Closing Recap

Thursday, April 07, 2022

Equity Market Recap

·     A rip-roaring afternoon reversed fortunes for major U.S. stock averages, with the Nasdaq posting a 250-point swing off its lows, and the S&P 500 index jumping over 70-points from its worst levels, reclaiming its 200-day MA support along the way (4,485) – though pared gains in the final minutes of trading. The rally was broad-based, paced by big gains in healthcare all-day, as well as energy, while tech, staples, materials posted good moves late. Utilities, REITs, and Com Services (all defensive) were the market laggards. Dow Transports snapped their 6-day losing streak with an afternoon push. There were more Fed speakers today, but the tone remains hawkish towards rates along with the reduction of its balance sheet. There was no apparent specific catalyst for the late day spike other than markets were coming off back-to-back sharp declines and when mkts held key levels at lows today, provided a springboard for buying. The push above the 200-day accelerated the gains late afternoon. There were no comments out of Europe with Ukraine war, Fed remains hawkish, and investors brace for the start of earnings season next Thursday when several key banks report. 

Commodities

·     Oil prices finish modestly lower, down a 3^rd straight day in another volatile day, with WTI crude down -$0.20 to $96.03 per barrel after hitting lows of $93.81 per barrel earlier. WTI crude swung in a 5% range today with earlier highs of $98.82 per barrel amid a handful of supply and demand stories moving the commodity. U.S. Natural gas futures close at $6.359 per MMBtu, highest close since December 2008 and up 11% on the week.

·     Gold prices edge higher, rising $14.70 or 0.8% to settle at $1,937.80 an ounce despite another rise for the dollar and Treasury yields as inflation worries along with the Ukraine crisis bolstered the previous metal appeal. Minutes of the Fed’s March meeting showed deepening concern inflation had broadened through the economy, with many Fed members prepared to raise interest rates in hefty 50-basis-point increments in the next few meetings.

Currencies & Treasuries

·     Treasury yields higher on the long end of the curve, while shorter-term yields slipped. Fresh 3-year highs for the benchmark U.S. 10-year yield rising to highs above 2.66%, as Bespoke notes the 80-basis point rise in the last 5 weeks is the largest in that span since May 2010. The 2 year-10 year spread widened back above 20 bps as the 2-yr yield fell 5bps to 2.45%. The widening has occurred over the last few sessions after a brief inversion last week as traders have sharpened their focus on the pace and scope of the Fed’s plans to reduce its balance sheet instead of rate hikes which are now widely baked in (6-7 hikes for 2022). According to the March FOMC policy minutes yesterday, Fed officials "generally agreed" to cut up to $95 billion a month from the central bank’s asset holdings as another tool in the fight against surging inflation. The yield on the 30-year Treasury bond topped 2.70% earlier, its highest since May 2019.

·     The U.S. dollar remains higher following the Federal Reserve’s indications of faster policy tightening. Crypto assets declined as Bitcoin dropped to $43,500 along with other risk-sensitive assets after the most recent Fed policy meeting minutes signaled the central bank could act more aggressively in its policy tightening (Bitcoin reached a two-week low of $42,762)

Economic Data:

·     Weekly jobless claims fall to lowest level since late 1960’s, down to 166K from 171K prior week and below consensus of 200k; the 4-wk avg fell to 170K from 178K; continued claims rose to 1.523M in latest week from 1.506M prior; the U.S. insured unemployment rate unchanged at 1.1% from prior week

Sector News Breakdown

Consumer

·     Retailers; Macy’s (M) slides as CFO Adrian Mitchell at JPM conference says high levels of inflation and uncertainty are going to weigh on Consumer Confidence over a prolonged period of time; COST U.S. core comp up 12.7% was broadly in line with the previous month’s 12.9% and above the 11.2% est. and translated to a 2-year stack of 24.0% vs. 23.2% in February. Global traffic was steady at 8.2% vs. 8.0% in February. E-commerce growth decelerated to 9.2% compared with 10.4% in February, while transactions at 8.3% showed a nice acceleration from February’s 5.5%; LEVI with top and bottom-line beat (Q1 EPS $0.46 vs. est. $0.41; Q1 revs rose 22% to $1.59B vs. est. $1.55B) and reaffirms year revs +11% to +13%; BKE comp store sales fell (-9.7%) from comp store net sales for the 5-week period ended April 3, 2021 and overall net sales decreased 10.4%; XPOF 4.5M share secondary priced at $20.00

·     Auto sector; Ford (F) and DAN downgraded to Equal Weight at Barclay’s and Ford tgt cut to $17 from $23 and DAN to $18 from $24 saying investors are still underestimating risks to the autos and auto parts sector, and particularly to suppliers, from inflation and production pressures as well as the impact of interest rate hikes; EV names active as the Biden administration says senior officials held a meeting with Tesla and General Motors bosses to discuss electric vehicles and charging; TSLA to recall 127,785 Model 3s in China; DIDI is in talks with China’s Haima Automobile Co about a partnership to manufacture electric vehicles, Bloomberg reported; AN was upgraded to Hold at JPMorgan, but firm downgraded LAD

·     Housing & Building Products; Wayfair (W) downgraded to underweight from equal weight and cut tgt to $100 from $110 at Wells Fargo turning more cautious on housing-impacted retailers as cut tgt on HD to $350 from $400, LOW to $260 from $295, FND to $105 from $130, WSM to $140 from $160 saying inflation is accelerating, the Fed is hawkish, and conventional wisdom suggests a recessionary scenario could render macro-sensitive stocks increasingly difficult to own

·     Consumer Staples; STZ a leader early as Q4 results top consensus ($2.37/$2.1B vs. est. $2.10/$2.02B), though guidance disappoints as sees 2023 comparable EPS $11.20-$11.50, vs. consensus $11.53; CAG lowered its full-year profit forecast to adj. profit of $2.35, compared with previous estimate of about $2.50 citing rising transportation expenses and higher raw material costs eating into its margins (did raise organic sales view); LW posts Q3 EPS and sales beat boosted by higher prices and cost cutting measures & lifts lower end of FY gross margin forecast; BYND launches the Beyond Burger® and Beyond Meatballs® at about 2,000 Rite Aid stores

·     Casinos, Gaming, Lodging & Leisure sector; sector remains one of hardest hit for April thus far, led by online travel, hotels, casinos and cruise lines as rising rates, elevated oil prices and sobering sentiment the Fed will continue to suppress inflation weighing on spending habits;

Energy

·     E&P and Majors; SHEL said it expects to book accounting charges of up to $5 billion in Q1 related to its decision to exit its Russia operations, including joint ventures with energy giant Gazprom PJSC; in research, Piper upgraded E&P names BRY, CDEV, MUR and LPI to Overweight from Neutral saying with Russian oil and product exports off the market, and the IOC’s departure driving longer-term declines regardless of peace, sees the U.S. as one of the few places to deliver long-term supply growth – Piper raised energy price deck to $120/bbl for 2022, $118/bbl in 2023 and $100/bbl in 2023 and 2024, with higher for longer and duration to the cycle key themes as supply/demand balances remain in deficit

·     Utilities & Solar; after hitting 52-week highs several times over the last 2 weeks, and being the 2^nd best sector performer in 2022, utilities took a breather today; CMS downgrade to Sector Weight at KeyBanc noting it is trading at the highest multiple of the large cap regulated utilities; SO was also downgraded at KeyBanc on price, noting 2H21 is expected to be a busy one for SO as it works on completing Vogtle Unit 3, files a GRC by mid-year, and works through the proceedings in the ongoing IRP; solar sector was mixed

Financials

·     Bank movers; absolutely no relief for large cap and regional banks over the last few weeks (BAC down a 9^th day, WFC down 8 of last 9, Citi down 6 of last 7), finding no relief from surging treasury yields (at 3-year highs) and as yield curve widens; much concern ahead of next week earnings seasons kick off amid lack of IPOs impacting investment banking revs; FITB said it will eliminate all non-sufficient fund (NSF) fees effective June 23 without disclosing the move’s impact on revenue (follows recent moves by BAC and WFC Bank stocks have fallen since Moscow invaded Ukraine, with the S&P 500 banks index down nearly 11.5% as of last close; Wolfe Research downgraded FITB, LAZ, RF and PB while upgraded CFR and PJT

·     Bitcoin, FinTech & Payments; CME and CF Benchmarks to Launch 11 New Cryptocurrency Reference Rates and Real-Time Indices on April 25; crypto assets with a rough week thus far, as Bitcoin hits lowest levels of April down another 1% to lows around $43K; shares of SBNY, SI, RIOT, COIN, MSTR were modestly lower

·     Consumer Finance; COF authorizes buyback of additional $5B of shares; SOFI cut its FY22 rev view to $1.47B from $1.57B (below est. $1.53B) and lowers FY22 adj EBITDA view to $100M from $180M as result of President Biden’s directive to extend the federal student loan payment moratorium from May 1, 2022 until August 31, 2022; RKT tgt trimmed to $11 at Morgan Stanley as expects its market share to be impacted in the near-term as it aims to adjust prices

Healthcare

·     Pharma movers; huge gains across the board in healthcare on day with ANTM making 52-week highs; PFE agreed to acquire privately held ReViral for a total consideration of up to $525 million, including upfront and development milestones to strengthen its portfolio targeted at respiratory syncytial virus (RSV); APTX tumbles after saying an experimental treatment for painful diabetic peripheral neuropathy failed to meet the primary endpoint in a Phase 2b clinical trial; HOWL rises after a licensing deal with JAZZ worth up to $1.2B where Jazz now has exclusive development and commercialization rights to Werewolf’s preclinical immuno-oncology candidate

·     MedTech Equipment; VAPO plunges after withdrew its previously announced annual revenue, gross margin, operating expense, and adjusted EBITDA guidance for FY22 based on what appears to be the diminishing virulence of COVID-19; Piper downgraded to Underweight saying risk has risen the co breaches a minimum revenue covenant included in a recently secured debt facility; ANGO rises after mixed Q3 results and guidance (EPS beat, revs below)

·     Healthcare Services; RAD tumbles after Deutsche Bank downgrades to sell and slashes its price tgt to $1 from $16 ahead of earnings next week as believes the COVID-19 pandemic has hastened the decline of the retail pharmacy segment; sees co’s outlook as "unattainable"

Industrials & Materials

·     Aerospace & Defense; AJRD upgraded from Neutral to Overweight with $49 tgt at JPMorgan as think the current valuation is attractive at < 10x 2023 EBITDAP with visible growth, a net cash position that leaves capital to deploy, and the potential (eventually) to be acquired

·     Transports, Industrial & Machinery; Dow Transports snapped a 6-day losing streak given the late day market rally (on no news other than markets down earlier in week), amid a rebound in truckers and airlines which had the biggest declines earlier LUV, AAL, ALK, JBLU; recession fears, elevated energy prices, rising material, and labor costs and in truckers lower spot rates all having a broad impact on the transports the last 2-weeks.

·     Metals & Materials; RYAM slides after RBC Capital downgraded to Sector Perform saying increased competition in dissolving pulp and activist pressure decrease conviction in the company’s shares given the increased potential for strategic/operational missteps; FUL raises quarterly dividend by 13% and set a $300 million stock repurchase program; in packaging space (SEE, BLL, GPK), Jefferies tweaking ests to reflect a more inflationary backdrop, but view the group as attractive given its defensive profile in a choppy macro backdrop. Said with rising input costs particularly in Europe, F2Q results for BERY could be a touch light and likely needs to take down its FY guide. We lower our estimates closer to the low end of its FY guide. Meanwhile, we raise estimates for IP, WRK, PKG and GPK, to reflect the $60 March hike.

Technology, Media & Telecom

·     Semiconductors; Samsung (SSNLF) reported an estimated 50% jump in quarterly operating earnings to post its highest first-quarter profit since 2018, beating expectations; put Q1 profit at 14.1 trillion won ($11.6 billion) prelim vs. estimate of 13.3 trillion won; The Nikkei reported that leading chip tool makers including AMAT, MKSI, LRCX and ASML are warning clients they will have to wait up to 18 months for some crucial machines

·     Software movers; CDK to be taken private by Brookfield Business Partners for $6.41 billion in cash, with holders to receive $54.87 for each share held, a premium of 12%; COUP upgraded to Outperform from In Line at Evercore ISI and raise price tgt to $140 from $75; IRNT reported Q4 revenue above Street’s estimates, but posted wider loss; CXM rises as Q4 results beat and posted FY22 and Q1 revenue above Street’s estimates

·     Hardware, Components & Services; HPQ rises after Warren Buffett’s Berkshire Hathaway bought 11.1M shares of common stock on April 4th in a total transaction size of $398.5M, boosting its stake by about 10%; CCCS 20M share Spot Secondary priced at $9.70; JPMorgan cuts its forecast for Apple’s total iPhone volumes for this year to 245M from 250M on headwinds from consumer spending and cuts volume ests for iPhone SE3 to 24M vs previous estimate of 30M; CYXT shares active after Bloomberg reported the Co is exploring strategic options including a sale

·     Internet, Media & Telecom movers; WWE tgt raised to $57 from $55 at Barclays as feels there is a "significant untapped sponsorship revenue" opportunity ahead, as WWE is "vastly under monetizing" its fanbase versus the sports and concert-going worlds; SPOT tgt cut to $210 at Truist saying Russia will impact 1Q/2Q results/guide, as assume ~1.5m/~3m subs/MAUs, removed from model starting 4/1