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End of Day Briefing - Recap of Wednesday Feb. 17, 2021

Stocks close mixed after retail sales jump, Fed minutes released

The major averages had a mixed session, with a modest decline for the Nasdaq and the Dow adding to yesterday's record high closing level. Following the moves of the last two days, the S&P 500 and Nasdaq remain not far from the all-time closing highs each had hit on Friday.

ECONOMIC EVENTS: In the U.S., retail sales rose 5.3% in January and jumped 5.9% excluding autos, both of which beat expectations. The PPI reading sharply beat estimates with January gains of 1.3% for the headline and 1.2% for the core. Industrial production rose 0.9% in January, which was also stronger than expected, while capacity utilization improved to 75.6% from the 74.9% prior reading. The NAHB housing market index bounced 1 point to 84 in February. Business inventories increased 0.6% in December.

According to minutes from the last Federal Reserve rate setting meeting, the Fed said staff viewed the possibility that a larger than expected fiscal package would be enacted in coming months as a modest upside risk to the baseline economic outlook. The Fed added that while it sees potential increases in the prices of some goods, it still sees elevated uncertainty on its medium-term outlook.

TOP NEWS: Shares of Wells Fargo ($WFC) closed 5.2% higher after Bloomberg's Hannah Levitt said the bank "has taken a significant step forward" on the path toward getting a Federal Reserve order that caps the bank's growth removed. Officials at the central bank have privately signaled to the bank that they accept Wells' revised proposal for overhauling risk management and governance, according to Levitt, citing people with knowledge of the matter.

Several other high profile investments, including some new holdings, of Warren Buffett's Berkshire Hathaway ($BRK.A) were disclosed in an SEC filing last night, including the firm having reduced its stake in Wells Fargo. Berkshire's three new buys during the fourth quarter included Verizon ($VZ), Chevron ($CVX), and Marsh & McLennan ($MMC).

In M&A news, Energy Transfer LP ($ET) and Enable Midstream Partners, LP ($ENBL) announced that they have entered into a definitive merger agreement whereby Energy Transfer will acquire Enable in an all-equity transaction valued at approximately $7.2B. Under the terms of the agreement, Enable common unitholders will receive 0.8595 ET common units for each Enable common unit.

In earnings news, shares of Palantir ($PLTR) were in focus after the company's "strong" Q4 report prompted an upgrade to Buy at Goldman Sachs.

Meanwhile, Thyssenkrupp ($TKAMY) shares in New York closed roughly 9% lower after the company ended talks on a possible acquisition of Thyssenkrupp Steel Europe by Liberty Steel, resulting in such a deal not taking place.

MAJOR MOVERS: Among the noteworthy gainers was EHang Holdings ($EH), which surged 68% in New York after it responded to Wolfpack Research's report accusing the company of being "an elaborate stock promotion, built on largely fabricated revenues." The company says that report issued yesterday "contains numerous errors, unsubstantiated statements, and misinterpretation of information." Also higher was Ebang ($EBON), which rose 33% after announcing it will launch a bitcoin mining business.

Among the notable losers was Luokung ($LKCO), which declined 26.5% after it raised $100M in a registered direct offering. Also lower was Shopify ($SHOP), which slipped 2.6% after reporting quarterly results.

Reviewing Wednesday's economic data:

  • January retail sales surged 5.3% month-month ( consensus +0.8%), aided by the receipt of stimulus checks and pent-up spending activity, and more than neutralized the downward revision for December to -1.0% from -0.7%. Excluding autos, retail sales soared 5.9% month-over-month ( consensus +0.7%) and more than neutralized any disappointment that might have been attached to the downward revision for December to -1.8% from -1.4%.
    • The key takeaway from the report is that sales were up solidly across every retail category, offering an early sign of the added spending -- and economic recovery -- potential that is wrapped up in another round of proposed stimulus checks.
  • The Producer Price Index for final demand jumped 1.3% month-over-month in January ( consensus +0.5%) -- the largest increase since the index began in December 2009 -- while the index for final demand, less foods and energy, rose 1.2% month-over-month ( consensus +0.2%).
    • The key takeaway from this report is that producers clearly incurred higher prices in January; however, last week's Consumer Price Index showed that there wasn't any meaningful pass through to consumers. Nonetheless, there could be some angst about rising consumer prices in coming months given that the index for processed goods for intermediate demand was up 1.7% in January while the index for unprocessed goods for intermediate demand advanced 3.8%.
  • Industrial production increased 0.9% m/m in January ( consensus 0.6%) following a downwardly revised 1.3% increase (from 1.6%) in December. The capacity utilization rate jumped to 75.6% ( consensus 74.9%) from an upwardly revised 74.9% (from 74.5%) in December.
    • The key takeaway from the report is the continued strength in manufacturing output, which occurred despite a decline in the index for motor vehicles and parts attributed to a shortage in semiconductors used in vehicle components.
  • The NAHB Housing Market Index increased to 84 in February ( consensus 86.0) from 83 in January.
  • Business inventories increased 0.6% in December ( consensus 0.5%) following an unrevised 0.5% increase in November.
  • The weekly MBA Mortgage Applications Index fell 5.1% following a 4.1% decline in the prior week.

  • Russell 2000 +14.2% YTD
  • Nasdaq Composite +8.4% YTD
  • S&P 500 +4.7% YTD
  • Dow Jones Industrial Average +3.3% YTD

Market Snapshot
SP 5003931.33-1.26(-0.03%)
10-yr Note +2/321.296
NYSEAdv 1390 Dec 1791 Vol 967.5 mln
NasdaqAdv 1561 Dec 2390 Vol 7.1 bln

Industry Watch
Strong: Energy, Consumer Discretionary, Communication Services
Weak: Information Technology

Moving the Market

-- S&P 500 closes flat in resilient session

-- Relative weakness in growth stocks amid brief spike in longer-dated Treasury yields

-- Retail sales and producer prices for January exceed expectations

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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