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“Our Bullish Conviction Is Now Lower”: JPM Joins Major Banks In Turning Bearish On “Easy” Market Gains

"Our Bullish Conviction Is Now Lower": JPM Joins Major Banks In Turning Bearish On "Easy" Market Gains

On Tuesday, JPM chief global markets strategist and Wall Street’s biggest bull, Marko Kolanovic, said in a note on Tuesday that the recent.



"Our Bullish Conviction Is Now Lower": JPM Joins Major Banks In Turning Bearish On "Easy" Market Gains

On Tuesday, JPM chief global markets strategist and Wall Street’s biggest bull, Marko Kolanovic, said in a note on Tuesday that the recent pullback in areas like cyclical stocks and Treasury yields will soon prove to be temporary, and that in his view, "the reflation and reopening trade will resume, with yields moving higher and rotation from growth, quality and defensives to value and cyclicals. Beneficiaries will include Energy, Financials, Materials, Industrials, small caps, high beta stocks, and various reopening and inflation themes."

Kolanovic also said that these developments "are not priced in, as we can see a strong reaction on incremental news flow related to reopening and COVID-19" and that it is likely that the move "will accelerate as we go into late spring and summer with reopening of economies."

To illustrate his point, Kolanovic then showed the following chart where on the horizontal axis he showed bond yields as a proxy measure of reflation/reopening and on the vertical axis the performance of various equity market segments, writing that "as the COVID-19 recovery takes place, reopening, reflation and inflation themes, and value likely will significantly outperform growth and defensives. Note that factor volatility increases (relative to market volatility) with rising yields and declining market volatility."

Late on Thursday, Kolanovic appeared on CNBC to bring his message to the masses in a 6 minute hit whose message can best be summarized with Kolanovic saying that "It's time to buy the dip."

Alas, all of Marko's fancy chartwork and the CNBC pitch were for nothing, because just one day after Kolanovic urged CNBC's viewers to rush and buy the "dip" - which we assume is what JPM staffers call the S&P trading 1% below its all time high - one of Marko's Croatian JPM colleagues, Dubravko Lakos-Bujas, joined the bearish bandwagon we described previously and which now includes such bank as Morgan Stanley, Goldman and Deutsche Bank, when following yesterday's market puke on Biden's capital gains tax news from Bloomberg (which as we said wasn't new at all but a rehash of information that was publicly available since last fall), the other JPM strategist said that after "aggressively pushing the upside case for equities" for the last 12 months, and arguing "for a continued melt-up  with S&P 500 reaching 4,000 in 1Q and the majority of the upside to our year-end PT of 4,400 being realized during 1H", the JPM chief equity strategist - which reportedly puts him higher in the JPM chain of command that Kolanovic - said that "easy equity gains for the broad market are likely behind us" and as a result JPMorgan's "bullish conviction is now lower."

But why the sudden reversal, and just hours after Marko Kolanovic was out there urging everyone to do the opposite and just BTFD? It turns out, the catalyst for JPM's newly found skepticism is the the same reason for Marko's endless optimism - higher yields.

Here is Lakos-Bujas:

As the second phase of global reopening gets confirmed by a pickup in mobility and pent-up demand, we expect yields to retrace higher thereby constraining the equity multiple with S&P 500 entering a period of consolidation. On March 8th, we argued the risk-reward for the Growth trade had tactically improved after the February Momentum crash and Growth derisking. Since then Growth has strongly outperformed, but mainly defensive/bond-proxy Growth, making this segment again vulnerable to rates.

But... wait a minute. Just on Tuesday Kolanovic said that higher rates - or rather yields, which of course is the same - is a bullish thing, to wit:

Our view is that the reflation and reopening trade will resume, with yields moving higher and rotation from growth, quality and  defensives to value and cyclicals. Beneficiaries will include Energy, Financials, Materials, Industrials, small caps, high beta stocks, and various reopening and inflation themes.

So to summarize, higher yields, er rates, are both bullish and bearish? Apparently at JPmorgan, the answer is yes, and the above is just another great example of how Wall Street goalseeks each and every datapoint to its own advantage.

In any case, after JPMorganwas euphorically bullish through Thursday night and urging everyone to buy the 1% dip in the S&P from all time highs because higher yields, on Friday everything changed, and JPMorgan now expects the equity multiple of the S&P 500 to be constrained, push the market to a '"priod of consolidation" because - you guessed it - higher yields.

To be sure there is more, with JPM suddenly also concerned about "further out" catalysts such as monetary policy normalization (i.e. tapering) and higher corporate taxes "both of which have emerged as the largest risks for equities" but none of these are actual news to either JPM of the bank's clients, as it was JPMorgan which first flagged both Fed tapering and higher taxes as a risk months ago, so how the bank suddenly decided that these well-known triggers are now, a reason to worry about stocks, remains a mystery.

Clearly one can just stop reading here, since what will follow is just more noise and no signal - actually, we take that back as we explain at the end of this post - but for those who are curious how JPM goalseeks higher yields first as super bullish and then as a reason to no longer expect "easy equity gains", read on for the key excerpts from Dubravko's report:

Higher yields should drive another rotation back into reopening and epicenter plays from yield-sensitive low-vol stocks. In particular, we would again highlight Consumer Recovery plays, Energy, Financials, non-US (e.g. EM) and SMid stocks. Investors will need to be more selective in the second phase of global reopening as some stocks (e.g. airlines) appear rich while others still have strong upside (e.g. retail, oil producers, banks, consumer tech). We recommend investors take this opportunity to revisit our COVID-19 recovery themes, and in particular the International Recovery Basket, which has not only lagged the Domestic Recovery Basket but has reversed most of its relative gains YTD.

Looking further out, we see monetary policy normalization (i.e. indication of tapering) and higher corporate taxes as the largest risks for equities. There is also a potential risk from higher capital gains tax if we get indication that it will materialize and go into effect starting next year (vs. retroactive to 2021) causing certain investors to take profits early. However, this proposal would be contentious and likely to face significant opposition.

With respect to corporate taxes, S&P 500 companies are now better positioned to absorb a potential tax increase given: (1) robust economic and earnings recovery; (2) elevated corporate cash balance of $2.1T ex-financials (up 28% vs. 4Q19); (3) partial offset from large NOL balance of ~$290B; and (4) the spending component of the plan should boost aggregate demand.

Obviously, there are significant unknowns including time, scope, and probability of any successful legislation. Since it is much easier to spend than increase taxes in DC, some are even suggesting little or nothing will get done. Regardless, this will remain a topic for investors for some time.

While there is a bunch more in the full report, including some assumptions and pretty charts on the implication of Biden's American Jobs Plan and Made in America Tax Plan on S&P 500 earnings, the key message is simple:

While we think the equity and business cycles should remain intact on global reopening and strong earnings recovery, easy equity gains for the broad market are likely behind us. Our bullish conviction is now lower. As the second phase of global reopening gets confirmed by a pickup in mobility and pent-up demand, we expect yields to retrace higher thereby constraining the equity multiple with S&P 500 entering a period of consolidation.

Which probably means no more bullish hits for Kolanovic on CNBC for at least a few weeks, when the S&P will either break out above 4,400 forcing JPM to once again turn ravingly bullish, or stocks indeed fall. Which, however, we find unlikely for one simple reason: as we said first thing this morning when we read JPM's report, "JPM has joined the bearish bandwagon, there is no big bank that is bullish on stocks in the mid-term." The implication is simple: stocks will go up...

... and sure enough, the S&P is on pace to close at a new all time high.

Tyler Durden Fri, 04/23/2021 - 14:30

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Revenge travel is coming to an end, says industry CEO — a recession will replace it

The CEO of Intercontinental Hotels Group says that the world has moved beyond revenge travel–even China.



Maybe revenge isn't so sweet anymore. Not so long ago the term "revenge travel" was making the rounds. The idea was that people were so fed up with the covid-19 pandemic lockdown that they packed their bags and took off for just about anywhere once travel restrictions started to ease.

Related: Delta adds a route U.S. tourists have been begging for

Last year, travel insurance company Allianz Partners projected that travel to Europe would soar 600% over 2021. “The pandemic made people realize you can't take travel for granted and many Americans are eager to visit Europe this summer,” Daniel Durazo, director of external communications at Allianz Partners USA, said in an April 2022 statement.

'Last stage of pent-up demand'

The Summer of '23 was also pretty strong, according to a survey by the Federal Reserve Bank of New York, which found that almost a third, or 32.8%, of all U.S. households took a vacation between May and August, up from 28.5% in August 2022 and a record high in data going back to 2015. However, it looks like the revenge travel upswing is coming to an end. The Federal Reserve's Beige Book said in September that consumer spending on tourism was stronger than expected, "surging during what most contacts considered the last stage of pent-up demand for leisure travel from the pandemic era." Elie Maalouf also thinks that the revenge travel dish has gone cold. The CEO of Intercontinental Hotels Group  (IHG) - Get Free Report said in an interview with CNBC that he believes pent-up demand is over. "People started traveling really by the end of 2020 as restrictions started to lift,” he said. “So we’re really past revenge travel — even in China.” Intercontinental Hotel Group operates hotels under several brand names, including Regent, Crowne Plaza, Holiday Inn Club Vacations, and Candlewood Suites. The company’s latest quarterly update showed travel demand remained strong during the close of the summer travel season. “We think we’re in a sustainable place,” Maalouf said. “Our bookings for groups and meetings going into 2024 and beyond are the strongest we’ve seen in a very long time.”

Average room rates increase

IHG’s third quarter trading update showed the company’s revenue per available room — or “revpar” — was up 10.5% compared to third quarter 2022, and nearly 13% higher compared with the third quarter of 2019, which was before the pandemic. This is despite a 3% drop in revpar, compared to 2019, in large cities in Greater China, which are more dependent on international travelers. Maalouf said that lack of “airlift,” or flight capacity, into China is below 50% of prepandemic levels, which is affecting travel recovery in cities like Beijing, Shanghai, Guangzhou and Shenzhen. “But if you look at the country as a whole, travel — which is mostly domestic in China — it’s recovered well above 2019,” he said, adding that more than 80% of IHG’s business in China is in mid-sized to smaller cities. Occupancy levels in the third quarter at IHG hotels was 72% — just 1% shy of pre-pandemic levels, according to the quarterly update. But average room rates have jumped well above 2019 levels — up nearly 6% in Greater China, 15% in the Americas, and 24% in Europe, Middle East, and Africa (EMEA) and Asia. But rising rates are barely keeping up with inflation, said Maalouf. “Room rates have not really exceeded inflation in any of our markets,” he said. “I think people’s willingness to travel is exhibited by the fact they’re willing to pay.” Get investment guidance from trusted portfolio managers without the management fees. Sign up for Action Alerts PLUS now.

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How Novo Nordisk’s Rybelsus went from pandemic washout to blockbuster amid the GLP-1 boom

Novo Nordisk’s Rybelsus pill was long expected to be a hit out of the gate.
The Danish drugmaker cashed in a priority review voucher in early 2019 for…



Novo Nordisk’s Rybelsus pill was long expected to be a hit out of the gate.

The Danish drugmaker cashed in a priority review voucher in early 2019 for what would be the first oral GLP-1, primed by positive studies showing reduced blood sugar in patients with type 2 diabetes. Analysts and company insiders anticipated blockbuster status for the oral version of semaglutide, with peak sales expected to hit up to $5 billion — and potentially follow the trajectory of its sibling injectable Ozempic, which reached $1.6 billion in sales in less than two years.

Camilla Sylvest

“We have another monumental event with the world’s first oral GLP-1,” commercial strategy chief Camilla Sylvest said in November 2019. “This is not just a compressed pill. This is a pill that has a clinical profile to compete and [that has] the oral administration to compete. It’s an unbelievable opportunity for us.”

But then health officials declared the Covid-19 pandemic in March 2020, and everything changed. Novo’s sales reps couldn’t do in-person meetings. No commercial advertising shoots were allowed. Patients scrapped going to the doctor for elective purposes. As Novo’s launch plans crumbled, so did the promise of Rybelsus.

Three and a half years later, amid a frenzy of all things GLP-1, Rybelsus has come back to life — albeit slowly, and with skepticism over its efficacy for weight loss compared to injectables.

There’s fresh enthusiasm for other oral GLP-1s in development, and Ozempic, approved for type 2 diabetes, is now a household name. That’s in part because people have been taking Ozempic — and more recently, Rybelsus — off-label for weight loss amid shortages of Wegovy, the injectable version of semaglutide approved for obesity. But there are also concerns about tolerability in a market that’s increasingly crowded.

The pandemic disruptor

Back in late 2019 and early 2020, everything was going as planned for Rybelsus. The FDA approved the pill in 3 mg, 7 mg and 14 mg doses. Novo had expanded its manufacturing facilities in North Carolina, and it was working on plans for a broad direct-to-consumer ad campaign, including mainstream TV commercials.

The company was so confident that it priced Rybelsus on par with Ozempic at about $770 per month, to the surprise of some analysts at the time. The commercial strategy was to market its GLP-1 drugs side-by-side, positioning Ozempic as the first and preferred injectable for type 2 diabetes and Rybelsus as the first and preferred oral medication, Sylvest and then-chief scientific officer Mads Krogsgaard Thomsen said in an investor call, according to AlphaSense transcripts.

Mads Krogsgaard Thomsen

“With our two recent GLP-1 products, Ozempic and Rybelsus, we want to redefine type 2 diabetes treatment,” Novo wrote in its 2019 annual report. “We are at the forefront of innovation in the GLP-1 class and orally administered delivery devices and are pursuing several therapeutic opportunities with semaglutide.”

But then came Covid, and Novo had to switch gears from the splashy DTC ad campaign to animated work with an upbeat soundtrack that eventually debuted in the autumn of 2020. For the first six months of that year, Rybelsus brought in just $92 million.

By 2022, however, it rang up sales of $1.7 billion, more than twice its 2021 total, likely fueled by the demand for semaglutide sibling brand Wegovy, which was approved to treat obesity in mid-2021. Novo is reporting Q3 sales next week, with Rybelsus likely on track to top $2 billion in sales this year. Novo declined comment for this story, citing its quiet period ahead of its Q3 earnings release.

Off-label for weight loss

As Wegovy took off and supplies waned, clinicians used their off-label prescribing power to redirect desperate obesity and overweight patients to Ozempic.

Some physicians turned to Rybelsus. Tracking off-label prescribing is difficult, but data show that there were 157,500 Medicaid prescriptions for Rybelsus for weight loss in 2022. In the same year, Wegovy had 30,100 Medicaid prescriptions for weight loss, while Eli Lilly’s type 2 diabetes treatment Mounjaro had 30,700, according to a KFF analysis in August. Ozempic was the lead seller among Medicaid populations, at more than 978,000 prescriptions.

That said, Rybelsus does not seem to be as effective at weight loss as the other approved GLP-1s.

Diana Thiara

Diana Thiara, medical director of the University of California, San Francisco’s weight management program, calls the new GLP-1 meds in general “amazing,” citing an example of a patient taken off a lung transplant list after losing weight and improving lung function. But she also acknowledges the social trends driving low-dose oral uptake by “people so desperate to lose weight.”

“I have one patient who can’t even use our MyChart electronic health communications, but tells me about what Reddit says,” she said. “Reddit and TikTok people say stuff, but that’s not really what the evidence shows right now.”

Rybelsus’ current highest dose is equivalent to Ozempic’s lowest dose, though some experts say the lower doses can still help patients lose weight.

“The lower doses, based on my experience, are effective for weight loss,” said Kristin Baier, clinical director at Calibrate, a telehealth weight loss startup founded in 2020. “When used along with lifestyle changes, we have seen patients achieve up to 20% weight loss on the lower doses of oral semaglutide.”

The future of oral GLP-1 weight loss drugs

Novo is currently testing higher doses at 25 mg and 50 mg doses of Rybelsus in the Pioneer Plus (with type 2 patients) and Oasis (with people with overweight or obesity) trials against the 14 mg currently approved by the FDA. The results, published this spring and summer, show up to 15% bodyweight loss, which is on par with Ozempic and Wegovy.

Clinicians are also encouraged by differentiated competing oral candidates, like Pfizer’s danuglipron and Lilly’s orforglipron, both in Phase II trials. The candidates are non-peptide GLP-1s and can be taken with food. Rybelsus is directed to be taken on an empty stomach with small sips of water and a wait time of 30 minutes before other medications or food.

“With Novo Nordisk expected to file for the higher dose approval, I believe there’s going to be an uptake that hopefully would help with some of the manufacturing supply issues we see [with injectable semaglutides],” said Weight Watchers medical director Spencer Nadolsky. “It will be nice to have the larger dose option when it’s available.”

Yet, it’s not all upside on the weight loss front for Rybelsus.

“It’s equivalent to a pretty low dose of Ozempic. So in terms of weight loss, we don’t see much weight loss in terms of the average person at that dose of Rybelsus,” Thiara said.

She also has some concerns about the higher doses and gastrointestinal issues and tolerability.

“People just seem to have more side effects with oral Rybelsus than they do with the equivalent Ozempic dose,” Thiara said, adding that she does think it will be approved. “But head-to-head right now, with no supply chain issues and if 50 milligrams was on the market and I had a patient who was open to anything injectable or oral, I would probably skew towards injectable.”

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Popular mall retailer Express facing potential Chapter 11 bankruptcy

The brand has seen its sales fall and its costs rise dramatically which has caused it to fall behind on some bills.



The Covid pandemic hit malls hard. Even when they were allowed to operate, many people did not want to be confined in a tight space with other people breathing near them.

Mask rules and social distancing requirements made the once-fun experience of just wandering around a mall a whole lot less fun. Even when vaccines were introduced and life returned mostly to normal, some malls — generally the weaker ones before Covid — continued to struggle. 

Related: Beloved discount retailer faces significant bankruptcy risk

So far, no major mall-based retailer has filed for a post-Covid bankruptcy. Bed Bath & Beyond, Christmas Tree Shops, and Tuesday Morning, all of which went bankrupt and were liquidated, generally were located in strip malls. The same is true for Party City and David's Bridal, two chains that managed to survive their Chapter 11 filings.

But, mall retailers are not immune from the problems caused by Covid, where sales dropped to near zero for months, but expenses did not go away. That led to increased debt.

The pandemic also changed consumption habits. Some people still work from home full time and many Americans are now in hybrid work situations. That has changed their wardrobe needs and that's bad news for certain retailers, including Express, a mall favorite with over 500 stores nationwide.     

"Express is truly on a respirator and teetering on possible bankruptcy,” Shawn Grain Carter, a retail consultant and Fashion Institute of Technology professor, told RetailDive.

Some malls have seen smaller crowds, but that is not universal.

Image source: Getty Images

Express is struggling in many ways

Express has seen its sales fall and its cost rise,

The retailer’s consolidated net sales dropped 6.4% to $435.3 million, according to its second-quarter earnings report. In addition, the company’s selling, general, and administrative expenses have increased to $146.1 million (33.6% of net sales) compared to the second quarter in 2022. 

Perhaps most damningly, the chain's debt has consistently grown. In fact, its total debt was $220.8 million at the end of Q2 2023, compared to $202.2 million at the end of Q2 2022 and $122 million at the end of Q4 2022. 

"Over the last few months, speculation has been mounting about apparel retailer Express’ financial state. While some might speculate that one big thing has caused the retailer’s failure, that’s just not how bankruptcies work. Several things have been going wrong over a prolonged period," Matthew Debbage, Creditsafe CEO of the Americas and Asia, told TheStreet via email.  

According to Creditsafe data, 35% of the company’s owed payments are past due, which amounts to over $3 million.

"On top of this, Creditsafe data reveals that the value of these late payments is well over $3 million. While this might not seem like a big chunk of money compared to Express’ annual revenue, the fact that the retailer’s DBT (Days Beyond Terms) has increased consistently for the last six months indicates that its cash reserves are likely low, which will only drop even lower if sales continue to decline, operating costs keep rising and its debt load grows," he said.

It's a slowly rising tide that could ultimately swallow the company.

"When you combine all these factors, I can see why some analysts are speculating that the company could be at high risk of bankruptcy," he wrote.

Debbage believes the company should be taking steps to prepare for a Chapter 11 filing (even if it ends up not needing one).

"What Express needs to be thinking about right now is how it can cut operating expenses with a recession looming and consumer spending expected to drop significantly," he wrote. "The retailer’s finance leadership should also be prioritizing data, analytics and technology to make sure it has the right financial data so it can get a clear picture of its financial affairs, especially if it tries to secure financing to stave off bankruptcy."

Express did not return an immediate request for comment sent to its investor relations email.

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