, almost anything can be issued as an NFT. Within the fashion industry, NFTs could expand beyond products to photos, shows, interviews and social media posts.
While the NFT market is still nascent, the potential for brands to capitalise on it through various digital garments, accessories and other products means it may continue to grow as a force within the industry. Still, however, there are challenges and risks for brands to consider before issuing NFTs.
Scarcity and value
NFTs are unique even in the world of digital assets. For example, while Gucci’s $12 virtual sneakers were fungible, meaning they didn’t rely on blockchain technology and lacked the encryption and unique asset issuance NFTs provide. For now, a single pair of virtual Gucci shoes is interchangeable with all of the other pairs Gucci issued on its app.
Each pair from the RTFKT and Fewocious collaboration, however, is a singular asset. Despite the initial appearance that brands are issuing NFTs of the same product, those digital items all contain unique properties and metadata that exists within the blockchain. Those qualities demonstrate ownership which make them a one-of-a-kind asset. NFTs, however, don’t insure intellectual property, meaning that artists, brands and designers still need to register copyrights for their products and collectables.
The secondary market for NFTs is also lucrative, allowing artists and brands to receive a cut — typically 10 percent — of all future sales. For brands that have spent years trying to control the resale and counterfeit market for their goods, NFTs offer complete authentication, along with the ability to permanently cash in on every future exchange of their products.
Sneakers are a natural choice for brands testing out virtual products. With a community-driven market, virtual sneakers are compatible with gaming and other ventures. Sneaker buyers also view purchases as long-term investments or collectibles, and are used to exorbitant prices within the primary and secondary markets.
“It’s a fashion item that’s already being treated as an asset,” said Pagotto.
RTFKT has tried several points of distribution, auctioning shoes on crypto marketplaces, stores and galleries within “metaverses,” or virtual shared spaces that largely run on blockchain technology, as well as its own website. Its sneakers can be worn within metaverses like Decentraland, and tried on virtually through Snapchat.
Fad or fact?
Though the NFT craze is making headlines, there is still a long way to go before consumers are purchasing NFTs instead of Birkin bags. Few fashion companies have invested heavily in the necessary technology, and many aren’t a natural fit for the gaming and VR worlds where NFTs thrive.
Pagotto doesn’t see traditional fashion players doing well in the NFT space. Creating a digital product requires a similar level of craftsmanship and experience as physical pieces, which many brands will have to outsource to create digital products that rival their physical ones.
It’s also a matter of which consumers are participating the spheres in which NFTs exist, logging onto metaverses or building crypto wallets — activities LVMH’s typical consumer likely isn’t participating in anytime soon. If fashion brands want to embrace NFTs, they’ll have to start catering to a new demographic with a different set of preferences.
Because of these barriers, fashion companies will need to collaborate with more experienced players.
“We are the pioneers,” said Pagotto. “We are the ones that they are looking to replicate.”
Still, demand for high-end digital products exists in fashion, and marketplaces like Digitalax and Dematerialised have emerged to meet it, along with a series of virtual fashion players that supersede luxury brands within the gaming world. Digital fashion house Fabricant, for instance, collaborated with blockchain company Dapper Labs — the company behind the NBA’s NFT Top Shot venture — on an NFT dress in 2019 that sold for $9,500.
But there are larger concerns about the NFT market. Minting assets on blockchain requires significant energy use: the cryptocurrency Bitcoin, for example, uses more electricity in a year than the entire country of Argentina, according to a study from the University of Cambridge. Pagotto says the company is looking for ways to offset emissions to reduce the energy consumption from transactions.
And while NFT sales are secured through blockchain, hacking is a concern. In recent weeks, reports have emerged of attackers stealing NFT owners’ wallets and trading the assets to their own on blockchain auction site Nifty Gateway. After a recent drop on RTFKT’s site, the company was subject to a cyber attack. NFTs’ high-profile nature likely means those attacks won’t slow down anytime soon.
“We get attacked a lot,” said Pagotto. “There are some very smart people trying to find ways to get around the security.”
High prices and headlines have generated a mania around NFTs, and because consumers propelling prices are largely within the gaming community or are crypto investors with a vested interest in the market, there are questions about the market’s long term sustainability. Case in point: it was the founder of crypto fund Metapurse that paid $69 million for Beeple’s artwork at Christie’s.
But as competition increases within the space, prices may slow down. But that could mean a more mainstream future for NFTs: RTFKT is hoping to make its shoes more accessible to its younger fanbase through diversifying the editions and quantities, along with giveaways and quick drops. Lower prices or more options, in turn, will allow for a future where anyone can own, hold or flip a digital asset.
It’s perhaps for those reasons that despite the challenges, virtual product makers are confident in the market’s longevity.
“The old world is over,” said Pagotto. “There is a new world now.”
L’Eclaireur Launches Archive Project at Rue Sévigné Address
L’Eclaireur is selling archive fashion pieces from labels like Sacai, Saint Laurent, Jil Sander and Comme des Garçons at a discount.
VINTAGE SCOUT: French retailer L’Eclaireur is launching a new project, L’Eclaireur Archives, to sell designer fashion collected over the years, at its Rue de Sévigné boutique in Paris.
Items will be sold at a discount — as much as 70 percent — and plans are to introduce a system in the coming months for sharing clothing. Brands on offer include Sacai, Saint Laurent, Jil Sander and Comme des Garçons. The retailer has launched an Instagram site dedicated to the offer, @leclaireur_archives.
Michael Hadida, son of founders Armand and Martine Hadida, took over the direction of the retailer a couple of years ago. He is concentrating activities around the Rue de Boissy D’Anglas location, while the Rue Hérold outpost, built in the former stables of an 18th-century manor house, will be focused on very exclusive designer pieces.
The archive pieces will be available through e-commerce, which will include personal shopper services.
Seen as precursors in the realm of concept stores, the Hadidas founded the business in the 1980s, creating unusual retail spaces with a mix of art, architecture, refreshments and avant-garde fashion. They are known to mix products from luxury fashion houses with pieces from up-and-coming designers. Their daughter Meryl Hadida Shabani operates the retailer’s boutique in Los Angeles.
SMCP Flags Ongoing Strength in China as Crisis Weighs Elsewhere
Consumers in China can dress avatars of themselves in Sandro and Maje apparel.
PARIS — SMCP, the group behind contemporary French labels Sandro, Maje, Claudie Pierlot and De Fursac, continues to perform strongly in China, even as the coronavirus crisis weighs on its performance elsewhere in the world, notably in Europe and North America, the company said Wednesday.
“China and Asia is continuing on an incredible trend,” said chief executive officer Daniel Lalonde, noting second half sales in China grew at a pace of nearly 25 percent.
Business will likely continue to be challenging elsewhere in the first half of this year, he noted, adding that he is optimistic that a recovery could start shaping up this summer, depending on vaccination rates.
The group reported annual adjusted earnings before interest, tax, demortization and amortization of 179.6 million euros, a 37.3 percent decline, as discounts reduced gross margins by 3.8 points. In January, SMCP said annual sales were down 22.9 percent to 873 million euros, hit by coronavirus lockdowns in key regions across Europe and North America.
The group pushed further into e-commerce, with online sales growth hitting nearly 30 percent for the year.
SMCP, which has expanded its retail network abroad rapidly in recent years, has begun focusing more on organic sales, improving the performance of its stores and beefing up its omnichannel services.
Cost savings have been a focus since the crisis hit, and inventories were down 10 percent compared to the previous year, thanks to tight management, Lalonde. said
Plans are to continue investing in both retail expansion and digital marketing in Mainland China.
“We’re basically investing on all levers, I’d say, in that part of the world,” said Lalonde. The group has been active on Tmall, holding events every month, as well as working with social media and celebrities in China, and recently entered the realm of gamification, around a month ago. Consumers can dress avatars of themselves with styles from Sandro and Maje — and then buy the clothing in real life.
Other international fashion retailers have stumbled in China, and some are pulling back.
>>> Up
* Ferrovial Raised to Overweight at JPMorgan; PT 24 euros
* NatWest Raised to Hold at Deutsche Bank; PT 170 pence
* Nokia Raised to Hold at DZ Bank; PT 3.50 euros (+)
* Outokumpu Raised to Overweight at Morgan Stanley; PT 5.90 euros
* Outokumpu Raised to Overweight at Morgan Stanley; PT 5.90 euros
* Salzgitter Raised to Equal-Weight at Morgan Stanley
* SSAB Raised to Overweight at Morgan Stanley; PT 48 kronor
* Unite Group Raised to Buy at Berenberg; PT 1,250 pence
* Softcat PT Raised to 1,840 pence from 1,640 pence at Jefferies (+)
* Swissquote Raised to Add at AlphaValue
>>> Down
>>> Down
* Aker BP Cut to Hold at Jefferies; PT 267 kroner
* Antofagasta Cut to Underweight at Morgan Stanley; PT 1,300 pence
* Bellway’s Third Guidance Boost Is Highlight in Update: Jefferies (+)
* DNB Cut to Sell at SpareBank; PT 168 kroner
* Encavis Cut to Hold at M.M. Warburg; PT 18.70 euros (+)
* Engie Cut to Hold at HSBC; PT 13.60 euros
* Lufthansa Cut to Reduce at Commerzbank; PT 8.50 euros
* Hicl Infrastructure Cut to Underperform at Jefferies
* WH Smith Cut to Neutral at JPMorgan; PT 1,792.80 pence
>>> Initiation
* WH Smith Cut to Neutral at JPMorgan; PT 1,792.80 pence
>>> Initiation
* BoneSupport Rated New Buy at SEB Equities; PT 76 kronor
* Cantargia Rated New Buy at Kempen & Co; PT 60 kronor (+)
* Osmozis Rated New Buy at Bryan Garnier; PT 6.70 euros (+)
* Orsted Rated New Outperform at Oddo BHF; PT 1,250 kroner
* Orsted Rated New Outperform at Oddo BHF; PT 1,250 kroner
* Sixt Rated New Buy at Deutsche Bank; PT 135 euros
* Softec Rated New Buy at Integrae SIM; PT 2.20 euros (+)
* Tyman Rated New Outperform at Davy
* Unidata Rated New Buy at Banca Akros (ESN); PT 35 euros (+)
* Zalaris Rated New Buy at Kepler Cheuvreux; PT 80 kroner (+)
>>> Call
>>> Call
* Akber BP Cut to Hold at Jefferies On Valuation, Cash Flow
* Halma Update ‘Very Solid’ and Points to Upgrades: Jefferies (+)
* Keywords Studios’ Positive Outlook Gives Support, Jefferies Says (+)
* Orsted a Leading Pick to Play Energy Transition, Oddo Says (+)
* Time to Be Selective in European Metals & Mining: Morgan Stanley
* Unite Group Raised at Berenberg on Visibility, Demand Tailwinds
* Unite Group Raised at Berenberg on Visibility, Demand Tailwinds