Closing Recap

Thursday, April 14, 2022

Index	Up/Down	%	Last
DJ Industrials	-113.75	0.33%	34,450
S&P 500	-53.98	1.21%	4,392
Nasdaq	-292.51	2.14%	13,351
Russell 2000	-19.88	0.98%	2,005

 

Equity Market Recap

·     The S&P 500 and Nasdaq post their second consecutive week of declines (a shortened week with markets closed tomorrow), erasing much of yesterday’s strong advance as trading remains very choppy. Plenty to keep markets on edge with investors digesting surging inflation data points (another 40-yr high for CPI and record high for PPI this week), a handful of earnings reports (JPM, WFC disappoint, DAL lifts travel names), Ukraine/Russia situation, a spike in oil (WTI oil prices rise for a third straight session, ending up 2.6% at a two-week-high) and the path of rate hikes from the FOMC. European markets rise after the European Central Bank kept interest rates unchanged and sounded a dovish note on future policy. The S&P 500 continues to circle around key technical levels, having fought the 50-day moving average again today around 4,413 and dropping below its 200-day MA earlier in the week around 4,488. The same narrative has been driving market chop over the last few weeks, with focus on the Fed and rising interest rates, higher Treasury yields and inflation, Ukraine/Russia, and the commodity supply disruption, recession fears. What has calmed down for markets, COVID and lockdowns, as the travel and leisure sector has been an outperformer. Next up though, earnings, with big names reporting next week including TSLA, NFLX, BAC, ANTM, JNJ, AA, TRV, PM, T as well as several transports UNP, AAL, UAL, ALK, and CSX.

·     Stock & Sector movers: TWTR rises initially as Tesla CEO Elon Musk made a “best and final” offer to buy the co for $54.20 per share in cash, but shares turn negative late day on cautious analyst comments, shareholder pushback; STT WFC slide in banking sector after earnings; C USB MS rise on earnings; GS moves between gains and losses; next week earnings from BAC SCHW BK SYF FITB TRV; STX WDC shares fall in chip sector, downgraded by one analyst arguing the extent of deceleration in Cloud CAPEX spend by YE22 not still dialed into expectations: chip names in general lag NVDA AMD; HES COP MRO OXY energy names higher as WTI oil prices rise for a third straight session, ending up 2.6% at a two-week-high $106.95; AAL UNP Dow Transports bounce a second day behind better earnings the day prior from DAL.

 

Economic Data:

·     Retail Sales for March rose +0.5% m/m vs. est. +0.6% expected and upwardly revised +0.8% (from +0.3%) while ex-gas and autos rose +0.2% m/m vs. -0.1% expected and -0.1% prior; retail sales less autos rise +1.1% m/m vs. +1.0% expected and +0.6% prior

·     U.S. Jobless Claims rose to 185K vs. est. 171K while prior week revised to 167K from 166K; the 4-week moving avg rose to 172,250 from 170,250 prior; continued claims fell to 1.475M from 1.523M prior week (est. 1.5M) and U.S. insured unemployment rate unchanged at 1.1%

·     Import prices for March rose +2.6% m/m above the +2.3% expected and upwardly +1.6% prior, while Export prices rose +4.5% m/m vs. +2.2% estimate and +3.0% prior; March Non-Petroleum Import Prices +1.1% and Petroleum Import Prices +16.1%

·     Business Inventories for February rose +1.5% vs. est. +1.3% and vs Jan +1.3%; U.S. Feb business sales +1.0% vs Jan +4.1% and Feb retail inventories ex-autos revised to +1.4% from +1.2%

·     University of Michigan consumers sentiment survey prelim April 65.7 above consensus 59.0 and vs final March 59.4; current conditions index prelim April 68.1 vs final March 67.2 and the consumers expectations index prelim April 64.1 vs final March 54.3

 

Commodities

·     Oil prices edged higher, with WTI crude gaining $2.70 or 2.59% to settle at $106.95 per barrel ahead of a long weekend as traders weighed news of a possible European ban on Russian oil imports against a larger-than-expected build in U.S. oil stocks and falling refining activity in China. Brent crude gains $2.92 or 2.68% to settle at $111.70 per barrel. While the European Union has not imposed a ban on imports of Russian oil in response to Russia’s invasion of Ukraine, the New York Times reported that EU officials were drafting an embargo on Russian oil products. The weekly baker Hughes (BKR) rig count out a day early due to holiday as the U.S. Gas rig count was up 2 to 143, U.S. Oil rig count rose 2 to 548 as U.S. Total rig count 693

·     Gold prices finish lower, falling -$9.80 or 0.5% to settle at $1,974.90 an ounce, snapping the 5-day wins streak as the dollar index (DXY) jumped +0.5% given the dovish comments by the ECB/Lagarde on policy (hitting euro) and as Treasury yields surged to weekly highs. Grain prices extend gains on supply fears as CBOT corn climbs above $7.90 per bushel. It’s the highest corn prices have been in a decade, last closing at this level in September 2012.

 

Currencies & Treasuries

·     Treasury yields were up, up, and away, closing near the best levels of the day. Yields exploded to the upside, especially on the long end of the curve, as the 10-yr rises 14.6 bps to 2.835%, the 30-yr up 13 bps to 2.928%, the 20-yr up 13 bps to 3.1% (ahead of auction next week); the shorter term 2-yr up 11.8 bps to 2.46% (but down from recent highs above 2.6%). A more aggressive Fed expected this year on rate hikes and unwinding of assets has sent yields surging over the last few weeks. Rates have legged up from early levels after comments from NY Fed’s Williams.

·     The U.S. dollar strengthens bigly against the euro and modestly against the yen. The euro fell over 1% to a 2-year low of 1.0758 before bouncing back above the 1.08 level, taking down early following a surprisingly dovish ECB decision and commentary from ECB President Lagarde saying fiscal, monetary support remains critical as they kept rates unchanged.

 

 

Macro	Up/Down	Last
WTI Crude	2.70	106.95
Brent	2.92	111.70
Gold	-9.80	1,974.90
EUR/USD	-0.006	1.0825
JPY/USD	0.29	125.95
10-Year Note	0.142	2.831%

 

 

Sector News Breakdown

Consumer

·     Retailers & Leisure; BBBY tumbles a 9^th straight day after analyst at Telsey downgrades post earnings/guidance yesterday; BBWI rises after Wells Fargo names as a "Top Pick" and remain very comfortable owning despite macro pressures; early strength in the sector auto retailers AZO, AAP as well as dollar stores DG and online travel EXPE and lodging rising amid upbeat sentiment about a travel recovery post better DAL result yesterday; Bloomberg reported that PTON makes major price cuts in bid to boost hardware sales while its monthly subscription fee will climb by $5 to $44 in the U.S.

·     Auto sector; TSLA shares slide after CEO Elon Musk makes an offer to buy Twitter Inc for $54.20 in cash just a week after revealing a 9.2% stake; XPEV CEO warns that all Chinese vehicle factories may have to stop production in May if supply chain disruption continues (note Chinese EV maker NIO announced production pause earlier); Ford (F) says April 26 marks the launch of the all-new, all-electric F-150 lightning pickup

 

Energy

·     Utilities & Solar; POR upgrade from Neutral to Buy wat Mizuho as an expected continuation of strong sales growth, a constructive conclusion to its current rate case, and the potential incremental earnings benefit from its generation RFP warrant the rating change; utilities in general were broadly higher as investors rotate back into defensive high dividend paying sectors which global growth cropping up in broader markets; solar stocks failed to rally despite positive analyst initiations at Stephens (OW rated on ENPH, SEDG)

 

Financials

·     Bank movers after earnings:

·     Citigroup (C) Q1 profit falls 46%, but Q1 EPS of $2.02 tops estimates of $1.55; Q2 revs decline 2% to $19.2B, while net income fell to $4.3B from $7.9B a year ago; Q1 operating expenses of $13.2B fell 3% q/q and increased 15% y/y; Q1 net credit losses of $872M vs. $866M in Q4 and $1.75B in Q1 2021; Institutional Clients Group revenue of $11.2B vs. $8.91B in Q4

·     WFC Q1 revs of $17.6B missed the $17.8B consensus and fell from $20.9B in Q4 2021 and $18.5B in Q1 2021; noninterest revenue fell 28% from Q4 and 14% from a year ago; Q1 EPS of $0.88 beat by 8c and compared with $1.38 in Q4 2021 and $1.02 in the year-ago quarter; Q1 noninterest income of $8.37B fell from $11.6B in Q4 2021 and from $9.72B in Q1 2021

·     USB Q1 EPS $0.99 vs. est. $0.94; Q1 revs $5.6B vs. est. $5.55B; Q1 net interest margin 2.44% vs. 2.50% a year ago; Return on average assets of 1.09% and return on average common equity of 12.7%

·     PNC Q1 EPS $3.29 vs. est. $2.73; Q1 revs rose 11% to $4.69B vs. est. $4.76B; Net interest margin 2.28% vs. 2.27% y/y, net charge-offs $137 million, -6.2% y/y, non-interest income $1.89 billion, +0.9% y/y, and non-interest expenses $3.17 billion, +23% y/y, estimate $3.12 billion

·     STT Q1 adj EPS $1.59 vs. est. $1.47 and revs rises 4.4% y/y to $3.08B vs. est. $3.04B; said fee revenue rose 3.6% y/y to $2.57B; Net interest income was $509M, compared with $467M a year ago, driven by growth in investment portfolio and loan balances, as well as higher market interest rates

·     Broker dealers/Asset managers:

·     GS reported a 43% drop in profit but beat expectations (Q1 GAAP EPS of $10.76 vs. estimate of $8.98 and fell from $18.60 in Q1 2021); consumer and wealth management saw a 21% jump in net revenues to $2.10 billion; total Q1 net revenue of $12.9B vs. $12.6B in the previous quarter and $17.7B in the year-ago quarter; operating expenses $7.72B, down from $9.44B y/y; investment Banking revs down -36% to $2.41B; global markets net revs rise 4% y/y to $7.87B with FICC revenue of $4.72B rising 21% Y/Y and Equities revenue of $3.15B falling 15% Y/Y.

·     MS posted 11% profit drop for Q1 with revs down 6% to $14.80B topping the $14.19B estimate; earned $258M in revenue from its equity underwriting business, down sharply from $1.50B a year ago; brought in $944M in advisory revenues in the quarter, compared with $480M y/y; Wealth management net revenue $5.94B below views

·     In research: Citigroup said no change to preference ranking – RJF (U.S. Focus List, 90-Day Positive Catalyst Watch), followed by LPLA and SCHWFor LPLA, a case toward $300 valuation may be developing (depending on pace of capital return), while think investor sentiment on SCHW skews a bit too cautious tactically but not enough to alter our rankings. For RJF, we expect the shares to further climb the ‘Wall of (P/T margin) Worry’, with favorable discrete catalysts ahead.

 

Healthcare

·     Pharma movers; SNY said data from a phase 1/2 of rilzabrutinib to treat adults with heavily pre-treated immune thrombocytopenia were published in The New England Journal of Medicine; PFE and BNTX announce data showing high immune response following booster dose of COVID-19 vaccine in children 5 through 11 years of age; ADGI said it was pausing the submission of an emergency use authorization (EUA) request for adintrevimab (ADG20) with the FDA after the drug was seen to show a lack of neutralizing activity against the Omicron BA.2 variant; SUPN reiterates full year 2022 financial guidance provided on February 28, 2022

·     Biotech movers: REGN said the FDA has extended its review of its application for the full approval of its COVID-19 antibody therapy by three months (REGN is collaborating with Roche); PTGX shares fell after announced FDA intent to rescind the Breakthrough Designation for Rusfertide; VALN rises following Britain’s approval of the French firm’s COVID-19 vaccine, a sixth coronavirus shot approved in the country; EDIT names Gilmore O’Neill as new CEO, joining from SRPT, where he was CMO (prior was at BIIB)

·     Healthcare Services; managed care giant and Dow component UNH raised its forecast for the year as double-digit revenue growth and lower operating costs helped beat analysts’ estimates (aid its full-year adjusted profit would be $21.20 to $21.70 a share, up from an earlier range of $21.10 to $21.60); in pharmacy retail, RAD jumps after earnings results and mixed guidance as sees adjusted EBITDA $460M-$500M vs. est. $401M and revs $23.1B-$23.5B vs. est. $23.44B

 

Industrials & Materials

·     Aerospace & Defense; Cowen previews the A&D space into earnings, upgraded HII to Outperform and raise tgt to $270 from $200 saying defense sector’s improved budget prospects and HII’s severe discount to peers augur substantial upward re-rating headroom; for the sector, they see a Q1 miss at BA with negative "color" but like RTX (PT to $115 from $105) for better prospects than other mega-cap peers and favor commercial recovery stories at TDG, SPR, ATI, and MOGA

·     Industrial & Machinery; ahead of earnings, Deutsche Bank with catalyst calls, recommending buying HON as believe we are entering the sweet spot with respect to timing as company should benefit from its late-cycle end market exposures including Aerospace, Oil & Gas; also catalyst call buy on URI saying expectations are not low, see few clear opportunities for beats and raises this quarter, and a high probability of this for URI; Deutsche with catalyst sell call on ITW saying they already thought the company’s full year EPS guidance looked aggressive post-4Q earnings; GWW was downgraded to underweight from equal weight at Morgan Stanley as pace of price rises dips, PMI data points to slowing volumes and smaller competitors enter the market

·     Transports; sector held up better than most given the rebound in airlines yesterday as investors grasp on to the better earnings/revs/comments about demand from DAL was downgraded at Cowen saying trucking softness is not only well known but some stocks appear to be already pricing in a significant economic decline – the firm continue to view the rail sector as the safest way to play the space given current economic/geopolitical conditions; UPS upgraded to Buy from Hold but cut tgt to $189 from $232 at Loop Capital saying given the broad-based pullback they upgraded simply on valuation, with the stock down to 14.7x NTM consensus P/E versus 3 and 5-year averages of 17.2x and 16.8x, respectively. This is the lowest forward multiple since April 2020. It’s also a two year low on an EV/EBITDA basis; XPO 52-week lows on the day

·     Metals & Materials; GOLD slips early as Q1 production fell 17.7% from the previous three months, hurt by lower output at its Carlin and Cortez mines in Nevada; PTVE and OI both downgraded to Neutral from Buy at Bank America as sees a chance for macroeconomic trends to decelerate and although "this is not a certainty," downgraded as a precaution; 

Technology, Media & Telecom

·     Semiconductors; TSM said 2022 sales may exceed upper end of the previous guidance of mid-to-high 20% in USD and doesn’t expect change to CAPEX for 2022; forecast an up to 37% jump in current-quarter sales and said it expects chip capacity to remain very tight this year, amid a global crunch that has kept order books full and allowed chipmakers to charge premium prices; in research, WDC and STX downgraded to Neutral from Positive at Susquehanna noting both are down 28% YTD but argue the extent of deceleration in Cloud CAPEX spend by YE22 and into 2023, and its impact, is still not dialed into expectations

·     Software movers; high growth multiple stocks seeing pressure today as Treasury yields jump again, hitting software names SNOW, U , etc.; in cyber security, Wedbush raises tgts for: PANW: Raising PT from $630 to $660, QLYS Raising PT from $146 to $160, CHKP: Raising PT from $142 to $155, CYBR Raising PT from $180 to $195, FTNT Raising PT from $350 to $370;

·     Hardware, Components & Services; IBM upgraded to Overweight from Equal Weight $150 PT at Morgan Stanley as view it as a defensive play amid growing macro risks, given its negative correlation to PMIs and historical late cycle outperformance; CMBM slides as guides Q1 revs $61M-$63M, down from prior view of $77.5M-$81.5M and below est. $79.5M and announces the departure of its CFO; Stifel upgraded shares of CDW, SNX to Buy Following Pullbacks in tech supply chain saying their quarterly survey of value-added resellers (VARs) was surprisingly strong, given growing macro-economic uncertainty.

·     Internet, Media & Telecom movers; TWTR shares among top stories after Tesla CEO Elon Musk made a “best and final” offer to buy the social network co for $54.20 per share in cash, in a deal valued at about $43 billion (comes a week after revealing a 9% stake) – shares opened higher but turned negative as analysts were negative on the news (Stifel, KeyBanc downgraded while shareholder Saudi Prince Alwaleed rejects Musk bid; BABA slides as Bloomberg reported the Chinese Communist Party’s anti-corruption watchdog was among the agencies involved in a recent inquiry into links between billionaire Jack Ma’s Ant Group and state-owned Chinese companies, Bloomberg reported